Good morning, dear listeners. Welcome to Akola Investor Relations conference. I'm Emilia from Nasdaq Vilnius, and I'll be moderating today's event. We will start with the presentation from the management, which will be followed by the Q&A session. Please be informed that this webinar is being recorded and will be available for a rewatch on the Nasdaq Baltic YouTube channel. I encourage everyone to submit questions in the Q&A section at the bottom of the screen. You can submit them either anonymously or with your name. With that said, I am pleased to introduce today's presenter, the CFO of the company, Mažvydas Šileika. Please, the floor is yours.
Good morning, everyone, and thank you, Emilia. Thank you everyone for joining. Dear investor community, analysts, and colleagues as well. My name is Mažvydas, and I will give you an overview of activities and financial results of Akola Group for the full financial year of 2023-2024. As always, please keep in mind that the presentation and it can consist directly or indirectly expressed forward-looking statements or current view of the group's management, but that's only based on assumptions and existing circumstances. I am the Chief Financial Officer and board member of the group, and I will present to you today the main highlights for the full financial year of 2023-2024.
So as always, I will start with the structure of the group. It hasn't changed a lot throughout the last quarter, but if we go back to the beginning of the year, we started with 69 subsidiaries, and we have ended the year with 64 subsidiaries, meaning that we have decreased the structure of the group. During the year, of course, we closed several companies, we opened several companies, but all in all, we have less in total count for the end of the financial year. During last quarter, we have announced that, but we finalized and we finished the investment in natural functional drink startup Brite. We initiated liquidation of our Kormoprom Invest, so which will result and finish next financial year.
We have registered new companies, SIA Ķekava Bioenergy, and completed reorganization of UAB Geoera, which actually has finalized in financial year of 2024 and 2025. So after the reporting period, we have sold shares in KG Khumex Coldstore , and in Khumex Holding . These are two companies based in Netherlands. So in the first quarter of 2024/2025 financial year, we won't see Netherlands as a country we operate in anymore. We also have sold shares of UAB Investa, which was a holding company for one of our solar panel production special purpose vehicles. If we go further on and the main highlights for the financial year 2024, 2023/2024 ,
our EBIT margin reached 3.15%, which is much better than last year, which stood at 2.07%. And actually, this is a very satisfactory result for the group and its management because it's much, much higher than the five-year average, which stands at 2.3%. But we also have reached our financial target, our long-term strategic target, to have a EBIT margin of 3%. Hopefully, that will hold on, but this year we have succeeded. If we look further, return on capital employed is close to 8%, better than last year, which was around 7%. Five-year average, 7.2%, so we are better than the average, increasing the return on capital.
However, we are a bit behind our strategic targets here. If we move on to earnings per share, they are slightly better than last year. They stand at EUR 0.17 versus EUR 0.16 last year. They are a bit lower than five-year average, but the five-year average is a bit distorted due to very, very good exceptional result in 2021/2022. Which brings us to price to earnings. We finished the price-to-earnings ratio close to seven. Last year, it was eight point almost six. Five-year average is 2.1. That's also a bit distorted due to very exceptional year of 2021/2022. But overall, I think long-term PE of the group was around nine, so we are below long-term price-to-earnings ratio, so far.
Balance sheet looks good. Overall, I think the end of the year is strong, we finished well. The total assets are just below EUR 900 million, so we are around EUR 100 million below the peak of EUR 1 billion, in terms of total assets. However, balance sheet was increasing more on the side of property, plant, and equipment, because we are investing quite a lot. We had made investments last financial year. They have carried onwards to this financial year as well. Property, plant, and equipment stands in 204 . Short term debt portfolio or overall working capital and its financing looks good. Consolidated borrowing base is lower year on year.
