A/S Trigon Agri 3Q 2012 Interim Report

Highlights of 3Q 2012

Total revenue, other income, fair value adjustments and net changes in inventory for 9m 2012 amounted to EUR 59,909 thousand (EUR 57,055 thousand in 9m 2011).

Cost of purchased goods for trading purposes amounted to EUR 11,308 thousand in 9m 2012 (EUR 7,437 thousand in 9m 2011).

Total operating expenses amounted to EUR 42,900 thousand in 9m 2012 (EUR 36,651 thousand in 9m 2011).

EBITDA from continuing operations in 9m 2012 amounted to EUR 11,629 thousand (EUR 12,967 thousand in 9m 2011).

EBITDA in 9m 2012 including clusters to be discontinued amounted to EUR 7,435 thousand (EUR 12,967 thousand in 9m 2011).

The Net profit from continuing operations of the Group in 9m 2012 amounted to profit of EUR 1,036 thousand (profit of EUR 4,303 thousand in 9m 2011).

The Net profit/loss of the Group in 9m 2012 including clusters to be discontinued amounted to loss of EUR 6,695 thousand (profit of EUR 4,303 thousand in 9m 2011).

The consolidated assets of the Group as of September 30, 2012 amounted to EUR 198,830 thousand (EUR 194,360 thousand at December 31, 2011).

Trigon Agri’s Founder and Chairman of the Board, Joakim Helenius, Comments:

2012 has been a challenging year for Trigon Agri. The Group was hard hit by the severe drought, which has affected especially the Southern regions of Russia and Ukraine. In spite of the very challenging environment Trigon Agri has continued to work toward its declared strategic aim of becoming a sustainably significantly profitable agricultural producer.

Trigon Agri consist of three business units: dairy production; Ukrainian cereals production including storage and trading; and Russia cereals production. Two out of these three business units have broken through into solid and sustainable profitability already a number of years ago. The challenge has been the Russian cereals production. Therefore the management of Trigon Agri has worked for a long time on ways of addressing this challenge in a constructive way. For over a year this work has focused on effecting a land swap transaction, which today have been communicated in a separate press release, that when completed will provide Trigon Agri’s Russian cereals production business unit with a platform, which has the potential to deliver long-term sustainable profits.

Trigon Agri has today announced that it has carried out a land-swap transaction in Russia involving the acquisition of a new 71 thousand hectares production cluster in Rostov Oblast in exchange for swapping out of its two current Russian production clusters in Samara and Stavropol as well as a cash contribution. The new production cluster acquired in Rostov Oblast has exceptional characteristics due to four strong competitive advantages: location near the main export ports, regionally speaking good historical rainfall, contiguous layout of the land and last but certainly not least potentially very significant irrigation potential. These four factors together allow the new Rostov production cluster to offer a much higher potential to show consistent profits than the land areas Trigon Agri has swapped out of.

The newly acquired Rostov production cluster is located in the neighbourhood of the Novorossiysk port. Novorossiysk port is the main export hub for grain from Russia. The proximity to this port allows for higher than average prices on the sale of grain, as domestic farm-gate grain prices in Russia tend to fall as the distance to the main ports increases. The very long distance to the Black Sea ports from the Samara region proved to be a major handicap for Trigon Agri’s operations in that region.

The ten-year average rainfall of the new Rostov cluster production areas stands at 485 millimeters per year, compared to 374 millimeters per year in the Stavropol production cluster.

The land area of the acquired production cluster is laid out as two large contiguous blocks of around 20 by 20 kilometres each. The contiguous nature of the fields allows for the land to be farmed at low costs per hectare, as field equipment does not need to travel long distances to move from one field to another, and can therefore be deployed in the most efficient way possible during the seeding, spraying and harvesting windows. This results in a low cost per tonne produced and allows for high profit margins everything else being equal.

The land acquired in the new production cluster is connected to an irrigation canal system that is unique in the region. This system provides the option to develop irrigated farming in the area. Applying irrigated farming could potentially more than double longer term average production yields achieved for each hectare under production as well as removing most of the weather related risk.

