Lenta Annual Report 2019

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FY2019 Annual Report · Lenta

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annUal rePort
issUe 2019

year
of milestones

002

C o n t e n t s

003

Contents

oo4
OO6
OO8

O10
O12
O14
O16
O22
O28
O30

o36
O38
O42
O48
O53
O54
O57
O59
O65

o1>strateGiC rePort
AT A GLANCE
FINANCIAL
AND OPERATIONAL HIGHLIGHTS
CHAIRMAN’S STATEMENT
CHIEF EXECUTIVE OFFICER’S REVIEW
MARKET OVERVIEW
OPERATING REVIEW
CORPORATE SOCIAL RESPONSIBILITY
FINANCIAL REVIEW
RISK MANAGEMENT

o2>CorPorate GoVernanCe
BOARD OF DIRECTORS
SENIOR MANAGEMENT TEAM
CORPORATE GOVERNANCE REPORT
BOARD COMMITTEES
AUDIT COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
OPERATION AND CAPEX
COMMITTEE REPORT

o68
O70
O73

O74

O75

O76

O77

O78

108
109
11O
111
111

o3>finanCial statements
INDEPENDENT AUDITOR’S REPORT
STATEMENT OF MANAGEMENT’S RESPONSIBILITIES
FOR THE PREPARATION AND APPROVAL
OF THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
CONSOLIDATED STATEMENT
OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT
OF CASH FLOWS
CONSOLIDATED STATEMENT
OF CHANGES IN EqUITY
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

o4>aPPenDiCes
COMPANY SUBSIDIARIES
LIST OF CITIES AS OF 31 DECEMBER 2019
GLOSSARY
FURTHER INFORMATION

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
004

l e n t a

a n nU a l r eP o r t

a nD a C C oUn t s

2 0 1 9

o1 › s t r a t e GiC r eP o r t

o2 › C o rP o r a t e Go Ve r n a nC e

o3 › f i n a nC i a l s t a t e m e n t s

o4 › aP Pe nDiC

e s

o1 ›

s t r a t e GiC
r eP o r t

006

a t a Gl a nC e

l e n t a

a n nU a l r eP o r t

a nD a C C oUn t s

2 0 1 9

007

o1 › s t r a t e GiC r eP o r t

l e n t a

o2 › C o rP o r a t e Go Ve r n a nC e

a n nU a l r eP o r t

o3 › f i n a nC i a l s t a t e m e n t s

a nD a C C oUn t s

o4 › aP Pe nDiC

e s

2 0 1 9

nr1Partner

for
sUPPliers

HiGHest
nPs sCore

Cities

lenta

is one of tHe leaDinG
rUssian retailers
anD tHe larGest
HyPermarket
oPerator

12 DCs

249

HyPermarkets
anD
sUPermarkets

131

008

f i n a nC i a l

a nD oPe r a t i o n a l

HiG Hl iG Ht s

009

finanCial

oPerational

retail
sales

Gross Profit
(rUB, Bn)

+4.o%
+3.2%
17

free
CasH flow

loyalty CarD
HolDers

stores

+10.1%
+11
+1.5%

sellinG sPaCe
(sqm)

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

010

C Ha i r m a n ’ s s t a t e m e n t

011

Alexey MordAshov,
CHAIRMAN

Dear
sHareHolDers,

I am proud, as Chairman, to present you with Lenta’s

Annual Report for 2019.
In June 2019, Severgroup became Lenta’s ma-
jority shareholder, with a 78.73 % stake.
We see great potential in this business that,
every day, is improving people’s quality of life. We
also see potential in the Russian retail industry
as a whole, which is now undergoing an impor-
tant transformation to meet customers’ growing
demands.

Widely known as an efficient grocery retailer
with one of the highest growth rates in the market,
Lenta is a unique asset with strong competitive
advantages. Lenta and Severgroup have comple-
mentary qualities: Lenta has a highly professional
management team and excellent corporate cul-
ture. Severgroup has experience in building and
managing large businesses and deep expertise
in both industrial and consumer sectors as well as
in the digital & IT sectors. We are confident that
combining these two entities will enhance Lenta’s
position as a leading national grocery player.

strateGy
Together with Lenta’s management team, we are working
on a new strategy for the business. We plan to announce
it later this year, but I can already tell you about our core
strategic priorities to ensure growth of the business:
• Client-centric business. We aim to become the
first-choice retail company for the Russian consumer.
We plan to grow our market share and become the
most innovative and client-centric retailer in Russia.
At the same time, we will work on improving the effi-
ciency and agility of the business.
• Strong free cash flow generation. Our target is to gener-
ate sufficient cash flow to be able to support our growth
ambitions and ensure strong returns to our shareholders.
• Digital transformation. Severgroup has broad
experience in using cutting-edge technologies and
solutions for big data analysis, machine learning
and predicative analytics. I am confident that Lenta
will benefit from this expertise in combination with
its own profound knowledge in this field. Together,
we will continue to provide an excellent shopping
experience to our customers.

widely known as an efficient grocery
retailer with one of the highest
growth rates in the market, lenta is a
unique asset with strong competitive
advantages. lenta and severgroup
have complementary qualities: lenta
has a highly professional management
team and excellent corporate culture

tHe BoarD of DireCtors
Following their nomination by Severgroup, Roman
Vasilkov, Alexey Kulichenko and Tomas Korganas were
appointed as non-executive directors of Lenta’s Board
of Directors. I believe their expertise in finance, strategy
and economics will ensure effective leadership and
stewardship of the Company.

At the same time, independent directors Stephen
Johnson, Michael Lynch-Bell and Julia Solovieva will
remain on the Board to ensure continuity and succes-
sion in line with best corporate governance practices.
Our Board of Directors is well-balanced, with three
independent non-executive directors and three
non-executive directors. The directors have diverse
expertise in retail, finance, strategy, IT and innovations.
My role as Chairman is to lead the Board on
strategic matters, corporate culture, key personnel
development as well as corporate governance.

CHanGes in tHe CorPorate strUCtUre
Lenta’s Board of Directors made a decision to es-
tablish a representative office of Lenta Plc in Russia
which would serve the purpose of representing Lenta’s
interests in the country.

As a result, Russia is considered to be the place
of management and control of the Company. The
representative office was opened in Saint-Petersburg
in October 2019. Lenta’s CFO Rud Pedersen was ap-
pointed head of the representative office.

This decision is designed to rationalise the cor-
porate structure of the Group to allow more optimal

capital allocation, optimise cost of compliance
and improve corporate governance standards,
reflecting the recent changes in Lenta’s share-
holder structure.

On February 21, 2020, Lenta accomplished its in-
corporation in Cyprus in the form of a public limited
liability company (“Lenta PLC”). This was followed by
amendments to and the replacement of the current
Memorandum and Articles of Association. This should
pave the way for a more optimal capital allocation
going forward, while allowing us to realise efficiencies
in the cost of compliance and improved corporate
governance.

oUtlook
Lenta is well positioned for the future. The Company
generated positive free cash flow in 2019 and retained
its leadership in the hypermarket format.

Our main goal for 2020 is to become a truly cli-
ent-centric business that continually innovates. We
have to find a new successful retail model and lead
the changes in the sector. We have clear priorities
for 2020 and are close to finalising the new strategy.
I have great confidence that, together with the
Company’s team, we will make Lenta the most inno-
vative player in the sector and that it will become the
first choice for daily shopping for millions of Russian
consumers.

On behalf of the Board, I would like to thank our
dedicated employees and shareholders for their
continued support.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019012

C Hi e f

eXe C Ut iVe

o f f iC e r ’ s

r eVi e w

013

herMAN TiNgA,
CHIEF EXECUTIVE
OFFICER

Dear
sHareHolDers,

2О19 represented both a challenging

and an exciting year for Lenta.
We faced a tough operating
environment. This was as a result of both decreasing
disposable household income and increased growth
of retail space, coupled with aggressive promotional
activity in the industry.

We retained our leadership in the hypermarket
format; we attracted new customers, and achieved
the highest Net Promoter Score (NPS)1 in the sector,
which demonstrates our appeal to customers. We
grew sales and we delivered positive free cash flow.
However, shoppers came to our stores less frequently
and bought fewer items, and our investments in price
and expansion meant our EBITDA margins declined.
Against that background and although many things
were positive in 2019, we did not deliver on our ex-
pectations for the year.

With Severgroup becoming a majority shareholder,
the year was a turning point for us at Lenta, giving us
real confidence to plan for the long term.

1Source: Sberbank CIB Ivanov Consumer Confidence Tracker

We started developing our longer-term strategy
for the business with a view to creating sustainable
competitive advantage. We are now focused on
building the foundations for the next phase of growth
for a multi-format retailer. Work is still under way on
our new strategy, which will include continued focus
on the quality of our offer and further improvements
in our customer value proposition. We are also plan-
ning to invest in the IT platform, enhancing our digital
capabilities and our loyalty programme in order to
reach out to new and existing clients. We will also be
looking for further value-adding opportunities as we
expand our store network.

BUsiness enVironment
The macroeconomic and consumer environment
remained challenging, with further pressure on
customer wallets resulting in declining real dispos-
able household income and a growing consumer
debt burden.

The market remained very price-competitive
due to the weak macroeconomic environment
combined with the rapid expansion of retail chains.
Consumers continued to be price-sensitive, with

oUr sUPermarkets DeliVereD
stronG sales GrowtH
of

27.5%

in 2019

oUr PeoPle anD CorPorate CUltUre
Lenta people have always been at the heart of our
business, and we aspire to provide development
opportunities for every member of our team.

I am proud to lead the most stable Management
Team in Russian retail. During the year, we worked
on initiatives to reinforce the business and gear up
for further growth.

In 2019, we conducted an Organisational Health
Index (OHI) and employee engagement survey. Our
engagement rate of 74% is above the world retail
average. But even so, the survey showed us areas
where we can improve our organisational structure
and corporate culture. And we are going to do just
that, with a comprehensive plan for organisational
transformation.

In the year ahead, we will implement these meas-
ures to strengthen our Company from within. Our aim
is to continue building a client-centric and innova-
tion-oriented culture that will enable the growth of
our business.

lookinG aHeaD
In 2020, we expect to increase our selling space by
around a relatively modest 3%. This figure is in line
with our decision to focus on improvements in store
performance and operational efficiency. We will
continue to look for attractive growth opportunities,
including expansion.

In 2020 we will continue to work on the optimisation
of our SG&A expenses. We expect that the imple-
mentation of priorities set for this year will result in an
EBITDA margin in 2020 above that of 2019.

Although our investments in organic expansion
and supply chain will be lower in 2020, we plan to
invest around 4% of our sales in capital expenditure.
This includes investments in IT, digital marketing
and other projects aimed to upgrade and enhance
customers’ experience in store, as well as drive op-
erational efficiency.

The current plans for expansion and capital ex-
penditure, as well as further efforts in the optimisation
of operating cash flow, will result in positive free cash
flow generation by the Company in 2020.

I strongly believe that Lenta’s leadership position in
the hypermarket sector and its growing customer base
provide a very strong platform for long-term growth.
Our intention is clear. We want to be the #1 shopping
destination for millions of Russian consumers.

more options available for making daily grocery
purchases, while the retail chains have been fo-
cused on driving customer traffic by enhancing
promotional activity.

PerformanCe
In 2019, we opened eight hypermarkets and three
supermarkets, as our guidance indicated. Our
selling space grew by 1.5%. Total sales grew 1.0% in
2019 to Rub 417.5bn (2018: Rub 413.6bn), including
retail sales growth of 4.0% to Rub 407.9bn (2018:
Rub 392.2bn) and an expected decline of 55.5% in
wholesale segment.

Our EBITDA margin in 2019 declined to 8.1% from
8.8% in the previous year, affected by a lower growth
rate and economic headwinds. At the same time,
we generated positive free cash flow, which proves
that our business is financially healthy, and gives us
options to invest for further growth.

In 2019, we presented a brand new vision of shop-
ping space. We re-opened one of our hypermarkets in
Saint-Petersburg which had been damaged by a fire.
We completely changed the layout of the store so it
could meet the needs of different shopping missions.
We put our Hero categories centre stage, and we
filled the store with innovative equipment that helps
to enhance both customer experience and service.
We believe these changes will help us to deliver solid
traffic and basket size and pave the way for in-store
improvements across the chain.

Our supermarkets delivered strong sales growth of
27.5% in 2019. This format had previously proved chal-
lenging for us. But the appointment of a dedicated
team and implementation of initiatives to improve
customer value proposition of our supermarkets
meant we saw significant improvements on EBITDA
level which remained positive throughout 2019.

We have been working to enhance our shopping
experience and client communication both for
hypermarkets and supermarkets. In 2019 we intro-
duced a series of initiatives aimed at driving sales
and increasing our profitability, competitiveness
and returns. We have put significant effort into
developing our product ranges, shaping a unique
and attractive selection of goods to drive footfall
across our stores.

In 2019 we also focused on the optimisation of our
logistics and on enhancing our capacity to support
further growth. With the pilot of our own delivery ser-
vice, Lentochka, we reinforced our ambition to enter
the on-line segment of grocery retail.

We continued to leverage data-driven insights
obtained from the Lenta loyalty card. These valuable
insights enabled us to refine our product ranges, plan
our store layouts and manage promotional activity. It
also helped us create new customer-focused mar-
keting tools across various media.

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m a r k e t

o Ve r Vi e w

015

market oVerView

sHare of GroCery retail sales %

75% 74% 72% 7o%

tHe maCroeConomiC enVironment ContinUeD to PUt PressUre on tHe GroCery
retail BUsiness in 2019. amiD weak eConomiC GrowtH anD slow reCoVery in tHe
DynamiCs of real DisPosaBle inCome, ConsUmers ContinUeD to Be in stronG
saVinG moDe, PayinG attention to PriCes anD lookinG for tHe Best Promotions
amonG retail CHains

Russian GDP slowed down to 1.3% in 2019 from 2.5% in

2018, constrained by both external and internal fac-
tors. The slowdown of the global economy weighed
down the country’s export of goods and services.
Domestically, economic growth was restrained by weak
dynamics of household income, the Central Bank’s relatively
tight monetary policy, as well as the slow implementation of
national infrastructure projects.

Consumption continued to be an important factor in
driving the Russian economy. For the second year in a row,
retail sales outpaced the dynamics of the GDP, growing by
1.6% in real terms although slowing down from 2.8% in 2018.
Food retail sales growth inevitably slowed as well from 2.1%
in 2018 to 1.4% in 2019, as a result of both weak consumer
purchasing power and suppressed consumer confidence.
Real disposable income increased by 0.8% - the highest
rate over the last six years – due to the positive dynamics
of real wages during the course of the year. Nonetheless,
the growth was largely offset by higher inflation, mainly
due to increased prices for communal payments and
commodities, and the increase in VAT from 18% to 20% from
January 2020. These factors forced consumers to be more
cautious in their spending.

Even though average inflation was higher in 2019 when
compared to the previous year, it came down to 3.0% in
December. Food inflation slowed to 2.6% and continued
slowing down at the beginning of 2020. Although lower
inflation is beneficial for consumers, it can increase pressure
on retailers in terms of revenue growth and force companies
to intensify promotional activity to hit their targets.

Improvements in household income dynamics and
consumer confidence will be the key factors to drive food
retail sales. An upside can also come from the government’s
recent initiatives. Proposed budget spending of around
Rub 400-450 bn to support low-income families, as well
as other social payments, could have a positive impact
on grocery consumption in the country.

ComPetitiVe enVironment
Growth in food retail sales continued to rise in low-sin-
gle-digits. Despite higher real disposable income, consumers
are less confident in their future prospects and economic
stability and therefore tend to save more.

The competition between retailers remained intense
during the year, as the need to adapt to changing cus-

1O%
8%
6%
4%
2%
O%
-2%
-4%
-6%
-8%

3%
3%
2%
2%
1%
1%
O%
-1%
-1%

2O%
15%
1O%
5%
O%
-5%
-1O%

HoUseHolD inCome

25% 26% 28% 3О%

2O16

2O17

top 7

2O18

2O19

other modern retail

2O16

2O17

2O18

2O19

real income

nominal income

real GDP

toP-6 sellinG sPaCe

23%

lenta

15%

auchan

X5 retal
Group

2O16

2O17

2O18

2O19

real GDP

total sellinG sPaCe, sUPermarkets

fooD retail sales GrowtH

2O16

2O17

2O18

2O19

normal food retail sales growth

real food retail sales growth

26%

sPar

magnit

auchan

12%

metro Group

o'key

35%

other

rewe

lenta

35%

other

tomer habits has come to the fore. Prices remained an
important factor in consumers’ choice of grocery store
for shopping. This alone was not, however, enough to
encourage customers to visit a store frequently. Quality of
goods and services, unique selection, in-store communi-
cation and digital experience are the key areas for further
development of retail chains.

Lenta is well-positioned amid changing market trends.
The Company put efforts into enhancing our selection
of goods, introducing a wider choice and higher quality
of fresh and private label products to gain competitor
advantage. Our loyalty programme continued to provide
insights that helped us to improve personalised offerings
and digital activities that were appreciated by our cus-
tomers. Lenta also started to exploit the potential of the
on-line market with projects that do not require heavy
capital investments, aiming to strengthen its position in
the new fast-evolving business model.

The Russian food retail market remains fragmented by
international standards, providing opportunities for further
consolidation in the sector. The share of the Top-seven
retailers reached 30.5%2 in 2019 versus 27.5% in 2018, lag-
ging behind much more consolidated western countries,
where the Top-five players can account for 50%-70% of
the market.

In the previous year, fast-growing retail chain, Krasnoye
& Beloye, merged with Dixy and Bristol3 , which allowed the
combined company to replace Lenta in the Top-three.

Total selling space grew by 1.7 million sq.m. in 2019, with
a growth rate of 6.8%, compared to 9.0% in the previous
year. Selling space growth in the hypermarket segment has
decelerated steadily over the last five years, and increased
marginally by 0.2% in 2019. Lenta retained its position as a
leading hypermarket in the country with the market share
of 23% in the segment.

GrowtH Potential
After years of aggressive growth and a substantial increase
in selling space, the competition in the sector gradually
started to ease among the large players. Competition
on prices and promotions continued to weigh down on
margins, forcing more retailers to open fewer stores in order
to focus on their profitability.

Lenta is no exception. The Company has already slowed
down its expansion and announced its strong focus on
efficiency and returns. The key priorities, therefore, will be
improvements in offerings, selection, and communication
with customers. Further development of digital tools
should help reach a larger audience and attract new
customers to stores. At the same time, the market still
offers opportunities for further growth and consolidation
which can be exploited in case of attractive returns to
shareholders.

2According to Infoline, 2019. In 2019 Dixy, Bristol and K&B merged replacing

Lenta in Top-3.

3DKBR Mega Retail Group Limited.

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oPe r a t i nG

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017

our stores, especially fruits and vegetables, meat, fish,
bakery and culinary.

That is why we identified these categories, along
with wine, as “Hero categories”. We believe that these
categories distinguish Lenta from its competitors.
We aimed at making Lenta the primary destination
for these products by offering the best selection of
products, higher quality and appealing presentation.
In 2019, we continued to work on the development
of Hero categories by widening the range and sup-
porting the offer by various marketing activities. We
made good use of cross-category promotions such
as festivals, tastings, recipes ideas and numerous
in-store activities to focus customers’ attention on
the variety and quality of our products. We also rear-
ranged relevant sections in some of our stores to draw
attention to our Hero categories and exclusive offers.
All our Hero categories showed positive like-for-like
retail sales of +3.5% in 2019 versus the previous year
and +3.1 ppt versus other food categories.

We worked hard to shape the unique range of
products in our stores. We focused on propositions
that are available only in Lenta stores that will attract
new shoppers to our stores at the same time retaining
our loyal customers.

We are proud to be one of the largest bakeries in
the country. We bake pastries and varieties of bread in
our hypermarkets and supermarkets so that shoppers
can enjoy fresh products every day. In March 2019, we
introduced Artisan bread into our product range. This
is prepared according to an authentic recipe and
proved very popular with our customers. By the end
of the year, Artisan bread accounted for over 6% of
sales in this category.

We focused on expanding our ready-to-eat meals
to satisfy the needs of customers who are looking for
time-saving solutions. Our offerings include packed
salads, sandwiches and a wide range of types of snacks.
We care about healthy eaters and offer fresh lemonade,
smoothies, milk shakes and fresh salads for them.

The development of the direct import aspect of our
business enabled us to provide our customers with a
wide assortment of exotic fruits. Lenta became the

first retailer in the Russian market to organise direct
supplies of mangoes and dragon fruit from China, and
feijoas and kumquats from Azerbaijan. We supported
our proposition by promotions and festivals in stores,
which increased the sales by 40%.

We pride ourselves on selling one of the widest
ranges of fish available, both imported and of Russian
origin. In 2019 fish, which is one of our Hero category
products, showed the highest result in terms of like-
for-like sales of 5.3% compared with the previous year.
We increased the choice of fish on offer and actively
supported the ranges by communications in stores
and attractive promotions.

We added 79 exclusive new SKUs of wine from
a range of countries, improved in-store navigation
in the category and experimented with different
formats such as mini-bottles, magnums and multi-
packs. We supported the sales in the category with
promotional techniques, such as offering customers
different wines at a single price or discounts for
the purchase of six bottles. These resulted in the
category like-for-like sales increase of 1.3% versus
the previous year.

We launched our ‘Healthy World’ project in 2018 and
rolled this out to 221 hypermarkets in 2019, with fruitful
results; we enjoyed 37.9% like-for-like sales growth in
the categories in 2019 versus 2018. We offer over 1,500
individual items in our sugar- and gluten-free ranges
along with natural cosmetics and domestic clean-
ing products. These products are located together
under a single banner, so that customers looking
for healthier options or special diets can find them
easily and quickly.

PriVate laBel anD DireCt soUrCinG
Our Private Label range is one of our key differentia-
tors and gives us great competitive advantage. We
offer affordable goods of the highest quality under
13 of our own brands, both food and non-food, in all
price segments.

In 2019, retail sales of our own brands reached 14.2%
of total sales versus 13.4% in 2018 and we launched
1,207 new product lines.

we launched our ‘Healthy world’
project in 2018 and rolled this out to
221 hypermarkets in 2019, with fruitful
results; we enjoyed 37.9% like-for-like
sales growth in the categories in 2019
versus 2018

oPeratinG reView

2019 was anotHer CHallenGinG year for tHe rUssian fooD retail seCtor,
witH eVen stronGer ComPetition for CUstomers in a toUGH traDinG
enVironment.

In 2019, our total sales for the year grew 1.0% to

Rub 417.5bn (2018: Rub 413.6bn), including retail
sales growth of 4.0% to Rub 408bn (2018: Rub
392.2bn).
The supermarket format demonstrated strong
growth, with an increase in like-for-like sales driven
by higher traffic thanks to a significant increase in
new, unique customers to the format. We contin-
ued working on tactical changes to the offering to
enhance the attractiveness of stores to customers.
Lenta retained its presence in 88 Russian cities.
Our net selling space increased by 1.5% compared
to 6.1% in 2018. The total number of stores amounted

to 380, comprising 249 hypermarkets and 131 super-
markets, with total selling space of 1,489,497 sq.m.
During the year, the Company continued to imple-
ment a series of initiatives to increase the distinctive
attractiveness of Lenta’s offering to customers. These
initiatives included changes in product range, mar-
keting, Lenta’s operational results programme and
customer communication.

ProDUCt ranGe
A wide product range combined with affordable prices
is the key reason for customers to choose Lenta. Our
clients also appreciate the high quality of goods in

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
018

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we imPort fresH frUits,
frozen fisH anD seafooD
DireCtly from

1274О

sUPPliers loCateD in

CoUntries

Our 365 brand showed +3.9% like-for-like sales;
LENTA like-for-like sales grew by 3.2%. Dolce Albero
demonstrated an impressive increase of 36.5% as
did Bonvida, with +187% like-for-like sales. Sales in
our non-food brand, Home Club, grew by 24% in 2019.
Our private labels were recognised for their high
quality in the national contest “The Guarantee of
Quality” and was awarded 22 medals.

In 2019 we developed our partnerships with
Europe’s leading buying alliance, EMD, and with
the global sourcing agency for non-food prod-
ucts, Li&Fung. These partnerships bring us new
cooperation models with the largest international
producers and retailers and enable us to select
the best goods at the best prices. This ensures
both the uniqueness and the highest quality for
our proposition to customers.

With Li&Fung we launched Lenta Far East platform
that connects 254 factories. Our cooperative efforts
focus on developing Lenta’s non-food private labels
and delivering a distinctive customer offering. Li&Fung
ensures vendor compliance and assists in organising
shipments from Asian countries to Lenta stores.

Our partnership with EMD allows the Company
to fully benefit from contracts sourced by the alli-
ance’s negotiations, including those with producers
of high-end brands. Joint procurement with other
large European retailers enables Lenta to offer cus-
tomers access to an even broader range of quality
products at affordable prices, while also providing
a new impetus to the on-going development of
Lenta’s private labels. In 2019 we leveraged the
efficiency of our cooperation and launched the
EMD EU sourcing platform development to source
products from EMD members (copy paper, batteries,
nuts and dried fruits).

We also launched ‘the nuts platform‘, where we
source directly from countries such as Chile, and
work with local packaging facilities to give us fresher
products of excellent quality that we can control
from field to shelf.

We import fresh fruit, frozen fish and seafood di-
rectly from 127 suppliers located in 40 countries. Direct
supplies enable us to optimise costs, develop unique
customer propositions and offer a wide product range
in these categories.

We added six new countries (Bulgaria, Chile, Estonia,
Lithuania, Romania, Serbia) to our dry food import
portfolio in 2019 and we added 512 new individual
products to our ranges. We are committed to delight-
ing our customers by selecting the finest goods from
their contry of origin and bringing them to our stores.
We are particularly proud of the exclusive range
of New Year gifts that we developed with a leading
European producer. Sixty three distinctive items of
confectionery, coffee and tea were delivered to our
stores in plenty of time, and were 85% sold in the run
up to the New Year.

In 2019, as part of our Growers platform, we in-
creased the number of growers that supply our stores
with exclusive ranges of vegetables, mushrooms,
greens and other fresh food from 162 to 175. Fruit and
vegetables supplied by growers within the Growers
platform now account for 24.2% of our total sales of
fruit and vegetables.

Fifty growers supply a series of exclusive ranges
under the brand Grown for Lenta. These include 116
individual items of berries, melons, watermelons,
cabbage, tomatoes, salads and other fresh foods.
The partnership ensures a winning combination of
fair price, high quality standards, uniqueness and
transparency. This leads to us earning our customers’

trust, as they appreciate the quality of goods they
find in Lenta stores.

marketinG
The Company has maintained its focus on digi-
tal marketing activities, reaching new and existing
customers with offers tailored to each individual to
increase both traffic and basket size. The number of
active loyalty cardholders increased to 15.8 mn as at
31 December 2019 (+10.1% YoY).

We enhanced the processing of the data derived
from our loyalty cards. With some 97% of transactions
in our stores being made with the Lenta loyalty cards,
this is a valuable soruce of information about cus-
tomer preferences.

We focused on the improvement of our analytical
models and the organisational structure of a dedicated
department to align the conclusions we derive from
the customer data and business decisions we make.
We segment our customers depending on their
needs and life cycle. This enables us to manage our
product range and promotions effectively, as well
as to predict changes in customers’ preferences to
which we can respond in a timely fashion.

Lenta’s Mobile App, launched in October 2018,
had attracted more than 4.8 million users by the
end of the year. We took further steps to enrich the
Mobile App’s functionality, delivering a better cus-
tomer experience through enhancing personalised
promotional offers.

We launched what we call a ‘personal cabinet’
on our web site and on the App, which is where our
loyal customers can find personal offers based on
their shopping history. They can also track what they
bought before, make a shopping list and check the
availability of specific products in our stores.

In late 2019, we began to pilot a new approach
to the loyalty programme, rewarding customers for
purchases in their favourite categories as well as for
purchasing goods they never bought before. We also
offered them new products at attractive prices. The
more the customer shops with Lenta using their loyalty
card, the more they benefit from the programme. Initial
results of the pilot showed very promising results and
we will develop the programme further in 2020 to
increase the extent to which we tailor our offer, and
create reasons to come to Lenta.

loGistiCs
Our well-established, sophisticated logistics ensure
the timely delivery of goods to our 380 stores across
Russia. We operate 12 distribution centres in strate-
gically chosen locations. Our own fleet, consisting
of 330 trucks, provides over 76% of deliveries at a
service level of 94%.

The Company continued to work on the optimisa-
tion of its logistics. We closed one leased distribution

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021

in 2019 we HaVe reCorDeD
aPProXimately 1Bn of sales
tHroUGH tHis CHannel CominG
from aroUnD

4oo,ooo

of on-line orDers

also include space for our own production (culinary,
confectionery, meat processing etc) and a central
bakery to ensure common operational standards
across the chain.

retHinkinG CUstomer eXPerienCe
In November 2019 we were pleased to open the new
Lenta hypermarket in Saint-Petersburg that we rebuilt
after it was burnt down in 2018. The store is built and
designed according to a new concept developed in
cooperation with the Jos de Vries agency. The concept
includes new services, such as a café and food service. We
changed the standard layout in order to meet different
clients’ needs and to fulfil various customer journeys.

