Ros Agro said its margins would "continue to be challenged"
this year by factors including the "surplus of sugar" in Russia, whose
transformation into an exporter of the sweetener has come at a cost to producers
in depressing prices.
The meat-to-beet group - which controls 665,000 hectares of
land in Russia, an area bigger than the US state of Delaware, or all but four
English counties said that it was expecting many of the factors which sent
its 2016 earnings down 42% to hang around for this year too.
"Following the current foreign exchange rates and trends on
world food markets, the company expects margin to continue to be challenged in
2017," said Maxim Basov, the Ros Agro chief executive.
Mr Basov cited in particular the recovery in the rouble,
which cuts the value in Russian terms of assets such as many agricultural
commodities traded internationally in dollar at a time when global prices of
many crops are being depressed by ample supplies.
He also flagged, in Russia, "weak consumer demand" and a "surplus
sugar" thanks to soaring domestic output of the sweetener, with the country
earlier this month claiming top rank among sugar producers from beet, ahead of France
on 5m tonnes and the US on 4.8m tonnes.
Since 2004, when Moscow imposed a sugar import tax, domestic
sugar output has near-trebled, being forecast by the International Sugar Organization
at 6.03m tonnes for 2016-17, on an October-to-September basis.
The growth in output - spurred by investment by the likes of
Ros Agro, which has expanded its operations to six plants, and rivals such as Prodimex
Group and Dominant Group has slashed Russia's reliance on imports which have fallen
from levels above 5m tonnes at the turn of the century to a forecast 40,000
tonnes for this season.
Indeed, Russia is expected to turn a net sugar exporter for
the first time in 2016-17, by a margin of 215,000 tonnes on ISO estimates.
However, the switch has come at a cost in prices, with Russian
values coming under pressure in order to compete for export demand, besides
from the recovery in the rouble.
"Sugar prices dropped as a result of a price equilibrium
shift in Russia from an import alternative to an export alternative," Mr Basov
The group sold its own sugar at 35.4 rouble per kilogramme
in the October-to-December period, a drop of 12% year on year, contrasting with
the steep improvement in world prices.
New York raw sugar futures average 20.8 cents during the quarter,
up 41% year on year, according to Commerzbank.
Grains vs meat
The easing in rouble sugar prices curtailed to 0.9% to 4.23bn
roubles the growth in Ros Agro's gross profits in sugar in the October-to-December,
despite a 47% jump to 334,000 tonnes in sales volumes, boosted by extra output
after the takeover of three plants from Razgulay.
Factoring in higher running costs - relating to the purchases
from Razgulay sugar division operating profits fell by 18.4% to 2.74bn
The group fell into an operating loss in oils, thanks to resilient
sunflower seed costs and higher advertising spending, and it grain-growing
operations, hurt by weak crop prices which prompted an asset revaluation
While the meat segment saw a 64% rise in profits to 1.10bn
roubles, helped by higher pork prices, Ros Agro reported a 56% drop to 2.47bn
in roubles for the quarter.
Ros Agro's London-listed depositary receipts, a proxy for
shares, stood 0.4% higher at 12.80 roubles in morning deals.