Ros Agro PLC (AGRO) Earnings Call Transcript & Summary

[Foreign Language]

[Interpreted] Ladies and gentlemen, good afternoon. I'm Konstantin, your interpreter. This event is going to be interpreted simultaneously. I'm going to advise you how to proceed in your language of preference. I'm going to say that in both languages, and then we'll kick off simultaneous interpretation so that you can talk very free. [Foreign Language] [Interpreted] As soon as we switch on the interpretation, a globe icon will appear at the bottom of your screen. It isn't there yet, but it's going to show up soon. If you're joining from a narrow screen device, such as your mobile phone, then globe icon may be hiding under the More menu represented by 3 dots. Please click or tap on that globe icon or first 3 dots, then globe, choose English and go ahead with the presentation. [Foreign Language] [Interpreted] Also, please be reminded not to use the loud speaker mode when you are talking, and please don't forget to mute your mic when you are listening. [Foreign Language] [Interpreted] Please direct your attention to the bottom of your screen. A globe icon is going to show up right now.

[Foreign Language] [Audio Gap]

[Foreign Language] [Audio Gap] Performance and we are confident about Kharkiv with some very good numbers coming from that. Anticipating some of your questions, I can say that, today, we're currently in the sowing seasion with more products being sowed. We have some beetroots still remaining in the pipeline. Some of the sunflower and small volumes of soybean. Crop rotation has been changed this year. We have more volumes of land dedicated to soybean and sunflower, and we have expanded sugar beet as well. The sowing season is going to be completed by the end, or rather mid-June -- well, in the second half of June, let me put it this way. We have a press release readily available for you with our results at that time. The force oil extraction plant in [indiscernible] started. It had been suspended for 18 months. But now with the government approach to agricultural exports changing, we have restarted production. So in Q2, we're going to see the outcome, the performance. Thank you. We're happy to take your questions now.

We don't have anyone raising hands as of yet. So let me read from the Q&A section of Zoom. Considering growth of your margins pretty much across the board and the continued growth of global prices, do you see a risk for the domestic market to be regulated even more by the government?

Yes, we see some risks. The risks are always there, and we are there to manage those risks. The changes in government policies that we have observed in the past 5 months could hardly have been imagined, just some time ago. So we are closely observing further changes, and I hope we'll manage to go ahead with that, thanks to our strong assets and a very strong team. The digital transition in agriculture is at full swing, which is really helping us. We'll manage to be making some good money in the end and make our shareholders happy with good results. Generally speaking, that situation is understandable. Commodity prices are growing globally, which is related to more money available in the market. This is related to climate issues and certain regional issues, higher oil prices that have recovered. And the concept of, what we call, imported inflation is definitely there, especially in Russia, where consumer income has not been growing in the recent years. Markedly, this structure in domestic consumption has changed, and Russian people have stopped their foreign travels, so they have more money available to spend for food, among other things. Hence, we see some good demand, nowadays, especially for cheaper products. And our business is mostly about the mass proposition. We see very significant demand coming from foreign markets, too. The most important thing, for now, is not to have any exports ban. Obviously, prices could be regulated, duties could be imposed, thus taking some of our shareholders' income. But the most important thing is for us to carry on even in the adjusted market conditions. Given the high momentum in the industry and lots of investments into technologies and production facilities, it's important to keep producing and shipping our goods. For some of our branches, like Oil and Fats, for example, the domestic market only accounts for 25% or less, but -- so we hope we'll carry on with exports. Thank you. I would like to hand over to Mr. Nikolay Kovalev.

Hello? Can you hear me?

Yes.

I have 3 questions, if I may. My first couple of questions relate to the Sugar market. We're nearing the start of a new agricultural year, and I'm wondering if you have any preliminary market data already available, like sowing area for beetroot and the total crop? And then another question on the Sugar market. We have seen some media reports about further regulations of the sugar market for the upcoming season. Do you see something of the kind in your discussions with the government regulators? Do you see any signs, there would be further regulations? And my third question is about EBITDA. We have seen your EBITDA doubled as compared to the first period of regulated pricing. I'm wondering what you're budgeting for the full year of 2021? Would you expect an EBITDA growth for the full year? Yes. These are my 3 questions.

