Lenta Annual Report 2016

FY2016 Annual Report · Lenta

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Realising
our potential

ANNUAL REPORT 2016

AT THE BEGINNING OF 2014, WE SET
THE GOAL OF DOUBLING RETAIL SPACE
WITHIN THREE YEARS. THIS WAS ONE
OF OUR MOST IMPORTANT STRATEGIC
TARGETS ESTABLISHED AT OUR IPO.

It was an ambitious target but we had the
confidence and clear understanding of how
to achieve it. It is important to deliver not
just rapid growth, but successful growth for
all our stakeholders. In November 2016, we
announced this tremendous early achievement
and are very proud as we continue to be one
of the most efficient food retailers in Russia.

Realising our potential

EXPANDING OUR SPACE

INCREASING OUR PRESENCE

DELIVERING RESULTS

We have more than doubled our
selling space in three years.

We have doubled store numbers
since our IPO.

We have doubled our sales
growth since our IPO in 2014.

Strategic report
02 At a glance
04 Where we are
06 Realising our potential
12 Chairman’s statement
14 Chief Executive Officer’s review
16 Business model
18 Market overview
22 Strategy
24 Operating review
36 Financial review
40 Principal risks and uncertainties
48 Corporate social responsibility

Corporate governance
67 Introduction from the Chairman
68 Board of Directors
70 Senior Management team
72 Our corporate governance

framework

77 Board Committees
90 Relations with shareholders
90 Responsibility statement

Financial statements
92 Statement of management’s

responsibilities for the preparation
and approval of the consolidated
financial statements

93 Independent auditor’s report
96 Consolidated statement of

financial position

97 Consolidated statement of profit
or loss and other comprehensive
income

98 Consolidated statement

of cash flows

99 Consolidated statement of

changes in equity

100 Notes to the consolidated
financial statements

Appendices
142 List of cities as of

31 December, 2016

144 Glossary
145 Further information
146 Cautionary statements

Highlights of the year

Financial highlights

306.4bn
+21.2%

Revenue
(RUB)

31.8bn
+13.1%

Adjusted EBITDA
(RUB)

67.8bn
+20.4%

Gross profit
(RUB)

11.2bn
+8.9%

Net profit
(RUB)

Operational highlights
Total sales were up 21.2%, like-for-like sales were up 3.9%
and like-for-like ticket rose 4%.

Total selling space across our store base grew to
1,146,148 sq.m – an increase of 29.9% year-on-year.

We opened stores in eight new cities. At the year end Lenta
had a presence in 77 cities across Russia.

At the end of the year we had over 10.5 million active loyalty
cardholders, an increase of 25% on the previous year.

To see the report online go to:
www.lentainvestor.com/en/
investors/annual-reports

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Lenta Annual Report and Accounts 2016

At a glance

RUSSIA’S FASTEST GROWING
HYPERMARKET OPERATOR

What we do
Lenta sells high quality, affordable products
in its hypermarkets and supermarkets.
We provide great value for money and
aim to provide the best promotions in the
market for our customers.

Our strategy
Our growth strategy is to expand our store
network rapidly, whilst maintaining strong
like-for-like sales. High levels of operating
efficiency generate good returns that
finance our growth.

191

Hypermarkets

11.9%

Lenta private
label proportion
of total sales

We operate 191 hypermarkets
across Russia. Located mainly
in urban areas for convenience,
they are usually open 24/7. Our
three main store formats range
from 3,000 sq.m to 7,000 sq.m,
enabling us to provide the optimum
store for each location and provide
our customers with the products
they want.

MORE ACHIEVEMENTS OF 2016

480,145

44.8

We acquired 11 new stores from food
retailer Kesko and reopened them all on
the same day.

At the year end over 1.8 million people
participated in Lenta’s Social Card
programme, 480,145 of whom joined
in 2016.

We delivered over 1.47 million man-hours
of training, with an average of 44.8 hours
per person.

Lenta Annual Report and Accounts 2016 03

Lenta is Russia’s largest hypermarket operator
by selling space and the fifth largest food retailer
by total sales. In 2016 we were the country’s
fastest growing hypermarket operator.

Supermarkets

161

Fleet

26,000

Product range

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Our 49 supermarkets are
located principally in the Moscow,
St. Petersburg and Central
regions. Designed for frequent
visits, these smaller format stores
stock a wide range of everyday
essentials – and are located in
urban areas, typically within a
20-minute walk for the majority
of our customers.

Our flexible, low-cost supply chain
guarantees maximum on-shelf
product availability across our
network of stores. Our substantial
truck fleet comprises 161 owned
delivery vehicles and our state-of-
the-art distribution centres
have the capacity to serve
over 250 hypermarkets and
250 supermarkets.

We offer a wide range of great
value, high quality products,
including branded goods and more
affordable private label variants.
Our standard hypermarket stocks
around 26,000 SKUs – and whilst
our core ranges feature in all our
stores, many products are sourced
locally to satisfy regional tastes
and preferences.

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95%

11,000

95% of fresh food sourced in Russia.

We opened 17 supermarkets, a record
annual high, bringing the total to 49.

We created around 11,000 new jobs
in 2016, and a total of 19,000 employees
were recruited into new roles.

Lenta Annual Report and Accounts 2016

Where we are

ACCELERATING OUR
EXPANSION

5,777km

In 2016 Lenta continued
to expand its geographic
footprint.

At the year end we had a total of 240
stores, comprising 191 hypermarkets
and 49 supermarkets. We continued
to build on our presence in the areas
where we already operate. We also
extended our reach, rolling out Lenta
stores into eight new cities.

We now have a presence in 77 cities,
including all 15 Russian cities with
more than 1 million inhabitants.

NEW CITIES

• Ekaterinburg
• Grozny
• Kazan
• Kostroma
• Kursk
• Novoshakhtinsk

• Orsk
• Samara

Lenta Annual Report and Accounts 20161st

Largest hypermarket
operator by selling
space

240

Stores

Cities

KEY

New store openings

Existing stores

1. Almetyevsk
2. Armavir
3. Astrakhan
4. Balakovo
5. Barnaul
6. Belgorod
7. Biysk
8. Bryansk
9. Cheboksary
10. Chelyabinsk
11. Cherepovets
12. Dimitrovgrad
13. Ekaterinburg
14. Engels
15. Grozny
16. Irkutsk
17. Ivanovo
18. Izhevsk
19. Kaluga
20. Kazan
21. Kemerovo
22. Khanty-Mansiysk
23. Kostroma
24. Krasnodar
25. Krasnoyarsk
26. Kursk
27. Lipetsk
28. Magnitogorsk
29. Moscow
30. Murmansk
31. Naberezhnye

Chelny

32. Nizhnekamsk
33. Nizhniy Novgorod
34. Nizhniy Tagil
35. Novocherkassk
36. Novokuznetsk
37. Novorossiysk
38. Novoshakhtinsk
39. Novosibirsk

40. Omsk
41. Orel
42. Orenburg
43. Orsk
44. Penza
45. Perm
46. Petrozavodsk
47. Prokopievsk
48. Pskov
49. Rostov-on-Don
50. Ryazan
51. Samara
52. Saransk
53. Saratov
54. Smolensk
55. St. Petersburg
56. Stavropol
57. Surgut
58. Syktyvkar
59. Taganrog
60. Tobolsk
61. Togliatti
62. Tomsk
63. Tula
64. Tver
65. Tyumen
66. Ufa
67. Ulyanovsk
68. Velikiy Novgorod
69. Vladimir
70. Volgograd
71. Vologda
72. Volzhskiy
73. Voronezh
74. Yaroslavl
75. Yoshkar Ola
76. Yurga
77. Zheleznovodsk

DISTRIBUTION CENTRES

• Ekaterinburg
• Moscow
• Novosibirsk

• Rostov-on-Don
• St. Petersburg
• Togliatti

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Lenta Annual Report and Accounts 2016

Realising our potential

EXPANDING
OUR SPACE

1,146,148m2

We have more than doubled
our selling space over the
last three years

Lenta Annual Report and Accounts 2016 07

Growing faster than ever
Whilst other hypermarket players have slowed down,
Lenta has continued to grow its presence rapidly.
In 2016, we opened 77% of the net selling space added
in the hypermarket segment, up from 35% in 2015.

We now have approximately 20% of
all hypermarket selling space in Russia
Our distinctive compact urban model is focused on
food and tailored to the Russian market, and we have
extended our range of hypermarket formats to increase
our flexibility across different catchment areas.

Rapidly growing our supermarket format
Our supermarkets are a huge success with our
customers and deliver high sales densities. In 2016
we opened a record 17 supermarkets, adding nearly
13,000 sq.m of selling space. We are increasing
the number of store openings and aim to deliver an
eightfold increase in supermarket selling space by 2020.

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Lenta Annual Report and Accounts 2016

Realising our potential

INCREASING
OUR PRESENCE

240 stores

Doubling store numbers
since IPO and setting a new
record in store openings

Lenta Annual Report and Accounts 2016 09

We have opened stores in 30 new cities
since 2014
In 2016 we exceeded our initial targets for new store
openings and now have a presence in 77 cities across
Russia. We see the huge potential for expansion through
organic growth as well as the acquisition of high quality
assets that are a good strategic fit with our business.

We now have a presence in all 15 Russian
cities with over one million inhabitants
We carefully assess new opportunities for strategic
fit and returns. Whilst our medium-term focus continues
to be on Moscow, St. Petersburg and Russia’s largest
cities, we see considerable long-term potential for an
additional 400 Lenta hypermarkets in new and existing
target cities over time.

Acquisition of Kesko’s food business
In line with our strategy of fast-paced network
expansion, we significantly strengthened our market
presence with the acquisition of 11 hypermarkets
from Kesko. These high quality, complementary store
locations extend our reach in a highly competitive region.
They were integrated, rebranded and reopened as
Lenta stores in under a week.

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Lenta Annual Report and Accounts 2016

Realising our potential

DELIVERING
RESULTS

RUB
306.4bn

Double growth of our total
sales since IPO

Lenta Annual Report and Accounts 2016 11

Lenta now has more than ten million
active Loyalty Card holders
The number of Lenta Loyalty Card holders grew at
a 30% CAGR over the last three years, with increasing
card penetration, now at 93% of total sales. Customer
data obtained from card use provides us with key
competitive advantages in driving our customer-
centric business.

Customers trading up
Many of our traditional ‘budget’ customers have
responded to our strong promotions on premium brands,
trading up as the price differential has shrunk. We
pitched our affordable quality Lenta brand at precisely
this price point, providing a great value alternative and
capturing the custom of this important group.

Value for money proposition
In line with our strategy, we maintain a strong focus
on pricing and our customers have become increasingly
responsive to the attractive discounts and promotions
we offer. We know they appreciate our actions because
we rank either first or second for price perception
in almost every city where we have a presence.

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Lenta Annual Report and Accounts 2016

Chairman’s statement

BUILDING
VALUE,
DRIVING
GROWTH

Lenta continued to flourish in 2016,
delivering strong sales and maintaining
the momentum for growth established
over the previous three years.

John Oliver
Chairman

Continuing our progress
In the three years since Lenta’s IPO,
we have accomplished a great deal.
2016 saw us continue to grow our
sales, profit and cash flow, while
continuing to consolidate our existing
presence in Russian cities – and
establish ourselves in many new ones.

Since 2014 we have not only more
than doubled our selling space ahead
of schedule, but also the size of the
Company itself, both in terms of sales
and the number of stores we operate.
Set in the context of a difficult
operating climate, these achievements
demonstrate the effectiveness of our
planning, the clarity of our strategy and
the flexibility of our business model.

Performing in a tough environment
Trading conditions in Russia remained
difficult for food retailers in 2016.
I am therefore delighted to report that
Lenta not only weathered the tough
conditions, but thrived in them. Our
robust low price/low cost business
model was key to this success, as was
our ability to adapt quickly to changing
circumstances which enabled us to
deliver yet another excellent result.

Our customers are at the heart of
our business; it’s therefore crucial
that we listen carefully to them, so we
can understand exactly what they want
from Lenta. This is particularly true
in hard times, as customers’ shopping
habits and priorities change. The data
we derive from the use of our Loyalty
Card continues to be invaluable: it
informs our decision-making, enables
us to respond to these changes and
helps us to anticipate future trends.

Lenta Annual Report and Accounts 2016 13

Building value, driving growth
Our performance to date is testament
to the effectiveness of our strategy.
We have delivered a compelling track
record of growth, with sales densities
above those of our federal peers
and consistently high margins. Our
adaptable hypermarket model has
proven successful across a wide
range of very different catchment
areas and our supermarket pilot has
been converted into an important
strategic growth driver.

Improvements in sourcing, efficiency
and capex reductions support high
returns for now and in the future.

Corporate social responsibility
We are a fast growing business
operating in a highly competitive
trading environment. Nevertheless,
all of our decision-making is predicated
on ‘doing the right thing in the right
way’. Our customers trust us to provide
high quality, great value products –
but they also expect us to behave
with integrity towards our employees,
suppliers, local communities and
the environment.

Our customers and staff are also our
neighbours; hence most of our CSR
activities are focused on areas close
to where we operate. In these difficult
economic times, we fully recognise
our responsibility to provide tangible
support – and our actions reflect that.
They include donations of food to those
in most need, construction of local
community facilities and the extension
of our social card programme
within our growing base of Loyalty
Card holders, store network and
cities of presence.

Securing a sustainable future
At Lenta, we’re good at what we
do – and the coming years will
see us continue to drive growth in
hypermarkets. We aim to become
a top three multi-format retailer in
terms of sales – and the leading
hypermarket player – in the Russian
market. Alongside this, the acceleration
of our supermarket roll-out programme
will help us become a fully-fledged
multi-format retailer in the near future.

Our consistent, proven strategy will
ensure we continue the momentum for
growth that has been established over
the past three years. Our ambitions
will only be realised however, through
a combination of prudent financial
management, strong governance
and a dedicated workforce. We will
retain our focus on profitable growth,
balancing capex and returns in order
to continue delivering market-leading
returns. We will also maintain
our healthy balance sheet and
conservative approach to leverage.

I would like to thank our employees
for the dedication, commitment
and enthusiasm they applied to the
challenges of 2016. I am grateful to my
fellow Directors for their wise counsel,
and to our Senior Management team
who have steered Lenta so ably through
such a busy year. Our customers,
suppliers and shareholders also have
my sincere thanks for their ongoing
loyalty and support.

John Oliver
Chairman

WE HAVE DELIVERED A COMPELLING
TRACK RECORD OF GROWTH,
WITH SALES DENSITIES ABOVE
THOSE OF OUR FEDERAL PEERS AND
CONSISTENTLY HIGH MARGINS.

Corporate governance
I strongly believe that the foundations
of good governance lie in the core
values and behaviours established by
the Board. We are extremely fortunate
to have a talented group of individuals
on the Lenta Board who are committed
to promoting the highest standards of
ethics and business practice, setting
the ‘tone from the top’.

We also have what I believe to be the
most effective management team in the
industry, with a unique entrepreneurial
culture. They in turn are supported by
a strong base of second and third tier
managers, ready to grow and improve
the company; we continue to invest in
this next generation of Lenta’s leaders.

Our Board composition and Senior
Management team have remained
unchanged since our IPO and this
is the most stable leadership team
in the Russian food retail space.

As Lenta grows in size and complexity,
it is more important than ever that we
have the right people, systems and
culture to ensure we maximise growth
opportunities, while mitigating the
risks to which we are exposed. Our
governance standards are already
best-in-class – and we continue to
strive for the highest international
standards of corporate stewardship.

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Lenta Annual Report and Accounts 2016

Chief Executive Officer’s review

A YEAR OF
MILESTONES
FOR LENTA

We maintained strong growth in 2016
and achieved several key milestones,
demonstrating the ongoing successful
execution of our strategy. We are now
Russia’s fastest growing hypermarket
operator, accounting for approximately
20% of all hypermarket selling space
in the country. We also accelerated
our flourishing supermarket programme
during the year.

Jan Dunning
Chief Executive Officer

Another strong performance
2016 was another challenging year
for Lenta, yet it was also a remarkably
successful one. Full year sales rose
21.2% to RUB 306.4 billion (2015:
RUB 252.8 billion), including a 3.9%
increase in like-for-like sales.

Despite the ongoing economic
pressures in Russia and weakness
in the consumer environment, we
exceeded – earlier than planned – one
of the most important strategic targets
established at our IPO: to double our
total selling space within three years.
We opened 51 hypermarkets on a net
basis in 2016, setting a new record
for Lenta store openings in a single
year, and resulting in a total of
191 hypermarkets at the end of the year.

Our value-for-money supermarket
format builds on the same DNA as
our hypermarkets. This complementary
format is becoming an increasingly
important part of our business,
demonstrating high sales density,
good comparable revenue growth
and exponential growth potential. With
17 supermarkets opened during the
year, there were 49 stores at the year
end, giving us 46,285 sq.m of selling
space in this highly popular format –
and a combined total – including
hypermarkets – of 1,146,148 sq.m.

A competitive marketplace
The uncertain macro environment
ensured that competition among food
retailers remained intense in 2016.
The ongoing dual pressures of high
inflation and squeezed household
incomes mean that customers have
become accustomed to spending
with caution. They continue to restrict
their shopping trips and keep to a list,
constantly comparing prices and
looking for the best value from retailers.

OUR CONSISTENT COMMERCIAL
STRATEGY WAS DESIGNED TO
HELP US REALISE OUR FULL
MARKET POTENTIAL – AND HAS
STOOD THE TEST OF TIME.

Lenta Annual Report and Accounts 2016
S

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The fact that we have delivered on our
promises – and consistently executed
our strategy in a challenging macro and
consumer environment – is testament
to the talent and commitment of our
strong and stable management team.

Looking ahead
We are already working on new
projects in 2017 and are planning
ahead for 2018 and beyond. We intend
to add approximately 200,000 sq.m
of new selling space in the year
ahead – and aim to open about
30 new hypermarkets and about
50 supermarkets, in new as well
as existing regions. Delivering rapid
growth is important, but not at any
cost. It also has to be successful
and sustainable – for our customers,
business partners and shareholders.
As we look to the future, our confidence
in Lenta’s business model, our
strategy and our people remains
as strong as ever.

Our aim for 2017 is to continue
to deliver attractive returns on
investment and build long-term value
for our shareholders, maintaining
our strong financial position and a
thoughtful balance between growth and
profitability. We will continue to enhance
our offer to customers and consolidate
our position as one of Russia’s most
efficient multi-format retailers.

Jan Dunning
Chief Executive Officer

We opened hypermarkets in eight new
cities during the year, and strengthened
our presence in Russia’s largest cities,
bringing the total number of cities of
presence to 77. With new stores in
Ekaterinburg, Samara and Kazan,
we now have a presence in all
15 Russian cities with more than
one million inhabitants.

We strengthened our supermarket
position, adding 12,774 sq.m of selling
space during the year, representing
a 38% growth in this format. To support
this exceptional growth, we opened
a new supermarket distribution centre
in Moscow, with the capacity to serve
over 150 stores.

In December, we opened 11 new
hypermarkets in St. Petersburg,
acquired through the purchase of
Kesko’s food retail business in Russia.
With their complementary locations,
sizes and designs, these stores are a
very good fit for Lenta and significantly
strengthen our network in the region.

We remain the partner of choice for
our suppliers, and worked hard during
the year to maintain our procurement
excellence. We significantly decreased
our supply chain costs and are
well-positioned to sustain our new
wave of store roll-outs.

Our consistent commercial strategy
was designed to help us realise our
full market potential – and has stood
the test of time. At the time of our IPO
in early 2014, we set ourselves the
target of doubling our retail space in
three years. Many observers felt that
this goal was too ambitious, but we
were always confident we could
achieve it – because we had a clear
understanding of exactly how to do so.

191

Hypermarkets

Cities

We engage directly with our extensive
customer base through our highly
successful Loyalty Card programme.
Launched 15 years ago, it has
continued to grow steadily, passing the
10 million active cardholders milestone
in 2016. We use valuable transaction
data from our Big Data Customer
Insight Programme to help us track
the competitive dynamics of our offer
and understand how our customers
are shopping – as well as their changing
tastes and preferences. This information
enables us to tailor our assortment
and marketing activities to provide
the optimum product mix and create
targeted offers and promotions on
the products our customers want.
Sales from promotions in 2016 were
outstanding – proof that Lenta’s
business model is perfectly aligned to
the prevailing consumer environment.

Continuing our growth story
Our performance has been supported
by several key pillars: our commercial
proposition and processes, low pricing,
high execution standards, low cost
base, effective use of data and our
flexibility and entrepreneurship.

The Russian retail market presents
the most efficient operators with
huge growth potential, combined
with attractive returns. Our proven low
price/low cost business model enables
us to pursue our strategy for growth.

With its extensive geographic footprint,
Lenta is a genuinely federal chain,
successfully operating different store
formats to suit different catchment areas.

In line with our strategy, we
reinforced our hypermarket presence
across Russia in 2016. Siberia retained
its position as the largest region,
with almost 20% of the Company’s
total hypermarket selling space.

Lenta Annual Report and Accounts 2016

Business Model

HOW WE CREATE VALUE

VALUE PROPOSITION FOR CUSTOMERS

PRICE-LED HYPERMARKET MODEL

Our differentiated value proposition
Helping our customers live a better
life by spending less

Low cost execution
Standardised store layouts
Simple to navigate/low cost
` 82% ownership of property vs. 18% leased

Formats

Hypermarket
` Standard
` Compact
` Supercompact

Supply chain

Integrated
supply chain
underpinned
by a network
of distribution
centres

Current capacity
to serve
250+ hypermarkets
250+ supermarkets

Strong IT

Supermarket

Our fleet
161 owned trucks

Seven owned
distribution
centres

Low price
leadership
` Loyalty card
` Deep, frequent
and inspiring
promotions
` Frequent price
comparisons

Product offering
for broad family
needs
` Store of choice for
select authoritative
ranges

` Relevant SKUs
` Focus on new

and local products

Neighbourhood
shopping
` Easily accessible
one-stop-shop
` Value-added

features

i e s
l
n f a m i
o m e n

Foc u s o
a n d w

stin

S
e
r
v
e
d

i
t
h

p
e

l
i
t

Simplicity

Pace

Ambience

Focus on n e w
and local prod u c t s

r
o
y
e f
e
n

Valu
mo

Underpinned by our corporate social responsibility

Lenta Annual Report and Accounts 2016

Value remains at the core of Lenta’s customer
proposition. We maintain a strong price
perception in line with our commercial strategy.

LENTA LOYALTY CARD

DRIVING OUR STRATEGY
FOR GROWTH

CREATING VALUE

Enhances
like-for-like sales

Insight drives

Driving Lenta forward
We remain focused on driving the
business forward in pursuit of our
long-term goals. Our proven strategy
enables us to confidently manage and
grow Lenta – even in challenging times.

Selling space
‘000 sq.m

2016

2015

2014

+29.9%

1,146

882

701

` Direct marketing promotions
` Pricing
` Category management
` Strong relationships with suppliers

Delivering profitable
like-for-like growth

Captures
information

Strengthening our
existing presence

Captures information about every
customer at every point of contact.
This enables us to build highly
personalised profiles of customer types
which we define across ten segments –
allowing us to meet the needs of all
our customers in a personalised way.

Exploiting white
space potential

Lenta Loyalty Card

Format evolution

` Active cardholders
` Price advantage
for customers

` Spend penetration

10.5m
5%
93%

Total sales
RUB bn

2016

2015

2014

+21.2%

306.4

252.8

194.0

Adjusted EBITDA
RUB bn

2016

2015

2014

+13.1%

31.8

28.1

21.4

Earnings per share*
RUB ‘000

2016

2015

2014

Number of employees**
FTE

2016

2015

2014

+2.7%

0.115

0.112

0.105

+18.9%

45,689

38,414

35,100

*One share represents interest in five GDRs.

**FTE (full-time employee as at the end of the period).

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Lenta Annual Report and Accounts 2016

Market overview

An ongoing challenge for retailers and consumers
The operating environment remained challenging in 2016.
Consumers continued trading down to more affordable
products in an effort to stretch their already squeezed
household budgets as far as possible.

The Russian economy has been in recession since the
beginning of 2015 – and remained under severe pressure
in 2016. Beset by a variety of domestic and international
challenges including economic sanctions and lower oil
prices, GDP declined. However, the rate of decline slowed –
and there is a sense that Russian consumers are gradually
adapting to their straitened circumstances.

In real terms, Russian consumer spending declined by 17%
in the last two years and household incomes are down 11%
in three years. While food inflation fell to 5%, food retail sales
growth had slowed to zero by the end of 2016.

Economy in recession since 1Q 2016
Real GDP, quarterly y-o-y %

-1%

-2%

-3%

-4%

-5%

0.8%

1.2%

0.8%

0.1%

-2.7%

-0.6%

-1.1%

-0.5%

-3.8%

-3.9%

-4.4%

2014

2015

2Q
2016

Source: Rosstat

Real incomes down 11% in 3 years
Household income, quarterly y-o-y %

AN ATTRACTIVE
MARKET FOR
THE LARGEST
PLAYERS

The Russian retail food market is
fragmented, especially when viewed
in an international context. However,
it remains attractive for the federal players,
presenting good growth opportunities.

15%

12%

-3%

-6%

-9%

3.7%

-2.8%

12.1%

10.1%

8.3%

9.0%

8.3%

8.9%

6.1%

2.60%

3.4%

3.5%

0.8%

-1.9%

0.7%

-3.5%

-4.3% -4.2%

-4.2%

-6.5%

-6.3%

-6.0%

1Q 2Q 3Q
2016

2Q 3Q 4Q 1Q 2Q 3Q 4Q

2014

2015

Real income

Nominal income

Source: Rosstat

Lenta Annual Report and Accounts 2016CONSUMERS ARE ALSO LOOKING FOR A RETAIL
EXPERIENCE THEY CAN TRUST TO GIVE THEM
GOOD QUALITY AND LOW PRICES. THIS FAVOURS
THE MOST EFFECTIVE OPERATORS SUCH AS LENTA.

An attractive market for federal chains
The Russian retail food market is fragmented,
especially when viewed in an international context.
However, it remains attractive for the federal players,
presenting good growth opportunities.

Competition between retailers remained intense in 2016
amid high levels of discounting and promotional activity.
However, consumers are also looking for a retail experience
they can trust to give them good quality and low prices.
This favours the most effective operators such as Lenta –
those that can adapt to changing circumstances –
delivering a superior shopping experience and
excellent value for money.

Food inflation down to 5%
CPI, quarterly y-o-y %

Share of the largest retailers is growing rapidly...
Share of grocery retail sales, %

25%

20%

15%

10%

13.2%

10.5%

9.4%

7.3%

7.6% 7.7%

6.4%

22.4%

22.3%

18.0%

16.2%

15.7%

15.8%

14.5%

46%

43%

40%

37%

36%

34%

36%

38%

37%

9.6%

6.9%

8.4%

7.4% 6.8%

5.8%

5.7% 6.3%

5.1%

20%

21%

22%

25%

27%

29%

2Q 3Q 4Q 1Q 2Q 3Q 4Q

2014

2015

1Q 2Q 3Q
2016

CPI food
Source: IHS, Rosstat

CPI

2011

2012

2013

2014

2015

2016E

Top-7

Other modern retail

Traditional

Source: Company information, Infoline, Euromonitor

Food retail sales growth has slowed to zero
Food retail sales, quarterly y-o-y %

...but remains fragmented in an international context
Share of grocery retail sales in 2016E, %

15%

12%

-3%

-6%

-9%

12%

12.3%

13.2%

11.4%

9.3%

7.1%

10.2%

10.0%

1.5%

21%

28%

30%

33%

43%

44%

5.2%

3.7%

1.7% 2.8%

0.9%

79%

72%

70%

67%

57%

56%

-0.3%

0.1%

-1.1%

-4.7%

-5.1%

-6.9%

-9.5%

-9.1%

-10.1%

-5.6%

-5.7%

2Q 3Q 4Q 1Q 2Q 3Q 4Q

2015

1Q 2Q 3Q
2016

Czech
Republic

France

Hungary

Poland

South
Africa

2014
Real food retail sales growth

Source: Rosstat

Nominal food retail sales growth

Top-7

Other retail
Source: Company information, Infoline, Euromonitor

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Lenta Annual Report and Accounts 2016

Market overview continued

Due in part to the challenging economic situation, traditional
retail formats continue to lose share. Most smaller modern
retailers have either slowed or stopped expansion, with many
beginning to close or sell stores. There is virtually no current
active development of shopping malls. ‘Federal’ chains –
those with a presence in most regions – now account for
almost all net space additions. Trends during the year
indicated how the hierarchy of the top seven food retailers
will be shaped. The top two players’ growth is increasingly
swift, whereas others are experiencing slower growth.

Selling space growth is driven by federal chains
Share of selling space additions, %

100%

80%

60%

40%

20%

60%

40%

62%

38%

71%

29%

2013

2014

2015

Share of additions from Top-7 retailers
Small & mid-sized retail chains additions
Source: Company information, Infoline, Euromonitor

91%

2016

ALTHOUGH UBIQUITOUS IN MOST OTHER
RETAIL MARKETS, SUPERMARKETS ARE STILL
AN UNDERDEVELOPED BUSINESS IN RUSSIA.
WE BELIEVE THIS REPRESENTS A GROWTH
OPPORTUNITY FOR LENTA.

Deepening our hypermarket presence,
growing our supermarket offer
The Russian market does not have the same penetration
of modern retail formats as the rest of Europe – or much
of the rest of the world. Despite the ongoing challenges of
the macroeconomic and consumer environments however,
we believe the sector has real promise.

The hypermarket has proved itself to be an attractive format
for consumers, but consumers need a compelling reason
to travel a little further to visit and spend their money in a
hypermarket, rather than a smaller local store. Lenta delivers
this by providing an attractive combination of assortment
breadth, quality and value for money. Lenta’s consistent
commercial strategy is tactically adapted to the volatile
market – and this is reflected in our success at winning
new customers and retaining their loyalty.

Although ubiquitous in most other retail markets,
supermarkets are still an underdeveloped business in
Russia. We believe this represents a growth opportunity
as the needs of many Russian customers – such as choice,
quality, price and service – are evolving to align more
closely with full service/value supermarkets, just as they
have in more developed markets.

Supermarket share is higher in other markets
Share of total selling space, %

55%

32%

35%

43%

25%

24%

41%

29%

16%

19%

39%

42%

6%
44%

51%

Russia

Germany

France

USA

Supermarkets

Hypermarkets

Discount/convenience

Source: Company information, Infoline, Euromonitor

There are some large players, but the supermarket segment
is even more fragmented than the market as a whole.

Lenta Annual Report and Accounts 2016S

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Convenience/discounters – Top 5 share 75%
Total selling space: 11.0m sq.m
Selling space growth in 2016: +13%

Hypermarkets – Top 5 share 67%
Total selling space: 5.8m sq.m
Selling space growth in 2016: +6%

01
Lenta – 19.1%

02
Auchan1 – 15.4%

TOTAL
5.8m sq.m

03
Magnit – 11.9%

04
Metro Group – 11.2%

05
O’KEY – 9.4%

06
Other – 33.1%

TOTAL
11.0m sq.m

01
Magnit – 31.3%

02
Pyaterochka – 30.1%

03
Dixy – 7.0%

04
Svetofor – 3.3%

05
Krasnoye &
Beloye – 2.8%

06
Other – 25.5%

Source: Company information, Infoline as of 31 December 2016
(based on Top-190 retailers study)

We see multiple opportunities for Lenta to capitalise on its
expertise in hypermarkets and flourish in the supermarket
format. It will inevitably take time for the economy to fully
recover from the current challenging circumstances. In the
meantime however, the difficult economic circumstances are
leading to an acceleration in the shift of consumer spending
and market share to larger and more efficient operators.

Supermarkets – Top 5 share 36%2
Total selling space: 3.2m sq.m
Selling space growth in 2016: +3%

TOTAL
3.2m sq.m

01
Perekrestok – 17.1%

02
Magnit Family – 6.6%

03
Atak – 5.5%

04
Billa – 3.0%

05
Victoria3
supermarkets – 2.9%

06
Other – 64.8%

Source: Company information, Infoline as of 31 December 2016
(based on Top-190 retailers study)

1 Auchan, Auchan City and Nasha Raduga as per Infoline report.

2 Excluding SPAR presence in Russia.

3 Including eight supermarkets (11,000 sq.m of selling space) in Kaliningrad

in the premises acquired from Sedmoy Kontinent in December 2016.

Lenta Annual Report and Accounts 2016

Strategy

BUILDING VALUE,
DRIVING GROWTH

OUR STRATEGY
FOR SUSTAINABLE
GROWTH

Strategic priorities

Overview

Progress in 2016

Looking ahead

Delivering profitable
like-for-like growth

Strengthening our
existing presence

Exploiting white
space potential

Format evolution

Ongoing investment in our low price/

low cost business model keeps us

competitive and drives sales in our

In the prevailing difficult consumer

environment, we continued to provide

Lenta’s customers with more of the

In the year ahead, we aim to open

approximately 30 new hypermarkets

and around 50 new supermarkets.

existing stores. With growing numbers

products they wanted at affordable prices.

These will be in both existing and new

of loyal customers, we maintain our price

We carefully tailored our ranges and

leadership through a combination of

factors including innovative promotions,

focused category management and

promotions to help them make the most

of their budgets – and our actions were

rewarded with an increase in like-for-like

in-depth analysis of customer behaviour via

sales of 3.9% and average like-for-like

our Big Data Customer Insight Programme.

ticket growth of 4%.

regions for Lenta, adding a total of

around 200,000 sq.m of selling space.

Longer term, our aim is to become a top

three multi-format food retailer and the

biggest hypermarket player in Russia.

We will accomplish this through retaining

a focus on profitable growth, and carefully

balancing capex and returns – with the

aim of continuing to deliver market-leading

performance whilst maintaining a healthy

balance sheet.

We aim to double selling space by 2020.

We will use our detailed customer data

and format flexibility to select the best

locations for our stores and see potential

for more than 400 hypermarkets in Russia

to be located within a 10–15 minute drive of

most customers. Likewise there are good

opportunities for supermarkets to gain a

substantially bigger share of the market,

as customers become more demanding –

and our value for money supermarket is

well placed to capture this growth.

Throughout our ongoing expansion,

we will retain our focus on improvements

in sourcing and efficiency as well as

capex reduction.

Consolidating our presence in areas

We continued to strengthen our position

where we already have stores is a priority

in all the key Russian regions in 2016,

for us. Our sizeable land bank and active

project pipeline provide us with numerous

opportunities to reinforce Lenta’s position

in these cities. We benefit from high levels

of brand awareness and established

infrastructure – as well as existing

relationships with local suppliers,

increasing our penetration – and market

share – in those areas where we already

have stores, thanks to our loyal and

growing customer base. During the

year, 80% of our new selling space

was opened in areas where we already

operate, including 11 new stores in the

contractors and the community at large.

St. Petersburg area acquired from Kesko.

Despite Russia’s ongoing economic

challenges, we continue to see

The expansion of our retail operations

across Russia continued apace in 2016.

considerable potential for Lenta to expand

We opened hypermarkets in 27 cities,

and flourish in this large and fragmented

eight of which were brand new locations

market. To date, there is still relatively little

for Lenta, and now have a presence in

penetration of modern retail formats –

77 cities, including all 15 cities with a

particularly hypermarkets – in many towns

population of over 1 million people.

and cities. We therefore regard expansion

We comfortably beat our target of doubling

into new cities as a key strategic

opportunity for our business.

selling space in the three years to

December 2016.

Our various hypermarket formats are

carefully designed to address specific

local needs in different urban locations.

Likewise, with our complementary

supermarket formats, we able plan and

build precisely the right store for every

available site and its expected customer

traffic, which means they are highly

We now have three additional variants of

our Compact hypermarket format, which

has delivered increased flexibility. During

the year, we created a dedicated team to

focus exclusively on developing our highly

successful supermarket format – and

also continued to refresh and update store

layouts and displays to maintain their

cost-effective. The standardised designs

appeal and highlight key product

also enable rapid roll-out.

categories.

Lenta Annual Report and Accounts 2016 23

In a difficult trading environment, we continued
to execute our proven strategy; strengthening
our existing presence, attracting new customers
in new locations and growing the business.

Strategic priorities

Overview

Progress in 2016

Looking ahead

Delivering profitable

like-for-like growth

Strengthening our

existing presence

Exploiting white

space potential

Format evolution

In the year ahead, we aim to open
approximately 30 new hypermarkets
and around 50 new supermarkets.
These will be in both existing and new
regions for Lenta, adding a total of
around 200,000 sq.m of selling space.

Longer term, our aim is to become a top
three multi-format food retailer and the
biggest hypermarket player in Russia.
We will accomplish this through retaining
a focus on profitable growth, and carefully
balancing capex and returns – with the
aim of continuing to deliver market-leading
performance whilst maintaining a healthy
balance sheet.

We aim to double selling space by 2020.
We will use our detailed customer data
and format flexibility to select the best
locations for our stores and see potential
for more than 400 hypermarkets in Russia
to be located within a 10–15 minute drive of
most customers. Likewise there are good
opportunities for supermarkets to gain a
substantially bigger share of the market,
as customers become more demanding –
and our value for money supermarket is
well placed to capture this growth.

Throughout our ongoing expansion,
we will retain our focus on improvements
in sourcing and efficiency as well as
capex reduction.

Ongoing investment in our low price/
low cost business model keeps us
competitive and drives sales in our
existing stores. With growing numbers
of loyal customers, we maintain our price
leadership through a combination of
factors including innovative promotions,
focused category management and
in-depth analysis of customer behaviour via
our Big Data Customer Insight Programme.

In the prevailing difficult consumer
environment, we continued to provide
Lenta’s customers with more of the
products they wanted at affordable prices.
We carefully tailored our ranges and
promotions to help them make the most
of their budgets – and our actions were
rewarded with an increase in like-for-like
sales of 3.9% and average like-for-like
ticket growth of 4%.

Consolidating our presence in areas
where we already have stores is a priority
for us. Our sizeable land bank and active
project pipeline provide us with numerous
opportunities to reinforce Lenta’s position
in these cities. We benefit from high levels
of brand awareness and established
infrastructure – as well as existing
relationships with local suppliers,
contractors and the community at large.

We continued to strengthen our position
in all the key Russian regions in 2016,
increasing our penetration – and market
share – in those areas where we already
have stores, thanks to our loyal and
growing customer base. During the
year, 80% of our new selling space
was opened in areas where we already
operate, including 11 new stores in the
St. Petersburg area acquired from Kesko.

Despite Russia’s ongoing economic
challenges, we continue to see
considerable potential for Lenta to expand
and flourish in this large and fragmented
market. To date, there is still relatively little
penetration of modern retail formats –
particularly hypermarkets – in many towns
and cities. We therefore regard expansion
into new cities as a key strategic
opportunity for our business.

The expansion of our retail operations
across Russia continued apace in 2016.
We opened hypermarkets in 27 cities,
eight of which were brand new locations
for Lenta, and now have a presence in
77 cities, including all 15 cities with a
population of over 1 million people.
We comfortably beat our target of doubling
selling space in the three years to
December 2016.

Our various hypermarket formats are
carefully designed to address specific
local needs in different urban locations.
Likewise, with our complementary
supermarket formats, we able plan and
build precisely the right store for every
available site and its expected customer
traffic, which means they are highly
cost-effective. The standardised designs
also enable rapid roll-out.

We now have three additional variants of
our Compact hypermarket format, which
has delivered increased flexibility. During
the year, we created a dedicated team to
focus exclusively on developing our highly
successful supermarket format – and
also continued to refresh and update store
layouts and displays to maintain their
appeal and highlight key product
categories.

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Lenta Annual Report and Accounts 2016

Operating review

LEADING
THE WAY

The Russian retail market presents the
most efficient operators with significant
potential for future growth, combined
with attractive returns. Lenta continued
to grow rapidly in 2016 and delivered
impressive results.

HIGHLIGHTS OF THE YEAR

Total sales for the year were up 21.2%
to RUB 306.4 billion (2015: RUB 252.8 billion).

Like-for-like sales grew 3.9%.

Total selling space growth of +29.9% in 2016.

Total sales for the year were up
21.2% to RUB 306.4 billion (2015:
RUB 252.8 billion). Like-for-like
sales grew 3.9% and the average
like-for-like ticket grew by 4.0%,
while traffic showed a 0.1% decline.

