Annual Report 2021

Contents

O1 O2 O3

Strategic

Report

Corporate

Governance

Report

Financial

Statements

6 Lenta ataglance

7 Financial andoperational highlights

8 Chairman’s Statement

12 Chief Executive Officer’s Review

14 Strategy overview

16 Market overview

18 2021 Performance

24 Continuous improvement

26 Sustainable development

34 Chief Financial Officer Review

38 Risk management

46 Board ofDirectors

50 Senior management team

54 Corporate governance report

62 Board committees

63 Special Committee

64 Audit Committee report

67 Nomination Committee report

69 Remuneration Committee report

73 Operation andCapital Expenditure

Committee report

74 Relations withshareholders

75 Responsibility statement

78 Board of Directors’ responsibility statement

79 Independent auditor’s report

87 Notes to the consolidated financial statments

1. TheLenta Group and its operations

89 2. Basis of preparation and significant

accounting policies

98 3. Significant accounting judgements, estimates

and assumptions

100 4. New standards, interpretations and amendments

adopted by the Group

101 5. Standards issued but not yet effective

104 6. Balances and transactions with related parties

105 7. Property, plant and equipment

108 8. Acquisition of subsidiaries

111 9. Prepayments for construction

111 10. Right-of-use assets and lease liabilities

114 11. Operating segments

115 12. Intangible assets

11 6 13. Other non-current assets

11 6 14. Inventories

117 15. Trade and other receivables

118 16. Advances paid

118 17. Cash and cash equivalents

119 18. Issued capital and reserves

12 0 19. Earnings per share

121 20. Borrowings

122 21. Income taxes

124 22. Trade and other payables

124 23. Contract liabilities

124 24. Other taxes payable

125 25. Cost of sales

125 26. Selling, general and administrative expenses

126 27. Other operating income and expenses

126 28. Interest expense

127 29. Share options reserve

128 30. Capital expenditure commitments

128 31. Financial instruments

131 32. Financial risk management

134 33. Contingencies

135 34. Events occurring after thereporting period

Appendices

13 8 Share capital

13 8 LTM stock performance

139 Lenta stock price performance

14 0 Company’s subsidiaries

andassociates

141 List ofcities asof31December 2021

142 Glossary

14 3 Further information

14 4 Cautionary statements

14 5 Notes

Strategic

Report

Financial andoperational highlightsLenta ataglance

254

hypermarkets

distribution centres

52,857

employees

503

supermarkets

andconvenience stores

cities

ofoperation

18.9 mn

Lenta active card holders

Sales

483.6 bn

RUB

Retail sales

475.8 bn

RUB

Free cash flow

7.1 bn

RUB

EBITDA margin

9.7 %

Lenta card holders

+12 %

Sales area

+15.6 %

Online sales

+208 %

Gross margin

23 %

cities ofonline

presence

Number of loyalty card holders who have made

at least 2 purchases a year

Strategic Report 7Corporate Governance Report Financial Statements AppendicesLENTA . Annual Report 20216

Chairman’s statement

Dear shareholders,

Theyear 2021 wasanother challenging

one forLenta aswellasfortheentire world.

TheCovid-19 pandemic continued topose

unprecedented challenges forour business.

Despite this, theLenta team managed todeliver

strong operational andfinancial results while

undergoing major transformation.

Our employees showed incredible dedication

growing andsustaining Lenta’s business while

maintaining thehighest standards ofservice

inour stores andsupplying Russian customers

withnecessary goods. Iwould like toexpress

my gratitude onbehalf oftheBoard fortheir

efforts andcommitment.

Our Strategy

InMarch 2021, we announced our Growth

Strategy. We plan todouble our business

within 5years andbecome champions

ofRussian food retail.

TheRussian food retail sector has evolved

rapidly overrecent years andI believe

that we arenow onthebrink ofanother

key transformative stage. I am genuinely

excited andenthusiastic about this,

asIstrongly believe Lenta has anumber

ofkey competitive advantages and is idealy

positioned tobecome aleader inthenext

stage ofRussian food retail.

Tobecome achampion,

we need toachieve thefollowing goals:

1. Growth: Double FY 2020 Sales to1 trillion roubles andtoincrease our market

share inthefood retail sector to5%.

2. Profitability: At the same time, we will be a growth leader, we also aim to retain

the title of Russia’s most profitable food retailer.

3. Competitiveness: Overthenext 5years, Lenta will follow theprinciple tobethe

#1 or #2 player wherever it chooses tocompete, whether that begeographies

orsegments.

4. Returns: We strive todeliver sector-leading total shareholder return, which includes

capital gains anddividends.

Asaresult, we believe Lenta istobecome thefastest growing federal food retailer

overthenext 5years.

M&A

We intend togrow our business both

organically andbyM&A. In2021, we

acquired Billa andSemya retail chains

inMoscow andPerm. These deals create

new opportunities forLenta toexpand

insmaller formats andand gain market

share in the Moscow and Perm Regions.

Theacquisition ofUtkonos, online-only

food retailer based inMoscow, announced

inDecember 2021, will enable Lenta

tosignificantly expand its online market

share withanadditional delivery platform

featuring aloyal customer base, unique

competencies andcompetitive advantages

andtheability tocompete intheMoscow

online market more effectively, especially

within theupper-middle andpremium

segments.

Leadership

Atthebeginning of2021,

westrengthened our senior

management team andorganisational

structure bycreating two new

structural units within theCompany

– theCommercialandMarketing

Department andtheStrategy

andTransformation Department.

Thechanges enabled us toexcel

atcreating themost relevant сustomer

value proposition andbecome

atruly customer-focused retailer

whilst strengthening our strategic

andtransformation capabilities.

During theyear, we made several

appointments toreplace senior management

team members who decided tostep down.

Andreas Jueterbock wasappointed Chief

Operational Officer totake overfrom

Edward Doeffinger andIgor Ovsienko

took therole ofChief Supply Chain Officer

instead ofJoern Arnhold. Theseinternal

promotions weredone within our succession

planning programme. Andreas andIgor

have been working forLenta since

2013and2006respectively andpossess

substantial experience andknowledge

ofLenta’s operations.

The Board of Directors also followed the

recommendation of the Audit and the

Nomination Committees to appoint Maria

Klevtsova as the Internal Audit Director

replacing Anna Logunova, and Sergey

Sergeev as Chief Information Officer who

took over from Sergey Korotkov who decided

to pursue career opportunities outside Lenta.

AsChairman oftheBoard, I am confident

these changes toour management

team will support thedevelopment

andimplementation ofour new growth

strategy.

Organisation

Inthecourse of2021, theBoard wasbusy withrevisiting Lenta’s corporate

values toensure we hire best professionals who arecapable ofdriving

thebusiness forward. We also continued working ontheorganisational

structure oftheCompany tofit therequirements ofLenta’slong-term strategy.

Alexey Mordashov,

Chairman

Strategic ReportLENTA. Annual Report 20218 9Corporate Governance Report Financial Statements Appendices

Outlook

Returns to Shareholders

Corporate Governance

Lenta isalready the #1 Russian

hypermarket chain bytotal sales.

We arerecognised asthestrongest

player inthis format, andour expertise

incategory management across more

than 35thousand SKUs will help us

successfully launch andoperate new

formats.

Lenta has one ofthelargest nationwide

networks. Without adoubt, we have

one of the widest assortment ofproducts

andcan offer our customers thebest

selection of goods to meet their daily

needs.

Our ultimate goal is to generate

sector-leading returns to shareholders.

Webelieve that we should use our

funds inthemost appropriate way

in theinterest ofshareholders. In

2021, ourpriority wasthegrowth of

our business, andwesee very good

opportunities touse the momentum

It has always been crucially important

fortheBoard ofDirectors tocomply

withexisting regulations ofthecorporate

governance andensure that we implement

best practices ofthegovernance

oftheCompany.

Aswe initiated theprocess

ofredomiciliation toRussia, theBoard

focused oncompliance withtheprinciples

andrecommendations oftheCorporate

Governance Code oftheRussian

Federation (theCode).

Lenta has one ofthemost loyal customer

bases – asdemonstrated bythefact that

98% ofpurchases aremade byloyalty

card holders. This level isamongst

thehighest intheworld.

Last, but not least, Lenta isthemost

profitable publicly traded food retailer

inRussia today, withan8.1% EBITDA

margin.

These strengths give us astrong

foundation tobecome thegrowth leader

inthenext stage ofRussian food retail.

Inparticular, inNovember 2021,

theBoard approved theDividend

Policy, Regulations onBoard

Committees aswellasRegulations

onInternal Audit andtheCorporate

Secretary oftheGroup. These

wereconsecutive steps towards aligning

thecorporate governance system

withapplied requirements ofMOEX

andrecommendations oftheCorporate

Governance Code approved

bytheBoard ofDirectors oftheBank

ofRussia on21 March 2014.

Inthereported year, we performed initial

analysis ofcompliance withtheprinciples

andrecommendations oftheCode inaform

recommended bytheBank ofRussia.

Infuture, we will strive toimplement

theprinciples andrecommendations

oftheCode that theCompany does not

comply or partially complies with.

Redomiciliation

On17February 2021, we

announced that redomiciliation

totheRussian Federation had

been achieved, withLenta duly

registered asaninternational public

joint-stock company withits legal

seat atOktyabrsky Island, City

ofKaliningrad, Kaliningrad Region,

Russian Federation.

InNovember 2021, incontinuation

oftheCompany’s redomiciliation

andforthepurpose ofaligning

theCompany’s corporate governance

system withtherequirements

oftheCompany’s Articles ofAssociation

andtheCorporate Governance Code

approved bytheBoard ofDirectors

oftheBank ofRussia on21 March 2014,

theBoard approved theCompany’s

Dividend Policy, aswellasRegulations

onBoard Committees, andformally

documented theInternal Audit Charter

andRegulations ontheCorporate

Secretary oftheCompany.

Witheffect from 26November 2021,

theCompany’s ordinary shares have

been included intheLevel 1 part ofthelist

ofsecurities admitted totrading on

theMOEX.

Thetrading intheOrdinary Shares

onMOEX commenced on1December

2021. Witheffect from 19April 2022

theglobal depositary receipts representing

ordinary shares intheCompany will

beexcluded from Level 1 part ofthelist

ofsecurities admitted totrading onMOEX

andno longer trade onMOEX. GDRs

will continue tobelisted andtraded

ontheLondon Stock Exchange.

Sustainable Development

Sustainability isimportant toour employees, customers, investors andother

stakeholders. In 2021, weestablished Lenta’s Sustainability Strategy andset

environmental, social andgovernance targets tolead thepositive change forour

employees, customers andsociety atlarge.

ofgrowth. Because ofit, we have

decided not to pay dividends in2022.

During the next year we will review this.

However, our top priorities in our Capital

Allocation Strategy aretomaintain

leverage in line with our long-term target

and to finance business development,

including M&As and organic growth.

Strategic ReportLENTA. Annual Report 202110 11Corporate Governance Report Financial Statements Appendices

Chief Executive Officer’s Review

Covid-19 pandemic

The Covid-19pandemic continued

affecting our business andoverall

economies. We have seen anincreasing

number ofCovid-19cases inRussia and,

unfortunately, inLenta. We remained

committed tothesafety andwell-being

ofour employees andclients andcontinued

investing intosafety measures inall our

stores, DCs andoffices.

These investments allowed us tokeep

our supply chain running andour stores

open infull compliance withgovernment

guidelines andregulations. These measures

allowed our customers and employees

to feel safe while shopping and working

at Lenta. Consequently, more customers

named Lenta as their favourite store and

increased their spending in our stores.

2021 performance

In2021, retail sales increased by8.8%

toRUB475.8 billion despite changing

customer behaviour. This increase

wasmainly driven byan11.1% rise inthe

number of tickets andpartially offset

bya2.1% decrease intheaverage ticket

resulted from an expansion in small formats.

We successfully closed two transformative

M&Adeals andbegan tointegrate

234Billa andSemya stores, 3distribution

centres, andmore than 10,000employees.

These acquisitions will strengthen Lenta’s

market positions inMoscow andPerm

vialocations withestablished customer traffic.

Importantly, we have acquired not only Billa’s

andSemya’s physical stores, butalso their

deep expertise inoperating smaller formats.

Theintegration process will continue in2022,

but we have already made good progress.

Our online business continues todeliver

strong results, both interms ofour own

Lenta Online andthird-party partnerships,

which aretogether generating more than

50 thousand orders per day.

Theacquisition ofUtkonos announced

inDecember 2021, enables us tosignificantly

enhance our competitive position inMoscow

withanadditional delivery platform featuring

aloyal customer base, unique competencies,

such asan ultra-wide unique assortment,

strong fulfilment infrastructure andhigh client

satisfaction rates. Together, Lenta Online

andUtkonos will create acomprehensive

online offering covering all key shopping

missions andmarket segments.

We accelerated theroll-out ofour new

Mini Lenta format, opening 133 new stores

primarily inMoscow, Moscow Region,

andSt Petersburg. Witheach new store

we open, we aremaking improvements

along theway toenhance thecustomer

experience andincrease efficiency.

In2021, Lenta added 364 stores onanet

basis, bringing thetotal number ofretail

stores to757 andtotal selling space

to1.75 million square metres representing

15.6% year-on-year growth.

Our relaunched loyalty programme

continues tohave apositive effect onour

results. Throughout 2021, we further

improved our algorithms andmarketing

inorder toachieve more personalised

offers. Asoftheend of2021, we had

18.9million loyalty card users andloyalty

cards wereused inmore than 98% ofsales.

Overthenext few quarters, we will continue

toinvite Billa’s andSemya’s customers

intoour loyalty programme.

InMay 2021, we announced anevolution

ofour corporate brand that reflects

thechanges intheCompany, shift tomulti

format, online development andclient centric

concept. All theformats inwhich Lenta

operates – hypermarkets, supermarkets,

convenience stores andonline – got their

own identity. Our well-recognised sunflower

became lighter anddigital friendly appealing

for all our customers groups.

We worked hard toadapt our corporate

culture totheevolving environment. Our

updated corporate values enable us

tochoose professionals who will move our

business forward and help us tobuild an

agile innovation oriented andcustomer

centric corporate culture that iscrucial for

successful fulfilment of our srategic plan

over next years.

Looking forward

Looking ahead, we will focus on improved performance, enhanced efficiency ofthecore

business, accelerated roll-out of our small-format stores, and further development of our

own online business, as well as the phased integration oftheUtkonos business to capture

meaningful synergies and unlock long-term value in our combined online business. Despite

the challenging macroeconomic situation due to rising inflation and the ongoing Covid-19

pandemic, we stay committed to our mission to help ourcustomers live a better life by

spending less.

Dear shareholders,

I’m pleased topresent Lenta’s 2021 Annual Report.

2021 wasavery important year fortheCompany.

We started implementing our growth strategy,

launched complex transformation programme,

andembarked onpath tosignificant changes.

Despite all current challenges connected

totheCovid-19 pandemic andtheincreasingly

competitive food retail sector, Lenta delivered strong

results andachieved important milestones during

2 0 21.

Our total sales increased by8.6% withsolid like-

for-like results andEBITDA margin of8.1% (IAS 17).

The total selling space increased by15.6%.

We accelerated thedevelopment ofour Mini

Lenta stores andadded 364 supermarkets

andconvenience stores on a net basis

duringtheyear

We completed theacquisition ofBilla andSemya

retail chains andour online channel recorded

impressive 208% year-on-year growth.

I am pleased withthese results andimmensely proud

oftheentire Lenta team forsuch aperformance.

Vladimir Sorokin

Chief Executive Officer

Retail sales

increased by

8.8%

Total number

ofretail stores

757

Loyalty card

users

18.9 million

Includes Billa and Semya stores.

Strategic ReportLENTA. Annual Report 202112 13Corporate Governance Report Financial Statements Appendices

Strategy overview

Our updated Strategy 2025 aims totransform Lenta intoafood retail champion during

thenext stage oftheRussian food retail sector. It builds onthecompany’s existing strengths

asRussia’s fourth largest andmost profitable food retailer withanationwide presence,

aleading andwidely recognised brand, andahighly loyal customer base.

Growth

todouble

FY2020 revenues

toRUB1trillion

by2025

We seek toachieve thefollowing four goals:

We aspire to become

the Champion

of Russian food retail

over the next five years.

Profitability

toremain

themost profitable

Russian food retailer

Competitiveness

tobethe#1or #2player inthose

geographies or segments where

Lenta chooses tocompete

Returns

togenerate

asector-leading TSR

by2025

Improve our core business

through the Champion offer, Great Experience

and Best Individualisation

• Sustainable business development in line with the market’s best practice

Priority

Long-term targets

We defined our

key strategic priorities

Integration of the principles

of sustainable development

into the Lenta business run.

Implement continuous improvement

via embracing innovations and developing

the corresponding corporate culture

Become closer to customers

by expansion in small formats

and online development

Champion Offer

• Improved price positioning

• Tailored assortment up to store level

• Exclusive non-food

• Best in-class private label

• Convenient navigation

• Attractive activities and events

• OMNI access

• Best perks and rewards for your loyalty

• Personalisation

• ~1.5 mn sq.m. expansion primarily in SMs and proximity

• Online share up to 10% of Lenta’s Total Sales

• Wide range of efficiency projects aimed at continuous

improvement of Lenta’s operations

Great Experience

Best Individualisation

Become closer to customers

Implement continuous improvement

ESG

Strategic ReportLENTA. Annual Report 202114 15Corporate Governance Report Financial Statements Appendices

Market overview

Even though Russia’s economy saw

astrong rebound inthefirst half

oftheyear andGDP isexpected to

have grown by4.5% in2021, both

Russian retailers andconsumers

continued toface achallenging

macroeconomic environment throughout

2021. TheCovid-19 pandemic also

put additional pressure onRussian

households’ budgets in2021.

AsCovid-19 restrictions wereeased

inRussia inlate 2020 andearly 2021,

consumer demand surged ahead

inthesecond quarter, supported

bysavings built up over2020 andrapid

credit growth. However, byautumn,

it became clear that adamaging new

pandemic wave wasunderway, which,

withrelatively low vaccination rates,

isarisk toboth economic activity

andhuman health. Withnew Covid

control measures andtheconsumer

rebound fizzling out, economic activity

cooled inthesecond half oftheyear.

CPI, % YoY

Largest operators, 9 M 2021 Market Share

Top-5 Russian retailers Market share

Inflation has been ontherise

throughout 2021 ending theyear

at8.39 %,

withfood inflation rate

of10.62%,

andbecame thehighest

since 2015 asRussia copes withhigh

demand, rising commodity prices

andsupply bottlenecks. TheCentral

Bank ofRussia (CBR) wasone

ofthefirst central banks tobegin

tightening monetary policy in2021

asinflation moved above theCBR’s

target rate fromDecember 2020.

SinceMarch, it has raised rates several

times, byatotal of425basis points

tostand at8.5% attheyear end.

Attheend of9 months of2021, real

disposable income increased by4.1%

compared to9 months of2020.

According totheforecast oftheMinistry

ofEconomic Development, in2021,

real disposable cash income

ofthepopulation isexpected togrow

by3%, 2.4% in2022 and2.5%

in2023–2024.

InQ32021, thepoverty line

wasRUB11,970. Atthesame time,

thenumber ofpeople withcash incomes

below thepoverty line inQ32021

decreased to16million people,

which is11% ofthetotal population.

Thedecline inthepopulation

ofthecountry withincomes below

thepoverty line isassociated

withanincrease insocial benefits

forvarious categories ofcitizens,

aswellaswiththerestoration

ofeconomic activity, which led

toanincrease inemployment

andanincrease inwages.

TheRussian food retail market still

provides opportunities forgrowth

andconsolidation. Market share

ofmodern trade of78% isstill lower

than in countries we compare with

andby2025 could reach 90% withan

increasing share oftop-5 retailers. Despite

ongoing consolidation andseveral

significant M&A deals executed

Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21

2020 2021

Food  CPI Non-food Core CPI Services

Sbermarket 15 %

X5 Group 15 %

Vkusvill 14 %

Samokat 11 %

Yandex.Lavka 8%

Wildberries 7%

Ozon 8%

Utkonos 5%

Yandex.Eats 3%

Delivery Club 2%

Lenta 2%

AV.ru 2%

Other 8%

Magnit 9.9%

X5 Group 12.7%

Mercury Retail Group 5.8%

Lenta 2.3%

Svetofor 1.7%

Other 67.6%

in2021, theRussian retail market remains

fragmented withvisible potential fortop

players market share growth.

In9M 2021, retail trade turnover inRussia

increased by8.4%, toRUB28trillion.

Food retail turnover increased by2.1%

toRUB13 trillion. Theturnover ofretail

trade innon-food products increased

by14.7%, toRUB15trillion.

Despite theslight improvement inreal

disposable incomes, looking forsaving

opportunities andpromo hunting

continued tobethecore patterns

ofconsumer behaviour. This fostered

thegrowth ofdiscounter andhard

discounters formats intheRussian market.

In2021, theshare ofFMCG indiscounters

comprised approximately 32%.

Rapid growth ofthe e-grocery segment

remained atrend in2021 withmore

players entering theonline food segment.

Thecompetition inthis segment has

vastly intensified. Not only food retailers

widened their online capacities but

typically non-food players have made

attempts tosell groceries utilising existing

andcreating new infrastructure.

Online food retailing isthefastest growing

segment ine-commerce andisset tosee

a6.4x sales surge toRUB2.5 trillion

by2026 forecast and9% ofthe total food

segment.

Lenta remained the fourth largest retailer

in Russia in 2021, while competitive

landscape has undergone some changes.

Market share of TOP-100 food retailers in

Russia exceeded 50% for the first time in

2021 while the share of TOP-10 players

increased from 36.5% at the beginning of

2021 to 37.7% at year-end.

RUB 240 Bn

In9M 2021 food retail turnover increased

Online food retailing isthefastest growing segment

ine-commerce.

by2 .1% toRUB13 trillion

a6.4x

sales surge

toRUB2.5 trillion and9%

ofthe total

food segment

NielsenIQ

VTB Capital

Source: InfoLine

Rosstat

Source: Rosstat.

Strategic ReportLENTA. Annual Report 202116 17Corporate Governance Report Financial Statements Appendices

new hypermarkets

were opened inregions

oftheCompany’s operations

2021 Performance

Covid-19 pandemic

In2021, theCovid-19pandemic continued

impacting both our operations andcustomers.

Our Covid-19 Response Team established

in2020, went onworking toensure

proper the focus onan effective response

tothepandemic. We continued toequip

our stores andDCs withsafety equipment,

provide staff withCovid personal protective

gear anddisinfectors.

InNovember 2021, local authorities

introduced limitations onvisiting shopping

malls and– insomeregions– grocery

stores oflarge sales area. This influenced

operations ofsomeofour supermarkets

andhypermarkets and resulted in double

digit traffic decline.

Two main vectors inwhich thepandemic has

impacted retail arethegrowth ofconsumers

looking forsavings withincreasing demands

onproduct quality andboost ofonline retail

development including related services such

asexpress delivery.

This year, thecost ofensuring thesafety

ofcustomers andemployees exceeded

RUB1 billion.

Our offices continued working inremote

mode, 95% ofour office staff worked

from home withall thenecessary technical

facilities provided bytheCompany.

Tosecure thehealth andsafety ofour

people, we conducted acompany-

wide campaign topromote vaccination

andbytheend oftheyear 81% ofLenta’s

people werevaccinated.

We carried onwithour social initiatives

tosupport vulnerable groups ofcustomers

during this period. This included volunteer

andcharity programmes, andadditional

discounts for medical workers. We offered

our elderly shoppers additional discounts,

theoption toshop atspecified hours,

anddedicated separate cash registers.

Hypermarkets

Hypermarket Sales represented 86%

oftotal Retail Sales in2021. Lenta

continued gaining market share inRussia’s

hypermarket segment. Despite increased

competition from discounters ande-grocery,

our hypermarkets delivered 4.4% Sales

growth, andanincrease of4.6% inLFL

average ticket.

Inthis segment Lenta continues

togrow despite adeclining share

ofthehypermarket segment inRussia.

In2021, we opened 3new hypermarkets

inregions oftheCompany’s operations

and closed 2 inefficient stores, and one

hypermarket was closed as a result of fire.

One hypermarket in Tomsk with selling

space of 5,209 sq.m was closed

inDecember 2021 as a result of fire.

Itisexpected that this hypermarket

will bereconstructed and returned to

operation.

Looking ahead

Hypermarket format isour core business,

andwe know how tomanage it. We

will continue balancing thecustomer-

value proposition ofour hypermarkets

toenhance theattractiveness oftheformat.

We have plans toconvert someofour

hypermarkets intohybrid or dark stores

todevelop our Lenta Online business

andlaunched apilot inthree hypermarkets

in2021.

Thecost ofensuring thesafety

ofcustomers andemployees

in2021 exceeded

RUB 1 bn

95 %

ofour office staff

worked from home

365+ discounters

were opened inregions

oftheCompany’s operations

Nr ofcases 1113

Nr ofdeaths 27

Share ofvaccinated

employees, %

Safety related expenses,

RUB mn

+ 1,000

Nr ofnew stores, gross 3

New sales area, sq.m 0

LFL Sales,% 3.1

LFL Average Ticket, % 4.6

LFL Traffic, % −1.5

Becoming closer tothecustomer

Small Formats

Nr ofadded stores, gross 373

New sales area, sq.m 235,882

LFL Sales,% −4.3

LFL Ticket, % 0.8

LFL Traffic, % −5.0

Mini

In2021, we accelerated theroll-out ofour

new Mini Lenta format, opening 133 new

stores primarily inMoscow, the Moscow

Region, andSt Petersburg. Witheach

new store we open, we aremaking

improvements along theway toenhance

thecustomer experience andincrease

efficiency.

Development oftheMini Lenta store format

enables us tobecloser toour customers

andcovers their small shopping missions:

including quick andspontaneous purchases

ofdry food, ready-to-eat meals, andfresh

product.

Theaverage selling space area ofaMini

Lenta is300–700square metres

andthestores feature anassortment

of4,400to8,700SKUs. Theshare ofnon-

food insales isaround 10%. Private

Label constitutes around 17% ofsales

inMini format. Our Mini Lentas which

arelocated inareas that have high traffic

levels areequipped withself-service

coffee zones, anenhanced ready-to-go

assortment, andbakeries.

Super

InMarch 2021, we opened asupermarket

inanew concept inMoscow. Thestore

space isorganised tocover different

customer missions – tograb asnack

ontherun or tobuy abasket foraday

or two tocook athome. Thestore

offers ready-to-eat meals andacafe

withanopen kitchen.

Inthenew supermarket, we implemented

theconcept ofhospitality byproviding

theworkforce withadditional training

andimplementing new service standards.

Thesupermarket isequipped withself-

check-outs andclick&collect points.

365+

We see that consumers arenot getting

richer, andRussian citizens’ budgets

arestill under pressure. Asaresult,

theshare ofhard discounters intheRussian

market isgrowing andhas reached about

4%, which isalready significant.

Taking this trend intoaccount, we launched

pilot stores intheHard Discounter format –

365+– , where we aretesting customers

demand, preferences, andtheoperating

model. According toour strategy, we

positioned ourselves asamulti-format

retailer anddo not exclude that theshare

ofhard discounters inour portfolio will

increase.

In the fourth quarter, LFL sales in small

formats were a negative 2.8%, primarily

resulting from a traffic decline of 6.3%,

which only partly resulted from COVID-

related restrictions.

Strategic ReportLENTA. Annual Report 202118 19Corporate Governance Report Financial Statements Appendices

Billa andSemya acquisitions

Withtheacquisition ofBilla stores,

Lenta now has atotal food retail market

share ofapproximately 3% inMoscow

andtheMoscow Region making it

the#2supermarket operator inMoscow.

Together withSemya, Lenta occupies

atotal food retail market share

ofapproximately 7% inthePerm Region

andmaintains the #4position inthePerm

Region’s food retail market.

Thenewly acquired stores will serve

asaplatform forfaster andmore efficient

development oftheLenta Online business

inboth geographies. We have already

begun fulfilling online orders inMoscow

from former Billa stores.

Byintegrating these businesses, we see

potential forsynergies inprocurement,

supply-chain management, cost savings,

back-office functionality, andother

business processes. Atthesame time,

theCompany will benefit from newly

acquired expertise insmall format

operations, Billa’s Ultra Fresh category

management, andSemya’s in-house

production excellence.

During 2021, we werebusy

withtheintegration ofBilla stores, logistics

infrastructure andemployees intotheLenta

chain. 118 oftheBilla supermarkets

have been rebranded toLenta,

andtheremaining stores will beconverted

totheLenta brand overthecoming

months. We use a“CapEx light” model

tominimise renovation costs andspeed up

theintegration process.

Semya’s stores inthePerm Region

areexpected toswitch totheLenta brand

inthefirst half of2022.

Online

Our fast-growing online sales platform,

which offers services across all

core customer missions, continued

tobeanengine ofgrowth fortheCompany

throughout 2021. Our online business

delivered strong results, both interms

ofour own Lenta Online andthird-

party partnerships, which aretogether

generating more than 50 thousand orders

per day.

Total Online Sales during thereported

period amounted toRUB19,340million,

anincrease of208% year-over-year,

while total online orders wereup 221%

andamounted to10,442 thousand.

Theaverage ticket forLenta’s own online

delivery service wasRUB 1,883, which

is46% higher than theaverage ticket inour

hypermarkets. During 2021, online sales

represented 4.1% ofLenta’s total retail

sales.

We continued toimprove thequality ofour

delivery interms oflead times andgoods

availability.

Aspart ofour own online development

plan, we launched apilot totest ahybrid

model inthree ofour hypermarkets

inMoscow andKrasnodar where we

have made aroom forpicking online

orders. This isaspace ofapproximately

100–250square metres inside our

hypermarkets that isbeing used tostore

most demanded goods that arebeing

picked byLenta Online workers. It enables

us tospeed up theprocess oforder

collection, preserve thequality ofitems,

andsecure theavailability ofgoods

forcustomers who prefer online shopping.

Besides, thework ofour personnel does

not disturb Lenta clients instores.

We believe, such amodel iskey

toincreasing theoperational efficiency

ofour own online business aswellasbig

boxes. Unlike construction ofdark stores, it

requires less capital expenditures anddoes

not entail anychanges inlogistics.

Acquisition ofBilla andSemya provided

us withnew opportunities togrow online

sales. Aspart ofintegration activities,

we launched delivery from ex-Billa

supermarkets, which wasakick-start

ofanother important development

ofLenta Online. We gave our customers

theopportunity tochoose between express

delivery ofalimited range within anhour

or alarger basket andwithlead time.

Depending ontheclient’s choice, theorder

iscollected anddelivered either from

asupermarket, or from ahypermarket.

Thus, we manage tocover various

customers’ missions andensure agreat

online experience.

Toreach additional consumers

andexpand theclient base, we partner

withmarketplaces andfood aggregators,

such asAli Express, Ozon andYandex.Eda.

These partnerships enable us toattract new

clients andgrow thesales ofour private

labels, non-food andown produced meals.

InDecember 2021, we announced

anagreement toacquire online-retailer

Utkonos tocreate aleading e-grocery

platform covering all key shopping missions

andmarket segments.

Theacquisition ofUtkonos will enable

us toexpand our online market share

withanadditional delivery platform

featuring aloyal customer base, unique

competencies andcompetitive advantages

andtheability tocompete intheMoscow

online market more effectively, especially

within theupper-middle andpremium

segments.

Currently, Utkonos operates two wholly

owned warehouse dark stores totaling

80,000square metres andtwo rented

dark stores totalling 21,000square metres

located inMoscow andthe Moscow

Region. Thecompany utilises its own

logistics andfulfilment infrastructure

consisting of920vehicles.

Utkonos unique assortment constitutes more

than 85thousand SKUs withthewidest

fresh assortment amongst online andoffline

food-retailers inRussia. Utkonos offers

affordable goods ofthehighest quality

under six own brands, withatotal

assortment ofprivate label goods ofmore

than 400SKUs.

Utkonos customers can place orders

through thewebsite or viaaconvenient

mobile application.

Looking ahead

We arevery well ontrack towards

achieving our strategic goal – togrow

theLenta e-grocery segment exponentially

andreach 10% ofmarket share by2025.

In2022andbeyond, we will continue

developing express delivery from our small

format stores, we plan topolish androll-

out ahybrid model ofour hypermarkets,

introduce new services, such asdelivery

from drug stores andestablish new

partnerships.

Sales growth

Total Online, % 208

Online Partners , % 102

Lenta Online , % 813

Click & Collect , % 406

Inthemiddle of2021,

we completed

M&A

andacquired

159Billa and

75Semya stores

Looking ahead

Looking ahead to the remainder

of2022, we will focus on the improved

performance and enhanced efficiency

of our small format stores. This is our key

priority for2022. We are now revising

theassortment, promo, and our loyalty

programme, aswell as other operating

components of our small format stores. In

addition, wehave plans to expand our

retail footprint by opening more than 200

new stores. In 2022, the majority will be

convenience stores, and the rest will be

supermarkets.

These two transactions materially strengthen Lenta’s market positions

inMoscow, theMoscow Region, andPerm viahigh-quality

locations withestablished customer traffic, including incentral

neighbourhoods where Lenta previously had no presence.

Strategic ReportLENTA. Annual Report 202120 21Corporate Governance Report Financial Statements Appendices

Assortment Tailoring

TheAssortment Tailoring project aims

atcreating best inclass varieties ineach

ofour stores that isrelevant foreach

specific location. It has been implemented

byanagile team consisting of employees

from our commercial andBig Data units.

Within theproject, we constantly analyse

thedemand ofour local customers,

androtate SKUs withalow relevance rate.

We introduced this approach in22stores

inMoscow inall categories excluding

non-food, fruits andvegetables andown

production. We also applied thetailoring

methodology to5categories in120stores

in24cities.

Theproject proves its efficiency – we

record a sales increase inpilot stores

compared tostores where we did not

change anything.

In2022, we will further work

onthemethodology improvement

anddevelopment ofanIT tool forour

category managers inorder toapply it

inall our stores.

Best Ultra Fresh Food

We aim atoffering awide choice offresh

food toour customers. We strive toprepare

thefood incompliance withhigh quality

standards using up-to-date technologies.

We know that our clients value ready meals

that we produce inour own facilities made

bytraditional andauthentic recipes, andseek

toextend therange taking intoaccount

changing customer preferences.

Toensure thehighest quality ofthis offering

andits relevance, we launched theBest Ultra

Fresh project. Within theproject, we analysed

customers’ feedback about our ranges

andconducted experiments toimprove

thecustomer experience.

We also consulted withour employees

who work inour own production units

andconsidered their feedback when

deciding onchanges we implement. We

experimented withsales equipment forready

food, price tags andin-store communication

topromote thecategories, we also

elaborated new packaging forready-to-eat

goods toemphasise freshness andquality

oftheproduct.

Theresult oftheproject implementation

isanimpressive 10.8% sales increase ofour

own production category. Further on, we

will continue experimenting withvarious

mechanics tomake our ultra fresh food the

best inthemarket.

Revamp non-food

Historically, we had awide offering ofnon-

food goods, which has been one ofour

differentiators. Our proposition ofnon-food

isone of thebest inthemarket. However,

market trends arechanging, people tend

topurchase non-food goods online, their

habits alter, andour task istorespond

tothis transformation.

In2021, we carefully analysed market

tendencies, indicated customers’

preferences interms ofpurchasing non-

food goods inoff-line stores andstarted

transforming our ranges accordingly.

We destocked from goods that werenot

demanded byour clients infavour ofthose

that acustomer looks forinLenta stores.

Forinstance, we saw that cooking athome

isstill asignificant trend andput our

efforts intostrengthening theproposition

ofhousehold items.

We carefully studied trends incosmetics

andintroduced the most popular products

intoour assortment. We collaborated

withbeauty retailer Rive Gauche

topropose their most popular items toour

clients. We launched ashop-in-shop

concept withthem toplease our customers

withtheir favourite beauty products that

they can buy while making grocery

shopping.

We revisited thelook-and-feel ofnon-

food sections inour hypermarket tocreate

theatmosphere ofcoziness andmake

thepresentation more attractive.

This year, we will focus onfurther

improvements inour non-food aswe see

that our efforts bring promising results.

Private Labels

Our private label portfolio is

comprised of13exclusive brands

andover2,000SKUs inall price

segments, both infood andnon-food

categories.

Asour clients increasingly seek forvalue-

for-money, we have seen growth

ofour private labels, withLFL sales up

by7.1%. This strong performance has

been underpinned byadeeper trust from

our customers, which istheresult ofour

consistent work withthevariety andquality

ofgoods.

We redesigned thepackage ofour key

own brand Lenta toalign it withour

renewed corporate brand andmake

it more appealing ontheshelf. We

arelooking forward toseeing new

packaging inour stores at thebeginning

of2022.

