A slow start to the arable marketing year has led to an interim trading loss on lower revenues for Origin Enterprises, the parent company of Agrii in the UK together with interests in Eastern European agronomy and feed and fertiliser commodities. Most of its profitability is earned in the second half of the financial year when demand for arable inputs and advice is highest.
The Agri-Services division returned an operating loss of €1.79 million on sales of €507.21m in the six months ended January 31st 2016, compared to €4.1m and €531.6m in the first half of the previous year. With joint ventures and associate businesses, particularly Feed Ingredients, contributing €1.48m on sales of €154.67m (down from €6.28m and €210.89m a year earlier following the H2 divestment of Valeo Foods), the Group H1 operating profit is €314,000.
The company says that Agri-Services saw a slow start to trading in what is traditionally a seasonally quiet first half, as “highly adverse weather conditions combined with the current difficult market backdrop for primary producers, resulting in increased seasonality and a more challenging trading environment.” But the business is confident that a well established winter cropping base provides a favourable platform for its second half.
In the UK, Agrii’s lower H1 agronomy revenues and margins reflect the delayed harvest and poor weather. While good weather in the first quarter saw “robust “ planting activity, a very wet December and January lead to flooding in some areas and curtailed land work. However, above average temperatures promoted crop growth, and Agrii “remains positive regarding catch up agronomy revenue as farmers address the current weather effects of, among others, higher disease levels in crops, saturated soils and nutrient deficiencies”. This is despite the “challenging market backdrop for primary producers that continues to drive greater competitive intensity across our service and input portfolios as farm budgets are rigorously scrutinised for value and returns”.
Agrii estimates the UK winter wheat area at 1.9 million hectares (up 2.5%) and oilseed rape down 11.3% at 550,000ha. It believes the total spring crop area will fall by 3.6% on 2014 to 1.26m ha.
Origin’s business in Poland is now trading as Agrii Polska – the Group has combined the Kazgod operation acquired in November with its existing and long established Dalgety Polska – Agrii is now the leading agronomy and crop input service provider in Poland. “The enlarged business significantly extends Origin’s reach and service capability to provide value added solutions and applications that meet the yield and sustainability requirements of an increasingly professionalised and technically orientated farm customer.” Poland had a good first half with higher agronomy revenues and margins.
The two Romanian businesses - Redoxim and Comfert – acquired in the first half performed satisfactorily. The companies are still being integrated, but a 2% increase in plantings for 2016 will help, as long as rainfall is sufficient after 2015’s drought.
Agroscope, Origin’s agronomy operation in the Ukraine, saw improved first half results with higher early season agronomy revenues, and is well positioned for additional volumes in the growing season.
Business-to-business Agri-Inputs, the fertiliser and feed materials import business serving the UK and Ireland saw revenues and margins fall in line with slow fertiliser volumes, although this was partially offset by higher first half feed ingredient volumes and margins as livestock numbers rose in Ireland.
Fertiliser orders suffered from reduced farmer confidence, while uncertainty over pricing saw fewer forward sales. The company expects good full year fertiliser volumes in Ireland in line with rising livestock numbers, but predicts a lower 12 month volume for the UK. It warns of a more concentrated off-take period in H2 as farmers’ crops start to grow away.
John Thompson & Sons, the Belfast feed mill in which Origin has a 50% stake, delivered a satisfactory H1 despite lower volumes.
“Trading for the seasonally quiet first half of the financial year has been both slow and challenging with the Group recording an operating loss of €1.8 million from Agri-Services,” notes Origin chief executive Tom O'Mahony. “Highly adverse and unseasonal weather patterns have significantly limited in-field crop maintenance activity during the second quarter in particular. This, combined with weak farmer confidence reflecting the current pressures on primary producer incomes and cash flows, is expected to result in a greater concentration of service and input demand arising during the main application period in the second half of the financial year.
“The Central and Eastern European acquisition development completed during the period furthers our objective of building a coherent, scalable and geographically diverse farm services footprint. We are committed to extending the Group’s crop management systems and yield enhancement capabilities to positively influence the profitability and sustainability of the Group’s 30,000 plus farm customers.”