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Ros Agro PLC
MOEX:AGRO
Ros Agro PLC
MOEX:AGRO
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Ladies and gentlemen, good afternoon. I'm Konstantin, I'm going to be your interpreter. This is going to be a simultaneously interpreted event, and I'm going to advise you now on how to proceed in your language of preference. I'll do that in both languages, then we switch on the interpretation and you'll be able to talk barrier free.
As soon as we switch on the interpretation, a globe icon will appear at the bottom of your screen. If you are joining from a mobile device such as a smartphone or a tablet, the language interpretation option will be hiding under the More Menu represented by 3 dots, you'll need to click on the globe icon or tap on 3 dots then select interpretation and choose English [Operator Instructions]
We're happy to welcome everyone at Ros Agro PLC Investor presentation for Q2 2022 and 6 months 2022 as well and we disclosed the press release and the presentation this morning, and we'll be using this presentation as well in this call. I'm Svetlana Kuznetsova. I'm head of IR at Ros Agro and I'm happy to introduce Mr. Alexander Tarasov as a new CFO. Alexander is going to make a presentation and then handle the questions. Alexander is currently on a business trip. So unfortunately he wouldn't be able to share his video that's why you are only going to hear his voice.
Hello, thank you Svetlana. Can you hear me?
Yes. And as a matter of introduction, how we are going to run this session. Please be reminded that at the end of the presentation, we are going to have a Q&A session. [Operator Instructions] Also, please be reminded that a recording of this call is not going to be disclosed. If you have any further questions to clarify, please reach out to me at [email protected] and I will be happy to address your question personally. At this point, I'd be happy to hand over to Alexander over to you.
Good Afternoon. My apologies again for on video from my side. But I hope this wouldn't have any negative affect on the quality of this presentation and our responses to your question as part of Q&A.
I'm Alexander Tarasov. I'm the new CFO of Ros Agro. I'm very excited to join the Ros Agro and under my first presentation investor disclosure for Q2 2022, and 6 months this year. Now let us -- let me take you through the slides. Svetlana please help me.
I think in Page 2 of the presentation. Let me say a few words about our deliveries at a glance. Starting with 2021, and then we will quickly continue through the numbers from 2022. Ros Agro is a vertical integrated business operating in agricultural sector. We're well diversified with 4 business segments across the board.
Considering each business segment, Ros Agro manages to be in the lead across the board. As you can see from the page, we are successfully competing against Russian as well as foreign businesses.
I'm talking about the sugar, the meat business, the oil and fat and the beetroot as well. We set a new record in 2021 in terms of our revenue and EBITDA. RUB 223 billion of net revenue and RUB 48 billion of adjusted EBITDA in total. As you can see, the company is growing at a sustainable pace, and that has been the fact over the past 5 years at least, with the CAGR of 36%, the number is quite telling.
We expect to keep growing sustainably in 2021 and 2022, and we'll be happy to present our results for the first 6 months. Over to next page, please. I believe it's Page 7, right, that we're talking about. So over to 2022. Despite the challenging economic situation in general, that is true for pretty much any business and the country. Nonetheless, Ros Agro has managed to demonstrate and also in terms of it's adjusted EBITDA. We had an increase of net revenue by 21% RUB 65.7 billion. That's IFRS net revenue, while the company's EBITDA was as high as RUB 13.6 billion, growing at even more sustainable percentage of 25%. The growth affected pretty much all of our business segment with the exception of Agro business with the Sugar segment delivering most of the growth.
Next page please. Page 8 demonstrates our results over the past 6 months with the net revenue growing by 22% to reach RUB 127 billion, thanks to a combination of factors or drivers and that is pretty much the same or very similar to the ones we had in Q2. Let me not repeat those. The adjusted EBITDA went up by 36%, reaching slightly more than RUB 30 billion in Total.
Alexander, I'm afraid we don't hear anymore. Svetlana speaking. I apologize. Alexander has dropped because of his connection. He's going to reconnect in a few minutes and continue. Alexander has rejoined. Can you hear? We can.
So shall I start over from the same slide.
