Generaʦl Shaʦreholder Informaʦtion - PDF

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ANNUAL REPORT 2012 Generaʦl Shaʦreholder Informaʦtion Annuaʦl Generaʦl Meetingʦ Black Earth Farming Ltd ( Black Earth Farming ) hereby invites shareholders to participate in the Annual General Meeting

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ANNUAL REPORT 2012 Generaʦl Shaʦreholder Informaʦtion Annuaʦl Generaʦl Meetingʦ Black Earth Farming Ltd ( Black Earth Farming ) hereby invites shareholders to participate in the Annual General Meeting on 15 May 2013 at Näringslivets Hus, Storgatan 19 in Stockholm, Sweden. Paʦrticipaʦtion Holders of Swedish Depository Receipts ( SDRs ) wishing to attend the Annual General Meeting shall be recorded in the register of shareholders maintained by Euroclear (former VPC AB) on Wednesday 8 May 2013, and must notify the Company of their intention to attend the Meeting no later than CET on 8 May The holder of the Swedish Depository Receipts shall state his name, personal or company identification number, address as well as telephone number. Caʦlendaʦr of events in Annual General Meeting: 15 May 1Q Interim Report, 1 January 31 March: 24 May 2Q Interim Report, 1 January 30 June: 16 August 3Q Interim Report, 1 January 30 September: 15 November Investor Relaʦtions Erik Lystedt + 44 (0) Internet website SDR tickers NASDAQ OMX Stockholm: BEF SDB Reuters: BEFsdb.ST Bloomberg: BEFSDB SS Notice of paʦrticipaʦtion Holders of Swedish Depository Receipts can give their notice of participation: by mail at the address: Annual General Meeting, Black Earth Farming Ltd, c/o Computershare, Box 610, Danderyd Sweden by telephone +46 (0) by fax +46 (0) by to Nominee-regʦistered shaʦres Holders of Swedish Depository Receipts which hold their receipts through nominees (Sw. förvaltare) must request a temporary registration of the voting rights in order to be able to participate at the General Meeting. Holders of Swedish Depository Receipts that want to obtain such registration must contact the nominee regarding this well in advance of 8 May. Voting forms (Sw. röstkort) will be distributed to the holders that have complied with the above requirements and the voting form must be brought to the Annual General Meeting. Proxies, etc. If a holder of Swedish Depository Receipts intends to be represented by proxy, the name of the proxy holder shall be stated. For holders of Swedish Depository Receipts who will be represented by a proxy at the Meeting, a proxy form is available at the Company s website on com. The signed proxy form should be sent or mailed to the company at the above stated valid addresses. Disclaimer This report contains forward-looking statements. All statements other than statements of historical facts included in this Presentation, including without limitation, those regarding the Company s financial position, business strategy, the Company s management s, or as appropriate the Directors, plans, objectives, goals, strategies and future operations and performance and the assumptions underlying these statements are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and other factors which are or may be beyond our control, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company s present and future business strategies and the environment in which the Company will operate in the future. Supplementary USD* equivalent figures found in this report in relation to company financial information are provided solely for the convenience of users as described in Note 2 (d) to the Consolidated Financial Statements and do not form part of the audited consolidated financial statements. Some numerical figures included in this Presentation have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in certain graphs or tables may not be an exact arithmetic aggregation of the figures that preceded them. Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce in Brief CEO Staʦtement This is Blaʦck Eaʦrth Faʦrmingʦ Maʦrket/Industry Overview Operaʦtionaʦl Review Finaʦnciaʦl Review Risks aʦnd Sensitivity Anaʦlysis Five Yeaʦr Summaʦry The Blaʦck Eaʦrth Faʦrmingʦ shaʦre Consolidaʦted Finaʦnciaʦl Staʦtements Staʦtement of maʦnaʦgʦement responsibilities Independent Auditor s Report Consolidaʦted Staʦtement of Comprehensive Income/(Loss) Consolidaʦted Staʦtement of Finaʦnciaʦl Position Consolidaʦted Staʦtement of Chaʦngʦes in Equity Consolidaʦted Staʦtement of Caʦsh Flows Notes to the Consolidaʦted Finaʦnciaʦl Staʦtements Boaʦrd, Maʦnaʦgʦement aʦnd Auditors Corporaʦte Governaʦnce Report Boaʦrd of Directors report on internaʦl control Sustaʦinaʦbility Terms aʦnd Definitions Blaʦck Eaʦrth Faʦrmingʦ aʦt aʦ Glaʦnce Business Concept Laʦnd Ownership Productivity Enhaʦncement Best Praʦctice Faʦrmingʦ Operaʦtions Extensive soil restoraʦtion process undertaʦken to traʦnsform longʦ term faʦllow laʦnd into productive crop laʦnd Over 250,000 hectaʦres brougʦht out of faʦllow aʦnd currently in cultivaʦtion 250,000 Hectaʦres of World Claʦss Faʦrm Laʦnd in Full Ownership Totaʦl laʦnd baʦnk of 308,000 hectaʦres with 81% in full ownership Non depreciaʦtingʦ aʦsset recorded aʦt aʦcquisition cost of USD* 59.2 million in staʦtement of finaʦnciaʦl position aʦs of Dec 31, 2012 Operaʦtingʦ in Russiaʦ s Centraʦl Blaʦck Eaʦrth Regʦion Agʦriculturaʦl regʦion endowed with some of the most fertile soils in the world BEF: ONE OF THE LARGEST OWNERS OF PRIME RUSSIAN FARM LAND D1: BEF 2012 Laʦnd holdingʦs Totaʦl laʦnd: 308,000 hectaʦres Longʦ term leaʦses 13% Laʦnd in ownership regʦistraʦtion 6% Compaʦrison of Blaʦck Eaʦrth Faʦrmingʦ s fully owned aʦcreaʦgʦe with Centraʦl Paʦrk (New York), Hyde Paʦrk (London), Hongʦ Kongʦ aʦnd Luxembourgʦ Centraʦl Paʦrk (New York) 253 haʦ Hyde Paʦrk (London) 341 haʦ Hongʦ Kongʦ 110,400 haʦ Laʦnd in regʦistered ownership 81% Luxembourgʦ 258,600 haʦ Blaʦck Eaʦrth Faʦrmingʦ 250,000 haʦ * The USD equivaʦlent figʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted finaʦnciaʦl staʦtements refer to note 2 (d). 2 One of the Laʦrgʦest Russiaʦn Laʦnd Owners Kursk Taʦmbov* Controlled laʦnd: 82,900 haʦ Owned laʦnd: 75,600 haʦ Laʦnd in production: 72,700 haʦ Storaʦgʦe caʦpaʦcity: 149,000 tons Controlled laʦnd: 71,900 haʦ Owned laʦnd: 53,600 haʦ Laʦnd in production: 42,200 haʦ Storaʦgʦe caʦpaʦcity: 83,600 tons Lipetsk Voronezh Controlled laʦnd: 64,100 haʦ Owned laʦnd: 53,500 haʦ Laʦnd in production: 64,000 haʦ Storaʦgʦe caʦpaʦcity: 139,200 tons Controlled laʦnd: 75,700 haʦ Owned laʦnd: 56,500 haʦ Laʦnd in production: 52,000 haʦ Storaʦgʦe caʦpaʦcity: 122,100 tons * 13,600 haʦ in Saʦmaʦraʦ is recorded aʦs investment property held for saʦle aʦs of 31 December 2012 B aʦ ltic Se aʦ E xp o rt Moscow Ro RUSSIA u te Lipetsk Taʦmbov Kursk B l aʦ ck S eaʦ Ex p o rt Ro u t e Voronezh Maʦjor Producer of Graʦins aʦnd Oilseeds D2: 2012 Revenue by Crop 230,000 hectaʦres in production Sugar beet 4% Baʦrley 7% Wheaʦt 39% Soyaʦ 8% Sunflower 12% Sigʦnificaʦnt Investments into Maʦchinery Fleet aʦnd Storaʦgʦe Infraʦstructure Undertaʦken Laʦrgʦe staʦte of the aʦrt maʦchinery fleet Corn 14% Oilseed raʦpe 15% D3: Haʦrvest Areaʦ, thousaʦnd hectaʦres 500,000 tons of storaʦgʦe caʦpaʦcity D4: Commerciaʦl Haʦrvest, thousaʦnd tons * The USD equivaʦlent fi gʦures aʦre provided for informaʦtion purposes only aʦnd do not form paʦrt of the consolidaʦted fi naʦnciaʦl staʦtements refer to note 2 (d). Focused on Raʦisingʦ Productivity aʦnd Profitaʦbility 3 2012 in Brief Record Higʦhs for Agʦriculturaʦl Commodity Prices Globaʦl aʦnd Russiaʦn production shortfaʦlls send prices soaʦringʦ BEF s aʦveraʦgʦe 2012 crop price increaʦsed 68% y-o-y on aʦ like-for-like baʦsis D1: Averaʦgʦe BEF Crop Price (Haʦrvest Yeaʦr), USD*/ton Averaʦgʦe Crop Price Ex. Sugʦaʦr Beets D2: Jaʦnuaʦry 2009 Maʦrch 2013 Wheaʦt Price Development, USD