Ros Agro S Regulatory News (AGRO)

19 August 2019

ROS AGRO financial results for 1H 2019 and Q2 2019

19 August 2019 - 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 2019.

1H 2019 Highlights

- Sales amounted to RR 73,548 million (US$ 1,129 million1), an increase of RR 40,733 million compared to 1H 2018;

- Adjusted EBITDA2 amounted to RR 8,809 million (US$ 135 million), an increase of RR 3,038 million compared to 1H 2018;

- Adjusted EBITDA margin dropped from 18% in 1H 2018 to 12% in 1H 2019;

- Net profit for the period amounted to RR 3,336 million (US$ 51 million);

- Net debt position3 as of 30 June 2019 amounted to RR 44,197 million (US$ 701 million);

- Net Debt/ Adjusted EBITDA (LTM4) as of 30 June 2019 was 2.30x.

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

 "Q2 2019 showed good results as sales and adjusted EBITDA of the Group continued to improve. Agriculture segment benefited from high sales prices partly caused by an increase in export sales leading to adjusted EBITDA margin growth. Meanwhile, Meat, Sugar and Oil & Fats segments showed strong sales results, but experienced margins drop. Meat segment was negatively influenced by increase in livestock pigs cost due to feed cost growth. Sugar segment faced EBITDA margin decrease due to high sugar prices during 2018 production season and, as result high sugar beet cost, and decrease in sugar prices in Q2 2019 due to market expectations related to overproduction. Oil & Fats segment sales were triggered by the growth of SolPro products sales related to tolling agreement with SolPro plants. However, the margin of this segment dropped due to the lack of EBITDA from SolPro assets on Ros Agro balance, which is compensated through interest income below EBITDA. All the SolPro plants have been rented by Ros Agro starting from 01.07.2019 and EBITDA margin is expected to rise in 2H 2019."

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.

Key financial performance indicators by segments

Sugar Segment

The financial results of the sugar segment for 1H 2019 and Q2 2019 compared to 1H 2018 and Q2 2018 respectively are presented in the table below:

Higher stock has been accumulated by the end of 2018 (650 ths tn vs normal 450 ths tn) in view of expected prices growth in 1H 2019. Sugar sales revenue increased by RR 4,790 million due to sales volume increase by 127 ths tn (+116%). By-products sales revenue increased by RR 258 million due to beat pulp and molasses selling prices increase.

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

EBITDA margin decrease was caused by sugar beet purchase prices growth by 39% (due to high sugar price during production season Aug'18 - Dec'18) and selling prices drop in Jan'19-Jun'19 due to market expectations of sugar overproduction in Russia.

Meat Segment

The financial results of the meat segment for 1H 2019 and Q2 2019 compared to 1H 2018 and Q2 2018 respectively are presented in the table below:

Sales in the meat segment increased by 19% in 1H 2019 and by 18% in Q2 2019 compared to the respective periods of prior year because of increase in sales prices and volumes of processed pork mainly due to CapitalAgro acquisition. Sales increase was partly offset by decrease in selling prices and volumes of livestock pigs as only culled pigs have been sold in 2019.

Cost of sales increased by 30% due to growth in feed cost in 1H 2019 and higher volumes of livestock pigs transfer to meat processing. Swine foot and mouth disease in Primorie in Q1 2019 resulted in additional loss of RR 136 million, which has been partly compensated by insurance income (recognized in Other operating income).

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 2019 resulted mainly from a decrease in market prices for livestock pigs during the period and a respective decrease in fair value of livestock in the closing balance compared to the beginning of the year.

An increase in Distribution and selling expenses in 1H 2019 and Q2 2019 compared to prior year periods included an increase in transportation costs as a result of higher sales volume of processed pork, an increase in payroll costs related to CapitalAgro acquisition.

An increase in General and administrative expenses in 1H 2019 compared to prior year period related to cost of farms in construction.

Agricultural Segment

As at 30 June 2019 the segment's area of controlled land stands at 648 thousand hectares(30 June 2018: 687 thousand hectares). Land bank was reduced as the result of disposal of non-arable land. The financial results of the agricultural segment for 1H 2019 and Q2 2019 compared to 1H 2018 and Q2 2018 are presented below:

Sales increased due to increase both in selling volumes and prices (except for sunflower and soy). Higher crops sales volumes were affected by the management decision to transfer sales from the end of 2018 to Q1 2019 mainly due to expected increase in selling prices.

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 and Q2 2019 and 2018 figures represents the realisation of gain from crops revaluation, recognised in the previous year financial statements and remained unrealised as at the year-end.

In IFRS financial statements of 2018 the Group recognised gain from all crops, harvested in 2018, including crops in stock at the year-end. Consequently, the crops in stock as at 31 December 2018 were measured at market prices prevailing at the time of harvest. In IFRS financial statementsof 2019, as these crops are realised, the gain on revaluation is written off in the statementof comprehensive income decreasing the profit of the segment. The gain on revaluation of crops and its subsequent realisation do not affect the Adjusted EBITDA figure.

Distribution and selling expenses increased by RR 949 million in 1H 2019 (Q2 2019: RR 266 million) against 2018 as a result of higher sales volumes and crops held in stock for a longer period of time (according to changes in the timing of sales), which increased storage costs.

