ROS AGRO : has announced 1H and 2Q 2019 Financial Results

19 August 2019

ROS AGRO financial results for 1H 2019 and Q2 2019

19 August 2019 - Today ROS AGRO PLC (the "Company"), the holding company of 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

	Six months ended	Variance	Three months ended	Variance
in RR million	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018
Sales	73,548	32,815	40,733	124	41,381	17,547	23,834	136
Gross profit	11,141	8,080	3,061	38	6,124	5,125	999	19
Gross margin, %	15%	25%	-10%		15%	29%	-14%
Adjusted EBITDA	8,809	5,772	3,037	53	4,715	4,057	658	16
Adjusted EBITDA	12%	18%	-6%		11%	23%	-12%
margin, %
Net profit for the period	3,336	2,338	998	43	1,689	2,129	(440)	(21)
Net profit margin %	5%	7%	-2%		4%	12%	-8%

• 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.

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Key financial performance indicators by segments

	Six months ended	Variance	Three months ended	Variance
in RR million	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018
Sales, incl.	73,548	32,815	40,733	124	41,381	17,547	23,834	136
Sugar	15,674	10,671	5,004	47	11,149	5,458	5,691	104
Meat	11,171	9,417	1,754	19	5,983	5,091	892	18
Agriculture	9,334	3,212	6,122	191	3,779	1,745	2,034	117
Oil and Fat	36,337	10,029	26,308	262	19,408	5,551	13,857	250
Milk products	1,830	-	1,830	-	969	-	969	-
Other	1,276	114	1,162	1,019	830	39	791	2,028
Eliminations	(2,075)	(628)	(1,447)	(231)	(738)	(336)	(402)	(120)
Gross profit, incl.	11,141	8,080	3,061	38	6,124	5,125	999	19
Sugar	3,204	3,110	94	3	1,769	1,983	(214)	(11)
Meat	1,986	2,444	(458)	(19)	1,691	1,478	213	14
Agriculture	1,309	510	799	157	497	391	106	27
Oil and Fat	4,056	2,332	1,724	74	2,258	1,312	946	72
Milk products	151	-	151	-	98	-	98	-
Other	130	21	109	519	90	13	77	592
Eliminations	305	(338)	643	190	(280)	(52)	(228)	(438)
Adjusted EBITDA,	8,809	5,772	3,037	53	4,715	4,057	658	16
Sugar	2,377	2,320	57	2	1,260	1,651	(391)	(24)
Meat	2,594	2,844	(250)	(9)	1,757	1,702	55	3
Agriculture	2,771	216	2,555	1,183	1,320	152	1,168	768
Oil and Fat	578	1,080	(502)	(46)	265	687	(422)	(61)
Milk products	(3)	-	(3)	-	8	-	8	-
Other	(802)	(477)	(325)	(68)	(184)	(234)	50	21
Eliminations	1,293	(211)	1,504	713	288	98	190	194
Adjusted EBITDA	12%	18%	-6%	(32)	11%	23%	-12%	(51)
margin, %
Sugar	15%	22%	-7%	(30)	11%	30%	-19%	(63)
Meat	23%	30%	-7%	(23)	29%	33%	-4%	(12)
Agriculture	30%	7%	23%	342	35%	9%	26%	300
Oil and Fat	2%	11%	-9%	0	1%	12%	-11%	0%
Milk products	0%	0%	0%	-	1%	0%	1%	-

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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:

	Six months ended	Variance	Three months ended	Variance
in RR million	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018

Sales

Cost of sales

Net gain/ (loss) from trading derivatives

15,674	10,671	5,004	47	11,149	5,458	5,691	104
(12,464)	(7,565)	(4,899)	(65)	(9,378)	(3,480)	(5,898)	(169)
(6)	5	(10)	-	(3)	6	(8)	-

