Ros Agro S Regulatory News (AGRO)

14 August 2017

ROS AGRO financial results for 1H 2017 and Q2 2017

14 August 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 Six months ended 30 June 2017.

1H 2017 Highlights

- Sales amounted to RR 37,758 million (US$ 653 million1), a decrease of RR 452 million compared to 1H 2016;

- Adjusted EBITDA2 amounted to RR 5,439 million (US$ 94 million), a decrease of RR 2,632 million compared to 1H 2016;

- Adjusted EBITDA margin decreased from 21% in 1H 2016 to 14% in 1H 2017;

- Net profit for the period amounted to RR 226 million (US$ 4 million);

- Net debt position3 as of 30 June 2017 amounted to RR 1,429 million (US$ 24 million);

- Net Debt/ Adjusted EBITDA (LTM4) as of 30 June 2017 was 0.09x.

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

"In Q2 2017 Ros Agro showed mixed results due to low sugar and grain prices. Meat division was improving its financial performance y-o-y as it gained from high global and domestic demand for pork and low grain prices. Combination of abundant harvests in Russia, stronger rouble and weak global prices continue to pressure margins in all businesses with exception of Meat division. Results of Agricultural division are seasonal and should be looked at on annual basis. In 1H 2017 the Company had record capital expenditures with most of money going to meat and the Russian Far East."

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 3,619 million in 1H 2017 and RR 1,994 million in Q2 2017 (1H 2016: RR 5,384 million; Q2 2016: RR 2,221 million), a decrease of RR 1,764 million or 33% compared to 1H 2016 and RR 227 million or 10% compared to Q2 2016.

Key financial performance indicators by segments

Sugar Segment

The financial results of the sugar segment for 1H 2017 and Q2 2017 compared to 1H 2016and Q2 2016 respectively are presented in the table below:

A decrease in Sales in 1H 2017 compared to 1H 2016 because of a 20% drop in sugar sales prices that was partly compensated by higher sugar sales volumes and an increase in sales of by-products and cereal products.

A decrease in Sales in Q2 2017 compared to Q2 2016 came from a decrease in both sales volume and sales prices of sugar. Changes in sales of by-products and cereal products did not have a material effect on a quarter-to-quarter dynamics.

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

An increase in Distribution and selling expenses in 1H 2017 by 40% correlates with higher sales volume of sugar, beat pulp granulated, molasses and cereal products and is also affected by an increase in tariffs.

An increase in General and administrative expenses in H1 2017 by RR 214 million compared to the respective period of 2016 includes RR 122 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 2017. The effect on an increase in General and administrative expenses attributed to the new plants contained RR 37 million of one-off expenses represented 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 driver of a negative dynamics in profitability of the segment.

Meat Segment

The financial results of the meat segment for 1H 2017 and Q2 2017 compared to 1H 2016and Q2 2016 respectively are presented in the table below:

Sales in the meat segment increased by 28% in 1H 2017 and by 25% in Q2 2017 compared to the respective periods of prior year as a result of both sales volume and pork sale prices increase. 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 1H 2017 resulted mainly from a decrease in market prices for live pigs during 1H 2017 and a respective decrease in fair value of livestock in the closing balance compared to the beginning of the year. In 1H 2016 a decrease in live pigs market prices was accompanied by an increase in cost due to higher grain and other feed components prices. RR 541 million of gain on revaluation of biological assets in Q2 2016 resulted from a significant increase in market prices for live pigs.

An increase in Distribution and selling expenses in 1H 2017 and Q2 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 1H 2017 by RR 10 million includes RR 71 million of an increase in payroll costs and RR 75 million of a decrease in property tax expenses (RR 35 million of expenses in 1H 2016 compared to RR 40 million of net gain in H1 2017). In Q1 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 increased in Q2 2017 compared to Q2 2016 by 83% due to an increase in payroll costs and property tax.

Other operating income, net includes income from reimbursement of operating expenses (government grants), which is lower by RR 85 million in 1H 2017 and RR 13 million higher in Q2 2017 compared to the prior year periods.

Agricultural Segment

As at 30 June 2017 the segment's area of controlled land stands at 664 thousand hectares (30 June 2016: 610 thousand hectares), an increase of 54 thousand hectares or 9%. The financial results of the agricultural segment for 1H 2017 and Q2 2017 compared to 1H 2016 and Q2 2016 respectively are presented below:

An increase in sales volumes was the main driver of an increase in Sales in 1H 2017and Q2 2017 compared to 1H 2016 and Q2 2016. Increase in sales volume 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 1H 2017 represents the realisation of gain from crops revaluation, recognised for harvest of 2016 in the financial statements of 2016 and remained unrealised as at 31 December 2016.

In IFRS financial statements of 2016 the Group recognised gain from all crops, harvestedin 2016, including crops in stock at the year-end. Consequently, the crops in stock as at31 December 2016 were measured at market prices prevailing at the time of harvest. In IFRS financial statements for 2017, as these crops are realised, the gain on revaluation is writtenoff in the statement of comprehensive income decreasing the profit of the segment. The gainon revaluation of crops and its subsequent realisation do not affect the Adjusted EBITDA figure.

Distribution and selling expenses increased by RR 754 million in 1H 2017 (Q2 2017: RR 217 million) due to higher volumes of crops sold during 1H 2017. Higher crops sales covered an increase in transportation and loading services and fuel expenses with the sale of sugar beet in volume of 452 thousand tonnes making the biggest part of it in Q1 2017 (compared to zero sales in 1H 2016). 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 110 million in 1H 2017. Increaseof RR 26 million is the effect of the new companies joined the Group on 1 June 2016. Further growth is attributed to the higher payroll expenses. In Q2 2017 general and administrative expenses were relatively on the same level compared to Q2 2016.

Other operating income, net includes income from reimbursement of operating expenses (government grants), which is lower by RR 152 million in 1H 2017 and slightly higher in Q2 2017 compared to the prior year periods. Further, a gain from disposal of property, plant and equipment was recognised in 1H 2017 in amount of RR 19 million comparedto RR 52 million of loss in 1H 2016 and operating foreign exchange gain of RR 2 million against RR 49 million of loss in 1H 2016.

Oil and Fat segment

The financial results of the oil and fat segment for 1H 2017 and Q2 2017 compared to 1H 2016 and Q2 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 254 million in 1H 2017 (Q2 2017: RR 137 million) compared to the respective periods od 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, and decrease in transportation cost of Samara oil plant due to decrease in sales volume of bulk oil.

A decrease in Adjusted EBITDA of Samara oil plant and Far East in 1H 2017 and Q2 2017 relates to a drop in sales prices that was partly compensated by a decrease in raw materials costs (sunflower seeds and soybeans). Samara oil plant Adjusted EBITDA figure in 1H 2017 was also negatively affected by a decrease in sales volume.

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 1H 2017 were made in the agriculture segment in the amount of RR 3,864 million (1H 2016: RR 2,051 million), related to purchases of machinery and equipment, and in the Meat segment in the amount of RR 1,708 million (1H 2016: RR 555 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 1,130 (1H 2016: RR 731 million). Investments in the Oil and Fat segment amounted to RR 636 (1H 2016: RR 272 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 1H 2017 RR 275 million of subsidies received covered 17% of gross interest expense.

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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 664 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 1H and Q2 2017 financial results for investors and analysts.

Details of call:

Contacts:

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

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

* Non-IFRS measure

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

* Non-IFRS measure

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