Trigon Agri A/S
Annual Report 2008
Contents
Directors’ report 2008... 4
Executive summary... 4
General overview ... 6
Global trends... 8
Local trends ... 9
Key events 2008 ... 11
2008 financial summary ... 12
2008 operational summary... 19
Management structure and employee matters... 23
The share... 24
2009 outlook ... 25
Environmental matters ... 28
Future Reporting Dates ... 28
Invitation to the Annual General Meeting... 28
Consolidated financial statements ... 29
Consolidated balance sheet ... 29
Consolidated Income Statement - by nature of expense... 30
Consolidated Statement of changes in equity... 31
Consolidated Cash flow statement ... 32
Notes to the consolidated financial statements... 33
1 General information... 33
1.1 Group structure ... 33
2 Summary of significant accounting policies... 33
2.1 Basis of preparation ... 33
2.2 Consolidation ... 36
2.3 Foreign currency translation ... 37
2.4 Property, plant and equipment... 38
2.5 Impairment of non-financial assets ... 38
2.6 Financial assets ... 38
2.7 Agriculture... 40
2.8 Government grants ... 41
2.9 Inventories ... 41
2.10 Trade receivables... 42
2.11 Cash and cash equivalents ... 42
2.12 Share capital ... 42
2.13 Trade payables ... 42
2.14 Borrowings ... 42
2.15 Current and deferred income tax ... 43
2.16 Employee benefits... 44
2.17 Provisions ... 44
2.18 Revenue recognition ... 44
2.19 Leases ... 45
2.20 Dividend distribution... 45
2.21 Segment reporting... 45
2.22 Share-based payments ... 46
3 Financial risk management... 46
3.1 Financial risk factors... 46
3.2 Capital risk management... 50
3.3 Fair value estimation ... 51
4 Critical accounting estimates and judgments ... 51
4.1 Critical accounting estimates and assumptions ... 51
5 Cash and term deposits... 52
6 Treasury notes ... 53
7 Trade and other receivables ... 53
8 Inventories... 54
9 Biological assets... 55
10 Property, plant and equipment ... 56
12 Trade and other payables ... 57
13 Borrowings... 58
14 Provisions for other liabilities and charges... 59
15 Deferred income tax... 59
16 Deferred income from EU subsidies... 60
17 Share capital... 62
18 Other reserves ... 65
19 Raw materials and consumables used ... 66
20 Employee benefit expense ... 66
21 Operating lease payments ... 66
22 Other expenses... 67
23 Other (losses)/gains – net ... 67
24 Finance costs – net... 67
25 Earnings/loss per share ... 67
26 Segment reporting ... 68
27 Contingencies ... 69
28 Commitments... 69
29 Business combinations ... 70
30 Group structure... 73
31 Related party transactions... 73
32 Fees to the auditors appointed by the shareholders ... 75
33 Interest in joint venture... 75
34 Events after the balance sheet date ... 75
2008 Financial statements of the parent company... 76
Balance sheet of the parent company ... 76
Income Statement of the parent company... 76
Statement of changes in equity for the parent company... 77
Cash flow statement of the parent company ... 78
35 Notes to the financial statements of the parent company... 78
35.1 General information... 78
35.2 Accounting principles ... 79
35.3 Cash and cash equivalents of the parent company... 79
35.4 Long-term financial investments in subsidiaries... 79
35.5 Long-term loans to subsidiaries... 79
35.6 Share capital of the parent company ... 80
35.7 Fees to the auditors appointed by the shareholders ... 81
35.8 Group structure ... 81
Management’s Statement on the Annual Report ... 83
Independent Auditor’s Report... 84
Directors’ report 2008
Executive summary
Financial Highlights 2008
The total revenue and fair value adjustments for A/S Trigon Agri (the ’Group’, ’Trigon Agri’) in 2008 amounted to EUR 41,541 thousand (EUR 9,490 thousand in 2007), representing a close to 4.4 fold increase year-on-year. The largest part of the total revenue and fair value adjustments was generated from the Group’s operations in Ukraine, followed by Estonia and Russia.
Total sales revenue amounted to EUR 29,984 thousand in 2008 (EUR 6,620 thousand in 2007), representing a more than 4.5 fold increase year-on-year. Other income amounted to EUR 4,413 thousand (EUR 1,111 thousand in 2007). Gains from fair value adjustments in 2008 amounted to EUR 7,144 thousand (EUR 1,759 thousand for 2007).
Despite the very challenging market conditions and significant fall in the crop prices during second half of 2008, earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to a positive results of EUR 1,680 thousand (respective figure in 2007 was negative by EUR 13 thousand). The main positive EBITDA contribution came from the production operations of the Group in Estonia and in Kharkov, Ukraine, where the Group has been operating for more than two years and where the investment programs carried out have started to show positive results, and the Group’s storage and trading activities in Ukraine, driven by the successful launch of the Group’s elevator management and trading joint venture Ramburs Trigon. In the newly set up production locations the EBITDA was negative for the year as the operations were only started up in 2008.
The net profit/loss of the Group in 2008 amounted to a net loss of EUR 2,435 thousand (loss of EUR 84 thousand in 2007). The net loss was significantly influenced by foreign exchange losses in the amount of EUR 3,133 thousand (EU 91 thousand in 2007), primarily driven by the dramatic depreciation of the Ukrainian hryvna during Q3 and Q4 2008.
The total assets of the Group as of year-end 2008 amounted to EUR 154,731 thousand (EUR 71,410 thousand in 2007). The non-current assets of the Group as of year-end 2008 amounted to EUR 69,744 thousand (EUR 26,890 thousand in 2007). The total investments of the Group in 2008 amounted to EUR 103,080 thousand (EUR 19,416 thousand in the same period 2007).
The total liabilities of the Group as of year-end 2008 amounted to EUR 20,149 thousand (EUR 7,130 thousand for 2007). The total borrowings of the Group as of year-end 2008 amounted to EUR 11,016 thousand (EUR 4,082 thousand in 2007). Out of the total borrowings, EUR 4,125 thousand was related to the borrowings of the Group’s subsidiaries in Estonian dairy production and EUR 73 thousand in Ukrainian cereals production, while EUR 6,818 thousand consisted of trade financing lines for the Ramburs Trigon trading joint venture. Due to its significant cash position, the net debt of the Group as of year-end 2008 amounted to EUR -38,570 thousand (EUR -31,620 thousand for 2007), providing it a very strong liquidity position.
