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Agrokultura reveals 'interest' in its Ukraine unit

Agrokultura, which two weeks ago revealed the sale of its Kaliningrad operations, said that it had received "interest" in its Ukrainian business too, at a value far higher than that investors are factoring in.

The farm operator in the former Soviet Union, which is listed in Stockholm, said that a review it commissioned by Dragon Capital into its Ukrainian business, which harvested 69,100 hectares of crops last year, had unearthed potential acquisition ideas.

"As part of that strategic review, the company has received interest in its Ukrainian business in excess of book value," Agrokultura said.

Although there was "no guarantee that a binding offer will materialise", or indeed that the group would approve a sale, the interest was "indicative of the intrinsic value in the business".

Share reaction

A sale above book value would imply a large premium to the value that investors have been ascribing to business, with Agrokultura shares trading at a discount of some 60% to book value.

The shares soared 11.7% to SEK3.33 in early deals, before easing to SEK3.18 as of 11:15 Stockholm time, still up 6.7% on the day.

At SEK3.18, they were also up 37% over the last month, lifted by hopes that the group, which has come under pressure from investors to release value from its portfolio, will indeed prove a better bet for shareholders.

Company revamp

Besides the sale of its Kaliningrad operations, covering about 14,000 hectares, for a price "close" to book value, the company is also undertaking a SEK150m ($23m) cost cutting drive, based on cuts to bills for likes of agrichemicals and fertilizers, and workforce reductions.

"Headcount at all levels in the company is being rationalised which is expected to reduce the annual total payroll cost by over 20%, or SEK37m," Agrokultura said.

"Senior management has been reduced by 30% which should provide a more streamlined decision-making process."

The group last week unveiled the departure of Hannes Sjöblad as deputy managing director.

Change of tack

And Agrokultura restated on Tuesday that it sees the sale of "non-core or non-performing" assets as a "key element" for its efforts to create value to shareholders.

The strategy represents a departure from that followed by the group two years ago, when it boosted its Ukraine operations through the purchase of Landkom International.

 Stephen Pickup, group managing director, who joined Agrokultura with the Landkom deal, said: "We have an initial target to deliver book value which we believe is possible with all the projects which are being worked on.

"We are cutting costs to ensure that for the first time in the company's history we have a viable profitable business, on a local level we are investigating if the best return can be delivered to shareholders through the outright sale of certain assets.

"Should further assets be sold, proceeds would likely be returned to shareholders."

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