Lenta Annual Report 2017

FY2017 Annual Report · Lenta

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The Lenta
difference

Annual Report 2017

Strategic reportCorporate governanceFinancial statementsAppendices

Winning through differentiation
The retail market is becoming increasingly
competitive. Customers continue to search
for quality, great value, product variety and
freshness. They also want their shopping
experience to be enjoyable.

At Lenta, we work hard to ensure we
meet the needs of all our customers.
Our growth strategy – combined with
our drive to differentiate ourselves in the
market – have helped us to become
Russia’s number three food retailer.

www.lentainvestor.com/en/investors/annual-reports

How we are different
We listen closely to our customers and work
hard to give them what they want: high quality
products, a wide assortment to choose from
and great value for money.

Everything about the way we plan our stores –
from their format, location and layout to the
types of products we stock – is planned
around our customers, making shopping at
Lenta an effortless and enjoyable experience.

Read more on page 54

42 Lenta Annual Report and Accounts 2017

Strategic report

Corporate governance

Financial statements

Appendices

Creating value for all our stakeholders – especially our communities and our
employees – lies at the heart of what we do; corporate social responsibility is thus
embedded in the way Lenta operates. It plays a part in every aspect of our business –
from sourcing our products to selecting the most appropriate locations for our stores.

We have a well-established
programme that encompasses
our environmental and community
activities. Behaving responsibly is
an integral part of the long-term
strategy that will ultimately underpin
our success. Our approach to
corporate social responsibility is
therefore based around a deep
understanding of local community
needs wherever we operate.

Our six pillars
Our Corporate Social Responsibility
(CSR) agenda is supported by six
pillars. These shape our approach to
social responsibility and influence our
daily interactions with stakeholders.

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.

Within the context of the six pillars
there are specific goals. These
are primarily focused on further
investment in the development of

Lenta Annual Report and Accounts 2017 43

Corporate social responsibility continued

The
Lenta way

Our ethics policy

Lenta’s Ethics Policy sets out the standards
and rules applied with which all employees
must comply. It defines our obligations to
behave ethically and exhibit the high
standards of behaviour we expect of
our people.

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.

Established in 2011, the Company’s Ethics Committee
reviews complaints and non-compliance on a regular basis.
Its work is overseen by the Audit Committee and the Board.
Failure to comply with the Ethics Policy may lead to
disciplinary action, including dismissal.

Customers, employees and suppliers can contact the
Ethics Committee in a variety of ways: anonymously through
the Lenta website and Company Hotline, or via information
desks in our stores. In 2017, 510 calls were received via
the Company Hotline, up slightly on 2016, 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.
Ethics Committee reports on the Hotline were
reviewed at four Audit Committee meetings
during 2017.

44 Lenta Annual Report and Accounts 2017

The Lenta Way is a set of
core principles that underpin
our business and the way
we operate. These principles
– in tandem with our ethics
policy – form the basis of
our approach to CSR
issues 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
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.

Recruiting, training
and retaining great staff

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

Employee retention
Lenta has an above-average retention
rate for the food retail sector. We
place a high priority on investing in
our people; we know from experience
that this enhances loyalty, increases
productivity and improves our
service levels.

In 2017, voluntary turnover was 30%, up
slightly versus 2016 but still among the
lowest in the food retail sector. At the
same time, competition in this sector
of the labour market remains intense,
as the years 2017 – 2020 represent a
‘demographic gap’ due to the low birth
rate in the 1990s. To ensure our salaries
remain attractive, we indexed employee
salaries in 2017 and this led to an
improvement in retention in the latter
part of the year.

Lenta Annual Report and Accounts 2017 45

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate social responsibility continued

Employee length of service
Years

2,070 people
(4.8%)

5,167 people
(12%)

10+

5-9

Average seniority: 2.3yrs

Turnover of senior staff
2014–17

Division heads
5% (three people)

Top 100
3% (nine people)

Management training
Our managers ensure consistency of
performance standards and help forge
a strong organisational culture. In a fast
growing company such as Lenta, their
role is therefore vital – and we have an
ongoing requirement to develop new
managers to support our expansion.

Following a complete overhaul in 2016,
the Lenta Leader 2.0 programme is now
well established. In 2017, we trained 102
managers, 60% of whom were store
managers. Constructive feedback from
the previous year’s participants resulted
in improvements to the structure of the
programme and to 50% of the modules.

At the end of the programme, every
Lenta Leader graduate completes a
questionnaire and receives expert
feedback. This contains detailed
recommendations on personal
development. In future, focused
development based on the questionnaire
will become a compulsory element
of the programme and career path
of our managers.

In 2017, over 1,500 office, store and
distribution centre staff participated in
our ‘Efficient management’ training
programme. Aimed at developing
managerial skills, the programme
covers various aspects of management
including goal-setting, planning,
analysis and decision-making, creating
efficient teams and motivation. The
programme is run by in-house trainers
and participants are encouraged to
share their experience with colleagues.

Our programme of promotion from
within and job rotations – combined with
individual career plans and recognition
initiatives – plays a part in staff
retention.

A variety of employee engagement
initiatives foster a positive working
environment and strong team spirit.
These include in‑store ‘gamification’
projects, which use aspects of game
playing, such as competitions and point-
scoring, sports events, New Year
celebrations for employees’ children
and a range of charitable activities.

We pride ourselves on providing
rewarding and challenging careers at
all levels of seniority. In 2017 we also
maintained our excellent retention
record at managerial level, thanks
to a combination of development
opportunities, competitive salaries
and our short- and long-term
incentive programmes.

People development
We provide our employees with a
variety of training opportunities, tailored
to their experience and knowledge.
These include all employee categories
and help colleagues to support Lenta’s
growth and advance their own careers.

46 Lenta Annual Report and Accounts 2017

In 2017, we delivered over 2,400,000
man-hours of training, with an
average of 68 hours per person.”

Training

Hospitality

15,000+

employees

HACCP

18,000

people approx

IT training

employees approx

In-house trainers prepared
to run internal programmes

1,058

In 2017, we continued to develop a
culture of providing constructive
feedback to colleagues. Some 2,000
managers were trained in how to
provide supportive and efficient
feedback to their subordinates.

In 2017, four Lenta managers were
studying for MBA qualifications with the
UK’s Open University.

Store and specialist staff training
Our store employees are the public face
of Lenta – and therefore the primary
focus of our training efforts. Each store
runs a comprehensive induction
programme for new employees, which
sets out Lenta’s values, history and
structure – as well as our policies and
standards. In 2017, more than 17,200
employees participated in our induction
programme and some 12,000 people
were trained as part of the performance
management process roll-out.

In 2017, we delivered over 2,400,000
man-hours of training, with an average
of 68 hours per person. This compares
with an average of 44.8 hours per
person in 2016. Approximately 90% of
our training uses Lenta’s own resources
and expertise, which helps us to keep
costs down. This year, the cost of one
learning hour was RUB 19 compared
with RUB 27 in 2016. Remote courses
have proved to be particularly
effective – and in 2017 we increased the
amount of remote training we provided
by over 100%. E-learning comprised
some 8.5% of our total training in 2017.

Recruitment and career development
We provide numerous opportunities
for Lenta employees to advance their
careers and fulfil their potential. We
actively encourage the ambitions and
aspirations of all our people – and
promote from within wherever we can.
Many aspects of recruitment 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 7,441
new jobs in 2017, and a total of
15,240 employees were recruited
into new roles.

During the year, over two thirds of
vacancies were filled by our own
employees and 51% of directors of
newly opened stores were internal
candidates. In all, some 4,300
individuals were promoted into new
roles and over 9,500 employees
benefited from horizontal moves
within the organisation.

The speed of our growth means we
pay particular attention not just to our
recruitment processes and protocols,
but also to the task of succession
planning. The richest source of our
future managers is our pool of 2,500
section managers. Our ‘Grow with
Lenta’ Business Case Challenge
enables us to identify those individuals
with the ambition and potential
to progress.

Lenta Annual Report and Accounts 2017 47

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate social responsibility continued

Remuneration
We aim to provide a range of attractive
employment opportunities and careers,
with competitive wages, health benefits,
uniforms and all necessary protective
equipment. Our HR policy is to
acknowledge high performance
with high rewards. We measure
‘performance’ not only against business
results, but also through our values and
competencies model.

A new long term incentive plan was
approved for middle managers.

We continued to automate and integrate
our HR processes using the Lumesse
talent management suite. During the
year we launched Reimbursement
Management, Career and Succession
modules. We also centralised and
automated the bonus calculation
process for our store employees.

All employees are included in our
performance management process,
which helps us evaluate their
achievements and identify their future
potential. Performance evaluation is
linked to pay, ensuring that the highest
contributors obtain higher bonuses and
pay rises where applicable.

In line with a set of established
principles, financial support is available
for employees who find themselves in
difficult circumstances.

During the year we introduced several
initiatives to support and motivate our
employees. Salaries were reviewed and
index-linked, resulting in an average
increase for store staff of 7% and for
office and regional division staff of 5%.

Diversity
We value and respect diversity – and
offer employment opportunities to
all able candidates. Recruitment or
promotion decisions are based purely
around the professional knowledge
and competence of the individual
in question.

Each Lenta store provides a minimum
of five job opportunities for people with
special needs – and every distribution
centre offers three of these positions.
In 2017, 107 vacancies were filled by
candidates from this group. In line with
our policy to provide a wide range of
opportunities for people with special
needs, we actively support recruitment
and fair pay for people working
from home.

48 Lenta Annual Report and Accounts 2017

Employee engagement
There are strong links between
employee engagement, business
performance and customer satisfaction.
We therefore work hard to ensure our
employees remain aware of Lenta’s
progress and plans. Our ‘gamification’
motivational project rewards employees
with ‘Lenta points’ for demonstrating
behaviours that support the Company’s
ethos. Points can be exchanged for a
variety of prizes: from T-shirts to
household appliances. Colleagues
achieving the most points are
recognised for their contribution,
with best practices and ideas
shared between stores.

In 2017, 91 Lenta employees were
awarded a Letter of Gratitude from the
Ministry of Industry and Trade of the
Russian Federation. The annual awards
take into account various criteria and
recognise employees’ achievements
and length of service.

Looking ahead

Providing a supportive and
collaborative environment brings
out the very best in our people.
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.

Employees

Number of
employees

13,455
29%

32,723
71%

HQ and Regional
divisions employees

592
32%

Middle and senior
managers

240
45%

1,249
68%

298
55%

Lenta’s loyalty card guarantees
a discount of 5% on all purchases
and its popularity continued to
escalate in 2017.”

Pricing and
customer satisfaction

‘Value for money’ lies at
the heart of Lenta’s pricing
proposition, hence our
wide range of high quality
products is competitively
priced. In 2017 we continued
investing into end prices
for our customers despite
the difficult economic
conditions, aiming to give
them best value for money.

In retail, great customer service is also
a key differentiator – so our in-store
employees are trained to actively
engage with customers and deliver
the very best customer care. We
continued to analyse information
sourced from loyalty card use to
identify and create better promotions
for our customers – giving them more
of what they want, when they want it.

Lenta’s loyalty card guarantees a
discount of 5% on all purchases and
its popularity continued to escalate
in 2017.

During the year we launched: ‘Happy
Birthday!’ – a new campaign to reward
active Lenta loyalty cardholders.
Customers receive a personalised
birthday greeting from Lenta,
accompanied by a special 15% discount
on all product ranges, including on
items already covered by a different
promotion. In addition to the birthday
itself, the offer will be valid a week
on either side of the customer’s
special day.

The full-scale launch was preceded
by ‘soft’ launches in three pilot
regions, all of which proved highly
popular with customers. The
campaign will run indefinitely and
is being launched across the
chain’s entire footprint.

The ‘Happy Birthday!’ campaign is
yet another step in the expansion of
our loyalty programme. All active
cardholders receive a guaranteed
discount of 5% on all products, as well
as access to even greater reductions on
products in store. Active cardholders
also regularly receive tailored offers for
previously purchased products, and
receive coupons at the checkout,
offering discounts on their next
purchases.

The Lenta Social Programme operates
in every store. It provides needy citizens
with an additional discount of between
3% and 8% on essential food and
selected household items. At the end
of 2017 there were over 2.26 million
participants in the Programme, 428,000
of whom joined during the year.

The total discounts for participants in
Lenta’s Social Programme amounted to
RUB 13.6 million in 2017, amounting to
an average saving of RUB 7,600 per
customer during the year.

Looking ahead

We will continue to find ways to make
our customers’ shopping budgets go
further, whether through attractive
promotions on our most popular
ranges – or investing in pricing to
deliver great value. We will also
maintain the development our client-
oriented approach, implementing
new services and communicating
with our customers in ways that suit
them best. To this end we are
developing a variety of digital tools
including a mobile app.

Lenta Annual Report and Accounts 2017 49

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate social responsibility continued

Local sourcing

Sourcing products locally
is a distinguishing feature
of our strategy – and one
that is appreciated by our
customers. In 2017 94%
of our products were
sourced from Russian
suppliers, including 20.6%
from regional suppliers.
47.6% of our fresh food
was locally purchased.

Strengthening our relationships with
local suppliers continued to be a key
focus for us in 2017. Such alliances
bring mutual benefits not just to Lenta,
but to producers as well. Eliminating
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 throughout 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.

50 Lenta Annual Report and Accounts 2017

Our Growers Platform project was
launched in 2015 to increase direct fruit
and vegetable supplies from producers.
The project reduces delivery times and
enables Lenta to offer higher quality
products to customers, ensuring a fresh
supply of vegetables, mushrooms,
salads, and seasonal fruit is available
in our stores. Several types of salad:
cauliflower, broccoli, savoy cabbage,
kohlrabi and premium quality potatoes
are grown exclusively for us. Unique
regional product varieties are also
supplied, such as rose tomatoes,
peaches, apricots, apples and sweet
cherries – all of which can only be
found in Lenta stores.

To date, Growers Platform has delivered
an impressive performance. Having
started with seven partners, we have
increased the number of suppliers by
15 times and the number of SKUs
by 30 times.

Located across 30 Russian regions,
partners include large agribusiness
players such as AFG National, Step
Agricultural Holding and Sad-Gigant
Trading House, as well as smaller
farmers who have attained new levels in
agricultural production with Lenta’s help.

Growers Platform

14.3% (vs planned 8.9%)

2016

2017

33 growers from 16 regions

70 growers from 14 regions
added

Geography 103 growers/30 regions

By the end of the year, the Growers
Platform accounted for 14.3% of Lenta’s
total fresh fruit and vegetables supply.

The number of internal quality
audits conducted in 2017 rose slightly
compared with 2016, with each
store reviewed on a quarterly basis –
and new stores twice quarterly.
The self-assessment system was
extended to take account of amended
legislation regarding veterinary and
phytosanitary requirements.

We continued to conduct regular quality
audits of our suppliers. We conducted
7,764 laboratory tests on products
during the year. This included 5,589
suppliers’ goods and 2,175 private
label and directly imported goods, and
represented increases in the number
of tests of 16% for branded goods,
31% for private labels and direct import
goods on 2016. In 2017, 14 suppliers of
branded goods failed our quality audit –
and were therefore unable to sell their
goods in our stores.

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 2017 we replaced the
fluorescent lighting in 223 stores.”

Looking ahead

Stocking locally produced goods on
our shelves is a key differentiator for
Lenta. We know that our customers
appreciate the growing variety and
high quality of these products. This
element of our strategy 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.

60% of our total waste
material is recycled

60%

Caring for the environment

Energy
In 2017 we replaced the fluorescent
lighting in 80 supermarkets and
143 hypermarkets.

Used batteries damage the
environment due to their heavy metal
content. It is estimated that a single
discarded battery can pollute up to
20 sqm of soil or 400 litres of water.
During the year we expanded our
used battery collection project
in St. Petersburg. Starting with
eco-boxes in nine stores, we ended
the year with collection points in
28 stores and approximately 10,000 kg
of batteries were collected for safe
disposal during the year. We plan to
expand the project in 2018 into other
cities where we have a presence.

Looking ahead

Our approach to our environmental
activities is one of ongoing
improvement. We continue to drive
our recycling efforts and energy
efficiency initiatives.

We remain wholeheartedly
committed to reducing our
impact on the environment.
Whether caused by our
use of materials, energy,
transportation or waste
disposal, our aim is to
reduce the adverse effect of
our activities to a minimum.

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 2017, we initiated 133 projects –
complete with all the relevant
documentation – for waste disposal
and emissions in line with legislation.

Waste
Lenta produces several types of
waste, which is removed for us by
third-party contractors. During 2017
we reduced the amount we produced
and continued to improve our recycling
rates. Our centralised waste collection
scheme was rolled out in five of our
six Divisions.

Lenta Annual Report and Accounts 2017 51

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Making a positive contribution
to local communities

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.
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.

In keeping with our
reputation as a socially
responsible company,
Lenta plays an active role
in the communities where
our stores are located.

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 2017, a wide range of customer
groups continued to be a focus for
Lenta’s community activities. In
December, customers at our stores
in St. Petersburg, Togliatti, Penza
and Chelyabinsk were able to donate
money and buy a variety of essential
products – as well as toys and
confectionery for children. These
were subsequently donated to
needy citizens via 32 non‑profit
organisations. The campaign lasted
13 days, involved 18 hypermarkets
and collected donations totalling RUB
1,139,000 – of which RUB 698,000
were purchased goods.

We also undertook various locally
based waste management initiatives.

52 Lenta Annual Report and Accounts 2017

Looking ahead

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.

