AB Akola Group ($AKO1L)

Dear listeners, it is a pleasure to welcome you to AKola Group Investor Webinar. I am Olga from Nasdaq Vilnius, and I will be moderating today's event. We will begin with the company's presentation followed by a short poll after which we will address your questions. [Operator Instructions] For your convenience, the webinar is being recorded, and replay will be available on the NASDAQ Baltic YouTube channel shortly after the call. Now let me introduce our today's host, Mazvydas Sileika, the Deputy CEO for Finance and Investments of Akoka Group. And without further delay, I'm handing over to you, Mazvydas. Please proceed.

Thank you, Olga. Good morning, everyone, and welcome to Akola Group webinar for 9 months of the financial year '25/ '26. It's a pleasure for me to I present today for you our performance. And as always, please be aware there might be forward or directly or indirectly expressed views, our management assumptions, but they are purely the current view of the management. My name is Mazvydas, and I will present to you how group has been performing for the last 9 months of this financial year. . We always started the group structure. And this quarter, we didn't have any big changes. We have the registered one company, which is Grybai LT. This company was previously merged with Kauno Grudai [indiscernible] was merged with Kauno Grudai and we have registered the company from the legal entities registration. Rather than that, we are managing 57 subsidiaries and 2 associate companies. Our snap shot for the 9 months looks really well. We have delivered EUR 66 million in EBITDA versus EUR 71 million last year. Yes, we have a gap of EUR 5 million now widening up. So meaning that we're a bit behind the pace of last year. However, we are well above our 5-year average of EUR 54 million. And we are really close to our -- the lower bound of our long-term target EBITDA, which is EUR 70 million. Our margins remain strong, well above 3%, hovering around 3.6%, a bit less than last year, but that also gives us somewhere lower valuation compared to last year. We're a bit above 5x price to earnings. And that is remaining for the last year or 2 or so. We are quite good with return on capital employed. It has increased. We have well managed our balance sheet. So with a bit less of earnings. We have managed to return more on our capital and on a 12-month rolling basis, we have EUR 0.33 per share earnings versus EUR 0.25 in last year. So on a 12-month rolling basis, overall, we look really very good, even though the pace of this quarter was lower. And it seems that last year, especially the end of the financial year was stronger. Let's discuss our balance sheet. It hasn't changed that much. It's more or less hovering around EUR 1 billion. We have a very healthy equity ratio in our trading system. Our borrowing base is 58%, meaning that the rest is equity. 58% is borrowed capital. We are well financed. We have EUR 0.6 billion of credit lines available. This year, so far, we made EUR 29 million in CapEx, as you probably already know and noticed that this car is much lower in our investment agenda. We don't have such a big project in our pipeline. Overall, our debt was standing at EUR 386 million, of which 40% was long-term debt. So we are quite well positioned with the long-term debt. The company is not leveraged in management's view, and we have enough capacity to invest or expand further on. That also shows our capital ratio, which stands really strong, 36%, and our 12 months rolling EBITDA is EUR 105 million, which provides us with a relatively conservative debt level. RMI adjusted net debt to EBITDA stands only at 2.6X. Without adjusting, it's 3.35. But overall, it's well above 4x leverage, and that really is a good performance and result from the group. So looking at our revenues, they more or less are flat year-on-year. We have EUR 1.1 billion in revenue. Last year, we had a very similar amount. The same goes for our tonnes which we traded. We have only 20,000 tonns less traded than last year. So basically, we can say that our revenue performance is more or less flat. However, our revenue decreased a bit more than our tonnes, meaning that we are still -- or we were still operating during the 9 months in a more deflationary environment overall. Only food segment and that's particularly visible in poultry. We're working with rising tons sold as well as rising prices, more or less other segments. We're working in deflationary environment. The share of revenue coming from our food has increased as well, 33% this year versus 28%, and our share of partners for farmers have decreased on the same percentage, meaning that what I just had mentioned earlier that we have grown in terms of revenues in our Food segment, which was mainly driven by our poultry operations. Let's look at our gross profit, which stands at EUR 133 million, which is a good result as we have increased the gross profit by EUR 3 million, almost the biggest driver for that was also Food segment. They delivered additional EUR 15 million, mainly driven by poultry. And the share of our gross profit coming from food has also reached a record high number of 55%. This is irregular year. It hasn't been done before. You can see the trend was always increasing. But now this year, we have actually changed change the tide where we have more