Agro Perspectiva

Landkom acquisition update

24.05.2012 13:48 "Agro Perspectiva" (Kyiv) — Alpcot Agro AB completed the acquisition of Landkom International plc («Landkom») on 27 January 2012. Since then Alpcot Agro has focussed on rapidly integrating the Landkom business into the Group in order to start to deliver the scale and associated benefits for the Ukrainian operation and to create a more balanced Group structure. The following is a general update of the most important aspects of the acquisition. Work is ongoing to combine the businesses at an operational level. These include the replacement of many senior Landkom staff. The Group is also carrying out an in depth review of transactions carried out by the previous management in Landkom prior to the acquisition. To date approximately $5.7 million have been released to Landkom’s principal creditor. Negotiations are ongoing, and full payment of all valid debts will be made once a comprehensive settlement is made between the two parties. The Group has signed a credit agreement with Raiffeisen Aval Bank to deliver an enlarged facility of up to $15 million to cover the Ukraine business’ working capital requirements. This facility has not yet been drawn down. Besides the credit facility, the Group’s only debt in Ukraine consists of approximately $6 million of long term lease financing for machinery and equipment. Since completion, the Group has made over $1.5m of annualised cost savings focussed on the overseas head office and local headcount. The Landkom office in London has been closed, over 130 staff have been made redundant and additional cost reductions are being planned in Ukraine during the year. The aim is to bring the combined Ukrainian business cost structure in line with industry peers and the Group’s legacy Ukrainian business. Long term savings are likely to be centred on the improved land bank structure and resulting operating cost savings. The Group currently has approximately 96,600 ha in Ukraine. In order to deliver farming efficiency, the Group is considering plans to reduce this land bank through the divestment of non-core land, land that is either non-contiguous or in an area for which the Group does not plan a long term future. Such a strategy, if fully executed, would deliver cost benefits, provide cash proceeds to the Group and permit more efficient logistics for farming operations. As announced in April, the Group has a total of 35,400 ha of winter crops under cultivation in Ukraine following some winter losses, consisting of 18,400 ha of rapeseed, 14,100 ha of winter and 2,900 ha of barley. Within Ukraine, the Group expects to plant about 19,000 ha of spring crops, predominantly in the western regions. The planting of 10,800 ha of corn and 4,100 ha of sunflower have been completed. The planting of buckwheat and soya is in progress and should be completed by the first week of June. This will bring total cultivation for harvest in Ukraine to about 54,400 ha. Harvesting will commence in late June/early July. In the future, Alpcot Agro will focus its Ukrainian operations on the western regions where more reliable weather, especially rainfall, aids the production of the Group’s key crops. Within the long term crop rotation plan, the Group expects to focus crop production on rapeseed and wheat for winter crops and corn as the main spring crop, with smaller amounts of sunflower and soya. All material levels of inventory have been sold from the 2011 harvest, leaving silo facilities ready to accept new crops. The Group intends to follow Landkom practice of exporting material quantities of crop especially rapeseed and corn. The Group also intends to enter into significant levels of forward sales in order to minimise risk in the sales process during harvest. After the combination the Group has 55,000 tonnes of storage capacity in modern silo facilities in western Ukraine, in Lviv and Ivano Frankivsk oblasts, that will be used for the 2012 harvest. In addition the Group has plans for an additional up to 35,000 tonnes of temporary storage and silo facilities. It is planned that between 70–75 per cent of total agricultural production will be processed through Group owned facilities providing considerable cost savings compared to the 2011 harvest.