The year ahead will see us redouble
our efforts to engage with and
support those who live and work
close to our stores. We will also
develop new educational
programmes for our customers,
including children and socially
vulnerable groups.

December donations totalling (RUB)

1,139,000

Around 6,000 children from
170 social institutions throughout
Russia benefited from our
customers’ generosity.”

Lenta events

New Year’s Tree of Wishes
In December we held our annual ‘Tree
of Wishes’ charity event to help children
in institutional foster care. Christmas
trees were decorated with children’s
wish cards in 179 Lenta hypermarkets
across 76 Russian cities. Customers
chose a child’s wish card from the tree
and purchased the New Year’s present
listed within. Lenta collected all the gifts
and sent them to participating foster
care homes and institutions, ensuring
that every child received a gift from
Santa Claus during the New Year’s
celebrations. Around 6,000 children
from 170 social institutions throughout
Russia benefited from our customers’
generosity. The employee-initiated
event was first held in 2015 in five stores
in the North West Region of Russia.

Tulip Festivals
For the fifth year running, and in
conjunction with our supplier, we
presented the city of St. Petersburg with
a gift of Dutch tulip bulbs. Some 30,000
bulbs are presented to the city every
autumn for the annual Tulip Festival,
which takes place in Spring on Elagin
Island. The upcoming 2018 festival will
feature 3,000 sqm of gardens, with
160,000 flowers comprising 130
varieties. The Tulip Festival is a
landmark event in the city’s year. Its
success inspired Lenta to extend our
involvement in the project to
Ekaterinburg – and in autumn 2017, our
employees helped to plant over 50,000
bulbs in Mayakovsky Park. Plans for
2018 include donations of bulbs to
parks in Novosibirsk and
Rostov-on-Don.

Kazan City Racing and Safe Wheel
For the fourth time, Lenta sponsored
the Kazan City Racing motorsport show
in Tatarstan; the principal highlight of
the City Day of Kazan. This featured
classic soviet cars participating in the
international ‘Moscow Classic Grand
Prix’ race series, as well as the
‘Safe Wheel’ school for young car
enthusiasts, which helps them learn
essential skills for safe driving.

Animal welfare
‘Animals Day’ at Lenta featured a
promotion on Mars pet food and cat
litter, with the chance of money back,
guaranteed prizes and participation in a
RUB 1m draw. Customers at 38 stores
in Moscow and St. Petersburg were
also invited to donate pet food to eight
animal rescue shelters, with 82 boxes
containing almost four tonnes of food
being collected.

Nature conservation in Rostov
In October Lenta hosted ‘Let’s Save
Nature Together’: a sports and
ecological initiative in Aviators Park,
Rostov-on-Don. Over 80 employees
participated, removing over 90 bags of
rubbish and preparing the park for the
coming winter. A Lenta avenue of
mountain ash, maple and linden trees
was also planted in the park. As part of
the initiative, employees also organised
a bike relay ride and dance ‘flashmob’.

No more rubbish in Vsevolozhsk
In September, ‘We Will Make It’: a
substantial clean-up operation, took
place in Vsevolozhsk, Leningrad region.
Although Lenta keeps the streets close
to its stores clean, employees joined
residents and participants from
environmental organisations and other
local employers to clear the wider
neighbourhood of almost a tonne of
rubbish, including tyres and
heavy waste.

Best in profession
Lenta was represented by 32
colleagues in the annual St. Petersburg
Government Awards for the ‘Best in
Occupation in the field of Trade and
Services in St. Petersburg 2017’. Julia
Davydova (Lenta-264) was awarded the
‘Best cashier-controller’ by a committee,
which included representatives of the
city authorities, educational institutions
and consumer market professionals,
beating over 50 competitors to win
the award.

Activities for sick children
In October, in partnership with Mars
Chocolate, we supported a chocolate-
making masterclass at the SPU GUAZ
Children’s Hospice, which provides
palliative care for young people in
St. Petersburg. The children had the
chance to learn about chocolate and
were able to create their own sweets.
Another event is planned for 2018.

Caring for older citizens
Timed to coincide with Victory Day in
May, we ran a campaign with partners
from SCA to collect personal care
products for veterans and elderly
people. We offered a discount on
Tena products, which customers could
purchase and place in boxes in our
stores for distribution to retirement
homes via the Starost charity.

Lenta Annual Report and Accounts 2017 53

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate social responsibility continued

Number of injuries
per 100,000 working hours

2017

2016

0.25

0.21

Looking ahead

In the year ahead, we will continue
implementing our ‘Active Safety’
module across Lenta to identify
potential risks for employees and
customers and raise awareness
of potential hazards.

We will also establish a separate
Quality Assurance Group for
supermarkets, which will be
responsible for updating all
relevant requirements and enhance
cooperation on quality issues.
A new system of claims processing
and quality control for Lenta private
label goods will also be
implemented in 2018.

Promoting health
and safety

We are fully committed to
creating and maintaining a
safe environment for our
employees and customers.

As part of our Active Safety
programme, all Lenta 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. Employees are
encouraged to report every incident,
no matter how small, so that the cause
can be identified and any recurrence
prevented.

In 2017, risk checks were carried out
in a total of 146 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.

The injury rate rose by 0.04%
compared to the 2016 rate; this was
attributable to the considerable growth
in store numbers. Working time lost
due to injuries represented 0.06%
of total hours worked.

54 Lenta Annual Report and Accounts 2017

Our principal health and safety targets
in 2017 were the maintenance of high
safety standards across Lenta and the
automation of various processes to
further enhance employee safety.
We centralised various processes
into specific groups; for example: a
group for investigation and analysis
of near misses and another for
ecological projects.

We also streamlined the flow of
documentation such as registers and
instructions – and automated the
process of compulsory training on
legislation. A new electronic ‘Risk-
Check’ module for risk management
also was developed and implemented,
reducing the time spent to create a risk
report from 18 hours to 90 minutes.

Strategic report

Corporate governance

Financial statements

Appendices

Goals for 2018

In addition to our ongoing CSR
programmes, we are focusing closely
on a specific set of goals for 2018:

> We will continue to invest in our value-for-money

proposition to provide the best offers for
our customers.

> 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.

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

> We will further increase local sourcing opportunities

for suppliers in a range of industries.

> We will pursue the development of programmes

in environmental care and social activities.

> 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.

> We will work with our suppliers to ensure their

commitment to quality and safety aligns with our own.

> We will look to actively increase employee

involvement in working towards all of our CSR goals.

Lenta Annual Report and Accounts 2017 55

Financial review

Another
successful year

We increased our profits and sustained
our healthy balance sheet of previous
years, thanks to increased productivity,
sales and space growth.

Jago Lemmens
Chief Financial Officer

56 Lenta Annual Report and Accounts 2017

Dear Shareholders
Lenta delivered a strong overall
performance in 2017. We achieved
robust sales growth of 19.2%, combined
with notable improvements in supplier
conditions, supply chain efficiency and
in‑store productivity. These beneficial
effects were however partly offset by
price investments – mostly linked to
higher promotion share and one-off
accounting effects of the new Trade
Law. Adjusted EBITDA rose 11.8% to
RUB 35.5bn, (2016: RUB 31.8bn) but
adjusted EBITDA margin declined 0.7pp
to 9.7% (2016: 10.4%).

Gross profit
RUB bn

+15.4%

2017

2016

2015

Net profit
RUB bn

78.2

67.8

56.3

+18.4%

2017

2016

2015

13.3

11.2

10.3

Selling space
‘000 sqm

+20.6%

2017

Sales
Total sales in 2017 grew 19.2% to
RUB 365.2bn, compared with growth
of 21.2% in 2016. This was due to sales
from new stores opened during the
year, new stores opened in 2016 that
are not yet part of the like-for-like panel
and a like-for-like sales increase of
0.9%. We grew net selling space by
20.6% compared with 29.9% in 2016.

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

1H 2017
16.7%
-1.8%
-2.4%
0.6%

2016

2015

2H 2017
21.3%
3.2%
-0.4%
3.6%

1,382.1

1,146.1

882.4

2017
19.2%
0.9%
-1.4%
2.3%

2016
21.2%
3.9%
-0.1%
4.0%

Sales growth came under pressure in
the first half of 2017 due to continuing
falls in real consumer incomes and
declining inflation, which led to shelf
price deflation and higher promotion
share. Management initiatives delivered
a significant uplift in sales growth during
the second half of 2017.

Selling, general and
administrative expenses (SG&A)
SG&A slightly increased to 15.3% of
sales (0.15pp higher than 2016) due to
higher depreciation expenses linked to
expansion, which more than offset
continuous operational improvements
and increased productivity.

Continued operational improvements
in the stores led to higher productivity,
which resulted in 12bps reduction of
labour costs as a percentage of sales
(5.6% in 2017). Marketing costs and
other costs as a percentage of sales
remained almost unchanged.

Adjusted SG&A as a percentage of
sales increased only 0.1pp to 11.5% in
2017 compared with 2016, primarily due
to increases in utilities and communal
payments. Total SG&A costs were
affected predominantly by increased
depreciation, while rent expenses
remained almost flat at 1.2% of
total sales.

Gross margin
Gross margin decreased by -0.7pp to
21.4%. This was due to additional price
investments and one-off accounting
effects of the new Trade Law, which
were not fully compensated by improved
supplier conditions, increased
supply‑chain efficiency and in‑store
production improvements.

The average distance for goods
transportation reduced by 5% to 553km/
pallet in 2017 compared with 579km/
pallet in 2016. Combined with a higher
centralisation ratio of 53.7%, this led to
a reduction in supply chain costs as %
of sales to 1.0% in 2017, compared
with 1.2% of sales in 2016. In-store
production costs improved by 19bps,
while shrinkage remained flat despite
rapid expansion of Lenta’s hypermarket
format and an increase in the proportion
of supermarkets.

RUB total sales

RUB gross profit

365.2bn
78.2bn
25.6bn

RUB operating profit

Lenta Annual Report and Accounts 2017 57

Strategic reportCorporate governanceFinancial statementsAppendicesFinancial review continued

RUB (millions)
Adjusted EBITDA
One-off expenses and income1
Reported EBITDA2
1 One-off expenses and income in 2016 were professional fees associated with M&A activity.

2017
35,495
5
35,490

2016
31,759
369
31,390

% Change
2017 – 2016
11.8%
—
13.1%

2 Reported EBITDA includes all operating income and expenses excluding interest, tax, depreciation, amortization

and impairment of non‑financial assets as well as certain other expenses.

Tax
The effective tax rate decreased from
23.0% in 2016 to 12.6% in 2017.
While the effective tax rate in 2016
was affected by a one-off permanent
difference related to the Kesko
acquisition, which generated a taxable
gain, the much lower effective tax rate
in 2017 was attributable to a one-off
positive effect, mainly driven by
recognition of tax loss carry forward
of the Kesko entities acquired in 2016.
The underlying effective tax rate
remained stable.

Net income
Net profit of RUB 13.3bn was up 18.4%,
almost in line with sales growth (2016:
RUB 11.2bn) with a margin of 3.6%.
This was driven principally by EBITDA
growth and a lower effective tax rate
of 12.6%, partly offset by increased
depreciation and higher interest
expenses. Net profit margin of 3.6%
remained almost flat.

EBITDA
Adjusted EBITDA (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 35.5bn
in 2017, up 11.8% (2016: RUB 31.8bn),
with an adjusted EBITDA margin of
9.7% (2016: 10.4%).

Interest
Net interest expense increased 13.7%
to RUB 10.5bn compared with 2016
(RUB 9.2bn). This was due largely to
a higher average level of borrowing,
which was partly offset by a reduction
in interest rates. Lenta’s weighted
average cost of debt in 2017 decreased
to 10.3% (160bps lower than 2016).
The Company reduced its cost of debt
throughout the year from 10.9% in
the first quarter to 9.7% in the fourth
quarter, mainly due to the combined
effects of continuing reductions in
MosPrime rates, refinancing of high
cost debt and improvements in the
terms and conditions of its major
long-term loan facilities. We expect
further significant reductions in
the effective cost of debt in 2018.

Income statement highlights

% Change
RUB (millions)
2017 – 2016
Total sales
19.2%
Gross profit
15.4%
Gross margin
-0.7pp
SG&A, % of sales
-0.15pp
Adjusted SG&A3, % of sales
0.1pp
Adjusted EBITDAR4
12.8%
Adjusted EBITDAR margin
-0.6pp
Rental expenses, % of sales
0.03pp
Adjusted EBITDA
11.8%
Adjusted EBITDA margin
-0.7pp
Operating profit
7.9%
Profit before income tax
4.3%
Net profit
18.4%
-0.02pp
Net profit margin
3 Adjusted SG&A is SG&A before rent paid on land, equipment and premises leases, depreciation and one-off non-operating costs, including professional fees related to M&A activity.

2016
306,352
67,768
22.1%
15.2%
11.4%
35,195
11.5%
1.1%
31,759
10.4%
23,695
14,553
11,202
3.7%

2H 2016
166,267
37,112
22.3%
14.9%
11.2%
19,822
11.9%
1.0%
18,084
10.9%
13,619
8,903
6,876
4.1%

1H 2017
163,531
35,534
21.7%
15.9%
11.8%
17,601
10.8%
1.2%
15,623
9.6%
10,880
5,560
4,492
2.7%

1H 2016
140,087
30,656
21.9%
15.5%
11.7%
15,372
11.0%
1.2%
13,676
9.8%
10,076
5,650
4,326
3.1%

2H 2017
201,647
42,701
21.2%
14.8%
11.3%
22,106
11.0%
1.1%
19,871
9.9%
14,696
9,611
8,772
4.4%

2017
365,178
78,236
21.4%
15.3%
11.5%
39,706
10.9%
1.2%
35,495
9.7%
25,577
15,172
13,264
3.6%

4 Adjusted EBITDAR is adjusted EBITDA before rent paid on land, equipment and premises leases.

58 Lenta Annual Report and Accounts 2017

As of 31 December 2017 total debt was
RUB 107.1bn, with a cash balance of
RUB 14.3bn, giving net debt of
RUB 92.8bn. All of Lenta’s debt is
denominated in Russian Roubles;
82% of it is long-term, with an average
maturity of around 1.9 years.

As the trading environment continues
to recover, the economy will continue
to challenge Lenta and its customers.
However our proven low price/low cost
business model and our robust financial
position mean we are well placed
to cope with the vagaries of the
prevailing market conditions. We
remain committed to strengthening the
business, maintaining tight cost controls
and delivering profitable growth.

Jago Lemmens
Chief Financial Officer

Capital expenditure
Capital expenditure in 2017 was 49.7%
lower than in 2016, amounting to RUB
27.3bn. This reduction mainly reflected
the effect of slower organic expansion,
a historically high proportion of new
rented selling space (54% in 2017
compared with 15% in 2016) a higher
proportion of supermarkets in the total
space added (17% in 2017 compared
with 5% in 2016), and lower investments
in land. Other significant factors
included lower pre-investments in future
pipeline than in previous years, while
the structure of our real estate deals
resulted in deferring a greater share
of investments in new stores into the
following year. Capital expenditure was
funded primarily by operating cash flow
and – to a lesser extent – by debt.

Cash flow
Net cash generated from operating
activities, before net interest and
income taxes paid, was RUB 34.8bn
compared with RUB 27.9bn in 2016, an
increase of 24.8%. This was primarily
driven by working capital movements
and higher EBITDA.

Net debt and leverage
As of 31 December 2017, net debt was
RUB 92.8bn. Net debt to adjusted
EBITDA stood at 2.6x, lease adjusted
net debt to adjusted EBITDAR5 at 3.2x
and adjusted EBITDA to net interest
was at 3.4x. As of 31 December 2016,
net debt to adjusted EBITDA stood
at 2.8x, lease adjusted net debt to
adjusted EBITDAR at 3.3x and adjusted
EBITDA to net interest was 3.4x.

5 Lease adjusted Net Debt calculated as Net Debt plus operating leases multiplied by capitalization rate of 8.0x in accordance with credit rating agencies approach.

Lenta Annual Report and Accounts 2017 59

Strategic reportCorporate governanceFinancial statementsAppendicesPrincipal 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.

Stage 1 – Risk identification
To ensure a comprehensive risk profile,
we conduct a ‘top down’ strategic risk
assessment on an annual 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.

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

60 Lenta Annual Report and Accounts 2017

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.

Risk Management Policy
Our Risk Management Policy sets
out the principles and standards to
be adhered to throughout Lenta and
establishes a common approach
and minimum requirements for risk
management activities within the
Company. The policy provides 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.

n
o
i
t
a

a
c
s
e
d
n
a
g
n
i
t
r
o
p
e
r

t
n
e
m
e
g
a
n
a
m
k
s
i
R

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

t
r
a
t
e
g
y

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

o
v
e
r
s
g
h
t
a
n
d
c
o
m
m
u
n
c
a
t
i
o
n
s

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.

The policy provides us with 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 2017 that could have
a potentially severe impact on
the business.

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 our 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 new trade law had a significant
effect on the competitive landscape.
A significant number of suppliers raised
their base pricing much faster than
inflation, but at the same time increased
support for promotions. This led to an
increase in promotional activity among
all retailers, with the biggest change
among operators of smaller format
stores which historically did relatively
few promotions. A side effect of these
changes was increased switching
between products and a reduction in
customer loyalty to specific consumer
goods brands. Using its customer data
analysis based on loyalty card use,
Lenta detected these changes rapidly
and took measures to ensure our
hypermarkets remained an attractive
shopping destination.

