AGRANA Beteiligungs-Aktiengesellschaft (AGR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Stuart, your Chorus Call operator. Welcome, and thank you for joining AGRANA's conference call on the Q1 2021 results. [Operator Instructions] I would now like to turn the conference over to Hannes Haider, responsible for Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our conference call presenting the Q1 2021 figures. You already got some insights in our numbers when we published preliminary results on the 18th of June. With us today are 4 out of 5 members of the Management Board. Our CEO, Mr. Marihart, will start with the highlights overview; our CTO, Mr. Harringer, will continue then with an investment overview and CapEx outlook; Mr. Gattermayer, our CSO, will give you more color then on all segments; then, Mr. Buttner, the COO -- CFO, will present the financial statements in detail; and finally, again, CEO, Marihart, will conclude with an outlook for the full year. As always, the presentation is available in reference to our call on our website. After 30 minutes presentation, the Management Board will be glad to answer your questions. And now I may pass over to Mr. Marihart.

Thank you, Mr. Haider. Good morning, and welcome to this presentation of our first quarter's results, which I'll start with an overview. Our revenue is EUR 652.6 million in comparison to EUR 638.4 million in the last year's first quarter. The EBIT is slightly above last year with EUR 32 million, prior year was EUR 30.9 million. The EBIT margin increased from 4.8% to 4.9%. So despite COVID-19, the EBIT and our revenues in quarter 1 are slightly above prior year. The first quarter was a challenging one, as everybody knows. But not only due to the general environment created by the COVID-19 pandemic, but also because of an extremely dry growing condition in Central and Eastern Europe, which our suppliers, the farmers, had to face. Coming to the breakdown of the revenue by segment. There is the slight increase of 2.2% shown. And you can see it comes from the Sugar, which had a revenue increase of 21.2%. And this is, of course, driven by quantity, but also by better prices. Starch is more or less flat with 1.6% minus from EUR 207.7 million to EUR 204.4 million. Their special effect is, of course, the bioethanol situation during the shutdown in Austria, especially. And on the Fruit side, we are minus 2.5% from EUR 311.5 million to EUR 303.7 million. So this gives -- in the share of our revenues an increase for the Sugar from 18.7% last year to 22.2%. And of course, both Fruit and Starch are decreasing a little bit. On the EBIT side, you can see the main improvement is the reduction of the loss of the Sugar from minus EUR 9.3 million in the first quarter '19/'20 to minus EUR 1 million in the first quarter 2021. And this overcompensated the decreases -- the slight decrease in Starch from EUR 18.4 million to EUR 17 million, and the significant decrease of EUR 21.8 million to EUR 16 million in the Fruit segment. The margins, in comparison, Starch is the best one with 8.3% EBIT margin, Fruit is 5.3% and Sugar is minus 0.7%. So now I hand over to Mr. Harringer, our CTO.

Thank you, Mr. Marihart. Good morning, ladies and gentlemen. The next point on our common agenda for today is a short overview about our most important investment projects of the current business year. AGRANA invested in the first quarter of the current business year EUR 11.1 million, thereof EUR 5 million in our segment Fruit, mainly in a new wastewater treatment plant in Jacona, Mexico and an additional production line in Central Mangrove in Australia, and the expansion of the warehouse for finished goods in Chung-buk in South Korea. In our Starch segment, we invested also EUR 5 million in the finalization of the expansion of our [ wheats ] derivatives project and into measures to increase specialty corn processing, both in our corn starch factory in Aschach in Austria. In the Sugar segment, we invested at about EUR 1.1 million, mostly into the conversion of the energy supply to natural gas in our sugar factory in Sered' in Slovakia. The most important project in our group in the current business year is the finalization of the new factory for the production of crystalline betaine. The construction is proceeding, and the facility will increase value-added to the Sugar segment from the fourth quarter of business year 2021. The completion and the start-up commissioning is planned in August 2020. We do this within a joint venture with our partner, The Amalgamated Sugar Company, an U.S-based company. This project, with a total investment volume of about EUR 40 million, will create 16 new jobs. The production capacity of crystalline betaine will be 8,500 tonnes per year. Ladies and gentlemen, our total investment across our 3 business segments in the current business year will be at approximately EUR 73 million, and is significantly below both the 2019/'20 capital expenditure and this year's budgeted depreciation of about EUR 120 million. In this way, we are entering an implementation phase after completion of major projects and capacity expansion in the recent years. Now I'm glad to hand over to Mr. Gattermayer for his views on the market environment.