Difficult trading conditions in 2016
presented considerable challenges
for retailers and customers alike.
Nevertheless, Lenta’s operations
proved resilient. We continued to adjust
to the vagaries of the retail environment
and customers appreciated the efforts
we made to help them stretch their
budgets. Once again we demonstrated
that our business model is robust
and flexible enough to enable us
not just to withstand the toughest of
circumstances, but to thrive in them.
We continued to attract business away
from our competitors – and the number
of unique customers exceeded sales
growth in both new and like-for-like
stores in all regions.

The execution of our growth strategy
continued apace, and we opened new
stores in eight new cities. At the year
end we had a presence in 77 cities
across Russia. We added a total of
263,765 sq.m of new selling space on
a net basis, which has given us a total
of 1,146,148 sq.m – an increase of
29.9% year-on-year. This meant that
we comfortably beat our own 2014
prediction of doubling selling space
within three years to the end of 2016.

We take a disciplined approach to the
planning of new stores. Every potential
new location goes through a rigorous
selection and evaluation process,
which includes sophisticated analysis
of the catchment area using our
proprietary models to determine
projected returns on investment.

ONCE AGAIN WE DEMONSTRATED
THAT OUR BUSINESS MODEL
IS ROBUST AND FLEXIBLE
ENOUGH TO ENABLE US NOT
JUST TO WITHSTAND THE
TOUGHEST OF CIRCUMSTANCES,
BUT TO THRIVE IN THEM.

Lenta Annual Report and Accounts 2016S

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We own most of our stores, but the
choice of whether to own or rent
depends on the specific circumstances
in each city and location. Ownership
has the key advantage of allowing
us to build stores to our own designs,
which are optimised for efficiency and
precisely adapted in size and layout to
the catchment area served. Ownership
also protects us from rental cost
inflation as well as the potential loss
of store leases. Importantly, building
our own stores allows us to expand
more rapidly in attractive, high-return
catchment areas where land is
available, but where there are no
suitable stores to rent. Ownership is,
however, more capital intensive.
Availability of attractive rental
opportunities for hypermarkets is more
limited than for supermarkets, so we
typically own the vast majority of our
hypermarkets, while renting a high
proportion of supermarkets.

With the ability to develop and
manage both large and small stores,
we continue to evaluate new ways of
serving our customers; however and
whenever they choose to shop with us.

Consolidating our presence
in existing locations
Growing our market share in areas
where we already have a presence
is a key component of our strategy.
We use customer data and analytics
to carefully choose optimal locations
and our variety of proven formats
means we can deliver the most
appropriate size and type of store
for a particular neighbourhood. This
ability to adapt to different catchments
enables us to achieve high store
densities in our chosen cities.

STRATEGIC ACQUISITION
EXPANDS OUR NETWORK

In December we opened 11 new stores
acquired from food retailer Kesko,
which previously operated under the
K-Ruoka brand. The high quality Kesko
stores were an excellent strategic fit for
Lenta, being compatible with our own
formats, in complementary locations
to our existing stores – and with an
efficient and motivated workforce.

The newly acquired stores were
seamlessly integrated, rebranded
and reopened at modest cost – and
within just six days – highlighting the
successful collaborative efforts of
employees within both businesses.
Eleven new Lenta hypermarkets
opened on the same day across the
St. Petersburg area, improving our
reach in a highly competitive region.

Hypermarkets
Most of our hypermarkets are open
24 hours a day, seven days a week.
They are typically located in – or very
close to – residential areas with good
transport links. Lenta operates three
hypermarket formats: ‘Standard’
(typically 7,000 sq.m of selling space),
‘Compact’ (typically 5,000 sq.m of
selling space) and ‘Supercompact’
(typically 3,000 sq.m of selling space).
Our Compact format now comprises
three additional variants, which has
increased our flexibility and allows us
to deliver attractive investment returns
in an even wider range of catchment
areas. Regardless of size, all of our
hypermarkets offer an extensive range
of groceries and general merchandise,
with loyal customers generally visiting
once or twice a week.

In 2016 we accelerated this growth,
with almost 80% of new selling space
opened in cities where we already
operate. Any pressure on traffic in
existing stores is more than offset by
the long-term benefits of being located
precisely where our customers want
us – with a stronger market position.

Increasing Lenta’s store penetration
in existing cities1
# of cities

6
33

14
2
12

2013

2016

Potential

Cities with 2–4 stores
Cities with ≥ 5 stores

1 From 1 May 2015, all stores located in Moscow city
and the Moscow Region are shown as ‘Moscow’.
All stores located in the Leningrad Region and
St. Petersburg are shown as 'St. Petersburg’.

Source: Company information

Lenta Annual Report and Accounts 2016

Operating review continued

In 2016, we opened 51 hypermarkets
on a net basis, giving us a total of
191 hypermarkets at the year end.
These new stores exceeded our initial
organic target of at least 40 openings,
and our revised guidance of at least
50 openings by the year end. This figure
includes 11 stores in St. Petersburg,
which were acquired as part of the
purchase of Kesko Food Retail’s
business in Russia – the largest
acquisition in our history. The Kesko
stores were integrated and reopened
under the Lenta banner in just six days.

Our new store openings added
250,991 sq.m of hypermarket selling
space on a net basis, representing
an increase of 29.6% in this format
over the year.

hypermarkets opened
on a net basis

We opened hypermarkets in 27 cities
in 2016. Eight of these – including
Ekaterinburg, Samara and Kazan –
were new locations for Lenta. A notable
addition to our portfolio was our first
hypermarket in Grozny. We now have
a hypermarket presence in 77 cities.
We are now present in all fifteen
Russian cities with a population of
over one million people; over the
last three years we have increased
our hypermarket selling space in
these cities by approximately 140%.
This includes increases of over 50%
in St. Petersburg and almost 70%
in Moscow.

Even in these straitened times, we
see considerable growth potential for
our hypermarket store format – and
expansion opportunities continue to
present themselves. Our hypermarket
pipeline remains healthy and we will
maintain the momentum of new store
development into 2017 and beyond by
carefully prioritising opportunities for
strategic fit and returns. In the medium
term, our primary focus remains on
Moscow, St. Petersburg and the largest
cities, combined with our ongoing
programme of roll-outs to existing
and new smaller cities.

NEW SUPERMARKETS FOR BUSY
NEIGHBOURHOOD CENTRES

We are accelerating growth of our
successful supermarket format.
As part of this strategy, we signed
lease contracts with Edisonenergo
LLC (part of the ADG Group) in
January 2017 for 36 supermarkets.
Located in newly developed
neighbourhood shopping and
entertainment centres, the stores
are being built on the sites of former
Moscow cinemas at the hearts of
high-traffic residential areas.

The neighbourhood centres will
provide a wide range of consumer
outlets, entertainment and essential
services, including educational,
social and cultural facilities, which
will attract frequent visits from local
people. Lenta is leasing around
47,000 sq.m of total space for the
supermarkets, the first of which
will open towards the end of 2018.

Supermarkets
A strategic extension of our
hypermarket format, supermarkets
have become a well-established –
and increasingly important – format
for Lenta. Designed specifically for
frequent visits for everyday purchases,
they are located within walking
distance of residential areas in the
Moscow, St. Petersburg and Central
regions. This community-based format
enables us to penetrate local retail
markets where locating a hypermarket
would not be feasible. In 2016 we
doubled the number of supermarket
store openings.

Lenta Annual Report and Accounts 2016The average selling space of Lenta’s
supermarkets is approximately 900
sq.m. These stores generate high sales
per square metre and in 2016 delivered
good like-for-like growth of 5.5% and
an increase in like-for-like customer
traffic of 1.9%. The average like-for-like
ticket increased by 3.5%.

Our first pilot supermarket opened
in Moscow in 2013. During 2016 we
opened 17 supermarkets, a record
annual high, bringing the total to 49.
These new stores exceeded our
original guidance of opening at least
double the number of supermarkets
opened in 2015. We added 12,774 sq.m
of supermarket selling space,
which represents a 38.1% growth
in the format.

In January 2017, we signed lease
contracts with Edisonenergo LLC,
part of real estate developers ADG
Group, which is building a network
of neighbourhood shopping and
entertainment centres across Moscow.
The agreements cover 36 locations for
future Lenta supermarkets in the region
and represent some 47,000 sq.m of
total space (approx. 30,300 sq.m
of selling space). The first of these
new stores is scheduled to open at
the end of 2018.

In December 2016 we also signed an
agreement to acquire eight properties
in Novosibirsk for conversion to
supermarkets.

Our supermarket format has proven
itself to be highly attractive to
consumers. In addition, over time,
the scale advantages of Lenta and
other federal chains will lead many
local grocery retailers to exit the
market. We therefore anticipate
significant opportunities for growth in
the supermarket sector, both organic
and potentially through acquisitions,
where they fit with our business model
and location criteria. In line with our
strategy, we plan to accelerate the
development of this format – we
opened our first supermarket in Siberia
in February 2017.

With a dedicated team focused
exclusively on developing
supermarkets, we have a strong
pipeline of store projects. We aim
to deliver an eightfold increase in
supermarket selling space by 2020
and are extending the network of
stores around our existing distribution
centres from 2017. We have the
potential to reach over 100 supermarkets
in Moscow alone over the next
three years.

EVEN IN THESE STRAITENED TIMES,
WE SEE CONSIDERABLE GROWTH
POTENTIAL FOR THIS STORE
FORMAT – AND EXPANSION
OPPORTUNITIES CONTINUE TO
PRESENT THEMSELVES.

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during 2016, a record
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Lenta Annual Report and Accounts 2016

Operating review continued

Lenta Loyalty Card
Lenta operates a long-established
and highly successful loyalty card
programme, with 93% of all purchases
in our stores made using the card.
In addition to offering discounts on
customer purchases, it provides us
with valuable real-time information
on customer behaviour. Cardholders
obtain a 5% minimum discount every
time they use their card and benefit
from exclusive access to special
promotions, with extra discounts of
up to 50%. Additional reductions are
also offered on goods for customers
in most need of social support, with
a further 3–8% discount.

In 2016 we passed a notable milestone,
reaching 10.5 million active cardholders
during the year. This represents an
impressive increase of 25% year-on-
year. Our credentials are consistently
verified through in-depth customer
research and Lenta’s loyalty scheme
is regarded by Russian shoppers as
the best of its kind in the market.

We accumulate transaction data on
all card-related purchases. Analysis
of this information enables us to track
product performance across our
stores, understand our customers’
changing tastes and habits and provide
them with attractive, individually
tailored offers. These include ‘Thank
You’ mailshots, which are designed –
and proven – to increase customer
loyalty, traffic and basket size.

We send offers to all contactable
customers frequently. These incorporate
a range of incentives: from single
product discounts and category offers
to money off a customer’s entire shop.
We piloted a range of new card-related
initiatives during the year including
customer birthday offers, campaigns
aimed at recapturing lost customers
and region-specific promotions.

The coming year will see us introduce
additional loyalty card-based activities
including improved rewards for
new customers and housewarming
congratulations.

10.5m

Active cardholders

Lenta Annual Report and Accounts 2016Big Data Customer Insight
Programme
We started collecting data on customer
transactions in 2008 and launched
our Big Data Customer Insight initiative
four years later. The programme
has delivered significant competitive
advantage for Lenta, helping us
maintain our position as one of the
most rapidly growing food retailers
in the Russian market. We use
customer data across all the key
levers at Lenta, to drive sales and
performance, including pricing,
promotions, assortment and
personalisation initiatives.

Our Big Data Customer Insight
Programme enables us to track
shopping trends; for example, whether
customers are shopping in our stores
more or less frequently, and whether
they are buying significantly more or
less on each visit. Data derived from
Lenta loyalty card transactions has
also prompted a new approach to
the way in which we understand
customer behaviour.

WE STARTED COLLECTING DATA
ON CUSTOMER TRANSACTIONS
IN 2008 AND LAUNCHED OUR
BIG DATA CUSTOMER INSIGHT
INITIATIVE FOUR YEARS LATER.

Detailed analysis has enabled us to
identify ten key customer lifestyle
profiles, depending on how much they
spend, how often they shop and the
items they buy. We can therefore cater
directly to the specific needs and
preferences of each group, providing
them with personalised discounts
and relevant offers that enhance their
experience with us, generate additional
sales and boost loyalty. We also use
these profiles to help us refine and plan
our product ranges, merchandising and
advertising activities.

Our sophisticated analytical capabilities
support our commercial model and
additional enhancements will further
cement our leading position in this field.
In the coming year we will continue
developing our use of customer
transaction data, both internally and
with external partners. This includes
a range of activities, including work
to evaluate the effectiveness of various
promotional channels including
billboards, facades and catalogues.

Product range
Our standard format hypermarket
carries around 26,000 SKUs. This
provides an attractive range of choices
for customers, while being significantly
fewer than some of our competitors.
We are therefore able to reap
considerable efficiency benefits,
both in store and across our supply
chain. A carefully edited range of
products displayed in well-planned
space also enables time-pressed
customers to quickly find the products
on their list, which improves their
overall shopping experience.

All of our stores carry an extensive
range of high quality products that
offer great value for money. However,
we also customise our category
assortment to varying degrees in
different regions, since local tastes and
preferences across Russia inevitably
vary widely. This geographic flexibility
is a key differentiator for Lenta.

In 2016, fresh food accounted for
39.8% of combined supermarket
and hypermarket sales. Dry groceries
comprised 48.1%. Our non-food
category, which includes clothing,
homeware and seasonal goods
accounted for 12.1% of sales.

Total food sales (fresh and dry
combined) grew by 21.5%. Non-food
sales rose 18.8%. Non-food products
comprised 12.5% of total hypermarket
sales, compared with 3.0% of total
supermarket sales.

+21.5%

Total food sales growth
(fresh and dry
combined)

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Lenta Annual Report and Accounts 2016

Operating review continued

Private label ranges
In a highly competitive market,
we provide great value to our
customers through our extensive
private label range of everyday
essentials. Recognising the pressures
on household budgets, we made our
quality products even more affordable
through the introduction of smaller
pack sizes.

Our two leading private label FMCG
variants are ‘365 days’ and ‘Lenta’.
‘365 days’ comprises 722 SKUs
of the most affordable products in
their categories. Our ‘Lenta’ range
comprises 583 SKUs of mid-range
products, which offer excellent quality
at competitive prices.

Centralised production continues to
play a key role in our drive for cost
efficiency. It also enables us to source
ingredients and raw materials directly,
maintain the highest standards of
quality and keep our shelves filled with
the freshest products. Bakery products,
salads and ready meals are among the
popular categories of own-produced
fresh foods. Sales amounted to
RUB 39 billion, some around 13%
of our total sales and an increase
of 18% on the previous year.

We developed and implemented new
‘bake-off’ technologies in 13 ‘mother’
stores, which in turn supply 30 ‘daughter’
stores. This arrangement enables
rapid replenishment of shelves and
consistent quality – as well as savings
in cost, space and equipment at the
daughter stores. We also commenced
centralised meat production in Omsk,
Siberia, with a mother store producing
80 SKUs, which are vacuum packed
in a gas-modified atmosphere for four
other stores in the city.

Volumes of peeled vegetables
produced centrally increased from
five to 153 tonnes per month and
the number of stores receiving these
products increased from six to 40,
with the assortment expanding from
six to 17 SKUs. We commenced
production of Korean salads and
pickled cabbage in 2016 and are
expanding our centralised production
capabilities to include peeled potato,
carrot, beet and mixed packs.

This approach enables us to adapt
successfully to a wider range of
different catchment areas, maintaining
a balanced range of reasonably priced
products without compromising the
quality of our service. The year ahead
will see us introduce our ‘bake-off’
technology at nine mother stores
serving 17 daughter premises.

During the year we introduced a system
of regular quality self-assessment,
which was implemented in every store.
This was underpinned by an enhanced
internal quality audit programme,
with every store now reviewed on
a quarterly basis.

Lenta Annual Report and Accounts 2016S

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All of our promotional activities are
carefully planned and continually
refined using customer feedback
and sales figures. We also consider
local buying patterns and regional
preferences when devising promotions,
so that we maximise brand awareness,
attract new customers and build loyalty.
In 2016, 38.5% of sales were
accounted for by promotions.

We continued our targeted promotional
activity and launched several new
initiatives during the year, incorporating
our Big Data Customer Insight
capabilities further into our ‘Big Media’
and ‘Crazy Day’ promotions. We are
now able to understand the best
promotions for sales, unit uplift,
customer penetration and returning
or new customers. In 2016, we
sent customers birthday greetings
accompanied by a special offer and
focused our efforts on encouraging
‘lost’ or ‘reducing spend’ customers
to return to Lenta. Both these initiatives
resulted in double-digit sales increases.

Price leadership and promotions
The consumer environment remained
intensely competitive. We closely
monitor other retailers’ local and
national pricing – often twice a week,
sometimes daily – to ensure we
maintain our price leadership. Our core
proposition is to provide great value for
money – and our customers appreciate
the benefits of our low price/low cost
business model. Our continued
buoyant profit performance derives
from the simple – yet highly effective –
mix of high footfall, high sales density
and a low cost base. Close collaboration
with our suppliers means we can keep
costs down and pass on savings to
our customers.

We are particularly focused on
enhancing our private label offerings.
In November we announced the
launch of a range of private label
food products for children, including
breakfast cereals, jellybeans and
cookies. Co-branded with The Walt
Disney Company CIS, the product
packaging features several of Disney’s
best-known cartoon characters.
Lenta is the first Russian food retailer
to launch such a partnership.

We continued the development of
our non-food own brands: ‘Home Club’
household goods, ‘Lentel’ home
appliances, ‘Giardin’ gardening goods
and ‘Friend Made’ clothing and
accessories – as well as newer brands
‘Bigga’ toys and ‘Actico’ sports goods.
The share of private label vs. branded
goods sales was stable in 2016 due
to high levels of promotional activity
in premium brands.

IN PARTNERSHIP WITH DISNEY:
ANOTHER FIRST FOR LENTA

In November, Lenta and The Walt
Disney Company CIS announced a
new private label range of co-branded
food products for children. This makes
us the first company in the Russian
food market to launch such a venture –
and represents an exciting new
stage in the development of Lenta’s
private labels.

The new range initially comprises
six products, which comply with
our own high quality standards and
Disney’s stringent quality and safety
requirements. Manufacturing facilities
were audited for compliance with
international labour conventions and
all suppliers for the new range have
been certified to ISO 22000 food
safety management standards.

Lenta Annual Report and Accounts 2016

Operating review continued

Distribution
Lenta’s rapid growth is underpinned
by a sophisticated, flexible and highly
efficient supply chain. Our extensive
geographic spread across Russia
means we must overcome a complex
set of logistical hurdles in order to keep
our stores stocked at optimum levels
with the right products at the right time.
Our stores are therefore supplied
through a combination of deliveries
from our own distribution centres and
direct deliveries from our suppliers.

Our distribution centres incorporate
state-of-the-art technologies and
are designed for maximum efficiency.
They have the capacity to serve a
total of over 250 hypermarkets and
250 supermarkets. During the
year we continued to invest in our
distribution network, with the opening
of a RUB 2 billion dedicated supermarket
distribution centre in Moscow – our
seventh. This 31,600 sq.m facility
has the capacity to serve over
150 supermarkets in the Moscow
and Central regions; providing us
with a new catalyst for growth in this
store format.

In 2016 the centralisation ratio was
50.1% for Lenta’s hypermarkets vs.
45.2% in 2015, and 64.5% for our
supermarkets vs. 67.9% in 2015.
The average distance transported
per pallet of goods was 579 km
compared with 635 km per pallet
in 2015, a decrease of 9%.

Our substantial truck fleet means we
maintain tight control of this crucial link
in our supply chain. During the year,
our owned trucks delivered 53.6% of all
deliveries to our stores compared with
39.3% in 2015. At the end of 2016 our
fleet comprised 161 owned delivery
trucks, an increase of 45%.

53.6%

Deliveries made
by our own trucks

Purchasing and supplier
partnerships
Strong relationships with suppliers
are a vital component in our growth
ambitions. Throughout the year we
continued to work closely with our
key suppliers, as well as a diverse
and growing range of regional and
local producers. The fact that we are
growing so rapidly makes us very
attractive to potential suppliers, since
they too stand to benefit from our
success. Many of our suppliers offer
favourable purchasing terms and
conditions, the benefits of which
we can pass on to our customers.

In 2016 we established a dedicated
Procurement Unit. This specialist
team has several functions including
sourcing suppliers on a global scale,
establishing a unified commercial
tendering system and balancing
price, quality and supply chain
considerations effectively.

Lenta Annual Report and Accounts 2016Every Lenta supplier is required to
match our own high standards of
safety and quality. They must also
comply with all relevant legislation,
such as packaging regulations and
the provision of consumer information.
In 2016 we focused on improving the
quality of supplied fruit and vegetables,
as well as directly imported goods.
While we have high expectations of
our suppliers, they in turn value us as a
fair and reliable partner – in November,
Lenta was recognised as the number
one partner for suppliers among
Russia’s largest food retailers in a
survey by leading market research
company Advantage.

The total number of suppliers
increased by 12.9% to 3,178 in 2016,
as we continued our rapid expansion.
Over 95% of all products purchased
in Lenta stores were sourced in Russia,
including 19.5% from suppliers located
close to the destination store. Some
46% of all the fresh food sold in our
stores in 2016 was provided by
local producers.

We actively seek new partnerships.
Suppliers can approach us directly,
but we also seek out producers who
will help us extend and enhance our
ranges of niche products that appeal to
specific local tastes. We take deliveries
from many producers at the nearest
distribution centre to their facilities,
then use our logistics network to
distribute nationally, saving costs and
cutting lead times involved in getting
products to our stores.

In 2016, we started to set up long-term
agreements with growers. Through
sourcing fruit and vegetables directly in
this way, we significantly improved our
margins in this competitive category –
and will focus on expanding this activity
in the year ahead.

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Going direct/going local
% share of sales

32%

3%
65%

24%

3%
4%
68%

6%
6%
16%

72%

2013

2016

Target

Direct import
Producers
Long-term direct agreements with growers

Distributor

Source: Company information

Overall number of suppliers:
Direct import
Sourced in Russia
% of all supply
Direct import
Sourced in Russia

2016
3,178
248
2,930

2015
2,816
233
2,583

2016 vs. 2015
12.86%
6.44%
13.43%

4.24%
95.76%

3.38%
96.62%

0.86pp
-0.86pp

Lenta Annual Report and Accounts 2016

Operating review continued

OUR 2016 PARTNERSHIP FORUM,
WHICH WAS ATTENDED BY KEY
SUPPLIERS AND PRODUCERS FROM
ALL OVER RUSSIA, ENABLED
PARTICIPANTS TO DISCUSS
OPPORTUNITIES FOR FURTHER
COOPERATION AND GROWTH.

We currently buy a wide range of
products from 24 countries. Direct
import volumes of fruit and vegetables
increased by 250% to more than
62,000 tonnes in 2016, with the
average direct import share reaching
more than 20%. Customers
appreciated the significantly higher
quality of these products and volumes
continue to grow.

During the year, our dry food direct
import business processes were
defined and aligned within the
Company and new projects in five
categories were launched and well
received by customers. The year
ahead will see us further explore joint
business plans with our largest
partners, sharing customer insights
to launch innovations and grow sales.
Our 2016 Partnership Forum, which
was attended by key suppliers and
producers from all over Russia,
enabled participants to discuss
opportunities for further cooperation
and growth.

In December we signed an agreement
of intent with Eurotorg, a leading
Belarus retailer to explore the potential
for joint procurement opportunities
for both food and non-food categories.
Although such partnerships exist
elsewhere, this is a pioneering venture
in the CIS markets. We also entered
a partnership with Agrokor, one of
Europe’s largest retailers and Serbia’s
largest food producer, which is helping
us bring fresh produce, food and
non-food items to our customers
at the best possible prices.

Lenta Annual Report and Accounts 2016 35

IT
All of Lenta’s operations – from inventory
management and supply chain to
HR and finance – are supported by
best-in-class business applications.
Given our growth ambitions, scalability
and reliability are at the heart of our IT
strategy. Amongst others, we use SAP,
Oracle and JDA solutions to support
our business activities.

During the year we completed
implementation of the SAP Mobile
Platform (SMP) service for Lenta’s
entire chain – a solution that has
helped to increase the effectiveness
of our in-store staff by reducing the
time required for routine operations.
We also rolled-out new point of sale
software in our stores, which has
delivered numerous benefits including
improved reliability and functionality
for our customers and back-office with
lower maintenance costs. The new
system also speeds the time-to-market
for implementation of new features as
the business grows. In December we
signed a new long-term contract with
SAP, which gives us full access to the
latest SAP solutions and technologies.

We launched a new data centre in
Moscow, which guarantees the
operation of business-critical systems
in the event of another data centre’s
failure. We also rolled-out JDA’s
Demand and Fulfillment solutions for
our entire regular assortment, allowing
us to improve stock fulfillment accuracy
and further centralise orders to suppliers.

Merchandising
To ensure we provide our customers
with the best possible shopping
experience, we plan our store layouts
with great care. They all follow a similar
floor layout, with logical arrangements
of product categories, which makes
them easy for customers to navigate.
Our stores are specifically designed to
showcase our fresh food ranges. Our
attractive fruit and vegetable displays
take centre stage and we ensure that
our strongest promotions and offers
are placed in prominent positions in
store, including near the entrance.

IN 2016 WE CONTINUED
TO REFRESH AND UPDATE THE
LAYOUTS OF OUR EXISTING STORE
FORMATS IN ORDER TO MAINTAIN
THEIR APPEAL.

In 2016 we continued to refresh and
update the layouts of our existing store
formats in order to maintain their
appeal. Better planning enabled us
to highlight key product areas such as
children’s goods, seasonal offerings
and fresh food and promotions more
effectively. We also successfully piloted
self-service cash desks and are
implementing these across our
store estate.

We made significant improvements
to our store displays during the year,
increasing the prominence and
accessibility of our private label
365 range and improving the layout of
some categories including cosmetics,
canned foods and shoes.

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Lenta Annual Report and Accounts 2016

Financial review

ANOTHER
STRONG
PERFORMANCE

Increases in sales, selling space and
productivity helped to deliver a substantial
increase in profits.

Jago Lemmens
Chief Financial Officer

Dear Shareholders
Despite the challenging economic
conditions, Lenta delivered another
strong overall financial performance
in 2016. Combining rapid growth with
continuing high productivity enabled
the company to deliver a substantial
increase in profits while maintaining
a conservative balance sheet.

Total sales grew 21%. Adjusted
EBITDA rose 13% to RUB 31.8 billion,
and net income increased by 9%
to RUB 11.2 billion, while net debt
increased to 2.8x EBITDA.

Gross profit
RUB bn

2016

2015

2014

Net profit
RUB bn

2016

2015

2014

+20.4%

67.8

56.3

43.7

+8.9%

11.2

10.3

9.1

COMBINING RAPID GROWTH WITH
CONTINUING HIGH PRODUCTIVITY
ENABLED THE COMPANY TO
DELIVER A SUBSTANTIAL INCREASE
IN PROFITS WHILE MAINTAINING
A CONSERVATIVE BALANCE SHEET.

Lenta Annual Report and Accounts 2016 37

306.4bn

RUB total sales

67.8bn

RUB gross profit

23.7bn

RUB operating profit

Sales
Our sales in 2016 were RUB 306.4
billion, a rise of 21.2% compared with
growth in 2015 of 30.3%. Our growth
was supported by another substantial
increase in selling space, which grew
by 29.9% compared with 25.8% in
2015. LFL sales grew 3.9%, as the
average LFL ticket increased by 4.0%,
while LFL traffic fell by 0.1%.

Selling space
‘000 sq.m

2016

2015

2014

+29.9%

1,146.1

882.4

701.2

Y-on-Y growth
Total sales
LFL sales
LFL traffic
LFL ticket

1H 2016
21.9%
5.2%
2.1%
3.0%

2H 2016
20.6%
2.9%
-2.0%
5.0%

2016
21.2%
3.9%
-0.1%
4.0%

2015
30.3%
9.1%
3.9%
5.0%

Gross margin
We achieved notable improvements
in supplier conditions, supply chain
efficiency and Lenta’s own production
performance. However, these gains
were offset by the price investments
we made to shield our customers from
some of the impact of inflation. As a
result our gross margin decreased
slightly by 0.2pp to 22.1%.

The increased density of our distribution
network enabled a reduction in
the average distance for goods
transportation by 9% to 579km/pallet
in 2016, compared to 635km/pallet
in 2015. Combined with a higher
centralisation ratio of 50.8%, this led
to a reduction in supply chain costs as
a percentage of sales to 1.2% in 2016
from 1.3% in 2015. In-store production
margins improved 42bps thanks to the
implementation of our ‘mother/daughter’
centralisation concept.

Selling, general and administrative
expenses (SG&A)
SG&A increased to 15.2% of sales,
0.9pp higher than 2015, while adjusted
SG&A, which excludes rent paid on
land, equipment and premises leases,
depreciation and one-off non-operating
costs increased 0.5pp to 11.4% in 2016.

Ongoing productivity gains were
substantial. Operational improvements
in stores led to higher labour
productivity, despite the growing
number of stores in the ramp-up phase,
and resulted in flat personnel costs as
a percentage of sales (5.7% in 2015).

Despite continuous operational
improvements, other costs included
in adjusted SG&A (which include
marketing, utilities and other
housing costs, but exclude rent and
depreciation) increased by 0.5pp to
5.7% of sales in 2016. This was due to
a combination of increased marketing
costs employed to drive customer
loyalty and additional traffic, rising
tariffs for utilities, and increases in
housing costs driven by the growing
number of stores – as well as
expenditure to support Lenta’s rapid
organic expansion and the acquisition
of 11 hypermarkets from Kesko.

Rent expenses as a % of sales
remained almost flat at 1.1%, due to
a higher share of new owned selling
space. Depreciation increased by
0.3pp to 2.5% of sales as a result
of Lenta’s rapid expansion.

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Lenta Annual Report and Accounts 2016

Financial review continued

EBITDA
Adjusted EBITDA (which is reported
EBITDA adjusted for non-recurring
one-off items such as changes in
accounting estimates and one-off
non-operating costs and income)
reached RUB 31.8 billion in 2016
(+13.1% compared to 2015) with an
Adjusted EBITDA margin of 10.4%.

RUB (millions)
Adjusted EBITDA
One-off expenses and income1
Reported EBITDA2

2016
31,759
369
31,390

2015
28,080
61
28,018

% Change
2016–2015
13.1%
–
12.0%

1 One-off expenses and income in 2016 were professional fees associated with M&A activity. In 2015 these were

professional services fees primarily incurred in connection with optimisation of the Group corporate legal structure,
development of employee incentive plans and cost and income related to Lenta’s public offerings carried out in March
and October 2015.

2 Reported EBITDA (as set out in note 6 of the IFRS financial statements) includes all operating income and expenses

excluding interest, tax, depreciation and amortisation as well as certain other expenses.

Net income
Net profit rose 8.9% to RUB 11.2 billion
from RUB 10.3 billion in 2015. This
was driven by growth in EBITDA, partly
offset by increased depreciation and
income tax. The net profit margin fell
to 3.7% (2015: 4.1%). While this figure
was supported by almost flat interest
expenses, it was affected by a higher
effective rate of tax, mainly due to
one-off effects.

Capital expenditure
Our capital expenditure rose to
RUB 54.3 billion, an increase of 73.0%
on 2015 (RUB 31.4 billion). This was
principally due to rapid ongoing organic
expansion: additional investments in
land purchases and hypermarket
construction – combined with a higher
share of owned selling space and the
RUB 11.4 billion acquisition of Kesko’s
food retail business in Russia. Lenta’s
capital expenditure in 2016 was funded
by operating cash flow and debt.

Interest
Net interest expenses were RUB 9.2
billion, a slight decrease compared to
2015 (RUB 9.3 billion). This was due
mainly to lower interest rates offsetting
a substantial increase in total
borrowings to fund store openings,
supply chain development and the
Kesko acquisition.

We managed to reduce the cost of our
debt throughout the year, from 12.5%
in the first three months to 11.2% in
the fourth quarter. This was due mainly
to the combined effects of continuing
reductions in MosPrime rates and
improvements in the terms and
conditions of our long-term loan
facilities. Our weighted average cost
of debt in 2016 decreased to 11.9%
(180bps lower than 2015).

Tax
The effective tax rate rose from 20.1%
in 2015 to 23.0% in 2016. The main
driver of this change was a one-off
permanent difference related to the
Kesko acquisition and an intra-Group
loan that generated a taxable gain in
2016 versus deductible losses the
previous year.

Cash flow
Net cash generated from operating
activities, before net interest and
income taxes paid, of RUB 27.9 billion
rose 7.7% compared to 2015
(RUB 25.9 billion). This was driven
primarily by growth in EBITDA, partly
offset by an increase in working capital.
Trade payables grew slower than
inventory and trade receivables as
a result of the new trade law. Another
effect was a marked increase in taxes
receivable from RUB 1.3 billion on
31 December 2015 to RUB 3.9 billion
on 31 December 2016. This was driven
by VAT receivable on the high capex
in 2016.

Lenta Annual Report and Accounts 2016S

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Summary cash flow

RUB (millions)
Profit before income tax
Cash from operating activities
before movements in working capital
Movements in working capital
Cash from operating activities
Net interest
Income tax
Net cash generated from
operating activities
Net cash used in investing activities
Net cash generated from
financing activities
Net increase/(decrease) in
cash and cash equivalents
Cash and cash equivalents
at the end of the period

Full year ended
31 December
2016
14,553

Full year ended
31 December
2015
12,872

32,578
(4,668)
27,910
(7,902)
(289)

19,719
(54,257)

28,288
(2,378)
25,911
(9,090)
(896)

15,924
(31,370)

Y-o-Y
growth
13.1%

15.2%
96.3%
7.7%
-13.1%
-67.7%

23.8%
73.0%

25,120

25,865

-2.9%

(9,418)

10,420

–

13,038

22,456

-41.9%

Net debt and leverage
As of 31 December 2016, Lenta’s
net debt stood at RUB 89.2 billion.
We ended the year with a net debt
to Adjusted EBITDA leverage of 2.8x
compared with 1.9x at the end of the
previous year. Adjusted EBITDA to
net interest was 3.4x. The increase
in leverage was attributable to capex
spending on expansion and the
acquisition of the Kesko stores in
December 2016.

All of the Company’s debt is
denominated in Russian Roubles,
most of which is long-term with
an average maturity of 2.3 years.
At the year end, total debt was
RUB 102.2 billion compared to
RUB 76.1 billion in 2015. The Company
had a cash balance of RUB 13.0 billion
as of 31 December 2016.

Lenta has RUB 44.2 billion of undrawn
short- and long-term facilities.

While some improvement in the
trading environment appears likely,
the economy will remain challenging
for retailers and their customers in the
year ahead. However, our effective
low price/low cost business model
and healthy financial position means
we are well positioned to succeed
in these conditions; we will continue
to strengthen our presence while
maintaining rigorous control of our

Summary balance sheet

RUB (millions)
Property, plant and equipment
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Advances paid
Other current assets
Total assets

Equity
Long-term borrowings
Other long-term liabilities
Trade and other payables
Short-term borrowings and short-
term portion of long-term borrowings
Other short-term liabilities
Total liabilities and equity

31 December
2016
147,812
13,761
27,491
17,036
13,038
2,670
4,362
226,170

31 December
2015
104,016
11,023
22,782
13,647
22,456
2,265
2,203
178,392

58,369
66,956
7,362
56,172

35,245
2,066
226,170

47,130
65,149
5,254
48,820

10,773
1,265
178,392

Net debt/Adjusted EBITDA

2.8x

1.9x

cost base in order to deliver profitable
growth. We will remain focused on
delivering attractive returns on our new
investments while maintaining a strong
balance sheet in 2017 and beyond.

Jago Lemmens
Chief Financial Officer

Lenta Annual Report and Accounts 2016

Principal risks and uncertainties

Risk management
We define risk as ‘an uncertain future event that could
affect the Company’s ability to achieve its objectives.’
Understanding how different risks potentially influence our
business is integral to the decision-making process at Lenta.
We continuously monitor all material risks to our operations,
taking action as necessary to mitigate and manage them –
and anticipate new ones.

Our risk management process applies across all functions
and comprises four main stages:

• identification;

• assessment;

• response;

• monitoring, reporting and escalation.

R i sk appetite

1 Risk identification

4
Risk
monitoring,
reporting
& escalation

Communication
& consultation

2
Risk
assessment

3 Risk response

Risk app e t i

t e

Stage 1 – Risk identification
To ensure a comprehensive risk profile, we conduct a ‘top
down’ strategic risk assessment on a biannual basis. This
supplements a quarterly functional ‘bottom up’ evaluation,
which identifies risks at operational levels in the company.
Risk identification is also embedded into key processes
including budgeting, business planning, capital expenditure
and performance management.

Stage 2 – Risk assessment
Risks are assessed to determine their likelihood and
potential impact. They are assessed on a ‘Current’ and
‘Target’ basis, which helps to inform management oversight
and privatisation. Risks are assessed over a three-year time
horizon using Lenta’s Risk Assessment Criteria, which
comprise four-point probability and severity scales.

Stage 3 – Risk response
When the Current severity of a risk exceeds acceptable
levels, action may need to be taken to bring it in line with
the Target risk position. Risk Owners retain accountability
for managing the risk, with details of all planned activities
and delivery milestones set out in risk response plans.

Stage 4 – Risk monitoring, reporting and escalation
This involves the timely tracking, capture and sharing of
risk information to enable review and notification of changes
in risk exposure by management. It supports understanding
and enables decisions on risk response to be taken,
including management interventions to avoid a risk
occurring – or reduce its impact should it occur.

The entire process is supported by a governance structure
that clearly defines risk-related roles and responsibilities
at each level of the Company. The Lenta Board has
overall accountability for ensuring that risks are effectively
managed across the business. The Audit Committee
oversees and challenges the effectiveness of our approach.
The management team provides risk oversight of commercial
operations and undertakes a biannual ‘top down’ assessment
for the Audit Committee and Board to review. Functional
heads across the business are accountable for implementing
the risk management activity in their respective areas.

A new policy
As we have continued to grow, we have recognised the
need to establish and embed a more structured approach
to managing risk within the business. During 2016 we
launched a new Risk Management Policy, setting out clearly
the principles and standards to be adhered to throughout
Lenta and establishing a common approach and minimum
requirements for risk management activities within the
Company. The policy creates a common language for
risk and provides us with multiple benefits, including:

• informed decision-making to help deliver consistent

and improved business performance through avoiding
unwanted surprises and achievement of opportunities;

• identification and management of key risks that could

have a material impact on the business;

• clear accountability and ownership of risk management;

• an improved view of key controls, their effectiveness

and gaps in the control environment;

• a clear path for the functions to raise significant risks to

the Senior Management team, Audit Committee and Board;

• a proactive, risk-aware culture across the business;

• assurance to the Board and Audit committee that

processes and behaviours are embedded to ensure
significant risks are consistently identified, understood
and effectively managed.

Lenta Annual Report and Accounts 2016 41

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Board
Accountable for ensuring a sound system
of internal control and risk management
is in place

Audit Committee
Oversight and challenge of the principal
risks, effectiveness of risk management
and assurance activities

Senior Management team
Oversight of the identification, review and
ongoing monitoring of Lenta’s principal
risks. Review and challenge of the risks
submitted from the Functions

Head of Risk Management
Responsible for the risk management
framework and coordination of
management activities

Functions
Functions are accountable for implementing the Risk Management policy in their respective area
and ensuring timely and robust submissions of significant risks to the Head of Risk Management

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The policy is owned by the Chief Financial Officer and is
reviewed on an annual basis. Compliance with the policy
is mandatory for all levels of management within Lenta;
guidance on how to apply the process and supporting tools
are provided via a dedicated Risk Management intranet site.
Risk Management awareness and training is provided to
all staff commensurate with their roles and responsibilities.
By the end of the year, 50 employees – most of whom
report directly to the Senior Management team – had been
trained to identify risks across the business, and ‘owners’
of principal risks had been nominated.

With our new policy in place, we now have a comprehensive
and robust framework, enabling us to ensure that risk
is managed to a consistently high standard across all of
our operations.

The risk landscape
Several events and developments occurred in 2016 that
could have a potentially severe impact on the business.