The large number of openings and the
potential risk of erosion of standards is
high on our agenda. Lenta is actively
working on organisational measures to
strengthen and empower its more junior
managers to deliver the best shopping
experience to our customers
across Russia.

A continuous positive development was
the decrease in interest rates. This
reduced interest rate risk related to
our growth, which requires additional
funding above our own generated
cash flows. We see our incremental
borrowing rates for the coming year
flattening out between 7.5‑8.0%.

The population of working age has been
shrinking rapidly at the base of the age
pyramid due to low birthrates since the
collapse of the Soviet Union. This is
resulting in a very low inflow of young
people compared to five years ago,
which may in turn result in pressure
on wages.

Lenta Annual Report and Accounts 2017 61

Strategic reportCorporate governanceFinancial statementsAppendices

Principal risks and uncertainties continued

The risk management process is
closely aligned to our strategic objectives.
We identified 17 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
A Become a top 3 multi-format food retailer and the

biggest hypermarket player in Russia, enabling further
benefits of scale in supplier terms and fixed cost efficiency.

B Continuous focus on profitable growth, carefully

balancing capex and returns (target IRR of 20%) with
the aim to continue to deliver market-leading returns.

C Maintain healthy balance sheet with conservative

approach to leverage.

D Continue investing in management development

to ensure Lenta’s retail team remains one of the most
effective in the industry.

E Double selling space during the four years from 2016

to end 2020.

F Develop alternative models to add to our growth.

Risk categories
> Strategic

> Financial

> Operational

> Legal and compliance

Strategic risks

Risk

No.
on map

Impact

Strategic priorities
that would be affected

Regulation
resulting in
major additional
compliance costs
and increase in
other operational
cost

Government may introduce regulation of stores in areas such as
disabled access or food production standards that result in
significant compliance costs and/or adjustment of the
business model.

Retail regulation
of price/margin

Government may introduce further regulations in the retail sector,
e.g. controls over price or front margin, which could erode sales
and margins and/or require changes in the business model.

B C E

Since implementation of the new retail law in July 2016,

Follow up on legislative initiatives and engage with retail association

no new changes have been announced – and parties are

in ongoing lobbying.

Major decline
in economy

There may be further major decline in Russia’s economy,
devaluation of the Rouble and inflation, resulting in customers
cutting back on purchases and reduced sales.

B C E

Actively follow up on main economic indicators and adjust assortment

in stores.

62 Lenta Annual Report and Accounts 2017

Change in 2017

How we manage it

In 2017 Lenta prepared for new legal obligations regarding

Follow up on legislative initiatives and engage with retail associations

digitalisation and tracking of quality certificates in the supply

in ongoing lobbying.

Continued investment in people and IT resources to ensure our

operational systems will be able to cope with these changes.

chain of fresh goods. This was a complex project since there

are multiple government institutions involved with different

views; hence targets are constantly changing.

Lenta is preparing to track excise labels by bottle and not

batches. The government is planning a similar excise label

tracking system for tobacco.

New regulations on outsourced labour have increased its

cost and increases in road tax are making transport

more expensive.

considering the effects of the new law. There remains a

constant risk of changes in the regulation of the Russian

retail sector, which can affect consumers and retailers. The

industry has thus become even more alert to new initiatives.

The Russian economy emerged from recession

and returned to modest growth in 2017.

Food inflation fell significantly and CPI dropped below

the Russian Central Bank’s target of 4%.

Disposable income is improving, but increases in energy tariffs

and communal payments continue to suppress the effect of

growing wages in the bigger companies. Real disposable

income growth remained negative during the full year.

Key: Current: risk assessed after controls

resulting in

Regulation

Government may introduce regulation of stores in areas such as

disabled access or food production standards that result in

significant compliance costs and/or adjustment of the

business model.

major additional

compliance costs

and increase in

other operational

cost

Retail regulation

of price/margin

Government may introduce further regulations in the retail sector,

e.g. controls over price or front margin, which could erode sales

and margins and/or require changes in the business model.

B C E

Major decline

in economy

There may be further major decline in Russia’s economy,

devaluation of the Rouble and inflation, resulting in customers

cutting back on purchases and reduced sales.

B C E

Principal risks

y
e
k

i
l

y
h
g
H

e
b
a
b
o
r
P

e
b
s
s
o
P

d
o
o
h

i
l
e
k
i
L

y
e
k

i
l

n
U

Minor

Moderate

Strategic risks

Major

Severe

Impact

No.

Risk

on map

Impact

Strategic priorities

that would be affected

Change in 2017

How we manage it

Minor

Moderate

Major

Severe

Impact

Key:

Current risk assessed after controls

In 2017 Lenta prepared for new legal obligations regarding
digitalisation and tracking of quality certificates in the supply
chain of fresh goods. This was a complex project since there
are multiple government institutions involved with different
views; hence targets are constantly changing.
Lenta is preparing to track excise labels by bottle and not
batches. The government is planning a similar excise label
tracking system for tobacco.
New regulations on outsourced labour have increased its
cost and increases in road tax are making transport
more expensive.

Since implementation of the new retail law in July 2016,
no new changes have been announced – and parties are
considering the effects of the new law. There remains a
constant risk of changes in the regulation of the Russian
retail sector, which can affect consumers and retailers. The
industry has thus become even more alert to new initiatives.

The Russian economy emerged from recession
and returned to modest growth in 2017.
Food inflation fell significantly and CPI dropped below
the Russian Central Bank’s target of 4%.
Disposable income is improving, but increases in energy tariffs
and communal payments continue to suppress the effect of
growing wages in the bigger companies. Real disposable
income growth remained negative during the full year.

Follow up on legislative initiatives and engage with retail associations
in ongoing lobbying.
Continued investment in people and IT resources to ensure our
operational systems will be able to cope with these changes.

Follow up on legislative initiatives and engage with retail association
in ongoing lobbying.

Actively follow up on main economic indicators and adjust assortment
in stores.

Lenta Annual Report and Accounts 2017 63

Strategic reportCorporate governanceFinancial statementsAppendices

Principal risks and uncertainties continued

Strategic risks continued

No.
on map

Impact

Lenta could face markedly increased competition as a result of
competitor consolidation, or changes in competitor strategies or
funding. This could lead to increased price competition and a
resulting impact on Lenta’s growth and margins.
The new retail law – which led to an increase in supplier support
for promotions in all retail formats – resulted in a increase of
promotional share among all players.
However, this also resulted in increased margin pressure, even
among the largest retailers in the second half of the year.
The top two retailers, Lenta and few niche players gained share
relative to most other competitors.
Lenta accounted for much of the growth in hypermarkets and once
more hypermarkets and once more acquired a mid-sized player.

Risk

Increased
competition

Competitive
sourcing

New store
location

Lack of
innovation and
adaptation

Strategic priorities
that would be affected

A B C E

Change in 2017

How we manage it

The new retail law – and the resulting more generous support

Actively monitor competitors’ behaviour and changes, understand

of FMCG through promotions in all retail formats – resulted in

structural changes in the market.

a strong increase of promotional share among all players.

However, even the top two players started to experience

margin pressure in the second half of the year.

Market growth is mainly driven by the top two, Lenta and

few selected niche players.

Lenta dominated the growth in hypermarkets and once more

acquired a mid-sized player in the market.

Lenta may not be able to gain access to products at the ‘lowest
price’, due to competitors pursuing vertical integration or having
‘better’ relationships with producers.

A B C

Since the import ban was introduced in 2014, there has been

Lenta established a separate sourcing team at the end of 2015. This

a scarcity of milk and of certain fruit and vegetables, driving

resulted in an increase in local sourcing and many long-term

retailers to look for new sources. Certain high quality products

agreements with local growers. There has also been an increase in

New store site selection could be compromised due to the desire
to meet rapid growth targets. This results in a fall in average
revenue per store and Lenta missing forecast revenue targets.

B E

(e.g. certain dairy and processed meat products) remain

unavailable. Local agriculture and farming has picked up

considerably. However, some sectors, such as meat and dairy

remain problematic due to lack of supply and competition.

direct imports, as the new trade law leads to additional benefits from this

route in some instances.

In 2017, Lenta became member of EMD, the largest retail purchasing

alliance in Europe. This gives it access to private label producers across

Europe that will allow it to significantly strengthen Lenta’s private

label offer.

Competition for sites from shopping centre developments and

Lenta has a robust and rigorous investment approval process, combined

peers remains low. This has reduced competition for sites,

with a strong post investment process. Investments over the last two

with more locations being available for Lenta. On the other

years have consequently been steered largely towards bigger cities,

hand, the slow economic development means that new store

existing and wealthy smaller cities that currently offer better prospects.

ramp ups may be slower in some cities, particularly

smaller cities.

Lenta is experimenting with low capex and lean management models to

ensure increased profitability of existing stores, as well as potentially

opening up smaller cities in a profitable way.

Technological developments are moving extremely fast.
Big data use, social media and digital marketing capabilities and
robotisation are changing the world. They are also changing the
way consumers gather information and how they are influenced –
and hence their shopping behaviour. All these developments have
a considerable influence on the cost of servicing customers. A lack
of adaptation may render our commercial proposition obsolete, our
marketing ineffective and may lead to loss of competitiveness
compared to peers.

A B F

increasing use of digital marketing tools.

Developments continue to move apace and peers are making

Lenta has a history of using big data analysis derived from its loyalty

card for category management and individual promotions. Lenta is in

process of increasing the use of digital marketing possibilities and has

started an initiative to organise innovation in a structured way.

Operational risks

Risk

Erosion of
standards

No.
on map

Impact

Continued rapid expansion could lead to inconsistent application
of the Company’s commercial and operational standards, resulting
in a substandard product offer (assortment, price and quality) or
customer service that damages Lenta’s profitability and brand.

Strategic priorities
that would be affected

64 Lenta Annual Report and Accounts 2017

Change in 2017

How we manage it

Lenta added record space in 2017 and has grown the number

The Company’s comprehensive management development programme

of employees significantly.

ensures that it has high calibre managers for new stores and a

consistent, Company-wide understanding of operational standards.

Lenta also has rigorous in-store quality assurance processes and

commercial KPIs are followed-up on a daily and weekly basis.

Operations and commercial teams collaborate to ensure that prices,

offer and service are in line with corporate standards and are adapted to

local requirements. There are also regular senior management meetings

to ensure the maintenance of Lenta’s commercial and operational

standards.

Strategic risks continued

Risk

on map

Impact

No.

Increased

competition

Strategic priorities

that would be affected

A B C E

Lenta could face markedly increased competition as a result of

competitor consolidation, or changes in competitor strategies or

funding. This could lead to increased price competition and a

resulting impact on Lenta’s growth and margins.

The new retail law – which led to an increase in supplier support

for promotions in all retail formats – resulted in a increase of

promotional share among all players.

However, this also resulted in increased margin pressure, even

among the largest retailers in the second half of the year.

The top two retailers, Lenta and few niche players gained share

relative to most other competitors.

Lenta accounted for much of the growth in hypermarkets and once

more hypermarkets and once more acquired a mid-sized player.

Competitive

sourcing

Lenta may not be able to gain access to products at the ‘lowest

price’, due to competitors pursuing vertical integration or having

A B C

‘better’ relationships with producers.

New store

location

New store site selection could be compromised due to the desire

to meet rapid growth targets. This results in a fall in average

revenue per store and Lenta missing forecast revenue targets.

B E

Lack of

innovation and

adaptation

Technological developments are moving extremely fast.

Big data use, social media and digital marketing capabilities and

robotisation are changing the world. They are also changing the

way consumers gather information and how they are influenced –

and hence their shopping behaviour. All these developments have

a considerable influence on the cost of servicing customers. A lack

of adaptation may render our commercial proposition obsolete, our

marketing ineffective and may lead to loss of competitiveness

compared to peers.

Operational risks

Risk

on map

Impact

No.

Erosion of

standards

Continued rapid expansion could lead to inconsistent application

of the Company’s commercial and operational standards, resulting

in a substandard product offer (assortment, price and quality) or

customer service that damages Lenta’s profitability and brand.

Strategic priorities

that would be affected

Change in 2017

How we manage it

The new retail law – and the resulting more generous support
of FMCG through promotions in all retail formats – resulted in
a strong increase of promotional share among all players.
However, even the top two players started to experience
margin pressure in the second half of the year.
Market growth is mainly driven by the top two, Lenta and
few selected niche players.
Lenta dominated the growth in hypermarkets and once more
acquired a mid-sized player in the market.

Since the import ban was introduced in 2014, there has been
a scarcity of milk and of certain fruit and vegetables, driving
retailers to look for new sources. Certain high quality products
(e.g. certain dairy and processed meat products) remain
unavailable. Local agriculture and farming has picked up
considerably. However, some sectors, such as meat and dairy
remain problematic due to lack of supply and competition.

Competition for sites from shopping centre developments and
peers remains low. This has reduced competition for sites,
with more locations being available for Lenta. On the other
hand, the slow economic development means that new store
ramp ups may be slower in some cities, particularly
smaller cities.

A B F

Developments continue to move apace and peers are making
increasing use of digital marketing tools.

Actively monitor competitors’ behaviour and changes, understand
structural changes in the market.

Lenta established a separate sourcing team at the end of 2015. This
resulted in an increase in local sourcing and many long-term
agreements with local growers. There has also been an increase in
direct imports, as the new trade law leads to additional benefits from this
route in some instances.
In 2017, Lenta became member of EMD, the largest retail purchasing
alliance in Europe. This gives it access to private label producers across
Europe that will allow it to significantly strengthen Lenta’s private
label offer.

Lenta has a robust and rigorous investment approval process, combined
with a strong post investment process. Investments over the last two
years have consequently been steered largely towards bigger cities,
existing and wealthy smaller cities that currently offer better prospects.
Lenta is experimenting with low capex and lean management models to
ensure increased profitability of existing stores, as well as potentially
opening up smaller cities in a profitable way.

Lenta has a history of using big data analysis derived from its loyalty
card for category management and individual promotions. Lenta is in
process of increasing the use of digital marketing possibilities and has
started an initiative to organise innovation in a structured way.

Change in 2017

How we manage it

Lenta added record space in 2017 and has grown the number
of employees significantly.

The Company’s comprehensive management development programme
ensures that it has high calibre managers for new stores and a
consistent, Company-wide understanding of operational standards.
Lenta also has rigorous in-store quality assurance processes and
commercial KPIs are followed-up on a daily and weekly basis.
Operations and commercial teams collaborate to ensure that prices,
offer and service are in line with corporate standards and are adapted to
local requirements. There are also regular senior management meetings
to ensure the maintenance of Lenta’s commercial and operational
standards.

Lenta Annual Report and Accounts 2017 65

Strategic reportCorporate governanceFinancial statementsAppendicesPrincipal risks and uncertainties continued

Operational risks continued

Risk

Supply
availability

No.
on map

Impact

A ‘suppliers’ market’ may result in Lenta struggling to purchase
the full range of products required to meet customer demand, or
suppliers simply not delivering the necessary quantities to
Lenta, resulting in lost sales and customers.

Strategic priorities
that would be affected

A B C

IT system error
and data theft

A technical malfunction (e.g. change control), could result in
an inability to operate a key supply chain system, limiting stock
availability or producing errors in pricing, resulting in loss of
revenue and potentially long-term customer loyalty. A cyber attack/
theft could lead to the loss of personal or valuable commercial
data, resulting in negative media headlines, loss of commercial
advantage or fines and regulatory investigation.

Management
succession

Lenta may not be able to attract management with the necessary
skills and experience to support its growth plans, due to a lack of
suitably experienced individuals in the country and a reluctance
of international candidates to move to Russia. This would result
in further management stretch and inappropriate execution of
the strategy.

A B C

D E F

Product quality
issues

Inadequate performance of suppliers or Lenta’s own production for
high‑risk products (e.g. meat, dairy, fish) could result in the sale of
contaminated food, potentially causing customer health issues,
negative media coverage, regulatory investigation and
reputational damage.

A B

Change in 2017

See Risk 5.

How we manage it

See Risk 5.

Lenta operates sophisticated business systems that automate

The Company has comprehensive procedures in place to ensure

or support daily decision-making. Disruptions of major

systems could have a significant impact on the business.

Lenta is a data-rich company; for example it uses customer

data more and more intensively. Although not financially

sensitive, information on customer shopping habits should

not be disclosed to any third party.

continuous IT operations. A comprehensive external audit of IT controls

and cyber security was conducted in 2016 and its recommendations

were implemented in 2017. A thorough audit will be conducted every

two years.

Lenta became increasingly attractive compared to most other

Lenta’s high growth and high standards mean the Company is a

employers because of the career opportunities it offers in a

preferred employer in food retail, which guarantees a constant inflow

growing company. Lenta further enhanced its management

of new talent. A strong training programme and well-developed annual

training programmes in 2017, extending the Lenta Leader

performance appraisal processes enable Lenta to identify and develop

programme to more people, to prepare selected managers

in-house talent. A low personnel turnover compared to the market

for promotion to higher management levels.

shows that it manages this risk well. Lenta has a clear succession plan

for its senior management.

The share of locally produced food is increasing. However,

Lenta’s Quality Assurance team works with our commercial team to

standards in the food industry are often very basic compared to

identify suppliers most likely to deliver substandard goods. New

Lenta’s own. Maintaining standards can depend on the retailer’s

suppliers are audited and Lenta provides free advice to suppliers that

ability to ensure compliance by suppliers. The number of stores

need to improve their standards. A risk-based audit approach is applied

with own production operations and related risks is growing.

to all existing suppliers. Self-audit practices are used in in-store

production to ensure proper follow up of standards.