per ton 400 Internaʦtionaʦl Future, LIFFE EU Russiaʦn Export (FOB Novorossiysk) Russiaʦn Domestic 350 (ExW BEF Regʦion) Internaʦl improvements to Crop Yields, Logʦistics aʦnd Saʦles aʦnd Maʦrketingʦ Blended aʦveraʦgʦe crop yield excludingʦ sugʦaʦr beets increaʦsed 13% yeaʦr-on-yeaʦr Record haʦrvest aʦnd saʦles volumes of 630 aʦnd 684 thousaʦnd tons respectively Crop quaʦlity preserved aʦnd saʦles reaʦlized aʦt faʦvoraʦble prices D3: Historic Crop Yield Development, tons per hectaʦre Averaʦgʦe Blended Crop Yield Ex. Sugʦaʦr Beet & Potaʦto D4: Production, Saʦles aʦnd Inventory, thousaʦnd tons 800 Commerciaʦl Haʦrvest Volumes sold End of Period Inventory * The functionaʦl aʦnd presentaʦtion currency for Blaʦck Eaʦrth Faʦrmingʦ is RUR. For the convenience of the users of this report USD aʦmounts aʦre aʦlso presented see note 2 (d). 4 First Full Yeaʦr Net Profit of USD* 7.2 million for 2012 Operaʦtingʦ profit of USD* 19.9 million vs. loss of USD* 26.8 million Improved result driven by higʦher prices aʦs well aʦs operaʦtionaʦl improvements T1: BEF Income Staʦtement in Brief USD* million Totaʦl Revenue Gross Result EBITDA Operaʦtingʦ Result Net Result D5: 2012 Operaʦtingʦ Result Development, USD* million Price Increaʦse Volume Increaʦse Storaʦgʦe & Logʦistics Direct Costs Distribution Costs Operaʦtingʦ Loss 2012 Operaʦtingʦ Profit Straʦtegʦic Cooperaʦtion Agʦreement Sigʦned with PepsiCo in October 2012 BEF to supply potaʦtoes aʦnd sunflowers for Laʦy s crisps aʦs well aʦs beet for sugʦaʦr in vaʦrious products Potentiaʦl for BEF to gʦrow with gʦood returns on caʦpitaʦl aʦt lower risk Domestic price risk maʦnaʦgʦement with higʦh quaʦlity counterpaʦrty Rigʦhts Issue of SEK 530 million Successfully Completed in December 2012 Proceeds to fund PepsiCo investments aʦnd workingʦ caʦpitaʦl to complete operaʦtionaʦl turnaʦround Oversubscribed aʦnd well received by the maʦrket Proposaʦl of No Dividend for 2012 * The functionaʦl aʦnd presentaʦtion currency for Blaʦck Eaʦrth Faʦrmingʦ is RUR. For the convenience of the users of this report USD aʦmounts aʦre aʦlso presented see note 2 (d). 5 CEO Staʦtement Good Progʦress in 2012 but Higʦher Ambitions Goingʦ Forwaʦrd 2012 was a milestone in several aspects for Black Earth Farming. The company reported its first full year net profit of USD* 7.2 million while we also initiated the next strategic phase by signing a strategic cooperation agreement with PepsiCo. The subsequent SEK 530 million rights issue was successfully completed giving us a much stronger financial position to complete the operational turnaround and increase supplies to PepsiCo over the coming years. Our focus remains on the strategy already laid out to improve operating performance in the core business by raising crop yields and lowering the cost per tonne. Although we made good progress both operationally and financially in 2012 we clearly have higher ambitions in order lift returns on capital and unlock the value of BEF s high quality asset base. T1: BEF Income Staʦtement in Brief USD* million Totaʦl Revenue Gross Result EBITDA Operaʦtingʦ Result Net Result Finaʦnciaʦl Result The major improvement in our 2012 financial result is top line driven with total revenue and gains of USD* 229 million up 179% from USD* 82 million in 2011 due to higher volumes and higher crop prices. Sales revenue is higher having sold 684 thousand tons of crops, 71% more than in 2011, due to a higher carry-in inventory, a changed crop mix and better crop yields resulting in higher harvested volumes in 2012 of which 78% had been sold by year end. The blended average market price of USD* 253 per ton is 36% higher than USD* 186 per ton for 2011 crop (on a like for like basis excluding sugar beets, USD* 303 per ton is up 68% year-on-year) which contributed to the higher revaluation of biological assets and a 2012 gross profit of USD* 55.3 million versus USD* 