The layout design is made for daily and weekly
shopping trips as well as for customers who are grab
and go. All sections are connected with one another
to give Lenta customers an excellent range of pro-
duce to choose from, with a strong emphasis on Hero
categories. Fruit and vegetables, culinary and bakery,
wine, and fish are furnished with new store equipment
to ensure attractiveness and proper presentation of
each category.

The hypermarket embraces various innovations using
the latest technology, such as contrast and shelf light,
self-check-outs and price checkers as well as LED
screens for in-store advertising.

By launching this new concept, we represented our
vision of a modern unique shopping space where all
customers can find exactly what they want. We surprise
customers with innovations and creativity. Bright and
colourful design along with inspiring graphical concepts
are bringing Lenta to a new level as an attractive,
interesting store that brings customers convenience
combined with an exceptional shopping experience.

We introduced elements of the new concept – café,
food service, navigation and decorations – to one of
our oldest stores in Saint-Petersburg. In 2020, we will
be carefully analysing the customer feedback and
reactions to the changes introduced, to fine tune the
concept for further roll out.

on-line
We consider on-line as an important channel in
communication with clients. It provides us with more
information about the potential of the market without
having to invest significant amount of capital. In 2019
we continued to partner with different companies
across many of the Russian regions. Our portfolio
consists of 18 partners and covers 20 Russian cities.
In 2019 we recorded approximately Rub 1 bn of
sales through this channel, coming from around
400,000 on-line orders. This is just slightly above
0.2% of our total retail sales for full-year 2019 and
represents 103% growth. We see on-line as an im-
portant channel to market, working in combination
with our physical stores.

In November 2019 we launched a pilot of our own
online delivery project, Lentochka. This is aimed at
providing customers with purchases within 15-30
minutes. To achieve this, we opened several small
dark-stores of around 100-150 sq.m in urban areas.
These collect supplies from our distribution centres
and hypermarkets, and directly from suppliers. The
range is limited to approximately 1,500 individual
items and it focuses mainly on fresh and dry food,
as well as ready-to-eat meals. We are piloting it in
three districts of Moscow.

lookinG aHeaD
While we do not expect the macroeconomic and
competitive environment to ease, we will keep work-
ing on improvements in our offer and customer
communication in both formats to excel in customer
experience.

In 2020, we will work on the transformation of our

core business and on efficiency improvements.

We will implement innovations and undertake
various experiments to find solutions that will ensure
our growth and support our transformation.

It is our intention to remain the leading hyper-
market chain in Russia and to sustain and grow our
supermarket business.

centre in Moscow with a space of 14,990 sq.m, and
replaced it with a new facility with total space of
around 70,990 sq.m. It is now the largest distribution
centre in Lenta’s portfolio.

We also extended our distribution centre in No-
vosibirsk from 39,137 sq.m. to 71,837 sq.m to enlarge
our capacity, centralise our own production and
increase the range of fish in our stores. This enables
us to secure high quality ready-to-heat and ready-
to-eat meals in our stores and to improve our offering
to customers.

We began construction of a new 69,000 sq.m
distribution centre in Saint-Petersburg that will start
operations in 2020.

The new warehouses have innovative features
such as units with different temperature zones and
additional services to enhance optimisation of the
Company’s procurement and logistics, especially
in fresh, frozen, and fruit and vegetable categories.
Other innovations include separate units aimed to
serve Lenta’s “Hero categories” and also to support
their centralisation and further development. This will

we operate 12 distribution centers in
strategically chosen locations. our own
fleet consisting of 330 trucks provides
over 76 % of deliveries with a high service
level of over 94 %

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CorPorate soCial
resPonsiBility

we are CommitteD to aCtinG resPonsiBly in eVerytHinG we Do. CreatinG
ValUe for all oUr stakeHolDers, esPeCially lenta emPloyees, is oUr Core
oBjeCtiVe. we ConDUCt oUr BUsiness BaseD on CorPorate resPonsiBility
PrinCiPles, wHetHer tHis is ProDUCt soUrCinG or interaCtion witH loCal
CommUnities.

We are convinced that responsible be-

haviour guarantees our long-term suc-
cess and sustainable development. Our
Corporate Social Responsibility (CSR)
programme includes a range of initiatives that extend
across all aspects of Lenta’s business.

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

these include:
• 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 stand-
ards, which impose stricter ethical restrictions
on employees than those provided in current
legislation

023

Established in 2011, the Company’s
Ethics Committee regularly reviews
complaints and non-compliance.
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.

our six pillars
Our CSR agenda is founded on six
pillars.

Within the context of the six pillars
there are specific goals. These are
focused primarily on further investment
in the development of our employees,
cooperation with local communities,
partners and suppliers, supporting our
“value for money” proposition in our
stores and further project implemen-
tation in the field of environmental
protection.

Along with our Ethics Policy, our CSR
principles support our ambitions for
long-term sustainable growth.

reCrUitinG, traininG anD retaininG
Professional staff
The essence of our culture is teamwork,
innovation and trust. We recruit the
best professionals in the market, we
train our people, and we do our best
to retain them.

Lenta is proud to have a staff reten-
tion rate that is above the average for
the food retail sector 4. Investment in our
workforce is our strategic priority. This
is the key to customer loyalty through
greater productivity and service level.
There is intense competition for
labour in the retail sector. Low birth
rates in the 1990s mean that the years
between 2017–2020 are affected by
a noticeable “demographic gap”. This
makes the recruitment of qualified
staff a challenge. Our target is to
retain a best-in-class workforce that
enables the sustainable growth of our business.

4Korn Ferry Compensation Report Russia Retail Sector 2019

o Ur V a l Ue s

CUstomer satisfaCtion

Customer satisfaction is the key to

our development. We aim to provide

excellent service to our clients and

strive to satisfy their demand for

products they want at the right price.

afforDaBle PriCes

for all oUr CUstomers

We are committed to being a price

leader, without compromising on the

quality of the goods we sell. Our low-

cost business model enables us to

pass savings on to our customers.

HiGH qUality of GooDs

In order to ensure that we offer

the highest quality goods, from

production site to the shelf, we

sell only licensed goods that are

transported and stocked under the

most hygienic conditions.

lenta PeoPle

People are the most valuable asset of

our business. We retain well-trained

employees to ensure they provide an

excellent shopping experience for our

customers.

resPeCt for eVeryone

We respect the opinions of our

customers, suppliers and employees,

encouraging positive criticism and

friendly relations.

innoVation

anD iDeas Generation

Our employees are the source of

many of the innovative ideas that

enable our continuous improvement

and we select and implement the

ideas that offer the greatest potential.

This helps us to improve our stores

as well as the service we provide.

We challenge our staff to share their

ideas relating to specific projects.

In 2019, voluntary staff turnover
in Lenta was flat versus 2018 and
comprised approximately 30 %.
To help ensure that we retain our
employees, we implemented a
number of employee engage-
ment projects in 2019. These
include additional incentive
programmes, corporate social
responsibility and charitable
initiatives as well as training and
educational activities.

reCrUitment
anD Career DeVeloPment
We provide numerous opportu-
nities for our employees to build
their careers in the organisa-
tion. In 2019, we created 2,746
new jobs.

We pay particular attention
to succession planning, which
enables us to promptly fill open
positions with internal candi-
dates. In 2019, out of 27,582 va-
cancies, 10,563 were fulfilled by
internal candidates.

In 2019, we identified 1,736
of our employees as high po-
tential for promotion. Twen-
ty six per cent of managerial
positions among TOP 1,000
group and 29 % of TOP-5,000
are supported by personnel
reserve, which is sufficient to
compensate the turnover the
nearest two years.

During the year, we promoted
over 4,000 employees, and ap-
proximately 5,000 people were
transferred to new roles through
horizontal moves, as part of the
succession planning process.

emPloyee enGaGement
High levels of employee en-
gagement directly influences
the Company’s performance
and the satisfaction of our cus-
tomers.

In 2019, 6,444 people from our
regional offices and Headquar-
ters took part in a study of our
employee engagement. The survey showed quite a
high level of engagement of 74 %. We received over
14,000 comments and recommendations on how we
can improve our business.

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oVer

1.8in 2019, we DeliVereD

who can share their expertise with colleagues, helping
to build their skills and improve their competencies.
These new internal trainers held 30 training courses
in three months in 2019.

million
HoUrs

of traininG

After processing the feedback, we held 45 focus
groups at which we presented areas for improvements
in the Company. These served as the basis for 19
workshops in which we developed improvement action
plans for each department and function.

manaGement DeVeloPment
We are constantly developing our leaders. We con-
tinued to develop a culture of efficient people man-
agement. We expect our managers to act as role
models for their team members, ready to share
knowledge and experience, and with the ability to
develop themselves and their colleagues.

Higher School of Economics; 110 of our managers com-
pleted the course. They worked on 32 group projects
focused on innovative business solutions. These projects
have been successfully implemented in the Company.
The programme started with personal development
training. This was a new element of the course, aimed
at raising students’ awareness of the importance of
the subject.

In 2019, we launched an important new initiative
in our management training programme, in which
leaders train future leaders at our Headquarters.
Previously, our internal trainers carried out training
at our stores and distribution centres.

In 2019 we continued the Lenta Leader Programme
developed in partnership with the Saint-Pertersburg

We selected 28 motivated and experienced manag-
ers for the role of internal trainers. These are employees

in 2019 we continued the lenta leader
Programme developed in partnership
with the saint-Pertersburg Higher
school of economics; 110 of our managers
completed the course

We continued to develop our leaders’ people man-
agement skills in 2019. Some 125 managers were trained
in how to provide supportive and efficient feedback
to their team members. Another 127 managers were
trained in our Situational Leadership course.

store
anD sPeCialist staff traininG
We provide our people with a variety of training op-
portunities, tailored to their experience and knowledge.
This applies to all employee categories and helps
colleagues to support Lenta’s growth at the same
time as advancing their own careers.

Our store employees are the public face of Lenta, so
they are the primary focus of our training efforts. Each
store runs a comprehensive induction programme for
new employees. This sets out Lenta’s values, history
and culture, as well as our policies and standards.
In 2019, more than 18,500 employees participated in
our induction programme.

All new employees are supported by mentors in their
first months working at Lenta. During the year, some
9,000 employees undertook mentoring training and
became mentors, almost twice as many as in 2018.

In 2019, we delivered over 1.8 million hours of training.
On-line training activities have proven to be highly
efficient and effective, which is why most of our new
courses are delivered in this format.

remUneration
We aim to provide 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 our business results, but also through our
values and competencies model.

All employees are included in our performance
management process, which helps us evaluate their
achievements and identify their future potential.

The process ensures constructive dialogue between
managers and their team members; it stimulates
productivity, rewards achievement and encourages
professional development. In line with a set of estab-
lished principles, financial support is available for em-
ployees who find themselves in difficult circumstances.

DiVersity
Lenta values and respects diversity; we offer em-
ployment opportunities to all able candidates. Re-
cruitment or promotion decisions are based purely
on the professional knowledge and competence of
the individual in question, as well as their potential.

Every Lenta store provides an average of six job
opportunities for people with special needs, and
every distribution centre offers eight of these positions.
In 2019, 175 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 of – and fair
pay for – people working from home.

DiVersity

Number of employees

HQ and Regional
divisions employees

male

29 %

31 %

Middle and senior management

52 %

lenGtH of serViCe

female

71 %

69 %

48 %

lenGtH
of serViCe

10+

3–9 years

Average seniority – 3.5 years

nUmBer
of emPloyees

2,710

18,437

5,60 %

38,10 %

PriCinG anD CUstomer satisfaCtion
We serve 15.8 million loyal customers in 88 Russian
cities. We work hard to provide affordable prices to all
types of customers, without compromising on quality.
We strive to offer the right range of products for our
customers, including large well-known brands, local

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produce and our private label ranges. In this way, we
achieve price efficiency and satisfy the needs of all
shoppers who choose Lenta. Despite the challenging
economic conditions in 2019, we continued to invest
in pricing for our customers and to create attractive
promotions for our customers throughout the year.

As part of the Social Programme that we operate in
all Lenta stores, we provide additional discounts for es-
sential goods for citizens with limited budgets. In 2019, 2.4
million of our customers benefited from this programme;
over 317 thousand joined the programme in 2019.

We will continue to help our customers manage
within their budgets, through tailored promotions and
investment in pricing. We will introduce new ranges of
private labels in all price segments to ensure we meet
the needs of all our customers. We will also maintain
our customer-focused approach, implementing new
services and communicating with shoppers in the
ways that suit them best.

loCal soUrCinG
We partner with local producers in the regions through-
out our area of operation. Our customers search for
local goods in our stores and appreciate the local
produce that we offer. In 2019, we sourced over 94 % of
our products from Russian suppliers, including 20.6 %
from regional suppliers. Over 24 % of our fresh food
was purchased locally.

We focus producers who can supply us directly. That
way, we can obtain better prices and more consistent
quality of locally grown foods. Shorter distances to
our stores mean that lead times and transport costs
are reduced, which enables us to deliver savings to
our customers.

Our Growers Platform provides opportunities of
sustainable growth for small and middle-sized farm-
ers. In 2019 we increased the number of our partners
within the programme by 8 %.

Our customers appreciate the wide variety and
consistently high quality of locally produced goods.

Regional economies benefit from such partnerships
as do our customers. We will continue to develop
new partnerships with local suppliers and growers
in 2020. We will focus on differentiation from the
competition to offer a unique selection to our
customers and provide growth opportunities for
our local partners.

CarinG for tHe enVironment
We take care of the cities where we operate, striv-
ing to make them cleaner, more beautiful and more
pleasant places to live. Through our participation in
a variety of environmental campaigns, we encourage
Lenta’s employees to play an active role in developing
a positive culture of care for the environment.

waste
Lenta produces various types of waste, which is re-
moved for us by third party contractors. During the
year we reduced the amount of waste produced
and continued to improve our recycling rates; we
now recycle 100 % of the cardboard and plastic wrap
that we use in our stores and Distribution Centres.

In 2019 we centralised our waste collection scheme

and increased the volume of recycled waste.

In 2019, all our hypermarkets were equipped with
special containers for battery collection within the
project we started three years back. We sent over
90 tonnes of batteries for recycling, which is twice as
much as in 2018.

We focused our efforts on the problem of plastic
consumption. We introduced and widely promoted
multiple use and paper bags along with sacks for
fruits and vegetables, as alternatives to plastic.

Over 50 % of plastic containers we use for food
and for our own produced dishes are made of re-
cyclable plastics. In 2020 we will increase the share
of recyclable materials and will communicate to
our customers the need to be aware of the various
types of plastic.

oVer

5О% of PlastiC

ProDUCeD DisHes are maDe
of reCyClaBle PlastiCs

Containers
we Use for
fooD anD for
oUr own

the Company contributed supplies and
stationery worth around rub 1.5 million to
263 social institutions as well as low income
families in need of support

enerGy
We piloted the installation of glass doors on vertical
fridges in 2019. As a result, we reduced electricity
consumption by over 20 %. We plan to roll this out to
our stores in 2020.

208 of our hypermarkets and supermarkets are

equipped with energy-efficient LED lightning.

sUPPortinG loCal CommUnities
We strive to improve the quality of life for children and
families in difficult circumstances; we also support
elderly people and others who need our help.

In August, 276 Lenta stores in 88 cities took part
in our “Help to get a child to school” initiative. The
Company contributed supplies and stationery worth
around RUB 1.5 million to 263 social institutions as well
as low income families in need of support. Donations
included 2,300 backpacks, 25,000 notebooks and
15,000 sets of pens. Employees personally congrat-
ulated 14,200 children from the sponsored institutions
on the Day of Knowledge.

Lenta’s “Good Deeds’ campaign is a traditional New
Year charitable activity. Children from local orphanages
and institutions place their “wish” on Christmas trees in
our stores, and our customers can choose a card and
buy the gift. In 2019, 321 stores in 88 cities took part in the
project, making the wishes of 14,400 children come true.
In 2019 we partnered with the “Give Food!” Foun-
dation. We installed 19 boxes for food donations in
our supermarkets. Our customers can buy goods
and leave them in a special box. The donations are
distributed by the Foundation among needy people.
“Lenta of kind cities’ is a charity event that benefits
a wide range of non-profit organisations. In March,
volunteers from those organisations accepted do-
nations of goods from Lenta hypermarket customers
in 14 Russian cities and passed them on to those in
need. The 2019 event collected over RUB 2 million
worth of goods for deserving causes.

Lenta was the principal partner of the “Be with the
City” project located in Palace Square, St Petersburg.
The project provides city residents with information
about their neighbours who need support and help,
and how to go about providing it.

Since 2013, Lenta has been a partner of the spring
Tulip Festival in St Petersburg, donating 30,000 Dutch

tulip bulbs every autumn. In 2019, we expanded
the Festival further afield: bulbs were planted in
Saint-Petersburg, Yekaterinburg, Novosibirsk, Byisk
and Rostov-on-Don.

PromotinG HealtH anD safety
Lenta is fully committed to creating and maintaining a
safe environment for employees and customers alike.
In 2019 we reduced the level of injury severity by 16 %.
We implemented a risk-oriented model in our
approach to safety at work and delivered addi-
tional training and supporting materials to promote
the rules of safe behaviour in the work place. In
order to improve the efficiency of training, we
automated some related processes. For example,
we introduced a robot that reminds employees
about training courses and monitors them as they
progress through the various stages. This has im-
proved the effectiveness our training; we have been
able to reduce time spent training by 70 %. We also
developed an IT system for registering accidents;
this allows our people, in an automated way, to
inform management about the case and obtain
recommendations on further action.

All Lenta store managers conduct daily and monthly
“safety walks” as part of our Active Safety programme.
These walks aim to identify any potential risks to staff
and customers, ensure that the staff check safety
equipment and are fully aware of hazards. Employees
are encouraged to report every safety-related inci-
dent, no matter how small, so that the cause can be
identified and any likelihood of recurrence eliminated.
Our injury rate was unchanged from last year,

despite the Company opening new stores in 2019.

Lenta’s main health and safety targets in 2019 con-
tinued to be the maintenance of high standards across
the Company, and the automation of various processes
to improve 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.

aCCiDents nUmBer Per 100,000 workinG HoUrs:

2018

0.26

2019

0.25

-4%

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019028

f i n a nC i a l

r eVi e w

029

rud PederseN
CHIEF FINANCIAL
OFFICER

Dear
sHareHolDers,

In 2019 we have been working on initiatives to achieve

operational efficiency and improve our cash flow. Our
efforts started to pay off as we saw some improve-
ments in the dynamics of our SG&A in the second
half of the year due to optimization of the headcount,
our marketing costs, and other operating expenses. Our
team also achieved good results in managing working
capital, which along with tight control over capital ex-
penditures resulted in a strong free cash flow of around
Rub 17bn. Considering a new stage of the Company’s
development and our own efforts, we maintain our target
to remain free cash flow positive and deliver value to
our shareholders5.

sales
Total sales grew 1.0% to Rub 417.5bn (2018: Rub 413.6bn),
including retail sales growth of 4.0% to Rub 408.0bn
(2018: Rub 392.2bn) and wholesales decline of 55.5%.

5 The figures represent the results in accordance with the standard

IAS 17. In this regard, they may not coincide with the financial

statements presented in this annual report, which is prepared in

accordance with standard IFRS 16.

After the robust performance in the first half, sales
came under pressure in the second half of the year
due to declining inflation, higher promotional activity
and a decline in LFL sales, especially pronounced in
the fourth quarter. Total LFL retail sales increased by
0.1% during the reported year driven by an increase in
LFL ticket by 0.1%, while LFL traffic was flat versus 2018.

Gross marGin
Gross profit margin improved to 22.0% from 21.5% in
2018. The Company mainly benefited from higher retail
margin as an increase in promo share as % of sales by
4.p.p. y-o-y was fully compensated by a combined
effect of higher promo margin and better coverage of
promo activities by suppliers. Additional positive effect
came from a significant decline in share of low-margin
wholesale business in the total sales throughout the year.
Expansion of the Company’s own production and
increased volumes led to a rise in related costs by 43
bps. Share of shrinkage increased by 13 bps as a result
of ongoing changes in procurement, including increased
direct import and direct contracts with suppliers. At the
same time, Lenta recorded declining shrinkage in fresh
food category as a result of the Company’s focused efforts.

Gross Profit marGin
imProVeD to

22.o%

net inCome
Net Loss of Rub 2.1bn due to non-cash expenses, with
negative Net Profit margin of 0.5% compared to Net
Profit of Rub 11.8bn in 2018 with Net Profit margin of 2.9%;

CaPital eXPenDitUre
Capital expenditures in 2019 were 36.1% lower than
in 2018 and amounted to Rub 14.1bn. The reduction
mainly reflected the effect of slower organic ex-
pansion, tight control over expenses and changes
in phasing of payments for some planned non-ex-
pansion projects. At 31 December 2019 the Group
has contractual capital expenditure commitments
in respect of property, plant and equipment and
intangible assets totalling Rub 6.2bn net of VAT (30
June 2019: Rub 6.7bn net of VAT).

CasH flow
Net cash generated from operating activities before
net interest and income taxes paid increased by 32.1%
and reached Rub 42.8bn compared to Rub 32.4bn in
2018. The Company improved its inventory levels, which
resulted in better working capital in the reported year.
Additional positive impact came from higher trade paya-
bles compared to 2018 due to better supplier conditions.

net DeBt anD leVeraGe

As of 31 December 2019, Net Debt to EBITDA stood
at 2.3x, Lease Adjusted Net Debt to EBITDAR at 3.2x
and EBITDA to Net Interest at 3.7x. As of 31 Decem-
ber 2018, Net Debt to EBITDA stood at 2.6x, Lease
Adjusted Net Debt to EBITDAR at 3.4x and EBITDA
to Net Interest was at 3.9x.

The Company had a gross debt of Rub 150.5bn
and a cash balance of Rub 73.4bn, giving Net Debt
of Rub 77.1bn. In addition, Lenta had Rub 89.1bn of
undrawn short- and long-term facilities.

New long-term loan facilities with lower fixed rates
were placed early in the first quarter of 2019 and
shortly after the closure of the second quarter. These
facilities enabled the Company to secure a lower cost
of debt with sufficient cash on hand to cover all of
Lenta’s refinancing needs in 2019 and part of 2020.
All of Lenta’s debt is denominated in Russian Rubles
and unsecured. 69.6% of debt is long-term of which
21.2% is due within one year.

sellinG, General
anD aDministratiVe eXPenses (sG&a)
SG&A increased to 18.3% of sales (1.6 p.p. higher
vs. 2018) mostly due to higher personnel expens-
es, higher depreciation linked to reassessment of
economic useful life of land improvements and an
increase in rental costs linked to the indexation of
rental fees.

Supply-chain cost as % of sales rose by 17 bps to
1.3% in 2019 vs 1.2% in 2018. An increase was mainly
driven by higher fuel prices and higher personnel
expenses following an expansion of own truck fleet
and launch of new distribution centers. Nonetheless
higher transport costs were largely offset by an in-
crease in the share of deliveries by own truck fleet,
increase in supply-chain income versus the previous
year and ongoing improvements in transportation
efficiency. The Company’s average centralization
ratio increased to 60.5% from 56.9% in 2018.

Personnel costs as % of sales grew by 56 bps
y-o-y due to one-off expenses related to man-
agement compensation and further stores ex-
pansion. Professional fees were higher as % of
sales by 12 bps mainly due to rapid growth of the
share of customer payments by debit and credit
cards. Country-wide increase in tariffs resulted in
higher utilities, cleaning and communal cost which
increased by 27 bps.

As a result, adjusted SG&A as % of sales increased
by 1.0 p.p to 13.3% in 2019 compared to 2018. Rental ex-
penses increased marginally by 5 bps to 1.5% of sales as
a result of indexation of rental fees in 2019 linked to CPI.

eBiDta
EBITDA in 2019 reached Rub 34.0bn and EBITDA
margin stood at 8.1%.

interest
Net interest expenses of Rub 9.3bn, an increase of
1.9% compared to 2018 (Rub 9.1bn) as an increase in
gross debt offset a decline in average cost of debt

DePreCiation
Depreciation as % of sales increased by 63 bps y-o-y,
which was mainly due to the Company reviewing
the economic useful life of land improvements from
30 years to 7 years (as practice has proven that the
factual useful life of land improvements does not
exceed 7 years). Consequently, the Company rec-
ognized an additional non-cash expense of around
Rub 2.3bn in 2019.

6Lease adjusted Net Debt calculated as Net Debt plus operating

leases multiplied by capitalization rate of 8.0x in accordance with

credit rating agencies approach

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
030

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031

risk manaGement
Lenta defines risk as ‘an uncertain future event that

The process is supported by a governance structure
that clearly defines risk-related roles and responsibilities
at each level within Lenta. The Board has overall account-
ability for ensuring that risks are effectively managed
across the business.

could affect the Company’s ability to achieve
its objectives’. Understanding how various risks
potentially influence our business is integral to
the decision-making process within the Company. We
monitor all material risks to our operations on an ongo-
ing basis, acting whenever necessary to mitigate and
manage them. We also anticipate and evaluate new
threats as and when they arise. Our risk management
process applies across all functions and comprises four
principal stages:
• identification;
• assessment;
• response;
• monitoring, reporting and escalation.
Stage 1 – Risk identification
We conduct a ‘top down’ strategic risk assessment on
an annual basis. This supplements a biannual functional
‘bottom up’ evaluation, which identifies risks at opera-
tional levels in the Company. These activities enable us
to create a comprehensive risk profile.

Risk identification is also embedded into key busi-
ness processes including budgeting, planning, capital
expenditure and performance management.

stage 2 – risk assessment
Risks are individually assessed to determine their likeli-
hood of occurrence, and their potential impact on the
business. They are evaluated on a ‘Current’ and ‘Target’
basis, which helps to inform management oversight.
Risks are assessed over a three-year timescale using
Lenta’s Risk Assessment Criteria, which comprise four-
point probability and severity scales.

stage 3 – risk response
When the ‘Current’ severity of a specific risk exceeds
acceptable levels, action may be needed to align it
with the ‘Target’ risk position. Risk Owners are account-
able for managing the risk, with details of planned
mitigation 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 decision making on appropri-
ate responses; these include management interventions
to avoid a risk becoming reality in the first place, or to
reduce its impact after the event.

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
within the Company are responsible for implementing
risk management activities in their areas.

Starting in 2020, the Company is planning to update
the risk register and perform the above stages twice a
year. We have changed our risk management policy
with regard to the assessment thresholds of the risks’
impact. From 2019 onwards, the Company will assess the
impact of a risk occurring as a percentage of its annual
figure for EBITDA.

risk manaGement PoliCy
Lenta’s Risk Management Policy provides a comprehensive
and robust framework, enabling us to ensure that risk is
managed to a consistently high standard across all our
operations. It sets out the Company’s principles and
standards and establishes a common approach and
minimum requirements for risk management activities.
The policy provides a ‘common language’ for risk, and
delivers multiple benefits, including:
• informed decision-making to help deliver consistent
and improved business performance through the avoid-
ance of unwanted surprises as well as the 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;
The Risk Management Policy is owned by the Chief
Financial Officer and is reviewed annually. Compliance
is mandatory for all levels of management. 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 pro-
vided to all staff commensurate with their roles and
responsibilities.

tHe risk lanDsCaPe
The Russian retail industry continues to be challenged by
weak macro-economics, changes in legal and regulatory
requirements, as well as continued fierce competition.

As the market has adapted to geo-political ten-
sions and related sanctions, our supply stability risk
has decreased significantly and is no longer viewed
as an immediate principal risk.

A slower pace of expansion together with a renewed
focus on efficiency and company leverage delivered
positive cash flow. Consequently, the Company’s ex-
ternal net debt decreased and exposure towards risks
associated with having sufficient external financing
are reduced. In addition, the second half of the year
saw the Central Bank of Russia lower its interest rates
which, together with low inflation, helped to ease the
overall financial risks.

With slowed organic expansion and increasing
competition from existing and new players in the
industry, Lenta needs to update its strategy with a
view to ensuring the sustainability of its hypermarket
format as well as developing new and sustainable
growth opportunities. Otherwise, there is a risk that
the Company could find itself entrenched with the
majority of its business in the hypermarket segment.
In 2019 our wholesale business declined as expected
and it no longer constitutes a significant part of our
business. The Company performed a detailed store-
by-store analysis and identified a number of significant
impairment both at the mid- and year-end. Given the
volatility and weak economic environment in which
Lenta operates the risk of further impairments are
inherent, although with the impairments made in 2019,
it is no longer considered a principal risk.

Lenta continues to engage and cooperate across
its value chain with numerous suppliers, partners and
authorities both at local, regional and federal level. In
doing so Lenta must ensure that all its dealings are in
line with relevant legislation, as well as external and
internal standards and regulations, including policies
regarding ethical behaviour.

