OREANDA-NEWS. October 11, 2012. OJSC "Russian Sea Group" (the "Company" or the "Group"), one of Russia’s leading consumer food companies, today announces its financial results for 6 months ended 30th of June 2012 based on interim unaudited condensed consolidated financial statements.

The Group consolidated revenue decreased by 11.8% to RUR 7,607.4 million in the first six months of 2012 from RUR 8,623.2 million in the same period of 2011. Consolidated EBITDA loss decreased by 74.4% as compared to the first six months of 2011 to RUR (68.1) million.

Key financial indicators for the first 6 months of 2012 as compared to the first 6 months of 2011

In million of Russian rubles

First 6 months ended 30 June

　

2012

2011

Change

Consolidated revenue

7,607.4

8,623.2

(11.8%)

Chilled and frozen segment

5,951.6

6,694.3

(11.1%)

Ready-to-eat segment

1,600.9

1,925.1

(16.8%)

Aquaculture segment

54.9

3.9
　 　 　 　

Gross margin

979.0

919.5

6.5%

Chilled and frozen segment

9.4%

10.9%

 　

Ready-to-eat segment

20.7%

6.2%

 　

Aquaculture

19.1%

16.7%

 　
　 　 　 　

Selling, general and administrative expenses

(1,096.0)

(1,234.5)

11.2%

Interest income

2.9

0.6

99.5%

Interest expense

(207.4)

(165.2)

(25.5%)

Exchange gain

36.2

76.4

(52.6%)

　 　 　 　

EBITDA

(68.1)

(265.9)

(74.4%)

　 　 　 　

Net loss for the period

(290.6)

(442.7)

(34.4%)

Chilled and frozen segment

Sales in chilled and frozen segment decreased by 11.1% in the first 6 months of 2012 as compared to the first 6 months of 2011 – from RUR 6,694.3 million to RUR 5,951.6 million. Gross margin reduced from 10.9% in the 1H of 2011 to 9.4% in the 1H of 2012. Gross margin decrease resulted primarily from the need to sell off stock of Far Eastern and Pelagic fish formed at the end of 2011. Driven by market price volatility gross margin of these sales was well below company average.

Ready-to-Eat segment

Sales in ready-to-eat segment decreased by 16.8% to RUR 1,600.9 million in the first 6 months of 2012 from RUR 1,925.1 million in the first 6 months of 2011. Sales reduced in the modern retail trade channel as a result of Company policy not to sell branded products on tender basis. Besides, the Company stopped to sell significant volumes of salmon roe under Chingai and Soviet brands due to systematically unsatisfactory gross margin of this product. The segment’s gross margin went up in the first 6 months of 2012 to 20.7% from 6.2% in the same period of 2011.

Aquaculture segment

The segment’s revenue amounted to RUR 88.1 million in the first 6 months of 2012. Net sales to external customers increased to RUR 54.9 million. Gross margin was 19.1%.

Main costs and expenses

In the first half of 2012 selling and distribution expenses decreased by 12.9% - from RUR 940.8 million in the 1H of 2011 to RUR 819.8 million.

Transportation costs, in particular inter-branch deliveries and loading and unloading costs, were reduced as a result of improved inventory turnover at the Company’s warehouses. “Russian Sea” warehouse move to Noginsk led to rent decrease.

General and administrative expenses were reduced by 6% from RUR 293.7 million in the 1H of 2011 to RUR 276.2 million in the 1H of 2012.

Interest expenses increased from RUR 165.2 million in the 1H of 2011 to RUR 207.4 million in the 1H of 2012. The cost of financing grew from 9.7% to 11.7%. Interest expenses increased primarily due to floating interest rate fluctuations. It should be noted that at the moment the Group’s credit portfolio is fully refinanced.

Exchange gain in the 1H of 2012 in the amount of RUR 36.2 million resulted from exchange rates fluctuations.

The Group consolidated net loss decreased in the first six months of 2012 as compared to the same period of the previous year and amounted to RUR 290.6 million.

Timofey Tarasov, the Group CEO, commented on financial results:

"Today we announce financial results for the first half of 2012. Generally the Company’s results improved although the pace of positive changes is below our expectations. The Group continues to generate EBITDA loss. However the loss was significantly decreased as compared to the same period of last year.

It is important to note a significant influence of seasonal factor on businesses of fish industry. First half of the year is traditionally the most difficult while in the third and especially fourth quarter demand for fish products grows which has a positive impact on business results.

In chilled and frozen segment we see positive dynamics and improved sales results already in the 3rd quarter of 2012. Revenue earned in the third quarter offset the gap accumulated in the first half of the year. Salmon and trout sales grew significantly in modern retail trade channel and in the regions. Other product categories such as imported and Russian pelagic fish, Asian assortment sales also increased. We expect to improve revenue and profit indicators in the fourth quarter which is traditionally a high season for fish and seafood.

In ready-to-eat segment we significantly improved profitability in the 1H of 2012 as compared to the same period of last year. Gross margin reached 20.7% as compared to 6.2% a year earlier. The main target till the end of the year is to maintain gross profit margin and boost sales. A number of initiatives are implemented in order to achieve this. In the delicacy red fish category we redesigned and upgraded package of our main product line, launched an economy line and will launch a premium line in October 2012. We also started to sell salmon roe of a new fishing season in a new design. Besides we introduced to the market a new series of salmon roe “by fish species”. More innovations will follow in the fourth quarter.

In the third quarter we started to harvest trout at our farm in Karelia. Till the end of the year we plan to harvest around 1000 tons of fish.

We are pleased to report that the Group successfully refinanced its credit portfolio. Further priority for management in this area will be a reduction of interest rates and creation of an optimal maturity schedule".