AB Akola Group (AKO1L) Earnings Call Transcript & Summary

Good day, and welcome to the Akola Group Investor Conference for the 3 months of financial year 2025/2026 performance. I'm Simona from Nasdaq Vilnius, and I have the pleasure of moderating today's session. Thank you for taking time to join us today. Over the next hour, we will provide you with a comprehensive insights into Akola group financial performance and recent activities outlook. Before we begin, a few quick notes. This session is being recorded and will be made available on the Nasdaq Baltic YouTube channel shortly after we conclude. We encourage you to submit your questions using the Q&A function located at the bottom of your screen throughout the presentation. We'll address these during our dedicated Q&A session following the presentation. I'd like to introduce today's presenter, Mazvydas Sileika, the Deputy CEO for Finance and Investments as well as the Management Board member of the company, who will walk you through the company's performance and answer your questions. Without further delay, I'll turn the floor over to Mazvydas. Please, the floor is yours.

Good morning, everyone. Simona, thank you very much for the introduction. Welcome, everyone, to the overview of activities and finance of Akola Group for the 3 months of financial year '25/'26. I would like to always start with a disclaimer. Please keep in mind that the presentation can have forward-looking expressed statements, but they're only the best case of assumption of the management at this point. My name is Mazvydas, and I will present today the developments for the 3 months of this financial year. So if we look at the structure of the group, it hasn't changed a lot since the end of the financial year during the 3 first months. So we still manage 59 subsidiaries. We have merged 2 companies. But after the reporting period, we have registered another one. And we have bought a small company, which is basically a company who was owning 250 hectares of arable land, and we were previous renting that. So we have that in our portfolio. But rather than that, the group structure is not expanding, and we are still merging and making it more efficient. If you would like to -- I would like to go to our snapshot how we look at end of the first 3 months. So we managed to perform very well. And the EBITDA of the group stands at EUR 36 million, and it's more than compared to last year when we had EUR 27 million of EBITDA at the same quarter, and it's well above our 5-year average, which also stands at EUR 27.6 million. I would like to really congratulate the group and our colleagues and our team. We had really a successful quarter, I would say, really well balanced between our activities. With such a high EBITDA, we have a very good or even extraordinary EBIT margin, we managed to have almost 7%. Last year, we were close to 5%, and we are well above our strategic target, which is 3%. For sure, first month of the -- first quarter of the year doesn't imply the future, but we started really very well. That also gives us a fantastic return on capital employed, which is close to 12%. And that's the first time after a long period of quarters when we are close to our strategic target of 12%. So that -- so those earnings and those EBITDA gives us EUR 0.40 per share on a rolling 12-month basis. And with EUR 0.40 per share, our price earnings with latest pricing is just above 4x. So the stock is fluctuating between 4 and 5x in the past half year. If I would like to present to you then our balance sheet. It has increased year-on-year. The group's balance sheet now is above EUR 1 billion. And the composition hasn't changed much, but both, property, plant and equipment has increased as well as we have more current assets on our balance sheet, which is mainly grains, which we hold on our balance sheet, having increased year-on-year. We still have quite a healthy borrowing base ratio of 63%. That means that we have quite a lot of equity in our system. And during last -- or the last quarter, around EUR 133 million of readily marketable inventories were on our balance sheet. So our total liquidity position for this year is around EUR 480 million. We did around EUR 10 million in CapEx. We do not have new big projects going on now. So we are finishing a few previously communicated. Our debt for the end year is close to EUR 400 million and 37% out of that is long term. So we are still very short-term debt-based company, which is partly covered by our readily marketable inventories. After a good last financial year, we have a solid equity position, which is close to EUR 400 million, and that gives us a comfortable 35% equity ratio or capital ratio and our 12 months rolling basis EBITDA is even EUR 120 million. Then our net adjusted debt is only just above 2x when our target is 4. So this is probably the best debt-to-EBITDA ratio we had for a long, long time. So let's drop down to our earnings. And for the first 3 months, we have close to EUR 400 million in sales revenue. It is a successful quarter for us. The share between Food and Partners for Farmers revenue remained very healthy, around 70% to 30%. And we have traded more volumes. So in terms of volumes, we grew by 7.4% or 56,000 tonnes. Main contributor to this was our wheat trade. We had a big harvest in Lithuania, and we also have better positions in Latvia, which actually helped us to buy and trade bigger amounts of wheat. That also helped us to offset reductions in our other trades. We have lower feedstuff trades and of course, lower input trades, which I will talk about later. In terms of revenue, we have grown by 26% or almost EUR 10 million, biggest contributor is, of course, Food segment, which provided additionally EUR 16 million. Out of that, EUR 11 million is poultry EUR 5 million is ready-to-eat and instant food categories. As well in terms