Operating across a significant geographical span
with, at times, long supply routes and a multitude of
suppliers, food safety is a principal risk for Lenta. At
the same time, Lenta’s in-store production of goods
for re-sale is growing due to increased demand. Con-
sequently, we need to ensure that products offered
to customers are at all times of the highest quality
and meet all required safety and sanitary standards.
Work force mobility is high and the retail industry’s
core employee capabilities are easily transferable
between Lenta and its competition, not only in food
retail, but across various types of retail business-
es. The Company works continuously to attract
and retain employees and its ability to do so is a
principal risk.

The emergence of the novel Covid-19 coronavirus
continues throughout China and other countries.
Measures to contain the virus may impact business
operations around the world. As governments and
companies take measures to protect their citizens,

operations and employees at home and abroad,
such actions may lead to business interruptions,
travel risks and other effects that could impact the
Company’s supply chain.

oUr key Priorities
A. Relentlessly focus on the customer in order to become

the most preferred retailer in Russia

B. Adapt our Hypermarket format to changing customer
demand in order to grow and deliver best-in-class
profitability

C. Build successful offers in supermarkets and online in

order to bring convenience to our customers

D. Maintain a healthy balance sheet with a conservative

approach to leverage

E. Continuously innovate, experiment, develop and test

new businesses in search of a winning model

F. Strengthen our agile organisational culture in order to

reduce time-to-market

G. Further operational execution to maintain our position
as the most cost-efficient retailer in Russia in order to
maximise customer and shareholder value

y
e
k

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g
H

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s
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o
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y
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i
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n
U

1
3

7
11
12

2
4

Minor
1

Moderate
2

impact

Major
3

Severe
4

DesCriPtion of PrinCiPal risks
1. Changing legal and regulatory environment
2. Macro-economic and political instability
3. Increased competition from existing and new formats

as well as industry consolidation

4. Competitive sourcing and security of supply
5. Lack of innovation and adaptation
6. Attracting and retaining a qualified, diverse workforce
7. Food safety and product quality
8. Taxation
9. Capital markets and liquidity
10. Legal and compliance
11. Strategy development and execution
12. Cyber and IT risks

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
032

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033

no on
maP.

risk DesCriPtion

risk
CateGory

CUrrent seVerity

oBjeCtiVes
affeCteD

oUtlook/
trenD

How we manaGe it

CHanGes in 2019

risk

imPaCt

likeliHooD

risk DesCriPtion

risk
CateGory

CUrrent seVerity

oBjeCtiVes
affeCteD

oUtlook/
trenD

How we manaGe it

CHanGes in 2019

risk

imPaCt

likeliHooD

Changing
legal and
regulatory
environment

Introduction of new legal
and regulatory requirements
and the complexity of exist-
ing requirements drives the
cost of compliance and may
disrupt our value chain.

Macro-eco-
nomic and
political
instability

Weak consumer demand
may impact sales growth.
Instability may create unpre-
dictable pressure on cost as
well as on our supply chain.

Increased
competition
from existing
and new
formats, plus
industry con-
solidation

Increased competition
or aggressive marketing
and pricing practices by
competitors may negatively
impact sales and margins
through decline in customer
traffic and basket.

Competitive
sourcing and
security of
supply

Lack of inno-
vation and
adaptation

Slower growth may result in
weaker competitive bargain-
ing power with suppliers and
hence impact margins.
Competitors investing in price
may put our low price/low
cost model under pressure.
We may face a ‘perfect
storm’ scenario where we
have less ability to respond
to customers and suppliers,
and where competitors
dominate.

Lack of innovation may
impact our ability to
compete, leading to loss of
customers. It may also affect
our ability to communicate
and engage with customers,
making us uncompetitive,
which may negatively im-
pact traffic and basket size.

Attracting
and retain-
ing a quali-
fied, diverse
workforce

Failure to attract and retain
required capabilities may
mean we cannot sustain our
efficient operating model,
execute on our strategy or
ensure succession planning.

Strategic

Stable

Strategic

Decreasing

Strategic

ABG

Stable

Strategic

ABC

Stable

Operational

ABCDEFG

New

Operational

ABCDEFG

New

Monitor legislative and regu-
latory initiatives and actively
engage in dialogue with
legislatros, both directly and
through retail associations.
Continue to update and in-
vest in process optimisation
and automation.

Monitor main economic
indicators.
Rolling 60-month forecast.
Consistently keep our
customer offer relevant to
consumer spending power.
Continue to improve our
supply chain.

Actively track and measure
competitors’ behaviour and
changes, understand struc-
tural changes in the market
and implement changes to
our offer, formats and price
positioning.

Increase our share of direct
imports and local sourcing
by taking charge of the full
value chain.
Consolidate purchasing
power on fewer suppliers.
Develop private label.
Participate in retail alliance
of independent retailers

Continued focus on talent
planning and people devel-
opment processes in Lenta.
Employer branding through
actively working with uni-
versities.
Introduction of employee
engagement programme,
employee retention through
LTIP and succession planning
tools.
Ongoing focus by the Board
of Directors and management
on succession planning.

Introduced digitalisation and
tracking of veterinary certifi-
cates regarding fresh goods.
Changed requirements related
to tracking excise labels by
bottle rather than batch.
Excise label tracking system for
tobacco introduced.
New legislation related to
outsourced labour.

Lower oil prices and increase
in VAT had an overall negative
impact on the economic growth
and consumption in 2019. The
consumer environment started
to improve in the second half of
the year, with slower growth of
inflation, rising wages and higher
real disposable income. There
were no materially negative
changes in 2019 to the political
environment.

Growth of hard discounter and
ultra-convenience formats.
Slower but continued organic
expansion by major conve-
nience operators.
Increased and aggressive
promotional activities by many
food retailers.

There were no changes
indicated.

no on
maP.

Food safety
and product
quality

Taxation

Food or non-food products
being offered for sale and
not meeting required quality
standards may impact our
Lenta brand value and
service perceptions, thus
failing to sustain trust in our
brand. Lack of trust in the
Lenta brand could seriously
damage our reputation and
negatively impact sales and
market share.

Incremental tax payments,
late payment interest and
fines may have a negative
impact on the Company’s
financial performance in
addition to causing loss of
reputation.

Capital
markets and
liquidity

Access to funding markets
being restricted or limited,
and growing cost of capital
may lead to a negative
impact on Lenta’s financial
performance, cash liquidity
and ability to fund operations.

Legal and
compliance

Changes in - or failure to
comply with - relevant legis-
lation and regulations could
adversely affect our opera-
tions and negatively impact
sales, profit and reputation.

Operational

Increasing

Financial

Decreasing

Financial

Decreasing

Governance

Stable

Increasing labour mobility and
fight for talent from retail and
other industries.
Attrition of senior and middle
management to competitors.

Strategy
develop-
ment and
execution

Increasing labour mobility and
fight for talent from retail and
other industries.
Attrition of senior and middle
management to competitors.

Cyber and IT
risks

Unsuccessful development
and execution of strategy due
to poor prioritisation, ineffec-
tive change management
and a
failure to understand market
developments may result in
a loss of market share and
deterioration of profitability,
eventually leaving Lenta as a
single format operator.

Failure to ensure data security
and privacy could impact our
licence to operate. The loss
of sensitive information could
result in reputational damage,
fines or other adverse conse-
quences.

Strategic

ABCEFG

New

ADEF

New

Operating integrated quality
control procedures, implement-
ing; monitoring and controlling
food safety and quality
standards.
Increasing control over the value
chain by direct imports, direct
cooperation with farmers and
growers, providing increased
transparency and control over
product quality from field to
shelf.

The Company is continuously
monitoring tax legislation in ac-
cordance with designed control
procedures.
By engaging external advisors,
we are obtaining advice on
appropriate treatment of value
added taxes, deductibility and
depreciation.

Lenta maintains an infrastructure
of processes, policies and pro-
cedures securing strict discipline
and oversight on financing and
liquidity issues. Our liquidity
levels and sources of cash are
constantly reviewed and report-
ed to management.

Lenta manages legal and
regulatory risks by regularly
monitoring relevant legislation
and risk assessment frameworks.
The Company has developed
relevant control procedures for
internal controls and internal
audit departments to detect,
report and respond. There is
regular reporting to the Board of
Directors and management on
the status of governance and
compliance.

The Board of Directors and
Management develops and
challenges the strategic direc-
tion of our business to enhance
our ability to remain competitive
on price, range and service. We
continued further development
of supermarkets, created a dedi-
cated team focused on new for-
mats and business models and
launched a new pilot project of
the online format - Lentochka.

We have processes and controls
established to detect, report
and proactively respond to se-
curity incidents. We implement-
ed a pipeline of initiatives to
enhance our security capabilities
to improve data security. We
introduced monitoring of the
security and data privacy status
and report on this to the Board
of Directors and management.

There were no changes
indicated.

VAT was increased
from 18% to 20%.

The Central Bank of Russia
lowered interest rates in
2019. The inflation rate has
also declined. The Compa-
ny successfully decreased
its leverage and negoti-
ated improved conditions
on its external borrowings.
Severgroup became a
long-term strategic share-
holder in Lenta.

State authorities have
been considering intro-
ducing changes to the
state traceability systems
covering wider groups of
goods, although there
were no signs of easing or
simplifying other legal and
regulatory requirements for
businesses.

Severgroup became a
long-term strategic share-
holder in Lenta.
Food retail in Russia saw
increased and tougher
competition from both new
and existing players with
new formats, shifting the
paradigm towards omni-
channels and increased
promotional activities.

The number and sophis-
tication of cyber threats
is growing every year. The
Company has launched IT-
based projects and intro-
duced on-line technologies
which result in increased
exposure.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019Directors have assumed that the existing banking
and debt facilities will remain in place or mature
as intended. The Directors have also considered
mitigating actions available to Lenta, including
restrictions on capital investment, further cost re-
duction opportunities and future dividend policy.
The Directors have assumed that these mitigating
actions can be applied on a timely basis and at
insignificant or no cost.

Based on the results of our viability assessment,
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.

034

r i s k

m a n a Ge m e n t

035

B o a rD

a U Di t C o m m i t t e e

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

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

s e n i o r m a n a Ge m e n t t e a m

H e aD o f r i s k m a n a Ge m e n t

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

Responsible for the risk
management framework
and coordination
of management

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k
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f UnC t i o n s

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

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ViaBility statement
Lenta’s viability assessment considers its solvency and
liquidity over a period exceeding that of the going
concern assessment. The degree of predictability
inherently reduces over this longer period. Under-
standing our business model, our main priorities and
our principal risks is a key element in the assessment
of Lenta’s prospects, as well as the formal consider-
ation of viability.

Our low price/low cost business model is aimed at
generating market-leading sales levels, by consistently
applying everyday low prices combined with deep and
frequent promotions. Low cost is driven by the combination
of high sales volumes with efficient business processes and
store designs which, together, optimise store operating
and supply chain costs. Our federal reach and sales
volumes support this, and so enable us to negotiate
competitive conditions with suppliers.

lenta continues to engage and cooperate
across its value chain with numerous
suppliers, partners and authorities both at
local, regional and federal level

We prefer to own the majority of our hypermarkets,
as this allows us to operate stores optimised to our
requirements to support our low-cost operations
and supply chain.

Owning our stores provides an efficient cost hedge
versus rent inflation, as does Lenta’s incremental
borrowing rate when compared to the required re-
turn on invested capital of real estate investors. With
organic expansion at a somewhat slower rate, with
lower (though still substantial) capital expenditures,
positive free cash flow - after capital expenditure
and financing costs - is expected.

While Lenta continues to be reliant on banks
and financial markets for funding, our policy is to
maintain a strong balance sheet to ensure the
Company has access to capital markets. As part
of managing our viability, we ensure our debt has
relatively long maturities, is not exposed to currency
fluctuations and has limited interest rate risk. The
principal risk affecting Lenta is the impact of sig-
nificant changes in consumer spending due either
to economic developments or to reduced appeal
of our commercial offer.

Severe economic turbulences could, however,
affect our business – as it could other retailers’ –
and could therefore influence our cash generation
and debt service capacity. This in turn could affect
the level of ambition we are able to apply to our
further development.

Our approach to the viability of the business is
influenced by our key priorities that are focused
on adapting our hypermarket format to changing
customer demand. This is in addition to building
a successful offer in supermarkets and online that
brings convenience to our customers so we can
grow and deliver best-in-class profitability. This
requires continued innovation, experimentation,
development and testing in search of winning
models. Along with an agile organisational culture
that is committed to reducing time-to-market,
and a meticulous focus on operational execution
to maintain our position as the most cost-efficient
food retailer in Russia, thereby maximising customer
and shareholder value.

The Directors have determined that Lenta’s long-
term planning horizon - which is the existing year
plus the four following 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 various scenarios.

Lenta has significant financial resources, in-
cluding committed and uncommitted banking
and debt facilities. It also has a new long-term
investor who became a majority shareholder dur-
ing 2019. In assessing the Company’s viability, the

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l e n t a

a n nU a l r eP o r t

a nD a C C oUn t s

2 0 1 9

o1 › s t r a t e GiC r eP o r t

o2 › C o rP o r a t e Go Ve r n a nC e

o3 › f i n a nC i a l s t a t e m e n t s

o4 › aP Pe nDiC

e s

o2 ›

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Bo a rD

o f Di r e C t o r s

039

BoarD
of DireCtors

aleXey morDasHoV,

CHairman

steVe joHnson,

senior inDePenDent DireCtor

miCHael lynCH-Bell,

inDePenDent DireCtor

Alexey Mordashov was appointed a non-

Steve Johnson has been an independent non-

Michael Lynch-Bell was appointed an

executive director of Lenta Plc in May 2019

executive Director of Lenta Plc since 2010. He

independent non-executive Director of Lenta

Board Committees: Nomination

was appointed as Lenta’s Senior Independent

Plc in 2013.

Experience: Born in 1965. Alexey Mordashov

Director in 2013.

Board Committees: Audit (Chairman),

has been working for Severstal since 1988.

Board Committees: Nomination (Chairman),

Remuneration (Chairman), Nomination

He started his career as a Senior Economist,

Remuneration, Audit, Operation and Capital

Experience: Michael retired from Ernst & Young

becoming Chief Financial Officer in 1992.

Expenditure

as Senior Partner in 2012 after a 38-year

In December 1996, he was appointed as

Experience: Steve has over 20 years’

career with the firm. He was a member of Ernst

Severstal’s Chief Executive Officer. Between

experience in the retail industry, having been

& Young’s audit practice from 1974 to 1997,

2002 and 2006 he served as CEO of Severstal

part of the team that turned around and

becoming a partner in 1985. During this period,

Group and was Chairman of Severstal’s

successfully sold Asda to Walmart. Whilst

as well as supervising and being involved in the

Board of Directors. From December 2006 to

at Asda, Steve held several senior positions

audit of a number of multinational groups, he

December 2014 Alexey was CEO of Severstal.

including Trading Director, Commercial Finance

advised a wide range of companies on systems

From December 2014 until May 2015 Alexey

Director and Marketing Director. Following his

and controls, corporate governance, risk

Mordashov served as CEO of AO Severstal

time at Asda, he was CEO of Focus DIY Ltd and

management and accounting issues. In 1997,

Management – managing company of PAO

of Woolworths Plc, as well as Sales & Marketing

Michael moved to Ernst & Young’s Transaction

Severstal. Alexey was elected Chairman of

Director at GUS Plc. He started his career in

Advisory practice, where he founded and

the Board of Directors of PAO Severstal in May

management consultancy with Bain & Co.

led its UK IPO and Global Natural Resources

2015.

Other roles: Steve is currently a non-executive

transaction teams. He has been involved with

Other roles: Currently Alexey is CEO of

Director of Big Yellow Group Plc. He also works

the CIS since 1991 and has advised many CIS

Severgroup LLC. He is also Head of the Russian

with a number of private equity firms primarily

companies on fundraising, reorganisations,

Union of Industrialists and Entrepreneurs’

focused on Southern and Eastern Europe.

transactions, corporate governance and IPOs.

Committee on Integration, Trade and

Qualifications: Steve graduated from

Other roles: Michael is also Deputy Chair and

Customs Policy and WTO, Supervisory

Cambridge University, United Kingdom, with an

Senior Independent Director of KazMinerals

Board member in Non-Profit Partnership

Engineering degree.

«Russian Steel Association», Co-chairman

of the Northern Dimension Business Council,

member of the Russian-German workgroup

responsible for strategic economic and finance

issues, Member of the EU-Russia Business

Cooperation Council.

Other Selective Directorships:

Nord Gold SE, TUI AG.

Qualifications: Alexey graduated from

the Leningrad Institute of Engineering and

Economics, holds an MBA from the Business

School at the University of Northumbria in

Newcastle, United Kingdom. He is awarded

an Honorary Doctorate of Science from the

Saint Petersburg University of Engineering

and Economics (2001) and the Northumbria

University (2003).

Plc, Senior Independent Director and Audit

Committee Chairman of Gem Diamonds

Limited, Chairman at Little Green Pharma Ltd

and a non-executive Director of Barloworld

Limited.

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.

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o f Di r e C t o r s

041

jUlia soloVieVa,

inDePenDent DireCtor

aleXey kUliCHenko,

non-eXeCUtiVe DireCtor

roman VasilkoV,

non-eXeCUtiVe DireCtor

tomas korGanas,

Herman tinGa,

rUD PeDersen,

non-eXeCUtiVe DireCtor

CHief eXeCUtiVe offiCer (Ceo)

CHief finanCial offiCer (Cfo)

Julia Solovieva was appointed an independent

Alexey Kulichenko was appointed a non-

Roman Vasilkov was appointed a non-executive

Tomas Korganas was appointed a non-

Herman Tinga joined Lenta in 2013 as Chief

Rud Pedersen was appointed Chief Financial

non-executive Director in 2018.

executive Director of Lenta Plc in May 2019.

Director of Lenta Plc in May 2019

executive Director of Lenta Plc in August 2019.

Commercial Officer and was appointed CEO in

Officer in April 2019.

Board Committees: Audit, Nomination,

Experience: In 1996–2003 Alexey held different

Board Committees: Operation and Capital

December 2018.

Experience: Before his current role, Rud served

Remuneration.

managerial positions at Sun Interbrew, starting

Expenditure (Chairman)

Expenditure.

Experience: Prior to joining Lenta, Herman was

as CFO of Carlsberg Eastern Europe and was

Experience: Julia has over 20 years experience

his career as a cash flow economist at the

Experience: Roman Vasilkov joined Severstal in

Experience: Tomas Korganas started his career

Non-Food Global Category Management &

responsible for operations in five FSU markets.

in the internet search, media, retail and

Rosar plant in Omsk and ending it as Efficiency

2006 as an analyst at the Sales department.

at BCG and Goldman Sachs, after that he

Sourcing Director at Metro AG. He has 33 years’

Over the last 25 years he has held a number

telecoms sectors. Julia joined Google in 2013

Planning and Managing Director. In 2003–2005

From 2008 till 2012 he held various positions

worked in and led Corporate M&A at GE, Rusal

experience in retail and cash & carry. Herman

of senior management positions in a diverse

as Managing Director/Country Manager

Alexey worked as CFO at Unimilk. In December

in Severstal-Invest which is part of Severstal’s

and Vympelkom for the next 10 years. In 2012,

has held Board and VP positions with METRO

range of businesses including FMCG, fashion

Russia, and has been Director, Business

2005 he joined CJSC «Severstal Resource» as

Russian Steel division. During this time

Tomas joined Severstal as Head of Corporate

Cash & Carry in Netherlands and Russia and

and apparel retail and pharma. Rud has had

Operations for Emerging Markets EMEA since

CFO. In July 2009 he was appointed CFO of

Roman was responsible for the organization

Development and soon after he was asked

senior management roles in Dutch department

experience in regional and group level roles,

2016. From 2007 to 2012 she held various senior

JSC Severstal.

of the company’s AR management system,

to assume same role at Severgroup. Since

stores chain V&D as well as supervisory roles

including Cadbury (Russia), Astrazeneca

positions including the role of President, at

Other roles: Alexey currently serves as CFO of

preparation of management accounting and

2018, Tomas is also heading the Strategy of

with Electric City and shoe importer REMO.

(Belgium), Levi Strauss (Belgium) and IC Group

Prof-Media, one of Russia’s largest media

JSC «Severstal Management» – managing

business-process regulation. In 2012 he joined

Severgroup.

At Metro Cash & Carry he was involved as

(Denmark). He started his career with Deloitte.

groups. Prior to this she held various corporate

company for PAO Severstal and CFO of

Corporate Control at Severgroup LLC.

Other roles: Tomas currently serves as a

international Sponsor in sourcing across Asia

Qualifications: Rud holds the Master of

development and other leadership roles in the

Severgroup LLC.

Other roles: Currently (since 2016) Roman is

Director for Strategy and M&A of Severgroup

and Europe and helped lead the development

Science degree in International Business

telecoms sector and also has experience in

Other Selective Directorships: PAO Severstal.

the Head of Corporate Control at Severgroup

LLC and Head of Corporate Development of

of customer-centric category management for

Administration & Commercial Law from Aarhus

strategy consulting with Booz Allen Hamilton

Qualifications: Alexey graduated from Omsk

LLC. His responsibilities include financial control

JSC «Severstal»

Metro group.

School of Business, Denmark. He also has an

Netherlands and as Director of Operations for

Institute of World Economy with a degree in

as well as business and investment analysis of

Qualifications: Tomas graduated with B. Sc.

Qualifications: Herman has a Bachelor’s

EMBA from London Business School.

Mary Kay Russia and CIS.

Economics.

Severgroup’s companies and projects.

in Engineering from Kaunas University of

degree from the Netherlands Institute of

Other roles: Julia is currently Director, Business

Operations Emerging Markets EMEA, Google

Qualifications: Julia holds an MBA from

Harvard Business School and a BA in foreign

languages from Moscow State Linguistic

University.

Other Selective Directorships: Nord Gold SE,

Technology in 1993, M. Sc. in International

Marketing.

Tele2.

Qualifications: Roman graduated from the

Military Engineering and Space Academy

of Mozhaysky, St. Petersburg. In 2013 he

graduated with honors from the Institute of

Management and Information Technologies

(branch of the St. Petersburg State Polytechnic

University) majoring in financial management.

Strategy from Helsinki University of Technology

in 1996, and MBA from Sloan School of

Management, MIT in 2000.

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043

senior
manaGement
team

Herman tinGa,

rUD PeDersen,

eDwarD DoeffinGer,

CHief eXeCUtiVe offiCer

CHief finanCial offiCer

CHief oPerational offiCer (Coo)

Herman Tinga joined Lenta in 2013 as Chief

Rud Pedersen was appointed Chief Financial

Edward Doeffinger joined Lenta in 2011 as Chief

Commercial Officer and was appointed CEO in

Officer on 1 April 2019.

Operational Officer.

December 2018.

Experience: Before his current role, Rud served

Experience: Prior to joining Lenta, Edward

Experience: Prior to joining Lenta, Herman was

as CFO of Carlsberg Eastern Europe and was

served as Deputy General Director of Metro

Non-Food Global Category Management &

responsible for operations in five FSU markets.

Cash & Carry Kazakhstan. Before starting

Sourcing Director at Metro AG. He has 33 years’

Over the last 25 years he has held a number

his career in 1991 at Metro Cash & Carry

experience in retail and cash & carry. Herman

of senior management positions in a diverse

(Germany), Edward held several positions in

has held Board and VP positions with METRO

range of businesses including FMCG, fashion

wholesale companies and worked as Head of

Cash & Carry in Netherlands and Russia and

and apparel retail and pharma. Rud has

the dry food department at the Trade Ministry

senior management roles in Dutch department

had experience in regional and group level

of the German Democratic Republic. During his

stores chain V&D as well as supervisory roles

roles, including Cadbury (Russia), Astrazeneca

30 years’ experience in the retail industry he

with Electric City and shoe importer REMO.

(Belgium), Levi Strauss (Belgium) and IC Group

has held senior positions in various countries.

At Metro Cash & Carry he was involved as

(Denmark). He started his career with Deloitte.

In 1994 he obtained his first assignment outside

international Sponsor in sourcing across Asia

Qualifications: Rud holds the Master of cience

Germany as a board adviser to Metro Cash

and Europe and helped lead the development

degree in International Business Administration

& Carry in Hungary. After a year in Hungary,

of customer-centric category management

& Commercial Law from Aarhus School of

Edward became a member of the Metro

for Metro group.

Business (Denmark). He also has an EMBA from

Jinjiang team (China) and worked as a Store

Qualifications: Herman has a Bachelor’s egree

London Business School (UK).

General Director and later as Head of Store

from the Netherlands Institute of Marketing.

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.

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045

joern arnHolD,

sUPPly CHain DireCtor

tatiana safUtina,

Dmitry BoGoD,

jaaP Van VreDen,

tatiana yUrkeViCH,

CommerCial DePartment DireCtor

CHief strateGy & marketinG offiCer

soUrCinG anD ProCUrement DireCtor

Hr DireCtor

Joern Arnhold joined Lenta in 2011 as Supply

Tatiana Safutina joined Lenta in 2015 as

Dmitry Bogod joined Lenta in 2018 as Chief

Jaap van Vreden joined Lenta as Procurement

Tatiana Yurkevich joined Lenta in 2012 as

Chain Director.

Commercial Director, Fresh Food.

Strategy Officer.

Director in 2015.

Human Resources Director.

Experience: Prior to joining Lenta, Joern

Experience: Tatiana has more than 20 years’

Experience: Dmitry has over ten years

Experience: Jaap has over 30 years’

Experience: Prior to joining Lenta, Tatiana

had 13 years’ experience with Metro Group

experience in the Russian food retail sector.

of experience in strategy consulting for

international experience in the retail industry

served as Human Resources Director at Fazer

Logistics (‘MGL’) where he held various key

Prior to joining Lenta, she was with the O’KEY

international companies. Before joining Lenta,

across sourcing, procurement, marketing

Bakeries & Confectionery, Russia. During her

positions in Germany, Turkey and Russia. As

retail chain for ten years, where she worked

Dmitry was an associate partner in McKinsey’s

and brand management. Prior to joining

17 years in HR management, she has held

Managing Director of MGL in Russia, Joern

her way up from Head of Deli and Fresh Food

Moscow office, where he focused on strategy

Lenta, he was a consultant for Li& Fung and

senior positions including Head of HR at

was responsible for developing and running

in St. Petersburg to the company’s Head of

and marketing projects for Russian and

implemented category and procurement

United Heavy Machinery Group and Izhora

logistics operations for the Metro Group sales

Fresh Food. Before that, Tatiana oversaw the

international retailers and FMCGs. Prior to

management in supermarket and hypermarket

Plants, and HR Director of Caterpillar European

divisions in Russia.

procurement of fresh produce at AKT Zdorovye

that, Dmitry worked at Oliver Wyman, advising

chains.

Fabrications and Caterpillar Tosno. Tatiana has

Qualifications: Joern holds a degree in

and Uniland in St. Petersburg.

companies on consumer related strategy and

Earlier in his career, Jaap worked as CCO for

experience in leading Six Sigma Programme

Business Administration from the Georg August

Qualifications: Tatiana holds a degree from

operational topics. Prior to consulting, Dmitry

Modis in Russia and for over eight years held

implementation as a Deployment Champion in

University Goettingen.

Saint-Petersburg State Institute of Technology.

worked with Aon Benfield Securities, RBC

VP positions in Ahold USA and CEE.

Caterpillar.

Capital Markets, and Manulife Financial.

Qualifications: Dmitry has an Honours

Bachelor of Science Degree in Applied

Mathematics from the University of Toronto.

Qualifications: Jaap holds a diploma in Retail,

Qualifications: Tatiana has a master’s degree

Economic and Administrative studies from the

in International Economics from St. Petersburg

Deltion College in the Netherlands.

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).

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serGey ProkofieV,

serGey korotkoV,

leGal anD GoVernment relations

CHief information offiCer

DireCtor

Sergey Korotkov joined Lenta in 2018 as Chief

Sergey Prokofiev joined Lenta as Legal and

Information Officer.

Government Relations Director in 2012.

Experience: Sergey has extensive expertise

Experience

in information technology, supported by over

Experience: Prior to joining Lenta, Sergey

25 years of experience in both Russian and

worked for Metro Cash & Carry for 11 years

international companies. Before joining Lenta,

in different positions including Legal and

Sergey was most recently Senior Vice President

Compliance Director. He started his career

and CIO at Gloria Jeans, where he led the

as an expert interpreter and later worked as

company’s digital transformation. Prior to that,

a lawyer in a major Russian law firm and as a

he was CIO at Dixy Group, where he led the

defending attorney at the Moscow City Bar.

development and implementation of its IT

Qualifications: Sergey graduated from

strategy. He has also held similar positions at

the Military Institute of Foreign Languages

PepsiCo, Transaero Airlines, and Bristol-Myers

(‘VKIMO’) and the Institute of Law. He holds

Squibb Russia.

a PhD in Law from the Institute of Legislation

Qualifications: Sergey graduated with honours

and Comparative Law under the Government

from Moscow State University with a Master’s

of the Russian Federation and an MBA in

Degree in Applied Mathematics.

