Equity Market Insight-Mriya Agroholding: Notes from analyst day

Mriya Agroholding\'s 1Q11 financial results were followed by a site visit for investors and analysts. Our comments are as follows:

Mriya\'s farming business is well-organised in operational management and production efficiency. The holding is currently independent in terms of storage for crops, and continues to develop its storage capacities. Management is pursuing organic growth in landbank development, and maintains self-sufficiency in farming equipment. The company is developing a highly profitable potato project which should reach full-scale production this year. Mriya remained opaque regarding related parties\' operations in its farming and sugar divisions, sales of which account for 43% of its total revenue plus revaluation of biological assets for year-end 2010.

Market position

Mriya Agroholding is one of the top-5 land operators in Ukraine, with a total current land bank of 240,000ha and a main focus on farming; its revenues are 90% from the farming business, predominantly in sugar beet sales, grains, and rapeseed. In its organisational structure, Mriya consolidates its farming assets and infrastructure in crop cultivation and storage. On the other hand, the company is known as one of the largest sugar producers in Ukraine, but sugar plants related to the company are unaffiliated and operate independently, for the purpose of more advantageous pricing and optimisation of profit taxation, as pure agricultural companies in Ukraine are exempt from corporate tax. Additionally, potato planting, although rather costly, is a highly profitable business, providing gross margins of over 80%.

Fields

Mriya\'s fields, with total area under harvest in the Fall 2011 of 240,000ha make a good impression. At the end of May, the company completed Spring sowing of 47,000ha of sugar beets, 20,000ha of summer wheat, 10,000ha of corn, and 4,500ha of potatoes, in addition to 120,000ha of winter wheat and 37,000ha of winter rapeseed. Currently, the crops are in perfect condition, with the potential for high yields. If the weather, which has been favourable, remains as such, wheat may yield 4-5t/ha, rapeseed 3t/ha, beets 45t/ha, and potatoes 35t/ha. Crops to be harvested in 2011 have received higher amounts of fertiliser versus those in 2010. All plant protection chemicals were delivered in full to the fields on time.