income, more gross profits are coming from our food operations. Gross profit margin looks really well at almost 12% more than last year, which was a bit lower, but not that much. So the trend of more profitable business piling into overall group's performance is continuing. Operating profit has a very similar trend in terms of share where we get the operating profit, 96% of this year's operating profit is coming from food, 10% from Partners for Farmers. This is a big change from last year, which were more or less balanced. However, this year is even more successful for our food operations, mainly driven by poultry. And unfortunately, this year is a bit more challenging for our Partners for Farmers segments, especially everything related with our trading operations. Last quarter was quite difficult, but it has improved quarter-on-quarter since the 6-month results. However, with all the geopolitics in the world, there are quite a lot of volatility and unknown things which we have to deal. However, EBITDA margin looks fine, 3.6% versus 4% last year. So overall, it's a good performance, it is well above a 5-year average, which is 2.6%. And our long-term target is 3%. So we have reached and we are performing above our long-term target. And overall, our EBITDA for a 12-month rolling basis looks really good now. If we deep dive into our segments, let's start from Partners to Farmers, which is still our biggest segment in terms of revenue. As I mentioned before, our sales have decreased in terms of euros. And this is mainly driven by the deflationary price environment, grains, fertilizers, plant protection, feed components was merely everything traded at lower prices if we compare year-on-year. In terms of tons, we have a slight decrease in our grains and oilseeds trades, but that's not that big. We have a slight decrease in our inputs trade and we have more or less flat trade or flat performance in terms of tonnes in our feed and feed input category. So overall, you can see that our time performance is not that different cover in terms of euros, we have close to EUR 100 million difference, which comes from prices. If you look at profitability, the segment unfortunately delivered EUR 10 million less in gross profit than last year. It is a bit more challenging year than last year, and I will tell you more or less what are the main drivers for that. If we talk about grain and logistics, this is one of the segments which delivered a better result than last year. That was mainly driven by higher volumes, which we bought through our elevator network. That was the main driver. The quantities we bought in were higher, and that was the main driver for better results. Grains and oilseeds trade. Unfortunately, we have 4 million less. However, we have closed the gap since the 6 months results. I would like to remind that it was higher. But as the year goes, we are actively trading through all the quarters. However, the lower profitability is mainly driven by poor quality of rain than last year, grain quality this year since the beginning of the year was quite challenging, and we were communicating that, and that's, of course, impacting our results through the year. Of course, the tensions in the Middle East do not help so far. The trading environment is more complicated than favorable for us, but the result overall, I think, is good. compound feed part is combined of compound feed and feedstock trade. So Compound Feed is doing well year-on-year performing really good or even better. However, our feedstock trade has challenges, and the result will remain quite muted due to our unprofitable or loss-making trade in amino acids, which we have already talked last year and which negative result was accounted with the 6-month result. So all the negative effect is there, but that's unfortunately which what delivers us such a big difference year-on-year in terms of the result. Inputs, I would say flat, and the result is good. The main drivers of seeds and fertilizers is still one of the strongest positions of Akoka Group. We are one of the market leaders. We since this year, we have also seed production in Latvia, which helps us to maintain a solid market position. Fertilizers. We are also maintaining strong position through all 3 Baltic states. Our stronghold, of course, is Lithuania. We have lost some quantities. However, we are more looking at profitable trades in the fertilizer segment. Machinery is a very mixed sentiment throughout the Baltics. So overall, the result is lower year-on-year by EUR 2 million. The harvest for the farmers was not the most successful one. It was quite moisture, the quality of grain is lower and it was quite late. So the capacity, the financial capacity of farmers to invest into machinery in grain equipment is lower, and we can deal that this year. It's also not that much supported by EU support rounds. That's why we have the lower result, even though probably we could say that the most positive situation is in Lithuania. And like with Estonia, it has more impact for that, which we see. So let's discuss our Food segment. Food production is one of the key segments this year. It's for sure an unusual year where we have so much profits coming from our food operations. Looking forward, that probably will even out. However, this is a segment which also delivered more in terms of sales, and that was mainly coming from