of value in euros, we have traded less than our Partners for Farmers segment. So how does our gross profit looks there? It's really looking fantastic. For the first 3 months, we have inked EUR 56 million of gross profit, and that stands out in the last 4 years. The share between Food and Partners for Farmers remains as well very healthy, 42% and 53%. So year-on-year, the gross profit increased by 27% almost or almost EUR 12 million, and biggest contributors are Partners for Farmers plus EUR 7 million. That mainly comes from grain trade and of course, Food segment, which provided another EUR 3 million, and that's mostly coming from poultry. You can notice that we have record high gross profit margin for the first 3 months, EUR 14.2 million versus last year, EUR 11.5 million (sic) [ 14.2% versus last year, 11.5% ] . Gross Profit actually increased through all the segments, except Food. Food remained quite flat. Because apart from very good poultry results, we have somewhat decreasing profitability in our instant foods and ready-to-eat food segments. However, I would like to notice as well, our first quarter usually is the best in terms of profitability. You can see that actually historically. So it evens out during the year. So it is due to the seasonality as we have quite intensive trade and sale of inputs to farmers and farming as well. So looking at our operating profit. We have another beautiful number, which is EUR 27 million of operating profit for the first quarter of this financial year. The share is also very balanced, 50%, 50% almost, coming from 2 segments. EBITDA grew by 43%, almost. The biggest contributor is Partners for Farmers, EUR 4.5 million and then Food segment by EUR 2.5 million. If you would -- if you look to -- if we look to our profitability, 6.8% EBIT margin, again, one of the best in the last 4 years. We have much more above our strategic target of 3%. So again, it really indicates that we had an extraordinary successful quarter. So how did our segments perform? And one of our best-performing segments this quarter is Partners for Farmers. It had a really good quarter. In terms of sales, we have actually delivered less sales revenue in terms of euros. However, we traded more in terms of volume. Even though we had less inputs and less feed, we have actually offset that by better trade in grains and especially wheat. So in terms of profitability, we have really a successful quarter in terms of our elevators, EUR 9 million gross profit. That's a really good result, and that's mainly resulted from higher quantities. We had a really large grain or bumper crop in Lithuania, so we have more quantities coming into our elevators. And out of that, actually -- out of that also was a very big impact by our newest acquisition, Elagro Trade in Latvia. We have, standalone in Latvia, bought more 117,000 tonnes of grain than we did previous year. So that's actually 15% of our total grain purchase. However, gross profit profitability, we have a little bit lower. We had more cost on our side, and that's why it was actually squeezed. So that came basically from volumes. So big harvest also resulted in good trading volumes and good trading activity now on grain segment. We have EUR 6 million in gross profit versus EUR 1 million last year. However, the forecast on looking forward still remains quite volatile. The harvest quality throughout the Baltics is not the best. So that remains quite challenging. So going forward, the full outlook of the year, it is very hard to judge how we are going to combine the full year. However, we started quite strong. In terms of feed, we have unfortunately lower gross profit margin coming year-on-year, but very different stories. Compound feed, we have a healthy demand, healthy production. We did not produce less. We more or less have delivered the same result year-on-year. However, we have pressure in feedstuffs trade and the pressure is basically on margins. And we have one profitable position in amino acids, which basically is a result of negative effects of the tariff policy of European Union against China. If we look to inputs, the season started really very difficult. We had a late harvest because the season was very rainy, very humid, so that also impacted our sales of feed, fertilizers and other micronutrients and climate protection. In terms of seeds, we have a bit lower quantities. However, we have remained with the same profitability. Fertilizers remain a trade, which is still -- we will still have to see how it goes. Because, of course, the application of fertilizers is not that favorable for farmers due to the price of grain comparison to fertilizer price. So we will see how that develops. However, we have the Carbon Border tax coming up from January, which will change pricing for fertilizers coming not -- or coming outside European Union. Machinery. Solid recovery but that was led by a very strong EU support program. And that's why we have a really healthy first quarter, EUR 4 million of gross profit versus EUR 3 million last year, and we have a much better stock situation in the company. Let's go to full production. The driver of the last financial year, still remaining very strong this year. In terms of revenues, we have actually delivered more by EUR 16 million. We have EUR 123 million this year. That was mainly driven both by poultry and ready to eat segments. So in terms of gross profit, we have EUR 24 million. We have grown from EUR 21 million. But the main driver here is again poultry. We have a bit less satisfying results in our instant and ready-to-eat products and as well as flour and breadcrumb. So when we talk about poultry, we have stable production and sales volumes that hasn't increased much. We have still continuously improving broiler prices. So that's favorable dynamics for us, for our main cost component. And we have to maintain a