KSG Agro Management presentation June 2012 Content KSG
- Slides: 20
KSG Agro Management presentation June 2012
Content KSG Agro highlights 2 Key financials 2011 3 Revenue breakdown 4 COGS breakdown 5 Financial results for 1 Q 2012 6 Strategy 7 Available sources of financing 8 Equity arrangements with GEM 9 Outlook for 2012 10 Main segment: farming 11 Focus: pig breeding 12 Focus: fuel agro-pellet production 13 Annexes 14 Legal structure 15 Income statement summary 16 Balance sheet summary 17 Gain on companies’ acquisition 18 UAH devaluation risk analysis 19 1
KSG Agro highlights Land bank expansion • Over 2011 KSG doubled land bank under control to 61 ths ha and harvest volumes to 107 ths tones, the Group’s revenues increased more than twice yoy, to USD 35 mln • In 2012 additional 9 ths ha of land has been acquired by the Group in their target region • Since IPO the Group increased its grain storage capacities from about 30 ths tonnes to about 120 ths tonnes and machinery park from 334 units to 584 units • The Group constructed vegetable storage facility with capacities of 2. 8 ths tonnes which increased total vegetable storage capacities to 4. 0 ths tonnes Revenue diversification and vertical integration • In November 2011 the Group acquired 50 per cent stake in pig breeding complex which after modernization and reconstruction will reach 240 ths heads per year. It will allow the Company to realize its pig breeding segment development stately • The Group entered into new business segments of producing fuel agro-pellets. As of now the Group has installed two production units with total capacity of 7 thousand tonnes of pellets per year and started construction of production plant of 60 ths tonnes per year • Over 2011 year turnover of the Group’s food production segment increased by a few times. In particular, sales of wheat flour reached about 9 ths tonnes 2
Key financials 2011 USD thousand Income Statement summary For 12 months ended / As of 31 December* 2011 2010 2009 Income 34, 665 15, 628 13, 785 EBITDA 30, 767 12, 207 5, 810 Profit for the period 28, 156 10, 047 2, 526 Property, plant and equipment 53, 982 5, 013 4, 821 Total non-current assets 73, 510 10, 846 10, 605 1, 122 30 2, 564 Balance Sheet summary Cash and cash equivalents 4, 380 - - Inventories 14, 800 5, 149 4, 589 Current biological assets 13, 363 7, 621 2, 728 Total current assets 49, 206 15, 484 15, 528 Total assets 122, 716 26, 330 26, 133 Total equity 90, 771 11, 662 4, 998 Loans and borrowings 5, 201 2, 367 2, 904 Total non-current liabilities 6, 345 2, 367 2, 904 17, 189 5, 414 11, 008 Deposit pledged Loans and borrowings Total current liabilities 25, 600 12, 301 18, 231 122, 716 26, 330 26, 133 Net debt/EBITDA 0. 69 0. 63 1. 95 Return on equity 0. 55 1. 21 0. 72 Current ratio 1. 92 1. 26 0. 85 Total equity and liabilities * Audited Consolidated Financial Statements of KSG Agro S. A. 3
Revenue breakdown by segments, 2010 Vegetables (USD 0. 3 mln) 2% 1% 1% Revenue breakdown by segments, 2011 Food production (USD 8. 2 mln) Food production (USD 0. 2 mln) 24% Pig breeding (USD 0. 2 mln) 9% 86% Other (USD 1. 4 mln) 3% 2% 3% 68% Pig breeding (USD 1. 1 mln) Vegetables (USD 0. 7 mln) Other (USD 1. 1 mln) Farming (USD 13. 5 mln) Source: Company’s data Farming (USD 23. 6 mln) Source: Company’s data Farming revenue breakdown by main crops, 2010 -2011 2010 Diff, % Sales, USD mln 19, 719 11, 846 66% Sales, tonnes 47, 803 29, 761 61% 413 398 4% 2, 893 633 357% 19, 541 6, 037 224% 148 105 41% Other 960 1, 035 (7)% Total 23, 572 13, 514 74% Sunflower Average price, USD/tonne Wheat Sales, USD mln Sales, tonnes Average price, USD/tonne 4
COGS breakdown Breakdown of COGS by components, USD ths 2011 2010 USD ths Fertilizers 2, 710 13% 1, 081 19% Plant & animals protectors 1, 225 6% 316 6% Fuels and lubricants 2, 956 14% 895 16% Seeds 2, 231 11% 872 15% Wages 1, 129 5% 577 10% Land lease payments 1, 936 9% 930 16% Third parties services (transportation, processing) 2, 617 13% - - Primary meat products 1, 911 9% - - Feeds 536 3% - - Other 3, 322 17% 1, 023 18% Total costs included in the COGS 20, 574 100% 5, 694 100% Fair value adjustment 14, 055 14, 762 34, 629 20, 456 Total • Costs related to crop farming remain the major part of the Group’s COGS as farming stays the most important business segment • Third parties services, primary meat products and feed expenses reflect the Group’s expansion in food processing, and pig breeding segments 5
