Emitents -> Agrogeneration (PSE:ALAGR)

Business description

Agrogeneration is noticeable Ukrainian agro-holding with total land bank of 120k ha, appeared after merger of former Agrogeneration company (with land bank of 50k ha) with Harmelia Group (70k ha), which took place in Y2013. As a result of merger owner of Harmelia group – private equity company Sigma Bleyzer (through its fund SBF IV and company Konkur) became principal shareholder of Agrogeneration Group.

Agrogeneration is concentrated on agricultural production only (minor of share of dairy farming), land bank is situated in Kharkiv (70 k ha, land bank of Harmelia before merger), Sumy (9k ha), Zhitomir (12k ha), Ternopil (12k ha) and Lviv (17k ha) regions. Land bank diversification between different regions of Ukraine mitigates risk of adverse weather conditions in any given region (Kharkiv region as exception), on the other side it can mean higher general cost of operations. Significant share of land bank in Kharkiv region also means limited risk of military conflict in the East of Ukraine escalation for operations of the company (risk is limited as during last period of time situation in conflict zone stabilized). In addition to land bank the company owns silo storage facilities for about 230k tons.

In Y2016 cultivated land bank of Agrogeneration made close to 109k ha, main harvested crops have been winter wheat and sunflower seeds. About 50k ha of sown area was under winter crops, about 60k ha – spring crops. Total estimated amount of harvest – up to 380-400k tons.

Since March’10 Agrogeneration has been listed on the Alternext market of NYSE-Euronext Paris under the ticker symbol ALAGR. Current free float is – 18% (disregarding OSRANE bonds – please see comments to financials below).

Operating Figures

Season 2016 2015 2014 2013
Sown area, ha 36 47645 62127 10038 315
Yield per 1 ha, tons
Sown area, ha 10 95410 71412 7007 070
Yield per 1 ha, tons
Sown area, ha 4 8769 0006 4009 221
Yield per 1 ha, tons
Sunflower seeds
Sown area, ha 29 98818 89532 00017 320
Yield per 1 ha, tons
Sown area, ha 8 3547 7684 0004 829
Yield per 1 ha, tons
Sown area, ha 5 4375 3058 40023 854
Yield per 1 ha, tons
Sown area, ha 10 5208 2809 3008 283
Yield per 1 ha, tons
Total land bank, ha 109 000108 188103 000110 000

Financial information

EUR k 1H 2016 1H 2015 .. 2015 2014 2013
Sales 3 828 3 082 58 861 64 620 53 702
Gross Profit 8 766 11 848 23 968 21 673 -30
EBITDA 5 801 8 364 18 443 20 405 -10 518
EBITDA margin, % n.a. n.a. 31% 32% -20%
Net Profit 233 -5 410 -7 928 -21 665 -22 558
30.06.16 .. 31.12.15 31.12.14 31.12.13
Total Assets 147 802 - 133 926 98 883 145 550
Fixed Assets 80 051 - 81 428 63 560 94 275
Current Assets 67 751 - 52 498 35 323 51 275
Inventory 55 549 - 28 742 23 009 31 833
Cash 7 034 - 20 349 5 415 8 902
Equity 67 077 - 69 462 6 569 51 055
Payables&Prepayments 19 820 - 6 313 6 078 4 483
Debt 51 581 - 54 547 82 603 78 780
thereof -
Konkur bonds 0 - 33 35 359 29 471
Listed bonds 0 - 0 20 195 20 058
Bank loans 37 713 - 38 766 23 800 24 458
1H 2016 1H 2015 .. 2015 2014 2013
Net Operating CF -9 339 -6 505 1 418 12 068 2 727
Financing CF -895 7 185 15 074 -8 369 -523
Dividends paid 0 0 0 0 0
Net Borrowings -315 4 765 15 685 3 868 -809
Investing CF -1 671 -1 190 -1 462 -2 978 -4 272

Latest financial report of the company

Comments to financials:

