Ros Agro S Regulatory News (AGRO)

17 November 2017

ROS AGRO financial results for 9M 2017 and Q3 2017

17 November 2017 - Today ROS AGRO PLC (the "Company"), the holding companyof Rusagro Group (the "Group"), a leading Russian diversified food producer with vertically integrated operations, has announced the financial results for the Nine months ended 30 September 2017.

9M 2017 Highlights

- Sales amounted to RR 54,829 million (US$ 941 million1), a decrease of RR 760 million compared to 9M 2016;

- Adjusted EBITDA2 amounted to RR 8,538 million (US$ 147 million), a decrease of RR 2,950 million compared to 9M 2016;

- Adjusted EBITDA margin decreased from 21% in 9M 2016 to 16% in 9M 2017;

- Net profit for the period amounted to RR 3,089 million (US$ 53 million);

- Net debt position3 as of 30 September 2017 amounted to RR 1,702 million (US$ 29 million);

- Net Debt/ Adjusted EBITDA (LTM4) as of 30 September 2017 was 0.11x.

Commenting on the results, Maxim Basov, a member of the Board of Directors of ROS AGRO PLC and CEO of the Group, said:

"In Q3 2017 meat division enjoyed high price for meat, low price for grain and improved marginality in processing. Sugar and agricultural divisions had record production results but the lowest marginality in history due to low prices of sugar and grain. Large fall in net income for the quarter year-to-year is a result of low valuation of agricultural crop. Oil and fat division returned to profitability with good outlook for the rest of the year."

Key consolidated financial performance indicators

*Net profit for the period is affected by non-cash loss on revaluation of biological assets and agricultural produce. See details in business-sections below. Net profit for the period excl. effect of biological assets and agricultural produce revaluation amounted to RR 5,644 million in 9M 2017 and RR 2,025 million in Q3 2017 (9M 2016: RR 8,631 million; Q3 2016: RR 3,247 million), a decrease of RR 2,986 million or 35% compared to 9M 2016 and RR 1,222 million or 38% compared to Q3 2016.

Key financial performance indicators by segments

Sugar Segment

The financial results of the sugar segment for 9M 2017 and Q3 2017 compared to 9M 2016and Q3 2016 respectively are presented in the table below:

Sales revenue decreased in 9M 2017 compared to 9M 2016 due to several reasons: sugar sales price decreased by 21%, buckwheat sales price decreased by 14% and rice sales volume decreased by 4 thousand tons. Revenue decrease was partially compensated by growth in sales volume of sugar by 51 thousand tons, buckwheat and beet pulp by 10 and 34 thousand tons respectively.

Sales revenue decreased in Q3 2017 compared to Q3 2016 mainly due to lower sugar sales price. Sales decrease was partially compensated by growth in sales volume of sugar, buckwheat and beet pulp.

Sugar sales, production volumes and average sales prices per kilogram (excl. VAT) wereas follows:

Distribution and selling expenses in 9M 2017 compared to 9M 2016 increased by RR 379 million mainly due to transportation and loading expenses, payroll and advertising expenses. Changes in transportation expenses related to increased export sales. In 9M 2017 advertising expenses increased due to TV-advertising of sugar brands.

An increase in General and administrative expenses in 9M 2017 by RR 302 million compared to the respective period of 2016 includes RR 129 million of an increase attributed to three sugar plants and a buckwheat processing plant that joined the Group in May 2016. The financial results of the new plants are included in the consolidated segment's results starting 1 June 2016. The effect on an increase in General and administrative expenses attributed to the new plants contains RR 37 million of one-off expenses representing the additional value-added tax accrued in Q1 2017 in respect of previous years' tax periods.

The remaining increase in General and administrative expenses mainly relates to higher payroll costs connected with the increase in number of employees in the management company, which also correlates with the acquisition of new plants, and higher average salary.

The sales price decline was the main reason of a negative dynamics in profitability of the segment.

Meat Segment

The financial results of the meat segment for 9M 2017 and Q3 2017 compared to 9M 2016and Q3 2016 respectively are presented in the table below:

Sales in the meat segment increased by 22% in 9M 2017 and by 11% in Q3 2017 compared to the respective periods of prior year because of an increase in sales volume of processed pork and an increase in sales prices of livestock pigs and processed pork. Overall sales volume increased due to increase in livestock population and the average weight of pigs.

Pork sales volumes and the average pork sales prices per kilogram (excl. VAT) were as follows:

Net loss on revaluation of biological assets and agricultural produce in 9M 2017 resulted mainly from a decrease in market prices for live pigs during 9M 2017 and a respective decrease in fair value of livestock in the closing balance compared to the beginning of the year. In 9M 2016 an increase in live pigs market prices was accompanied by an increase in cost due to higher grain and other feed components prices. A decrease in net gain from the revaluation of biological assets in Q3 2017 against Q3 2016 is attributed to a significant increase in prices during Q3 2016 with nearly flat prices in Q3 2017.