Yes. Please do. We have been waiting for you.
Okay. Then let's get back to Page 8. So I believe I have mentioned the growth of net revenue as well as the adjusted EBITDA over the past 6 months. The EBITDA has been growing at an advanced pace. That is mostly driven by the fact that the cash cost side of the business is based on the lower prices of our feedstock in the first 6 months. And the sugar business has contributed most of the growth, just like I said, and we can continue to Page 9.
There we are. Page 9 explains our debt profile as of the 30th of June 2022. Our gross debt is up by 14%, mostly driven by new short-term loans. The number currently stands at RUB 196 billion.
The net debt is up accordingly. Our credit portfolio by banks is represented in the bottom left-hand side, and the pie chart is pretty much the same as it was back in 2021.
Ros Agro is happy to cooperate with major Russian banks. Rosselkhozbank, Sberban, Alfa Bank, Gazprombank, Vnesheconombank, et cetera.
Even though the company's EBITDA is up -- the adjusted EBITDA, I mean, our net debt-to-EBITDA ratio has also increased to hit 1.76 as of the end of the first 6 months this year. Generally speaking, our leverage level is comfortable for the business and enables us to run our operations and retain business objectives and the nearest and midterm perspectives.
Next page, please. This page explains the company's finance income and expense. In the first 6 months, our net finance income, just a second, please hold. Yes. Net finance income in the first 6 months 2021 decreased to hit nearly RUB 19 billion. Most of that is driven by negative ForEx dynamics. That is minus RUB 19.5 billion and also an increase in net interest expenses as a result of higher volume of borrowings.
Alexander, your sound level has just dropped for some reason.
And also saw RUB 625 million are attributed to SolPro loans.
Yes. The sound level from the Alexander side has dropped significantly, unfortunately.
Any better now?
Yes. But not much.
Any better now?
Yes, possibly. Let's carry on. It used to be much better before, but now we can still hear you. Yes. Please go ahead on.
Where did you lose me?
The last 2 points from this page.
We also see an increase in net interest expense. And then -- we see interest income growth, mainly as a result of an interest on deposits, partially compensated by lower interest income from SolPro loans. And we can continue to next page, which is #11.
This one is our statement of financial position with key changes as of the 13th of June as compared to the 31st of December last year. Now let's consider what we have on this page. Most of the change occurring in the first 6 months is related to the growth of our receivables as well as prepayments and generally speaking, investments into working capital and inventories. And that, in turn, is defined by the uncertainty, which was particularly strong in the first quarter ended the first 6 months this year as we were building up additional inventories, hence additional working capital to ensure uninterrupted operations of Ros Agro's business.
Prepayments are mostly up in the Oil & Fats segment so that we could build up strategic inventories of palm oil and sunflower seeds. While short-term biological assets are on the rise due to the seasonal increase in our business as we re-assessed the crops to fair value, which is a common practice, as you know, and also RUB 13 billion of unfinished construction.
Next page, please. This page explains our cash flows in the first 6 months vis-a-vis the first 6 months 2021. You can see that the cash flow is significantly reduced as compared to the first half of 2021. This is mostly driven by the same factors I commented on the previous page. FX losses for once and another driver as additional cost -- additional investments into the working capital, which is defined by high inventories, which we had to build up.
The operating cash flow downturn has been somewhat offset by lower investments, somewhat lower investments in 2022. With the net cash has been changed by the withdrawal of some existing deposits and the arrival of some new loans. Now what else do we have here? That's pretty much fit in terms of the basics.
Now let's continue to Page 13 -- Sorry, Page 14. Now we're going to discuss each of the company's business division separately. Starting with the Sugar business and its operations in the second quarter this year. The Sugar business demonstrated most of the growth across all of our business divisions in Q2 specifically. This is explained by a high crop of sugar beet in the season of 2021 and 2022 as compared to the previous season.