In2021, we werebusy withproducing

our exclusive brands development

strategy that we will beimplementing

in2022andbeyond. Theessence

ofthestrategy issteady growth ofprivate

labels sales up to22% inLenta’s retail sales

by2025. We areconfident, we will reach

this target.

Great Experience

Agreat customer experience isanother key

driver ofour core improvements, alongside

pricing andassortment.

During thereported year, we started

implementing numerous initiatives that focus

onimprovement ofthecustomer experience,

many ofwhich werecrowdsourced

from our employees within adedicated

project. We provided our store managers

witha Customer Journey Map (CJM) tool

andtrained them touse it forimprovement

ideas generation, quick trial androll-out.

We kept onfurnishing our stores withself-

check-outs andscanners forconvenient

shopping. In2021, we equipped our newly

opened proximity stores withself-check-outs

toenhance thecustomer’s experience inthis

format.

We piloted several technologies that

allowed us tomake thecustomer

journey more comfortable. Among

those isvideo recognition ofon-shelf

availability ofgoods. We recorded

a 2% sales increase inpiloted stores

that wastheoutcome ofavailability

improvement.

Video recognition andforecasting

ofqueues helped us todecrease thetime

acustomer loses inlines atcheck-outs,

andmobile in-store navigation enabled

clients tofind all thegoods they intended

tobuy. This led toanapproximately

1.5% growth ofanaverage ticket inpilot

hypermarkets.

We rolled out achat bot that allows our

cashiers toperform cancellations incase

acustomer refuses tobuy somegoods,

without personal involvement ofthechief

cashier. This entailed speeding up

theservice andincreasing customer

satisfaction.

We have always cared alot about

thefeedback that our customers leave

using multiple digital tools anda traditional

complaint book. In2021, we focused

onsystemising theapproach toprocessing

this huge volume ofinformation. Our

platform unites such channels asour phone

line, website andapps we run, paper

complaint book, messengers platforms

andLenta’s official accounts insocial

media. We also collect feedback from

external websites andensure full andtimely

reaction toit.

Customers’ feedback iscrucial forus

interms ofdecisions we make onwhat

toimprove inour stores. Therefore it will

beour focus further on, withtheincrease

ofspeed ofreaction tocomplaints

andimplementation ofimprovements when

needed– asthepriority.

Best Individualisation

Our loyalty programme has been agreat

differentiator intheRussian market.

Over98% ofpurchases inLenta stores

aremade together witha Lenta loyalty

card.

Thedata that isderived from our loyalty

cards, provide us withvaluable knowledge

about customers’ preferences andhelps us

toanticipate thechanges intheir behaviour.

Inturn, this allows us topromptly adapt

our proposition toretain loyal customers

andincrease Lenta’s share in theirwallet.

Atthe end of 2020, we launched atotally

refreshed loyalty programme, which uses

advanced data analytics tocustomise

special offers forindividual customers.

We reconsidered our approach toloyalty

andoffered our customers more than just

adiscount– we provided them access

tonumerous benefits– personalised

discounts, individual offerings, exclusive

goods andspecial offers from our

partners.

Theessence ofthenew approach

isrewarding customers forpurchases

intheir favourite categories

aswellasforpurchasing goods they never

bought before. Each card holder can

choose 5favourite categories ofgoods

every month toget more perks andrewards

forpurchasing within thechosen varieties.

Themore thecustomer shops withLenta

using their loyalty card, themore they

benefit from theprogramme. All card

holders enjoy apermanent 5% discount

aswellas15% off asour birthday gift

that they can use aday before andafter

andontheday ofbirth.

Thelaunch ofthe refreshed loyalty

programme resulted ina70% increase

ofLenta App MAU. Thenumber ofLenta

card holders comprised 18.9 million

people byyear-end.

Improving thecore business

Champion Offer

Awide product range andaffordable prices arethekey reasons forcustomers

tochoose Lenta. Our clients also appreciate thehigh quality ofgoods inour stores,

especially fruits andvegetables, meat, fish, bakery andculinary. Management

ofthese goods categories wasthefocus ofour attention during theyear.

Tobecome thenext Russian food retail champion, we kept onimproving our offer across all ofour

formats. We want Lenta tobecome thefirst customer choice when it comes toone-stop-shop,

best prices, precisely tailored assortment, best ultra fresh andfresh food aswellasexclusive

non-food andour own brands. We also believe that agreat customer experience iswhat

differentiates us inthemarket andattracts andretains loyal clients.

During 2021, we made multiple improvements inour stores that wereappreciated byour customers.

Strategic ReportLENTA. Annual Report 202122 23Corporate Governance Report Financial Statements Appendices

Cyber security

AtLenta, we deal withanimmense volume

ofdata including personal data ofour

employees andcommercial information,

onadaily basis. We areresponsible

forkeeping this data safe since its

leakage can entail significant financial

andreputational losses.

TheCovid-19pandemic brought

forward theissues ofsafe remote access

tocorporate resources, protection

oftheCompany’s information systems

aswellascontrol overcorporate users

andmonitoring ofcyber threats.

In2021, phishing, frauds, DDoS-attacks

andpotential assaults onour supply chain

werethefocus ofour attention.

Tomanage cyber security inaproper

way, we established adedicated unit

intheBusiness Support Department,

elaborated thecyber security strategy,

issued andimplemented therelevant policy

andworked hard toraise awareness

ofLenta’s employees onthematter.

We conducted acomprehensive audit

ofour websites andapplications toensure

that we can guarantee their resistance

toprobable cyber threats, proper

protection ofpersonal andcommercial data

andcompliance withtheRussian legislation

that regulates personal data processing.

Theresults oftheaudit confirmed that

our digital sites arewell protected, whilst

identified somevulnerabilities that werelater

eliminated.

Almost all Lenta’s operations depend

tosomeextent upon leading-edge

business applications. In2021,we

continued toinvest inkey IT projects

toimprove theefficiency andtransparency

ofour processes.

Our IT infrastructure iscrucial

forsupporting andstrengthening our

existing operations, while also contributing

tothedigital transformation ofour

business. This includes infrastructure

tobig data analytics andautomation.

TheITDepartment has responsibility

forintegrity andreliability ofexisting

infrastructure, aswellasits scalability

tomeet business needs overtime.

2021wasabusy one forour

IT Department since every single initiative

ofour growth strategy implementation

required high degree ofIT engagement.

Supply chain

Thegrowth ofour store network depends

onanefficient, flexible andsophisticated

supply chain tokeep theshelves full.

Our stores areserved byacombination

ofLenta’s own distribution centres

anddirect deliveries from our suppliers.

We operate 14distribution centres,

which run ona24/7basis. Designed

formaximum operating efficiency, they

arestrategically located, withthecapacity

toservice our existing stores

withthepotential tosupport our expansion.

Continuous improvement

We consider continuous improvement asakey success

factor forour business. We defined four pillars ofcontinuous

improvement – Innovation, Big Data, People andCulture

Innovation

Tomanage theinnovation process,

weestablished adedicated Innovation

Centre that istosearch, test andimplement

innovative solutions toenable us

toincrease theefficiency ofthebusiness

andadvance towards aunique shopping

experience.

In2021, our Innovations Centre

collected over 1,000 innovative

solutions, 982ofwhich wereproposed

byLenta employees within theideas

sourcing project Lenta.Up. 518solutions

wererecommended forpiloting, out

ofwhich 7projects wererolled out. Most

ofsolutions werededicated todifferent

aspects ofoperational efficiency

improvement.

We werethefirst Russian retailer that

launched Food Tech Accelerator tosearch

forinnovative food andbeverages across

theGlobe inanorganised manner. These

areproducts ofunique recipes, or packed

ininnovative packages, that arenot

represented inour competitors’ stores.

We collected over400food innovations

andtransferred more than 100offerings

toour Commercial Department

forassessment oftheir potential.

We worked alot withstart-ups. Our

innovation funnel currently contains

1,400start-ups, with724joined in2021.

We conducted 11pilots, including automated

scheduling, cleaning technologies, queue

video recognition, smart scales, on-shelf

availability distance control andothers, that

potentially can add about RUB 1.2 billion

toour operational savings.

Our priorities for2022andon:

• Continue sourcing innovative solutions

forbetter operational efficiency

andasupreme customer experience

• Roll-out ofLenta.Up project andfurther

shaping theinnovative culture within

theorganisation

• Elaboration ofworking tools forquick

piloting androlling out ofinnovations

Our innovation funnel

currently contains

1,400start-ups,

with 724joined in2021

Big Data

Theuse ofadvanced data analytics enables us

toimprove efficiency ofthebusiness bymaking precise

decisions. It also greatly contributes toour client

centricity concept development.

We use in-house capabilities todevelop analytics

products andservices that help us todifferentiate from

our competitors both interms ofenhancing thecustomer

experience andbusiness agility.

Our Big Data Department that employs over

50professionals, creates products forinternal

andexternal use, such asautomated assortment

optimisation, assortment tailoring, data-driven promo

tools, dynamic pricing, aswellasnew openings

process optimisation,evaluation ofinvestment initiatives

andsupporting online business.

We use our own car fleet of 330 trucks to

deliver goods to our stores as well as third

parties transport to ensure timely fulfilment

of the shelves in Lenta stores of all formats.

We also partner with Russian Railways to

supply products to remote locations in an

efficient way.

Our logistic ensures deliveries of food

and non-food import produce from

53 countries.

In 2021, we piloted delivery of fresh

berries from the South of Russia to Siberia

by plane and intend to use this way of

shipment since it enables us to make an

unique offer to our customers.

Strategic ReportLENTA. Annual Report 202124 25Corporate Governance Report Financial Statements Appendices

Sustainable development

Our sustainable development agenda

includes awide range ofactivities, from

providing our employees withfair andsafe

working conditions, ensuring thehigh

quality ofgoods we sell, andcontributing

totheeconomic growth ofour partners

andsuppliers aswellassupporting local

communities inareas where we operate.

In2021, we adopted Lenta’s Sustainability

strategy andset specific targets ineach

oftheimpact points to be reached

by2025.

Our strategy isbased onstakeholders’

expectations andtheUN Sustainable

Development Goals.

Our commitments

We defined five focus areas ofour

sustainable development andset KPIs

ineach oftheimpact points:

Leadership

inBusiness

Environment

Protection

Nutrition

Excellence

Talent

Engagement

Actions

forGood

1 2 3 4 5

Leadership

inBusiness

Corporate governance

• Improve ESG corporate governance

• Retain theshare ofwomen intheBoard ofDirectors atthelevel ofnot less than 10%

• Retain theshare ofwomen inSenior management team ofnot less than 25%

Cooperation

• Participate inindustry associations andunions andpromote theprinciples ofsustainable

development

• Develop programmes topromote sustainability among consumers, together withsuppliers

andpartners

Business ethics

• Maintain theshare ofhotline reports undergoing investigation atno less than 100%

• Ensure zero tolerance tocorporate ethics violations

Responsible supply chain • Support local business anddevelopment oflocal suppliers

Environment

Protection

Climate action

• Reduce theintensity ofenergy (electricity, heat) consumption per 1m

oftotal space

by15%

• Optimise thefleet inown operations

• Calculation ofGHG emissions andsetting targets until 2023

Responsible resources

management

• Develop programmes totransfer ofcardboard, plastic, polyethylene andother fractions

forrecycling

• Develop programmes toprevent waste generation, including food waste

• Improve theenvironmental friendliness ofprivate label packaging andown production

packaging

• Increase thevolume ofcollected hazardous waste by25% andsolid waste by45%

Nutrition

Excellence

Healthy products

• Develop ahealthy assortment inresponse toconsumer requests,

• Increase theshare ofvegetarian options inown production assortment

• Develop andimplement product healthiness labelling forown production

• Increase theshare ofown production assortment whose formulas have been improved

Healthy lifestyle promotion • Promote product categories related toactive andhealthy lifestyle

Food safety

• Enlarge product quality control programmes anddevelop verification ofproduct features

corresponding toahealthy diet

Talent

Engagement

Talent motivation

andretention

• Retain theshare ofvacancies fulfilled byinternal candidates atthelevel ofnot less than

35%

• Retain theshare ofemployees promoted at15%

• Retain theshare ofemployees who have completed atleast one training inthereporting

year atthelevel ofnot less than 90%

• Increase employee engagement level to75%

• Maintain aturnover rate ofnot higher than 40%

Health andsafety

• Develop well-being programmes

• Tocarry out continuous improvement oftheoccupational health management system

Action

forGood

Community engagement

• Develop corporate volunteering programmes

• Increase by60% thevolume ofproducts transferred through community support

programmes, per one family

• Develop programmes toincrease theeconomic accessibility ofgoods

Inclusive practices • Improve theLenta’s accessibility forpeople withspecial needs

The KPIs will be reviewed on an annual basis

Our commitments are underpinned

bytheplanned activities and the targets

set within the strategic priorities of our

functional units.

Strategic ReportLENTA. Annual Report 202126 27Corporate Governance Report Financial Statements Appendices

ESG indicators

Indicator Unit 2018 2019 2020 2021

Environment Protection

Energy and fuel consumption

Total electricity consumption MWh 1,015,294 1,061,176 1,063,855 1,124,896

Electricity consumption per sq.m, total selling space kWh/sq.m 690.67 712.20 699.90 642.80

Heat consumption for heating Gcal 716,308 397,637 365,106 37 7, 017

Heat consumption per sq.m, total selling space Gcal/sq.m 487.28 266.87 240.20 215.44

Diesel consumed by transportation l 15,709,211 17,805,226 17,323,726 18,125,301

Gasoline (petrol) consumed by transportation l 647,983 705,319 542,889 738,413

Water management

Water withdrawal by retail, logistics and in-house production

facilities

cubic m 2,489,470 2,871,180 2,711,466 3,130,409

Waste management

Amount of recyclable waste sold for processing by stores and

distribution centres

tonnes n/a 75,428 80,894 84,912

Cardboard tonnes n/a 64,960 64,590 69,806

Plastic tonnes n/a 2,642 2,056 2,505

Shrink wrap tonnes n/a 5,651 5,551 6,584

Other n/a 2,175 8,697 6,017

Amount of food waste diverted from landfills tonnes n/a 952 6,587 21,436

Community engagement

Amount of hazardous waste collected from the communities (waste

batteries and accumulators)

tonnes 29 93 12 0 133

Amount of recyclables collected from the communities tonnes n/a n/a 38 277

Talent Engagement

Employees – General

Headcount

# 45,759 48,391 51,832 52,857

Voluntary turnover for all employees % 29.5 30.4 24.9 30.9

Percentage of men among employees % 29 29 29 29

Percentage of women among employees % 71 71 71 71

Number of new employees # n/a n/a 32,470 22,671

Number of vacancies filled by internal candidates # n/a 10,562 14,168 13,873

Number of employees with disabilities # n/a n/a 203 223

Employee engagement

% n/a 74 67 n/a

Percentage of employees who took part in the engagement survey % n/a n/a 91 n/a

Employee Training

Average hours of training per employee h 50 41 19 26

Occupational health and safety (OHS)

Number of identified OHS violations # n/a n/a 2,942 3,507

Number of OHS violations resolved within 5 days # n/a n/a 1, 4 71 1,754

Number of accidents # 203 206 217 223

Number of fatal accidents # 0 1 0 0

Lost time injury frequency rate (LTIFR) among employees ratio 2.5 2.7 2.9 2.7

Percentage of employees covered by OHS management system % 100 100 100 100

Number of employees taking part in OHS training (excluding

compulsory briefings)

% 78 71 95 95

Investment in OHS mn 570 651 6 51 790

Indicator Unit 2018 2019 2020 2021

Action for Good

The number of customers who participated in the support

programme for customers with a limited budget

mn 2.3 2.4 2.3 2.2

Number of employees participating in social projects

(volunteering)

# n/a n/a n/a 1,348

Amount of food donated as part of the Giving Food project tonnes n/a n/a 133 88

Number of families that became beneficiaries from the Giving

Food project

# n/a n/a 17,000 13,782

Number of institutions that became beneficiaries from

thecompany’s social projects

# 387 565 583 486

Number of children who became beneficiaries from the company’s

social campaigns

# 12,500 28,600 32,874 34,986

Number of institutions that became beneficiaries from the Help to

Get a Child Ready for School campaign

# 192 263 300 217

Number of children who became beneficiaries from the Help to

Get a Child Ready for School campaign

# n/a 14,200 14,200 16,012

Number of institutions that became beneficiaries from the Lenta’s

Good Days (Lenta’s Good Deeds, Wishing Tree) campaign

# 195 302 283 269

Number of children who became beneficiaries of the Lenta’s Good

Days (Lenta’s Good Days, Wishing Tree) campaign

# 12,500 14,400 18,674 18,974

Nutrition Excellence

Quality of products

Number of laboratory tests # 10,778 10,448 8,653 7,290

Number of laboratory tests on suppliers’ goods # 7,228 7, 6 81 7, 2 07 6,235

Number of laboratory tests of own-brand and direct imported

goods

# 3,550 2,767 1,446 1,055

Number of customer complaints on quality resolved # 58,585 80,349 84,569 71,363

Number of supplier audits # 71 66 16 12 8

Number of suppliers whose deliveries were terminated as a result of the

audit

# 5 4 0 0

Number of cases where products were not allowed to enter the

range as a result of the audit

# 5 5 2 1

Suppliers

Percentage of purchases from Russian suppliers % 93 94 93 94

Percentage of purchases from local suppliers in the regions % 19 19 18 19

Leadership in Business

Corporate governance

Number of members of the Board of Directors # 9 9 9 9

Percentage of men in the Board of Directors % 89 89 89 89

Percentage of women in the Board of Directors % 11 11 11 11

Number of members of the Board of Directors who are Russian

citizens

# 2 4 5 5

Number of members of the Board of Directors who are foreign

citizens

# 7 5 4 4

Business ethics

Total number of requests received to the ethics hotline # n/a n/a 381 591

Confirmed and resolved requests # n/a n/a n/a 266

Policy

Percentage of employees aware of the Policy on Anti-Misconduct,

Including Fraud and Corruption

% 100 100 100 100

Percentage of employees aware of the Code

of Business Conduct and Ethics

% 100 100 100 100

Number of stores, taking into account the acquired Billa and Semya facilities

Number of employees as of 31December 2021

Employee engagement survey was not conducted in 2021

Strategic ReportLENTA. Annual Report 202128 29Corporate Governance Report Financial Statements Appendices

Employees

Customers

Government authorities

Suppliers

Local communities

Investors

Way ofengagement Stakeholders’ expectations Value forthebusiness Performance

• Omni channel internal communication platform

• Regular business updates

• Training anddevelopment platform

• Succession planning programme

• Ensuring that human rights arefully respected andthat

employees areprovided withall thefreedoms they areentitled to

• Implementation ofoccupational health andsafety policies

• Respect forlabour legislation

andhuman rights

• Fair salary, safe

working conditions

• Recognition anddevelopment

opportunities

• Motivational programmes

Recruitment development

andretention ofhigh potential

employees who shape theclient-

centric culture oftheCompany

andmake our stores thefirst

customer choice

• Customer hotline

• Company’s website andofficial accounts insocial media

aswellasmessengers

• Customer-centric programmes

• Tailored offers andloyalty programme

• Various sales channels

• Big data analytics ofcustomers’ preferences tomeet their needs

• NPS assessment

• Wide choice ofqualitative goods

ataffordable prices

• Unique shopping experience

• Attractive promotions

• High level ofservice

Unique shopping experience,

attraction ofnew customers

andretention ofloyal ones.

• Compliance withthelegislative requirements

• Responsible use oflabour andenvironmental resources

• Partnerships withlocal suppliers

• Areliable, responsible partner contributing

toregional social andeconomic

development, creating jobs forlocals

Support oftheregional expansion

oftheCompany anddevelopment

oflocal varieties ofgoods.

• Fair open andethical collaboration withbusiness partners

• Regular meetings andupdates

• Common profitable growth programme

• Long-term partnerships

aimed atprofitable growth

• Timely payment

High level oftheavailability

ofgoods, fair prices forcustomers,

profitability ofthebusiness

• Cooperation onsocial, economic andenvironmental initiatives

• Cooperation focused onaddressing specific social needs

• Charitable projects

• Meeting theneeds ofpeople, support

toeconomic development oftheregion

• Respect forenvironmental andsocial obligations

Improving thequality oflife

oflocal residents, social

partnerships

• Communications programme, including annual reports, quarterly

trading updates andfinancial results disclosures, Capital Market

Day, roadshows andregular meetings

• Corporate website

• Sustainable profitable growth,

strong corporate governance

andtransparency

Support ofthebusiness

growth

Stakeholder engagement

Our approach tostakeholder engagement builds upon theprinciples oftransparency,

partnership andethical behaviour toensure sustainable development oftheCompany.

22,671

new working

places

13,873

internal

promotions

2 mn

new clients

investor

calls

+513

new

suppliers

federal

charity

projects

34,982

ofkids supported

88 thousand kg offood

donated topeople inneed

viaDari Edu joint initiative

Tulip bulbs

donated to

4 cities

+372

new local

producers

meetings

withinvestors

disclosures

hours

ortrainings

per

employee

XX%

NPS

223

accidents

fatalities

Human

rights policy

implementation

Relaunch

oftheloyalty

programme

Capital

Markets

Day

Food Tech Accelerator

launch forfast search

andlisting ofinnovative

goods

We strive tomeet theexpectations ofall stakeholders’

groups and, thus, add value tothebusiness andsociety.

Strategic ReportLENTA. Annual Report 202130 31Corporate Governance Report Financial Statements Appendices

Code ofBusiness Conduct

Our Code ofBusiness Conduct sets out

thestandards andrules oftheway we

do business. It defines our obligations

tobehave ethically andexhibit thehigh

standards ofbehaviour we expect

ofour people, partners andcontractors.

TheCode, supported byour corporate

values, sets thebasis fortheway we run

our business andformulates pointers

forthecomposition ofour sustainability

agenda.

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standards, which impose stricter

ethical restrictions onemployees than

those provided incurrent legislation

Excellence

andOwnership

We manage our business skillfully

anddiligently asif it wereour own,

continuously improving our mastery

Agility

andGoal

Commitment

We arebrave toset ambitious goals

that inspire us toachieve more.

Theworld changes rapidly

andso do we.

Customer

Centricity

We take care ofour customers,

external andinternal, andarecommitted

tohigh service level.

Respect

andCare

We treat our employees, partners

andtheplanet withgreat care

andarecommitted tocreating a positive

andsafe working environment.

Together, we arestronger.

Cooperation iskey togreater

achievements

Customers, employees andsuppliers can

contact theEthics Committee inavariety

ofways: anonymously through theLenta

website andCompany Hotline, or

viainformation desks inour stores.

In2021, we received 591 complaints

toour hotline, all ofthem werediligently

investigated, with266 confirmed and

resolved cases.

Overview ofour main

policies

Code ofBusiness Conduct

TheCode defines thekey rules ofconduct

andtheliability oftheCompany employees

towards each other, towards theCompany,

andtowards business partners thereof.

TheCode isspecifically designed

tohelp our employees andCompany

representatives make theright

decisions indifficult situations related

totheperformance oftheir official duties.

Anti-Corruption Policy

ThePolicy isthemain internal regulating

document ofLenta which establishes

theapproach andprinciples applied

bytheCompany within theframework

ofcountering possible corrupt practices

ofEmployees andContractors

oftheCompany aswellasthird parties

incases where such practicesmay

have aneffect upon legal interest

oftheCompany and/or inflict damage

upon it or entail loss ofprofits.

Thegoals ofthePolicy aremitigation

ofrisks ofcorrupt practices ofEmployees

andContractors/third parties; protection

oftheCompany’s legitimate interests

andensuring integrity ofits assets; ensuring

that applicable legislation isconformed

to; development of aculture ofhonesty

andinadmissibility ofcorrupt practices;

improvement oftheCompany’s reputation

andbuilding oftheCompany’s public image

asanenterprise intolerant towards corrupt

practices, including fraud andcorruption.

Human Rights Policy

Thepurpose ofthePolicy istodefine

themain approaches andprinciples

oftheCompany torespect, support

andpromote thedevelopment ofhuman

rights.

Inall areas ofits activities andatanystage,

theCompany strives toidentify, assess

andeliminate human rights risks

inaccordance withthePolicy inrelations

withits personnel; thelocal communities

andbusiness partners.

Labour andEnvironment

Protection Policy

Occupational Safety, Labour

andEnvironment Protection Policy regulates

thepurposes andprinciples ofLenta’s

operations inthesphere ofoccupational

safety, environment protection, and

industrial safety ofhazardous production

facilities.

ThePolicy describes goals andobjectives

oftheCompany, public obligations

oftheCompany inthesphere

ofoccupational safety, environment

protection, and industrial safety

ofhazardous production facilities.

Corporate Social

Responsibility Policy

ThePolicy defines acommon

understanding andkey directions

forimplementation ofthesocial

responsibility principle byall

departments oftheCompany. It isbased

ontheconcepts oftheCompany’s social

role andcommitments stemming from

theCompany’s mission andstrategy,

adopted ethical principles andcorporate

values.

ThePolicy defines key principles

andapproaches oftheCompany inthis

sphere andisdetailed inthedocuments

regulating human resources management,

occupational andindustrial safety,

environmental protection, management

ofexternal social programmes, interactions

withbusiness partners.

Information Security Policy

ThePolicy defines purposes, principles,

approaches andmethods ofprotecting

interests ofLenta intheinformation sphere,

andisadeclaration oftheCompany’s

Management intention tosupport

achievement ofthegoals andcompliance

withtheinformation security principles

oftheCompany.

Thepurpose oftheCompany’s activities

inthesphere ofinformation security

istoensure successful achievement

ofthekey strategic goals oftheCompany,

and resilient business operation incyber

risk conditions.

Energy Saving

andEnergy Efficiency

Improvement Policy

ThePolice defines goals, objectives

andmethods forundertaking activities

aimed tosave energy andimprove energy

efficiency inCompany.

Our values:

Team Work

Our Ethics Committee regularly reviews

complaints andnon-compliance. Itswork

isoverseen bytheAudit Committee

andtheBoard. Failure tocomply

withtheCode ofBusiness Conductmay

lead to adisciplinary action, including

dismissal.

266

resolved cases in 2021

We will provide

acomprehensive overview

ofour activities inour

Sustainability Report 2021 that

will be published

in June, 2022.

Strategic ReportLENTA. Annual Report 202132 33Corporate Governance Report Financial Statements Appendices

Chief Financial Officer Review

Sales

Total Sales demonstrated strong

growth of8.6% andamounted

toRUB483.6billion compared

toRUB445.5billion in2020. This growth

wasprimarily driven bytheSelling Space

growth of15.6% which wasfurther

amplified by2.4% LFL Sales growth.

Retail Sales grew by8.8% toreach

RUB475.8billion, while Wholesale

decreased by2.5% andconstituted 1.6%

ofLenta’s Total Sales in2021.

Our core Hypermarket business isgaining

market share anddelivering solid results,

posting sales growth andimproved

efficiency. In2021, Hypermarket Sales

represented over87% oftotal Retail Sales.

Last year this format delivered 4.4% Sales

growth, positive LFL Sales growth of3.1%,

andanincrease of4.6% intheLFL Average

Ticket. Inaddition, we areworking

toincrease theproductivity ofthis format

through several initiatives, including

dedicated zones foronline order picking

atour big boxes. We believe that these

results position us totake further market

share intheformat.

In2021, we intensified expansion

inSmall Format. 133 new Lenta Mini

stores wereopened during theperiod.

Theacquisitions ofBilla andSemya has

strengthened Lenta’s market positions

inMoscow andPerm, while their

competencies insmall stores will support

our organic expansion. Lenta’s Small-

format stores demonstrated significant

year-over-year Sales Growth of53.6%,

primarily driven byacquisitions ofBilla

andSemya. Small-format stores

demonstrated negative LFL Sales growth

of4.3%, resulting from LFL Traffic decline

by5.0%, which waspartially offset

bythegrowth ofLFL Average Ticket

by0.8%. Small-format stores efficiency

improvement isour key priority for2022.

Lenta’s online business isbecoming

anincreasingly important contributor

toour growth. Total Online Sales during

theperiod amounted toRUB19.3billion,

anincrease of208% year-over-year,

while Total Online Orders wereup 221%

andamounted to10.4million. TheAverage

Ticket forLenta’s own online delivery

wasRUB1,883 andincreased by29%

year-over-year. In2021, Online Sales

continued togain share inLenta’s Retail

Sales andreached 4.1% ofLenta’s total

Retail Sales, while own online represented

45% ofLenta’s Total Online Sales.

Gross Margin

In 2021, Gross Profit rose by 9.4% year-

over-year to RUB 111.4 billion, and Gross

Margin increased by 17 bps to 23.0%

due to the better promotional margins

resulting from the revision of promo

campaigns, a higher centralisation ratio

as well as positive dynamics of stock

provisions. The growth was slightly offset by

intensified cashback investments related to

therevamped loyalty programme. Despite

the consolidation of Billa and Semya and

ahigher share of new stores in the ramp-up

stage shrinkage as a proportion of Sales

decreased by 4 bps year-over-year.

Cost Controls

Sales, General, andAdministrative

(SG&A) expenses increased

byapproximately RUB11.3billion year-

over-year primarily due togrowing online

business andincreased number ofstores

inramp-up stage SG&Aasapercentage

ofTotal Sales increased by93 bps

to18.9%. This growth wasmainly driven

byhigher payroll andrelated taxes

andlease expenses asapercent ofsales,

aswellasanincrease in-store operations

costs andOnline delivery costs.

Theability toattract andretain employees

isacontinuing challenge, not least due

tothecurrent deficit ofqualified people

inthemarket resulting from COVID-19

outbreak. In2021, Lenta faced increasing

competition foremployees, andinorder

tobeable toattract andretain employees

aswellasbeinline withmarket

benchmarks theCompany proceeded

withsalary indexation ofin-store

andsupply-chain employees. Payroll

andrelated taxes rose by13.3% year-

over-year inconnection withsalary

indexation (inQ42021), new store

openings, aswellasthetwo acquisitions,

while personnel expenses asapercent

ofTotal Sales increased by31 bps.

D&Aasapercent ofTotal Sales increased

by31 bps due totheTotal Selling Space

growth by15.6%.

Lenta’s strong performance in the past year provides

momentum to execute the ambitious growth

strategy we presented to our shareholders in 2021.

Measuring this performance against our long-term

strategic objectives, we are well on the way to

transform Lenta into a champion multi-format food

retailer. Concurrently, we also remained focused on

improving our operational efficiency and controlling

expenditures. I am pleased to say that despite the

intense expansion in small formats, two acquisitions,

and the strong growth of our Online business we

were able to deliver an EBITDA Margin on an

industry-leading level of over 8.0% (IAS 17) and

improved our leverage position in 2021(IAS 17).

Rud Pedersen

Chief Financial Officer (CFO)

Store Operations increased by12.6%

year-over-year, mainly driven bycosts

associated withsecurity services, cleaning,

aswellasstore repairs andmaintenance.

In2021, thecompetition intensified

ontheRussian e-grocery market. All

players made significant investments

inmarketing, client acquisition

andretention. Lenta Online isanimportant

driver ofLenta future growth. In2021,

we increase our advertising expenses

tosupport theeffort ofour online team

intheir battle fore-grocery customers.

Therefore, advertising costs during 2021

wereup 12.9% year-over-year, due

toinvestments intoour growing online

channel.

Thehealth andsafety ofour customers

andemployees have been our highest

priority. During theyear, Covid-19 related

costs intheamount toRUB1billion put

extra pressure onprofitability. Other

expenses increased by23% year-over-

year, primarily due toCOVID-related

expenses andrising delivery expenses

resulting from thedevelopment ofLenta

Online.

We remain focused onstrict cost

management amidst thevolatile macro

environment in2022.

Gross Profit

rose by

9.4%

Total Sales

growth

8.6%

Total Sales

amount to

RUB 483.6 bn

Strategic ReportLENTA. Annual Report 202134 35Corporate Governance Report Financial Statements Appendices

Interest

Lenta’s Net Interest expenses in2021

amounted toRUB8.4billion, which

wasadecrease of5.3% compared

to2020 (RUB8.9billion), primarily

duetolower weighted average effective

interest rate forLenta’s debt portfolio

in2021.

Net Income

In2021, Lenta Net Income

decreased by24.6% andamounted

toRUB12.5billion, compared

toRUB16.5billion in2020, primarily due

toincreased SG&A, significantly lower

reversal ofimpairment ofnon-current

assets, andhigher income tax compared

totheprevious year. This equated toanet

income margin of2.6% in2021.

Cash Flow

In2021, Net Cash generated from Operating

Activities amounted toRUB37.9billion,

up 26.3%, reflecting business growth

andhealthy profitability. Thepositive change

inWorking Capital ofRUB2.3billion

during FY 2021, compared toanegative

RUB2.4billion inFY 2020, wasmainly

driven byhigher trade andother payables

andnet other tax payables.

Net Cash used inInvesting Activities

increased toRUB30.8billion inFY 2021

from RUB7.4billion in2020, asaresult

ofthetwo acquisitions.

Free Cash Flow forFY 2021

wasRUB7.1billion, which

wasRUB15.5billion lower than Free Cash

Flow in2020, mainly due tohigher Net

Cash used inInvesting Activities.

Net Debt andLeverage

Despite two acquisitions which we

partially financed byour own cash, we

continued toimprove our leverage position

overthecourse of2021.

Lenta’s cash position attheend

ofFY2021 wasRUB33.3billion. Gross

Debt increased byRUB35.6billion

or 31.4% compared to31December

2020 andstood atRUB149.0billion

asof31December 2021. Lease liabilities

increased by 76% due to the acquisitions

of Billa and Semya, both of which have a

higher percentage of leased versus owned

stores in their portfolios. The share of leased

selling space for Lenta overall increased

to 34.0% as of 31 December 2021

compared to 25.8% a year ago. Net Debt

increased byRUB24.1billion compared

with31December 2020 andstood

atRUB115.6billion. All oftheCompany’s

debt has fixed interest rates andisfully

Rouble denominated matching its revenue

structure. Lenta’s Net Debt toEBITDA ratio

was2.5x asof31December 2021 vs 2.0x

asof31December 2020.

Lenta’s IAS 17 Net Debt toEBITDA ratio

was1.4x asof31December 2021 vs 1.5x

asof31December 2020.

Capital Allocation Strategy

We aredriven mainly bytheconsideration

ofvalue creation forour shareholders,

andwe believe that we should use

our funds inthemost appropriate

way intheinterest ofbusiness andour

shareholders. Last year we made

animportant step. InNovember 2021,

our Board ofDirectors approved Lenta’s

Dividend Policy.

Our key priority in2021 wasbusiness

growth. We made significant investments

intothedevelopment ofour online

business, small-format stores expansion,

andexecuted several M&Adeals.

Our log-term priorities inCapital Allocation

areasfollow:

1. Maintain theleverage onadecent level

(long-term target 1.5x)

2. Development, including

M&Asandorganic growth

3. Paying dividends

Looking ahead

Our resilient operational base andstrong

balance sheet make us well positioned

togrow aswe invest inour new strategy

andpursue exciting organic andinorganic

growth opportunities.

Thecurrent macroeconomic, geopolitical

situation andinflationary environment

create headwinds fortheentire sector,

but we areconfident that Lenta iswell-

positioned tonavigate thechallenges

anddeliver strong results in2022. We will

continue toexecute our strategy investing

inexpansion andonline development

aswellascontinuous improvements ofour

operations toensure Lenta’s long-term

growth andleadership.

EBITDA

Despite thesignificant investments

intoLenta’s growth strategy andresulting

higher SG&A, EBITDA came

inatRUB46.9billion andincreased

by4.4% compared totheprevious year,

when Lenta benefitted from abnormal

surge buying andstocking up customers’

behaviour during lockdown period.

In2021, Lenta’s EBITDA margin remained

atanindustry-leading level of9.7% Lenta’s

IAS 17 EBITDA was 8.1%, in line with the

company’s Guidance for the full year.

CAPEX

Capital Expenditure in2021 amounted

toRUB9.3billion, anincrease of23%

year-over-year. Theincrease resulted

from anaccelerated pace ofnew organic

store openings, completing construction

ofnew distribution centres, continuing

IT development costs, andexpenses

related totheintegration ofBilla

stores. Asof31December 2021, Lenta

had contractual capital expenditure

commitments connected toproperty, plant

andequipment (PP&E) andIntangible

assets totaling RUB4.5billion net ofVAT

compared toRUB4.3billion net ofVAT

on31December 2020.

Strategic ReportLENTA. Annual Report 202136 37Corporate Governance Report Financial Statements Appendices

Risk management

Lenta defines risk as ‘an uncertain future

event that could affect the Group’s ability

to achieve its objectives’. Understanding

how various risks potentially influence our

business is integral to the decision-making

process within the Group. Wemonitor

all material risks to our operations on

anongoing 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 the following

principal stages:

• Identification

• Assessment

• Response

• Monitoring, reporting and escalation

Lenta’s Risk Management Policy determines

the risk management strategy, principles

and structure. It provides the basis which

allows us to maintain risk management at

the level required, as applied to all current

business processes.