The ongoing weakness in consumer demand required us
to remain focused on our commercial proposition to continue
to attract customers. With the help of our detailed consumer
insight, we further developed individually targeted offers
and ensured that our usual promotional activities remained
relevant for customers. The growing proportion of sales
accounted for by promotions shows they have become
more relevant, since the actual number of products on
promotion remained unchanged. With the help of our
Big Data Customer Insight Programme we also improved
our assortment, increasing the share of local products.
Thanks to our sourcing initiatives, we were largely able to
mitigate the effects of pricing pressures and the increased
promotional share.

A new trade law was implemented in July 2016, which
reduced back margins on food supply to a maximum of 5%
of purchases – and also reduced the payment terms. Any
new agreements after 13 July had to comply with the new
law, with existing agreements compliant by 1 January 2017.
Lenta ensured that all annual negotiations were concluded
in time and all agreements with suppliers signed. We had
also already switched a large part of fresh food supplies to
a net-net basis (without back margin) from around mid-2015.
In the second half of 2016, all existing agreements were
renegotiated for application in 2017; with the objective of
ensuring that the new terms were at least the same as, or
better than, those applicable in 2016. This objective was met.

The high number of store openings could potentially
lead to an erosion of standards and store performance.
With 52 openings in 2016 following 32 in 2015, a significant
proportion of our stores is very young. During the year we
implemented a management-level process involving all
functions to regularly review underperforming stores and
evaluate likely reasons for underperformance (commercial,
operational, marketing, people). The reviewing team then
defines an action plan to improve the store’s performance,
which is actively followed up.

A positive development was the continuous decrease in
interest rates. This reduced interest rate risk related to our
growth, which requires additional funding above our own
generated cash flows.

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Lenta Annual Report and Accounts 2016

Principal risks and uncertainties continued

The risk management process is closely aligned to our
strategic objectives. We identified 16 principal risks
that could potentially have a negative impact on our ability
to deliver on our goals. These are set out below, along
with their likely impacts and the mitigating actions taken
in each case. Each risk is graded according to how the
possible impact would affect the achievement of our
strategic priorities.

Our strategic priorities

Delivering profitable like-for-like growth

Strengthening our existing presence

Exploiting white space potential

Format evolution

Risk categories
` Strategic
` Operational
` Financial
` Legal and compliance

Risk

Regulation resulting
in major additional
compliance costs

Retail regulation
of price/margin

Major decline
in economy

No.
on map

Impact

Strategic priorities that
would be affected

Change in 2016

How we manage it

Risk

categories

Russia’s taxation system is changing constantly and
new rules are often ambiguous, leading to uncertainties
in the tax position.

Lenta’s debt portfolio is partly in variable interest rates,
potentially leading to a large increase in interest cost
and potential breach of covenants.

Sourcing of financing

Lenta’s growth requires additional funding on top of
its own-generated cash flow. During disruptions in
the banking system, or because of a too high leverage,
Lenta may not be able to get the sourcing needed
to fulfil its growth plan.

Compliance with
regulations and internal
standards regarding
store operations

Bribery

Health and safety failings, customer/staff error or
inadequate design in store construction and store systems
could cause a disaster (e.g. roof collapse), leading to
multiple deaths and injuries, negative media headlines
and fines. Failures could also lead to store closures by
relevant authorities because of non-compliance with
safety or environmental regulations.

Russia’s business environment could lead to an employee
acting unethically (paying or accepting a bribe) resulting in
a breach of anti-bribery regulations, police investigations
and negative media headlines.

VIABILITY STATEMENT
Lenta’s long-term goal is to become a top three multi-format
food retailer in Russia. Lenta also aims to remain the largest
hypermarket player in Russia, measured by selling space
and total sales.

Our low price/low cost business model is aimed at
generating market-leading sales densities, by consistently
implementing our strategy of everyday low prices (EDLP)
combined with deep and frequent promotions. Low cost
is driven by the combination of high sales densities with
efficient business processes and store designs, which
optimise store operating and supply chain costs. This is
supported by our increasing scale, which enables us to
negotiate improved conditions from suppliers.

As a food retailer, Lenta generates large amounts of cash
daily – in a relatively predictable way. We prefer to own
the majority of our hypermarkets, as this allows us to build
stores in our own format to support our low cost operations
and supply chain. Building our own stores also gives us
better control of the delivery of our development pipeline.
However, this growth is capital intensive, requiring additional
funding over and above our own cash flow generation.

We depend on banks and the financial markets to fund
this gap. Therefore, our strategy is to maintain a strong
balance sheet to ensure we have access to capital markets
to fund our growth. As part of managing our viability, we
ensure our debt has relatively long maturities and limited
interest rate risk.

The principal risk affecting Lenta is the impact of significant
changes in consumer spending – either due to economic
developments or reduced appeal of our commercial offer.
We have seen that our model is quickly accepted in new
cities where we choose to operate. However, strong
economic disturbances will impact our business – along
with other retailers – and will influence our ability to generate
the required cash flow. This in turn will affect the level of
ambition we are able to apply to our expansion programme.

Lenta has a long-term planning horizon. This stretches
over the current year and four consecutive years, in line
with our long-term growth targets. Our approach to the
viability of the business is also influenced by the construction
cycle of our new stores. We closely monitor the construction
cycle, since a reduction in capex is the main – and most

Lenta Annual Report and Accounts 2016

Risk

Tax

Interest rates

Russia’s taxation system is changing constantly and

new rules are often ambiguous, leading to uncertainties

in the tax position.

Lenta’s debt portfolio is partly in variable interest rates,

potentially leading to a large increase in interest cost

and potential breach of covenants.

Sourcing of financing

Lenta’s growth requires additional funding on top of

its own-generated cash flow. During disruptions in

the banking system, or because of a too high leverage,

Lenta may not be able to get the sourcing needed

to fulfil its growth plan.

No.

on map

Impact

Strategic priorities that

would be affected

Change in 2016

How we manage it

Tax authorities seem to take a tougher stance in court
on tax structuring and find support in courts for that.

The Company will follow up changes in legislation
and court practice and reconsider, when
necessary, its tax structure.

Risk
categories

Financial

Since the interest rate rise at the end of 2014, rates
have reduced significantly. The current spread between
interest rates and inflation is resulting in one of the highest
effective interest rates in the world, which should reduce
over time.

Lenta significantly increased limits with most of its banks
ahead of its funding requirements.

Compliance with

regulations and internal

standards regarding

store operations

Health and safety failings, customer/staff error or

inadequate design in store construction and store systems

could cause a disaster (e.g. roof collapse), leading to

multiple deaths and injuries, negative media headlines

and fines. Failures could also lead to store closures by

relevant authorities because of non-compliance with

safety or environmental regulations.

>> The high number of new store openings means that
there is an increased risk of a mishap in the period before
the opening. More new and relatively inexperienced
colleagues are involved in the management of our stores
and store processes.

Bribery

Russia’s business environment could lead to an employee

acting unethically (paying or accepting a bribe) resulting in

a breach of anti-bribery regulations, police investigations

and negative media headlines.

secure – method of preserving cash flow, should operational
cash flow be lower than expected. Cancellation of planned
projects before the commitment has been made has the
most impact, whereas cancelling store investments already
under construction leads to capex being spent without any
prospect that it will generate returns in the near future.

Taking the above factors into account, the Board reviews
the viability of the business between four and six times
a year, when the management team proposes capex
commitments for new store construction.

The most important factor affecting the Company’s access
to capital markets to fund growth is a strong balance sheet.
Hence the focus of the analysis is on the impact on leverage.
Management models the impact of various risk scenarios on
sales, EBITDA and generation of operating cash flow, as well
as the combined impact of various scenarios happening at
the same time. The resultant leverage is reviewed to ensure
that in all cases we remain comfortably below our bank
covenants, giving the Board confidence that the potential
to reduce investment cash outflows is substantial enough
to remain viable.

Lenta ensures that a reasonable part of debt is in
fixed rates or covers upward risk with caps. Stress
testing on interest rate risk is conducted quarterly.

Financial

The Company has a diversified portfolio of
lenders to reduce dependency on limited sources.
It ensures it has generous limits approved and
undrawn debt available. Lenta also conducts
regular stress tests of projected funding
requirements and leverage under a variety of
negative scenarios to ensure that the company
would have adequate funding and that leverage
would remain within covenants even with
very pessimistic assumptions.

Construction standards are rigorously controlled.
Comprehensive training and clear procedures
ensure that all employees have a thorough
understanding of EHS processes. The Audit
Committee regularly tracks the EHS status of
all operations. A clear investment programme
to address non-standard situations is agreed
and executed.

Financial

Legal and
compliance

Lenta has a clear ethical policy. Third parties with
whom Lenta cooperates are informed of the policy
and are expected to comply with it.

Legal and
compliance

The Directors have determined that the long-term planning
horizon over the existing year and four consecutive years is
an appropriate timeframe for assessment of the long-term
viability of Lenta. The Directors have assessed the viability
of Lenta over this period, taking into account the Company’s
current position and the potential impact of the scenarios
described above. Based on the results of our testing, the
Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities
as they fall due during this period.

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Lenta Annual Report and Accounts 2016

Corporate social responsibility

THE
LENTA WAY

Corporate social responsibility is central
to the way we do business. It plays a part
in almost every decision we make – from
choosing locations for our stores to sourcing
products for our shelves. ‘Doing the right
thing’ – for our customers, staff, suppliers,
communities and the environment – is not
just about behaving ethically, it also helps
us to secure a long-term sustainable
future for Lenta.

Lenta maintains close contact with millions of customers
as well as business representatives, and non-profit and
governmental organisations on a daily basis. Many years
of experience in the Russian market help us to not only
understand the social needs of our customers and partners,
but also to influence their position on current social issues.

Lenta Annual Report and Accounts 2016Our approach to corporate social responsibility is therefore
based around a deep understanding of local community
needs in all of the regions where Lenta is present. Six pillars
shape our approach to social responsibility and define our
work in this field.

In 2016 we established goals within the context of each
of our six pillars – these goals were primarily focused on
further investment in the development of our employees,
cooperation with local communities, partners and suppliers,
supporting our ‘value for money’ proposition in our
stores and further project implementation in the field
of environmental protection.

OUR PILLARS

RECRUITING, TRAINING
AND RETAINING GREAT STAFF
> Read more on page 51

PRICING AND CUSTOMER
SATISFACTION
> Read more on page 55

LOCAL SOURCING
> Read more on page 56

CARING FOR THE ENVIRONMENT
> Read more on page 58

MAKING A POSITIVE CONTRIBUTION
TO LOCAL COMMUNITIES
> Read more on page 60

PROMOTING
HEALTH AND SAFETY
> Read more on page 64

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Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

The Lenta Way
The Lenta Way comprises a set of
core principles which underpin our
business and the way we operate.
Alongside our ethics policy, they
form the basis of our CSR approach
and support our ambitions for
long-term sustainable growth.

Customer satisfaction
We work every day to provide the best
possible service for our customers,
by constantly taking into account the
products they want and the services
they demand. Customer satisfaction
is the key to our development and
improvement.

Providing customers with
low prices every day
Lenta is the leader in terms of price.
We have always been the price leader
and we are committed to providing
our customers with quality products
at lower prices than the competition.
We ensure that our costs are kept
to a minimum so that we can pass
savings on to our customers.

Selling goods of only the
highest quality
Our stores only stock fully licensed
goods that have been handled under
the most hygienic conditions.

Our employees
We know that if we want to have
satisfied customers, we must retain
employees who are well trained
and motivated.

Maintaining the highest level
of respect for everyone
We pride ourselves on respecting the
opinions of our customers, suppliers
and employees, encouraging positive
criticism and friendly relations.

Teamwork in everything we do
Only by everyone working together
will we be able to satisfy our customers.
By encouraging an open environment
based on mutual trust, everyone
can feel comfortable about asking
for assistance from another employee
and they can be confident that their
voice will be heard.

Innovation and the constant
generation of new ideas
The key to our long-term survival is
a continuous flow of innovative ideas.
Many of these come from our own
staff. We believe that in order to stay
ahead of the competition we must
continuously implement these
new ideas.

OUR ETHICS POLICY

The Company’s Ethics Committee was
set up in 2011 and our Ethics Policy
forms the basis of the standards and
rules applied to any situation. The
Policy sets out the obligations of every
employee to behave ethically and exhibit
the high standards of behaviour we
expect. These include:

• no improper payments to

authorities or business partners;

• upholding the integrity and good name

of the Company in developing long-term
relationships with customers,
communities and suppliers;

• strict prohibition against directly or
indirectly offering, paying, soliciting
or accepting bribes or kickbacks
in any form;

• no conflicts between personal interests

and those of the Company;

• abiding by Lenta’s corporate rules

and standards, which impose stricter
ethical restrictions on employees than
those provided in current legislation.

Customers, employees and suppliers
can contact the Ethics Committee,
either anonymously through the Lenta
website and Company hotline – or via
in-store information desks. In 2016,
475 calls were received via the Company
Hotline; up slightly on 2015, indicating
the increased level of trust in this
method of reporting. Although the
overall number of complaints rose,
the average number per store
decreased markedly.

The Ethics Committee reviews
complaints and non-compliance
on a regular basis. Any instance of
non-compliance with the Ethics Policy
may lead to disciplinary action by the
Company, including dismissal.

The Committee’s work is reviewed
on a regular basis, both by the Audit
Committee and by the Board. Ethics
Committee reports on the Hotline were
reviewed at four audit committee
meetings during 2016.

Lenta Annual Report and Accounts 2016S

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RECRUITING,
TRAINING
AND RETAINING
GREAT STAFF

Our people are the key to our
long-term success and teamwork,
innovation and trust lie at the
heart of our culture. Recruiting
and training enthusiastic,
committed individuals with the
right skills helps us provide
great customer service.

Employee length of service
Years

1,287 people
(3%)

4,860 people
(12%)

10+

3–9

Employee retention
Lenta has an above-average retention
rate for the food retail sector; our staff
turnover in 2016 fell by two percentage
points to 26%, compared with 2015.
We will continue to invest in our people,
since it improves employee retention
and increases productivity and service
levels. Our programme of internal
promotions and job rotations –
combined with individual career plans
and recognition initiatives – contributes
to lower staff turnover. We also run
a variety of employee engagement
initiatives including in-store
‘gamification’ projects, sports events,
New Year celebrations for employees’
children and charitable activities –
all of which contribute to the creation
of a positive working environment
and strong team spirit.

AVERAGE SENIORITY: 2.3YRS

We also have an excellent retention
record at managerial level, thanks
to the challenging and innovative
job content we provide, alongside
development opportunities, competitive
pay and a combination of short- and
long-term reward programmes.

Voluntary turnover of senior staff
2014–16

Division Heads
5%
(two people
in three years)

Top 100
3%

(eight people
in three years)

Senior management
0%

People development
We provide our people with a range
of training programmes, based on their
experience and knowledge. These
cover all employee categories and
serve our aim to prepare colleagues
to facilitate Lenta’s growth and advance
their own careers.

Management training
For a fast growing company such as
Lenta, the role of our managers is key.
Managers guarantee consistency of
performance standards and create a
strong organisational culture through
their leadership style. We constantly
need to develop new managers to
support our expansion.

In 2016, our Lenta Leader programme
underwent a complete overhaul and
upgrade. We now have a ‘mini-MBA’-
style programme (Lenta Leader 2.0),
designed in conjunction with the Higher
School of Economics, one of Russia’s
leading universities. Customised to fit
with Lenta’s needs, the material for the
programme was created with the active
participation of experienced Lenta
managers and built around actual
Lenta business cases and reports.

WE WILL CONTINUE TO INVEST IN
OUR PEOPLE, SINCE IT IMPROVES
EMPLOYEE RETENTION AND
INCREASES PRODUCTIVITY
AND SERVICE LEVELS.

Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

More than 100 store managers, heads
of purchasing teams and regional
operational managers graduated from
the six-month course. During the
training, each participant implemented
a project using new methods to benefit
his or her business unit. Many of these
projects will be replicated across the
business as examples of best practice.
Lenta Leader 2.0 will continue to be
an integral element of our management
development for the future.

Managers can also participate in
our Effective Management programme.
During 2016, some 870 mostly
store-based colleagues took part.
This programme aims to develop
managerial skills and covers aspects
of management including goal-setting,
planning, analysis and decision-
making, creating effective teams and
motivation. Run by in-house trainers,
the programme benefits from the
first-hand experience of Lenta
store directors.

2016 also saw the roll-out of our
performance management process
for store and distribution centre
employees. Over 3,100 line managers

were trained by 27 internal experts in
how to give effective and supportive
feedback to their staff.

Three of our experienced managers
graduated from external pre-MBA
programmes and four managers are
currently engaged on the UK Open
University’s MBA programme.

Store and specialist staff training
Our primary training focus is naturally
on our store employees, who are the
face of Lenta for our customers. Every
store runs a comprehensive induction
programme, which includes orientation
training explaining Lenta’s values,
history and structure as well as our
policies and standards. We also hold
classroom sessions and on-the-job
training with dedicated mentors.
In 2016, more than 15,300 employees
participated in our orientation
programme and some 14,000
people were trained as part of the
performance management process
roll-out.

In 2016, we delivered over 1,470,000
man-hours of training, with an
average of 44.8 hours per person.

This compares with an average
of 30.6 hours per person in 2015.
Almost 90% of our training uses
internal resources, which enables
us to keep costs down. This year,
the cost of one learning hour was
RUB 27 compared with RUB 30
in 2015. Remote courses have proved
to be particularly effective – and in
2016 we increased the amount of
remote training we provided by 500%.
E-learning comprised some 6% of
our total training in 2016.

Recruitment and career development
At Lenta, there are numerous
opportunities for employees to
further their careers and fulfil their
potential. We actively encourage the
advancement of all of our staff, aiming
to fill as many vacancies as possible
from within. Many aspects of our
recruitment process are centralised,
including job posting, advertising,
candidate attraction and phone
interviews. The final stages of selection
are however conducted in individual
stores and distribution centres. We
created around 11,000 new jobs in
2016, and a total of 19,000 employees
were recruited into new roles.

Developing our people

Effective
Management

850

Giving Feedback

Lenta Leader 2.0

3,100

102

PARTICIPANTS

GRADUATES

Lenta Annual Report and Accounts 2016
53

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Training in hours

Man-hours of training 2015

Average cost of training per hour

2016

2015

1.47m (+63%)

0.9m

Average training hours per employee

2016

2015

45 (+46%)

30.6

2016

2015

Training

Internal
training

External
training

Internal
e-learning

₷

RUB 27 (–9.5%)
RUB 30
₷

83%

11%
6%

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Remuneration
Lenta seeks to provide a range of
attractive employment opportunities
and careers. We offer competitive rates
of pay, health benefits, uniforms and
all necessary protective equipment.
Our HR policy is aimed at rewarding
high performers with high rewards.
We measure ‘performance’ not only
through business results, but also
against our Company values and
competencies model. To best evaluate
the achievements of individuals and
identify their future potential, we have
a performance management process,
which was extended to all employees
in 2016. Performance evaluation is
linked to pay, ensuring that the highest
contributors obtain higher bonuses
and pay increases where applicable.

In our stores, we continued to
develop our compensation and
benefits package to encourage both
team results and reward individual
effort. For example, we reshaped our
store personnel compensation package
during the year, reducing the number
of individual KPIs in the monthly bonus
base, and focusing more on group
results such as store sales, productivity
and profitability.

In line with a set of established
principles, financial support is
available for employees who find
themselves in difficult circumstances.
No mass material assistance was
required in 2016, but help was
provided where appropriate to
colleagues on an individual basis.

During the year, three quarters of
vacancies were filled by our own
employees – and the same proportion
of directors of newly-opened stores
were also internal candidates. In all,
some 3,100 individuals were promoted
into new roles and over 11,000
employees benefited from horizontal
moves within the organisation.

The speed of our recent growth
necessitates constant attention on
our hiring processes and protocols
as well as a keen focus on succession
planning. The best source of our
future hypermarket and supermarket
managers is our pool of 2,500 section
managers, who now comprise a key
target constituency for our HR strategy.
In order to identify those with the
desire and potential to progress, we
ran a ‘Grow with Lenta’ Business Case
Challenge for all section managers
and their deputies in September 2016.
Over 800 people originally registered –
and thanks to the Challenge, we
have significantly increased our talent
pool with 120 capable and talented
individuals identified as ready to take
the next step on their Lenta career path.

11,000

new jobs created

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Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

DIVERSITY

At Lenta, we value diversity and
we offer employment opportunities
to all able candidates. In matters
of recruitment or promotion,
decisions are based purely around
the professional knowledge and
competence of the individual
in question.

In every store, we provide a
minimum of five job opportunities
for people with special needs –
and in each distribution centre
we offer three of these positions.
In 2015, 88 vacancies were filled
by candidates from this group.
Striving to provide even broader
opportunities for people with
special needs, we revised our policy
to support recruitment and fair pay
for people working from home. In
cooperation with the St. Petersburg
State Employment Fund, Lenta
is helping to redesign training
programmes specifically aimed at
helping those who have difficulty
securing employment.

Overall gender split

■ Female
72%
■ Male
28%

Middle and senior management

■ Female
35%
■ Male
65%

Office employees

■ Female
66%
■ Male
34%

Employee engagement
The links between employee
engagement, business performance
and customer satisfaction are strong,
so we work hard to ensure our people
remain up to date with Lenta’s progress
and plans. In 2016 we rolled out our
‘gamification’ initiative in 26 stores.
This motivational project rewards
employees with ‘Lenta points’ for
demonstrating behaviours that
support the Company’s ethos. Points
are exchanged for prizes ranging from
T-shirts to household appliances and
TVs. Staff achieving the greatest
number of points are recognised for
their contribution, with best practices
and ideas shared between stores.

In October 2016, 37 employees
represented Lenta in the annual
Trade and Industry ‘Best in Profession’
awards held in St. Petersburg.
Colleagues included 11 food shop
assistants, four non-food shop
assistants and 22 cashiers, two
of whom took first and third places
in their category.

In 2016 we held a conference in
St. Petersburg for the Company’s
senior management. Delegates
included directors of stores, and
regional and divisional directors, as
well as the management of our central
office (approximately 500 participants).
During this event senior management
reviewed Lenta’s progress over the
previous year and set goals for the
next one, while sharing the broader
strategic outlook.

LOOKING AHEAD

We know that working
in a supportive and
collaborative environment
brings out the very best in
our employees. In the year
ahead we will continue to
develop the ways in which
we inspire, motivate and
incentivise our people to
deliver outstanding service
to our customers.

Lenta Annual Report and Accounts 2016

PRICING AND
CUSTOMER
SATISFACTION

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Our wide range of high quality
products is competitively priced –
and ‘value for money’ lies at the
heart of our pricing proposition.
We continued investing into end
prices for our customers despite
the difficult economic conditions,
endeavouring to give them best
value for money.

We know that great service is
also a key differentiator – and
plays an important role in customer
satisfaction – so our in-store employees
are trained to actively engage with
customers and deliver the very best
customer care.

During 2016 we continued to roll
out promotions that have historically
proved popular with our customers,
such as ‘two for one’ offers. In the
ongoing difficult economic climate
however, simple direct discounts
continue to be the most sought after
option for shoppers on tight budgets.
We used information sourced from
use of our Loyalty Card use to identify
and create better promotions, based
on sales data and customer metrics.
These have led to increased sales
and customer loyalty.

Lenta’s Loyalty Card guarantees a
discount of 5% on all purchases and
went from strength to strength in 2016.
Independent surveys during the year
showed that the programme continued
to be highly rated by our customers.

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Also available in all our stores,
the Lenta Social Card gives needy
citizens an extra discount of between
3% and 8% on basic food and selected
household items. At the year end there
were over 1.7 million Lenta Social
Card holders across Russia, 480,145
of whom joined the scheme in 2016,
a 60% increase in the total number
of Lenta Social Cardholders. In 2016
we launched our social programme
in eight new cities where we have
a presence.

The total discounts for participants in
Lenta’s social programme amounted to
RUB 9.92 billion in 2016, meaning each
customer saved an average of RUB
5,500 during the year.

LOOKING AHEAD

We continue to look at
ways to make the most of
our customers’ shopping
budgets, through devising
appealing promotions
in popular ranges and
investing in pricing to
deliver best value. Our
uniquely detailed insight
into customer shopping
patterns enables us to
provide more of what they
want, when they want it –
and at affordable prices.

Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

LOCAL
SOURCING

STRENGTHENING OUR
RELATIONSHIPS WITH LOCAL
SUPPLIERS WAS A KEY FOCUS FOR
US IN 2016 AND SUCH ALLIANCES
BRING MUTUAL BENEFITS TO
LENTA AND PRODUCERS ALIKE.

In 2015, we stocked four dairy farmers’
brands in our St. Petersburg stores:
Molochnaya Ferma, Stolypinskaya
Ferma, SPBFERMA and Losevo.
In 2016 we expanded the presence of
these brands to the majority of stores
in the city and also added two more:
Zhivoe Moloko and Kolomenskoe
Moloko. We also introduced a separate
zone for farm produce in stores, total
sales of which grew by almost 200% in
2016 compared with the previous year.
We commenced local purchasing of
an extensive range of fresh fruit and
vegetables in the North-West Federal
District, Moscow, Volga, South, Ural
and Siberia regions.

Sourcing products locally is a
distinguishing feature of Lenta’s
strategy – and one that is valued
by our customers. In 2016 95%
of our products were sourced
from Russian suppliers, including
almost 20% sourced from regional
suppliers. 46% of our fresh
food was locally purchased.

Strengthening our relationships with
local suppliers was a key focus for us
in 2016 and such alliances bring mutual
benefits to Lenta and producers alike.
Avoiding intermediaries and dealing
directly with producers enables us to
negotiate better prices. Our customers
appreciate the consistent quality and
freshness of locally grown produce
and the shorter distances to our
stores mean lead times and logistics
costs – such as fuel consumption –
are reduced.

We know which farmers grow which
products for us. Local provenance and
traceability mean we can demonstrate
transparency through the supply chain.
Every product we sell must also meet
the necessary consumer information
requirements and comply with
the relevant safety, quality and
packaging standards.

HIGHLIGHTING QUALITY

We continued working to improve
the quality of goods supplied to
Lenta stores. During the year
we supported the St. Petersburg
Government’s ‘Petersburg Quality
Mark’ project, a system of voluntary
certification. Products are labelled
with a PQM mark when they have
been tested in the ‘Petersburg
Expertisa’ quality control laboratory,
which confirms the description of
the goods on the package matches
its content and quality. We marked
our price labels to draw customers’
attention to these products, placed
PQM signs at store entrances and
produced an audio advertisement
to promote the scheme.

Lenta Annual Report and Accounts 2016In 2016 Lenta held events with
potential local suppliers in Cheboksary,
Balakovo, Kazan, Ekaterinburg and
Stavropol. We also assembled our key
suppliers and producers from all over
Russia in St. Petersburg at the Lenta
Partnership Forum in April 2016. At the
Forum over 400 participants discussed
opportunities for further cooperation
and growth.

The number of internal quality audits
conducted in 2016 rose by 80%
compared with 2015, with each store
reviewed on a quarterly basis. During
the year the system of self-assessment
was developed and implemented
in every Lenta store.

We also conducted regular quality
audits of our suppliers, with a particular
focus on improvements in the quality of
fruit and vegetables, directly imported
goods and products sourced from local
suppliers. We conducted more than
4,800 laboratory tests of suppliers’
goods, an increase of 50% on 2015.
Twenty potential suppliers failed our
audit and are consequently unable
to sell their goods through Lenta.

We operate according to the
requirements of the HACCP food
safety system. This internationally
recognised method is regularly updated
in line with the growth of our business
and any changes in State regulations.

In 2016, we held a series of educational
meetings in conjunction with the
European Bank for Reconstruction
and Development with 20 local
suppliers from the South, Ural and
Siberian regions. The aim was to
support small business development,
improve the quality of their products
and implement the HACCP system.

LOOKING AHEAD

We know that our
customers appreciate the
growing variety and high
quality of locally sourced
products on our shelves.
This element of our strategy
is a key differentiator for
Lenta; it sets us apart from
the competition and will
continue to be an area of
focus in the years ahead as
we forge new relationships
with suppliers and provide
ongoing support to our local
and regional economies.

4,800

laboratory tests of
suppliers’ goods
conducted

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Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

CARING FOR THE
ENVIRONMENT

Over

25,000

fluorescent lamps
disposed of

At Lenta, we are committed
to reducing our impact on the
environment to a minimum,
whether caused by our use of
materials, energy, transportation
or waste disposal. We aim to
comply with all relevant legislation
relating to our operations – and we
work closely with local authorities
and communities when planning
new store sites. We comply
with the environmental standards
applicable to us under Russian
law and regulations.

In 2016, we initiated around
100 projects complete with all the
relevant documentation for waste
disposal and emissions in line
with legislation.

Waste
We produce a variety of waste,
which is removed for us by third-party
contractors. During 2016 we reduced
the amount we produced and
continued to improve our recycling
rates. We launched a pilot project in
St. Petersburg for the centralised
collection of secondary raw materials
for recycling (card, polyethylene and
plastic boxes). The project’s aim is to
increase recycling rates by improving
the sorting method and decreasing
the overall quantity of waste. We plan
to roll the scheme out across all of
the Company’s stores.

Waste removal/recycling in 2016

Secondary raw
material type

The amount
removed/recycled,
tonnes

Number of
hypermarkets

Number of
supermarkets

Total trading

space, sq.m

Total trading

space, sq.m

Total trading

space, sq.m

Kg/sq.m

Cardboard,
paper boxes

Hypermarket (HM)

Supermarket (SM)

HM+SM

51,002

2,730

53,732

Plastic wrap

3,309

Plastic

677

117

3,426

725

169

1,002,274

45,000

1,047,274

HM+SM

50.89

3.3

0.68

HM+SM

51.31

3.27

0.69

Lenta Annual Report and Accounts 2016 59

LOOKING AHEAD

Our approach to our
environmental activities is
one of ongoing improvement.
We continue to drive our
recycling efforts and energy
efficiency initiatives. In 2017
we plan to build new sewage
treatment plants in 15 stores,
with an estimated investment
of RUB 90 million.

Energy
During the year we disposed of
more than 25,000 fluorescent lamps,
which contained mercury vapour.
Demercurisation of the lamps was
performed by a certified contractor.
In total, more than 6.25 kg of mercury
was removed from our premises, to
be replaced by LED lighting. To date,
91 of our stores have LED lighting.
In the coming year we plan to replace
the fluorescent lighting in a further
59 stores, requiring an investment
of RUB 625 million out of a planned
total of RUB 906 million.

We continued to extend our use of
eco-efficient refrigerants such as CO2
and R134a GWP. We also began to
introduce energy saving glass sliding
modules for low temperature fridges,
which deliver an energy reduction of
40% due to the reduced frequency
of defrosts and reduced load on
compressors. To date, some 44 stores
have glass modules installed.

ECO-BOXES

At the end of the year we installed
eco-boxes for the safe collection and
temporary storage of used batteries
in 20 hypermarkets in St. Petersburg.
The initiative was implemented
in conjunction with the Natural
Resource Management Committee
of the Government of St. Petersburg.
This was the first project under the
banner of our new ‘Green Lenta’
programme, which unifies all
our ecological initiatives under
one brand.

Waste removal/recycling in 2016

tonnes

Hypermarket (HM)

Supermarket (SM)

HM+SM

51,002

2,730

53,732

Cardboard,

paper boxes

Plastic wrap

3,309

Plastic

677

117

3,426

725

Secondary raw

material type

The amount

Number of

removed/recycled,

hypermarkets

Number of

supermarkets

Total trading
space, sq.m

Kg/sq.m

HM+SM

169

1,002,274

45,000

1,047,274

50.89

3.3

0.68

HM+SM

51.31

3.27

0.69

53,732
TONNES OF
CARDBOARD
= 36,000
PINE TREES
SAVED

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Lenta Annual Report and Accounts 2016

LOOKING AHEAD

At Lenta, being a good
neighbour is part of who
we are. The year ahead
will see us redouble our
efforts to engage with and
support those who live
and work close to our stores.
Our future plans include
the federal roll-out of some
of our successful regional
charitable and environmental
projects, extending their
benefits to many more
communities. We will
also develop new
educational programmes
for our customers, including
children and socially
vulnerable groups.

Corporate social responsibility continued

MAKING
A POSITIVE
CONTRIBUTION
TO LOCAL
COMMUNITIES

Lenta traditionally plays an active
role in the communities where
our stores are located, in keeping
with our reputation as a socially
responsible company. Each
new hypermarket we open has
a significant impact on regional
economics in terms of developing
local territories, reducing food
prices, supporting local suppliers,
generating 250 new jobs and
growing human capital through
training and development. Every
new store means new taxes for
the region’s budget and
salaries for its citizens.

In 2016, a wide range of customer
groups continued to be a focus for
Lenta’s community activities and we
also undertook various locally based
waste management initiatives.

The Company acts systematically,
building long-term relationships with
regional administrations. We have
agreements on social and economic
cooperation with authorities in
Kemerovo Region, Tomsk Region,
Volgograd Region, Republic of Karelia,
Saratov Region and Rostov Region.
The latter three were initiated in 2016.
These alliances help Lenta to improve
the quality of its retail operations and
strengthen its cooperation with local
government to provide coordinated
support to people in need.

Our customers also appreciate our
proactive, responsible approach.
In 2016 we won several prestigious
awards and continued our support
of socially vulnerable groups, as well
as the disabled, veterans, orphans
and those on low incomes.

LENTA WINS

Winner of ‘We choose,
we are chosen’ in Vologda
Lenta was acknowledged as the best
federal retail chain in this competition,
which was organised by the regional
administration. Determined by public
vote, over 70,000 people took part.

Winner of ‘Best Trade,
Catering and Public Services
Enterprises’ in Novosibirsk
Lenta won the Hypermarket category,
with criteria including service
development, technical equipment,
staff professionalism and provision of
benefits to socially vulnerable people.
Lenta has had a presence in Novosibirsk
for ten years, has links with over 100 local
suppliers and provides employment for
over 1,700 people in the city.

We remain fully committed to
supporting community and
environmental initiatives in cities
where we have a presence, including
festivals, competitions, charity events
and educational projects. Some
of these annual events have now
become traditional for Lenta and
local communities.

Lenta Annual Report and Accounts 2016 61

Festivities and New Year
Celebration in Tomsk
Since 2015 we have supported the ‘Day
of Tomsk Citizen’ celebrations through
the ‘Delicious and Local’ gastronomic
festival of local produce.

Since 2015 we have supported the
official ‘New Year Tomsk’ celebrations
and the popular ‘Crystal Tomsk’
ice sculpture festival. Our long-term
cooperation with the Tomsk Administration
was recognised in 2016 as Lenta
received the ‘Philanthropist of the Year’
medal from the City’s Mayor.

LENTA
EVENTS

Victory Day
Lenta presented baskets of products
to veterans on Victory Day in numerous
Russian cities.

KAZAN CITY RACING

For the third year running, Lenta
sponsored the prestigious Kazan City
Racing car show. Some 30,000 visitors
attended the 2016 event in the city’s
central square, which featured over
30 Russian and international racing
drivers. A highlight of the event was
a safe driving project: the ‘Safe Wheel
School’, which teaches safe driving
skills to young people at a special site.
This year’s Safe Wheel School was
attended by over 300 youngsters.

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Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

Baby competition in
Novosibirsk and Krasnoyarsk
In conjunction with Komsomolskaya
Pravda newspaper and the city
administration, Lenta supports an
annual sports event for small children.

TULIPS FOR ST. PETERSBURG

For the fourth year running, Lenta
presented a gift of tulip bulbs to the
city of St. Petersburg. The Tulip Festival
is now an established highlight of the
city’s year. Since its inception in 2013,
the cultivated area has doubled in size,
as has the number of bulb varieties.

130,000

tulips bloomed

In 2016, approximately 130,000 bulbs
of 95 varieties bloomed in the park.
Almost all of these were presented by
Lenta, including 11 rare varieties from
the 18th and 19th centuries, which can
usually only be found in plant breeders’
collections. In 2016, the Tulip Festival
was attended by some 100,000 citizens
and visitors. In the autumn the bulbs
were replanted ready for the spring
of 2017.

Lenta Annual Report and Accounts 2016S

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Charity New Year project
in North West Region
Lenta’s ‘Christmas Tree of Wishes’
event took place in all 32 Lenta
hypermarkets in nine cities of the
North West Region. The trees held
cards with the gift wishes of over
1,500 children from over 40 regional
orphanages. Our customers picked
a wish from the tree and bought the
present on the card.

Store tours and masterclasses
We regularly arrange tours and culinary
masterclasses for children. Accompanied
by their parents or teachers they tour
a hypermarket and a production facility,
where bakery specialists demonstrate
the basics of pastry preparation.
In 2016 several of these events took
place in Vologda for children from
Kindergarten No 12 Romashka and
the Harmony Children’s Centre.

CHARITY PROJECT WITH MARS

In conjunction with the Mars
Company, we arranged the ‘Give
a Smile to Animals from Shelter’
charity event in hypermarkets in
Moscow and St. Petersburg in
October. When buying cat or dog
food, 1% of the purchase price was
donated to the shelter for homeless
animals. We also provided special
boxes for pet food collection, with
the donated food being sent to
the ‘Big Hearts’ charity fund for
distribution to animal shelters.

of the purchase price
was donated to the
shelter for homeless
animals

Lenta Annual Report and Accounts 2016

Corporate social responsibility continued

PROMOTING
HEALTH AND
SAFETY

We remain wholeheartedly
committed to creating and
maintaining a safe environment
for our employees and customers.

As part of our Active Safety
programme, store managers conduct
daily and monthly ‘safety walks’ to
identify any potential risks to staff
and customers, ensure the staff’s
hazard awareness and check safety
equipment. We continued the roll-out
of the programme across the Company
in 2016. Employees are encouraged
to report every incident, no matter
how small, so that the cause can be
identified and any recurrence prevented.

In 2016, risk checks were carried out
in a total of 128 stores and distribution
centres, 35 of which were being
checked for the second time since
the programme roll-out. Results of the
checks were included in each store’s
(or distribution centre’s) annual targets.

128

risk checks carried
out in stores and
distribution centres

The injury rate fell by 1% compared
to 2015, and working time lost due
to injuries represented 0.05% of total
hours worked.

Number of injuries per
100,000 hrs worked

0.21

0.22

2016
(-1%)

2015

LOOKING AHEAD

In the year ahead we will:
` promote Active Safety
across the Company;

` develop a ‘Quality Cluster’

for our supermarkets,
comprising updated
requirements, as well as
enhanced cooperation
and lines of communication
around quality issues; and
` introduce a new integrated

complaints and quality
management system for
our private label goods.

Lenta Annual Report and Accounts 2016
65

OUR GOALS
FOR 2017

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Our goals for 2017
In addition to our ongoing CSR programmes, we are
focusing closely on a specific set of goals for 2017:

1. We will continue to invest in

our value-for-money proposition
to provide the best offers for
our customers.

2. We will expand our social

programmes aimed at vulnerable
citizens. Alongside our own
initiatives, we are open to
cooperation with suppliers and
other partners to achieve this.

3. We will develop partnerships with
local government to strengthen
social and economic cooperation.

4. We will further increase local
sourcing opportunities for
suppliers in a range of industries.

5. We will pursue the development
of programmes in environmental
care and social activities.

6. We are committed to continued
investment in the training and
development of our employees to
ensure that they are best-in-class
in the retail sector.

7. We will work with our suppliers to

ensure their commitment to quality
and safety aligns with our own.

8. We will look to actively increase

employee involvement in working
towards all of our CSR goals.

Lenta Annual Report and Accounts 2016

CORPORATE
GOVERNANCE

Introduction from the Chairman

67
68 Board of Directors
70 Senior Management team
72
77 Board Committees
90 Relations with shareholders
90 Responsibility statement

Our corporate governance framework

Lenta Annual Report and Accounts 2016Introduction from the Chairman

John Oliver
Chairman

Dear Shareholders
We are committed to showing that Lenta operates with
the highest levels of integrity and transparency – and I
am therefore pleased to present this overview of Lenta’s
corporate governance framework. As Chairman, one of my
principal responsibilities is the oversight and promotion of
good governance. How we conduct ourselves affects all
aspects of our business – and is an essential component
in our ongoing success and sustainability.

2016 was a milestone year for Lenta. Ahead of schedule,
we achieved our objective set three years ago at IPO,
of doubling our total selling space. Throughout the period
since our IPO, including again in 2016, we have also made
significant progress in our pursuit of the highest standards
of governance.

