OREANDA-NEWS. OJSC "Russian Sea Group" (the "Company" or the "Group"), one of leading companies on Russian food market, announces its audited financial results for 12 months ended December 31, 2012.

On 28th of February 2013 the Group finalized a sale of its 100% subsidiary, CJSC “Russian Sea”, to a strategic investor. Therefore in consolidated financial statements for the year ended 31 of December 2012 CJSC “Russian Sea” (ready-to-eat segment) operations are classified as discontinued and the segment’s results are presented separately.

Chilled and frozen and aquaculture segments operations are classified as continuing. Below are presented the results from continuing operations for 2011 and 2012 calendar years. Key financial indicators of ready-to-eat segment are presented in a separate table.

Consolidated Statement of Comprehensive Income for the year ended 31 december (Continuing operations)

In million of Russian Rubles

2012

2011

% change

Revenue

16 008,3

15 570,3

2,8

Chilled and frozen segment

15 950, 3

15 551,5

2,6

Aquaculture

58,0

18,8

208,5

　 　 　 　

Gross margin

1 547,8

1 760,8

(12,1)

Chilled and frozen segment

9,7%

11,1%

 　

Aquaculture

4,9%

25,6%

 　
　 　 　 　

Selling and distribution costs

(1 191,7)

(1 147,9)

3,8

General and administrative expenses

(289,4)

(241,6)

19,4

Interest income

2,6

1,1

143,9

Interest expense

(224,0)

(149, 2)

50,3

Exchange gain/(loss)

82,9

(58,5)

 　
　 　 　 　

EBITDA

62,7

430,9

(85,4)

Net (loss)/gain for the period

(102,3)

131,0

 　

The Group revenue from continuing operations increased as compared to the previous year by 2,8% and amounted to RUR 16 008,3 million. Consolidated EBITDA in 2012 decreased to RUR 62,7 million from RUR 430,9 million in 2011.

Key financial indicators of consolidated statement of comprehensive income for the year ended 31 December (ready-to-eat segment, discontinued operations)

In million of Russian Rubles

2012

2011

% change

Revenue (including inter-segment sales)

3 564,4

4 045,1

(11,9)

Interest income

1,5

1,6

(8,4)

Interest expense

(266,4)

(223,4)

19,3

Impairment

(548,8)

0

EBITDA

(132,3)

(313,7)

(57,8)

Chilled and frozen segment

The segment’s net sales to external customers increased by 2,6% as compared to 2011 and amounted to RUR 15 950,3 million in 2012 mainly due to increased sales of salmon and trout in retail chains in the second half of 2012. The sales of Russian pelagic fish have grown in 2012. Regional sales through branch offices and trade representatives have also shown positive dynamics.

The gross margin decreased to 9,7% in 2012 as compared to 11,1% in 2011. It was adversely affected by a need to sell stock of Far Eastern assortment, herring and mackerel that was built at the end of 2011 with lower mark-up than was originally anticipated. Starting from 3Q 2012 the segment’s gross margin started to increase.

Aquaculture

The segment’s sales to external customers amounted to RUR 58 million that considerably exceed the result of 2011. Sales to internal customers increased to RUR 59 million.

The segment’s gross margin decreased to 4,9% as compared to 25,6% in 2011 due to a need to sell the farmed trout with low mark-up as market price for Norwegian salmon and trout considerably decreased in 1Q 2012.

Ready-to-eat segment

The segment’s revenue (including inter-segment sales) decreased in 2012 by 11,9% as compared to 2011 to RUR 3 564,4 million. Sales reduced mainly in modern retail trade channel as a result of Company policy not to sell branded products on tender basis. Starting from August 2012 sales of delicacy red fish in retail chains were restored. However by the end of the year the Company couldn’t succeed to exceed the result of 2011.

The gross margin was improved in 2012 and amounted to 20,6% as compared to 14,97% in 2011 due to the margin recovery in delicacy red fish category at a time when the salmon and trout purchase prices stabilized and the margin maintenance in herring preserves category at a time when the raw fish prices went up.

Key costs and expenses

In 2012 the Group’s selling and distribution costs increased by 3,8% as compared to 2011. But as a percentage of revenue they remained at the same level. Transportation costs and customs clearance expenses increased as a result of increased import volumes, mainly of salmon and trout. At the same time due to inventory turnover improvement in chilled and frozen segment the cost of transportation between branch offices decreased as well as cargo handling charges.

General and administrative expenses increased by 19,4% as compared to 2011. As a percentage of revenue the change wasn’t significant – from 1,6% to 1,8%. The costs growth was driven mainly by increased G&A expenses (labor costs, consulting costs, other administrative expenses) of aquaculture segment due to launch in June 2012 of salmon farming site in Barents sea, Murmansk region.

Interest expense grew from RUR 149,2 million in 2011 to RUR 224 million in 2012 due to increased amount of debt, increased in 1H of 2012 MosPrime rate and cost of financing by VTB Bank. The debt grew primarily due to increased amount of investment credits taken in order to finance the aquaculture project development.

An average interest rate on short-term loans grew from 9,4% to 11,79%. An interest rate on investment credits taken to finance the investment stage of aquaculture segment development is higher than on loans provided under current assets. Besides in 2012 the rate on Company’s loans was fixed. This fixed rate corresponds to average market rate for the similar segment.

In 2012 the exchange gain amounted to RUR 82,9 million as compared to exchange loss in amount of RUR 58,5 million in 2011 and resulted from the current situation on money-market.

In 2012 net loss from continuing operations amounted to RUR 102,3 million as compared to net profit in amount of RUR 131 million in 2011.

Dmitry Dangauer, the Company CEO, has commented on the Company results and major priorities:

“The last year was difficult for Russian Sea Group – general operational results remained at the level of 2011.

Ready-to-eat segment demonstrated a significant improvement of profitability in 2012. Nevertheless it remained unprofitable and negatively influenced the general result of the Group. That’s why at the end of 2012 the Board of Directors took a decision to sell this business to a strategic investor.

As a result of this transaction the Group’s operational results will improve considerably as ready-to-eat business that demonstrated losses during last few years was sold. Besides the Company’s debt was reduced.

At the same time the sale of ready-to-eat business influenced negatively 2012 financial results due to sold business’ assets revaluation. I would like to stress out that this effect doesn’t influence the Group cash flow.

After the sale of ready-to-eat business the Company will concentrate on its main business division – chilled and frozen segment and on development of its new promising segment – aquaculture.

Chilled and frozen segment’s results in 1H of 2012 were below expectations due to unfavorable price situation for import pelagic fish. But in the second half of the year the situation improved and 4Q results allowed to partially cover the gap accumulated in the first half of the year.

In 2012 the aquaculture segment came to a new level of its development. The first marine Atlantic salmon farm on the site in Barents sea, Murmansk region, was launched.

Previously the Company was farming trout at its farm at one of Karelian lakes. We will continue commercial trout farming but we especially believe in Atlantic salmon farming in Barents sea where natural conditions allow to farm fish in volumes that aren’t achievable in lake farming. In 2013 the Company will continue to systematically develop the aquaculture project in order to reach projected farming volumes in amount of 20 000 tons of biomass per year”.