Ros Agro PLC (AGRO) Earnings Call Transcript & Summary

[Foreign Language] Ladies and gentlemen, good day. I'm Irina Papua, and I'm your interpreter. Today's event is going to be interpreted simultaneously. I'm going to advise you now how to proceed in your language of preference. I'm going to say that in both languages, then we switch on the interpretation and you'll be able to talk barrier-free. [Foreign Language] [Foreign Language] As soon as we switch on interpretation, a global 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 mobile device, such as an iPhone or a tablet, the Language Interpretation option may be hiding under the More menu represented by 3 dots. Please click or tap on the globe icon or 3 dots first and then the Language Interpretation option, choose English and also turn off the original audio, it is important. [Foreign Language] Also, please be reminded not to use the loud speaker mode when you're talking, and please don't forget to mute your mic when you listening. The use of a headset, not the built-in microphone of your device is, strongly advisable. [Foreign Language] So unless you have any questions or remarks on technical matters, I'm switching on simultaneous interpretation right now. [Foreign Language] [Operator Instructions] Dear ladies and gentlemen, welcome at Ros Agro. All our financial results for the year 2023 and for quarter 4 2023, we published a press release and investor presentation this morning. I will be moderating the discussion. Lets see, we keep this minding and now over to Alexander Tarasov. Ros Agro for development probably conducting on today's presentation. After the presentation, you will have a chance to ask your questions during the presentation. We will take our questions verbally. So you are kindly requested to use the zoom function of raising your hand. Please be reminded that the call is being recorded. Now over to Alexander to present our results.