An increase in Distribution and selling expenses in 9M 2017 and Q3 2017 compared to prior year periods includes an increase in transportation costs as a result of higher sales volume of processed pork, an increase in payroll costs related to growth in staff of logistic department and an increase in marketing expenses due to promotion of "Slovo miaysnika" brand.

A decrease in General and administrative expenses in 9M 2017 by RR 64 million includes RR 83 million of an increase in payroll costs and RR 149 million of a decrease in property tax expenses (RR 160 million of expenses in 9M 2016 compared to RR 11 million of net gain in 9M 2017). In 9M 2017 the Group recognised gain from reverse of property tax for 2016 resulted from tax relief legally confirmed in Q1 2017. General and administrative expenses decreased in Q3 2017 compared to Q3 2016 by 22% due to a decrease in property tax expenses.

Other operating income, net includes income from reimbursement of operating expenses (government grants), which is lower by RR 85 million in 9M 2017 compared to the prior year periods.

Agricultural Segment

As at 30 September 2017 the segment's area of controlled land stands at 665 thousand hectares (30 September 2016: 607 thousand hectares), an increase of 58 thousand hectares or 10%. The financial results of the agricultural segment for 9M 2017 and Q3 2017 compared to 9M 2016 and Q3 2016 respectively are presented below:

A significant decrease in sales prices had the main negative impact on lower Sales in 9M 2017and Q3 2017 compared to 9M 2016 and Q3 2016, which was partly compensated by higher sales volume of certain crops resulted from the increase in land bank cultivated and increase in yields.

Sales volumes by product were as follows:

The average sale prices per kilogram (excl. VAT) were as follows:

Net loss on revaluation of biological assets and agricultural produce in 9M 2017 represents the realisation of gain from revaluation of 2016 crops harvest remained in stock as at 31 December 2016 and being subsequently sold to customers during 2017, which was partly compensated by the gain recognised from revaluation of crops for 2017 harvest collected in Q3 2017. Significant drop in sales prices of crops in the current year resulted in lower gain recognised on revaluation of the 2017 harvest in Q3 2017 against Q3 2016.

The gain on revaluation of crops and its subsequent realisation do not affect the Adjusted EBITDA figure.

Distribution and selling expenses increased by RR 755 million in 9M 2017 against 2016 due to higher volumes of crops sold during the current year. Higher crops sales caused an increase in transportation and loading services and fuel expenses. Further, there was an increase in crops storage expenses as volumes of harvest remaining in stock as at 31 December 2016 were higher compared to 2015.

General and administrative expenses increased by RR 160 million in 9M 2017 (Q3 2017: RR 50 million) against comparable periods in 2016, which is attributed to the higher payroll costs as a result of higher number of employees in administrative function and an increase in average salaries.

Other operating income decreased due to a lower value of operating expenses reimbursed (government grants) by RR 255 million in 9M 2017 (Q3 2017: RR 103 million) against 2016, a lower amortization of previously received grants by RR 42 million in 9M and Q3 2017 against 2016 and expenses provided for lost harvest in amount of RR 58 million against RR 87 million of gain in 9M and Q3 2017 compared to 2016 (part of provision for lost harvest was released in prior year). It was partly compensated by RR 105 million increase in operating foreign exchange gain in 9M 2017 (Q3 2017: RR 53 million) compared to 2016 and by RR 85 million increase in gain from disposal of PPE and sales of materials in 9M 2017 (Q3 2017: RR 14 million) compared to 2016.

Oil and Fat segment

The financial results of the oil and fat segment for 9M 2017 and Q3 2017 compared to 9M 2016 and Q3 2016 respectively are presented below:

The breakdown of Sales, Gross profit and Adjusted EBITDA between the Samara oil plant, the Ekaterinburg fat plant and Far East operations is as follows:

Intra-segment sales include sales of bulk oil from Samara oil plant and bulk and bottled oil from Far East to Ekaterinburg fat plant.

Sales volumes to third parties by product were as follows:

The average sale prices per kilogram (excl. VAT) for sales to third parties were as follows:

Decrease in Distribution and selling expenses by RR 347 million in 9M 2017 (Q3 2017: RR 92 million) compared to the respective periods of previous year is attributed to the limitation of marketing and brands promotion at Ekaterinburg fat plant including restrictions in trade marketing activities provided by the retailers in 2017. That was partly offset by an increase of Distribution and selling expenses by RR 125 million in Samara oil plant because of RR 115 million of one-off gain included in distribution and selling expenses in 9M 2016 as a result of sunflower seeds surpluses identified during the inventory stocktaking.

A decrease in Adjusted EBITDA of Samara oil plant and Far East in 9M 2017 and Q3 2017 relates to a drop in sales prices that was partly compensated by a decrease in raw materials costs (sunflower seeds and soybeans).

