Agria Group 2023 Annual Consolidated Results

Excellent positioning for 2024 hurts the 2023 profitability

• Agria’s total consolidated revenues increased 9.7% for 2023 to BGN 777 mln. That, however, includes the operational revenues, which increased 5.2% to BGN 742 mln, financial revenues of BGN 3 mln and one-off profit from the acquisition of Komers EOOD in the amount of BGN 32 mln.
• In the operational revenues account, the sales of goods and materials, which represent the sale of grains, marked a slight decline of 0.6% to BGN 616.8 mln. The sales of production, which is the oils produced from oilseed grains, marked a very positive change of 47% to BGN 108.5 mln. These two revenue streams represent over 99.3% of the sales revenue, the rest of which is sales of services. Additionally, the government subsidies increased 65% to BGN 12.6 mln.
• Profitability was negatively impacted by the market dynamics. EBIT and EBITDA had significant drops by 82% and 62% respectively. EBIT was BGN 14 mln and EBITDA BGN 36.5 mln. The main accounts in OPEX increased significantly more than the increase in revenues. COGS, representing 70% of OPEX, increased 10% to BGN 509 mln.
• The picture, however, does not represent inability of Agria to transfer increased prices to end customers. The market prices of wheat, barley, corn and sunflower actually decreased in 2023 – wheat by 26%, barley by 21.7%, corn by 44% and sunflower seed by 57%. Considering the significantly increased accounts for inventory (by 37.5% to BGN 149 mln) and materials (by 77% to BGN 91.8 mln), they must have used the market slump to stock up their storage facilities – a move which can turn out to be very positive in 2024 should the price levels of the grains increase. Additionally, the new acquisition of Komers EOOD is expected to provide more opportunities for end-customer sales, which can be even more beneficial in such scenario.
• Other major raises in OPEX came from Materials expenses (main materials going up 22.6% to BGN 112 mln and electricity, natural gas and water more than tripling to BGN 8.6 mln. The account added BGN 26 mln
• Hired services contributed another BGN 15 mln to the decrease in profitability. The main reason was the massive growth in logistics, which reached BGN 17.7 mln, up from BGN 7.5 mln the year before.
• From the profitability metrics, only Net Income was affected by the profit recorded from the acquisition of Komers EOOD. The net effect of that – BGN 32 mln – is recorded after the financial revenues and expenses in the Income Statement. It is derived from the acquisition price of BGN 47.9 mln and the fair value of the assets, which included large quantities of grain, of BGN 81 mln. If the transaction is included in the calculation of the Net Income, then it would fall by 62% from 2023 to 2024, which is the official announcement. Without it, Agria would record a loss for 2023 of BGN 3.5 mln. The resulting profitability metrics, ROE (9.7%, down from 24%), ROA (4.4%, down from 13.8%) and ROIC (7.3%, down from 20.4%) dropped significantly because of the decreased Net Profit. As mentioned earlier, however, the situation of accumulated inventory and greater opportunities for sales can provide great opportunities in 2024 and it is very likely that these trends will be reversed.
• Agria increased the bank loans exposure in 2023 significantly. The Long term loans account increased by 80% to BGN 64 mln. As per the disclosures, their interest ranges between 1M and 3M Euribor and a spread of 1.3% to 3.6%. In 2023 they added exposure to 3 facilities – BGN 10 mln on a EUR 10.32 mln facility with existing balance of BGN 7.8 mln, BGN 26.8 mln on a EUR 15 mln facility and BGN 7 mln on a BGN 8 mln facility. We do not have a breakdown of the terms of the facilities, but we assume those are investment loans and if they are to be maximized, they can possibly get another BGN 26 mln of debt from the existing facilities (assuming the remaining 13 facilities are in the process of repayment and cannot be utilized further).
• Short term loans marked the highest increase. They rose 74% to BGN 203.6. Those are working capital facilities, which are generally used for the purchase of crops of other operational needs. If they are to be maxed, another BGN 86 mln can be utilized.
• The increased leverage resulted in financial expenses increasing from BGN 5.3 mln to BGN 18.2 mln. The largest portion is for interest on loans, which jumped from BGN 4 mln to BGN 12.7 mln.
• As mentioned, Agria can theoretically withdraw another BGN 112 mln from the existing facilities. Realistically, however, they are likely to not be able to do it as banks require regular reviews prior to disbursement and amounts are often subjects to performance or leverage benchmarks. The current liabilities of BGN 255 mln are covered just 110% by the current assets of BGN 282 mln. Of those, just 2.3% is liquid cash. Nearly 53% of that is inventory and liquidation price would depend on market conditions and urgency of sales. The remaining BGN 126.6 mln is accounts receivable, of which BGN 26.9 mln are advances. This puts the company in a situation, where they have maxed out their ability to withdraw funds and are likely to be denied further requests, which means that the existing operations and investment plans must be in line with the existing liquid assets in order to function without problems.

Full report can be accessed here.