CEO Comment



The events relating to the sale of the Russian operations dominate the second quarter. Operationally there has been limited activity in Q2 with some small areas of residual crops to harvest, sales of crop inventory, forex translations, currency hedging and any changes in G&A being the only factors that affect the financials.


1H17 Sales and Financial

In 1H 2017 crops from the 2016 harvest year have been sold. The sales of 2016 crop have been made at average prices lower than the 2016 year end valuations due to falling prices in all crops.

Revenue and Gains of USD 31.3mn (53.8) reflect higher sales volume in 1H17 of 240.2kt (228.3) while sales prices for key crops have further significantly declined (-23.1% y-o-y vs 2016 in USD terms). The decrease is also related to the absence in 1H2017 of any gain on revaluation of biological assets (due to the sale) while in 1H2016 this amounted to USD 12.8 mn.

The 1H remaining finished goods inventory was 19.6kt (11.4) valued at USD 2.8mn (1.9). These finished goods were sold to export customers over July and August 2017.

1H17 G&A was USD 10.9mn (7.0). The increase driven by additional expenses related to sale of Russian operations.

The operating loss (EBIT) increased to USD -9.4mn (4.4), largely driven by decreased sales prices and higher COS in 1H17 and increase in G&A expenses.

In 1H17, the company benefited from an FX revaluation, having booked FX income of USD 7.0mn (3.7) and gains from hedging operations of USD 7.8mn (1.1).

The result of disposal of Russian subsidiaries without any effect of the technical reclassification of translation reserve to profit or loss would have amounted to a profit of USD 72.5 mn, while the net profit on the same basis amounted to USD 66.7 mn (5.2).

On 27 June 2017, the Company repurchased all outstanding bonds and this is reflected in a cash outflow of USD 44.9mn. During the period the Company received proceeds from the sale of subsidiaries which net of cash amounted to USD 197.9mn. As a result amount of cash and cash equivalents as at 30 June 2017 amounted to USD 183.2 mn (23.6).


The transaction on sale of Russian operations

On the 13th February the company announced it had signed a frame agreement to sell its Russian operations. 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 was received. The sale transaction was completed on 22 May.

The final outcome of the deal was subject to changes in crop prices, exchange rates and certain completion adjustments laid out in the sale and purchase agreement. There was a negative impact from crop prices with sunflowers, corn and wheat prices softening in both USD and RUR terms. Hedging activities generated a positive effect. The SEK proved volatile over the period initially weakening and then strengthening significantly against the USD. The hedges partially mitigated the strengthening of the SEK.

The company also decided to redeem the outstanding warrants instead of the warrant holders exercising their rights. This reduced the total sum available for distribution but had no effect in SEK/share due to reduced dilution. During this period the company was involved in various processes that were necessary to elevate funds received in Cyprus to Jersey.

On the 4th August an information brochure for holders of Swedish Depositary Receipts with regards to the proposed shares redemption program by way of a split and mandatory redemption procedure was published on the company’s website.

On the 10th August the company confirmed that SEK 1,501 mn would be available for redemption, equivalent to 6.76 SEK per share. On the 11th August the shareholders approved the share split and mandatory redemption process scheduled for the 6th September as well as approving a resolution to apply for the company to be delisted as soon as possible.

Certain funds were held in reserve for a US based litigation that the company is a plaintiff in and in which the company’s legal advisers in the case believe is more likely than not to have a favourable outcome.

The company will provide further information and likely timetable on the contemplated voluntary liquidation following completion of the redemption distribution.

Overall the aim is to complete all necessary processes to manage the litigation process and ultimately the liquidation and distribution of proceeds as cost efficiently as possible.



An eventful quarter dominated by regulatory approval and completion of the sale of the Russian operations.

The basis of the preparation of the financial statements is different to prior year statements as they are not prepared on a going concern basis and have separate presentation of discontinued operations.

The transaction and ensuing processes have proceeded as per the plan albeit delayed due to slower than expected regulatory approval and some delays in elevating funds from the Cypriot subsidiary. The ultimate deal outcome was negatively affected by lower crop prices, positively affected by beneficial hedging and the total proceeds available for redemption were reduced by 4.9mn USD due to the decision to redeem the warrants. Whilst the redemption proceeds are within the guidance range given in February in USD terms they are lower in terms of SEK per share due to lower crop prices and the significant strengthening of the SEK. The focus now is on the litigation process and cost efficiently managing the company to liquidation and distribution of proceeds.


On behalf of the Board - 31 August 2017

Richard Warburton, Executive Director and CEO