CEO Comment



The first quarter of 2017 is dominated by the signing of a frame agreement to sell the Company’s Russian operations and to distribute the proceeds to shareholders. Operationally there is limited activity in Q1 with some small areas of residual crops to harvest, sales of crop inventory, forex translations and any changes in G&A being the only factors that affect the financials.


Market Development

International and domestic grain prices have fallen on the back of 2016 global grain production of 2,111mmt, a new record and up 5% y-o-y according to the latest IGC estimate. World grain and oilseeds stocks are at new highs. In Russia grain production is up 14% to a record 119mmt (104 mmt, 2015) with consumption estimated to be up a modest 1-2%. Export levels are forecast at a disappointing 36mmt, unchanged from 2015-16 with a resultant doubling in ending stocks predicted at 19mmt. Sunflower production increased by 14% y-o-y to 10.6mmt.

2017-18 winter wheat area is up 10% and spring planting is well under way. Due to the record stock levels, export wheat prices are USD 10 lower than for crop 2016-17 prices.


Source: IKAR. CBOT



1Q17 Sales and Financials

In Q1 the Company sells crop from previous harvest year, thus in 1Q 2017 crops from 2016 harvest year have been sold. The sales of 2016 crop have been made at average prices less than the 2016 year end valuations.

Revenue and Gains of USD 22.7mn (19.9) reflect higher sales volume in 1Q17 of 140.6kt (118.9). Sales prices for key crops have further declined. Corn is –10% y-o-y, sunflowers – 14% vs 2016 in USD terms. Marginal price increase (average sales price after distribution cost grew from USD 124 per ton in 1Q16 to USD 128 per ton in 1Q17) was driven solely by different sales mix, in particular an increased proportion of Sunflower sales.

The Q1 ending finished goods inventory accounted for 69.5 kt (126.4) at USD 10.6mn (20.3) market value. Significant part of remaining finished goods inventory was sold in April, driven by agreements in the transaction agreement to sell all stock in the Russian entities before the Transaction completion. At the end of April 2017 38.6 kt inventory owned by BETI (Black Earth Farming’s internal trading entity) and stored in deep water elevation facilities were yet to be sold to export customers.

COS increased from USD 6.4mn in 1Q2016 to USD 17.3mn in 2017 driven by higher sales, more expensive sales mix (higher share of sunflowers), production cost increase in 2016 harvest year vs. year 2015 and losses from the RUR strengthening.

1Q17 G&A was USD 3.8mn (3.2), growth driven solely by RUB strengthening in 1Q17 vs 1Q16, whereas in RUB terms G&A slightly decreased in 1Q17 to RUB 221.6mn (238.3).

The operating loss (EBIT) significant increased to USD -8.9mn (-3.6), largely driven by decreased sales prices and higher COS in 1Q17.

In 1Q17, the company benefited from FX revaluation, having booked FX income of USD 1.0mn (0,4) and gains from hedging operations of USD 0.4mn (-0.1).

The 1Q17 net loss amounted to USD -9.4mn (-4.6).

With USD 45.0mn (35.2) of cash at 31 March 2017 the Company Net Debt improved from USD 27.6mn in 1Q16 to USD 20.0mn in 1Q17.


Spring Seeding and 2017 Crop Area

The spring of 2017 has been generally favourable and by the 15th of May, spring planting is 97% completed. Winter wheat crops remain in good to excellent condition. The 2017 crop area is planned to be 154k Ha.



The agreement to sell the Russian operations

During 2016, the Company received a number of expressions of interest substantially above the undisturbed share price level of SEK 3.55 per share prior to the announcement on 9th August 2016 confirming that the Company were in talks with potential buyers. All were from prospective Russian buyers underpinning the higher value put on the Company by potential domestic purchasers. On 9th August 2016, the Board of Directors of Black Earth Farming communicated by press release that the Company was in talks with potential buyers regarding a substantial land and asset sale in Russia. Having evaluated an asset sale versus other alternatives, the Board of Directors of Black Earth Farming has concluded that a divestment of AIMC and AIRMC to Volgo-DonSelkhozInvest is the best alternative for the Company and its shareholders. Additionally the Board of Directors believes that this alternative is a better alternative for Black Earth Farming's shareholders than continued long-term operations. It has not been possible to solicit a public takeover offer for all depositary receipts in the Company on terms more favorable than the terms of the Transaction.

A deposit of USD 10mn was received on 16th of February 2017. On the 23rd March the EGM of Black Earth Farming shareholders approved the Transaction. On the 12th of April regulatory approval from FAS, the Russian anti-monopoly body. The company is now progressing through the various completion processes. Upon completion and receipt of funds we plan to give notice of a combined EGM for the distribution of funds and an AGM.

There would then be a required period to trade redemption shares before the actual redemption took place. At this point the Company would apply to the Stock Exchange for de-listing and proceed with liquidation.



While the Company’s business is not directly impacted by current geopolitical tensions, the Group is indirectly exposed to changes in its operating and financial environment. Sanctions on Russia could negatively impact the Russian economy and affect the Company’s financial and operating environment. The ban on imports of certain foreign products is generally positive for the Company but the risks of a potential imposition of export levies increase uncertainty in the Company’s operating environment.

Specifically the proposed transaction remains exposed to exchange rates, market prices for remaining crops and other costs. The Company continues the process of hedging USD to SEK when favorable rates are achievable.



Q1 2017 prices have declined, driven by strong international and domestic production dynamics and high stock levels. During Q1 the company entered into an agreement to sell its Russian operations and distribute the proceeds to the shareholders and has been progressing towards completion having received shareholder approval on the 23rd March and regulatory approval on 12th of April.


On behalf of the Board - 18 May 2017

Richard Warburton CEO and President