Financial risks

Risk

Tax

No.
on map

Impact

Strategic priorities
that would be affected

Change in 2017

How we manage it

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

B C

Tax authorities appear to take a tougher stance in court on tax

The Company will follow up changes in legislation and court practice

structuring – and are finding support in the courts for that.

and reconsider, when necessary, its tax structure.

Interest rate risk

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

B C

Since the interest rate rise at the end of 2014, rates have

reduced significantly. Incremental borrowing rates have

dropped to levels not experienced in Lenta’s history.

Source 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.

A B C

E F

Lenta significantly increased limits with most of its banks

The Company has a diversified portfolio of lenders to reduce

ahead of its funding requirements.

Lenta ensures that a reasonable part of debt is in fixed rates or covers

upward risk with caps. Lenta introduced new rules to determine the

amount of floating rate debt in its portfolio. These focus on a maximum

allowable effect on net income and limits for net debt/EBITDA and

interest covers to be maintained under certain stress scenarios.

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.

66 Lenta Annual Report and Accounts 2017

Operational risks continued

Risk

on map

Impact

No.

Supply

availability

IT system error

and data theft

A ‘suppliers’ market’ may result in Lenta struggling to purchase

the full range of products required to meet customer demand, or

suppliers simply not delivering the necessary quantities to

Lenta, resulting in lost sales and customers.

A technical malfunction (e.g. change control), could result in

an inability to operate a key supply chain system, limiting stock

availability or producing errors in pricing, resulting in loss of

revenue and potentially long-term customer loyalty. A cyber attack/

theft could lead to the loss of personal or valuable commercial

data, resulting in negative media headlines, loss of commercial

advantage or fines and regulatory investigation.

Management

succession

Lenta may not be able to attract management with the necessary

skills and experience to support its growth plans, due to a lack of

suitably experienced individuals in the country and a reluctance

of international candidates to move to Russia. This would result

in further management stretch and inappropriate execution of

A B C

D E F

the strategy.

Product quality

issues

Inadequate performance of suppliers or Lenta’s own production for

high‑risk products (e.g. meat, dairy, fish) could result in the sale of

contaminated food, potentially causing customer health issues,

negative media coverage, regulatory investigation and

A B

reputational damage.

Strategic priorities

that would be affected

A B C

Change in 2017

See Risk 5.

How we manage it

See Risk 5.

Lenta operates sophisticated business systems that automate
or support daily decision-making. Disruptions of major
systems could have a significant impact on the business.
Lenta is a data-rich company; for example it uses customer
data more and more intensively. Although not financially
sensitive, information on customer shopping habits should
not be disclosed to any third party.

Lenta became increasingly attractive compared to most other
employers because of the career opportunities it offers in a
growing company. Lenta further enhanced its management
training programmes in 2017, extending the Lenta Leader
programme to more people, to prepare selected managers
for promotion to higher management levels.

The share of locally produced food is increasing. However,
standards in the food industry are often very basic compared to
Lenta’s own. Maintaining standards can depend on the retailer’s
ability to ensure compliance by suppliers. The number of stores
with own production operations and related risks is growing.

The Company has comprehensive procedures in place to ensure
continuous IT operations. A comprehensive external audit of IT controls
and cyber security was conducted in 2016 and its recommendations
were implemented in 2017. A thorough audit will be conducted every
two years.

Lenta’s high growth and high standards mean the Company is a
preferred employer in food retail, which guarantees a constant inflow
of new talent. A strong training programme and well-developed annual
performance appraisal processes enable Lenta to identify and develop
in-house talent. A low personnel turnover compared to the market
shows that it manages this risk well. Lenta has a clear succession plan
for its senior management.

Lenta’s Quality Assurance team works with our commercial team to
identify suppliers most likely to deliver substandard goods. New
suppliers are audited and Lenta provides free advice to suppliers that
need to improve their standards. A risk-based audit approach is applied
to all existing suppliers. Self-audit practices are used in in-store
production to ensure proper follow up of standards.

Financial risks

Risk

Tax

on map

Impact

No.

Russia’s taxation system is changing constantly and new rules are

often ambiguous, leading to uncertainties in the tax position.

B C

Tax authorities appear to take a tougher stance in court on tax
structuring – and are finding support in the courts for that.

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

Strategic priorities

that would be affected

Change in 2017

How we manage it

Interest rate risk

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

leading to a large increase in interest cost and potential breach

B C

of covenants.

Since the interest rate rise at the end of 2014, rates have
reduced significantly. Incremental borrowing rates have
dropped to levels not experienced in Lenta’s history.

Source 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.

A B C

E F

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

Lenta ensures that a reasonable part of debt is in fixed rates or covers
upward risk with caps. Lenta introduced new rules to determine the
amount of floating rate debt in its portfolio. These focus on a maximum
allowable effect on net income and limits for net debt/EBITDA and
interest covers to be maintained under certain stress scenarios.

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.

Lenta Annual Report and Accounts 2017 67

Strategic reportCorporate governanceFinancial statementsAppendicesPrincipal risks and uncertainties continued

Legal and compliance risks

No.
on map

Risk

Compliance to
regulations and
internal standards
regarding store
operations

Lenta employees
involved in
unethical
behaviour

Impact

Health and safety failings, customer/staff error or inadequate
design in store construction and store systems could cause a
serious accident (e.g. fire or roof collapse), potentially leading to
death 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.

Strategic priorities
that would be affected

A B

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.

A B C

D E F

Change in 2017

How we manage it

The high number of new store openings means that there is

Construction standards are rigorously controlled. Comprehensive

an increased risk of a mishap in the period before the

training and clear procedures ensure that all employees have a

opening. More new and relatively inexperienced colleagues

thorough understanding of EHS processes. The Audit Committee

are involved in the management of our stores and

store processes.

regularly tracks the EHS status of all operations. A clear investment

programme to address non-standard situations is agreed and executed.

Lenta has a clear ethical policy. Third parties with whom Lenta

cooperates are informed of the policy and are expected to comply

with it.

We closely monitor the construction
cycle, since a reduction in capex is the
main – and most 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.

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.

68 Lenta Annual Report and Accounts 2017

Legal and compliance risks

No.

Compliance to

regulations and

internal standards

regarding store

operations

Lenta employees

involved in

unethical

behaviour

Strategic priorities

that would be affected

A B

Health and safety failings, customer/staff error or inadequate

design in store construction and store systems could cause a

serious accident (e.g. fire or roof collapse), potentially leading to

death 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.

A B C

D E F

Risk

on map

Impact

Change in 2017

How we manage it

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.

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.

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

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.

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.

Lenta Annual Report and Accounts 2017 69

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate
Governance

Introduction from the Chairman

71
72 Board of Directors
76 Senior Management team
78 Our corporate governance framework
84 Board Committees
96 Relations with shareholders
96 Responsibility statement

70 Lenta Annual Report and Accounts 2017
70 Lenta Annual Report and Accounts 2017

Page titleIntroduction from the Chairman

Dear shareholders
As Lenta’s Chairman, one of my principal
responsibilities is the oversight and
promotion of good corporate governance.
The way in which we conduct ourselves
affects every aspect of our business –
and ‘doing the right thing’ is an essential
component not just in our current success,
but in our long-term sustainability.

We are committed to showing that Lenta
operates with the highest levels of integrity
and transparency. I am therefore pleased
to present this overview of Lenta’s
governance framework.

John Oliver
Chairman

Towards best practice
Although we are not required to comply with the UK Corporate
Governance Code (‘the Code’), we believe that following its
provisions – so far as is appropriate and practicable – is in the
best interests of our stakeholders. We review our governance
framework on an ongoing basis, and we believe the
refinements and improvements of recent years have
established us as a ‘Best practice’ governance model for
a Russian operating company.

Objectives and responsibilities
The Board’s main objective is to ensure Lenta’s long-term
success and guarantee sustained returns for its shareholders.
This includes setting 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.

Lenta is exposed to a range of risks: financial, operational and
compliance. It is the Board’s responsibility to ensure that the
Company’s risk management measures, internal controls and
compliance functions are appropriate and effective. The Audit
Committee is responsible for oversight of the Company’s risk
management framework.

Investor relations
Regular shareholder engagement is an important aspect of
good corporate governance. During the year, the CEO, CFO
and I, supported by the Lenta’s investor relations team and –
where appropriate – other members of the Board and Senior
Management, met with institutional shareholders and sell-side
analysts. The Board receives regular updates from the Head
of Investor Relations on the team’s activities – especially with
regard to shareholder sentiment and feedback.

As a Board, we are responsible to our shareholders. The
Company’s governance framework blends leadership with
collaboration, and these underpin our robust decision-making
process. We are also driven by our complementary role to
advise and support the executive team in the implementation
of our strategy. Specific responsibilities are delegated to the
four principal Board Committees: Audit, Remuneration,
Nomination and Capital Expenditure. Details of their roles,
responsibilities and activities during the year are set out in
their respective sections on pages 84 to 95.

Looking ahead
Lenta’s 2017 performance highlights our ability to anticipate
what our customers want and give it to them how, when and
where they want it. Our excellent results are proof of that.
Our committed Board, our high calibre senior management
team and our robust corporate governance structure will
together help secure Lenta’s long-term, sustainable future.

John Oliver
Chairman

Lenta Annual Report and Accounts 2017 71

Strategic reportCorporate governanceFinancial statementsAppendicesBoard of Directors

Effective and
responsible
Board

The Board believes that it
has the necessary skills
and experience to provide
effective leadership and
control of the Company.

Our committed Board, our high
calibre senior management
team and our robust corporate
governance structure will
together help secure Lenta’s
long-term, sustainable future.”

John Oliver
Chairman

72 Lenta Annual Report and Accounts 2017
72 Lenta Annual Report and Accounts 2017

John Oliver (59)
Chairman

Jan Dunning (58)
Chief Executive Officer (CEO)

Jago Lemmens (49)
Chief Financial Officer (CFO)

Michael Lynch-Bell (64)
Director

Stephen Johnson (54)
Senior Independent Director

Anton Artemyev (57)
Director

Dmitry Shvets (45)
Director

Martin Elling (64)
Director

Steven Hellman (53)
Director

Board expertise

1. Financial
2. Retail
3. Strategy
4. Marketing
5. Technology

Tenure of Non-executive
Directors

1. 0-2 years
2. 3-4 years
3. 5-6 years
4. >7 years

Board nationality

Russia

Netherlands

Lenta Annual Report and Accounts 2017 73

Strategic reportCorporate governanceFinancial statementsAppendicesBoard of Directors continued

John Oliver (59)
Chairman

Michael Lynch-Bell (64)
Director

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

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

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.

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
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 (58)
Chief Executive Officer (CEO)

Jan Dunning joined Lenta as CEO in 2009 and was appointed
a 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 25
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 (49)
Chief Financial Officer (CFO)

Other roles
Michael is also Deputy Chair and Senior Independent Director of
KazMinerals Plc, Senior Independent Director and Audit Committee
Chairman of Gem Diamonds Limited, Chairman at Seven Energy Ltd
and a non-executive Director of Barloworld Limited. He is also active
with charity 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 (54)
Senior Independent Director

C
C

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.

Experience
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, Steve 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 is currently a non-executive Director of Big Yellow Group
Plc. He also works with a number of private equity firms primarily
focused on Southern and Eastern Europe.

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.

Qualifications
Stephen graduated from Cambridge University with an
Engineering degree.

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 24 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.

74 Lenta Annual Report and Accounts 2017

Board committees

Nomination
Audit
Remuneration
Capital Expenditure

Steven Hellman (53)
Director

Martin Elling (64)
Director

Steven Hellman has been a non-executive Director of Lenta Ltd
since 2017.

Experience
Steven has over 25 years’ experience in banking, legal services and
operations across a broad range of industries and geographies. From
2004 to 2016 he held various senior positions at Credit Suisse in
investment banking, securities sales & trading and private banking,
including six years serving as a Managing Director and Regional CEO
for Russia and the CIS. Prior to working for Credit Suisse he held a
number of senior roles at Oak Advisory, Credit Suisse First Boston,
Lehman Brothers, Unisite and Bank of America. He began his career
with international law firm Latham & Watkins in Los Angeles and then
with Salans, Hertzfeld & Heilbronn in Moscow.

Other roles
Steven is President of Hellman Capital Management, LLC.

Qualifications
Steven graduated from the University of California, Berkeley with a
Bachelor of Arts degree in Soviet Studies (1986) and a Juris Doctor
degree (1989).

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

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.

Dmitry Shvets (45)
Director

Anton Artemyev (57)
Director

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

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

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’).

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. Anton is also a Board
member of HTT BWH OY (Finland), a private daughter company of
Hartwall Capital OY.

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.

Board changes in 2017
On 30 November 2017, Stephen Peel stepped down from the Board
and on 1 December 2017, Steven Hellman was appointed as TPG
nominee in his place.

Lenta Annual Report and Accounts 2017 75

Strategic reportCorporate governanceFinancial statementsAppendicesSenior Management team

Under the leadership 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 (58)
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 74
of this report.

Jago Lemmens (49)
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 74 of this report.

Jan Dunning (58)
Chief Executive Officer (CEO)

Jago Lemmens (49)
Chief Financial Officer (CFO)

Edward Doeffinger (61)
Chief Operational Officer (COO)

Herman Tinga (60)
Chief Commercial Officer

Tatiana Yurkevich (45)
HR Director

Sergey Prokofiev (49)
Legal and Government Relations Director

Joern Arnhold (47)
Supply Chain Director

Maxim Shchegolev (51)
Integration and Format Development Director

Bert Vukkink (57)
Chief Marketing Officer

76 Lenta Annual Report and Accounts 2017

Edward Doeffinger (61)
Chief Operational Officer (COO)

Tatiana Yurkevich (45)
HR Director

Bert Vukkink (57)
Chief Marketing Officer

Edward Doeffinger joined Lenta in 2011
as Chief Operational Officer.

Tatiana Yurkevich joined Lenta in 2012
as Human Resources Director.

Bert Vukkink was appointed Lenta
Chief Marketing Officer in 2017.

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 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 adviser 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.

Herman Tinga (60)
Chief Commercial Officer

Herman Tinga joined Lenta in 2013 as
Chief Commercial Officer.

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 32 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.

Experience
Prior to his current role, Bert worked
with Lenta as an independent marketing
consultant. Prior to this he spent 12 years in
retail as Marketing Director roles with Metro
Cash & Carry in Kazakhstan and Ukraine
and with Makro Cash & Carry Netherlands.
Before entering the retail industry he worked
for 13 years in a variety of marketing roles
with major international FMCG brands
including Rothmans and L’Oreal.

Qualifications
Bert holds a BA in Economics and a
marketing diploma from INSEAD, France.

Maxim Shchegolev (51)
Integration and Format
Development Director

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

Experience
Prior to joining Lenta, Maxim held the
executive positions of Administrative Director,
Director of Trade Development and Director
of O’Key group. During his 15 years’
experience in the retail industry, Maxim
has held 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 in Start company. 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.

Experience
Prior to joining Lenta, Tatiana served as
Human Resources Director at Fazer
Bakeries & Confectionery, Russia. During her
17 years in HR management, she has held
senior positions 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
Programme 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 and an MBA
in Strategy from International Management
Institute Link (the UK’s Open University).

Sergey Prokofiev (49)
Legal and Government Relations 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.

Joern Arnhold (47)
Supply Chain Director

Joern Arnhold joined Lenta in 2011 as
Supply Chain Director.

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.

Lenta Annual Report and Accounts 2017 77

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report

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:

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

> 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 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.

Leadership
The Chairman leads the Board, ensuring
its effectiveness while taking account of
the interests 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 2017 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:

> 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;

> building an effective Board;

> 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.

> building and maintaining an effective

management team;

> 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 2017.

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:

> 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.

78 Lenta Annual Report and Accounts 2017

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.

Audit
Committee

Nomination
Committee

Shareholders’
meeting

Board of
Directors

Senior
Management

Remuneration
Committee

Capital
Expenditure
Committee

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.

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.

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.

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.

Lenta Annual Report and Accounts 2017 79

Strategic reportCorporate governanceFinancial statementsAppendices
Corporate Governance Report 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.

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.
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.

Position

Name

Cat.

Director
since

Committees
Audit Nomination Remuneration Capex

Chairman John Oliver

TPG 2009

Sen. INED Stephen Johnson

INED 2010

Director

Michael Lynch-Bell

INED 2013

Director

Anton Artemyev

INED 2013

Director

Dmitry Shvets

TPG 2009

Director

Steven Hellman

TPG 2017

Director

Martin Elling

EBRD 2011

Director

Jan Dunning

CEO 2013

Director

Jago Lemmens

CFO 2013

Audit Committee
(three Directors)
> Read more on page 86

Nomination Committee

(five Directors)

> Read more on page 84

Remuneration Committee

(five Directors)

> Read more on page 89

Capex Committee

(four Directors)

> Read more on page 95

Stephen Peel was a member of the Board until his resignation on 30 November 2017. He did not serve on any of the Board committees. Steven Hellman joined the Board with effect from
1 December 2017.

80 Lenta Annual Report and Accounts 2017

Board focus during the year

In 2017, 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
mergers and acquisitions
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.

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.

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 re-nominated 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.

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.

Lenta Annual Report and Accounts 2017 81

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

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.

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.

The Board also holds regular update calls during the year, but participation is not mandatory.