Strategic Management from California State

University.

anna loGUnoVa,

VaDim monakHoV,

internal aUDit DireCtor

DireCtor of BUsiness sUPPort

Experience: Anna has twenty-one years’

Vadim joined Lenta in August 2019 as the

experience working in food retail and FMCG.

Director of Business Support.

Anna Logunova joined Lenta in 2011 as

Experience: Prior to joining Lenta, Vadim was

Director for Supply Chain Controlling; she

in charge of security in Utkonos. Before that,

was appointed Director for Supply Chain

Vadim worked in law-enforcement authorities

and Investment Controlling in 2013, taking

and was fighting organized crime and drug

responsibility for Operational Controlling in

traffic. Vadim retired in the rank of major

2014. Since March 2018, Anna occupies the

general.

position of Chief Audit Executive (CAE) in Lenta.

Qualifications: Vadim graduated from Gorky

Prior to joining Lenta, Anna was Supervisor

higher school of the USSR Ministry of internal

Costing at Philip Morris International (Russia).

Affairs

Qualifications: Anna graduated with honours

from St. Petersburg State Technical University.

She holds a master’s degree in Economics and

Management.

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CorPorate
GoVernanCe
rePort

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.

The Code was revised in July 2018 for application
to accounting periods beginning on or after 1 January
2019. We reviewed new Code, and put necessary
processes in place to ensure that we are in substantial
compliance with these changes during the 2019
financial year.

Although 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.

reDomiCiliation
Lenta accomplished its incorporation in Cyprus in
the form of a public limited liability company) and
discontinued its incorporation under the laws of the
BVI effective February 21, 2020.

On July 18, 2019, the Board of Directors passed the
resolution on the commencement of the Redomi-
ciliation process. On September 26, 2019, the Board
passed resolutions confirming the Redomiciliation
and convened an extraordinary general meeting

(“EGM”) of Lenta. On October 22, 2019, the EGM on
re-domiciliation was held, and the shareholders
passed a resolution approving the Re-domiciliation,
amendments to the new Memorandum and Articles
of Association and related matters. A notice to the
BVI Registry of Corporate Affairs of the intention to
re-domicile to Cyprus was delivered, and an appli-
cation with the Registrar of Companies in Cyprus
(the «Cyprus Registrar”) requesting to register Lenta
as continuing in Cyprus was filed.

Redomiciliation took place upon the Cypriot Reg-
istrar issuing a temporary certificate of continuation in
Cyprus. As from February 21, 2020 Lenta is considered
to be a legal entity incorporated in Cyprus. As part
of the redomiciliation Lenta Ltd changed its name
to Lenta Plc and is subject to the Cypriot Company
Law as amended, other relevant Cypriot legislation,
common law principles and EU directives where
applicable and implemented in Cyprus. In addition
the UK Corporate Governance Code will continue
to be applied.

leaDersHiP
The Chairman leads the Board, ensuring its
effectiveness at the same time as taking the interests
of the Group’s various stakeholders into account and
promoting high standards of corporate governance.
The roles of Chairman and CEO are distinct and
separate.

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 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;
• building and maintaining an effective management
team;
• ensuring effective communication with
shareholders and regularly updating institutional
shareholders on business strategy and
performance.

tHe key roles anD resPonsiBilities
of tHe senior inDePenDent DireCtor
(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.

Stephen Johnson was the SID throughout the year
ending 31 December 2019. He was selected for the
role thanks to his extensive experience and expertise
in both executive and non-executive capacities in
the retail world, including international experience.

Though Mr. Johnson has served on the Company
Board for more than nine years, the Board of Directors
considers him to be independent, due to the following
significant factors:
(a) he has not received and does not receive any
additional remuneration from the Company apart
from a director’s fee, does not participate in the
Company’s share option or a performance-related
pay scheme, and is not a member of the Company’s
pension scheme;
(b) he is not and has not been an employee of the
Company or the Group within the last five years,
does not have any close family ties with any of the
Company’s advisers, directors or senior employees; and
(c) he holds no cross-directorships and has no
significant links with other directors through involvement
in other companies or bodies, and does not represent
any significant shareholder.

non-eXeCUtiVe DireCtors (neDs)
The NEDs provide an essential independent
element to the Board, and a solid foundation
for strong corporate governance. They fulfil a
vital role in corporate accountability, albeit all
Directors are equally accountable under BVI law.
NEDs are required to challenge, in a constructive
way, the strategies proposed by the executive
Directors. They are also responsible for scrutinizing
the performance of management in achieving
agreed goals and objectives. Furthermore, they
play a key role in the functioning of the Board and
its Committees. Between them, the current NEDs
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 is responsible 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. It also includes the
establishment of material new areas of business.
The Board also reviews performance in light of the
strategy, objectives, business plans and budgets,
ensuring that any necessary corrective action is
taken.

operations and transactions
This includes approval of significant capital and non-
capital expenditure as well as approval of significant
asset disposals and any other transactions that could
have a material effect on the strategic or financial
plans of the Company and the Group, 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 buybacks. It also approves major
changes to the Group’s corporate structure and
the Company’s listings or its status as a company
limited by shares.

loans and dividends
This includes approval of any substantial new loan
or similar facility (including financial leases) from third
parties or material amendment to any such facilities

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including material loans or similar facilities made
available to third parties. The Board also oversees the
Company’s dividend policy, declaration of interim and
recommendation of final dividends and approval of
other distributions to shareholders, as well as any new
pension schemes or significant changes to existing
pension schemes.

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.

Public reporting and controls
The Board approves half-yearly results announcements
as well as the Annual Report and Accounts. It also
approves material changes in principal accounting
policies and practices, treasury policies and related
risk management strategy and framework. On the
recommendation of the Audit Committee, the Board
recommends to the Shareholders the appointment
or removal of the external auditor.

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. It also 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 the 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

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, Julia Solovieva and Stephen Johnson – are judged
by the Board to be independent Directors according to
the provisions of the UK Corporate Governance Code.
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.

Russian economy

BoarD foCUs DUrinG tHe year
In 2019, the Board considered a wide range of mat-
ters, 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
• maintaining and increasing efficiency of the Com-
pany’s development
• individual business and overall Group performance
and future capital expenditures
• the review and execution of mergers and acqui-
sitions transactions
• development of the Company’s corporate gov-
ernance
• financial statements and announcements
• reviewing reports from its Committees
• shareholder feedback and reports from brokers
and analysts
• risk management and risk oversight.
anti-BriBery anD CorrUPtion
Lenta has in place a Compliance Programme, which
includes our Ethics Policy, Hotline and Corporate
Guidelines. The purpose of the Programme is to assist

in the prevention of unlawful activities by individuals
and to comply with current Russian legislation and
best practice.

The Board takes a firm stance on bribery and
corruption and attaches the utmost importance to
the Programme in clarifying the standards expected
of all employees of the Group.

The Foundation of the Programme is our Ethics
Policy, along with the subset of policies and internal
guidelines which provide a process for operating
in accordance with the rules in specific situations.
These policies and guidelines include procedures
for dealing with public officials, giving and receipt of
gifts and hospitality, due diligence processes carried
out on third party business partners, and policies on
conflicts of interest.

We carry out regular awareness campaigns across
Lenta, and both the Internal Audit Team and external
advisers undertake the monitoring and assurance
of processes. Anti-bribery and corruption clauses
are included in contracts with the Group’s business
partners. Lenta’s Compliance Officer and Ethics
Committee investigats hotline complaints of unethical
behaviour. As a result, appropriate measures are
taken to enhance control and compliance with the
Programme.

Lenta LLC undertakes due diligence checks on
potential suppliers, customers, consultants, agents,
distributors and other business partners to check
they are suitable to do business with, are reputable
and ethical, and do not commit or engage in any
form of violations.

During 2019, new employees were trained on the
Compliance Programme. We reviewed and updated
the Group’s policies during the year. A number of these
policies can be viewed on the corporate website
at http://lentainvestor.ru/en/about/corporate-
governance/internal-policies.

risk manaGement anD Control
The Board has overall responsibility for risk man-
agement, and determines the Group’s risk strategy;
it assesses and approves risk appetite and monitors
risk exposure consistent with strategic priorities. The
Board has established a Group-wide system of risk
management and internal control, which identifies
and enables risk management and the Board to
evaluate and manage the Group’s principal risks. Due
to the limitations inherent in any system of internal
control, this system provides robust, but not absolute,
assurance against material misstatement or loss and
is designed to manage rather than eliminate risk. The
effectiveness of the Group’s system of internal control
is regularly reviewed by the Board, as is the Group’s
risk management framework, with specific consid-
eration given to material financial, operational and
sustainability risks and controls, with appropriate steps

taken to address any issues identified. During 2019,
no significant internal control failings were identified.
The Board has authorised the Audit Committee
to oversee the risk management framework and the
effectiveness of the Group’s financial reporting, internal
control and assurance systems. Each Board Committee
provides updates on any risks considered within its
remit when providing regular updates to the Board.
The Board confirms that throughout 2019 and up
to the date of approval of this Annual Report and
Accounts, rigorous processes have been in place to
identify, evaluate and manage the principal risks
faced by the Group, including those that would
threaten its business model, future performance,
solvency or liquidity in accordance with Principle C.2
of the Code and the Guidance on Risk Management,
Internal Control and Related Financial and Business
Reporting published by the UK Financial Reporting
Council. The Group’s approach to risk management,
the risks identified and how it profiles these risks is set
out in the Risk Management Overview and Principal
Risks section on pages 30 to 34.

internal aUDit
Internal Audit provides independent, objective as-
surance to the Group. This is designed to improve
the Group’s operations and safeguard the Group’s
assets and integrity. It advises management on
the extent to which systems of internal control
and governance processes are appropriate and
effective to manage business risk, safeguard the
Group’s resources and maintain compliance with
the Group’s policies and legal and regulatory
requirements. It advises on ways in which areas
of risk can be addressed and provides objective
assurance on risk and controls to senior manage-
ment, the Audit Committee and the Board. Internal
Audit’s work is focused on the Group’s principal
risks; the Head of Internal Audit and the Group
Risk function work together when considering the
appropriate scope and focus of internal audits.
The programme of work of the Internal Audit de-
partment is considered and approved by the Audit
Committee, subject to any additional suggestions
from the Committee. The audit plan has space for
ad hoc audits as required by the Committee or
management.

Under the Internal Audit plan, a number of audits
take place across the Group’s operations and functions
to identify areas for improvement of the Group’s
internal controls. Findings are reported to relevant
operational management who put in place processes
for strengthening controls. 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 Chair of the Audit Committee and

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attends Audit Committee meetings four times a year
to present the findings from internal audits.

PolitiCal Donations
It is the policy of the Group not to give any money
for political purposes, nor to make any donations to
any political organisations. No such expenditure was
incurred during the year.

effeCtiVeness
The appointment of new Directors is led by the Nom-
ination Committee, the majority of whose members
are independent non-executive Directors. Details of
the appointments process can be found on page 57.
All new Directors receive a personalised induction
programme, tailored to their experience, background
and particular area of focus. This is designed to develop
their knowledge and understanding of the Company’s
culture and operations. The programme incorporates
a wide-ranging schedule of meetings with Senior
Management across the Company, comprehensive
briefing materials and opportunities to visit the
Company’s operations, including spending time at
new store openings, in store and in our distribution
network.

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

The Board makes a careful assessment of the
time commitments required from the Chairman
and non-executive Directors to discharge their
roles properly. This is discussed with candidates as
part of the recruitment process and a commitment
to the appropriate time requirements is included
in engagement letters. Directors are expected to
attend every Board meeting and every meeting of

any Committee of which they are a member, unless
there are exceptional circumstances preventing
their attendance. Scheduled Board and Committee
meetings are arranged at least a year in advance
to allow Directors to manage other commitments.
The Chairman reviews each Director’s development
needs as part of the annual performance evaluation
process and puts appropriate arrangements in place
for specific training. The Nomination Committee
reviews the Directors’ skills and experience as a group
against those needed to oversee and support the
Company’s future operations, and identifies any gaps.
Training is arranged to develop the knowledge and
skills of the Directors in a variety of areas relevant to
Lenta’s business.

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

ConfliCts of interest
Directors have a statutory duty to avoid situations
in which they have or could have a direct or
indirect interest that conflicts or may conflict with
the interests of the Company. A Director has a
duty to disclose to the Board any transaction or
arrangement under consideration by the Company
in which he or she 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

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.

BoD

aUCo

CaPeXCo
(from jUne
5 – oPeration
anD CaPeX
Committee

nomCo

remCo

John Oliver (till April
30 2019)

Stephen Jonson

Michael Lynch-Bell

Jago Lemmens (till
March, 29 2019)

Julia Solovieva

Dmitry Shvets (till April,
30 2019)

Marting Elling (till April
30 2019)

Steven Hellman (till
April 30 2019)

Rud Pedersen (after
March, 29 2019)

Herman Tinga

Alexey Mordashov
(after May 28 2019)

Roman Vasilkov (after
May 28 2019)

Alexey Kulichenko
(after May 28 2019)

Maxim Bakhtin (after
May 28 till August 2
2019)

Tomas Korganas (af-
ter August 26 2019)

CHanGes to tHe BoarD in 2019
Jago Lemmens retired from his CFO role on 1 April 2019.
Rud Pedersen was appointed Chief Financial Officer
on 1 April 2019.

Since Severgroup LLC (“Severgroup”) acquired in
aggregate 78.73% of the Lenta voting shares (including
in the form of GDRs, excluding treasury shares), the
Board has used its authority to fill the four vacated
seats on the Board
1. Alexey Mordashov was elected Chairman on 28th
of May 2019
2. Roman Vasilkov was appointed the non-executive
Director of Lenta Plc in May 2019
3. Alexey Kulichenko was appointed the non-executive
Director of Lenta Plc in May 2019.
4. Tomas Korganas was appointed the non-executive
Director of Lenta Plc in August 2019.

lenGtH of serViCe anD inDePenDenCe
of non-eXeCUtiVe DireCtors

Stephen Johnson (Inde-
pendent)

Michael Lynch-Bell (Inde-
pendent)

Julia Solovieva (Indepen-
dent)

Since 2010

Since 2013

Since 2018

Considered to be indepen-
dent by the Board

the following Board and Committee meetings
are scheduled for 2020

BoarD

aUDit

CaPeX

nomination

remUneration

Meeting

Board call

–

The terms of reference for Lenta’s Board were last revised
and updated in October 2019 and the Committees
terms of reference in December 2019. Details are
set out in the Corporate Governance section of the
Company website: www.lentainvestor.com/en/about/
corporate-governance/internal-policies.

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MichAel lyNch-Bell
INDEPENDENT,
CHAIRMAN

aUDit Committee
rePort

C o m m i t t e e m e mBe r s

j Ul i a s o l o Vi eV a

( inDePe nDe n t )

s t eP He n joHn s o n

( inDePe nDe n t )

The Audit Committee

supports the Board in
its responsibilities with
regard to corporate
reporting and risk management
and internal controls, as well as
with maintaining a relationship
with the Company’s external
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.

At the heart of the Committee’s remit is the need to
provide confidence in the integrity of Lenta’s processes
and procedures in relation to internal control, risk
management and corporate reporting. As part of
our commitment to good corporate governance, we
aim to do this in line with international best practice.
In 2019, 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.

The Committee reviewed
the tax structuring project and
matters related to establishing
representative office of Lenta
Plc in Russia. We approved the
appointment of Ernst&Young
(“EY”) as a consultant for
tax monitoring project. The
Committee reviewed the reports
on the redomiciliation of Lenta
Plc and approved the resolution on re-domiciliation
to Cyprus fulfilled on the 21st of February, 2020.

We worked on improvements to our insurance
processes to guarantee all insurance is properly
covered by the Company’s dedicated policy.

We reviewed the reports from our risk manager and
the recommendations for changes to our risk matrix.
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 continued to monitor the implementation of
the recommendations from the IT security review
completed during 2019.

The Company’s external auditor 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.

at the heart of the Committee’s remit
is the need to provide confidence in
the integrity of lenta’s processes and
procedures in relation to internal control,
risk management and corporate reporting

Looking ahead to the coming year, the Committee
will maintain its focus on the audit and assurance
processes within the business. These include the
monitoring of key risks as well as tax developments
that might affect the Group.

In conjunction with management, the Committee
will also review and assess the implications of new
and proposed accounting standards.

role anD resPonsiBilities
The key roles and responsibilities of the Audit Com-
mittee include:
• monitoring and challenging, where necessary, the
integrity of the financial statements and half yearly
results and any other formal announcement relating
to financial performance;
• reviewing and challenging, where necessary, the
actions and judgements of management, taking
into account the views of the external auditor, in
relation to the Company’s financial statements,
strategic review, financial review, governance
statement and half-yearly reports, including the
going concern assumption and the long-term
viability statement;
• reviewing the Company’s internal controls, including
financial controls and updated risk management
systems;
• reviewing the 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 speakup 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: 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.

The Audit Committee’s main responsibilities involve
overseeing, monitoring and reviewing the Company’s
financial reporting, internal control and assurance
processes. Although the Committee’s terms of reference
set out very specific duties, it serves a much wider
purpose in reassuring shareholders that their interests
are properly protected with regard to the Company’s
financial management and reporting.

The Committee regularly reports to the Board on
the matters it discusses. 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 Chairman, CEO and CFO, the Company
Secretary, Head of Internal Audit and Chief Legal
Counsel are invited to attend all Committee meetings
Other members of senior management are invited
to attend to discuss any matters specifically 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 and the Board approved the terms
of engagement of the external auditor, the fees paid
to it and the scope of work undertaken. The Comittee
also reviewed the performance and effectiveness of
the external auditor in respect of the year ended 31
December 2019.

Consideration was given to the performance,
objectivity, independence, resources and relevant
experience of the external auditor. In this process,
the Committee 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.

The Committee also performed its annual review of
the policies on the external auditor’s independence
and objectivity, their use for non-audit services and
the recruitment of former employees of the external
auditor.

To safeguard auditor objectivity and independence,
the Committee oversees the process for the approval
of all non-audit services provided by EY.

Consideration is given to whether it is in Lenta’s
best interests that non-audit services are purchased
from EY.

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

It reviewed the recommendations made
to management by the external auditor and
management’s responses, as well as the letters of
representation to the external auditor.

As indicated in last year’s annual report, we put
the audit out for tender for audits commencing
with the 2019 financial year. Following a competitive
tender Ernst & Young LLC (EY) was reappointed as
the Company’s auditor.

Professional fees billed by Ernst & Young LLC are

shown in the table below.

aUDitor’s fees (ernst & young llC)

Audit of consolidated financial
statements

Consulting and other non-audit
services

Total fees

2019 «000 rUB

2018 «000 rUB

24,282

27,510

22,729

47,011

3,613

31,123

siGnifiCant issUes ConsiDereD By tHe aUDit
Committee
The significant issues – and how they were addressed –
are set out below.

impairment
The Company’s management took a decision to
reassess its impairment of assets. Impairment charge
was made on 100 objects (55 hypermarkets and
40 supermarkets, and 5 objects including land, buildings,
construction in progress. Management proposed to
make a decision on the stores’ closure subject to rent
negotiations. The Committee agreed with their decision.

suppliers’ allowances
The Committee reviewed the accounting for and
recognition of suppliers’ allowances received for the
provision of services. The review included considera-
tion 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 inven-
tories and the recognition of write-downs during
the period. The review took into consideration the
calculation of the cost of inventories, the identifica-
tion 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 over-
heads 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 Com-
mittee; 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. Man-
agement had taken into account the Company’s
financial position, available borrowing facilities,
loan covenant compliance, planned store open-
ing programme and the anticipated cash flows
and related expenditures from our retail stores.
The Committee considered the position taken by
management and, taking into account the external
auditor’s review, concluded that management’s
recommendation to prepare the financial statements
on a going concern basis was appropriate. The
annual report also includes a long-term viability
statement, which can be found on pages 34–35.
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.

n o m i n a t i o n

C o m m i t t e e

r eP o r t

sTePheN JohNsoN
INDEPENDENT,
CHAIRMAN

nomination
Committee rePort

C o m m i t t e e m e mBe r s

miC Ha e l l y nC H - B e l l

( inDePe nDe n t )

Independent Director, Stephen John-
son, as Designated Non-Executive
Director for the workforce, responsible
for liaising with employees, and

j Ul i a s o l o Vi eV a

( inDePe nDe n t )

al eXe y mo rD

( no n - eXe C Ut iVe )

a s Ho V

meetings with employee repre-
sentatives are to be held twice a year.
We also scrutinised our succession
planning process and key personnel
retention. As our competitors target
Lenta employees as a highly profes-
sional workforce, our objective is to
ensure that our succession planning
process is fit for purpose and we have well trained pro-
fessionals to drive our business.

role anD resPonsiBilities
The key roles and responsibilities of the Nomination Com-
mittee 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 gen-
eral diversity of the Board to ensure the balance and
composition of the Board and its Committees remain
appropriate;

In 2019, the Committee focused

on succession planning and
organisational improvement.
We also oversaw the Board’s

performance and its appraisal.

The Committee oversaw the
formation and operation of the
Bid Committee during the course
of the Contemplated MTO.

The Committee approved
the appointment of Stephen
Johnson as the interim Chair-
man of the Board after the completion of the ac-
quisition by Sevegroup of approximately 34.45% of
the issued and outstanding voting shares in Lenta
from the investment vehicle of TPG Group, Luna Inc.,
as well as the acquisition of approximately 7.47% of
the issued and outstanding voting shares in Lenta
from the European Bank for Reconstruction and
Development (“EBRD”).

During the year, we worked on an organizational
improvement project that was the outcome of the
diagnostic of the organisational health index in the
Company. The Committee approved the scope of the
project to ameliorate the organisational structure of
the Company. The Board has nominated the Senior

as our competitors target lenta
employees as a highly professional
workforce, our objective is to ensure
that our succession planning process is
fit for purpose and we have well trained
professionals to drive our business.

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059

lenta has a very well-developed system for
performance appraisal across all functions
in the business. this is embedded in the way
the Company works and is used to manage
performance and identify high achievers
with development needs and the potential to
move into more senior roles.

• making recommendations to the Board of 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 candi-
dates with suitable industry or key competency experience;
• reviewing Board level, Senior Management and Com-
pany-wide succession planning and other human resourc-
es-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 avail-
able on the Company’s website: http:// www.lentainvestor.
com/en/about/corporate-governance/internalpolicies.

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 2020.

PerformanCe aPPraisal system
Lenta has a very well-developed system for performance
appraisal across all functions in the business. This is embed-
ded in the way the Company works and is used to manage
performance and identify high achievers with development
needs and the potential to move into more senior roles.

Lenta’s appraisal system plays an important part in 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
of the management team.

During the year Lenta promoted around 4,000 people
within the business. We provided 1.8 million man hours of
training and development investment for our employees.

sUCCession PlanninG
Lenta continues to be able to offer significant and exciting
opportunities for its high-performing employees. One of
our key objectives is to ensure there are role model op-
portunities for talented people to progress their careers
at Lenta, and that any vacant positions can be filled with
the minimum of disruption to the business.

Our approach is kept under constant review within the

business and is regularly examined by the Committee.

BoarD PerformanCe
Lenta’s policy is to assess Board performance annually, with
an external review every three years. An external Board
assessment was carried out in 2018 by Prism CoSec (which
has no connection with the Company).

In 2019 the Board executed internal evaluation, the

results are being analyzed.

r e mUn e r a t i o n

C o m m i t t e e

r eP o r t

sTePheN JohNsoN
MichAel lyNch-Bell
INDEPENDENT,
INDEPENDENT,
CHAIRMAN
CHAIRMAN

remUneration
Committee rePort

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 the
business successfully.

C o m m i t t e e m e mBe r s

s t eP He n joHn s o n

( inDePe nDe n t )

j Ul i a s o l o Vi eV a

( inDePe nDe n t )

role
anD resPonsiBilities
The key roles and responsibilities
of the Remuneration Committee
include:
• determining and recommend-
ing the broad policy for executive
remuneration within the Group;
• determining, on behalf of the
Board, the remuneration of the

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
bonus plan, monthly and quarterly for store and
DC line personnel, quarterly and annual for head
office employees and management in stores and
the DCs. 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 per-
formance but also a significant element in retaining
and recruiting good people. During 2019, performance
against the 2019 targets was assessed and an overall
payout of 50 % of the maximum was agreed in the
form of a one-time reward. Overall performance was
46.8 %, the trigger related to OEBITDA was not met.
Long-Term Incentive Plans
(LTIPs): The Company operates
a number of long-term incen-
tive 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.

page 64.

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.

lonG-term inCentiVe Plan
for senior manaGement
The Company operates a number of long-term
incentive plans for both senior and middle man-
agement.

For 2019 the LTIP consists of two equal parts, one
share and one cash based. The total LTIP allocation
amount remains the same as a percentage of salary.
To ensure retention of key
managers between 2019 and
2022, two types of cash-based
Special Awards were approved
in addition to share-based LTIP.
These awards are one-off and
are designed to ensure that
earlier granted share based LTIP
awards to senior management
retain their effectiveness.

The work of the Remuneration Committee is

set out on pages 59 to 61. The interests in the

Company’s share capital held by Senior Man-

agement and the remuneration received by

the Chairman and the non-executive Directors

are set out on page 64. The Directors’ interests

in the Company’s share capital are set out on

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061

Special One Off Awards
These one-off awards were granted in Q4, 2018.
These programs are cash based and aim to protect
the value of the earlier granted long-term incentives
and retain Senior Management.

The award has the following conditions:
• full vesting period is 4 years, each year vesting a
certain percentage (the original vesting schedule
was revised due to change of control).
• the amount of award was defined individually and
fixed in cash;
• a manager’s eligibility to receive shares is conditional
on his or her employment with Lenta and compliance
with certain covenants, including confidentiality,
noncompetition and non-solicitation.

The total amount of allocated award:
546.2 nm Rub First tranche of the award vested in April
2019 and May 2019 (with the change of ownership of
the company payout of 180.2 mn Rub. The remaining
365.9 mn Rub shall be paid over a period of time until
May 2021 according to the clause in award agreements
limiting the vesting period to 2 years from change of
control, in case it occurs.

oVerView of lonGterm
inCentiVe Plan for senior
manaGement in 2019

sHare-BaseD awarDs
Starting from 2019, the LTIP operates according to
the following rules:
• The LTIP awards are granted annually with a vesting
period of three years;
• The amount of award depends on job grade (per-
centage of annual salary) and individual performance
evaluation of the manager;
• Тhe award is then split into two equal parts –
shares and cash. The share based part of award is
determined based on share price for the first quar-
ter of the grant year. The cash award is protected
against inflation.
• 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 2019 with a vesting date in 2022 was
approved, granting a total of 343,316 Shares and
693.8 mn Rub which represents around 197 % of the
annual salary of this group, this amount includes
increased LTIPs granted as part of key talent
retention program.

The change of ownership of Lenta had an effect
on the LTIP awards of senior management according
to their grant agreements. The plans, effective on the
moment of change of control, vested proportionate
to the time elapsed from grant date by the decision
of the Remuneration committee with the remaining
part vesting according to the original schedule but
no later than 2 years from the change of ownership
of Lenta. According to that decision 91.6 mn Rub were
paid to Senior management on change of control; 97.9
mn Rub remaining in the retention program vesting
by May 2021.

the Committee also approved a new annual
long-term incentive plan with a vesting period
of three years for 92 key middle managers. the
ltiP for middle managers also consists of two
parts: cash and share based. the total value
of this award is 83,140 shares and 94.9 mn rub
which represents around 44 % of this group’s
annual salary

dropping below target pay for the specific labor market.
In order to retain store and DC personnel additional fringe
and benefits programs were approved with a very positive
impact on overall turnover.

A special retention plan was approved by the
Remuneration Committee for key managers in Lenta to
assure their retention in conditions of high competition
for talent. The plan consists of a salary increase calendar,
individual training programs and other important employee
benefits. In addition, to improve retention and attractiveness,
a flexible work schedule and opportunity for remote work
were offered as part of the benefits package.

oVerView of lonG-term
inCentiVe ProGramme
for miDDle manaGers 2019

sHare-BaseD ProGram
2019 was the third year in which the Long-term
incentive plan for middle managers began vest-
ing. Sixty-five managers received their LTIP in the
amount of 59.1 mn Rub (equivalent of 51,446 shares
converted into cash).

The Committee also approved a new annual long-
term incentive plan with a vesting period of three
years for 92 key middle managers. The LTIP for middle
managers also consists of two parts: cash and share
based. The total value of this award is 83,140 shares
and 94.9 mn Rub 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 evaluations.

2019 annUal BonUs sCHeme aPProVal
The Committee approved the bonus KPIs, target and
payout scales for 2019.

salary reView in ComParison to laBoUr market
The Committee reviewed the labor market situation
and salary dynamics in Russia, it was decided not to
apply an overall company salary indexation in 2019.
However, during 2019 specific changes for critical jobs
were made in situations where Lenta salaries were

sUmmary of senior manaGement team remUneration PoliCy

element

Base pay

Currency adjustment

Benefits

Annual bonus

Long-term incentive
plan

PrinCiPles

oPPortUnity

Base pay is reviewed annually by the Remuneration Committee, considering a number of
factors, including:
• Individual performance evaluation
• Salaries in comparable roles in the same industry and activities scope.