Financial results for 1 Q 2012, mln USD 4. 6 • The Group’s revenue has increased six times for the three-month period ended March 31, 2012 comparably to the respective period in 2011. The sales growth is the result of successful implementation of the Group’s diversification strategy and increase of share of food processing segments sales in total revenues • Nevertheless, farming segment remains the core business segment for KSG Agro and the financial result for the first quarter is influenced by seasonality factor implying that the major part of crops is harvested and sold during the second half of the year 2. 4 1. 7 1. 1 0. 7 Revenue 1. 8 EBITDA 2012 Net income 2011 Source: The Group’s management accounts for the 3 months ended as of 31 March 6
Strategy Land bank expansion Improvement of land bank usage efficiency Revenue diversification • Almost threefold increase of land bank under control from current 70. 0 ths to 200 ths hectares by the end of 2015 • Strengthening further its dominant position in the Central Ukrainian regions, which is rich in black soils and has favorable geographic location due to proximity to Dnipro River, main railways and Black Sea ports • Improvement of fertilization and cultivation approaches, accompanied by higher penetration of modern agricultural technologies will lead to further increase in efficiency of main crops harvesting • Deeper vertical integration via development of food processing segment, in order to increase profitability and mitigate risks from crops’ prices volatility • Modernization of existing irrigation infrastructure across more than 2, 000 ha and expansion of irrigated land up to 5, 000 ha by 2016 • Further development of new business segments, in particular, fuel agro-pellet production and pig breeding and bring their share in the Group’s revenues to about 30% by 2015 • Diversification of operations also helps to maintain liquidity at sufficient level through the whole financial year, consequently contributes to solving problems of seasonal cash flow, which is attributable to companies of agricultural sector 7
Available sources of financing During 1 H of 2012 the Company has attracted the following banking financing to cover its current needs: • USD 3 mln from Credit Agricole and USD 6. 3 mln from Alfa Bank were used for working capital needs mainly related to sowing campaign • USD 5. 6 mln from Bank Cambio were borrowed to finance purchase of three bakeries with annual production capacity of 36 ths tonnes of bread and bakery products, flour-mill with annual processing capacity of 150 ths tonnes of wheat, elevator with storage capacities of 60 ths tonnes and animal food factory with annual production capacity of 24 ths tonnes Banking financing The Company acquires foreign machinery and equipment via trade-export financing schemes: Trade-export financing Reinvestment of income • In January 2012 the Company signed a loan agreement with Deere Credit INC on provision of a debt financing amounting to USD 11 mln at the effective rate of around 5. 0%, secured by US Export-Import Bank guarantee, to acquire machinery from John Deere • In June 2012 French Export-Credit Agency COFACE made a decision, by which it will guarantee the deal amounting to EUR 17. 6 mln between KSG and I-TEK on supply of equipment and genetic material for pig breeding complex, as well as equipment for the energy pellets production and for animal food factory. Currently, KSG is in negotiations with banks regarding receiving loan under this guarantee which are expected to be finalized by the end of June, 2012 • The Company plans to finance further land bank expansion using cash flows generated by its operational activities 8
