KSG Agro increases revenue 26.6% y-o-y in 9M11

KSG Agro (KSG PW), a Ukrainian agricultural company, increased its revenue by 26.6% y-o-y to USD 11.9 mln, according to the company’s 9M11 financial report released yesterday. Net profit increased by 101.9% y-o-y to USD 18.3 mln due to a net gain on initial recognition of agricultural produce and a change in the fair value of biological assets less estimated point-of-sale costs in the amount of USD 19.5 mln. Over 9M11, KSG Agro increased its landbank to 52.9 ths ha from 26.5 ths ha. The company paid USD 22.4 mln for acquisitions. Management confirmed guidance on net profit for 2011 at USD 27 mln, which should be achieved due to favorable prices for sunflower seeds, a key in its crop structure, and an expected USD 5 mln net gain from the acquisition of a pig-breeding complex, which the company completed in 4Q11. Yegor Samusenko:Sales growth was relatively low in 9M11 (27% vs. doubling of landbank and generally good harvest), because of grain export duties, which were effective in 3Q11, and forced farmers to keep their grain in stock in anticipation of higher prices after duties removal, which happened in October. Agricultural produce inventories amounted to USD 19.8 mln in 9M11, 1.7x above 9M sales. Netting out revaluation effects, we calculate KSG Agro’s adjusted EBITDA for 9M11 at USD 4.3 mln, with a margin of 36%, slightly lower than the 38% posted a year ago. We attribute this to the relatively low grain yields the company posted this year and low grain prices in 3Q11. We expect 4Q11 results to provide more clarity on the company’s overall performance, as company will start selling its inventories in a favorable price environment and the company’s key crops, sunflower and corn, will come to the market.