Düsseldorf (pta013/04.07.2019/11:00) - In its current KFM barometer for SME bonds on the 7.50% Ekosem-Agrar AG bond maturing in 2024 (ISIN DE000A2YNR08), KFM Deutsche Mittelstand AG concludes that the bond is to be rated as "averagely attractive (positive outlook)" (3.5 out of 5 possible stars).
Walldorf-based Ekosem-Agrar AG is the German holding company of the EkoNiva Group, one of the largest Russian agricultural companies and, in volume terms, the largest producer of raw milk in Russia and Europe. With approximately 149,000 cattle, including 77,600 dairy cows, the group produces around 2,070 tons of raw milk per day as at the end of April 2019 in nine regions in Russia over a total area of around 554,000 hectares (approx. 49% in ownership). Raw milk output in 2018 amounted to 484,000 tons. The company itself currently only processes a small portion of the raw milk it produces, the vast majority of the output (still) being destined for third-party dairies. Construction of the company's own dairies is being pushed ahead. A dairy with a processing capacity of more than 1,100 tons of raw milk per day is due for completion in the Novosibirsk region in late 2020, set to produce not only conventional finished dairy products but also cheese for the Russian market and for export. The company's focus here is on the Asian market, with widespread activities already underway in China to develop the sales infrastructure. Once production facilities acquired in Voronezh and Kaluga at the end of 2017 have been expanded and modernised, they will increasingly manufacture higher-quality products like curd, yoghurt drinks and desserts. Feed for the herd is predominantly supplied through the company's own agricultural cultivation of arable land. Besides the production of lucerne and maize silage, grain (323,000 tons) is also harvested for concentrate feed and external sale. The Group additionally specialises in producing and breeding seeds, and possesses state licenses for specific varieties. Seed sales totalled approx. 29,930 tons in 2018 (2017: approx. 23,600 tons). Angus cattle are primarily bred for meat production; the young bulls from suckler cow farming are generally sold to cattle fatteners after six to nine months. Organic beef is also produced on a small scale, with organic milk to follow soon. Group employees totalled around 12,800 as at 30 April 2019.
Strong sales revenue growth - adjusted earnings before interest and taxes (EBIT) well above previous year's level
In the 2018 financial year, the Group generated annual sales revenues excluding inventory and value changes of EUR 244.9 million, corresponding to growth of 40% over the previous year's EUR 174.6 million. The other operating income includes EUR 16.2 million in state subsidies (previous year: EUR 8.0 million). The increase in sales revenues is mainly attributable to the strong 40% expansion of the dairy cow herd and, consequently, the increased milk production. The resulting growing need for animal feed has led to a 57% increase in arable land. Due to high upfront costs in producing company-own feed and for new staff, costs increased disproportionately and only led to increased adjusted earnings before interest and taxes (EBIT) of EUR 74.2 million (previous year: EUR 44.5 million) on account of a higher value and inventory change year-over-year. Despite milk prices being low in 2018, the adjusted EBIT margin, at 20%, remained only slightly below the previous year's 21%.
The large growth-related capital requirement led to a negative operating cash flow of EUR 15.7 million (2017: EUR -10.3 million). The negative cash flow from investment activity amounts to EUR 391.7 million (previous year: EUR 158.5 million). Despite interest subsidies from the public sector to the tune of EUR 21.1 million (previous year: EUR 15.0 million), financial expenses offset against financial income increased to EUR 50.7 million after EUR 32.8 million the year before, leading to adjusted earnings before taxes (EBT) of EUR 23.5 million (previous year: EUR 11.8 million). Non-operating income ("other comprehensive income") is negative, at EUR 9.8 million. On balance, this is mainly due to exchange rate changes between the rouble and the euro. This item would only be recognised in profit or loss if the subsidiaries were sold. The EUR -135.9 million reserve for currency differences as at 31 December 2018 is offset by a EUR +152.6 million revaluation reserve from the valuation of tangible fixed assets.
Subsidies are currently still a determining factor for the growth of the Ekosem Group. The equity ratio, on the face of it at just 12.9% (previous year: 17.5%), has to be seen in the light of subsidy practice. This will be maintained for a number of years to come. It has to be borne in mind that only a small part of the subsidies, namely for the purchase of breeding animals and operating grants, is received directly with an effect on income (see above). By far the greater part is recognised as liabilities at currently EUR 202.7 million. In this sense, this liability item has a quasi "equity character", so that an equity ratio of around 27.8% is calculated taking into account these subsidies already granted (lost grants).
At present, 15 dairy farms are under construction in seven regions in Russia, and the dairy cow herd is to exceed 100,000 animals by the end of 2019. The management therefore expects to increase the volume of raw milk to more than 800,000 tons this year. On this basis, sales revenues are expected to total around EUR 380 to 410 million this financial year.
7.50% Ekosem-Agrar AG bond maturing in 2024
The currently issued non-subordinated and unsecured Ekosem-Agrar AG bond with a fixed term from 1 August 2019 to 31 July 2024 and a volume of up to EUR 100 million carries a coupon rate of 7.50% p.a. (interest date annually on 1 August). The issuer undertakes to publish consolidated annual and semi-annual financial statements and to bar distribution. A change-of-control and negative pledge clause are also included.