In addition, it sets out minimum

requirements to risk management

operations, including allocation of

responsibility between management levels

in Lenta.

The objectives for the implementation of

Lenta’s Risk Management Policy are:

• A global view of the objectives,

significance, and principles of risk

management

• Providing a uniform vocabulary for

risk management within the group of

companies

• Structuring the process of identification

and management of key risks which

might have a significant impact on

business

• Allocation of responsibility for risk

management

• Enhancement and structuring of risk

analysis processes for decision-making

• An improved perception of key control

tools and their efficiency

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

of our operations. It sets out the Group’s

principles and standards and establishes

a common approach and the minimum

requirements for risk management activities.

The Risk Management Policy is approved

by the Board of Directors.

Risk management policy

Lenta is managing its risks focusing

on the most critical threats to the business.

We conduct a ‘top down’ strategic

risk identification on an annual

basis. This supplements a biannual

functional ‘bottom up’ evaluation,

which identifies risks at operational

levels in the Group. These activities

enable us to create a comprehensive

risk profile.

Risk identification is also embedded

into key business processes including

budgeting, planning, capital

expenditure and performance

management.

Our risk identification process

ensures that new risks are identified,

assessed and responded to,

while risks no longer relevant are

excluded from the risk register, and

that the information is up-to-date

and appropriate for monitoring,

escalation and mitigation.

Risk

Identification

Risks are individually assessed

to determine their likelihood of

occurrence, and their potential

impact on the business.

Risks are assessed over a three

year timescale using Lenta’s Risk

Assessment Criteria, which are

comprised of a four-step probability

and severity scale.

The impact assessment is based on a

qualified and formal review of how

the risk occurrence may influence

the Group’s operations and financial

performance.

Risk Owners are accountable for

managing risks, with details of

planned mitigation activities and

delivery milestones set out in their

risk response plans. The decision

to respond to risk is made after

analysing several alternatives,

during which the costs of the

response, potential effects and

additional opportunities are

assessed.

This stage involves the timely

tracking, capture, and sharing of risk

information to enable the review and

notification of changes in risk exposure

by management. The process supports

better understanding of risk and

enables decision-making on the

appropriate response. Such responses

include management interventions to

avoid a risk becoming reality in the first

place or, if not possible, then to reduce

its impact after the event.

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

accountability for ensuring that the

risks are effectively managed across

functional business units.

The Audit Committee oversees

and evaluates the effectiveness

of management’s approach.

Management 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 Group are responsible

for implementing risk management

activities in their areas.

In 2021, Lenta updated the risk register

and updated our risk management

policy with regard to the assessment

thresholds of the risks’ impact.

TheGroup assessed the impact of

arisk occurring as a percentage of its

annual EBITDA.

3 42

Risk

Assessment

Risk

Response

Risk Monitoring,

Reporting

andEscalation

Strategic ReportLENTA. Annual Report 202138 39Corporate Governance Report Financial Statements Appendices

The risk landscape

Covid-19 became anew reality foralmost

all thebusinesses inRussia. Measures tolimit

thespread ofthevirus had a negative

impact onbusiness operations inthecountry.

Lenta, like many other companies, faced

certain challenges caused bytheglobal

Covid-19 pandemic. Given thesituation,

theGroup wasforced toreact urgently

inanunknown environment toensure

thesafety ofits customers, employees,

andpartners. TheGroup’s office based

personnel weretransferred toaremote

mode ofwork intheearly spring of2020

andmanaged withthechallenges

ofremote interaction between thefunctional

andregional teams well. Employees

working instores wereprovided

withpersonal protection equipment; various

forms ofsignage andphysical barriers

wereinstalled inLenta stores toensure

theappropriate social distancing between

employees and/or our customers.

Inaddition tothepandemic specific

challenges, in2021 theRussian retail

industry had todeal withan unstable

macroeconomic environment, rising

inflation andinterest rates, changes

inlegal andregulatory requirements

aswellasongoing active competition.

Trends related toconsumer behaviour have

intensified during thepandemic. Customers

began toprefer shopping online more

often. Inthis regard, we may experience

thecannibalisation effect when our

customers began toleave offline forown

andpartner online channels. Lenta continues

toengage andcooperate withnumerous

suppliers andpartners across its value

chain tomaintain competitive sourcing

andsupply. Indoing so, Lenta ensures

that all its dealings areinline withrelevant

legislation aswellasexternal andinternal

standards andregulations, including policies

regarding ethical behaviour.

Food safety isone ofthemain priorities

forLenta. We make sure that theproducts

offered tocustomers areofthehighest

quality atall times andthat all relevant

safety andsanitary standards aremet.

Aswork force mobility inretail industry

ishigh, Lenta works continuously toattract

andretain employees; theability todo so

isone ofkey focuses ofLenta.

During 2021, one new significant risk was

identified through our risk management

process, which is reflected on the risk map.

Continued focus

on safety of our

customers

and employees

Effective

and efficient

operation of our

hypermarkets

and small format

stores

Execution of our

new growth

strategy

Innovate,

develop, pilot,

and implement

existing and new

technologies

Build and

strengthen

organisational

capabilities

A B C D E

Viability statement

Lenta’s viability assessment considers

its solvency and liquidity over a period

exceeding that of thegoing concern

assessment. Understanding our main

priorities and our principal risks is

a key element in theassessment of

Lenta’s prospects, as well as theformal

consideration of viability.

Our value-for-money business model is

aimed at consistently applying affordable

prices combined with efficient promotions.

Our federal reach and sales volumes

enable us to negotiate competitive

conditions with suppliers.

We prefer to own themajority of our

hypermarkets, as this provides an efficient

cost hedge versus rent inflation, as does

Lenta’s incremental borrowing rate when

compared to therequired return on

invested capital of real estate investors.

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. Continued free cash flow–

after capital expenditure and financing

cost– isexpected.

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 customer-value proposition across

all formats we manage to changing

customers’ preferences so we can grow

and deliver best-in-class profitability. 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Board of Directors has 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. Lenta has

significant financial resources, including

committed and uncommitted banking and

debt facilities. In assessing theCompany’s

viability, theBoard of Directors has

assumed that theexisting banking and

debt facilities will remain in place or

mature as intended. TheBoard of Directors

has also considered mitigating actions

available to Lenta, including restrictions on

capital investment, further cost reduction

opportunities and future dividend policy.

TheBoard of Directors has 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Board of Directors has a

reasonable expectation that theCompany

will be able to continue in operation and

meet its liabilities as they fall due during

thisperiod.

1. Changing legal and regulatory environment

2. Macro-economic instability and decreasing purchasing power

3. Shift of customer behaviour negatively impacts on sales for HM

channel as well as industry consolidation

4. Competitive sourcing and security of supply

5. Attracting and retaining qualified personnel and training

successors

6. Food safety and quality

7. Taxation

8. Capital markets and liquidity

9. Cyber and IT risks

10. Covid-19

11. Cannibalisation between online and offline channels as well

between own and partners online channels

Description ofprincipal risks

11 1

2 3 5

7 10

1 2 3 4

Impact

Likehood

Strategic ReportLENTA. Annual Report 202140 41Corporate Governance Report Financial Statements Appendices

onmap

Risk Description Risk category Current severity Objectives

affected

Outlook/

trend

How we manage it

Risk Impact Impact Likelihood

1 Changing legal andregulatory

environment

Introduction ofnew andcomplexity ofexisting legal andregulatory

requirements drives cost ofcompliance andmay disrupt our value

chain.

Strategic 2 4 BCD Stable Lenta manages regulatory risks byregular monitoring oflegislation, risk assessment

framework, implemented inthelegal department. TheCompany has developed

relevant controls procedures forinternal controls andinternal audit departments

todetect, report andrespond totheincidents inatimely manner. There isregular

reporting onstatus ofthecompliance programmes totheAudit Committee.

2 Macro-economic instability

anddecreasing purchasing power

Impact ofpandemic oneconomic situation, supply chain,

compliance withsecurity ofcustomers andpersonnel. Potential

instability ofcustomer behaviour caused byeconomy stagnation

inthemid-term perspective.

Strategic 2 3 C Increasing Monitor main economic indicators.

Rolling 60 months forecast.

Consistently keeping our customer offer relevant toconsumer spending power.

Continued improvement inour supply chain.

3 Shift ofcustomer behaviour

negatively impacts onsales

forHM channel aswellasindustry

consolidation

Negative impact onsales forHM channnel due to:

1. shift ofcustomers tosmaller formats & online

2. decreasing purchasing power

3. lack ofdifferentiation vs competition

Strategic 2 3 BСD Stable Actively track andmeasure competitors’ behaviour andchanges, understand

structural changes inthemarket andimplement changes toour offer, formats

andprice positioning.

4 Competitive sourcing andsecurity

supply

Slower growthmay result inweaker competitive bargain power

towards suppliers andhence impact margins

Competitors investing inpricemay put our low price/low cost

model under pressure

Strategic 3 2 BCD Stable Increasing share ofdirect import andlocal sourcing through taking charge offull

value chain.

Consolidate purchasing power onfewer suppliers.

Developing private label.

Participating retail alliance ofindependent retailers.

5 Attracting andretaining qualified

personnel andtraining successors

Failure toattract andretain therequired capability could not

allow us tosupport our efficiency atthetarget level, implement

our strategic goals andimplement thesuccession plan. Lack

ofsuccessors asaback-up atvarious levels oforganisation

Operational 2 3 E Stable Talent planning andpeople development processes areset up inLenta.

TheCompany has been developing theemployee engagement programme,

LTIP andsuccession planning tools. Talent andsuccession planing isdiscussed

bytheBoard ofDirectors onaregular basis. Regular succession planning process.

6 Food safety andquality There isarisk that customersmay suffer from theconsumption

offood andnon-food goods sold byLenta, whether they

arecontaminated or defective. Realisation oftherisk could seriously

destroy Lenta’s reputation, impact revenue, loss sales andmarket

share.

Operational 2 2 A Stable Lenta integrated quality control procedures, implemented monitoring and control of

food safety andquality.

TheCompany’s focus istoensure superb quality ofgoods byimporting goods

(explicit quality control byLenta’s quality assurance), direct cooperation withgrowers,

introducing theapprorpiate control from field toshelf, developing anetwork ofDCs.

7 Taxation Negative impact ontheCompany’s financial performance caused

bypotential threats oftax payments andfines. Additionally, incase

oftherisk realisation, theCompany might face reputational risks.

Financial 2 3 B Stable TheCompany ismonitoring tax legislation onaregularly basis inaccordance

withdesigned control procedures. Also Lenta uses external advisors toensure

appropriate treatment oftaxation anddepreciation.

8 Capital markets andliquidity Access tofunding markets being restricted or limited, andgrowing

cost ofcapital withnegative impact onLenta financial performance,

cash liquidity andability tofund operations.

Financial 2 1 C Stable Lenta maintains aninfrastucture ofsystems, policies andprocedures toenable

strict discipline andoversight onfinancing andliquidity issues. Our liquidity levels

andsources ofcash areregularly reviewed andreported togovernance committees.

9 Cyber andIT risks Failure toensure data security andprivacy resulting ininability

tooperate, loss ofsensitive information, reputational damage, fines

or other adverse consequences.

IT 3 3 BCDE Stable We have launched an access control infrastructure, segregation of duties

procedures to detect and proactively respond to security incidents. We continue

to implement a number of initiatives to increase the transparency of the IT

infrastructure. We have implemented data security and privacy monitoring and

report to governance committees. We have implemented a project to increase the

level of compliance of personal data processing processes with the legislation of

the Russian Federation and the security of online services.

10 Covid-19 Measures tocontain thevirus had its negative impact onbusiness

operations throughout societies. Asgovernments andcompanies

took aggressive measures toprotect their citizens, customers,

operations, andemployees athome andabroad, such actions

could lead tobusiness interruptions, travel risks, andother effects

that could affect theGroup’s supply chain. There isapossibility

ofnew waves oftheepidemic inRussia

Operational 2 3 AB Stable TheGroup’s office-based personnel weretransferred toaremote mode ofwork

starting intheearly spring of2020 andhandled thechallenges ofremote interaction

between thefunctional andregional teams quite well. Employees working inour

stores andinour supply chain wereprovided withpersonal protection equipment

andvarious forms ofsignage andphysical barriers wereinstalled inour stores

toensure theappropriate social distancing between employees and/or our customers.

Thecompany strives tomaintain thehighest possible rate ofstaff vaccination.

11 Cannibalisation between online

andoffline channels aswell

between own andpartners online

channels

Cannibalisation between offline/online channels, which leads

toadecrease inoffline traffic.

Competition/cannibalisation between your own solution

andpartner channels, which leads topressure inthefield

ofpromotions andanincrease inthecost ofattracting traffic, which

reduces thesales margin.

Strategic 1 4 BC New Regular andstandardised analysis ofcannibalisation between channels inparallel

withanassessment ofcannibalisation between offline/online.

Strategic ReportLENTA. Annual Report 202142 43Corporate Governance Report Financial Statements Appendices

Strategic ReportLENTA . Annual Report 202144 45Corporate Governance Report Financial Statements Appendices

Corporate

Governance

Report

Strategic ReportLENTA . Annual Report 202146 47Corporate Governance Report Financial Statements Appendices

Board ofDirectors

Thekey objective ofLenta’s Board

istosecure theCompany’s long-term

success anddeliver sustainable returns

forits shareholders. This involves arange

oftasks including establishment ofstrategic

goals, oversight offinancial andhuman

resources andreview ofmanagement

performance.

Alexey Mordashov,

Chairman

•

Board Committees: Nomination

•

Experience: Born in1965, Alexey Mordashov has been working forSeverstal since

1988. He started his career asaSenior Economist, becoming Chief Financial Officer

in1992. InDecember 1996, he wasappointed asSeverstal’s Chief Executive Officer.

Between 2002 and2006 he served asCEO ofSeverstal Group andwasChairman

ofSeverstal’s Board ofDirectors. FromDecember 2006 toDecember 2014 Alexey

wasCEO ofSeverstal. FromDecember 2014 untilMay 2015 Alexey Mordashov

served asCEO ofAO Severstal Management– managing company ofPAO Severstal.

Alexey waselected Chairman of theBoard ofDirectors ofPAO Severstal inMay 2015.

•

Other roles: Serves on theEntrepreneurial Council of theGovernment ofRussian

Federation. Co-chairman of the“Trade asaGlobal Driver” Taskforce of the“Business

20” of“Group ofTwenty”. Co-chairman of theNorthern Dimension Business Council.

Vice President ofRussian-German Chamber ofCommerce, member of theRussian-

German workgroup responsible forstrategic economic andfinance issues. Member of

theEU-Russia Business Cooperation Council. Alexey earned his undergraduate degree

from theLeningrad Institute ofEngineering andEconomics.

•

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).

Stephen Johnson,

Senior Independent Director

Stephen Johnson has been anindependent

non-executive Director ofLenta Plc since

2010. He wasappointed asLenta’s Senior

Independent Director in2013.

•

Board Committees: Nomination

(Chairman), Remuneration, Audit,

Operation andCapital Expenditure

•

Experience: Steve has over20 years’

experience in theretail industry, having

been part of theteam that turned

around andsuccessfully sold Asda

toWalmart. Whilst atAsda, Steve

held several senior positions including

Trading Director, Commercial Finance

Director andMarketing Director.

Following his time atAsda, he wasCEO

ofFocus DIY Ltd andofWoolworths

Plc, aswell asSales & Marketing

Director atGUS Plc. He started his

career inmanagement consultancy

withBain&Co.

•

Other roles: Steve iscurrently

Chairman ofMatalan Limited andalso

anon-executive Director ofDFC Group

Plc. He also works withanumber

ofprivate equity firms primarily focused

onSouthern andEastern Europe.

•

Qualifications: Steve graduated from

Cambridge University, United Kingdom,

withanEngineering degree.

Michael Lynch-Bell,

Independent Director

Michael Lynch-Bell wasappointed

anindependent non-executive Director

ofLenta Plc in2013.

•

Board Committees: Audit (Chairman),

Remuneration (Chairman), Nomination

•

Experience: Michael retired from

Ernst & Young asSenior Partner

in2012 after a38-year career with

thefirm. He wasamember ofErnst

& Young’s audit practice, becoming

apartner in1985. In1997, Michael

moved toErnst & Young’s Transaction

Advisory practice, where he founded

andled its UK IPO andGlobal Natural

Resources transaction teams. He has

been involved with theCIS since 1991

andhas advised many CIS companies

onfundraising, reorganisations,

transactions, corporate governance

andIPOs.

•

Other roles: Michael isalso 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.

Alexey Mordashov wasappointed

anon-executive director ofLentaPlc

inMay 2019.

Julia Solovieva,

Independent Director

Julia Solovieva wasappointed

anindependent non-executive director

ofLenta Plc in2018.

•

Board Committees: Audit,

Nomination, Remuneration.

•

Experience: Julia has over20 years

experience in theinternet search,

media, retail andtelecoms sectors. Julia

joined Google in2013 asManaging

Director/Country Manager Russia,

andhas been Director, Business

Operations forEmerging Markets

EMEA since 2016. From 2007 to2012

she held various senior positions

including therole ofPresident, atProf-

Media, one ofRussia’s largest media

groups. Prior tothis she held various

corporate development andother

leadership roles in thetelecoms

sector andalso has experience

instrategy consulting withBooz Allen

Hamilton Netherlands andasDirector

ofOperations forMary Kay Russia

andCIS.

•

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.

TheBoard plays animportant role

inproviding support to theexecutive team

inimplementing Lenta’s strategy. TheBoard

also sets theoverall tone for themanagement

culture of theCompany. Lenta’s governance

framework combines leadership

withcollaboration anddelegation– andthis

is thebasis forour decision-making process.

Specific responsibilities aredelegated to four

Board Committees: Audit, Remuneration,

Nomination andOperational andCapital

Expenditure.

Details of their responsibilities andactivities

during theyear areset out onpages 56

to63 ofthis report.

Strategic ReportLENTA . Annual Report 202148 49Corporate Governance Report Financial Statements Appendices

Alexey Kulichenko,

Non-Executive Director

Alexey Kulichenko wasappointed

anon-executive director ofLenta Plc

inMay2019.

•

Experience: Between 1996 and2003

Alexey worked forSun Interbrew,

starting his career there asacash

flow economist at theRosar plant

inOmsk andending it asEfficiency

Planning andManaging Director ofSun

Interbrew. Between 2003 and2005

Alexey worked asCFO atUnimilk.

FromDecember 2005 toJuly

2009 he worked asCFO ofZAO

Severstal Resource. InJuly 2009,

Alexey Kulichenko wasappointed

CFO ofOAO Severstal. From

8November 2016 until 11December

2016 he wasCEO ofAO Severstal

Management.

•

Other roles: Alexey currently

serves asCFO ofJSC “Severstal

Management”– managing company

forPAO Severstal andCFO

ofSevergroup LLC.

•

Other Selective Directorships:

PAOSeverstal.

•

Qualifications: Alexey graduated from

the Omsk Institute ofWorld Economy

withadegree inEconomics.

Roman Vasilkov,

Non-Executive Director

Roman Vasilkov wasappointed

anon-executive director ofLenta Plc

inMay 2019

•

Board Committees: Operation

andCapital Expenditure (Chairman)

•

Experience: Roman Vasilkov joined

Severstal in2006. From 2008 until

2012 he held various positions

inSeverstal Invest which ispart

ofSeverstal’s Russian Steel division.

In 2012, he joined Corporate Control

atSevergroup LLC.

•

Other roles: Since 2016, Roman

is theHead ofCorporate Control

atSevergroup LLC. His responsibilities

include financial control aswell

asbusiness andinvestment analysis

ofSevergroup’s companies

andprojects.

•

Qualifications: Roman graduated from

theMilitary Engineering andSpace

Academy ofMozhaysky, St Petersburg.

In 2013, he graduated withhonours

from theInstitute ofManagement

andInformation Technologies (branch

of theSt Petersburg State Polytechnic

University) majoring infinancial

management.

Tomas Korganas,

Non-Executive Director

Tomas Korganas wasappointed

anon-executive director ofLenta Plc

inAugust2019.

•

Board Committees: Operation

andCapital Expenditure.

•

Experience: Tomas Korganas started

his career atBCG andGoldman

Sachs, after that he worked inandled

Corporate M&AatGE, RUSAL

andVympelkom for thenext 10 years.

In2012, Tomas joined Severstal

asHead ofCorporate Development

andsoon after he wasasked toassume

same role atSevergroup. Since 2018,

Tomas isalso heading theStrategy

ofSevergroup.

•

Other roles: Tomas currently

serves asaDirector forStrategy

andM&AofSevergroup LLC

andHead ofCorporate Development

ofJSC Severstal.

•

Qualifications: Tomas graduated

withB.Sc. inEngineering from Kaunas

University ofTechnology in1993,

M.Sc. inInternational Strategy from

Helsinki University ofTechnology

in1996, andMBA from Sloan School

ofManagement, MIT in2000.

Vladimir Sorokin

Chief Executive Officer (CEO)

Vladimir Sorokin wasappointed CEO

inSeptember 2020.

•

Experience: Vladimir Sorokin

started his career in1994 atGillette

andhas had anumber oftop

leadership positions atboth Russian

andinternational retail andFMCG

companies. In2013, Mr Sorokin

joined theX5 Group where he became

theGeneral Director of thePerekrestok

Supermarkets. In2019, he joined

Magnit as theDeputy Chief Executive –

Commercial Director andamember of

theManagement Board.

•

Qualifications: Vladimir Sorokin

isagraduate ofSt Petersburg State

University ofTrade andEconomics

(Engineering) and theHigher School

ofEconomics (Finance).

Rud Pedersen

Chief Financial Officer (CFO)

Rud Pedersen wasappointed

ChiefFinancial Officer inApril 2019.

•

Experience: Before his current

role, Rud served asCFO

ofCarlsberg Eastern Europe

andwasresponsible foroperations

infive FSU markets. Over thelast

26 years he has held anumber

ofsenior management positions

inadiverse range ofbusinesses

including FMCG, fashion

andapparel retail andpharma.

Rud has had experience inregional

andgroup level roles, including

Cadbury (Russia), Astrazeneca

(Belgium), Levi Strauss (Belgium)

andIC Group (Denmark).

Hestarted his career withDeloitte.

•

Qualifications: Rud holds Master

ofScience degree inInternational

Business Administration &

Commercial Law from Aarhus

School ofBusiness, Denmark.

Healso has anEMBA from London

Business School.

Board Diversity

andExpertise

11% 89%

Women Men

2 1 1

Russia UK Denmark Lithuania

4 4 3

Strategy Financials Retail Marketing

Technology/digital

Expertise

Nationality

Composition

Strategic ReportLENTA . Annual Report 202150 51Corporate Governance Report Financial Statements Appendices

Senior management team

Andreas Jueterbock

Chief Operational Officer (COO)

Igor Ovsienko

Chief Supply Chain Officer

Andreas joined Lenta in2013 as

theDivisional Director.

•

Experience: Before Lenta, he held

various positions inMetro Cash&Carry

inGermany andUkraine for11 years.

•

Qualifications: Andreas isanexecutive

MBA candidate atIE business school

Igor Ovsienko joined Lenta in2006

asaLogistics Manager.

•

Experience: In2012 Igor entered

therole ofDistribution Centre Director.

Since 2018 Igor has been working

asTransport andDistribution Director.

•

Qualifications: Igor has adegree

from Baltic State Technical University

VOENMEH named after D.F. Ustinov.

Tatiana Yurkevich,

Human Resources Director

Anastasia Volokhova,

Strategy andTransformation Director

Dmitry Bogod

Chief Commercial Officer

Tatiana Yurkevich joined Lenta in2012

asHuman Resources Director.

•

Experience: Prior tojoining Lenta,

Tatiana served asHuman Resources

Director atFazer Bakeries &

Confectionery, Russia. During her

19 years inHR management, she

has held senior positions including

Head ofHR atUnited Heavy

Machinery Group andIzhora Plants,

andHR Director ofCaterpillar European

Fabrications andCaterpillar Tosno.

Tatiana has experience inleading Six

Sigma Programme implementation

asaDeployment Champion

inCaterpillar.

•

Qualifications: Tatiana has aMaster’s

degree inInternational Economics from

St Petersburg State University aswell

asEnglish andGerman language

degrees from Novosibirsk State

Pedagogical University andanMBA

inStrategy from International

Management Institute Link (theUK’s

Open University).

Anastasia Volokhova joined Lenta in2021

asStrategy andTransformation Director.

•

Experience: Prior tojoining Lenta,

Anastasia held senior roles atMagnit

and theBoston Consulting Group in

theareas oftransformation andbusiness

efficiency.

•

Qualifications: Anastasia holds

aMaster’s degree inInternational

Business from Plekhanov Russian

University ofEconomics.

Dmitry Bogod joined Lenta in2018

asChief Strategy Officer

andwasappointed asChief Commercial

Officer inJanuary 2021.

•

Experience: Dmitry has overten years

ofexperience instrategy consulting

forinternational companies. Before

joining Lenta, Dmitry wasanassociate

partner inMcKinsey’s Moscow office

andprior tothat, Dmitry worked

atOliver Wyman, advising companies

onconsumer related strategy

andoperational topics. Before working

asaconsultant, he worked withAon

Benfield Securities, RBC Capital

Markets, andManulife Financial.

•

Qualifications: Dmitry has anHonors

Bachelor ofScience Degree inApplied

Mathematics from theUniversity

ofToronto.

Strategic ReportLENTA . Annual Report 202152 53Corporate Governance Report Financial Statements Appendices

Dmitry Skyba

Chief E-commerce Officer

Dmitry Gerasimov

Business Support Director

Sergey Sergeev

Chief Information Officer

Dmitry joined Lenta asStrategy

andInnovations Director in2019.

•

Experience: Before joining Lenta,

Dmitry worked inMcKinsey &

Company aspart ofstrategic,

commercial andoperational projects

forretail andtelecom. Before McKinsey,

Dmitry held various positions inProcter

& Gamble inRussia andUkraine.

•

Qualifications: Dmitry holds aMaster’s

degree in Economic Cybernetics

from Poltava University ofEconomics

andTrade, andаn MBA from INSEAD

business school.

Dmitry Gerasimov joined Lenta

inOctober 2020.

•

Experience: Prior tojoining Lenta,

Dmitry worked forNordgold

Management asDeputy Business

Support Director andpreviously

forSeverstal where he wasresponsible

foreconomic business security, he also

served in theState Internal Affairs.

•

Qualifications: In1998, Dmitry

graduated from Kolomenskoye State

Pedagogical University. In2018, he

graduated from Nordgold Executive

Programme inDarden School

ofBusiness, University ofVirginia.

Sergey Sergeev joined Lenta

in February2022.

•

Experience: Prior to joining Lenta,

Sergey worked at Prosveshcheniye

education holding, where he

led information technologies

and the development of digital

products. PriortoProsveshcheniye,

Sergey held various positions at

M.Video-EldoradoGroup. He also

ledprojects for different business

functions, including the transformation

ofthe ITdepartment.

•

Qualifications: Sergey holds

aMaster of Business Administration

degree from the Higher School

ofEconomics.

Maria Klevtsova,

Internal Audit Director

Maria Klevtsova joined Lenta in 2018.

•

Experience: Prior to joining Lenta,

Maria served as Head of internal audit

of Prisma Russia for 7 years. Shehas

19 years’ experience in internal

andexternal audit, including 8 years

inKPMG.

•

Qualifications: Maria helds

adegree with honours in Accounting

and Auditfrom St Petersburg State

University. Shealso holds a Certified

Internal Auditor (CIA) certification.

Sergey Prokofiev

Legal andGovernment Relations

Director

Sergey Prokofiev joined Lenta asLegal

andGovernment Relations Director

in2012.

•

Experience: Prior tojoining

Lenta, Sergey worked forMetro

Cash & Carry, Russia for11 years

indifferent positions including Legal

andCompliance Director. He started his

career asanexpert interpreter andlater

worked asalawyer inamajor Russian

law firm andasadefending attorney at

theMoscow City Bar.

•

Qualifications: Sergey graduated

from theMilitary Institute ofForeign

Languages (‘VKIMO’) and theInstitute

ofLaw. He holds aPhD inLaw

from theInstitute ofLegislation

andComparative Law under

theGovernment of theRussian

Federation andanMBA inStrategic

Management from California State

University.

Strategic ReportLENTA . Annual Report 202154 55Corporate Governance Report Financial Statements Appendices

Corporate governance report

This section sets out

how Lenta has applied

theprinciples ofgood

governance during

theyear.

Compliance withUK Corporate Governance Code

Compliance with the Corporate Governance Code

approved by the Bank of Russia

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Russian

Federation, 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

Redomiciliation

Lenta is duly registered

asaninternational public joint-

stock company withits legal

seat atOktyabrsky Island, City

ofKaliningrad, Kaliningrad Region,

Russian Federation. TheCompany’s legal

name is, inRussian, Международная

компания публичное акционерное

общество «Лента» (short form,

МКПАО «Лента») and, inEnglish, Lenta

International public joint-stock company

(short form, Lenta IPJSC).

InNovember 2021, incontinuation of

theCompany’s redomiciliation from

Cyprus to theRussian Federation andfor

thepurpose ofaligning of theCompany’s

corporate governance system with

therequirements of theCompany’s

Articles ofAssociation and theCorporate

Governance Code approved by theBoard

ofDirectors of theBank ofRussia

on21March 2014 theBoard approved

theCompany’s Dividend Policy, aswell

asRegulations onBoard Committees,

andformally documented theInternal Audit

Charter andRegulations on theCorporate

Secretary of theCompany.

Witheffect from 26November 2021,

theCompany’s ordinary shares have been

included into the“Level 1” part of thelist

ofsecurities admitted totrading onMOEX.

Thetrading in theOrdinary Shares

onMOEX commenced on1December

2021.

Lenta’s Corporate Governance system

is aligned with the recommendations of

theabovementioned andisbased on

thefollowing main principles:

• TheCompany strives toimplement

efficient andtransparent mechanisms

toguarantee therights andinterests

ofits shareholders incompliance

with thelaw, theCompany’s

Articles of Association andother

regulatory documents aswell asthose

recommended byinternational

corporate governance standards.

• TheCompany adheres to

apolicy ofequal treatment ofall

shareholders irrespective of thesize

of their shareholding, nationality

orjurisdiction.

• The Company ensures application

ofits shareholders’ rights to participate

in the Company’s governance

bypublic disclosure of information

on the Company’s activity, inviting

shareholders to participate

(vote) in shareholders’ (annual

andextraordinary) meetings.

Lenta accomplished theredomiciliation to theRussian Federation in theform

ofaninternational public joint-stock company effectivefrom 17 February 2021.

Recommendations

from theCorporate

Governance Code

(2014)

approved by theCentral Bank ofRussia

andrecommended forapplication by

thejoint-stock companies withlisted

securities

UK Corporate

Governance Code

(2018)

1 2

Lenta islisted on theMOEX andon theLondon Stock Exchange.

Accordingly, Lenta follows theprovisions of the:

Compliance statement

Corporate Governance Framework

• TheCompany intends tomaintain

high quality engagement withall

stakeholders, including customers,

suppliers, workforce andcommunities

In addition to the Company’s Articles

of Association, the activities of Lenta

management and supervisory bodies,

aswell as other internal activities, are

governed by a set of internal corporate

documents, which are available on our

website corp.lenta.com

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

andhas not been amended since then.

Shareholders’ meeting

Board of Directors

Senior Management

Audit

Committee

Remuneration

Committee

Nomination

Committee

Operation and

Capital Expenditures

Committee

As a company registered in the Russian

Federation, we are advised to follow the

Corporate Governance Code approved

by the Bank of Russia. At the time of

publication of this report, the Board of

Directors believes that the Company’s

corporate governance system complies

with the main recommendations of

the Code, with the exception of the

most important ones listed below. Key

inconsistencies will be corrected during

2022.

Electronic voting for shareholders;

Providing additional information to

shareholders in preparation for holding

general meetings;

Formalised remuneration policy for

members of the Board of Directors and an

internal control system policy.

In 2021, for the first time, we initiated an

internal audit of the Company’s compliance

with the principles and recommendations

of the Code in the form recommended

by the Bank of Russia, which will be

completed in March 2022. Report on

compliance with the principles and

recommendations based on the results of

the completed audit will be considered

by the Board of Directors, approved and

published no later than the expiration of

the deadlines established by Russian law

and the Company’s charter.

Strategic ReportLENTA . Annual Report 202156 57Corporate Governance Report Financial Statements Appendices

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

• Ensuring anannual evaluation of

theBoard isconducted

• Being available toassist inresolving

shareholder concerns, should

alternative channels beexhausted

• Holding atleast one meeting each year

with theindependent non-executive

Directors without theChairman being

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

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 theRussian Federation law. NEDs

arerequired tochallenge, inaconstructive

way, thestrategies proposed by

theexecutive Directors. They arealso

responsible forscrutinising 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.

Matters specifically reserved for thedecision

of Lenta’s 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

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.

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 that the Shareholders should

appoint or remove the external auditor.

TheBoard discharges someofits

responsibilities directly anddischarges

others through Board Committees and

theSenior Management team

• 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

performance-related pay

scheme, andand does not

participate in any Company

pension scheme.

Between them, thecurrent NEDs have

anappropriate balance ofskills,

experience, knowledge andindependent

judgement toundertake their roles

effectively.

Stephen Johnson was theSID throughout theyear ending 31December 2021. 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 eleven years, theBoard ofDirectors considers him

tobeindependent, due to thefollowing significant factors:

TheChairman’s responsibilities include

TheCEO’s responsibilities include

• Ensuring that theDirectors receive

accurate, timely andclear information

• Facilitating theeffective contribution

ofnon-executive Directors

andengagement between executive

andnon-executive Directors

• Leading thedevelopment of

theCompany’s strategic direction

andimplementing theagreed strategy

• Dentifying andexecuting new business

opportunities

• Building aneffective Board

• Theinduction ofnew Directors

andfurther training forall Directors

asrequired

• Communicating effectively

withshareholders andother

• Managing theGroup’s risk profile

andimplementing andmaintaining

aneffective framework ofinternal controls

• Building andmaintaining aneffective

management team

stakeholders andensuring theBoard

develops anunderstanding of theview

ofstakeholders

• Leading theperformance evaluation of

theCEO andnon-executive Directors

• Ensuring effective communication

withshareholders andregularly

updating institutional shareholders

onbusiness strategy andperformance

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.

• 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.

• 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.

Strategic ReportLENTA . Annual Report 202158 59Corporate Governance Report Financial Statements Appendices

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 and MOEX listing rules.

Theremaining sixDirectors – including

theChairman, Chief Executive

Offier and Chief Financial Officer

of Lenta LLC –wereelected by

theshareholderspursuant to thenomination

rights of theMajor Shareholders.

On 12 November 2021 the Board

ofDirectors issued resolutions to

admit MrLynch-Bell and Mr Johnson

asindependent directors despite the existence

of formal criteria (having each been members

of the Board for more than 7 years) of their

affiliation with the Company (term of office).

Investor

relations

TheBoard makes considerable

efforts toestablish

andmaintain good

relationships withshareholders

and thewider investment

community. There isregular

dialogue withinstitutional

investors during theyear,

primarily though theHead

ofInvestor Relations and

theteam.

Corporate Secretary

TheCorporate Secretary ensures Lenta’s

compliance with therequirements

ofapplicable law, theCompany’s Articles

of Association andinternal documents

regulating theneeds andinterests of

theCompany’s shareholders. TheCorporate

Secretary isresponsible forsafeguarding

therights andinterests ofshareholders,

aswell asestablishing transparent

andeffective regulations tosecure therights

ofshareholders. Full information on

theresponsibilities of theCorporate Secretary

isavailable on our website corp.lenta.com

The activity of the Corporate Secretary is

governed by the Company’s Regulations

on Corporate Secretary.

The Board of Directors appointed

Ekaterina Kitova as Corporate Secretary of

LentaIPJSC on 23 July 2021.

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.

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 law or

theCompany’sCharter.

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

companies aremanaged bySenior

Management asdescribed below.

Board focus during theyear

In2021, theBoard considered awide range ofmatters, including but

not limited to:

• Business strategy

• Covid-19 pandemic response set ofactions

• Assessing andmonitoring theCompany culture

• Budgets andlong-term plans for theCompany

• Review ofestimates offuture cashflows, financing arrangements

andfundraising

• Industry andcompetitiveenvironment

• Responding to thechangingdynamics of theRussian economy

• Maintaining andincreasingefficiency of

theCompany’sdevelopment

• Individual business andoverallGroup performance

andfuturecapital expenditures

• Thereview andexecution ofmergers andacquisitionstransactions

• Development of theCompany’scorporate governance

• Financial statements andannouncements

• Reviewing reports from itsCommittees

• Shareholder feedback andreportsfrom brokers andanalysts

• Risk management andriskoversight

Covid-19

In2021, theactivityof theBoard

wasinfluenced by theCovid-19 pandemic

While travelling wasconstrained,

Board meetings and thesessions of

thecommittees wereheld remotely.

theBoard believes that theremotemode

did not affect its performance.