Okay, beetroot. We are now completing the sowing season. I believe that it's going to be completed before the end of this month, across Russia. We expect 950,000 to 1 million hectares to be dedicated to beetroot. I personally believe it will be slightly less than 1 million, but let's imagine it's 1 million, okay? Then would see the conditions throughout the summer. I can tell you now that the sowing season happened later, 2 or 3 weeks, that depends, which means a loss in the vegetation period, on the one hand. But on the other hand, we see good supply of moisture in many regions, that's exactly why we are having this delay. It's not only about the cold and slow warming, but it's also because of the moisture in the fields, which made it difficult to arrive in. So it will depend on the temperature. So it's hard to tell now how much yield in Sugar we will be getting. Russia only consumes about 6 million tonnes. Some of the Sugar goes to Malaysia. But the market is going to be balanced, more or less. That's my view. Then we need to understand the situation with the Russian ruble and its FX rates. Unless we see any major event, in a negative sense, the ruble is expected to strengthen. We expect it to come up to RUB 74 to RUB 72 per dollar, but no one can exclude, of course, any challenging political or even military scenarios. And then comes the question of the global price. For the first time in 8 years, a global shortage of sugar is expected. Global shortage does not contribute to lower prices, of course. Shortage of sugar is explained by the fact of draughts in Brazil and a huge demand for bioethanol fuel. So Brazil is going to produce less sugar. Sugar is available in India, but India is facing real trouble with COVID. So India is not going to yield significant or sufficient volumes of sugar. So it's hard for me to tell. I would really abstain from commenting on any actions from the government. We do not support government oversight in this regard, but we'll definitely oblige by all resolutions of the Russian government. Just like I said, we have invested more into sugar beet production this year, with more space dedicated to that commodity, so sugar output is going to grow this year. Last year, the year was not really good for sugar beet. It was a lucky year for other crops, but it was not so good for sunflower, sugar beet. And sugar production went down by 35% to -- or 30% year-on-year vis-à-vis the record high year of 2019. So this year, the situation is going to get back to normal, and we'll be producing about 1 million tonnes of sugar in totoal. We'll have no sugar available and then we'll be looking forward to what the government decides. We have quite a lot of channels and quite a lot of opportunities. We'll keep going. That was your first question. Now comes your other question about?

I can remind you. My last question was about the full year guidance. I understand it's too difficult to say as of now with the agricultures -- the new agriculture season are not yet starting for any of your commodity products, right?

Yes. Well, I can tell you that the biggest uncertainty here is the government policy. You see our Q1 turned out to be a record quarter for us. We are into mid-Q2 already, so Q2 looks to be a very good one as well. Then a lot is going to depend on the weather, but the sowing volumes are quite good. There is no delay pretty much. So I expect some good crops to come, I hope. All of our facilities are ready to process the commodities. The global prices are high. So we are looking forward to a good year. There are climate risks, of course. There are government risks. We are always optimistic about the situation. However, in autumn, we'll be launching our large project in Primorie region. The slaughter house online will be coming to the market. So generally, the year is going to be a very good one.

I'm going to ask a question from the Q&A section of Zoom. What are your thoughts about developing exports with Ros Agro? The share of exports is slightly up year-on-year with 32%. Whether the company has plans to ramp up to 50%, let's say, in 3 years to come? And a quick follow-up question. What markets or products and what geographies would be your priorities?

A few years ago, we adopted a program to expand our exports, which has been quite successful. As of now, we are reconsidering some of the prospects given the fact that the government policies are changing. But again, with the domestic market not growing, given that the population is coming down in terms of numbers and no one is expecting all the Russian population to get rich quickly, but technologies are developing. So we'll be still investing in a targeted way and in a highly efficient way. These additional volumes need to be sold abroad. So we're really hopeful that the Russian government would allow Ros Agro to keep exporting. And if that happens, we'll have growth of our export share and higher exports revenue. The situation is very different for each of our segments. Let me start with the largest segment of ours. Some good prospects are available in place 2 subsegments. The resource based in Russia is very good. So it's very good to make oil. In Russia, we have already decided to expand on our capacities, the 2 facilities in Saratov, and we are looking into new opportunities with new sites. We are looking for new opportunities at existing sites and will -- at other sites than Saratov. Most of our world goes to Middle Asia, Iran; countries of Northern Caucasus and Turkey. These are our main markets, although sometimes we reach out as far as China. Meal, the largest market here is Northern Europe and then China again. The Mediterranean look to be some very interesting markets as well. Consumer oils, again, we are the largest producer in Russia in this regard with our main markets lying in Middle Asia, China is important. And basically, all other markets are growing, although they are not as important. Most of the potential, most of the upside results in China for our bottled oil. Industrial fats are not exported and imported, but we intend to ramp up this production line as some of our confectionery businesses in Russia are growing their exports. Hence, they have to consume more of our production, which would deliver among other things. Let me comment on the Meat business now. We are rather successful in Vietnam, Hong Kong and Belarus and also Ukraine. We'd like to sell more. But at this point in time, given the shortage on the poultry business -- and no, not shortage, that's the wrong word, given the high prices in poultry, chicken, the prices are quite high, and it's not favorable to export meat, but we are exporting nonetheless. Especially with the offers and with the launch of our Primorie project, we'll be ramping up as well. As for the agricultural business, given the changes in the government policy, we'll be processing most of that rather than exporting, if it will. Sugar, that depends on the production volume. I don't think production in Russia will be growing, given further uncertainties in government regulations. However, we have decided that we try exporting consumer products, especially towards China and Middle Asia, so we'll be ramping up exports towards these geographies. Basically, as I think exports will be growing and share of exports in our revenue will depend on the prices, global prices, the FX rate of the ruble and the government policies.

Artur, you can proceed with your question.

Can you hear me?

Yes.

Fine. Congratulations on your very good performance across every segments. It seems that government regulations are helping you rather than otherwise?