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

• 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.

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 condi-
tion that a ‘threshold’ level of EBITDA is achieved.

All senior managers are eligible for the long-term incentive plan (LTIP) consisting of two
equal parts – shares and cash as decided by the Remuneration Committee. The Share
based part of award is determined based on share price for the first quarter of the grant
year. The cash award is protected against inflation. The LTIP awards are granted annually
with a vesting period of three years. . 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.

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 manag-
ers, only partial compensation is applied.

There are maximums set for each com-
pensation element depending on the job
grade.

Total maximum annual bonus opportunity
for senior management is 120% of annual
base pay.

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.

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Pay strUCtUre of Ceo,
Cfo anD senior manaGement
team

063

CHief eXeCUtiVe offiCer (Herman tinGa)

Ceo total CasH rewarD (fiXeD Vs.VariaBle tarGet)

The key terms of each member of Senior Management’s participation in the MIP are set out below:

100%

Minimum

Target

Maximum

28,6%

42,9%

27%

32,4%

40,5%

Base salary

annual incentive

ltiP

28,6%

Base salary

28,6%

annual incentive

42,9%

ltiP

CHief finanCial offiCer

Cfo total CasH rewarD (fiXeD Vs.VariaBle tarGet)

100%

Minimum

Target

Maximum

31,3%

37,5%

29,4%

35,3%

Base salary

annual incentive

ltiP

31,3%

Base salary

31,3%

annual incentive

37,5%

ltiP

otHer senior team memBers

otHer senior team memBers total CasH rewarD

100%

Minimum

Target

Maximum

32,3%

35,5%

30,3%

36,4%

33,3%

Base salary

annual incentive

ltiP

32,3%

Base salary

32,3%

annual incentive

32,5%

ltiP

manaGer

nUmBer of PHantom
sHares

Base PriCe (rUB)

HUrDle referenCe PriCe
(rUB)

HUrDle referenCe Date

VestinG PerioD
CommenCemet Date

Herman Tinga

1st grant

2nd grant

3rd grant

Edward Doeffinger

Joern Arnhold

Sergey Prokofiev

Tatiana Yurkevich

102 823

35 000

42 000

102 823

85 686

35 988

1,516

2,214

1,516

1,375

764

1,375

01.04.2013

23.09.2011

01.04.2013

01.04.2014

01.04.2019

01.04.2012

01.04.2013

Summary of MIP conditions by two allocation waves is shown below

nUmBer of
PHantom
sHares total

188 509

245 787

42 000

Wave 1

Wave 2

Wave 2*

VesteD sHares

Base PriCe
(rUB)

HUrDle
referenCe
PriCe (rUB)

HUrDle referenCe
Date

2017

2018

2019

2020

35 422

46 166

–

1,516

2,214

764

1,375

23.09.2011

56 553

94 255

–

01.04.2013

73 736

122 894

49 157

–

01.04.2013

–

21 000

* Herman Tinga 2016 additional tranche

sUmmary of non-eXeCUtiVe DireCtors’ remUneration PoliCy

element

Letter of appointment

• The independent 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.

PrinCiPles anD oPPortUnities

Chairman and non-executive Director• Fees are reviewed periodically by the Committee taking into consideration:»»

Additional fees

Other benefits

Recruitment

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 independent 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 are paid for undertaking the extra responsibilities of:»» Senior Independent Director»» Committee Chair-
man.

The independent 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 independent non-executive Directors.

• Fees for the independent 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.

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064

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065

oPe r a t i o n

a nD C aPi t a l

eX Pe nDi tUr e

C o m m i t t e e r eP o r t

strateGiC aliGnment of Pay
the table below shows the integration between lenta’s
financial key performance indicators and the senior
remuneration framework for 2019/20. this clearly
demonstrates a clear linkage between performance metrics,
payments to managers and business performance over the
short and long term.

finanCial oBjeCtiVes

kPi

inCentiVe sCHeme

Company revenue

Turnover

Increase earnings and returns

EBITDA

Annual Bonus
Scheme

Increase shareholder value

Share price

LTIP

non-eXeCUtiVe DireCtors’ fees

Base fee for non-executive Directors

Additional fees:

Senior Independent Director

Chairman of the Audit Committee

Chairman of the Remuneration Committee

Chairman of the Nomination Committee

Members of the Audit and Capital Expenditure
Committee

Members of the Nomination and Remuneration
Committee

amoUnt PayaBle
(UsD)

165,000

25,000

40,000

17,500

15,000

10,000

non-finanCial oBjeCtiVes

kPi

inCentiVe sCHeme

Efficient operations

Productivity

Sales space growth

Number of stores
opened and in
pipeline

Annual Bonus
Scheme

interests of DireCtors in lenta sHares are
sUmmariseD in tHe taBle Below:

name of DireCtor

Stephen Johnson

Michael Lynch-Bell

Julia Solovieva

total HolDinG
as of 31 DeC
2019 (interest in
sHares)

aPProXimate
HolDinG as of
31 DeC 2019 (% of
sHare CaPital)

less than 0.01%

3,200

less than 0.01%

name of DireCtor

total HolDinG
as of 31 DeC
2019 (interest in
sHares)

aPProXimate
HolDinG as of
31 DeC 2019 (% of
sHare CaPital)

Herman Tinga

31,770

less than 0.01%

roMAN vAsilkov
NON-EXECUTIVE,
CHAIRMAN

oPeration anD
CaPital eXPenDitUre
Committee rePort

In 2019 we opened seven

new hypermarkets and three
supermarkets in Russia and
met our initial guidance. We
also restored a hypermarket in
Saint-Petersburg that was dam-
aged by fire in November 2018
and renovated one of the oldest
stores in Saint-Petersburg.

Capital expenditure in 2019

C o m m i t t e e m e mBe r s

s t eP He n joHn s o n

( inDePe nDe n t )

t o m a s k o r G a n a s

( no n - eXe C Ut iVe )

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

There are 4 Committee meet-
ings scheduled for 2020; this
number may be increased as
necessary.

amounted to RUB 14.1 bn, a decrease of 36.1% com-
pared to 2018, mainly due to lower expansion.

During the year we focused on operational effi-

ciency rather than on organic expansion.

We will review growth opportunities as they
occur; the Board and senior management agree
however that, in the present circumstances, it is
particularly important to maintain an appropriate
balance of leverage levels, pursuing investment
project returns.

role anD resPonsiBilities
The key roles and responsibilities of the Capital Ex-
penditure 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;
• approving 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 pro-
grammes relating to the design, construction and
operation of new stores are defined and implemented
in cooperation with management;

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

aCtiVities DUrinG tHe year
In 2019, the Operation and Capital Expenditure Com-
mittee evaluated the best opportunities in the market
reviewing and making recommendations to the Board
on the Company’s investment strategy, policy and
risk management.

We worked on improvements to the Company’s
underperforming stores and analysed the feasibility of
investments required to increase profitability of these
stores. Thus, the Committee approved the remodeling
of Lenta-11 (Saint-Petersburg, Rustaveli street) in line
with JdV 1.75 concept to protect Lenta market posi-
tion. The Committee also took a decision to extend
the selling space of a Lenta-100 (Khanty-Mansiysk),
Urals, to deliver sales growth.

The Committee approved investments in Lenta’s
logistics infrastructure, informational and technical
solutions to develop client-centric activities and
processes.

We approved 15 investment proposals in 2019, includ-
ing opening of new hypermarkets and supermarkets
in 2020. We also worked together with management
on improving the efficiency of the existing stores
and maintaining their compliance with applicable
regulations.

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oPe r a t i o n

a nD C aPi t a l eX Pe nDi tUr e

C o m m i t t e e r eP o r t

067

BiD Committee

resPonsiBility statement

In connection with Severgroup acquiring shares of

TPG Capital and EBRD as well as the subsequent
mandatory tender offering under which the first
mention acquired a shareholding of 77.99% in Lenta
Ltd, the Board of Directors of Lenta Ltd appointed on
26th February 2019 a Bid Committee in accordance with
Regulation 13.1 of the Articles.

Accordingly the oversight of the mandatory tender
offering was delegated to the Bid Committee con-
stituting Stephen Johnson and Michael Lynch-Bell,
in light of other previous members of the Board of
Directors having acknowledged a potential conflict
of interest arising from the possible sale of shares by

their respective nominating shareholder, and as such
were prohibited from voting pursuant to Regulation
15.5 of the Articles.

The Bid Committee was delegated full authority,
subject to the restrictions set out in Regulation 13.2 of
the Articles, to approve, amend, execute and do or
procure to be executed and done all such documents,
acts and things as may be necessary or desirable to
have approved, executed and done in connection
with the mandatory tender offering. Several meetings
were held during the period up to and including the
completion of the mandatory tender offering. Subse-
quently the Bid Committee was dissolved 18th July 2019.

relations witH sHareHolDers

We are committed to conducting con-

structive dialogue with shareholders
to ensure that we understand what is
important to them and enable clear
communication of our position. The CEO and CFO
hold regular meetings with shareholders and update
the Board on the outcomes of those meetings. CFO
keeps the Board informed of investor, broker and
analyst views, and reports and presents formally to
the Board at each scheduled Board meeting.

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

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 Com-
pany to count all votes, not just those of shareholders
attending the meeting.

sCHeDUle of inVestor Calls in 2020

montH

Date

January

February

April

July

October

Day

Friday

mosCow time

14.00 – 15.00

Tuesday

16.00 – 17.00

Wednesday

16.00 – 17.00

Monday

16.00 – 17.00

Wednesday

16.00 – 17.00

to the best of our knowledge:

W e, members of the Board, confirm that,

The consolidated financial state-
ments, prepared in accordance with
IFRS, give a true and fair view of the assets, liabilities,
financial position and profit and loss of Lenta Plc and
its subsidiaries taken as a whole. This annual report
includes a fair review of the development and perfor-
mance of the business and the position of Lenta Plc
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.

Alexey Mordashov
Chairman, Lenta Plc
21 February 2020

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l e n t a

a n nU a l r eP o r t

a nD a C C oUn t s

2 0 1 9

o1 › s t r a t e GiC r eP o r t

o2 › C o rP o r a t e Go Ve r n a nC e

o3 › f i n a nC i a l s t a t e m e n t s

o4 › aP Pe nDiC

e s

o3 ›

f i n a nC i a l
s t a t e m e n t s

070

071

independent auditOr’s repOrt
tO the sharehOlders and BOard Of directOrs Of lenta ltd.

OpiniOn
We have audited the consolidated
financial statements of Lenta Ltd.
and its subsidiaries (hereinafter, the
“Group”), which comprise the con-
solidated statement of financial po-
sition as at 31 December 2019, and
the consolidated statement of profit
or loss and other comprehensive in-
come, consolidated statement of cash
flows and consolidated statement of
changes in equity for the year then
ended, and notes to the consolidat-
ed 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 2019 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 accord-
ance with International Standards
on Auditing (ISAs). Our responsibilities
under those standards are further
described in the Auditor’s responsi-
bilities for the audit of the consoli-
dated 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 (including In-
ternational Independence Standards)
(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 ev-
idence 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 opin-
ion 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 finan-
cial 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

transitiOn tO ifrs 16 leases
Effective 1 January 2019, the Group adopted IFRS 16 Leases (IFRS 16).
When adopting the new standard, the Group applied a modified retro-
spective approach.
The adoption of the new standard resulted in the recognition of a right-
of-use asset in the amount of RUB 36,357,602 thousand and additional
lease liabilities in the amount of RUB 34,120,002 thousand.
The adoption of IFRS 16 was one of the key audit matters because
the effect of transition to the new standard is significant and changes
in the accounting policy required management to make judgments
with respect to approaches. In addition, identifying and processing all
lease-related data is a complex process, and the valuation of the right-
of-use asset and lease liabilities is based on assumptions such as the
discount rate and lease term in agreements with extension options.
Information about the adoption of IFRS 16 is disclosed in Note 4 to the
consolidated financial statements.

hOw Our audit addressed the Key audit matter
transitiOn tO ifrs 16 leases

We analyzed the Group’s accounting policy on the recognition of
leases, specific transition provisions and practical expedients set forth
in IFRS 16 and applied by the Group.
We obtained an understanding of the process of the Group’s transition
to IFRS 16 in respect of existing leases and evaluated the effectiveness
of relevant internal controls.
We analyzed the list of lease agreements to which IFRS 16 is applied
and compared, on a sample basis, data in agreements with data that
were used during the implementation and application of the transition
provisions of IFRS 16.
We analyzed management’s judgments made to determine the lease
term in agreements with extension options.
We tested the mathematical accuracy of calculations of cumulative
adjustments at the transition date.
We analyzed information on the adoption of IFRS 16 disclosed in the
financial statements.

impairment Of prOperty, plant and equipment
As a result of impairment testing held for the smallest group of assets
that can generate independent cash flows, the Group recognized an
impairment of property, plant and equipment in the amount of RUB
11,849,959 thousand.
Impairment testing for property, plant and equipment was one of the
key audit matters because the balance of property, plant and equip-
ment forms a significant portion of the Group’s assets at the reporting
date, the amount of recognized impairment of property, plant and
equipment forms a significant portion of the Group’s expenses, and
the process of management’s assessment of the recoverable amount
is complex and requires significant judgments, including judgements
about future cash flows, capital expenditures and the discount rate, as
well as about assumptions used in the assessment.
Property, plant and equipment and impairment testing are disclosed in
Note 7 to the consolidated financial statements.

recOgnitiOn Of suppliers’ allOwances
The Group receives various types of allowances from suppliers in con-
nection with the purchase of goods for resale in the form of volume re-
bates 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 13 to the consoli-
dated financial statements.

Our procedures in relation to impairment testing of property, plant and
equipment performed by management included an assessment of key
management assumptions, including those in respect of revenue and
operating expenses. We compared management assumptions with
historical data. We also analyzed discount rates used by management.
We engaged our internal valuation experts in performing these pro-
cedures. We performed the sensitivity analysis to determine whether
a reasonably possible change in key assumptions would result in the
carrying amount exceeding the recoverable amount. We analyzed the
accuracy of previous budget and forecast data prepared by manage-
ment. We verified the mathematical accuracy of impairment tests. We
assessed disclosures in the consolidated financial statements.

We agreed the terms of providing allowances to supporting docu-
ments approved by individual suppliers. We analyzed the assump-
tions underlying management estimates of recognized amounts of
allowances from suppliers. On a sample basis we received direct
confirmations of outstanding balances from suppliers. We agreed the
balances of suppliers’ allowances receivables to the post year-end
cash settlements.

Other infOrmatiOn included in
the grOup’s 2019 annual repOrt
Other information consists of the in-
formation included in The Group’s
2019 Annual Report, other than the
consolidated financial statements
and our auditor’s report thereon.
Management is responsible for the
other information.

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

In connection with our audit of the
consolidated financial statements,
our responsibility is to read the other
information and, in doing so, con-
sider 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. If, based on the work we
have performed, we conclude that
there is a material misstatement of
this other information, we are required
to report that fact. We have nothing
to report in this regard.

respOnsiBilities Of management
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, manage-
ment is responsible for assessing
the Group’s ability to continue as
a going concern, disclosing, as
applicable, matters related to go-
ing 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 al-
ternative but to do so.

The Board of Directors are respon-
sible for overseeing the Group’s fi-
nancial reporting process.

auditOr’s respOnsiBilities fOr
the audit Of the cOnsOlidated
financial statements
Our objectives are to obtain reason-
able 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. Rea-
sonable assurance is a high level of
assurance, but is not a guarantee
that an audit conducted in accord-
ance 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 ma-
terial misstatement of the consolidat-

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019072

073

ed financial statements, whether due
to fraud or error, design and perform
audit procedures responsive to those
risks, and obtain audit evidence that is
sufficient and appropriate to provide
a basis for our opinion. The risk of not
detecting a material misstatement
resulting from fraud is higher than for
one resulting from error, as fraud may
involve collusion, forgery, intentional
omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal
control relevant to the audit in order
to design audit procedures that are
appropriate in the circumstances, but
not for the purpose of expressing an
opinion on the effectiveness of the
Group’s internal control.
• Evaluate the appropriateness of
accounting policies used and the
reasonableness of accounting esti-
mates and related disclosures made
by management.
• Conclude on the appropriateness
of management’s use of the going
concern basis of accounting and,
based on the audit evidence ob-
tained, 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 au-
ditor’s report to the related disclo-
sures 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 consol-
idated financial statements, includ-
ing the disclosures, and whether the
consolidated financial statements
represent the underlying transactions
and events in a manner that achieves
fair presentation.
• Obtain sufficient appropriate au-
dit evidence regarding the financial
information of the entities or business
activities within the Group to express
an opinion on the consolidated fi-
nancial statements. We are respon-
sible for the direction, supervision
and performance of the group audit.
We remain solely responsible for our
audit opinion.

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

We also provide the Board of Direc-
tors with a statement that we have

complied with relevant ethical re-
quirements regarding independence,
and to communicate with them all
relationships and other matters that
may reasonably be thought to bear
on our independence, and where
applicable, related safeguards.

From the matters communicated
with the Board of Directors, we de-
termine 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 ex-
pected to outweigh the public interest
benefits of such communication.

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

I.Y. Ananyev
Partner
Ernst & Young LLC
21 February 2020

Details of the audited entity

Name: Lenta Ltd.
Incorporated under the laws of the
BVI on 16 July 2003, State Registration
Number 1058643.Address: P.O. Box 3340,
Road Town, Tortola, British Virgin Islands.

Details of the auditor

Name: Ernst & Young LLC

Record made in the State Regis-
ter 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-regulatory organization of auditors
Association “Sodruzhestvo”. Ernst &
Young LLC is included in the control
copy of the register of auditors and
audit organizations, main registration
number 12006020327.

statement Of management’s
respOnsiBilities fOr the preparatiOn
and apprOval Of the cOnsOlidated
financial statements fOr the year ended
31 decemBer 2019

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

Management is responsible for the
preparation of these consolidated
financial statements that present
fairly the financial position of Lenta
Ltd. and its subsidiaries (“the Group”)
as at 31 December 2019 and the re-
sults 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 fi-
nancial statements, management is
responsible for:
• selecting and applying accounting
policies;
• presenting information, including
accounting policies, in a manner that
provides relevant, reliable, compara-
ble 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 go-
ing concern.

Management is also responsible for:
• designing, implementing and main-
taining 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 accu-
racy 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 leg-
islation 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 state-
ments of the Group for the year ended
31 December 2019 were approved by
management on 21 February 2020.

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

Herman Tinga
(CEO of Lenta Ltd.)

Rud Pedersen
(CFO of Lenta Ltd.)

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
074

075

cOnsOlidated statement Of financial pOsitiOn as at
31 decemBer 2019
(in thousands of russian roubles)

cOnsOlidated statement Of prOfit Or lOss and Other cOmprehensive
incOme fOr the year ended 31 decemBer 2019
(in thousands of russian roubles)

nOte

31 decemBer
2019

31 decemBer
2018*

nOte

year ended
31 decemBer
2019

year ended
31 decemBer
2018*

Sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income

Other operating expenses

Operating profit before impairment

Impairment of non-financial assets

Operating profit

Interest expense

Interest income

Foreign exchange gains/(losses)

(Loss)/Profit before income tax

Income tax expense

(Loss)/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 cash flow hedges

Other comprehensive loss for the year, net of tax

Total comprehensive (loss)/income for the year, net of tax

(Loss)/earnings per share (in thousands of Russian roubles per share) (Note 18)

- basic and diluted, for (loss)/profit for the year attributable to equity holders of the
parent

4,7,10

417,500,015

(325,482,536)

92,017,479

413,562,197

(324,767,890)

88,794,307

(75,083,513)

5,067,766

(935,698)

21,066,034

(11,849,959)

9,216,075

(15,866,946)

3,827,178

220,503

(2,603,190)

(190,684)

(2,793,874)

−

(2,793,874)

(69,094,871)

4,993,245

(476,040)

24,216,641

(132,188)

24,084,453

(9,699,272)

608,472

(176,371)

14,817,282

(3,022,988)

11,794,294

(206,108)

41,222

(164,886)

11,629,408

(0.029)

0.121

assets

Non-current assets

Property, plant and equipment

Prepayments for construction

Right-of-use assets

Leasehold rights

Intangible assets

Other non-current assets

Total non-current assets

Current assets

Inventories

Trade and other receivables

Advances paid

Taxes recoverable

Prepaid expenses

Cash and cash equivalents

Total current assets

Total assets

equity and liabilities

Equity

Share capital

Additional paid-in capital

Share options

Treasury shares

Retained earnings

Total equity

Liabilities

Non-current liabilities

Long-term borrowings

Deferred tax liabilities

Long-term lease liabilities

Total non-current liabilities

Current liabilities

Trade and other payables

Short-term borrowings and short-term portion of long-term borrowings

Short-term lease liabilities

Contract liabilities

Advances received

Other taxes payable

Current income tax payable

Total current liabilities

Total liabilities

Total equity and liabilities

17, 18

165,443,239

2,312,814

32,667,443

−

2,270,975

444,316

203,138,787

38,453,265

8,604,102

1,582,931

163,364

103,059

73,404,760

122,311,481

325,450,268

−

27,062,751

390,536

(1,011,190)

51,708,795

78,150,892

82,110,441

6,508,488

29,520,222

118,139,151

54,689,103

68,430,816

2,639,784

482,160

191,953

1,173,563

1,552,846

129,160,225

247,299,376

325,450,268

177,024,063

4,929,794

−

3,170,537

1,905,890

896,928

187,927,212

41,500,851

11,272,602

2,772,184

992,378

123,101

33,804,860

90,465,976

278,393,188

−

26,935,309

633,165

(291,091)

55,473,276

82,750,659

106,341,291

10,039,756

−

116,381,047

56,133,840

20,738,998

−

350,378

148,543

1,041,123

848,600

79,261,482

195,642,529

278,393,188

* Certain amounts shown here do not correspond to the financial statements for the year ended 31 December 2018

and reflect reclassification described in Note 4.

The accompanying notes on pages 78 to 107 are an integral part of these financial statements

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

076

077

cOnsOlidated statement Of cash flOws
fOr the year ended 31 decemBer 2019
(in thousands of russian roubles)

cOnsOlidated statement Of changes in equity
fOr the year ended 31 decemBer 2019
(in thousands of russian roubles)

Cash flows from operating activities (Loss)/Profit before income tax

Adjustments for:

Net loss on disposal of property, plant and equipment

Loss on disposal of intangible assets

Cancelation of lease contracts

Interest expense

Interest income

Inventory write-down to net realisable value

Net foreign exchange gain attributable to financing activities

Impairment of advances paid and prepayments for construction, reversal of allowance for
expected credit losses of accounts receivable

Depreciation and amortisation

Impairment of non-financial assets

Share options expense

Movements in working capital

Decrease/(increase) in trade and other receivables

Decrease/(increase) in advances paid

Decrease/(increase) in prepaid expenses

Decrease/(increase) in inventories

(Decrease)/increase in trade and other payables

Increase/(decrease) in contract liabilities and advances received

Increase in net other taxes payable

Cash from operating activities

Income taxes paid

Interest received

Interest paid

Net cash generated from operating activities

Cash flows from investing activities

Purchases of property, plant and equipment

Purchases of intangible assets

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

Payments for the principal portion of the lease liabilities

Purchase of treasury shares

Net cash generated from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

nOte

4,7,10

15, 22

19, 28

year ended
31 decemBer
2019

year ended
31 decemBer
2018*

(2,603,190)

14,817,282

296,667

13,446

121,636

15,866,946

(3,827,178)

411,398

(102,355)

53,173

18,439,679

11,849,959

435,121

26,483

9,699,272

(608,472)

397,251

109,168

11,977,519

132,188

265,261

40,955,302

36,815,952

2,718,306

999,233

18,042

2,636,188

(29,309)

175,192

961,454

48,434,408

(2,709,023)

3,810,923

(15,663,909)

33,872,399

(13,154,203)

(886,872)

76,970

(684,178)

(548,409)

(20,686)

(4,964,974)

42,165

(15,988)

1,791,820

32,415,702

(871,201)

522,871

(10,440,177)

21,627,195

(21,411,263)

(642,512)

(267,640)

177,087

(13,964,105)

(22,144,328)

230,030,804

(206,770,873)

(2,848,226)

(720,099)

19,691,606

39,599,900

33,804,860

73,404,760

132,183,000

(111,871,775)

(291,091)

20,020,134

19,503,001

14,301,859

33,804,860

Balance at 31 December 2018

Change in the accounting policies due
to application of IFRS 16 (Note 4)

Balance at 1 January 2019

Loss for the year

Total comprehensive loss

Share option expenses (Note 26)

Share option settlement by shares
(Notes 17, 26)

Share option settlement by cash
(Note 26)

Purchase of treasury shares (Note 17)

Balance at 31 December 2019

–

26,935,309

–

127,442

–

27,062,751

share
capital

additiOnal
paid-in capital

treasury
shares

(291,091)

–

share OptiOns
reserve

633,165

–

26,935,309

(291,091)

633,165

retained
earnings

55,473,276

(1,234,731)

54,238,545

(2,793,874)

tOtal
equity

82,750,659

(1,234,731)

81,515,928

(2,793,874)

–

435,121

–

435,121

(127,442)

–

(550,308)

264,124

(286,184)

(720,099)

(1,011,190)

–

390,536

51,708,795

(720,099)

78,150,892

cOnsOlidated statement Of changes in equity
fOr the year ended 31 decemBer 2018
(in thousands of russian roubles)

share capital

additiOnal
paid-in capital

284

26,480,481

hedging
reserve

164,886

(284)

−

284

−

26,480,765

164,886

−

454,544

−

26,935,309

(164,886)

−

Balance at 1
January 2018

Reclassification
(Note 4)

Change in the
accounting
policies due to
application of
IFRS 9 (Note 4)

Balance at 1
January 2018
(restated)

Profit for the year

Other compre-
hensive loss

Total compre-
hensive (loss)/
income

Share-based
payments
(Note 26)

Issue of shares
(Notes 17, 26)

Purchase of
treasury shares
(Note 17)

Balance at 31
December 2018 *

treasury
shares

share OptiOns
reserve

retained
earnings

tOtal
equity

−

825,176

44,316,449

71,787,276

−

(637,467)

825,176

43,678,982

71,149,809

−

265,261

(457,272)

11,794,294

(164,886)

11,794,294

11,629,408

−

265,261

(2,728)

(291,091)

−

(291,091)

633,165

55,473,276

82,750,659

* Certain amounts shown here do not correspond to the financial statements for the year ended 31 December 2018 and reflect
reclassification described in Note 4.
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. Treasury shares: Treasury shares are own equity instruments reaquired by the Group.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

078

079

nOtes tO the cOnsOlidated financial
statements fOr the year ended
31 decemBer 2019
(in thOusands Of russian rOuBles)

1. the lenta grOup and its
OperatiOns
The Lenta Group (the “Group”) com-
prises Lenta Ltd. (“the Company”)
and its subsidiaries. The Group’s
principal business activity is the
development and operation of hy-
permarket 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.

In September 2019 the Company
established a representative office in
St. Petersburg.

In October 2019 the Company was
registered as a Russian tax resident.
In December 2019 the Company
has started the process of its redom-
iciliation to Cyprus.

Further to obtaining shareholder
approval of the redomiciliation on Oc-
tober 2019, the Company applied on
19 December 2019 to the Department
of Registrar of Companies and Official
Receiver (“DRCOR”) for continuance
of the Company’s incorporation into
Cyprus. The redomiciliation will be-
come effective upon the issue by the
DRCOR of a certificate of temporary
registration in Cyprus to the Company.
Starting from March 2014 the
Company’s shares are listed on the
London Stock Exchange and Mos-
cow Exchange in the form of Global
Depositary Receipts (GDR).

At 31 December 2019 and 31 De-
cember 2018 the Group has one main
operating subsidiary, Lenta LLC (100%
owned), a legal entity registered under
the laws of the Russian Federation.

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 state-
ments have been prepared in ac-
cordance with International Financial
Reporting Standards (“IFRS”) as is-
sued by the International Accounting
Standards Board (IASB).

2.1. Basis of preparation
The consolidated financial state-
ments have been prepared on a
historical cost basis, except for as
described in accounting policies
below. The consolidated finan-
cial statements are presented in
Russian roubles and all values are
rounded to the nearest thousand
(RUB 000), except when otherwise
indicated.

The principal accounting policies
applied in the preparation of these
consolidated financial statements
are set out below. These policies have
been consistently applied to all the
periods presented unless otherwise
stated.

Management has considered the
Group’s cash flow forecasts for the
foreseeable future, which take into
account the current and expect-
ed 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 satis-
fied 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 2019, the Group had
net current liabilities of RUB 6,848,744
(net current assets at 31 December
2018: 11,204,494).