Dear colleagues, thank you very much for finding the time to join our conference. To listen to you the presentation of our results of quarter 4 and the year 2023, we have prepared the presentation as usual, where we will try to give you an overview of the highlights and after that, we'll be happy to take your questions. I think we should proceed with the presentation point. The key events for the company. Eat food 4, you can see over here, there are 2 major corporate highlights to the [indiscernible] that is 100% acquisition of JSC Biotechnologii share and control over the elevator. The elevator is in Tambov region and it is an important transaction that gives us the on storage capacity. It enables us to manage our flows of grain and growth of exchange yet another important event that in among the several projects to modernize our capacities in oil extraction. You see here, it is modernization of the Balakovo oil extraction plant. We did last year and we expanded the capacity of sunflower seed processing to 2,400 tonnes a day, which will allow us to have recodified production. This is part of our oil and gas business segment. And for the next year, we are planning for several similar modernization. We will report on the progress of the project steel as they proceed. Now over to the next page, here are the highlights of the overall improvement included for year-on-year, historically, it was a record high quarter, the revenue of the group and if you did not have growth quite significantly but the net revenue reached to RUB 99.1 billion, which is 70% year-on-year. We earned almost RUB 26 billion in our EBITDA and we also grew our adjusted EBITDA margin at the same time with a net profit amounted RUB 10.2 billion, that is the growth over 2x as compared to first quarter 2022. We are still using our debt, despite the fact that we have spent some money on investment. Our debt-to-EBITDA currently is at 1.18x. Now over to the key drivers behind [indiscernible]. Page #7 included for 2023, you can see our revenue increased across the board and the highest contribution was that of our agricultural business, their sales increased by more than more than RUB 18 million, the second place is taken by our sugar segment and a positive contribution was made by the consolidation of NMGK results after we had bought the controlling stake that happened between the first 3 months and the second 6 months. We focused on consolidation as we reported in the previous calls, and we have achieved significant synergies, among them most reflected in EBITDA. The revenue of oils and fats sales increased by 5%, staying still higher sales volumes supported by the start or rather restart of production and expansion of Balakovo oil extraction plant as I mentioned. And besides, the growth is related due to higher sales volumes supported by higher prices and the dollar to ruble exchange rate besides we have optimize [indiscernible]. The EBITDA of Oil and Fats segment. If we take a look at it on a stand-alone basis, was affected by the growth of prices, bulk oil against the backdrop in increasing exchange rate. Now segment in segment. Let us start with the sugar business in quarter 4. The revenue of this segment grew because of the higher sales volumes in the first place. So you can see it in the graph showed on this page. So the key contributor is the gross volume. It was due to the rated high export sales and significant growth in our sales channels and besides an increased share in sugar. And besides, there was a certain increase of prices against the depreciation of the ruble. You can see EBITDA grow quite a lot as well and the EBITDA margin of 28% can be seen here, almost RUB 8.8 billion and it is a strong result of this business segment. As for the meat segment, what I would like to draw your attention to is that across the board, we saw an increase in the revenue quarter 4, mainly supported by the growing prices of livestock and crop product. That was in the market in quarter 4, the sales volumes decreased to an extent behind -- because of the African swine fever we had in Primorsky region. As for EBITDA year-on-year, you can see it's somewhat grew and the contribution to EBITDA growth was made by both the central region and Primorsky krai. It was supported by higher sales prices, as I had already and then the basket has not changed over the previous period and united as well. As for the agricultural segment over to the next page. Here I would like to say that the growth in revenue was mainly supported by higher sales volumes across all the crops that we produce apart from wheat and besides the revenue to an impact of growing sales prices for sugar beet. As for EBITDA dynamics, you can see that EBITDA in the agricultural segment was almost 38% or RUB 12.5 billion. First of all, it is due to the fact that we were growing higher-margin crops in quarter 4 and sold some accordingly. Over to the next page. Oil and Fats and NMGK, that we discussed separately or else for the situation to be clearer for it to be easier to analyze. In the [indiscernible] segment, you can see NMGK went up. So we can see the revenue improved because of higher sales of volumes of bulk oil after the modernization of the plant in Balakovo, also due to increased prices and exchanges in the USD to Ruble rate. Besides, we saw a positive impact of consolidation of NMGK that brought us RUB 16 billion this quarter in terms of net revenue. The EBITDA in Oil and Fats grew by 20%. Without NMGK, there is quite decrease in EBITDA as you can see and it is mainly due to the industrial products and the growing prices for palm oil, that is a major component [indiscernible]. This is about our 4 segment and businesses in quarter 4. Now you can see our usual page, an overview on Agriculture business. Let me say word dot it very briefly. You can see the average results here in February or we are in March already. We have employed in Winter wheat work and there is additional information on our land bank, you can see it is 685,000 hectares now. Over to our financials. Let me start with the debt composition. As you can see in the page, we have managed to reduce our net debt by 33% RUB 66.5 billion. Net debt to EBITDA, as you can see, decreased as well or topped to 2.22x to 1.18x. We did some debt repayments, and it is also due to consolidation of NMGK and increased improvement of our working capital. Here, you can see this structure among other things by repayment maturity and by types and by banks. You can see that our debt portfolio is quite balanced, the bulk of debt is the short-term loans. Traditionally, we use the subsidy program that is offered by the government to agricultural businesses. Over to the new page, you can see our cash flows here. We are showing the 12-month period traditionally for you to be able to see the movement in changes in cash flow for the whole year. Mainly, our cash flow was increased, mainly reported by higher EBITDA. As it flows from upgrading facilities is like I just said, we are invested in cadence, for example, in buying NMGK and in reducing our beet. Basically, that's it if you have any further questions about this place, I will be happy to take some. What I would like to mention now several highlights over the whole year. It will be a little bit [indiscernible] full year results, but anyway, they are worth mentioning. So we see it a record high in revenue, RUB 277.3 billion. Our total EBITDA grew by 26% to RUB 56.6 billion. The most significant contribution was paid by the agricultural business and consolidation of NMGK. You can see this in the next page here showing our net revenue, the same breakdown as you show on a quarterly basis is now on the 12-month basis. You can see that NMGK brought us more than RUB 30 billion in revenue, RUB 31 billion to be more exact. Agriculture contribution is almost RUB 25 billion and you can see quite a significant contribution of our sugar business as well. I speak about the reasons behind it earlier. So this is it about the highlights, I would like to share now I'm ready to take the questions.

[Operator Instructions]. Marat Ibragimov with the first question. [indiscernible] looks like something's wrong with this information presentation. Alex, are there any technical issues. It looks like there were some technical matters to be resolved just a second. Alex, please wait for another minute. Let us do peacefully -- looks like we can't hear your verbal questions. So let us take the questions that we see in the chat. Our providers are fixing the situation in the meantime. Colleagues, let me read out the questions we have in the chat. First which share of Ros Agro products are product based. This is a question by [indiscernible].

We do not have any major changes here. We maintain our expense revenue at about 30% to 35%. The revenue structure is more or less the same, and you will see the detail in the annual report, will be published soon.