Thank you very much. Good morning to all of you. And starting with the Fruit segment, concerning the market environment, we were at the pace that the main target market, the yogurt, is being slightly negatively influenced by COVID-19. On the other hand, the current forecasts by Euromonitor show global growth rate for yogurt of 1.8% in the calendar year 2020; 0.5 percentage points below the growth rate predicted before the outbreak of the COVID-19 crisis; products aimed at boosting the immune system have great short- and medium-term market potential, we believe. Despite these opportunities, the global threat of recession is supporting towards lower-priced and simpler products on the Fruit side. Concerning fruit juice concentrates, demand for apple juice concentrate is still stable. And for the upcoming berry campaign, the demand is expecting to remain stable at the level of the year before. Concerning the financial results of the Fruit segment, the turnover was slightly lower. As it was already mentioned, the revenue from fruit [ preparations fell slightly due to lower sales ] volumes mainly. Within the fruit juice concentrate activities, the revenue was down from a year ago, also due to volume reasons. The EBIT went down from EUR 21.8 million to EUR 16 million for this period, and the reason is mainly in the fruit juice concentrate business, and the reduced delivery volumes in combination with lower margins of apple juice concentrates produced from the crop 2019. And the earnings for fruit preparations were moderately below of the [ prior year's level ]. Improvement in EBIT in Mexico and savings in administration, but these were offset by earnings decreases in South America and China, lower sales volumes due to the COVID-19 crisis. I'll continue with the Starch. Concerning the market environment, COVID-19 has also effects on the product markets of the Starch segment. The strong month for sales in March 2020, sales volume of some product groups, such as sweeteners products, declined in the following 2 months till end of May. Due to a complete standstill of the hotel and catering sector and changes in the sector, the retail space were changed, and therefore, we have products offered in this retail space. The demand from the European paper and corrugated board industry is currently weak. Many graphic paper manufacturers reduced their capacity during the COVID-19 lockdown. Concerning the bioethanol business in the first quarter, it was defined by a big decrease concerning the Platts quotations. Following the global spread of the COVID-19, the prices went down to EUR 350 per cubic meter for Rotterdam. In the meantime, during the last weeks, the prices have settled within a band between EUR 550 and EUR 620 per cubic meter. Fuel demand in Europe fell about 50% in April 2020, but now we are on the same level of -- concerning demand as it was before. On the upside, volume losses in the refinery business in April and May, we were able to offset the sales to our disinfection segment. The next chart shows you development of the ethanol and petrol prices. On the right side, you see the gas and -- with petrol and ethanol price is around EUR 350 per cubic meter. When you go back, then you see in 2018, the gap was 0. And in 2017, it was around EUR 250 million, saying that now we have a big gap. I think it's good for us putting this [indiscernible]. Next, concerning the financial results for the Starch segment. The turnover at EUR 204.4 million was slightly below the year before. We had full operation of the new second wheat starch plant at Pischelsdorf, and sales volumes and turnover of the products manufactured in households significantly. Decline in revenues was caused by charging sugar by-product sales on a commission basis. The Platts ethanol quotations, as already said, collapsed in March 2020, but now we are on a very good level again. The EBIT was down moderately from EUR 18.4 million to EUR 17 million. It was a weaker market demand adjusted for the prices went down and put pressure on margins too. On the cost side, we had realized savings in energy and material costs in connection with the COVID-19 measures that were beneficial for the earnings. In HUNGRANA, the impact of lower sales volumes and margins for sweeteners, isoglucose and saccharification products was more than made up by increased sales of alcohol. Now I continue with the Sugar segment. Concerning the market environment, due to COVID-19, there was a historic slump in oil prices, and also very uncertain consumption outlook and therefore sugar prices went down globally. Raw sugar price fell to a 13-year low in April 2020. Towards the end of the reporting period, sugar quotations recovered somewhat from the lows and are increasing. Concerning the European sugar market, the main important issue for us is the market environment. In 2019/'20, the sugar production in the European Union was at around 7.4 million tonnes. According to the latest estimate from May 2020 from the commission, they expect a similar production volume for the sugar marketing year 2020/'21. As we know, since the end of the sugar quotas, the average sugar prices, as per the European price reporting, have declined significantly. By January 2019, price was only EUR 312 per tonne. In the calendar year 2019, the price of sugar in the European Union recovered steadily. And now in April 2020, there was a price of EUR 380 per tonne reported, and we believe it will go up. The next chart shows you the sugar quotation for raw sugar and white sugar. You see on the right side, raw sugar is around EUR 240 per tonne and white sugar is around EUR 310 per tonne, meaning a premium of EUR 70 per tonne. And if you go back on the left side, you see that it has a similar development in raw sugar and white sugar in 2015 and also in 2018 summertime. Then, the next chart shows you the monthly European average prices. You see on the right side the reference price EUR 404, the red line. Then you see the European reporting line, it's around EUR 380 per tonne, was already mentioned. But then you see also the quotation for the London #5 market is slightly below. Turning to the financial results of the Sugar segment. The revenue went up from EUR 120 million to EUR 144.5 million, a plus of 21%, and this was due to higher sugar selling prices and increased sugar sales volumes. EBIT was still negative, but the EBIT in the first 3 months of 2020/'21 was still at a deficit of EUR 1 million, coming from minus EUR 9.3 million. In the quarter, EBIT improved substantially compared to the same period of the last year. Now thank you very much, and I hand over to Mr. Buttner.