very strong focus on biosecurity because basically, the high export prices, which we are facing now are mainly driven by all the diseases and the influenza in European Union, and that's not given for granted as well. It is already in Lithuania in some cases. So we need to have to be very cautious on that. So far, we're good to manage that. Looking forward, there is some indications of poultry price downward correction. You can already see that in some indices. However, that's not yet very big. But now we are going to a less favorable seasonal pattern for us. It's winter, where we'll have higher costs from heating. So we will see how that will contribute to our cost base and how that -- this winter will look. We're talking about instant foods and ready-to-eat foods. So instant food category, we have higher volumes and higher revenues. We have sold more because we are operating a new production plant in Alytus. Ready-to-eat category delivered unfortunately lower volumes and lower revenues, one of our main export markets, which is U.S., has a bit of difficulties regarding the tariffs. It's now quite hard to export that -- there. We need to work with them how to price and how to pass the tariffs to final consumer either to have a healthy split. So unfortunately, increase of volumes and sales overall for this segment was led by deteriorating profitability and the prospects for this segment will highly depend on the ability for us to profitably employ the new production capacity we both -- we have both in instant foods factory in Alytus as well as ready-to-eat. Flour. Flour more or less this remain on the same level. We have lost one key account client, which has actually finished operations in Lithuania, but we have funneled these amounts of flour to our internal production. So that was not a big change for us. However, our new coating system plant in Kedainiai has started operations and they are still getting back -- or not getting back, are going on track. And now we have a bit of a challenge with higher quantities versus maybe a bit lower profitability. But looking forward, we see that we can balance the portfolio and come back to the profitability we have seen before in this segment as well. So one of our smaller segments is having the agricultural production, but one of the most probably interesting ones. So in terms of sales revenue, we have just slightly less than last year. In terms of volumes as well, we have produced a bit less wheat, however, more or less the same amount of milk. So we have harvested everything for 2025, more or less the yields at the same as last year. And -- but we overall increased the harvest quantities. We have sold around 2/3 of our harvest. What we see that the prices are so far really very low, and that was the topic for the last half year. Unfortunately, we also have a cost pressure. So year-on-year, we see that our cost has increased per tonne around EUR 20. However, we see that we have sold or we have done all the field work after the harvest in due time. It's hard to say how the sowings look. We have quite a lot of humidity, and that was quite late sowing. But so far, we have this grain part under control. Milk production, we have more or less the same herd. Our milk per sales prices are 20% higher if we compare year-on-year. That's why with the same quantities, we have a better result and more or less the same profitability-wise. But looking forward, even though the local agricultural statistics look that the price -- milk price has not changed or is not decreasing, we are following the global markets where we see some corrections downward in the main products. However, we are now going from very high product prices to a bit lower. So we will see how the milk price will balance out. But so far, the main driver for profit in this segment is milk. I will go through our ongoing projects, which you probably more or less know, but we are going on and we are pushing forward our investment in biogas in Lukšiu. You can actually see how it looks more or less now. And we are hoping to start operations in the second -- end of second quarter, beginning of first -- beginning, sorry, of third quarter this financial year. We are also expanding our milk production capacity in 2 of our farms in Žibartoniu and the Sidabravo. We are really good with time line there. We will start opening these facilities in end of this calendar year. And a few projects we have postponed. One of that is which we communicated to you as well. We have for now postponed our biomethane production plant in Kaišiadorys. That was around of the EUR 20 million investment at that time that is now under review and consideration. And 2 new projects, which we have communicated to you recently a month ago around is around combined EUR 90 million investment. But if we look them separately, it's around EUR 20 million and EUR 70 million investments. One is in new pet production plant, which we are building and looking at the business plan here. But one of the -- and maybe bigger is the new feed production plant. We have a feed production plant, which is now based in Kaunas just in front of Žalgirio Arena. So this production plant would be a substitution for the one in Kaunas City. We are looking to expand in terms of capacity and of course, to modernize and build a new factory in a good position somewhere in Lithuania, which then would change the existing one in Kaunas City. So this is what are -- these investments are about. The Executive Board is considering and building a business plan for this one. When we will have the decisions made, we will, of course, communicate to the market in one or the other day. So this is more or less from my side. Please, if you haven't yet subscribed to our news and you will follow all the latest developments. But rather than that, thank you, and I'm looking forward to your questions.

