Good morning. I would like to welcome you to Linna's Agro Group Meeting with Investors. I'm Emilia, an account manager at Nasdaq Vilnius, and I'm delighted to be the moderator for today's event. The agenda couldn't be simpler. We start with the presentation from the management, which will be followed by the Q and A session.
As always, I encourage every one of you to ask questions during or after the presentation in the question box of your screen. With that said, I am pleased to introduce today's presenter, the Finance Director of Linas Agro Group, Majvida Shilika. Mr. Shilika, please, the floor is yours.
Good morning, dear investor community, and welcome to Linas Agro Group Investor Presentation for the first half of the financial year twenty twenty one, where we will overview the activities and financial results of the Group for the first half of this financial year. My name is Marvula Shilica and I will guide you through this presentation today. Please don't hesitate and ask any questions. I would like to note that this presentation contains forward looking statements, which are of course subject to risks, assumptions and uncertainties. So please do not rely on these assumptions.
And I would like to start the presentation with an overview of the changes in the group. There were no significant changes in the structure of the group or how we operate during the first half of the year. The main highlights are an establishment of subsidiary in Estonia, Linas Agro O, which will be a trading company based in that part of Baltics. We have also started a restructuring of 2 elevator companies and they will be merged into a one operating entity to drive efficiencies and save cost. But these are the main highlights of the changes in structure, which were reported in interim report.
The financial highlights of the first half of financial year twenty twenty are, of course, that we have a record high sales as well as trade of various commodities and inputs in terms of tons. We traded 1,700,000 tons of various commodities and inputs, which is 55% more than previous years. We reported a 13,400,000 of EBITDA, which is also 40 6% more than previous years with the compared quarter. And we have reported a net profit of SEK 3,900,000, which is bigger compared to last year's same period of SEK 1,700,000. I would like to move now to the more precise overview of each segment, which we present to you and as you can see, the dynamics of the sales are very extreme this year.
We have a very strong revenue base, which is primarily driven by our grain and feedstock handling and merchandising segment. And of course, this is supported by strong harvest in the Baltics as well as higher main cereal prices, which this year is around €20,000,000 to €25,000,000 higher than previous years. We have also very strong growth in our products and services for farming segment. The segment shows very good performance in terms of sales as well as profitability. Sales grew by almost 19%.
The single segment, which of course shows negative trends this year and this was also evident in the beginning of the year when we presented our Q1 results is the food product segment and we saw sales decline of 9% compared year on year and this is, of course, the segment which was mainly hit by the COVID pandemic and all the restrictions which were imposed in the Baltics as well as Europe. I would like to move to the profitability of our reporting segments and we can see that the dynamics are favorable this year for the group. We have especially strong results coming from agricultural production segment. Of course, this is mainly impacted by the result of €1,900,000 profit booked in the profit and loss statement due to the sale of land holding companies this year. However, due to seasonality and cost booking rules, we have decreased in profitability of the Greater Feedstock Handling and Merchandising segment.
However, towards the end of the year, this should equalize and we still expect quite strong results from this segment. Food product segment, as you have noticed, has not contributed to the operating profit of the whole group due to, of course, this sharp sales decline as well as the sharp product price decline in the market. One of the most important products which we sell, of course, is chicken fillet and the prices in the local market for this special product has decreased from 4 percent to 4.5 percent, which is, of course, the main impact on the profitability of the segment. I would like to then move to our balance sheet composition, which hasn't changed a lot since the last quarter. We, of course, now are in the peak of our trading season and this is, of course, represented by the highest point of our short term borrowings as well as our current assets.
Current assets, of course, comprise of inventory as well as receivables from farmers. This year, they are especially high in terms of inventories because, as mentioned previously, we have a record high harvest, we have traded much more of various grain as well as the prices of the grain were higher. So, overall the current asset base for this year is higher. The Group has secured funding for the whole year of around €160,000,000 in short term lending and we haven't had any increase in the lending part, even though the season actually was quite heavy in terms of revenues and traded volumes. The balance sheet part, the capital ratio of the Group, which shows the balance sheet strongness is around 41%.