Other operating expenses, net include expenses from lost harvest write-off, which are higher by RR 81 million in 1H 2019 vs 2018 (Q2 2019: RR 83 million), loss from disposal of property, plant and equipment, and loss from sales of other services and materials higher by RR 47 million in 1H 2019 vs 2018. Further, an operating foreign exchange loss turned into gain in 1H 2019 resulting an increase by RR 60 million (Q2 2019: RR 5 million).

Oil and Fat segment

The financial results of the oil and fat segment for 1H 2019 and Q2 2019 as compared to 1H 2018 and Q2 2018 respectively are presented in the table 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:

Sales increased due to tolling scheme with SolPro assets. At the same time EBITDA margin decreased to 2% in 1H 2019 as all sales have been transferred to Rusagro, while profit remains on SolPro entities and has been further withdrawn through interest income reflected in Other segment below EBITDA. Starting from July 2019 all the SolPro plants are rented by Rusagro and margin will be reflected in Rusagro EBITDA. Selling prices for meal decreased due to lower prices in sunflower and soy sector.

Increase in Distribution and selling expenses by RR 1,918 million in 1H 2019 and by RR 1,167 million in Q2 2019 compared to the prior period is mainly attributed to higher transportation and loading services expenses related to an increase in sales volume in Oil and Fat segment. Increase by RR 211 million was related to SolPro personnel added to EZhK.

Increase in General and administrative expenses by RR 356 million in 1H 2019 and by RR 229 million in Q2 2019 compared to the prior period is attributed to higher number of employees in administrative function in Oil and Fat segment. Increase by RR 183 million was related to SolPro personnel added to EZhK.

Increase in Other operating expenses by RR 183 million in 1H 2019 and by RR 150 million in Q2 2019 was mainly due to write-off of RR 175 million as result of sunflower technological losses.

Milk Products Segment

The financial results of the Milk Products segment for 1H 2019 and Q2 2019 as compared to 1H 2018 and Q2 2018 respectively are presented in the table below:

Group is now focusing on entering the retail chains with a consumer product, developing brands and increasing sales profitability.

Sales volumes by product were as follows:

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

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 H1 2019 were made in the Meat segment in the amount of RR 3,677 million (H1 2018: RR 5,267 million), related to the construction project in the Tambov and Far East regions. Significant investments were also made in Sugar segment in the amount of RR 1,672 million (H1 2018: RR 1,222 million) for construction of second desugarisation line. Investments in the Oil and Fat segment amounted to RR 100 million (H1 2018: RR 623 million) and in the Agriculture segment amounted to RR 838 million (H1 2018: RR 750 million), related to purchases of machinery and equipment.

Debt position and liquidity management

Net finance income/ (expense)

In Q2 2019 the Group continued to enjoy benefits from the state agriculture subsidies programme.In addition, in 2019 the Group continued the receiving 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 Q2 2019 IFRS accounts these credits are accounted for according to its face value with no adjustments to prevailing market rates. The differences between nominal and market interest rate is recognized as interest expenses and government grants in a statement of comprehensive income or in a statement of financial position.

Net finance income in 1H 2018 in the sum of RR 647 million increased to net finance income in amount of RR 1,631 million in the 1H 2019 as a result of accrual of interest on rights to claims SolPro entities and an increase in other financial income due to revaluation effect of rights to claims SolPro entities.

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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:

Rusagro is one of the leading Russian sugar producers (№3 with 13% share in sugar production in Russia and №1 with 47% share of cubed sugar market), producing sugar from sugar beet at nine production sites in four regions. Group produces white and brown cube sugar and packaged sugar sold under the brands Russkii Sakhar, Chaikofsky, Mon Cafe and Brauni. Sugar segment is vertically integrated and sugar beet is supplied byRusagro's Agriculture segment, which ensures a consistent supply of raw material. Sugar segment also operates a cereal plant and sell buckwheat and rice under the brand Tyoplye Traditsii.

Meat:

Rusagro is the third largest pork producer in Russia with 5% share of pork produced in Russia. It operates 18 commercial pork complexes with correspondence to high biosecurity standards, has own compound feed production, slaughterhouses and meat processing plants in Tambov and Belgorod Regions. Since 2016 Rusagro sells retail products under its own brand Slovo Myasnika (Butcher's word).

Agricultural:

The Group currently controls one of the largest land banks among Russian agriculture producers, with 648 thousand hectares of land under control located in the highly fertile Black Earth region of Russia (in the Belgorod, Tambov, Voronezh, Kursk and Orel 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. Rusagro is oneof the major sugar beet producers in Russia, but it also produces wheat and barley, sunflower seeds and soybeans. These products are partially consumed by the meat segment, supporting a synergistic effect and lowering price change risk.

Oil and Fat:

Rusagro is one of the leading producers of mayonnaise and consumer margarine in Russia sold under a number of brands, such as EZhK, Schedroye Leto,Mechta Khozyaiki, Gotovim Doma, Maslava and Soyaco. The Group operates an Oil extraction plant in Samara and two oil and fats plant in Ekaterinburg and in the Far East Primorie Region. Own sunflower and soy oil production allows to control the source of the vegetable oil required to produce oil and fats products. In 2018 Rusagro acquired the debt of Solnechnye Producty from Russian Agriculture bank and is planning to purchase assets of some of its plants increasing the production and its market share.

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 2019 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 2019 (in RR thousand)