In addition to the four characteristics described above, which together provide the basis for potentially good profitability going forwards, the production cluster acquired also has farm-based grain storage warehouses with a total storage capacity of 35,000 tonnes of grains. Having the security of storage is vital for successful farming operations in Russia, as there is a general lack of storage capacity in the country. Local farmers without their own storage are often forced to sell their produce into a cyclically weak pricing environment during the harvesting season.

The transaction is structured as a share exchange deal whereby Trigon Agri acquires 100% ownership of a legal entity having a free-hold title to roughly 71 thousand hectares of farm-land in the Rostov Oblast. The payment for the shares of the acquired entity will be effected in the form of shares in the Group’s two existing production clusters in Samara (45 thousand hectares of farm-land in ownership) and Stavropol (33 thousand hectares of farm-land in ownership) and a monetary payment of EUR 15.1 million. As part of the transaction the seller of the Rostov assets will also take over EUR 6.4 million of bank borrowings of the Stavropol cluster, while the Rostov land holdings will be passed on to Trigon Agri as free of any bank debt. Out of the monetary payment of EUR 15.1 million, Trigon Agri has paid EUR 6 million in the form of prepayment as of end of Q3 2012. In accordance with the signed acquisition agreement, the remaining EUR 9.1 million will be paid in Q4 2013 in the form of a delayed cash payment (no interest to be accrued on the delayed amount). As Trigon Agri is free to take on loans against the new Rostov cluster and the swap removes EUR 6.4 million of bank debt from Trigon Agri’s balance sheet (and Trigon Agri saves about EUR 1 million in interest payments which would otherwise have accrued on the Stavropol loan over 2013) the transaction will not significantly affect Trigon Agri’s liquidity position. Accordingly the need to effect payment for the swap partly through issuing new shares, which has been mentioned in previous stock exchange releases, is no longer necessary and will not be carried out.

As part of the transaction Trigon Agri will take over 17 thousand hectares of 2013 winter wheat crop seeded in the Rostov cluster under the supervision of Trigon Agri’s agronomy team. The fieldworks carried out to date in the Stavropol and Samara clusters will pass on to the sellers of the Rostov cluster. No field equipment is part of the agreed land-swap transaction.

The Samara and Stavropol assets contributed by Trigon Agri into the swap transaction had an acquisition cost value in Trigon Agri’s balance sheet of EUR 29.2 million (net of EUR 6.4 million of borrowings). The 9m 2012 EBITDA of the Samara and Stavropol operations showed a negative result of EUR 4.2 million.

The transaction is subject to the approval of the Russian Competition Authority currently expected in December 2012. The divestment of the Samara and Stavropol clusters is expected to result in one-off income for Trigon Agri in the size of around EUR 20 million in Q4 2012. The transaction will lead to a significant net profit for the full year 2012 which in turn will lead to a substantial increase in year-end book value of equity.

Telephone conference details

A telephone conference will be held today, Wednesday 28 November, at 10.00 CET.

Program: Joakim Helenius, Chairman of the Board, and Ülo Adamson, President and CEO, will present and comment upon the results. There will also be an opportunity to ask questions.

To participate in the telephone conference, please call one of the following numbers:

UK: + 44 (0) 203 043 2436

SE: +46 (0)8 505 598 53

FI: +358 (0) 923 101 527

NO: +47 215 111 88

DK: +45 369 541 87

CH: +41 (0) 445 806 524

US: +1 866 458 4087
 

Trigon Agri 3Q 2012 Interim Report

The presentation material will be available under the “Investor Relations” section at www.trigonagri.com before the telephone conference starts.

Investor enquiries:

Mr. Ülo Adamson, President and CEO of Trigon Agri A/S, Tel: +372 66 79200, E-mail: mail@trigonagri.com

About Trigon Agri

Trigon Agri is a leading integrated soft commodities production, storage and trading company with operations in Ukraine, Russia and Estonia. Trigon Agri’s shares are traded on the main market of NASDAQ OMX Stockholm. Trigon Agri is managed under a management agreement by Trigon Capital, a leading Central and Eastern European operational management firm with around USD 1 billion of assets under management.

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