We have a net debt level of 12 times, which will decrease steadily towards the end of the year and we expect that the balance sheet will shrink accordingly to our trading seasonality and will be similar to the last year's position. I would like to then present you some highlights of every segment of our report and I will start with products and services for Farming. As you have noticed previously, this segment has delivered very strong results both in terms of sales as well as profitability and we see actually healthy growth in both agro inputs as well as machinery sales, which shows that farmers are investing not only into the upcoming harvest and its profitability, efficiency, however, towards capital investments, as we had also very strong pickup of sales of agro machinery around 46 percent compared year to year. This shows that the financial situation of the farmers is really better after this grain season and they are doing and moving to capital investments as well. Regarding the highlights from this segment in terms of group activity, We acquired a startup, Galfase, which started operating this spring.
The warehouse, seed warehouse construction kicked off in the beginning of the calendar year. This is an efficient scene and a growth investment in terms of the sales of seeds because this is an important segment for the group. Group. We have sales wise an upward trend in all the positions as noted in the bottom middle part of the slide, except of fertilizers. However, we sold more tons of fertilizers compared year to year, except the prices were smaller, though the sales are flat.
However, we are quite happy with the developments of the margins in the fertilizer trade as well. So overall, to sum up, materially higher profitability of this segment, both in terms of margins. The margin of the operating profit is 5.2% compared to 2.6% last year. We have also very steady growth of overall operating result. Management sees this segment growing for this year compared to last year around 20%.
We haven't changed this expectation, however, because quite a lot of part of still of the spring sowings and spring input trading is here to come, but we see that the trend so far is very positive. I would like to move then to agricultural production segment, which also performed above our expectations for the first half of the year. And as mentioned in the last webinar, but we can confirm that now, that the year is really successful due to both higher production of crops in terms of tons, which are around 40% to 40%, as well as higher selling prices, which are around 10% higher compared year on year. We also have a favorable uptick in milk purchase prices around 2.2% compared to last year. This actually makes the milk part business more sustainable and gives extra benefit and extra profit to the segment.
We have sown around 10,000 hectares of land for the upcoming season, which is quite a high amount of our 18,000 managed hectares. The reported condition of the crops is very good or good and this is more or less all around the country. There are, of course, still quite a lot of risks coming for the spring season, we will see what will be the humidity and what will be the other conditions. However, so far, the conditions are quite favorable and the starting point is more or less fine. This segment, as I mentioned previously, booking related with the sale of land holding companies, which we sold in November.
This will be the full result of this sale and management expectations have increased for this segment and we see that the full year results should be 25% higher compared to last year. We have increased the expectation due to the fact that the majority of the crops, which were taken during the season have been already sold and more or less the prices have been already fixed and received. I would like to move to our green and feedstock handling and merchandising segment, which is the biggest profit contributor for the first half sorry, sales contributor for the first half of the financial year and this is of course driven by very strong harvest in the Baltics as well as quite high prices of main cereals and soft commodities. However, as you probably noticed in our report, the higher sales did not result in higher profitability, it even has decreased quarter on quarter. This is mainly due to some sort of a seasonality fluctuations.
We have some costs in advance and haven't had the sales yet this quarter. The sales will come up the next quarters and the full result will be more or less equalized. The management expects the segment to perform better than last year by around 10%. We have decreased the expectation mainly due to more or higher volatility market in terms of prices of main commodities. The prices of the main commodities have increased rapidly throughout the year and it's not only about main grains as milling wheat or rapeseed, but as well as maize and others, which are used more for feedstock production or directly to feedstock.
These are, of course, driven by several reasons and they are driven mainly by quite high consumption of both sides, food as well as feedstuff and some very strong demand of feedstuff from China. This is one of the main factors which are driving the prices in this region around the Baltics, Russia, Belorussia, Ukraine. And this is something new and volatile in the market. We will see if the trend of Chinese purchases will continue, but this, however, currently is the main factor of the price uptick. I would like to move now to the food product segment, which of course is mostly hit by the pandemic and all the quarantine as well as closures in the market.
The restrictions, of course, of the COVID pandemic hit the most the Horeca sector, which is a large consumer of poultry products. 1 of our main markets for export Sweden was of course also significantly hit when the Horeca sector was closed. So our sales, this export market is also quite shallow this year and does not perform in line of our expectations. Overall, the prices have decreased in all European Union due to resulting overproduction in the Union and we see from the statistics that overproduction is around 14%, meaning the supply has overturned the demand by 14%. This is the main driver for the price decrease.