Board and committee attendance during the year
John Oliver
Jan Dunning
Stephen Johnson
Michael Lynch-Bell
Jago Lemmens
Anton Artemyev
Dmitry Shvets
Stephen Peel
(until his resignation on 30 November 2017)
Martin Elling

Board
(7 meetings)
7
7
7
7
7
7
7

7
7

Audit
(11 meetings)

Capex
(13 meetings)
13

Nomination
(3 meetings)
3

Remuneration
(4 meetings)
4

11
11

3
3

4
4

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

Changes to the Board in 2017
On 30 November 2017 Stephen Peel stepped down from the Board. Steven Hellman was appointed on 1 December 2017.

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

Since 2010
Since 2013
Since 2013

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

The following Board meetings are scheduled for 2018.

Planned meetings for 2018
Meeting
Board call

Board
7
5

Audit
11

Capex
8

Nomination
4

Remuneration
4

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: www.lentainvestor.com/en/about/corporate-governance/internal-policies.

82 Lenta Annual Report and Accounts 2017

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.

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 84.

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.

Lenta Annual Report and Accounts 2017 83

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

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.

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. There are four
Committee meetings scheduled
for 2018.

Dear Shareholder
2017 was a mainly a year of
consolidation for the Nomination
Committee. Its focus was on monitoring
the success of the performance
appraisal system, continuing to
ensure that the Company’s succession
planning process is fit for purpose
and also ensuring that the Board’s
performance was appraised
and developed.

Performance appraisal system
As previously described, Lenta now
has a very well developed system for
performance appraisal across all
functions. This is embedded in the way
the Company works and is used not
only to manage performance, but
also to identify high performers with
development needs and the potential
to move into more senior roles. Finally
and importantly, the appraisal system
is an important input to the Company’s
succession planning process.

The Committee receives regular reports
on the conduct of the appraisal process
and the outputs from appraisals for all
levels of employees, with particular
focus on the more senior levels in the
management team.

During the year Lenta promoted around
4,300 people within the business, as
well as providing 316,000 man hours
of external training and development
investment for its employees.

Succession planning
Lenta continues to have a well-
structured approach to succession
planning. This is kept under constant
review within the business and is
regularly examined by the Committee.
With a very stable team at the top, it is
critical that development opportunities
exist for less senior colleagues. As a
high growth business, Lenta continues
to be able to offer significant and
exciting opportunities for its
high-performing employees.

Board performance
Lenta believes that the Board’s
performance should be assessed each
year. Every three years an external
review will be performed. During the
year an internal Board assessment was
carried out. Board members (both
executive and non-executive) expressed
a high degree of satisfaction with the
way the Board worked, how it reached
its decisions and the way each
individual Director was able to
participate and have their views heard.
Some areas for improvement were
identified; these have been reported
back to the Board and an action
plan agreed.

During the year the Committee also
led the search for a new non-executive
Director, which culminated in the
successful appointment of
Steven Hellman.

Stephen Johnson
Chairman
Nomination Committee

84 Lenta Annual Report and Accounts 2017

> 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 60 to 69.

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
and a Head of Risk Management was
also appointed. Implementation of the
recommendations was 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.

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 2017 85

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

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 and risk management,
compliance with financial reporting
requirements and the scope, results and
cost effectiveness of the external audit
and the internal audit function.

There are eleven Committee meetings
scheduled for 2018.

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 2017, 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
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 a long-term
viability statement in this Annual Report,
the Committee also considered
management’s assumptions and
disclosures relating to it.

We received recommendations on
improving the Company’s IT security
and control systems and followed-up
with the implementation of these
recommendations. Most were
implemented in 2017, while others
will be implemented in 2018.

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, including the
monitoring of key risks and tax
developments that might affect the
Group. Together with management,
the Committee will also assess the
implications of new and proposed
accounting standards.

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 full year preliminary
announcement and March and
September quarters.

86 Lenta Annual Report and Accounts 2017

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 2017.
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. During the year
Alexander Grebeniuk was appointed as
the lead audit engagement partner for
EY, in compliance with the five‑year
rotation of requirements for individuals
fulfilling the role.

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.

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. During the coming year
the audit will be put out to tender for
audits commencing with the 2019
financial year.

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

Total fees

2017

2016

23,628

25,186

8,971
32,599

20,725
45,911

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

The Committee received reports on the
findings of the external auditor during its
half yearly review and annual audit.

controls, including financial
controls and updated risk
management systems;

> reviewing the Company’s IT security
measures and IT control 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;

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

> reviewing the Company’s

compliance with the 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.

Lenta Annual Report and Accounts 2017 87

Strategic reportCorporate governanceFinancial statementsAppendicesThe annual report also includes a long-
term viability statement, which can be
found on page 68. 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

Corporate Governance Report continued

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

New accounting standards
The Committee considered the
application of new accounting standard
IFRS 16, Leases, and the projected
impact that applying the standard
would have on the Group’s financial
statements. The Committee agreed with
management that the standard would
not be adopted early and that it would
be applied for accounting periods
commencing on 1 January 2019.

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.

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.

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.

88 Lenta Annual Report and Accounts 2017

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
92 to 93. The Directors’ interests in the
Company’s share capital are set out on
page 93.

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 four
meetings in 2017 and has four meetings
scheduled for 2018.

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
The principal task of the Remuneration
Committee is to ensure that Lenta is
able to recruit, motivate and retain the
right talented and experienced people,
enabling it to continue delivering its
growth plans as well as managing
successfully an increasingly large and
diverse business.

It is also important that all elements of
reward are genuinely reflective of the
actual performance of the business.
This is particularly true in respect of
the long-term incentives available
for the senior management team.
The Committee will ensure that any
identified changes are implemented
in a timely and effective manner.

Long-Term Incentive Programme
for Senior Management
In order to ensure retention of the
Senior Management team beyond the
Management Incentive Programme
vesting period (which vests in
2018/2019), the Remuneration
Committee implemented a long-term
incentive programme for this group,
commencing in 2016. 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 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.

The LTIP 2017 with a vesting date in
2020 was approved, granting a total
of 131,580 shares, which represents
around 120% of the annual salary of
this group (including Currency
Adjustment Pay).

The Committee seeks to do this
in several ways:

> Salaries: Base salaries are kept
under review with internal and
external benchmarking. The
Committee works closely with the
management team to ensure that
necessary salary increases are
identified and implemented in a
timely manner.

> Annual Bonus: Lenta operates a

Company-wide annual bonus plan.
The KPIs for this plan are set
annually by the Committee in
consultation with the CEO and HR
Director. The Committee is mindful
that the annual bonus payments are
not just a reward for great
performance but a significant element
in retaining and recruiting good
people. During 2017, performance
against the 2016 bonus plan was
assessed and an overall payment of
73% of the maximum was agreed.

> Long-Term Incentive Plans: The

Company operates a number of long-
term incentive plans for both senior
and middle management. These are
designed to ensure reward for – and
retention of – managers against a set
of performance criteria, which are
aligned with shareholder interests.

During the year the Committee spent
considerable time reviewing its
approach to each of these remuneration
elements using internal resources and
external consultants. Whilst the
Committee remains content that,
overall, Lenta’s approach to
remuneration is satisfactory, it is very
conscious that all aspects of
remuneration policy need to be kept
under regular review to ensure they
remain fit for purpose – and at least in
line with relevant market comparators.

Lenta Annual Report and Accounts 2017 89

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

Long-Term Incentive Programme
for middle managers
2017 was the first year in which the
Long-term incentive programme for
middle managers began vesting. Thirty
eight managers were allocated a total
of 29,243 shares.

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 73,976 shares, which
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.

2017 Annual Bonus
Scheme approval
The Committee approved the bonus
KPIs, target and payout scales for 2017.

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
and staff availability, it was decided to
apply an overall company salary
indexation of 2% in September-
October 2018.

Summary of Senior Management Team remuneration policy

Element

Principles

In addition, specific store positions in
different regions received higher salary
increases based on competitiveness vs
the labour market, contributing to an
additional 5% increase of base salary.
Head office employees also received
a merit increase in 2017, based on
competitive position of the salary vs
the market and individual performance
results. The total head office increase
averaged 5%, including 2% indexation.

The Board and management believe
salary and benefits are competitive
with existing market.

Base pay

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.

Currency
adjustment

According to Russian legislation, base salaries are fixed in Roubles, which leads to a negative pay
trend for senior management with a drop in the RUB/EUR rate. To maintain competitive pay
levels, currency adjustment pay is used as decided by the Committee in 2014.

Benefits

> Company car, for some Directors with a driver
> Medical insurance with family coverage
> Relocation support
> Partial reimbursement of school fees for expatriates’ children attending school in Russia.

Annual
bonus

All senior management 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 senior managers 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 senior 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.

Opportunity

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 senior managers, only
partial compensation is applied.

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

Total maximum annual bonus
opportunity for senior
management 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.

Long-term
incentive
plan

All senior managers 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 depend on Company performance during the three years following the allocation.

Vesting period is three years from the grant date.

A senior 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.

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

90 Lenta Annual Report and Accounts 2017

Pay structure of CEO, CFO and Senior management team

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)

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%

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
38%

Lenta Annual Report and Accounts 2017 91

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

Pay structure of CEO, CFO and Senior management team 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

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

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

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 23 June 2017 the Company allotted and issued 98,217 new ordinary shares (491,085 additional global depositary receipts)
in connection with its management incentive plan (“MIP”) and long term incentive plan (“LTIP”). 332,365 new GDRs (66,473
new shares) were delivered to existing employees of Lenta and its subsidiaries to satisfy outstanding awards under the MIP
and up to a further 158,720 (31,744 new shares) new GDRs were delivered to existing employees as their awards under the
LTIP. The holdings of the recipients under the MIP and holdings of the senior management as of 31 December 2017 are
summarised below:

Manager
Jan Dunning1
Jago Lemmens2
Edward Doeffinger
Joern Arnhold
Herman Tinga
Sergey Prokofiev
Maxim Shchegolev
Tatiana Yurkevich

1 Including through his vehicle Golden Healer Agreements Limited.

2 Including through his vehicle Ergo United Limited.

Total holding as
of 31 Dec 2016
(interest in shares)
549,538
105,737
93,397
86,497
7,044
12
12
12

Shares granted
under the MIP
19,314
9,657
9,657
8,048
9,657
3,380
3,380
3,380

Approximate
holding as of
Total holding
31 Dec 2017
as of 31 Dec 2017
(% of share capital)
(interest in shares)
0.56%
568,852
0.11%
115,394
0.10%
103,054
0.09%
94,545
16,701
0.01%
3,392 Less than 0.01%
3,392 Less than 0.01%
3,392 Less than 0.01%

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

Wave 1
Wave 2
Wave 23
3 Herman Tinga 2016 additional tranche.

Vested
shares
99,396
49,157

Vesting schedule

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

Hurdle
Hurdle
reference
reference
price
date
(RUB)
764 23/09/2011
1,375 01/04/2013
1,375 01/04/2013

2017
149,093
63,236

2018
248,489
105,394

2019

2020

2021

10,500
21,000

21,000

17,500

The total Senior Management LTIP 2017 allocation is equal to 131,580 shares, which represents around 120% of the annual
salary of this group.

92 Lenta Annual Report and Accounts 2017

Summary of non-executive Directors’ remuneration policy
Element

Letter of
appointment

Chairman and
non-executive
Director

Principles and opportunities
> 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 Committee
Members of the Nomination and Remuneration Committee

Amount payable
(USD)
165,000

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

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

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

Total holding
as of 31 Dec 2017
(interest in shares)
125,000
80,000
10,000

Approximate
holding as of
31 Dec 2017
(% of share capital)
0.13%
0.08%
0.01%
3,200 less than 0.01%

Lenta Annual Report and Accounts 2017 93

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report continued

Strategic alignment of pay
The table below shows the integration between Lenta’s financial key performance indicators and the senior remuneration
framework for 2016/17. This clearly demonstrates a clear linkage between performance metrics, payments to Directors and
business performance over the short and long term.

Financial objectives

KPI

Company revenue

Turnover

Increase earnings and returns 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

KPI
Productivity
Number of stores opened and in pipeline

Incentive scheme
Annual Bonus 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/RUB
base to
actual rate
adjustment

Bonus
achieved
(as % of
base salary)

In April 2017, the 2016 annual bonus award was completed, with an overall award across the Company for those participating
in the scheme of 73% of the maximum.

Within this overall award, the Senior Management team was awarded annual bonuses averaging 80% of the maximum, with
the CEO achieving 80%. The Committee also agreed the annual bonus targets for 2017, providing for similarly stretching
performance.

Stephen Johnson
Chairman
Remuneration Committee

94 Lenta Annual Report and Accounts 2017

We considered, reviewed and made
recommendations to the Board on the
Company’s investment strategy, policy
and risk management. We transitioned
to the new form of investment proposal
(‘IP’) with even higher standards to
ensure the best overview and forecasts
against the backdrop of the large
number of promising new IPs that the
expansion team developed in 2017. 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 integration of the new
assets of Nash and Holiday.

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

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 four Committee meetings
scheduled for 2018; 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 mergers and acquisitions
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.

Dear Shareholders
2017 was another successful year for
Lenta as it maintained a healthy rate of
expansion – opening 40 hypermarkets
and 49 supermarkets in Russia. We
completed a deal to lease 14 well
located hypermarkets from Sedmoy
Kontinent under the Nash brand in
Moscow and other regions and acquired
22 stores from Holiday Group in Siberia,
both of which represented an excellent
strategic fit for Lenta.

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 2017, the Capital Expenditure
Committee focused on a number of
issues on behalf of the Board. We
considered more than 120 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.

Lenta Annual Report and Accounts 2017 95

Strategic reportCorporate governanceFinancial statementsAppendicesCorporate Governance Report 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.

Schedule of investor calls in 2018
Month
January
March
April
July
August
October

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

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.

Date
25
15
19
18
29
18

Day
Thursday
Thursday
Thursday
Wednesday
Wednesday
Thursday

Moscow time
17.00 – 18.00
17.00 – 18.00
17.00 – 18.00
17.00 – 18.00
17.00 – 18.00
17.00 – 18.00

Responsibility statement
We, members of the Board, confirm
that, to the best of our knowledge:

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

27 April 2018

96 Lenta Annual Report and Accounts 2017

Strategic report

Corporate governance

Financial statements

Appendices

Financial
statements

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

99
102 Consolidated statement of financial position
103 Consolidated statement of profit or loss and other

comprehensive income

104 Consolidated statement of cash flows
105 Consolidated statement of changes in equity
106 Notes to the consolidated financial statements

Lenta Annual Report and Accounts 2017 97
Lenta Annual Report and Accounts 2017 97

Statement of management’s responsibilities for the preparation
and approval of the consolidated financial statements
for the year ended 31 December 2017

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”).

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 2017 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;

> 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 2017 were approved by
management on 28 February 2018.

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

Jan Dunning
(CEO of Lenta Limited)

Jago Lemmens
(CFO of Lenta Limited)

98 Lenta Annual Report and Accounts 2017

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
2017, and the consolidated statement of
profit or 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 consolidated financial position of the
Group as at 31 December 2017 and its
consolidated financial performance and
its consolidated cash flows for the year
then ended in accordance with
International Financial Reporting
Standards (IFRSs).

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) together with the ethical
requirements that are relevant to our
audit of the consolidated financial
statements in the Russian Federation,
and we have fulfilled our other ethical
responsibilities in accordance with
these requirements and 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.

Key audit matter

How our audit addressed the key audit matter

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 additions
of property, plant and equipment for the year ended 31 December
2017 are significant to the consolidated financial statements. In
addition, management judgement is required in the determination
of costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management. Information in respect of property, plant
and equipment is disclosed in Note 9 to the consolidated
financial statements.

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 rebates 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 is disclosed in Note 15 to the consolidated
financial statements.

We obtained understanding of the Group’s capitalisation policy and
tested controls over authorisation, timeliness and accuracy of
recording 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 the aging of assets under construction.

We understood and tested the design and operating effectiveness of
internal controls over the recognition of allowances from suppliers. We
agreed the terms of providing allowances 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.

Lenta Annual Report and Accounts 2017 99

Strategic reportCorporate governanceFinancial statementsAppendicesIndependent auditor’s report continued
To the Shareholders and Board of Directors of Lenta Limited

Other information included in
the Group’s Annual report 2017
Other information consists of the
information included in the Group’s
annual report 2017, other than the
consolidated financial statements
and our auditor’s report thereon.
Management is responsible for the
other information. The 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 will 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 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.

Responsibilities of management
and the Board of Directors for
the consolidated 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.

The Board of Directors are 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.

> 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.

> 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.

We communicate with the 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.

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

We also provide the 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.

100 Lenta Annual Report and Accounts 2017

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 A.Y. Grebeniuk.

A.Y. Grebeniuk
Partner
Ernst & Young LLC
28 February 2018

Details of the audited entity
Name: Lenta Limited
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.

Lenta Annual Report and Accounts 2017 101

Strategic reportCorporate governanceFinancial statementsAppendices
Consolidated statement of financial position
as at 31 December 2017 (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
Other non-current assets
Deferred tax assets
Total non-current assets

Current assets
Inventories
Trade and other receivables
Advances paid
Taxes recoverable
Prepaid expenses
Short-term portion of cash flow hedging instruments
Cash and cash equivalents

Assets held for sale
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
Long-term portion of cash flow hedging instruments
Deferred tax liabilities
Total non-current liabilities

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

Note

31 December
2017

31 December
2016

9
10
11
12
32

14
15
16
17

32
18

170,308,406
2,818,543
3,075,027
1,816,716
—
226,741
—
178,245,433

36,933,128
10,957,360
2,862,446
2,874,174
124,915
8,179
14,301,859
68,062,061

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

423,094
68,485,155
246,730,588

—
64,596,722
226,170,196

19, 21
19
29
19

284
26,480,481
825,176
164,886
44,316,449
71,787,276

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

22
32
23

24
22
32

62,194,204
—
8,386,732
70,580,936

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

57,259,762
44,888,131
18,049
514,909
1,131,099
550,426
104,362,376
174,943,312
246,730,588

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

The accompanying notes on pages 106 to 144 are an integral part of these financial statements.