our poultry operations. And poultry was the main driver. And fresh meat is the main category sale. This is the biggest one, around 70%. What really helped us and still is helping our stable cost base, which is actually continuing. So the price and cost gap is favorable for us. Input cost for us as feed and gas remained in line with our expectations. We had more expenses for gas during this winter, which was colder. However, that didn't slow our pace of earnings down. We remain really very focused on biosecurity and operational excellence because the higher price environment in Europe, which we operate as we are very export-oriented company in poultry, remains high, and that's mainly because Poland is one of the main sources of poultry production, is struggling with avian influenza and other diseases, which doesn't allow to give more supply to the market for poultry. Instant food and ready-to-eat categories. Instant food category is growing in terms of quantity, which is a good sign. We are actually rebounding year-on-year in terms of quantity and sales volumes. This is a good message. However, market remains really very competitive, and we cannot rebound faster profitability. We need to step by step decrease our volumes and quantities and work on the profitability in parallel. Ready to eat category, maybe less positive note for the 9 months, and that probably will continue until the end of the year. We have those lower volumes and a bit more higher operating expenses. Volumes are related with slower export markets, one of those are being U.S. We talked about that last time. That was also some impact on tariffs coming in. Overall, export markets, we need more time to work with them and place our product in the correct geographies for the correct consumers. So we have a lot of focus on pricing, and we have also a lot of focus on sales in ready-to-eat category. Flour and Coating Systems. So flour is a very stable segment. We don't see a lot of activity there. We more or less place our part of our flour to our internal production. Coating systems. We are continuing to grow, and the growth is quite volatile and bank. We have a new factory which we are working where we need some time to make it work as a well-oiled machine to get best sales and the margins. Agriculture production, the same story throughout the year and the same topics, which we have discussed, even though -- we have quite a global harvest in quantities. Mill quantities remain the same overall. In terms of revenue, we have lower because both grain prices and milk prices are lower. That's the main driver, and that's what we see in the market for our Partners Farmers. That also delivered a fewer results, meaning that gross profit of this segment was EUR 3 million, which was mainly driven by milk, which delivered EUR 4 million and crops delivered EUR 1 million in loss. Of course, we don't account our subsidies, which we received in gross profit, which is around EUR 0.8 million. So if you would add that on for the segment, so it is a EUR 4 million result. Overall, we are very looking forward already for the next harvest because the crop quality now looks good. We got some rain in the last week. Before that, it was quite dry and challenging. And what is most important looking forward are the grain prices. For this segment to increase and boost profitability, we need improving grain prices. We see the trend gaining a bit of a momentum because of the situation in the Middle East, but still the increase is only slight and when we would like to see more for this segment. Mill production, so no big changes and efficiency, meaning more or less producing the same amount. However, milk price, which we sell for is 8% lower than last year. And since more or less October, the price has been decreasing. And now actually, we reached in March, one of the lowest price points throughout the year. So we need higher raw milk prices for this segment to improve profitability. So group investments for this year are budgeted to be around EUR 43 million. We already have delivered EUR 29 million in 3 months of this year. It might be so that we will finish a bit lower because some projects can actually carried over to the next financial year to finish, but that amount will not be bigger for sure. I would like to also remember -- remind you our biggest project for this year is our biomethane production plant in Luksiu. We have also modernized our 2 farms, Žibartoniu and Sidabravo where they will have new milking operations. We're investing quite a lot in poultry to boost efficiency and also to maintain the status of our factories and another EUR 60 million will go throughout the group to smaller and bigger things, which are more maintenance or small improvements. We haven't announced any new projects since our last webinar. A few of the projects we are considering, but we haven't made any decision yet. So those are the same. You can see them here, the biggest being new feed production plant, which also would be expanded -- which would move our existing feed production plant from Konas to other place. But rather than that, the decision on these projects are not made, and we are in the phase of evaluating and discussion. So thank you very much for your attention. If you haven't registered, please register for our newsletters and looking forward really for your questions. Thank you.

