LHV Institutional Baltic Insight, September 1st, 2020

* Linas Agro’s (‘LNA’ or the ‘Group’) Q4 FY19/20 results, published on 31st August 2020, revealed a significant decline in revenues but improvement in profitability. Due to the COVID-19 crisis and lockdown in many countries, the Group companies faced various challenges, but H2 FY 19/20 results were not severely affected by the pandemic. None of the companies had to be closed; every company operated with individual employee protection measures and in compliance with new work safety procedures and customer service regulations. Overall, in FY19/20, the revenues declined by 11.4% y-o-y to EUR 657.7m while profitability improved significantly, with operating profit and net profit attributable to shareholders of EUR 13.9m (FY 18/19: operating loss of EUR 3.3m) and EUR 8.7m (FY 18/19: net loss attributable to shareholders of EUR 5.0m), respectively. Please also refer to the tables in the attachment.
* Olainfarm’s (‘OLF’ or the ‘Group’) Q2 2020 revenues were in the middle of our estimated range, while its profitability was stronger than anticipated. However, OLF’s solid performance in terms of gross margins was partly offset by continuous growth in administrative expenses. As predicted, a slight recovery of the Russian rouble and other CIS and Central Asia currencies against the EUR during the second quarter of 2020 resulted in FX gains, further supporting the bottom line. The Q2 2020 sales growth was driven primarily by the core medicine production of the parent company. Apart from the wholesale operations, other smaller segments recorded lower revenues compared to Q2 2019.
* On the negative side, there is an ongoing shareholder conflict between the heirs of Mr Maligins, with the focus on the managerial control over the largest shareholder of the Group, Olmafarm. According to our best knowledge, Olmafarm is still suspended by the court from voting at any shareholder meetings. However, OLF plans to hold an AGM on 22nd September 2020, with another EGM also scheduled to take place on the same day, based on the request from OLFIM OÜ, an investment entity of Irina Maligina, the oldest daughter of Mr Maligins. Please also refer to the tables in the attachment.