Gross profit	3,204	3,110	94	3	1,769	1,983	(214)	(11)
Gross profit margin	20%	29%	-9%		16%	36%	-20%
Distribution and selling	(1,111)	(1,090)	(21)	(2)	(651)	(433)	(218)	(50)
expenses
General and administrative	(723)	(806)	83	10	(358)	(387)	29	8
expenses
Other operating income/	315	47	268	570	363	36	327	911
(expenses), net
Operating profit	1,685	1,261	424	34	1,123	1,198	(76)	(6)
Adjusted EBITDA	2,377	2,320	57	2	1,260	1,651	(391)	(24)
Adjusted EBITDA margin	15%	22%	-7%		11%	30%	-19%

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)	were
as follows:
	Six months ended	Variance	Three months ended	Variance
	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018
Sugar production volume
(in thousand tons)	24	26	(2)	(7)	7	17	(10)	(60)
Sales volume
(in thousand tons)	453	326	127	39	348	161	187	(117)
Average sales price
(roubles per kg, excl. VAT)	31.8	29.4	2.4	8	30.3	31.0	(0.7)	(2)

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.

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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:

	Six months ended	Variance	Three months ended	Variance
in RR million	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018
Sales	11,171	9,417	1,754	19	5,983	5,091	892	18
Net gain/ (loss) on
revaluation of	(256)	(88)	(168)	(192)	103	(61)	164	-
biological assets and
agricultural produce
Cost of sales	(8,930)	(6,886)	(2,044)	(30)	(4,395)	(3,552)	(843)	(24)
Gross profit	1,986	2,444	(458)	(19)	1,691	1,478	213	14
Gross profit margin	18%	26%	-8%		34%	29%	5%
Gross profit excl.
effect of biological	2,241	2,531	(290)	(11)	1,958	1,539	419	27
assets revaluation
Adjusted gross profit	20%	27%	-7%	-	33%	30%	3%	-
margin
Distribution and selling	(367)	(276)	(91)	(33)	(210)	(164)	(46)	(28)
expenses
General and	(577)	(470)	(107)	(23)	(212)	(258)	46	18
administrative expenses
Other operating	140	102	38	37	125	69	56	82
income/ (expenses), net
incl. reimbursement of
operating costs	2	-	2	-	2	-	2	-
(government grants)
Operating profit	1,182	1,800	(618)	(34)	1,394	1,125	270	24
Adjusted EBITDA	2,594	2,844	(250)	(9)	1,757	1,702	55	3
Adjusted EBITDA	23%	30%	-7%	-	29%	33%	-4%	-
margin

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).

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

	Six months ended	Variance	Three months ended	Variance
	30 June	30 June	Units	%	30 June	30 June	Units	%
	2019	2018	2019	2018
Sales volume (in
thousand tonnes), incl.	85	78	7	9	45	39	6	15
livestock pigs	8	14	(6)	(38)	4	7	(3)	(43)
processed pork	78	64	14	22	41	32	9	28
Average sale prices
(roubles per kg, excl.
VAT):
livestock pigs	73.2	82.9	(9.7)	(12)	76.1	86.0	(9.9)	(12)
processed pork	134.8	129.3	5.5	4	136.4	136.3	0.1	0

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:

	Six months ended	Variance	Three months ended	Variance
in RR million	30 June	30 June	Units	%	30 June	30 June	Units %
	2019	2018	2019	2018

Sales

Net gain/ (loss) on revaluation of biological assets and agricultural produce

9,334	3,212	6,122	191	3,779	1,745	2,034	117
(2,795)	(618)	(2,177)	(352)	(1,392)	(337)	(1,055)	(313)

Cost of sales	(5,230)	(2,083)	(3,146)	(151)	(1,890)	(1,016)	(873)	(86)
Net gain/ (loss) from trading	-	-	-	-	-	-	-	-
derivatives
Gross profit	1,309	510	799	157	497	391	106	27
Gross profit margin	14%	16%	-2%		13%	22%	-9%
Gross profit excl. effect of
biological assets and	4,104	1,129	2,975	264	1,889	729	1,160	159
agricultural produce
revaluation
Adjusted gross profit margin	44%	35%	9%		50%	42%	8%
Distribution and selling	(1,592)	(643)	(949)	(148)	(700)	(434)	(266)	(61)
expenses
General and administrative	(591)	(611)	19	3	(319)	(319)	1	0
expenses

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