TheBoard oversaw theset ofmeasures

taken by theSeniorManagement Team

toprotect thehealth andwell-being

ofLenta’semployees andcustomers

aswell assecuring thesupply chain.

Themeasures included transfer

ofapproximately 95% ofofficeemployees

tohome office working,furnish ofLenta

stores withsafety equipment andsupply

ofPPEs for thecompany employees.

Anti-bribery andanti-corruption

Lenta has inplace theCompliance

Programme, which includes ourCode

ofBusiness Conduct, 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 Code ofBusiness Conduct, 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 anti-corruption

clauses areincluded incontracts

with theGroup’sbusiness partners.

Lenta’s ComplianceOfficer andEthics

Committeeinvestigates hotline complaints

ofunethical behaviour withreports to

theAudit Committee. Asaresult,appropriate

measures aretaken toenhance control

andcompliance with theProgramme.

Lenta 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 2021, all employees,

includingnewcomers, 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 our

websitecorp.lenta.com

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recommends that

the shareholders should approve

theremuneration of the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,

thecode ofconduct, theanti-bribery

andanti-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Charter andconsiders

materiallitigation or regulatory

investigationsaffecting theLenta

Group. It isresponsible forappointment

ofkeycorporate advisors.

Ekaterina Kitova

The Board of Directors appointed Ekaterina

Kitova as Corporate Secretary of Lenta

IPJSC on 23 July 2021.

•

Experience: Ekaterina Kitova has been

working as a corporate secretary on

behalf of the Company since June 2019.

•

Qualifications: Ekaterina graduated

from the State University– Higher

School of Economics in 2006.

The Board of Directors approved

theappointment of new Corporate

secretary effective 3 March 2022

asEkaterina decided to step down

attheend of February 2022.

Strategic ReportLENTA . Annual Report 202160 61Corporate Governance Report Financial Statements Appendices

Risk management andcontrol

TheBoard has overall responsibilityforrisk

management, 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

consideration given tomaterial financial,

operational andsustainability risks

andcontrols, withappropriate steps taken

toaddressanyissues identified.

During 2021, 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2021

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 38–43.

Internal audit

Internal Audit provides

independent,objective assurance 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

management, 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 Department

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.

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Nomination Committee, themajority

ofwhose members areindependent

non-executives.

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sparing 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 the 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

approximately 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

The 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 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attends Audit

Committee meetingsfour times ayear

topresent thefindings from internal audits.

During 2021,

nosignificant

internal control

failingswereidentified.

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.

Strategic ReportLENTA . Annual Report 202162 63Corporate Governance Report Financial Statements Appendices

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 digital 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.

In2021, due to theoutbreak of

theCovid-19 pandemic, theBoard

andCommittees’meetings wereheld

online.

TheBoard also holds regular update calls

during theyear, but participation isnot

mandatory.

Changes to theBoard in2021

There wereno changes to theBoard

ofDirectors in2021.

Special Committee

Given Severgroup LLC’s common

ownership ofLenta andUtkonos,

anindependent committee of

theBoard ofDirectors (the“Special

Committee”) wasformed, toreview,

consider, negotiate, andapprove

thetransaction andtoconsider

thecontemplated closed subscription

share offering tofund thetransaction.

TheSpecial Committee comprised

Lenta’s three independent directors,

andwaschaired byStephen Johnson,

theSenior independent director.

TheSpecial Committee retained

Citigroup Global Markets Limited

(“Citi”) toadvise on thetransaction,

andCiti has rendered afairness

opinion stating that theconsideration

tobepaid in theTransaction byLenta

isfair.

Inaddition, athorough due diligence

andvaluation process wasconducted

through theengagement ofaninternational

Big 4 consultancy, evaluating Utkonos’

business model andrecent performance,

future growth prospects, and thepotential

synergies that Lenta andUtkonos can

together achieve, primarily in theareas

ofcommercial, logistics andmarketing.

TheSpecial Committee unanimously

approved thetransaction,

andinaccordance withLenta’s Articles

of Association, theBoard ofDirectors

approved thetransaction. Inlight

oftheinterest inboth Lenta and theSeller,

Alexey Mordashov did not vote on

thedeal approval at theBoard meeting.

TheCompany’s Board ofDirectors

also approved theconvocation

oftheExtraordinary General Meeting

(the“EGM”) toapprove theclosed

subscription share offering tofinance

theacquisition. The quorum of the Board

included other Directors of the Severgroup.

TheCommittee wasdissolved by

theBoard ofDirectors’ resolution

datedthe 15th of December witheffect

fromthe 31st of December.

The remuneration for the Independent

directors-members of the Special

Committee is set out in the table below:

Member

of the Committee

Amount payable,

USD

Stephen Johnson 21,656.00

Michael Lynch-Bell 20,344.00

Julia Solovieva 22,252.00

Length ofservice andindependence

ofnon-executive directors

Stephen Johnson (Independent) Since 2010 Considered tobeindependent by theBoard

Michael Lynch-Bell (Independent) Since 2013 Considered tobendependent by theBoard

Julia Solovieva (Independent) Since 2018 Considered tobeindependent by theBoard

Board attendance

Board of Directors

(6 meetings)

Audit Committee

(4 meetings)

Remuneration

Committee

(5meetings)

Nomination

Committee

(4meetings)

Operation

and Capital

Expenditure

Committee

(6meetings)

Alexey Mordashov 6 0 0 0 0

Vladimir Sorokin 6 4 5 4 6

Stephen Johnson 6 4 5 4 4

Alexey Kulichenko 6 4 0 0 0

Rud Pedersen 6 4 5 4 6

Roman Vasilkov 6 4 0 0 6

Michael Lynch-Bell 6 4 5 4 0

Julia Solovieva 6 4 5 4 3

Tomas Korganas 5 0 0 0 5

Month Day Meeting

February 18 Nomination Committee

Remuneration Committee

Audit Committee

Operation and Capex Committee meeting

February 19 Board meeting

March 26 Remuneration Committee

June 22 Operation and Capex Committee

July 22 Nomination Committee

Remuneration Committee

Audit Committee

Operation and Capex Committee

July 23 Board of Directors

September 28 Board of Directors

October 21 Nomination Committee

Remuneration Committee

Audit Committee

Operation and Capex Committee

October 22 Board of Directors;

November 22 Operation and Capex Committee;

December 14 Nomination Committee

Remuneration Committee meeting

Audit Committee

Operation and Capex Committee

December 15 Board of Directors

The terms of reference for Lenta’s Board

were last revised and updated in February

2021 and the Committees’ terms of

reference– in November 2021.

Details areset out

in theCorporate Governance

section of theCompanywebsite:

corp.lenta.com

Strategic ReportLENTA . Annual Report 202164 65Corporate Governance Report Financial Statements Appendices

Audit committee report

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.

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.

Aspart ofour commitment togoodcorporate

governance, we aim todo this inline

withinternational bestpractice.

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, external auditors 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.

Role andresponsibilities

Thekey roles andresponsibilities of

theAudit Committee include:

• Monitoring andchallenging, where

necessary, theintegrity of thefinancial

statements andhalf yearly results

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

andinterim reports 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speakup 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: corp.lenta.com

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.

Committee members

Michael Lynch-Bell

(Independent, Chairman)

Julia Solovieva

(Independent)

Stephen Johnson

(Independent)

External auditor

The External auditor is elected at

the Annual Shareholders’ Meeting at

therecommendation of the Board of

Directors.

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Committee also reviewed

theperformance andeffectiveness of

theexternal auditor inrespect of theyear

ended 31December 2021.

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.

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.

Procedures used to select the external

auditors and ensuring their independence

and objectivity are set in the Committee’s

terms of reference.

Professional fees billed by Ernst & Young

LLC are shown in the table below.

2021, kRUB 2020, kRUB

Audit ofconsolidated financial statements 21,684 29,222

Consulting andother non-audit services 15,238 12,844

Total fees 36,922 42,066

Significant issues considered by theaudit committee

Thesignificant issues – andhow they

wereaddressed – areset out below.

Suppliers’ allowances

TheCommittee reviewed theaccounting

forandrecognition ofsuppliers’

allowances received for theprovision

ofservices. Thereview included

consideration of thetypes ofallowances

received, theperiod ofcoverage and

thetiming ofreceipt. Based onthis

review, theCommittee issatisfied that

theallowances arerecognised in

theperiod inwhich they areearned

andthat appropriate disclosure has been

made in thefinancial statements.

Inventories andinventory

allowances

TheCommittee reviewed theaccounting

forinventories and therecognition ofwrite-

downs during theperiod. Thereview

took intoconsideration thecalculation of

thecost ofinventories, theidentification

ofslow-moving inventories and thereasons

why shrinkage had occurred. Based

onthis review, theCommittee agreed with

theaccounting treatment anddisclosures

adopted bymanagement.

Capital construction

TheCommittee examined theaccounting

forcapital construction including

therecognition ofdirect costs incurred,

theallocation ofdirectly attributable

overheads andland lease expense.

Thereview included aconsideration

ofpotential fraud risk, theconstruction

tender process and theacquisition or

leasing ofland. TheCommittee agreed with

theaccounting treatment anddisclosures

adopted bymanagement.

Ethics Committee

TheCommittee reviewed thework of

theEthics Committee; inparticular,

its report on theCompany hotline.

TheAudit Committee approved measures

taken bymanagement tomitigate

risks ofimpropriety andhold culpable

employees toaccount.

Strategic ReportLENTA . Annual Report 202166 67Corporate Governance Report Financial Statements Appendices

Taxation

TheCommittee received regular updates

ontax developments inRussia from

the management and theCompany’s

advisors, together with themanagement’s

interpretation of theimpact ofcurrent tax

legislation on theCompany. TheCommittee

concurred with themanagement’s

judgement on thepositions adopted and

therelated disclosures.

Activities in2021

In2021, 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 worked onimprovements

to theCompany’s 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. We

also focused onbusiness continuity

management aswell askey Company’s

policies, such asCode ofBusiness

Conduct, Anti-Corruption Policy,

Commercial Policy andothers.

We continued tomonitor

theimplementation of therecommendations

from theIT securityreview completed

during 2020.

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.

InOctober 2021, we started atender

process tochoose theexternal audit

provider. TheCommittee analysed

proposals of theBig 4 companies:

Deloitte, Ernst&Young, KPMG

andPricewaterhouseCoopers.

Inaccordance with Lenta’s Tender Policy,

theChairman of theAudit Committee

andCFO aswell asrepresentatives ofkey

Lenta functions, together comprising

theTender Committee, held meetings

withrespective companies toensure

comprehensive andfair analysis of their

proposals.

Theproposals wereevaluated by

theTender Committee against technical

requirements andscored separately

byCFO and theAccounting team. Inresult

of thetendering process, theTender

Committee voted forDeloitte asexternal

audit provider for theperiod from

2022 to2026 followed byrespective

recommendation by theAudit Committee

to theBoard.

TheCommittee oversaw theprocess of

appointing the new Internal Audit Director

ofLenta.

The Committee also worked in cooperation

with the Boar on the following issues:the

approach to cyber risks and insurance;

ESG strategy approval; the 2 major

store acquisitions; impairment and

redomicilliation.

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.

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 as well as acquisition of

Utkonos and acquisition accounting.

Inconjunction withmanagement,

theCommittee will alsoreview andassess

theimplicationsofnew andproposed

accountingstandards, the Utkonos

acquisition and acquisition accounting.

Nomination Committee report

TheNomination Committee facilitates theefficient

operation of theBoard, pre-addresses matters

concerning theimplementation ofsuccession

planning, andstrengthen theprofessional profile

of theBoard.

TheCommittee isanadvisory body of theBoard

andisfully accountable toit. All proposals

to theBoard developed by theCommittee

areadvisory.

Role andresponsibilities

Thekey roles andresponsibilities of

theNomination Committee remain

thesame asinprevious years andinclude:

• Ensuring that proper procedures

areestablished for thenomination,

selection andtraining of theCompany’s

Directors andSenior Management

• Keeping under review thesize,

structure, balance ofskills, experience,

independence, knowledge andgeneral

diversity of theBoard toensure

thebalance andcomposition of

theBoard andits Committees remain

appropriate

• 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candidates

withsuitable industry or key

competency experience

• Reviewing Board level, Senior

Management andCompany-wide

succession planning andother human

resources-related matters

• Reviewing theleadership needs of

theCompany, both executive andnon-

executive, toensure thecontinued

ability of theorganisation tocompete

in themarketplace. Acopy of

theCommittee’s full terms ofreference

isavailable on theCompany’s website:

corp.lenta.com

• 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4 Committee meetings scheduled

for2022.

Performance appraisal

system

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.

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.

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 opportunities 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. In2020, theBoard executed

aninternal evaluation, theresults ofwhich

have been analysed. Therecommendations

received as theresult of theevaluation,

wereimplemented during 2021.

Committee members

Stephen Johnson

(Independent, Chairman)

Michael Lynch-Bell

(Independent)

Julia Solovieva

(Independent)

Alexey Mordashov

(Non-executive)

Going concern

TheCommittee reviewed the management’s

adoption of thegoing concern basis

ofaccounting. The management had taken

intoaccount theCompany’s financial

position, available borrowing facilities,

loan covenant compliance, planned store

opening programme and theanticipated

cash flows andrelated expenditures from

our retail stores.

TheCommittee considered theposition taken

by themanagement and, taking intoaccount

theexternal auditor’s review, concluded

that the 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page 41.

TheCommittee considered thestatement

andapproved management’s disclosures.

Strategic ReportLENTA . Annual Report 202168 69Corporate Governance Report Financial Statements Appendices

Activities in2021

TheCommittee has had abusy year.

Our focus has been onensuring

that Lenta has adequate succession

planning andorganisational

improvement, both for theExecutive

Directors andfor theBoard, aswell

across thewider business.

TheCommittee continued toreview

theorganisational improvement

project that has been ongoing inside

thebusiness over thelast 12 months

including approving thescope

of theproject, which istoensure

that theorganisational structure of

theCompany fits therequirements

ofLenta’s long-term strategy.

TheCommittee plays anactive

role inreviewing changes to

theSenior Management Team,

andin2021 appointed Andreas

Jueterbock asChief Operational

Officer andIgor Ovsienko asChief

Supply Chain Officer after Edward

Doeffinger andJoern Arhhold

stepped down. These Internal

promotions have been made aspart

of theCompany’s well established

succession planning programme.

TheCommittee also supported

thebusiness indeveloping its

organisation structure tobetter

support thegrowing size

andimportance of thesmall format

businesses during thecourse of

theyear.

The Committee recommended that

the Board should appoint Maria

Klevtsova as Internal Audit Director,

who took over Anna Logunova; and

oversaw the process of recruiting

the new Chief Information Officer

Sergey Sergeev to replace Sergey

Korotkov.

Finally, we also oversaw theBoard’s

performance andits appraisal

aswell asscrutinising our succession

planning process andkey personnel

retention. Themarket inRussia

fortalented retail employees

continues tobestrong andLenta’s

highly professional workforce

remains atarget forour competitors.

Our objective istoensure that our

succession planning process isfit

forpurpose andwe have well

trained professionals todrive our

business.

4 5 6

1 2 3

Remuneration Committee report

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Senior Management Team

toensure that necessary salary increases

areidentified andimplemented inatimely

manner based onboth labour market

andindividual performance.

• Annual Bonus: Lenta operates

aCompany-wide bonus plan, monthly

andquarterly forstores andDCs line

personnel, quarterly andannually forhead

office employees andmanagement

instores and theDCs. TheKPIs for these

plans areset annually by theCommittee

inconsultation with theCEO

andHRDirector. TheCommittee ismindful

that annual bonus payments arenot

just areward forgreat performance but

also asignificant element inretaining

andrecruiting good people.

During 2021, Lenta achieved very good

results and the bonus payout for corporate

KPIs for top 100 employees is achieved

at105% of target.

• Incentive Plans: The Company operates

a number of long-term incentive plans

for both senior and middle management.

These are designed to ensure reward for–

andretention of – managers against aset

of performance criteria, which are aligned

with shareholder interests.

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.

Committee members

Michael Lynch-Bell

(Independent, Chairman)

Stephen Johnson

(Independent)

Julia Solovieva

(Independent)

Roles, responsibilities and activities during the year

Thekey roles andresponsibilities of

theRemuneration Committee include:

• Determining andrecommending thebroad

policy forexecutive remuneration within

theGroup

• Determining, onbehalf of theBoard,

theremuneration of theexecutive Directors

andsenior management;

• Approving thedesign of, anddetermining

targets foranyperformance-related plans

• Making recommendations regarding

employee equity participation schemes

• Determining thepolicy forandscope

ofservice agreements andtermination

payments

Acopy of theCommittee’s full terms

ofreference isavailable on theCompany’s

website: corp.lenta.com

Incentive plan forsenior management

TheCompany operates anumber oflong-

term incentive plans forboth the senior

andmiddle management.

In2020, thenew Lenta Top Member

Award (LTMA) combining long-term

andshort-term incentive programmes

wasintroduced asfollows inorder

toassure better alignment between interests

of themanagement andshareholders

andimprove theretention power ofaward:

• LTMA offers thesame structure ofaward

for thesenior andmiddle management.

• TheLTMA award isgranted every year

subject toapproval of theRemuneration

Committee.

• LTMA islinked to thesame KPIs as

theannual bonus.

• LTMA is thecombination ofannual bonus

andLTI award, target award amounts

forboth programmes weremerged

andtreated asone award pool.

• Theactual LTMA award depends

onachievement ofannual bonus KPIs

aswell asindividual performance

evaluation.

• Thevesting period of theaward is3years:

50% ofthis award pool ispaid inApril of

theyear following grant year andremaining

50% ispaid in2 equal instalments over

thefollowing 2 years.

• Thenew LTMA award is100% cash based.

• Award target amount andeligibility

arebased onjob grade.

• Manager’s eligibility toreceive theLTMA

award isconditional on their employment

withLenta andcompliance withcertain

covenants, including confidentiality,

noncompetition andnon-solicitation.

TheLTMA scheme isgiven below

Award = (Salary × 12) × Target % ofaward × % ofKPI achievement × Performance management coefficient

Strategic ReportLENTA . Annual Report 202170 71Corporate Governance Report Financial Statements Appendices

Theinterests in theCompany’s share

capital held bySenior Management and

theremuneration received by theChairman

and thenon-executive Directors areset

out onpage 71. TheDirectors’ interests in

theCompany’s share capital areset out

onpage 72.

Thecombined short term (annual bonus)

andlong term (LTI) award pool 2021

wasapproved. This amount isbased

on2021 corporate KPI achievement;

50%ofit ispayable inApril 2021

asannual bonus andremaining 50%

overnext 2years, fully vesting in2023.

Due toredomiciliation ofLenta Ltd in2020,

it wasagreed that it ismore practical

tomodify share based awards granted

prior to2020 intocash based awards.

Thevesting period remained thesame.

2021 annual bonus

scheme approval

TheCommittee approved thebonus KPIs,

target andpayout scales for2021.

Summary ofsenior management team remuneration policy

Element Principles Opportunity

Base pay Base pay isreviewed annually by theRemuneration

Committee, considering anumber offactors, including:

• Individual performance evaluation

• Salaries incomparable roles in thesame industry

andactivities scope.

There isno set maximum or minimum,

itisinline withlabour market trends

and/or individual role scope changes.

Benefits • Company car, forsomesenior managers withadriver

• Medical insurance withfamily coverage

• Relocation support

• Partial reimbursement ofschool fees forexpatriates’

children attending school inRussia

There aremaximums set foreach

compensation element depending

onthejob grade.

Annual bonus All senior management areeligible for theannual bonus

scheme, which isadiscretionary, non-contractual scheme.

Performance ismeasured against quantifiable financial

targets, which areset at thestart of theyear andapproved

by theRemuneration Committee. Inaddition tofinancial

targets, thebonus isaffected by theindividual performance

evaluation, whichmay increase or decrease thepayout.

Target annual bonus forsenior

management is100% ofannual

basepay.

Incentive plan All senior managers areeligible for thelong-term incentive

plan (LTIP) that islinked tobusiness performance indicators

andiscash based subject to theRemuneration Committee’s

approval. 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.

Maximum target LTIP annual

value is130% ofannual salary;

theactual amount varies between

senior managers based on their job

grade andindividual performance

evaluation.

Salary review

incomparison

tolabour market

The Committee reviewed the labour

market situation and salary dynamics

in Russia and it was decided to apply

salaries indexation for Lenta’s front-

line employees.

Pay structure ofCEO, CFO andSenior Management Team

Chief Executive Officer

CEO total cash reward

(fixed vs.variable target)

Chief Financial Officer

CFO total cash reward

(fixed vs.variable target)

Other Senior Team Members

Total Cash Reward

Minimum

Target

Maximum

100%

25.0%

37.5% 37.5%

15.6% 42.2% 42.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

25.0%

37.5% 37.5%

15.6% 42.2% 42.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

25.0%

37.5% 37.5%

15.6% 42.2% 42.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

25.0%

37.5% 37.5%

15.6% 42.2% 42.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

30.3%

34.8% 34.8%

24.0% 38.0% 38.0%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

31.3%

34.4% 34.4%

25.6% 37.2% 37.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

25.0%37.5%

37.5%

Base Salary Annual Incentive LTIP

30.3%34.8%

34.8%

Base Salary Annual Incentive LTIP

31.3%34.4%

34.4%

Base Salary Annual Incentive LTIP

100%

30.3%

34.8% 34.8%

24.0% 38.0% 38.0%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

30.3%

34.8% 34.8%

24.0% 38.0% 38.0%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

31.3%

34.4% 34.4%

25.6% 37.2% 37.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

100%

31.3%

34.4% 34.4%

25.6% 37.2% 37.2%

Base Salary Annual Incentive LTIP

Minimum

Target

Maximum

Strategic ReportLENTA . Annual Report 202172 73Corporate Governance Report Financial Statements Appendices

Strategic alignment

ofpay

Thetable below shows theintegration

between Lenta’s financial key performance

indicators and thesenior remuneration

framework for2020/21. This demonstrates

aclear linkage between performance

metrics, payments toManagers

andbusiness performance over theshort

andlong term.

KPI Incentive scheme

Financial objectives

Company revenue Turnover Annual Bonus Scheme, LTMA

Increase earnings andreturns EBITDA Annual Bonus Scheme, LTMA

Increase shareholder value Rolling TWC Annual Bonus Scheme, LTMA

Non-financial objectives

Efficient operations Productivity Annual Bonus Scheme

Sales space growth Number

ofopenings 2021

Annual Bonus Scheme

Non-executive Directors’ fees

Amount payable (USD)

Base fee fornon-executive Directors 165,000

Additional fees:

Senior Independent Director 25,000

Chairman of theAudit Committee 40,000

Chairman of theRemuneration Committee 17,500

Chairman of theNomination Committee 17,500

Members of theAudit andCapital Expenditure Committee 15,000

Members of theNomination andRemuneration Committee 10,000

Interests ofDirectors inLenta shares aresummarised in thetable below:

Name ofdirector Total holding

asof31 Dec 2021

(interest inshares)

Approximate holding

asof31 Dec 2021

(% ofshare capital)

Stephen Johnson 1 less than 0.01%

Michael Lynch-Bell 3,200 less than 0.01%

Julia Solovieva

Alexey Kulichenko

Roman Vasilkov

Tomas Korganas

Vladimir Sorokin 513,445 less than 0.01%

Rud Pedersen

Inaddition, Alexey Mordashov

is thecontrolling shareholder

inSevergroup LLC which owns 76,110,584

shares of theCompany, which represents

77.99% of theshare capital or 78.73% of

thevoting rights.

Operation andcapital expenditure

committee report

Role andresponsibilities

Thekey roles andresponsibilities of

theOperation andCapital Expenditure

Committee include:

• Advising theBoard withregard to

theoverall capital expenditure strategy

of theGroup

• Reviewing theCompany’s processes

forapproving capital expenditure

projects

• 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 programmes

relating to thedesign, construction

andoperation ofnew stores aredefined

andimplemented incooperation

withmanagement

• Monitoring capex projects’ returns

andmaking adjustments to thecapex

processes toreflect thelessons learned

There are4 Committee meetings scheduled

for2022; this numbermay beincreased

asnecessary.

Acopy of theCommittee’s full terms

ofreference isavailable on theCompany’s

website: corp.lenta.com

Activities in 2021

Committee members

Roman Vasilkov

(Independent, Chairman)

Stephen Johnson

(Independent)

Tomas Korganas

(Non-executive)

It was an eventful year for the Committee

busy with projects to support the growth

strategy of the Company with the focus

on the efficiency of expenditure. In 2020,

the Committee continued evaluating

opportunities in the market reviewing and

making recommendations to the Board on

the Company’s investment strategy.

The Committee reviewed over 30 projects

during the year.

These include new stores pipeline,

existing stores performance, Lenta Online

development as well as projects that

ensure the compliance of the Company’s

operations with existing legislation.

The Committee continued to focus on

informational and technical solutions

to develop client-centric activities and

processes as well as initiatives to enhance

customer experience and champion offer

in line with the Company’s strategy.

Within the efficiency agenda, the

Committee recommended to the Board

to terminate agreement with ADG Group

that Lenta entered in early 2017 to lease

36 premises for supermarkets, due to

underperformance of the opened stores.

Strategic ReportLENTA . Annual Report 202174 75Corporate Governance Report Financial Statements Appendices

Relations withshareholders

We arecommitted toconducting

constructive dialogue withshareholders

toensure that we understand what

isimportant to them andenable clear

communication ofour position. TheCEO

andCFO hold regular meetings

withshareholders andupdate theBoard on

theoutcomes ofthose meetings. In2021,

due to theCovid-19 pandemic, all meetings

withshareholders wereconducted viavideo

andconference calls.

CFO keeps theBoard informed ofinvestor,

broker andanalyst sentiment, andpresents

areport on thetopic 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 team

focused oncommunicating withtnem

viaadedicated investor website, one-on-

one meetings andconference calls.

Atour AGM, all resolutions areproposed

andvoted upon individually

byshareholders or their proxies. All

votes taken during theAGM arebyway

ofapoll. This follows best practice

guidelines andallows theCompany

tocount all votes, not just those

ofshareholders attending themeeting.

Schedule ofinvestor calls in2022

Month Date Day

February 21 Monday

April 25 Monday

July 25 Monday

October 21 Friday

Responsibility statement

We, members of theBoard, confirm that, to thebest ofour

knowledge:

Theconsolidated financial statements, prepared

inaccordance withIFRS, give atrue andfair view

oftheassets, liabilities, financial position andprofit andloss

ofLenta IPJSC andits subsidiaries taken asawhole.

Thisannual report includes afair review of thedevelopment

andperformance of thebusiness and theposition

ofLentaIPJSC 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 IPJSC

21February 2022

Dates and time are subject to change

Financial

Statements

Consolidated financial statements

fortheyear ended 31December 2021

February 2022

Independent auditor’s report

Totheshareholder ofLenta IPJSC, theBoard ofDirectors ofLenta IPJSC

Basis foropinion

We conducted our audit inaccordance

with theInternational Standards

onAuditing (ISAs). Ourresponsibilities

under those standards arefurther

described intheAuditor’s responsibilities

fortheaudit oftheconsolidated

financial statements section ofour report.

We areindependent oftheGroup

inaccordance withtheInternational

Ethics Standards Board forAccountants’

(IESBA) International Code ofEthics

forProfessional Accountants (including

International 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 evidence we have obtained

issufficient andappropriate toprovide

abasis forour opinion.

Opinion

We have audited theconsolidated

financial statements ofLenta IPJSC

andits subsidiaries (theGroup), which

comprise theconsolidated statement

offinancial position asat31December

2021, andtheconsolidated statement

ofprofit or loss andother comprehensive

income, andconsolidated statement

ofcash flows andconsolidated statement

ofchanges inequity fortheyear then

ended, andnotes totheconsolidated

financial statements, including asummary

ofsignificant accounting policies.

Inour opinion, theaccompanying

consolidated financial statements

present fairly, inall material respects,

theconsolidated financial position

oftheGroup asat31December 2021

andits consolidated financial performance

andits consolidated cash flows

fortheyear then ended inaccordance

with theInternational Financial Reporting

Standards (IFRSs).

Directors areresponsible for

preparingthese consolidated financial

statements that give atrue andfair view

ofthefinancial position ofLenta IPJSC

andits subsidiaries asof31December

2021 andoftheconsolidated statements

ofprofit or loss andother comprehensive

income, changes inequity andcash

flows fortheyear then ended andnotes

totheconsolidated financial statements,

including asummary ofsignificant

accounting policies.

Inpreparing theconsolidated financial

statements, the Directors areresponsible for:

• Selecting andapplying accounting

policies

• Presenting information, including

accounting policies, inamanner that

provides relevant, reliable, comparable

andunderstandable information

• Providing additional disclosures

when compliance withthespecific

requirements ofIFRSs isinsufficient

toenable users tounderstand

theimpact ofparticular transactions,

other events andconditions

ontheGroup’s consolidated financial

position andfinancial performance

• Making anassessment oftheGroup’s

ability tocontinue asagoing concern

The Directors arealso responsible for:

• Designing, implementing

andmaintaining aneffective andsound

system ofinternal controls throughout

theGroup

• Maintaining adequate accounting

records that aresufficient toshow

andexplain theGroup’s transactions

anddisclose withreasonable accuracy

atanytime theconsolidated financial

position oftheGroup, andwhich

enable them toensure that theinterim

condensed consolidated financial

statements oftheGroup comply

withIFRS

• Maintaining statutory accounting

records incompliance withlocal

legislation andaccounting standards

intherespective jurisdictions inwhich

theGroup operates

• Taking such steps asarereasonably

available tothem tosafeguard

theassets oftheGroup

• Preventing anddetecting fraud

andother irregularities

Theconsolidated financial statements

oftheGroup fortheyear ended

31December 2021 wereapproved

byDirectors on18February 2022.

Onbehalf oftheDirectors asauthorised

bytheBoard ofDirectors

Vladimir Sorokin (Director)

Rud Pedersen (Director)

Board ofDirectors’

responsibility statement

Key audit matters

Key audit matters arethose matters

that, inour professional judgement

wereofmost significance inour audit

oftheconsolidated financial statements

ofthecurrent period. These matters

wereaddressed inthecontext ofour audit

oftheconsolidated financial statements

asawhole, andinforming our opinion

thereon, andwe do not provide aseparate

opinion onthese matters. Foreach matter

below, our description ofhow our audit

addressed thematter isprovided inthat

context.

We have fulfilled theresponsibilities

described intheAuditor’s responsibilities

fortheaudit oftheconsolidated financial

statements section ofour report, including

inrelation tothese matters. Accordingly,

our audit included theperformance

ofprocedures designed torespond

toour assessment oftherisks ofmaterial

misstatement oftheconsolidated financial

statements. Theresults ofour audit

procedures, including theprocedures

performed toaddress thematters below,

provide thebasis forour audit opinion

ontheaccompanying consolidated

financial statements.

Strategic ReportLENTA . Annual Report 202178 79Corporate Governance Report Financial Statements Appendices

Emphasis ofmatter

We draw attention toNote 1

totheconsolidated financial

statements, which discloses thefact that

on17February 2021 theCompany

wasregistered asaninternational public

joint-stock company intheRussian

Federation. Our opinion isnot modified

inrespect ofthis matter.

Other information

included intheGroup’s

2021 Annual Report

Other information consists

oftheinformation included inGroup’s

2021 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, consider whether theother

information ismaterially inconsistent

withtheconsolidated financial statements

or our knowledge obtained intheaudit or

otherwise appears tobematerially misstated.

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

andtheBoard

ofDirectors for

theconsolidated financial

statements

Management isresponsible

forthepreparation andfair presentation

oftheconsolidated financial statements

inaccordance withIFRSs, andforsuch

internal control asmanagement determines

isnecessary toenable thepreparation

ofconsolidated financial statements

that arefree from material misstatement,

whether due tofraud or error.

Inpreparing theconsolidated financial

statements, management isresponsible

forassessing theGroup’s ability

tocontinue asagoing concern, disclosing,

asapplicable, matters related togoing

concern andusing thegoing concern basis

ofaccounting unless management either

intends toliquidate theGroup or tocease

operations, or has no realistic alternative

but todo so.

TheBoard ofDirectors isresponsible

foroverseeing theGroup’s financial

reporting process.

Auditor’s responsibilities

fortheaudit

oftheconsolidated

financial statements

Our objectives aretoobtain reasonable

assurance about whether theconsolidated

financial statements asawhole arefree

from material misstatement, whether

due tofraud or error, andtoissue

anauditor’s report that includes

our opinion. Reasonable assurance

isahigh level ofassurance, but isnot

aguarantee that anaudit conducted

inaccordance withISAs will always detect

amaterial misstatement when it exists.

Misstatements can arise from fraud or error

andareconsidered material if, individually

or intheaggregate, they could reasonably

beexpected toinfluence theeconomic

decisions ofusers taken onthebasis

ofthese consolidated financial statements.

Aspart ofanaudit inaccordance

withISAs, we exercise professional

judgement andmaintain professional

skepticism throughout theaudit. We also:

• Identify andassess therisks ofmaterial

misstatement oftheconsolidated

financial statements, whether due

tofraud or error, design andperform

audit procedures responsive tothose

risks, andobtain audit evidence

that issufficient andappropriate

toprovide abasis forour opinion.

Therisk ofnot detecting amaterial

misstatement resulting from fraud

ishigher than forone resulting from

error, asfraudmay involve collusion,

forgery, intentional omissions,

misrepresentations, or theoverride

ofinternal control.

• 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Group’s internal control.

• Evaluate theappropriateness

ofaccounting policies used

andthereasonableness ofaccounting

estimates 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 obtained,

whether amaterial uncertainty exists

related toevents or conditions thatmay

Key audit matter How our audit addressed thekey audit matter

Impairment ofnon-current non-financial assets

Asaresult ofimpairment testing held forthesmallest group

ofassets that can generate independent cash flows, theGroup

recognised areversal ofimpairment ofproperty, plant

andequipment intheamount ofRUB369,671thousand.

Impairment testing forproperty, plant andequipment

andright-of-use assets wasone ofthematters ofmost

significance inour audit because thebalance ofproperty,

plant andequipment andright-of-use assets forms asignificant

portion oftheGroup’s assets atthereporting date,

andtheprocess ofmanagement’sassessment oftherecoverable

amount iscomplex andrequires significant judgement,

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.

Our procedures inrelation toimpairment testing ofproperty, plant

andequipment andright-of-use assets performed bymanagement

included anassessment ofkey management assumptions,

including those inrespect offorecast revenue andoperating

expenses. We, among others,compared management

assumptions withhistorical data. We also analysed discount

rates used bymanagement. We engaged our internal valuation

specialists inperforming these procedures. 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analysed theaccuracy

ofprevious budget andforecast data prepared bymanagement.

Weverified themathematical accuracy ofimpairment tests. We

assessed disclosures intheconsolidated financial statements.

Recognition ofsuppliers’ allowances

TheGroup receives various types ofallowances from suppliers

inconnection withthepurchase ofgoods forresale intheform

ofvolume rebates andother payments. Therecognition

ofallowances wasone ofthematters ofmost significance inour

audit because it has asignificant impact ontrade andother

receivables, cost ofgoods sold andinventories. Inaddition,

management exercises judgement indetermining theperiod

overwhich these allowances should berecognised considering

thenature andthelevel offulfilment oftheGroup’s obligations

andestimates ofpurchase volumes. Information about suppliers’

rebates receivable andaccounts receivable onsuppliers’

advertising isdisclosed inNote 15 totheconsolidated financial

statements.

We compared theterms ofproviding allowances used

inthecalculation ofallowances recognised tosupporting

documents approved byindividual suppliers. We analysed

theassumptions underlying management estimates ofrecognised

amounts ofallowances from suppliers, such asthedegree

offulfilment ofconditions provided forinagreements

withsuppliers. Onasample basis, among others, we received

direct confirmations ofoutstanding balances from suppliers.

Weagreed thebalances ofsuppliers’ allowances receivables

tothepost yearend cashsettlements.

Provisional purchase price allocation assessment

InAugust andSeptember 2021 theGroup purchased 100%

stake inBilla Realty LLC, Billa LLC (Billa Group) and100% stake

inSemya Retail LLC andBolshaya Semya LLC (Semya Group)

andobtained control overthese entities.