Equity arrangements with GEM In April 2012 the Company concluded an agreement with GEM Global Yield Fund on providing of an equity financing at the maximum amount of PLN 75 mln (USD 22 mln) Structure • The agreement provides KSG with the option to attract financing by issuing new shares in return for cash contributions to the capital, where GEM’s commitment to subscribe for the shares is irrevocable • KSG option shall be valid until April 2015 with unlimited number of draw downs • The Company controls timing and the amount of any drawdown • The Company has a right to issue one draw down notice each 20 trading days • The number of shares to be offered to GEM is calculated as the average daily trading volume for the 15 trading days multiplied by 10 • GEM is not obliged to subscribe for more than ½ of the offered number of shares and may choose to subscribe for up to 200% of the offered number of shares • GEM agrees to honor the Company drawn down request based upon a per share subscription price equal to 90% of the average closing bid price for the preceding 20 trading days • The minimum subscription price was set at the level of the initial IPO price amounting to PLN 22 • GEM is prohibited to do short selling • The only obligation of the Company is to issue in favor of GEM 1. 5 mln of warrants convertible into shares at ratio 1: 1 during the period of three years • The conversion prices are PLN 35 for 750 ths of warrants and PLN 40 for the remaining 750 ths of warrants • The warrants are not transferrable; the Company may choose to buy-out unrealized warrants starting from the third year Draw down Pricing Warrants 9
Outlook for 2012 Revenue breakdown by segments, 2011 Revenue breakdown by segments, 2012 Food production (USD 8. 2 mln) Food production (USD 11. 3 mln) 24% 68% 17% 3% 2% 3% Pig breeding (USD 1. 1 mln) Vegetables (USD 0. 7 mln) 9% 67% Source: Company’s data Pig breeding (USD 3. 3 mln) 5% Other (USD 1. 1 mln) Farming (USD 23. 6 mln) Agro-pellets production (USD 6. 0 mln) 2% Vegetables (USD 1. 3 mln) Farming (USD 44. 8 mln) Source: Company’s forecasts Key operational and financial data • In 2012 9 ths ha of land has already been acquired. In addition to that 11 ths ha are expected to be purchased by the end of the summer with the remaining 30 ths ha followed in fall 2012 Land bank under control, ths ha Harvested land bank, ths ha Grain harvest, ths t Grain storage capacities, ths t • Moreover, the Company surpassed its previous forecast regarding grain storage capacities of 76. 0 ths tonnes in 2012, as the level of 120 ths tonnes has been already reached Revenue, USD mln EBITDA, USD mln Net Income, USD mln 2011 61. 0 45. 6 106. 4 60. 0 2012 110. 0 80. 0 232. 0 120. 0 34. 7 30. 8 28. 1 66. 7 42. 3 31. 8 Source: Company’s data and forecasts 10
Main segment: farming Location of land holdings • The Group plans to expand land bank in the region of its operations. Land plots of 11 ths ha are expected to be purchased by the end of the summer • Starting from 2012, the management plans to expand the share of cultivated land under wheat, barley and corn in order to diversify revenues and increase land usage efficiency • 54. 1 KSG Agro land holdings, The Group plans to maintain crop rotation as of 2012 in further periods Crop rotation, ths hectares 3. 8 1. 5 ths ha/region 1. 6 Priority regions for land bank growth Crops production, tonnes 2012 2011 Sunflower 62, 669 51, 359 Wheat 97, 486 35, 837 5. 4 Barley * 31, 673 10, 356 6. 4 1. 5 Corn 29, 922 6, 519 Other 6. 7 2. 8 Other 10, 505 2, 288 Total 80. 0 44. 8 Total 232, 254 106, 359 2012 2011 Sunflower 27. 9 23. 4 Wheat 27. 9 11. 7 Barley * 11. 1 Corn * Mixed – winter and spring barley Source: Company’s data 11
Focus: pig breeding • The Group has been engaged in pig breeding segment since 2008 and starting from 2011 has focused on its development which is justified by strong marginality, the pig meat market growth potential and availability of own fodder base • During 2011 the Group increased its pig herd from 1 ths heads to 8 ths heads, resulting in growth of annual sales to about USD 1. 1 mln. Planned segment revenue for 2012 amounts to USD 3. 3 mln • The Group benefits from synergies in combination of farming and pig breeding segments. In particular, farming segment provides feed crops for pig breeding, which on return supplies farming with organic fertilizers • The Group is in process of reconstruction of the pig breeding complex acquired in 2011. The project team has been organized within the Company. Currently design works and tenders among leading European equipment and sow suppliers are performed • The work on dismantlement of obsolete equipment and preparation of infrastructure of reconstruction area has been already started • Till the end of 2012 the Group expects to finalize the first stage of pig breeding complex reconstruction and acquire 4. 4 ths sows • In June 2012 French Export-Credit Agency COFACE made a decision, by which it will guarantee the deal amounting to EUR 17. 6 mln between KSG and I-TEK on supply of equipment and genetic material as well as reconstruction works of pig breeding complex. Currently, KSG is in negotiations with banks regarding receiving loan under this guarantee which are expected to be finalized by the end of June, 2012 • The Group is planning to reach full production capacity of 19 ths tonnes of pork per year by 2016 12
