Acquisitions keep Origin growing

Origin Enterprises, parent of the Agrii agronomy business in the UK, has reported unchanged profitability on 3% higher revenues from its latest full year of trading. Since the year end, there have been major changes in its ownership and structure - it is now a pureplay supplier of agronomic services and farm inputs with a considerable expansion of its agronomy activities in Eastern Europe.

 The Dublin-based company made an operating profit of €92.97 million on revenues of €1.46 billion in the year ended July 31st 2015, compared to €92.91m and €1.42bn in the previous year. At the year end, net cash stood at €88.8m, compared to a negative €11.9m twelve months earlier.

Origin’s Agri-Services division, comprising Agrii and the eastern European businesses, contributed €78.9m of the operating profit, down 0.8% from the previous €79.5m – “a satisfactory result against the background of a challenging trading environment”.  Associate and joint venture businesses made €14.1m, 5.1% up from the €13.4m in 2013/14. Like-for-like Agri-Services revenues were 2.4% or €34.6m lower, in line with the lower crop protection and crop marketing volumes in the period combined with falling crop, feed and fertiliser prices.

In the UK, Agrii “delivered a solid performance against the backdrop of overall lower farm spending in the period”. While sales margins were favourable, the company says lower arable crop areas for harvest 2015 and a switch to less intensive spring crops, plus slower crop development and weaker crop values led to a “cautious attitude to investment spend by farmers during the period, especially the final quarter.

What Agrii terms the “agronomising” of its seed and nutrition portfolios saw an “improved mix of value added applications that incorporate nutrient mapping, high specification seed advice and varietal selection, precision applications and variable rate input prescriptions”. A €25m investment in R&D and science drives its knowledge transfer activities to help farmer customers become more competitive, profitable and sustainable, it says.

Looking ahead, Agrii predicts that: “less emphasis will be placed on traditional technologies and modes of action in the future, as these become more restricted due to legislative requirements and less effective due to natural resistance factors. Production systems will increasingly focus on soil management and will incorporate new developments and technologies in the areas of seed genetics and traits, specialist nutrition and biological solutions”.

The Dalgety agronomy business in Poland saw higher margins and profitability. Although the planted area was unchanged at 8.7 million hectares, an early spring season increased agronomy revenues. The business grew its sales in the intensive and technically orientated segment of the farm market. In the Ukraine, Origin’s Agroscope business delivered a “resilient performance” in its first full year of operations under Group ownership, with higher revenues and profits in the period. But the political and economic uncertainty there means Agroscope is adopting a “cautious planning approach. Nevertheless, it is continuing to develop two crop technology centres and roll out precision agronomy and satellite monitoring applications as part of its extended service offer.

Origin’s Agri-Inputs business wholesaling fertilisers, amenity horticulture products and feed materials in Ireland and the UK achieved a “solid” result in the year “reflecting an overall stable volume performance in fertiliser with a marginally lower contribution from feed”.

The company’s UK fertiliser volumes increased despite a smaller overall market demand – higher arable volumes were partially offset by reduced fertiliser usage by livestock enterprises, primarily dairy farmers faced with lower milk prices. In Ireland, farmers reacted to the abolition of milk quotas from April by increasing fertiliser use to maximising grass and milk production.

The fertiliser business is adapting to market evolutions such as more customer just-in-time ordering and demand for enhanced technical support. It has also expanded its UK blending capacity.

The R&H Hall feed ingredients business “performed resiliently” despite lower volumes in line with reduced concentrate demand with plentiful forage available and depressed dairy and beef returns.  The business was also affected by “pronounced price and currency volatility across raw material markets” which led to “generally weaker buying sentiment and delayed customer purchasing decisions”.

A higher profit share from associate and joint venture businesses was mainly driven by a higher contribution from the Valeo food manufacturing company which was divested in July (ATN July 31st). John Thompson & Sons, the Belfast feed compounder in which Origin has a 50% holding, had a “satisfactory” performance.

“Origin has achieved a satisfactory result in line with expectations,“ states chief executive Tom O’Mahony.  “The ongoing development of the Group’s integrated technology and agronomy service portfolios has helped to underpin a resilient performance from Agri-Services in 2015. This is against the backdrop of the current bearish crop cycle, which coupled with reduced seasonal intensity, resulted in lower overall market demand for services and inputs in the year.

The divestment of our interest in Valeo Foods together with the recently announced Agri-Services development in Eastern Europe furthers the Group’s capital reallocation objectives and provides a solid growth platform from farm services in the years ahead.

Primary output markets continue to remain under sustained pressure with near term visibility on new price direction unlikely before the middle of calendar year 2016. This weaker backdrop is impacting farm sentiment and a lower demand profile for services and inputs is anticipated in 2016. While we remain cautious regarding our outlook in the short term, the Group is well positioned to respond to current market conditions and to benefit from a sustained improvement in primary producer returns.”

Posted on October 13, 2015 and filed under Company News.