102 Lenta Annual Report and Accounts 2017

Consolidated statement of profit or loss
and other comprehensive income
for the year ended 31 December 2017 (in thousands of Russian roubles)

Sales
Cost of sales
Gross profit

Selling, general and administrative expenses
Impairment of assets held for sale
Other operating income
Other operating expenses
Operating profit

Interest expense
Interest income
Foreign exchange gains
Profit before income tax

Income tax expense
Profit for the year

Other comprehensive income (OCI)
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

27
13
28
28

Year ended
31 December
2017
365,177,586
(286,942,078)
78,235,508

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

(55,917,584)
(222,147)
4,129,232
(648,445)
25,576,564

(10,942,820)
445,751
92,398
15,171,893

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

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

(1,908,354)
13,263,539

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

20
23

(333,355)
66,671
(266,684)
12,996,855

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

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

0.136

0.115

The accompanying notes on pages 106 to 144 are an integral part of these financial statements.

Lenta Annual Report and Accounts 2017 103

Strategic reportCorporate governanceFinancial statementsAppendices

Consolidated statement of cash flows
for the year ended 31 December 2017 (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 (reversal of write-down)/write-down to NRV
Change in provision for impairment of receivables, advances and
prepayments for construction
Depreciation and amortisation
Impairment of assets held for sale
Share options expense

Movements in working capital
Increase/(decrease) in trade and other receivables
Increase in advances paid
Decrease/(increase) in prepaid expenses
Increase in inventories
Increase in trade and other payables
Increase in advances received
Increase/(decrease) 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
Settlements on acquisition of subsidiaries
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
Repayment of obligations under financial lease
Net cash generated from financing activities

Year ended
31 December
2017

Year ended
31 December
2016

Note

15,171,893

14,553,248

28
28
28

10, 15, 28
9, 27
13
29

14
24

17, 25

21,450
26,009
—
10,942,820
(445,751)
(333,945)

221,491
9,691,447
222,147
421,310
35,938,871

5,887,028
(199,504)
3,572
(9,108,242)
1,081,029
174,847
1,055,881
34,833,482

(709,360)
473,319
(10,852,902)
23,744,539

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

7
7

31
31

(26,761,134)
—
117,961
(377,301)
(462,099)
207,315
(27,275,258)

(41,688,957)
(11,100,481)
—
(1,088,745)
(630,989)
251,937
(54,257,235)

127,210,525
(122,415,714)
—
4,794,811

65,422,079
(40,283,231)
(18,577)
25,120,271

Net increase/(decrease) in cash and cash equivalents

1,264,092

(9,418,178)

Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

18
18

13,037,767
14,301,859

22,455,945
13,037,767

The accompanying notes on pages 106 to 144 are an integral part of these financial statements.

104 Lenta Annual Report and Accounts 2017

Consolidated statement of changes in equity
for the year ended 31 December 2017 (in thousands of Russian roubles)

Balance at 1 January 2017

Share
capital
284

Additional
paid-in capital
26,216,147

Hedging
reserve
431,570

Share options
reserve
668,200

Retained
earnings
31,052,910

Total
equity
58,369,111

Profit for the year
—
Other comprehensive income/(loss)
—
Total comprehensive income/(loss) —

—
—
—

Share-based payments (Note 29)
Issue of shares (Note 19, 29)
Balance at 31 December 2017

—
—
284

—
264,334
26,480,481

(266,684)
(266,684)

—
—
164,886

13,263,539
—
13,263,539

13,263,539
(266,684)
12,996,855

—
—

421,310
(264,334)
825,176

—
—
44,316,449

421,310
—
71,787,276

Balance at 1 January 2016

284

26,216,147

724,642

338,016

19,850,882

47,129,971

—
Profit for the year
Other comprehensive income/(loss)
—
Total comprehensive income/(loss) —

—
—
—

—
(293,072)
(293,072)

—
—
—

11,202,028
—
11,202,028

11,202,028
(293,072)
10,908,956

Share-based payments
Balance at 31 December 2016

—
284

—
26,216,147

—
431,570

330,184
668,200

—
31,052,910

330,184
58,369,111

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 106 to 144 are an integral part of these financial statements.

Lenta Annual Report and Accounts 2017 105

Strategic reportCorporate governanceFinancial statementsAppendices

Notes to the consolidated financial statements
for the year ended 31 December 2017 (in thousands of Russian roubles)

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
foreseeable future, 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.

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 2017, the Group had
net current liabilities of RUB 35,877,221
(net current liabilities at 31 December
2016: 28,886,297).

Unused credit facilities available as
of 31 December 2017 were
RUB 61,550,000. Management believes
that operating cash flows and available
borrowing capacity will provide the
Group with 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 2017.
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.

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 P.O. Box 3340,
Road Town, Tortola, BVI. The registered
office of the Group’s main operating
entity, Lenta LLC, is located at 112,
Lit. B, 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).

At 31 December 2017 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 are property or
investment holding companies by
their nature.

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).

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.

Specifically, the Group controls an
investee if and only if the Group has:

> 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.

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 re-assesses 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.

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.

106 Lenta Annual Report and Accounts 2017

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
de-consolidated 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 in the consolidated
statement of 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.

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;

> It is due to be settled within twelve

months after the reporting period; or

> There is no unconditional right to

defer the settlement of the liability
for at least twelve months after the
reporting period.

The Group classifies all other liabilities
as non-current.

Deferred tax assets and liabilities are
classified as non‑current assets
and liabilities.

Lenta Annual Report and Accounts 2017 107

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

2. Basis of preparation and
significant accounting policies
continued
2.3 Summary of significant
accounting policies continued
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 31.

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 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.

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:

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.

> Level 1 − quoted (unadjusted) market
prices in active markets for identical
assets or liabilities.

> Level 2 − valuation techniques for
which the lowest level input that is
significant to the fair value
measurement is directly or indirectly
observable.

> 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 re assessing 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.

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.

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.

108 Lenta Annual Report and Accounts 2017

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

Useful lives
in years

Machinery and equipment

2 to 15

Leasehold rights
Leasehold rights acquired as part
of hypermarket and supermarket
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.

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.

Lenta Annual Report and Accounts 2017 109

Strategic reportCorporate governanceFinancial statementsAppendices

Notes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

2. Basis of preparation and
significant accounting policies
continued
2.3 Summary of significant
accounting policies continued
Impairment of non-financial assets
continued
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.

Non-current assets held for sale and
discontinued operations
The Group classifies non‑current assets
and disposal groups as held for sale if
their carrying amounts will be recovered
principally through a sale transaction
rather than through continuing use.
Non-current assets and disposal groups
classified as held for sale are measured
at the lower of their carrying amount
and fair value less costs to sell. Costs to
sell are the incremental costs directly
attributable to the disposal of an asset
(disposal group), excluding finance
costs and income tax expense.

The criteria for held for sale
classification is regarded as met only
when the sale is highly probable and the
asset or disposal group is available for
immediate sale in its present condition.
Actions required to complete the sale
should indicate that it is unlikely that
significant changes to the sale will be
made or that the decision to sell will be
withdrawn. Management must be
committed to the plan to sell the asset
and the sale expected to be completed
within one year from the date of the
classification.

Property, plant and equipment and
intangible assets are not depreciated
or amortised once classified as held
for sale.

Assets and liabilities classified as held
for sale are presented separately as
current items in the statement of
financial position.

A disposal group qualifies as a
discontinued operation if it is a
component of an entity that either has
been disposed of, or is classified as
held for sale, and:

> Represents a separate major line of
business or geographical area of
operations;

> Is part of a single co-ordinated plan

to dispose of a separate major line of
business or geographical area of
operations; or

> Is a subsidiary acquired exclusively

with a view to resale.

Discontinued operations are excluded
from the results of continuing operations
and are presented as a single amount
as profit or loss after tax from
discontinued operations in the
statement of profit or loss.

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.

110 Lenta Annual Report and Accounts 2017

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.

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.

Lenta Annual Report and Accounts 2017 111

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

2. Basis of preparation and
significant accounting policies
continued
2.3 Summary of significant
accounting policies continued
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 29). 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 29).

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.

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 are
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.

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 a 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.

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.

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.

112 Lenta Annual Report and Accounts 2017

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.

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.

Lenta Annual Report and Accounts 2017 113

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

2. Basis of preparation and
significant accounting policies
continued
2.3 Summary of significant
accounting policies continued
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:

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.

114 Lenta Annual Report and Accounts 2017

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.

Assets held for sale
In September 2017 management
decided to put up for auction one object
under construction and 10 land plots,
of which nine plots are owned on a
freehold basis and 1 plot is in leasehold.
Assets are classified as held for sale
for the following reasons:

> Plots are available for immediate sale
and can be sold to the buyer in its
current condition;

> The actions to complete the sale
were initiated and expected to be
completed within one year from the
date of initial classification;

> In September 2017 the Group
entered into a contract with the
auction house.

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 33 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 2017 115

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

3. Significant accounting
judgments, estimates and
assumptions continued
Tax legislation 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 29.

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 2016, except for the
adoption of new or revised standards
and interpretations effective as of
1 January 2017.

The nature and the impact of each
new standard and amendment are
described below:

Amendments to IAS 7 Statement of
Cash Flows: Disclosure Initiative
The amendments require entities to
provide disclosures about changes in
their liabilities arising from financing
activities, including both changes
arising from cash flows and non‑cash
changes (such as foreign exchange
gains or losses). On initial application
of the amendment, entities are not
required to provide comparative
information for preceding periods.
The Group has provided the information
in Note 31.

Amendments to IAS 12 Income
Taxes: Recognition of Deferred Tax
Assets for Unrecognised Losses
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.

The Group applied the amendments
retrospectively. However, their
application has no effect on the Group’s
financial position and performance.

Annual improvements cycle −
2014-2016
Amendments to IFRS 12 Disclosure of
Interests in Other Entities: Clarification
of the scope of disclosure requirements
in 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.

These amendments do not have any
impact on the Group as there has been
no entity’s interest in a subsidiary, a joint
venture or an associate that is classified
as held for sale during the period.

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.
Retrospective application is required,
but providing comparative information is
not compulsory. The Group made a
choice to continue applying IAS 39
Financial Instruments: Recognition and
Measurement to all existing hedge
contracts (Note 32).

The Group will adopt the new standard
on the required effective date and has
elected to apply the limited exemption in
IFRS 9 relating to transition for
classification and measurement and
impairment, and accordingly has not
restated comparative periods in the year
of initial application. As a consequence,
any adjustments to carrying amounts of
financial assets or liabilities are to be
recognised at the beginning of the
current reporting period, with the
difference recognised in opening
retained earnings.

During 2017, the Group has performed
a detailed impact assessment of all
three aspects of IFRS 9. This
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
2018 when the Group will adopt IFRS 9.

Classification and measurement
The Group does not expect a significant
impact on its balance sheet or equity on
applying the classification requirements
of IFRS 9.

Trade receivables are held to collect
contractual cash flows and are
expected to give rise to cash flows
representing solely payments of
principle and interest.

116 Lenta Annual Report and Accounts 2017

The Group analysed the contractual
cash flow characteristics of these
instruments and concluded that they
meet the criteria for amortised cost
measurement under IFRS 9. Therefore,
reclassification for these instruments is
not required.

Derecognition: modification of debt not
treated as extinguishment
IFRS 9 requires the Group to revise the
carrying amount of the debt instrument
when a modification is not accounted
for as an extinguishment to reflect the
net present value of the revised cash
flows discounted at the original
effective interest rate together with a
corresponding profit or loss. The
approach applied by the Group under
IAS 39 allowed not to revise the
carrying amount of the debt instrument
and to amortise debt instrument using
the updated effective interest rate.
Based on the assessments undertaken
to the date, the change in the
accounting policy will result in decrease
in the carrying value of borrowings by
up to RUB 800,000. The Group is still
assessing the potential effect on its
consolidated financial statements.

Impairment
IFRS 9 replaces the ‘incurred loss’
model in IAS 39 with forward-looking
‘expected credit loss’ (ECL) model.
The new impairment model will apply to
financial assets measured at amortised
cost or at FV through OCI, except for
investments in equity instruments.

Loss allowances are measured on
either of the following bases:

> 12‑month basis − these are expected
credit losses that result from default
events on a financial instrument that
are possible within the 12 months
after the reporting date; or

> Lifetime basis − these are expected
credit losses that result from all
possible default events over the
expected life of a financial
instrument.

The Group holds accounts receivable
with no financing component and which
have maturities of less than 12 months
at amortised cost and therefore has
adopted an approach similar to the
simplified approach to ECLs.

Other financial assets at amortised cost
include short-term deposits. The Group
will apply general approach to providing
for expected credit losses in relation to
such financial assets.

Based on the assessments undertaken
to the date, the Group has estimated
that the loss allowance on accounts
receivable could be amounted up to
RUB 700,000 with related deferred tax
effect of RUB 140,000. The loss
allowance for other financial assets
held at amortised cost determined
as insignificant.

The Group’s cash and cash equivalents
have been assigned low credit risk
based on the external credit ratings
of the respective banks and financial
institutions. Therefore, the Group
determined that no significant
allowances are required at
31 December 2017 in connection
with the adoption of the new
impairment model under 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 plans
to adopt the new standard on the
required effective date using the full
retrospective method. During 2017, the
Group has performed a detailed impact
assessment of IFRS 9.

Sale of goods
The Group is in the business of retail
trade. The Group expects the revenue
recognition to occur when control of the
asset is transferred to the customer,
generally for the retail customers it is

occurred in the stores at the point
of sale. Adoption of IFRS 15 is not
expected to have any impact on the
Groups revenue and profit or loss.

Loyalty points programmes
Under IFRIC 13 Customer Loyalty
Programmes, the loyalty programme
offered by the Group results in the
allocation of a portion of the transaction
price to the loyalty programme using the
fair value of points issued and
recognition of the deferred revenue in
relation to points issued but not yet
redeemed or expired. The Group
concluded that under IFRS 15 the
loyalty programme gives rise to a
separate performance obligation
because it generally provides a material
right to the customer. Under IFRS 15,
the Group will need to allocate a portion
of the transaction price to the loyalty
programme based on relative
stand-alone selling price instead of
allocation using the fair value of points
issued, i.e. residual approach, as it did
under IFRIC 13. The Group determined
that the change in the accounting policy
will not have material impact on Group’s
financial statements.

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.

Lenta Annual Report and Accounts 2017 117

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

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.

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 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17
Insurance Contracts (IFRS 17).
A comprehensive new accounting
standard for insurance contracts
covering recognition and measurement,
presentation and disclosure. Once
effective, IFRS 17 will replace IFRS 4
Insurance Contracts (IFRS 4) that was
issued in 2005. IFRS 17 applied to all
types of insurance contracts (i.e., life,
non-life, direct insurance, and
re-insurance), regardless of the type
of entities that issue them, as well as
to certain guarantees and financial
instruments with discretionary
participation features.

A few scope exceptions will apply. The
overall objective of IFRS 17 is to provide
an accounting model for insurance
contracts that is more useful and
consistent for insurers. In contrast to the
requirements in IFRS 4, which are
largely based on grandfathering
previous local accounting policies,
IFRS 17 provides a comprehensive
model for insurance contracts, covering
all relevant accounting aspects. The
core of IFRS 17 is the general model,
supplemented by:

> A specific adaptation for contracts

with direct participation features (the
variable fee approach);

> A simplified approach (the premium
allocation approach) mainly for
short-duration contracts.

IFRS 17 is effective for reporting
periods beginning on or after 1 January
2021, with comparative figures required.
Early application is permitted, provided
the entity also applies IFRS 9 and IFRS
15 on or before the date it first applies
IFSR 15. This standard is not applicable
to 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.

118 Lenta Annual Report and Accounts 2017

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.

Annual improvements cycle −
2014-2016 (issued in December 2016)
IFRS 1 First-time Adoption of
International Financial Reporting
Standards − Amendments to IFRS 1
Short-term exemptions in paragraphs
E3-E7 of IFRS 1 were deleted because
they have now served their intended
purpose. 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 applicable
to 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.

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.

However, since the Group’s current
practice is in line with the Interpretation,
the Group does not expect any effect on
its consolidated financial statements.

IFRIC Interpretation 23 Uncertainty
over Income Tax Treatment
The interpretation addressed the
accounting for income taxes when tax
treatment involve uncertainty that
affects the application of IAS 12 and
does not apply to taxes or levied outside
the scope of IAS 12, nor does it
specifically include requirements
relating to interest and penalties
associated with uncertain tax
treatments. The interpretation
specifically addressed the following:

> Whether an entity considers

uncertain tax treatments separately;

> The assumptions an entity makes
about the examination of tax
treatments by taxation authorities;

> How an entity considers changes in

facts and circumstances.

