The outlook on the credit rating of LLC Lenta (hereinafter, Lenta or the Company) has been changed from Stable to Positive to reflect the Agency’s expectations that Lenta’s operational and financial metrics could improve in the next 12–18 months.
The credit rating of 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. In its calculations of the Company’s quantitative indicators, ACRA used Lenta IPJSC’s reports because the Company is the main operating asset and holder of property.
As of the end of 2024, Lenta was Russia’s fourth largest retail chain in terms of revenue and the largest hypermarket retail chain in terms of retail space. As of the end of 2024, the Company’s chain included 264 hypermarkets, 320 supermarkets, 2,894 small grocery stores, and 1,663 drugstores. By the end of 2024, total retail space exceeded 2.6 mln sq. m across more than 650 Russian cities.
KEY ASSESSMENT FACTORS
Very strong business profile. At the end of 2023, Lenta acquired and consolidated the chain of small format Monetka grocery stores, and at the end of 2024 acquired the Ulibka Radugi chain of drugstores. This reflected favorably on the assessment of the diversification of trade formats: in 2024, the share of revenues generated by small stores amounted to about 30% of total revenues. The Company has strategic plans to continue increasing its share of small-format stores. The Company uses all major channels for advertising and promoting its brands, which is a positive factor for the business profile assessment.
The Agency notes the significant growth of the Company’s sales, which is mainly due to the broadening of the chain. As a result, revenues grew by 44% last year. The growth in like-for-like sales in stores of all formats for Q4 2024 amounted to 11.3%, which is associated with an increase in the average ticket by 8.5% and traffic by 2.6%. Operating income increased to 10% in 2024, while FFO before fixed payments and taxes grew by 83% to RUB 89 bln. Profitability grew thanks to a decline in the share of administrative and commercial costs due to the operating leverage effect from sales growth, as well as cost optimization and a reduction in store management costs. ACRA does not expect continued growth in operating profitability, as it believes that further cost optimization measures will only offset the ongoing inflationary pressure on costs (in particular, the growth in labor costs and rental payments).
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, 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: Lenta is the main operating asset and the property holder.
Low leverage and medium coverage of fixed payments. According to ACRA’s calculations, the weighted average ratio of total debt to FFO before net interest payments for 2022–2027 will amount to 1.6x, while in 2024, this metric declined to 1.7x. The weighted average ratio of adjusted total debt to FFO before fixed payments for the same period is estimated at 3.1x. According to the Agency’s estimates, the weighted average ratio of FFO before net interest payments to interest payments for 2022–2027 will be 4.5x, while the weighted average ratio of FFO before fixed payments to fixed payments will be 2.3x.
The very high assessment of liquidity reflects a significant volume of undrawn credit lines, which exceeds the Company’s total debt. In addition, the short-term liquidity considerably exceeds 1.5x. The Agency notes that Lenta has access to capital markets and keeps its free cash flow (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 investment program as planned.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The FFO margin before fixed payments and taxes consistently exceeding 10%, the ratio of weighted average total debt to FFO before fixed payments falling below 1.0x, and the weighted average ratio of FFO before net interest payments to interest payments exceeding 5.0x.
A negative rating action may be prompted by:
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The weighted average total leverage (ratio of total debt to FFO before net interest payments) and adjusted leverage (ratio of adjusted debt to FFO before fixed payments) exceeding 2.0x and 4.0x, respectively, coupled with the weighted average FCF margin declining;
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Significantly reduced access to external sources of liquidity and the short-term liquidity ratio declining below 1.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
Regulatory disclosure
The credit rating has been assigned to LLC Lenta under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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 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.
The decision to affirm the credit rating of LLC Lenta at AA(RU) and to change the outlook from Stable to Positive was made at a repeated meeting of the rating committee, taking into account ACRA’s consideration of a reasoned appeal against the decision of the initial rating committee to affirm the credit rating of LLC Lenta at AA(RU), outlook Stable. Taking into account the additional information received from LLC Lenta, the Agency reconsidered the likelihood of further improvement in the Company’s profitability, which led to the decision to change the credit rating outlook at the repeated meeting of the rating committee. Following due consideration of the reasoned appeal, the level of the credit rating has not changed.
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.