Sugar sales are up by 62% or 100,000 tonnes, from 160,000 to 260,000 tonnes year-on-year. This is mostly delayed sales from Q1. And it's all about the time line. If we continue to Page 15, and I'm going -- I'm getting the very Page 15. I'm going to get there soon. You'll see that. The sales volumes are distributed across the quarters. So production volumes in the second quarter reached 49,000 tonnes, which is 66% up year-on-year. That is mostly explained by higher capacity utilization of the desugaring unit, which acquired and we can continue to Page 15 to discuss the same Sugar business division.
Over the first 6 months 2022, you can observe that the sales are up by 21%. And year-on-year, driven by the same factors, as I have just commented, production volumes of sugar have reached 104,000 tonnes, which represents more than double growth of 170% as compared to the first 6 months of 2021. We can move on to the next Oil and Fats business division.
Q2 results first. Sales volumes of Oil And Fat and dairy products are down by 13%, minus 57,000 tonnes to 392,000 tonnes in comparison to the second quarter 2021, while sales of consumer products dropped by 26% and industrial fats, that's minus 15%. Crude Vegetable oil sales [indiscernible] by 13% in the mid-time. And there is an 11% growth in dry mixes. Production volumes of crude vegetable oil are represented on the chart at the bottom. There is an insignificant decrease of 4% as compared to the second quarter 2021.
I can continue to Page 17, please. Here you can see the numbers in the first 6 months for the same Oil and Fats business division. Sales volumes decreased by 5%. That's minus 43,000 tonnes to 792,000 tonnes in comparison to the 6 months of 2021. Most of the drop comes in consumer products. That's down by 15%, [ 10,000 ] tonnes.
Industrial fats is down by 9% and meal, that's minus 2%, partially compensated by the other categories. Let's continue to Page 18, a couple of slides to explain our meat business.
Sales volume of pork products in Q2 2022 increased by 16% to 73,000 tonnes while -- and the key driver here is related to the launch of the pork production cluster in the Russian Far East. Production volume of pork in the second quarter 2022 reached 83,000 tonnes in live weight for slaughtering rising by 9% in comparison to the same quarter of the previous year.
Now let's flip over to see the same division, explained it across the first 6 months. Sales volume of pork products in 6 months 2022 increased by 10%, plus 12,000 tonnes to 60,000 tonnes in comparison to the 6 months of 2021. The growth was mostly attributable to the launch of the pork production cluster in the Russian Far East, same as the case for the quarter. And production of volume of pork in 6 months 2022 reached 160,000 tonnes.
Page 20, please. Here you can see the performance of our Agriculture business in the second quarter first. As you can observe, the Agriculture business division demonstrated a decrease in sales volume as compared to Q2 2021. This drop is explained by the sales time line pushed into future periods be it the third quarter, for example, and also lower inventories earlier in the year. So we sold more back in Q4 last year, and we had less inventories in the first quarter of the year.
Sales of agricultural products are down by 52%, minus 155,000 tonnes to 145,000 tonnes, which is explained mostly by lower volumes of wheat. That's minus 103,000 tonnes and also soybean minus 56,000 tonnes. As of the 30th of June 2022, Ros Agro's area of controlled land stands at 642,000 hectares of which about 85% is Ros Agro's land bank located in Central Russia and 15% is attributable to the Russian Far East.
Now let's see the same business division in the first 6 months this year. The developments are very similar. In the first 6 months 2022, sales volume of agricultural products went down by 12% to reach 501,000 tonnes in comparison to the first 6 months of 2021. This is mostly driven by lower volumes of wheat and soybean. This is partially compensated by high sales of sugar beet given that the harvesting period was extended back in 2021, that's plus 59,000 tonnes as compared to 0 in the first 6 months 2021 and also corn and Sunflower.
In June, Ros Agro disclosed the press release. It was just a few weeks ago that we successfully concluded our sowing campaign, soybean, wheat and beetroot still representing most of our land bank that's [ 36% ], of total arable land in our portfolio. So these are the key numbers, key operating numbers that I wanted to share with you. Now I'm very happy to take your questions.
Thank you for the presentation, Alexander. We are ready to start our Q&A session. We have a record high number of participants, 128. Record high Indeed. Thank you very much for finding the time to join our call and for your questions. We are going to have 30 minutes to handle your questions asked orderly or in writing. Any questions that remain unanswered, please send them over to our IR e-mail account, and I will be happy to address them individually.