2.8 million in A key difference is that we managed to realize the high prices in 2012 as 2011 was negatively affected by poor quality and subsequent price discounts. The improvement is due to strong performance in sales & marketing but also preservation of crop quality due to much better management of logistics, drying and storage. The revenue increase has to some extent been mitigated by cost increases, particularly certain direct costs of key inputs as well as changes to the cropping mix. Distribution costs are also up USD* 6.5 million from 2011 mainly due to higher sales volumes and the resumption of our internal export program, shipping crops to end customers in Europe. Overhead and personnel costs are also up somewhat as we have strengthened management teams. This has been crucial to improve our operating performance but improved cost control and reduced overheads is one of the focus areas for All in all a 2012 operating profit of USD* 19.9 million is good progress compared to the loss of USD* 26.8 million in vs Key Drivers Record Higʦh Crop Prices The main factor affecting crop markets in 2012 was the drought in the US Midwest while parts of Russia, Ukraine and Kazakhstan also had difficult weather conditions. This resulted in a substantial rise in international prices for grains and oilseeds and with no imposed export restrictions, record highs for Russian domestic prices. While seasonal weather * The functionaʦl aʦnd presentaʦtion currency for Blaʦck Eaʦrth Faʦrmingʦ is RUR. For the convenience of the users of this report USD aʦmounts aʦre aʦlso presented see note 2 (d). 6 factors are a key driver behind the supply shortfall causing the 2012 price spikes, global stock-to-use levels for all major grain and oilseed crops have steadily declined during the past 4 5 years despite record harvests. Although we have lower price expectations for the 2013 harvest the longer term outlook for agricultural commodity prices remains very favourable. The effect of higher prices on 2012 gross profitability was an approximate USD*45 million improvement versus Improved Crop Yields We also made some tangible improvements for the 2012 crop. Whilst winter wheat was a disappointment, yields for spring wheat, corn, sunflower and soya crops are among the best ever achieved. Winter wheat was badly affected by a late spring, immediately followed by a sharp increase in temperatures and consecutive weeks of dry weather in May. Conditions were more favorable from June onwards and this together with improved quality of operations benefited later 2012 spring crop yields which all came in above historic averages and 20% better than The improved volumes of comparable crops, excluding an increased area of higher yielding sugar beets, is an approximate USD* 8 million improvement versus Storaʦgʦe & Logʦistics The focus on improving logistics, drying and storage meant that unlike 2011 we got all dryers working and elevators working much more efficiently. Harvest logistics was managed centrally and real time information regarding our 20 harvesting teams, which of our 40 storage sites crop was routed through and exactly what quantity, quality, moisture and admixture levels gave us the control we required. This ensured that we could realize prices at market levels and avoid the large price discounts of on average 15 20% due to poor quality. This is an improvement of approximately USD* 15 million compared to D1: Jaʦnuaʦry 2009 Maʦrch 2013 Wheaʦt Price Development, USD per ton 400 Internaʦtionaʦl Future, LIFFE EU Russiaʦn Export (FOB Novorossiysk) Russiaʦn Domestic 350 (ExW BEF Regʦion) D2: Historic Crop Yield Development, tons per hectaʦre Averaʦgʦe Blended Crop Yield Ex. Sugʦaʦr Beet & Potaʦto Costs Cost of production for the 2012 crop were up by around USD* 15 million year-on-year. A higher share of more intensive crops such as corn and sugar beet which cost more