Unused credit facilities available
as of 31 December 2019 were RUB
89,136,000. 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 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 busi-
ness, it assesses the financial assets
and liabilities assumed for appropriate
classification and designation in ac-
cordance with the contractual terms,
economic circumstances and perti-
nent conditions as at the acquisition
date. This includes the separation of
embedded derivatives in host con-
tracts 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 acqui-
sition 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 remeas-
ured and subsequent settlement is
accounted for within equity.

Goodwill is initially measured at
cost, being the excess of the ag-
gregate of the consideration trans-
ferred 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 accumu-
lated impairment losses. For the pur-
pose of impairment testing, goodwill
acquired in a business combination is,
from the acquisition date, allocated
to each of the Group’s cash-gen-
erating units that are expected to
benefit from the combination, irre-
spective of whether other assets or
liabilities of the acquiree are assigned
to those units.

Where goodwill has been allocat-
ed to a cash-generating unit and
part of the operation within that unit
is disposed of, the goodwill associ-
ated 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 liabil-
ities in statement of financial position
based on current/ non current classi-
fication. An asset is current when it is:
• Expected to be realised or intend-
ed 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 re-
stricted 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 primцarily 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 lia-

bilities as non-current.

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

fair value measurement
The Group measures financial in-
struments, such as, derivatives at fair
value at each balance sheet date.
Also, fair values of financial instru-
ments measured at amortised cost
are disclosed in Note 28.

Fair value is the price that would
be received to sell an asset or paid to
transfer a liability in an orderly trans-
action 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 mar-
ket, in the most advantageous market
for the asset or liability.

The principal or the most advan-
tageous market must be accessible
by the Group.

The fair value of an asset or a
liability is measured using the as-
sumptions 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 ac-
count 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 tech-
niques that are appropriate in the
circumstances and for which suffi-
cient data are available to meas-
ure 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 catego-
rised 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:
• Level 1 – quoted (unadjusted) mar-
ket prices in active markets for iden-
tical assets or liabilities.
• Level 2 – valuation techniques for
which the lowest level input that is sig-
nificant 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 meas-
urement is unobservable.

For assets and liabilities that are
recognised in the financial statements
on a recurring basis, the Group deter-
mines 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 dis-
closures, 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,

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081

the primary economic environment
in which operating entities function.
Transactions in foreign currencies
are initially recorded by the Group’s
entities at the functional currency spot
rates at the date the transaction first
qualifies for recognition.

Monetary assets and liabilities
denominated in foreign currencies
are translated at the functional
currency spot rates of exchange
at the reporting date. Differences
arising on settlement or translation
of monetary items are recognised
in profit or loss.

Non-monetary items that are
measured in terms of historical cost
in a foreign currency are translated
using the exchange rates at the dates
of the initial transactions. Non-mon-
etary 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 rec-
ognition 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 con-
struction 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 im-
pairment losses, if any.

Gains and losses on disposals de-
termined by comparing net proceeds
with the respective carrying amount
are recognised in profit or loss.

Construction in progress com-
prises 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. Construc-
tion in progress is reviewed regularly
to determine whether its carrying
value is recoverable and whether
appropriate impairment loss has
been recognised.

Properties in the course of con-
struction for production, rental or ad-
ministrative 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:

useful lives
in years

Buildings

Land improvements (Notes 3, 7)

Machinery and equipment

2 to 15

leases
The Group has lease contracts for land
and buildings. Before the adoption of
IFRS 16, the Group classified each of
its leases (as lessee) at the inception
date as operating lease. In an op-
erating lease, the leased property
was not capitalised and the lease
payments were recognised as rent
expense in the statement of profit
or loss on a straight-line basis over
the lease term. Any prepaid rent and
accrued rent were recognised under
advances paid and trade and other
payables, respectively.

IFRS 16 is effective for annual peri-
ods beginning on or after 1 January
2019.

Upon adoption of IFRS 16 the Group
recognises right-of-use assets and
lease liabilities for those leases pre-
viously classified as operating leases,
except for short-term leases.

Set out below are the new ac-

counting policies of the Group:

right-of-use assets
The Group recognises right-of-use as-
sets at the commencement date of the
lease (i. e., the date the underlying asset is

available for use). Right-of-use assets are
measured at cost, less any accumulated
depreciation and impairment losses, and
adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets
includes the amount of lease liabilities
recognised, initial direct costs incurred,
and lease payments made at or before
the commencement date less any lease
incentives received. Unless the Group is
reasonably certain to obtain ownership
of the leased asset at the end of the
lease term, the recognised right-of-use
assets are depreciated on a straight-line
basis over the shorter of its estimated
useful life and the lease term.

Depreciations is charged to profit
or loss, except for depreciation of
right-of-use assets representing right
to use leased land plots during the
construction process, which is includ-
ed in carrying value of assets under
construction. Right-of-use assets are
subject to impairment.

lease liabilities
At the commencement date of the
lease, the Group recognises lease lia-
bilities measured at the present value
of lease payments to be made over
the lease term. The lease payments
include fixed payments (including
in-substance fixed payments) less any
lease incentives receivable, variable
lease payments that depend on an
index or a rate, and amounts expect-
ed to be paid under residual value
guarantees. The lease payments
also include the exercise price of a
purchase option reasonably certain
to be exercised by the Group and
payments of penalties for terminat-
ing a lease, if the lease term reflects
the Group exercising the option to
terminate. The variable lease pay-
ments that do not depend on an
index or a rate are recognised as
expense in the period on which the
event or condition that triggers the
payment occurs.

In calculating the present value
of lease payments, the Group uses
the incremental borrowing rate at
the lease commencement date if
the interest rate implicit in the lease
is not readily determinable. After the
commencement date, the amount of
lease liabilities is increased to reflect

the accretion of interest and reduced
for the lease payments made. In ad-
dition, the carrying amount of lease
liabilities is remeasured if there is a
modification, a change in the lease
term, a change in the in-substance
fixed lease payments or a change
in the assessment to purchase the
underlying asset.

short-term leases
The Group applies the short-term
lease recognition exemption to its
short-term leases (i.e., those leases
that have a lease term of 12 months
or less from the commencement date
or initial application date and do not
contain a purchase option). Lease
payments on short- term leases are
recognised as expense on a straight-
line basis over the lease term.

lease and non-lease components
At initial application and subsequently
as well the Group accounts for lease
and non-lease components (e. g.
advertising, maintenance fees etc.)
separately.

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 ac-
quisition. 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 ex-
penditure is reflected in profit and loss
in the period in which the expenditure
is incurred.

The useful lives of intangible as-
sets are assessed as either finite or
indefinite.

Intangible assets with finite lives
are amortised over the useful eco-
nomic 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 when-
ever there is an indication that the
intangible asset may be impaired.
The amortisation period and the
amortisation method for an intan-

gible 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 ex-
pected 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 as-
set 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 im-
pairment loss. If any such indication
exists, the recoverable amount of
the asset is estimated in order to
determine the extent of the impair-
ment 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, cor-
porate assets are also allocated to
individual cash-generating unit, or
otherwise they are allocated to the
smallest group of cash-generating

units for which a reasonable and
consistent allocation basis can be
identified.

The recoverable amount of an
asset or a cash-generating unit is the
higher of its fair value less costs to sell
and value in use. In assessing value in
use, the estimated future cash flows
are discounted to their present value
using a pre-tax discount rate that
reflects current market assessments
of the time value of money and the
risks specific to the asset for which the
estimates of future cash flows have
not been adjusted.

If the recoverable amount of an
asset (or a cash-generating unit) is
estimated to be less than its carrying
amount, the carrying amount of the
asset (the cash-generating unit) is
reduced to its recoverable amount.
An impairment loss is recognised im-
mediately in profit or loss.

Where an impairment loss subse-
quently 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 impair-
ment loss is recognised immediately
in profit or loss.

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 classi-
fication 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

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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 com-
ponent 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 ex-
cluded 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 state-
ments in accordance with manage-
ment’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 consolidat-
ed statement of profit or loss and
other comprehensive income unless
it relates to transactions that are
recognised, in the same or a differ-
ent 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 expect-
ed 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 ex-
pected 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 rec-
ognised 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 invest-
ments 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.

Deferred tax assets are recog-
nised 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 deduct-
ible temporary differences, and the
carry-forward of unused tax credits
and unused tax losses can be uti-
lised, except:

• When the deferred tax asset relat-
ing to the deductible temporary differ-
ence 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 invest-
ments 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 re-
porting 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 ex-
pects, 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 en-
forceable 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
of the direct cost of goods, trans-
portation and handling costs. Cost
of sales comprises only of 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 nec-
essarily 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 de-
termines the amount of borrowing
costs eligible for capitalisation by
applying a capitalisation rate to
the expenditures on that asset. The
capitalisation rate is the weight-
ed 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 from contracts with
customers
The sole source of revenue from con-
tracts with customers is retail sales.

The Group recognises revenue
when control of the goods and ser-
vices is transferred to the customer,
generally for the retail customers it
is occurred in the stores at the point
of sale. Payment of the transaction
price is due immediately when the
customer purchases goods. The
customers have right of return, which
is regulated by Russian legislation
and is possible within up to 14 days
since the purchase with the ex-
ception for certain categories of
goods. Accumulated experience
is used to estimate such returns at
the time of sale at a portfolio level
(expected value method). Because
the number of products returned has
been steady for years, it is highly
probable that a significant reversal
in the cumulative revenue recog-
nised will not occur. The validity of
this assumption and the estimated

amount of returns are reassessed at
each reporting date.

The loyalty programme offered by
the Group gives rise to a separate
performance obligation because it
generally provides a material right to
the customer. The Group allocates a
portion of the transaction price to the
loyalty programme based on relative
stand-alone selling price and recog-
nize as a contract liability.

Other income
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.

Sale from secondary materials is
recognized within the other operating
income in the consolidated statement
of profit or loss and other compre-
hensive income at a point in time.

Interest income is recognised on
a time-proportion basis using the
effective interest rate method. Interest
income is included into the Inter-
est income line in the consolidated
statement of profit or loss and other
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 allowanc-
es received from suppliers are re-
corded 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 Fed-
eration 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 employ-
ees of the Group.

share-based payments
Certain employees (including sen-
ior 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 trans-
actions is determined by the fair
value at the date when the grant is
made using an appropriate valua-
tion model.

That cost is recognised, together
with a corresponding increase in
share options reserve in equity,
over the period in which the per-
formance and/or service conditions
are fulfilled in employee benefits
expense (Note 26). The cumula-
tive expense recognised for eq-
uity-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 em-
ployee benefits expense (Note 26).
No expense is recognised for
awards that do not ultimately vest,
except for equity-settled transac-
tions for which vesting is conditional
upon a market or non-vesting con-
dition. These are treated as vested
irrespective of whether or not the
market or non-vesting condition is
satisfied, provided that all other per-
formance and/or service conditions
are satisfied.

When the terms of an equity-set-
tled award are modified, the minimum
expense recognised is the expense
had the terms had not been modi-
fied, 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

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share-based payment transaction,
or is otherwise beneficial to the em-
ployee as measured at the date of
modification.

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 op-
erating 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 report-
able 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 signif-
icant increase of business activities
in December.

financial assets
initial measurement
The classification of financial instru-
ments at initial recognition depends
on their contractual terms and the
business model for managing the
instruments. Financial instruments are
initially measured at their fair value
and, except in the case of financial
assets and financial liabilities recorded
at FVPL, transaction costs are added
to, or subtracted from, this amount.

measurement categories
of financial assets
The Group classifies all of its financial
assets based on the business model

for managing the assets and the
asset’s contractual terms, measured
at either:
• Amortised cost;
• FVOCI;
• FVPL.
loans and receivables
Trade receivables, loans, and other
receivables that have fixed or deter-
minable payments that are not quot-
ed in an active market are classified
as loans and receivables.

The Group measures amounts of
loans and receivables at amortised
cost if both of the following conditions
are met:
• The financial asset is held within a
business model with the objective to
hold financial assets in order to collect
contractual cash flows;
• The contractual terms of the finan-
cial asset give rise on specified dates
to cash flows that are solely payments
of principal and interest on the principal
amount outstanding (SPPI).

The details of these conditions are

outlined below.

Business model
assessment
The Group determines its business
model at the level that best reflects
how it manages groups of financial
assets to achieve its business ob-
jective.

The Group’s business model is not
assessed on an instrument-by-instru-
ment basis, but at a higher level of
aggregated portfolios and is based
on observable factors such as:
• How the performance of the busi-
ness model and the financial assets
held within that business model are
evaluated and reported to the entity’s
key management personnel;
• The risks that affect the perfor-
mance of the business model (and
the financial assets held within that
business model) and, in particular, the
way those risks are managed;
• How managers of the business are
compensated (for example, whether
the compensation is based on the
fair value of the assets managed
or on the contractual cash flows
collected);

• The expected frequency, value
and timing of sales are also im-
portant aspects of the Group’s as-
sessment.

The business model assessment is
based on reasonably expected scenar-
ios without taking “worst case” or “stress
case” scenarios into account. If cash
flows after initial recognition are real-
ised in a way that is different from the
Group’s original expectations, the Group
does not change the classification of
the remaining financial assets held in
that business model, but incorporates
such information when assessing newly
originated or newly purchased financial
assets going forward.

the sppi test
As a second step of its classifica-
tion process the Group assesses the
contractual terms of financial asset
to identify whether they meet the
SPPI test.

“Principal” for the purpose of this
test is defined as the fair value of the
financial asset at initial recognition
and may change over the life of the
financial asset (for example, if there
are repayments of principal or am-
ortisation of the premium/discount).
The most significant elements of
interest within a lending arrangement
are typically the consideration for
the time value of money and credit
risk. To make the SPPI assessment,
the Group applies judgement and
considers relevant factors such as the
currency in which the financial asset
is denominated, and the period for
which the interest rate is set.

In contrast, contractual terms that
introduce a more than de minimis
exposure to risks or volatility in the con-
tractual cash flows that are unrelated
to a basic lending arrangement do not
give rise to contractual cash flows that
are solely payments of principal and
interest on the amount outstanding.
In such cases, the financial asset is
required to be measured at FVPL.

cash and cash equivalents
Cash and short-term deposits in the
statement of financial position com-
prise cash at banks and on hand and
short-term deposits with a maturity
of three months or less.

Impairment of financial assets
The Group recognises an allowance
for expected credit losses (ECLs) for all
debt instruments not held at fair value
through profit or loss. ECLs are based
on the difference between the con-
tractual cash flows due in accordance
with the contract and all the cash flows
that the Group expects to receive,
discounted at an approximation of
the original effective interest rate. The
expected cash flows will include cash
flows from the sale of collateral held
or other credit enhancements that
are integral to the contractual terms.
ECLs are recognised in two stages.
For credit exposures for which there
has not been a significant increase
in credit risk since initial recognition,
ECLs are provided for credit losses
that result from default events that
are possible within the next 12-months
(a 12-month ECL). For those credit
exposures for which there has been a
significant increase in credit risk since
initial recognition, a loss allowance is
required for credit losses expected
over the remaining life of the expo-
sure, irrespective of the timing of the
default (a lifetime ECL).

For trade receivables and contract
assets, the Group applies a simpli-
fied approach in calculating ECLs.
Therefore, the Group does not track
changes in credit risk, but instead
recognises a loss allowance based
on lifetime ECLs at each reporting
date. The Group has established a
provision matrix that is based on
its historical credit loss experience,
adjusted for forward-looking factors
specific to the debtors and the eco-
nomic environment.

The Group’s cash and cash equiv-
alents have been assigned low cred-
it risk based on the external credit
ratings of the respective banks and
financial institutions.

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 rec-
ognises 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 instru-
ments issued by the group
treasury shares
Own equity instruments that are re-
acquired (treasury shares) are rec-
ognised 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 dur-
ing 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 prefer-
ence 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 clas-
sified as either financial liabilities or as
equity in accordance with the sub-
stance 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, in-
cluding borrowings and trade and
other payables, are initially recog-
nised 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 liabili-
ties are offset and the net amount is
reported in the consolidated state-

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ment of financial position if there is
a currently enforceable legal right to
offset the recognised amounts and
there is an intention to settle on a net
basis, to realise the assets and settle
the liabilities simultaneously.

Derivative financial instruments and
hedge accounting

initial recognition and subsequent
measurement
The Group uses derivative financial
instruments, such as interest rate
swaps and caps, to hedge its inter-
est 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 rela-
tionship, the Group formally designates
and documents the hedge relation-
ship to which the Group wishes to
apply hedge accounting and the risk
management objective and strategy
for undertaking the hedge. The doc-
umentation 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 chang-
es 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 relation-
ship 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 com-
pleted. 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-finan-
cial 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 commit-
ment 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 clas-
sified as non-current (or separated
into current and non-current portions)
consistent with the classification of
the underlying item.

2.3 Basis of consolidation
The consolidated financial statements
incorporate the financial statements
of the Company and other entities
controlled by the Company (its sub-
sidiaries) as at 31 December 2019.
Control is achieved when the Group
is exposed, or has rights, to variable
returns from its involvement with the
investee and has the ability to affect
those returns through its power over
the investee.

Specifically, the Group controls an
investee if and only if the Group has:
• 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 re-
turns 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 contrac-
tual arrangements;
• The Group’s voting rights and po-
tential 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, in-
come 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 nec-
essary, adjustments are made to the
financial statements of subsidiaries to
bring their accounting policies into line
with the Group’s accounting policies.
All intra-group assets and liabilities,
equity, income, expenses and cash
flows relating to transactions between
members of the Group are eliminated
in full on consolidation.

A change in the ownership inter-
est 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 ben-
efits 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 as-
sessing whether the Group controls
another entity. Subsidiaries are consol-
idated from the date on which control
is transferred to the Group (acquisition
date) and are de-consolidated from
the date that control ceases.

3. significant accOunting
judgments, estimates and
assumptiOns
In the application of the Group’s
accounting policies, which are de-
scribed in Note 2 above, manage-
ment is required to make judgments,
estimates and assumptions about
the carrying amounts of assets and
liabilities that are not readily appar-
ent 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 as-
sumptions are reviewed on an ongoing
basis. Revisions to accounting esti-
mates 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 ad-
justment to the carrying amount of
assets and liabilities within the next
financial year include:

judgments
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 inter-
ested. If at the date of acquisition
by the Group, the company does
not constitute an integrated set of
activities and assets that is capable
of being conducted and managed
for the purpose of providing a return
in the form of dividends, lower costs
or other economic benefits directly
to investor, the Group treats such
acquisitions as a purchase of assets
(a leasehold right, land plot or store) in
the consolidated financial statements.
The exercise of judgment determines
whether a particular transaction is
treated as a business combination
or as a purchase of assets.

estimates and assumptions
The key assumptions concerning the
future and other key sources of esti-
mation uncertainty at the reporting
date, that have a significant risk of
causing a material adjustment to the
carrying amounts of assets and liabil-
ities within the next financial year, are
described below. The Group based
its assumptions and estimates on
parameters available when the con-
solidated financial statements were
prepared. Existing circumstances and
assumptions about future develop-
ments, 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.

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 in-
cludes 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 Feder-
ation 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 cir-
cumstances 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

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is not feasible, a degree of judgment
is required in establishing fair values.
The judgments include considera-
tions 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 28
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 mar-
ket growth, market demand for the
products and the future profitability
of products.

share-based payments
The Group measures the cost of eq-
uity-settled transactions by reference
to the fair value of the equity instru-
ments 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 con-
ditions 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 divi-
dend yield and making assumptions
about them. The assumptions and
models used for estimating fair value
for share-based payment transac-
tions are disclosed in Note 26.

property, plant and equipment
Since 1 January 2019 the Group
reviewed economic useful life of
Land improvements class of prop-
erty, plant and equipment from 30
years to 7 years, as practice has
proven that factual useful life of
land improvements does not exceed
7 years. The effect of the change in
accounting estimate was recog-
nized prospectively by including it
in profit or loss for the year ended
31 December 2019 in the amount of
RUB 2,324,185 and also will affect
future periods.

lease term of contracts with renewal
options
The Group determines the lease term
as the non-cancellable term of the
lease, together with any periods cov-
ered by an option to extend the lease if
it is reasonably certain to be exercised,
or any periods covered by an option to
terminate the lease, if it is reasonably
certain not to be exercised.

The Group has the option, under
some of its leases to lease the assets
for additional terms. The Group applies
judgement in evaluating whether it
is reasonably certain to exercise the
option to renew. That is, it considers all
relevant factors that create an eco-
nomic incentive for it to exercise the
renewal. After the commencement date,
the Group reassesses the lease term if
there is a significant event or change in
circumstances that is within its control
and affects its ability to exercise (or not
to exercise) the option to renew (e. g., a
change in business strategy).

For leased land plots under the
stores the Group defines lease term as
the longest of non-cancellable term
of the lease or remaining useful life of
a store. The Group typically exercises
its option to renew for these leases
because it has an exclusive right as
an owner of real estate.

The periods covered by termination
options are included as part of the
lease term only when they are rea-
sonably certain not to be exercised.

leases - estimating the incremental
borrowing rate
The Group measures the lease liability
by discounting lease payments using
the interest rate implicit in the lease.
If that rate cannot be readily deter-
mined, the Group uses its incremental
borrowing rate, adjusted to take into
account the specific terms and con-
ditions of a lease and to reflect the
interest rate that the Group would
pay to borrow
• over a similar term to the lease term,
• the amount needed to obtain an
asset of a similar value to the right-
of-use asset and
• in a similar economic environment.
4. new standards,
interpretatiOns and
amendments adOpted By the
grOup
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 end-
ed 31 December 2018, except for the
adoption of new standards effective
as of 1 January 2019. The Group has
not early adopted any other standard,
interpretation or amendment that has
been issued but is not yet effective.

ifrs 16
The Group applies, for the first time,
IFRS 16 Leases using the modified retro-
spective approach for all leases where
it is the lessee, except for short-term
leases.

The comparatives are not re-
stated and the cumulative effect
of initially applying the standard
is recognised as an adjustment to
the opening balance of retained
earnings at the date of initial appli-
cation. The Group recognised lease
liabilities to make lease payments
and right-of-use assets representing
the right to use the underlying assets
with corresponding effect recorded
in retained earnings.

the nature and effect Of these
changes are disclOsed BelOw

Impact on the statement of financial
position (increase/ (decrease))
as at 1 january 2019:

Non-current assets

Right-of-use assets

Leasehold rights

36,357,602

(3,170,537)

Other non-current assets

(468,753)

Current assets

Advances paid

Total assets

Equity

Retained earnings

Total equity

32,718,312

(141,724)

32,576,588

(1,234,731)

Non-current liabilities

Deferred tax liabilities

(308,683)

term that ends within 12 months at
the date of initial application
d) Used hindsight in determining the
lease term where the contract con-
tains options to extend or terminate
the lease

Based on the foregoing, as at 1

January 2019:
a) Right-of -use assets of RUB
36,357,602 were recognised and pre-
sented separately in the statement
of financial position. This amount
includes “key money” of RUB 3,170,537
reclassified from leasehold rights,
previously recognised guarantee
payments of RUB 468,753 that

should be offset against the last
lease payment reclassified from
other non-current assets and lease
prepayments of RUB 141,724 reclas-
sified from advances paid.
b) Additional lease liabilities of RUB
34,120,002 were recognised and pre-
sented separately in the statement of
financial position.
c) Deferred tax liabilities decreased by
RUB 308,683 because of the deferred
tax impact of the changes in assets
and liabilities.
d) The net effect of these adjustments
had been adjusted to retained earn-
ings in the amount of RUB 1,234,731 (loss).

the lease liaBilities as at 1 january 2019 can Be recOnciled tO the
Operating lease cOmmitments as Of 31 decemBer 2018 as fOllOws

Long-term lease liabilities

32,081,145

Operating lease commitments as at 31 December 2018

31,772,462

Less commitments relating to short-term leases

Operating lease commitments subject to capitalization under IFRS 16

Weighted average incremental borrowing rate as at 1 January 2019

Lease liabilities as at 1 January 2019

64,061,649

3,752,584

60,309,065

8.3 %

34,120,002

Current liabilities

Short-term lease liabilities

2,038,857

Total liabilities

2,038,857

33,811,319

Total equity and liabilities

32,576,588

The right-of-use assets for most leas-
es were recognised based on the
amount equal to the lease liabilities,
adjusted for any related prepaid and
accrued lease payments or leasehold
rights previously recognised. In some
leases, the right-of-use assets were
recognized based on the carrying
amount as if the standard had always
been applied, apart from the use of
incremental borrowing rate at the
date of initial application.

The lease liabilities were meas-
ured at the present value of the
remaining lease payments, dis-
counted using the lessee’s incre-
mental borrowing rate at the date
of initial application.

The Group also applied the avail-
able practical expedients wherein it:
a) Used a single discount rate to a
portfolio of leases with reasonably
similar characteristics
b) Relied on its assessment of whether
leases are onerous immediately before
the date of initial application
c) Applied the short-term leases
exemptions to leases with lease

Amounts recognised in the statement of financial position and profit or loss

set Out BelOw, are the carrying amOunts Of the grOup’s right-
Of-use assets and lease liaBilities and the mOvements during the
periOd:

right-Of-use assets

lease
liaBilities

land

Buildings

tOtal

As at 1 January 2019

5,810,044

30,547,558

36,357,602

34,120,002

Additions

Depreciation charge

Impairment charge

Cancelation of lease contracts

Transfer to property, plant and
equipment resulted from pur-
chase of the underlining assets in
the lease

Interest expense

Payments for the principal portion
of the lease liabilities

Сash payments for the interest
portion of the lease liability

Foreign exchange gain

As at 31 December 2019

Current lease liabilities

6,689

1,575,450

1,582,139

1,581,061

(211,615)

(3,639,216)

(3,850,831)

−

(235,056)

−

(235,056)

(169,085)

(267,167)

−

(543,027)

(207,132)

(712,112)

(590,476)

(474,299)

−

2,795,074

(2,848,226)

(2,795,074)

(102,355)

4,933,810

27,733,633

32,667,443

32,160,006

2,639,784

Transfer to property, plant and equipment resulted from purchase of the
underlining assets in the lease.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

090

091

set Out BelOw, are the amOunts recOgnised in prOfit Or lOss:

Depreciation of right-of-use assets

Impairment of right-of-use assets

Capitalisation of depreciation to CIP

Interest expense on lease liabilities

Interest income on security deposits

Foreign exchange gain

Rent expense – short-term leases

Rent expense – variable lease payments

Total amounts recognised in profit or loss

year ended 31 decemBer 2019

3,850,831

235,056

(30,025)

2,795,074

(15,005)

(102,355)

888,393

270,656

7,892,625

Several other amendments and interpretations apply for the first time in 2019, but do not have an
impact on the consolidated financial statements of the Group.

ifric interpretation 23 uncertainty
over income tax treatment
The Interpretation addresses the
accounting for income taxes when
tax treatments involve uncertainty
that affects the application of IAS 12
Income Taxes. It does not apply to
taxes or levies outside the scope of
IAS 12, no does it specifically include
requirements relating to interest and
penalties associated with uncertain
tax treatments

The Interpretation specifically ad-

dresses the following:
• Whether an entity considers uncer-
tain tax treatments separately
• The assumptions an entity makes
about the examination of tax treat-
ments by taxation authorities
• How an entity determines taxable
profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates
• How an entity considers changes
in facts and circumstances
An entity has to determine
whether to consider each uncer-
tain tax treatment separately or
together with one or more other
uncertain tax treatments. The ap-
proach that better predicts the
resolution of the uncertainty needs
to be followed.

The Group applies significant judge-
ment in identifying uncertainties over
income tax treatments. Since the Group
operates in a complex multinational
environment, it assessed whether the
Interpretation had an impact on its
consolidated financial statements.

Upon adoption of the Interpreta-
tion, the Group considered whether it
has any uncertain tax positions. The
Group determined that it is probable
that its tax treatments will be accept-
ed by the taxation authorities.

The interpretation did not have an
impact on the consolidated financial
statements of the Group.

amendments to ifrs 9:
prepayment features with
negative compensation
Under IFRS 9, a debt instrument can
be measured at amortised cost or
at fair value through other compre-
hensive income, provided that the
contractual cash flows are “solely
payments of principal and interest
on the principal amount outstanding”
(the SPPI criterion) and the instrument
is held within the appropriate business
model for that classification. The
amendments to IFRS 9 clarify that
a financial asset passes the SPPI
criterion regardless of an event or
circumstance that causes the ear-
ly termination of the contract and
irrespective of which party pays or
receives reasonable compensation for
the early termination of the contract.
These amendments had no impact
on the consolidated financial state-
ments of the Group.

amendments to ias 19: plan amend-
ment, curtailment or settlement
The amendments to IAS 19 ad-
dress the accounting when a plan

amendment, curtailment or set-
tlement occurs during a reporting
period. The amendments specify
that when a plan amendment,
curtailment or settlement occurs
during the annual reporting period,
an entity is required to determine
the current service cost for the
remainder of the period after the
plan amendment, curtailment or
settlement, using the actuarial
assumptions used to remeasure
the net defined benefit liability
(asset) reflecting the benefits of-
fered under the plan and the plan
assets after that event. An entity is
also required to determine the net
interest for the remainder of the
period after the plan amendment,
curtailment or settlement using the
net defined benefit liability (asset)
reflecting the benefits offered under
the plan and the plan assets after
that event, and the discount rate
used to remeasure that net defined
benefit liability (asset).