Towards best practice
We are not required to comply with the UK Corporate
Governance Code (‘the Code’). However, we believe
that following the Code’s provisions – so far as is
appropriate and practicable – is in the best interests of all
our stakeholders. We reviewed our governance framework
last year. Following this exercise, we implemented a series
of new systems and processes, with the aim of moving
us closer to becoming a ‘best practice’ model in corporate
governance terms for a Russian operating company.

Objectives and responsibilities
The main objective of the Board is to ensure the long-term
success of the Company and ensure sustained returns
for its shareholders. This includes the setting of strategic
goals, overseeing our financial and human resource
structures, reviewing management performance and
determining the Company’s risk appetite. The Board sets
the ‘tone at the top’, helping to establish the management
culture of the Company.

The Company is exposed to a variety of financial,
operational and compliance risks. It is the Board’s
responsibility to ensure that the Company’s risk
management measures, internal controls and compliance
functions are appropriate and effective. Oversight of the
Company’s risk management framework is delegated
to the Audit Committee.

Relations with shareholders
Shareholder engagement is an essential aspect of good
corporate governance. Throughout the year, the CEO,
CFO and I, supported by the Company’s investor relations
team, and where appropriate, other members of the Board
and Senior Management, regularly met with institutional
shareholders and sell-side analysts. The Board also
receives regular reports from the Head of Investor
Relations on the team’s activities – and in particular
on shareholder sentiment and feedback.

Lenta’s corporate governance framework combines
leadership with collaboration and lies at the heart of our
robust decision-making process. As a Board, we are
responsible to our shareholders. We are also driven by
our advisory role to complement and support the executive
team as it implements our strategy. Certain responsibilities
are delegated to four principal Board Committees –
Audit, Remuneration, Nomination and Capital Expenditure.
Details of their roles, responsibilities and activities during
the year is set out in their respective sections.

Looking forward
The macroeconomic situation in Russia continues to
present us – and our customers – with fresh challenges.
It affects the choices people make and the way they shop.
Even if conditions remain difficult, we will continue to
drive improvements in Lenta’s performance in 2017.

Our results for 2016 demonstrate our ability to achieve
ambitious targets and deliver excellent results. As we
start to implement the next phase of our long-term
strategy, the leadership team knows it can count on the
Board’s continued support. I remain confident that we have
all the necessary skills to continue to build on our success.

John Oliver
Chairman

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Lenta Annual Report and Accounts 2016

Board of Directors

The Board believes that it has the
necessary skills and experience
to provide effective leadership
and control of the Company.
When recommending the Directors
for appointment, the Nomination
Committee ensured that there was
an appropriate balance of skills,
experience and backgrounds relevant
to the success of the Company.

John Oliver (58)
Chairman

John Oliver was appointed a non-executive
Director of the Company in October 2009
and has been Chairman of the Board
since 2011.

Board Committees
Nomination, Remuneration,
Capital Expenditure

Experience
John is a former TPG partner and led TPG’s
European Operating Group until December
2013. Prior to joining TPG in 2006, John
spent 15 years with General Electric. His
roles at GE included CEO of GE Equipment
Services Europe, a diverse portfolio of
businesses operating in 20 countries,
and CEO of GE IT Solutions Europe,
an IT infrastructure and services provider,
which was turned around and sold under
his leadership. Prior to this, he held various
roles at GE Medical Systems including
GM EMEA Services, VP Global Radiation
Therapy and VP Global Vascular Systems.
He started his career in 1981 with
Schlumberger oilfield services, holding
various technical and country general
management roles in Africa and Asia-
Pacific, then worked for Boston Consulting
Group before joining GE.

Other roles
Senior Advisor to TPG. Advisor to
Vita Group.

Qualifications
John graduated with a BSc in Chemical
Engineering from Imperial College in 1981,
and with an MBA from INSEAD in 1987.

Jan Dunning (57)
Chief Executive Officer
(CEO)

Michael Lynch-Bell (63)
Director

Jan Dunning joined Lenta as CEO in 2009
and was appointed a Director of Lenta Ltd
in 2013.

Michael Lynch-Bell was appointed an
independent non-executive Director of
Lenta Ltd in 2013.

Experience
Prior to joining Lenta, Jan was Operations
Director of Metro Cash & Carry Russia and
then General Manager of Metro Cash &
Carry Ukraine. During his six years with
Metro in Russia, the business expanded
from four to 48 stores. Jan’s previous
experience also includes three years as
General Manager of the Lukas Klamer
wholesale business, a subsidiary of the
Metro Group in the Netherlands, and over
ten years with Aldi North. Over the last
27 years, he has worked in a broad range
of retail functions including leadership roles
in operations, development, sales, marketing,
purchasing and finance.

Qualifications
Jan has a History degree from the
University of Groningen and an Economics
degree from the University of Amsterdam.
He also attended management
development programmes at INSEAD
and the London Business School.

Jago Lemmens (48)
Chief Financial Officer
(CFO)

Jago Lemmens joined Lenta in 2010
as Accounting and Reporting Director,
becoming CFO in 2011. He was appointed
a Director of Lenta Ltd in 2013.

Experience
Prior to joining Lenta, Jago served as
Finance Director of OBI Ukraine and, before
this, as Finance Director of Metro Cash &
Carry Ukraine. During his 26 years in the
retail industry, he has held senior positions
in finance, accounting and controlling with
several major retailers in the Netherlands,
including Makro and Lukas Klamer (both
part of Metro Cash & Carry) and Vomar.

Qualifications
Jago holds a degree in Finance and
Auditing from the VU University Amsterdam
and completed postgraduate courses in
Auditing and Financial Management at the
University of Amsterdam. He is a member
of the Association of Chartered Auditors
and the Association of Registered
Controllers, both in the Netherlands.

Board Committees
Audit (Chairman), Nomination,
Remuneration

Experience
Michael retired from Ernst & Young as
Senior Partner in 2012 after a 38-year
career with the firm. He was a member
of Ernst & Young’s audit practice from
1974 to 1997, becoming a partner in 1985.
During this period, as well as supervising
and being involved in the audit of a
number of multinational groups, he advised
a wide range of companies on systems
and controls, corporate governance,
risk management and accounting issues.
In 1997, Michael moved to Ernst & Young’s
Transaction Advisory practice, where he
founded and led its UK IPO and Global
Natural Resources transaction teams.
He has been involved with the CIS since
1991 and has advised many CIS companies
on fundraising, reorganisations, transactions,
corporate governance and IPOs.

Other roles
Michael is also Senior Independent
Director and Audit Committee Chairman of
Kaz Minerals Plc, a non-executive Director
and Audit Committee Chairman of Gem
Diamonds Limited, a non-executive Director
and Audit Committee Chairman at Seven
Energy Ltd and a non-executive Director
of Barloworld Limited. He is also active with
the charities ActionAid International and
21st Century Legacy.

Qualifications
Michael graduated from Sheffield University
with a BA in Economics and Accounting
in 1974, qualified as an English Chartered
Accountant in 1977, and was awarded an
Honorary Doctorate of Humane Letters
by Schiller International University in 2006.

Stephen Johnson (53)
Senior Independent
Director

Stephen Johnson has been an independent
non-executive Director of Lenta Ltd since
2010. He was appointed as Lenta’s Senior
Independent Director in 2013.

Board Committees
Nomination (Chairman), Remuneration
(Chairman), Audit, Capital Expenditure

Lenta Annual Report and Accounts 2016S

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Stephen has over 20 years’ experience in
the retail industry, having been part of the
team that turned around and successfully
sold Asda to Walmart. Whilst at Asda,
Stephen held several senior positions
including Trading Director, Commercial
Finance Director and Marketing Director.
Following his time at Asda, he was CEO of
Focus DIY Ltd and of Woolworths Plc, as
well as Sales & Marketing Director at GUS
Plc. He started his career in management
consultancy with Bain & Co.

Other roles
Stephen has been a non-executive
Director of Big Yellow Group Plc since 2010,
Chairman of Pocketwatch Bidco Limited
since 2015 and Chairman of Poundworld
Retail Limited since 2015. He also works
with a number of private equity firms
primarily focused on Southern and
Eastern Europe.

Qualifications
Stephen graduated from Cambridge
University with an Engineering degree.

Stephen Peel (50)
Director

Stephen Peel has been a non-executive
Director of Lenta Ltd since 2011.

Experience
Stephen is the founder of SMP Policy
Innovation, a not for profit organisation
focused on promoting better public policy.
He is also a visiting fellow at the Blavatnik
School of Government at the University of
Oxford. Prior to this, he spent some 27 years
in finance and private equity. From 1989 to
1997 Stephen was in the corporate finance
and principal investment areas at Goldman
Sachs. From 1997 to 2014, he was a
Managing Partner at TPG Capital initially
founding and leading its European office
and latterly leading its Asian business
based in Hong Kong.

Other roles
Stephen is Chairman of the Advisory Board
of Open Contracting Partnership, is a
member of the Trilateral Commission and
serves on the boards of Global Witness,
the Institute of State Effectiveness, The
Jackson Institute of Global Affairs at Yale
University and the Global Partners Council
of the Institute of New Economic thinking.

Qualifications
Stephen graduated from the University
of Cambridge, Downing College with
an MA in 1987 and received a Masters
of Advanced Studies from Yale University
in 2015.

Dmitry Shvets (44)
Director

Dmitry Shvets was appointed a non-
executive Director of Lenta Ltd in 2009.

Board Committees
Capital Expenditure (Chairman),
Nomination, Remuneration

Experience
Prior to joining TPG Capital in 2008,
Dmitry was Operating Director in the mining
and metallurgical company Norilsk Nickel,
where he was in charge of optimisation of
the company’s key production assets and
was also responsible for the integration of
newly acquired assets. From 1998 to 2004
Dmitry worked for McKinsey & Company,
where he led projects in industries including
consumer goods, retail, transportation,
metals and mining, and oil extraction in
the areas of strategy, organisation and
operational effectiveness. He also worked
for the Coca-Cola Company in various
marketing roles.

Other roles
Dmitry is the Head of TPG Capital Russia
and is a Director at Fesco Transportation
Group.

Qualifications
Dmitry holds an MBA from Emory University
and graduated with honours from the
Moscow State Institute of International
Relations (‘MGIMO’).

Martin Elling (63)
Director

Martin Elling joined Lenta Ltd as a
non-executive Director in 2011.

Board Committees
Capital Expenditure

Experience
Martin started his career with the UN Food
and Agriculture Organization where he
worked for 11 years as a financial analyst
and economist mostly on World Bank
agribusiness and infrastructure. He then
joined the European Bank for Reconstruction
and Development (‘EBRD’), where he
was responsible for agribusiness, financial
services and energy investments in Ukraine,
Romania and Russia. In 1997, Martin left
the EBRD to concentrate on investment
opportunities in agribusiness, leasing and
B2B services in Ukraine and Russia,
achieving two successful exits in Ukraine
and one in Russia.

Other roles
Martin advises a number of companies
on restructuring and corporate governance.
He also occasionally advises the African
Parks Foundation on the operational
strategy of individual national parks.

Qualifications
Martin holds an Economics degree from the
University of Amsterdam and a postgraduate
degree from the University of Wageningen.

Anton Artemyev (56)
Director

Anton Artemyev was appointed an
independent non-executive Director of
Lenta Ltd in 2013.

Board Committees
Audit, Nomination, Remuneration

Experience
Anton has extensive FMCG experience
in Russia and Eastern Europe including
12 years in the brewing industry, where
his roles included Executive Vice-President
of Baltic Beverages Holding, the largest
Eastern European brewing group at the
time; President of Baltika Breweries; and
Senior Vice-President responsible for
Eastern Europe and a Member of the
Executive Committee of Carlsberg Group.
Prior to this Anton worked in a variety
of consulting roles including Partner in
Bossard Consultants and Principal in
Gemini Consulting/CAP Gemini, where as
head of Russian operations he focused on
strategy work in various sectors, primarily
consumer goods.

Other roles
Anton is currently Chairman of Fortrent OY,
which provides construction equipment
rental services in Russia and Ukraine.
Fortrent is a 50/50 joint venture between
Cramo and Ramirent, who are among the
European leaders in this field. He is a
member of the Board of Directors of HTT
BWH OY, which is a Finnish private
subsidiary of another company, Hartwall
Capital OY, which has an interest in the
Russian wine industry.

Qualifications
Anton holds a Diploma with honours
and a Doctorate in Geography from
Leningrad State University. He also
studied Management and Economics
at Bocconi University and at Henley
Management College.

There were no changes to the Board
in 2016.

Lenta Annual Report and Accounts 2016

Senior Management team

Under the chairmanship of
the CEO, our highly skilled Senior
Management team implements the
strategies set by the Board. With
a breadth of experience across
the food retail sector, both on the
domestic and international front,
their leadership is vital to the
success of Lenta’s day-to-day
operations.

Jan Dunning (57)
Chief Executive Officer
(CEO)

Jan Dunning joined Lenta as CEO in 2009
and was appointed a Director of Lenta Ltd in
2013. Jan’s biography appears on page 68
of this report.

Jago Lemmens (48)
Chief Financial Officer
(CFO)

Jago Lemmens joined Lenta in 2010
as Accounting and Reporting Director,
becoming CFO in 2011. He was appointed
a Director of Lenta Ltd in 2013. Jago’s
biography appears on page 68 of this report.

Edward Doeffinger (60)
Chief Operational Officer
(COO)

Anna Meleshina (39)
Public Relations
and Government
Affairs Director

Edward Doeffinger joined Lenta in 2011
as Chief Operational Officer.

Experience
Prior to joining Lenta, Edward served as
Deputy General Director of Metro Cash
& Carry Kazakhstan. Before starting his
career in 1991 at Metro Cash & Carry
(Germany), Edward held several positions
in wholesale companies and worked as
Head of the dry food department at the
Trade Ministry of the German Democratic
Republic. During his more than 30 years’
experience in the retail industry he has
held senior positions in various countries.
In 1994 he obtained his first assignment
outside Germany as a board advisor to Metro
Cash & Carry in Hungary. After a year in
Hungary, Edward became a member of the
Metro Jinjiang team (China) and worked as
a Store General Director and later as Head
of Store Development for several years
in China before moving to Russia in 2001.
In Russia Edward was responsible for the
business operations of Metro Cash & Carry
in the Privolzhsky, Ural and Siberian regions.
He was also responsible for the Metro Cash
& Carry Kazakhstan business operations
as a Deputy CEO.

Qualifications
Edward has a degree in Economics from
the Hochschule fuer Oekonomie Berlin.

Anna Meleshina joined Lenta in 2013
as Public Relations and Government
Affairs Director.

Experience
Prior to joining Lenta, Anna served as
Corporate Relations Director for Heineken
in Russia and served as a member of the
global corporate relations leadership team.
In addition to her 13-year career in the
brewing sector, Anna has held senior
positions in non-commercial organisations,
including an advisory role at the Honorary
Consul of Iceland in St. Petersburg, and
as a board member and Deputy Chairman
of the Russian Breweries’ Association.

Qualifications
Anna graduated from the Scandinavian
linguistics faculty of the St. Petersburg
State University with a diploma cum laude.
She also holds an MBA from Henley
Management College in the UK.

Herman Tinga (59)
Commercial Director

Herman Tinga joined Lenta in 2013 as
Commercial Director.

Experience
Prior to joining Lenta, Herman served as
Non-Food Global Category Management
& Sourcing Director at Metro AG. With
a background in marketing, category
management, buying and merchandising,
Herman has extensive experience as a
senior manager and board member in retail
and cash & carry spanning 34 years. For
four years, Herman was a board member
of Metro Cash & Carry in Russia.

Qualifications
Herman has a bachelor’s degree from the
Netherlands Institute of Marketing.

Lenta Annual Report and Accounts 2016 71

Tatiana Yurkevich (44)
HR Director

Joern Arnhold (46)
Supply Chain Director

Tatiana Yurkevich joined Lenta in 2012 as
Human Resources Director.

Joern Arnhold joined Lenta in 2011 as
Supply Chain Director.

Experience
Prior to joining Lenta, Tatiana served
as Human Resources Director at Fazer
Bakeries & Confectionery, Russia. During
her 18 years in HR management, she has
held senior positions in HR including Head
of HR at United Heavy Machinery Group
and Izhora Plants, and HR Director of
Caterpillar European Fabrications and
Caterpillar Tosno. Tatiana has experience in
leading Six Sigma Program implementation
as a Deployment Champion in Caterpillar.

Qualifications
Tatiana has a master’s degree in
International Economics from St. Petersburg
State University as well as English and
German language degrees from Novosibirsk
State Pedagogical University.

Sergey Prokofiev (48)
Legal Director

Sergey Prokofiev joined Lenta as Legal and
Government Relations Director in 2012.

Experience
Prior to joining Lenta, Sergey worked for
Metro Cash & Carry for 11 years in different
positions including Legal and Compliance
Director. He started his career as expert-
interpreter and later worked as a lawyer
in a major Russian law firm and as a
defending attorney at the Moscow City Bar.

Qualifications
Sergey graduated from the Military Institute
of Foreign Languages (‘VKIMO’) and the
Institute of Law. He holds a PhD in Law
from the Institute of Legislation and
Comparative Law under the Government
of the Russian Federation and an MBA
in Strategic Management from California
State University.

Experience
Prior to joining Lenta, Joern had 13 years’
experience with Metro Group Logistics
(‘MGL’) where he held various key positions
in Germany, Turkey and Russia. As
Managing Director of MGL in Russia, Joern
was responsible for developing and running
logistics operations for the Metro Group
sales divisions in Russia.

Qualifications
Joern holds a degree in Business
Administration from the Georg August
University Goettingen.

Maxim Shchegolev (50)
Integration and
Format Development
Director

Maxim Shchegolev joined Lenta in 2012
as Integration and Format Development
Director.

Experience
Prior to joining Lenta, Maxim held a number
of executive positions with O’KEY Group.
During his 17 years’ experience in the retail
industry, Maxim has held a variety of senior
positions in business development. In 2008
he was appointed Director of Expansion for
O’KEY and was responsible for various
aspects of business development, including
expert assessment of the competitive
environment, and the purchase and lease
of real estate for the construction of stores.
In 2012, he took a similar position with Lenta.
He is responsible for finding and acquiring
plots of land, managing the construction
and redevelopment of shopping centres,
letting out premises owned by the Company,
and the development of new stores in
leased premises.

Qualifications
Maxim graduated from St. Petersburg
University of Economics and Finance,
the Russian-Dutch School of Marketing
and the Higher School of the Ministry of
Economic Development and Trade of the
Russian Federation.

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Lenta Annual Report and Accounts 2016

Corporate governance

OUR CORPORATE
GOVERNANCE FRAMEWORK

Compliance with UK
Corporate Governance Code
The UK Corporate Governance Code
(‘the Code’) sets out principles and
specific provisions on how a company
should be directed and controlled to
achieve good standards of corporate
governance. As a company
incorporated in the British Virgin
Islands (‘BVI’) with GDRs admitted to
the Official List, we are not required to
comply with the provisions of the Code.
However, we have chosen to comply
with the Code to an appropriate and
practicable extent.

As of the date of this report, the Board
considers that Lenta fully complies
in all material respects with the Code,
with the exception of the following
provisions:

Leadership

The Chairman leads the Board,
ensuring its effectiveness while taking
account of the interest of the Group’s
various stakeholders and promoting
high standards of corporate
governance. There is a clear distinction
between the role of Chairman and
CEO. Updated descriptions of the
roles were agreed by the Board in
2016 and are summarised as follows:

The CEO’s responsibilities include:

• leading the development of the

Company’s strategic direction and
implementing the agreed strategy;

• identifying and executing new

business opportunities;

• managing the Group’s risk profile

and implementing and maintaining
an effective framework of internal
controls;

The Chairman’s responsibilities include:

• building and maintaining an effective

management team;

• ensuring the Directors receive
accurate, timely and clear
information;

• facilitating the effective contribution

of non-executive Directors and
engagement between executive
and non-executive Directors;

• the Chairman of the Board was not
independent on his appointment;

• building an effective Board;

• there is not a majority of independent

directors on the Board;

• the whole Board is available to attend
the AGM but it is not a requirement
that each member attends;

• the Company commenced

implementation of a revised risk
management process during the
year following a review assisted by
external consultants. The process
of implementation will be completed
during 2017.

The Board does not consider that the
above areas of non-compliance expose
the Company to any additional risks.

While BVI law imposes certain general
duties on company directors (including
the duty to act in the best interests
of the company), there is no specific
corporate governance code or
corporate governance regime in
the BVI.

• the induction of new Directors and
further training for all Directors
as required;

• communicating effectively with

shareholders and other stakeholders
and ensuring the Board develops
an understanding of the view
of stakeholders;

• ensuring an annual evaluation of the
Board is conducted and leading the
performance evaluation of the CEO
and non-executive Directors.

The Chairman holds one-to-one and
group meetings with the non-executive
Directors – without the executive
Directors being present – four times
a year. The Chairman was not
independent upon his appointment
to the Board since, at that time, he
was a partner in TPG Capital, one of
the Company’s major shareholders.

• ensuring effective communication
with shareholders and regularly
updating institutional shareholders
on business strategy and
performance.

Stephen Johnson was the Senior
Independent Director (‘SID’) throughout
the year ending 31 December 2016.
He was selected for the role because
of his experience and expertise, both
as an executive and non-executive
Director with retail and international
experience. The key roles and
responsibilities of the SID include
the following:

• acting as a sounding board for

the Chairman;

• serving as an intermediary for the
other Directors when necessary;

• being available to assist in resolving

shareholder concerns, should
alternative channels be exhausted;

• holding at least one meeting each

year with the non-executive Directors
without the Chairman present;

• monitoring the training and
development requirements
of Directors;

• overseeing the Chairman’s appraisal

and succession, and

• ensuring that Committee chairmen
conduct performance evaluations
of their Committees.

Lenta Annual Report and Accounts 2016S

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Non-executive Directors
The non-executive Directors provide
an essential independent element to
the Board – and a solid foundation for
strong corporate governance. Although
all Directors are equally accountable
under BVI law, the non-executive
Directors fulfil a vital role in corporate
accountability. They have responsibility
for constructively challenging the
strategies proposed by the executive
Directors and scrutinising the
performance of management in
achieving agreed goals and objectives.
They also play a key role in the
functioning of the Board and its
Committees. Between them, the
current non-executive Directors have
an appropriate balance of skills,
experience, knowledge and
independent judgement to undertake
their roles effectively.

Matters specifically reserved
for the decision of the Lenta Ltd
Board of Directors
Management, strategy and planning
The Board has responsibility for the
overall management of the Group.
The Board discharges some of its
responsibilities directly and discharges
others through Board Committees and
the Senior Management team. This
includes approval of the strategy, for
which it has collective responsibility,
business plans and budgets, as well as
approval of any material restructuring
or reorganisation and establishment
of new material areas of business.
The Board also reviews performance
in light of the strategy, objectives,
business plans and budgets, ensuring
that any necessary corrective action
is taken.

Operations and transactions
This includes approval of significant
capital and non-capital expenditure
as well as approval of significant asset
disposals and any other transactions
that could have a material effect
on the strategic or financial plans
of the Company, including making
or responding to takeover bids.

Remuneration
Committee

Capital
Expenditure
Committee

Audit
Committee

Nomination
Committee

Shareholders’
meeting

Board of
Directors

Senior
Management

Board of Directors
The Board of Directors manages,
directs and supervises the business
of the Company. The Board oversees
the officers of the Company and
succession planning. The Board,
in some circumstances, may elect
a Director to fill an empty seat
on the Board. The Board may
also establish committees and
set their responsibilities. As shown
below, our Directors have a wide range
of complementary skills and experience.

Board members’ expertise

Financial 5

Retail 3

Strategy 5

Marketing 3

Technology 2

Tenure of Non-executive Directors

3-4 years

5-6 years

>7 years

Capital structure
The Board approves changes relating
to capital structure including allotment
of shares, reduction of capital (except
under employee share plans) and
share buy-backs. It also approves
major changes to the Group’s
corporate structure and the Company’s
listings or its status as a company
limited by shares.

Loans and dividends
This includes approval of any
substantial new loan or similar facility
(including financial leases) from third
parties or material amendment to
any such facilities including material
loans or similar facilities made
available to third parties. The Board
also oversees the Company’s dividend
policy, declaration of interim and
recommendation of final dividends
and approval of other distributions
to shareholders, as well as any new
pension schemes or significant
changes to existing pension schemes.

Public reporting and controls
The Board approves the preliminary
trading and half-yearly results
announcements as well as the Annual
Report and Accounts. It also approves
appropriate press releases, material
changes in principal accounting
policies and practices, treasury policies
and related risk management strategy
and framework. On recommendation
of the Audit Committee, the Board
also appoints or removes the
external auditor.

Lenta Annual Report and Accounts 2016

Corporate governance continued

Remuneration
This includes approving the Directors’
and Officers’ insurance cover and
establishing policies and rules relating
to share-based incentive schemes. The
Board also determines the remuneration
policy for executive Directors and certain
senior executives and approves the
remuneration of non-executive Directors.

Corporate governance
The Board reviews its own performance
and that of its Committees and
individual Directors. It is responsible
for determining the risk appetite of the
Group and ensuring maintenance of an
effective system of internal control and
risk management. It also approves
and revises policies, including health,
safety and environment policies, share
dealing rules, code of conduct, anti-
bribery and corruption policy and
corporate governance arrangements.

The Board also calls any general
meetings and approves documents
sent to shareholders. It also
recommends any changes to the
Company’s Memorandum and Articles
of Association and considers material
litigation or regulatory investigations
affecting the Lenta Group. It is
responsible for the approval of political
donations and the appointment of
key corporate advisors.

Other
The Board also considers other
matters of strategic or reputational
importance likely to have a significant
impact on the Company. When,
exceptionally, decisions on matters
specifically reserved for the Board are
required to be taken urgently between
Board meetings, such decisions
shall be taken by a Directors’ written
resolution pursuant to Article 12.9 of the
Articles of Association of the Company.

The Board is responsible for managing
our business and may exercise all of
the business’s powers in doing so,
except to the extent that any such
power must be exercised by the
shareholders in accordance with
applicable BVI law or the Company’s
Memorandum and Articles (‘M&A’).
The Board also, by virtue of direct
or indirect shareholdings in our
consolidated subsidiaries, provides
strategic management of our affairs
and those of our consolidated
subsidiaries. The day-to-day
operations of our operating company,
Lenta LLC, are managed by Senior
Management as described below.

The Board currently consists of nine
Directors, of which three: Michael
Lynch-Bell, Anton Artemyev and
Stephen Johnson are judged by the
Board to be independent Directors
according to the provisions of the UK
Corporate Governance Code. None
of the factors or circumstances set
out in the Code as potential indicators
of non-independence apply to
Mr Lynch-Bell or Mr Artemyev.

While Mr Johnson carried out
remunerated consultancy work
for Lenta and one of its Major
Shareholders, TPG Capital, prior to
2014, is remunerated as Chairman of
another TPG Capital investee company
and holds 80,000 Shares in Lenta Ltd
subject to secured arrangements
in favour of our pre-2014 Offering,
the Board is satisfied that these
have no effect on his independence.
This is primarily because of his
extensive experience in retail and the
fact that his shareholding is subject to
staggered release starting in 2014 and
ending in 2018 – and is subject to his
continued service on Lenta’s Board.

Our CEO and CFO, who are also the
General Director and Chief Financial
Officer of Lenta LLC, are Directors,
but are ineligible to serve on Board
Committees. The remaining four
Directors – including the Chairman –
were elected by the shareholders
pursuant to the nomination rights
of the Major Shareholders.

Board of Directors

Position

Name

Chairman

John Oliver

Cat.

TPG

Sen. INED Stephen Johnson

INED

Director

Michael Lynch-Bell

INED

Director

Anton Artemyev

INED

Director

Dmitry Shvets

Director

Stephen Peel

TPG

Director since Nomination Audit

Remuneration Capex

Committees

2009

2010

2013

2009

2011

Director

Martin Elling

EBRD

2011

Director

Jan Dunning

Director

Jago Lemmens

CEO

CFO

2013

Committee member

Chairman of Committee

Nomination Committee (five Directors)

Audit Committee (three Directors)

Remuneration Committee (five Directors)

Capex Committee (four Directors)

Lenta Annual Report and Accounts 2016
S

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BOARD FOCUS DURING THE YEAR

In 2016, the Board considered a
wide range of matters, including:

• strategy

• budgets and long-term plans for

the Company

• review of estimates of future cash
flows, financing arrangements
and fundraising

• industry and competitive

environment

• responding to the changing

dynamics of the Russian economy

• maintaining and increasing efficiency
of the Company’s rapid development

• individual business and overall
Group performance and future
capital expenditures

• the review and execution of M&A

transactions

• development of the Company’s

corporate governance

• financial statements and

announcements

• reviewing reports from its

Committees

• shareholder feedback and reports

from brokers and analysts

• risk management and risk oversight.

There should be at least three
independent Directors at all times.
Independent Directors are elected by
a majority resolution of the Board from
a list of candidates proposed by the
Board and considered by the Board
to be independent, taking into account
the criteria for independence set forth
in the Code. Each independent Director
shall be deemed to resign at the
first general meeting following their
election by the Board, at which general
meeting they shall be put forward
for re-election. These Directors may
be removed by a majority resolution
of the Board or by a simple majority
resolution of the shareholders upon
a proposal made by shareholders
holding more than 15% of the shares.

Each of the other Directors (if any)
shall be elected by a simple majority
resolution of the shareholders from
a list of candidates. This will include
those candidates proposed by the
Board, retiring Directors consenting to
being put forward for re-election and
any candidates put forward for election
by shareholders holding at least 15%
of the shares within the timeframe
stipulated in the M&A. These Directors
may be removed in the same way
as the independent Directors.

The Board may appoint a Director to
fill a vacancy (subject to the rights of
the Major Shareholders). In this case,
that Director shall resign at the next
general meeting and be put forward
for re-election.

While the Board has overall
accountability, in order to operate more
effectively, responsibility for specific
functions is delegated to four specialist
Board Committees: Nomination, Audit,
Remuneration and Capital Expenditure.
The responsibility for formulating and,
after approval, implementing strategic
plans and the management of day-to-
day operations is delegated to the
Chief Executive Officer and the Senior
Management team.

As provided under the M&A:

• the CEO and CFO hold office by
virtue of their positions, and are
appointed, and may be removed
by the Board.

• the Major Shareholders may
nominate Major Shareholder-
nominated Directors (and remove
such Directors), and shareholders
are obliged to vote to approve the
appointment or removal of such
candidates, as follows:

̵ TPG Capital: three Directors
including the Chairman whilst
it holds directly or indirectly an
interest in 22.5% or more of the
shares; two Directors including
the Chairman whilst it holds
directly or indirectly an interest
in 15% or more of the shares;
one Director whilst it holds directly
or indirectly an interest in 5%
or more of the shares;

̵ EBRD: one Director whilst it

holds an interest in 5% or more
of the shares.

When a Major Shareholder’s
shareholding falls below a threshold
listed above, one of the Directors
nominated by that Major Shareholder
must resign no later than the
next general meeting, but may be
renominated and re-elected by a simple
majority resolution of the shareholders.
These Directors may otherwise only
be removed by their nominating Major
Shareholder. The Major Shareholders
may not assign or transfer these
nomination rights to third parties.

As at the date of this report there are
four Major Shareholder-nominated
Directors on the Board. The Major
Shareholder-nominated Directors have
a fiduciary duty under the laws of the
BVI to act in the best interests of our
business. Under the M&A, a Director
who has an interest in a transaction
likely to give rise to a conflict of interest
may not vote on any resolution relating
to the transaction, unless fewer than
three Directors are entitled to vote on
such a resolution, in which case each
interested Director may vote provided
his interest is duly disclosed or certain
other exceptions apply.

Lenta Annual Report and Accounts 2016

Corporate governance continued

Board and Committee attendance during the year
Normally the Board holds at least four meetings in person and a number of ad hoc meetings in person or via
teleconference. We consider that any Director, participating via teleconference, videoconference or other electronic means
shall be considered to be physically present, provided each Director is able to hear all other Directors and, in turn, be heard
by all other Directors.

Member
John Oliver
(Major Shareholder nominee) Chairman
Jan Dunning (CEO)
Stephen Johnson (Independent)
Michael Lynch-Bell (Independent)
Jago Lemmens (CFO)
Anton Artemyev (Independent)
Dmitry Shvets
(Major Shareholder nominee)
Stephen Peel
(Major Shareholder nominee)
Martin Elling
(Major Shareholder nominee)

Board
(5 meetings)

Audit Committee
(10 meetings)

Capex
Committee
(4 meetings)

Nomination
Committee
(2 meetings)

Remuneration
Committee
(4 meetings)

8
8
7
8
8
8

–
–
11
11
–
10

–

13
–
11
–
–
–

–

3
–
3
3
–
3

–

4
–
4
4
–
4

–

A quorum for Board meetings consists of a minimum of five members of the Board.

Changes to the Board in 2016
There were no changes to the Board in 2016.

Length of service and independence of non-executive Directors
Since 2010
Stephen Johnson (Independent)
Since 2013
Michael Lynch-Bell (Independent)
Since 2013
Anton Artemyev (Independent)

Considered to be independent by the Board
Considered to be independent by the Board
Considered to be independent by the Board

There are seven Board meetings scheduled for 2017.

The terms of reference for Lenta’s Board Committees were last revised and updated in November 2015. Details are set out
in the Corporate Governance section of the Company website: http://www.lentainvestor.com/en/about/corporate-governance/
internal-policies.

Lenta Annual Report and Accounts 2016S

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BOARD COMMITTEES

Effectiveness

The appointment of new Directors
is led by the Nomination Committee,
the majority of whose members are
independent non-executive Directors.
Details of the appointments process
can be found on page 75.

All new Directors receive a
personalised induction programme,
tailored to their experience,
background and particular area of
focus. This is designed to develop
their knowledge and understanding of
the Company’s culture and operations.
The programme incorporates a
wide-ranging schedule of meetings
with Senior Management across the
Company, comprehensive briefing
materials and opportunities to visit
the Company’s operations, including
spending time at new store openings,
in store and in our distribution network.

All Directors have the opportunity
to increase their knowledge of the
Company through visits to the
Company’s operations and meetings
with senior executives across
the business.

The Board makes a careful assessment
of the time commitments required
from the Chairman and non-executive
Directors to discharge their roles
properly. This is discussed with
candidates as part of the recruitment
process and a commitment to the
appropriate time requirements
is included in engagement letters.
Directors are expected to attend every
Board meeting and every meeting
of any Committee of which they are
a member, unless there are exceptional
circumstances preventing their
attendance. Scheduled Board and
Committee meetings are arranged
at least a year in advance to allow
Directors to manage other commitments.

The Chairman reviews each Director’s
development needs as part of the
annual performance evaluation
process and puts appropriate
arrangements in place for specific
training. The Nomination Committee
reviews the Directors’ skills and
experience as a group against those
needed to oversee and support the
Company’s future operations, and
identifies any gaps. Training is
arranged to develop the knowledge
and skills of the Directors in a variety
of areas relevant to Lenta’s business.

Board papers are, ordinarily, circulated
a week before each meeting to give
the Directors and Committee members
sufficient time to fully consider the
information. All Directors have
access to the Company Secretary
and may take independent professional
advice at the Company’s expense
in conducting their duties.

Conflicts of interest
Directors have a statutory duty to
avoid situations in which they have or
could have a direct or indirect interest
that conflicts or may conflict with the
interests of the Company. A Director
has a duty to disclose to the Board
any transaction or arrangement under
consideration by the Company in which
he has a personal interest. The Board
has a procedure for authorising conflicts
or potential conflicts of interest. Under
this procedure, Directors are required
to declare all directorships or other
appointments outside the Company
that could give rise to a conflict or
potential conflict of interest.

Early in 2016 the Senior Independent
Director (also Chairman of the
Nomination Committee) conducted an
internal review of its performance and
that of its Committees and individual
Directors. The outcome of this review
was encouraging, with the Directors
(both non-executive and executive)
confirming that Lenta has a high
performing Board and rating most
aspects of the Board’s activities and
governance very highly. As a result of
the review, Lenta has made a small
number of positive changes to its
Board processes and will continue to
keep its performance under both formal
and informal review in order to ensure
a process of continuous improvement.

NOMINATION COMMITTEE REPORT

Committee members:

• Stephen Johnson

(Independent, Chairman)

• Michael Lynch-Bell

(Independent)

• Anton Artemyev
(Independent)

• John Oliver

(Major Shareholder nominee)

• Dmitry Shvets

(Major Shareholder nominee)

The key roles and responsibilities of
the Nomination Committee include:

• ensuring that proper procedures

are established for the nomination,
selection and training of the
Company’s Directors and Senior
Management;

• keeping under review the size,
structure, balance of skills,
experience, independence,
knowledge and general diversity
of the Board to ensure the balance
and composition of the Board and
its Committees remains appropriate;

• making recommendations to the
Board on Directors’ conflicts of
interest for authorisation, where
appropriate;

• making recommendations to the
Board regarding the appointment
of new Directors, and identifying,
interviewing, selecting, and
determining the independence
of candidates with suitable industry
or key competency experience;

• reviewing Board level, Senior

Management and Company-wide
succession planning and other
human resources-related matters;

• reviewing the leadership needs
of the Company, both executive
and non-executive, to ensure the
continued ability of the organisation
to compete in the marketplace.

A copy of the Committee’s full terms
of reference is available on the
Company’s website: http://www.
lentainvestor.com/en/about/corporate-
governance/internal-policies.

Lenta Annual Report and Accounts 2016

Corporate governance continued

The Human Resources Director may
be invited to attend any meeting of the
Committee, except for portions of the
meetings where their presence would
be inappropriate, as determined by
the Committee Chairman.

Dear Shareholders
Looking forward to 2017, the
Committee intends to continue its
focus on the performance appraisal
programme and the succession
planning programme. We will
also support management in the
identification and recruitment of
suitable candidates to support the
Company’s growth plans.

Activities during the year
Performance appraisal programme
Over the last few years, Lenta has
developed and implemented a
Company-wide performance appraisal
programme. This process is used
to assess the performance of every
employee in the business, including
the executive Directors. The findings
from this programme are used to
identify training and development
needs, to pinpoint areas where
investment in human resources is
required and to identify high
performance individuals at all levels.
The Nomination Committee receives
regular reports on the results and
operation of the performance
appraisal programme.

Succession planning programme
The Company also operates an active
succession planning programme.
This is designed to identify possible
successors for all management
positions in the Company, to identify
development needs for any potential
successors, and to address any
succession gaps. The performance
appraisal programme is one of the
key inputs in the succession planning
process. During the year the
Committee regularly reviewed the
succession plan and worked with
Company management to refine
and develop it. Inevitably, this is an
ongoing process.

Inevitably, not every role in a
company can be adequately covered
with a like-for-like successor. However,
we remain confident that the Senior
Management team and wider
Board have the skills and experience
necessary to seamlessly manage
the business should any external
recruitment be necessary.

Stephen Johnson
Chairman
Nomination Committee

Accountability

The Board considers the Annual
Report and Accounts, taken as
a whole, to be fair, balanced and
understandable and provide the
necessary information required for
shareholders to assess the Company’s
performance, business model and
strategy – and that the business
continues to operate as a going concern.

The Board assumes ultimate
responsibility for ensuring the
Company has appropriate risk
management and internal controls in
place – and has delegated responsibility
to the Audit Committee to review their
effectiveness. Successful management
of risk is supported by controls,
management oversight and sources
of assurance. The Company maintains
a comprehensive framework of internal
controls addressing the key strategic,
financial, legal, reputational and
operational risks to the business.
The accountability for operating these
controls rests with Senior Management
as a first line of defence.

Key elements of the Company’s system
of internal controls that operated
throughout the year were:

• monitoring by the Board of a

comprehensive reporting system
including detailed monthly results,
periodic short- and medium-term
forecasts, annual budgets and
medium-term plans;

• monitoring by the Board of the

Company’s liquidity, financing and
borrowing requirements;

• well-defined procedures for

assessment, approval, control
and monitoring of major
investment projects;

• a centrally coordinated internal audit
programme to verify that policies
and internal control procedures are
being correctly implemented and
identify any risks and potential areas
for improvement at an early stage;

• financial, treasury, operating,

compliance and administrative
policies and procedures that
incorporate statements of
required behaviour;

Lenta Annual Report and Accounts 2016S

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• reviewing the speak-up policy and

monitoring the operation of whistle-
blowing facilities in place to allow
staff and customers to raise
concerns; and

• a remuneration policy for executives
that motivates them appropriately,
without encouraging excessive
risk taking.