Focus: fuel agro-pellet production • The main driver of European pellet market is renewable energy oriented policy of the EU which is being targeted by the Group. In 2011 European demand surpassed its domestic production by about 30% • The Group produces pellets from agricultural residues – by-products of own farming operations, which are available in high volumes. In particular, about 80 ths tonnes will be available in 2012 • The Group has signed two contracts with Polish Energy Partners S. A. , which stipulate the following: • Know-how transferring and assistance in construction of production plant of at least 60 ths tonnes per year (with ability to increase to 90 ths tonnes) • Acquisition of at least 50 ths tones of production per year (during seven years) that will allow the Group to receive PLN denominated revenue of above PLN 20 mln annually • The Group has also signed an agreement with CPM for supply of pellet production equipment and is in negotiations with Aniro and Cedrus on the same issue • The Group has installed two production units with total capacity of 7 ths tonnes per year and started construction of production plant of 60 ths tonnes per year • The Company plans to increase pellets production capacities in line with land bank growth and increase sales volumes up to 15% of total Group’s revenue 13
Annexes 14
Legal structure KSG Agro S. A. Luxemburg 100, 0% KSG Agricultural and Industrial Holding Limited Cyprus 0, 1% SPE Promvok LLC Ukraine 0, 1% 99, 9% Goncharovo Agricultural LLC Ukraine 0, 1% 99, 9% 0, 5% 100, 0% Agrotrade LLC Ukraine 99, 54% 99, 5% 0, 1% 99, 9% Meat plant Dnipro LLC Ukraine 0, 46% 0, 1% Agro LLC Ukraine 99, 9% 0, 1% 0, 5% Factor D LLC Ukraine Askoninteks LLC Ukraine 99, 9% Dnipro LLC Ukraine 99, 9% Unirem Agro Plus LLC Ukraine 0, 1% Scorpio Agro LLC Ukraine 0, 1% Agro-Dnister LLC Ukraine 99, 9% 0, 1% 99, 9% Agro-Trade House Dniprovsky LLC Ukraine 99, 9% 99, 5% 0, 1% Agrofirm Vesna LLC Ukraine 0, 1% Dniproagroprogress LLC Ukraine Rantie LLC Ukraine 99, 9% 0, 1% Dniproagrostandard LLC Ukraine UAIH LLC Ukraine 99% Parisifia LTD Cyprus 0, 1% Kovbasna Liga LLC Ukraine 99, 9% Pivdenne Agricultural LLC Ukraine 0, 1% SOUZ-3 LTD Ukraine 99, 9% 50, 0% TH UAIH LLC Ukraine 99, 9% 0, 1% Vidrodzhennya LLC Ukraine Agro Golden LLC Ukraine 99, 9% PUAIH-2 LLC Ukraine 100, 0% Luxembourg holding company Cyprus holding companies Ukrainian subsidiaries of the Group 15
Income statement summary USD thousand For the 3 months ended 31 March** For the 12 months ended 31 December* 2012 2011 2010 2009 Income 4, 597 743 34, 665 15, 628 13, 785 Net gain on initial recognition of agricultural produce and on change in fair value of biological assets less estimated point-of-sale costs 1, 703 1, 457 14, 834 16, 919 4, 251 (3, 312) (424) (34, 629) (20, 456) (12, 102) (876) (174) (14, 055) (14, 762) (4, 465) Gross profit 2, 988 1, 776 14, 870 12, 091 5, 934 General and administrative expenses (995) (285) (4, 092) (787) (1, 158) 402 (16) 18, 460 303 464 Result from operating activities 2, 395 1, 475 29, 238 11, 607 5, 240 Finance expenses, net (572) (388) (1, 143) (1, 558) (2, 144) - - (565) 1, 823 1, 087 28, 095 10, 049 2, 531 (29) (1) 61 (2) (5) 1, 794 1, 086 28, 156 10, 047 2, 526 Cost of sales incl. Fair value adjustment Other operating income (expense), net Losses from impairment of financial instruments Profit before tax Income tax expenses Profit for the period USD thousand Result from operating activities + Depreciation and amortisation EBITDA For the 3 months ended 31 March** For the 12 months ended 31 December* 2012 2011 2010 2009 2, 395 1, 475 29, 238 11, 607 5, 240 276 204 1, 529 600 570 2, 671 1, 679 30, 767 12, 207 5, 810 * Audited Consolidated Financial Statements of KSG Agro S. A. ** The Group’s management accounts 16
