Sintal suffers severe crop damage, initiates emergency program

Farming company Sintal Agriculture (SNPS GF) reported on Nov. 22 a profit warning on abnormally bad weather conditions in its core Kherson region (where 78% of the company’s land bank is located), owing to a combination of harsh winter frost and the worst summer drought in 63 years. The company harvested only 62% of its total planted land of130,000ha – and only about a half of the planted area in Kherson region – with yields for most crops being far below management expectations. In the Kherson region alone, winter wheat has been only harvested from 30% of the total planted area with a 0.7 t/ha yield (2.3x less than average number for the region). Winter barley was collected from 12% of total planted area at 1.8 t/ha (yielding 30% better than region average). Sunflower and corn sowings were harvested in full, though yields were 1.7x worse compared to the rest of the region (0.5 t/ha and 3.0t/ha, respectively). The company’s Kharkiv region operations (22% of total area) were better, with sunflower yields of 1.6t/ha (still 1.5x below the region’s benchmark) and corn yields of 5.0t/ha, 1.6x above the region’s data. To address the disaster, Sintal initiated an emergency program to cut SG&A by 15% and divest up to 85,000ha of non-irrigated land in the Kherson region (85% of the region’s total holdings) to save USD 7.4 mln on lease payments. Sintal is also in talks with its creditors on debt restructuring. The company reported it already sold one of its sugar plants for USD 1.8 mln and shut down another one. Sintal also reported it is going to invest about USD 800,000 into a 600ha irrigation project that can be expanded to 5,000ha in the future. In addition, the company is aiming to pursue geographical diversification and is looking to swap some of its Kherson plots for 16,000ha in the Kyiv region and 24,000ha in the Zhytomyr region.

Alexander Paraschiy: The harvest results are very disappointing in spite of the severe weather impact for Sintal being broadly expected. The total value of Sintal’s 2012 harvest is 30% below our estimate of USD 47.5 mln (despite crop prices being 10% higher than expected, on average). While we welcome the company’s attempts to cope with unusually weak result, it’s clear the company’s business model will change significantly from what it is now. We are suspending our hold recommendation for Sintal given its high execution risk and row of other uncertainties.