Cancelled CIS Orders Concern Kverneland
Global farm machinery group Kverneland has revealed 2008 financial results showing "a significant improvement in performance", according to President & CEO Ingvald Loyning.
Operating revenues equivalent to $822 million at current exchange rates were up almost 18% from $698 million in the year prior, while profitability expressed as EBITDA nearly doubled to $55 million.
"We were affected by the financial crisis to some extent toward the end of the year — a little in Western Europe but to a great extent among the Commonwealth of Independent States (CIS), where sales ended 9% down on 2007," says Loyning. "We were also hit in this market by customers being unable to pay for machines we had built against orders and now hold in stock; there is a big question mark over when the CIS market will come back and how fast."
Kverneland's ongoing business lacks the Dutch plant sold to Kuhn Group parent Bucher Industries in mid-February. It builds one of Kverneland's most important product lines — big square and round balers; exclude the unit's contribution to last year's income and group EBITDA drops to $35 million.
Regaining a baler line by September 2010 when Kverneland can no longer source its current product from the new owner is a key strategic aim and it seems all options are open – including out-sourcing from another manufacturer.
"Agreeing to the sale was a difficult decision and it wasn't something we wanted to do," Loyning says. "But we got a price [$152 million] that represents a 75% premium on our share value at the time. This will reduce our net interest-bearing debt from $145 million to $33 million and strengthens the equity-to-debt ratio to close to 40%."
Loyning's outlook for the current year is cautious, which is understandable when the industry faces uncertain market conditions that, to some extent, will depend on the effectiveness of national government responses to the global financial situation.
"Future demand for implements is dependent on the farmers' ability to finance new investments and on the ability of our dealers and importers to obtain financing; and that has become more difficult," he notes.
"But the agricultural industry is mature, most of the players have strong relationships with relevant financial institutions, and they've had finance in place for a long time. Furthermore, farmers have benefited from several years of high prices for their products and most have sound balance sheets."
Kverneland expects reasonable activity during the first part of 2009 — albeit at levels below last year — with agricultural commodity prices remaining healthy and costs for key inputs going down.
Source: Ag Equipment Intelligence