Preliminary Results Statement 2015

Ukraine

 

Agroscope has delivered a resilient performance in its first full year of operations as part of the Group.

 

Higher revenues and profits in the period reflect solid progress achieved to date with the business securing favourable sales and customer development through differentiated offers that promote technology intensification.

 

Total plantings for the 2015 production year were approximately 20.5 million hectares, some 5 per cent lower than last year.  From an operational perspective the impact of the current political and economic uncertainty is mostly reflected in pronounced currency weakness and tightening liquidity at farm level.  Underlying advice and input spend is lower compared with 2014 with many farm holdings migrating to cheaper investment options.

 

Agroscope is adopting a cautious planning approach in light of the current uncertainty.  This approach is concentrated on currency and receivables risk management and the establishment of partner programmes to implement jointly developed input financing solutions on farm.

 

Agroscope continued the development of its two crop technology centres in the period which now provide an established knowledge transfer platform within the business.  The rollout of precision agronomy and satellite monitoring applications as part of an extended service offer was further progressed in the period.

 

 

Business-to-business Agri-Inputs - Ireland and the UK

 

Business-to-business Agri-Inputs achieved a solid result in the year reflecting an overall stable volume performance in fertiliser with a marginally lower contribution from feed.

 

Fertiliser achieved volume growth in the UK against lower market demand. This performance was supported by a combination of operational improvements underpinning strong supply chain execution and sales of customised and value added nutrition formulations achieving solid momentum in the period.  The favourable volume performance across arable enterprises was partially offset by reduced fertiliser application in the case of livestock enterprises.  This is principally driven by lower returns currently generated by UK primary dairy producers.

 

In Ireland the abolition of milk quotas supported demand in the second half of the year with farmers focused on maximising grass production to produce higher milk volumes.

 

The routine investment and operational improvement programmes across the Group's fertiliser blending facilities are addressing evolving structural changes in the market with just-in-time customer ordering systems and the requirement for enhanced technical support becoming more prevalent.  The overall capability of the Group's fertiliser footprint was further enhanced during the year with the commissioning of expanded blending capacity within the UK.

 

Origin's amenity business achieved a good result in the year with momentum across the professional and niche agri sectors, offsetting the impact of lower demand within the amenity channel.  Performance continues to be positively supported by a combination of ongoing business process alignment, industry leading partnership programmes and focused product development dedicated to the domestic and export Home & Garden channels.  The Group's advanced product formulation capability ensures a highly responsive and flexible approach to meeting customers' requirements for innovation.

 

Feed ingredients performed resiliently in the period against a lower volume result.  Reduced feed consumption for the year largely reflected a combination of increased substitute fodder availability and the impact on demand of weaker returns from dairy and beef enterprises due to lower output prices.  Pronounced price and currency volatility across raw material markets in the year drove generally weaker buying sentiment and delayed customer purchasing decisions.

 

 

Associates and joint ventures

 

Valeo Foods ('Valeo')

 

The Group's principal strategic investment during the year, the consumer foods group Valeo, performed in line with expectations in the context of a grocery market that remains highly challenging in both Ireland and the UK.  A key success factor was the performance of Valeo's brands which continue to consolidate market share and maintain category leading positions driven by investment in innovation and consumer communications.

 

In February 2015, Valeo acquired the Robert Roberts, Findlater Wines & Spirits and Kelkin food businesses from DCC.  In addition, in May 2015 Valeo acquired the Italian packaged food company, Balconi, which has given access to a pan-European sales and distribution network in a fast growing category backed by highly efficient manufacturing capabilities.

 

In July 2015, Origin announced the disposal of its 32 per cent equity interest in Valeo.  €86.6 million of cash proceeds was received in connection with the transaction comprising €42.5 million in respect of the equity proceeds and €44.1 million in full settlement of the vendor loan note.  An exceptional gain of €22.0 million relating to the disposal is reflected in the 2015 financial statements.

 

John Thompson & Sons Limited ('John Thompson')

 

John Thompson, the largest single site multispecies animal feed mill in the European Union, in which Origin has a 50 per cent shareholding, delivered a satisfactory performance during the year.

 

 

Agri-Services development

 

In July 2015, Origin announced it had reached agreement to acquire the Romanian based Redoxim SRL and Comfert SRL ('the Transactions').  The Transactions build upon the Group's integrated agronomy services platform and on-farm knowledge transfer capabilities.  The acquisition of Redoxim completed on 17 September 2015.

 

Redoxim, headquartered in Timisoara, Romania and founded in 1991, is a leading provider of agronomy services, macro and micro inputs to arable, vegetable and horticulture growers.  Redoxim, which employs over 190 people services approximately 2,000 customers through an established distribution network of 55 retail outlets and a team of 50 agronomists and product specialists.

 

Under the terms of the transaction Origin acquired a 100 per cent interest in Redoxim for a total consideration of €35 million.  €31.5 million was paid upon completion with €3.5 million payable on the first anniversary of completion.  Revenue and operating profit before goodwill amortisation and non-recurring items for the year ended 31 December 2014 were RON 238.3 million (€53.6 million) and RON 24.7 million (€5.6 million), respectively.

 

Comfert, headquartered in Bacau, Romania and founded in 1998, is a leading provider of agronomy services, integrated inputs and crop marketing support to arable and vegetable growers.  The business which employs over 180 people operates a comprehensive distribution network servicing approximately 1,900 largely intensive and technically orientated farming customers through a team of 32 agronomists and product specialists.

 

Under the terms of the transaction Origin will acquire 100 per cent of Comfert based upon an enterprise value of RON 87.0 million (€19.4 million).  Additional deferred consideration will be payable based upon the achievement of specific annual profit targets over a five year period following completion.  The transaction is subject to a number of conditions including clearance from the Romanian Competition Council and is expected to complete during October 2015.  Revenue and operating profit before goodwill amortisation and non-recurring items for the year ended 31 December 2014 were RON 447.2 million (€100.6 million) and RON 14.4 million (€3.2 million), respectively.

 

In August 2015 Origin reached agreement to acquire a 100 per cent interest in the Polish based Kazgod Group ('Kazgod' or 'the Business').  Kazgod significantly augments Origin's existing operations in Poland which are currently servicing approximately 3,500 largely arable farmers under the Dalgety brand.

 

Founded in 1989, Kazgod is a leading provider of agronomy services, inputs, crop marketing solutions as well as being a manufacturer of micro nutrition applications.  The Business, which employs over 200 people, services some 2,600 customers across an established direct farm and retail distribution network throughout central and eastern Poland.  Kazgod strongly complements Dalgety's activities which are principally concentrated in western Poland.

 

Under the terms of the transaction Origin will acquire 100 per cent of Kazgod based upon an enterprise value of PLN92.8 million (€22.4 million) incorporating average working capital.  Approximately PLN84.3 million (€20.3 million) of the total consideration will be payable on completion with PLN8.5 million (€2.1 million) deferred and payable three years following completion.  Kazgod's revenues and normalised earnings before interest, tax and amortisation for the year ended 31 December 2014 were PLN837 million (€200 million) and PLN 5.1 million (€1.2 million), respectively.  Tangible integration benefits across Kazgod and Dalgety are targeted to be achieved over the three year period following completion of the acquisition.

 

The Transaction, which is subject to a number of conditions including clearance from the Office for the Protection of Competition and Consumers ('OCCP') in Poland, is expected to complete during December 2015.