It stands at 54%, which shows both that we had lower numbers of working capital overall in the group, and also that we have more equity now after this financial year, which we use to finance the working capital. We also use credit lines, which we have EUR 460 million total available for the group for its financing purposes. Of which forty percent is long-term debt. Long-term debt percentage has increased because we are investing quite a bit, so we are taking long-term loans out to finance our investments and CapEx requirements. Total debt portfolio stands at EUR 318 million for the end of the year, and we performed EUR 46 million of CapEx investments, twen...
the 2023/2024 financial year. Part of those investments, which were actually announced, carried over to this financial year. Some of them will go live soon, some of them during the financial year, but some of them will be implemented during all the financial year 2024/2025, and start only in 2025/2026. So, keep track on our public announcements, and you will see how we are going on with the investments overall. One of the probably most important ratio is capital ratio. From the lows of 28 or low 30s, we are now stand at 36%, which I think is very good still for a group which is primarily dominated by short-term assets. Which basically indicates that we are still quite a bit of a trader in commodities.
But also I could say that we had our debt level under control. The year overall was a bit, you know, bumpy, but we finished strong, so we managed to keep our debt level under control. Net debt stands at four times EBITDA, and RMI adjusted debt stands at 3.8, which is just below our long-term target, which is four. We also delivered EUR 75 million of EBITDA, which is in range of our strategic goal between 70 and 90. A short slide about changes in our segment revision, but I think you have seen this throughout all the financial year, and you are more or less now familiar with them. So I will move on to revenues, which are basically lower year on year.
You see that we have delivered 1.5 billion in revenues, which is 500 million less than last year. We also traded just above 3 million tons of various commodities, so volume is down by 700,000 as well. But all in all, I would say that we have a healthy split, and we are increasing the split between our food production activities and trading. Now, the split stands at 26% and 75%, which has changed year on year from 21% and 83%. So the revenue of twelve months for 2023/2024 was lower by 25% year on year, compared to 18% contraction in volumes year on year.
This suggests that there is a price correction going downward in the main commodities and activities we operate, or commodities we trade. So even though we have less volume, but the price correction is there also quite substantial. The biggest decline in revenues, of course, is attributed to Partners for Farmers, which is 21%, and that mainly was impacted by lower trade in grain and oilseeds. Which has both lower volumes and lower revenues due to decrease in prices. Even though farming have a higher volume in terms of tons we produced in our farming companies. However, top line also decreased there because lower commodity prices were evident year on year.
So even though we grew in volumes in our food segment, however, the price correction is there in the market, it is going downwards. We have also slight decrease in revenues, but they are of course lower compared to Partners for Farmers segment. It looks like this year we managed to keep the profitability or look for better trades and deals, which delivered better results overall. However, we were dealing in a more declining price environment and in declining revenues. We move forward to gross profit dynamics. We have delivered EUR 152 million of gross profit, which actually is a bit lower than the historic 2021/2022, but higher than last year.
So meaning that maybe we are getting a bit more stable, or the trading environment we are operating in is less volatile. I would like to draw your attention that our share coming from food production has increased as well here. Last year it was 23 of total gross profit. This year is 39. One very important thing which highlights the profitability or the success of this year is, of course, this twelve months gross profit margin, which stands at 10.1%. It's better than last year, and I think it's one of the best in the last five or six years. So to say, it's even slightly better in the record year, 2021, 2022.
Gross profit is also better than five-year average, which stands at 6.6. We were searching for better trades in Partners for Farmers, but also with rebound in poultry and strong results from other food segments, we managed to increase our gross profit quite substantially. Of course, it's still diluted by trading business a bit, but it is compensated by our food segment, which is actually illustrating our strategy going forward and why we are so heavy investing into food production in all the segments. Unfortunately, farming segment, on contrary, delivered a low historically low gross profit. Five-year 12-month average is around 24.3. Last year was around 15.
That's of course both due to weak or low grain prices as well as milk prices. So farming result is lower than last year, but farming results were very good for the last three years. They were increasing year on year, so this year we have a bit of a setback, but that's of course due to the repricing in the market. So moving down to operating profit, which stands at EUR 47 million for the end of 2023, 2024. It is higher by EUR 6 million from last year. I would like to draw your attention that in the operating profit level, both food and Partners for Farmers delivered very similar results.