Income statement 2006* 2007 2008
Total revenue and fair value adjustments, EUR thousand 1,426 9,490 41,541
Annual % increase N/A 565% 338%
EBITDA, EUR thousand -435 -13 1,680
EBITDA margin,% -38% 0% 5%
Net profit, EUR thousand -571 -84 -2,435
Net profit margin, % -51% -1% -7%
Number of shares, end of the period 972,479 59,627,479 129,627,479
Earnings per share (EPS), EUR -0.59 - -0.02
Balance sheet, end of the period 2006* 2007 2008
Total assets, EUR thousand 15,238 71,410 154,731
Total owner's equity, EUR thousand 11,816 64,280 134,582
Return on assets (ROA) -1% 0% 0%
Return on equity (ROE) -5% 0% -2%
Equity ratio, % 78% 90% 87%
Current ratio 4.01 16.3 7.07
*The Group was established in May 2006
Operational indicators 2006 2007 2008
Land under control hectares (year-end), ha 10,882 26,815 144,229
Land cropped with cereals harvest hectares, ha n/a 23,000 65,000
Total gross harvest, tonnes n/a 56,607 180,807
Total net harvest, tonnes n/a 51,518 171,342
Total elevator storage capacity in ownership (year-end), thousands
tonnes - 50.0 322.2
Operational Highlights 2008
EUR 105 million secondary share issue
Despite the turbulent market conditions, the Group managed to successfully carry out a EUR 105 million equity capital raising on May 6, 2008. The issue was subscribed by over 60 investors, which included internationally well recognised institutional investors and private investors. The capital raising was a significant further step for the Group and provided the required financial platform on which to continue realising the Group’s expansion targets.
Three new cereal production clusters set up in the Black Earth region
2008 was a year of significant expansion of the cereals farming activities of the Group. Three new production clusters were set up during the first half of the year in Kirovograd (Ukraine), Samara (Russia) and Penza (Russia), which took the total fieldworks area close to 74,000 hectares during the year, including 65,000 hectares under cereals crops. In 2007 the respective total area where fieldworks were carried out stood at around 27,000 hectares, including around 23,000 hectares under cereals crops.
Meanwhile, the total gross harvest in 2008 stood at 180,907 tonnes against the respective 2007 figure of 56,607 tonnes (a 3.2 fold increase year-on-year). As of year-end 2008, Trigon Agri had approximately 144,000 hectares of land under control in Russia, Ukraine and Estonia. Out of the total land area under control approximately 140,000 hectares was located in the Black Earth regions of Ukraine and Russia.
Storage capacity in Ukraine taken to 322,200 tonnes
During first half-year 2008, the Group completed three additional rail-road connected elevator acquisitions in its Kirovograd cluster in the Ukraine taking the total elevator storage capacity of the Group in Ukraine to 322,200 tonnes. Despite storage being originally planned as a break-even operation supporting the production activities of the Group, the elevator business segment showed a positive EBITDA of EUR 1,945 thousand for the first half of the 2008 trade year.
Cereals harvest collected from 65,000 hectares in the Black Earth region
The Group successfully collected a cereals harvest in the Black Earth region from 65,000 hectares, a 2.8 fold increase from 2007. The productivity in the Group’s Kharkov, the only cluster during the year where the Group was able to fully control the cycle of crop preparation, was well in line with the Group’s targeted productivity improvement plan (the ’ramp-up’). The three newly acquired production clusters will enter the ramp-up schedule in 2009.
Winter crops seeded during Q3 2008 on 44,000 hectares in the Black Earth region and preparatory works completed for an 82,000 hectares cereals harvest in 2009
The Group successfully seeded 44,000 hectares of winter crops in its four cereals production clusters in the Black Earth region.
The current conditions of the winter crops seeded by the Group have been satisfactory and there has been no significant winter damages on areas seeded, which gives management confidence in retaining its ramp-up targets for 2009. The Group has also carried out all other necessary preparatory works in order to take a cereals harvest from a total of 82,000 hectares in 2009.
Trading and elevator management JV successfully set up
On July 1, 2008, the Group successfully launched its trading and elevator management JV with Ramburs Group, a leading independent trading firm in the Ukraine. The step marked a significant further development mile-stone of the Group towards becoming an integrated company, which farms the fields in Ukraine and Russia and is capable of export deliveries of crops to clients globally. For the first half of the 2008 trading year the JV showed a positive EBITDA performance of EUR 1,672 thousand.
2009 Outlook
In the current financial market environment, the focus of the Group’s management is on conservation of liquidity. With the operational and investment budgets planned for 2009, the Group is expecting to finish the current production season in autumn with a remaining cash balance of around EUR 12 million plus the value of the full upcoming harvest which with currently prevailing prices can be estimated to be worth in excess of EUR 30 million (i.e. the total liquid assets of the Group would be in excess of EUR 42 million). This will easily be sufficient to take the Group through the 2010 production season.
With its current crop plan and the productivity targets, the Group is targeting a total gross production in 2009 of close to 350,000 tonnes of cereals. With an aim of handling close to a similar amount through its trading joint venture operations, the total targeted crop volume to be handled by Trigon Agri over the 2009 trade-year is close to 700,000 tonnes. Subject to achieving such production and trading through-put volumes, the Group is targeting annual turnover for the upcoming 2009 trade-year of around EUR 100 million, assuming crop prices will stay at levels prevailing in the markets today.
Assuming no change in crop prices going forward and no extreme weather related unusual crop losses, the Group’s management expects a significant increase in Group profits for 2009. As the amount of land farmed increases and moves up the so-called ramp-up schedule the total yields, as well as the yields per hectare, are likely to rise equating to higher revenues, both absolutely and per hectare. At the same time the cost cutting and efficiency increasing measures being implemented by the Group should lead to lower costs per hectare.
General overview
Trigon Agri A/S (the Group) is an integrated soft commodities producer (operating commercial cereals and dairy farms), storage provider and trader with operations in Ukraine, Russia and Estonia. The Group was established in May 2006 by the asset- and private equity management company Trigon Capital to invest in the agricultural sectors of the Group’s target markets.