And one other main reason why we have even bigger hit for the Baltic market is that our neighboring country, Poland is a very big poultry producer. It has been hit in its main export markets and they have turned their majority of, or not majority, but at least some of the exports to the Baltic markets. They have produced very fierce competition to the local producers, which, of course, then made a very hard big push for the local prices. As mentioned previous, one of the main indicators and one of the main products in the market, chicken fillet, has decreased quite significantly in both Latvia and Lithuania recently. However, other markets in the European Union have suffered less and mainly due to the reason that local producers or local buyers have prioritized the shorter supply chains, which of course then resulted in higher internal consumption.
On the other hand, which what I have told you in the previous slide, we have also a push from the cost side on raw materials, which we use for feedstuff for chicken as the main feedstuff components as corn, wheat, soybean and vegetable oil has shown very sharp price increase. So, we have a squeeze in profitability from both sides coming from the selling price as well as increasing cost from the feedstock. This is something we are dealing with some cost adjustments in our operating parts and the operating expenses. However, so far, the price decrease and increase of feedstock is much higher. Due to the negative trends in the market and we have decreased the expectation of operational profit for this financial year compared to last quarter and we see that operational profit in terms with relation of last year will be lower by at least 20% due to the negative trends in the market.
We hope that due to the relaxation of the quarantine in the Baltics as well in the European Union, there will be positive trends and increases for this segment. However, it will be probably more towards only the end of this financial year. I would like to, of course, then sum up my presentation with the main drivers of the second year of the coming second half of the year as well as the developments after the reporting period. The Group is continuously working with the acquisition of KG Group. We are now working with the competition calcium authorizations in Russia and Lithuania.
We have submitted the application and now it's being considered. We have received other competition councils approval in Latvia, Estonia and Poland, and this is quite an important milestone for the deal to go through. Due to the investment or the acquisition of Como Munday and the volatility in the market, we have decreased our investment plan for this year. We have reported an investment plan of €13,800,000 for 2021 financial year and we are planning to execute approximately 50% of the planned budget. For the first half of the year, we already have done investments of around SEK 6,000,000 and these are half of that went to investments to agro machinery, both in our agricultural companies as well as our machinery sales company, LOVEL, which are planning to increase their lease business of machinery to farmers.
And we have now already considered how we will finance the upcoming acquisition and it will be a combination of bonds of debt, sorry, and our own funds and our own funds will contribute around 30% of the overall portfolio. Geoface, as mentioned previously, has started its activity and they are now live for the farmers for the spring season and this is one of our steps going more towards now new growth horizons and startups in the farming industry. I will stop here and then we'll take your questions.
Thank you, Mr. Shileka, for the comprehensive presentation. Now we will proceed with the questions. Before that, I would like to remind you that you can send in your questions in the question box of your screen. So let's begin.
So the first question is as following. Would you please give an indication on how this winter has been on the crops? What are your expectations for the harvest? Thank you.
Thank you for the question. In terms of our farms, we can say that the crop condition is good or very good. And we see that in terms of our farming companies, we are quite in the same position as last year in terms of the harvest expectations. In terms of the Baltic market or at least Lithuania, the situation is quite similar. Of course, there are some risks regarding the amount of water the crops will get during the spring or as well as the situation with the temperature changes currently because we have some negative temperatures during the night and positive during the days.
This is also a risk to the crops. However, as far as now, the situation looks really well and the starting position for the spring is quite good.
Thank you for your comment. Another question would be, is grain forwards the main reason behind Q2 decreased margins? Any plans to make changes in the forward making process? Thank you.
It's a very good question. Thank you very much. In part, it is. We have an element of this in our, of course, cost structure. However, the main impact for the profitability at this point is that we have booked some of the costs which are connected with the trading activity for this quarter.
However, the sales in connection with these costs will show up in the 2nd quarters. And as I mentioned previously, we see that the profitability will be restored this segment going forward for the Q3 and of course full year result.
Thank you, Mr. Shilekha. The first question is as following. Poultry segment, what is the cost management in current environment? Thank you.
Thank you very much for the question. And as I mentioned previously, we have quite a huge squeeze of the profitability coming from both sides, from the sale prices as well as from the input prices, meaning feed stuff. We have implemented some cost saving activities in that segment regarding our operational expenses and we will continue that as long as the situation will require. However, we are trying to operate at full capacity in terms of production to have as much as low as possible our marginal production costs. However, we are reviewing every cost line in terms of our operating expenses, back office expenses.