[Operator Instructions] And we do have 2 participants who have raised their hand I'm going to take those questions now as they arrive. Starting with Mr. Marat Ibragimov
Can you hear me?
Yes. We can hear you, Marat.
My question is most led to the Board of Directors rather than back on Friday had the session to consider a different listing venue. Is there any decision? What is to be expected from the company in that sense.
Yes, that's a question to be expected. Well, frankly, it is to be addressed to the Board of Directors and also shareholders of the company. As of now, currently, we do not have any decision as yet that we are ready to communicate officially. The company is looking into various options. And in the sense, but there is nothing to be disclosed publicly at this point in time given the fact there is no decision made by the Board as of yet. Is that correct, Svetlana.
Another question related to the financial side of the business. There is a significant increase in the government subsidizing your interest rates up to RUB 5 billion, if I'm not mistaken, that is related to new debt, but you need the new debt to buy the SolPro assets. It isn't quite clear how you have managed to get a subsidized loan to buy assets? Or am I getting it wrong?
No, I don't think so. It's either us not putting it very clearly on paper or you're reading it. Not quite correctly. There is an increase in government subsidies. That's for sure. And that is related to the growth of our loan portfolio. But that growth is unrelated to SolPro.
What is that debt then that you raised back at the end of last year.
[indiscernible] Head of Investments Financial Controlling and Accounting. Please go ahead, [indiscernible].
Well, [indiscernible] speaking. I don't quite follow what kind of that increase you're talking about. Here's the page in front of?
Which page?
So we clearly see the growth of working capital and then -- the increase in government subsidies is related to the growth of the key rate in the same period.
So the subsidies are up because of the high key rate. Understood.
A question on the Oil and Fats division, yes. You see -- we see growth of crude oil, sunflower oil.
Can you repeat, Marat?
I have a question about your Oil and Fat division. There is an increase in sales of crude oil, okay? Is that related mostly to exports or to what? Can you explain how exports work here?. What's happening in there? What kind of prices you have and which currencies they settle.
Indeed, there is a growth, and most of that growth is related to our exports. And not only that, frankly speaking. But let me handle exports first because I'm sure we're getting more questions about exports by Ros Agro. So just a few words to explain the structure of the company's exports. The structure of Ros Agro exports remains pretty much the same as was the case in previous reporting periods. We do not say anything particular in the early weeks of the situation that unfolded at the end of February.
We saw some transactions taking longer than expected. But currently, we settle well with our counterparties. There is nothing to hinder our operations.
What kind of export prices do you have? Can you shed some light here? I'm referring to sunflower oil first and foremost.
Alexander Tarasov speaking. Unfortunately, I don't think I can comment in detail here.
Marat gets an individual response to his question in writing.
Our next question is coming from Maxim [indiscernible].
[Operator Instructions]
Maxim, we don't hear you. And now we -- yes, now we can.
We see your inventories and receivables growing quite significantly, and that has an impact on your cash flow from operations. As a result, can you comment here what kind of issues are you facing with shipments and with payments? What's happening?
Alexander Tarasov speaking. Sure. Let me explain. You see I believe I have mentioned that in a nutshell early on during the presentation, well, in fact, we do not have any particular change related to settlement or payments or receivables as such, receivables [ properly ].
We see the turnover being pretty much the same as was the case earlier. And most of the impact is observed through the growth of inventories. We saw a significant hike in inventories early in the year in the first half. And as I have explained, that side is related to building up a strategic stock of inventories for the Oil and Fats division, first and foremost, but not only that.
We're building up inventories across a number of business segments, and we had to invest some working capital into that? Or would you like to ask any more specific question.
Maxim speaking. I see minus RUB 13 billion in your cash flow, that's working capital and your receivables. So I believe RUB 13 billion to be a very significant amount, especially comparing that with the previous year. So clearly, there is an issue with settlements or payments. You were saying there is no issue. That's what I hear from you. But the numbers are very significant, if you don't get me wrong.