Actually, they are more or less equal, both delivering or contributing by EUR 21 million to the consolidated operating profit overall. Can we call it the new normal or the normalization? Well, hopefully it is fair to say that last year and the year before was really atypical. So more stability, less volatility in the market, hopefully will allow us to deliver this kind of results or even better going forward, further forward. As I mentioned before, we are really pleased and happy that we managed to reach 3.1% in EBIT margin, which is actually really high compared to five-year average, which stands at 2.6. We also have reached our strategic long-term target.
Of course, one of the things which maybe disproportionally decreased or didn't allow us to gain all the growth in gross profit is inflation in OpEx. Year on year, we have 13% higher operating expenses. We have quite a lot of pressure from wage inflation, various taxes have increased, logistics costs, so that's on our OpEx end. If we look forward, that's still a big challenge for us going forward. That didn't maybe the rate or the quickness, the pace, how some of the costs are increasing has decreased, but overall the trend is upwards. So yes, in total, or overall, in summary, it is quite, not quite, but a strong and successful financial year.
It was a bumpy year, but we managed to finish strong and deliver satisfactory results. We are within our EBITDA strategic range, which is between EUR 70 million and EUR 90 million , whereas for the full financial year, we have close to EUR 75 million in EBITDA. I would like to move to our segments and talk a bit more about them, and I will try to start from Partners for Farmers. Quite a bit has already been said, but just to look more careful at this, we have a sharp decrease in sales by close to EUR 550 million. We have also drop in volumes by another 700,000 tons, and that was reflected also in the consolidated results.
But if we look at the different business lines, so grain storage and logistics has higher income from drying service and very strong continuous gross profit. If you remember or if you don't, so I will remind you that during the harvest in 2023, there was some humidity and rain, so the grains delivered to elevator network were a bit more humid, so we had more income from drying services. So that's why we have the really good and strong results coming from this business line. Grains and oilseed trade, we have lower quantities traded. However, we were focusing on more profitable trades. We were targeting to increase our profitability.
If you look at the business line more attentively, the overall or total gross profit is lower by EUR 4 million. However, the gross profit in percentages is higher, and it stands at 3.4% versus 2.2% last year. So the grain trade wasn't easy because we have lower volumes coming from Latvia. They had lower harvest last year, and also the quality of the grain, which was traded for us last year, was a bit atypical. The quality was lower. Then we can move to feed business. Both compound feed and feedstuffs were traded in similar to previous years' gross profit level.
In terms of percentages, combined feed category profitability decreased due to slightly lower share of of higher profitability compound feed trade. So meaning that we have diluted our compound feed production with feedstuff trade. Also, last year, we still had a quarter included of our previous Russian subsidiaries, which had a very good quarter of last year. That's also a bit uncomparable for going forward. Inputs, it's a good year for the inputs overall. Quantity-wise, key input categories were growing, especially seeds, and also we restored the profitability in fertilizers. We have both. In both positions, we have growth in quantities as well.
However, plant protection and micronutrients category were below average profitability, mainly due to oversupply in the market of these products, and the competition last year was really fierce. Hopefully, we have a new page, a clean page going forward in this kind of trade, and we will see how it goes next year. Agricultural machinery, a highly competitive market, due to supply distortion still coming from COVID times. We have high stock reserves in warehouses. Overall, the market on average in the Baltic states have decreased by 30% in the main categories. And overall, farmers were cautious after last year's harvest because the quality was below average and the prices were not very favorable, so the decision to invest was a bit difficult on their end.
Also, financing was not very easily available. Subsidies and grants were a bit late. So all in all, the market in agro machinery was quite complicated. Food production, so you can see that total sales volume, sales in terms of euros, have decreased, but only slightly. However, the main positions have increased in volume. So we are producing and selling more in the market. Poultry business showed restored profitability, and I think it's overall, it's a fantastic result for the poultry business. Not in terms that they were really in a hard situation for the last few years, but overall, they managed to perform and deliver fantastic results for this year.
I think, if we look forward, for poultry to keep up will be the most important thing going forward. But, of course, you can see that the price for poultry meat has decreased or is decreasing slightly in the market. There is competitive pressure there. However, the decrease in main input costs as energy and feed was quicker. So that allowed us to maintain or to increase our profitability in this segment. Also, the competition environment is very dynamic. We have some supply disruptions coming from main export markets, but that won't last for long, and the situation changes quite quickly all the time.
