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Agrokultura: Turnaround on track

Press release published at The Swedish Wire
Agrokultura AB ("the Company"), the owner and operator of farmland with agricultural operations in Russia and Ukraine announces a year end update. More detailed information will be disclosed at the release of the full interim report by the 28th of March. · SEK 150 million cost cutting exercise on track with goal to deliver profitable operations · Interest shown in Ukraine business in excess of book value · Successful sale of Kaliningrad operation to deliver cash flow of approximately SEK 100 million   · Strong improvements in yield offset by reductions in price of commodities sold · Much improved liquidity position

The Company's share has lately been trading at a discount of over 60% to the Company's net asset value per share as at 30 June 2013 of SEK 8.20. The Board, in order to deliver on the expectations of the Company's shareholders, is committed on a strategy to proactively compare the value of the Company as a going concern versus the value an external buyer is willing to pay for the Company's shares, assets or a combination of the two.

Cost cutting:
In order to address the reduction in commodity pricing, the Company is implementing a cost cutting programme which identified over SEK 150 million (approximately USD 23 million) of savings when compared to the 2012 cost base, the results of which will be seen in 2014. Every part of the business was reviewed from a cost perspective. The largest areas of cuts are salary costs and Ukrainian direct input costs. Ukraine will use lower cost generic chemicals and lower quantities of complex fertilisers which together with recent drops in prices will materially reduce direct input costs without impacting yield performance. Headcount at all levels in the Company is being rationalised which is expected to reduce the annual total payroll cost by over 20 per cent or SEK 37 million. Senior management has been reduced by 30 per cent which should provide a more streamlined decision making process. Close monitoring will ensure cost targets are met.

In October 2013, the Company announced that it had hired Dragon Capital to conduct a strategic review of its Ukrainian business. As part of that strategic review, the Company has received interest in its Ukrainian business in excess of book value. Although there is no guarantee that a binding offer will materialise or that the Board would approve a sale, this is indicative of the intrinsic value in the business. The concrete results of this process are expected to be announced during the spring of 2014.

The Board will also carry out an external strategic review of its remaining Russian operations to establish if the current operational setup maximises shareholder value.

Non-core divestments:
In December 2013 the Company announced the disposal of its Kaliningrad cluster in Russia (approximately 14,000 ha) at close to book value which will generate approximately SEK 100 million (approximately USD 15 million) of cashflow over the coming months.

The Company sees the divestment of non-core or non-performing assets as a key element to deliver value to shareholders. Good progress has been made in Ukraine by disposing of approximately 25,000 ha over the past 18 months, although the land bank still exceeds the planted land by 18,000 ha. The Company is now left with one large cluster in western Ukraine together with its cash generative Russia "Central Black Soil" operation.

Operational update:
As previously announced, operationally the 2013 harvest was very successful with material yield improvements across both Ukraine and Russia. Russia was of particular note with an average increase in yield of 31 per cent which builds on strong yield improvements in the previous harvest. While operating costs were marginally above management expectations, the global drop in agricultural commodity prices has decreased revenue per tonne materially which will cause another year of material losses at the Group level, driven mostly by the Ukrainian operations.

Revenues from the harvest together with the revenues from the sale of Kaliningrad will ensure the Company has a much improved working capital situation going forward including making limited capital investments and keeping a vital cash buffer to enable cost savings to be extracted.

Stephen Pickup, Group Managing Director commented

"All current initiatives are being put in place to deliver value to shareholders. We have an initial target to deliver book value which we believe is possible with all the projects which are being worked on. On a Company level we are cutting costs to ensure that for the first time in the Company's history we have a viable profitable business, on a local level we are investigating if the best return can be delivered to shareholders through the outright sale of certain assets. Should further assets be sold, proceeds would likely be returned to shareholders"
Stockholm, 7 January 2014
Stephen Pickup, Group Managing Director, tel. +44 782 529 4352 
Kristian Shaw, Group CFO, tel. +44 782 529 4356

About Agrokultura AB (publ)
Agrokultura invests in farmland and produces agricultural commodities in Russia and Ukraine. The Group aims to generate an attractive return on invested capital by optimally utilizing its agricultural land bank through crop production, livestock and related operations. Shares in Agrokultura are listed in Sweden on the Nasdaq OMX First North exchange under the ticker AGRA and the Group's Certified Adviser is Remium Nordic AB.
This information was distributed by Cision

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