Theprovisional purchase price allocation assessment wasone

ofthematters ofmost significance inour audit due tothefact that

thegoodwill from these acquisitions, represented bytheexcess

oftheconsideration paid overthefair value ofidentifiable

net assets oftheacquired companies significantly affected

theGroup’s assets. Determining thefair value ofassets

andliabilities andthevalue ofseparately identifiable intangible

assets acquired during business combination involves significant

judgements andestimates bythemanagement.

Theacquisitions ofsubsidiaries aredisclosed inNote 8

totheconsolidated financial statements.

Inthecourse oftheaudit procedures we read thesale-purchase

agreements andother transaction documentation necessary

torecognise business combinations transactions. We evaluated

themethodology andassumptions behind thesignificant

judgements involved inthedetermination oftheprovisional

fair values oftheidentifiable net assets acquired. We involved

our internal valuation specialists toassess themethodology

andassumptions used bymanagement tovalue certain categories

ofassets andliabilities oftheacquired subsidiaries, and, among

others, analysed, onasample basis, estimates ofthefair values

ofassets andliabilities ofthesubsidiaries acquired.

We analysed management’s assessment ofthenature andvalue

ofseparately identifiable intangible assets acquired.

We assessed thepresentation anddisclosures ofbusiness

combinations intheconsolidated financial statements.

Strategic ReportLENTA . Annual Report 202180 81Corporate Governance Report Financial Statements Appendices

cast significant doubt ontheGroup’s

ability tocontinue asagoing concern. If

we conclude that amaterial uncertainty

exists, we arerequired todraw attention

inour auditor’s report totherelated

disclosures intheconsolidated financial

statements or, if such disclosures

areinadequate, tomodify our opinion.

Our conclusions arebased ontheaudit

evidence obtained up tothedate ofour

auditor’s report. However, future events

or conditionsmay cause theGroup

tocease tocontinue asagoing

concern.

• Evaluate theoverall presentation,

structure andcontent

oftheconsolidated financial statements,

including thedisclosures, andwhether

theconsolidated financial statements

represent theunderlying transactions

andevents inamanner that achieves

fair presentation.

• Obtain sufficient appropriate audit

evidence regarding thefinancial

information oftheentities or business

activities within theGroup toexpress

anopinion ontheconsolidated

financial statements. We

areresponsible forthedirection,

supervision andperformance

ofthegroup audit. We remain solely

responsible forour audit opinion.

We communicate withtheBoard

ofDirectors regarding, among other

matters, theplanned scope andtiming

oftheaudit andsignificant audit findings,

including anysignificant deficiencies

ininternal control that we identify during

our audit.

We also provide theBoard ofDirectors

withastatement that we have complied

withrelevant ethical requirements regarding

independence, andtocommunicate

withthem all relationships andother

matters thatmay reasonably bethought

tobear onour independence, andwhere

applicable, actions taken toeliminate

threats or safeguards applied.

From thematters communicated

withtheBoard ofDirectors, we determine

those matters that wereofmost significance

intheaudit oftheconsolidated financial

statements ofthecurrent period

andaretherefore thekey audit matters.

We describe these matters inour auditor’s

report unless law or regulation precludes

public disclosure about thematter or

when, inextremely rare circumstances,

we determine that amatter should not

becommunicated inour report because

theadverse consequences ofdoing so

would reasonably beexpected tooutweigh

thepublic interest benefits ofsuch

communication.

Thepartner incharge oftheaudit resulting

inthis independent auditor’s report is

I.Y. Ananyev.

I.Y. Ananyev, acting onbehalf ofErnst

& Young LLC onthebasis ofpower

ofattorney dated 13October 2020,

partner incharge oftheaudit resulting

inthis independent auditor’s report (main

registration number 21906101744)

18February 2022

Details oftheauditor

Name: Ernst & Young LLC

Record made intheState Register ofLegal

Entities on5December 2002, State

Registration Number 1027739707203.

Address: 77 Sadovnicheskaya

Embankment, Building 1, Moscow,

115035, Russia.

Ernst & Young LLC isamember ofSelf-

regulatory organisation ofauditors

Association “Sodruzhestvo”.

Ernst&YoungLLC isincluded inthecontrol

copy oftheregister ofauditors andaudit

organisations, main registration number

12006020327.

Details oftheaudited

entity

Name: Lenta IPJSC

Record made intheState Register ofLegal

Entities on17February 2021, State

Registration Number 1213900001545.

Address: 25 Solnechnyy Boulevard,

Room B/66, Kaliningrad, Kaliningrad

Region, 236006, Russia.

 Note 31December 2021 31December 2020

Assets

Non-current assets

Property, plant andequipment 7 170,369,752 163,900,997

Prepayments forconstruction 9 178,546 557,739

Right-of-use assets 10 59,720,407 33,771,261

Goodwill 8 8,383,630 −

Intangible assets 12 3,064,387 2,580,972

Deferred tax assets 21 81,338 −

Other non-current assets 13 482,524 445,171

Total non-current assets 242,280,584 201,256,140

Current assets

Inventories 14 51,352,966 42,071,533

Trade andother receivables 15 13,124,546 10,902,839

Advances paid 16 2,903,422 1,754,066

Taxes recoverable 63,254 361,376

Prepaid expenses 236,760 306,354

Cash andcash equivalents 17 33,326,489 21,808,874

Total current assets 101,007,437 77,205,042

TOTAL ASSETS 343,288,021 278,461,182

Equity andliabilities

Equity

Share capital 18 8,906 6,711

Additional paid-incapital 18 27,053,874 27,056,040

Share options reserve 29 − 46,943

Treasury shares (1,011,190) (1,011,190)

Retained earnings 80,909,333 68,382,844

Total equity 106,960,923 94,481,348

Liabilities

Non-current liabilities

Long-term borrowings 20 66,912,432 45,941,038

Long-term lease liabilities 10 54,149,744 31,327,074

Other non-current liabilities 29 503,091 −

Deferred tax liabilities 21 7,485,860 6,522,551

Total non-current liabilities 129,051,127 83,790,663

Current liabilities

Trade andother payables 22 74,031,012 61,466,433

Short-term borrowings andshort-term portion oflongterm

borrowings

20 21,502,003 33,010,536

Short-term lease liabilities 10 6,398,401 3,114,433

Contract liabilities 23 1,108,388 790,075

Advances received 350,197 173,063

Other taxes payable 24 2,456,537 1,407,748

Current income tax payable 1,429,433 226,883

Total current liabilities 107,275,971 100,189,171

Total liabilities 236,327,098 183,979,834

TOTAL EQUITY ANDLIABILITIES 343,288,021 278,461,182

Consolidated statement of financial position as at 31 December 2021(in thousands of Russian roubles)

Strategic ReportLENTA . Annual Report 202182 83Corporate Governance Report Financial Statements Appendices

On18February 2022 theBoard ofDirectors ofLenta IPJSC authorised these consolidated financial statements.

Vladimir Sorokin (Director)

Rud Pedersen (Director)

Note Year ended

31December 2021

Year ended

31December 2020

Sales 483,640,887 445,543,829

Cost ofsales 25 (372,280,247) (343,728,186)

Gross profit 111,360,640 101,815,643

Selling, general andadministrative expenses 26 (91,447,017) (80,114,179)

Other operating income 27 6,579,047 5,199,902

Other operating expenses 27 (1,234,352) (522,470)

Operating profit before impairment 25,258,318 26,378,896

Reversal ofimpairment ofnon-financial assets 7, 10 163,906 2,907,125

Operating profit 25,422,224 29,286,021

Interest expense 28 (9,323,651) (9,512,254)

Interest income 895,365 609,970

Foreign exchange losses (523,448) (386,122)

Profit before income tax 16,470,490 19,997,615

Income tax expense 21 (3,990,944) (3,456,984)

Profit fortheyear 12,479,546 16,540,631

Other comprehensive income fortheyear, net oftax − −

TOTAL COMPREHENSIVE INCOME FORTHEYEAR,

NET OFTAX

12,479,546 16,540,631

Earnings per share (inthousands ofRussianroubles per share)

- basic anddiluted, forprofit fortheyear attributable toequity

holders oftheparent

19 0.129 0.171

 Note Year ended

31December 2021

Year ended

31December 2020*

Cash flows from operating activities

Profit before income tax 16,470,490 19,997,615

Adjustments for:

Net loss ondisposal ofproperty, plant andequipment 27 260,038 159,897

Loss ondisposal ofintangible assets 27 121 4,672

Net gain ondisposal ofright-of-use assets 27 (23,713) (41,448)

Interest expense 28 9,323,651 9,512,254

Interest income (895,365) (609,970)

(Reversal ofwrite-down)/ write-down ofinventories tonet

realisable value

14 (402,707) 595,286

Net foreign exchange losses 523,448 386,122

Change inexpected credit losses ofaccounts receivable 27 72,572 19,371

Changes inallowance forimpairment andwrite-offs

ofadvances paid andprepayments forconstruction

27 328,689 67,147

Depreciation andamortisation 7, 10, 12 21,626,854 18,540,233

Reversal ofimpairment ofnon-financial assets 7, 10 (163,906) (2,907,125)

Share options expense 29 − 463,590

47,120,172 46,187,644

Movements inworking capital

Increase intrade andother receivables 15 (1,734,571) (2,388,253)

Increase inadvances paid 16 (892,002) (259,025)

Decrease/(increase) inprepaid expenses 87,369 (203,295)

Increase ininventories 14 (6,104,302) (4,213,554)

Increase intrade andother payables 22 9,279,773 4,302,001

Increase incontract liabilities andadvances received 452,028 289,025

Increase innet other taxes payable 24 1,230,415 36,173

Cash from operating activities 49,438,882 43,750,716

Income taxes paid (3,088,847) (4,768,884)

Interest received 776,425 660,905

Interest paid (9,247,475) (9,654,711)

Net cash generated from operating activities 37,878,985 29,988,026

Cash flows from investing activities

Purchases ofproperty, plant andequipment (8,352,631) (6,834,086)

Purchases ofintangible assets (986,621) (778,002)

Acquisition ofsubsidiaries, net ofcash acquired 8 (21,584,151) −

Proceeds from sale ofproperty, plant andequipment 144,888 238,340

Net cash used ininvesting activities (30,778,515) (7,373,748)

Cash flows from financing activities

Proceeds from borrowings 20, 31 41,925,200 45,792,775

Repayments ofborrowings 20, 31 (32,707,263) (117,240,001)

Payments fortheprincipal portion ofthelease liabilities 10 (4,330,107) (2,814,842)

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2021(in thousands of Russian roubles)

Consolidated statement of cash flows for the year ended 31 December 2021(in thousands of Russian roubles)

Strategic ReportLENTA . Annual Report 202184 85Corporate Governance Report Financial Statements Appendices

* Certain amounts shown here do not correspond tothefinancial statements fortheperiod

ended 31December 2020 reflect reclassification described inNote 4.

capital

Additional

paid-incapital

Treasury

Share options

reserve

Retained

earnings

Total

equity

Balance at1January 2021 6,711 27,056,040 (1,011,190) 46,943 68,382,844 94,481,348

Profit fortheyear − − − − 12,479,546 12,479,546

Total comprehensive

income

− − − − 12,479,546 12,479,546

Reclassification following

share option modification

(Note29)

−

− −

(46,943) 46,943

−

Sale oftreasury shares − 29 − − − 29

Amendment topar value

ofordinary shares (Note 18)

2,195 (2,195) − − − −

BALANCE

AT31DECEMBER 2021

8,906 27,053,874 (1,011,190) − 80,909,333 106,960,923

 Note Year ended

31December 2021

Year ended

31December 2020*

Net cash generated from/ (used in) financing activities 4,887,830 (74,262,068)

Net increase/(decrease) incash andcash equivalents 11,988,300 (51,647,790)

Effect ofexchange rates oncash andcash equivalents (470,685) 51,904

Cash andcash equivalents atthebeginning oftheyear 17 21,808,874 73,404,760

Cash andcash equivalents attheend oftheyear 17 33,326,489 21,808,874

 Share

capital

Additional

paid-incapital

Treasury

Share options

reserve

Retained

earnings

Total

equity

Balance at1January 2020 − 27,062,751 (1,011,190) 390,536 51,708,795 78,150,892

Profit fortheyear − − − − 16,540,631 16,540,631

Total comprehensive

income

− − − − 16,540,631 16,540,631

Share option expenses

(Note 29)

− − − 463,590 − 463,590

Share option modification

(Note 29)

− − − (346,393) − (346,393)

Share option settlement

bycash (Note 29)

− − − (440,304) 112,932 (327,372)

Share option expired

worthless (Note 29)

− − − (20,486) 20,486 −

Amendment topar value

ofordinary shares (Note 18)

6,711 (6,711) − − − −

BALANCE

AT31DECEMBER 2020

6,711 27,056,040 (1,011,190) 46,943 68,382,844 94,481,348

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 reacquired bytheGroup.

1. TheLenta Group andits operations

Notes to the consolidated financial

statments

TheLenta Group (the“Group”) comprises

Lenta IPJSC (“theCompany”) andits

subsidiaries. TheGroup’s principal business

activity isthedevelopment andoperation

offood retail 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.

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 started

theprocess ofits redomiciliation toCyprus.

InFebruary 2020, theredomiciliation

process wascompleted. TheDepartment

ofRegistrar ofCompanies andOfficial

Receiver issued theCertificate

ofContinuation oftheCompany bywhich

it certifies that theCompany wasregistered

from 21February 2020 inaccordance

withtheCyprusCompanies Law Cap 113,

inparticular section 354H asacompany

continuing intheRepublic ofCyprus.

On22July 2020, anExtraordinary

Meeting ofShareholders approved

theproposed redomiciliation

oftheCompany from theRepublic

ofCyprus totheRussian Federation

intothespecial administrative region

ofOktyabrsky Island, Kaliningrad.

Starting from 17February 2021

theCompany isregistered

asaninternational public joint-stock

company withits legal seat atOktyabrsky

Island, City ofKaliningrad, Kaliningrad

Region, RussianFederation. TheCompany’s

legal name isLenta International public

joint-stock company (shortform, Lenta

IPJSC).

TheCompany’s registered address

is25Solnechnyy Boulevard, Room B/66,

Kaliningrad, Kaliningrad Region, 236006,

Russia.

Asat31December 2020, theGroup had

one main operating subsidiary, Lenta LLC,

alegal entity registered under thelaws

oftheRussian Federation. Theregistered

office ofLenta LLC, islocated at112,

Lit. B, Savushkina Street, 197374, Saint

Petersburg, Russia.

InAugust 2021, Lenta LLC, anindirect

subsidiary ofLenta IPJSC completed

acquisition ofsupermarket business ofBilla

Russia GmbH through thepurchase

of100% stakes inBilla Realty LLC andBilla

LLC.

InSeptember 2021, Lenta LLC, anindirect

subsidiary ofLenta IPJSC completed

acquisition of100% stake inSemya Group.

Other subsidiaries areproperty or

investment holding companies bytheir

nature.

Thefollowing isalist oftheGroup’s

subsidiaries andtheeffective ownership

holdings therein.

Consolidated statement of changes in equity

for the year ended 31 December 2021(in thousands of Russian roubles)

Strategic ReportLENTA . Annual Report 202186 87Corporate Governance Report Financial Statements Appendices

Country

ofincorporation

Principal

activities

Holding, %

31December

2021

31December

2020

Lenta LLC Russia Retail 100 100

Lenta-2 LLC Russia Holding ofinvestments 100 100

Lenta Global Ltd Cyprus Holding ofinvestments 100 100

TRK Volzhsky LLC Russia Holding ofinvestments 100 100

TK Zheleznodorozhny LLC Russia Holding ofproperty 100 100

Billa LLC* Russia Retail 100 −

Billa Realty LLC* Russia Retail 100 −

Semya Retail LLC* Russia Retail 100 −

Bolshaya Semya LLC* Russia Retail 100 −

Semya Logistika LLC* Russia Logistics 100 −

Smak LLC* Russia Production 100 −

Vostorg LLC* Russia Production 100 −

Semya LLC* Russia Retail 100 −

Novaya Semya LLC* Russia Retail 100 −

Semya na Borchaninova LLC* Russia Retail 100 −

Semya na Vedeneeva LLC* Russia Retail 100 −

Semya na Karbisheva LLC* Russia Retail 100 −

Semya na Gashkova LLC* Russia Retail 100 −

Semya na M. Ribalko LLC* Russia Retail 100 −

Semya na Krupskoy LLC* Russia Retail 100 −

Semya na Parkovom LLC* Russia Retail 100 −

Semya na Sadovom LLC* Russia Retail 100 −

Semya fresh LLC* Russia Retail 100 −

Semya na Pushkina LLC* Russia Retail 100 −

Semya na Mira, 41 LLC* Russia Retail 100 −

Semya v Dobryanke LLC* Russia Retail 100 −

Mega LLC* Russia Retail 100 −

Universam-1 LLC* Russia Retail 100 −

Universam-2 LLC* Russia Retail 100 −

Semya Opt LLC* Russia Retail 100 −

Semya na Geroev Khasana LLC* Russia Retail 100 −

Semya na Sibirskoy LLC* Russia Retail 100 −

Semya u doma LLC* Russia Retail 100 −

* Subsidiaries wereacquired in2021 (Note 8).

Starting fromMarch 2014, theCompany’s shares arelisted ontheLondon Stock

Exchange intheform ofGlobal Depositary Receipts (GDR) andMoscow Exchange

intheform ofDepositary Receipts (DR). Starting fromDecember 2021, thetrading

intheordinary shares onMoscow Exchange wascommenced. DRwill no longer trade

onMoscow Exchange fromApril 2022.

2. Basis ofpreparation

andsignificant accounting policies

2.1 Basis ofpreparation

Theconsolidated financial statements have

been prepared onahistorical cost basis,

except forasdescribed inaccounting

policies below. Theconsolidated financial

statements arepresented inRussian roubles

andall values arerounded tothenearest

thousand (RUB000), except when

otherwise indicated.

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.

Prolonged impact ontheglobal economy

from COVID-19, continued economic

uncertainty andconsequent challenging

market conditionsmay affect theability

tocontinue asagoing concern.

Management has considered theGroup’s

cash flow forecasts fortheforeseeable

future, which take intoaccount thecurrent

andexpected economic situation inRussia,

theGroup’s financial position, available

borrowing facilities, loan covenant

compliance, planned store opening

programme andtheanticipated cash flows

andrelated expenditures from retail stores.

TheGroup does not expect anymaterial

adverse impact from thecurrent economic

slowdown toits operations.

Management believes it istaking

appropriate measures tosupport

thesustainability oftheCompany’s

business inthecurrent circumstances.

Accordingly, management issatisfied

that it isappropriate toadopt thegoing

concern basis ofaccounting inpreparing

theconsolidated financial information

forthese consolidated financial statements.

At31December 2021, theGroup had net

current liabilities ofRUB6,268,534 (net

current liabilities at31December 2020:

22,984,129).

Unused credit facilities available

asof31December 2021

wereRUB180,000,000. 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.

Business combinations

andgoodwill

Business combinations areaccounted

forusing theacquisition method.

Thecost ofanacquisition ismeasured

astheaggregate oftheconsideration

transferred measured atacquisition date,

fair value andtheamount ofanynon-

controlling interest intheacquiree.

Foreach business combination, theGroup

elects whether tomeasure thenon-

controlling interest intheacquiree atfair

value or attheproportionate share

oftheacquiree’s identifiable net assets.

Acquisition-related costs areexpensed

asincurred andincluded inadministrative

expenses.

When theGroup acquires abusiness,

it assesses thefinancial assets

andliabilities assumed forappropriate

classification anddesignation

inaccordance withthecontractual terms,

economic circumstances andpertinent

conditions asattheacquisition date. This

includes theseparation ofembedded

derivatives inhost contracts

bytheacquiree.

2.2 Summary ofsignificant accounting policies

If thebusiness combination

isachieved instages, thepreviously

held equity interest isremeasured

atits acquisition date fair value

andanyresulting gain or loss

isrecognised inprofit or loss.

Anycontingent consideration

tobetransferred bytheacquirer

will berecognised atfair value

attheacquisition date. Subsequently

contingent consideration classified

asanasset or liability ismeasured

atfair value withchanges infair

value recognised intheconsolidated

statement ofprofit or loss. Contingent

consideration that isclassified asequity

isnot remeasured andsubsequent

settlement isaccounted forwithin

theequity.

Goodwill isinitially measured atcost,

being theexcess oftheaggregate

oftheconsideration transferred

andtheamount recognised fornon-

controlling interest overthenet identifiable

assets acquired andliabilities assumed.

If thefair value ofthenet assets

acquired isinexcess oftheaggregate

consideration transferred, thegain

isrecognised inprofit or loss.

Goodwill isnot deductible fortax

purposes.

After initial recognition, goodwill ismeasured

atcost less anyaccumulated impairment

losses. Forthepurpose ofimpairment

testing, goodwill acquired inabusiness

combination is, from theacquisition date,

allocated toeach oftheGroup’s cash-

generating units that areexpected tobenefit

from thecombination, irrespective ofwhether

other assets or liabilities oftheacquiree

areassigned tothose units.

Where goodwill has been allocated

toacash-generating unit andpart

Strategic ReportLENTA . Annual Report 202188 89Corporate Governance Report Financial Statements Appendices

oftheoperation within that unit isdisposed

of, thegoodwill associated withthedisposed

operation isincluded inthecarrying amount

oftheoperation when determining thegain

or loss from disposal. Goodwill disposed

inthese circumstances ismeasured based

ontherelative values ofthedisposed

operation andtheportion ofthecash-

generating unit retained.

Current versus non-

current classification

TheGroup presents assets andliabilities

instatement offinancial position based

oncurrent/ noncurrent classification.

Anasset iscurrent when it is:

• Expected toberealised or intended

tosold or consumed innormal

operating cycle

• Held primarily forthepurpose

oftrading

• Expected toberealised within twelve

months after thereporting period

• Cash or cash equivalent unless restricted

from being exchanged or used tosettle

aliability foratleast twelve months after

thereporting period

All other assets

areclassified

asnon-current.

Aliability iscurrent when:

• It isexpected tobesettled innormal

operating cycle;

• It isheld primarily forthepurpose

oftrading;

• It isdue tobesettled within twelve

months after thereporting period; or

• There isno unconditional right todefer

thesettlement oftheliability foratleast

twelvemonths after thereporting period.

TheGroup classifies all other liabilities

asnon-current.

Deferred tax assets andliabilities

areclassified asnon-current assets

andliabilities.

Fair value measurement

TheGroup measures financial

instruments, such as, derivatives atfair

value ateach balance sheet date.

Also, fair values offinancial instruments

measured atamortised cost aredisclosed

inNote31.

Fair value istheprice that would

bereceived tosell anasset or paid

totransfer aliability inanorderly

transaction between market participants

atthemeasurement date. Thefair value

measurement isbased onthepresumption

that thetransaction tosell theasset or

transfer theliability takes place either:

• Intheprincipal market fortheasset or

liability

• Intheabsence ofaprincipal market,

inthemost advantageous market

fortheasset or liability

Theprincipal or themost advantageous

market must beaccessible bytheGroup.

Thefair value ofanasset or aliability

ismeasured using theassumptions that market

participants would use when pricing theasset

or liability, assuming that market participants

act intheir economic best interest.

Afair value measurement ofanon-

financial asset takes intoaccount amarket

participant’s ability togenerate economic

benefits byusing theasset inits highest

andbest use or byselling it toanother

market participant that would use theasset

inits highest andbest use.

TheGroup uses valuation techniques

that areappropriate inthecircumstances

andforwhich sufficient data areavailable

tomeasure fair value, maximising

theuse ofrelevant observable inputs

andminimising theuse ofunobservable

inputs.

All assets andliabilities forwhich fair value

ismeasured or disclosed inthefinancial

statements arecategorised within thefair

value hierarchy, described asfollows,

based onthelowest level input that

issignificant tothefair value measurement

asawhole:

• Level 1 − quoted (unadjusted) market

prices inactive markets foridentical

assets or liabilities.

• Level 2 − valuation techniques forwhich

thelowest level input that issignificant

tothefair value measurement isdirectly

or indirectly observable.

• Level 3 − valuation techniques forwhich

thelowest level input that issignificant

tothefair value measurement

isunobservable.

Forassets andliabilities that arerecognised

inthefinancial statements onarecurring

basis, theGroup determines whether

transfers have occurred between Levels

inthehierarchy byreassessing categorisation

(based onthelowest level input that

issignificant tothefair value measurement

asawhole) attheend ofeach reporting

period.

Forthepurpose offair value disclosures,

theGroup has determined classes ofassets

andliabilities onthebasis ofthenature,

characteristics andrisks oftheasset or

liability andthelevel ofthefair value

hierarchy asexplained above.

Functional

andpresentation currency

Thepresentation andfunctional currency

ofall Group entities istheRussian

rouble (“RUB”), thenational currency

oftheRussian Federation, theprimary

economic environment inwhich operating

entities function.

Transactions inforeign currencies

areinitially recorded bytheGroup’s

entities atthefunctional currency spot rates

atthedate thetransaction first qualifies

forrecognition.

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-monetary items measured atfair

value inaforeign currency aretranslated

using theexchange rates atthedate when

thefair value isdetermined. Thegain or

loss arising ontranslation ofnon-monetary

items measured atfair value istreated

inline withtherecognition ofgain or loss

from change infair value oftheitem.

Property, plant

andequipment

Property, plant andequipment areinitially

recorded atpurchase or construction cost.

Cost ofreplacing major parts or components

ofproperty, plant andequipment items

iscapitalised andthereplaced part

isretired. All other repair andmaintenance

costs areexpensed asincurred.

Property, plant andequipment arestated

atcost, net ofaccumulated depreciation

andaccumulated impairment losses, if any.

Gains andlosses ondisposals

determined bycomparing net proceeds

withtherespective carrying amount

arerecognised inprofit or loss.

Land improvements comprises costs related

toenhancement toaplot ofland adjoining

astore including parking lots, driveways,

walkways.

Construction inprogress comprises

costs directly related totheconstruction

ofproperty, plant andequipment including

anappropriate allocation ofdirectly

attributable variable overheads that

areincurred inconstruction. Depreciation

ofanasset begins when it isavailable

foruse, i.e. when it isinthelocation

andcondition necessary forit

tobecapable ofoperating inthemanner

intended bymanagement. Construction

inprogress isreviewed regularly

todetermine whether its carrying value

isrecoverable andwhether appropriate

impairment loss has been recognised.

Properties inthecourse ofconstruction

forproduction, rental or administrative

purposes, or forpurposes not yet

determined, arecarried atcost, less

anyrecognised impairment loss.

Depreciation ofthese assets, onthesame

basis asother property assets, commences

when theassets areready fortheir

intended use.

Depreciation

Depreciation ofproperty, plant

andequipment iscalculated using

thestraight-line method towrite off their

cost totheir residual values overtheir

estimated useful lives:

Useful lives inyears

Buildings 30

Land improvements 7

Machinery andequipment 2 to15

Leases

Right-of-use assets

TheGroup recognises right-of-use

assets 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, asfollows:

isincluded 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 liabilities

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

expected 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terminating alease, if thelease term

reflects theGroup exercising theoption

toterminate. Thevariable lease payments

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addition,

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.

Land 1 to50 years

Buildings 1 to30 years

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

Strategic ReportLENTA . Annual Report 202190 91Corporate Governance Report Financial Statements Appendices

Intangible assets

Intangible assets acquired separately

aremeasured oninitial recognition

atcost. Thecost ofintangible assets

acquired inabusiness combination

istheir fair value atthedate

ofacquisition. Following initial

recognition, intangible assets arecarried

atcost less anyaccumulated amortisation

andaccumulated impairment losses.

Internally generated intangible assets,

excluding capitalised development costs,

arenot capitalised andexpenditure

isreflected inprofit andloss intheperiod

inwhich theexpenditure isincurred.

Theuseful lives ofintangible assets

areassessed aseither finite or indefinite.

Intangible assets withfinite lives

areamortised overtheuseful economic

life (which isfrom3to7years) using

astraight-line method towrite off

their cost totheir residual values

andassessed forimpairment whenever

there isanindication that theintangible

assetmay beimpaired. Theamortisation

period andtheamortisation method

foranintangible asset withafinite useful

life arereviewed atleast attheend ofeach

reporting period. Changes intheexpected

useful life or theexpected pattern

ofconsumption offuture economic benefits

embodied intheasset areconsidered

tomodify theamortisation period or method,

asappropriate, andaretreated aschanges

inaccounting estimates. Theamortisation

expense onintangible assets withfinite

lives isrecognised inthestatement ofprofit

or loss andother comprehensive income

astheexpense category that isconsistent

withthefunction oftheintangible assets or

included intothecarrying amount ofanasset

asappropriate.

Intangible assets withindefinite useful

lives arenot amortised, but aretested

forimpairment annually, either

individually or atthecash-generating

unit level. Theassessment ofindefinite

life isreviewed annually todetermine

whether theindefinite life continues

tobesupportable. If not, thechange

inuseful life from indefinite tofinite ismade

onaprospective basis.

Gains or losses arising from derecognition

ofanintangible asset aremeasured

asthedifference between thenet disposal

proceeds andthecarrying amount

oftheasset andarerecognised intheprofit

or loss when theasset isderecognised.

Impairment ofnon-

financial assets

Ateach reporting date, theGroup

reviews thecarrying amounts ofits non-

financial assets todetermine whether there

isanyindication that those assets have

suffered animpairment loss.

Ifanysuch indication exists,

therecoverable amount oftheasset

isestimated inorder todetermine theextent

oftheimpairment loss (if any). Where it

isnot possible toestimate therecoverable

amount ofanindividual asset, theGroup

estimates therecoverable amount

ofthecash-generating unit towhich

theasset belongs. Where areasonable

andconsistent basis ofallocation can

beidentified, corporate assets arealso

allocated toindividual cash-generating

unit, or otherwise they areallocated

tothesmallest group ofcash-generating

units forwhich areasonable andconsistent

allocation basis can beidentified.

Therecoverable amount ofanasset or

acash-generating unit isthehigher ofits

fair value less costs tosell andvalue inuse.

Inassessing value inuse, theestimated

future cash flows arediscounted totheir

present value using apre-tax discount rate

that reflects current market assessments

ofthetime value ofmoney andtherisks

specific totheasset forwhich theestimates

offuture cash flows have not been

adjusted.

If therecoverable amount ofanasset

(or acash-generating unit) isestimated

tobeless than its carrying amount,

thecarrying amount oftheasset

(thecash-generating unit) isreduced toits

recoverable amount. Animpairment loss

isrecognised immediately inprofit or loss.

Where animpairment loss subsequently

reverses, thecarrying amount oftheasset

(thecashgenerating unit) isincreased

totherevised estimate ofits recoverable

amount, but so that theincreased carrying

amount does not exceed thecarrying

amount that would have been determined

had no impairment loss been recognised

fortheasset (thecash-generating unit)

inprior years. Areversal ofanimpairment

loss isrecognised immediately inprofit or

loss.

Non-current assets held

forsale anddiscontinued

operations

TheGroup classifies non-current assets

anddisposal groups asheld forsale if

their carrying amounts will berecovered

principally through asale transaction

rather than through continuing use.

Non-current assets anddisposal groups

classified asheld forsale aremeasured

atthelower oftheir carrying amount

andfair value less costs tosell. Costs

tosell aretheincremental costs directly

attributable tothedisposal ofanasset

(disposal group), excluding finance costs

andincome tax expense.

Thecriteria forheld forsale classification

isregarded asmet only when thesale

ishighly probable andtheasset or

disposal group isavailable forimmediate

sale inits present condition. Actions

required tocomplete thesale should

indicate that it isunlikely that significant

changes tothesale will bemade or that

thedecision tosell will bewithdrawn.

The management must becommitted

totheplan tosell theasset andthesale

expected tobecompleted within one year

from thedate oftheclassification.

Property, plant andequipment

andintangible assets arenot depreciated or

amortised once classified asheld forsale.

Assets andliabilities classified asheld

forsale arepresented separately ascurrent

items inthestatement offinancial position.

Adisposal group qualifies

asadiscontinued operation if it

isacomponent ofanentity that either has

been disposed of, or isclassified asheld

forsale, and:

• Represents aseparate major line

ofbusiness or geographical area

ofoperations

• Ispart ofasingle co-ordinated plan

todispose ofaseparate major line

ofbusiness or geographical area

ofoperations

• Isasubsidiary acquired exclusively

withaview toresale

Discontinued operations areexcluded

from theresults ofcontinuing operations

andarepresented asasingle amount

asprofit or loss after tax from discontinued

operations inthestatement ofprofit or loss.

Income taxes

Income taxes have been provided

forintheconsolidated financial statements

inaccordance with themanagement’s

interpretation oftherelevant legislation

enacted or substantively enacted

asatthereporting date. Theincome

tax charge comprises current tax

anddeferred tax andisrecognised

intheconsolidated statement ofprofit or

loss andother comprehensive income

unless it relates totransactions that

arerecognised, inthesame or adifferent

period, directly inequity. Inthecase

ofabusiness combination, thetax effect

istaken intoaccount incalculating

goodwill or determining theexcess

oftheacquirer’s interest inthenet fair

value oftheacquiree’s identifiable assets,

liabilities andcontingent liabilities overcost

ofconsideration paid.

Current tax istheamount expected

tobepaid toor recovered from

thetaxation authorities inrespect oftaxable

profits or losses forthecurrent andprior

periods. Deferred income tax isrecorded

using thebalance sheet liability method

fortax loss carry-forwards andtemporary

differences arising between thetax bases

ofassets andliabilities andtheir carrying

amounts forfinancial reporting purposes.

Deferred tax balances aremeasured

attax rates enacted or substantively

enacted atthereporting date, which

areexpected toapply totheperiod when

thetemporary differences will reverse or

thetax loss carry-forwards will beutilised.

Deferred tax assets andliabilities

arenetted only within theindividual

companies oftheGroup. Deferred tax

assets fordeductible temporary differences

andtax loss carry-forwards arerecorded

only totheextent that it isprobable that

future taxable profit will beavailable

against which thedeductions can

beutilised.

Deferred tax liabilities arerecognised

forall taxable temporary differences,

except:

• When thedeferred tax liability arises

from theinitial recognition ofgoodwill

or anasset or liability inatransaction

that isnot abusiness combination and,

atthetime ofthetransaction, affects

neither theaccounting profit nor taxable

profit or loss.

• Inrespect oftaxable temporary

differences associated withinvestments

insubsidiaries, associates andinterests

injoint ventures, when thetiming

ofthereversal ofthetemporary

differences can becontrolled andit

isprobable that thetemporary

differences will not reverse

intheforeseeable future.

Deferred tax assets arerecognised

forall deductible temporary differences,

thecarry-forward ofunused tax credits

andanyunused tax losses totheextent

that it isprobable that taxable profit

will beavailable against which

thedeductible temporary differences,

andthecarry-forward ofunused tax

credits andunused tax losses can

beutilised, except:

• When thedeferred tax asset relating

tothedeductible temporary difference

arises from theinitial recognition

ofanasset or liability inatransaction

that isnot abusiness combination and,

atthetime ofthetransaction, affects

neither theaccounting profit nor taxable

profit or loss.

• Inrespect ofdeductible temporary

differences associated withinvestments

insubsidiaries, associates

andinterests injoint ventures, deferred

tax assets arerecognised only

totheextent that it isprobable that

thetemporary differences will reverse

intheforeseeable future andtaxable

profit will beavailable against

which thetemporary differences can

beutilised.

Thecarrying amount ofdeferred tax

assets isreviewed ateach reporting date

andreduced totheextent that it isno

longer probable that sufficient taxable

profits will beavailable toallow all or part

oftheasset toberecovered.

Themeasurement ofdeferred tax

liabilities andassets reflects thetax

consequences that would follow from

themanner inwhich theGroup expects,

atthereporting date, torecover or

settle thecarrying amount ofits assets

andliabilities.

Deferred tax assets andliabilities areoffset

when there isalegally enforceable

right toset off current tax assets against

current tax liabilities andwhen they

relate toincome taxes levied bythesame

taxation authority andtheGroup intends

tosettle its current tax assets andliabilities

onanet basis.

Inventories

Inventories arestated atthelower ofcost

andnet realisable value. Cost ofinventory

isdetermined ontheweighted average

basis. Net realisable value istheestimated

selling price intheordinary course

ofbusiness, less thecost ofcompletion

andselling expenses. Cost comprises

thedirect cost ofgoods, transportation

andhandling costs. Cost ofsales is

comprised only thecost ofinventories sold

through retail stores andinventory write-

downs made during theperiod.

Borrowing costs

Borrowing costs directly attributable

totheacquisition, construction or

production ofqualifying assets

arecapitalised aspart ofthecost ofthat

asset, other borrowing costs arerecognised

inprofit or loss intheperiod inwhich they

areincurred. Aqualifying asset isanasset

that necessarily takes asubstantial period

oftime toget ready forits intended use

or sale. Forthepurposes ofborrowing

costs recognition, asubstantial period

oftime isconsidered tobeaperiod

oftwelvemonths or more.