The original investors to the Group committed EUR 19.6 million as start-up equity capital in 2006, with the money coming, other than from Trigon Capital, primarily from Finnish high net worth individuals. Up until today, Trigon Capital as the founding shareholder remains one of the largest single shareholders in the Group with a significant minority position and its wholly-owned subsidiary Trigon Agri Advisors provides management services to the Group.
On May 17, 2007, A/S Trigon Agri completed a private placing of shares to institutional investors and high net worth individuals in several European Union member states and in the United States securing an additional EUR 50 million for financing the development of its activities. Following the private placing, the Group’s shares were listed on the NasdaqOMX First North alternative stock exchange in Stockholm on May 18, 2007. On May 6, 2008 Trigon Agri completed a further follow-on capital raising of EUR 105 million to fund the expansion of its operations in the Black Earth regions of Ukraine and Russia. Credit Suisse and SEB Enskilda acted as Joint Bookrunners of the offering.
As of year-end 2008, Trigon Agri had approximately 144,000 hectares of land under control in Russia, Ukraine and Estonia. Out of the total land area under control approximately 140,000 hectares was located in the Black Earth regions of Ukraine and Russia, an area known for the very high fertility of its soil and historically commonly referred to as the ‘bread-basket’ of Europe.
Additionally, as of year-end 2008 the Group owned five separate rail-road connected grain storage elevators near its production operations in Ukraine with a total grain storage capacity of 322,200 tonnes.
In April 2008 Trigon Agri A/S entered into an agreement to establish a joint venture with Ramburs Group (internationally known as United Grain) for soft commodities trading and storage management (with Trigon Agri owning 51%). The new company named Ramburs Trigon is responsible for sourcing and storing soft commodities in Ukraine and Russia while selling to clients globally and started its operations on July 1, 2008. The creation of Ramburs Trigon marked a further step in the development of Trigon Agri in building an integrated cereals production, storage and trading firm. As of today, Trigon Agri farms land under its own control in Ukraine, Russia and Estonia, has the security of its wholly owned storage facilities and can execute deliveries to end customers worldwide.
The farming operations of the Group are clustered in six production clusters including four cereals production clusters in the Black Earth region of Ukraine and Russia (a total of 140,000 hectares) and two dairy production clusters in Estonia and St Petersburg region of Russia (a total of 4,000 hectares).
Trigon cereal Trigon dairy The geographic layout of the Group’s production operations is depicted in the graph below:
The Group builds up its production operations through the acquisition of land free-holds or long-term lease-holds from private individuals who have acquired the rights to the land through the privatisation process of the former Soviet large-scale collective farms (‘kolhozes’). Significant investment programs are carried out following the acquisitions in order to take the farming operations to modern production standards. The assets acquired for production are built up under a clear strategy, which is summarized through the following main criteria:
Focus on large-scale farming clusters
The Group develops its farming operations and agricultural land within concentrated geographical areas (building up land holdings around grain storage capacity) to form large cereal farming clusters of between 40,000 and 100,000 hectares, a size which justifies significant investment and realises managerial efficiency. The Group builds its production clusters in the vicinity of larger regional cities, which allows for easier infrastructure access and easier recruitment and retention of high quality
employees for cluster level management.
Develop integrated commodities production and trading operations
The Group never acquires land rights unless it can be certain of being able to acquire/build rail-road connected grain storage elevators within a geographical distance of up to 70km from its own fields. This allows for collection and storage of grain in the Group’s own storage facilities and allows easy transportation of the grain from the storage elevators to the Black Sea ports by railroads. The storage facilities also allow the Group to handle grains of smaller third-party farmers and sell them on in larger quantities with its own crop to end customers, collecting the margin in between. The trading joint venture of the group is responsible for the management and operations of all of the Group’s storage facilities and handles the trading operations of the Group. By establishing such an integrated business model the Group is able to handle all required activities from the production of cereals in Black Earth regions of Ukraine and Russia down to deliveries to various international ports.
in millions of tonnes 2007 2008 Wheat
Total use 618 649
Ending stocks 120 156
Annual increase in ending stocks -5% 30%
Year-end stocks to use ratio 19% 24%
Coarse grains
Total use 1059 1073
Ending stocks 160 187
Annual increase in ending stocks 15% 17%
Year-end stocks to use ratio 15% 17%
Oilseeds
Total use 338 341
Ending stocks 63 63
Annual increase in ending stocks -15% 0%
Year-end stocks to use ratio 18% 18%
The strategy of the Group is summarised in the graph below:
In addition to cereals farming the Black Earth region, the Group is active in dairy farming in Estonia and St Petersburg region of Russia, which with their colder climates are less favourable for cereals production. In its dairy farming operations, the Group only operates modern ‘loose-house’ dairy farms, where a production unit size is never below 500 milking cows.
Global trends
Despite a bumper harvest in 2008, the global grain markets remain tight as last year’s record high production was matched by record high demand. The trade-year end global wheat inventories are expected to reach a six year high of 155.85 million tonnes, an increase by 30% from their low levels last year, providing a year-end stock-to-use ratio of 24%. The respective figure for coarse grains (inc. corn and barley) stands at 187.22 million tonnes, up by 17% from last year, providing a stock to use ratio of 17%. Meanwhile, the global stocks for oilseeds (including sunseed) are forecasted at 62.7 million tonnes, practically unchanged from last year with a year-on-year increase of 0.2% and a forecasted stock to use ratio of 18%. (Source: USDA, March 11, 2009). This still leaves the global markets near historically low stock levels, providing no cushion in case of a fall in global cereals output in 2009.