Yes, we are still facing the voice connection. There is a classical question in the chat on redomiciliation, yet but expected this question.

At the previous call, we reported to you that we are working on redomiciliation in the Russky island. We have filed a document with the regulator to get a life through our operations here. We haven't received the permission as a corporate entity for the regulator yet. As soon as we receive it, we will give a start, do the necessary [indiscernible] decisions to launch the redomiciliation process. But the logic is still the same, our task is to observe the rights of all our shareholders. And as soon as we do the redomiciliation, all our shareholders will be informed accordingly and say we will get the dividends going forward. We don't get back to it.

What we did before, also what we said before is still relevant. We have fixed the matter with voice connection and say [indiscernible]. Marat Ibragimov Gazprombank Bank. Over to you once again.

The first question is on the dividend. So you have this RUM 2 billion figure, where does it come from?

This is our investment in the company Agro-Belogorye. We got the annual dividend through that company. And we recognized them approving our statements.

What was the consolidation of this asset? It is understood there is some litigation in process, but can you set us light on the situation.

I will not comment on the litigation because public incidents of the information and our interest has been proved to consolidate Belogorye is well known to you. Right now, I can't say to you anything else. At present, we're an owner of a stake in the company.

We got another question is that may be difficult to you. At the beginning of this year, there was a company to be acquired. Did you take [indiscernible] acquisition in all the negotiations where we can take parts that is relevant for our key business and if it responds to our strategy well.

So we have a major pipeline in terms of organic growth. Now the group cannot pay the dividend temporarily. And in terms of the number of key actions we can make, we rely on these resources as well. So we had a successful transaction to acquire NMGK in our Oil and Fats business last year. There were some other opportunities, of course, but we focused on the one that gives us onstage capacity to us and completed it.

One more question about China, what are your plans for the market? What are the volumes -- do you expand -- do you plan to expand your capacities in Tambov in the Far East of Russia.

We are really positive about our potential exports in China. We spoke about it. And last week, we published official news that we got the permission to our Primorye to export it to China. Now our capacities seem to be enough, big ones. For the first shipments to the country and depending on the dynamic that we get in this area, we'll be making other investment decisions. So we'll decide whether we want to expand our production capacity there, besides Far East of Russia, there are some areas for us to expand into because a metro bus getting a relevant permission for express from both this asset of the group. Thank you. That's it with so far. Thank you very much for your questions, over to the next question, [indiscernible].

So if I may, I will follow up on the Meat segment. In Page 10, we are speaking about the African swine in quarter 4, but did not have confirmation on the website? Is it a typo and are you referring the incident in May and June.

Yes, of course, there was no other one. This one was [indiscernible]. We are speaking about the effect of the health rate with the result of quarter 4. Understood.

Additional question. If you can give us some guidance on what CapEx was a current year? And what's our segment-based priorities comment. In the previous comment, I heard that you are planning to expand your capacities in the Tambov asset. Can you please elaborate more on your potential cadence?

Yes. This year -- last year, we planned -- we spent about RUB 18 billion on organic CapEx. The pipeline of project that we currently see ahead is or about the same amount or a little bit more. We can see some opportunities and we see this viable to invest in our sugar plant to increase their efficiency per modernization program ongoing there. We are also planning to expand the capacities in our Oil and Fats segment, namely Atkarsk. It is an example of organic CapEx and besides your in projects associated with expanding our fleet of vehicles, some to be in plate, some to the outsource they're reasonable to improve our logistics efficiency. The prices for logistics services up rolled and we are trying for [indiscernible]. These are our key [indiscernible] besides it is understood we have a nonorganic pipeline. We are looking into potential consolidation of each of our businesses, even those that may seem complementary.

A clarification done. You are speaking about expanding the capacities to your other oil extraction plant. If you give us like the deadlines or [indiscernible], it will be partially out of production, which will impact further volumes. When is it to be expected.

Look, right now I won't be able to tell you as exactly as the number of quarters. It is not only about the deadlines per se. It is also linked to lead times of equipment but we also understand the effect in our operations. I won't be able to be that accurate that judging by most recent modernization project. It took us a little bit less than the quarter. The plant was out of operation, but we were able to catch up in the following quarter. So for your modeling purposes for this year, there will be no impact for the year 2024 expect. You will see the effects in the year additionally.

