Irish agri services group Origin Enterprises has made its first move into South America after it announced this week it had acquired a 65% stake in Brazilian company Fortgreen Commercial Agricol for €41.3m on a cash-free and debt-free basis.

Origin will acquire the remaining 35% stake in the business on a future date, with the purchase price linked to the future profitability of the business. Fortgreen has sales of €28.4m for its 2017 financial year, while earnings (EBITDA) stood at €9.3m. This gives the business a very strong earnings margin of 33%.

With the business valued at just over €60m, Origin has paid a multiple of almost seven times earnings for its stake in Fortgreen. As part of the deal, Origin has also agreed to acquire a 20% stake in the agronomy service group Ferrari Zagatto for an undisclosed sum. Fortgreen and Ferrari have common shareholders.

According to Origin, Fortgreen is an established leader in the manufacture and marketing of a complete portfolio of related crop technologies, covering foliar fertilisers, bio-stimulants, adjuvants and control release and slow release fertilisers. Ferrari provides agronomy services, crop inputs and crop marketing support to some 4,000 Brazilian farmers.

Diversification

Having established itself as a leading player in Europe with operations in Ireland, the UK, Belgium, Poland, Romania and Ukraine, Origin is now making its first move into the vast and highly fragmented market in South America.

Both Fortgreen and Ferrari are based in the southern Brazilian state of Paraná, which is the second-largest corn and soya bean producing region of Brazil with about 9m hectares being farmed.

According to Origin, Paraná is a “strategically important” agricultural region in Brazil with well-established mid-sized farm holdings. It also has the logistical advantage of being close to good quality infrastructure and sea ports.

Origin chief executive Tom O’Mahony said the move into South America, where the production season is counter-seasonal to Europe, would help balance the seasonality in Origin’s earnings calendar.

“Fortgreen and Ferrari are two highly complementary businesses that are an excellent strategic fit for Origin. The acquisitions will enhance Origin’s crop technology portfolios and brand reputation on-farm. The acquisitions underline Origin’s strategic priority to scale its technology and service portfolios in markets which provide tangible growth opportunities,” added O’Mahony.

Weather impacts

Separately, Origin also reported third-quarter results showing a 4% decline in revenues for the three months to the end of April 2018 to €527m. Underlying sales in the business declined almost 8% for the period, while sales volumes were back almost 9%.

Origin attributed the decline in sales activity to the prolonged winter weather that affected much of Europe this year, particularly in March and April. The difficult weather delayed the normal pattern of spring planting on farms, resulting in lower demand for crop inputs.

Origin said it expects to achieve full-year adjusted diluted earnings per share (EPS) in the range of 47.5c to 48.5c per share, which would be ahead of last year’s EPS of 46.6c per share.

In the UK and Ireland, Origin said the extremely cold weather in March and April led to a four-week delay in spring planting activity, which resulted in a 6% decline in underlying sales for the period to €338m.

Underlying sales in Origin’s businesses across Europe, which includes operations in Belgium, Poland, Ukraine and Romania, declined by almost 9% in the third quarter to €161m. Again, this was due to the severe weather which delayed planting activity on the continent.

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