[indiscernible] to comment.
We are talking about the cash flow slide, which contains both receivables and prepayments. So there is an increase in prepayments as well since most of the suppliers are not happy to have a payment deferral. They want a prepayment given the situation in general.
So when building our power inventories, we also got over into prepayment schemes.
Export shipments are going well without any particular increase in deferrals.
We don't see any material change in exports, like much significant deferrals or something of the kind, nothing?
I have another question. Mr. [indiscernible].
My name is [indiscernible], and I'm a private investor. Asked my question about the listing. So I've got your answer. And as a quick follow-up, let me clarify. Don't understand it correctly that dividends are not on the agenda until that question has been resolved. So there will be no dividends. I have a short questions. Do we go question answer, question answer? Or do you want a full list.
As you wish.
Okay. Question answer then.
You must have seen the [ minutes ] of the Board meeting. We do not intend to pay dividends. That's quite right. And that is related to that issue we have discussed about potential listing, which hasn't been decided upon yet.
That's understood. And another question then. In the first and second quarters, you do not give a revenue split by segment, like you demonstrate the volume of sales, but not the sales and money terms by business division. We could also see some average realized price. We could calculate that in our own end. But since that has not disclosed either, it's not quite clear how much is contributed by each business division.
I represent the IR team, which discloses all the numbers. Indeed, we are no longer disclosing that split this year according to the decision of the Board of Directors. So it's going to stay like that, unfortunately.
And what's the secret?
We see certain risks for the company when disclosing the data.
Kind of commercial secret, I get it right?
I hope that is a temporary thing,
Another very quick question, a more general one, just for my understanding. I'm interested to have settlements work. Do you sell in foreign currency and domestic market as well? Or is it not the case?
Is that a general question?
Yes.
Like 70% is attributed to both to the domestic market. The rest is exports. Whatever is exported, that's quite clear.
Let me start with the general answer, and my colleagues can help me. The general answer is this a certain portion of our production is a commodity. So the prices are linked to a certain effect, but the domestic sales are definitely in rubles. And then with any Agro business, the numbers would fluctuate based on how the price is established in the general market. If there is a commodity, and obviously, there is an exposure to FX.
Understood. So settlements in rubles, but [indiscernible] to commodity prices, correct?
Yes, that's correct. Agricultural produce as well as Oil and Fat, especially crude oil and industrial fats, all of these are exposed to the international commodity prices and the FX. If we're talking about the meat products, the exposure is less, only through the product.
Exports duties have been -- are now calculated in rubles. Are you planning to do the same? Or is that -- so do you want to move over to ruble settlements? Or is that in with the government policy, but it doesn't affect you?
If we can hardly comment on the government's moves and government policies.
Now over to [indiscernible]
Anna speaking. I have 2 small questions. And these are interrelated frankly. In the very recent days, we saw media reports about government initiatives and government policies and agriculture. As recently as today, I read the news that a single distributor of agricultural produce could be established at the state level which would be selling to Asian markets and also to the Near East.
What do you think of this initiative, what are your expectations? Could it potentially increase your export opportunities, especially in the direction of China. And my next question is related to that one. I hear in the media that the government is allegedly trying to stimulate procurement of Russian seeds by Russian farmers. So could you potentially consider that in view of the upcoming selling season, what's the situation? How challenging is that? We know that sunflower seeds are mostly imported. So what's happening in this field.
So the first question was about a single agricultural produce distributor or exports.
Well, we hear quite a few initiatives of the kind, and we are looking closely at how they unfold. We work with all the relevant government bodies. I don't think I can produce a detailed answer for you. Just to iterate, we're looking closely at every initiative from the government and their position is very simple and straightforward. We're one of the leading companies in the sector. And we expect that regardless of the eventual structure defined by the market and the government for exports will maintain our leadership by all means.
I'm happy to maintain constructive dialogue with all such initiatives, and we are happy to take that if we see fit. Regarding your second question, well, Ros Argo has its own comprehensive program. Substitute imported feedstock that we see threatened, and we are running that program. I understand several initiatives are being considered, seeds and on other things. I don't think I can give any number for you specifically, but rest assured, that is definitely in the management team's focus.
