Interim Report January - June 2007
Executive Summary
1H 2007 is the first reporting period for A/S Trigon Agri, following the group's
listing on Stockholm First North on May 18, 2007. 2007 will also be the first
full year of operations for the group after the initial establishment of its
activities in May 2006. As of the end of the reporting period, the group was
carrying out farming activities in three clusters of operations: (i) cereals
production cluster in Harkov, Ukraine, (ii) milk production cluster nearby St
Petersburg, Russia and (iii) milk production cluster in Estonia. As of the
reporting date, the total land area controlled and farmed by the group stood at
26,815ha.
1H 2007 was the first operational season for A/S Trigon Agri in its cereals
production cluster nearby Harkov city in Ukraine (population 1.5 million
inhabitants). The focus during the period in the cluster stood at (i)
implementing the investment program required for upgrading the farms to modern
production standards and (ii) completing all field-works in order take in the
first harvest of the group in Ukraine during 2007. The total area currently
controlled by the cluster is 22,658ha.
The group commenced harvesting in Harkov cluster on July 5, 2007 and has by now
completed harvesting works for wheat and barley. The results of the harvest for
the year were significantly affected by the very dry summer throughout Ukraine.
Over 95% of the fields of the group in Harkov region did not receive any
rainfall during the vegetation period. Nevertheless, in fields where field-works
were fully prepared by the group (i.e. where no crop in progress in the fields
was acquired from previous owners), the group achieved 90% of its first year
production target for wheat, 44% for barley and expects to harvest 104% of the
production target for sunflower and 92% for corn. At the same time, on a few
fields where there was at least minimal rainfall (35mm against the normal level
of 200mm), the productivity was around 113% of the expected first year's
production target. This gives significant confidence in the productivity
potential of the area and shows that, subject to reasonable weather conditions,
the productivity figures targeted by the group are set at conservative levels.
As part of the overall global trend, the cereals prices in Ukraine have seen a
very significant price increase, with EXW elevator prices for all main crops
gaining on average 50% during the reporting period. The price increase has been
primarily driven by the global imbalances in the demand/supply equation, which
will have a continued pressure on prices also during the future reporting
periods. Such price increase more than offsets the dry weather caused losses in
productivity.
On the investment program, the Harkov cluster has carried out the investments
into farming equipment and production facilities in accordance with the planned
schedule. The investment program was started in 2007 and will be completed in
2008. Given the progress and experience to date, the group expects the total
investment per hectare to stay at the level which is approximately 10% lower
than originally expected, nevertheless still achieving the same end-result. In
addition, the group has been successful in acquiring the required storage space
for its production areas. Two successful acquisition finalised over summer 2007,
have taken the grain storage elevator capacity in the Harkov cluster to 50,000
tonnes. The elevators acquired are both (i) strategically very well located in
the middle of the cereals production fields of the company, (ii) connected to
the Ukrainian railroad system by fully functional railroad links and (iii) carry
full licences allowing for immediate start of the operations. The total
acquisition price together with renovation investments paid by the group for the
storage space stood at EUR 2,455 thousand. This is less than 20% of what the
required replacement investment for the same storage space would have been, if
the capacity had been built up as a green-field investment.
In the two milk production clusters, one nearby St Petersburg in Russia and one
in Estonia, the group has been carrying out an extensive investment program in
order to launch production in two brand-new dairy units for the total of 1,850
animals during 4Q 2007. All construction works have proceeded in accordance with
plans and within original time-tables. Additionally, the good weather conditions
have allowed to gather sufficient silage for the animals for the upcoming winter
season. The new dairy units are scheduled for opening on December 1, 2007 and
December 13, 2007 in Russia and Estonia respectively. Similarly to cereals
prices, milk prices have seen a very dramatic increase across Europe due to the
demand being at historically highest level for last several decades. A shortage
of stocks in Europe have driven up the prices for milk powder in the EU, which
has had a corresponding effect on milk price levels in the group's target
countries of operation. As a result, based on ongoing discussions with
purchasers of milk, the group is expecting a price increase for milk in its
operating farms in Estonia of over 20% from 4Q 2007.
In regards to further expansion in Russia, the group has carried out significant
preparatory works for establishing a new cluster nearby the city of Samara in
Russia (population 1.1 million inhabitants), which will be focused on cereals
production. The identified location is located in the Black Earth region and
allows for building up a cereals production cluster of at least 50,000ha. The
area is well covered by elevators, several of which are available for
acquisitions and all of which are well connected to the Russian railroad
network. The group has put in place a local team for operations in the area and
has started the process of land acquisitions. The group also actively continues
to work on pipeline opportunities to set up further clusters of operations in
Russia. Further announcements will be published within due course.
In Ukraine, the group is continuously expanding its land area under control with
a target of reaching around 30,000ha by the year-end. In parallel, it is
carrying out active negotiations for acquisition of additional grain storage
elevator storage space with an identified pipeline of over 10 rail-connected
grain storage elevators.
Due to high prevailing market prices for cereals, the financial performance of
the company for the reporting period has been better than previously expected.
Revenue and other income for the group during the reporting period amounted to
EUR 1,469 thousand. Net result from changes in fair value and inventories
amounted to EUR 4,368 thousand. The operating profit of the group excluding
overhead expenses, which have been built up keeping in mind the very significant
expansion plans of the group, stood at EUR 667 thousand, whilst the respective
figure after overheads amounted to EUR -46 thousand. The net result for the
group for the reporting period stood at EUR -85 thousand.
Given the uncertainties involved in completing the harvesting and market
conditions for selling the produce it is very difficult to give a clear
expectation for the full financial year result. However, the group management is
confident that the result will be significantly better than predicted during the
share placement carried out in spring 2007. Under the best circumstances the
company may reach a breakeven year excluding the potential additional expenses
from upcoming acquisitions during the second half of 2007.
For further information please contact:
Mr. Ülo Adamson, Chairman of the Board of Directors of A/S Trigon Agri
Tel: +372 66 79 200
E-mail: mail@trigonagri.com