An entity must determine whether to
consider each uncertain tax treatment
separately or together with one or more
other uncertain tax treatments. The
approach that better predicts the
resolution of the uncertainty should be
followed. The interpretation is effective
for the annual reporting periods
beginning on or after 1 January 2019,
but certain transitions reliefs are
available. The Group will apply the
interpretation from its effective date.
Since the Group operates in a complex
multinational tax environment, applying
the interpretation may affect its
consolidated financial statements and
the required disclosures. In addition, the
Group may need to establish processes
and procedures to obtain information
that is necessary to apply the
interpretation on a timely basis.

Lenta Annual Report and Accounts 2017 119

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

5. Standards issued but not yet effective continued
Annual improvements to IFRSs 2015-2017 cycle
The IASB has issued the annual improvements to IFRS standards 2015-2017 cycle. The amendments affect four standards:

> IFRS 3 Business Combinations;

> IFRS 11 Joint Arrangements;

> IAS 12 Income Taxes and IAS 23 Borrowing Costs.

The amendments are effective for annual periods beginning on or after 1 January 2019 and have no impact on the Group.

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 products;

> The customers;

> Centralised Group structure (commercial, operational, logistic, finance, HR and IT functions are centralised).

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.

The segment information for the year ended 31 December 2017 and 2016 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 23)
Depreciation/amortisation (see Note 9, 11, 12, 27)
Impairment of assets held for sale (see Note 13)
Foreign exchange gains
Profit for the year

Year ended
31 December
2017
365,177,586
35,490,158

Year ended
31 December
2016
306,352,092
31,389,826

Year ended
31 December
2017
35,490,158
(10,942,820)
445,751
(1,908,354)
(9,691,447)
(222,147)
92,398
13,263,539

Year ended
31 December
2016
31,389,826
(10,084,573)
851,813
(3,351,220)
(7,694,569)
—
90,751
11,202,028

120 Lenta Annual Report and Accounts 2017

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.

During 2017 the Group finalised purchase price allocation for acquisitions occurred in 2016, which resulted in no change from
provisional values.

The fair values of the identifiable assets and liabilities of KFR as at the date of acquisition were:

Property, plant and equipment (Note 9)
Prepayments for construction
Leasehold rights (Note 11)
Deferred tax assets (Note 23)
Inventories
Trade and other receivable
Advances paid
VAT and other taxes recoverable
Cash and cash equivalents
Deferred tax liability (Note 23)
Trade and other payables
Advances received
Current income tax payable
Fair value of the identifiable net assets
Total acquisition cost

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

Fair value
recognized
on acquisition
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

Cash flow
of acquisition
11,414,113
(313,632)
11,100,481

Cash inflows refunded in 2017 upon finalisation of working capital adjustment and purchase price fixing amounted to
RUB 117,961.

On 28 September 2017 all 6 KFR companies were merged into main operational subsidiary of the Group Lenta LLC.

Lenta Annual Report and Accounts 2017 121

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (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
Accrued liabilities

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
Business trip expenses
Consulting services

TPG Capital
Directors fee
Business trip expenses

31 December
2017

31 December
2016

—

6,192

3,260

Year ended
31 December
2017

Year ended
31 December
2016

—
—
—
—

(4,554,240)
340,077
155
75

12,121
1,237

28,784
1,214

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 29)
Termination benefits
Total remuneration

Year ended
31 December
2017
527,821
343,345
8,462
879,628

Year ended
31 December
2016
666,246
280,693
—
946,939

122 Lenta Annual Report and Accounts 2017

9. Property, plant and equipment

Cost
Balance at 1 January 2017
Additions
Transfers from construction in progress
Transfers from leasehold rights
Transfers to assets held for sale
Disposals
Balance at 31 December 2017

Accumulated depreciation
and impairment
Balance at 1 January 2017
Charge for the year
Disposals
Balance at 31 December 2017

Net book value
Balance at 1 January 2017
Balance at 31 December 2016

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

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

Land
improvements

Land

Buildings

Machinery and
equipment

Assets
under
construction

Total

17,870,601 10,063,825 100,491,459 42,961,063
313

—

3,288,066 174,675,014
31,575,764
31,575,451
—
17,701,414 10,261,262 (32,105,254)
898,288
—
(502,909)
(124,298)
(511,670)
(47,166)
2,586,799 206,134,487

—
—
(274,001)
11,467,330 118,121,718 52,948,637

—
1,403,505
—
—
—

—
—
(71,155)

—
2,739,073
898,288
(378,611)
(119,348)
21,010,003

11,325,932 14,236,665
— 1,300,128
5,151,841
3,678,008
346,383
—
(209,567)
(3,309)
—
—
19,178,939
— 1,646,511 15,000,631

— 26,862,725
— 9,176,232
(212,876)
—
— 35,826,081

17,870,601
21,010,003

89,165,527 28,724,398
8,763,697
9,820,819 103,121,087 33,769,698

3,288,066 147,812,289
2,586,799 170,308,406

Land
improvements

Land

Buildings

Machinery and
equipment

—

12,582,774
19,046
3,397,951
618,314
1,253,373
(857)

29,434,011
66
11,769,060
—
2,323,192
(565,266)
17,870,601 10,063,825 100,491,459 42,961,063

7,116,578 71,205,405
—
2,642,680 23,360,680
—
6,089,079
(163,705)

—
309,987
(5,420)

Assets
under
construction

Total

3,564,759 123,903,527
41,041,432 41,060,544
—
(41,170,371)
618,314
—
9,992,668
17,037
(900,039)
(164,791)
3,288,066 174,675,014

— 1,041,933
258,724
—
—
(529)
— 1,300,128

8,647,931
2,702,141
(24,140)

10,197,205
4,376,332
(336,872)
11,325,932 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 19,236,806
89,165,527 28,724,398

3,564,759 104,016,458
3,288,066 147,812,289

During the years ended 31 December 2017 and 2016 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.

No property, plant and equipment is held by the Group under finance leases at 31 December 2017 and as at 31 December 2016.

Lenta Annual Report and Accounts 2017 123

Strategic reportCorporate governanceFinancial statementsAppendices

Notes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

9. Property, plant and equipment continued
Depreciation and amortisation expense
The amount of depreciation charged during the year ended 31 December 2017 and year ended 31 December 2016
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 30 for capital commitments.

Year ended
31 December
2017
9,176,232
424,753
90,462
9,691,447

Year ended
31 December
2016
7,337,197
290,898
66,474
7,694,569

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 2017
the Group impaired RUB 125,749 of prepayments (31 December 2016: RUB 378,672).

124 Lenta Annual Report and Accounts 2017

11. Leasehold rights
Leasehold rights as at 31 December 2017 consist of the following:

Cost
At 1 January 2017
Additions
Transfer to PPE
Transfer to assets held for sale
At 31 December 2017

Accumulated amortisation
At 1 January 2017
Charge for the year
Transfer to PPE
Transfer to assets held for sale
At 31 December 2017

Net book value
At 1 January 2017
At 31 December 2017

Leasehold rights as at 31 December 2016 consisted of the following:

Cost
At 1 January 2016
Additions
Acquisition of subsidiaries
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

Amortisation expense is included in selling, general and administrative expenses (Note 27).

Leasehold
rights

3,979,647
462,099
(946,465)
(153,000)
3,342,281

235,638
90,462
(48,178)
(10,668)
267,254

3,744,009
3,075,027

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

Lenta Annual Report and Accounts 2017 125

Strategic reportCorporate governanceFinancial statementsAppendices

Notes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

12. Intangible assets other than leasehold rights
Intangible assets other than leasehold rights as at 31 December 2017 consist of the following:

Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017

Accumulated amortisation
At 1 January 2017
Amortisation for the period
Disposals
At 31 December 2017

Net book value
At 1 January 2017
At 31 December 2017

Software

Trade marks

Total

3,167,431
377,301
(83,124)
3,461,608

1,277,256
424,753
(57,117)
1,644,892

1,890,176
1,816,716

549
—
—
549

—
—

3,167,980
377,301
(83,124)
3,462,157

1,277,805
424,753
(57,117)
1,645,441

1,890,176
1,816,716

Intangible assets other than leasehold rights as at 31 December 2016 consisted 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

Amortisation expense is included in selling, general and administrative expenses (Note 27). As of 31 December 2017 and 2016
the trademarks are fully amortised.

13. Assets held for sale
Upon the decision of the Board of Directors the Group publicly announced its committed plan to sell one object under
construction and ten land plots.

The sale of assets is expected to be completed within a year from the reporting date. At 30 September 2017, assets were
classified as assets held for sale.

Immediately before the classification of the land plots and the object under construction as assets held for sale, the
recoverable amount was estimated for certain items of property, plant and equipment and no impairment loss was identified.
Following the classification, a write‑down of RUB 222,147 was recognised in December 2017 to reduce the carrying amount
of the assets to their fair value less costs to sell.

126 Lenta Annual Report and Accounts 2017

14. Inventories

Goods for resale (at lower of cost and net realisable value)
Raw materials
Total inventories

31 December
2017
35,969,948
963,180
36,933,128

31 December
2016
26,191,962
1,298,979
27,490,941

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
2017
36,881,127
(911,179)
35,969,948

31 December
2016
27,437,087
(1,245,125)
26,191,962

During the reporting period the Group accounted for reversal of write down of inventories to their net realisable value, which
resulted in recognition of reversal of expenses within cost of sales in the consolidated statement of profit or loss and other
comprehensive income for the year ended 31 December 2017 in the amount of RUB 333,945.

During the year ended 31 December 2016 the Group wrote down inventories to their net realisable value, which resulted in
recognition of expenses within cost of sales in the amount of RUB 325,443.

15. Trade and other receivables

Accounts receivable on rental and other services and on suppliers’ advertising
Suppliers’ rebates receivable
Other receivables
Provision for impairment of receivables
Total trade and other receivables

31 December
2017
7,908,931
2,944,202
261,143
(156,916)
10,957,360

31 December
2016
12,892,578
3,858,738
352,258
(67,785)
17,035,789

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.

Lenta Annual Report and Accounts 2017 127

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

15. Trade and other receivables continued
Ageing of trade and other receivables that are past due but not impaired as at 31 December 2017:

Suppliers’ volume rebates receivable
Accounts receivable on rental and other services
Other receivables
Total

0-60 days
overdue
29,007
388,767
62,623
480,397

60-120 days
overdue
10,057
5,485
5,291
20,833

120-365 days
overdue
13,397
16,963
7,647
38,007

Neither past due
nor impaired
2,825,699
7,434,682
157,742
10,418,123

Ageing of trade and other receivables that were 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
2,878,160
7,845,897
233,303
10,957,360

Total
3,836,775
12,847,435
351,579
17,035,789

16. Advances paid

Advances to suppliers of goods
Advances for services
Guarantee payments under lease contracts
Total advances paid

31 December
2017
565,998
1,686,414
610,034
2,862,446

31 December
2016
1,162,541
1,109,412
397,808
2,669,761

17. Taxes recoverable
Taxes recoverable as at 31 December 2017 are represented by a VAT recoverable of RUB 2,874,174 (31 December 2016:
RUB 3,920,940).

18. 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
2017
2,540,825
7,135,388
4,530,925
94,721
14,301,859

31 December
2016
5,669,714
5,272,838
2,062,814
32,401
13,037,767

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 result from the business seasonality, indicating higher levels of retail sales in
holiday periods such as the 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.

128 Lenta Annual Report and Accounts 2017

19. Issued capital and reserves
Issued capital
As at 31 December 2017 the Company’s share capital is comprised of 97,416,963 authorised and issued ordinary shares (as at
31 December 2016: 97,318,746) with equal voting rights. Paid value of shares with no par value is fully accounted for within
additional paid-in capital.

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 years
ended 31 December 2017 and 2016.

The movements in the number of shares for the years ended 31 December 2017 and 2016 are as follows:

Authorised share capital (ordinary shares)
Issued and fully paid

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
2017
No.
unlimited
97,416,963

31 December
2017
No.
97,318,746
98,217
97,416,963

31 December
2016
No.
unlimited
97,318,746

31 December
2016
No.
97,318,746
—
97,318,746

In June 2017 the Group issued 98,217 shares of no par value with respect to long-term incentive plans to certain members
of management (31,744 shares) and share value appreciation rights to top management (66,473 shares) (see Note 29).
The issued shares were transferred into GDR and distributed to relevant participants.

Total expense for the services received from the employees previously recognised with respect to issued shares under
long-term incentive plans was RUB 53,647. Total expense for the services received from the employees recognised with
respect to shares issued under share value appreciation rights was RUB 210,687.

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 29 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.

20. 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

31 December
2017

31 December
2016

(212,248)
42,450
(121,107)
24,221
(266,684)

(410,581)
82,116
44,241
(8,848)
(293,072)

Lenta Annual Report and Accounts 2017 129

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

21. Earnings per share

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

Year ended
31 December
2017

Year ended
31 December
2016

0.136

0.115

The calculation of basic earnings per share for reporting periods is based on the profit attributable to shareholders (for the year
ended 31 December 2017: RUB 13,263,539, for the year ended 31 December 2016: RUB 11,202,028) 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 on 14 June 2017
Number of shares at the end of reporting period
Weighted average number of shares

31 December
2017
97,318,746
98,217
97,416,963
97,327,428

31 December
2016
97,318,746
—
97,318,746
97,318,746

The Group has issued share-based payments’ (Note 29) 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.

22. Borrowings
Short-term borrowings:

Fixed rate long-term bonds (liability for interests)
Fixed rate long-term bank loans (liability for interests)
Floating rate long-term bank loans (liability for interests)
Fixed rate short-term bonds (liability for interests)
Fixed rate short-term bank loans (liability for interests)
Floating 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
Short-term portion of fixed rate long-term bonds
Fixed rate short-term bank loans
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
RUB

Currency
RUB
RUB
RUB

31 December
2017
39,333
115,400
609,503
719,442
49,591
—
—
26,390,004
16,964,858
—
44,888,131

31 December
2016
713,803
32,612
803,918
—
82,853
3,266
3,270,650
11,400,000
—
18,938,018
35,245,120

31 December
2017
4,993,339
31,410,105
25,790,760
62,194,204

31 December
2016
16,958,600
16,931,549
33,065,782
66,955,931

The Groups’ borrowings as at 31 December 2017 and 2016 are denominated in Russian roubles and are not secured by
any pledge.

130 Lenta Annual Report and Accounts 2017

On 25 April 2017 the Group signed 3 year non-revolving credit line of RUB 5,000,000 with VTB Bank PJSC. The loan bears
financial covenant.

On 16 May 2017 the Group signed 3 year non-revolving credit line of RUB 10,000,000 with Sberbank PJSC. The loan bears
financial covenant.

On 30 May 2017 the placement of interest‑bearing certified non‑convertible bearer bonds with mandatory centralised storage
was completed in the amount of RUB 5,000,000 with a nominal value of one thousand roubles each, 8.7% coupon rate, 1,092
days to maturity.

On 21 August 2017 the Group signed 3 year revolving credit line of RUB 5,000,000 with Credit Bank of Moscow PJSC.
The loan bears financial covenant.

During the year ended 31 December 2017 the Group received RUB 108,151,429 under credit agreements concluded before
1 January 2017 and repaid RUB 123,237,143.

As at 31 December 2017 the Group had RUB 61,550,000 of unused credit facilities (as at 31 December 2016:
RUB 44,150,000).

As at 31 December 2017 the Group is in compliance with all financial covenants of loan agreements.

23. Income taxes
The Group’s income tax expense for the year ended 31 December 2017 and 31 December 2016 is as follows:

Current tax expense
Deferred tax expense
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
Recognition of previously unrecognised tax losses
Income tax expense

Year ended
31 December
2017
691,450
1,216,904
1,908,354
(66,671)
(66,671)

Year ended
31 December
2017
15,171,900
(3,034,380)
69,752
(161,859)
(84,262)
(77,597)
1,218,133
(1,908,354)

Year ended
31 December
2016
1,137,425
2,213,795
3,351,220
(73,268)
(73,268)

Year ended
31 December
2016
14,553,248
(2,910,649)
(101,269)
(339,302)
(66,037)
(273,265)

(3,351,220)

Lenta Annual Report and Accounts 2017 131

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

23. 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
Leasehold rights
Unused vacation and employee bonuses accrual
Suppliers’ bonuses
Borrowings
Intangible assets other than leasehold rights
Inventory
Provision for impairment of receivables, advances
and prepayments for construction
Consulting and other accruals
Cash flow hedging instruments
Tax losses carried forward
Other
Total net deferred tax liabilities

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
Provision for impairment of receivables, advances
and prepayments for construction
Finance leasing
Consulting and other accruals
Customs duty payable
Cash flow hedging instruments
Other
Total net deferred tax liabilities

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)

Differences
in recognition
and reversals
recognised in
profit or loss

Differences
in recognition
and reversals
recognised
in other
comprehensive
income

31 December
2017

(1,124,362)
(115,560)
(65,518)
(302,986)
13,828
3,473
(250,681)

30,304
43,674
—
543,499
7,425
(1,216,904)

— (8,612,723)
(546,387)
—
196,153
—
(303,860)
—
(115,445)
—
(20,603)
—
319,599
—

—
—
66,671
—
—
66,671

110,253
165,213
(91,565)
543,499
(30,857)
(8,386,723)

1 January
2017

(7,488,361)
(430,827)
261,671
(874)
(129,273)
(24,076)
570,280

79,949
121,539
(158,236)
—
(38,282)
(7,236,490)

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

(2,429,169)
(2,382)
4,462
69,859
65,058
(3,307)
96,393

30,029
(3,418)
39,532
(37,618)
(3,898)
(39,336)
(2,213,795)

—
—
—
—
—
—
—

—
—
—
—
73,268
—
73,268

57,420
—
—
—
—
—
58,712

1,861
—
16,087
—
—
(239)
133,841

(7,488,361)
(430,827)
261,671
(874)
(129,273)
(24,076)
570,280

79,949
—
121,539
—
(158,236)
(38,282)
(7,236,490)

The temporary taxable differences associates with undistributed earnings of subsidiaries amount to RUB 61,556,675 and
RUB 59,399,304 as of 31 December 2017 and 2016, respectively. A deferred tax liability on these temporary differences was
not recognised, because management believes that it is in a position to control the timing of reversal of such differences and
has no intention to reverse them in the foreseeable future.