Thank you very much Mazvydas for insightful presentation. [Operator Instructions] The first question was received in advance and is the following. Please elaborate on green trade patterns and the segment performance, quality of grains received and market as such.

So market is quite interesting because we have quite high quantities in Lithuania, more or less similar quantities in Estonia and Latvia. However, going from Lithuania north, meaning likely Estonia, we have deteriorating quality of grain. So the quality of grain in Lithuania is not that good as well, but it's a workable condition. We have higher quantities and that helped us to produce better result year-on-year in our elevator network. We have higher -- larger quantities. That as well helped for our trading activity in the first 3 months. However, due to the quality issues as well as quite low overall grain price as there is no big deficit of grain globally, the market going forward remains quite volatile. So we had a first good quarter, but I'm really cautious going forward how the trades will develop later on in the year.

The next question received in advance is the following: Could you please clarify what the EUR 53.5 million in long-term trade receivables consist of. Additionally, when does the company expect these long-term receivables to be covered -- recovered?

So these receivable is our regular business. These receivables are from our farmers. Basically, we have a higher long-term receivable portion during first quarter of the year because we have sold and we usually sell, this is nothing new, to farmers with deferred payment terms longer than a year. It's usually maybe 14 months or 13 months. And when it's above a year, we have to classify them as long term. But if you would compare and look at our books year after year, the amount changes, but we usually have a part of the amount, which is long term because basically, we will receive the payment from the farmers after the harvest, and that's usually after 13 or 14 months when we sold.

Thank you. We received congrats on the flying start to the year from one of the analysts and compliments on the new look for quarterly reports. And the question, in fiscal quarter first, efficient procurement helped reduce trading costs and significantly improve gross profitability in grain and oilseed trading. Could you please elaborate a bit more on that efficient procurement?