Totheextent that theGroup borrows funds

generally anduses them forthepurpose

ofobtaining aqualifying asset, theGroup

determines theamount ofborrowing costs

eligible forcapitalisation byapplying

acapitalisation rate totheexpenditures

onthat asset. Thecapitalisation rate

istheweighted average oftheborrowing

costs applicable totheborrowings

oftheGroup that areoutstanding during

theperiod, other than borrowings made

specifically forthepurpose ofobtaining

aqualifying asset.

Revenue from contracts

withcustomers

Thesole source ofrevenue from contracts

withcustomers isretail sales.

TheGroup recognises revenue when

control ofthegoods andservices

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loyalty programme offered

bytheGroup gives rise toaseparate

Strategic ReportLENTA . Annual Report 202192 93Corporate Governance Report Financial Statements Appendices

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recognise 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recognised within theother operating

income intheconsolidated statement

ofprofit or loss andother comprehensive

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Interest 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 allowances received from suppliers

arerecorded asareduction intheprice

paid fortheproducts andreduce cost

ofgoods sold intheperiod theproducts

aresold. Where arebate agreement

withasupplier covers more than one year,

therebates arerecognised intheperiod

inwhich they areearned.

Employee benefits

TheGroup issubject tomandatory

contributions totheRussian Federation

defined contribution state pension benefit

fund. Wages, salaries, contributions

tothestate pension andsocial insurance

funds, paid annual leave andsick

leave, bonuses, andnon-monetary

benefits areaccrued intheyear inwhich

theassociated services arerendered

bytheemployees oftheGroup.

Segment reporting

TheGroup’s business operations

arelocated intheRussian Federation

andrelate primarily toretail sales

ofconsumer goods. Although theGroup

operates through different stores

andinvarious regions within theRussian

Federation, theGroup’s chief operating

decision maker reviews theGroup’s

operations andallocates resources

onanindividual store-by-store basis.

TheGroup has assessed theeconomic

characteristics oftheindividual stores

anddetermined that thestores have

similar margins, similar products, similar

types ofcustomers andsimilar methods

ofdistributing such products.

Therefore, theGroup considers that it only

has one reportable segment under IFRS 8.

Segment performance isevaluated based

onameasure ofrevenue andearnings

before interest, tax, depreciation

andamortisation (EBITDA). EBITDA

isanon-IFRS measure.

Other information ismeasured inamanner

consistent withthat intheconsolidated

financial statements.

Seasonality

TheGroup’s business operations arestable

during theyear withlimited seasonal

impact, except forasignificant increase

ofbusiness activities inDecember.

Financial assets

Initial measurement

Theclassification offinancial instruments

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fair value through profit or loss

(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

• Fair value through other comprehensive

income (FVOCI)

• Fair value through profit or loss (FVPL)

Loans andreceivables

Trade receivables, loans, andother

receivables that have fixed or

determinable payments that arenot quoted

inanactive market areclassified asloans

andreceivables.

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financial

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 objective.

TheGroup’s business model isnot assessed

onaninstrument-by-instrument basis, but

atahigher level ofaggregated portfolios

andisbased onobservable factors such

as:

• How theperformance ofthebusiness

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performance

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 important

aspects oftheGroup’s assessment.

Thebusiness model assessment isbased

onreasonably expected scenarios

without taking ‘worst case’ or ‘stress case’

scenarios intoaccount. If cash flows after

initial recognition arerealised 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 classification

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 amortisation

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contractual 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

comprise 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contractual

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exposure,

irrespective ofthetiming ofthedefault

(alifetime ECL).

Fortrade receivables andcontract assets,

theGroup applies asimplified 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economic environment.

TheGroup’s cash andcash equivalents

have been assigned low credit risk

based ontheexternal credit ratings

oftherespective banks andfinancial

institutions.

Derecognition offinancial

assets

Afinancial asset isderecognised when:

• Therights toreceive cash flows from

theasset have expired.

• TheGroup has transferred its rights

toreceive cash flows from theasset

or has assumed anobligation topay

thereceived cash flows infull without

material delay toathird party under

a“pass-through” arrangement,

andeither (a) theGroup has transferred

substantially all therisks andrewards

oftheasset, or (b) theGroup has

neither transferred nor retained

substantially all therisks andrewards

oftheasset but has transferred control

oftheasset.

When theGroup has transferred

its rights toreceive cash flows from

anasset or has entered intoapass-

through arrangement, andhas neither

transferred nor retained substantially all

oftherisks andrewards oftheasset nor

transferred control oftheasset, theasset

isrecognised totheextent oftheGroup’s

continuing involvement intheasset.

Inthat case, theGroup also recognises

anassociated liability. Thetransferred

asset andtheassociated liability

aremeasured onabasis that reflects

therights andobligations that theGroup

has retained.

Continuing involvement that

takes theform ofaguarantee

overthetransferred asset ismeasured

atthelower oftheoriginal carrying

amount oftheasset andthemaximum

amount ofconsideration that theGroup

could berequired torepay.

Financial liabilities

andequity instruments

issued bytheGroup

Treasury shares

Own equity instruments that

arereacquired (treasury shares)

arerecognised atcost anddeducted

from equity. No gain or loss

isrecognised inthestatement ofprofit

or loss andother comprehensive

income onthepurchase, sale, issue

or cancellation oftheGroup’s own

equity instruments. Anydifference

between thecarrying amount

andtheconsideration, if reissued,

isrecognised inadditional

paid-incapital. Voting rights related

totreasury shares arenullified

fortheGroup andno dividends

areallocated tothem. Share options

exercised during thereporting period

aresatisfied withtreasury shares.

Strategic ReportLENTA . Annual Report 202194 95Corporate Governance Report Financial Statements Appendices

Share capital

Ordinary shares areclassified asequity.

Transaction costs ofashare issue

areshown within equity asadeduction

from theequity.

Additional paid-incapital

Additional paid-incapital represents

thedifference between thefair value

ofconsideration received andthenominal

value oftheissued shares.

Earnings per share

Basic earnings per share amounts

arecalculated bydividing thenet profit

fortheyear attributable toordinary equity

holders oftheparent bytheweighted

average number ofordinary shares

outstanding during theyear.

Diluted earnings per share amounts

arecalculated bydividing thenet profit

attributable toordinary equity holders

oftheparent (after adjusting forinterest

ontheconvertible preference shares)

bytheweighted average number

ofordinary shares outstanding during

theyear plus theweighted average number

ofordinary shares that would beissued

onconversion ofall thedilutive potential

ordinary shares intoordinary shares.

Classification asdebt or equity

Debt andequity instruments areclassified

aseither financial liabilities or asequity

inaccordance withthesubstance

ofthecontractual arrangement. Anequity

instrument isanycontract that evidences

aresidual interest intheassets ofanentity

after deducting all ofits liabilities. Equity

instruments arerecorded attheproceeds

received, net oftransaction costs.

Financial liabilities

Financial liabilities oftheGroup, including

borrowings andtrade andother payables,

areinitially recognised atfair value, net

oftransaction costs, andsubsequently

measured atamortised cost using

theeffective interest rate method.

Cash flows arising from proceeds from

borrowings withafixed maturity up

tothree months andrepayments ofthose

borrowings arereported onagross basis.

Derecognition offinancial

liabilities

TheGroup derecognises financial liabilities

when, andonly when, theGroup’s

obligations aredischarged, cancelled or

they expire.

Offsetting offinancial

instruments

Financial assets andfinancial liabilities

areoffset andthenet amount isreported

intheconsolidated statement offinancial

position if there isacurrently enforceable

legal right tooffset therecognised amounts

andthere isanintention tosettle onanet

basis, torealise theassets andsettle

theliabilities simultaneously.

Derivative financial

instruments andhedge

accounting

Initial recognition

andsubsequent

measurement

TheGroup uses derivative financial

instruments, such asinterest rate swaps

andcaps, tohedge its interest rate risks.

Such derivative financial instruments

areinitially recognised atfair value

onthedate onwhich aderivative contract

isentered intoandaresubsequently

re-measured atfair value. Derivatives

arecarried asfinancial assets when thefair

value ispositive andasfinancial liabilities

when thefair value isnegative.

Anygains or losses arising from

changes inthefair value ofderivatives

aretaken directly toprofit or loss, except

fortheeffective portion ofcash flow

hedges, which isrecognised inother

comprehensive income (OCI) andlater

reclassified toprofit or loss when thehedge

item affects profit or loss.

Attheinception ofahedge relationship,

theGroup formally designates

anddocuments thehedge relationship

towhich theGroup wishes toapply hedge

accounting andtherisk management

objective andstrategy forundertaking

thehedge. Thedocumentation includes

identification ofthehedging instrument,

thehedged item or transaction, thenature

oftherisk being hedged andhow theentity

will assess theeffectiveness ofchanges

inthehedging instrument’s fair value

inoffsetting theexposure tochanges

inthehedged item’s fair value or cash

flows attributable tothehedged risk. Such

hedges areexpected tobehighly effective

inachieving offsetting changes infair

value or cash flows andareassessed

onanongoing basis todetermine that

they actually have been highly effective

throughout thefinancial reporting periods

forwhich they weredesignated.

Swaps andcaps used bytheGroup that

meet thestrict criteria forhedge accounting

areaccounted forascash flow hedges.

Theeffective portion ofthegain or loss

from thehedging instrument isrecognised

inother comprehensive income inthecash

flow hedge reserve, while anyineffective

portion isrecognised immediately inprofit

or loss asother operating expenses.

Designation ofahedge relationship takes

effect prospectively from thedate all

ofthecriteria aremet. Inparticular, hedge

accounting can beapplied only from

thedate all ofthenecessary documentation

iscompleted. Therefore, hedge relationships

cannot bedesignated retrospectively.

Amounts recognised asother

comprehensive income aretransferred

toprofit or loss when thehedged

transaction affects profit or loss, such

aswhen thehedged financial income or

financial expense isrecognised or when

aforecast sale occurs.

When thehedged item isthecost

ofanon-financial asset or non-financial

liability, theamounts recognised asother

comprehensive income 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other comprehensive

income remains separately inequity until

theforecast transaction occurs or theforeign

currency firm commitment ismet.

2.3 Basis ofconsolidation

Theconsolidated financial statements

incorporate thefinancial statements

oftheCompany andother entities

controlled bytheCompany (its

subsidiaries) asat31December 2021.

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 returns

from its involvement withtheinvestee

• Theability touse its power

overtheinvestee toaffect its returns

Generally, there isapresumption that

amajority ofvoting rights result incontrol.

Tosupport this presumption andwhen

theGroup has less than amajority

ofthevoting or similar rights ofaninvestee,

theGroup considers all relevant facts

andcircumstances inassessing whether it

has power overaninvestee, including:

• Thecontractual arrangement

withtheother vote holders

oftheinvestee

• Rights arising from other contractual

arrangements

• TheGroup’s voting rights andpotential

voting rights

TheGroup re-assesses whether or

not it controls aninvestee if facts

andcircumstances indicate that there

arechanges toone or more ofthethree

elements ofcontrol. Consolidation

ofasubsidiary begins when theGroup

obtains control overthesubsidiary

andceases when theGroup loses control

ofthesubsidiary. Assets, liabilities, income

andexpenses ofasubsidiary acquired or

disposed ofduring theyear areincluded

inthestatement ofcomprehensive income

from thedate theGroup gains control

until thedate theGroup ceases tocontrol

thesubsidiary.

Profit or loss andeach component ofother

comprehensive income areattributed

totheequity holders oftheparent

oftheGroup andtothenon-controlling

interests, even if this results inthenon-

controlling interests having adeficit

balance. When necessary, adjustments

aremade tothefinancial statements

ofsubsidiaries tobring their accounting

policies intoline withtheGroup’s

accounting policies. All intra-group assets

andliabilities, equity, income, expenses

andcash flows relating totransactions

between members oftheGroup

areeliminated infull onconsolidation.

Achange intheownership interest

ofasubsidiary, without aloss ofcontrol,

isaccounted forasanequity transaction. If

theGroup loses control overasubsidiary,

it derecognises therelated assets

(including goodwill), liabilities, non-

controlling interest andother components

ofequity while anyresultant gain or

loss isrecognised inprofit or loss.

Anyinvestment retained isrecognised

atfair value.

Subsidiaries arethose companies

(including special purpose entities)

inwhich theGroup, directly or indirectly,

has aninterest ofmore than one

half ofthevoting rights or otherwise

has power togovern thefinancial

andoperating policies so astoobtain

economic benefits andwhich

areneither associates nor joint ventures.

Theexistence andeffect ofpotential

voting rights that arepresently

exercisable or presently convertible

areconsidered when assessing whether

theGroup controls another entity.

Subsidiaries areconsolidated from

thedate onwhich control istransferred

totheGroup (acquisition date)

andarede-consolidated from thedate

that control ceases.

Current versus non-

current classification

Derivative instruments areclassified

ascurrent or non-current or separated

intocurrent andnoncurrent portions

based onanassessment ofthefacts

andcircumstances (i.e., theunderlying

contracted cash flows):

• When theGroup expects tohold

aderivative asaneconomic hedge

foraperiod beyond 12months after

thereporting date, thederivative

isclassified asnon-current (or

separated intocurrent andnon-

current portions) consistent

withtheclassification oftheunderlying

item.

Strategic ReportLENTA . Annual Report 202196 97Corporate Governance Report Financial Statements Appendices

3. Significant accounting judgements,

estimates andassumptions

Intheapplication oftheGroup’s

accounting policies, which aredescribed

inNote 2 above, management

isrequired tomake judgements, estimates

andassumptions about thecarrying

amounts ofassets andliabilities that arenot

readily apparent from other sources.

Theestimates andassociated assumptions

arebased onhistorical experience

andother factors that areconsidered

toberelevant. Actual resultsmay differ

from these estimates.

Theestimates andunderlying assumptions

arereviewed onanongoing basis.

Revisions toaccounting estimates

arerecognised intheperiod inwhich

theestimate isrevised if therevision

affects only that period or intheperiod

oftherevision andfuture periods if

therevision affects both current andfuture

periods.

Judgements that have themost significant

effect ontheamounts recognised inthese

consolidated financial statements

andestimates that can cause asignificant

adjustment tothecarrying amount ofassets

andliabilities within thenext financial year

include:

Judgements

Assets versus business

acquisition

From time totime inthenormal course

ofbusiness theGroup acquires

thecompanies that areaparty toalease

contract, own theland plot or store

inwhich theGroup isinterested. If

atthedate ofacquisition bytheGroup,

thecompany does not constitute

anintegrated set ofactivities andassets

that iscapable ofbeing conducted

andmanaged forthepurpose ofproviding

areturn intheform ofdividends, lower

costs or other economic benefits directly

toinvestor, theGroup treats such

acquisitions asapurchase ofassets

(aleasehold right, land plot or store)

intheconsolidated financial statements.

Theexercise ofjudgement 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estimation

uncertainty atthereporting date,

that have asignificant risk ofcausing

amaterial adjustment tothecarrying

amounts ofassets andliabilities within

thenext financial year, aredescribed

below. TheGroup based its assumptions

andestimates onparameters available

when theconsolidated financial statements

wereprepared. Existing circumstances

andassumptions about future

developments, however,may change due

tomarket changes or circumstances arising

beyond thecontrol oftheGroup. Such

changes arereflected intheassumptions

when they occur.

Inventory valuation

Management reviews theinventory

balances todetermine if inventories

can besold atamounts greater than

or equal totheir carrying amounts plus

costs tosell. This review also includes

theidentification ofslow moving

inventories, which arewritten down based

oninventories ageing andwrite-down

Tax legislation

Russian tax, currency andcustoms

legislation issubject tofrequent changes

andvarying interpretations. Management’s

interpretation ofsuch legislation

inapplying it tobusiness transactions

oftheGroupmay bechallenged

bytherelevant regional andfederal

authorities enabled bylaw toimpose fines

andpenalties. Recent events intheRussian

Federation suggest that thetax authorities

aretaking amore assertive position

intheir interpretation ofthelegislation

andassessments andasaresult, it

ispossible that thetransactions that have

not been challenged inthepastmay

rates. Thewrite-down rates aredetermined

bymanagement following theexperience

ofsales ofsuch items.

TheGroup determines thelease term

asthenon-cancellable term ofthelease,

together withanyperiods covered

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

Share-based payments

TheGroup measures thecost ofequity-

settled transactions byreference tothefair

value oftheequity instruments atthedate

atwhich they aregranted. Estimating

fair value forshare-based payment

transactions requires determination

ofthemost appropriate valuation

model, which isdependent ontheterms

andconditions ofthegrant. This estimate

also requires determination ofthemost

appropriate inputs tothevaluation model

including theexpected life oftheshare

option, volatility anddividend yield

andmaking assumptions about them.

Theassumptions andmodels used

forestimating fair value forshare-based

payment transactions aredisclosed

inNote 29.

Impairment ofnon-financial assets

TheGroup reviews thecarrying amounts

ofits assets todetermine whether there

isanyindication that those assets

areimpaired. Impairment exists when

thecarrying value ofanasset or

cashgenerating unit exceeds its recoverable

amount, which isthehigher ofits fair value

less costs tosell andits value inuse.

Thefair value less costs tosell calculation

isbased onavailable data from binding

sales transactions, conducted atarm’s

length, forsimilar assets or observable

market prices less incremental costs

fordisposing oftheasset.

Due totheir subjective nature, these

estimates will likely differ from future actual

results ofoperations andcash flows, andit

ispossible that these differences could

bematerial.

Thevalue inuse calculation isbased

onadiscounted cash flow model.

Indetermining thevalue inuse calculation,

future cash flows areestimated from each

store based oncash flows projection

utilising thelatest budget information

available. Thediscounted cash flow

model requires numerous estimates

andassumptions regarding thefuture

rates ofmarket growth, market demand

fortheproducts andthefuture profitability

ofproducts.

Compensation from insurance company forfire case

InDecember 2021, asaresult

offire inone ofthestorestheGroup

incurred losses onproperty, plant

andequipment disposal, inventory

disposal andinterruption ofoperations

since thefire case. Thedamage incurred

wasinsured andmanagement believes

that indemnification forlosses isvirtually

certain. See Note 15 forfurther description.

bechallenged. Fiscal periods remain

open toreview bythetax authorities

inrespect oftaxes forthethree calendar

years preceding theyear oftax review.

Under certain circumstances reviewsmay

cover longer periods. While theGroup

believes it has provided adequately forall

tax liabilities based onits understanding

ofthetax legislation, theabove

factsmay create additional financial risks

fortheGroup.

Lease term ofcontracts withrenewal options

judgement inevaluating whether

it isreasonably certain toexercise

theoption torenew. That is, it considers

all relevant factors that create

aneconomic 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reasonably certain not

tobeexercised.

Strategic ReportLENTA . Annual Report 202198 99Corporate Governance Report Financial Statements Appendices

TheGroup applied forthefirst-time

certain standards andamendments, which

areeffective forannual periods beginning

onor after 1January 2021 (unless

otherwise stated). TheGroup has not early

adopted anyother standard, interpretation

or amendment that has been issued but

isnot yet effective.

Interest Rate Benchmark

Reform – Phase 2:

Amendments toIFRS 9,

IAS 39, IFRS 7, IFRS 4

andIFRS 16

Theamendments provide temporary reliefs

which address thefinancial reporting

effects when aninterbank offered rate

(IBOR) isreplaced withanalternative

nearly risk-free interest rate (RFR).

Theamendments include thefollowing

practical expedients:

• Apractical expedient torequire

contractual changes, or changes

tocash flows that aredirectly required

bythereform, tobetreated aschanges

toafloating interest rate, equivalent

toamovement inamarket rate

ofinterest

• Permit changes required byIBOR

reform tobemade tohedge

designations andhedge documentation

without thehedging relationship being

discontinued

• Provide temporary relief toentities

from having tomeet theseparately

identifiable requirement when anRFR

instrument isdesignated asahedge

ofarisk component

These amendments had no impact on

theconsolidated financial statements of

theGroup due totheGroup has only fixed-

rate financial instruments.

COVID-19-Related Rent

Concessions beyond 30June

2021 Amendments toIFRS 16

On28May 2020, theIASB issued

COVID-19-Related Rent Concessions

– amendment toIFRS 16 Leases

Theamendments provide relief tolessees

from applying IFRS 16 guidance

onlease modification accounting forrent

concessions arising asadirect consequence

oftheCOVID-19 pandemic. Asapractical

expedient, alesseemay elect not toassess

whether aCOVID-19 related rent concession

from alessor isalease modification.

Alessee that makes this election accounts

foranychange inlease payments

resulting from theCOVID-19 related rent

concession thesame way it would account

forthechange under IFRS 16, if thechange

werenot alease modification.

Theamendment wasintended toapply until

30June 2021, but astheimpact of

theCOVID-19 pandemic iscontinuing,

on31March 2021, theIASB extended

theperiod ofapplication ofthepractical

expedient to30June 2022.

Theamendment applies toannual reporting

periods beginning onor after 1April 2021.

This amendment had no impact

ontheconsolidated financial statements, as

theGroup did not elect touse this practical

expedient.

4. New standards, interpretations

andamendments adopted by

theGroup

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 determined,

theGroup uses its incremental borrowing

rate, adjusted totake intoaccount

thespecific terms andconditions

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,

• Inasimilar economic environment

Reclassifications inthecondensed

consolidated statement ofcash flows

Certain reclassifications weredone interms

ofpresentation offoreign exchange

differences.

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interpretations, if applicable, when

they become effective.

IFRS 17 Insurance

Contracts

InMay 2017, theIASB issued

IFRS17 Insurance Contracts

(IFRS 17), acomprehensive new

accounting standard forinsurance

contracts covering recognition

andmeasurement, presentation

anddisclosure. Once effective,

IFRS17 will replace IFRS4 Insurance

Contracts (IFRS 4) that wasissued

in2005. IFRS 17 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

guarantees andfinancial instruments

withdiscretionary participation

features. Afew scope exceptions will

apply. Theoverall objective ofIFRS17

istoprovide anaccounting model

forinsurance contracts that ismore useful

andconsistent forinsurers. Incontrast

totherequirements inIFRS 4, which

arelargely based ongrandfathering

previous local accounting policies,

IFRS17 provides acomprehensive model

forinsurance contracts, covering all

relevant accounting aspects. Thecore

ofIFRS 17 isthegeneral model,

supplemented by:

• Aspecific adaptation forcontracts

withdirect participation features

(thevariable fee approach)

• Asimplified approach (thepremium

allocation approach) mainly forshort-

duration contracts

• IFRS 17 iseffective forreporting

periods beginning onor after

1January 2023, 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IAS 1:

Classification ofLiabilities

asCurrent or Non-current

InJanuary 2020, theIASB issued

amendments toparagraphs 69 to76

ofIAS 1 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 derivative

inaconvertible liability isitself

anequity instrument would theterms

ofaliability not impact its classification

Theamendments areeffective forannual

reporting periods beginning onor after

1January 2023 andmust beapplied

retrospectively.

Theamendments totheclassification

ofliabilities isnot expected tohave

asignificant impact ontheGroup’s

consolidated financial statements.

InNovember 2021 theIASB proposed

amendments toIAS 1 Presentation

ofFinancial Statements toimprove

theinformation companies provide about

long-term debt withcovenants.

IAS 1 requires acompany toclassify

aliability asnon-current only if

thecompany has aright todefer settlement

oftheliability foratleast 12 months after

thereporting date. However, such aright

isoften subject tothecompany complying

withcovenants after thereporting date.

Forexample, acompany might have

long-term debt that could become

repayable within 12 months if thecompany

fails tocomply withcovenants after

thereporting date.

Theproposed amendments would specify

that, insuch asituation, covenants would

not affect theclassification ofaliability

ascurrent or non-current atthereporting

date. Instead, acompany would:

• Present non-current liabilities

that aresubject tocovenants

onthestatement offinancial position

separately from other non-current

liabilities,

• Disclose information about

thecovenants inthenotes toits financial

statements, including their nature

andwhether thecompany would

have complied withthem based onits

circumstances atthereporting date

TheIASB expects that these proposals

will improve theinformation acompany

provides about non-current liabilities

withcovenants byenabling investors

toassess whether such liabilities could

become repayable within 12 months.

Theproposals also address feedback

from stakeholders about theclassification

ofdebt ascurrent or non-current when

applying requirements introduced in2020

that arenot yet ineffect. Consequently,

theIASB isalso proposing todefer

theeffective date ofthose requirements

toalign withtheproposed amendment.

Theamendments arenot expected tohave

amaterial impact ontheGroup.

Reference totheConceptual

Framework – Amendments

toIFRS 3

InMay 2020, theIASB issued

Amendments toIFRS 3 Business

Combinations – Reference

totheConceptual Framework.

Theamendments areintended

toreplace areference totheFramework

forthePreparation andPresentation

ofFinancial Statements, issued in1989,

withareference totheConceptual

Framework forFinancial Reporting issued

inMarch 2018 without significantly

changing its requirements.

TheBoard also added anexception

totherecognition principle ofIFRS 3

toavoid theissue ofpotential ‘day 2’

gains or losses arising forliabilities

5. Standards issued but not yet effective

Strategic ReportLENTA . Annual Report 2021100 101Corporate Governance Report Financial Statements Appendices

andcontingent liabilities that would

bewithin thescope ofIAS 37 or IFRIC 21

Levies, if incurred separately.

Atthesame time, theBoard decided

toclarify existing guidance inIFRS 3

forcontingent assets that would not

beaffected byreplacing thereference

totheFramework forthePreparation

andPresentation ofFinancial Statements.

Theamendments areeffective forannual

reporting periods beginning onor after

1January 2022 andapply prospectively.

Property, Plant

andEquipment: Proceeds

before Intended Use –

Amendments toIAS 16

InMay 2020, theIASB issued Property,

Plant andEquipment – Proceeds before

Intended Use, which prohibits entities

deducting from thecost ofanitem

ofproperty, plant andequipment,

anyproceeds from selling items

produced while bringing that asset

tothelocation andcondition necessary

forit tobecapable ofoperating

inthemanner intended bymanagement.

Instead, anentity recognises theproceeds

from selling such items, andthecosts

ofproducing those items, inprofit or loss.

Theamendment iseffective forannual

reporting periods beginning onor after

1January 2022 andmust beapplied

retrospectively toitems ofproperty, plant

andequipment made available foruse

onor after thebeginning oftheearliest

period presented when theentity first

applies theamendment.

Theamendments arenot expected tohave

amaterial impact ontheGroup.

Onerous Contracts – Costs

ofFulfilling aContract –

Amendments toIAS 37

InMay 2020, theIASB issued amendments

toIAS 37 tospecify which costs anentity

needs toinclude when assessing whether

acontract isonerous or loss-making.

Theamendments apply a“directly related

cost approach”. Thecosts that relate

directly toacontract toprovide goods

or services include both incremental

costs andanallocation ofcosts directly

related tocontract activities. General

andadministrative costs do not relate

directly toacontract andareexcluded

unless they areexplicitly chargeable

tothecounterparty under thecontract.

Theamendments areeffective forannual

reporting periods beginning onor after

1January 2022. TheGroup will apply these

amendments tocontracts forwhich it has not

yet fulfilled all its obligations at

thebeginning oftheannual reporting period

inwhich it first applies theamendments.

Theamendments arenot expected tohave

amaterial impact ontheGroup.

IFRS 1 First-time Adoption

ofInternational Financial

Reporting Standards –

Subsidiary asafirsttime

adopter

Aspart ofits 2018–2020 annual

improvements toIFRS standards process,

theIASB issued anamendment toIFRS 1

First-time Adoption ofInternational Financial

Reporting Standards. Theamendment

permits asubsidiary that elects toapply

paragraph D16(a) ofIFRS 1 tomeasure

cumulative translation differences using

theamounts reported bytheparent, based

ontheparent’s date oftransition toIFRS. This

amendment isalso applied toanassociate

or joint venture that elects toapply

paragraph D16(a) ofIFRS 1.

Theamendment iseffective forannual

reporting periods beginning onor after

1January 2022 withearlier adoption

permitted.

Theamendment isnot applicable

totheGroup astheGroup isnot IFRS 1

adapter.

IFRS 9 Financial

Instruments – Fees

inthe’10 per cent’ test

forderecognition offinancial

liabilities

Aspart ofits 2018–2020 annual

improvements toIFRS standards process

theIASB issued amendment toIFRS

9. Theamendment clarifies thefees

that anentity includes when assessing

whether theterms ofanew or modified

financial liability aresubstantially

different from theterms oftheoriginal

financial liability. These fees include

only those paid or received between

theborrower andthelender, including

fees paid or received byeither

theborrower or lender ontheother’s

behalf. Anentity applies theamendment

tofinancial liabilities that aremodified

or exchanged onor after thebeginning

oftheannual reporting period inwhich

theentity first applies theamendment.

Theamendment iseffective forannual

reporting periods beginning onor after

1January 2022 withearlier adoption

permitted. TheGroup will apply

theamendments tofinancial liabilities that

aremodified or exchanged onor after

thebeginning oftheannual reporting

period inwhich theentity first applies

theamendment.

IAS 41 Agriculture – Taxation

infair value measurements

Aspart ofits 2018-2020 annual

improvements toIFRS standards process

theIASB issued amendment toIAS 41

Agriculture. Theamendment removes

therequirement inparagraph 22 ofIAS 41

that entities exclude cash flows fortaxation

when measuring thefair value ofassets

within thescope ofIAS 41.

Anentity applies theamendment

prospectively tofair value measurements

onor after thebeginning ofthefirst annual

reporting period beginning onor after

1January 2022 withearlier adoption

permitted.

This standard isnot applicable

totheGroup.

Definition ofAccounting

Estimates – Amendments

toIAS 8

InFebruary 2021, theIASB issued

amendments toIAS 8, inwhich it introduces

adefinition of‘accounting estimates’.

Theamendments clarify thedistinction

between changes inaccounting estimates

andchanges inaccounting policies and

thecorrection oferrors. Also, they clarify

how entities use measurement techniques

andinputs todevelop accounting

estimates.

Theamendments areeffective forannual

reporting periods beginning onor after

1January 2023 andapply tochanges

inaccounting policies andchanges

inaccounting estimates that occur onor

after thestart ofthat period. Earlier

application ispermitted aslongasthis fact

isdisclosed.

Theamendments arenot expected tohave

amaterial impact ontheGroup.

Disclosure ofAccounting

Policies – Amendments

toIAS 1 andIFRS Practice

Statement 2

InFebruary 2021, theIASB issued

amendments toIAS 1 andIFRS Practice

Statement 2 Making Materiality Judgements,

inwhich it provides guidance andexamples

tohelp entities apply materiality judgements

toaccounting policy disclosures.

Theamendments aim tohelp entities provide

accounting policy disclosures that aremore

useful byreplacing therequirement forentities

todisclose their ‘significant’ accounting

policies witharequirement todisclose their

‘material’ accounting policies andadding

guidance onhow entities apply

theconcept ofmateriality inmaking decisions

about accounting policy disclosures.

Theamendments toIAS 1 areapplicable

forannual periods beginning onor after

1January 2023 withearlier application

permitted. Since theamendments

tothePractice Statement 2 provide non-

mandatory guidance ontheapplication

ofthedefinition ofmaterial toaccounting

policy information, aneffective date

forthese amendments isnot necessary.

TheGroup iscurrently assessing theimpact

oftheamendments todetermine theimpact

they will have ontheGroup’s accounting

policy disclosures.

Amendments toIFRS 17

Insurance contracts: Initial

Application ofIFRS 17

andIFRS 9 – Comparative

Information

Theamendment isatransition option

relating tocomparative information

about financial assets presented oninitial

application ofIFRS 17. Theamendment

isaimed athelping entities toavoid

temporary accounting mismatches

between financial assets andinsurance

contract liabilities, andtherefore improve

theusefulness ofcomparative information

forusers offinancial statements.

IFRS 17 incorporating theamendment

iseffective forannual reporting periods

beginning onor after 1January 2023.

This standard isnot applicable to

theGroup.

Amendments toIAS 12

Income Taxes: Deferred

Tax related toAssets

andLiabilities arising from

aSingle Transaction

Theamendments require companies

torecognise deferred tax ontransactions

that, oninitial recognition, give rise toequal

amounts oftaxable anddeductible

temporary differences. Theamendments

areeffective forannual reporting periods

beginning onor after 1January 2023.

Earlier application ispermitted.

TheIASB has amended IAS 12, Income

Taxes, torequire companies torecognise

deferred tax onparticular transactions that,

oninitial recognition, give rise toequal

amounts oftaxable anddeductible

temporary differences. Theproposed

amendments will typically apply

totransactions such asleases forthelessee

anddecommissioning obligations.

Paragraphs 15 and24 ofIAS 12

wereamended toinclude anadditional

condition where theinitial recognition

exemption isnot applied. According

totheamended guidance, atemporary

difference that arises oninitial

recognition ofanasset or liability

isnot subject totheinitial recognition

exemption if that transaction gave

rise toequal amounts oftaxable

anddeductible temporary differences.

Paragraph 22A has been added

toprovide further clarification ofthis

principle. Paragraphs 22(b) and22(c)

ofIAS 12 have also been amended.

These amendments might have asignificant

impact onthepreparation offinancial

statements bycompanies that have

substantial balances ofright-of-use

assets, lease liabilities, decommissioning,

restoration andsimilar liabilities. Theimpact

forthose affected would betherecognition

ofadditional deferred tax assets

andliabilities.

These amendments should beapplied

forannual periods beginning onor after

1January 2023. Earlier application

ispermitted. Theamendments should

beapplied onamodified retrospective basis.

Theamendments arenot expected

tohave amaterial impact ontheGroup

astheGroup did not use initial

recognition exception if that transaction

gave rise toequal amounts oftaxable

anddeductible temporary differences.

Strategic ReportLENTA . Annual Report 2021102 103Corporate Governance Report Financial Statements Appendices

6. Balances andtransactions

withrelated parties

TheCompany has not provided loans to related parties, anymembers ofits Board andexecutive bodies.

Remuneration tothemembers oftheBoard ofDirectors andkey management personnel isasfollows:

Year ended

31December 2021

Year ended

31December 2020

Short-term benefits 641,530 1,260,167

Long-term benefits 909,556 1,002,208

Termination benefits 108,530 98,941

TOTAL REMUNERATION 1,659,616 2,361,316

31December

2021

31December

2020

Entities under common control

Amounts owed byrelated parties 893 35,304

Amounts owed torelated parties (144,968) (146,635)

Advances received (211) (197)

Advances paid 9,821 603

Year ended

31December 2021

Year ended

31December 2020

Entities under common control

Revenue from related parties 71,068 95,194

Other operating income from related parties 16,617 10,440

Purchases ofservices from related parties (360,906) (460,034)

Prepaid expense from related parties (174,652) (278,187)

Purchases ofinventories from related parties (29,848) (131,424)

Purchases ofnon-current assets from related parties (34,251) −

Thetransactions withrelated parties

aremade onterms substantially equivalent

tothose that prevail inarm’s length

transactions.

In2019, Severgroup LLC (“Severgroup”)

completed its acquisition of76,109,776

shares oftheCompany. Asat31December

202176,110,590 shares oftheCompany

belong toSevergroup, which represents

77.99% oftheshare capital or 78.73%

ofthevoting rights.

Asat31December 2021 and31December

2020 Alexey Mordashov istheultimate

controlling party oftheGroup.

Related parties oftheGroup include key

management personnel andother entities

that areunder thecontrol oftheGroup’s

ultimate controlling party. Inconsidering

each possible related party relationship,

attention isdirected tothesubstance

oftherelationship, not merely thelegal

form.

Theconsolidated financial statements

include thefollowing transactions

withrelated parties:

7. Property, plant andequipment

Land Land

improvements

Buildings Machinery

andequipment

Assets under

construction

Total

Cost

Balance at1January

2021

23,952,454 13,449,140 136,404,022 68,185,418 2,405,111 244,396,145

Additions − − − 427 7,769,304 7,769,731

Transfers from

construction inprogress

− 288,201 2,004,636 5,294,714 (7,587,551) −

Acquisition ofsubsidiaries

(Note 8)

284,000 − 9,717,656 4,087,241 68,222 14,157,119

Disposals − − (677,048) (959,156) (67,878) (1,704,082)

Balance

at31December 2021

24,236,454 13,737,341 147,449,266 76,608,644 2,587,208 264,618,913

Accumulated depreciation andimpairment

Balance at1January

2021

1,192,486 7,549,745 33,464,010 37,744,749 544,158 80,495,148

Depreciation charge − 2,388,322 5,414,290 7,333,796 − 15,136,408

Impairment charge/

(reversal ofimpairment)

(74,624) − (442,920) 105,161 42,712 (369,671)

Transfer ofaccumulated

impairment

− − 75,315 51,896 (127,211) −

Disposals − − (333,142) (679,582) − (1,012,724)

Balance

at31December 2021

1,117,862 9,938,067 38,177,553 44,556,020 459,659 94,249,161

Net book value

Balance at1January

2 0 21

22,759,968 5,899,395 102,940,012 30,440,669 1,860,953 163,900,997

BALANCE

AT31DECEMBER 2021

23,118,592 3,799,274 109,271,713 32,052,624 2,127,549 170,369,752

Strategic ReportLENTA . Annual Report 2021104 105Corporate Governance Report Financial Statements Appendices

Asat31December 2021 theGroup

performed impairment test ofproperty,

plant andequipment, intangible assets

andright-of-use assets, where indicators

ofsuch impairment wereidentified.