Thank you, Mazvydas, for the presentation. And now on behalf of the company, I would like to ask the participants to answer a short poll that you will see on your screens. So it consists only of 2 questions. And in the first question, you are being asked to rate the overall quality of the presentation from 0, which is a very poor to 10 excellent. And the second question is asking to share any ideas on how company could improve its investor presentations in the future. So the poll will be available through the Q&A session, but when you answered the question, just close the pool window. So please take a 1 minute to answer these questions, and indeed your feedback would be very appreciated by the company. Yes. And now we can gradually move to the Q&A session. [Operator Instructions] Could you please elaborate a bit on the crop situation in the Baltic region?

Yes, for sure. So since last week, we got a proper amount of rain, more or less throughout the Baltic countries. So the crop situation has really improved and looks good now. Previously, the environment was too dry, and we were actually coming to a point where we could get some damage. But now it clearly has improved. We have some damage coming from the autumn period when we had some dry weather, maybe we will have a bit more summer sowings, spring sowings, but overall, the quality looks fine and fields are actually getting quite improved.

And the next question, could you please add a bit more color on fertilizer situation in the region and how it affects Akoka?

So for this year, the fertilizer trade and situation is more or less done. We have traded the majority of our quantities in the third quarter. Some remaining trades will be done in the fourth quarter. but all the fertilizers traded were more or less bought before the situation escalating in the Middle East. So this year, it will not be affected that not just the price dynamics are already more or less fixed. However, the biggest challenge is looking forward to the next financial year, because this is the moment where we should start order fertilizers, informing our positions in this trade and be ready to supply the farmers. However, there is really felt lack of physical supply in the market. So it is harder to get physical supply of fertilizers in the market. We need to be more relative here. And that will continue if the situation in the Middle East will not change. Also, the price dynamics are really unknown for the next periods because the gas price remains really a question and not all of the participants and factories in the market are ready to buy the gas for the price and produce. So for this financial year, I see no major issues. However, looking forward, we will need to be very cautious and make the right trades. We also see that farmers are looking at the fertilizer price, which has increased quite a lot for the next period. And it doesn't correlate yet, it doesn't correlate with the crop price, with the grain price, and they are also cautious to buy fertilizers. So it looks like they will fertilize the fields less, basically, also doing some risk management on their side. So they can fertilize less in autumn. However, spring is very crucial to apply as much fertilizer as possible to have the best potential of the harvest. And that decision they will have to make in October, November.

Thank you, Mazvydas. Now a few questions also related to fertilizers. Perhaps you have covered them partly. But maybe you can add something. So did you -- you stock up on fertilizer before the new year due to the changing import regulations?

Yes. That is very correct. We have brought in all our fertilizer position for this spring before the end of December 2025 because after December the carbon adjustment mechanism takes action. And we were not sure in the market was not sure how it will be calculated and will it be, will it not be canceled how we have to form the prices, how much we will pay. Everything was really very weak and not specific, especially that we saw a lot of instances when the European Commission has changed their mind and canceled something, and that makes a lot of damage for us. So we were very cautious. We bought all the fertilizers before all the adjustment mechanism takes place. So we have formed our position for spring, and we have traded that with less risk for any taxes coming from that. So that is sorted out. We also had all the position formed more or less before that prices increased in the market. And for this year, as I mentioned before, there won't be a lot of effect coming from that. But next year, of course, is challenging in this area.