1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Millions of Tonnes
15%
20%
25%
30%
35%
40%
45%
Consumption Production Stocks to use ratio
•
Consolidate units into large farming clusters of 40,000–100,000 hectares each
•
Proximity of land to population centres, infrastructure and transport network•
Bring land into production within 12-18 months of gaining control Land acquisition and leaseCrop farming Grain storage Grain trading Processing Value
chain
Company strategy
•
Invest in modern machinery and equipment•
Restructure operating assets and optimise number of employees•
Crop rotation and optimal use of fertilisers•
Own storage capacity for the entire crop harvest•
Connected to railway network with access to ports•
Maintain flexibility for sale of crops•
Capture additional margin on the sales price•
Increase market position by trading 3rd party grains•
Deliveries to export markets•
Not part of Trigon Agri’s business model as of todaySource: USDA, 2008 estimates as of March 11, 2009 All figures denote trade-year data
Global: wheat and coarse grains World use of grains
A continued cereals consumption increase is expected in 2009, driven by global population growth, income growth in developing countries driving higher calorie intake and increased meat consumption (providing a multiplier effect on cereals demand as it takes several kilograms of animal feed cereals to get one kilogram of meat), and a continued increase in the usage of cereals for bio-fuels production. As reported in the February 2009 long-term projections report, USDA forecasts the global population increase to stand at an average of 1.1% through-out 2009-2018. The same report forecasts a continued increase, albeit at significantly slower rate than over last 10 years, for corn usage in the production of ethanol. Based on these fundamentals and given that consumption of basic foodstuffs is generally relatively independent of economic cycles, the global demand can be expected to further increase during the 2009 trade-year, up from an already historical record year in 2008.
Meanwhile, global production of cereals is forecasted to decline during the upcoming 2009 trade-year, driven primarily by smaller plantings by farmers due to financing constraints (OECD-FAO report February 2009). If this will be combined with adverse whether conditions during the upcoming year, we might be facing a food shortage, possibly one that will be acuter than anything seen by the world over recent decades.
According to a presentation given by the president of AgResource (a leading global agri-research firm based in the US) in a recent Global Grain 2008 conference in Geneva, the underlying fundamentals are likely to bring back a bull market for cereals driven, firstly, by cash-led demand when larger local trading houses manage to sort out their financing issues. Such a change would in turn be likely to trigger speculative buying from financial investors, which would further support the market and have an increased upward pressure on prices.
A summary of current prices on Chicago Board of Trade for the two key crops for the Group is given the table below:
USD per tonne Wheat Corn
CBOT Spot as of 04.01.2008 317 171 CBOT Spot as of 27.03.2009 155 145 CBOT 2 month futures as of 27.03.2009 186 152 CBOT 6 month futures as of 27.03.2009 201 160 Source: Bloomberg
Local trends
Cereals production
Following good climatic conditions in both Ukraine and Russia and increased use of fertilizers last year, both countries produced a record harvest in 2008. With the output increase being several times larger than the local market consumption increase, this allowed both countries to have record high exports, an indicator of the potential that the countries hold in becoming an important part of the solution to the global food shortages.
The summarised key indicators of the grain and oilseeds market are shown in the tables below:
Ukraine 2007 2008
Total arable area, milions of ha 42 42
Cropped area, milions of ha 25 26
Average yield, tonne/ha 1.4 2.3
Croppage, millions of tonnes 36 61
Exports, millions of tonnes 5 25
Consumption, millions of tonnes 30 34
Ending stocks, millions of tonnes 4 6
Russia 2007 2008
Total arable area, milions of ha 118 118
Cropped area, milions of ha 65 66
Average yield, tonne/ha 1.3 1.7
Croppage, millions of tonnes 87 112
Exports, millions of tonnes 13 22
Consumption, millions of tonnes 75 82
Ending stocks, millions of tonnes 8 16
With such an increase in production volumes, infrastructure bottle-necks in both countries started to show themselves clearly over the last year. Insufficient storage capacity and limited port through-put capacity created pressure points during the harvest season where local small farmers without storage facilities were forced to sell their crops at cut-throat prices. Long waiting lines were created on the railways leading to the terminal in Novorossiysk, Russia, the only Black-Sea deep-water port in Russia, which is the main cereals exports corridor from the country. Similarly, port facilities in Ukraine got overbooked and through-put rates in key ports were increased in autumn 2008 by more than two and half times. Such bottle-neck issues are likely to further increase in the future as more land is in being put back into production and average yields increase, making it vital for large production companies to secure their own storage capabilities, which allow to freely time the sale of crops and provide the possibility to avoid seasonal peaks in export terminals.
Local prices for the four main crops of the Group have followed the dynamics in global markets and seen a significant drop over the last 12 months. The recovery in the prices going forward can be expected to be driven primarily by exports, i.e. it will be linked to global price developments, as both countries by themselves have significant excess in cereals production capacities compared to local demand. The graphs below depict the price dynamics in USD from the beginning of 2008.
Local prices on EXW terms in USD per tonne including VAT
Source: APK Inform
The local competitive landscape in both of the markets has changed drastically over the last six months. While over 2005-2008 large amounts of new investment capital was poured into the sector by local and foreign investors, today, almost all larger production companies (with only a few exceptions such as for example Trigon Agri) are facing significant financing issues.
These financial constraints in turn will lead to a fall in their production areas during the upcoming year. Even though official government statistics forecast similar production areas for the upcoming season as last year, what can be seen on the ground is that planned reductions in spring seeding areas are very significant compared to the figures last year. Furthermore, a large number of companies have been put up for sale by their owners who have not been able to sort out working capital financing, and there are only a handful of investors who are able to make any new investment commitments today.
50 100 150 200 250 300 350 400
01/01/2008 01/02/2008 01/03/2008 01/04/2008 01/05/2008 01/06/2008 01/07/2008 01/08/2008 01/09/2008 01/10/2008 01/11/2008 01/12/2008 01/01/2009 01/02/2009 01/03/2009
Ukraine feed maize USD Russia feed maize USD CBOT c orn spot USD 70
120 170 220 270 320
01/01/2008 01/02/2008 01/03/2008 01/04/2008 01/05/2008 01/06/2008 01/07/2008 01/08/2008 01/09/2008 01/10/2008 01/11/2008 01/12/2008 01/01/2009 01/02/2009 01/03/2009
Ukraine feed barley USD Russia feed barley USD
90 140 190 240 290 340 390 440
01/01/2008 01/02/2008 01/03/2008 01/04/2008 01/05/2008 01/06/2008 01/07/2008 01/08/2008 01/09/2008 01/10/2008 01/11/2008 01/12/2008 01/01/2009 01/02/2009 01/03/2009
Ukraine wheat, class 3 USD Russia wheat, c lass 3 USD CBOT wheat spot USD 150
250 350 450 550 650 750 850 950 1,050
01/01/2008 01/02/2008 01/03/2008 01/04/2008 01/05/2008 01/06/2008 01/07/2008 01/08/2008 01/09/2008 01/10/2008 01/11/2008 01/12/2008 01/01/2009 01/02/2009 01/03/2009
Ukraine sunflower seeds USD Russia sunflower seeds USD
Dairy production
The dairy markets have similarly seen a price correction over the last few months. Estonian milk prices have fallen back to the levels which prevailed in 2004 as export markets for milk powder have fallen away and the local overproduction of raw milk (estimated at around 30% higher than local consumption) has created an oversupply in the local dairy processing factories. The recent drop, however, has hit most of the local farmers in Estonia with a very negative surprise as a large number of them aggressively leveraged their operations over the last few years on the back of strong milk prices. Meanwhile, the retail prices in shops have not seen any significant downward corrections as the retailers have collected most of the margin created by the drop in raw milk prices. The current situation is unsustainable and we are likely to see several large local dairy farms, as well as a large number of smaller ones, in Estonia being driven out of business over next 9-12 months which will correct the Estonian raw milk output to match the local consumption and should have a correspondingly positive recovery in the prices of milk.