No significant internal control failings
were identified during the year. The
Group’s approach to risk management,
the risks identified and how it profiles
these risks is set out on pages 40 to 47.

The Board commissioned a review
of the effectiveness of the Company’s
risk management and internal
controls in late 2015, assisted by
external consultants. As a result,
recommendations resulting from
that review were considered and
implementation commenced in 2016.
This included the launch of a Risk
Management Policy and Risk Matrix.
A Head of Risk Management was
also appointed during the year.
Implementation of the recommendations
will be completed during 2017.

Colleagues are required to confirm
annually that they have complied with
the Code of Business Conduct, which
sets out individual obligations and
responsibilities for everyone working
at Lenta.

Internal audit
Internal audit advises management on
the extent to which systems of internal
control are adequate and effective
to manage business risk, safeguard
the Company’s resources and ensure
compliance with the Company’s
policies and legal and regulatory
requirements. It also advises on
ways in which areas of risk can be
addressed and provides objective
assurance on risk and controls to
Senior Management, the Audit
Committee and the Board.

The mandate and programme of
work of the internal audit department
is considered and approved by the
Audit Committee. Based on the
approved internal audit plan, a number
of internal audits took place across
the Company’s operations and
functions to facilitate improvement
of the Company’s internal controls,
with findings reported to the relevant
operational management. Internal
audit follows up on the implementation
of recommendations and reports on
progress to Senior Management and
to the Audit Committee.

The Head of Internal Audit reports
regularly to the Chairman of the
Audit Committee and attends Audit
Committee meetings to present the
internal control findings from the
internal audits performed. The Audit
Committee reviews and discusses
the effectiveness of internal audits
on an annual basis with the Head of
Internal Audit.

The Audit Committee plays a role in
monitoring compliance with internal
controls. In addition to receiving reports
from Internal Audit, the Committee
is responsible for monitoring legal
compliance across the Company,
including receiving reports from the
Chief Legal Director. The Committee
reports each year on its assessment
of the effectiveness of the risk
management and internal control
systems. Throughout the year the
Committee receives regular reports
from the external auditor covering
topics such as quality of earnings and
technical accounting developments.

Whilst an internal control system
cannot guarantee that losses will
not occur, the Board is satisfied that
management has remained diligent
in its efforts to ensure an appropriate
level of control remains in place. All
Directors are covered by the Group’s
Directors’ and Officers’ insurance policy.

AUDIT COMMITTEE REPORT

Committee members:

• Michael Lynch-Bell

(Independent, Chairman)

• Anton Artemyev
(Independent)

• Stephen Johnson

(Independent)

The membership of the Committee
is fully Code compliant and includes
retail, liquidity, financial, risk
management and geographic
expertise. The Chairman is deemed
to be the member with recent and
relevant financial experience.

The Audit Committee supports the
Board in its responsibilities with
regard to corporate reporting and risk
management and internal controls, and
with maintaining a relationship with the
Company’s auditor. The Committee’s
activities include the review of internal
control systems, compliance with
financial reporting requirements
and the scope, results and cost
effectiveness of the external audit.

There are ten Committee meetings
scheduled for 2017.

Dear Shareholders
I am delighted to present the report of
the Audit Committee. This report sets
out the Committee’s responsibilities,
how it discharged its duties during the
year and the key matters that were
discussed at our meetings.

At the heart of the Audit Committee’s
remit is the need to provide confidence
in the integrity of the Company’s
processes and procedures in relation
to internal control, risk management
and corporate reporting. In keeping
with our commitment to good corporate
governance, we seek to do this in
line with international best practice.
During 2016, the Committee reviewed
the Company’s financial results,
including significant financial reporting
estimates and judgements, as well
as the financial disclosures in the
interim management statements. It also
monitored the Company’s system of
internal control and management of
the Company’s risks and oversaw the
relationship with the external auditor

Lenta Annual Report and Accounts 2016

Corporate governance continued

and with the internal audit function.
We reviewed the implementation
of the recommendations of the risk
management function review and
received reports from the newly
appointed risk manager. As the
Company has made its first long-term
viability statement in this Annual
Report, the Committee also considered
management’s assumptions and
disclosures relating to it.

We are very grateful for the assistance
of the Company’s external auditor
Ernst & Young (‘EY’) in this capacity.
EY contributes a further independent
perspective on certain aspects of the
Company’s financial control systems
and reports both to the Audit Committee
and directly to the Board.

Looking forward to the next 12 months,
the Committee will continue to focus
on the audit and assurance processes
within the business, together with the
monitoring of the key risks.

Responsibilities
The primary responsibilities of
the Audit Committee encompass
overseeing, monitoring and reviewing
the Company’s financial reporting,
internal control and assurance
processes. Whilst the Committee has
very specific duties set out in its terms
of reference, it serves a much greater
purpose in reassuring shareholders
that their interests are properly
protected in respect of the Company’s
financial management and reporting.
The Committee regularly reports to
the Board on matters discussed at its
meetings. The Board has delegated
responsibility to the Committee for
reviewing the Company’s procedures
and system of internal control in
relation to risk management, with
a focus on the methodology used by
Senior Management. It also oversees
the internal and external audit
processes that report to it.

The Chair, CEO and CFO are invited
to attend all committee meetings. The
Company Secretary, Head of Internal
Audit, Chief Legal Counsel and the
external auditor are also normally
invited to attend Committee meetings,
other than those that are called solely
to approve the financial disclosures in
the Company announcements made
in respect of the March and September

quarters. Other members of Senior
Management are invited to attend to
discuss any matters relevant to them.
At the end of each meeting, where
they are in attendance, the Committee
offers both the external auditor and
Head of Internal Audit the opportunity
to meet with them without members
of senior management being present.

External auditor
The Committee approved the terms
of engagement of the external auditor,
the fees paid to it and the scope of
work carried out by it, and reviewed
the performance and effectiveness
of the external auditor in respect of
the year ended 31 December 2016.
Consideration was given to the
performance, objectivity, independence,
resources and relevant experience
of the external auditor. In this process,
it reviewed a report from the external
auditor on all relationships that might
reasonably have a bearing on its
independence and the audit partner
and staff’s objectivity, and the related
safeguards and procedures. It also
performed an annual review of the
policies on the independence and
objectivity of the external auditor,
the use of the auditor for non-audit
services and the employment of former
employees of the external auditor.
Following this review, the Committee
recommended to the Board the
re-appointment of EY as the
Company’s external auditor.

To safeguard auditor objectivity
and independence, the Committee
oversees the process for the approval
of all non-audit services provided by
EY. Consideration is given to whether
it is in the best interests of the Company
that the non-audit services are
purchased from EY.

The Committee received reports on the
findings of the external auditor during
its half yearly review and annual audit.
It reviewed the recommendations made
to management by the external auditor
and management’s responses as well
as the letters of representation to the
external auditor.

Ernst & Young LLC was appointed
as our external auditor in 2011. It is
our policy to review its appointment
annually and to re-tender the audit
contract every seven years.

Ernst & Young LLC was reappointed as
the Company’s auditor by shareholders
at the 2016 AGM. Professional fees
billed by Ernst & Young LLC are shown
in the table below.

Auditor’s (Ernst &
Young LLC) fees,
(‘000 RUB)
Audit of
consolidated
financial
statements
Consulting and
other non-audit
services
Total fees

2016

2015

25,186

29,565

20,725
45,911

5,699
35,264

Role of the Audit Committee
The key roles and responsibilities
of the Audit Committee include:

• monitoring and challenging,

where necessary, the integrity of
the financial statements and half
yearly results, interim management
statements and any other
formal announcement relating
to financial performance;

• reviewing and challenging,

where necessary, the actions and
judgements of management, taking
into account the views of the external
auditor, in relation to the Company’s
financial statements, strategic review,
financial review, governance
statement and half-yearly reports,
including the going concern
assumption and the long-term
viability statement;

• reviewing the Company’s internal

controls, including financial
controls and updated risk
management systems;

• reviewing the content of the

Annual Report and Accounts
when requested by the Board;

• reviewing reports on changes in

tax legislation and management’s
proposed response;

• reviewing the Company’s significant

insurance arrangements;

• reviewing the Company’s treasury

policy;

Lenta Annual Report and Accounts 2016S

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Going concern
The Committee reviewed
management’s adoption of the
going concern basis of accounting.
Management had taken into account
the Company’s financial position,
available borrowing facilities, loan
covenant compliance, planned
store opening programme and the
anticipated cash flows and related
expenditures from our retail stores.
The Committee considered the position
taken by management and, taking
into account the external auditor’s
review, concluded that management’s
recommendation to prepare the
financial statements on a going
concern basis was appropriate.

The annual report also includes,
for the first time, a long-term viability
statement, which can be found
on pages 46 to 47. The Committee
considered the statement and
approved management’s disclosures.

Share-based payments
The Committee reviewed the
considerations made by management
in relation to the accounting for
remuneration received by certain
employees in the form of share-based
payments. In addition, management
had evaluated the required disclosures
for inclusion in the financial statements.
Having challenged the appropriateness
of key assumptions used by
management, the Committee agreed
with management’s assessment
and disclosures.

Michael Lynch-Bell
Chairman
Audit Committee

• reviewing the Company’s procedures
for detecting and preventing bribery
and fraud;

• reviewing the Company’s compliance

with the updated UK Corporate
Governance Code;

• overseeing and reviewing the

Internal Audit function, its terms
of reference, effectiveness, plan,
budget and reporting;

• reviewing the Company’s speak-up
policy and receiving reports on
matters raised via the speak-up
facilities;

• recommending the appointment of
the external auditor and overseeing
the relationship;

• reviewing the terms of reference
of the Committee, the results
of the performance evaluation
and the training requirements
of Committee members;

• reporting to the Board on how the
Committee has discharged its
responsibilities.

A copy of the Committee’s full terms
of reference is available on the
Company’s website: http://www.
lentainvestor.com/en/about/corporate-
governance/internal-policies.

The Audit Committee considered
a number of issues during the year,
taking into account the views of the
Company’s management, its tax
advisors and the external auditor.

Significant issues considered
by the Audit Committee
The significant issues – and how they
were addressed – are set out below.

Suppliers’ allowances
The Committee reviewed the
accounting for and recognition of
suppliers’ allowances received for
the provision of services. The review
included consideration of the types
of allowances received, the period
of coverage and the timing of receipt.
Based on this review, the Committee
is satisfied that the allowances are
recognised in the period in which

they are earned and that appropriate
disclosure has been made in the
financial statements.

Inventories and
inventory allowances
The Committee reviewed the
accounting for inventories and the
recognition of write-downs during
the period. The review took into
consideration the calculation of the
cost of inventories, the identification
of slow-moving inventories and the
reasons why shrinkage had occurred.
Based on this review, the Committee
agreed with the accounting treatment
and disclosures adopted by
management.

Capital construction
The Committee examined the
accounting for capital construction
including the recognition of direct
costs incurred, the allocation of
directly attributable overheads and
land lease expense. The review
included a consideration of potential
fraud risk, the construction tender
process and the acquisition or leasing
of land. The Committee agreed with the
accounting treatment and disclosures
adopted by management.

Business combination
The Committee considered the key
judgements made by management
in accounting for the acquisition of
the K-Ruoka stores. The Committee
agreed with the accounting treatment
and disclosures adopted by
management.

Ethics Committee
The Committee reviewed the work
of the Ethics Committee; in particular
its report on the Company hotline.
The Audit Committee approved
measures taken by management to
mitigate risks of impropriety and hold
culpable employees to account.

Taxation
The Committee received regular
updates on tax developments in
Russia from management and the
Company’s advisors, together with
management’s interpretation of the
impact of current tax legislation on the
Company. The Committee concurred
with management’s judgement
on the positions adopted and the
related disclosures.

Lenta Annual Report and Accounts 2016

Corporate governance continued

Remuneration

REMUNERATION COMMITTEE REPORT

The work of the Remuneration
Committee, the interests in the
Company’s share capital held by
Senior Management and the
remuneration received by the
Chairman and the non-executive
Directors are set out on pages 85
to 88. The Directors’ interests in the
Company’s share capital are set out
on page 87.

Committee members:

• Stephen Johnson

(Independent, Chairman)

• Michael Lynch-Bell

(Independent)

• Anton Artemyev
(Independent)

• John Oliver

(Major Shareholder nominee)

• Dmitry Shvets

(Major Shareholder nominee)

The Remuneration Committee held
three meetings in 2016 and has five
meetings scheduled for 2017.

The key roles and responsibilities of
the Remuneration Committee include:

• determining and recommending
the broad policy for executive
remuneration within the Group;

• determining, on behalf of the Board,
the remuneration of the executive
Directors and senior management;

• approving the design of, and
determining targets for any
performance-related plans;

• making recommendations regarding

employee equity participation
schemes;

• determining the policy for and scope

of service agreements and
termination payments.

A copy of the Committee’s full terms
of reference is available on the
Company’s website: http://www.
lentainvestor.com/en/about/corporate-
governance/internal-policies.

Dear Shareholders
2016 was another year of big
challenges for Lenta – the challenge
of managing the significant growth
delivered by the business and the
challenge of managing the business
successfully in a difficult consumer
and competitor environment. The
senior management team and the
wider management group within
the business have remained very
stable and committed to delivering
its ambitious targets. Enabling
the business to attract, retain and
incentivise the best people remains
central to our continuing ability to
achieve our goals. The Remuneration
Committee’s primary focus is to
ensure that Lenta has a remuneration
framework that is highly competitive
in the markets where we compete
for talent, designed to support the
long-term strategy of the business
and aligned with the interests of
our shareholders.

Having spent much of 2015 ensuring
that the various elements of the
management remuneration plans and
policies were fit for purpose, in 2016
we were focused on reviewing and
monitoring the changes that we made
to ensure that they were functioning
as desired. So far, we are content that
this is the case. It is in part testament
to the robustness of Lenta’s approach
to remuneration that we have managed
to retain a very stable executive
management team over the last
four or five years in what has been
a very challenging environment.
The Committee is mindful of the
need to be both active and flexible in
keeping all aspects of the business’s
remuneration policies under review.

The Committee continues to be active
in gathering external views in order
to ensure that it remains aware of
any significant changes in the area
of remuneration both in Russia and
more widely across Europe.

Lenta Annual Report and Accounts 2016S

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Key activities of the
Committee in 2016
Long-Term Incentive Programme
for Senior Management
The Board and Shareholders
expressed concern about retention
of the Senior Management team
after the vesting date of the current
Management Incentive Programme
in 2018/19. The Remuneration
Committee has addressed this concern
by approving a new LTI programme
for MIP participants that is targeted
to assure retention of the Senior
Management team after 2019.
The programme operates according
to the following rules:

• shares are granted annually with
a vesting period of three years;

• the amount of shares depends
on the job grade (percentage of
annual salary), share price and
individual performance evaluation
of the manager;

• the final amount of vesting shares

is subject to a financial performance
co-efficient for three years preceding
the vesting date;

• a manager’s eligibility to receive
shares is conditional on his or
her employment with Lenta and
compliance with certain covenants,
including confidentiality, non-
competition and non-solicitation
covenants.

The LTIP 2016 with a vesting date
in 2019 was approved, granting a total
of 150,322 shares, which represents
around 120% of the annual salary of
this group (including Currency
Adjustment Pay).

Corrections to MIP
During the development of MIP
corrections in 2015, it was concluded
with PWC that some positions with
MIP allocation did not deliver the
market-level total cash reward for
these senior managers in comparison
to FTSE 25-75 companies. It was
agreed to make additional allocations
within the MIP for Herman Tinga. The
Committee also approved a one-time
LTIP allocation with vesting in 2018
in the amount equivalent to one year’s
salary to Maxim Schegolev, Sergey
Prokofiev and Tatiana Yurkevich.
Details are in the table on page 86.

New LTIP allocation for
middle managers
The Committee also approved a new
annual long-term incentive plan with
a vesting period of three years for
92 key middle managers. The total
value of this award is 82,362 shares
and represents around 44% of this
group’s annual salary. The allocation
of the LTIP is linked to overall Company
performance in the previous year and
individual performance evaluation.

2016 Annual Bonus
Scheme approval
The Committee approved the bonus
KPIs, target and payout scales for
2016. The Committee was informed
of the change in monthly bonus
programme for store personnel,
which was targeted to be linked more
to store performance than individual
contribution. The number of KPIs for
the monthly bonus system has reduced
by 40%. There was no financial impact
on overall pay.

Salary review in comparison
to labour market
The Committee reviewed the labour
market situation and salary dynamics
in Russia, based on Mercer and Hay
surveys. Based on this data and
the company’s experience and
observations relating to staff turnover,
motivation and recruitment it was
decided not to make an overall salary
revision, although salaries for some
job positions were adjusted on an
individual basis. The Committee will
conduct a similar review to determine
salary revisions required during 2017.

Lenta Annual Report and Accounts 2016

Corporate governance continued

Summary of executive Directors’ remuneration policy

Principles

Opportunity

Element

Base pay

Currency
adjustment

Base pay is reviewed annually by the Remuneration
Committee, considering a number of factors, including:

• Individual performance evaluation

• Salaries in comparable roles in the same industry

and activities scope.

According to Russian legislation, base salaries are
fixed in Roubles, which leads to a negative pay trend
for executive Directors with a drop in the RUB/EUR rate.
To maintain competitive pay levels, currency adjustment
pay is used as decided by the Committee in 2013.

Benefits

• Company car, for some Directors with a driver

Annual bonus

• Medical insurance with family coverage

• Relocation support

• Partial reimbursement of school fees for expatriates’

children attending school in Russia.

All Directors are eligible for the annual bonus scheme,
which is a discretionary, non-contractual scheme.
Performance is measured against quantifiable financial
targets, which are set at the start of the year and approved
by the Remuneration Committee.

In addition to financial targets, the bonus may be affected
by the individual performance evaluation which may
increase or decrease the payout.

Annual bonus is paid on the condition that a ‘threshold’
level of EBITDA is achieved.

Management
incentive plan

Eight executive Directors are eligible for the share-settled
Management Incentive Plan (MIP).

Participating managers are allocated a specified number
of phantom shares, in relation to which their entitlement
under the MIP is calculated.

The plan is based on share price dynamics vs. IPO price
in RUB and is subject to a hurdle reference price.

The plan has fixed vesting periods.

A Director’s eligibility to receive shares is conditional on
his or her employment with Lenta and compliance with
certain covenants, including confidentiality, non-competition
and non-solicitation covenants.

Long-term
incentive plan

All executive Directors are eligible for the share-based
long-term incentive plan (LTIP) as decided by the
Remuneration Committee.

LTIP is a conditional grant of shares depending on the
job grade, base salary share price. Shares vesting depends
on Company performance during the three years following
the allocation.

Vesting period is three years from the grant date.

A Director’s eligibility to receive shares is conditional on his
or her employment with Lenta and compliance with certain
covenants, including confidentiality, non-competition and
non-solicitation covenants.

There is no set maximum or minimum,
it is in line with labour market trends
and/or individual role scope changes.

Currency adjustment pay is the
difference between individual salary
calculated in Euro at recruitment and
current RUB salary expressed in Euro.
For some executive Directors, only
partial compensation is applied.

There are maximums set for each
compensation element depending
on the job grade.

Total maximum annual bonus
opportunity for each executive Director
is 120% of annual base pay.

There is no maximum set for the MIP;
actual reward depends on the number
of phantom shares allocated and share
price development.

Maximum LTIP annual value is 150%
of annual salary; the actual amount
varies between Directors based
on their job grade and individual
performance evaluation.

Lenta Annual Report and Accounts 2016 85

Pay structure of CEO, CFO and all executive Directors

Chief Executive Officer (Jan Dunning)

CEO total cash reward (fixed vs. variable at target)

Maximum

26%

31%

43%

Target

28.5%

43%

Minimum

100%

Base salary

Annual incentive

Long-term incentive (LTIP)

Fixed

Base Salary
28.5%

Variable

Annual incentive
28.5%
Long-term
43%

Chief Financial Officer (Jago Lemmens)

CFO total cash reward (fixed vs. variable at target)

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Maximum

28%

34%

38%

Target

31%

38%

Minimum

100%

Base salary

Annual incentive

Long-term incentive (LTIP)

Fixed

Base Salary
31%

Variable

Annual incentive
31%
Long-term
38%

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Other Senior Management team members

Other Senior Management team members total cash reward
(fixed vs. variable at target)

Maximum

28%

34%

38%

Target

31%

38%

Minimum

100%

Base salary

Annual incentive

Long-term incentive (LTIP)

Fixed

Base salary
31%

Variable

Annual incentive
31%
Long-term
incentive (LTIP)
38%

Lenta Annual Report and Accounts 2016

Corporate governance continued

Pay structure of CEO, CFO and all executive Directors continued
The key terms of each member of Senior Management’s participation in the MIP are set out below:

Manager
Jan Dunning
Jago Lemmens
Herman Tinga
1st grant
2nd grant
3rd grant
Edward Doeffinger
Joern Arnhold
Sergey Prokofiev
Maxim Shchegolev
Tatiana Yurkevich

Number
of phantom
shares
205,646
102,823

Base price
(RUB)
1,516
1,516

Hurdle
reference price
(RUB)
764
764

Hurdle
reference
date
23/09/2011
23/09/2011

Vesting period
commencement
date
01/04/2012
01/04/2012

102,823
35,000
42,000
102,823
85,686
35,988
35,988
35,988

1,516
1,516
2,214
1,516
1,516
1,516
1,516
1,516

1,375
1,375
1,375
764
764
1,375
1,375
1,375

01/04/2013
01/04/2013
01/04/2013
23/09/2011
23/09/2011
01/04/2013
01/04/2013
01/04/2013

01/04/2013
01/04/2014
01/04/2019
01/04/2012
01/04/2012
01/04/2013
01/04/2013
01/04/2013

On 22 April 2014, as a result of the Settlement Event upon the 2014 Offering, we granted 399 new shares, (some in the form
of GDRs), to Senior Management under the MIP. The details of the MIP issuance, the holdings of the recipients immediately
following the issuance, and holdings of Senior Management as of 31 December 2016 are summarised below:

Manager
Jan Dunning
Jago Lemmens
Edward Doeffinger
Joern Arnhold
Herman Tinga
Sergey Prokofiev
Maxim Shchegolev
Tatiana Yurkevich

Number
of phantom
shares total
496,978
245,787
42,000

Vested
shares
99,396
49,157

Wave 1
Wave 2
Wave 2*

* Herman Tinga 2016 additional tranche.

Number of
shares issued
(including as GDRs)
132
66
66
55
44
12
12
12

Base
price
(RUB)
1,516
1,516
2,214

Hurdle
reference
price
(RUB)
764
1,375
1,375

Total holding
after issuance
(interests in shares)
549,538
104,697
95,557
86,497
7,044
12
12
12

Total holding
as of Dec 31 2016
(interest in shares)
549,538
105,737
95,557
86,497
9,204

Approximate holding
as of Dec 31 2016
(% of share capital)
0.56%
0.11%
0.10%
0.09%
0.01%
12 Less than 0.0001%
12 Less than 0.0001%
12 Less than 0.0001%

Vesting schedule

Hurdle
reference
date

2017

2018
23/09/2011 149,093 248,489
63,236 105,394
01/04/2013
01/04/2013

2019

2020

2021

10,500
21,000

21,000

17,500

The total executive Director LTIP 2016 allocation is equal to 150,322 shares, which represents around 120% of the
annual salary of this group.

Lenta Annual Report and Accounts 2016

Summary of non-executive Directors’ remuneration policy

Element

Principles and opportunities

Letter of
appointment

Chairman and
non-executive
Director

• The Chairman and other non-executive Directors of Lenta LLC each have a letter of appointment;

they do not have service contracts.

• There is no notice period for termination.

• Fees are reviewed periodically by the Committee taking into consideration:

̵ Time commitment, demands and the responsibility of the role; and

̵ External market practice.

• There has been no increase in the level of fees paid to the Chairman and the non-executive

Directors since the Company’s IPO in February 2014. The Committee and Board have agreed
that no increase will be payable for the coming year.

Additional fees

• Additional fees are paid for undertaking the extra responsibilities of

̵ Board Chairman

̵ Senior Independent Director

̵ Committee Chairman.

Other benefits

• The Chairman and the other non-executive Directors do not participate in any of our employee

incentive arrangements, nor do they receive any pension provision.

• No further benefits are provided to the Chairman or non-executive Directors.

Recruitment

• Fees for the Chairman and the other non-executive Directors are determined by the Board

as a whole, upon the recommendation of the Remuneration Committee.

• Fees are set at a level sufficient to attract, motivate and retain the world-class talent necessary

to contribute to a high-performing board.

Non-executive Directors’ Fees

Base fee for non-executive Directors
Additional fees:
Chairman
Senior Independent Director
Chairman of the Audit Committee
Chairman of the Capital Expenditure Committee
Chairman of the Nomination and Remuneration Committee
Members of the Audit and Capital Expenditure Committees
Members of the Nomination and Remuneration Committees

Interests of Directors in Lenta shares are summarised in the table below:

Name of Director
John Oliver
Stephen Johnson
Martin Elling
Michael Lynch-Bell

Amount payable
(USD)
165,000

285,000
25,000
40,000
30,000
17,500
15,000
10,000

Total holding as of
31 Dec 2016
(interest in shares)
125,000
80,000
10,000
3,200

Approximate holding
as of 31 Dec 2016
(% of share capital)
0.13%
0.08%
0.01%
less than 0.001%

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Lenta Annual Report and Accounts 2016

Corporate governance continued

Strategic alignment of pay
The table below shows the integration between Lenta’s financial key performance indicators and the senior remuneration
framework for 2015/16. This clearly demonstrates a clear linkage between performance metrics, payments to Directors
and business performance over the short and long term.

Financial objectives
Company revenue

Increase earnings and returns

KPI
Turnover

EBITDA

Increase shareholder value

Share price

Incentive scheme
Annual Bonus Scheme
Performance coefficient
for LTIP scheme
Annual Bonus Scheme
Performance coefficient
for LTIP scheme
MIP, LTIP

Non-financial objectives
Efficient operations
Sales space growth

Annual bonus scheme

KPI
Productivity
Number of stores opened
and in pipeline

Incentive scheme
Annual Bonus Scheme
Annual Bonus Scheme

Target bonus
(% of base
salary)

50% of
Target bonus
OEBITDA
multiplier*

50% of
Target bonus
Sales
multiplier

Individual
performance
coefficient

EUR/RUR
base to
actual rate
adjustment

Bonus
achieved
(as % of
base salary)

* Trigger for Annual Bonus

In April 2016, the 2015 annual bonus award was completed, with an overall award across the Company for those participating
in the scheme of 92% of the maximum. Functional KPIs execution was on a high level, increasing the overall payout and
the total bonus payout coefficient was higher than in 2014. The Committee and the Board felt that this accurately reflected
the significant progress that the business made during 2015 despite the challenging external environment.

Within this overall award, the Senior Management team was awarded annual bonuses averaging 92% of the maximum,
with the CEO achieving 97.6%. The Committee also agreed the annual bonus targets for 2016, providing for similarly
stretching performance.

Stephen Johnson
Chairman
Remuneration Committee

Lenta Annual Report and Accounts 2016S

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We considered, reviewed and made
recommendations to the Board on the
Company’s investment strategy, policy
and risk management. We continued
to improve the new form of investment
proposal (‘IP’) with even higher
standards to ensure the best overview
and forecasts against the backdrop
of the very large number of promising
new store IPs that the expansion teams
developed in 2016. We also worked
together with management on improving
the efficiency of the existing stores and
maintaining their strict compliance with
all applicable regulations.

The Capital Expenditure Committee
also worked closely with management
in reviewing potential acquisition
opportunities. This cooperation
enabled the smooth acquisition and
integration of the new assets of Kesko.

We continued to refine the post-IP
evaluation procedures to make sure
that the capital expenditure process
is in line with the Company strategy –
and that the results are in line with our
return requirements and high corporate
standards. Post-IP evaluation continues
to be refined to ensure future outcomes
remain in line with our expectations.
We also ensure that any lessons
learned are applied in future store
and other investment projects.

We also paid close attention to stores
with weaker relative performance
opened in previous years to ensure any
specific lessons learned can be taken
into account when reviewing, opening
and operating new stores in the future.

Dmitry Shvets
Chairman
Capital Expenditure Committee

Dear Shareholders
2016 was another successful year
for Lenta as it further accelerated its
expansion – opening 41 hypermarkets
(adding 40 hypermarkets net, as one
was closed) and 17 supermarkets in
Russia. We also completed a purchase
of 11 well-located stores from Kesko
which represented an excellent
strategic fit for Lenta in the North-West
region. This meant a lot of work for
the Capital Expenditure Committee.
In a growing economy, with the
environment providing tailwinds for
the business, our job would have
been a very busy one. But with
Russia’s current financial uncertainties,
a more stringent focus on how these
could impact the business – and
consequently any future capital
expenditure planning – was required.

In a more challenging economic
environment, the Committee applied
a particularly keen focus on balancing
the expenditure for land purchases
and the construction and fitting-out
of stores that will continue to feed
Lenta’s future growth plans with
our commitment to deliver value
for shareholders.

We will, as usual, be reviewing
all opportunities as they present
themselves. However, the Board and
Senior Management agree that, in the
present circumstances, it is particularly
important to maintain an appropriate
balance of prudent leverage levels,
whilst also pursuing high growth
and high investment project returns.
We are confident of being able to
continue to do so.

Activities during the year
During 2016, the Capital Expenditure
Committee focused on a number
of issues on behalf of the Board.
We considered more than 160 new
investment proposals including new
store projects and acquisitions (where
investment proposals included more
than one store), as well as supply
chain and vertical integration projects.

CAPITAL EXPENDITURE
COMMITTEE REPORT

Committee members:

• Dmitry Shvets

(Major Shareholder nominee,
Chairman)

• Stephen Johnson

(Independent)

• John Oliver

(Major Shareholder nominee)

• Martin Elling

(Major Shareholder nominee)

There are 12 Committee meetings
scheduled for 2017; this number may
be increased as necessary.

The key roles and responsibilities of the
Capital Expenditure Committee include:

• advising the Board with regard to
the overall capital expenditure
strategy of the Group;

• reviewing the Company’s processes
for approving capital expenditure
projects;

• setting the limits of authority for

capex-related decisions;

• reviewing and approving all capex

and M&A projects within the
Committee’s limits of authority;

• reviewing and making

recommendations on how the
overall capex plan aligns with the
Company’s strategy;

• endeavouring to ensure that

improvement programmes relating
to the design, construction and
operation of new stores are defined
and implemented in cooperation
with management;

• monitoring capex projects’ returns
and making adjustments to the
capex processes to reflect the
lessons learned.

A copy of the Committee’s full terms
of reference is available on the
Company’s website: http://www.
lentainvestor.com/en/about/corporate-
governance/internal-policies.

Lenta Annual Report and Accounts 2016

Corporate governance continued

RELATIONS WITH SHAREHOLDERS
We are committed to conducting
constructive dialogue with shareholders
to ensure that we understand what is
important to them and enable clear
communication of our position. The
Chairman, CEO and CFO hold regular
meetings with shareholders and update
the Board on the outcomes of those
meetings. Investor Relations keeps
the Board informed of investor, broker
and analyst views, and reports and
presents formally to the Board at each
scheduled Board meeting.

We support engagement with
institutional shareholders as envisaged
by the Stewardship Code and have
a dedicated investor relations website.

RESPONSIBILITY STATEMENT
We, members of the Board, confirm
that, to the best of our knowledge:

At our AGM, all resolutions are
proposed and voted upon individually
by shareholders or their proxies. All
votes taken during the AGM are by
way of a poll. This follows best practice
guidelines and allows the Company
to count all votes, not just those of
shareholders attending the meeting.

The consolidated financial statements,
prepared in accordance with IFRS,
give a true and fair view of the assets,
liabilities, financial position and
profit and loss of Lenta Ltd and its
subsidiaries taken as a whole. This
annual report includes a fair review
of the development and performance
of the business and the position of
Lenta Ltd and its subsidiaries, taken
as a whole, together with a description
of the principal risks and uncertainties
that they face.

By order of the Board.

John Oliver
Chairman, Lenta Ltd
28 April 2017

Schedule of investor calls in 2016
January
February
April
July
August
October

28
18
27
21
25
20

Thursday
Thursday
Wednesday
Thursday
Thursday
Thursday

Schedule of investor calls in 2017
January
February
April
July
August
October

26
16
20
20
30
19

Thursday
Thursday
Thursday
Thursday
Wednesday
Thursday

5–6pm Moscow time
5–6pm Moscow time
5–6pm Moscow time
5–6pm Moscow time
5–6pm Moscow time
5–6pm Moscow time

Lenta Annual Report and Accounts 2016 91

FINANCIAL
STATEMENTS

Statement of management’s responsibilities
for the preparation and approval of the
consolidated financial statements
Independent auditors’ report

93
96 Consolidated statement of financial position
Consolidated statement of profit or loss
97
and other comprehensive income
98 Consolidated statement of cash flows
99 Consolidated statement of changes in equity
100 Notes to the consolidated financial statements

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Lenta Annual Report and Accounts 2016

Statement of management’s responsibilities for the preparation
and approval of the consolidated financial statements
for the year ended 31 December 2016

The following statement is made with a view to the respective
responsibilities of management in relation to the consolidated
financial statements of Lenta Limited and its subsidiaries
(“the Group”).

• Maintaining statutory accounting records in compliance
with local legislation and accounting standards in the
respective jurisdictions in which the Group operates;

• Taking such steps as are reasonably available to them

to safeguard the assets of the Group; and

• Preventing and detecting fraud and other irregularities.

The consolidated financial statements of the Group for
the year ended 31 December 2016 were approved by
management on 15 February 2017.

On behalf of the Management as authorised by the
Board of Directors.

Jan Dunning
CEO of Lenta Ltd

Jago Lemmens
CFO of Lenta Ltd

Management is responsible for the preparation of these
consolidated financial statements that present fairly the
financial position of Lenta Limited and its subsidiaries
(“the Group”) as at 31 December 2016 and the results
of its operations, cash flows and changes in shareholders’
equity for the year then ended, in compliance with
International Financial Reporting Standards (“IFRS”).

In preparing the consolidated financial statements,
management is responsible for:

• Selecting and applying accounting policies;

• Presenting information, including accounting policies,

in a manner that provides relevant, reliable, comparable
and understandable information;

• Providing additional disclosures when compliance with the
specific requirements of IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the Group’s consolidated
financial position and financial performance;

• Making an assessment of the Group’s ability to continue

as a going concern.

Management is also responsible for:

• Designing, implementing and maintaining an effective and
sound system of internal controls throughout the Group;

• Maintaining adequate accounting records that are

sufficient to show and explain the Group’s transactions
and disclose with reasonable accuracy at any time the
consolidated financial position of the Group, and which
enable them to ensure that the consolidated financial
statements of the Group comply with IFRS;

Lenta Annual Report and Accounts 2016S

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Independent auditor’s report
To the Shareholders and Board of Directors of Lenta Limited

Opinion
We have audited the consolidated financial statements
of Lenta Limited and its subsidiaries (the Group),
which comprise the consolidated statement of financial
position as at 31 December 2016, and the consolidated
statement of profit and loss and other comprehensive
income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the
financial position of the Group as at 31 December 2016
and its financial performance and its cash flows for the
year then ended in accordance with International Financial
Reporting Standards.

Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the Auditor’s
responsibilities for the audit of the consolidated financial
statements section of our report. We are independent of the
Group in accordance with the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code), and we have fulfilled our other
ethical responsibilities in accordance with the IESBA Code.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period.
These matters were addressed in the context of our
audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. For each matter below,
our description of how our audit addressed the matter is
provided in that context.

We have fulfilled the responsibilities described in the
Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report, including in
relation to these matters. Accordingly, our audit included
the performance of procedures designed to respond to
our assessment of the risks of material misstatement of the
consolidated financial statements. The results of our audit
procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.

Capitalisation of construction costs
The Group incurs significant expenditures related to
the construction of new retail stores, a part of which was
capitalised under IAS 16 Property, Plant and Equipment.
Capitalisation of construction costs was a matter of most
significance in our audit because the balance of property,

plant and equipment as of 31 December 2016 is significant
to the consolidated financial statements. Information in
respect of the balance of property, plant and equipment as of
31 December 2016 and additions for the year then ended is
disclosed in Note 9 to the consolidated financial statements.

We obtained understanding of the Group’s capitalisation
policy and tested controls over authorisation, timeliness
and accuracy of recording of property, plant and equipment
additions. We compared the Group’s investment budget with
actual capital expenditures. On a sample basis we tested
capital expenditures to supporting documents. We analysed
aging of assets under construction.

Recognition of suppliers’ allowances
The Group receives various types of allowances from
suppliers in connection with the purchase of goods for
resale in the form of volume discounts and other payments.
The recognition of allowances was a matter of most
significance in our audit because of its material impact
on trade and other receivables, cost of goods sold and
inventories. In addition, management exercises judgement
in determining the period over which these allowances
should be recognised considering the nature and the level
of fulfilment of the Group’s obligations and estimates of
purchase volumes. Information about suppliers’ rebates
receivable and accounts receivable on suppliers’ advertising
as of 31 December 2016 is disclosed in Note 14 to the
consolidated financial statements.

We understood and tested the design and operating
effectiveness of internal controls over the recognition
of allowances from suppliers. We agreed performance
obligations to supporting documents approved by
individual suppliers. We analysed the assumptions
underlying management estimates of amounts receivable.
On a sample basis we received direct confirmations
of outstanding balances from suppliers. We agreed the
balances of suppliers’ allowances receivables to the post
year-end cash settlements.

Other information included in the Group’s
2016 annual report
Other information consists of the information included in
the Annual report, other than the consolidated financial
statements and our auditor’s report thereon. Management
is responsible for the other information. The Group’s
2016 Annual report is expected to be made available
to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does
not cover the other information and we do not express any
form of assurance conclusion thereon.

In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above when it becomes available and, in doing so,
consider whether the other information is materially
inconsistent with the consolidated financial statements or
our knowledge obtained in the audit or otherwise appears
to be materially misstated.

Lenta Annual Report and Accounts 2016

Independent auditor’s report (continued)

Responsibilities of management and Board
of Directors for the financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements
in accordance with IFRSs, and for such internal control
as management determines is necessary to enable the
preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements,
management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the
going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations,
or has no realistic alternative but to do so.

Board of Directors is responsible for overseeing the Group’s
financial reporting process.

Auditor’s responsibilities for the audit of the
consolidated financial statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.

As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:

• Identify and assess the risks of material misstatement
of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of
internal control.

• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control.

• Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.

• Conclude on the appropriateness of management’s use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause
the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain
solely responsible for our audit opinion.

We communicate with Board of Directors regarding,
among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant
deficiencies in internal control that we identify during
our audit.

We also provide Board of Directors with a statement that
we have complied with relevant ethical requirements
regarding independence, and to communicate with them
all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable,
related safeguards.

From the matters communicated with Board of Directors,
we determine those matters that were of most significance
in the audit of the consolidated financial statements of the
current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, we determine that
a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of
such communication.

The partner in charge of the audit resulting in this
independent auditor’s report is Ilya Ananyev.

Ilya Ananyev
Partner
Ernst & Young LLC

15 February 2017

Lenta Annual Report and Accounts 2016 95

Details of the audited entity
Name: Lenta Ltd
Registered 16 July 2003
Address: Road Town, Tortola, BVI

Details of the auditor
Name: Ernst & Young LLC
Record made in the State Register of Legal Entities
on 5 December 2002, State Registration Number
1027739707203.
Address: Russia 115035, Moscow, Sadovnicheskaya
naberezhnaya, 77, building 1.
Ernst & Young LLC is a member of Self-regulated
organization of auditors “Russian Union of auditors”
(Association) (“SRO RUA”). Ernst & Young LLC is included
in the control copy of the register of auditors and audit
organizations, main registration number 11603050648.