  • Merger between Harmelia Group and Agrogeneration Group realized in Y2013 had significant impact on financials of the company. As a result of reverse acquisition control over the Legal Acquirer (Agrogeneration SA, "ex-Agrogeneration Group") passed to the Legal Acquiree (Harmelia Investments Limited, "Harmelia Group").
  • Historically operations of Harmelia (land bank under operation before merger – 70k ha) were financed by own funds, which is confirmed by its high volume of Equity as of Y2012 end (EUR 55.3M vs. debt of EUR 4M).
  • As for ex-Agrogeneration, fair value of its assets&liabilities as of acquisition date were estimated at EUR 16.156M. Purchase price was estimated at EUR 49.8M, so that as of 31.12.13 (after merger) assets of combined company contained goodwill at EUR 33.7M. On E&L side Equity increased by EUR 49.8M as a result of operation, in addition, Agrogeneration has issued bonds totalling USD40.0M (EUR 30.8M, referred below as “Konkur bonds”) to the benefit of Konkur (representing Harmelia owners). As this debt is not reflected in any cash payment, it has been offset by decrease in the combined Group’s Equity (so net increase made EUR 19.0M).
  • Because of charges related to the merger (estimated at close to EUR 6.0M) and overly optimistic assumptions applied for revaluation of biological assets in previous reporting periods (estimated effect – about EUR 8.1M), in Y2013 (when in 2H prices on agricultural commodities substantially decreased) the company demonstrated significant loss even on the level of EBITDA (-USD 10.5M). One should mention that operating activity has been rather stable in Y2013 with quite normal yields in both ex-Harmelia and ex-Agrogeneration clusters. As a result of loss Equity declined and capital structure generally worsened.
  • In Y2014 profitability of Group’s operations significantly improved, as EBITDA at USD 20.4M (with 32% EBITDA margin) was achieved. One should mention that similar to main part of Ukrainian agrarian companies, EBITDA of Agrogeneration was positively influenced by UAH devaluation, so it can not be seen as fully sustainable (on the other side the company had FX losses from BS items revaluation in form of both Other Loss and direct decrease of Equity). Other factors of profitability growth – increase of yields in Y2014 and shift of focus in crops mix towards relatively profitable in short-term sunflower seeds (31% of sown area in Y2014, which is aggressive and risky from general perspective, sunflower seeds can be sown on the same land once in 5 years).
  • As in Y2015 yields for main crops were somewhat lower than in previous year, average realization prices also decreased, sales of Agrogeneration declined vs. previous year by 9% and made EUR 58.9M. Thereof EUR 55.1M made realization of Y2015 harvest, EUR 2.1M – last year’s crops, the rest – other realization and services.
  • Another major event for Agrogeneration in Y2015 was debt restructuring. Firstly the company reached agreement with EBRD regarding postponement of loan repayment schedule for a year (new terms: ten equal semi-annual installments starting on the 1st March 2016 with the final repayment on 3 September 2020).
  • Then it proposed to all bondholders (both owners of listed bonds (EUR 20.2M as of 31.12.14) and Konkur (EUR 35.6M) to convert bonds to Subordinated Bonds Redeemable into New or Existing Shares (OSRANE). These bonds will be redeemed at maturity, also at each coupon payment date the bondholders might opt for early redemption and will be entitled to bonus shares
  • Being unable to obtain the unanimous consent of the holders of listed bonds, Agrogeneration filed for an Accelerated Financial Safeguard Procedure with the Paris Commercial Court on 15 January 2015. The court announced the procedure opened on 22 January 2015 and issued the decision approving the Financial Safeguard Plan on 27 February 2015. As a result of this regulation, both Konkur bonds and listed bonds have been transferred to OSRANE securities, accounted as of 31.12.2015 in a following way: EUR 44.5M as Equity, EUR 12.7M as debt.
  • Revenues of Agrogeneration in 1H 2016 made EUR 3.8M (main part of revenues is generated in H2 of any given year), so that EBITDA of EUR 5.8M was composed mainly of gain from biological assets revaluation. Total gain from revaluation for current season’s harvest as of 30.06.16 made EUR 12.8M.
  • Basing on provided by the company data regarding factual and estimated yields for main crops and current market prices (bearing in mind some portion of crops was sold on forward basis), we estimate that total revenues of Agrogeneration in new season will make about EUR 60-65M, potentially slightly higher than in previous year (EUR 60M).
  • Basing on factual costs as of 30.06.16 data and bearing in mind high administrative expenses of the company on the annual level of EUR 8-10M, which is clear disadvantage of the company, we estimate that total EBITDA of the company in current season will be about EUR 15M (EBITDA margin about 20%)
  • Balance sheet structure of Agrogeneration remains mediocre – Equity of EUR 67.1M is not sufficient to cover fixed assets (which we see as certain measure of financial health for non-diversified and not vertically integrated agri-company), moreover fixed assets themselves (EUR 80.0M) contain goodwill in amount of USD 37M. Operating activity of the company is fully financed by bank loans, open credit provided by suppliers and prepayment from buyers.

Basing on above analysis we see rather low margin of safety in business operations and vulnerability of the company to negative market/weather in the future. On positive side is sufficiency of funds for financing of operations in short-term perspective.

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