In the St Petersburg region, prices have held up relatively well in local currency terms but fallen in EUR terms due to the devaluation of the Russian Rouble. The significant shortage of high quality raw milk in Russia has kept the pricing on levels substantially higher than in most of the EU countries and we currently do not foresee any big downward correction in demand even with a weaker economic environment.
Key events 2008
EUR 105 million secondary share issue
Despite the turbulent market conditions, the Group managed to successfully carry out a EUR 105 million equity capital raising on May 6, 2008. The issue was subscribed by over 60 investors, which included internationally well recognised institutional investors and private investors. The capital raising was a significant further step for the Group and provided the required financial platform on which to continue realising the Group’s expansion targets.
Three new cereal production clusters set up in the Black Earth region
During the first half-year 2008, the Group set up three new cereals production clusters in the Black Earth region: Kirovograd (Ukraine), Samara (Russia) and Penza (Russia). As of year-end 2008, the total land under control in these three new locations stood at 122 thousand hectares.
Storage capacity in Ukraine taken to 322,200 tonnes
During the first half-year 2008, the Group completed three additional rail-road connected elevator acquisitions in its Kirovograd cluster in the Ukraine taking the total elevator storage capacity of the Group in Ukraine to 322,200 tonnes.
Source: Federal Statistics Offices of Estonia and Russia
0.075 0.125 0.175 0.225 0.275 0.325 0.375 0.425
Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
Average raw milk price excl VAT,
EUR/kg
Pskov region average raw milk pric e Russian average raw milk price St Petersburg region average raw milk pric e Estonia average raw milk pric e
Cereals harvest collected from 65,000 hectares in the Black Earth region
The Group successfully collected a cereals harvest in the Black Earth region from 65,000 hectares, a 2.8 fold increase from 2007.
Winter crops seeded during third quarter 2008 on 44,000 hectares in the Black Earth region
The Group successfully seeded 44,000 hectares of winter crops in its four cereals production clusters in the Black Earth region.
The current conditions of the winter crops seeded by the Group have been satisfactory and there has been no significant winter damages on areas seeded.
Trading and elevator management JV successfully set up
On July 1, 2008, the Group successfully launched its trading and elevator management JV with Ramburs Group, a leading independent trading firm in the Ukraine. The new company named Ramburs Trigon is responsible for sourcing and storing soft commodities in Ukraine and Russia. The step marked a significant further development mile-stone for the Group in its way towards becoming an integrated company, which farms the fields in Ukraine and Russia and is capable of export deliveries of crops to clients globally.
Share buy-back
Based on the resolution of the Extraordinary General Meeting of the shareholders, which was held on October 29, 2008 in Copenhagen, the Board of Directors was authorised to carry out a share buy-back for up to 10% of the outstanding share capital. As of December 31, 2008 the Group had purchased 10,700,100 shares for a total consideration of EUR 4,246,067.
2008 financial summary
Total revenue and fair value adjustments
The total revenue and fair value adjustments in 2008 amounted to EUR 41,541 thousand (EUR 9,490 thousand in 2007), representing a close to 4.4 fold increase year-on-year. Largest part of the total revenue and fair value adjustments was generated from the Group’s operations in Ukraine, followed by Estonia and Russia.
Total sales revenue amounted to EUR 29,984 thousand in 2008 (EUR 6,620 thousand in 2007), representing a more than 4.5 fold increase year-on-year. Other income amounted to EUR 4,413 thousand (EUR 1,111 thousand in 2007). Other income included government subsidies related to agricultural production and environmental incentives received in Estonia, Ukraine and Russia in the amount of EUR 2,044 thousand Euros (EUR 849 thousand in 2007). The rest of the other income was earned from various sources including e.g. sales of meat, young animals, services etc.
The gains from fair value adjustments are related to change in prices and quantities of the biological assets (living animals and plants). In 2008, the total change amounted to EUR 7,144 thousand (EUR 1,759 thousand for 2007). 75% of the adjustment was related to increase in the area of seeded winter crops, which are recorded in the financial statements at cost as only little biological transformation has taken place between seeding and the balance sheet date. The remaining 25% of the change was in major part related to the increase in the number of animals in the dairy units of the Group.
The graphs below show the dynamics of total revenue and fair value adjustments as well as a percentage break-down for 2008:
Total revenue and fair value adjustments
29,984 4,413 7,144
0 10,000 20,000 30,000 40,000 50,000
2006 2007 2008
EUR thousand
Gain arising from changes in fair value less estimated point-of-sale costs of biological assets
Other income
Revenue
Total revenue and fair value adjustments
Samara cluster (Russia) 13%
Harkov cluster (Ukraine)
21%
Elevators (Ukraine)
25%
Penza cluster (Russia)
0.4%
Trading Joint Venture
28%
Kirovograd cluster (Ukraine) Kaiu, Kärla 4%
cluster (Estonia) 9%
St Petersburg cluster (Russia) 0.2%
Change in inventories of agricultural produce and work in progress
Change in inventories of agricultural produce and work in process amounted to EUR 11,845 thousand (EUR 2,868 thousand in 2007). The change in agricultural produce and work in progress is the difference between the carrying value of these inventory items in the Group’s balance sheet as of December 31, 2007 and 2008. The change in agricultural produce reflects the fair value of the unsold portion of the 2008 harvest at the price prevailing at the 2008 harvest date, which has been adjusted for some positions down to the net realisable value. In 2008 the adjustment was 805 thousand Euros, whilst no adjustment was needed in 2007 when the grain prices were increasing steadily. The change in work in progress reflects the difference between costs incurred in 2007 in respect of the 2008 harvest and the costs incurred in 2008 in respect of the 2009 harvest.