As of 31 December 2017 the Group has tax losses of RUB 2,717,500 that are available indefinitely for offsetting against future
taxable profits.

132 Lenta Annual Report and Accounts 2017

24. 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

25. Other taxes payable

Social taxes
Property tax
Personal income tax
Other taxes
Total other taxes payable

31 December
2017
46,716,600
5,400,930
5,142,232
57,259,762

31 December
2016
46,612,578
4,437,082
5,121,938
56,171,598

31 December
2017
56,281,962
699,959
277,266
575
57,259,762

31 December
2016
55,569,398
418,393
165,950
17,857
56,171,598

31 December
2017
482,221
410,756
200,096
38,026
1,131,099

31 December
2016
559,625
381,379
157,637
12,665
1,111,306

26. Cost of sales
Cost of sales for the years ended 31 December 2017 and 31 December 2016 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

Year ended
31 December
2017
252,221,409
24,257,480
3,780,289
6,682,900
286,942,078

Year ended
31 December
2016
204,373,681
24,810,938
3,795,679
5,603,731
238,584,029

Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.

Cost of sales for the year ended 31 December 2017 includes employee benefits expense of RUB 6,327,761 (year ended
31 December 2016: RUB 4,904,358) of which contributions to state pension fund are comprised of RUB 860,233 (year ended
31 December 2016: RUB 704,788).

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
2017
18,751,044
4,411,435
898,094
196,907
24,257,480

Year ended
31 December
2016
20,497,106
3,492,856
700,859
120,117
24,810,938

Lenta Annual Report and Accounts 2017 133

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

27. 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
2017
20,434,789
9,691,447
3,982,726
3,903,568
3,687,108
2,782,995
2,298,450
2,013,451
1,634,708
1,688,681
308,075
995,158
2,496,428
55,917,584

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

Employee benefits for the year ended 31 December 2017 include contributions to state pension fund of RUB 2,620,860 (year
ended 31 December 2016: RUB 2,234,917).

Pre‑opening costs for the year ended 31 December 2017 include employee benefits of RUB 561,197 (year ended 31 December
2016: RUB 414,530) of which contributions to state pension fund are comprised RUB 70,579 (year ended 31 December 2016:
RUB 46,496).

Professional fees for the year ended 31 December 2017 include fees billed by Ernst & Young LLC: for the audit of the
consolidated financial statements in the amount of RUB 23,628 (for the year ended 31 December 2016: RUB 25,186) and for
consulting and other non audit services in the amount of RUB 8,971 (for the year ended 31 December 2016: RUB 20,725).

28. 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
Gain on property, plant and equipment disposal
Amounts received from lawsuit settlement
Other
Total other operating income

Year ended
31 December
2017
1,296,371
1,089,179
755,505
718,264
90,565
—
179,348
4,129,232

Year ended
31 December
2016
973,959
788,786
497,245
488,599
17,165
188,089
132,236
3,086,079

134 Lenta Annual Report and Accounts 2017

Other operating expenses are comprised of the following:

Change in provision for impairment of receivables, advances and prepayments
for construction (Note 10,15)
Loss from fixed assets and intangible assets disposal
Penalties from government authorities
Penalties for breach of a contracts with suppliers and lessors
Amounts paid in settlement of lawsuit
Non-recoverable VAT
Other
Total other operating expenses

Year ended
31 December
2017

Year ended
31 December
2016

221,491
138,024
110,907
37,706
10,287
10,669
119,361
648,445

178,504
280,492
18,185
61,653
125,870
9,259
42,412
716,375

29. Share-based payments
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, 2016 and 2017 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.

In June 2017 the Group issued 31,744 shares of nor par value with respect to LTIP Tranche 2014 (see Note 19). Total expense
for the services received from the employees previously recognised with respect to issued shares was RUB 53,647.

The vesting date of 100% of Tranche 2015 is 1 April 2018. The vesting dates of awards granted during the year 2016 are
31 December 2018 and 1 April 2019. The vesting date of 100% of newly granted in the year 2017 award is 1 April 2020.

The fair value of the award shares was estimated based on the GDR price on Moscow Exchange on the award grant date.

Total expense recognised for the services received from the employees covered by long-term incentive plan for the year ended
31 December 2017 and the year ended 31 December 2016 is shown in the following table:

Expense arising from the equity-settled long-term incentive plan payments

Year ended
31 December
2017
289,462

Year ended
31 December
2016
139,355

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
In June 2017 the Group issued 66,473 shares of no par value with respect to share value appreciation rights to top
management (see Note 19). Total expense for the services received from the employees previously recognised with respect to
issued shares was RUB 210,687. The shares were transferred into GDR and distributed to relevant participants.

The weighted average remaining contractual life for the SVARs outstanding as at 31 December 2017 was 0.44 years
(31 December 2016: 1.76 years).

The weighted average exercise price for options outstanding as at 31 December 2017 is RUB 1.585 (31 December 2016:
RUB 1.562).

Lenta Annual Report and Accounts 2017 135

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

29. Share-based payments continued
The weighted average fair value of options outstanding as at 31 December 2017 is RUB 0.94 (year ended 31 December 2016:
RUB 0.89).

The expense recognized 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
2017
131,848

Year ended
31 December
2016
190,828

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.

30. Commitments
Capital expenditure commitments
At 31 December 2017 the Group has contractual capital expenditure commitments in respect of property, plant and equipment
and intangible assets totalling RUB 14,089,672 net of VAT (31 December 2016: RUB 21,055,701 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

31. Financial instruments
Categories of financial instruments

Financial assets measured at fair value
Cash flow hedging instruments

Financial assets measured at amortised cost
Cash
Trade and other receivables
Total financial assets measured at amortised cost

Financial liabilities measured at fair value
Cash flow hedging instruments

Financial liabilities measured at amortised cost
Floating rate long-term borrowings
Fixed rate long-term borrowings and bonds
Fixed rate short-term borrowings and bonds
Floating rate short-term borrowings
Trade and other payables
Total financial liabilities measured at amortised cost

136 Lenta Annual Report and Accounts 2017

31 December
2017
5,561,773
22,635,742
33,561,979
61,759,494

31 December
2016
4,353,739
17,616,198
32,311,175
54,281,112

31 December
2017

31 December
2016

8,179

372,210

14,301,859
10,957,360
25,259,219

13,037,767
17,035,789
30,073,556

18,049

48,725

26,400,263
36,558,178
44,123,894
—
57,259,762
164,342,097

33,869,700
34,636,564
30,420,871
3,273,916
56,171,598
158,372,649

—

—
—
—

—

—
—
—

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 2017:

Financial assets measured at fair value
Cash flow hedging instruments

Financial liabilities measured at fair value
Cash flow hedging instruments

31 December
2017

8,179

18,049

Level 1

Level 2

Level 3

—

8,179

18,049

Financial liabilities for which fair values are disclosed
Fixed rate bonds
Floating rate borrowings
Fixed rate borrowings

23,276,798
26,400,263
57,621,654

23,276,798
—
—

—
26,400,263
57,621,654

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

During the year ending 31 December 2017 and 31 December 2016, 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
Floating rate borrowings
Fixed rate borrowings and bonds

Derivative liabilities
Cash flow hedging instruments
Total financial liabilities

31 December 2017
Carrying
amount

8,179

Fair
value

8,179

31 December 2016
Carrying
amount

Fair
value

372,210

26,400,263
80,682,072

26,400,263
80,898,452

37,143,616
65,057,435

37,143,616
65,263,032

18,049
107,100,384

18,049
107,316,764

48,725
102,249,776

48,725
102,455,373

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 2017 137

Strategic reportCorporate governanceFinancial statementsAppendices

Notes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

31. 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 2017 and 31 December 2016 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 institution 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 2017 and 31 December 2016, 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.

Changes in liabilities arising from financing activities

Borrowings

1 January
2017
102,201,051

Proceeds from
borrowings
127,210,525

Repayments of
borrowings
(122,415,714)

Other
86,473

31 December
2017
107,082,335

The ‘Other’ column includes the effect of accrued but not yet paid interest on interest bearing loans. Group classifies interest
paid as cash flows from operating activities.

32. Hedge and hedging instruments
In 2013-2015 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 cap
Interest rate cap

Notional
amount
2017
12,500,000
900,000
10,000,000
900,000

Notional
amount
2016
12,500,000
900,000
10,000,000
900,000

Fixed
interest
rate
7.64%
7.54%
12.00%
12.00%

Effective
date
31 March 2015

Expiry
Fixed
date
commission
n/a
12 April 2018
n/a 31 December 2013 12 November 2018
0.54% 31 December 2014
12 April 2018
0.45% 31 December 2013 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 (liability)/asset

31 December
2017
—
8,179
—
(18,049)
(9,870)

31 December
2016
62,618
309,592
(2,137)
(46,588)
323,485

138 Lenta Annual Report and Accounts 2017

The Group performs fair value assessment of the fair values of swaps and caps at the reporting date:

Swaps
Caps
Net derivative (liability)/asset

31 December
2017
8,179
(18,049)
(9,870)

31 December
2016
372,210
(48,725)
323,485

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
2017

Year ended
31 December
2016

—
212,248
212,248

—
410,581
410,581

(121,107)
(212,248)
(333,355)

44,241
(410,581)
(366,340)

33. Financial risk management
The Group’s principal financial liabilities, other than derivatives, are comprised 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 years ended 31 December 2017 and 2016, 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 payables to several foreign suppliers.

Lenta Annual Report and Accounts 2017 139

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

33. Financial risk management continued
At 31 December 2017 and at 31 December 2016 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.

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 2017

Year ended 2016

Change in
USD rate
11.00%
-11.00%
20.00%
-20.00%

Effect on profit
before tax
(76,995)
76,995
(83,682)
83,682

The following table demonstrates the sensitivity to a reasonably possible change in the EUR exchange rate, with all other
variables held constant.

Year ended 2017

Year ended 2016

Change in
EUR rate
12.50%
-12.50%
20.00%
-20.00%

Effect on profit
before tax
(34,657)
34,657
(33,195)
33,195

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 2017 these obligations are represented with long‑term borrowing (Note 22),
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 32).

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:

Profit or loss

OCI

50 bp increase

150 bp decrease

50 bp increase

150 bp decrease

(157,434)
67,063
(90,371)

472,303
(201,188)
271,115

—
20,858
20,858

—
(62,501)
(62,501)

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)

2017
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)

2016
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)

140 Lenta Annual Report and Accounts 2017

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 2017 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 32 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 2017 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
2017
25,790,760
(24,300,000)
1,490,760

Credit risk
Credit risk is the risk that 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 14,067,804 (31 December 2016: RUB 12,853,791).

Lenta Annual Report and Accounts 2017 141

Strategic reportCorporate governanceFinancial statementsAppendices
Notes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

33. 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 2017 and 31 December
2016 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 2017

Borrowings
Trade and other payables
Amounts payable under swaps and caps
Total

31 December 2016

Borrowings
Trade and other payables
Amounts payable under swaps and caps
Total

Less than
12 months
52,153,762
57,259,762
18,049
109,431,573

Less than
12 months
43,797,302
56,171,598
58,106
100,027,006

1-5 years
64,796,766
—
—
64,796,766

1-5 years
68,974,211
—
16,238
68,990,449

Over
5 years
7,838,694
—
—
7,838,694

Over
5 years
14,415,411
—
—
14,415,411

Total
124,789,222
57,259,762
18,049
182,067,033

Total
127,186,924
56,171,598
74,344
183,432,866

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 22, 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 19.

Net debt of the Group is comprises of the following:

Borrowings
Cash and cash equivalents (Note 18)
Net debt

31 December
2017
107,082,335
(14,301,859)
92,780,476

31 December
2016
102,201,051
(13,037,767)
89,163,284

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 financial condition
of the Group.

142 Lenta Annual Report and Accounts 2017

34. 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.

The future stability of the Russian economy is largely dependent upon economic reforms, development of the legal, tax and
regulatory frameworks, and the effectiveness of financial and monetary measures undertaken by the government of the
Russian Federation.

While the current political situation in the country is relatively stable, the fall in crude oil prices, significant devaluation of the
Russian ruble and sanctions imposed on Russia have had an adverse impact on the Russian economy.

While the Russian Government has introduced a range of stabilization measures aimed at providing liquidity and supporting
refinancing of foreign debt for Russian banks and companies, there continues to be uncertainty regarding the access to capital
and cost of capital for the Company and its counterparties, which could affect the Company’s financial position, results of
operations and business prospects. Capital markets instability may result in significant deterioration of liquidity in the banking
sector, and tighter credit conditions within Russia.

However, in case changes in the Russian Federation have an adverse effect, the Company will make every effort to mitigate
the negative implications on the Company’s financial position and financial performance.

The risks of military conflict, state of emergency in the country where the Company operates are assessed as low and thus are
unlikely to have a significant effect on the Company’s activities. In order to mitigate the risk of terrorist attacks, the Company
has provided for additional measures to ensure work security.

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 15,805 as at 31 December 2017
(31 December 2016: RUB 511,656). 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 483,211 (31 December 2016: RUB 288,582). No tax provisions are recorded as at 31 December 2017 and 31 December
2016. 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 2017 and
31 December 2016.

Lenta Annual Report and Accounts 2017 143

Strategic reportCorporate governanceFinancial statementsAppendicesNotes to the consolidated financial statements continued
for the year ended 31 December 2017 (in thousands of Russian roubles)

34. Contingencies continued
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.

35. Events occurring after the reporting period
On 7 February 2018 the Group received RUB 4,100,000 under credit agreement with UniCredit Bank JSC with maturity period
of 4 years. The loan bears financial covenant.

On 22 January 2018 coupons 6-11 on BO 03 series bonds issued in August 2015 were reset at 7.25% per annum, put option
right on early redemption after 3 years (February 2021). On 5 February 2018 the Group executed an offer of BO 03 series
bonds with total nominal value of RUB 4,461,535.

144 Lenta Annual Report and Accounts 2017

Strategic report

Corporate governance

Financial statements

Appendices

146 List of cities as of 31 December 2017
148 Glossary
150 Cautionary statements

Lenta Annual Report and Accounts 2017 145
Lenta Annual Report and Accounts 2017 145

List of cities as of 31 December 2017

Number
on the map

Cities1

Achinsk

Almetyevsk

Armavir

Astrakhan

Balakovo

Barnaul

Belgorod

Biysk

Bratsk

Bryansk

Cheboksary

Chelyabinsk

Cherepovets

Cherkessk

Dimitrovgrad

Ekaterinburg

Engels

Grozny

Irkutsk

Ivanovo

Izhevsk

Kaluga

Kamensk-Uralsky

Kazan

Kemerovo

Khanty-Mansiysk

Kostroma

Krasnodar

Krasnoyarsk

Kursk

Lipetsk

Magnitogorsk

Moscow

Murmansk

Naberezhnye Chelny

Nizhnekamsk

Nizhniy Novgorod

Nizhniy Tagil

Novocherkassk

Novokuznetsk

Novorossiysk

Novoshakhtinsk

Novosibirsk

Obninsk

Omsk

146 Lenta Annual Report and Accounts 2017

Number of
hypermarkets

Number of
supermarkets

Number of
distribution centres

—

Number of
hypermarkets

Number of
supermarkets

Number of
distribution centres

Number
on the map

Cities1

Orel

Orenburg

Orsk

Penza

Perm

Petrozavodsk

Prokopievsk

Pskov

Rostov-on-Don

Ryazan

Samara

Saransk

Saratov

Shakhty

Smolensk

St. Petersburg

Stavropol

Sterlitamak

Surgut

Syktyvkar

Taganrog

Tobolsk

Togliatti

Tomsk

Tula

Tver

Tyumen

Ufa

Ulyanovsk

Velikiy Novgorod

Vladimir

Volgograd

Vologda

Volzhskiy

Voronezh

Yaroslavl

Yoshkar Ola

Yurga

—

84
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

Zheleznovodsk

—

are shown as ‘St. Petersburg’.

Lenta Annual Report and Accounts 2017 147

Strategic reportCorporate governanceFinancial statementsAppendicesGlossary

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

average sales density

average ticket

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

total sales during the relevant year divided by the average selling space for
that year

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

FTE

gamification

GDRs

in-store availability

LFL

P&L

SG&A

SKU

sqm

ticket

total selling space

the British Virgin Islands

capital expenditure

Compounded annual growth rate

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

full-time equivalent

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

148 Lenta Annual Report and Accounts 2017

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.

> Leverage: The ratio of net debt to Adjusted EBITDA is net debt divided by

Adjusted EBITDA.

> Interest cover: 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.

> Fixed charge cover: 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.

Lenta Annual Report and Accounts 2017 149

Strategic reportCorporate governanceFinancial statementsAppendicesCautionary 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.

150 Lenta Annual Report and Accounts 2017

Notes

Lenta Annual Report and Accounts 2017 151

Notes

152 Lenta Annual Report and Accounts 2017

Designed 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) 380-61-31
Fax: +7 (812) 380-61-50
www.lentainvestor.com

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