Ernst & Young LLC
Sadovnicheskaya Nab., 77, bld. 1
Moscow, 115035, Russia
Tel: +7 (495) 705 9700

+7 (495) 755 9700
Fax: +7 (495) 755 9701
www.ey.com/ru

ООО «Эрнст энд Янг»
Россия, 115035, Москва
Садовническая наб., 77, стр. 1
Тел.: +7 (495) 705 9700
+7 (495) 755 9700
Факс: +7 (495) 755 9701
ОКПО: 59002827

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Lenta Annual Report and Accounts 2016

Consolidated statement of financial position
as at 31 December 2016 (in thousands of Russian roubles)

Assets
Non-current assets:
Property, plant and equipment
Prepayments for construction
Leasehold rights
Intangible assets other than leasehold rights
Long-term portion of cash flow hedging instruments
Deferred tax asset
Other non-current assets
Total non-current assets

Current assets:
Inventories
Trade and other receivable
Advances paid
Taxes recoverable
Advance payments for income tax
Prepaid expenses
Short-term portion of cash flow hedging instruments
Cash and cash equivalents
Total current assets
Total assets

Equity and liabilities
Equity
Share capital
Additional paid-in capital
Share options
Hedging reserve
Retained earnings
Total equity

Liabilities
Non-current liabilities:
Long-term borrowings
Deferred tax liabilities
Long-term portion of cash flow hedging instruments
Total non-current liabilities

Current liabilities:
Trade and other payables
Advances received
Other taxes payable
Current income tax payable
Short-term portion of cash flow hedging instruments
Short-term borrowings and short-term portion of long-term borrowings
Short-term obligations under finance leases
Total current liabilities
Total liabilities
Total equity and liabilities

Note

31 December
2016

31 December
2015

9
10
11
12
31
22

13
14
15
16

31
17

147,812,289
7,741,743
3,744,009
1,890,176
62,618
123,508
199,131
161,573,474

27,490,941
17,035,789
2,669,761
3,920,940
–
131,932
309,592
13,037,767
64,596,722
226,170,196

104,016,458
6,528,355
3,047,168
1,092,329
355,414
–
–
115,039,724

22,781,732
13,646,894
2,264,911
1,257,764
288,119
217,711
439,050
22,455,945
63,352,126
178,391,850

18, 20
18
28
18

284
26,216,147
668,200
431,570
31,052,910
58,369,111

284
26,216,147
338,016
724,642
19,850,882
47,129,971

21
22
31

31
21

66,955,931
7,359,998
2,137
74,318,066

65,149,097
5,229,804
24,564
70,403,465

56,171,598
340,062
1,111,306
568,345
46,588
35,245,120
–
93,483,019
167,801,085
226,170,196

48,820,207
219,705
927,084
–
99,564
10,773,277
18,577
60,858,414
131,261,879
178,391,850

The accompanying notes on pages 100 to 140 are an integral part of these financial statements.

Lenta Annual Report and Accounts 2016

Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2016 (in thousands of Russian roubles)

Sales
Cost of sales
Gross profit

Selling, general and administrative expenses
Other operating income
Other operating expense
Operating profit

Interest expense
Interest income
Ineffective portion of change in fair value of cash flow hedging instruments
Foreign exchange gains/(losses)
Profit before income tax

Income tax expense
Profit for the year

Other comprehensive income
Other comprehensive income to be reclassified to profit or loss

in subsequent periods

Net loss from cash flow hedges
Income tax relating to the components of OCI
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year, net of tax

Note

26
27
27

19
22

Year ended
31 December
2016
306,352,092
(238,584,029)
67,768,063

Year ended
31 December
2015
252,763,075
(196,457,910)
56,305,165

(46,442,510)
3,086,079
(716,375)
23,695,257

(10,084,573)
851,813
–
90,751
14,553,248

(36,044,771)
2,584,310
(512,533)
22,332,171

(10,044,858)
767,905
6,308
(189,423)
12,872,103

(3,351,220)
11,202,028

(2,584,010)
10,288,093

(366,340)
73,268
(293,072)
10,908,956

(2,326,519)
465,304
(1,861,215)
8,426,878

Earnings per share (in thousands of Russian roubles per share) (Note 20)
– basic and diluted, for profit for the year attributable to equity holders of the parent

0.115

0.112

The accompanying notes on pages 100 to 140 are an integral part of these financial statements.

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Lenta Annual Report and Accounts 2016

Consolidated statement of cash flows
for the year ended 31 December 2016 (in thousands of Russian roubles)

Cash flows from operating activities
Profit before income tax

Adjustments for:
Net loss on disposal of property, plant and equipment
Net loss on disposal of intangible assets
Net loss on disposal of leasehold rights
Interest expense
Interest income
Inventory write-down/(reversal of write-down) to NRV
Change in bad debt allowance and impairment of advances and prepayments for

construction

Depreciation and amortisation
Share options expense
Ineffective portion of change in fair value of cash flow hedging instruments

Movements in working capital
Increase in trade and other receivables
(Increase)/decrease in advances paid
Increase in prepaid expenses
Increase in inventories
Increase in trade and other payables
Increase in advances received
(Decrease)/increase in net other taxes payable
Cash from operating activities

Income taxes paid
Interest received
Interest paid
Net cash generated from operating activities

Cash flows from investing activities
Purchases of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Purchases of intangible assets other than leasehold rights
Purchases of leasehold rights
Proceeds from sale of property, plant and equipment
Net cash used in investing activities

Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Repayments of obligations under financial lease
Proceeds from issue of new shares
Payment of loan commission
Net cash generated from financing activities

Year ended
31 December
2016

Year ended
31 December
2015

Note

14,553,248

12,872,103

13
10, 14,
27
9, 26
28
31

13
23

16, 24

262,048
–
1,279
10,084,573
(851,813)
325,443

178,504
7,694,569
330,184
–
32,578,035

(3,399,994)
(406,727)
(33,427)
(4,821,288)
5,159,820
115,017
(1,281,209)
27,910,227

(289,411)
942,997
(8,845,027)
19,718,786

53,596
6,486
59,235
10,044,858
(767,905)
(38,710)

194,665
5,686,264
184,124
(6,308)
28,288,408

(2,120,455)
486,213
(52,232)
(3,113,641)
1,228,784
5,754
1,187,747
25,910,578

(896,352)
656,052
(9,745,887)
15,924,391

(41,688,957)
(11,100,481)
(1,088,745)
(630,989)
251,937
(54,257,235)

(30,434,839)
–
(486,224)
(557,827)
109,264
(31,369,626)

65,422,079
(40,283,231)
(18,577)
–
–
25,120,271

89,717,940
(85,565,000)
(16,888)
21,788,593
(59,250)
25,865,395

Net (decrease)/increase in cash and cash equivalents

(9,418,178)

10,420,160

Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

17
17

22,455,945
13,037,767

12,035,785
22,455,945

The accompanying notes on pages 100 to 140 are an integral part of these financial statements.

Lenta Annual Report and Accounts 2016

Consolidated statement of changes in equity
for the year ended 31 December 2016 (in thousands of Russian roubles)

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Balance at 1 January 2016
Profit for the period
Other comprehensive income/(loss)
Total comprehensive income/(loss)

Share-based payments (Note 28)
Balance at 31 December 2016

Balance at 1 January 2015
Profit for the period
Other comprehensive income/(loss)
Total comprehensive income/(loss)

Share-based payments (Note 28)
Issue of shares (Note 18, 28)
Balance at 31 December 2015

Share
capital
284
–
–
–

Additional
paid-in capital
26,216,147
–
–
–

Hedging
reserve
724,642
–
(293,072)
(293,072)

Share options
reserve
338,016
–
–
–

Retained
earnings
19,850,882
11,202,028
–
11,202,028

Total
equity
47,129,971
11,202,028
(293,072)
10,908,956

–
284

284
–
–
–

–
–
284

–
26,216,147

–
431,570

330,184
668,200

–
31,052,910

330,184
58,369,111

4,427,554
–
–
–

2,585,857
–
(1,861,215)
(1,861,215)

153,892
–
–
–

9,562,789
10,288,093
–
10,288,093

16,730,376
10,288,093
(1,861,215)
8,426,878

–
21,788,593
26,216,147

–
–
724,642

184,124
–
338,016

–
–
19,850,882

184,124
21,788,593
47,129,971

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Notes
Additional paid-in capital: Additional paid-in capital is the difference between the fair value of consideration received
and nominal value of the issued shares.

The accompanying notes on pages 100 to 140 are an integral part of these financial statements.

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Lenta Annual Report and Accounts 2016

100

Notes to the consolidated financial statements
for the year ended 31 December 2016 (in thousands of Russian roubles)

1. THE LENTA GROUP AND ITS OPERATIONS
The Lenta Group (the “Group”) comprises Lenta Limited
(“the Company”) and its subsidiaries. The Group’s principal
business activity is the development and operation of
hypermarket and supermarket stores in Russia.

The Company was incorporated as a company limited by
shares under the laws of the British Virgin Islands (BVI) on
16 July 2003. The Company’s registered address is at Road
Town, Tortola, BVI. The registered office of the Group’s main
operating entity, Lenta LLC, is located at 112, Savushkina
Street, 197374, Saint Petersburg, Russia.

Starting from March 2014 the Company’s shares were listed
on the London Stock Exchange and Moscow Exchange
in the form of Global Depositary Receipts (GDR). In 2015
two more public offerings took place at the London Stock
Exchange and Moscow Exchange in the form of GDRs.

At 31 December 2015 and 2016 the Group has one main
operational fully owned subsidiary, Lenta LLC, a legal
entity registered under the laws of the Russian Federation.
The principal activity of Lenta LLC is retail trade. Other
subsidiaries including newly acquired (see Note 7) are
property or investment holding companies by its nature.

Accordingly, management is satisfied that it is appropriate
to adopt the going concern basis of accounting in preparing
the consolidated financial information for these consolidated
financial statements.

At 31 December 2016, the Group had net current liabilities
of RUB 28,886,297 thousand (net current assets at
31 December 2015: 2,493,712 thousand).

Unused credit facilities available as of 31 December 2016
were RUB 44,150,000 thousand. Management believes
that operating cash flows and available borrowing capacity
will provide it adequate resources to fund its liabilities for
the next year.

2.2 Basis of consolidation
The consolidated financial statements incorporate
the financial statements of the Company and other
entities controlled by the Company (its subsidiaries)
as at 31 December 2016. Control is achieved when the
Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to
affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only
if the Group has:

2. BASIS OF PREPARATION AND SIGNIFICANT

ACCOUNTING POLICIES

Statement of compliance
These consolidated financial statements have been prepared
in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting
Standards Board (IASB).

• Power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns from its involvement

with the investee; and

• The ability to use its power over the investee to affect

its returns.

2.1 Basis of preparation
The consolidated financial statements have been prepared
on a historical cost basis, except for as described in
accounting policies below. The consolidated financial
statements are presented in Russian roubles and all values
are rounded to the nearest thousand (RUB 000), except
when otherwise indicated.

The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all the
periods presented unless otherwise stated.

Management has considered the Group’s cash flow
forecasts for the period ending 31 March 2018, which take
into account the current and expected economic situation
in Russia, the Group’s financial position, available borrowing
facilities, and loan covenant compliance, planned store
opening program and the anticipated cash flows and related
expenditures from retail stores.

Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when
the Group has less than a majority of the voting or similar
rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over
an investee, including:

• The contractual arrangement with the other vote holders

of the investee;

• Rights arising from other contractual arrangements;

• The Group’s voting rights and potential voting rights.

The Group reassesses whether or not it controls an
investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group
loses control of the subsidiary. Assets, liabilities, income
and expenses of a subsidiary acquired or disposed of during
the year are included in the statement of comprehensive
income from the date the Group gains control until the date
the Group ceases to control the subsidiary.

Lenta Annual Report and Accounts 2016 101

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.2 Basis of consolidation (continued)
Profit or loss and each component of other comprehensive
income (OCI) are attributed to the equity holders of the
parent of the Group and to the non-controlling interests,
even if this results in the non-controlling interests having
a deficit balance. When necessary, adjustments are made
to the financial statements of subsidiaries to bring their
accounting policies into line with the Group’s accounting
policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while
any resultant gain or loss is recognised in profit or loss.
Any investment retained is recognised at fair value.

Subsidiaries are those companies (including special
purpose entities) in which the Group, directly or indirectly,
has an interest of more than one half of the voting rights or
otherwise has power to govern the financial and operating
policies so as to obtain economic benefits and which are
neither associates nor joint ventures. The existence and
effect of potential voting rights that are presently exercisable
or presently convertible are considered when assessing
whether the Group controls another entity. Subsidiaries are
consolidated from the date on which control is transferred
to the Group (acquisition date) and are deconsolidated from
the date that control ceases.

2.3 Summary of significant accounting policies
Business combinations and goodwill
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred measured
at acquisition date fair value and the amount of any non-
controlling interest in the acquiree. For each business
combination, the Group elects whether to measure the
non-controlling interest in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and
included in administrative expenses.

When the Group acquires a business, it assesses the
financial assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts
by the acquiree.

If the business combination is achieved in stages,
the previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss
is recognised in profit or loss.

Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acquisition
date. Subsequently contingent consideration classified as
an asset or liability is measured at fair value with changes
in fair value recognised either in profit or loss. Contingent
consideration that is classified as equity is not remeasured
and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess
of the aggregate of the consideration transferred and the
amount recognised for non-controlling interest over the
net identifiable assets acquired and liabilities assumed.

If the fair value of the net assets acquired is in excess of the
aggregate consideration transferred, the gain is recognised
in profit or loss.

After initial recognition, goodwill is measured at cost
less any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to
each of the Group’s cash-generating units that are expected
to benefit from the combination, irrespective of whether
other assets or liabilities of the acquiree are assigned
to those units.

Where goodwill has been allocated to a cash-generating unit
and part of the operation within that unit is disposed of, the
goodwill associated with the disposed operation is included
in the carrying amount of the operation when determining
the gain or loss from disposal. Goodwill disposed in these
circumstances is measured based on the relative values
of the disposed operation and the portion of the cash-
generating unit retained.

Current versus non-current classification
The Group presents assets and liabilities in statement of
financial position based on current/non-current classification.
An asset is current when it is:

• Expected to be realised or intended to sold or consumed

in normal operating cycle;

• Held primarily for the purpose of trading;

• Expected to be realised within twelve months after the

reporting period; or

• Cash or cash equivalent unless restricted from being

exchanged or used to settle a liability for at least twelve
months after the reporting period.

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Lenta Annual Report and Accounts 2016

102

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
All other assets are classified as non-current. A liability
is current when:

• It is expected to be settled in normal operating cycle;

• It is held primarily for the purpose of trading;

The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are
available to measure fair value, maximising the use
of relevant observable inputs and minimising the use
of unobservable inputs.

All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:

• It is due to be settled within twelve months after the

reporting period; or

• Level 1 – quoted (unadjusted) market prices in active

markets for identical assets or liabilities.

• There is no unconditional right to defer the settlement

of the liability for at least twelve months after the
reporting period.

• Level 2 – valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or indirectly observable.

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-
current assets and liabilities.

Fair value measurement
The Group measures financial instruments, such as
derivatives at fair value at each balance sheet date. Also,
fair values of financial instruments measured at amortised
cost are disclosed in Note 30.

Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most
advantageous market for the asset or liability.

The principal or the most advantageous market must be
accessible to by the Group.

The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act
in their economic best interest.

A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.

• Level 3 – valuation techniques for which the lowest level
input that is significant to the fair value measurement
is unobservable.

For assets and liabilities that are recognised in the
financial statements on a recurring basis, the Group
determines whether transfers have occurred between
Levels in the hierarchy by reassessing categorisation
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.

For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy as explained above.

Functional and presentation currency
The presentation and functional currency of all Group entities
is the Russian rouble (“RUB”), the national currency of the
Russian Federation, the primary economic environment
in which operating entities function.

Transactions in foreign currencies are initially recorded by
the Group’s entities at the functional currency spot rates
at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot
rates of exchange at the reporting date. Differences
arising on settlement or translation of monetary items
are recognised in profit or loss.

Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates at the date when
the fair value is determined. The gain or loss arising on
translation of non-monetary items measured at fair value
is treated in line with the recognition of gain or loss from
change in fair value of the item.

Lenta Annual Report and Accounts 2016S

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103

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
Property, plant and equipment
Property, plant and equipment are initially recorded at
purchase or construction cost. Cost of replacing major parts
or components of property, plant and equipment items is
capitalised and the replaced part is retired. All other repair
and maintenance costs are expensed as incurred.

Property, plant and equipment are stated at cost, net of
accumulated depreciation and accumulated impairment
losses, if any.

Gains and losses on disposals determined by comparing
net proceeds with the respective carrying amount are
recognised in profit or loss.

Construction in progress comprises costs directly related to
the construction of property, plant and equipment including
an appropriate allocation of directly attributable variable
overheads that are incurred in construction. Depreciation
of an asset begins when it is available for use, i.e. when it
is in the location and condition necessary for it to be capable
of operating in the manner intended by management.
Construction in progress is reviewed regularly to determine
whether its carrying value is recoverable and whether
appropriate impairment loss has been recognised.

Properties in the course of construction for production,
rental or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognised
impairment loss. Depreciation of these assets, on the same
basis as other property assets, commences when the assets
are ready for their intended use.

Depreciation
Depreciation of property, plant and equipment is calculated
using the straight-line method to write off their cost to their
residual values over their estimated useful lives:

Buildings
Land improvements
Machinery and equipment
Other

Useful lives
in years
30
30
5 to 15
3 to 5

Leasehold rights
Leasehold rights acquired as part of hypermarket
development projects are separately reported at cost less
accumulated amortisation and accumulated impairment
losses. These leasehold rights are amortised to profit or
loss over the term of the lease, which is 49 years. If the
Group further purchases the land plot previously leased,
the carrying amount of the related leasehold right as of the
date of purchase transaction is reclassified to the cost of
land plot purchased.

Finance leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified
as operating leases.

Assets held under finance leases are recognised as assets
at their fair value at the inception of the lease or, if lower,
at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the
statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance charges
and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly to the profit
and loss, unless they are directly attributable to qualifying
assets, in which case they are capitalised in accordance
with the Group’s general policy on borrowing costs.

Operating lease payments are recognised as an expense
on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset
are consumed.

Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the
date of acquisition. Following initial recognition, intangible
assets are carried at cost less any accumulated amortisation
and accumulated impairment losses.

Internally generated intangible assets, excluding capitalised
development costs, are not capitalised and expenditure
is reflected in profit and loss in the period in which the
expenditure is incurred.

The useful lives of intangible assets are assessed as either
finite or indefinite.

Intangible assets with finite lives are amortised over
the useful economic life (which is from 3 to 7 years) using
a straight-line method to write off their cost to their residual
values and assessed for impairment whenever there is
an indication that the intangible asset may be impaired.
The amortisation period and the amortisation method for an
intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected
useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered
to modify the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives
is recognised in the statement of profit or loss and other
comprehensive income as the expense category that is
consistent with the function of the intangible assets or
included into the carrying amount of an asset as appropriate.

Lenta Annual Report and Accounts 2016

104

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

Income taxes
Income taxes have been provided for in the consolidated
financial statements in accordance with management’s
interpretation of the relevant legislation enacted or
substantively enacted as at the reporting date. The income
tax charge comprises current tax and deferred tax and is
recognised in the consolidated statement of profit or loss and
other comprehensive income unless it relates to transactions
that are recognised, in the same or a different period,
directly in equity. In the case of a business combination,
the tax effect is taken into account in calculating goodwill
or determining the excess of the acquirer’s interest in the
net fair value of the acquiree’s identifiable assets, liabilities
and contingent liabilities over cost of consideration paid.

Current tax is the amount expected to be paid to or
recovered from the taxation authorities in respect of
taxable profits or losses for the current and prior periods.
Deferred income tax is recorded using the balance sheet
liability method for tax loss carry-forwards and temporary
differences arising between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes. Deferred tax balances are measured at tax rates
enacted or substantively enacted at the reporting date,
which are expected to apply to the period when the temporary
differences will reverse or the tax loss carry-forwards will be
utilised. Deferred tax assets and liabilities are netted only
within the individual companies of the Group. Deferred tax
assets for deductible temporary differences and tax loss
carry-forwards are recorded only to the extent that it is
probable that future taxable profit will be available against
which the deductions can be utilised.

Deferred tax liabilities are recognised for all taxable
temporary differences, except:

• When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a
transaction that is not a business combination and,
at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.

• In respect of taxable temporary differences associated

with investments in subsidiaries, associates and interests
in joint ventures, when the timing of the reversal of the
temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the
foreseeable future.

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually,
either individually or at the cash-generating unit level.
The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
and are recognised in the profit or loss when the asset
is derecognised.

Impairment of non-financial assets
At each reporting date, the Group reviews the carrying
amounts of its non-financial assets to determine whether
there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss (if any).
Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset
belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also
allocated to individual cash-generating unit, or otherwise
they are allocated to the smallest group of cash-generating
units for which a reasonable and consistent allocation
basis can be identified.

The recoverable amount of an asset or a cash-generating
unit is the higher of its fair value less costs to sell and value
in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not
been adjusted.

If the recoverable amount of an asset (or a cash-generating
unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (the cash-generating unit)
is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the
carrying amount of the asset (the cash generating unit) is
increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed
the carrying amount that would have been determined
had no impairment loss been recognised for the asset
(the cash-generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.

Lenta Annual Report and Accounts 2016 105

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
Deferred tax assets are recognised for all deductible
temporary differences, the carry-forward of unused tax
credits and any unused tax losses to the extent that it
is probable that taxable profit will be available against
which the deductible temporary differences, and the carry-
forward of unused tax credits and unused tax losses can
be utilised, except:

• When the deferred tax asset relating to the deductible

temporary difference arises from the initial recognition of
an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.

• In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are recognised
only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary
differences can be utilised.

The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.

The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the
manner in which the Group expects, at the reporting date,
to recover or settle the carrying amount of its assets
and liabilities.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.

Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost of inventory is determined on the weighted
average basis. Net realisable value is the estimated selling
price in the ordinary course of business, less the cost of
completion and selling expenses. Cost comprises the direct
cost of goods, transportation and handling costs. Cost of
sales comprises only cost of inventories sold through retail
stores and inventory write-downs made during the period.

Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets are
capitalised as part of the cost of that asset, other borrowing
costs are recognised in profit or loss in the period in
which they are incurred. A qualifying asset is an asset that
necessarily takes a substantial period of time to get ready
for its intended use or sale. For the purposes of borrowing
costs recognition, a substantial period of time is considered
to be a period of twelve months or more.

To the extent that the Group borrows funds generally and
uses them for the purpose of obtaining a qualifying asset,
the Group determines the amount of borrowing costs eligible
for capitalisation by applying a capitalisation rate to the
expenditures on that asset. The capitalisation rate is the
weighted average of the borrowing costs applicable to
the borrowings of the Group that are outstanding during
the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset.

Revenue recognition
The sole source of revenue is retail sales. Revenue from
the sale of goods is recognised at the point of sale.

The Group generates and recognises sales to retail
customers in its stores at the point of sale. Retail sales are
in cash and through bank cards. Revenues are measured
at the fair value of the consideration received or receivable,
recognised net of value added tax and are reduced for
estimated customer returns. Historical information in relation
to the timing and frequency of customer returns is used to
estimate and provide for such returns at the time of sale.

Income generated from rental of spaces for small trading
outlets within the Group’s stores is recognised in the end
of each month on a straight-line basis over the period of
the lease, in accordance with the terms of the relevant
lease agreements.

Interest income is recognised on a time-proportion basis
using the effective interest rate method. Interest income
is included into the Interest income line in the statement
of comprehensive income.

Suppliers’ allowances
The Group receives various types of allowances from
vendors in the form of volume discounts and other forms
of payments that effectively reduce the cost of goods
purchased from the vendor. These allowances received
from suppliers are recorded as a reduction in the price paid
for the products and reduce cost of goods sold in the period
the products are sold. Where a rebate agreement with
a supplier covers more than one year, the rebates are
recognised in the period in which they are earned.

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106

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
Employee benefits
The Group is subject to mandatory contributions to the
Russian Federation defined contribution state pension
benefit fund. Wages, salaries, contributions to the state
pension and social insurance funds, paid annual leave and
sick leave, bonuses, and non-monetary benefits are accrued
in the year in which the associated services are rendered
by the employees of the Group.

Share-based payments
Certain employees (including senior executives) of the Group
receive remuneration in the form of share-based payments,
whereby employees render services as consideration for
equity instruments (equity-settled transactions).

The cost of equity-settled transactions is determined by
the fair value at the date when the grant is made using
an appropriate valuation model.

That cost is recognised, together with a corresponding
increase in share options reserve in equity, over the period in
which the performance and/or service conditions are fulfilled
in employee benefits expense (Note 28). The cumulative
expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Group’s best
estimate of the number of equity instruments that will
ultimately vest. The statement of profit or loss expense or
credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that
period and is recognised in employee benefits expense
(Note 28).

Segment reporting
The Group’s business operations are located in the Russian
Federation and relate primarily to retail sales of consumer
goods. Although the Group operates through different stores
and in various regions within the Russian Federation, the
Group’s chief operating decision maker reviews the Group’s
operations and allocates resources on an individual store-
by-store basis. The Group has assessed the economic
characteristics of the individual stores and determined that
the stores have similar margins, similar products, similar
types of customers and similar methods of distributing such
products. Therefore, the Group considers that it only has one
reportable segment under IFRS 8. Segment performance
is evaluated based on a measure of revenue and earnings
before interest, tax, depreciation and amortisation (EBITDA).
EBITDA is non-IFRS measure. Other information is
measured in a manner consistent with that in the
consolidated financial statements.

Seasonality
The Group’s business operations are stable during the year
with limited seasonal impact, except for a significant increase
of business activities in December.

Financial assets
General description
Financial assets are classified into the following specified
categories: at fair value through profit or loss (“FVTPL”);
held-to-maturity investments, “available-for-sale” (“AFS”)
financial assets and “loans and receivables”. The
classification depends on the nature and purpose of
the financial assets and is determined at the time of
initial recognition.

All financial assets are recognised initially at fair value plus,
in the case of financial assets not at fair value through profit
or loss, directly attributable transaction costs.

No expense is recognised for awards that do not ultimately
vest, except for equity-settled transactions for which vesting
is conditional upon a market or non-vesting condition.
These are treated as vested irrespective of whether or not
the market or non-vesting condition is satisfied, provided that
all other performance and/or service conditions are satisfied.

Loans and receivables
Trade receivables, loans, and other receivables that have
fixed or determinable payments that are not quoted in
an active market are classified as loans and receivables.
Loans and receivables are measured at amortised cost
using the effective interest rate method.

When the terms of an equity-settled award are modified,
the minimum expense recognised is the expense had the
terms had not been modified, if the original terms of the
award are met. An additional expense is recognised for any
modification that increases the total fair value of the share-
based payment transaction, or is otherwise beneficial to
the employee as measured at the date of modification.

Pre-opening costs
Operating expenses incurred during the process of opening
of new stores were recorded in the Group’s consolidated
statement of profit or loss and other comprehensive income.
These expenses do not meet capitalisation criteria under IAS
16 Property, Plant and Equipment and include rent, utilities
and other operating expenses.

Cash and cash equivalents
Cash and short-term deposits in the statement of financial
position comprise cash at banks and on hand and short-term
deposits with a maturity of three months or less.

Impairment of financial assets
Financial assets are assessed for indicators of impairment
at each reporting date. Financial assets are impaired where
there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the
financial asset have been impacted. For financial assets
carried at amortised cost, the amount of the impairment is
the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted
at the original effective interest rate.

Lenta Annual Report and Accounts 2016
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107

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
The carrying amount of the financial asset is reduced
by the impairment loss directly for all financial assets
with the exception of trade receivables where the carrying
amount is reduced through the use of an allowance account.
When a trade receivable is uncollectible, it is written off
against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of
the allowance account are recognised in profit or loss.

With the exception of AFS equity instruments, if, in a
subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised,
the previously recognised impairment loss is reversed
through profit or loss to the extent that the carrying amount
of the investment at the date the impairment is reversed
does not exceed what the amortised cost would have
been had the impairment not been recognised.

Derecognition of financial assets
A financial asset is derecognised when:

• The rights to receive cash flows from the asset

have expired;

• The Group has transferred its rights to receive cash

flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to
a third party under a “pass-through” arrangement; and
either (a) the Group has transferred substantially all the
risks and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and
rewards of the asset but has transferred control of
the asset.

When the Group has transferred its rights to receive cash
flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained
substantially all of the risks and rewards of the asset nor
transferred control of the asset, the asset is recognised to
the extent of the Group’s continuing involvement in the asset.

In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations
that the Group has retained.

Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum
amount of consideration that the Group could be required
to repay.

Financial liabilities and equity instruments
issued by the Group
Treasury shares
Own equity instruments that are reacquired (treasury shares)
are recognised at cost and deducted from equity. No gain
or loss is recognised in the statement of profit or loss and
other comprehensive income on the purchase, sale, issue
or cancellation of the Group’s own equity instruments.
Any difference between the carrying amount and the
consideration, if reissued, is recognised in additional paid-in
capital. Voting rights related to treasury shares are nullified
for the Group and no dividends are allocated to them. Share
options exercised during the reporting period are satisfied
with treasury shares.

Share capital
Ordinary shares are classified as equity. Transaction costs
of a share issue are shown within equity as a deduction from
the equity.

Additional paid-in capital
Additional paid-in capital represents the difference between
the fair value of consideration received and the nominal
value of the issued shares.

Earnings per share
Basic earnings per share amounts are calculated by
dividing the net profit for the year attributable to ordinary
equity holders of the parent by the weighted average number
of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by
dividing the net profit attributable to ordinary equity holders
of the parent (after adjusting for interest on the convertible
preference shares) by the weighted average number
of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary
shares into ordinary shares.

Classification as debt or equity
Debt and equity instruments are classified as either
financial liabilities or as equity in accordance with the
substance of the contractual arrangement. An equity
instrument is any contract that evidences a residual interest
in the assets of an entity after deducting all of its liabilities.
Equity instruments are recorded at the proceeds received,
net of transaction costs.

Financial liabilities
Financial liabilities of the Group, including borrowings
and trade and other payables, are initially recognised at fair
value, net of transaction costs, and subsequently measured
at amortised cost using the effective interest rate method.

Derecognition of financial liabilities
The Group derecognises financial liabilities when, and
only when, the Group’s obligations are discharged, cancelled
or they expire.

Lenta Annual Report and Accounts 2016

108

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

2. BASIS OF PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)

2.3 Summary of significant accounting policies
(continued)
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of
financial position if there is a currently enforceable legal
right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets
and settle the liabilities simultaneously.

Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as
interest rate swaps and caps, to hedge its interest rate risks.
Such derivative financial instruments are initially recognised
at fair value on the date on which a derivative contract is
entered into and are subsequently re-measured at fair value.
Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair value
is negative.

Any gains or losses arising from changes in the fair value
of derivatives are taken directly to profit or loss, except
for the effective portion of cash flow hedges, which is
recognised in OCI and later reclassified to profit or loss
when the hedge item affects profit or loss.

At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to
which the Group wishes to apply hedge accounting and
the risk management objective and strategy for undertaking
the hedge. The documentation includes identification of
the hedging instrument, the hedged item or transaction,
the nature of the risk being hedged and how the entity
will assess the effectiveness of changes in the hedging
instrument’s fair value in offsetting the exposure to changes
in the hedged item’s fair value or cash flows attributable to
the hedged risk. Such hedges are expected to be highly
effective in achieving offsetting changes in fair value or cash
flows and are assessed on an ongoing basis to determine
that they actually have been highly effective throughout the
financial reporting periods for which they were designated.

Swaps and caps used by the Group that meet the strict
criteria for hedge accounting are accounted for as cash flow
hedges. The effective portion of the gain or loss from the
hedging instrument is recognised in other comprehensive
income in the cash flow hedge reserve, while any ineffective
portion is recognised immediately in profit or loss as other
operating expenses.

Designation of a hedge relationship takes effect prospectively
from the date all of the criteria are met. In particular, hedge
accounting can be applied only from the date all of the
necessary documentation is completed. Therefore, hedge
relationships cannot be designated retrospectively.

Amounts recognised as OCI are transferred to profit or loss
when the hedged transaction affects profit or loss, such as
when the hedged financial income or financial expense is
recognised or when a forecast sale occurs.

When the hedged item is the cost of a non-financial asset
or non-financial liability, the amounts recognised as OCI are
transferred to the initial carrying amount of the non-financial
asset or liability.

If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover (as part of the
hedging strategy), or if its designation as a hedge is revoked,
or when the hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss previously
recognised in OCI remains separately in equity until the
forecast transaction occurs or the foreign currency firm
commitment is met.

Current versus non-current classification
Derivative instruments are classified as current or non-
current or separated into current and non current portions
based on an assessment of the facts and circumstances
(i.e., the underlying contracted cash flows):

• When the Group expects to hold a derivative as an

economic hedge for a period beyond 12 months after the
reporting date, the derivative is classified as non-current
(or separated into current and non-current portions)
consistent with the classification of the underlying item.

3. SIGNIFICANT ACCOUNTING JUDGMENTS,

ESTIMATES AND ASSUMPTIONS

In the application of the Group’s accounting policies, which
are described in Note 2 above, management is required to
make judgments, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.

The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if
the revision affects only that period or in the period of the
revision and future periods if the revision affects both current
and future periods.

Judgments that have the most significant effect on the
amounts recognised in these consolidated financial
statements and estimates that can cause a significant
adjustment to the carrying amount of assets and liabilities
within the next financial year include:

Lenta Annual Report and Accounts 2016

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109

3. SIGNIFICANT ACCOUNTING JUDGMENTS,

ESTIMATES AND ASSUMPTIONS (CONTINUED)

Judgments
Operating lease commitments – Group as lessor
The Group has entered into premises leases. The Group
has determined, based on an evaluation of the terms and
conditions of the arrangements, such as the lease term not
constituting a substantial portion of the economic life of the
commercial property, that it retains all the significant risks
and rewards of ownership of these properties and accounts
for the contracts as operating leases.

Assets versus business acquisition
From time to time in the normal course of business the
Group acquires the companies that are a party to a lease
contract, own the land plot or store in which the Group is
interested. If at the date of acquisition by the Group, the
company does not constitute an integrated set of activities
and assets that is capable of being conducted and managed
for the purpose of providing a return in the form of dividends,
lower costs or other economic benefits directly to investor,
the Group treats such acquisitions as a purchase of assets
(a leasehold right, land plot or store) in the consolidated
financial statements. The exercise of judgment determines
whether a particular transaction is treated as a business
combination or as a purchase of assets.

Estimates and assumptions
The key assumptions concerning the future and other
key sources of estimation uncertainty at the reporting date,
that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the
next financial year, are described below. The Group based
its assumptions and estimates on parameters available
when the consolidated financial statements were prepared.
Existing circumstances and assumptions about future
developments, however, may change due to market changes
or circumstances arising beyond the control of the Group.
Such changes are reflected in the assumptions when
they occur.

Leases renewal assumption
It is presumed that the initial land leases contracted for
short terms will be renewed for 49 years at completion
of construction of department stores. Thus, any long-term
prepayments at the inception of the leases are presumed
to have a 49-year useful life. Should the Group fail to renew
the land lease contracts for a 49-year period, leasehold
rights would have to be written off at the end of the initial
lease term.

Inventory valuation
Management reviews the inventory balances to determine
if inventories can be sold at amounts greater than or equal
to their carrying amounts plus costs to sell. This review
also includes the identification of slow moving inventories,
which are written down based on inventories ageing and
write down rates. The write down rates are determined by
management following the experience of sales of such items.

Tax legislation
Russian tax, currency and customs legislation is subject to
frequent changes and varying interpretations. Management’s
interpretation of such legislation in applying it to business
transactions of the Group may be challenged by the
relevant regional and federal authorities enabled by law to
impose fines and penalties. Recent events in the Russian
Federation suggest that the tax authorities are taking a more
assertive position in their interpretation of the legislation
and assessments and as a result, it is possible that the
transactions that have not been challenged in the past may
be challenged. Fiscal periods remain open to review by
the tax authorities in respect of taxes for the three calendar
years preceding the year of tax review. Under certain
circumstances reviews may cover longer periods. While the
Group believes it has provided adequately for all tax liabilities
based on its understanding of the tax legislation, the above
facts may create additional financial risks for the Group.

Fair value measurement of financial instruments
When the fair value of financial assets and financial liabilities
recorded in the statement of financial position cannot be
derived from active markets, their fair value is determined
using valuation techniques including the discounted cash
flow model. The inputs to these models are taken from
observable markets where possible, but where this is not
feasible, a degree of judgment is required in establishing
fair values. The judgments include considerations of inputs
such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported
fair value of financial instruments. See Note 30 for
further discussion.

Impairment of non-financial assets
The Group reviews the carrying amounts of its assets to
determine whether there is any indication that those assets
are impaired. Impairment exists when the carrying value
of an asset or cash generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs to
sell and its value in use.

The fair value less costs to sell calculation is based on
available data from binding sales transactions, conducted
at arm’s length, for similar assets or observable market
prices less incremental costs for disposing of the asset.

Due to their subjective nature, these estimates will likely
differ from future actual results of operations and cash flows,
and it is possible that these differences could be material.

The value in use calculation is based on a discounted
cash flow model. In determining the value in use calculation,
future cash flows are estimated from each store based on
cash flows projection utilising the latest budget information
available. The discounted cash flow model requires
numerous estimates and assumptions regarding the future
rates of market growth, market demand for the products
and the future profitability of products.

Lenta Annual Report and Accounts 2016

110

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

3. SIGNIFICANT ACCOUNTING JUDGMENTS,

ESTIMATES AND ASSUMPTIONS (CONTINUED)

Estimates and assumptions (continued)
Share-based payments
The Group measures the cost of equity-settled transactions
by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for
share-based payment transactions requires determination
of the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate
also requires determination of the most appropriate inputs
to the valuation model including the expected life of the
share option, volatility and dividend yield and making
assumptions about them. The assumptions and models
used for estimating fair value for share-based payment
transactions are disclosed in Note 28.

4. ADOPTION OF NEW OR REVISED STANDARDS

AND INTERPRETATIONS

The accounting policies adopted in the preparation of
the consolidated financial statements are consistent with
those followed in the preparation of the Group’s annual
consolidated financial statements for the year ended
31 December 2015, except for the adoption of new or revised
standards and interpretations effective as of 1 January 2016.

The nature and the impact of each new standard and
amendment are described below:

IFRS 14 Regulatory Deferral Accounts
IFRS 14 is an optional standard that allows an entity, whose
activities are subject to rate-regulation, to continue applying
most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of IFRS. Entities
that adopt IFRS 14 must present the regulatory deferral
accounts as separate line items on the statement of financial
position and present movements in these account balances
as separate line items in the statement of profit or loss and
OCI. The standard requires disclosure of the nature of, and
risks associated with, the entity’s rate-regulation and the
effects of that rate-regulation on its financial statements.

Since the Group is an existing IFRS preparer and is not
involved in any rate-regulated activities, this standard does
not apply.

Amendments to IFRS 11 Joint Arrangements:
Accounting for Acquisitions of Interests
The amendments to IFRS 11 require that a joint operator
accounting for the acquisition of an interest in a joint
operation, in which the activity of the joint operation
constitutes a business, must apply the relevant IFRS 3
Business Combinations principles for business combination
accounting. The amendments also clarify that a previously
held interest in a joint operation is not remeasured on the
acquisition of an additional interest in the same joint
operation if joint control is retained. In addition, a scope
exclusion has been added to IFRS 11 to specify that the

amendments do not apply when the parties sharing joint
control, including the reporting entity, are under common
control of the same ultimate controlling party. The
amendments apply to both the acquisition of the initial
interest in a joint operation and the acquisition of any
additional interests in the same joint operation and are
applied prospectively. These amendments do not have any
impact on the Group as there has been no interest acquired
in a joint operation during the period.

Amendments to IAS 16 and IAS 38: Clarification of
Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 Property,
Plant and Equipment and IAS 38 Intangible Assets that
revenue reflects a pattern of economic benefits that are
generated from operating a business (of which the asset is
a part) rather than the economic benefits that are consumed
through use of the asset. As a result, a revenue-based
method cannot be used to depreciate property, plant
and equipment and may only be used in very limited
circumstances to amortise intangible assets. The
amendments are applied prospectively and do not have
any impact on the Group, given that it has not used a
revenue-based method to depreciate its non-current assets.

Amendments to IAS 16 and IAS 41 Agriculture:
Bearer Plants
The amendments change the accounting requirements
for biological assets that meet the definition of bearer plants.
Under the amendments, biological assets that meet the
definition of bearer plants will no longer be within the scope
of IAS 41 Agriculture. Instead, IAS 16 will apply. After initial
recognition, bearer plants will be measured under IAS 16
at accumulated cost (before maturity) and using either
the cost model or revaluation model (after maturity). The
amendments also require that produce that grows on bearer
plants will remain in the scope of IAS 41 measured at fair
value less costs to sell. For government grants related to
bearer plants, IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance will apply.
The amendments are applied retrospectively and do not
have any impact on the Group as it does not have any
bearer plants.