When the remaining produce from the 2008 harvest is sold in 2009, revenue is recorded at the actual price obtained for the grain sold and the carrying value of the agricultural produce is reduced by the amount sold. That appears as decrease in change in inventory of agricultural produce line in the 2009 income statement whereas the next harvest will again appear as increase in the change in inventory.
Operating expenses
The Group’s operating expenses amounted to EUR 55,031 thousand in 2008 (EUR 13,331 thousand in 2007). This included depreciation charges in the total amount of EUR 3,138 thousand in 2008 (EUR 873 thousand in 2007). The large expansion in the operating expenses was related to the very significant expansion of the Group’s production and storage activities (launch of three new production clusters and acquisition of three new storage elevators in the Ukraine during 2008) and launch of the
Group in 2008 amounted to EUR 32,604 (EUR 11,890 in 2007). Total operating expenses excluding depreciation related to the storage and trading operations of the Group in 2008 amounted to EUR 18,424 thousand (EUR 477 thousand in 2007).
The break-down of the Group’s operating expenses (excluding depreciation) by type is given in the tables below:
EUR thousand
2007 Total
Agricultural operations
Trading and storage
2008 Total
Agricultural operations
Trading and storage
Cost of purchased grain - - - 14,262 - 14,262
Materials for agricultural production 3,899 3,734 165 11,479 11,479 -
Employee benefits expense 2,450 2,337 113 6,490 5,128 1,362
Fuel, gas, electricity 1,327 1,286 41 4,303 3,856 447
Office and administration expenses 675 601 74 2,862 2,274 588
Management fee 1,089 1,089 - 2,767 2,767 -
Animal feed 1,253 1,253 - 2,565 2,565 -
Transportation 316 267 49 1,917 1,394 523
Land tax and land rental 488 488 - 1,104 1,104 -
Other services 119 84 35 1,095 1 1,094
Legal and consulting fees 76 76 - 583 583 -
Other expenses 675 675 - 1,601 1,453 148
Total 12,367 11,890 477 51,028 32,604 18,424
EBITDA
Earnings before interest, taxes, depreciation and amortisation in 2008 amounted to a positive results of EUR 1,680 thousand (respective figure in 2007 was negative by EUR 13 thousand). The EBITDA improvement was driven by the production operations of the Group in Estonia and in Kharkov, Ukraine, where the productivity improvements started to show the results through the investment programs completed in 2007, as well as the Group’s storage and trading activities in Ukraine. The EBITDA was negative in the production clusters of the Group which were set up only in 2008 and in the St Petersburg dairy production operation, which is still under construction.
EUR thousand Estonia Kharkov Kirovo- grad
St.
Peters- burg
Samara Penza Joint Venture
Eleva-
tors Total
Revenue 2,532 4,896 374 228 587 220 10,712 10,435 29,984
Subsidies 538 314 82 78 954 78 - - 2,044
Other income 172 724 329 - 429 6 680 29 2,369
Change in fair value of
biological assets 345 2,831 964 -221 3,359 -135 - - 7,144
Total segment income 3,587 8,765 1,749 85 5,330 169 11,392 10,464 41,541
EBITDA 1,256 1,731 -406 -891 -3,044 -582 1,672 1,945 1,680
Finance income / (-costs) -277 1,211 118 -458 1,560 54 -2,232 -828 -852
Depreciation and amortization -408 -661 -439 -348 -329 -246 -6 -703 -3,140
Income tax expense - -1 - - - -122 -123
Net profit / (-loss) from
segment 571 2,280 -727 -1,697 -1,813 -774 -566 292 -2,435
Total Assets 11,203 38,045 19,521 11,585 34,412 16,033 6,841 17,091 154,731 Incl. non-current assets 8,720 7,348 6,639 10,833 10,499 11,404 26 14,275 69,744
Total Liabilities 5,239 1,806 712 117 1,220 99 7,696 3,260 20,149
Fixed assets breakdown by type
Buildings Construction
in process, prepayments
1%
Elevator buildings 23%
Vehicles &
machinery 34%
Land 12%
Furniture, fittings &
equipment 1%
Fixed assets breakdown by production segment
Dairy farming 30%
Storage (elevators)
26%
Trading JV 0.05%
Cereals farming
44%
Consolidated EBITDA
1,680
-435 -13
-500 0 500 1,000 1,500
2006 2007 2008
EUR thousand
2006
Net profit/loss
The net profit/loss of the Group in 2008 amounted to a net loss of EUR 2,435 thousand (loss of EUR 84 thousand in 2007). The net loss was significantly influenced by foreign exchange loss in the amount of EUR 3,133 thousand (EUR 91 thousand in 2007), primarily driven by the Ukrainian hryvna devaluation during Q3 and Q4 2008.
Assets
The total assets of the Group as of year-end 2008 amounted to EUR 154,731 thousand (EUR 71,410 thousand in 2007). In the country composition, 53% of the total assets of the Group were related to the operations in Ukraine, 40% to the operations in Russia and 7% to the operations in Estonia.
Total assets by country
Ukraine 53%
Russia 40%
Estonia 7%
The non-current assets of the Group as of year-end 2008 amounted to EUR 69,744 thousand (EUR 26,890 thousand in 2007).
In the business segment composition 44% of the fixed assets was related to the Group’s cereals farming operations, 30% to dairy farming operations 26% to the storage infrastructure (elevators) and 0.05% to the Ramburs Trigon joint venture.