The terms and conditions of the bond provide for early redemption by the issuer at 103% of the nominal value from 1 August 2021, 102% from 1 August 2022 and 100% from 1 August 2023. After completion of the subscription phase, the bonds are to be included in trading on the OTC market of the Stuttgart Stock Exchange with a minimum denomination of EUR 1,000.
In conclusion: Averagely attractive rating with positive outlook
The European sanctions imposed on Russia do not affect the company, as they apply only to certain industries and regions. The Russian counter-sanctions (ban on the import of food from certain countries) likewise have no significant effects as, on the one hand, major milk exporters like New Zealand are not affected and, on the other hand, exports to Russia take place extensively via Belarus. Large chains like Globus or Metro with their Russian branch offices have become significant buyers of EkoNiva dairy products. The risk of currency restrictions on the part of Russia is considered to be low, as Russia recognises the importance of international payment flows for investment in its country. Despite the size of the Ekosem Group, its 2018 market share of raw milk production in Russia amounted to just a good 3% as this sector is still very fragmented. Further growth opportunities are presented by the nearby Asian market. Agricultural commodities are, in any case, increasingly in the focus of international capital with a view to efficiently feeding the world's population. In conjunction with the return of 7.5% p.a. (on the basis of the issue price of 100%), the Ekosem-Agrar AG 7.5% bond is rated "averagely attractive (positive outlook)" (3.5 out of 5 possible stars).
About KFM Deutsche Mittelstand AG
KFM Deutsche Mittelstand AG are experts in SME bonds and initiator of Deutscher Mittelstandsanleihen FONDS (ISIN LU0974225590). The fund offers attractive returns for private and institutional investors in conjunction with a broad diversification of investments. The fund's investment strategy is based on the results of the KFM-Scoring analysis method developed by KFM Deutsche Mittelstand AG. Deutscher Mittelstandsanleihen FONDS distributes its income annually to its investors. Since its launch, the fund's annual dividend yield has remained above 4% p.a. based on the respective unit price at the beginning of the year. Investors will once again this year benefit from the performance of the fund and the related planned return on distribution reaching the level seen in the previous years. The fund has been awarded 5 out of 5 stars by Morningstar. KFM Deutsche Mittelstand AG was honoured at the 2016 Grand Prix for Small and Medium-Sized Enterprises as winner of the KFM-Scoring analysis method and for above-average development of Deutscher Mittelstandsanleihen FONDS. According to GBC research, Deutscher Mittelstandsanleihen FONDS is one of the hidden champions. Out of a total of 9,000 public funds audited by GBC, Deutsche Mittelstandsanleihen FONDS occupies one of the top 9 positions.
This press release does not constitute an offer or solicitation to make any offer but is intended solely to guide and represent potential business activities. The information contained in this document is not exhaustive and therefore not binding. Insofar as statements are made in this draft concerning prices, interest rates or other indications, these relate exclusively to the time of preparation and contain no statement about the future development, nor about future profits or losses. Furthermore, this preparation does not constitute advice or a recommendation. Important note: Securities transactions involve risks, in particular the risk of a total loss of the invested capital. Therefore, before making any investment decision, you should seek thorough personal advice, consider your personal wealth and investment situation, and not base your investment decision solely on this press release. Please contact your credit and securities institutes. The admissibility of the acquisition of a security may be subject to various conditions, for instance your nationality. Please also seek appropriate advice in this respect before making an investment decision. Deutscher Mittelstandsanleihen FONDS is not invested in the aforementioned security at the time of publication of the article and has subscribed in the context of the current issue. KFM Deutsche Mittelstand AG, the creator or persons involved in the preparation may hold shares in Deutscher Mittelstandsanleihen FONDS. Changes in the bond price may result in an economic advantage for KFM Deutsche Mittelstand AG, the creator or persons involved in the preparation. Before concluding any business described in this document, it is necessary to receive customer-specific and product-specific advice from your advisor. For detailed product-specific information, please refer to the current full sales prospectus, the Key Investor Information Document and the annual report and, if applicable, the semi-annual report. These documents form the only binding basis for the purchase of investment units. They are available free of charge at the registered office of the management company (FINEXIS SA, 25A, boulevard Royal L-2449 Luxembourg) and at the paying and information agents (Joh. Berenberg, Gossler & Co. KG Luxembourg branch, 46, Place Guillaume II, L-1648 Luxembourg or Joh. Berenberg, Gossler & Co. KG, Neuer Jungfernstieg 20, 20354 Hamburg or at the Erste Bank of the Austrian Sparkassen AG, Graben 21, A-1010 Vienna), and on the Deutscher Mittelstandsanleihen FONDS homepage at www.dma-fonds.de. The Management Company and KFM Deutsche Mittelstand AG assume no liability for damages that arise or have arisen in connection with the use and / or distribution of this preparation.
KFM Deutsche Mittelstand AG
D - 40213 Düsseldorf
Tel.: + 49 (0) 211 21073741
Fax: + 49 (0) 211 21073733
|emitter:||KFM Deutsche Mittelstand AG|
|contact person:||Hans-Jürgen Friedrich|
|phone:||+49 211 21073741|
|stock exchanges:||free market in Dusseldorf, open market (free market) in Frankfurt, free market in Hamburg, free market in Hannover, free market in Munich, free market in Stuttgart; open market in Berlin, Tradegate|