However, the impact is not that huge compared to energy prices and feedstock prices. Energy prices, for example, did not help as well because we had quite cold winters, so we had a higher energy consumption compared to last year, as an example. Thank you.
Thank you very much for your answer. We are still receiving questions, so let's continue. The next question is as following. When acquisition of KG Group is expected to be finished, main outcome of this transaction for shareholders? Thank you.
That's a very precise and a good question. And I think the main outcome for shareholders is a exponential growth of the Group in the 1st place. The second thing is that the Group now will be more situated as an integrated agricultural and food company, which will have less dependency on more cyclical business as trade. We will have a bigger part of food production, which in turn is less cyclical business and more added value business, so this will bring and will add to the group profitability, which in turn, of course, brings more value for the investors. Thank you for the question.
Thank you for your answer. The next question is as following. The investor says, good morning. What is the source of operating loss of $1,200,000 and not attributed to any specific segment for first half a year for 2021? Thank you.
Thank you for the question. This is related to our operating expenses, which is not attributed to any segments. The cost line under there contains various part of OpEx. I probably won't specialize very much of them because there are quite a lot of them. However, we have an increase of particular costs, which are related to the acquisition, meaning we are having, of course, more costs to go through the acquisition to finish it in terms of advisory, legal fees and so on.
Thank you for your answer. Another question is again related with the KJ Group. The question is as following. Assuming rest of competition authorities allow the merger with KJ Group, when should investor expect price and financing details of the deal? Thank you.
That's a very good question. Thank you very much. We expect to finish the Competition Council approvals by the beginning of the summer. By then, we will indicate the full financing structure as detailed as we can. Of course, we are subject to quite a lot of confidentiality agreements under the share sale and purchase agreement.
So, we will disclose that accordingly and we cannot do that other way because due to the confidentiality clauses and the agreement. But by the closing part, I think we will announce the details of the financing structure.
Thank you for your answer. We are still receiving questions. So let's continue. The next question is quite detailed, so please bear with me. The investor writes, Revenue from trade in the grain increased by 73% over the year to €351,000,000 and operating profit amounted to €900,000 being 55% lower.
In Q1, operating profit from the segment was €3,300,000 That means that quarter 2 was unprofitable. Operating profit was mainly affected by seasonality of trading activities, the impact of which Shell decreased towards the closing of the full financial year. Please explain how it could happen that quarter 2 was one of the best from grain trading perspective. Grain market price increased at least 10%. Thank you.
Thank you for the question. It's a long one. I will try to answer it as specifically as possible. And as I previously mentioned in my presentation, the decrease or the loss, which we contained in this segment for the Q2 of this financial year is connected with additional costs, which we have incurred during that period, which is related to the trading activity. However, the costs do not match the sales for this quarter and technically we received a loss.
As I indicated that this effect will be minimized or will decrease during the next quarter and then, of course, the profitability will return for the full year result. Maybe to mention you as well is that our trading activity or the revenues are quite high and this is, of course, driven by several factors. One of them are high grain prices as well as our trading strategies. We build our trading book in a very different or various ways depending on the market conditions. We buy grains from farmers, we buy grain in the ports.
So, if we see trading opportunities, which maybe will bring the result for the full year, not completely this quarter, we do them because we trading activity is really seasonal and full result is evident only when the full year closes and when the majority of the sales have been booked. Thank you for the question.
Thank you for your answer. Another question is as following. Profit related with the sale of land holding companies in November is €1,900,000 Linas Agro has sold about 2,000 hectares and profit from 1 hectare was about €1,000 Sale price was about €6,800 per hectare. Can we conclude that self cost of land was €5,800 per hectare? Is €5,800 per hectare average price of all Linas Agra owned land portfolio?
Thank you.
Thank you for the question. Yes, the booking of the profit from this transaction is SEK 1,900,000 in our profit and loss statement. The note 3rd or note number 3 in our half year interim report has more details on the way we have accounted this transaction and we have accounted this transaction as sale and leaseback transaction, which means that we don't book this result as purely sale and cost transaction, we take into account that we will lease this land for a coming period, which we have, of course, also announced and revealed. So, to give you an indication that we had an inflow of €13,600,000 for this transaction, meaning cash based to the Group. The cost of this land, which was booked in our balance sheet, was around €5,000,000 So, the math goes that if we book it as cost, the net result of the transaction is around €8,000,000 The land of the group on average are booked based on the acquisition cost and it is around €2,300 on average.
