The credit rating of LLC Lenta (hereinafter, Lenta, or the Company) is based on its strong market position, strong operating profile, high level of corporate governance, low leverage, very strong liquidity, and high profitability. The rating is supported by the Company’s conservative financial policy. The credit rating has been upgraded due to a better assessment of the diversification of trade formats and an increase in profitability. In its calculations of the Company’s quantitative indicators, ACRA used Lenta IPJSC’s reports since the Company is the main operating asset and the holder of property.
As of the end of 2023, Lenta was Russia’s fourth biggest retail chain in terms of revenue and the largest hypermarket retail chain in terms of retail space. As of the end of Q1 2024, the Company’s chain included 261 hypermarkets, 316 supermarkets, and 2,380 small stores, while the total retail space exceeded 2.3 mln sq. m across more than 650 Russian cities.
KEY ASSESSMENT FACTORS
Very strong business profile. In 2023, Lenta acquired and consolidated the chain of Monetka stores, which reflected favorably on the assessment of the Company’s diversification of trade formats: in Q1 2024, the share of revenues generated by small stores amounted to about 30% of the total revenue. The Company has strategic plans to expand its: according to ACRA’s estimates, in 2026–2027, the gross selling area of small stores will exceed that of hypermarkets.
The Agency notes a significant growth of LFL sales across all store formats in Q4 2023 and Q1 2024. This was facilitated by product range optimization and stronger uniqueness of the offer though expansion of own production, private label, and direct imports, as well as reducing the share of promo-sales in hypermarkets and supermarkets. The Company uses all major channels for advertising and promoting its brands, which is a positive factor for the business profile assessment.
High level of corporate governance. Lenta is the main operating asset of Lenta IPJSC. The board of directors of Lenta IPJSC exercises corporate governance and controls the Company’s operations. The board of directors has committees for audit, operations, capital expenses, and nominations and remuneration. The Company’s risk management function is well-regulated and minimizes all major types of risk, and the treasury policy provides for maintaining a high level of liquidity, diversifying funding sources, and maintaining a reserve for bank covenants. The Company’s financial transparency is very high, and its business structure is simplified as much as possible: Lenta is the main operating asset and the property holder.
Low leverage and medium coverage of fixed charges. According to ACRA’s calculations, the weighted average ratio of total debt to FFO before net interest for 2021–2026 will amount to 2.4x, and in the Agency’ opinion, this indicator will decline below 2.0x as early as in 2024. The weighted average ratio of adjusted total debt to FFO before fixed charges for the same period is estimated at 3.7x. According to the Agency’s estimates, the weighted average ratio of FFO before net interest to interest for 2021–2026 will amount to 4.1x.
The very high assessment of liquidity reflects a significant volume of undrawn credit lines, which far exceeds the Company’s total debt. The Agency notes that Lenta has access to capital markets and keeps its FCF margin above zero, which provides additional support to the rating.
Key assumptions
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Successful implementation of the Company’s strategy.
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Implementation of the Company’s investment program as planned.
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No significant decline in profitability this year compared to the average profitability in the period from Q4 2023 to Q1 2024.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- FFO before fixed charges exceeding RUB 100 bln, the ratio of adjusted total debt to FFO before fixed charges falling below 2.0x, FFO before fixed charges and taxes margin sustainably exceeding 10%, and the weighted average ratio of FFO before net interest to interest exceeding 5.0x.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before fixed charges to fixed charges falling below 2.5x;
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Significantly reduced access to external sources of liquidity and short-term liquidity ratio declining below 1.5x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
Regulatory disclosure
The credit ratings has been assigned to LLC Lenta under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations Under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of LLC Lenta was published by ACRA for the first time on August 3, 2017. The credit rating of LLC Lenta and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by LLC Lenta, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and LLC Lenta participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to LLC Lenta. No conflicts of interest were discovered in the course of credit rating assignment.