The break-down of key fixed assets by number of units is given in the tables below:
Elevators Warehouses
Storage facilities Number of
items
Capacity (thousand
tonnes)
Number of items
Capacity (thousand
tonnes)
Kharkov (Ukraine) 2 50 30 28
Kirovograd (Ukraine) 3 272 19 20
Penza (Russia) - - 14 5
Samara (Russia)* - - 36 39
TOTAL 5 322 99 93
*Rented premises
Buildings
Dairy farming buildings (number of
items)
Cereals farming buildings (number of
items)
Other buildings and facilities
(number of items)
TOTAL
Kharkov (Ukraine) 80 198 126 404
Kirovograd (Ukraine) 23 79 22 124
Penza (Russia) 13 17 17 47
Samara (Russia) - 7 1 8
St Petersburg (Russia) 24 - 2 26
Kaiu, Kärla (Estonia) 94 - 37 131
TOTAL 234 301 205 740
Agricultural machinery and equipment New machinery
(2006 and later)
Machinery (until 2005)
(number of
items)
(number of items)
Tractors 72 252
Harvesters 41 53
Seeding machinery 67 128
Kamaz trucks 46 28
Soil preparation equipment 94 270
Other machinery (including various vehicles, lorries, excavators, field equipment) N/R 1 422
TOTAL 320 2 153
The break-down of the Group’s land holdings is given in the table below:
UKRAINE Land under control (hectares) 30.06.2007 31.12.2007 30.06.2008 31.12.2008 31.12.2009E
Land in ownership - - - - -
Land under rental agreements 4,530 13,848 13,848 43,848 52,000
Land in ownership acquisition process - - - - -
Land in rental agreement acquisition process 18,128 8,810 30,135 3,000 -
Total Ukraine 22,658 22,658 43,983 46,848 52,000
RUSSIA Land under control (hectares) 30.06.2007 31.12.2007 30.06.2008 31.12.2008 31.12.2009E
Land in ownership 1,127 1,127 11,999 20,260 76,260
Land under rental agreements - - 100 17,837 17,837
Land in ownership acquisition process - - 77,993 56,000 -
Land in rental agreement acquisition process - - - - -
Total Russia 1,127 1,127 90,092 94,097 94,097
ESTONIA Land under control (hectares) 30.06.2007 31.12.2007 30.06.2008 31.12.2008 31.12.2009E
Land in ownership* 1,701 1,701 1,832 1,832 1,832
Land under rental agreements 1,329 1,329 1,452 1,452 1,452
Land in ownership acquisition process - - - - -
Land in rental agreement acquisition process - - - - -
Total Estonia 3,030 3,030 3,284 3,284 3,284
TOTAL Land under control (hectares) 30.06.2007 31.12.2007 30.06.2008 31.12.2008 31.12.2009E
Land in ownership* 2,828 2,828 13,831 22,092 78,092
Land under rental agreements 5,859 15,177 15,400 63,137 71,289
Land in ownership acquisition process - - 77,993 56,000 -
Land in rental agreement acquisition process 18,128 8,810 30,135 3,000 -
Total 26,815 26,815 137,359 144,229 149,381
*including land under usufruct agreements
Devaluation effects
The Group’s assets expressed in Euro have fallen due to the devaluation of Russian rouble and Ukrainian hryvna. Total net effects of the devaluation of these currencies are expressed as negative reserve in the consolidated owners’ equity of the parent company of the Group. These effects, increasing the negative currency translation reserve in amount of EUR 21,700 thousand in 2008 (EUR 1,728 thousand in 2007) are due to the different value of these currencies at the time when the funds were actually invested and the year-end currency translation rate. However, the Group expects that the effect of the devaluation to the Group’s earnings will likely be positive in future. This is due to the fact that the Group mainly exports its produce in stable currency, whereas the expenses are in large part made in local currencies.
Investments
The total investments of the Group in 2008 amounted to EUR 103,080 thousand (EUR 19,416 thousand in 2007), including EUR 38,256 thousand allocated for purchases of French Treasury Notes and investments to 12-month deposits with Sberbank branch in Kharkov Ukraine. All the investments carried out in 2008, other than liquidity allocations to treasury notes and term deposits, were related to the expansion of the Group farming activities in Ukraine, Russia and Estonia as well as to the expansion of the Group’s elevator storage capacity in the Ukraine.
Cash flows from investing activities, EUR thousand 2007 2008
Acquisition of subsidiary, net of cash acquired - 23,727
Purchase of biological assets 297 2,601
Purchase of property, plant and equipment 17,412 33,352
Prepayments for long-term land lease agreements 1,707 115
Prepayments for new acquisitions - 5,029
Purchase of treasury notes - 31,066
Investments to over 6 month duration deposits in banks - 7,190
Net cash used in investing activities 19,416 103,080
Liabilities and liquidity position
The total liabilities of the Group as of year-end 2008 amounted to EUR 20,149 thousand (EUR 7,130 thousand for 2007). The total borrowings of the Group as of year-end 2008 amounted to EUR 11,016 thousand (EUR 4,082 thousand in 2007). Out of the total borrowings, EUR 4,198 thousand was related to the borrowings of the Group’s subsidiaries, while EUR 6,818 thousand to the Ramburs Trigon joint venture.
Due to its significant cash position, the net debt of the Group as of year-end 2008 amounted to EUR -38,570 thousand (EUR -31,620 thousand for 2007).
Borrowings of the Group’s subsidiaries, EUR thousand
Balance at December 31,
2008
Maturity Loan agreement interest terms
Loan AS SEB Eesti Ühispank 1,924 2014 Base interest for EEK loans + 1,25-1,5%
Loans AS Hansapank 1,406 2014-2020 5 year EURIBOR + 1,5%; 6 months
EURIBOR + 1,5%
Lease agreements AS SEB Eesti Ühispank 403 2014 6,01%
Lease agreements AS Hansa Liising Eesti 391 2010-2013 6 months EURIBOR + 1.354-3%; 6%
Lease Raiffeisen Bank 74 2010-2011 17,5%
Total borrowings of the subsidiaries: 4,198
Borrowings of the joint venture (50% share), EUR thousand
Balance at December, 31
2008
Maturity Loan agreement interest terms
Loan Sberbank 6,108 2009 12-13.5%
Raiffeisen Bank 710 2010-2013 11.25%-23%
Total borrowings of the joint venture (50%): 6,818
Total borrowings 11,016
Ratios and indicators
Income statement 31.12.2006 31.12.2007 31.12.2008
Total revenue and fair value adjustments 1,426 9,490 41,541
Net profit, EUR thousand 571 84 2,435
Annual % increase N/A 7 4.38
EBITDA 1) -435 -13 1,681
EBITDA margin,% 2) -38% 0% 5%
Operating profit margin, % 3) -47% -13% -5%
Net profit margin, % 4) -51% -1% -7%
Number of shares, end of the period 972,479 59,627,479 129,627,479
Earnings per share (EPS), EUR 5) -0.59 -0.00 -0.02
Balance sheet 31.12.2006 31.12.2007 31.12.2008
Total assets, thousand Euros 15,238 71,410 154,731
Total owner’s equity, thousand Euros 11,816 64,280 134,582
Return on assets (ROA), % 6) -1% 0% 0%
Return on equity (ROE), % 7) -5% 0% -2%
Equity ratio, % 8) 78% 90% 87%
Current ratio 9) 4.0 16.3 7.1
Acid test 10) 2.4 13.9 5.1
1) EBITDA EBITDA has been calculated by adding to the operating profit the annual depreciation of the fixed assets and amortisation of the long-term prepayments made to get access to the land.