These amendments had no im-
pact on the consolidated financial
statements.

amendments to ias 28:
long-term interests in associates
and joint ventures
The amendments clarify that an
entity applies IFRS 9 to long-term
interests in an associate or joint
venture to which the equity method
is not applied but that, in sub-
stance, form part of the net in-
vestment in the associate or joint
venture (long-term interests). This
clarification is relevant because it
implies that the expected credit
loss model in IFRS 9 applies to such
long-term interests.

The amendments also clarified
that, in applying IFRS 9, an entity does
not take account of any losses of
the associate or joint venture, or any
impairment losses on the net invest-
ment, recognised as adjustments to
the net investment in the associate or
joint venture that arise from applying
IAS 28 Investments in Associates and
Joint Ventures.

These amendments had no im-
pact on the consolidated financial
statements.

annual improvements
2015-2017 cycle

ifrs 3 Business combinations.
The amendments clarify that, when
an entity obtains control of a business
that is a joint operation, it applies the
requirements for a business combi-
nation achieved in stages, including
remeasuring previously held interests
in the assets and liabilities of the joint
operation at fair value. In doing so,
the acquirer remeasures its entire
previously held interest in the joint
operation.

An entity applies those amendments
to business combinations for which
the acquisition date is on or after the
beginning of the first annual reporting
period beginning on or after 1 January
2019, with early application permitted.
These amendments had no im-
pact on the consolidated financial
statements of the Group as there is
no transaction where a joint control
is obtained.

ifrs 11 joint arrangements
A party that participates in, but
does not have joint control of, a
joint operation might obtain joint
control of the joint operation in
which the activity of the joint op-
eration constitutes a business as
defined in IFRS 3. The amendments
clarify that the previously held in-
terests in that joint operation are
not remeasured.

An entity applies those amend-
ments to transactions in which it
obtains joint control on or after the
beginning of the first annual report-
ing period beginning on or after 1
January 2019, with early application
permitted.

These amendments had no im-
pact on the consolidated financial
statements of the Group as there is
no transaction where a joint control
is obtained.

ias 12 income taxes
The amendments clarify that the
income tax consequences of div-
idends are linked more directly to
past transactions or events that
generated distributable profits than
to distributions to owners. Therefore,

an entity recognises the income tax
consequences of dividends in profit or
loss, other comprehensive income or
equity according to where it originally
recognised those past transactions
or events

An entity applies the amendments
for annual reporting periods beginning
on or after 1 January 2019, with early
application permitted. When the entity
first applies those amendments, it
applies them to the income tax con-
sequences of dividends recognised on
or after the beginning of the earliest
comparative period.

Since the Group’s current practice
is in line with these amendments, they
had no impact on the consolidated
financial statements of the Group.

ias 23 Borrowing costs
The amendments clarify that an entity
treats as part of general borrowings
any borrowing originally made to
develop a qualifying asset when sub-
stantially all of the activities necessary
to prepare that asset for its intended
use or sale are complete.

The entity applies the amendments
to borrowing costs incurred on or
after the beginning of the annual
reporting period in which the entity
first applies those amendments. An
entity applies those amendments for
annual reporting periods beginning
on or after 1 January 2019, with early
application permitted.

Since the Group has no qualifying
assets, these amendments had no
impact on the consolidated financial
statements of the Group.

Reclassifications in the consolidated
statement of financial position
Reclassification of share capital bal-
ance in the amount of RUB 284 to
additional paid-in-capital was done
as the Group’s shares were restated
to be of no par value.

5. standards issued But nOt yet
effective
The new and amended 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 new

and amended standards and inter-
pretations, if applicable, when they
become effective.

ifrs 17 insurance contracts
In May 2017, the IASB issued IFRS 17
Insurance Contracts (IFRS 17), a com-
prehensive new accounting standard
for insurance contracts covering rec-
ognition and measurement, presenta-
tion and disclosure. Once effective,
IFRS 17 will replace IFRS 4 Insurance
Contracts (IFRS 4) that was issued in
2005. IFRS 17 applies 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 guar-
antees 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 in-
surance 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 mod-
el 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 premi-
um allocation approach) mainly for
short-duration contracts

IFRS 17 is effective for reporting
periods beginning on or after 1 Jan-
uary 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 IFRS 17. This standard is
not applicable to the Group.

amendments to ifrs 3:
Definition of a Business
In October 2018, the IASB issued
amendments to the definition of a
business in IFRS 3 Business Combi-
nations to help entities determine
whether an acquired set of activities
and assets is a business or not. They
clarify the minimum requirements for
a business, remove the assessment

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019092

093

of whether market participants are
capable of replacing any missing ele-
ments, add guidance to help entities
assess whether an acquired process
is substantive, narrow the defini-
tions of a business and of outputs,
and introduce an optional fair value
concentration test. New illustrative
examples were provided along with
the amendments.

Since the amendments apply pro-
spectively to transactions or other
events that occur on or after the date
of first application, the Group will not
be affected by these amendments
on the date of transition.

amendments to ias 1 and ias 8:
Definition of Material
In October 2018, the IASB issued
amendments to IAS 1 Presentation
of Financial Statements and IAS 8
Accounting Policies, Changes in Ac-
counting Estimates and Errors to align
the definition of “material” across
the standards and to clarify certain
aspects of the definition. The new
definition states that, Information
is material if omitting, misstating or
obscuring it could reasonably be
expected to influence decisions that
the primary users of general purpose
financial statements make on the
basis of those financial statements,
which provide financial information
about a specific reporting entity.”
The amendments to the definition
of material is not expected to have
a significant impact on the Group’s
consolidated financial statements.

interest rate Benchmark reform –
amendments to ifrs 9,
ias 39 and ifrs 7
In September 2019, the IASB issued
amendments to IFRS 9, IAS 39 and
IFRS 7 Financial instruments: Disclo-
sures, which concludes phase one of
its work to respond to the effects of
Interbank Offered Rates (IBOR) re-
form on financial reporting. Amend-
ments are effective for annual peri-
ods beginning on or after 1 January
2020.

the amendments to ifrs 9
The amendments provide temporary
reliefs which enable hedge account-

ing to continue during the period of
uncertainty before the replacement
of an existing interest rate benchmark
with an alternative nearly risk-free
interest rate (an RFR). A hedging rela-
tionship is affected if the reform gives
rise to uncertainties about the timing
and/or amount of benchmark-based
cash flows of the hedged item or the
hedging instrument.

Application of the reliefs is manda-
tory. The first three reliefs provide for:
• The assessment of whether a
forecast transaction (or component
thereof) is highly probable;
• Assessing when to reclassify the
amount in the cash flow hedge reserve
to profit and loss;
• The assessment of the economic
relationship between the hedged item
and the hedging instrument.

For each of these reliefs, it is
assumed that the benchmark on
which the hedged cash flows are
based (whether or not contractually
specified) and/or, for relief three,
the benchmark on which the cash
flows of the hedging instrument are
based, are not altered as a result of
IBOR reform.

A fourth relief provides that, for
a benchmark component of inter-
est rate risk that is affected by IBOR
reform, the requirement that the risk
component is separately identifiable
need be met only at the inception of
the hedging relationship.

The reliefs continue indefinite-
ly in the absence of any of the
events described in the amend-
ments. When an entity designates
a group of items as the hedged
item, the requirements for when the
reliefs cease are applied separately
to each individual item within the
designated group of items.

the amendments to ias 39
The corresponding amendments are
consistent with those for IFRS 9, but
with the following differences:
• For the prospective assessment
of hedge effectiveness, it is assumed
that the benchmark on which the
hedged cash flows are based
(whether or not it is contractually
specified) and/or the benchmark on
which the cash flows of the hedging

instrument are based, are not altered
as a result of IBOR reform.
• For the retrospective assessment
of hedge effectiveness, to allow the
hedge to pass the assessment even
if the actual results of the hedge are
temporarily outside the 80 %-125 %
range, during the period of uncertainty
arising from IBOR reform.
• For a hedge of a benchmark por-
tion (rather than a risk component
under IFRS 9) of interest rate risk that is
affected by IBOR reform, the require-
ment that the portion is separately
identifiable need be met only at the
inception of the hedge.

The amendments must be applied
retrospectively. However, any hedge
relationships that have previously
been de-designated cannot be rein-
stated upon application, nor can any
hedge relationships be designated
with the benefit of hindsight. Early
application is permitted and must
be disclosed.

These amendments do not have
any impact on the Group’s consol-
idated financial statements as no
hedge relationships are designated
at the reporting date.

the conceptual
framework
for financial reporting
Conceptual Framework sets out
a comprehensive set of concepts
for financial reporting, standard
setting, guidance for preparers in
developing consistent accounting
policies and assistance to others
in their efforts to understand and
interpret the standards. It is effective
for annual periods beginning on or
after 1 January 2020.

The Conceptual Framework in-
cludes some new concepts, pro-
vides updated definitions and
recognition criteria for assets and
liabilities and clarifies some impor-
tant concepts.

It is arranged in eight chapters,

as follows:
• Chapter 1 – The objective of finan-
cial reporting
• Chapter 2 – Qualitative charac-
teristics of useful financial information
• Chapter 3 – Financial statements
and the reporting entity

• Chapter 4 – The elements of finan-
cial statements
• Chapter 5 – Recognition and
derecognition
• Chapter 6 – Measurement
• Chapter 7 – Presentation and dis-
closure
• Chapter 8 – Concepts of capital
and capital maintenance
Changes to Conceptual Frame-
work are not expected to have any
significant impact on the Group’s
consolidated financial statements.

Amendments to IAS 1 Presentation
of Financial Statements, classification
of liabilities as current or non-current
On 23 January 2020, the IASB issued
amendments to paragraphs 69 to 76
of IAS 1 Presentation of Financial State-
ments (the amendments) to specify the
requirements for classifying liabilities
as current or non-current.

the amendments clarify:
• What is meant by a right to defer
settlement;
• That a right to defer must exist at
the end of the reporting period;
• That classification is unaffected
by the likelihood that an entity will
exercise its deferral right;
• That only if an embedded deriva-
tive in a convertible liability is itself an
equity instrument would the terms of
a liability not impact its classification
The Board added two new par-
agraphs (paragraphs 76A and 76B)
to IAS 1 to clarify what is meant by
“settlement” of a liability. “For the pur-
pose of classifying a liability as current
or non-current, settlement refers to
a transfer to the counterparty that
results in the extinguishment of the
liability. The transfer could be of:
• cash or other economic resources –
for example, goods or services; or
• the entity’s own equity instruments,
unless paragraph 76B applies.”
Paragraph 76B states that terms of
a liability that could, at the option of
the counterparty, result in its settle-
ment by the transfer of the entity’s own
equity instruments do not affect its
classification as current or non-current
if, applying IAS 32 Financial Instruments:
Presentation, the entity classifies the
option as an equity instrument, recog-
nising it separately from the liability as

an equity component of a compound
financial instrument.

The amendments to IAS 1 are re-
quired to be applied for annual periods
beginning on or after 1 January 2022.
The amendments must be applied
retrospectively in accordance with
IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors.
Earlier application is permitted.

Amendments to classification of
liabilities as current or non-current
are not expected to have any impact
on the Group’s consolidated financial
statements.

6. Balances and transactiOns
with related parties
The transactions with related par-
ties are made on terms substantially
equivalent to those that prevail in
arm’s length transactions.

On 30 April 2019 LLC “Severgroup”
(“Severgroup”) has completed its ac-
quisition of 166,383,595 Lenta GDRs,
representing approximately 34.45 %

of the issued and outstanding voting
shares (excluding treasury shares)
in the Group from the investment
vehicle of TPG Group, Luna Inc., as
well as the acquisition of 36,076,870
Lenta GDRs representing approx-
imately 7.47 % of the issued and
outstanding voting shares (excluding
treasury shares) in the Group from
the European Bank for Reconstruc-
tion and Development (“EBRD”), in
each case, at a price of US$ 3.60
per Lenta GDR. On 31 December
2019 Severgroup stake represents
77.99 % of the share capital or 78.73 %
of the voting rights.

As the result of the deal Alexey
Mordashov becomes the ultimate
controlling party of the Group since
30 April 2019 (no ultimate controlling
party as of 31 December 2018). TPG
and EBRD cease to be related parties
starting from May 2019.

The consolidated financial state-
ments include the following transac-
tions with related parties:

entities with significant influence Over the grOup:

Severgroup

Other operating income from related parties

Purchases of inventories from related parties

Selling, General and Administrative expenses

Amounts owed by related parties

Amounts owed to related parties

Advances received

Advances paid

TPG Group

year ended 31
decemBer 2019

year ended 31
decemBer 2018

6,524

(8,357)

(17,808)

7,215

(16,469)

(360)

344

−

Selling, General and Administrative expenses

(4,610)

(14,492)

remuneratiOn tO the memBers Of the BOard Of directOrs and Key
management persOnnel is as fOllOws:

Short-term benefits

Long-term benefits (including share-based pay-
ments, Note 26)

Termination benefits

Total remuneration

year ended
31 decemBer 2019

year ended
31 decemBer 2018

771,041

769,872

14,992

1,555,905

586,771

165,538

31,821

784 130

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095

7. prOperty, plant and equipment

land

land imprOve-
ments

Buildings

machinery
and equipment

assets under
cOnstructiOn

tOtal

Cost

Balance at 1 January 2019

22,237,066

12,358,156

124,825,097

59,986,683

3,770,316

223,177,318

Additions

−

14,125,226

Transfers from construction in progress

1,024,239

332,559

7,845,616

5,665,732

(14,868,146)

−

Transfers from right-of-use assets

Disposals

267,167

(4,947)

−

207,132

−

474,299

(207)

(506,337)

(1,210,070)

(117,134)

(1,838,695)

Balance at 31 December 2019

23,523,525

12,690,508

132,371,508

64,442,345

2,910,262

235,938,148

Accumulated depreciation and impairment

Balance at 1 January 2019

Depreciation charge

Impairment charge

Disposals

−

2,044,272

19,077,836

2,739,002

4,521,778

1,799,114

12,538

8,533,770

25,031,147

6,850,077

949,200

−

(193)

(355,492)

(1,028,096)

−

319,956

−

46,153,255

14,110,857

11,614,578

(1,383,781)

Balance at 31 December 2019

1,799,114

4,795,619

31,777,892

31,802,328

319,956

70,494,909

Net book value

Balance at 1 January 2019

Balance at 31 December 2019

Cost

−

22,237,066

10,313,884

105,747,261

34,955,536

3,770,316

177,024,063

21,724,411

7,894,889

100,593,616

32,640,017

2,590,306

165,443,239

Balance at 1 January 2018

21,010,003

11,467,330

118,121,718

52,948,637

2,586,799

206,134,487

Additions

Transfers from construction in progress

Transfers from leasehold rights

Transfers to assets held for sale

Disposals

−

763,483

171,868

323,094

(31,382)

−

18,174,541

902,322

7,578,287

7,689,055

(16,933,147)

−

171,868

323,094

(11,496)

(874,908)

(651,009)

(57,877)

(1,626,672)

Balance at 31 December 2018

22,237,066

12,358,156

124,825,097

59,986,683

3,770,316

223,177,318

Accumulated depreciation and impairment

Balance at 1 January 2018

Depreciation charge

Impairment charge

Disposals

Balance at 31 December 2018

Net book value

Balance at 1 January 2018

Balance at 31 December 2018

−

1,646,511

15,000,631

19,178,939

400,454

4,571,843

6,351,622

–

132,188

–

(2,693)

(626,826)

(499,414)

2,044,272

19,077,836

25,031,147

−

–

−

35,826,081

11,323,919

132,188

(1,128,933)

46,153,255

21,010,003

9,820,819

103,121,087

33,769,698

2,586,799

170,308,406

22,237,066

10,313,884

105,747,261

34,955,536

3,770,316

177,024,063

During the year ended 31 December
2019 and 2018 the Group was not
involved in acquisition or contribu-
tion 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.
depreciation, amortisation and
impairment expense
As at 31 December 2019 the Group
performed impairment test of prop-
erty, plant and equipment, intangible
assets and right-of-use assets, where

indicators of such impairment were
identified.

Continued economic uncertainty
and consequent challenging market
conditions has let the Group’s manage-
ment to reassess its impairment testing
processes, models and assumptions.

Following the impairment test
impairment losses in the consoli-
dated statement of profit or loss
in respect of property, plant and
equipment, right-of-use assets and
intangible assets amounted to RUB
11,614,578 RUB 235,056 and RUB 325
respectively.

The evaluation was performed at
the lowest level of aggregation of
assets that is able to generate inde-
pendent cash inflows (CGU), which is
generally at the individual store level.
In identifying whether cash inflows
are largely independent, management
considers various factors including:
• how it monitors the entity’s opera-
tions or how it makes decisions about
continuing or disposing of the entity’s
assets and operations;
• cannibalization effect;
• leakage of customers upon a store
closure.

The impairment test has been car-
ried out by comparing recoverable
amount of the individual store with
its carrying value. The recoverable
amount was defined as the higher
of its fair value less costs to sell and
value in use.

Due to number of CGUs being
tested for impairment it is considered
impracticable to disclose detailed
information for each individual CGU.
The key assumptions used in de-

termining the value in use are:
• future cash flows are based on
the current budgets and forecasts
approved by the management and
represented by forecasted EBITDA
along with terminal value of forecasted
free cash flows that are expected to
be generated beyond the forecast
period (12 months);
• cash flow forecasts for capital ex-
penditure are based on past expe-
rience and include ongoing capital
expenditure required to maintain the
level of economic benefits from CGU
in its current position
• cash flow forecast for overheads
presented mainly by personnel ex-
pense being allocated on reasonable
basis;
• carrying value of corporate as-
sets that do not generate independ-
ent cash inflows (offices, distribution
centers) were allocated to CGUs on
consistent basis;
• projections were made in the func-
tional currency of the Group’s entities,
being Russian Rouble, on a pre-tax basis
and discounted at the Group pre-tax
weighted average cost of capital which
is then adjusted to reflect the risks spe-
cific to the respective assets (15.42 %).

The Group’s management believes
that all of its estimates are reasona-
ble and consistent with the internal
reporting and reflect management’s
best knowledge.

The result of applying discounted
cash flows model reflects expec-
tations about possible variations
in the amount and timing of future
cash flows. If the revised estimated
discount rate consistently applied
to the discounted cash flows had
been 50 b.p. higher than manage-
ment’s estimates, the Group would
need to reduce the carrying value

of non-current non-financial assets
by RUB 906,091. If the annual revenue
growth rate used in calculations of
value in use had been 50 b.p. lower,
the Group would need to decrease
the carrying value of non-current
non-financial assets by RUB 998,854.
Fair value less costs of disposal of
CGU was defined by an external ap-
praiser by reference to current ob-
servable prices on an active market
subsequently adjusted for specific
characteristics of respective assets.
The fair value measurement of these
assets is classified at level 2 of the fair
value hierarchy.

The amount of depreciation and
amortisation during the year ended
31 December 2019 and year ended
31 December 2018 is presented
within depreciation and amorti-
sation in the Group’s consolidated
statement of profit or loss and
other comprehensive income and
consolidated statement of cash
flows as follows:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

14,110,857

11,323,919

508,016

553,338

3,850,831

(30,025)

–

100,262

18,439,679

11,977,519

Depreciation of
property, plant
and equipment

Amortisation of
intangible assets
(Note 10)

Amortisation
of right-of-use
assets (Note 4)

Capitalisation
of right-of-use
asset deprecia-
tion to CIP

Amortisation of
leasehold rights

Total depre-
ciation and
amortisation

See Note 27 for capital commitments.

8. prepayments fOr
cOnstructiOn
Prepayments for construction are
made to contractors building stores
and to suppliers.

Prepayments are regularly moni-
tored for the indicators of impairment.
As at 31 December 2019 prepayments
for construction were impaired in the
amount of RUB 236,851 (31 December
2018: RUB 482,130).

9. Operating segments
The Group’s principal business
activity is the development and
operation of food retail stores lo-
cated 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 as-
sets outside the Russian Federation
(excluding investments in its foreign
wholly owned intermediate holding
subsidiary Zoronvo Holdings Limited,
which are eliminated on consolida-
tion). Due to the similar economic
characteristics of food retail stores,
the Group’s management has ag-
gregated its operating segments
represented by stores into one re-
portable 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 regu-
larly 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). EBITDA is a
non-IFRS measure. Other information
is measured in a manner consist-
ent with that in the consolidated
financial statements.

the segment
information for the year
ended 31 december 2019
and 2018 is as follows:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

Sales

417,500,015

413,562,197

EBITDA

39,505,713

36,194,160

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
096

097

reconciliation of eBitda
to IFRS profit for the year is as follows:

intangible assets as at 31 december
2018 consisted of the following:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

sOftware

trade
marKs

tOtal

EBITDA

39,505,713

36,194,160

Interest expense

(15,866,946)

(9,699,272)

Interest income

3,827,178

608,472

Income tax
expense (see
Note 20)

Depreciation
and amortisation
(see Notes 4, 7,
10, 24)

Impairment of
non-financial
assets (see
Notes 4, 7, 10)

Foreign ex-
change gains
(loss)

(190,684)

(3,022,988)

(18,439,679)

(11,977,519)

(11,849,959)

(132,188)

220,503

(176,371)

(Loss) /profit for
the year

(2,793,874)

11,794,294

10. intangiBle assets

intangible assets as at 31 december
2019 consist of the following:

Cost

At 1 January
2018

3,461,608

549

3,462,157

Additions

642,512

–

642,512

Disposals

(199,666)

(549)

(200,215)

At 31 Decem-
ber 2018

Accumulated
amortisation

At 1 January
2018

Amortisation
charge

3,904,454

– 3,904,454

1,644,892

549

1,645,441

553,338

–

553,338

Disposals

(199,666)

(549)

(200,215)

At 31 Decem-
ber 2018

Net book
value

At 1 January
2018

At 31 Decem-
ber 2018

1,998,564

– 1,998,564

1,816,716

–

1,816,716

1,905,890

– 1,905,890

Cost

At 1 January
2019

Additions

Disposals

At 31 December
2019

Accumulated
amortisation and
impairment

At 1 January
2019

Amortisation
charge

Impairment
charge

Disposals

At 31 December
2019

Net book value

At 1 January
2019

At 31 December
2019

sOftware

tOtal

3,904,454

886,872

(20,332)

4,770,994

Amortisation expense is included in
selling, general and administrative
expenses (Note 24).

11. Other nOn-current assets
Other non-current assets are rep-
resented by guarantee deposits
under lease contracts subject to
reimbursement by cash at the end
of lease.

1,998,564

12. inventOries

508,016

325

(6,886)

2,500,019

1,905,890

2,270,975

31 decemBer
2019

31 decemBer
2018

37,146,606

40,193,130

Goods for resale
(at lower of cost
and net realis-
able value)

Raw materials

1,306,659

1,307,721

Total inventories 38,453,265

41,500,851

Raw materials are represented by
inventories used in own production
process in butchery, bakery and cu-
linary.

During the reporting year the
Group accounted for the write down
of inventories to their net realisable
value within cost of sales in the con-
solidated statement of profit or loss
and other comprehensive income
for the year ended 31 December
2019 in the amount of RUB 411,398
(31 December 2018: expenses within
cost of sales in the amount of RUB
397,251).

13. trade and Other receivaBles

31 decemBer
2019

31 decemBer
2018

5,423,210

6,627,239

3,205,036

4,065,760

154,866

844,002

(179,010)

(264,399)

8,604,102

11,272,602

Accounts
receivable on
rental and other
services and on
suppliers’ adver-
tising

Suppliers’ re-
bates receivable

Other receiv-
ables

Expected
credit losses of
accounts receiv-
able

Total trade and
other receivables

As at 31 December 2018 the
Group recognized within the other
receivables the amount due from
insurance company of RUB 655,018
which relates to compensation for
lost property, plant, and equipment
of RUB 271,541, lost inventory of RUB
186,568 and for interruption of oper-
ations of RUB 196,909 as the result of
fire case in one of the stores. As at
31 December 2019 the compensation
was received from the insurance
company.

Debtor credit risk is managed in
accordance with the Group’s es-
tablished policy, procedures and
control relating to debtor credit
risk management. Credit quality of
a debtor is assessed based on an
extensive credit rating scorecard and
individual credit limits are defined in
accordance with this assessment.

An analysis is performed at each
reporting date using a provision ma-
trix to measure expected credit loss-
es. The provision rates are based on

days past due for groupings of various
customer segments with similar loss
patterns (i. e., by customer type and
rating) and the likelihood of default
over a given time horizon. The calcu-
lation reflects the probability-weight-
ed outcome, the time value of money
and reasonable and supportable
information that is available at the
reporting date about past events,
current conditions and forecasts of
future economic conditions.

set out below is the movement in the
allowance for expected credit losses
of trade and other receivables:

2019

2018

264,399

719,594

(48,658)

(86,312)

As at 1 January

Reversal of allow-
ance for expected
credit losses

Write-off

(36,731)

(368,883)

As at 31 December

179,010

264,399

14. advances paid

31
decemBer
2019

309,833

31
decemBer
2018

1,242,760

1,327,153

1,536,965

(54,055)

(7,541)

1,582,931

2,772,184

Advances to sup-
pliers of goods

Advances for
services

Impairment of
advances paid

Total advances
paid

set out below is the information about the credit risk exposure on the group’s
trade and other receivables as at 31 december 2019 using a provision matrix:

Expected credit loss rate

Estimated total gross carry-
ing amount at default

Expected credit loss

current

<60 days
Overdue

60-120 days
Overdue

>120 days
Overdue

tOtal

0%-1.5%

2%-5%

15%-40%

70%-100%

8,366,420

231,286

14,912

170,494

8,783,112

33,381

4,734

2,596

138,299

179,010

ageing of trade and other receivables that were past due but
not impaired as at 31 december 2018:

Expected credit loss rate

Estimated total gross carry-
ing amount at default

Expected credit loss

current

<60 days
Overdue

60-120 days
Overdue

>120 days
Overdue

tOtal

0%-1.5%

3%-5%

20%-40%

70%-100%

10,749,050

598,869

23,848

165,234

11,537,001

118,461

17,359

9,437

119,142

264,399

The Group does not hold any collateral or other credit enhancements over these balances.

15. taxes recOveraBle
Taxes recoverable as at 31 December
2019 are represented by a VAT recov-
erable of RUB 163,364 (31 December
2018: RUB 992,378).

16. cash and cash equivalents

31 decemBer
2019

31 decemBer
2018

66,322,639

15,086,436

3,818,264

11,440,386

2,884,525

6,837,498

276,419

265,671

102,913

174,869

73,404,760

33,804,860

Rouble short-term
deposits

Rouble denominat-
ed balances with
banks

Rouble denominat-
ed cash in transit

Rouble denominat-
ed cash on hand

Foreign currency
denominated bal-
ances with banks

Total cash and
cash equivalents

Cash in transit represents cash
receipts during the last days of the
reporting period (29–31 December),
which were sent to banks but not de-
posited into the respective bank ac-
counts until the next reporting period.
Significant rouble denominated
cash in transit result from the busi-
ness seasonality, indicating higher
levels of retail sales in holiday peri-
ods 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

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019098

099

the immediate cash requirements of
the Group, and earn interest at the
respective short-term deposit rates.

17. issued capital and reserves
issued capital
As at 31 December 2019 the Com-
pany’s share capital is comprised
of 97,585,932 authorised and issued
ordinary shares (as at 31 December
2018: 97,508,265) 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 Com-
pany. 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 lia-
bilities 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 legis-
lation, Lenta LLC, the Company’s
primary operating subsidiary regis-
tered 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 Account-
ing Rules. No dividends to holders
of ordinary shares are declared for
the year ended 31 December 2019
and 2018.

the movements in the number of
shares for the year ended
31 december 2019 and 2018
are as follows:

31 decemBer
2019
nO.

31 decemBer
2018
nO.

unlimited

97,585,932

97,508,265

Authorised
share capital
(ordinary shares)

Issued and fully
paid (no par
value)

Treasury shares

(910,522)

(235,319)

97,272,946

97,416,963

77,667

91,302

(675,203)

(235,319)

96,675,410

97,272,946

Balance of
shares out-
standing at
beginning of
the year

Additional issue
of shares

Shares buy-
back

Balance of
shares out-
standing at the
end of the year

During the year ended 31 December
2019 the Group issued 77,667 shares of
no par value with respect to long-term
incentive plans to certain members
of management (see Note 26). Issued
shares were distributed to relevant
participants.

Total expense for the services re-
ceived from the employees previously
recognised with respect to issued
shares under long-term incentive
plans was RUB 127,442.

