Origin agri-service activities reap profits of €66m

ADVANCES IN the science of farming, coupled with a sustained rise in grain prices, helped Origin Enterprises to a nourishing bottom line over the past year, with revenues, margins and profits from its agri-service activities all swelling.

Origin’s on-farm agronomy services in Britain and Poland and its Irish feed and fertiliser business harvested profits of €66 million in the year to the end of July. This was up almost 30 per cent on the previous year, thanks to an improving backdrop for food production.

Revenues in Origin’s agri-services grew almost 17 per cent to €1.26 billion, as margins advanced half a percentage point to 5.2 per cent. “The operating environment for farming is buoyant. Production is struggling to keep pace with consumption,” said Origin chief executive Tom O’Mahony.

The company is poised to take advantage of a longer-term evolution in crop technology.

“We’ve been repositioning our business over the last three to five years to agri-services, mainly in on-farm businesses, where we directly influence how farmers build their crops,” he said.

Its strategy was described as “smart” yesterday by Davy food sector analyst John O’Reilly.

Agronomy – the business of Origin’s UK subsidiary, Masstock, and its Polish company, Dalgety – is the science of managing crop yields to make farming land more productive and profitable.

Agronomists are sometimes called “crop doctors” because they advise farmers on crop selection, protection and yields. They also prescribe the range of nutrition inputs needed for the soil to produce as much food as possible – inputs which Origin then sells.

“Farmers have expensive decisions to make,” said Mr O’Mahony. However, the recent recovery in grain and other agricultural prices had allowed them to make investments in the efficiency of their lands, he added.

This “increasing professionalisation of farming” was also designed to mitigate volatility. While the autumn of 2010 brought favourable planting conditions, “significant spring weather challenges” affected crop yields and grass growth, Origin said, claiming that its crop management programmes helped protect customers’ returns.

Origin has also endowed the first Masstock chair in crop science at UCD, a position taken by Prof Jimmy Burke.

In March, the group acquired UK-based United Agri Products, which will be integrated with Masstock. It is also hoping to expand in the traditionally underproducing farmlands of eastern Europe.

Origin Enterprises: 2010 results

Turnover: €1.3 billion (-2.6%)

Pretax profit: $€62.5 million (+40.5%)

Operating profit: €85.9 million (+10.9%)

Adjusted EPS: 43.34 cent (+16%)

Dividend: 11 cent (+22%)

SUMMARY

Operating profits at Origin Enterprises rose 11 per cent in the year to the end of July, as earnings from its agri-services business soared. Group operating profits rose to €85.9 million, with agri-services accounting for €66 million of the figure.

Profits from agri-services, which includes Origin's agronomy services businesses Masstock and Dalgety, surged 29.3 per cent, with operating profit margin rising by half a percentage point. This helped Origin to beat market expectations.

Goodbody Stockbrokers food sector analyst Liam Igoe described the full-year figures as "a very strong set of results", with earnings per share beating forecasts by 6 per cent.

Group turnover fell 2.6 per cent to €1.3 billion, but this was due to the impact of moving its consumer foods and feed ingredients businesses to associates and a joint venture.

The company managed to reduce its net debt by almost 18 per cent to €92 million despite going on the acquisition trail, its purchases including United Agri Products, Rigby Taylor and the specialist fertiliser business of Carr's Milling Industries.

Origin's consumer foods associate Valeo Foods will have annual revenues of about €300 million once it has completed its acquisition of Jacob Fruitfield.

Origin chief executive Tom O'Mahony said Valeo, formed in November 2010 by the merger of Origin Foods and Batchelors, was "well-positioned". Origin shares fell 1.2 per cent, closing at €3.35.