Agri-services group, Origin Enterprises, saw its profits fall by close to half for its 2020 financial year, which ended in July this year.

Announcing full-year results on Wednesday, Origin reported a 46% slump in operating profits for the 12 months to the end of July 2020 to just over €44m.

Operating profit margins narrowed to just 2.8% compared to a profit margin of 4.6% a year earlier. Pre-tax profits fell by 50% year on year to €39m, while adjusted earnings per share (EPS) were down 51% for 2020 to 25.69c per share.

The group normally pays out up to €30m in shareholder dividends

Origin reported a 12% decline in sales to just under €1.6bn. Despite the challenging year, Origin was able to reduce its net debt to a modest €53m, which is very manageable at just 1.2 times earnings.

Given the uncertainty caused by COVID-19, Origin announced it would not be paying a final dividend to shareholders for 2020. The group normally pays out up to €30m in shareholder dividends. Shares in Origin gained 2% on Wednesday morning on the back of the results.

Weather woes

The sharp fall in profits for 2020 had been well flagged by the company following some of the most challenging weather conditions in decades faced by tillage farmers in Ireland and the UK trying to plant winter and spring crops last year.

Last autumn was the fifth wettest on record, which resulted in a 40% reduction in winter crop plantings in the UK and Ireland.

The challenging weather resulted in an 11% reduction in total plantings of winter and spring crops by farmers in the UK and Ireland

Plantings were further curtailed in early 2020 following the wettest February on record. Once the rain finally ceased in March, it failed to rain for months as the UK and Ireland were hit with a drought from mid-March to June.

The challenging weather resulted in an 11% reduction in total plantings of winter and spring crops by farmers in the UK and Ireland. This resulted in a 14% drop in demand for agronomy services and crop inputs, said Origin. Sales of crop protection inputs were back more than 20% alone in Ireland and the UK last year.

Brazil divestment

Origin also announced it has sold its 20% stake in Brazilian company Ferrari Zagatto, which resulted in a paper loss of €0.6m on the disposal. Origin CEO Sean Coyle said the sale of its stake in Ferrari was down to prudent management of capital.

Origin CEO Sean Coyle.

As part of the original deal with Ferrari in June 2019, Coyle said Origin had to either put up a further €10m to increase its stake to 60% in the business or sell back its 20% shareholding, which it chose to do.

Challenges

Speaking to the Irish Farmers Journal, Origin CEO Sean Coyle said the group’s 2020 financial year was defined by extreme weather challenges which affected profitability.

“It was a difficult year but the results are in line with what we expected given the severe weather we had in the last year,” said Coyle.

It’s very early days but the indication so far from early drilling is that there will be a big increase in winter wheat this coming year

With the 2020 harvest almost complete in Ireland and about 25% of spring barley and spring oats still to be harvested in the UK, Coyle is optimistic about the year ahead and feels the group will rebound in 2021 with a return to growth.

“It’s very early days but the indication so far from early drilling is that there will be a big increase in winter wheat this coming year. It could be back up to 1.8m hectares for 2021 in the UK,” said Coyle.

With the company lowly geared in terms of borrowings, there is room on the balance sheet for acquisitions that may arise. However, Coyle said the company would be focusing on managing cash in the first half of the year and would only look at potential opportunities in the second half when it has a clearer picture of profits for 2021.

Appointment

Origin also announced on Wednesday the appointment of TJ Kelly as the incoming chief financial officer of the group. It is expected Kelly will take up his new role as CFO at Origin no later than March 2021.

Origin's incoming CFO TJ Kelly.

Although currently working as CFO at the hostel booking agency Hostelworld Group plc, Kelly has plenty of experience in the Irish agribusiness sector having worked for 12 years with Glanbia in the US and Ireland in a number of senior roles, including as CFO of Glanbia’s performance nutrition business.