And finally one point will be with your China project. You [indiscernible] but not for earlier year. If you are experience in the other segments [indiscernible] get the certificate for another plant. There is a kind of a delay with associated with the last year's swine to outbreak.

Yes, there is some connection. And if it could not be on the case, we might have [indiscernible] weaker. That it is still a matter of time. Basically, it is not a regular practice, any certification is [indiscernible] and these certificates are given in particular month in a particular region, no, but you would give you a certificate for the implied group or the entire country or the whole world. So did not try for regular practice. And the quality I will challenge you a little bit more. So the Chinese market is opening over 3 Russian companies but also, we have some finance from the National Union of 4 producers. They given estimate of the [indiscernible] growth and in 2024, they said the supplies [indiscernible] pilot ones like 20,000 tonnes per plant and [indiscernible].

Do you have a understanding of the volumes in which 3 companies or for your company only -- how will your volumes staying rolling towards what? Is it early to speak it on that?

Let me refer this question to the quarterly disclosure. We will have a better understanding them. Right now, I haven't answered that I wouldn't share it with you. Let us get the certificate like lots of paper is about 2 weeks ago. We'll begin momentum [indiscernible] from now. I'll be able to give you a more accurate estimate on how it's going to influence our volumes. There will be something in between in pilot mode and in full commercial mode. The next question is coming from Alexey Krivoshapko over to you.

I would like to voice my question that you already seen the chat, redomiciliation you with the license in Cypress, why did you need it at all.

The nature of this license is that it is a standard procedure that is required for a company whose parent company is registered in Cypress, while a certain document will get a license to receive our redomiciliation. This requirement of Cypress [indiscernible] and we are just following the procedures that is common for all network-based companies.

Is there is a timeline suggested by the regulator?

Unfortunately there are no tasks deadline. We are working to speed up for the process that -- well I can't say that they must give us the [indiscernible] 14 days. It is not the case that we are doing best to get around as soon as possible. And as soon as we get it, we will let you know [indiscernible].

Understood. Second question, in your statements you had an amount of RUB 10 billion in 2023. It is the nature of this amount. It is of 2 parts. The revaluation of the tax balances that we have last year. We saw some significant denomination. And the second part, now down export settlements and there is a certain revaluation as well. So about RUB 8 billion to RUB 9 billion [indiscernible] . In 1, 2 questions were asked more. As for your CapEx in 2023, can you see any inflation associated with construction taking into account the more complicated logistics, the sanctions, like what if you want to build a new [indiscernible] anything, you need some materials for construction in your agriculture treatment like it has become more expensive than, for example, in 2021.

Yes, in comparison to 2021, that's for sure because USD to Ruble rate is different. And compared to 2022, I don't think we have any significant inflation. As usual, in macroeconomic sectors, there is a kind of a substitution effect. At some spot, the prices would grow but the business such as Ros Agro business can come up with a solution to substitute more experience initiatives with less expensive ones. For example, we look at the alternative suppliers of equipment and so on. So I wouldn't say if you take a look at the cost per square meter for example, I wouldn't say that we saw any significant pricing inflation in 2023 year-on-year, despite supporting that we invested in, we realize the cost of capital was growing, and we are quite conservative about assessing our future projects.

So one of the those would pass the threshold to that -- to the EBITDA on capital really and as for your loans, I understand most of your loans are still subsidized through opened programs by the ministry of agriculture. What was the average cost of debt across the portfolio is at the end of the year and taking into account your planned repayments, what do you see as your cost of debt for 2024?

We mainly have loans that are subsidized according to program [indiscernible]. Speaking about the average rate, about 70% to 90% of the key rate was subsidized. So you can do your maths and so the effective rate would be [indiscernible]. And these programs are still on, right? Yes. Some rules or conditions may change some amounts for the rate of subsidy may change depending on the changes in the key rate. In this part, there will be changes. But basically, we expect that we will be using this program going forward the level of rates in the economy has grown and our rates would also be a bit higher, but we expect that the major principles for subsidizing will still be there.

Over to the next question [indiscernible].

I would like to ask another question about the Primorye region. What is the situation there? What is your capacity utilization now? What do you expect it to be at the end of the year?

We have fully liquidated the effect on the incident. The asset, we have there are alterating according to their regular metrics. It wasn't the case that we lose business launch and it could come after the flu outbreak.

And what do you expect for 2024?