Kaliningrad land sale lifts Agrokultura shares

Agrokultura shares accelerated their late-year recovery after the former Soviet Union farm operator claimed a "significant success" by agreeing the sale of its Kaliningrad operations, in a deal which will present a cash injection of more than $15m.

The group, which is listed in Stockholm but farms in Russia and Ukraine, said that it had would gain a "total cash inflow… in excess of SEK100m ($15.2m)" from the disposal of its 14,300-hectare Kaliningrad business.

The deal crystalizes a loss of SEK3m on the operations, which were gained through the 2010 all-share purchase of BBAH Sweden.

However, with most of this loss identified at the time of the deal, due to asset revaluations, Agrokultura instead highlighted instead the sale at a price close to book value, and above the level implied by the group's share price.

'Significant success'

"The divestment of the cluster in Kaliningrad is a significant success for the business at a price significantly in excess of the attributed value according to the company's share price and close to book value," said Stephen Pickup, the Agrokultura managing director.

He added that the cash gained from the deal would be invested in the group's other operations, based in a landbank covering a further 212,000 hectares in Russ and western Ukraine.

In terms of cropped acreage, which reached 126,800 hectares at this year's harvest, the loss of the Kaliningrad area "will be made up largely through a modest increase in planting in the [black earth region] operation in Russia.

Agrokultura shares stood soared 14% in early deals in Stockholm before easing back to SEK3.02 as of 11:30 local time (10.30 UK time), still up 7.9% on the day, and up 35% from an early December low.

Hopes vs experience

Agrokultura said at the time of the BBAH purchase that it expected the "operations in Kaliningrad to create substantial shareholder value.

"Adding BBAH's high-yielding farmland in Kaliningrad close to export facilities is an important step in [Agrokultura's] efforts to improve overall yields and decrease the reliance on the volatile domestic Russian grain market."

However, the business has delivered yields below those of Agrokultura's other operations – albeit that the black earth region result is swollen by sugar beet results.

Last year, Kaliningrad took 2.6 tonnes per hectare, compared with 2.8 tonnes per hectare in the black earth region division, and 3.8 tonnes per hectare in Ukraine.

This year, the Kaliningrad unit achieved 2.9 tonnes per hectare, compared with 3.6 tonnes per hectare in the black earth region and 3.5 tonnes per hectare in Ukraine.

Land grab reversal

Agrokultura added that Monday's disposal was "consistent with the company's long-term strategy to divest non-core holdings and create a more consolidated and controlled operation to drive cost reduction efforts".

The group is, in a reversal of the land grab drive which it and many peers undertook late in the last decade, rationalising its portfolio in an effort to focus on the most profitable plots.

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