ACRA ASSIGNS B(RU) TO AGRODOM LLC, OUTLOOK STABLE

The credit rating of AgroDom LLC (hereinafter, AgroDom or the Company) is based on the low assessment of its industry risk profile, which takes into account the high volatility of the wholesale trade sector, which the Company belongs to in the Agency’s opinion, and the low assessment of the operational risk profile (due to the very weak assessment of the market position, moderately low level of corporate governance, and medium assessments of the business profile and geographic diversification). The Company’s financial risk profile is characterized by the very small size of business, low profitability, medium leverage, and weak interest payment coverage, as well as the very low assessment of liquidity amid a very weak cash flow.

AgroDom is a small (in terms of the Russian corporate sector) trading enterprise that specializes in the wholesale trade of agricultural crops and provides services for organizing transportation of goods in the domestic market. The Company was founded in 2016. It sold 51,000 tons of products in 2023.

KEY ASSESSMENT FACTORS

The medium business profile assessment takes into account the high cyclicality of the Company’s area of trade — crop production, which is related to climatic conditions, the amount of grain stocks in storage facilities, and high price volatility. At the same time, the Agency notes the moderately high level of diversification for types of sold products (wheat, sunflower, corn, barley, flax). In 2023, the share of wheat sales accounted for 37% of total revenues. At the same time, ACRA takes into account the low barriers to launching this type of activity, which increases the risk of competition and reduces profitability. Agricultural products are mainly purchased from small peasant farms, but the diversification of suppliers is assessed as good (the largest accounts for 6%), which significantly neutralizes credit risks during purchases. The Company leases elevator capacities to store products in the Saratov and Voronezh Regions. A significant part of supplies of grain and oilseeds is directed to major exporting grain companies, as well as to processors and producers of feed, which in combination with the Company’s acceptable concentration on a single buyer (around 30%) and the absence of overdue accounts payable, resulted in a high assessment of the Counterparty Quality sub-factor. The conditions for settlements with counterparties have a neutral influence on the business profile assessment due to the Company’s need to obtain working capital, which the Agency assesses as moderate.

The medium geographic diversification takes into account the sale of products in the domestic market, which is moderately diversified across several regions — the Volgograd, Voronezh, Kursk, Saratov and Kaliningrad Regions, as well as the Krasnodar Krai (Novorossiysk). AgroDom owns nine grain trucks and a repair shop, which enables it to independently cover part of its need for transportation of goods.

The moderately low level of corporate governance is based, on the one hand, on the high assessment of the Group Structure sub-factor, which reflects the slightly complex organizational structure of the group (represented by AgroDom LLC and an affiliated company that leases out some of the vehicles). On the other hand, the low assessment of the Management Structure sub-factor is based on the absence of key bodies such as a board of directors, as well as its associated committees, and corporate governance policies and procedures. At the same time, ACRA takes into account the fact that the presence of all attributes and high standards of corporate governance is not possible and is not always advisable at this stage of the Company’s development. The Agency assesses risk management at an adequate level. The Company has procedures for lowering its financial and reputational risks when developing relations with counterparties. The financial transparency of AgroDom, according to the Agency’s estimates, is low as the Company only creates RAS reporting.

Very small size of business and low profitability. The Company’s revenues amounted to RUB 695 mln in 2023, which was more than three times the indicator for 2022. ACRA expects revenues may increase by 30–35% this year. As per the presented plans, AgroDom expects a multiple increase in the volume of product deliveries in 2025–2026, which, however, will not exceed RUB 3.5-4 bln. According to ACRA’s calculations, the weighted average FFO before net interest payments and taxes for the period from 2022 to 2026 will amount to RUB 56 mln, which in total indicates a very small business size. The FFO margin before net interest payments and taxes amounted to 3.6% in 2023; the weighted average for 2022–2026, according to the Agency’s estimates, will be 4.4%, which corresponds to a low level.

Medium leverage and low payment coverage. As of July 1, 2024, the Company’s loan portfolio included an overdraft, a revolving short-term credit line used to finance working capital, and financial lease obligations totaling over RUB 100 mln. In August 2024, AgroDom began the placement of its debut bond issue worth RUB 200 mln, which will lead to higher debt, but also improve the structure of debt by attracting obligations for a period of 3.5 years. The Agency expects the ratio of long-term debt to FFO before fixed payments to be 4.8x in 2024, while the ratio of short-term debt to revenues will be 0.08x. According to ACRA’s estimates, growth of debt obligations due to the placement of the bond issue amid a prolonged period of a high key rate will put pressure on the coverage indicator, which in turn may lead to debt service falling to 1.2–1.8x in 2024–2026 (vs. 3.3x in 2023).

Negative free cash flow (FCF) and very weak liquidity. The Company’s FCF is negative due to the active financing of working capital, which is due to dynamic growth. The FCF margin, according to ACRA’s projections, will remain negative in 2024–2026, including taking into account possible capital expenditures. The extremely low quantitative assessment of liquidity stemming from negative FCF, an absence of reserve funds, and the limited size of available credit limits on the back of the need to attract significant financing of working capital for business expansion, determine the very weak general liquidity assessment.

KEY ASSUMPTIONS

• Threefold growth of the volume of shipments from 2025 to 2026 compared to 2023;

• Complete placement of bonds worth RUB 200 mln;

• Continued access to internal and external funding sources;

• No dividend payments in 2024–2026.

POTENTIAL OUTLOOK OR RATING CHANGE FACTORS

The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

• Weighted average FFO margin before net interest payments and taxes exceeding 5% coupled with a significant improvement of the liquidity position;

• Weighted average FFO ratio before net interest payments and taxes exceeding 5.0x.

A negative rating action may be prompted by:

• Weighted average FFO margin before net interest payments and taxes falling below 2%;

• Weighted average ratio of FFO before net interest payments to interest payments falling below 1.0x;

• Weighted average ratio of short-term debt to revenues exceeding 0.2x;

• Significant deterioration of access to external liquidity sources.

RATING COMPONENTS

Standalone creditworthiness assessment (SCA): b.

Support: none.

ISSUE RATINGS

No outstanding issues have been rated.

regulatory disclosure

The credit rating has been assigned to AgroDom LLC under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

A credit rating has been assigned to AgroDom LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on data provided by AgroDom LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and AgroDom LLC participated in its assignment.

In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.