In October 2018 the Group
launched GDR repurchase pro-
gramme up to an aggregate val-
ue of RUB 11,600,000, which was
terminated on 2 April 2019. As the
result of the programme 910,522
shares were repurchased as at 31
December 2019. During the year
ended 31 December 2019 the Group
repurchased 675,203 shares of no
par value for RUB 720,099.

share options reserve
The share options reserve is used
to recognise the value of equi-
ty-settled share-based payments
provided to employees, including
key management personnel, as part
of their remuneration. Refer to Note
26 for further details of these plans.

18. earnings per share

year
ended
31
decemBer
2019

year
ended
31
decemBer
2018

(0.029)

0.121

(Losses) /earnings per
share (in thousands
of Russian roubles per
share)

- basic and diluted, for
(loss) /profit for the year
attributable to equity
holders of the parent

The calculation of basic earnings per
share for the year is based on the (loss)
/profit attributable to shareholders (loss
for the year ended 31 December 2019:
RUB (2,793,874) profit for the year ended
31 December 2018: RUB 11,794,294) and a
weighted average number of ordinary
shares outstanding during the respective
periods, calculated as shown below.

year ended
31
decemBer
2019

year ended
31
decemBer
2018

97,272,946

97,416,963

–

91,302

(235,319)

77,667

(675,203)

–

96,675,410

97,272,946

96,757,307

97,445,815

Number of issued
shares at the
beginning of the
year

Number of shares
issued in July
2018

Number of shares
repurchased in
November-De-
cember 2018

Number of shares
issued in April
2019

Number of shares
repurchased in
January-April
2019

Number of
shares at the
end of the year

Weighted aver-
age number of
shares

The Group has issued share-based
payments (Note 26) 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 year.

19. BOrrOwings
The Groups’ borrowings as at 31
December 2019 and 31 December
2018 bear market interest rates, all
of them are denominated in Russian
roubles and are not secured.

As at 31 December 2019 the Group
had RUB 89,136,000 of unused credit
facilities (as at 31 December 2018:
RUB 83,300,000).

The loan agreements contain
financial and non-financial cove-

nants. As at 31 December 2019 the
Group is in compliance with the
covenants.

currency

31 decemBer 2019

31 decemBer 2018

short-term borrowings:

Floating rate short-term bank loans

Fixed rate short-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 long-term bonds

Fixed rate long-term bank loans

Floating rate long-term bank loans

Total long-term borrowings

RUB

−

5,399,643

63,031,173

68,430,816

20,519,034

61,591,407

−

82,110,441

564,138

56,702

20,118,158

20,738,998

5,559,870

74,648,179

26,133,242

106,341,291

20. incOme taxes
the group’s income tax expense for
the year ended 31 december 2019 and
31 december 2018 is as follows:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

3,413,269

1,169,375

(Loss) /profit before tax

Theoretical tax charge at 20 % being statutory tax rate in
Russia

Difference in tax regimes of foreign companies

Add tax effect of non-taxable income and non-deductible
expenses.

Recognition of previously unrecognised uncertain tax position

year ended
31 decemBer 2019

year ended
31 decemBer 2018

(2,603,190)

520,638

14,817,282

(2,963,456)

(154,996)

(176,326)

133,176

(42,980)

(380,000)

(190,684)

(149,728)

(3,022,988)

(3,222,585)

1,853,613

Income tax expense

190,684

3,022,988

−

(41,222)

1 january
2019

change in the
accOunting
pOlicies due tO
the applicatiOn
Of ifrs 16 (nOte 4)

differences in
recOgnitiOn
and reversals
recOgnised in
prOfit Or lOss

31 decemBer
2019

Tax effect of (taxable) / deductible
temporary differences

Property, plant and equipment

(10,306,373)

–

1,767,908

(8,538,465)

Leasehold rights

(546,549)

546,549

–

−

(41,222)

Right of use

–

(7,183,435)

745,471

(6,437,964)

Current tax
expense

Deferred tax
(benefit)/ex-
pense

Income tax
expense rec-
ognised in profit
for the year

Tax effect related
to effective por-
tion of change in
the fair value of
cash flow hedg-
ing instruments

Income tax ben-
efit recognised
in OCI

Differences between IFRS and Russian
statutory tax regulations give rise to
temporary differences between the car-
rying 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.

Unused vacation and employee
bonuses accrual

Suppliers’ bonuses

Borrowings

Intangible assets

Inventory

Provision for expected credit losses
of accounts receivable, impairment
of advances paid and prepay-
ments for construction

Accrued liabilities

Lease liabilities

Other

253,384

(30,844)

(62,884)

(31,734)

415,211

124,896

–

153,897

407,281

(28,936)

(59,780)

65,281

2,397

(44,874)

(76,608)

377,844

793,055

(54,146)

70,750

259,726

539,970

799,696

–

6,823,992

(391,991)

6,432,001

(114,589)

121,577

308,683

92,161

99,149

3,222,585

(6,508,488)

Total net deferred tax liabilities

(10,039,756)

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019100

101

1 january
2018

change in the
accOunting pOlicies due
tO the applicatiOn Of ifrs
16 (nOte 4)

differences in
recOgnitiOn and
reversals recOgnised in
prOfit Or lOss

differences in recOgnitiOn
and reversals recOgnised
in Other cOmprehen-sive
incOme

31 decemBer
2018

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 expected credit losses of
accounts receivable, impairment of
advances paid and prepayments for
construction

Accrued liabilities

Cash flow hedging instruments

Tax losses carried forward

Other

(8,612,723)

(546,387)

196,153

(303,860)

(115,445)

(20,603)

319,599

110,253

165,213

(91,565)

543,499

(30,866)

–

46,831

–

112,536

–

Total net deferred tax liabilities

(8,386,732)

159,367

(1,693,650)

– (10,306,373)

(162)

57,231

273,016

5,730

(11,131)

95,612

(97,893)

94,513

50,343

(543,499)

(83,723)

(1,853,613)

–

41,222

–

(546,549)

253,384

(30,844)

(62,884)

(31,734)

415,211

124,896

259,726

–

(114,589)

41,222

(10,039,756)

The temporary taxable differences
associates with undistributed earn-
ings of subsidiaries amount to RUB
75,842,716 and RUB 66,696,688 as of 31
December 2019 and 2018, respectively.
A deferred tax liability on these tem-
porary 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.

21. trade and Other payaBles

the trade and other
payables are
denominated in:

31 decemBer
2019

31 decemBer
2018

Russian roubles

53,785,883

55,241,343

USD

EUR

GBP

650,158

249,815

3,246

653,509

238,953

Total trade and
other payables

54,689,103

56,133,840

31
decemBer
2019

31
decemBer
2018

22. Other taxes payaBle

31 decemBer
2019

31 decemBer
2018

Trade payables

46,537,381

46,495,464

Social taxes

805,661

675,487

Accrued liabilities
and other creditors

Payables for
purchases of
property, plant
and equipment

Total trade and
other payables

6,446,591

5,864,692

Property tax

92,895

123,213

1,705,131

3,773,684

54,689,103

56,133,840

Personal income
tax

238,786

223,012

Other taxes

36,221

19,411

Total other taxes
payable

1,173,563

1,041,123

23. cOst Of sales
Cost of goods sold is reduced by
rebates and promotional bonuses
received from suppliers.

Cost of sales for the year ended
31 December 2019 includes employee
benefits expense of RUB 8,777,586 (year
ended 31 December 2018: RUB 8,016,548)
of which contributions to state pension
fund are comprised of RUB 1,229,580 (year
ended 31 December 2018: RUB 1,105,764).
Cost of sales for the year ended 31
December 2019 includes cost of raw
materials used in own production of
RUB 16,575,218 (year ended 31 December
2018: RUB 15,749,849).

24. selling, general and
administrative expenses

year ended
31 decemBer
2019

year ended
31 decemBer
2018

28,119,261

25,556,037

18,439,679

11,977,519

4,974,278

4,517,562

Employee
benefits

Depreciation
and amortisation
(Notes 4, 7, 10)

Utilities and
communal pay-
ments

Professional fees

4,388,221

3,863,897

Advertising

5,177,240

5,217,256

Cleaning

3,611,966

2,882,658

Repairs and
maintenance

3,019,466

2,642,799

Security services

1,973,878

1,893,165

Taxes other than
income tax

1,598,841

1,509,046

Rent expense

1,159,049

6,063,665

Other

2,621,634

2,971,267

75,083,513

69,094,871

Total selling,
general and
administrative
expenses

(for the year ended 31 December 2018:
RUB 3,613).

25. Other Operating incOme and
expenses
Other operating income is comprised
of the following:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

Rental income

1,605,999

1,693,100

Sale of second-
ary materials

Penalties due by
suppliers

Advertising
income

Insurance
compensation

Gain on property,
plant and equip-
ment disposal

1,127,996

1,020,253

971,290

1,034,121

550,135

718,859

524,243

196,909

42,102

140,994

Other

246,001

189,009

Total other oper-
ating income

5,067,766

4,993,245

In November 2018 as the result of fire
in one of the stores the Group incurred
losses on property, plant and equipment
disposal, inventory disposal and interrup-
tion of operations since the fire case till 1
November 2019, which were insured and
compensated by insurance company.

Other operating expenses are
comprised of the following:

year
ended
31
decemBer
2019

year
ended
31
decemBer
2018

352,215

167,477

121,636

−

109,291

21,996

Loss from property,
plant and equipment
and intangible assets
disposal

Loss from cancelation
of lease contracts

Penalties for termi-
nation of a contracts
with service suppliers

Employee benefits for the year ended
31 December 2019 include contributions to
state pension fund of RUB 3,578,339 (year
ended 31 December 2018: RUB 3,274,393).
Professional fees for the year ended
31 December 2019 include fees billed by
Ernst & Young LLC: for the audit of the
consolidated financial statements in
the amount of RUB 24,282 (for the year
ended 31 December 2018: RUB 27,510)
and for consulting and other non audit
services in the amount of RUB 22,729

Non-recoverable VAT

63,611

10,117

56,750

39,455

53,173

152,543

Penalties from gov-
ernment authorities

Impairment of
advances paid and
prepayments for
construction, reversal
of allowance for ex-
pected credit losses of
accounts receivable

Other

179,021

84,452

Total other operating
expenses

935,698

476,040

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

102

103

26. share-Based payments

long-term incentive plan
During the year 2014 the Group ap-
proved a long-term incentive plan
(LTIP) to certain members of senior
and middle management, according
to which the Company granted award
shares in 2014, 2015, 2016, 2017, 2018 and
2019 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 per-
formance rating co-efficient.

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

As of the year ended 31 December
2019 Tranche 2014, 2015 and 2016 fully
vested.

In May 2019 for the majority of
employees LTIP Tranche 2016 was
settled by cash in the amount of RUB
194, 592. Also for settlement purposes
the Group issued 16,182 shares of
no par value. Total expense for the
services received from the employees
previously recognised with respect
to settled tranche was RUB 434,995.

In April, 2019 Tranche 2017 and
Tranche 2018 to senior management
were amended to accelerate vest-
ing of 66 % (Tranche 2017) and 34 %
(Tranche 2018) of awards immediately.
Vested awards were settled by
cash in the amount of RUB 53,990
(Tranche 2017) and RUB 37,603
(Tranche 2018). Also for settlement
purposes the Group issued 13,354
(Tranche 2017) and 18,360 (Tranche
2018) shares of no par value.

The vesting dates of remaining
awards under the Tranche 2017 and
Tranche 2018 are 1 April 2020 and 30
April 2021 respectively.

The vesting dates of newly grant-
ed awards under the Tranche 2019
to senior management are 1 April
2020 (25 %), 1 April 2021 (25 %), 1 May
2021 (50 %) or 1 April 2020 (16 %), 1 April
2021 (53 %), 1 May 2021 (31 %).

The vesting dates of newly grant-
ed awards under the Tranche 2019
to middle management are 1 April
2020 (25 %), 1 April 2021 (25 %), 1 April
2022 (50 %).

In May 2019 there was an amend-
ment to the award under the Tranche
2019 for one employee, according
to which 100 % of the award vest-
ed immediately and 29,771 shares
were issued and distributed to a
participant.

set out below is the information about awards settlement during year ended 31
december 2019:

2016
tranche

2017
tranche

2018
tranche

2019
tranche

tOtal

Settlement by shares

number of shares issued in May, 2019

16,182

13,354

18,360

29,771

77,667

total expense recognised with regards
to shares issued

Settlement by cash payment (USD
3.6$ per GDR)

37,300

25,370

30,432

34,341

127,442

settlement by cash in May 2019

194,592

53,990

excess of expenses accrued vs. pay-
ment made

198,382

32,809

37,602

15,105

–

286,184

246,296

total expense recognised for
the services received from the
employees covered by long-term
incentive plan for the year ended 31
december 2019 and for year ended
31 december 2018 is shown in the
following table:

Expense arising
from the equi-
ty-settled long-
term incentive
plan payments

year ended
31 decemBer
2019

year ended
31 decemBer
2018

428,246

219,041

share value appreciation rights
During the year 2013 and the year
2016 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.

In April 2018 SVARs of 2013 year fully
vested. In June 2018 the Group issued
69,502 shares of no par value. Total
expense for the services received from
the employees previously recognised
with respect to issued shares was RUB
405,232. The shares were transferred
into GDR and distributed to relevant
participants.

movements during the year
The remaining contractual life for the
SVARs outstanding as at 31 December
2019 was 0.26 year (31 December 2018:
0.79 years).

The exercise price for options out-
standing as at 31 December 2019 is
RUB 2.214 (31 December 2018: RUB 2.214).
Fair value of options outstanding
as at 31 December 2019 is RUB 0.98
(31 December 2018: RUB 0.91).

the expense recognized for
the services received from the
employees covered by svars plan
during the year is shown in the
following table:

year ended
31 decemBer
2019

year ended
31 decemBer
2018

6,875

46,220

Expense arising
from the equi-
ty-settled SVARs
transaction

In April 2019 SVARs of 2016 year (21,000
phantom shares) expired worthless. Total
expense for the services received from
the employees previously recognised with
respect to expired SVARs was RUB 17,828.
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.

27. capital expenditure
cOmmitments
At 31 December 2019 the Group has
contractual capital expenditure com-
mitments in respect of property, plant
and equipment and intangible assets
totaling RUB 6,216,727 net of VAT (31
December 2018: RUB 11,489,981 net
of VAT).

28. financial instruments
Categories of financial instruments

31 decemBer
2019

31 decemBer
2018

Financial assets
measured at
amortised cost

Cash and cash
equivalents

Trade and other
receivables

Other non-cur-
rent financial
assets

Total financial
assets measured
at amortised
cost

8,604,102

11,272,602

444,316

428,175

82,453,178

45,505,637

fair values

the following table provides the fair value measurement hierarchy of the group’s
financial liabilities. Quantitative disclosures of fair value measurement hierarchy
for financial liabilities as at 31 December 2019:

31 decemBer
2019

level 1

level 2

level 3

Financial liabilities for which fair values
are disclosed

Fixed rate bonds

26,387,036

−

Fixed rate bank loans

123,200,098

−

123,200,098

31 decemBer
2018

level 1

level 2

level 3

Financial liabilities for which fair values
are disclosed

Fixed rate bonds

5,662,373

−

–

−

During the reporting periods ended 31 December 2019 and 31 December 2018, there are no trans-
fers 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:

73,404,760

33,804,860

Floating rate bank loans

Fixed rate bank loans

26,697,380

93,370,478

−

26,697,380

93,370,478

financial liabilities measured at
amortised cost

31 decemBer
2019

31 decemBer
2018

Interest-bearing loans and borrowings

Financial liabilities

31 decemBer 2019

31 decemBer 2018

carrying
amOunt

fair value

carrying
amOunt

fair value

Floating rate
long-term
bank loans

Fixed rate
long-term
bank loans and
bonds

Fixed rate
short-term
bank loans and
bonds

Trade and oth-
er payables

Total financial
liabilities
measured at
amortised cost

26,697,380

Floating rate bank loans

−

26,697,380

Fixed rate bank loans and bonds

150,541,257

149,587,134

100,382,909

99,032,851

82,514,982

80,473,264

Total financial liabilities

150,541,257

149,587,134

127,080,289

125,730,231

issuer’s borrowing rate as at the
end of the reporting period. The
own non-performance risk as at 31
December 2019 and 31 December
2018 is assessed to be insignificant.
• The fair value of bonds is based
on the price quotations at the re-
porting date at Moscow exchange
where transactions with bonds take
place with sufficient frequency and
volume.

68,026,276

19,909,645

54,689,103

56,133,840

205,230,360

183,214,129

The management assessed that
the carrying amounts of cash and
short-term deposits, trade receiva-
bles, trade payables, other liabilities
approximate their fair values largely
due to the short-term maturities of
these instruments.

The fair value of the financial as-
sets 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.

The following methods and as-
sumptions are used to estimate the
fair values:
• Fair values of the Group’s inter-
est-bearing borrowings and loans
are determined by using DCF method
using discount rate that reflects the

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019

104

105

Changes in liabilities arising from financing activities

31 decemBer 2018

prOceeds frOm
BOrrOwings

repayments Of
BOrrOwings

reclas-
sificatiOns

Long-term borrowings

106,341,291

35,386,518

(13,000,000)

(46,813,928)

Short-term borrowings

20,738,998

194,644,286

(193,770,873)

46,813,928

Other

31 decemBer 2019

196,560

4,477

82,110,441

68,430,816

Total

127,080,289

230,030,804

(206,770,873)

−

201,037

150,541,257

fair values (continued)

31 decemBer
2017

prOceeds frOm
BOrrOwings

repayments Of
BOrrOwings

reclas-
sificatiOns

change in the
accOunting
pOlicies due tO
applicatiOn Of
ifrs 9 (nOte 4)

Other

31 decemBer 2018

Long-term bank loans

62,194,204

64,683,000

(5,000,000)

(15,799,792)

324,305

(60,426)

106,341,291

Short-term bank loans

44,888,131

67,500,000

(106,871,775)

15,799,792

(90,149)

(487,001)

20,738,998

Total

107,082,335

132,183,000

(111,871,775)

–

234,156

(547,427)

127,080,289

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.

interest rates. As at 31 December 2018
these obligations were represented
with long-term borrowing (Note 19)
which were redeemed at the end of
the reporting period.

interest rate sensitivity
The following tables demonstrate the
sensitivity to a reasonably possible
change in MosPrime rates, on that por-
tion 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:

information that is available at the
reporting date about past events,
current conditions and forecasts of
future economic conditions.

trade receivables
The Group has no significant concentra-
tions 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 regis-
tered in the Russian Federation. It is the

29. financial risK management
The Group’s principal financial lia-
bilities, 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 direct-
ly 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 over-
sees 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 ac-
tivities 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 finan-

cial 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 af-
fected 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 ex-
change rates.

During the years ended 31 De-
cember 2019 and 2018, the Group
does not attract any amounts of
foreign currency denominated bor-
rowings, 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.

Whenever possible, the Group tries
to mitigate the exposure to foreign
currency risk by matching the state-
ment 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.

change in
usd rate

effect On
prOfit
BefOre tax

2018

prOfit Or lOss

Oci

75 Bp
increase

100 Bp decrease

75 Bp
increase

100 Bp
decrease

Year ended 2019

13.00 %

(61,972)

Variable rate instruments

-11.00 %

52,438

Cash flow sensitivity

(196,875)

262,500

(196,875)

262,500

−

Year ended 2018

14.00 %

(91,491)

-14.00 %

91,491

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

change in
eur rate

effect On
prOfit
BefOre tax

Year ended 2019

13.00 %

(25,815)

-11.00 %

21,844

Year ended 2018

14.00 %

(33,453)

-14.00 %

33,453

Foreign currency exchange rate rea-
sonable 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 finan-
cial 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

The range of reasonable possible
changes in MosPrime rate was pre-
pared for the purpose of market risk
disclosures in accordance with IFRS
7 and was based on risk metrics that
are derived from statistical data, in
particular time series analysis.

credit risk
Credit risk is the risk that counter-
party 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 recoverabil-
ity of receivables the Group uses
a provision matrix to measure ex-
pected credit losses. The provision
rates are based on days past due
for groupings of various customer
segments with similar loss patterns
(i. e., by customer type and rating)
and the likelihood of default over a
given time horizon. The calculation
reflects the probability-weighted
outcome, the time value of money
and reasonable and supportable

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.

31 december 2019

Borrowings

Lease liabilities

Trade and other payables

Total

31 december 2018

Borrowings

Trade and other payables

Total

less than 12
mOnths

1–5 years

Over 5 years

tOtal

75,038,997

89,522,037

–

164,561,034

5,334,247

20,116,334

28,991,802

54,442,383

54,689,103

–

54,689,103

135,062,347

109,638,371

28,991,802

273,692,520

less than 12
mOnths

1–5 years

Over 5 years

tOtal

30,637,465

117,172,663

56,133,840

–

86,771,305

117,172,663

–

147,810,128

56,133,840

203,943,968

cash and cash equivalents
Credit risk from investing activities is
managed by the Group’s treasury de-
partment in accordance with the Group’s
policy. Investments of surplus funds are
made only with approved counterpar-
ties. Cash is placed in financial institu-
tions, 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 73,128,341
(31 December 2018: RUB 33,539,189).

liquidity risk
The Group monitors its risk to a short-
age of funds using a recurring liquidity
planning tool. This tool considers the
maturity of its financial assets and lia-
bilities and projected cash flows from
operations. The Group objective is to
maintain a continuity of funding and
flexibility through the use of bank over-
drafts 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 matu-
rity profile of the Group’s financial liabilities
at 31 December 2019 and 31 December
2018 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.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019106

107

31. events Occurring after the
repOrting periOd
The Chinese economy and its out-
look have been negatively affected
by global trade tensions and the
emergence of the Covid-19 corona-
virus. Measures to contain the virus
may impact business operations
around the world. Restrictions on
the movement of goods and ser-
vices could impact the Company’s
supply chain.

capital management
The Group manages its capital to
ensure that entities in the Group
will be able to continue as a go-
ing 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 cap-
ital structure through shareholders’
capital contributions or new share
issues, return of capital to share-
holders as well as the issue of new
debt or the redemption of existing
debt. The Group is guided in its de-
cisions 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 sourc-
es. 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 19,
lease liabilities less cash and cash
equivalents and equity attributable
to equity holders of the parent, com-
prising issued capital, reserves and
retained earnings.

net debt of the group comprises of
the following:

31 decemBer
2019

31 decemBer
2018

Borrowings

150,541,257

127,080,289

Lease liabilities

32,160,006

–

Cash and cash
equivalents
(Note 16)

(33,804,860)

(73,404,760)

Net debt

109,296,503

93,275,429

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.

30. contingencies

Operating environment of the group
The Group sells products that are
sensitive to changes in general
economic conditions that impact
consumer spending. Future eco-
nomic conditions and other factors,
including sanctions imposed, con-
sumer 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 economic,
financial and monetary measures
undertaken by the government of
the Russian Federation.

The Russian economy has been
negatively impacted by sanctions
imposed on Russia by a number of
countries. The Rouble interest rates
remained high. The combination of
the above resulted in reduced access
to capital, a higher cost of capital
and uncertainty regarding economic
growth, which could negatively affect
the Group’s future financial position,
results of operations and business
prospects.

Management believes it is taking
appropriate measures to support the
sustainability of the Group’s business
in the current circumstances.

legal contingencies
Group companies are involved in
a number of lawsuits and disputes
that arise in the normal course of
business. Management assesses
the maximum exposure relating to
such lawsuits and disputes to be
RUB 84,015 as at 31 December 2019

(31 December 2018: RUB 36,538).
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.
The government of the Russian
Federation continues to reform the
business and commercial infra-
structure 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 under-
standing 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
1,750,623 (31 December 2018: RUB
975,898). Management continues
to monitor closely any develop-
ments related to these risks and
regularly reassesses the risk and
related liabilities, provisions and
disclosures.

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 environmen-
tal 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 ma-
terial. In the current enforcement
climate under existing legislation,
management believes that there
are no significant liabilities for en-
vironmental damage.

O1›STRATEGIC REPORT O2›CORPORATE GOVERNANCE O3›FINANCIAL STATEMENTS O4›APPENDICESLENTA LTD. AND SubSIDIARIESLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019
108108

l e n t a

a n n u a l r e p Or t

a n d a c c Ou n t s

2 0 1 9

O 1 › s t r a t e g i c r e p Or t

O 2 › c Or p Or a t e gO v e r n a n c e

O 3 › f i n a n c i a l s t a t e m e n t s

O 4 › a p p e n d i c e s

O 4 ›

a p p e n d i c e s

cOmpany suBsidiaries
the company had the following
subsidiaries as at 31 december 2019:

cOmpany name

Lenta LLC

Zoronvo holdings Ltd

TRK-Volzhskiy LLC

TK-Zheleznodorozhniy LLC

Beneficial
Ownership

100%

110

111

O 1 › s t r a t e g i c r e p Or t

O 2 › c Or p Or a t e gO v e r n a n c e

O 3 › f i n a n c i a l s t a t e m e n t s

O 4 › a p p e n d i c e s

list Of cities as Of 19 feBruary 2020

glOssary

further infOrmatiOn

numBer
On the
map

cities1

numBer Of
hypermar-
Kets

numBer Of
supermar-
Kets

numBer Of
distriButiOn
centres

numBer
On the
map

cities1

numBer Of hy-
permarKets

numBer Of
supermar-
Kets

numBer Of
distriButiOn
centres

Achinsk

Almetyevsk

Arkhangelsk

Armavir

Astrakhan

Balakovo

Barnaul

Belgorod

Biysk

Bratsk

Bryansk

Cheboksary

Chelyabinsk

Cherepovets

Cherkessk

Dimitrovgrad

Ekaterinburg

Engels

Grozny

Irkutsk

Ivanovo

Izhevsk

Kamensk-
Uralsky

Kazan

Kemerovo

Khanty-
Mansiysk

Kostroma

Krasnodar

Krasnoyarsk

Kurgan

Kursk

Lipetsk

Maloyaro

Magnitogorsk

Maykop

Moscow

Murmansk

Naberezhnye
Chelny

Nizhnekamsk

Nizhniy
Novgorod

Nizhniy
Tagil

Novocherkassk

Novokuznetsk

Novorossiysk

Novoshakh-
tinsk

Novosibirsk

Noyabrsk

Omsk

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

Troitsk

Tula

Tver

Tyumen

Ufa

Ulyanovsk

Velikiy
Novgorod

Vladimir

Volgograd

Vologda

Volzhskiy

Voronezh

Yaroslavl

Yoshkar Ola

Yurga

Zheleznovodsk

Unless otherwise specified, the terms ‘we’, ‘us’, and ‘our’
refer to lenta ltd., or where the context allows, to the lenta
business more generally.

in this annual report, we present certain operating and
financial information regarding our hypermarkets and
supermarkets, which we define as follows:

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

gamification

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

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, em-
ployee recruitment and evaluation, ease of use,
usefulness of systems, physical exercise, traffic
violations, voter apathy, and more.

GDRs

global depositary receipts

in-store availability

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 av-
erage daily in-store availability of all open stores

LFL

NPS

P&L

SG&A

SKU

sq.m

ticket

total selling space

like-for-like

Net Promoter Score

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

the number of tickets issued for the period
under review

Adjusted EBITDA

EBITDA adjusted for non-recurring one-off
items such as changes in accounting esti-
mates and one-off non-operating costs

Adjusted EBITDA margin Adjusted EBITDA as a percentage of sales

Adjusted EBITDAR

Adjusted EBITDAR
margin

EBITDA

like-for-like sales

Other metrics

Adjusted EBITDA before rent paid on land,
equipment and premises leases

Adjusted EBITDAR as a percentage of sales

Profit for the period before foreign exchange
gains/losses, revaluation of financial instru-
ments at fair value through profit or loss,
reversal of impairment of non-financial assets,
other expenses, depreciation and amorti-
sation, 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 attribut-
able 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 2019 and 2018 was 314 (227 hyper-
markets and 87 supermarkets) and 228 (187
hypermarkets and 41 supermarkets) respec-
tively. ‘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 borrow-
ings and obligations under finance leases,
capitalised fees and accrued interest) minus
cash and cash equivalents. The ratio of net
debt to Adjusted EBITDA is net debt divided
by Adjusted EBITDA. The ratio of Adjusted
EBITDA to net interest expense is Adjusted
EBITDA divided by net interest expense, which
is calculated as interest expense less interest
income. The ratio of Adjusted EBITDAR to net
interest expense plus rental expense ratio
is Adjusted EBITDAR divided by the sum of
net interest expense and rental expenses.
CROCI is defined as Adjusted EBITDA over
average capital invested. Average capital
invested is the average of the book value of
gross non-current assets plus net working
capital as of the beginning of the year and
the book value of gross non-current assets
plus net working capital as of the end of the
year. Adjusted SG&A/Sales is SG&A, excluding
expenses on land and equipment leases,
premises leases, depreciation and amortisa-
tion and one-off expenses as a proportion
of sales.

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

traffic

Lenta Ltd. and subsidiariesLENTA ANNUAL REPORT AND ACCOUNTS 2019LENTA ANNUAL REPORT AND ACCOUNTS 2019