And then the next question also related to fertilizers. Given the fertilizer and grain prices have started rising since early 2026 and still going up, is your company benefiting more from trading? Or does the price increase not guarantee higher profits?

Overall, the increase in prices for the group is a more positive thing than negative thing. However, it really depends how we form our position. So it's not a very straightforward question. I will not talk anymore about the spring, probably more or less, I explained that for the -- around the fertilizers. But looking forward, we need to be cautious of the price we buy because we buy it in our warehouse, we stock it up. And if the price suddenly decreases in the market, we are then selling our inventory for a lower price or smaller margins. So we need -- when we buy up, when we stock up, when we form our position, we then need the same level of market prices or increasing market prices to benefit from that. So it's not easy because the price is moving in both directions and both ways. We buy now fertilizer if the Strait of Hormuz and the Middle East situation somehow gets solved. We could see a drop in gas prices and that will result drop in fertilizer prices, and that would have a negative effect on our position in the warehouse. So how we form and how we sell to the farmers is a bit of quite a big effort and risk management on our trading portfolio.

All right. And how do you see potential fertilizer supply disruptions going forward? How is the supply situation?

As I mentioned before, it's challenging, it's difficult. We need to be more creative. We need to find new suppliers in the market. What you can read in the news that there is lack of fertilizer components, different chemicals, this is really felt in the market. Some plants are even not working because they cannot get hands on particular chemicals for their production. So of course, the other side, the demand for fertilizer is also dropping as the price is at least for now too expensive for the farmer. So the demand and supply of fertilizers will reach somewhere in between. But overall, a challenging situation going forward, for sure. We will -- we have -- we are monitoring that very accurately, and we are looking how to secure our supply going forward, right.

And the next question, would you please share your insights about farmers. They seem to be hit by search fertilizer prices and more expensive fuel on the one hand. But on the other hand, wheat prices are up by around 1/3 since the start of the year. So what could be the net effect?

The net effect so far, I would say, is more negative than positive. We need to see a higher, bigger increase in grain prices than we saw so far because we are growing or increasing from a very, very low level. As you can see that last 2 years, grain prices are now profitable for us. It is the same for the whole industry for the whole farming segment. So we are growing from a very, very low background. But you are right, there is a positive trend so far with the grain prices. And that's mainly now driven by, of course, a bit higher fertilizer prices. But the main driver is now the forecast of global -- possible global harvest for the upcoming season. And so far, the crop quality looks worse than better in U.S. So that drove the price a bit up. It also some quality of crops is not that good in the Eastern part of Europe, Russia, Ukraine as well. Now it is raining. Maybe it will be fixed. So we need to see the next report, but that was more of a bigger driver for price increases of grains, basically saying that the future harvest forecast for this -- from that kind of -- from that particular point in time was a bit worse than last year. So that was anticipating a lower harvest global harvest, which then was started driving the prices. But of course, when you look at the input side, Fertilizers are increasing. Diesel price is increasing, labor is increasing and that increased overnight, meaning that no diesel increased overnight, fertilizers increased overnight and grain prices are propping up only bit by bit. So we will see how that equilibrium will end up, and we will see how it will go. As far as now, the net effect is still around zero or negative, but not yet positive.

Moving to the next question. 9 months EBITDA is at EUR 66 million. At the same time, you indicate EBITDA at the lower end of the EUR 70 million, EUR 90 million range for the full fiscal year, which effectively implies a single-digit EBITDA for the fiscal quarter 4. Could you please add a bit more texture on the weak expectations for the fourth quarter?

