Agri-services group Origin Enterprises reported a blockbuster trading quarter, while warning that “challenging macro-economic conditions” would persist in the coming year.
Looking at the numbers, business in Ireland and the UK was a huge driver of the revenue growth, with the €460m from the region in the period larger than the total global group revenue (€454.1m) in the same period last year.
The company said the strong performance was driven by an early 2022 harvest which facilitated an early autumn/winter planting season. It will be interesting to see if this means that Origin will see lower revenue in the coming quarter as much of the business for the season has already been completed.
The company expects combined autumn/winter and spring plantings to be in line with the 4.4m hectares completed last year, implying there will be little scope for revenue growth on volume.
Looking further afield, an expected increase in Romanian planted area will be offset by a modest reduction in Poland.
The area planted in Ukraine, unsurprisingly, will be “significantly behind prior year.” The company said that the top priority continues to be the “safety and wellbeing of our colleagues” in the country and the de-risking of the balance sheet. It added that it continues to support limited localised operations where appropriate.
There was a strong performance in Latin America, with an underlying increase in services and crop input volumes of 20.5%. While weather conditions in the region have been generally good, the company said, regional variations resulted in some delayed soya planting compared to the last year.
During the quarter Origin completed the acquisition of Keystone Environmental Services, a UK-based company specialising in the design, planning and delivery of complete ecological solutions. Speaking at the time of the announcement, Origin chief executive officer Sean Coyle said investment in this sector is a key priority as the company broadens it offering in sustainable land use.
It was also a notable quarter for Sean Coyle as he was chosen as The Irish Times business person of the month for October.
Origin held its Annual General Meeting in Dublin on Tuesday where all 18 resolutions put to shareholders were passed. Interestingly, the only vote on the board of directors which saw any pushback from shareholders was the re-election of Gary Britton, with 6.5% voting against.
Britton is succeeding Rose Hynes as chair of the group.
Origin shares rose in the wake of the results, trading at the highest level since August (see Figure 1). The Group’s €20m share buyback programme continues.
While investors clearly welcome the surge in revenue, there are some warnings in the trading update worth keeping note of. The early planting of autumn crops may mean much of the revenue for the first half of the company’s trading year, which starts in August, has already been banked. Taken on a whole-year basis, this will matter little, but there may be some danger in expecting a similar revenue performance when the next quarterly update is released in March.
There is also the impact of inflation on the revenue. If prices are soaring then revenue will soar too, presuming the amount sold remains the same. On that, there seems to be good news so far. Volumes are higher in major markets, and farmers seem willing and able to pay the prices. As the trading update says, “on-farm sentiment remains positive ... as strong crop prices have bolstered farm balance sheets.”
However, higher revenues driven by inflation do not necessarily lead to similar increases in the bottom line. The company sums up the problem in one line of this week’s statement “significant general inflation, challenging energy markets and less certainty around product availability resulting in a volatile trading environment.”
Basically, everything costs more (general inflation), moving stuff around costs more (energy markets), and there’s not even much certainty over whether you can get the stuff you want (less certainty around product availability).