Now I would be happy to invite Mr. Anton [indiscernible] to carry on with his question.
As management company, congratulations on your performance, but can you dwell upon your losses in a little bit more detail. Q1 had significant losses, higher in Q2. What are your expectations for Q3 and Q4?
Frankly, I believe that would be question number one. I understand this question was asked at the previous disclosure call before I joined in the current capacity team. This is related to the revaluation of our FX liquidity available on our accounts. As you know, the FX rate is at the end of the reporting period is used. On the 30th of June, the FX rate was at its lowest. I mean ruble vis-a-vis the dollar. And it's difficult to make any further outlook.
We see the ruble weakening somewhat already . That hasn't been really registered. We'll see the actual rate as of the end of the year. And if the ruble is weaker, then part of the FX loss we had in the first 6 months will be compensated as FX gain in Q3 and Q4.
That's understood.
We have 10 minutes still. And let me read out a few questions from the Q&A session. Those are asked in writing. I'll pick those that haven't been covered as yet or that asked most frequently. Please explain the change in your working capital.
I believe we have commented upon that like on a couple of occasions, but let me reiterate. The developments of our working capital in the first 6 months, 2022 is not something typical for Ros Agro's business at all. But I believe similar developments have been faced by other companies. So we had to build up the working capital and prepayments and also in terms of inventories, all of that is done to handle the period of uncertainty observed in the first quarter this year.
And we needed to ensure that the business has enough inventories. I'm talking about the Oil and Fats business in particular. And also palm oil and they need other feedstock as well. So we wanted to build those up to live through the challenging times without any operating disruptions without the need to suspend the operations in some way and still grow the business.
Next, question from in writing. Yes. What's your CapEx targeted for this year? What's to be expected next year? And what are the major projects you're going to invest in?
Yes, thank you for the question. That's important. Speaking of the group's key projects in 2022. That's the [indiscernible] project. and the Russian Far East, we are pretty much finalizing. Well in fact, we have launched it. You can see our results for the new business. Generally speaking, we manage our investment portfolio without major change in approach.
We still prioritized those projects that could bring company a good deal to the company in the near term. We are also building up our land bank, wherever possible. We are looking into potential other businesses that we could acquire, nothing has changed in Ros Agro's approach at this point in time. But given the more costly capital, we are more particular about the quality of investment projects that have been considered being implemented at present.
And we prioritize accordingly. We only launched those projects that would bring most value to the company and its shareholders.
One final question. I'd like to read out. Alexander, just in a nutshell, how the sanctions against us have affected Ros Agro's business? what are the particulars? What are the major issues that the company has faced.
There are some macro developments that are the same for all members in this market, such as the FX rate, the ruble getting stronger. So whenever there is a company that has significant FX revenues, a significant portion of its revenues in FX and the actual performance will be affected as well, considering any particular risks that would be company specific. Well early on, as the situation started unfolding, we had issues with settlements and some of the counterparties, some of the vendors who no longer wanted to deliver against their contracts. But as for now, there is nothing material where we would have to suspend our current operations in any way, all our exports contracts are delivered against the money get in, in an orderly fashion.
So I wouldn't say the any portion of the business has been impacted in any more significant way because of the sanctions. No, I wouldn't say that. So we believe the situation is quite stable. And one more thing. Since the company operates. Can you hear me?
Yes. Now we can. Please go ahead. And one final thing. Given the fact that Ros Agro is involved in agricultural produce and food, you can see the developments in the year, they're talking about the need to overcome the food crises. So we hope that given we operate in the same sector will be treated with more attention as compared to the average market play. We don't see that happening as yet, but there is hope.
Thank you, Alexander, for the presentation for answering the questions. I would like to thank all the participants for finding the time to join the call and interest in our business. I understand there are some questions still outstanding. Please don't hesitate to send them over to our IR e-mail box, [email protected] and I'll try to handle them. Thank you. We are done with this session. Thanks again for joining, and goodbye.