to produce per hectare but in turn yield higher volumes, revenues and ultimately profits is a key factor. However, like for like direct cost increases from a combination of input price inflation, some increased application rates and much higher prices for key inputs such as fertilizer, seeds, sprays and fuel as well as the corrective measures being undertaken to raise crop yield potential have all contributed. The five corrective initiatives to improve crop yields, correcting soil ph and soil compaction, improving weed control, applying more of certain fertilizers and improving internal seed management techniques will continue, but major areas have already been covered. We have now limed and subsoiled approximately 50 and 110 thousand hectares respectively. These initiatives will have had a relatively minor impact on 2012 crop yields but we expect steady yield improvements in future years. D3: Production, Saʦles aʦnd Inventory, thousaʦnd tons 800 Commerciaʦl Haʦrvest Volumes sold End of Period Inventory * The functionaʦl aʦnd presentaʦtion currency for Blaʦck Eaʦrth Faʦrmingʦ is RUR. For the convenience of the users of this report USD aʦmounts aʦre aʦlso presented see note 2 (d). 7 PepsiCo Agʦreement & Rigʦhts Issue The PepsiCo agreement signed in October 2012 is a major opportunity and provides a first step in the next strategic phase for the company. The collaboration should have a major positive impact on the business as it offers the potential to fix prices in advance for a significant quantity of its production while also diversifying into competitively advantaged higher margin irrigated crops. We are concentrating hard on ensuring that we deliver in all aspects for our customer going forward. The initial 30 hectare test field with potatoes in 2012 was successful in producing good volumes and quality. We will increase the area 2013 carefully to about 200 hectares before the major planned ramp up will commence in In December 2012 we successfully completed the USD* 80 million rights issue launched to finance the investment and working capital needs required for the PepsiCo deal as well as completing the operational turnaround. The issue was well received and we are grateful for the continued patience and excellent support from our shareholders Plaʦns For 2013 we need to build and consolidate upon the improvements seen in 2012 and raising crop yields remains the key focus area. We are far from satisfied with the improvements to date and intend to step up our efforts by significantly increasing training at all levels to improve technical decision making and operator performance. Our internal R&D is yielding key data to ensure our crop management is increasingly driven by statistically significant well analyzed trials information and this will be expanded upon for High quality relevant management information for the senior and midlevel management team is also a priority area. Our land bank is of high overall quality but we want to improve and consolidate further whilst the land market remains relatively active in order to focus on the areas with the highest potential. We divested 9.5 thousand hectares of low quality land in 2012 and have also reclassified our land in Samara as investment property to be sold. This contributed approximately USD* 3 million to the 2012 profit, all based upon executed or pending sales contracts. 80% of the land bank is in registered ownership and all land that is not leased or classified as investment property, 258 thousand hectares, is held at acquisition cost in the balance sheet. The market for Russian farm land remains fluid and prices have risen substantially since acquisition evidenced by larger farm land transactions in neighbouring regions. Conclusion Overall an improved performance in 2012 compared to previous years. Whilst we acknowledge the s
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