OREANDA-NEWS. OJSC Russian Sea Group (hereinafter "the Group"; MOEX: RSEA), the largest Russian producer of Atlantic salmon and trout, and the leading distributor of chilled and frozen fish, announces unaudited financial results for the 9 months ended 30 September 2014, according to management accounts.

The Group 9m 2104 financial results have proved the Group's strategic move into the aquaculture business. 9m 2014 operating EBITDA demonstrated threefold increase year-on-year and amounted to RUR 686 million.

Aquaculture segment. The first 3 thousand tons of Atlantic salmon raised in the Barents Sea were harvested and sold during Q3 2014. Aquaculture segment contribution into the Group operating EBITDA for the 9 months of 2014 amounted to 35%.

Distribution segment. After cease of the Norway salmon supply to Russia due to the Russian import ban, the Group managed to maintain the sales growth and the leading position in the salmon market by means of salmon supplies from the Group's aquaculture segment, Chili, Faroe Islands and the Far East of Russia.

Highlights of the Group 9m 2014 financial results

The Group consolidated revenue for the first 9 months of 2014 increased by 13.4% year-on-year and amounted to RUR 13,204 million.

The Group achieved the highest operating gross profit in the Group history. Operating gross profit amounted to RUR 1,758 million for the first 9 months of 2014 and increased by 54.8% year-on-year.

Operating EBITDA of the Group demonstrated threefold growth year-on-year from RUR 232 million for the 9 months of 2013 to RUR 686 million for the 9 months of 2014.

Interest expense increased from RUR 301 million for the 9 months of 2013 to RUR 387 million for the same period of 2014 mainly due to additional loans raised to finance aquaculture business development. In 2014, two new farms were launched in Titovka Bay of the Barents Sea, Murmansk region.

In 2014, the Russian currency devaluation against US dollar and Euro significantly affected the Group net profit. Foreign exchange loss amounted to RUR 200 million for the 9 months of 2014.

Aquaculture

In June 2014, for the first time in the Group history, the Group started to harvest the Atlantic salmon raised on the first own farm in the Barents Sea.

During the first 9 months of 2014 the Group harvested and sold about 3.7 thousand tons of fish, including:

3,022 tons of chilled Atlantic salmon harvested and sold during the period from June to September 2014 o 613 tons of chilled trout and 29 tons of trout roe.

The segment revenue amounted to RUR 1,015 million for the first 9 months of 2014 vs. RUR 42 million for the same period of 2013.

9m 2014 operating EBITDA of aquaculture segment amounted to RUR 238 million, operating EBITDA margin constituted 23.4%.

In Q3 2014, 2 new salmon farms were launched in the Barents Sea and 3.3 million of smolt were released into seawater. The Group plans to harvest and sell this fish from Q4 2015 through Q3 2016 in the total weight of not less than 12 thousand tons.

In Q4 2014, more than 1 thousand tons of Atlantic salmon from the second farm of the Group in the Barents Sea are planned to be harvested. The second salmon farm of the Group is planned to be harvested from Q4 2014 through Q3 2015, the total weight of fish from those farm is estimated at not less than 6 thousand tons.

In Q4 2014, the Group also plans to start harvesting of trout on farms located in the Republic of Karelia, Russia. The Group will eventually increase production volume of trout roe, which will significantly improve profitability of trout farming in the Republic of Karelia.

Distribution of chilled and frozen fish

The segment revenue for the first 9 months of 2014 amounted to RUR 13,192 million and increased by 13.4% year-on-year.

The revenue growth was driven by improvement of operations in sales channels and optimization of products mix as well as actions taken to substitute prohibited fish supplies from EU and Norway

Import of Atlantic salmon from Chili and Faroe Islands, increase of supplies from the Far East of Russia as well as sale of Atlantic salmon produced by the Group aquaculture segment allowed the Group to maintain the leading position in the salmon market in Russia.

For the 9 months of 2014, revenue from the salmon and trout sales increased by 26% year-on-year up to RUR 8,251 million, pelagic fish - by 12% up to RUR 4,940 million. Sales of the Russian Far East assortment amounted to RUR 1,286 million showing 55% increase year-on-year.

Commenting on the achieved results and priorities, Russian Sea Group CEO, Dmitry Dangauer said:

"Today we are presenting unaudited financial results of the Group for the 9 months of 2014.

Currently, we see a very important stage of Russian Sea Group development. The Group strategic focus on aquaculture business has been confirmed by the first sound results of the aquaculture segment, this year objectives were achieved, the Group has managed to cope with worsening economic conditions and import restrictions.

I would like to start with key operational highlights of the Group activity in the first 9 months of 2014.

In aquaculture segment, we made the first commercial harvest of Atlantic salmon raised by the Group in the Barents Sea. During the period from June to September 2014, we harvested and sold about 3 thousand tons of chilled Atlantic salmon.

The results of the first harvest of Atlantic salmon give us a firm ground to assume that the Group makes right strategic steps in its development.

During this period, the Atlantic salmon slaughtering and processing facility was launched in the Murmansk region, 2 new salmon farms in the Barents Sea were put into operation with release of about 3.3 million of smolt. Gutted weight of this fish may exceed 12 thousand tons during the harvest that is expected to take place in 2015-2016.

Early this year, we have introduced "Murmansk Salmon" brand in order to differentiate the Group Atlantic salmon and to allow consumers to identify our locally produced salmon which is healthy, fresh and has longer remaining shelf-life.

In distribution segment, from the beginning of the year we continued to improve our operations, these improvements allowed us to increase profitability and maintain sales growth in Q3 2014 after the introduction of the Russian import ban for fish supply from EU and Norway. We have increased supply of wild salmon from the Far East of Russia as well as import of the Atlantic salmon from Chili and Faroe Islands.

We are pleased to mention that the Group financial results speak for themselves and support our strategic decisions. For the 9 months of 2014, operating EBITDA demonstrated threefold increase year-on-year and amounted to RUR 686 million.

It should be noted that, as an active participant of international trade activities, the Group bears currency risks. The Russian ruble devaluation in 2014 resulted in the Group significant foreign exchange losses.

In Q4 2014, in aquaculture segment, we plan to start harvest and sale of Atlantic salmon raised on the second farm in the Barents Sea in the Murmansk region, as well as harvest and sale of trout from our farming facilities in the Republic of Karelia. In distribution segment, we plan to continue to substitute fish from EU and Norway which was prohibited for import to Russia in August this year.

Looking ahead to next year, I can definitely say that the Group will continue investing in aquaculture segment in order to increase the supply of locally produced Atlantic salmon and its share in the Russian salmon market, and in order to offer consumers fresh, healthy and high quality locally produced Atlantic salmon and trout."