2) EBITDA margin EBITDA / Total revenue. EBITDA margin measures the relationship between different measures of profitability and revenue providing information about a company’s operational cash costs (i.e. excluding depreciation) in relation to its revenue and is independent of both the company’s financing and tax position.
3) Operating profit margin Operating profit / Total revenue. Operating profit margin measures the relationship between different measures of profitability and revenue providing information about a company’s profitability from the operations of its business and is independent of both the company’s financing and tax position.
4) Net profit margin Net profit attributable to the owners of the Parent / Total revenue. Net profit margin measures the relationship between different measures of profitability and revenue providing information about a company’s profitability.
5) Earnings per Share (EPS) Earnings per Share has been calculated in accordance with IAS 33, pursuant to which the net result attributable to the shareholders of the Company is divided by weighted average number of common shares outstanding during the period.
6) Return on assets (ROA) Net profit attributable to the owners of the Parent / Average total assets. Return on assets compares income with total assets measuring management’s ability and efficiency in using the firm’s assets to generate profits
7) Return on equity (ROE) Net profit attributable to the owners of the Parent / Average Equity without minority interest. Return on equity compares income with the equity capital measuring management’s ability and efficiency in generating return to the shareholders of the company.
8) Equity ratio Total equity / Total assets. Equity ratio is a measure of financial leverage providing analysis of a company’s capital structure.
9) Current ratio Total current assets / Total current liabilities. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months.
10) Acid test (Total current assets – Inventories) / Total current liabilities. The acid-test or quick ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities.
2008 operational summary
Cereals farming
2008 was a year of significant expansion of the cereals farming activities of the Group. Three new production clusters were set up during the first half of the year in Kirovograd (Ukraine), Samara (Russia) and Penza (Russia), which took the total fieldworks area close to 74,000 hectares during the year, including 65,000ha under cereals crops. In 2007 the respective total area where fieldworks were carried out stood at around 27,000 ha, including around 23,000 ha under cereals crops. Meanwhile, the total gross harvest in 2008 stood at 180,907 tonnes against the respective 2007 figure of 56,607 tonnes (a 3.2 fold increase year-on- year).
The graphs below give a summary of key production area, volume and crop plan indicators:
- 40,000 80,000 120,000 160,000 200,000
2006 2007 2008
Tonnes
- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
2006 2007 2008
Ha
cereals black fallow dairy
Crop plan 2008, ha Kharkov
Kirovo-
grad Samara Penza
Kaiu, Kärla
St
Petersburg Total
Winter wheat 7,905 4,634 3,798 1,970 35 - 18,342
Spring wheat - - 6,088 624 - - 6,712
Winter barley 41 1,404 - - - - 1,445
Spring barley 4,791 - 1,759 170 550 - 7,270
Sunflower 3,177 3,050 4,004 502 - - 10,733
Corn 4,166 672 968 - - - 5,806
Other grain 2,844 3,222 7,925 700 - - 14,691
Total cereals 22,925 12,982 24,542 3,966 585 - 65,000
Grasslands and silage 254 - 3,921 1,308 2,380 789 8,652
Black fallow 33 - - - - 311 344
Total 23,212 12,982 28,463 5,274 2,965 1,100 73,996
The total net harvest collected in 2008 by the Group stood at 171,342 tonnes against the respective 2007 number of 51,518 tonnes. The break-down of the 2008 net harvest and respective annual inventory movements are given in the table below:
Tonnes
Year-end balance
2007
Net harvest
2008
Seeds bought
Seeds
seeded Crop sold
Crop used as
animal fodder
Crop used as means of land rent payment
Year-end balance
2008
Wheat 9,897 82,453 2,003 6,151 27,922 2,864 5,286 52,129
Barley 2,061 28,483 - 1,318 14,005 827 519 13,875
Sunflower 1,765 15,732 - - 3,783 185 50 13,480
Corn 3,929 26,301 - - 8,178 553 119 21,381
Other 112 18,373 20 750 5,216 3,786 31 8,722
Total 17,764 171,342 2,023 8,219 59,104 8,215 6,004 109,587
In parallel to land expansion, the Group was moving forward during the year with the restructuring of the acquired agricultural operations and with working towards implementing the targeted improvements in yields. As announced previously, the management estimates that it takes usually around three years to bring agricultural land acquired back to its full production potential (the so-called ‘ramp-up’). This is primarily related to restoring the nutrients content in the soil to its optimal levels as it has been drawn down by former land-operators who due to lack of access to capital have not been able to buy even basic farming inputs (fertilizers, good quality seeds etc).
The targeted yield improvements for each respective ramp-up year are given in the table below. The table shows management’s targets for productivity improvements on a per hectare basis assuming full preparation of field-works (and seed selection) by the Group itself (i.e. it requires that the Group is able to access the farm-land no later than September for the next seasons preparatory autumn field-works). The yield table also assumes and is subject to normal weather conditions.
UKRAINE
Target yields, tonnes/hectare Year1 Year2 Year3
Wheat 4.00 5.50 7.00
Sunflower 2.00 2.50 3.00
Corn 5.00 6.50 8.00
Barley 3.60 4.15 4.70
RUSSIA
Target yields, tonnes/hectare Year1 Year2 Year3
Wheat 3.60 4.95 6.30
Sunflower 1.80 2.25 2.70
Corn 4.50 5.85 7.20
Barley 3.24 3.74 4.23