Pwell, it's -- we actually communicated to the market, and we are -- we did not change our forecast for this year, we remained at EUR 70 million to EUR 90 million. We said that so far with 6 months, we are at pace with last year. However, we wanted to wait for the third quarter to see if we are keeping the momentum, or we are falling behind. So we never communicated that this year can be up to a bigger range that we have communicated before. So we were keeping the EUR 70 million to EUR 90 million because we saw that there is volatility coming up in the next quarters, especially in trading operations. Harvest quality was low, and we needed to see how it goes. So our message is very clear that we -- with our 9-month results, we already reached our lower band of our targeted EBITDA range, meaning we reached already EUR 70 million. So in the fourth quarter, we are not changing and we are presuming and seeing that we will end up our financial year, somewhere in between our targeted range of EUR 70 million to EUR 90 million. If during the fourth quarter, we will see that the situation is far better or more or less the same. So if it's better, we will communicate accordingly to the market that we are doing better. If we will see that we are more or less in range, there will not be extra communication from us as the range keeps up. So I would not say that our fourth quarter is weak. I would say we have a good regular year for the group because if we do closer to EUR 90 million, of the range, I would say it's a strong year. Last year was the second best year in Group's history. So it's not easy every year to reach a new record. So I would say we are in a good pace. What will really help that our investments, which we made in the full segment would start operating and deliver the results according to the business plan that would allow us to increase the range currently. But for that, as we have seen throughout the year, we still need to work hard.

Thank you, Mazvydas, for the explanations. And I see we still have a number of questions to answer. So the next question. What is the current condition of the winter crops this spring?

I probably touched upon that question. It looks good after we've got the rain and humidity. It is a good condition throughout the Baltics.

And which market or commodity factors do you expect to have the biggest positive and negative impacts in the coming quarter.

Commodity markets, of course, we would have -- we are following gas prices quite closely. We are using them less in our production in the fourth quarter, but it's also a big driver. Anything related with our feed components, meaning soy meal prices, grain prices would also have a big impact. Fertilizer trade will be more active next financial year first quarter. So that will not have a huge impact going forward. So those are the things. Milk prices would really help which in the fourth quarter, but they are not moving that fast but milk, raw milk prices, which we sell for is really important. Probably what you're not following that much, but we always provide in our reports is the poultry fillet -- chicken fillet market price in Europe. That is a very big driver for poultry, and we are actually looking at that quarter-by-quarter, and you can also follow that to see what is the dynamics of our poultry operations and profitability.

Thank you. How the sale of the certified carbon credit is progressing? And what has the market demand been like so far?

So we haven't yet sold our carbon credits. We have just recently received them. Now we are in the progress to market them and sell. They are definitely a liquid position. we are looking to get the price more or less what we planned when we went into this project, but we haven't yet sold that.

All right. And next question, shall we expect the usual seasonal reduction in ready marketable inventory in fourth quarter compared to the quarter 3?

I would say that would be the best assumption going forward.

Okay. Let me see if we have more questions. It seems that we have covered all the questions so far. But if any of you still have a question to ask, please do so now. [Operator Instructions] Okay. I see 1 more question coming in. What was the key driver of [indiscernible] gross profit decrease.

I would maybe not say that there is 1 main drivers. You probably -- our gross profit overall for the 9 months remain higher by a few million euros. So we got that more on that. But the drivers, I would say, are more or less coming from the Partners for Farmer segment. You can see that almost all positions are lower compared to last year. We also -- year-on-year, we probably didn't talk about that, that much, but cost is also piling pressure on the profit and loss statement. We have increase in labor. We have increase in fuel prices. We saw increase in gas prices for our production. So that is also a pressure which is building up in our P&L. Maybe they are not yet the biggest drivers we are lower on the earnings part as well, but that cannot be ignored as well. That also is piling up on the P&L. We are operating in a higher cost environment than last year.

And 1 more question. Could you please comment on the approximate price range you are planning to sell the credits for?

Unfortunately, I would say that's our confidential information, and we will not be communicating that.

Understandable. And yes, I don't see any further questions. It would seem that we are good. So we have covered all the questions. And thank you once again for answering our poll. It's really appreciated by the company. Your feedback. And now just on behalf of the Akola Group and Nasdaq Vilnius, I would like to thank all the participants for your time and indeed very active engagement. And we will be looking forward to seeing you in our future events. Thank you once again. Yes, and goodbye.

Goodbye.