But we are really happy with the results we have for this year, for sure. Instant and ready-to-eat foods, we have lower quantities, though very strong profitability. So illustrating a decline in cost, which is outweighed by slower correction in sale prices. But you know, don't be misled, the correction or the decrease in the market price is really ongoing, and it is there. Also, what has helped and what has delivered the result is the inclusion of Grybai LT activity, which is the last summer's acquisition from our group, soups and stews, so they are here as well. So we also delivered and increased these categories or business lines results as well.
Flour, so we have lower grain prices, pushing down flour production cost, and that's why we have slightly better result year on year. The same goes with coating systems. We have improved profitability due to decreasing grain prices in the market. What actually helped our food production business is because we had decreasing input prices didn't help that much our agricultural production, meaning our farming companies. This is a bit of a different story. It's a natural hedge, but they do correlate in opposite sides. Overall, you know, we have lower sales. We went from EUR 50 million down to EUR 45 million , which reflects lower grain prices, as well as only slightly higher milk prices year on year. Volumes are higher, both in milk category as well as main cereals.
But you know, the increase mainly came from positions like beetroots or sugar beet, which are overall heavier than grain and other oilseeds. So crop production, lower production prices in combination to still expensive inputs, that's the story of last financial year. Grain prices decreased quicker than the input prices, so the overall profitability is a bit weak, and I think it's the same story for all the market and for all the farmers out there. A quick glance to the harvest of 2024. So approximately 90% of the fields are harvested, and all the main commodities are, of course, harvested.
Maize and peas and beans are still left, but preliminary or approximately, we have above average yields for winter wheat, which is the main commodity for us, and close to average yields for malt ing barley and winter rapeseed. So roughly 55% of the 2024 harvest is already sold under forward sales contracts, so I think it's a healthy proportion going into the financial year 2024-2025. If we look at the milk production, so we have better result in terms of gross profit. Overall, we have EUR 4 million versus EUR 3 million last year, but raw milk price is continuously low, so we see a slight increase.
However, it's very hard, and you have to be very efficient to have better results year on year. You have to be more efficient as a big farm because internal feed production was still quite high last year. Quite expensive due to input prices, and that I think is the story for the whole market. What actually helped us is that we have a higher tons per cow annually last year than the year before. So last year we had 11.8 tons per cow annually versus 11.4 a year before, so that helps both total volumes produced as well as profitability in margins. So this was it from my side. Thank you very much for listening.
I hope you have questions, and I'm ready to answer them as we go forward. Just a quick reminder, if you haven't yet registered, please go onto our website, subscribe to our news, and you will be always up to date with the group's public announcements. Thank you very much.
Thank you for the presentation. We'll now proceed with the questions. Before that, I would like to remind everyone you can submit your questions in the Q&A section at the bottom of the screen. The first question we received is: Congrats on a solid end to the relatively challenging fiscal year. Could you please elaborate on EBITDA outlook for the new financial year?
Thank you very much. Indeed, it was a bumpy year, but we finished strong. You know, the fourth quarter looks to be very important for the last three years, as I was telling all during the year, during these webinars. So this year, we managed to finish strong. Last year, as you can see, was maybe a bit different story. Last year, you know, we had adverse weather conditions in June, which didn't help us to have good trading conditions. So this year was a different story, so we finished strong. Regarding next year, please follow any updates, but the best indication is our strategic target. So that still remains unchanged, and it is between EUR 70 million-EUR 90 million.
We will update that if we will see that we have certain ground to do that or to do so.
Thank you. And could you please indicate an approximate CapEx size for this year?
CapEx size will be something very similar to last financial year. The main investments, we have announced, that we are building, bioenergy plant in Lukšiai, as well as seed factory in, Jēkabpils in Latvia by Dotnuva Seeds. We have other maintenance investments, so those are the biggest ones. We also announced that we are, started planning, and, we are working forward on a bioenergy plant in Kaišiadorys, but that's still in, preliminary phase because we are going through all the, permitting and, working with the, the local council and, and local communities. So, those are main investments for, for next financial year, potentially.