Amendments to IAS 27: Equity Method in
Separate Financial Statements
The amendments allow entities to use the equity method
to account for investments in subsidiaries, joint ventures
and associates in their separate financial statements.
Entities already applying IFRS and electing to change
to the equity method in their separate financial statements
have to apply that change retrospectively.

These amendments do not have any impact on the Group’s
consolidated financial statements.

Lenta Annual Report and Accounts 2016
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Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 clarify, rather than significantly
change, existing IAS 1 requirements. The amendments
clarify:

• The materiality requirements in IAS 1;

• That specific line items in the statement(s) of profit or loss
and OCI and the statement of financial position may be
disaggregated;

• That entities have flexibility as to the order in which they

present the notes to financial statements;

• That the share of OCI of associates and joint ventures

accounted for using the equity method must be presented
in aggregate as a single line item, and classified between
those items that will or will not be subsequently reclassified
to profit or loss.

Furthermore, the amendments clarify the requirements
that apply when additional subtotals are presented in the
statement of financial position and the statement(s) of profit
or loss and OCI. These amendments do not have any impact
on the Group.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment
Entities: Applying the Consolidation Exception
The amendments address issues that have arisen in
applying the investment entities exception under IFRS 10
Consolidated Financial Statements. The amendments to
IFRS 10 clarify that the exemption from presenting
consolidated financial statements applies to a parent entity
that is a subsidiary of an investment entity, when the
investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only
a subsidiary of an investment entity that is not an investment
entity itself and that provides support services to the
investment entity is consolidated. All other subsidiaries
of an investment entity are measured at fair value. The
amendments to IAS 28 Investments in Associates and
Joint Ventures allow the investor, when applying the equity
method, to retain the fair value measurement applied by
the investment entity associate or joint venture to its interests
in subsidiaries.

These amendments are applied retrospectively and do not
have any impact on the Group as the Group does not apply
the consolidation exception.

4. ADOPTION OF NEW OR REVISED STANDARDS

AND INTERPRETATIONS (CONTINUED)

Annual improvements 2012–2014 cycle
These improvements include:

IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
Assets (or disposal groups) are generally disposed of either
through sale or distribution to the owners. The amendment
clarifies that changing from one of these disposal methods
to the other would not be considered a new plan of disposal,
rather it is a continuation of the original plan. There is,
therefore, no interruption of the application of the requirements
in IFRS 5. This amendment is applied prospectively.

IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that
includes a fee can constitute continuing involvement in a
financial asset. An entity must assess the nature of the fee
and the arrangement against the guidance for continuing
involvement in IFRS 7 in order to assess whether the
disclosures are required. The assessment of which servicing
contracts constitute continuing involvement must be made
retrospectively. However, the required disclosures need not
be provided for any period beginning before the annual
period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7
to condensed interim financial statements
The amendment clarifies that the offsetting disclosure
requirements do not apply to condensed interim financial
statements, unless such disclosures provide a significant
update to the information reported in the most recent annual
report. This amendment is applied retrospectively.

IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality
corporate bonds is assessed based on the currency in
which the obligation is denominated, rather than the country
where the obligation is located. When there is no deep
market for high quality corporate bonds in that currency,
government bond rates must be used. This amendment
is applied prospectively.

IAS 34 Interim Financial Reporting
The amendment clarifies that the required interim
disclosures must either be in the interim financial statements
or incorporated by cross-reference between the interim
financial statements and wherever they are included within
the interim financial report (e.g., in the management
commentary or risk report). The other information within the
interim financial report must be available to users on the
same terms as the interim financial statements and at the
same time. This amendment is applied retrospectively.

These amendments do not have any impact on the Group.

Lenta Annual Report and Accounts 2016

112

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group’s financial
statements are disclosed below. The Group intends to adopt
these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial
Instruments: Recognition and Measurement and all previous
versions of IFRS 9. IFRS 9 brings together all three aspects
of the accounting for the financial instruments project:
classification and measurement; impairment; and hedge
accounting. IFRS 9 is effective for annual periods beginning
on or after 1 January 2018, with early application permitted.
Except for hedge accounting, retrospective application
is required, but providing comparative information is
not compulsory. For hedge accounting, the requirements
are generally applied prospectively, with some
limited exceptions.

The Group plans to adopt the new standard on the required
effective date. During 2016, the Group has performed a
high-level impact assessment of all three aspects of IFRS 9.
This preliminary assessment is based on currently available
information and may be subject to changes arising from
further detailed analyses or additional reasonable and
supportable information being made available to the Group
in the future. The Group does not expect a significant impact
on its balance sheet or equity on applying the classification
and measurement requirements of IFRS 9.

IFRS 9 requires the Group to record expected credit losses
on all of its debt securities, loans and trade receivables,
either on a 12-month or lifetime basis. The Group will need
to perform a more detailed analysis which considers all
reasonable and supportable information, including forward-
looking elements to determine the extent of the impact.

The Group believes that all existing hedge relationships that
are currently designated in effective hedging relationships
will still qualify for hedge accounting under IFRS 9. As IFRS
9 does not change the general principles of how an entity
accounts for effective hedges, the Group does not expect
a significant impact as a result of applying IFRS 9.

IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new
five-step model that will apply to revenue arising from
contracts with customers. Under IFRS 15 revenue is
recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.

The new revenue standard will supersede all current
revenue recognition requirements under IFRS. Either
a full retrospective application or a modified retrospective
application is required for annual periods beginning on or
after 1 January 2018. Early adoption is permitted. The Group
is currently assessing the impact of IFRS 15 and plans to
adopt the new standard on the required effective date.

Amendments to IFRS 10 and IAS 28: Sale or Contribution
of Assets between an Investor and its Associate or
Joint Venture
The amendments address the conflict between IFRS 10
and IAS 28 in dealing with the loss of control of a subsidiary
that is sold or contributed to an associate or joint venture.
The amendments clarify that the gain or loss resulting from
the sale or contribution of assets that constitute a business,
as defined in IFRS 3, between an investor and its associate
or joint venture, is recognised in full. Any gain or loss resulting
from the sale or contribution of assets that do not constitute
a business, however, is recognised only to the extent of
unrelated investors’ interests in the associate or joint venture.
The IASB has deferred the effective date of these
amendments indefinitely, but an entity that early adopts
the amendments must apply them prospectively. The Group
will apply these amendments when they become effective.

IAS 7 Disclosure Initiative – Amendments to IAS 7
The amendments to IAS 7 Statement of Cash Flows are
part of the IASB’s Disclosure Initiative and require an
entity to provide disclosures that enable users of financial
statements to evaluate changes in liabilities arising from
financing activities, including both changes arising from cash
flows and non-cash changes. On initial application of the
amendment, entities are not required to provide comparative
information for preceding periods. These amendments are
effective for annual periods beginning on or after 1 January
2017, with early application permitted. Application of the
amendments will result in additional disclosures provided
by the Group.

IAS 12 Recognition of Deferred Tax Assets for
Unrealised Losses – Amendments to IAS 12
The amendments clarify that an entity needs to consider
whether tax law restricts the sources of taxable profits
against which it may make deductions on the reversal
of that deductible temporary difference. Furthermore,
the amendments provide guidance on how an entity
should determine future taxable profits and explain the
circumstances in which taxable profit may include the
recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively.
However, on initial application of the amendments, the
change in the opening equity of the earliest comparative
period may be recognised in the opening retained earnings
(or in another component of equity, as appropriate), without
allocating the change between opening retained earnings
and other components of equity. Entities applying this relief
must disclose that fact. These amendments are effective
for annual periods beginning on or after 1 January 2017
with early application permitted. If an entity applies the
amendments for an earlier period, it must disclose that fact.
These amendments are not expected to have any impact
on the Group.

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IFRS 16 is effective for annual periods beginning on or after
1 January 2019. Early application is permitted, but not before
an entity applies IFRS 15. A lessee can choose to apply the
standard using either a full retrospective or a modified
retrospective approach. The standard’s transition provisions
permit certain reliefs.

The Group is assessing the potential effect of the
amendments on its consolidated financial statements.

IFRS 1 First-time Adoption of International Financial
Reporting Standards – Amendments to IFRS 1
The amendment repeals short-term exemptions for first-time
adopters. The amendment is effective from 1 January 2018.
These amendments are not expected to have any impact
on the Group.

IAS 28 Investments in Associates and Joint Ventures –
Amendments to IAS 28
The amendments clarifies that an entity that is a venture
capital organisation, or other qualifying entity, may elect,
at initial recognition on an investment-by-investment basis,
to measure its investments in associates and joint ventures
at fair value through profit or loss. If an entity that is not itself
an investment entity has an interest in an associate or joint
venture that is an investment entity, the entity may, when
applying the equity method, elect to retain the fair value
measurement applied by that investment entity associate
or joint venture to the investment entity associate’s or joint
venture’s interests in subsidiaries. This election is made
separately for each investment entity associate or joint
venture, at the later of the date on which (a) the investment
entity associate or joint venture is initially recognised;
(b) the associate or joint venture becomes an investment
entity; and (c) the investment entity associate or joint venture
first becomes a parent. The amendments should be applied
retrospectively and are effective from 1 January 2018,
with earlier application permitted. If an entity applies those
amendments for an earlier period, it must disclose that fact.
These amendments are not expected to have any impact
on the Group.

IFRS 12 Disclosure of Interests in Other Entities –
Amendments to IFRS 12
The amendments clarify that the disclosure requirements
in IFRS 12, other than those in paragraphs B10-B16,
apply to an entity’s interest in a subsidiary, a joint venture
or an associate (or a portion of its interest in a joint venture
or an associate) that is classified (or included in a disposal
group that is classified) as held for sale. The amendments
are effective from 1 January 2017 and must be applied
retrospectively. These amendments are not expected
to have any impact on the Group.

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE

(CONTINUED)

IFRS 2 Classification and Measurement of Share-based
Payment Transactions – Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based
Payment that address three main areas: the effects of
vesting conditions on the measurement of a cash-settled
share-based payment transaction; the classification of
a share-based payment transaction with net settlement
features for withholding tax obligations; and accounting
where a modification to the terms and conditions of a
share-based payment transaction changes its classification
from cash settled to equity settled.

On adoption, entities are required to apply the amendments
without restating prior periods, but retrospective application
is permitted if elected for all three amendments and other
criteria are met. The amendments are effective for annual
periods beginning on or after 1 January 2018, with early
application permitted. The Group is assessing the
potential effect of the amendments on its consolidated
financial statements.

IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement
Contains a Lease, SIC-15 Operating Leases – Incentives and
SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease. IFRS 16 sets out the principles
for the recognition, measurement, presentation and
disclosure of leases and requires lessees to account for all
leases under a single on-balance sheet model similar to the
accounting for finance leases under IAS 17. The standard
includes two recognition exemptions for lessees – leases of
‘low-value’ assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less).
At the commencement date of a lease, a lessee will
recognise a liability to make lease payments (i.e., the lease
liability) and an asset representing the right to use the
underlying asset during the lease term (i.e., the right-of-use
asset). Lessees will be required to separately recognise the
interest expense on the lease liability and the depreciation
expense on the right-of-use asset. Lessees will be also
required to remeasure the lease liability upon the occurrence
of certain events (e.g., a change in the lease term, a change
in future lease payments resulting from a change in an index
or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of
the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged
from today’s accounting under IAS 17. Lessors will continue
to classify all leases using the same classification principle
as in IAS 17 and distinguish between two types of leases:
operating and finance leases.

IFRS 16 also requires lessees and lessors to make more
extensive disclosures than under IAS 17.

Lenta Annual Report and Accounts 2016

114

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE

(CONTINUED)

IFRIC Interpretation 22 Foreign Currency
Transactions and Advance Consideration
The interpretation clarifies that in determining the spot
exchange rate to use on initial recognition of the related
asset, expense or income (or part of it) on the derecognition
of a non-monetary asset or non-monetary liability relating
to advance consideration, the date of the transaction is the
date on which an entity initially recognises the nonmonetary
asset or non-monetary liability arising from the advance
consideration. If there are multiple payments or receipts
in advance, then the entity must determine a date of
the transactions for each payment or receipt of
advance consideration.

Entities may apply the amendments on a fully retrospective
basis. Alternatively, an entity may apply the interpretation
prospectively to all assets, expenses and income in its scope
that are initially recognised on or after: (i) the beginning
of the reporting period in which the entity first applies the
interpretation or (ii) the beginning of a prior reporting
period presented as comparative information in the financial
statements of the reporting period in which the entity first
applies the interpretation. Early application of interpretation
is permitted and must be disclosed. First-time adopters
of IFRS are also permitted to apply the interpretation
prospectively to all assets, expenses and income initially
recognised on or after the date of transition to IFRS.

The amendments are intended to eliminate diversity in
practice, when recognising the related asset, expense or
income (or part of it) on the derecognition of a nonmonetary
asset or non-monetary liability relating to advance
consideration received or paid in foreign currency.

The amendments are effective for annual periods beginning
on or after 1 January 2018.

These amendments are not expected to have any impact
on the Group.

IAS 40 Investment property – Amendments to IAS 40
The amendments clarify when an entity should transfer
property, including property under construction or
development into, or out of investment property. The
amendments state that a change in use occurs when the
property meets, or ceases to meet, the definition of
investment property and there is evidence of the change in
use. A mere change in management’s intentions for the use
of a property does not provide evidence of a change in use.

Entities should apply the amendments prospectively to
changes in use that occur on or after the beginning of the
annual reporting period in which the entity first applies the
amendments. An entity should reassess the classification
of property held at that date and, if applicable, reclassify
property to reflect the conditions that exist at that date.
Retrospective application in accordance with IAS 8 is only
permitted if that is possible without the use of hindsight.
Early application of the amendments is permitted and must
be disclosed. The amendments will eliminate diversity in
practice. The amendments are effective for annual periods
beginning on or after 1 January 2018.

These amendments are not expected to have any impact
on the Group.

Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts – Amendments to IFRS 4
The amendments address concerns arising from
implementing the new financial instruments Standard,
IFRS 9, before implementing the new insurance contracts
standard that the Board is developing to replace IFRS 4.
The amendments introduce two options for entities issuing
insurance contracts: a temporary exemption from applying
IFRS 9 and an overlay approach.

These amendments are not expected to have any impact
on the Group.

Temporary exemption from IFRS 9
The optional temporary exemption from IFRS 9 is available
to entities whose activities are predominantly connected with
insurance. The temporary exemption permits such entities to
continue to apply IAS 39 Financial Instruments: Recognition
and Measurement while they defer the application of IFRS 9
until 1 January 2021 at the latest. Predominance must be
initially assessed at the annual reporting date that immediately
precedes 1 April 2016 and before IFRS 9 is implemented.
Also the evaluation of predominance can only be reassessed
in rare cases. Entities applying the temporary exemption
will be required to make additional disclosures.

The overlay approach
The overlay approach is an option for entities that adopt
IFRS 9 and issue insurance contracts, to adjust profit or loss
for eligible financial assets; effectively resulting in IAS 39
accounting for those designated financial assets. The
adjustment eliminates accounting volatility that may arise
from applying IFRS 9 without the new insurance contracts
standard. Under this approach, an entity is permitted to
reclassify amounts between profit or loss and other
comprehensive income (OCI) for designated financial assets.
An entity must present a separate line item for the amount
of the overlay adjustment in profit or loss, as well as a
separate line item for the corresponding adjustment in OCI.

Lenta Annual Report and Accounts 2016 115

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE

(CONTINUED)

The temporary exemption is first applied for reporting
periods beginning on or after 1 January 2018. An entity
may elect the overlay approach when it first applies IFRS 9
and apply that approach retrospectively to financial assets
designated on transition to IFRS 9. The entity restates
comparative information reflecting the overlay approach if,
and only if, the entity restates comparative information
when applying IFRS 9.

The overlay approach requires an entity to remove from profit
or loss additional volatility that may arise if IFRS 9 is applied
with IFRS 4. When applying the temporary exemption,
entities must still provide extensive disclosure that require
the application of some aspects of IFRS 9.

6. OPERATING SEGMENTS
The Group’s principal business activity is the development
and operation of food retail stores located in Russia.
Risks and returns are affected primarily by economic
development in Russia and by the development of Russian
food retail industry.

The Group has no significant assets outside the Russian
Federation (excluding investments in its foreign wholly owned
intermediate holding subsidiary Zoronvo Holdings Limited,
which is eliminated on consolidation). Due to the similar
economic characteristics of food retail stores, the Group’s
management has aggregated its operating segments
represented by stores into one reportable operating
segment. Within the segment all business components
are similar in respect of:

The amendments are effective for annual periods beginning
on or after 1 January 2018

• The products;

• The customers;

These amendments are not expected to have any impact
on the Group.

• Centralised Group structure (commercial, operational,
logistic, finance, HR and IT functions are centralised).

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The Group’s operations are regularly reviewed by the
chief operating decision maker, represented by the CEO,
to analyse performance and allocate resources within the
Group. The CEO assesses the performance of operating
segments based on the dynamics of revenue and earnings
before interest, tax, depreciation, amortisation (EBITDA).

The accounting policies used for the operating segment are
the same as accounting policies applied for the consolidated
financial statements.

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116

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

6. OPERATING SEGMENTS (CONTINUED)
The segment information for the year ended 31 December 2016 and 2015 is as follows:

Sales
EBITDA

Reconciliation of EBITDA to IFRS profit for the year is as follows:

EBITDA
Interest expense
Interest income
Income tax expense (see Note 22)
Depreciation/amortisation (see Note 9, 11, 12, 26)
Ineffective portion of the change in fair value of cash flow

hedging instruments (see Note 31)

Foreign exchange gain/(loss)
Profit for the year

Year ended
31 December
2016
306,352,092
31,389,826

Year ended
31 December
2015
252,763,075
28,018,435

Year ended
31 December
2016
31,389,826
(10,084,573)
851,813
(3,351,220)
(7,694,569)

–
90,751
11,202,028

Year ended
31 December
2015
28,018,435
(10,044,858)
767,905
(2,584,010)
(5,686,264)

6,308
(189,423)
10,288,093

7. ACQUISITION OF SUBSIDIARIES
On 30 November 2016 the Group purchased the Kesko food retail business in Russia (“KFR”), operating under the
K-Ruoka brand. The Group became the owner of 100% participatory interests in six KFR companies registered in Russia
and dealing in food and non-food retail business through a chain of 11 hypermarkets. As a result, cost of acquisition of all
of the participatory interests in six KFR companies for the Group amounted to RUB 11,296,152, including cash consideration
paid of RUB 11,414,113, less adjustment for working capital of RUB 117,961 at acquisition date.

The financial position and results of operations of KFR were included in the Group’s consolidated financial statements
beginning from 30 November 2016. As of the date of issuance of these consolidated financial statements, the Group and
Kesko Food Russia Holding Oy (the seller) have not finalised the working capital adjustment of the acquired entities and
the Group has not completed its purchase price allocation in accordance with IFRS 3 Business Combinations. Accordingly,
the acquisition of KFR has been accounted for based on provisional values.

The Group assigned provisional values to net assets acquired based on estimates of an independent appraiser.
The Group will finalise the purchase price allocation within 12 months from the acquisition date.

Lenta Annual Report and Accounts 20167. ACQUISITION OF SUBSIDIARIES (CONTINUED)
Provisional fair values of the identifiable assets and liabilities of KFR at the date of acquisition were:

Property, plant and equipment (Note 9)
Prepayments for construction
Leasehold rights (Note 11)
Deferred tax asset (Note 22)
Inventories
Trade and other receivable
Advances paid
VAT and other taxes recoverable
Cash and cash equivalents
Deferred tax liability (Note 22)
Trade and other payables
Advances received
Current income tax payable
Fair value of the identifiable net assets
Total acquisition cost

117

Provisional
values at the
acquisition date
9,992,668
10,590
751,919
208,137
213,364
123,296
47,398
312,766
313,632
(74,296)
(589,532)
(5,340)
(8,450)
11,296,152
11,296,152

The fair value of the trade and other receivables amounts to RUB 123,296. The gross amount of trade receivables is
RUB 126,096, of which RUB 2,800 have been impaired. It is expected that the rest contractual amounts can be collected.

During the year ended 31 December 2016 cash flow of acquisition was as follows:

Cash paid
Less cash acquired with subsidiaries
Net cash flow on acquisition

Cash flow
of acquisition
11,414,113
(313,632)
11,100,481

From the date of acquisition the contribution to revenue and profit before tax of KFR was RUB 1,053,797 and RUB 19,252
respectively. It is not practicable to determine contribution to revenue and profit before tax of KFR if it had been acquired at
the beginning of the year ended 31 December 2016 due to different management and operational styles of acquired business
and the Group.

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118

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

8. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
The transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions.

The consolidated financial statements include the following balances with related parties:

Entities with significant influence over the Group:

EBRD
Long-term loans payable
Accrued liabilities
Interest accrued

TPG Capital
Accrued liabilities

The following transactions were carried out with related parties:

Entities with significant influence over the Group:

EBRD
Repayments of borrowings
Interest expense
Directors fee
Business trip expenses
Consulting services

TPG Capital
Directors fee
Business trip expenses
Consulting services

31 December
2016

31 December
2015

–
75
–

4,520,527
6,559
1,691

3,260

13,848

31 December
2016

31 December
2015

(4,554,240)
340,077
–
155
75

28,784
1,214
–

–
833,200
25,483
323
–

23,642
19,919
2,807

Remuneration to the members of the Board of Directors and key management personnel is as follows:

Short-term benefits
Long-term benefits (share-based payments, Note 28)
Total remuneration

Year ended
31 December
2016
666,246
280,693
946,939

Year ended
31 December
2015
682,421
158,645
841,066

Lenta Annual Report and Accounts 2016

119

9. PROPERTY, PLANT AND EQUIPMENT

Land

Land
improvements

Buildings

Machinery and
equipment

Assets under
construction

Total

Cost
Balance at 1 January 2016
Additions
Transfers from construction in progress
Transfers from leasehold rights
Acquisition of subsidiaries (Note 7)
Disposals
Balance at 31 December 2016

12,582,774
19,046
3,397,951
618,314
1,253,373
(857)
17,870,601

7,116,578
–
2,642,680
–
309,987
(5,420)

71,205,405
–
23,360,680
–
6,089,079
(163,705)
10,063,825 100,491,459

29,434,011
66
11,769,060
–
2,323,192
(565,266)
42,961,063

3,564,759 123,903,527
41,060,544
41,041,432
–
(41,170,371)
618,314
–
9,992,668
17,037
(900,039)
(164,791)
3,288,066 174,675,014

Accumulated depreciation

and impairment

Balance at 1 January 2016
Charge for the year
Disposals
Balance at 31 December 2016

Net book value
Balance at 1 January 2016
Balance at 31 December 2016

–
–
–
–

1,041,933
258,724
(529)
1,300,128

8,647,931
2,702,141
(24,140)
11,325,932

10,197,205
4,376,332
(336,872)
14,236,665

–
–
–
–

19,887,069
7,337,197
(361,541)
26,862,725

12,582,774
17,870,601

6,074,645
8,763,697

62,557,474
89,165,527

19,236,806
28,724,398

3,564,759 104,016,458
3,288,066 147,812,289

Land

Land
improvements

Buildings

Machinery and
equipment

Assets under
construction

Total

Cost
Balance at 1 January 2015
Additions
Transfers from construction in progress
Transfers from leasehold rights
Disposals
Balance at 31 December 2015

9,971,338
–
2,035,686
655,359
(79,609)
12,582,774

5,488,814
–
1,650,598
–
(22,834)
7,116,578

54,610,275
87,269
16,510,017
–
(2,156)
71,205,405

21,331,730
611
8,370,416
–
(268,746)
29,434,011

4,542,748
27,642,190
(28,566,717)
–
(53,462)

95,944,905
27,730,070
–
655,359
(426,807)
3,564,759 123,903,527

Accumulated depreciation

and impairment

Balance at 1 January 2015
Charge for the year
Disposals
Balance at 31 December 2015

Net book value
Balance at 1 January 2015
Balance at 31 December 2015

–
–
–
–

848,274
193,659
–
1,041,933

6,621,417
2,028,335
(1,821)
8,647,931

7,257,007
3,138,721
(198,523)
10,197,205

–
–
–
–

14,726,698
5,360,715
(200,344)
19,887,069

9,971,338
12,582,774

4,640,540
6,074,645

47,988,858
62,557,474

14,074,723
19,236,806

4,542,748
81,218,207
3,564,759 104,016,458

During the year ended 31 December 2016 and the year ended 31 December 2015 the Group is not involved in acquisition
of any assets that would satisfy the definition of qualifying assets for the purposes of borrowing costs capitalisation.
Thus, no borrowings costs were capitalised during those periods.

Land and buildings with a carrying amount of RUB 3,956,848 thousand were pledged under secured loan agreement
with EBRD as at 31 December 2015. All pledged assets were released upon termination of the loan agreement with EBRD
on 30 June 2016 (see Note 21).

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Lenta Annual Report and Accounts 2016

120

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
No property, plant and equipment is held by the Group under finance leases at 31 December 2016.

At 31 December 2015 the carrying amount of property, plant and equipment held under finance leases is RUB 37,532
thousand.

Depreciation and amortisation expense
The amount of depreciation charged during the year ended 31 December 2016 and year ended 31 December 2015
is presented within depreciation and amortisation in the Group’s consolidated statement of profit or loss and other
comprehensive income and statement of cash flows as follows:

Depreciation of property, plant and equipment (Note 9)
Amortisation of intangible assets (Note 12)
Leasehold rights amortisation (Note 11)
Total depreciation and amortisation

See Note 29 for capital commitments.

Year ended
31 December
2016
7,337,197
290,898
66,474
7,694,569

Year ended
31 December
2015
5,360,715
257,940
67,609
5,686,264

10. PREPAYMENTS FOR CONSTRUCTION
Prepayments for construction are represented by advances given to the constructors for the building of the stores
and to suppliers.

Prepayments are regularly monitored on the subject of impairment. An impairment analysis is performed at each reporting
date on an individual basis for counterparties. A provision for impairment is established when there is objective evidence that
the Group will not be able to collect all amounts due according to the original terms of prepayments. As at 31 December 2016
the Group impaired RUB 378,672 of prepayments (31 December 2015: RUB 235,995).

Lenta Annual Report and Accounts 201611. LEASEHOLD RIGHTS
Leasehold rights as at 31 December 2016 consist of the following:

Cost
At 1 January 2016
Additions
Acquisition of subsidiaries (Note 7)
Disposals
Transfer to PPE
At 31 December 2016

Accumulated amortisation
At 1 January 2016
Charge for the year
Transfer to PPE
At 31 December 2016

Net book value
At 1 January 2016
At 31 December 2016

Leasehold rights as at 31 December 2015 consisted of the following:

Cost
At 1 January 2015
Additions
Disposals
Transfer to PPE
At 31 December 2015

Accumulated amortisation
At 1 January 2015
Charge for the year
Disposals
Transfer to PPE
At 31 December 2016

Net book value
At 1 January 2015
At 31 December 2015

Amortisation expense is included in selling, general and administrative expenses (Note 26).

121

Leasehold rights

3,255,655
630,989
751,919
(1,279)
(657,637)
3,979,647

208,487
66,474
(39,323)
235,638

3,047,168
3,744,009

Leasehold rights

3,486,162
557,827
(63,559)
(724,775)
3,255,655

214,618
67,609
(4,324)
(69,416)
208,487

3,271,544
3,047,168

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Lenta Annual Report and Accounts 2016

122

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

12. INTANGIBLE ASSETS OTHER THAN LEASEHOLD RIGHTS
Intangible assets other than leasehold rights as at 31 December 2016 consist of the following:

Cost
At 1 January 2016
Additions
At 31 December 2016

Accumulated amortisation
At 1 January 2016
Amortisation for the period
At 31 December 2016

Net book value
At 1 January 2016
At 31 December 2016

Software

Trade marks

Total

2,078,687
1,088,745
3,167,432

986,358
290,898
1,277,256

1,092,329
1,890,176

549
–
549

2,079,236
1,088,745
3,167,981

986,907
290,898
1,277,805

–
–

1,092,329
1,890,176

Intangible assets other than leasehold rights as at 31 December 2015 consisted of the following:

Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015

Accumulated amortisation
At 1 January 2015
Amortisation for the period
Disposals
At 31 December 2015

Net book value
At 1 January 2015
At 31 December 2015

Software

Trade marks

Total

1,603,385
486,224
(10,922)
2,078,687

732,870
257,924
(4,436)
986,358

870,515
1,092,329

549
–
–
549

533
16
–
549

16
–

1,603,934
486,224
(10,922)
2,079,236

733,403
257,940
(4,436)
986,907

870,531
1,092,329

Amortisation expense is included in selling, general and administrative expenses (Note 26).

13. INVENTORIES

Goods for resale (at lower of cost and net realisable value)
Raw materials
Total inventories

31 December
2016
26,191,962
1,298,979
27,490,941

31 December
2015
21,809,738
971,994
22,781,732

Raw materials are represented by inventories used in own production process in butchery, bakery and culinary.

Goods for resale (at cost)
Write down to net realisable value
Goods for resale (at lower of cost and net realisable value)

31 December
2016
27,437,087
(1,245,125)
26,191,962

31 December
2015
22,729,419
(919,681)
21,809,738

Lenta Annual Report and Accounts 2016

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13. INVENTORIES (CONTINUED)
During the reporting period the Group wrote down inventories to their net realisable value, which resulted in recognition of
expenses within cost of sales in the consolidated statement of profit or loss and other comprehensive income for the year
ended 31 December 2016 in the amount of RUB 325,443 thousand (compared to RUB 38,710 thousand of expense reversal
recognised in the year ended 31 December 2015).

14. TRADE AND OTHER RECEIVABLES

Accounts receivable on rental and other services and on suppliers’ advertising
Suppliers’ rebates receivable
Other receivables
Bad debt allowance
Total trade and other receivables

31 December
2016
12,892,578
3,858,738
352,258
(67,785)
17,035,789

31 December
2015
9,727,574
3,643,232
307,105
(31,017)
13,646,894

Receivables are due normally within 25 days according to the terms of standard contracts. Outstanding receivables are
regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for counterparties.
A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of receivables. Usually for receivables over 365 days the allowance
for doubtful debts is 100%, unless there are strong indications from the nature of the agreement underlying the debt that
no allowance is needed as the long term of the receivable is in line with the agreement. Allowances for doubtful debts are
recognised against receivables of under 365 days based on estimated irrecoverable amounts determined by reference to
past default experience of each particular counterparty and an analysis of the counterparty’s current financial position.

Amounts receivable from suppliers and accounts receivable on rental and other services disclosed above include amounts
(see below for ageing analysis) that are past due at the end of the reporting period for which the Group has not recognised
an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are
still considered recoverable. The Group does not hold any collateral or other credit enhancements over these balances.

Ageing of trade and other receivables that are past due but not impaired as at 31 December 2016:

Suppliers’ volume rebates receivable
Accounts receivable on rental and other services
Other receivables
Total

0–60 days
overdue
322,208
758,337
64,594
1,145,139

60–120 days
overdue
5,613
53,411
9,814
68,838

120–365 days
overdue
22,260
60,141
20,689
103,090

Neither past
due nor
impaired
3,486,694
11,975,546
256,482
15,718,722

Total
3,836,775
12,847,435
351,579
17,035,789

Ageing of trade and other receivables that were past due but not impaired as at 31 December 2015:

Suppliers’ volume rebates receivable
Accounts receivable on rental and other services
Other receivables
Total

15. ADVANCES PAID

Advances to suppliers of goods
Advances for services
Guarantee payments under lease contracts
Total advances paid

0–60 days
overdue
87,469
1,206,134
80,450
1,374,053

60–120 days
overdue
8,326
45,621
4,157
58,104

120–365 days
overdue
30,827
43,801
1,376
76,004

Neither past
due nor
impaired
3,513,960
8,406,211
218,562
12,138,733

Total
3,640,582
9,701,767
304,545
13,646,894

31 December
2016
1,162,541
1,109,412
397,808
2,669,761

31 December
2015
788,124
1,066,570
410,217
2,264,911

Lenta Annual Report and Accounts 2016

124

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

16. TAXES RECOVERABLE
Taxes recoverable as at 31 December 2016 are represented by a VAT recoverable of RUB 3,920,940 thousand
(31 December 2015: RUB 1,257,764 thousand).

17. CASH AND CASH EQUIVALENTS

Rouble short-term deposits
Rouble denominated cash in transit
Rouble denominated cash on hand and balances with banks
Foreign currency denominated cash on hand and balances with banks
Total cash and cash equivalents

31 December
2016
5,669,714
5,272,838
2,062,814
32,401
13,037,767

31 December
2015
16,612,228
2,258,241
3,556,009
29,467
22,455,945

Cash in transit represents cash receipts made during the last day of the reporting period (29–31 December), which were
sent to banks but not deposited into the respective bank accounts until the next reporting period.

Significant rouble denominated cash in transit results from the business seasonality, indicating higher levels of retail sales
in holiday periods such as New Year’s Eve as well as the closing day in relation to the official banking days in Russia.
If the closing day is on non-banking days, the amount of cash in transit increases.

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate
cash requirements of the Group, and earn interest at the respective short-term deposit rates.

18. ISSUED CAPITAL AND RESERVES

Issued capital
As at 31 December 2016 the Company’s share capital is comprised of 97,318,746 authorised and issued ordinary shares
(as at 31 December 2015: 97,318,746) with equal voting rights. The shares have no par value.

All outstanding ordinary shares are entitled to an equal share in any dividend declared by the Company. According to
the BVI Business Companies Act No. 16 of 2004, no dividends can be declared and paid unless the Board of Directors
determines that immediately after the payment of the dividend the Group will be able to satisfy its liabilities as they become
due in the ordinary course of its business and the realisable value of the assets of the Group will not be less than the sum
of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital. In accordance with Russian
legislation, Lenta LLC, the Company’s primary operating subsidiary registered under the laws of the Russian Federation,
may distribute profits as dividends or transfer them to reserves (fund accounts) limited to the retained earnings recorded in
its financial statements prepared in accordance with Russian Accounting Rules. No dividends to holders of ordinary shares
are declared for the year ended 31 December 2016 and for the year ended 31 December 2015.

The movements in the number of shares for the year ended 31 December 2016 and for the year ended 31 December 2015
are as follows.

Authorised share capital (ordinary shares with no par value)
Issued and fully paid (no par value)

Balance of shares outstanding at beginning of financial year
Additional issue of shares
Balance of shares outstanding at the end of financial year

31 December
2016
No.
unlimited
97,318,746

31 December
2016
No.
97,318,746
–
97,318,746

31 December
2015
No.
unlimited
97,318,746

31 December
2015
No.
86,053,394
11,265,352
97,318,746

In year 2015 11,265,352 ordinary shares were issued by the Group for a cash consideration of RUB 21,788,593 thousand
net of directly attributable issuance costs. The whole amount of the consideration received was recorded as increase in
additional paid-in capital, as the shares have no par value.

Lenta Annual Report and Accounts 2016 125

18. ISSUED CAPITAL AND RESERVES (CONTINUED)

Share options reserve
The share options reserve is used to recognise the value of equity-settled share-based payments provided to employees,
including key management personnel, as part of their remuneration. Refer to Note 28 for further details of these plans.

Hedging reserve
The hedging reserve is used to recognise the effective portion of the gain or loss from the hedging instrument and later
reclassified to profit or loss when the hedge item affects profit or loss.

19. COMPONENTS OF OTHER COMPREHENSIVE INCOME (OCI)

Cash flow hedges
Reclassification during the year to profit or loss
Related tax effect
Gain/(loss) arising during the year
Related tax effect
Net loss during the year

20. EARNINGS PER SHARE

Earnings per share (in thousands of Russian roubles per share)
Reclassification during the year to profit or loss

Year ended
31 December
2016

Year ended
31 December
2015

(410,581)
82,116
44,241
(8,848)
(293,072)

(1,800,556)
360,111
(525,963)
105,193
(1,861,215)

Year ended
31 December
2016

Year ended
31 December
2015

0.115

0.112

The calculation of basic earnings per share for reporting periods is based on the profit attributable to shareholders (for the
year ended 31 December 2016: RUB 11,202,028 thousand, for the year ended 31 December 2015: RUB 10,288,093 thousand)
and a weighted average number of ordinary shares outstanding during the respective periods, calculated as shown below.

Number of issued shares at the beginning of period
Number of shares issued in October 2015
Number of shares issued in March 2015
Number of shares at the end of reporting period
Weighted average number of shares

Year ended
31 December
2016
97,318,746
–
–
97,318,746
97,318,746

Year ended
31 December
2015
86,053,394
4,225,352
7,040,000
97,318,746
92,252,707

The Group has issued share-based payments’ (Note 28) instruments that could potentially dilute basic earnings per share
in the future. These instruments have no material effect on dilution of earnings per share for the periods presented.

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Lenta Annual Report and Accounts 2016

126

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

21. BORROWINGS
Short-term borrowings:

Fixed rate bonds (liability for interests)
Fixed rate long-term bank loans (liability for interests)
Floating rate long-term bank loans (liability for interests)
Floating rate short-term bank loans (liability for interests)
Fixed rate short-term bank loans (liability for interests)
Short-term portion of floating rate long-term bank loans
Short-term portion of fixed rate long-term bank loans
Fixed rate short-term bank loans
Fixed rate bonds
Total short-term borrowings and short-term portion

of long-term borrowings

Long-term borrowings:

Fixed rate bonds
Fixed rate long-term bank loans
Floating rate long-term bank loans
Total long-term borrowings

Currency
RUB
RUB
RUB
RUB
RUB
RUB
RUB
RUB
RUB

31 December
2016
713,803
32,612
803,918
3,266
82,853
3,270,650
11,400,000
18,938,018
–

31 December
2015
760,097
30,138
14,575
–
–
–
–
–
9,968,467

35,245,120

10,773,277

Currency
RUB
RUB
RUB

31 December
2016
16,958,600
16,931,549
33,065,782
66,955,931

31 December
2015
9,973,156
9,951,940
45,224,001
65,149,097

The Group’s borrowings as at 31 December 2016 and 31 December 2015 are denominated in Russian roubles.

On 27 January 2016 the Group received RUB 7,000,000 thousand under non-revolving credit line agreement with
PJSC Rosbank with maturity period of 3 years. The loan bears financial covenants.

On 18 February 2016 coupons 7-11 on 03 series bonds issued in March 2013 were reset at 11.75% per annum, put option
right on early redemption after 2.5 years (August 2018). On 3 March 2016 the Group executed an offer of 03 series bonds
with total nominal value of RUB 586,583 thousand, and completed book building for the offering on the same day at price
amounting to 100.75% of nominal value.

On 24 February 2016 coupons 7-11 on 01 series bonds issued in March 2013 were reset at 11.75% per annum, put option
right on early redemption after 2.5 years (September 2018). On 10 March 2016 right on early redemption of 01 series bonds
was not exercised by the holders.

On 24 February 2016 coupons 7-12 on 02 series bonds issued in March 2013 were reset at 11% per annum, put option
right on early redemption after 3 years (March 2019). On 10 March 2016 the Group executed an offer of 02 series bonds
with total nominal value of RUB 2,999,979 thousand.

The funds raised from the issue of the bonds are used on business expansion.

On 9 June 2016 the Group signed revolving credit line of RUB 5,000,000 thousand with PJSC Bank Saint-Petersburg.

On 21 June 2016 revolving credit line of RUB 5,000,000 thousand was agreed with JSC Rosselkhozbank. The credit line
has financial covenants.

On 30 June 2016 termination of loan agreement with EBRD was signed upon the prepayment of the entire outstanding
principal amount of RUB 4,554,240 thousand.

On 03 November 2016 the Group received RUB 10,000,000 thousand under non-revolving credit line agreement with
PJSC Sberbank. The loan bears financial covenants.

On 9 November 2016 the Group signed revolving credit line of RUB 3,000,000 thousand with PJSC Rosbank.
The credit line bears financial covenants. At the reporting date the Group draw down RUB 1,000,000 thousand.

Lenta Annual Report and Accounts 2016 127

21. BORROWINGS (CONTINUED)
On 18 November 2016 the Group signed revolving credit line of RUB 15,000,000 thousand with PJSC Sberbank.
At the reporting date the Group draws down RUB 6,400,000 thousand. The loan bears a financial covenant.