Following theimpairment test net reversal

ofimpairment losses wasrecognised

intheconsolidated statement ofprofit

or loss inrespect ofproperty, plant

andequipment amounted toRUB369,671

(including reversal ofimpairment

losses inrespect ofland intheamount

ofRUB74,624, reversal ofimpairment

losses inrespect ofbuildings intheamount

ofRUB442,920, impairment loss

inrespect ofassets under construction

intheamount ofRUB42,712

andmachinery andequipment

intheamount ofRUB105,161)

andimpairment ofright-of-use

assets wasrecognised intheamount

ofRUB205,765. Therespective

impairment charge resulted primarily

from underperforming stores, atthesame

time thereversal ofpreviously recorded

impairment losses wasdue toimproved

performance ofcertain stores.

Theevaluation wasperformed

atthelowest level ofaggregation

ofassets that isable togenerate

independent cash inflows (CGU), which

isgenerally attheindividual store level.

Inidentifying whether cash inflows

arelargely independent, the management

considers various factors, including:

• How it monitors theentity’s operations

or how it makes decisions about

continuing or disposing oftheentity’s

assets andoperations

• Cannibalisation effect

• Leakage ofcustomers upon astore

closure

Theimpairment test has been carried out

bycomparing recoverable amount of

Depreciation, amortisation andimpairment expense

During theyear ended 31December 2021 andtheyear ended 31December 2020

theGroup wasnot involved inacquisition or contribution 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.

Land Land

improvements

Buildings Machinery

andequipment

Assets under

construction

Total

Cost

Balance at1January

2020

23,523,525 12,690,508 132,371,508 64,442,345 2,910,262 235,938,148

Additions − − − 1,623 9,914,019 9,915,642

Transfers from

construction inprogress

372,126 758,632 4,412,725 4,664,286 (10,207,769) −

Transfers from right-of-use

assets

68,201 − − − − 68,201

Disposals (11,398) − (380,211) (922,836) (211,401) (1,525,846)

Balance

at31December 2020

23,952,454 13,449,140 136,404,022 68,185,418 2,405,111 244,396,145

Accumulated depreciation andimpairment

Balance at1January

2020

1,799,114 4,795,619 31,777,892 31,802,328 319,956 70,494,909

Depreciation charge − 2,757,326 4,484,206 6,803,597 − 14,045,129

Impairment charge/

(reversal ofimpairment)

(606,628) (3,200) (2,579,873) (109,635) 387,905 (2,911,431)

Disposals − − (218,215) (751,541) (163,703) (1,133,459)

Balance

at31December 2020

1,192,486 7,549,745 33,464,010 37,744,749 544,158 80,495,148

Net book value

Balance at1January

2020

21,724,411 7,894,889 100,593,616 32,640,017 2,590,306 165,443,239

BALANCE

AT31DECEMBER 2020

22,759,968 5,899,395 102,940,012 30,440,669 1,860,953 163,900,997

Year ended

31December 2021

Year ended

31December 2020

Depreciation ofproperty, plant andequipment (Note 7) 15,136,408 14,045,129

Amortisation ofright-of-use assets (Note 10) 5,792,641 3,913,127

Amortisation ofintangible assets (Note 12) 721,680 603,898

Capitalisation ofright-of-use asset depreciation toassets under construction

(Note 10)

(23,875) (21,921)

TOTAL DEPRECIATION ANDAMORTISATION 21,626,854 18,540,233

See Note 30 forcapital commitments.

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determining

thevalue inuse are:

• Future cash flows arebased

onthecurrent budgets andforecasts

approved bythemanagement

andrepresented byforecast EBITDA

along withterminal value offorecast

free cash flows that areexpected

tobegenerated beyond theforecast

period (12 months), theyears beyond

theforecast period thelong term

consumer price index forecast of4%

isused.

• Cash flow forecasts forcapital

expenditure arebased onpast

experience 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 expense

being allocated onreasonable basis.

• Carrying value ofcorporate assets

that do not generate independent cash

inflows (offices, distribution centres)

wereallocated toCGUs on aconsistent

basis.

• Projections weremade inthefunctional

currency oftheGroup’s entities, being

the Russian rouble anddiscounted

attheGroup pre-tax weighted

average cost ofcapital which isthen

adjusted toreflect therisks specific

totherespective assets – 13%.

TheGroup’s management believes

that all ofits estimates arereasonable

andconsistent withtheinternal reporting

andreflect the management’s best

knowledge.

Theresult ofapplying discounted cash

flows model reflects expectations

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 300 b.p. higher

than the management’s estimates,

theGroup would need toreduce

thecarrying value ofnon-current non-

financial assets byRUB2,768,701. 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342,712.

Fair value less costs ofdisposal ofCGU

wasdefined byanexternal appraiser

byreference tocurrent observable 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 2021 andtheyear

ended 31December 2020 ispresented

within depreciation andamortisation

intheGroup’s consolidated statement

ofprofit or loss andother comprehensive

income andconsolidated statement ofcash

flows asfollows:

Strategic ReportLENTA . Annual Report 2021106 107Corporate Governance Report Financial Statements Appendices

Cash flow

ofacquisition

Cash paid 19,596,144

Less cash acquired withsubsidiaries (403,048)

Net cash flow onacquisition 19,193,096

InAugust 2021, Lenta LLC, anindirect

subsidiary ofLenta IPJSC completed

acquisition ofsupermarket business ofBilla

Russia GmbH through thepurchase of100%

stakes inBilla Realty LLC andBillaLLC

forconsideration, including cash paid

ofRUB19,596,144 less adjustment

forworking capital. Theacquisition

significantly accelerates Lenta’s expansion

inMoscow.

Thefinancial position andresults

ofoperations ofBilla Realty LLC

andBillaLLC wereincluded intheGroup’s

consolidated financial statements

beginning fromAugust 2021.

TheGroup assigned provisional values

tonet assets acquired based onestimates

ofanindependent appraiser. TheGroup

will finalise thepurchase price allocation

within 12 months from theacquisition date.

Provisional fair values oftheidentifiable

assets andliabilities ofBilla Realty LLC

andBilla LLC atthedate ofacquisition

were:

Acquisition ofBilla Realty LLC andBilla LLC

8. Acquisition ofsubsidiaries

Provisional

fair values

attheacquisition

date

Property, plant andequipment (Note 7) 13,471,043

Right-of-use assets (Note 10) 18,631,066

Other non-current assets

145,049

Inventories 1,924,989

Trade andother receivable 98,911

Advances paid 85,706

VAT andother taxes recoverable 16,109

Income tax prepaid 14,620

Prepaid expenses 17, 7 75

Cash andcash equivalents 403,048

Deferred tax liabilities (Note 21) (1,307,975)

Long-term lease liabilities (Note 10) (15,603,950)

Trade andother payables (3,550,005)

Advances received (35,008)

Other taxes payable (137,333)

Short-term lease liabilities (Note 10) (1,512,082)

Fair value oftheidentifiable net assets 12,661,963

Goodwill 6,934,181

Fair value ofpurchase consideration 19,596,144

InSeptember 2021, theGroup acquired

100% stake inSemya Group, one

ofthelargest retailer inthePerm

Region, forcash consideration

ofRUB2,454,904. This acquisition further

supports Lenta’s strategic expansion

inthesupermarket andconvenience store

segments,asaresult ofthetransaction,

Lenta will significantly increase its total

food retail market share inthePerm Region.

Thefinancial position andresults

ofoperations ofSemya Group

wereincluded intheGroup’s consolidated

financial statements beginning

fromSeptember 2021.

TheGroup assigned provisional values

tonet assets acquired based onestimates

ofanindependent appraiser. TheGroup

will finalise thepurchase price allocation

Acquisition ofSemya Group

From thedate ofacquisition

thecontribution torevenue andloss

before income tax ofBillaRealtyLLC

andBilla LLC wasRUB9,501,250

andRUB1,097,054 respectively. It isnot

practicable todetermine contribution

torevenue andprofit before tax ofBilla

Realty LLC andBillaLLC if it had been

acquired atthebeginning oftheyear due

todifferent management andoperational

styles ofacquired business andtheGroup.

Thegoodwill recognised wasattributable

toexpected cost synergies from

thebusiness combination andacquired

traffic from existing customers. Thegoodwill

wasallocated tothestores acquired

inresult oftheacquisition.

TheGroup measured theacquired

lease liabilities using thepresent value

oftheremaining lease payments

atthedate ofacquisition. Theright-of-use

assets weremeasured atanamount

equal tothelease liabilities andadjusted

toreflect thefavourable andunfavourable

terms ofthelease relative tomarket terms.

Thefair value ofthetrade andother

receivables amounts toRUB98,911.

Thegross amount oftrade receivables

isRUB149,334 andit isexpected

that thefull contractual amounts can

becollected.

within 12 months from theacquisition

date.

Provisional fair values oftheidentifiable

assets andliabilities ofSemya Group

atthedate ofacquisition were:

Provisional

fair values

attheacquisition

date

Property, plant andequipment (Note 7) 686,076

Prepayments forconstruction 117

Right-of-use assets (Note 10) 4,183,936

Intangible assets (Note 12) 186,660

Deferred tax assets (Note 21) 73,339

Inventories 849,435

Trade andother receivable 46,960

Advances paid 105,987

Income tax prepaid 11,896

Cash andcash equivalents 63,849

Long-term lease liabilities (Note 10) (3,644,123)

Trade andother payables (820,792)

Contract liabilities (8,385)

Advances received (25)

Other taxes payable (35,553)

Short-term borrowings andshort-term portion oflong-term borrowings (Note 32) (168,748)

Short-term lease liabilities (Note 10) (525,174)

Fair value oftheidentifiable net assets 1,005,455

Goodwill 1,449,449

Purchase consideration 2,454,904

During theyear ended 31December 2021 cash flow ofacquisition wasasfollows:

Strategic ReportLENTA . Annual Report 2021108 109Corporate Governance Report Financial Statements Appendices

During theyear ended 31December 2021 cash flow ofacquisition wasasfollows:

Cash flow

ofacquisition

Cash paid 2,454,904

Less cash acquired withsubsidiaries (63,849)

Net cash flow onacquisition 2,391,055

From thedate ofacquisition thecontribution

torevenue andprofit before income tax

ofSemya Group wasRUB4,159,083

andRUB54,909 respectively. It isnot

practicable todetermine contribution

torevenue andprofit before tax

ofSemya Group if it had been acquired

atthebeginning oftheyear asSemya

Group did not prepare relevant

financial information immediately before

theacquisition, therefore, it isimpracticable

todisclose revenue andnet profit

oftheGroup fortheyear ended.

Thegoodwill recognised wasattributable

toexpected cost synergies from thebusiness

combination andacquired traffic

from existing customers. Thegoodwill

wasallocated tothestores acquired inresult

oftheacquisition.

TheGroup measured theacquired

lease liabilities using thepresent value

oftheremaining lease payments

atthedate ofacquisition. Theright-of-

use assets weremeasured atanamount

equal tothelease liabilities andadjusted

toreflect thefavourable andunfavourable

terms ofthelease relative tomarket terms.

Thefair value ofthetrade andother

receivables amounts toRUB46,960.

Thegross amount oftrade receivables

isRUB58,919 andit isexpected

that thefull contractual amounts can

becollected.

Impairment test ofgoodwill

Asat31December 2021 total amount

ofgoodwill isRUB8,383,630.

TheGroup performed impairment test

ofgoodwill. Forthepurposes ofimpairment

testing goodwill isallocated togroups

ofcash-generating units being stores

purchased inresult ofbusiness acquisition

ofBilla andSemya respectively. This

represents thelowest level within theGroup

atwhich thegoodwill ismonitored

forinternal management purposes.

Goodwill istested forimpairment

atthegroup ofCGUs level bycomparing

the carrying values of a particular group of

CGU assets including allocated goodwill

totheir value inuse. Thediscounted future

cash flow approach isapplied based

onforecasts approved bythemanagement.

Future cash flows arebased onthecurrent

budgets andforecasts approved

bythemanagement andrepresented

byforecast EBITDA along withterminal

value offorecast free cash flows that

areexpected tobegenerated beyond

theforecast period (5 years).

Growth rate of4% isapplied

fortheforecast period. Theyears

beyond theforecast period thelong-term

growth rate of2% isused. Projections

weremade inthefunctional currency

oftheGroup’s entities, being the Russian

rouble anddiscounted attheGroup pre-

tax weighted average cost ofcapital

which isthen adjusted toreflect therisks

specific totherespective assets – 13%.

Therecoverable amount ofthegroups

ofCGUs calculated exceeds their

carrying amounts andtherefore no

impairment wasrecognised forthem

during theyear ended 31December

2 0 21.

Theresult ofapplying discounted cash

flows model reflects expectations

about possible variations intheamount

andtiming offuture cash flows.

Thecalculation ofvalue inuse ismost

sensitive tothefollowing assumptions:

• Gross margins

• Discount rates

• Annual revenue growth rate

Gross margins aredefined inaccordance

withdata ofthestrategic business

plan andinternal forecasts based

onbudget. Decrease inconsumer

demandmay lead toreduction ingross

margin. Decrease ingrowth margin

by5% would result inreduction

inthediscounted future cash flows but

no impairment would berecognised.

Arise intheestimated discount rate being

theGroup pre-tax weighted average

cost ofcapital by300b.p. higher than

the management’s estimates would

result in adecrease inthediscounted

future cash flows but no impairment

would berecognised. If theannual

revenue growth rate used incalculations

ofvalue inuse had been 50 b.p. lower

than themanagement’s estimates

no impairment istoberecognised

intheconsolidated statement ofprofit or

loss andother comprehensive income.

TheGroup’s management believes that all

ofits estimates arereasonable andconsistent

withtheinternal reporting andreflect

themanagement’s best knowledge.

Set out below arethecarrying amounts oftheGroup’s right-of-use assets andthemovements

during theyear ended 31December 2021 andyear ended 31December 2020:

10. Right-of-use assets andlease

liabilities

Prepayments forconstruction

aremade tocontractors building stores

andtosuppliers.

Prepayments areregularly monitored

fortheindicators ofimpairment.

Asat31December 2021 prepayments

forconstruction wereimpaired

intheamount ofRUB542,366

(31December 2020: RUB216,592).

9. Prepayments forconstruction

Cost Land Buildings Total

Balance at1January 2021 5,149,650 36,208,231 41,357,881

Additions 332,614 9,972,842 10,305,456

Acquisition ofsubsidiaries (Note 8) 1,088,357 21,726,645 22,815,002

Termination anddecrease inscope oflease contracts (29,273) (2,468,670) (2,497,943)

Other changes* 6,830 855,476 862,306

Balance at31December 2021 6,548,178 66,294,524 72,842,702

Accumulated depreciation andimpairment

Balance at1January 2021 500,085 7,086,535 7,586,620

Depreciation charge 181, 4 21 5,611,220 5,792,641

Impairment charge 205,765 − 205,765

Termination anddecrease inscope oflease contracts (5,529) (457,202) (462,731)

Balance at31December 2021 881,742 12,240,553 13,122,295

Net book value

BALANCE AT1JANUARY 2021 4,649,565 29,121,696 33,771,261

BALANCE AT31DECEMBER 2021 5,666,436 54,053,971 59,720,407

Strategic ReportLENTA . Annual Report 2021110 111Corporate Governance Report Financial Statements Appendices

Cost Land Buildings Total

Balance at1January 2020 5,368,027 31,300,482 36,668,509

Additions 19,227 4,802,559 4,821,786

Termination anddecrease inscope ofleasecontracts (272,919) (824,258) (1,097,177)

Transfer toproperty, plant andequipment resulted from

purchase oftheunderlining assets inthelease

(72,004) − (72,004)

Other changes* 107, 319 929,448 1,036,767

Balance at31December 2020 5,149,650 36,208,231 41,357,881

Accumulated depreciation andimpairment

Balance at1January 2020 439,396 3,561,670 4,001,066

Depreciation charge 169,980 3,743,147 3,913,127

Impairment charge (93,369) 97, 6 75 4,306

Termination anddecrease inscope oflease contracts (12,119) (315,957) (328,076)

Transfer toproperty, plant andequipment resulted from

purchase oftheunderlining assets inthelease

(3,803) − (3,803)

Balance at31December 2020 500,085 7,086,535 7,586,620

Net book value

BALANCE AT1JANUARY 2020 4,928,631 27,738,812 32,667,443

BALANCE AT31DECEMBER 2020 4,649,565 29,121,696 33,771,261

* Other changes arerepresented bychanges intheright-of-use assets due toindexations

andmodifications except fordecrease inscope oflease contracts.

Set out below arethecarrying amounts oftheGroup’s lease liabilities andthemovements

during theyear ended 31December 2021 andyear ended 31December 2020:

Transfer toproperty, plant andequipment resulted from

purchase oftheunderlining assets inthelease.

Year ended

31December 2021

Year ended

31December 2020

Lease liabilities atthebeginning oftheyear 34,441,507 32,160,006

Additions 10,322,212 4,731,148

Acquisition ofsubsidiaries (Note 8) 21,285,329 −

Termination anddecrease inscope oflease contracts (2,058,925) (810,549)

Other changes* 862,306 1,036,767

Interest expense 3,569,369 2,716,486

Payments fortheprincipal portion ofthelease liabilities (4,330,107) (2,814,842)

Payments fortheinterest portion ofthelease liability (3,569,369) (2,716,486)

Foreign exchange loss 25,823 138,977

LEASE LIABILITIES ATTHEEND OFTHEYEAR 60,548,145 34,441,507

* Other changes arerepresented bychanges intheright-of-use assets due toindexations

andmodifications except fordecrease inscope oflease contracts.

Inanordinary course ofthebusiness

theGroup constantly arranges

forleases ofnew premises

andland. Asat31December 2021

and31December 2020 theGroup had

acertain amount ofleases towhich

theGroup wascommitted but thelease did

not commence. TheGroup assesses that

theamount offuture cash outflows towhich

thelessee ispotentially exposed isnot

significant.

Set out below aretheamounts recognised inprofit or loss fortheyear ended 31December 2021 andyear ended 31December 2020:

Year ended

31December 2021

Year ended

31December 2020

Depreciation ofright-of-use assets 5,792,641 3,913,127

Capitalisation ofdepreciation toassets under construction (23,875) (21,921)

Impairment ofright-of-use assets 205,765 4,306

Termination anddecrease inscope oflease contracts (23,713) (41,448)

Interest expense onlease liabilities 3,569,369 2,716,486

Interest income onsecurity deposits (63,676) (31,532)

Foreign exchange loss 25,823 138,977

Rent expense – short-term leases 634,977 681,886

Rent expense – variable lease payments 57 7, 319 349,473

TOTAL AMOUNTS RECOGNISED INPROFIT OR LOSS 10,694,630 7,709,354

 31December 2021 31December 2020

Long-term lease liabilities 54,149,744 31,327,074

Short-term lease liabilities 6,398,401 3,114,433

TOTAL LEASE LIABILITIES 60,548,145 34,441,507

Strategic ReportLENTA . Annual Report 2021112 113Corporate Governance Report Financial Statements Appendices

11. Operating segments

TheGroup’s principal business activity

isthedevelopment andoperation

offood retail stores located inRussia.

Risks andreturns areaffected primarily

byeconomic development inRussia

andbythedevelopment ofRussian food

retail industry.

TheGroup has no significant assets

outside theRussian Federation (excluding

investments inits foreign wholly owned

intermediate holding subsidiary Lenta

Global Limited, which areeliminated

onconsolidation). Due tothesimilar

economic characteristics offood retail

stores, theGroup’s management has

aggregated its operating segments

represented bystores intoonereportable

operating segment.

Within thesegment all business

components aresimilar inrespect of:

• Theproducts

• Thecustomers

• Centralised Group structure

(commercial, operational, logistic,

finance, HR andIT functions

arecentralised)

TheGroup’s operations areregularly

reviewed bythechief operating decision

maker, represented bytheCEO,

toanalyse performance andallocate

resources within theGroup. TheCEO

assesses theperformance ofoperating

segments based onthedynamics

ofrevenue andearnings before interest,

tax, depreciation, amortisation (EBITDA).

EBITDA isanon-IFRS measure. Other

information ismeasured inamanner

consistent withthat intheconsolidated

financial statements.

Thesegment information fortheyear ended

31December 2021 and31December

2020 isasfollows:

Year ended

31December 2021

Year ended

31December 2020

Sales 483,640,887 445,543,829

EBITDA 46,885,172 44,919,129

Reconciliation ofEBITDA toIFRS profit fortheperiod isasfollows:

Year ended

31December 2021

Year ended

31December 2020

EBITDA 46,885,172 44,919,129

Interest expense (see Note 28) (9,323,651) (9,512,254)

Interest income 895,365 609,970

Income tax expense (see Note 21) (3,990,944) (3,456,984)

Depreciation andamortisation (see Notes 7, 10, 12) (21,626,854) (18,540,233)

Reversal ofimpairment ofnon-financial assets (see Notes 7, 10) 163,906 2,907,125

Foreign exchange losses (523,448) (386,122)

PROFIT FORTHEYEAR 12,479,546 16,540,631

Software Trade marks Total

Cost

Balance at1January 2021 5,682,127 − 5,682,127

Additions 1,018,556 − 1,018,556

Acquisition ofsubsidiaries (Note 8) 12,358 174,302 186,660

Disposals (1,004) − (1,004)

Balance at31December 2021 6,712,037 174,302 6,886,339

Accumulated amortisation andimpairment

Balance at1January 2021 3,101,155 − 3,101,155

Amortisation charge 702,870 18,810 721,680

Disposals (883) − (883)

Balance at31December 2021 3,803,142 18,810 3,821,952

Net book value

BALANCE AT1JANUARY 2021 2,580,972 − 2,580,972

BALANCE AT31DECEMBER 2021 2,908,895 155,492 3,064,387

Amortisation expense isincluded inselling, general andadministrative

expenses (Note26).

Intangible assets asat31December 2020 consisted ofthefollowing:

Software Total

Cost

Balance at1January 2020 4,770,994 4,770,994

Additions 918,567 918,567

Disposals (7,434) (7,434)

Balance at31December 2020 5,682,127 5,682,127

Accumulated amortisation andimpairment

Balance at1January 2020 2,500,019 2,500,019

Amortisation charge 603,898 603,898

Disposals (2,762) (2,762)

Balance at31December 2020 3,101,155 3,101,155

Net book value

BALANCE AT1JANUARY 2020 2,270,975 2,270,975

BALANCE AT31DECEMBER 2020 2,580,972 2,580,972

12. Intangible assets

Intangible assets asat31December 2021 consist ofthefollowing:

Strategic ReportLENTA . Annual Report 2021114 115Corporate Governance Report Financial Statements Appendices

31December

2021

31December

2020

Goods forresale (atlower ofcost andnet realisable value) 48,942,271 39,817,567

Raw materials (atlower ofcost andnet realisable value) 2,410,695 2,253,966

TOTAL INVENTORIES ATLOWER OFCOST ANDNET REALISABLE VALUE 51,352,966 42,071,533

14. Inventories

Other non-current assets arerepresented

byguarantee deposits under lease

contracts subject toreimbursement bycash

attheend oflease.

13. Other non-current assets

Raw materials arerepresented

byinventories used inown production

process inbutchery, bakery andculinary.

During theyear ended 31December

2021 theGroup accounted forreversal

ofwrite down ofinventories totheir

net realisable value within cost ofsales

intheconsolidated statement ofprofit or

loss andother comprehensive income

fortheyear ended 31December 2021

intheamount ofRUB402,707.

During theyear ended 31December

2020 theGroup wrote down inventories

totheir net realisable value, which resulted

inrecognition ofexpenses within cost

ofsales intheconsolidated statement

ofprofit or loss andother comprehensive

income fortheyear ended 31December

2020 intheamount ofRUB595,286.

Set out below istheinformation about

thecredit risk exposure ontheGroup’s

trade andother receivables asat31December 2020 using aprovision

matrix:

Current <60 days

overdue

60–120days

overdue

>120 days

overdue

Total

Expected credit loss rate <1.5% 2–5% 15–40% 70–100%

Estimated total gross carrying

amount atdefault

10,455,452 413,196 30,996 127, 32 2 11,026,966

Expected credit loss 11,804 8,264 5,993 98,066 124, 127

Current <60 days

overdue

60–120days

overdue

>120 days

overdue

Total

Expected credit loss rate <1.5% 2–5% 15–40% 70–100%

Estimated total gross carrying

amount atdefault

12,663,738 400,123 59,756 130,318 13,253,935

Expected credit loss 2,241 10,577 11 , 0 75 105,496 129,389

Asat31December 2021 theGroup

recognised within theother receivables

theamount due from insurance

company ofRUB498,290 which relates

tocompensation forlost property, plant,

andequipment ofRUB343,100, lost

inventory ofRUB155,005 andforother

assets ofRUB185 asa result of the fire

case inone ofthestores.

Debtor credit risk ismanaged

inaccordance withtheGroup’s

established 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impairment

analysis isperformed ateach reporting

date using aprovision matrix tomeasure

expected 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 information that

isavailable atthereporting date

about past events, current conditions

andforecasts offuture economic

conditions. Generally, trade receivables

arewritten-off if past due formore

than three years andarenot subject

toenforcement activity. Themaximum

exposure tocredit risk atthereporting

date isthecarrying value ofeach class

offinancial assets disclosed inNote 32.

Thedetailed analysis ofimpact

ofCOVID-19 ondebtors’ financial

conditions andreview ofanyother

factors which might result inrevision

oftheallowance matrix performed

asat31December 2021 led

totheconclusion that there wasno

significant deterioration ofcredit quality

ofcustomers.

Set out below istheinformation about

thecredit risk exposure ontheGroup’s

trade andother receivables

asat31December 2021 using aprovision

matrix:

31December 2021 31December 2020

Accounts receivable onrental andother services

andonsuppliers’advertising

6,434,915 6,293,355

Suppliers’ rebates receivable 6,092,218 4,465,410

Other receivables 726,802 268,201

Expected credit losses ofaccounts receivable (129,389) (124,127)

TOTAL TRADE ANDOTHER RECEIVABLES 13,124,546 10,902,839

15. Trade andother receivables

Strategic ReportLENTA . Annual Report 2021116 117Corporate Governance Report Financial Statements Appendices

 31December

2021

31December

2020

Rouble denominated short-term deposits 22,977,795 18,489,546

Rouble denominated balances withbanks 7,611,496 1,527,464

Rouble denominated cash intransit 1,501,890 1,065,216

Foreign currency denominated balances withbanks 759,497 95,606

Rouble denominated cash onhand 475,811 276,294

Foreign currency denominated short-term deposits − 354,748

TOTAL CASH ANDCASH EQUIVALENTS 33,326,489 21,808,874

17. Cash andcash equivalents

31December

2021

31December

2020

Advances forservices

2,187,368 1,362,282

Advances tosuppliers ofgoods 742,262 415,077

Allowance forimpairment ofadvances paid (26,208) (23,293)

TOTAL ADVANCES PAID 2,903,422 1,754,066

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

2021 2020

Asat1January 124 , 127 179,010

Allowance forexpected credit losses 72,572 19,371

Write-off (67,310) (74,254)

ASAT31DECEMBER 129,389 124 , 127

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

16. Advances paid

Thecash andcash equivalents aredenominated in:

 31December

2021

31December

2020

RUB 32,566,992 21,358,520

USD 533,905 391,083

EUR 225,592 59,047

GBP − 224

TOTAL CASH ANDCASH EQUIVALENTS 33,326,489 21,808,874

Number ofshares 31December 2021

RUB

Authorised

Ordinary shares ofRussian roubles 0.0912632 each 200,000,000 18,253

Issued andfully paid

Balance atthebeginning oftheperiod 97,585,932 6,711

Amendment topar value ofordinary shares − 2,195

BALANCE ATTHEEND OFTHEPERIOD 97,585,932 8,906

Thenumber ofshares asat31December 2021 and31December 2020 areasfollows:

31December 2021

No.

31December 2020

No.

Authorised share capital (ordinary shares) 200,000,000 200,000,000

Issued andfully paid 97,585,932 97,585,932

Treasury shares (910,522) (910,546)

Witheffect from theregistration

oftheCompany asaninternational public

joint-stock company intheUnified State

Federation theauthorised share capital

oftheCompany wasconverted from

EUR200,000 divided into200,000,000

ordinary shares withEUR0.001 par value

toRussian roubles 18,252,640 divided

into200,000,000 ordinary shares

withRussian roubles 0.0912632 par value.

Asat31December 2021 theCompany’s

share capital iscomprised of97,585,932

authorised andissued ordinary shares

withRussian roubles 0.0912632 par value

(asat31December 2020: 97,585,932

withEUR0.001 par value). Following

theconversion ofpar value ofordinary

shares theamount oftheCompany’s

share capital increased from RUB6,711

toRUB8,906. Relevant reclassification from

additional paid-incapital toshare capital

intheconsolidated statement offinancial

position intheamount ofRUB2,195

wasmade.

Immediately before acontinuation

oftheCompany intotheRepublic ofCyprus

inFebruary 2020, each share ofno

par value wasautomatically converted

intoanordinary share ofEUR0.001

par value andreclassification from

additional paid-incapital toshare capital

intheconsolidated statement offinancial

position intheamount ofRUB6,711

wasmade.

All outstanding ordinary shares areentitled

toanequal share inanydividend declared

bytheCompany. No dividends toholders

ofordinary shares weredeclared

fortheyear ended 31December 2021

andfortheyear ended 31December

2020.

Issued capital

18. Issued capital andreserves

Cash intransit represents cash receipts

during thelast days ofthereporting

period (29–31December), which

weresent tobanks but not deposited

intotherespective bank accountsuntil

thenext reporting period.

Significant rouble denominated cash

intransit results from thebusiness

seasonality, indicating higher levels

ofretail sales inholiday periods such

asNew Year’s Eve aswellastheclosing

day inrelation totheofficial banking days

inRussia. If theclosing day isonnon-

banking days, theamount ofcash intransit

increases.

Short-term deposits aremade forvarying

periods ofbetween one day andthree

months, depending ontheimmediate

cash requirements oftheGroup, andearn

interest attherespective short-term deposit

rates.

Strategic ReportLENTA . Annual Report 2021118 119Corporate Governance Report Financial Statements Appendices

19. Earnings per share

Share options reserve

Theshare options reserve isused

torecognise thevalue ofequity-settled

share-based payments provided

toemployees, including key management

personnel, aspart oftheir remuneration.

Refer toNote 29 forfurther details ofthese

plans.

Treasury shares

InOctober 2018, theGroup

launched GDR repurchase

programme up toanaggregate value

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

2021 and31December 2020.

Themovements inthenumber ofshares fortheyear ended 31December 2021

andfortheyear ended 31December 2020 areasfollows:

Year ended

31December 2021

Year ended

31December 2020

Balance ofshares outstanding atbeginning oftheyear 96,675,386 96,675,386

Sale oftreasure shares 24 −

BALANCE OFSHARES OUTSTANDING ATTHEEND OFTHEYEAR 96,675,410 96,675,386

Year ended

31December 2021

Year ended

31December 2020

Earnings per share (inthousands ofRussian roubles pershare)

- basic anddiluted, forprofit fortheyear attributable toequity holders

oftheparent

0.129 0.171

Thecalculation ofbasic earnings per

share fortheperiod isbased ontheprofit/

(loss) attributable toshareholders (profit

fortheyear ended 31December 2021:

RUB12,479,546, profit fortheyear ended

31December 2020: RUB16,540,631)

andweighted average number

ofordinary shares outstanding during

therespective periods (96,675,409 shares

at31December 2021 and96,675,386

shares asat31December 2020).

TheGroups’ borrowings

asat31December 2021

and31December 2020 bear market

interest rates, all ofthem aredenominated

inRussian roubles.

Asat31December 2021 theGroup

had RUB180,000,000 ofunused credit

facilities (asat31December 2020:

RUB177,600,000).

Theloan agreements contain financial

andnon-financial covenants.

Asat31December 2021 theGroup

isincompliance withthecovenants. Asat

31December 2021 and31December

2020 theloans andborrowings

oftheGroup areunsecured.

Long-term borrowings:

 Currency  31December

2021

31December

2020

Fixed rate long-term bank loans RUB 56,924,688 15,973,413

Fixed rate long-term bonds RUB 9,987,744 29,967,625

TOTAL LONG-TERM BORROWINGS  66,912,432 45,941,038

Short-term borrowings:

 Currency 31December

2021

31December

2020

Fixed rate short-term bank loans RUB 1,000,000 31,986,386

Fixed rate short-term bonds RUB 19,995,518 538,515

Fixed rate short-term bonds (liability forinterests) RUB 330,137 16,472

Fixed rate long-term bonds (liability forinterests) RUB 51, 7 75 375,953

Fixed rate short-term bank loans (liabilityforinterests) RUB 19, 912 66,842

Fixed rate long-term bank loans (liabilityforinterests) RUB 104,661 26,368

TOTAL SHORT-TERM BORROWINGS ANDSHORT-

TERM PORTION OFLONG-TERM BORROWINGS

21,502,003 33,010,536

20. Borrowings

Strategic ReportLENTA . Annual Report 2021120 121Corporate Governance Report Financial Statements Appendices

 Year ended

31December 2021

Year ended

31December 2020

Current tax expense (4,343,609) (3,442,921)

Deferred tax benefit/(expense) 352,665 (14,063)

Income tax expense recognised inprofit fortheyear (3,990,944) (3,456,984)

 Year ended

31December 2021

Year ended

31December 2020

Profit before tax 16,470,490 19,997,615

Theoretical tax charge at20% being statutory tax rate inRussia (3,294,098) (3,999,523)

Difference intax regimes offoreign companies

60,586 237, 014

Add tax effect ofnon-taxable income andnon-deductible expenses (338,404) (28,163)

(Uncertain tax provision)/ reversal ofpreviously unrecognised uncertain tax

position

(419,028) 333,688

INCOME TAX EXPENSE (3,990,944) (3,456,984)

Differences between IFRS andRussian

statutory tax regulations give rise

totemporary differences between

thecarrying amount ofassets andliabilities

forfinancial reporting purposes andtheir

tax bases. Thetax effect ofthemovements

inthese temporary differences, recorded

attherate of20% isdetailed below.

21. Income taxes

TheGroup’s income tax expense fortheyear ended 31December 2021 and31December 2020 isasfollows:

 1January

2021

Differences

inrecognition

andreversals

recognised inprofit

or loss

Deferred tax

onacquisition

ofsubsidiaries (Note

31December

2021

Tax effect of(taxable)/ deductible temporary differences

Property, plant andequipment − 4,664 (100,507) (95,843)

Right ofuse − 44,468 (836,787) (792,319)

Unused vacation andemployee

bonuses accrual

− 458 10,590 11,048

Intangible assets − (12) (16,957) (16,969)

Inventory − 1, 819 20,720 22,539

Provision forexpected credit losses

ofaccounts receivable, impairment

ofadvances paid andprepayments

forconstruction

− (1,343) 3,047 1,704

Accrued liabilities − 4,470 593 5,063

Lease liabilities − (33,219) 833,859 800,640

Tax loss carryforward − (15,213) 147,949 132,736

Other − 1,907 10,832 12,739

TOTAL NET DEFERRED TAX ASSETS − 7,999 73,339 81,338

Thetemporary differences associated

withinvestments intheGroup’s subsidiaries

forwhich adeferred tax liability has not

been recognised intheperiods presented,

1January

2021

Differences

inrecognition

andreversals

recognised

inprofit or loss

Deferred tax

onacquisition

ofsubsidiaries

(Note 8)

31December

2021

Tax effect of(taxable)/ deductible temporary differences

Property, plant andequipment (9,374,745) (182,414) (1,379,501) (10,936,660)

Right ofuse (6,661,321) (940,890) (3,400,052) (11,002,263)

Unused vacation andemployee bonuses accrual 813 , 172 (40,429) 20,576 793,319

Suppliers’ bonuses (84,385) 58,358 − (26,027)

Borrowings 2,744 1,270 − 4,014

Intangible assets (137,755) (59,777) − (197,532)

Inventory 942,209 (139,351) (39,366) 763,492

Provision forexpected credit losses ofaccounts

receivable, impairment ofadvances paid

andprepayments forconstruction

63,829 63,926 1,039 128,794

Accrued liabilities 909,304 656,279 47,301 1,612,884

Lease liabilities 6,888,301 990,332 3,430,357 11,308,990

Other 116,096 (62,638) 11 , 6 71 65,129

TOTAL NET DEFERRED TAX LIABILITIES (6,522,551) 344,666 (1,307,975) (7,485,860)

aggregate toRUB100,845,682

andRUB91,811,752 asof31December

2021 and2020 respectively.

