East West Agro AB
AB East West Agro 2020 1st half-year report
Kauno r., 2020-08-11 08:05 CEST --
AB East West Agro presents an interim set of unaudited financial statements for the first half of 2020 with the approval of the responsible persons.
In the first half of this year, EWA's sales revenue amounted to EUR 10.10 million (EUR 7.15 million in the first half of 2019). The company's gross profit was EUR 1.63 million (EUR 1.19 million in the first half of 2019).
Review of the first half of 2020
Due to COVID-19 and the introduction of quarantine in the country, the company faced various challenges in the first half of this year, but basically the company's half-year results were not affected by the pandemic. During quarantine, some employees worked remotely, and shops and service operations were reorganized to reduce unnecessary contacts and prevent potential contamination.
The supply of agricultural machinery from producers during the quarantine period was somewhat suspended, but the available inventories ensured the generation of revenue and the smooth fulfillment of obligations to our customers. The developed IT infrastructure of sales and services allowed to organize sales activities from home, to register service works by postponing them to the future or performing them without direct contact with the customer. The company planned to open a new machinery trade branch in Plungė in the spring of 2020, but due to quarantine the works were suspended. The new office is scheduled to open in August.
Due to the quarantine, most sales promotion events and exhibitions were canceled, but the company reoriented quickly enough and was able to offer virtual presentations of technical news in video format.
In the first half of this year, the company also received additional income from exports. We managed to expand the sales geography, new trading partners were found in Latvia, Poland, Finland, Iran and Ukraine. Both new and used agricultural machinery were supplied to these markets.
Agricultural machinery market
The market is experiencing some growth in sales of new equipment, but the numbers of registered machines, although higher than in 2019, are still significantly lower than the multi-year average sales of equipment. Farms are still feeling the effects of the last few poor seasons and are therefore not able to make all the investments needed. The beginning of the grain harvest indicates a good yield, grain purchase prices remain high enough. This should increase the purchasing power of farms.
In the first half of this year, 46% more new tractors were registered in Lithuania (268 units) than in 2019 (183 units), but this is still 43% less than in 2018 (469 units). EWA maintained its market share (15%), resulting in 46% more new Massey Ferguson tractors registered (41 units) than in 2019 (28 units).
Until July 1 farms registered 13% less grain harvesters (35 units) than in 2019 (40 units) and even 36% less than in 2018 (55 units). 29% more Massey Ferguson combines were registered (9 units) than in 2019 (7 units).
The 300th Massey Ferguson (formerly Laverda) combine was delivered to the customer at the start of the harvest, and the 500th Massey Ferguson tractor is expected to be sold in the second half of 2020. These are significant figures that will allow us to expect significant revenue growth from spare parts sales and service in the future as we serve the growing fleet of machines sold.
At the end of July, EWA introduced its new Massey Ferguson tractor series MF 8S to its customers in a virtual, video format. The new four model series includes a power range from 205 to 265 hp. This tractor series will further expand the range of equipment offered by EWA, which will be mostly relevant for large farms. The new models will be available in Lithuania at the end of this year.
Outlook for 2020
The company's management, after assessing the market environment, customer needs and their purchasing power, adjusted the budget for 2020, in which the estimated sales revenue should reach 23.5 EUR million. Profit before tax is expected to reach 1.22 EUR million, EBITDA will reach 2.3 EUR million.
On July 1st, the collection of applications under the EU subsidy measure “Support for Investments in Agricultural Holdings” for farm modernization has been completed. In total, up to 52 EUR million is planned to be allocated under this measure. The implementation of these projects will take place in late 2020 – beginning of 2021, which will have a positive impact on the agricultural machinery market.
In cooperation with major suppliers, ways are being sought for geographical development in the region. Due to the impact of COVID-19, negotiations with strategic partners have been postponed to 2021.