So, I hope I answered your question, but more or less it looks like this. If you or anyone has more questions regarding this transaction, please don't hesitate to contact. However, note number 3 has some explanation how it was accounted. Thank you.
Thank you very much for your answer. Another investor is asking if you could comment on early signs in winter crop condition for current fiscal year. Thank you.
Thank you for the question. I probably will shorten this one as I touched upon it previously. The crop condition throughout the country is probably good to very good. There are some risks and they will be there through all the spring season until the harvest, of course, but so far now, we don't see that the position of the upcoming season or the crop position is worse than last year. However, the temperature changes during especially March, quite a lot of snow and humidity is also a challenge.
But so far, we think that the start is good.
Thank you very much for your answer. Another investor would like to know what threats do you see from Avian Influenza to your poultry business, especially in the light of the acquisition? Thank you.
Thank you very much. This is a very good question. And this is also a threat, which does not allow us to be more optimistic regarding the segment. So far, the Baltics or especially Lithuania and Latvia was not that much affected regarding the influenza. However, we had spots reported and if that would continue to spread, it of course would be a challenge due to the export prohibitions from the specific countries or regions.
We take very big precautions regarding this in terms of the well-being and quality and sanitary of the birds. And we our standards are really very high. However, no one is really safe from that. We hope that we will continue on the same note and the Baltics will not be that much affected. However, of course, if this would spread, it's a big force majeure in the market and we will see how it would be dealt with.
There are some compensation mechanisms in each of the countries regarding the extreme events like this. However, it's quite hard to would be to speculate what would be the result of the segment or result or impact the group after this event. Thank you.
Thank you for your answer. As we have reached 10 question milestone, I would like to remind everyone of you that you can ask your question in your question box of your screen. Your questions are very welcome. And let's continue. The other investor is wondering what exactly is meant by seasonality effect on lower profitability for grain and feedstuff segment?
Thank you.
So I will probably only shortly repeat myself that seasonality effect, which we called it like this, is connected with the seasonality of the costs, which we incurred during the Q2 of this financial year, which will then diminish or change around during the 3rd Q4 of the financial year 2021. The costs are directly related with the trading activity. Unfortunately, we booked them this quarter and we didn't have the connected sales. But there is no, how to say, bigger influence than that for the segment result. I can only assure that, for example, elevator or the handling segment or the grain handling activity in the segment was really successful this year due to very high harvest.
As you can imagine, we have more grains going through our elevators and the increase is quite significant. So, that's why we see that the full year result will be really in our or in line with our expectations. This effect of the grain handling and elevator activity gave a very big boost to the Q1 results because the main profitability and main activity comes in the Q1. That's why we even have a bigger discrepancy as the base has increased quarter on quarter. Thank you for your question.
Thank you, Mr. Shaleeka, for your answer. Another question is as following. What are the plans regarding own share buyback? Thank you.
Thank you for the question. So far, we haven't decided on share buybacks. The previous program has expired and we did not prolong it. So far as now, at least during the acquisition of KG Group for the upcoming period, we are not planning to establish a new program of share buybacks.
Thank you for your answer. And the last question so far is as following: Should investors expect more group owned land sales this year? Thank you.
Thank you for the question. So far as now, we have no plans of land sales for the upcoming financial year.
Thank you. And we have just received one more question and the investor is asking, do you see a need to report adjusted net debt to EBITDA ratio by the amount of your inventories? Thank you.
Thank you. That's a very good question. 1 of the slides where we show the composition of our balance sheet, we give you an indication of the ratio between short term debt and our readily marketable inventories. So, you probably more or less have a glimpse what is the ratio and that we have quite a lot of inventors of our books which are quite liquid. For the full year result, we are hoping to go through our reporting managerial ratios and we probably will add additional ratios for the investors to better understand the Linas Agro Group and analyze it.
And this is one of the ratio we are considering to introduce.
Thank you for your answer. And it looks like we have covered all of the questions. So as all of the interests were answered, on behalf of Nasdaq Vilnius, thank you, everyone. It was my pleasure being with you today. Recording of the presentation will be available in the Nasdaq Baltic YouTube channel.
Thank you, Mr. Shileka, for the presentation, and thank you, the investors, for your questions. Have a great day, everyone, and goodbye.
Thank you very much, everyone. Goodbye.