Financial Statements for 2009 audited by Baker Tilly
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Explanatory comments to audited 2009 financials
The negative 2009 financial result was due to the drop in yields of cultivated crops during the 2008/2009 marketing year (see table 1). Especially harmful were the yield drop in rapeseed and sunflower which incur high expenses per hectare, as well as winter wheat which was planted on more than 40% of the land bank.
Table 1. Crop Yields 08/09
| Crop |
Planted area, ha |
Yield F., tons/ha |
Yield A., tons/ha |
Deviation |
| Winter wheat | 33 456 | 3,8 | 3,3 | -13% |
| Winter rapeseed | 17 485 | 2,2 | 1,7 | -23% |
| Winter barley | 2 794 | 3,5 | 3,2 | -9% |
| Winter rye | 3 373 | 3 | 2,7 | -10% |
| Spring barley | 5 694 | 3,9 | 2,7 | -31% |
| Corn | 998 | 8 | 5,3 | -33% |
| Sunflower | 6 570 | 2,5 | 1,8 | -28% |
| Pea | 428 | 3 | 3,3 | 10% |
One of the main factors of crop reduction was tough weather conditions such as spring frost in April 09 (-11°C on the field) and dry summer (75% of required humidity). As a result, part of the harvest was lost due to winterkill, and weight loss in the harvest because of shriveling of the harvested grains.
Moreover, “Ukrzernoprom-Agro” LLC attracted an additional 30 000 hectares of new land in its land bank in 2008, which led to additional capital expenditures for integrating the new farms in line with Ukrzernoprom-Agro’s standards. The average yield discount of new farms varied from 10% up to 40% and at least two years were needed to cover that gap. In addition, mainly all the newly acquired farms did not have land fallows, which directly affected the structure of crop rotation in 2009.
2009 was extremely difficult for raising additional working capital as the credit crunch made it impossible to obtain loans from Ukrainian banks. “Ukrzernoprom-Agro” LLC was not the exception and the significant drop in prices impacted the company’s revenues, thus disposable cash was critically lower than forecasted.
As a consequence of the negative financial result and yield drop, the management of “Ukrzernoprom-Agro” LLC replaced 5 farm managers to improve operational and managerial efficiency on farms and reinforced internal control and its auditing departments. Also, management of technological input discipline was significantly toughened and the tender system for procuring materials was improved. Furthermore, the company started the practice of selling commodities using forward contracts (for example, a forward contract with Toepfer was concluded for the supply of more than 15 ths tons of rapeseed in 2010) and held successful negotiations with financial institutions for crediting the company’s operational activities during the 2009/2010 marketing year. On the other hand, the new land that was acquired in 2008 has been brought in line with company’s requirements and that surely will have a positive effect on the averaged crop yield and EBITDA per ha in the 2009/2010 marketing year.