On 15 December 2016 the Group signed 5 year loan agreement of RUB 8,500,000 thousand with JSC UniCredit Bank.
The loan bears financial covenants.

On 22 December 2016 the Group signed 4 year non-revolving credit line of RUB 4,000,000 thousand with
JSC Raiffeisenbank. The loan bears financial covenants.

During the year ended 31 December 2016 the Group received RUB 28,600,000 thousand under credit agreements
concluded before 1 January 2016 and repaid RUB 29,775,669 thousand.

As at 31 December 2016 the Group had RUB 44,150,000 thousand of unused credit facilities (as at 31 December 2015:
RUB 45,300,000 thousand).

As at 31 December 2016 the Group is in compliance with all financial covenants of loan agreements.

22. INCOME TAXES
The Group’s income tax expense for the year ended 31 December 2016 and 31 December 2015 is as follows:

Current tax expense
Deferred tax expense
Adjustments in respect of current income tax of previous year
Income tax expense recognised in profit for the year

Tax effect related to effective portion of change in the fair value of

cash flow hedging instruments

Income tax (benefit)/expense recognised in OCI

Profit before tax
Theoretical tax charge at 20%

Difference in tax rates for foreign companies and specific tax regime in Russia
Add tax effect of non-deductible expenses
– share option expenses
– others
Adjustments in respect of current income tax of previous years
Income tax expense

Year ended
31 December
2016
1,137,425
2,213,795
–
3,351,220

Year ended
31 December
2015
632,900
1,944,919
6,191
2,584,010

Year ended
31 December
2016

Year ended
31 December
2015

(73,268)
(73,268)

(465,304)
(465,304)

Year ended
31 December
2016
14,553,248
(2,910,649)

Year ended
31 December
2015
12,872,103
(2,574,421)

(101,269)
(339,302)
(66,037)
(273,265)
–
3,351,220

157,125
(160,523)
(36,825)
(123,698)
(6,191)
2,584,010

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Lenta Annual Report and Accounts 2016

128

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

22. INCOME TAXES (CONTINUED)
Differences between IFRS and Russian statutory tax regulations give rise to temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these
temporary differences, recorded at the rate of 20% is detailed below.

Tax effect of (taxable)/ deductible

temporary differences

Property, plant and equipment
Consulting and other accruals
Other
Total deferred assets

Tax effect of (taxable)/deductible

temporary differences

Property, plant and equipment
Leasehold rights
Unused vacation and employee bonuses accrual
Suppliers’ bonuses
Borrowings
Intangible assets other than leasehold rights
Inventory
Bad debt allowance
Finance leasing
Consulting and other accruals
Customs duty payable
Cash flow hedging instruments
Other
Total deferred tax liabilities

Differences
in recognition
and reversals
recognised in
profit or loss

Differences
in recognition
and reversals
recognised
in other
comprehensive
income

1 January
2016

Deferred tax
on acquisition
of subsidiaries
(Note 7)

31 December
2016

–
–
–
–

(68,668)
(8,529)
(7,432)
(84,629)

–
–
–
–

199,467
8,529
141
208,137

130,799
–
(7,291)
123,508

Differences
in recognition
and reversals
recognised in
profit or loss

Differences
in recognition
and reversals
recognised
in other
comprehensive
income

Deferred tax
on acquisition
of subsidiaries
(Note 7)

31 December
2016

(2,360,501)
(2,382)
4,462
69,859
65,058
(3,307)
96,393
30,029
(3,418)
48,061
(37,618)
(3,898)
(31,904)
(2,129,166)

–
–
–
–
–
–
–
–
–
–
–
73,268
–
73,268

(142,047)
–
–
–
–
–
58,712
1,861
–
7,558
–
–
(380)
(74,296)

(7,619,160)
(430,827)
261,671
(874)
(129,273)
(24,076)
570,280
79,949
–
121,539
–
(158,236)
(30,991)
(7,359,998)

1 January
2016

(5,116,612)
(428,445)
257,209
(70,733)
(194,331)
(20,769)
415,175
48,059
3,418
65,920
37,618
(227,606)
1,293
(5,229,804)

Lenta Annual Report and Accounts 2016S

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22. INCOME TAXES (CONTINUED)

Tax effect of (taxable)/deductible

temporary differences

129

Differences
in recognition
and reversals
recognised in
profit or loss

Differences
in recognition
and reversals
recognised
in other
comprehensive
income

(1,875,521)
21,911
112,389
86,625
(115,291)
(3,383)
(171,014)
34,823
(3,529)
19,151
6,941
(58,007)
(14)
(1,944,919)

–
–
–
–
–
–
–
–
–
–
–
465,304
–
465,304

1 January
2015

(3,241,091)
(450,356)
144,820
(157,358)
(79,040)
(17,386)
586,189
13,236
6,947
46,769
30,677
(634,903)
1,307
(3,750,189)

31 December
2015

(5,116,612)
(428,445)
257,209
(70,733)
(194,331)
(20,769)
415,175
48,059
3,418
65,920
37,618
(227,606)
1,293
(5,229,804)

The temporary taxable differences associates with undistributed earnings of subsidiaries amount to RUB 59,399,304
thousand and RUB 54,229,761 thousand as of 31 December 2016 and 2015, respectively. A deferred tax liability on
these temporary differences was not recognised, because management believed that it was in a position to control the
timing of reversal of such differences and has no intention to reverse them in the foreseeable future.

23. TRADE AND OTHER PAYABLES

Trade payables
Accrued liabilities and other creditors
Payables for purchases of property, plant and equipment
Total trade and other payables

The trade and other payables are denominated in:

Russian roubles
USD
EUR
GBP
Total trade and other payables

24. OTHER TAXES PAYABLE

Social taxes
Property tax
Personal income tax
Other taxes
Total other taxes payable

31 December
2016
46,612,578
4,437,082
5,121,938
56,171,598

31 December
2015
42,002,004
3,586,669
3,231,534
48,820,207

31 December
2016
55,569,398
418,393
165,950
17,857
56,171,598

31 December
2015
48,601,870
122,582
94,991
764
48,820,207

31 December
2016
559,625
381,379
157,637
12,665
1,111,306

31 December
2015
490,231
270,774
134,089
31,990
927,084

Lenta Annual Report and Accounts 2016

130

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

25. COST OF SALES
Cost of sales for the years ended 31 December 2016 and 31 December 2015 consists of the following:

Cost of goods sold
Cost of own production
Supply chain cost
Losses due to inventory shortages and write down to net realisable value
Total cost of sales

Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.

The cost of own production consists of the following:

Raw materials
Labour costs
Utilities
Repairs and maintenance
Total cost of own production

Year ended
31 December
2016
204,373,681
24,810,938
3,795,679
5,603,731
238,584,029

Year ended
31 December
2015
167,408,885
21,710,294
3,185,448
4,153,283
196,457,910

Year ended
31 December
2016
20,497,106
3,492,856
700,859
120,117
24,810,938

Year ended
31 December
2015
17,925,511
2,947,684
752,180
84,919
21,710,294

Cost of sales for the year ended 31 December 2016 includes employee benefits expense of RUB 3,492,856 thousand
(year ended 31 December 2015: RUB 4,092,406 thousand) of which contributions to state pension fund are comprised
of RUB 499,517 thousand (year ended 31 December 2015: RUB 609,388 thousand).

26. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Employee benefits
Depreciation and amortisation (Note 9, 11, 12)
Advertising
Premises lease
Utilities and communal payments
Professional fees
Cleaning
Repairs and maintenance
Security services
Taxes other than income tax
Land and equipment lease
Pre-opening costs
Other
Total selling, general and administrative expenses

Year ended
31 December
2016
17,522,506
7,694,569
3,324,415
3,167,843
2,959,131
2,615,199
1,789,987
1,636,793
1,300,135
1,263,223
267,793
743,348
2,157,568
46,442,510

Year ended
31 December
2015
14,558,823
5,671,219
2,313,536
2,349,035
1,964,640
1,822,108
1,432,304
1,264,894
973,180
1,096,846
323,045
640,596
1,634,545
36,044,771

Employee benefits for the year ended 31 December 2016 include contributions to state pension fund of RUB 2,234,917
thousand (year ended 31 December 2015: RUB 1,844,088 thousand).

Pre-opening costs for the year ended 31 December 2016 include employee benefits of RUB 414,530 thousand (year ended 31
December 2015: RUB 360,904 thousand) of which contributions to state pension fund are comprised RUB 46,496 thousand
(year ended 31 December 2015: RUB 39,742 thousand).

Professional fees for the year ended 31 December 2016 include fees billed by Ernst & Young LLC: for the audit of the
consolidated financial statements in the amount of RUB 25,186 thousand (for the year ended 31 December 2015: RUB 29,565
thousand) and for consulting and other non audit services in the amount of RUB 20,725 thousand (for the year ended 31
December 2015: RUB 5,699 thousand).

Lenta Annual Report and Accounts 201627. OTHER OPERATING INCOME AND EXPENSES
Other operating income is comprised of the following:

Rental income
Penalties due by suppliers
Sale of secondary materials
Advertising income
Amounts received from lawsuit settlement
Gain on property, plant and equipment disposal
Other
Total other operating income

Other operating expenses are comprised of the following:

Loss from fixed assets and leasehold rights disposal
Change in bad debt allowance and impairment of advances

and prepayments for construction (Note 10, 14)

Amounts paid in settlement of lawsuit
Penalties for breach of a contracts with suppliers
Penalties from government authorities
Other
Total other operating expenses

28. SHARE-BASED PAYMENTS

131

Year ended
31 December
2016
973,959
788,786
497,245
488,599
188,089
17,165
132,236
3,086,079

Year ended
31 December
2015
752,755
904,528
295,743
422,002
–
62,250
147,032
2,584,310

Year ended
31 December
2016
280,492

Year ended
31 December
2015
181,567

178,504
125,870
61,653
18,185
51,671
716,375

194,665
–
1,311
65,351
69,639
512,533

Long-term incentive plan
During the year 2014 the Group approved a long-term incentive plan (LTIP) to certain members of management,
according to which the Company granted award shares in 2014, 2015 and 2016 along with the communication of the
terms of award to participants.

The monetary amount of the award to be granted to the participants of the plan was calculated based on the annual base
salary on the grant date, target award interest, business results co efficient and individual performance rating co-efficient.

Under terms of Tranche 2014 the shares are to be released in phases:

• 1st 25% on the first anniversary of the award (1 April 2015);

• 2nd 25% on the second anniversary of the award (1 April 2016);

• 50% on the third anniversary of the award (1 April 2017), provided that employment conditions are met.

With respect to the first phase no shares were issued in April 2015 and April 2016, the Group plans to release shares
till the end of 2017.

The vesting date of 100% of Tranche 2015 is 1 April 2018. The vesting dates of awards granted during 2016 year are
31 December 2018 and 1 April 2019.

The fair value of the award shares was estimated based on the GDR price on Moscow Exchange on the award grant date.

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Lenta Annual Report and Accounts 2016

132

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

28. SHARE-BASED PAYMENTS (CONTINUED)

Long-term incentive plan (continued)
Total expense recognised for the services received from the employees covered by long-term incentive plan for the year
ended 31 December 2016 and the year ended 31 December 2015 is shown in the following table:

Expense arising from the equity-settled long-term incentive plan payments

Year ended
31 December
2016
139,355

Year ended
31 December
2015
28,925

Share value appreciation rights
During the 2013 the Group granted share value appreciation rights (SVARs) to certain members of top management as part
of management long-term incentive plan. Each SVAR entitles the holder to a quantity of ordinary shares in Lenta Ltd based
on an increase in the share price over a predetermined exercise price subject to meeting the performance conditions.

Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, SVARs:

Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December

2016
Number
594,211
42,000
–
–
–
636,211
–

2016
WAEP
RUB 1,516
RUB 2,214
–
–
–
RUB 1,562
–

2015
Number
594,211
–
–
–
–
594,211
–

2015
WAEP
USD 49.84
–
–
–
–
RUB 1,516
–

In March 2015 modifications to the SVARs were agreed including deferral of exercise date of SVARs that are to be vested
in April 2015 by one year.

On 17 July 2015 the Remuneration Committee of Lenta Ltd agreed on certain changes in the management long-term
incentive plan, which is based on share value appreciation rights. Whereas the plan has been set up using financial
parameters denominated in USD, all financial parameters are now changed into Russian roubles using the exchange
rate on the date of the grant (1 April 2013). As a result, the exercise price for the remaining outstanding options will be
changed from USD 49.84 to RUB 1,516 per share. The vesting schedule has been revised and fixed, as a result of which
the remaining 80% of the initial grant will now vest in 2 stages: 30% on 1 April 2017 and the remaining 50% on 1 April 2018.

During the year ended 31 December 2016 additional tranche of share value appreciation rights (SVARs) was granted
to certain members of top management as part of management long-term incentive plan.

The weighted average remaining contractual life for the SVARs outstanding as at 31 December 2016 was 1.76 years
(31 December 2015: 2.3 years).

The weighted average exercise price for options outstanding as at 31 December 2016 is RUB 1,562 thousand
(31 December 2015: RUB 1,516 thousand).

The weighted average fair value of options outstanding as at 31 December 2016 is RUB 0.89 thousand (year ended
31 December 2015: RUB 0.86 thousand).

The expense recognised for the services received from the employees covered by SVARs plan during the year is shown
in the following table:

Expense arising from the equity-settled SVARs transaction

Year ended
31 December
2016
190,828

Year ended
31 December
2015
155,199

The fair value of the management SVARs is estimated at the grant date using the Black Scholes option pricing model,
taking into account the terms and conditions upon which the SVARs were granted.

Lenta Annual Report and Accounts 2016
133

29. COMMITMENTS

Capital expenditure commitments
At 31 December 2016 the Group has contractual capital expenditure commitments in respect of property, plant and
equipment and intangible assets totalling RUB 21,055,701 thousand net of VAT (31 December 2015: RUB 19,370,442
thousand net of VAT).

Operating lease commitments
Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are as follows:

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total operating lease commitments

30. FINANCIAL INSTRUMENTS

Categories of financial instruments

Financial assets
Cash
Trade and other receivables
Cash flow hedging instruments

Financial liabilities
Cash flow hedging instruments

At amortised cost
Floating rate long-term borrowings
Fixed rate long-term borrowings and bonds
Fixed rate short-term borrowings
Floating rate short-term borrowings
Trade and other payables
Obligations under finance leases
Total financial liabilities at amortised cost

31 December
2016
4,353,739
17,616,198
32,311,175
54,281,112

31 December
2015
3,786,074
14,664,366
33,247,702
51,698,142

31 December
2016

31 December
2015

13,037,767
17,035,789
372,210

22,455,945
13,646,894
794,464

48,725

124,128

33,869,700
34,636,564
30,420,871
3,273,916
56,171,598
–
158,372,649

45,238,576
20,395,179
10,288,619
–
47,058,158
18,577
122,999,109

Fair values
The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities. Quantitative
disclosures of fair value measurement hierarchy for financial assets and financial liabilities as at 31 December 2016:

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Financial assets measured at fair value
Cash flow hedging instruments

Financial liabilities measured at fair value
Cash flow hedging instruments

31 December
2016

372,210

48,725

Level 1

Level 2

Level 3

–

372,210

48,725

Financial liabilities for which fair values are disclosed
Fixed rate bonds
Floating rate borrowings
Fixed rate borrowings

18,260,825
37,143,616
47,002,207

18,260,825
–
–

–
37,143,616
47,002,207

–

–
–
–

Lenta Annual Report and Accounts 2016

134

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

30. FINANCIAL INSTRUMENTS (CONTINUED)

Fair values (continued)

Financial assets measured at fair value
Cash flow hedging instruments

Financial liabilities measured at fair value
Cash flow hedging instruments

31 December
2015

794,464

124,128

Level 1

Level 2

Level 3

–

794,464

124,128

–

–
–
–
–

Financial liabilities for which fair values are disclosed
Fixed rate bonds
Floating rate borrowings
Fixed rate borrowings
Obligations under finance leases

20,632,997
45,238,576
9,479,907
18,577

20,632,997
–
–
–

–
45,238,576
9,479,907
18,577

During the year ending 31 December 2016 and 31 December 2015, there are no transfers between Level 1, Level 2 and
Level 3 of fair value measurements.

Set out below, is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments,
other than those with carrying amounts are reasonable approximations of fair values:

Financial assets
Cash flow hedging instruments

Financial liabilities
Interest-bearing loans and borrowings
Obligations under finance leases
Floating rate borrowings
Fixed rate borrowings and bonds

Derivative liabilities
Cash flow hedging instruments
Total financial liabilities

31 December 2016

31 December 2015

Carrying
amount

Fair value

Carrying
amount

Fair value

372,210

794,464

–
37,143,616
65,057,435

–
37,143,616
65,263,032

18,577
45,238,576
30,683,798

18,577
45,238,576
30,112,904

48,725
102,249,776

48,725
102,455,373

124,128
76,065,079

124,128
75,494,185

The management assessed that the carrying amounts of cash and short-term deposits, trade receivables, trade payables
and other current liabilities approximate their fair values largely due to the short-term maturities of these instruments.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale.

Lenta Annual Report and Accounts 2016

135

30. FINANCIAL INSTRUMENTS (CONTINUED)

Fair values (continued)
The following methods and assumptions are used to estimate the fair values:

• Fair values of the Group’s interest-bearing borrowings and loans are determined by using DCF method using discount
rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The own non-performance risk as
at 31 December 2016 and 31 December 2015 is assessed to be insignificant.

• The fair value of bonds is based on the price quotations at the reporting date at Moscow exchange where transactions

with bonds take place with sufficient frequency and volume.

• The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings.

Derivatives valued using valuation techniques with market observable inputs are interest rate swaps and caps. The most
frequently applied valuation techniques include swap models, using present value calculations, and option pricing model
for caps. The models incorporate various inputs including the credit quality of counterparties and interest rate curves.
As at 31 December 2016 and 31 December 2015, the marked-to-market value of derivative positions is net of a credit
valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no
material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial
instruments recognised at fair value.

31. HEDGE AND HEDGING INSTRUMENTS
The Group entered into interest rate swaps and caps provided by VTB Bank PJSC to mitigate the risk of a rising MosPrime
interest rate. Caps provide security for 4 quarters during the full periods of the agreement, so the termination date would the
earlier of the expiry date or the fourth settlement date for the floating amounts paid by VTB Bank PJSC to the Group.

As at period end the Group had the following interest rate financial instruments:

Type of instrument
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate cap
Interest rate cap

Notional
amount
2016
12,500,000
900,000
–
10,000,000
900,000

Notional
amount
2015
12,500,000
900,000
1,000,000
10,000,000
900,000

Fixed
interest
rate
7.64%
7.54%
15.35%
12.00%
12.00%

Fixed
commission
n/a
n/a
n/a

Effective
date
31 March 2015
31 December 2013
31 December 2014
0.54% 31 December 2014
0.45% 31 December 2013

Expiry
date
12 April 2018
12 November 2018
31 December 2016
12 April 2018
12 November 2018

Derivative financial instruments are classified in the statement of financial position as follows:

Non-current asset
Current assets
Non-current liability
Current liability
Net derivative asset

31 December
2016
62,618
309,592
(2,137)
(46,588)
323,485

31 December
2015
355,414
439,050
(24,564)
(99,564)
670,336

The Group performs fair value assessment of the fair values of swaps and caps at the reporting date:

Swaps
Caps
Net derivative asset

31 December
2016
372,210
(48,725)
323,485

31 December
2015
755,481
(85,145)
670,336

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Lenta Annual Report and Accounts 2016

136

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

31. HEDGE AND HEDGING INSTRUMENTS (CONTINUED)
Starting 1 July 2013 the Group applied cash flow hedge accounting of swaps and caps that meet prescribed criteria,
including preparation of all necessary documentation. Hedge accounting was applied prospectively from designation.

Retrospective and prospective effectiveness of cash flow hedges (swaps and caps) was measured by the Group
using the “dollar offset” method. The effective portion of the gain on or loss from the hedging instrument was recognised
in other comprehensive income in hedging reserve.

The effect from changes in fair value of financial instruments is recognised as follows:

Profit or loss
Ineffective portion of the change in the fair value of cash flow hedging instruments
Reclassification from hedge reserve into interest expense

Other comprehensive income
Effective portion of the change in the fair value of cash flow hedging instruments
Reclassification from hedge reserve into interest expense

Year ended
31 December
2016

Year ended
31 December
2015

–
410,581
410,581

6,308
1,800,556
1,806,864

44,241
(410,581)
(366,340)

(525,963)
(1,800,556)
(2,326,519)

32. FINANCIAL RISK MANAGEMENT
The Group’s principal financial liabilities, other than derivatives, comprise of loans and borrowings, trade and other payables.
The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its
operations. The Group’s principal financial assets include loans, trade and other receivables, and cash and short-term
deposits that derive directly from its operations. The Group also enters into derivative transactions.

The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management
of these risks. The Group’s financial risk activities are governed by appropriate policies and procedures and financial risks
are identified, measured and managed in accordance with the Group’s policies and risk objectives. All derivative activities
for risk management purposes are carried out by specialists that have the appropriate skills, experience and supervision.
It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.

The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk comprises the following types of risk: interest rate risk, currency risk, and other price risk, such as
equity price risk. Financial instruments affected by market risk include loans and borrowings, cash equivalents and derivative
financial instruments.

Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates.

During the year ended 31 December 2016 and year ended 31 December 2015, the Group does not attract any amounts
of foreign currency denominated borrowings, and as a consequence is not materially exposed to foreign currency risk.
The only balances that are exposed to foreign currency risk are accounts payable to several foreign suppliers.

At 31 December 2016 and at 31 December 2015 there are no significant amounts in foreign currencies.

Whenever possible, the Group tries to mitigate the exposure to foreign currency risk by matching the statement
of financial position, and revenue and expense items in the relevant currency.

Lenta Annual Report and Accounts 2016 137

32. FINANCIAL RISK MANAGEMENT (CONTINUED)

Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other
variables held constant.

Year ended 2016

Year ended 2015

Change in
USD rate
20.00%
-20.00%
40.00%
-13.00%

Effect on
profit before tax
(83,682)
83,682
(49,033)
15,936

The following table demonstrates the sensitivity to a reasonably possible change in the EUR exchange rate, with all other
variables held constant.

Year ended 2016

Year ended 2015

Change in
EUR rate
20.00%
-20.00%
43.00%
-15.00%

Effect on
profit before tax
(33,195)
33,195
(40,846)
14,249

Foreign currency exchange rate reasonable possible change range was prepared for the purpose of market risk disclosures
in accordance with IFRS 7 and is derived from statistical data, in particular time series analysis.

Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the financial instrument will fluctuate because of
changes in market interest rates.

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations
with floating interest rates. As at 31 December 2016 these obligations are represented with long-term borrowing (Note 21),
which bears interest of MosPrime 1-3m plus margin. In order to hedge the risk of rising MosPrime interest rate, the Group
entered into interest rate swaps and caps (Note 31).

Interest rate sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in MosPrime rates, on that portion of
loans and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s
profit before tax and OCI are affected through the impact on floating rate borrowings, as follows:

2016
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)

2015
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)

Profit or loss

OCI

200 bp increase

400 bp decrease

200 bp increase

400 bp decrease

(775,287)
337,619
(437,668)

1,550,574
(576,600)
973,974

–
313,312
313,312

–
(647,145)
(647,145)

Profit or loss

OCI

600 bp increase

500 bp decrease

600 bp increase

500 bp decrease

(2,647,200)
1,519,500
(1,127,700)

2,647,200
(855,009)
1,792,191

–
1,761,327
1,761,327

–
(1,358,130)
(1,358,130)

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Lenta Annual Report and Accounts 2016

138

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

32. FINANCIAL RISK MANAGEMENT (CONTINUED)

Interest rate sensitivity (continued)
The range of reasonable possible changes in MosPrime rate was prepared for the purpose of market risk disclosures in
accordance with IFRS 7 and is based on risk metrics that are derived from statistical data, in particular time series analysis.

The Group is exposed to cash flow interest rate risk as it borrows funds at floating interest rates. During the year ended
31 December 2016 all of the Group’s borrowings are denominated in Russian roubles. The Group evaluates its interest rate
exposure and hedging activities on a regular basis and acts accordingly in order to align with the defined risk limits set by the
executive board. To ensure optimal hedging strategies various scenarios are simulated taking into consideration refinancing,
renewal of existing positions, alternative financing and financial hedging instruments.

The Group manages its cash flow interest rate risk by the use of floating to fixed interest rate swaps and caps. Such financial
instruments have the economic benefit of converting borrowings issued at variable rates to fixed interest rates. The Group’s
hedging instruments as at the reporting date are detailed in Note 30 of these financial statements. The sensitivity analyses
below have been determined based on the net exposure of interest bearing borrowings. The net exposure of the Group to
interest rate fluctuations as at 31 December 2016 is as follows:

Total floating rate borrowings (gross of direct issue costs)
Less notional amount of interest rate financial instruments (Note 32)
Net exposure to interest rate fluctuations
% of floating rate borrowings exposed to interest rate fluctuations

31 December
2016
36,928,571
(24,300,000)
12,628,571
34%

Credit risk
Credit risk is the risk that a counterparty may default or not meet its obligations to the Group on a timely basis, leading to
financial loss to the Group. Financial assets, which are potentially subject to credit risk, consist principally of cash in bank
accounts and cash in transit, loans and receivables.

In determining the recoverability of receivables the Group performs a risk analysis considering the credit quality of the
counterparty, the ageing of the outstanding amount and any past default experience.

Trade receivables
The Group has no significant concentrations of credit risk. Concentration of credit risk with respect to receivables is limited
due to the Company’s customer and vendor base being large and unrelated. Credit is only extended to counterparties subject
to strict approval procedures. The Group trades only with recognised, creditworthy third parties who are registered in the
Russian Federation. It is the Group’s policy that all customers who are granted credit terms have a history of purchases from
the Group. The Group also requires these customers to provide certain documents such as incorporation documents and
financial statements. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Sales to retail customers are made in cash, debit cards or via major credit cards.

Cash and cash equivalents
Credit risk from investing activities is managed by the Group’s treasury department in accordance with the Group’s policy.
Investments of surplus funds are made only with approved counterparties. Cash is placed in financial institutions, which are
considered at time of deposit to have minimal risk of default.

The maximum exposure to credit risk at the reporting date of trade receivables is the carrying value as presented in the
statement of financial position. The maximum exposure to credit risk at the reporting date of cash and cash equivalents
is RUB 12,853,791 thousand (31 December 2015: RUB 22,317,167 thousand).

Lenta Annual Report and Accounts 2016S

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139

32. FINANCIAL RISK MANAGEMENT (CONTINUED)

Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity
of its financial assets and liabilities and projected cash flows from operations. The Group objective is to maintain a continuity
of funding and flexibility through the use of bank overdrafts and bank loans. Each year the Group analyses its funding needs
and anticipated cash flows, so that it can determine its funding needs.

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2016, 31 December 2015
bases on contractual undiscounted cash flows of the financial liabilities based on the earliest date on which the Group is
required to pay. The table includes both interest and principal cash flows. When the amount payable is not fixed for the entire
term of the instrument, such as variable rate interest payments, the amount disclosed in the table is determined by reference
to the conditions (e.g. MosPrime index) existing at the reporting date:

31 December 2016

Borrowings
Trade and other payables
Amounts payable under swaps and caps
Total

31 December 2015

Borrowings
Trade and other payables
Amounts payable under swaps and caps
Finance leasing
Total

Less than
12 months
43,797,302
56,171,598
58,106
100,027,006

1–5 years
68,974,211
–
16,238
68,990,449

Less than
12 months
19,945,156
47,058,158
100,216
19,850
67,123,380

1–5 years
72,189,546
–
74,344
–
72,263,890

Over
5 years
14,415,411
–
–
14,415,411

Over
5 years
15,328,782
–
–
–
15,328,782

Total
127,186,924
56,171,598
74,344
183,432,866

Total
107,463,484
47,058,158
174,560
19,850
154,716,052

Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation of the debt and equity balance.

The Group reviews its capital needs periodically to determine actions to balance its overall capital structure through
shareholders’ capital contributions or new share issues, return of capital to shareholders as well as the issue of new debt
or the redemption of existing debt. The Group is guided in its decisions by an established financing policy, which stipulates
leverage ratios, interest coverage, covenants compliance, appropriateness of balance between long-term and short-term
debt, requirements to diversification of funding sources. Dividends are to be declared based on the capital requirements
of the business and with reference to continuing compliance with the financial policy.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 21, obligations under
finance leases less cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued
capital, reserves and retained earnings as disclosed in Note 18.

Net debt of the Group is comprised of the following:

Borrowings
Obligations under finance leases
Cash and cash equivalents (Note 17)
Net debt

31 December
2016
102,201,051
–
(13,037,767)
89,163,284

31 December
2015
75,922,374
18,577
(22,455,945)
53,485,006

Net debt is a non-IFRS indicator and, therefore, its calculation may differ between companies, however it is one of the
key indicators that are commonly used by investors and other users of financial statements in order to evaluate the financial
condition of the Group.

Lenta Annual Report and Accounts 2016

140

Notes to the consolidated financial statements (continued)
for the year ended 31 December 2016 (in thousands of Russian roubles)

33. CONTINGENCIES

Operating environment of the Group
The Group sells products that are sensitive to changes in general economic conditions that impact consumer spending.
Future economic conditions and other factors, including sanctions imposed, consumer confidence, employment levels,
interest rates, consumer debt levels and availability of consumer credit could reduce consumer spending or change consumer
purchasing habits. A general slowdown in the Russian economy or in the global economy, or an uncertain economic outlook,
could adversely affect consumer spending habits and the Group’s operating results.

Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and
the effectiveness of economic, financial and monetary measures undertaken by the government.

The Russian economy has been negatively impacted by a decline in oil prices and sanctions imposed on Russia by a
number of countries. The rouble interest rates remained high. The combination of the above resulted in reduced access
to capital, a higher cost of capital and uncertainty regarding economic growth, which could negatively affect the Group’s
future financial position, results of operations and business prospects. Management believes it is taking appropriate
measures to support the sustainability of the Group’s business in the current circumstances.

Legal contingencies
Group companies are involved in a number of lawsuits and disputes that arise in the normal course of business.
Management assesses the maximum exposure relating to such lawsuits and disputes to be RUB 511,656 thousand as
at 31 December 2016 (31 December 2015: RUB 6,449 thousand). Management believes there is no exceptional event
or litigation likely to affect materially the business, financial performance, net assets or financial position of the Group,
which have not been disclosed in these consolidated financial statements.

Russian Federation tax and regulatory environment
The government of the Russian Federation continues to reform the business and commercial infrastructure in its transition
to a market economy. As a result the laws and regulations affecting businesses continue to change rapidly. These changes
are characterised by poor drafting, different interpretations and arbitrary application by the authorities. In particular taxes
are subject to review and investigation by a number of authorities who are enabled by law to impose fines and penalties.
While the Group believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation,
the above facts may create tax risks for the Group. Management also assesses the maximum exposure from possible tax
risks to be RUB 288,582 thousand (31 December 2015: RUB 126,793 thousand). No tax provisions are recorded as at
31 December 2016 and 31 December 2015. Management continues to monitor closely any developments related to these
risks and regularly reassesses the risk and related liabilities, provisions and disclosures.

Land leases
Certain lease agreements for land plots containing a short lease term expired prior to the date of these financial statements.
The Group initiated the process of renewal of the lease agreements for 49 years and believes that the risks relating to the
operations of the respective stores are insignificant. No provisions in this respect are accrued as at 31 December 2016
and 31 December 2015.

Environmental matters
The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture
of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under
environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which
might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be
material. In the current enforcement climate under existing legislation, management believes that there are no significant
liabilities for environmental damage.

34. EVENTS OCCURRING AFTER THE REPORTING PERIOD
There were no significant events after the reporting date other than disclosed elsewhere in the consolidated
financial statements.

Lenta Annual Report and Accounts 2016
141

APPENDICES

142 List of cities as of

31 December, 2016

144 Glossary
145 Further information
146 Cautionary statements

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Lenta Annual Report and Accounts 2016

142
142

Lenta Annual Report and Accounts 2016

List of cities as of 31 December 2016

Number
on the map

Cities1

Almetyevsk

Armavir

Astrakhan

Balakovo

Barnaul

Belgorod

Biysk

Bryansk

Cheboksary

Chelyabinsk

Cherepovets

Dimitrovgrad

Ekaterinburg

Engels

Grozny

Irkutsk

Ivanovo

Izhevsk

Kaluga

Kazan

Kemerovo

Khanty-Mansiysk

Kostroma

Krasnodar

Krasnoyarsk

Kursk

Lipetsk

Magnitogorsk

Moscow

Murmansk

Naberezhnye Chelny

Nizhnekamsk

Nizhniy Novgorod

Nizhniy Tagil

Novocherkassk

Novokuznetsk

Novorossiysk

Novoshakhtinsk

Novosibirsk

Number of
hypermarkets

Number of
supermarkets

Number of
distribution centres

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Lenta Annual Report and Accounts 2016

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143

Number of
hypermarkets

Number of
supermarkets

Number of
distribution centres

Number
on the map

Cities1

Omsk

Orel

Orenburg

Orsk

Penza

Perm

Petrozavodsk

Prokopievsk

Pskov

Rostov-on-Don

Ryazan

Samara

Saransk

Saratov

Smolensk

St. Petersburg

Stavropol

Surgut

Syktyvkar

Taganrog

Tobolsk

Togliatti

Tomsk

Tula

Tver

Tyumen

Ufa

Ulyanovsk

Velikiy Novgorod

Vladimir

Volgograd

Vologda

Volzhskiy

Voronezh

Yaroslavl

Yoshkar Ola

Yurga

Zheleznovodsk

1 From 1 May 2015, all stores located in Moscow city and the Moscow Region are shown as ‘Moscow’;

all stores located in the Leningrad Region and St. Petersburg are shown as ‘St. Petersburg’.

Lenta Annual Report and Accounts 2016

144
144

Lenta Annual Report and Accounts 2016

Glossary

Unless otherwise specified, the terms ‘we’, ‘us’, and ‘our’ refer to Lenta Ltd., or where the context allows,
to the Lenta business more generally.

the 2014 Offering

active cardholder

the initial public offering of our Shares, in the form of GDRs, admitted to trading on
the London Stock Exchange and the Moscow Stock Exchange on 5 March 2014

a customer who has purchased goods at one of our stores at least twice in the past
12 months using our loyalty card

average sales density

total sales during the relevant year divided by the average selling space for that year

average ticket

the figure calculated by dividing total sales, net of VAT, at all stores during the relevant
year by the number of tickets in that year

the Board

the board of directors of Lenta Ltd

BVI

Capex

CAGR

EGAIS

FMCG

gamification

GDRs

in-store availability

LFL

P&L

SG&A

SKU

sq.m

ticket

total selling space

the British Virgin Islands

capital expenditure

Compounded annual rate of growth

national automated information system for the control of alcohol production
and distribution

fast-moving consumer goods – products that are sold quickly and at relatively low cost

the application of game-design elements and game principles in non-game contexts.
Gamification commonly employs game design elements which are used in non-game
contexts to improve user engagement, organisational productivity, flow, learning,
crowdsourcing, employee recruitment and evaluation, ease of use, usefulness of
systems, physical exercise, traffic violations, voter apathy, and more.

global depositary receipts

the number of SKUs in-store with a positive stock value as a proportion of the total
number of active SKUs for sale, calculated based on the average daily in-store
availability of all open stores

like-for-like

profit and loss statement

Selling, General and Administrative Expenses, which is a major non-production cost
presented in the Income statement

our ordinary shares

a ‘stock keeping unit’, or a number assigned to a particular product to identify the
price, product options and manufacturer of the merchandise

square metre(s)

the receipt issued to a customer for his/her basket (the amount spent by a customer
on a shopping trip)

the area inside our stores used to sell products, excluding areas rented out to third
parties, own-production areas, storage areas and the space between store entry
and the cash desk line

traffic

the number of tickets issued for the period under review

Lenta Annual Report and Accounts 2016Further information

Lenta Annual Report and Accounts 2016

145
145

In this annual report, we present certain operating and financial information regarding our hypermarkets and supermarkets,
which we define as follows:

Adjusted EBITDA

EBITDA adjusted for non-recurring one-off items such as changes in accounting
estimates and one-off non-operating costs

Adjusted EBITDA margin

Adjusted EBITDA as a percentage of sales

Adjusted EBITDAR

Adjusted EBITDA before rent paid on land, equipment and premises leases

Adjusted EBITDAR margin

Adjusted EBITDAR as a percentage of sales

EBITDA

like-for-like sales

Other metrics

Profit for the period before foreign exchange gains/losses, revaluation of financial
instruments at fair value through profit or loss, reversal of impairment of non-financial
assets, other expenses, depreciation and amortisation, interest and tax. The
reconciliation of EBITDA to IFRS profit is presented in tabular format in note 6
to the Consolidated Financial Statements.

We distinguish between sales attributable to new stores and sales attributable
to existing stores. We consider the sales generated by stores until the end of the
12th full calendar month of their operation to be sales attributable to new stores.
Accordingly, like-for-like sales begin with the comparison of the 13th full calendar
month of operations of a store to its first full calendar month of operations, assuming
the store has not subsequently closed, expanded or down sized. The number of stores
in our like-for-like panel as of 31 December 2016 and 2015 was 152 (125 hypermarkets
and 27 supermarkets) and 109 (91 hypermarkets and 18 supermarkets) respectively.
‘Like-for-like average ticket growth’, ‘like-for-like average price growth per article’,
‘like-for-like traffic growth’, and ‘like-for-like average sales density’ are calculated
using the same methodology as like-for-like sales.

Net debt is calculated as the sum of short-term and long-term debt (including
borrowings and obligations under finance leases, capitalised fees and accrued
interest) minus cash and cash equivalents. The ratio of net debt to Adjusted EBITDA
is net debt divided by Adjusted EBITDA. The ratio of Adjusted EBITDA to net interest
expense is Adjusted EBITDA divided by net interest expense, which is calculated as
interest expense less interest income. The ratio of Adjusted EBITDAR to net interest
expense plus rental expense ratio is Adjusted EBITDAR divided by the sum of net
interest expense and rental expenses. CROCI is defined as Adjusted EBITDA over
average capital invested. Average capital invested is the average of the book value
of gross non-current assets plus net working capital as of the beginning of the year
and the book value of gross non-current assets plus net working capital as of the
end of the year. Adjusted SG&A/Sales is SG&A, excluding expenses on land and
equipment leases, premises leases, depreciation and amortisation and one-off
expenses as a proportion of sales.

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146

Lenta Annual Report and Accounts 2016

Cautionary statements

Forward-looking statements
This document contains certain ‘forward-looking statements’ which include all statements other than those of historical facts
that relate to our plans, financial position, objectives, goals, strategies, future operations and performance, together with the
assumptions underlying such matters.

We generally use words such as ‘estimates’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘may’, ‘will’, ‘should’, ‘projects’, ‘anticipates’,
‘targets’, ‘aims’, ‘would’, ‘could’, ‘continues’ and other similar expressions to identify forward-looking statements. We have
based these forward-looking statements on the current views of our management with regard to future events and
performance. These views reflect management’s best judgement, but involve uncertainties and are subject to certain known
and unknown risks together with other important factors outside our control, the occurrence of which could cause actual
results to differ materially from those expressed in our forward-looking statements.

Market and industry data
Statements referring to our competitive position and the Russian retail food sector reflect our beliefs and, in some cases,
private and publicly available information and statistics, including annual reports, industry publications, market research, press
releases, filings under various securities laws, official data published by Russian governmental entities and data published by
international organisations and other third-party sources.

Rounding
Certain figures in this document have been subject to rounding adjustments. Accordingly, figures shown for the same
category presented in different tables may vary slightly, and figures shown as totals in certain tables may not be an arithmetic
aggregation of the figures that precede them.

Lenta Annual Report and Accounts 2016Notes

147

Lenta Annual Report and Accounts 2016148

Notes

Lenta Annual Report and Accounts 2016Designed and produced by Instinctif Partners www.creative.instinctif.com

Lenta Ltd
Registered Office
P.O. Box 3340
Road Town
Tortola
British Virgin Islands

Lenta Headquarters
112 Savushkina Street
St. Petersburg
Russia 197374
Phone: +7 (812) 363-28-53
Fax: +7 (812) 380-61-50
www.lentainvestor.com

To see the report online go to:
www.lentainvestor.com/en/
investors/annual-reports