The other one, the other ones are more or less the finishing of the noodle factory in Alytus, which should go live quite soon, in September or October. Also the coating systems or breadcrumbs production plant in Kėdainiai, we should go live by the end of the third quarter or beginning of the fourth quarter. That will sum up more or less to the same amount as last financial year.
... Thank you. What are your plans concerning minority shares and subsidiaries?
So we have a different approach there. You know, we had really weak results in poultry parts, so we were not in a position to actively buy shares. We are suggesting from time to time to sell shares for Kauno Grūdai minority shareholders, and we are open for that. However, we haven't yet announced any public tender for that, but if there is an occasion, we are open to buy the shares there as well.
Thank you. And which segments would have the biggest potential to contribute to profitability in the coming years?
It's still very early in the financial year. I guess that maybe something similar can be forecasted or thought of as this year. I mean, in terms of the proportions. The things which might change, of course, is we will see through the year how trading is going on. The quantity of the total harvest in Lithuania looks good. It stands at 7.5 million tons of various crop commodities. Overall, in the Baltics, 13.5, so in terms of quantity, it looks like a good trading quantity. Quality is a bit challenging as last year. We have on average lower quantities...
Quality, sorry, and we lack a bit of a high protein or high-quality grain, so we'll see how that will develop in the market. So that can change. We will see how the input prices go throughout the year. So it is still to judge how it is going to be for the trading segment of Partners for Farmers. In terms of food, I think all the logic is still there for a good result. But that's meaning, you know, in terms of EUR 70 million-EUR 90 million in total consolidated. And we will see how fast we or how quickly our new investments, which I just mentioned, will go live this financial year.
We'll start contributing to the consolidated profitability and consolidated EBITDA, and I think we will see that in the second and maybe third quarters, in a sense. So we will see what the trend, sorry, overall for the consolidated group performance.
Thank you. Could you share some thoughts on how farmers are doing, and if they're willing to spend more on inputs, or equipment this year?
It's as I mentioned just before. It's a bit early to say. We just harvested. It is already evident the overall harvest is good in terms of tons. Quality is a bit below average. The maybe less encouraging thing is the overall price for grain, so it is a bit on the lower side. We will see what's the trend going forward into the year, so it really depends when the farmers are selling grain. If they manage to sell grain in the beginning of summer, where the price of crop of main milling wheat was a bit higher, it was really satisfactory for the farmers, so I think that will improve their financial position who are selling today or now.
Yeah, the price is a bit on the lower side, but I think on average, the farmers should be profitable. Part of the harvest will be sold later. So, we'll see how the price will help moving forward, if it will go up, and that will add up to profitability of the farmers. So it's still hard to say how good it will be, but I can say now that it's not bad. It's a working condition environment where we are operating and the farmers are operating, actually.
Thank you. And could you please share your top three local competitors in grain trade and how Akola compares to them size-wise?
So, in grain trade, so, well, we have Agrokoncerno Grūdai, we have Agrorodeo, and we have Scandagra. Probably, those three will be closest in size in terms of volumes. I don't know the specific volumes, but I guess that Agrokoncerno Grūdai and Agrorodeo might be higher in terms of volumes. Scandagra may be a bit lower, but it depends year on year. You know, the differences mainly are maybe in the infrastructure. Agrokoncerno Grūdai has the highest capacity in terms of elevators. We are the second in terms of the capacity of elevators, and then goes Scandagra and Agrorodeo are basically operating without their own elevator capacity.
Maybe the other difference is that we operate in Lithuania and Latvia and a bit in Estonia in terms of grains or grain trade. The same is doing Scandagra, but Agrokoncerno Grūdai and Agrorodeo, they are not in Latvia and Estonia. So maybe those are the main differences between the competitors there.
... Thank you. The next question is regarding share buybacks. As Akola shares are trading at a 1/3 discount to book value, and at the same time, return on capital employed is below strategic target, would you agree that doing buybacks of own shares would achieve best returns and increase value of remaining shareholders?