Balance sheet summary USD thousand As of 31 March** As of 31 December* 2012 2011 2010 2009 Property, plant and equipment 52, 615 5, 509 53, 982 5, 013 4, 821 Goodwill 17, 944 7, 514 17, 936 5, 586 5, 569 Total non-current assets 71, 963 13, 249 73, 510 10, 846 10, 605 Current biological assets 17, 829 10, 933 13, 363 7, 621 2, 728 Inventories 14, 937 6, 071 14, 800 5, 149 4, 589 Trade and other accounts receivable 11, 980 3, 397 14, 141 1, 662 4, 019 Taxes prepaid 1, 836 1, 221 1, 400 1, 022 1, 628 Deposit pledged 4, 380 - - Cash and cash equivalents 1, 087 797 1, 122 30 2, 564 52, 049 22, 419 49, 206 15, 484 15, 528 124, 012 35, 668 122, 716 26, 330 26, 133 Total equity attributable to owners of the Company 74, 240 11, 507 72, 426 10, 299 4, 320 Non-controlling interest 18, 357 1, 826 18, 345 1, 363 678 Total equity 92, 597 13, 333 90, 771 11, 662 4, 998 5, 596 8, 199 5, 201 2, 367 2, 904 393 - 579 - - 6, 554 8, 199 6, 345 2, 367 2, 904 Loans and borrowings 13, 907 7, 606 17, 189 5, 414 11, 008 Trade and other accounts payable 10, 552 6, 335 7, 860 6, 681 7, 008 Promissory notes issued 288 - 313 188 Tax liabilities 114 195 238 18 27 Total current liabilities 24, 861 14, 136 25, 600 12, 301 18, 231 Total liabilities 31, 415 22, 335 31, 945 14, 668 21, 135 124, 012 35, 668 122, 716 26, 330 26, 133 Total current assets Total assets Loans and borrowings Long-term promissory notes issued Total non-current liabilities Total equity and liabilities * Audited Consolidated Financial Statements of KSG Agro S. A. ** The Group’s 2011 management accounts 17
Gain on companies’ acquisition Breakdown of gain on companies’ acquisition USD thousand Cows 804 Pigs 944 Biological assets 1, 772 Inventories and agricultural stock 1, 533 Cash 90 PPE 25, 056 Diff. between accounts payables and receivables (2, 301) Deferred tax liabilities Bad debts Total net assets at fair value Purchase price Legal expenses Gain on companies’ acquisition (575) (62) 27, 262 (10, 992) (633) • In 2011 purchase of companies with underestimated assets on favorable terms resulted in gain on companies’ acquisition amounting to USD 15. 6 mln • Revaluation of assets was conducted by certified appraiser and approved by auditors • Gain on properties, plants and equipment (PPE) is composed of a gain on purchase of: A pig breeding complex with total area of 152 ths m 2 that has only 4 analogues in Ukraine Cow breeding facility Other agricultural production premises Agricultural machinery and equipment 15, 637 18
UAH devaluation risk analysis Sensitivity analysis summary 2011* USD thousand 10% 34, 665 34, 458 34, 140 Net gain on initial recognition of agricultural produce and on change in fair value of biological assets less estimated point-ofsale costs 14, 834 14, 822 14, 804 Cost of sales 34, 629 34, 516 34, 341 Gross profit 14, 870 14, 765 14, 602 4, 092 4, 032 3, 939 18, 460 18, 421 18, 360 29, 238 29, 153 29, 023 1, 143 1, 153 1, 169 28, 095 28, 000 27, 854 61 60 57 28, 156 28, 060 27, 912 Result from operating activities Finance expenses, net Profit before tax Income tax expenses/benefits Profit for the period * Taking into account concerns regarding hryvnia devaluation in the 4 th Q 2012 after parliamentary elections, the Company has conducted sensitivity analysis to identify potential negative effect of devaluation on its financial results for 2012 • The analysis is based on audited Consolidated Financial Statements for 2011 to show potential effect as if devaluation takes place during three last months of 2011 • Two scenarios of UAH devaluation in respect of USD were considered: for 10% and 30% respectively • The results of the test has shown that dependence of financial results on hryvnia devaluation is insignificant, and even in case 30% devaluation in 4 Q 2012, the Company’s profit for the period is not expected to decrease for more than 1% • The main reasons behind such positive forecast are: Scenarios Income General and administrative expenses Other operating income (expense), net • Audited Consolidated Financial Statements of KSG Agro S. A. Revenue from main segments, excluding food production and partly some other segments is denominated in USD Cost of sales, excluding wages, land lease payments and some other items is either directly or indirectly linked to USD Impact of those PLN items which are linked to hryvnia is immaterial 19
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