Key consolidated cash flow indicators (not IFRS presentation*)

The key consolidated cash flow indicators presented according to management accounts methodology were as follows:

(*) See Appendix 4

The main investments in property, plant and equipment and inventories intended for construction in 9M 2017 were made in the agriculture segment in the amount of RR 5,377 million (9M 2016: RR 3,558 million), related to purchases of machinery and equipment, and in the Meat segment in the amount of RR 2,546 million (9M 2016: RR 681 million), related to the construction projects in the Tambov and Far East regions. Significant investments were also made in Sugar segment in the amount of RR 2,464 million (9M 2016: RR 1,731 million). Investments in the Oil and Fat segment amounted to RR 1,049 million (9M 2016: RR 419 million).

Debt position and liquidity management

Net finance income/ (expense)

In 2017 the Group continued to enjoy benefits from the state agriculture subsidies programme.In 9M 2017 RR 522 million of subsidies received covered 22% of gross interest expense. In addition, in 2017 the Group received bank loans with decreased preferential interest rates under the new programme of government support. Under this programme, the government provides subsidies to the banks to compensate the loss of income on credits with decreased interest rates, given by the banks to agricultural producers. In 9M 2017 IFRS accounts these credits are accounted for according to its face value with no adjustments to prevailing market rates.

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(1) The exchange rates used for translation of RR amounts into USD represent average Central Bank official exchange rate for the respective reporting period for income, expenses and profits and the Central Bank official exchange rate as at the reporting date for balance figures.

(2) Adjusted EBITDA is defined as operating profit before taking into account (i) depreciation included in operating profit, (ii) other operating income/ (expenses), net (other than reimbursement of operating costs (government grants)), (iii) net gain/ (loss) on revaluation of biological assets and agricultural produce, (iv) provision/ (reversal of provision) for net realizable value of agricultural products in stock, (v) share-based remuneration (see Appendix 2 for the detailed calculation of Adjusted EBITDA). Adjusted EBITDA is not a measure of financial performance under IFRS. It should not be considered as an alternative to profit for the period as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. We believe that Adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of subsidiaries and other investments and our ability to incur and service debt.

(3) The Group determines the net debt as short-term borrowings and long-term borrowings less cash and cash equivalents, bank deposits, bank promissory notes and bonds held for trading.

(4) LTM - The abbreviation for the "Last twelve months".

Note:

ROS AGRO PLC (LSE: AGRO) - a holding company of Rusagro Group, a leading Russian diversified food producer with vertically integrated operations in the following branches:

Sugar:

We are a leading Russian sugar producer, producing sugar on nine production sites from both sugar beet and raw cane sugar. We produce white and brown cube sugar and packaged sugar sold under the brands Chaikofsky, Russkii Sakhar, Mon Cafe and Brauni. Our sugar segment is vertically integrated with sugar beet cultivation in our agriculture segment, through which we strive to ensure a consistent supply of sugar beets. We also operate a cereal plant and sell buckwheat and rice under the brand Tyoplye Traditsii.

Meat:

According to the National Union of Pig Breeders, we are the second largest pork producer in Russia on the ground of relative production volumes for 2016. We have implemented best practices in biosecurity at our pig farms.

Agricultural:

The Group currently controls what it believes to be one of the largest land banks among Russian agriculture producers, with 665 thousand hectares of land under our control located in the highly fertile Black Earth region of Russia (in the Belgorod, Tambov and Voronezh regions)and in the Far East Primorie region. Land and production sites are strategically located withinthe same regions to optimize efficiency and minimize logistical costs. We believe we are oneof the major sugar beet producers in Russia, and our agricultural segment also produces winter wheat and barley, sunflower products and soybeans. These products are partially consumedby the meat segment, supporting a synergistic effect and lowering price change risk.

Oil and Fat:

We are a leading producer of mayonnaise and consumer margarine in Russia, such as "Provansal EZhK" and "Schedroe Leto". In January 2013 the Company has begun production of mayonnaise under brand "Mechta Khozyayki". Our oil extraction plant located in Samara (Samara oil plant) enables us to control the source of 100% of the vegetable oil required by our oil and fats production plant in Ekaterinburg (Ekaterinburg fat plant).

Forward-looking statements

This announcement includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements do not relate to historical or current events,or to any future financial or operational activity of the Group.

By their nature, forward-looking statements involve risk and uncertainty because they relateto future events and circumstances, a number of which are beyond the Rusagro Group's control. As a result, actual future results may differ materially from the plans and expectations set outin these forward-looking statements.

The Group undertakes no obligation to release the results of any revisions to any forward-looking statements that may occur due to any change in its expectations or to reflect eventsor circumstances after the date of this document.

Rusagro management is organizing a conference call about its 9M and Q3 2017 financial results for investors and analysts.

Details of call:

Contacts:

Appendix 1. Unaudited consolidated statement of comprehensive income for the Nine months ended 30 September 2017 (in RR thousand)

Appendix 2. Unaudited segment information for the Nine months ended 30 September 2017 (in RR thousand)

* Non-IFRS measure

Appendix 2 (continued). Unaudited segment information for the Nine months ended 30 September 2016 (in RR thousand)

* Non-IFRS measure

Appendix 3. Unaudited consolidated statement of financial position as at 30 September 2017(in RR thousand)