Well, basically, first, thank you very much for congratulations. And thank you very much that you have noticed our new look. We put quite a lot of effort at our presentations and the reports are user-friendly. So thanks for going that noticed. In terms of our trading patterns and efficient purchasing, I would only like to remind you that we usually have very different quarters depending on the price we sell for, also the cost of grains coming into the sales. So I would really like to judge our trading activity in wheat and oilseeds maybe at least after 3 quarters of this year. So far, we have sold quite well. Our purchase price reflects the quality in the market. It's nothing more than that. We are buying according to the quality we receive. But we find trades and profitable trades where that quality of grain is actually needed for specific production, feed production and others. So let us maybe be patient and see how we go on because, as I mentioned before, volatility in the market persists. Quality of the grain is issue, and there can be situations where we will have unprofitable trades due to low quality of grains. But I don't want to speculate going forward because we still have quite a lot of grain, which we still have and we need to sell in the future.

Thank you. In fiscal quarter -- first quarter, the production volumes of the group's poultry companies remained broadly in line with the previous year. Also, purchases from external suppliers declined by 23%. Could you please help us understand what purchases from external suppliers mean? Is that feed?

No, this is basically we have Partners for Farmers who are breeding and producing broilers. So we are basically breeding broilers ourselves, and we can do that roughly 70% to 80% of our need. The 20% to 30% we need to buy in the market, that's only for Lithuania. So basically, we have farmers who are producing and breeding live birds. We buy the broilers for them, and then we are using them in our production. So -- and this quarter-by-quarter or every year depends on our capacity, how much we can slaughter, how much we can sell. And it also depends on how much we are breeding ourselves. And depending on that, we are looking how much we need to buy in the market. So basically, this is a function of our production capacity, of our sales capacity and how much we need to buy or outsource externally.

Thank you. In floor and floor mixes, production volumes were stable. So sales to third parties fell by 28% after major clients withdrawal. You touched a bit during the presentation, but could you please elaborate a bit more on that client, main reasons for withdrawal, et cetera?

No. I mean I cannot comment on the names and so on. But basically, there's -- it's a bakery, which has closed its operations in the Baltic market. They are not operating here anymore. That was not a big problem for us because we can redirect these quantities to our internal production. And that's why the volumes and more or less the profitability and the selling price remained fine in flour segment. I just want to maybe emphasize that it's not we lost the client, the client finished operations in the Baltics.

Okay. Instant food production grew by 20% year-to-year in the first quarter, while sales rose by 32% year-to-year. This implies growth in average selling price of roughly 10% year-to-year. Could you please indicate the reasons behind higher average selling price if that holds true?

The reason for higher selling price is the mix of our products we sell and produce. Basically, we have produced different kind of noodles for a specific buyer because those noodles are bigger, bigger packs, and they have a higher selling price. That's why we have overall not only increased in volume as well as increased in sales overall. That depends completely on our product portfolio, which we contract every quarter or half a year or a year because the contracts are different in their length. They can be shorter, they can be longer. And if we will remain with that production of that specific product or we will change that to a similar one, so it can remain. If the portfolio will change to lower value products, smaller products, that, of course, will also impact our revenues in a sense. So that's a function of our product portfolio, which we produce and sell to our clients and they contract with us.

Thanks a lot. In the first quarter, instant food and ready-to-eat products saw combined gross profit shrink by 53% year-to-year to EUR 1.9 million. Could you please provide a split between the 2? Is it right that instant food had better dynamics in gross profitability versus ready-to-eat?

Well, we show the segment as one. So you should treat it as one. As you can see, that's the analytics we provide for the market. Basically, both of those segments do not -- did not have a good quarter overall, maybe a bit different reasons. In ready-to-eat, we have for now lower sales to one of our main previous markets, which was U.S. and we are actively changing those sales to other ones. In terms of instant foods, which is basically our instant noodle production, we have continuing issues with production for the first quarter. We are solving that out, and they are decreasing in terms of scale. However, that doesn't help us to be profitable in the way we would like to be. That took us longer than we expected, but we are, in a sense, dealing with that as it is.