Russian retail giant Lenta has announced a buyback programme for its Global Depository Receipts (GDRs).
The company believes its current market valuation understates the fundamental value of the business, and this provides an attractive opportunity for distributing cash to GDR-holders through a GDR buyback programme.
The company’s chief executive officer, Jan Dunning, said, “The decision to launch a buyback programme demonstrates our confidence in the Lenta business model and underscores the commitment of the Lenta Board and management to maximise GDR-holder value creation and to ensure efficient capital allocation and attractive returns on capital invested.”
The retailer posted a 0.6% decline in like-for-like sales in the third quarter of its financial year, resulting from a 0.3% decline in LFL traffic and basket size respectively.
The Buyback Programme
The GDR buyback programme will be conducted between 29 October 2018 and 29 October 2019, under which total purchases of up to RUB 11.6 billion (€160 million) may be made. It corresponds to 10% of all the company’s GDRs based on their quoted sale price as of the close of trading on 26 October 2018.
It is anticipated that transactions will commence no later than 5 November 2018.
Credit Suisse has been engaged to carry out the buyback by means of open-market purchases on the London Stock Exchange.
It will, in turn, sell the GDRs it has purchased to Lenta LLC, the operating subsidiary of the company.
In making its purchases under the programme, Credit Suisse will be acting as principal and making its trading decisions independently of the company and Lenta LLC.
At recent trading volumes and the current price for company GDRs on the London Stock Exchange, the approved maximum amount for repurchases of RUB 11.6 billion will not be applied in full.
However, the company believes that the expenditure of such an amount would be an appropriate use of its capital if the value traded increases.
Credit Suisse has agreed to make the purchases of the GDRs on the London Stock Exchange in connection with the programme in accordance with certain pre-set parameters consistent with the MAR safe harbour price and volume standards.
Attractive Opportunities
The retailer continues to see attractive opportunities for growth and consolidation in the yet immature Russian food retail market
It expects to grow at a slower pace in the short term, but will continue to grow its selling space. Also, a significantly lower number of new organic store openings are expected for 2019, relative to the pace of expansion in 2018.
“While we will slow expansion somewhat in 2019, we believe the fragmented structure of the Russian food retail industry and the strength of our business model will continue to offer Lenta attractive opportunities for long-term growth,” Dunning added.
In the case of a suitable opportunity, the company will continue to consider 'value-accretive bolt-on acquisitions.'
It will continue to focus on the efficiency of existing operations, as well as stronger cash flow generation and returns. It is expected that this will result in the company becoming free-cash-flow positive in 2019.
At the projected level of capital expenditure on organic growth, the Board and management see an opportunity to distribute cash to GDR-holders through a buyback while maintaining a strong balance sheet with conservative leverage.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Dayeeta Das. Click subscribe to sign up to ESM: The European Supermarket Magazine