 1January

2020

Differences

inrecognition

andreversals

recognised inprofit

or loss

31December

2020

Tax effect of(taxable)/deductible temporary differences

Property, plant andequipment (8,538,465) (836,280) (9,374,745)

Right ofuse (6,437,964) (223,357) (6,661,321)

Unused vacation andemployee bonuses accrual 4 07, 2 81 405,891 813 , 172

Suppliers’ bonuses (59,780) (24,605) (84,385)

Borrowings 2,397 347 2,744

Intangible assets (76,608) (61,147) (137,755)

Inventory 793,055 149 , 154 942,209

Provision forexpected credit losses ofaccounts receivable,

impairment ofadvances paid andprepayments

forconstruction

70,750 (6,921) 63,829

Accrued liabilities 799,696 109,608 909,304

Lease liabilities 6,432,001 456,300 6,888,301

Other 99,149 16,947 116,096

TOTAL NET DEFERRED TAX LIABILITIES (6,508,488) (14,063) (6,522,551)

Strategic ReportLENTA . Annual Report 2021122 123Corporate Governance Report Financial Statements Appendices

31December

2021

31December

2020

Social taxes 1,231,553 1,099,531

Output VAT 604,127 −

Personal income tax 324,191 284,232

Property tax 262,755 −

Other taxes 33,911 23,985

TOTAL OTHER TAXES PAYABLE 2,456,537 1,407,748

31December

2021

31December

2020

Advances received forgift cards 711 , 8 75 582,455

Contract liabilities related toloyalty programmes 296,182 124,588

Advances received from wholesale customers 100,331 83,032

TOTAL OTHER TAXES PAYABLE 1,108,388 790,075

Thetrade andother payables aredenominated in:

31December

2021

31December

2020

Russian roubles

72,736,275 60,205,933

USD 1,039,250 1,021,454

EUR 251,626 236,211

GBP 3,861 2,835

TOTAL TRADE ANDOTHER PAYABLES 74,031,012 61,466,433

 31December

2021

31December

2020

Trade payables 59,887,528 48,730,068

Accrued liabilities andother creditors 7,335,805 4,845,792

Accrued liabilities toemployees 3,819,954 4,367,684

Payables forpurchases ofproperty, plant andequipment 2,987,725 3,522,889

TOTAL TRADE ANDOTHER PAYABLES 74,031,012 61,466,433

22. Trade andother payables

23. Contract liabilities

24. Other taxes payable

25. Cost ofsales

Employee benefits fortheyear ended

31December 2021 includes social charges

ofRUB4,769,933 (fortheyear ended

31December 2020: RUB3,922,267).

Theaverage number ofemployees

employed bytheGroup during theyear

ended 31December 2021 was49,838

(duringtheyear ended 31December

2020: 43,323).

Professional fees fortheyear ended

31December 2021 include fees billed

byErnst & Young LLC: fortheaudit

oftheconsolidated financial statements

intheamount ofRUB21,684 (fortheyear

ended 31December 2020: RUB29,222)

andforother professional services

intheamount ofRUB15,238 (fortheyear

ended 31December 2020: RUB12,844).

 Year ended

31December 2021

Year ended

31December 2020

Employee benefits 35,435,772 31,264,457

Depreciation andamortisation (Notes 7, 10, 12) 21,626,854 18,540,233

Advertising 6,489,346 5,748,928

Utilities andcommunal payments 5,625,990 4,969,707

Professional fees 4,489,152 4,318,190

Repairs andmaintenance 3,885,549 3,523,836

Cleaning 3,878,696 3,508,353

Security services 2,497,105 2,082,074

Taxes other than income tax 1,583,929 1,456,812

Rent expense (Note 10) 1,212,296 1,031,359

Other 4,722,328 3,670,230

TOTAL SELLING, GENERAL ANDADMINISTRATIVE EXPENSES 91,447,017 80,114,179

26. Selling, general

andadministrative expenses

Cost ofgoods sold isreduced byrebates

andpromotional bonuses received from

suppliers.

Cost ofsales fortheyear ended

31December 2021 includes employee

benefits expense ofRUB10,512,309

(fortheyear ended 31December 2020:

RUB9,419,920) ofwhich social charges

arecomprised ofRUB1,468,483

(fortheyear ended 31December 2020:

RUB1,330,005).

Cost ofsales fortheyear ended

31December 2021 includes cost ofraw

materials used inown production

ofRUB20,579,284 (fortheyear ended

31December 2020: RUB17,194,010).

Strategic ReportLENTA . Annual Report 2021124 125Corporate Governance Report Financial Statements Appendices

 Year ended

31December 2021

Year ended

31December 2020

Sale ofsecondary materials 2,177,095 1,133,736

Penalties due bysuppliers 1,930,929 1,152,192

Rental income 1,852,678 1,475,979

GDR programme reimbursement 176,805 3 31 , 111

Advertising income 159,074 609,191

Gain onproperty, plant andequipment disposal 38,836 45,730

Gain from termination anddecrease inscope oflease contracts (Note 10) 33,596 47,244

Insurance compensation − 218,038

Other 210,034 186,681

TOTAL OTHER OPERATING INCOME 6,579,047 5,199,902

Interest expenses arecomprised ofthefollowing:

 Year ended

31December 2021

Year ended

31December 2020

Interest expense onborrowings 5,754,282 6,795,768

Interest expense onlease liabilities 3,569,369 2,716,486

TOTAL INTEREST EXPENSE 9,323,651 9,512,254

Income generated from theGDR

programme represents reimbursements

 Year ended

31December 2021

Year ended

31December 2020

Changes inallowance forimpairment andwrite-offs ofadvancespaid

andprepayments forconstruction

328,689 67,147

Loss from property, plant andequipment andintangible assetsdisposal 298,995 210,299

Compensation fortermination ofcontracts withproviders 127,366 35,046

Penalties from government authorities 80,303 36,774

Changes inexpected credit losses ofaccounts receivable 72,572 19,371

Loss from termination anddecrease inscope oflease contracts (Note 10) 9,883 5,796

Non-recoverable VAT 108,636 15,975

Other 207,908 132,062

TOTAL OTHER OPERATING EXPENSES 1,234,352 522,470

done bythedepositary out ofrevenue

charged from GDR holders.

Other operating expenses arecomprised

ofthefollowing:

27. Other operating income

andexpenses

Other operating income iscomprised ofthefollowing:

28. Interest expense

29. Share options reserve

Share value appreciation rights

During theyear 2013 andtheyear

2016 theGroup granted share value

appreciation rights (SVARs) tocertain

members of thetop management aspart

of themanagement long-term incentive

plan. Each SVAR entitles theholder

toaquantity ofordinary shares inLenta

IPJSC based onanincrease intheshare

price overapredetermined exercise

price subject tomeeting theperformance

conditions.

Asat31December 2019, SVARs of2013

year were fully vested.

InApril 2020, SVARs of2016 year expired

worthless. The total expense fortheservices

received from theemployees previously

recognised withrespect toexpired SVARs

wasRUB20,486.

2017 tranche 2019 tranche Total

Settlement bycash payment (USD3.6$ per GDR)

Settlement bycash inApril 2020 79,843 115 , 513 195,356

Excess ofexpenses accrued vs. paymentmade 64,727 29,642 94,369

Long-term incentive plan

TheGroup approved along-term

incentive plan (LTIP) tocertain members

ofsenior andmiddle management,

according towhich theGroup annually

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 coefficient

andindividual performance rating

coefficient.

Thefair value oftheaward shares

wasestimated based ontheGDR price on

theLondon Stock Exchange ontheaward

grant date.

Asat31December 2021, Tranche 2014,

2015, 2016, 2017, 2018 arefully vested.

Share-option modification

Inthefourth quarter oftheyear

ended 31December 2020, equity-

settled unvested awards Tranche

2018 andTranche 2019 tothemiddle

andtop management wereconverted

so astobecome fixed remuneration but

their terms areotherwise unchanged.

Thenumber ofconverted instruments

atfixed price ofUS$3.6 remained

unchanged. Thefixed remuneration

wasaccounted forasother long-

term employee benefits inaccordance

withIAS 19.

Attheconversion date thetotal

amount offixed remuneration payable

ofRUB346,393 intheextent towhich

therelated services have been received

wasreclassified from share option

reserve intheconsolidated statement

ofchanges inequity totrade andother

payables.

Set out below istheinformation about

awards settlement during year ended

31December 2021:

Total expense recognised fortheservices received from theemployees covered bylong-term incentive plan fortheyear ended

31December 2021 andfortheyear ended 31December 2020 isshown inthefollowing table:

Year ended

31December 2021

Year ended

31December 2020

Expense arising from theequity-settled long-term incentive planpayments − 342,297

Incremental fair value arising from conversion oftheequity-settled long-term

incentive plan intoemployee benefits under IAS 19

− 119,092

TOTAL − 461,389

Strategic ReportLENTA . Annual Report 2021126 127Corporate Governance Report Financial Statements Appendices

Year ended

31December 2021

Year ended

31December 2020

Expense arising from theequity-settled SVARs transaction − 2,201

 31December

2021

31December

2020

Financial assets measured atamortised cost

Cash andcash equivalents 33,326,489 21,808,874

Trade andother receivables 13,124,546 10,902,839

Other non-current financial assets 482,524 445,171

TOTAL FINANCIAL ASSETS MEASURED ATAMORTISED COST 46,933,559 33,156,884

Financial liabilities measured atamortised cost

Fixed rate long-term bank loans andbonds 66,912,432 45,941,038

Fixed rate short-term bank loans andbonds andshort-term liability forinterests

forlong-term bank loans andbonds

21,502,003 33,010,536

Lease liabilities 60,548,145 34,441,507

Trade andother payables 74,031,012 61,466,433

TOTAL FINANCIAL LIABILITIES MEASURED ATAMORTISED COST 222,993,592 174,859,514

30. Capital expenditure commitments

At31December 2021, theGroup

has contractual capital expenditure

commitments inrespect ofproperty, plant

andequipment andintangible assets

totalling RUB4,494,385 net ofVAT

(31December 2020: RUB4,333,015 net

ofVAT).

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.

Attheend of2020, thenew Lenta Top

Member Award (LTMA) combining

long-term andshort-term incentive

programme wasintroduced for thesenior

andmiddle management. Theremuneration

wasaccounted forasemployee benefits

inaccordance withIAS 19. Other long-

term liability represents thelong-term

portion oftheliability toemployees under

theLTMA programme.

31. Financial instruments

Categories offinancial instruments

Themanagement assessed that

thecarrying amounts ofcash andshort-

term deposits, trade receivables, trade

payables, other liabilities approximate their

fair values largely due totheshort-term

maturities ofthese instruments.

Thefair value ofthefinancial assets

andliabilities isincluded attheamount

atwhich theinstrument could

beexchanged inacurrent transaction

between willing parties, other than

inaforced or liquidation sale.

Thefollowing methods andassumptions

areused toestimate thefair values:

• Fair values oftheGroup’s interest-

bearing borrowings andloans

aredetermined byusing DCF method

using discount rate that reflects

theissuer’s borrowing rate asattheend

ofthereporting period. Theown non-

performance risk asat31December

2021 and31December 2020

isassessed tobeinsignificant.

• Thefair value ofbonds isbased

ontheprice quotations atthereporting

date on the Moscow Exchange where

transactions withbonds take place

withsufficient frequency andvolume.

During thereporting periods ended

31December 2021 and31December

2020, there areno transfers between

Level 1, Level2 andLevel 3 offair value

measurements.

31December 2021 31December 2020

Carrying amount Fair value Carrying amount Fair value

Financial liabilities

Interest-bearing loans andborrowings

Fixed rate bank loans andbonds 88,414,435 88,319,476 78,951,574 79,516,819

TOTAL FINANCIAL LIABILITIES 88,414,435 88,319,476 78,951,574 79,516,819

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:

Quantitative disclosures offair value measurement hierarchy fortheGroup’s financial liabilities asat31December 2021 and

31December 2020 arepresented below:

 31December

2021

Level 1 Level 2 Level 3

Financial liabilities forwhich fairvalues aredisclosed

Fixed rate bonds 31,164,878 31,164,878 − −

Fixed rate bank loans 57,154,598 − 57,154,598 −

Fair values

 31December

2020

Level 1 Level 2 Level 3

Financial liabilities forwhich fairvalues aredisclosed

Fixed rate bonds 31,702,693 31,702,693 − −

Fixed rate bank loans 47,814,126 − 47,814,126 −

Strategic ReportLENTA . Annual Report 2021128 129Corporate Governance Report Financial Statements Appendices

Changes inliabilities arising from financing activities

31December

2020

Proceeds from

borrowings

Repay-

ments

ofborrowings

Reclas-

sifications

Acquisition

ofsubsidiaries

(Note 8)

Other 31December

2021

Long-term

borrowings

45,941,038 41,925,200 − (20,992,237) − 38,431 66,912,432

Short-term

borrowings

33,010,536 − (32,707,263) 20,992,237 168,748 37,745 21,502,003

TOTAL 78,951,574 41,925,200

(32,707,263)

− 168,748 76,176 88,414,435

31December

2019

Proceeds

from

borrowings

Repay-

ments

ofborrowings

Reclas-

sifications

Other 31December

2020

Long-term borrowings 82,110,441 30,792,775 (10,000,000) (56,998,068) 35,890 45,941,038

Short-term borrowings 68,430,816 15,000,000 (107,240,001) 56,998,068 (178,347) 33,010,536

TOTAL 150,541,257 45,792,775

(117,240,001)

− (142,457) 78,951,574

The‘Other’ column includes thenet effect ofaccrued andpaid interest oninterest bearing loans. The Group classifies interest paid ascash

flows from operating activities.

Change inUSDrate Effect onprofit before tax

Year ended 2021 15.00% (123,272)

-15.00% 123,272

Year ended 2020 16.00% (143,763)

-16.00% 143,763

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.

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 2021 15.00% (33,180)

-15.00% 33,180

Year ended 2020 16.00% (36,367)

-16.00% 36,367

32. Financial risk management

TheGroup’s principal financial liabilities,

other than derivatives, arecomprised

ofloans andborrowings, trade andother

payables. Themain purpose ofthese

financial liabilities istofinance theGroup’s

operations andtoprovide guarantees

tosupport its operations. TheGroup’s

principal financial assets include loans,

trade andother receivables, andcash

andshort-term deposits that derive directly

from its operations. TheGroup also enters

intoderivative transactions.

TheGroup isexposed tomarket risk, credit

risk andliquidity risk. TheGroup’s senior

management oversees themanagement

ofthese risks. TheGroup’s financial risk

activities aregoverned byappropriate

policies andprocedures andfinancial risks

areidentified, measured andmanaged

inaccordance withtheGroup’s policies

andrisk objectives. All derivative activities

forrisk management purposes arecarried

out byspecialists that have theappropriate

skills, experience andsupervision. It

istheGroup’s policy that no trading

inderivatives forspeculative purposesmay

beundertaken.

TheBoard ofDirectors reviews andagrees

policies formanaging each ofthese risks,

which aresummarised below.

Market risk

Foreign currency risk

Foreign currency risk istherisk that thefair

value or future cash flows ofafinancial

instrument will fluctuate because

ofchanges inforeign exchange rates.

During theyears ended 31December

2021 and2020, theGroup does

not attract anyamounts offoreign

currency denominated borrowings,

andasaconsequence isnot materially

exposed toforeign currency risk. Theonly

balances that areexposed toforeign

currency risk areaccounts payables

toseveral foreign suppliers.

Whenever possible, theGroup tries

tomitigate theexposure toforeign currency

risk bymatching thestatement offinancial

position, andrevenue andexpense items

intherelevant currency.

Market risk istherisk that thefair value

offuture cash flows ofafinancial

instrument will fluctuate because

ofchanges inmarket prices. Market risk

comprises thefollowing types ofrisk:

interest rate risk, currency risk, andother

price risk, such asequity price risk.

Financial instruments affected bymarket

risk include loans andborrowings, cash

equivalents andderivative financial

instruments.

Strategic ReportLENTA . Annual Report 2021130 131Corporate Governance Report Financial Statements Appendices

Credit risk

trades only withrecognised, creditworthy

third parties. It istheGroup’s policy that

all customers who aregranted credit

terms have ahistory ofpurchases from

theGroup. TheGroup also requires these

customers toprovide certain documents

such asincorporation documents

andfinancial statements. Inaddition,

receivable balances aremonitored

onanongoing basis withtheresult that

theGroup’s exposure tocredit risk isnot

significant. Sales toretail customers

aremade incash, debit cards or

viamajor credit cards.

Cash andcash equivalents

Credit risk from investing activities

ismanaged bytheGroup’s treasury

department inaccordance withtheGroup’s

policy. Investments ofsurplus funds

aremade only withapproved

counterparties. Cash isplaced infinancial

institutions, which areconsidered attime

ofdeposit tohave minimal risk ofdefault.

Themaximum exposure tocredit risk

atthereporting date oftrade receivables

isthecarrying value aspresented

inthestatement offinancial position.

Themaximum exposure tocredit risk

atthereporting date ofcash andcash

equivalents isRUB32,850,678

(31December 2020: RUB21,532,580).

Foreign currency exchange rate

reasonable possible change range

wasprepared forthepurpose ofmarket

risk disclosures inaccordance withIFRS7

andisderived from statistical data,

inparticular time series analysis.

Interest rate risk

Interest rate risk istherisk that

thefair value offuture cash flows

ofthefinancial instrument will fluctuate

because ofchanges inmarket interest

rates. Asat31December 2021

andasat31December 2020, theGroup

has no financial instruments withfloating

interest rates.

Liquidity risk

TheGroup monitors its risk toashortage

offunds using arecurring liquidity planning

tool. This tool considers thematurity ofits

financial assets andliabilities andprojected

cash flows from operations. TheGroup

objective istomaintain acontinuity

offunding andflexibility through theuse

ofbank overdrafts andbank loans. Each

year theGroup analyses its funding needs

andanticipated cash flows, so that it can

determine its funding needs.

Thetable below summarises thematurity

profile oftheGroup’s financial liabilities

at31December 2021 and31December

2020 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.

Credit risk istherisk that counterpartymay

default or not meet its obligations

totheGroup onatimely basis, leading

tofinancial loss totheGroup. Financial

assets, which arepotentially subject

tocredit risk, consist principally ofcash

inbank accounts andcash intransit, loans

andreceivables.

Trade receivables

TheGroup has no significant

concentrations ofcredit risk.

Concentration ofcredit risk withrespect

toreceivables islimited due

totheCompany’s customer andvendor

base being large andunrelated. Credit

isonly extended tocounterparties subject

tostrict approval procedures. TheGroup

31December 2021

Less than

12 months

1–5 periods Over

5 periods

Total

Borrowings 26,925,594 72,073,987 − 98,999,581

Lease liabilities 2,757,782 38,664,212 40,680,931 82,102,925

Trade andother payables 74,031,012 − − 74,031,012

TOTAL 103,714,388 110,738,199 40,680,931 255,133,518

31December 2021 31December 2020

Borrowings 88,414,435 78,951,574

Lease liabilities 60,548,145 34,441,507

Cash andcash equivalents (Note 17) (33,326,489) (21,808,874)

Net debt 115,636,091 91,584,207

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.

31December 2020

Less than

12 months

1–5 periods Over

5 periods

Total

Borrowings 37,062,819 49,167,294 − 86,230,113

Lease liabilities 5,765,364 20,666,697 28,338,092 54,770,153

Trade andother payables 61,466,433 − − 61,466,433

TOTAL 104,294,616 69,833,991 28,338,092 202,466,699

Capital management

TheGroup manages its capital toensure

that entities intheGroup will beable

tocontinue asagoing concern while

maximising thereturn tostakeholders

through theoptimisation ofthedebt

andequity balance.

TheGroup reviews its capital needs

periodically todetermine actions tobalance

its overall capital structure through

shareholders’ capital contributions or new

share issues, return ofcapital toshareholders

aswellastheissue ofnew debt or

theredemption ofexisting debt. TheGroup

isguided inits decisions byanestablished

financing policy, which stipulates leverage

ratios, interest coverage, covenants

compliance, appropriateness ofbalance

between long-term andshort-term debt,

requirements todiversification offunding

sources. Dividends aretobedeclared based

onthecapital requirements ofthebusiness

andwithreference tocontinuing compliance

withthefinancial policy.

Thecapital structure oftheGroup consists

ofdebt, which includes theborrowings

disclosed inNote 20, lease liabilities less

cash andcash equivalents andequity

attributable toequity holders oftheparent,

comprising issued capital, reserves

andretained earnings.

Net debt oftheGroup comprises

ofthefollowing:

Strategic ReportLENTA . Annual Report 2021132 133Corporate Governance Report Financial Statements Appendices

Russian Federation tax andregulatory environment

Thegovernment oftheRussian Federation

continues toreform thebusiness

andcommercial infrastructure inits

transition toamarket economy.

Asaresult thelaws andregulations

affecting businesses continue tochange

rapidly. These changes arecharacterised

bypoor drafting, different

interpretations andarbitrary application

bytheauthorities. Inparticular, taxes

aresubject toreview andinvestigation

byanumber ofauthorities who

areenabled bylaw toimpose fines

andpenalties. While theGroup believes

it has provided adequately forall tax

liabilities based onits understanding

ofthetax legislation, theabove

factsmay create tax risks fortheGroup.

The management also assesses

themaximum exposure from possible

tax risks tobeRUB3,267,036

(31December 2020: RUB2,123,772).

The management continues tomonitor

closely anydevelopments related

tothese risks andregularly reassesses

therisk andrelated liabilities, provisions

anddisclosures.

33. Contingencies

Operating environment oftheGroup

TheGroup sells products that aresensitive

tochanges ingeneral economic conditions

that impact consumer spending. Future

economic conditions andother factors,

including theoutbreak ofcoronavirus

infection, sanctions imposed, consumer

confidence, employment levels, interest

rates, consumer debt levels andavailability

ofconsumer credit could reduce consumer

spending or change consumer purchasing

habits. Ageneral slowdown intheRussian

economy or intheglobal economy, or

anuncertain economic outlook, could

adversely affect consumer spending habits

andtheGroup’s operating results.

Russia continues economic reforms

anddevelopment ofits legal, tax

andregulatory frameworks asrequired

byamarket economy.Thefuture

stability oftheRussian economy

islargely dependent upon these reforms

anddevelopments andtheeffectiveness

ofeconomic, financial andmonetary

measures undertaken bythegovernment.

Theglobal spread ofCOVID-19may

have asignificant andprolonged impact

onglobal economic conditions, disruptions

insupply chain, increase inemployee

absenteeism andadversely impact

operations.

Since 2020, theRussian authorities have

taken anumber ofmeasures tomitigate

theeffect ofCOVID-19 ontheRussian

economy. Therange ofmeasures isvery

broad andincludes, amongst others,

thedeferral oftax andlease payments,

suspension offield audits, prolongation

ofvarious state licenсes andpermits,

credit holidays andbank loans atreduced

rates.Food retail wasnot included inthelist

ofmost affected sectors. TheGroup

wasincluded inthelist ofsystemically

important companies. TheGovernment

ofRussia provided thefollowing support

measures forcompanies, added tothelist

ofsystemically important ones: budget

subsidies, deferral oftaxes andtax advances,

state guarantees forcredits andloans.

TheGroup did not apply forsupport

measures provided bytheGovernment.

COVID-19 andOmicron variant

ofCOVID-19 continue toimpact

operations, albeit less than inprevious

periods. Consumer’s shopping behaviour

andthus traffic remains difficult

topredict andtheGroup isincurring

additional COVID-19 preventive costs

onantibacterial protection equipment

andliquids foremployees andcustomers,

masks andgloves aswellascleaning

services. Consumer demand forfood

products isstable. TheGroup performed

assessment oftheimpact ofCOVID-19

ontheimpairment ofnon-financial assets

(Note 7, 10) andoncredit risk withrespect

toreceivables (Note 15).

While thefull financial impact ofthecrisis

in along-term perspective isimpossible

topredict withahigh degree ofcertainty,

themanagement strongly believes

inpositive outcome ontheperformance

oftheGroup.

The management believes it istaking

appropriate measures tosupport

thesustainability oftheGroup’s business

inthecurrent circumstances.

Legal contingencies

The Group companies areinvolved

inanumber oflawsuits anddisputes that

arise inthenormal course ofbusiness.

The management assesses themaximum

exposure relating tosuch lawsuits

anddisputes tobeRUB577,399

asat31December 2021 (31December

2020: RUB89,974). The 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.

34. Events occurring after

thereporting period

InFebruary 2022, theCompany obtained

control overNoviy Impuls-50 LLC through

purchase of100% interest from Severgroup,

theparent. Noviy Impuls-50 LLC is

anonline-retailer operating under thebrand

Utkonos. Asaresult ofthetransaction

theGroup plans tocreate aleading

e-grocery platform covering all key

shopping missions andmarket segments.

Thepurchase consideration amounts

toRUB20,000,000. Theacquisition

of100% interest ofNoviy Impuls-50 LLC

byLenta IPJSC will befinanced byissue

of23,590,795 additional ordinary

shares ofLenta IPJSC through aprivate

placement offering toSevergroup

ataprice ofRUB1,087per share.

Other shareholders oftheCompanymay

participate byexercising preemptive

rights toacquire additional shares.

On11February 2022, anExtraordinary

Meeting ofShareholders approved

theproposed increase intheLenta IPJSC’s

share capital byway ofadditional

share issuance byclosed subscription.

TheGroup isin theprocess

ofcalculation ofprovisional values

ofnet assets acquired andpurchase

price allocation. TheGroup will finalise

thepurchase price allocation within

12 months from theacquisition date

which isnot yet finished atthedate

ofapproval ofthese consolidated

financial statements.

Environmental matters

Theenforcement ofenvironmental

regulation intheRussian Federation

isevolving andtheenforcement posture

ofgovernment authorities iscontinually

being reconsidered. TheGroup

periodically evaluates its obligations

under environmental regulations.

Asobligations aredetermined, they

arerecognised immediately. Potential

liabilities, which might arise asaresult

ofchanges inexisting regulations,

civil litigation or legislation, cannot

beestimated but could bematerial.

In the current enforcement

climate under existing legislation,

themanagement believes that there

are no significant liabilities for

environmental damage.

Strategic ReportLENTA . Annual Report 2021134 135Corporate Governance Report Financial Statements Appendices

Appendices

Asof31December 2021, Lenta

share capital comprises 97,585,932

authorised andissued ordinary shares

withRUB0.0912632 par value.

All Lenta’s shares carry equal voting

anddistribution rights. GDR holders

areentitled toreceive dividends

andparticipate intheGeneral Meeting

ofShareholders. Therights totheshares

represented bytheGDRs, including

theright tovote, arelimited bytheterms

oftheDeposit Agreement andtherelevant

requirements ofRussian legislation.

Equity capital structure

asof31December 2021

Share, % Shareholders’

equity capital

Severgroup LLC 77.99%

Treasury shares 0.93%

Institutional investors andemployees 21.08%

Total 100.00%

Share capital

LTM Stock Performance

Lenta stock price performance

Sep-21 Oct-21 Nov-21 Dec-21Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21

LNTADR.MM .IMOEX .iRTS .MCXSM

Jan-21 Feb-21

-40%

-30%

-20%

-10%

10%

20%

30%

40%

50%

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

4 000 000

4 500 000

0,0

0,5

1,0

1,5

2,0

2,5

3,5

4,0

Close Price, $

Turnover, $ Close Price, $

FY 2020

Financial

results

Billa deal

announcement

Lenta CMD

1Q 2021

Earnings call

Semya deal

announcement

2Q 2021

Operating &

financial results

3Q 2021

Operating &

financial

results

Billa

completion

Semya

completion

Dividend policy

announcement

Utkonos

acquisition

Ordinary

listing on

MOEX

4Q & FY 2021

Trading update

Redomiciliation

Utkonos

completion

3,0

Strategic ReportLENTA . Annual Report 2021138 139Corporate Governance Report Financial Statements Appendices

Company’s subsidiaries

andassociates

TheCompany had thefollowing subsidiaries and associates asat31December 2021:

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’.

List ofcities asof31December 2021

• Achinsk

• Almetyevsk

• Arkhangelsk

• Armavir

• Astrakhan

• Balakovo

• Barnaul

• Belgorod

• Biysk

• Bratsk

• Bryansk

• Cheboksary

• Chelyabinsk

• Cherepovets

• Cherkessk

• Dimitrovgrad

• Ekaterinburg

• Engels

• Grozny

• Irkutsk

• Ivanovo

• Izhevsk

• Kaluga

• Kamensk-Uralsky

• Kazan

• Kemerovo

• Khanty-Mansiysk

• Kostroma

• Krasnodar

• Krasnoyarsk

• Kurgan

• Kursk

• Lipetsk

• Magnitogorsk

• Maykop

• Moscow

• Murmansk

• Naberezhnye Chelny

• Nizhnevartovsk

• Nizhnekamsk

• Nizhniy Novgorod

• Nizhniy Tagil

• Novocherkassk

• Novokuznetsk

• Novorossiysk

• Novoshakhtinsk

• Novosibirsk

• Noyabrsk

• Obninsk

• 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

• Tula

• Tver

• Tyumen

• Ufa

• Ulyanovsk

• Velikiy Novgorod

• Vladimir

• Volgograd

• Vologda

• Volzhskiy

• Voronezh

• Yaroslavl

• Yoshkar Ola

• Yurga

• Zheleznovodsk

Country

ofincorporation

Principal

activities

Holding, %

31December

2021

31December

2020

Lenta LLC Russia Retail 100 100

Lenta-2 LLC Russia Holding ofinvestments 100 100

Lenta Global Ltd Cyprus Holding ofinvestments 100 100

TRK Volzhsky LLC Russia Holding ofinvestments 100 100

TK Zheleznodorozhny LLC Russia Holding ofproperty 100 100

Billa LLC* Russia Retail 100 −

Billa Realty LLC* Russia Retail 100 −

Semya Retail LLC* Russia Retail 100 −

Bolshaya Semya LLC* Russia Retail 100 −

Semya Logistika LLC* Russia Logistics 100 −

Smak LLC* Russia Production 100 −

Vostorg LLC* Russia Production 100 −

Semya LLC* Russia Retail 100 −

Novaya Semya LLC* Russia Retail 100 −

Semya na Borchaninova LLC* Russia Retail 100 −

Semya na Vedeneeva LLC* Russia Retail 100 −

Semya na Karbisheva LLC* Russia Retail 100 −

Semya na Gashkova LLC* Russia Retail 100 −

Semya na M. Ribalko LLC* Russia Retail 100 −

Semya na Krupskoy LLC* Russia Retail 100 −

Semya na Parkovom LLC* Russia Retail 100 −

Semya na Sadovom LLC* Russia Retail 100 −

Semya fresh LLC* Russia Retail 100 −

Semya na Pushkina LLC* Russia Retail 100 −

Semya na Mira, 41 LLC* Russia Retail 100 −

Semya v Dobryanke LLC* Russia Retail 100 −

Mega LLC* Russia Retail 100 −

Universam-1 LLC* Russia Retail 100 −

Universam-2 LLC* Russia Retail 100 −

Semya Opt LLC* Russia Retail 100 −

Semya na Geroev Khasana LLC* Russia Retail 100 −

Semya na Sibirskoy LLC* Russia Retail 100 −

Semya u doma LLC* Russia Retail 100 −

Domoi Dostavim LLC* Russia Delivery 25 −

* Subsidiaries wereacquired in2021 (Note 8).

Strategic ReportLENTA . Annual Report 2021140 141Corporate Governance Report Financial Statements Appendices

Glossary

Unless otherwise specified, theterms ‘we’, ‘us’,

and‘our’ refer toLenta IPJSC, or where thecontext

allows, totheLenta business more generally.

active card holder – a customer who

has purchased goods atone ofour stores

atleast twice inthepast 12months using

our loyalty card

average sales density – total

sales during therelevant year divided

bytheaverage selling space forthat year

average ticket – 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IPJSC

BVI – theBritish Virgin Islands

Capex – capital expenditure

CAGR – compounded annual growth rate

EGAIS – national automated information

system forthecontrol ofalcohol production

anddistribution

Further information

Inthis annual report, we present certain operating andfinancial

information regarding our hypermarkets supermarkets

andconvenience stores, which we define asfollows:

EBITDA

Profit fortheperiod before foreign

exchange gains/losses, revaluation

offinancial instruments atfair value through

profit or loss, reversal ofimpairment

ofnon-financial assets, other expenses,

depreciation andamortisation, interest

andtax. Thereconciliation ofEBITDA

toIFRS profit ispresented intabular format

inNote 6 totheConsolidated Financial

Statements.

EBITDA Margin

EBITDA asapercentage ofsales

EBITDAR

EBITDA before rent paid onland,

equipment andpremises leases

EBITDAR Margin

EBITDAR asapercentage ofsales

FMCG – fast-moving consumer

goods – products that aresold quickly

andatrelatively low cost

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average daily in-store availability

ofall open stores

LFL – like-for-like

MAU – monthly active users

NPS Net Promoter score

P&L – profit andloss statement

SG&A – selling, general and

administrative expenses which isamajor

non-production cost presented

intheincome statement

Shares – our ordinary shares

SKU a‘stock keeping unit’, or anumber

assigned toaparticular product

toidentify theprice, product options

andmanufacturer ofthemerchandise

sq.m – square metre(s)

ticket – thereceipt issued toacustomer

forhis/her basket (theamount spent

byacustomer onashopping trip)

total selling space – thearea inside

our stores used tosell products, excluding

areas rented out tothird parties, own-

production areas, storage areas

andthespace between store entry

andthecash desk line

traffic – thenumber oftickets issued

fortheperiod under review

Like-for-Like sales (LFL)

We distinguish between sales attributable

tonew stores andsales attributable

toexisting stores. We consider thesales

generated bystores until theend

ofthe12thfullcalendar month oftheir

operation tobesales attributable tonew

stores. Accordingly, like-for-like sales

begin withthecomparison ofthe13th full

calendar month ofoperations ofastore

toits first full calendar month ofoperations,

assuming thestore has not subsequently

closed, expanded or downsized.

Thenumber ofstores inour like-for-like

panel asof31December 2021 and2020

was372 (247hypermarkets and125

supermarkets) and351 (230 hypermarkets

and121 supermarkets) respectively. ‘Like-

for-like average ticket growth’, ‘like-for-

like average price growth perarticle’,

‘like-for-like traffic growth’, and‘like-for-

like average sales density’ arecalculated

usingthesame methodology aslike-for-

like sales.

Net Debt

thesum ofshort-term andlong-term debt

(including borrowings andobligations

under finance leases, capitalised fees

andaccrued interest) minus cash andcash

equivalents

SG&A/Sales

SG&Aasaproportion ofsales.

Theratio ofNet Debt toEBITDA

Net Debt divided byEBITDA

Theratio ofEBITDA tonet interest

expense

EBITDA divided bynet interest expense,

which iscalculated asinterest expense less

interest income

Strategic ReportLENTA . Annual Report 2021142 14 3Corporate Governance Report Financial Statements Appendices

Cautionary statements

Forward-looking

statements

This document contains certain ‘forward-

looking statements’ which include all

statements other than those ofhistorical

facts that relate toour plans, financial

position, objectives, goals, strategies,

future operations andperformance,

together withtheassumptions underlying

such matters.

We generally use words such

as‘estimates’, ‘expects’, ‘believes’,

‘intends’, ‘plans’, ‘may’, ‘will’, ‘should’,

‘projects’, ‘anticipates’, ‘targets’, ‘aims’,

‘would’, ‘could’, ‘continues’ andother

similar expressions toidentify forward-

looking statements. We have based these

forward-looking statements onthecurrent

views ofour management withregard

tofuture events andperformance. These

views reflect themanagement’s best

judgement, but involve uncertainties

andaresubject tocertain known

andunknown risks together withother

important factors outside our control,

theoccurrence ofwhich could cause

actual results todiffer materially from

those expressed inour forward-looking

statements.

Market andindustry data

Statements referring toour competitive

position andtheRussian retail

food sector reflect our beliefs and,

insomecases, private andpublicly

available information andstatistics,

including annual reports, industry

publications, market research, press

releases, filings under various securities

laws, official data published byRussian

governmental entities anddata published

byinternational organisations andother

third-party sources.

Rounding

Certain figures inthis document have

been subject torounding adjustments.

Accordingly, figures shown forthesame

category presented indifferent tablesmay

vary slightly, andfigures shown astotals

incertain tablesmay not beanarithmetic

aggregation ofthefigures that precede

them.

Notes

Strategic ReportLENTA . Annual Report 2021144 14 5Corporate Governance Report Financial Statements Appendices