Yes, I agree. The textbook would say so. But at this point in time, we haven't approved, and the board so far hasn't suggested any buybacks. So we will see how that goes forward in the future. But I don't dismiss this kind of tool that can be used in the future. So to say, I would maybe say the main reason why that wasn't yet used or wasn't used extensively is that we are going through quite intensive investment stage, which on average should bear a higher return on capital as well as on equity. And we are diverting or putting our funds liquidity to those investments.
So that's basically maybe the main reason so far, not to go into large scale share buybacks. But I totally agree that the combination of the price and returns would suggest that.
Thank you. Have you seen a drop in prices for agricultural land, with the drop in agricultural prices in general?
No, we haven't seen a specific or substantial impact for that. Land prices are quite, quite stable, especially those which are the most productive in the most efficient regions. Because basically, if you remember the slide I showed you before, we had three fantastic years for farming. They were increasing year on year, and only this year we have a slighter, you know, drop in profitability. But the previous few years were very, very good, delivering good results for the farmers. So that's the main reason that the land, agricultural land price hasn't moved downwards.
Thank you. Do you have any plans for more equity research coverage for retail investors to be able to have better access?
We are discussing that from time to time. We are really interested, and I think it's very important to deliver good quality research for our investor base. We are considering either to increase the coverage in terms of times we release them, or to expand the base of the research coverage analyst. So that's constantly on the table, and we will see if that bear fruits in the future, and we will do that.
Thank you. Finally, how do you evaluate the recent news concerning Scandi Standard acquisition in Lithuania?
Yeah, it's an interesting move by Scandi Standard. We haven't seen them buying that kind of assets so far in the market. Their acquisition strategy so far was to expand into markets to buy brands, premium brands with good market share. They did that in Ireland, and they did that previously in different Scandinavian countries. So this is a new move for them as we see it. They bought basically a processing production plant in Lithuania. They also will have to secure themselves supply of live weight. As I understand, they will try to raise and they will raise chicken broilers themselves. They haven't yet also done that extensively.
It is. That's also a new move for them. So while we are looking and analyzing that, you know, extensively and deeply, it is hard still to understand, you know, where they will sell the poultry meat which they will produce in Lithuania. Will that go for the local markets or for the Scandinavian markets? And that it's mainly - that mainly will depend how it will shape the competition between us and them. Because either we will compete in the Scandinavian markets, so they will produce here and export, or they will try to compete here in the local Baltic market, which I think is already quite competitive having, you know, the Polish producers just around the corner.
We have also, you know, last year, acquisition in Estonia of one of the biggest poultry producers, and they should pick up as well. So still hard to say. Only I could say that it's a new move for them. New, maybe strategic move, part of their new strategy, but it's something.
Thank you. It looks like we've covered the most questions so far. If you have not sent in your question yet, please do so now. And the final question I have is, could you please elaborate on your M&A strategy further?
For sure. I think there is a very few things we can do still in Baltics, but we of course are active in Baltics. We see. We look around, and we look for potential targets, which could be good add-ons for our existing businesses, either in scale, or in product type. However, probably, medium to long term, our M&A strategy will shift more towards looking for targets outside the Baltics. We're doing that already, but a bit more in a passive way. We look the deals which are brought to us to evaluate them.
But I could say that we will be very disciplined, and we will be very picky to do something outside the Baltics due to the potential scale and risk managing a business outside the Baltics. But it also would be, you know, a very logical, strategic move for us, going forward. Especially, you know, if we talk about food production part, that probably is the focus for us to develop further, because we see that the returns there are very good or better than in trading, which shapes and changes and improves the overall profitability and value of the group. So that would be the target for us: food production going forward in medium to long term outside the Baltics.
Thank you. And as all questions have been answered, on behalf of Akola and Nasdaq Vilnius, thank you, everyone. It was a pleasure being with you today. The recording of the presentation will be available on the Nasdaq Baltic YouTube channel. Thank you for a very informative conference.
Thank you, everyone. Thank you everyone very much. Thank you. Have a good day.