Three months of AB Akola Group: the food sector outperformed agri-related businesses

The consolidated revenue for the three months of the financial year 2024/2025 of AB Akola Group and its controlled companies (the Group) exceeded EUR 384 million and were 9% lower than in the corresponding period of the previous year.

The Group sold 729 thousand tons of various products, a decrease of 5% compared to the same period last year.

Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) for the three months amounted to EUR 27 million, 17% lower than in the previous year. Net profit decreased by 27% to EUR 13 million.

"The decrease in sales volumes was mainly due to a contraction in sales of rapeseed, maize, vegetable oil, and some other raw materials for animal feed. All but one of the operating segments recorded lower revenues. The largest operating segment, ‘Partners for Farmers’, saw the biggest contraction of 14.6%. Only the ‘Food Production’ segment saw an increase of 7%. Even with shrinking revenues, all businesses except farming were profitable, and the food sector was more profitable than the agri-related businesses," said Mažvydas Šileika, Chief Financial Officer of Akola Group.

The ‘Partners for Farmers’ segment generated revenue of more than EUR 283 million and accounted for 74% of the Group's total revenue for the reporting period. The segment's gross profit was EUR 22.5 million, and operating profit was EUR 8.8 million.

"Preliminary data show that the 2024 cereal harvest in the Baltics will be 12 million tons, 5% higher than in 2023, including 7.2 million tons in Lithuania, our primary grain sourcing market. During the reporting period, we bought 3% less grain and rapeseed than last year, including 7% less grain handled by our grain elevators than previous year. Most purchases were of second-class wheat, with very little extra-quality wheat. Grain transaction prices were 20% lower than last year. Wheat prices fluctuated throughout the reporting period with no clear direction but stayed within the lower price range. We sold 313 thousand tons of grains and oilseeds, 13% less than the previous year, with a 28% contraction in revenue and an 88% drop in gross profit. With the promise of a better global harvest for cereals and oilseeds, price pressures are likely to continue," said M. Šileika.

Raw materials and feed additives were sold 11% less, or 120 thousand tons. Compound feed and premixes were almost 2% higher than last year, with production lines running at full capacity. Sales of these products increased by nearly 13% compared to the previous year, but total sales revenues of feed, feed materials, and premixes fell by 9% due to market pressure on prices. The gross profit of the feed business was reduced by 14% by bottlenecks in the logistics of shipments from Ukraine.

The Group's revenue from certified seeds, fertilizers, and plant protection products fell by 2% to EUR 85 million.

"We sold 8.5% more fertilizers, 88% more plant protection products and micronutrients, and the same volume of seeds as the same time last year. However, prices were lower than last year due to the still unimproved situation of farmers, so the total revenue of these product categories shrank by 2% and the gross profit by almost 9%," said M. Šileika.

The agricultural machinery and equipment market continued to shrink due to low farm-gate prices and increased borrowing costs. The Group's revenue from sales, rentals, and various servicing of agricultural and farm machinery and equipment amounted to EUR 23 million, a contraction of 17%, while gross profit from these activities decreased by 19% to EUR 4 million.

"We see a trend in the market towards cost savings. This is not only in eliminating planned machinery purchases but also in reducing planned machinery inspections. The EU support programs are encouraging for us and farmers, but their impact is only felt in the second half of the financial year. In an environment where farmers can no longer afford to buy machinery, our business model is also undergoing a significant change, with rental income doubling compared to a year ago. Due to the intense competition in the machinery rental sector, we have expanded our range of services to include less frequent services. We believe in the prospect of this, as there will always be farms that do not meet the criteria for EU support, and it is becoming increasingly difficult for farms to find qualified machinery operators, as young people are no longer willing to work in this field," said M. Šileika about current trends in the agricultural sector.

The ‘Food Production’ segment's revenue, which accounted for 28% of the Group's total revenue, exceeded EUR 107 million. The gross profit of this business was almost EUR 21 million, and the operating profit was almost EUR 11 million.

"We always believed it would happen, and it is happening - profitability growth in the food segment is becoming a trend, growing for the third consecutive year. Poultry and poultry product sales grew by 11%, poultry business income by 10%, and the gross profit from this activity increased by 58%. The sales of flour, baking mixes, and breadcrumbs to external customers decreased by 11%, while the 18% decrease in revenue did not affect the gross profit of this activity, which increased by 1.6%. It is worth noting that the production of flour and baking mixes remained stable, while the production of breadcrumbs grew by 25%, but around 24% of it is used to produce intra-group chicken products. Sales of instant foods and ready-to-eat products also increased by 11%, with a 5% increase in revenue and a 4% increase in gross profit. The start-up and testing of a new instant noodles plant in Alytus are underway. Total capacity reach is expected in 2025. As the new breadcrumbs plant will also be operational in the spring, we will only see the complete picture of growth in the food segment in the next financial year," said M. Šileika.

The ‘Farming’ segment's revenue, representing 3% of the Group's total revenue, was EUR 11 million. The gross loss from this activity was EUR 0.1 million, and the operating loss was EUR 1.5 million.

"At the end of the reporting period, our farming companies had harvested the bulk of the crop – 87 thousand tons, down 4% on last year, as a dry summer damaged the bean and pea harvests. Milk production was 9.8 thousand tons or 2% higher. Crop farming revenue contracted by 11% due to 10-15% lower market prices, while milk production revenue grew by 13%. We sold 70% of the new crop, but crop farming made a loss, as is often the case in the first quarter of the year, due to the write-down of the cost of inventories sold in line with the Group's accounting policy. Milk production generated a gross profit 124% higher than at the same time last year, or EUR 0.7 million. Milk prices were encouraging, up 10% compared to the same period last year," said M. Šileika.

The ‘Other Products and Services’ segment accounted for 1% of the Group's revenue and amounted to EUR 5 million. The gross profit from this activity was EUR 0.96 million, and the operating profit was EUR 0.57 million.

" We sold 29% less pet food than last year, as much as produced - the goods are not stocked in warehouses. The production unit has been working almost at total capacity, and new products have been developed to reduce the production of the economy category, which currently accounts for around 45% of the total. As we are focusing on premium products, production volumes are shrinking due to the technology of production (8%), but the average basket price is increasing. Revenue from pet food shrank by 19%, reducing gross profit, but gross operating margin declined very slightly year-on-year (from 19% to 17%), and the outlook for this business is attractive.

Veterinary pharmaceuticals sales revenue grew by 10% mainly due to the growing small animal segment, while pest control and hygiene product sales revenue grew by 25% due to good one-off transactions," said M. Šileika, about the most minor but promising segment.

AB Akola Group owns the largest agricultural and food production group in the Baltics, employing over 5 thousand people. The group operates along the entire food production chain from field to fork, producing, preparing and marketing agricultural and food products, as well as providing goods and services to farmers. The Group's financial year begins on 1 July.

More information:

AB Akola Group CFO Mažvydas Šileika
Mob. +370 619 19 403
E-mail m.sileika@akolagroup.lt

Attachment

• Consolidated unaudited financial statements and Consolidated management report of AB Akola Group for the three-month period ended 30 September 2024