Good morning, ladies and gentlemen, thank you very much. So here comes the overview of the consolidated income statement. So as already mentioned, we had revenues of EUR 652.6 million, a change of plus 2.2%. EBIT was EUR 32 million, plus 3.6%. And the profit for the period EUR 19.2 million earnings per share [indiscernible]. The net financial items, or the net financial result, you see a net interest expense of minus EUR 2 million. This is a change of minus 25%, mainly coming from higher gross financial debts during the period. Also, the currency translation differences were down by 61.1%. This is due to weaker currencies in Hungary, Romania and Mexico. And the other financial items amounted to minus EUR 1.2 million. There, we had a negative impact of a devaluation of securities funds for pension provisions. Due to the general decline in both markets, triggered by the COVID-19 crisis, has amounted to around 0 -- minus EUR 0.6 million. So the total financial result is minus EUR 6.1 million. The tax rate -- we had quite a normal tax rate this year. So the profit before tax was EUR 25.9 million. Income tax, minus EUR 6.7 million, so tax rate of 25.9% at a normal rate. The consolidated cash flow statement, operating cash flow before changes in working capital, EUR 56 million. The changes in working capital, minus EUR 48.9 million. So there, we had quite a lower increase compared with the previous year. This is mainly due to a lower increase in inventories, and we had net cash from operating activities of EUR 2.6 million. And you also see the net cash used in investing activities also went down to EUR 21.1 million. The consolidated balance sheet. The total assets amounted to 2.5, so EUR 2,523.1 million. There is more or less no change compared with the end of the last business year. The equity ratio stable with 54.9%. The net debt amounted to 485.8% (sic) [ EUR 485.8 ] and the gearing of 35%. The dividend and the earnings per share, this is what we presented during our general assembly. So there is a -- dividend for '19/'20 is EUR 0.77 per share. This is a dividend yield based on the closing share price at the last balance sheet date of 4.4%, and also equals to the earnings per share of EUR 0.77 in the last business year. So thank you very much, and I hand over to Mr. Marihart, who will give you an outlook for the rest of the year.

Yes. Thank you, Mr. Buttner. So finally, my outlook for the group. Before the incidence of COVID-19, the AGRANA Group anticipated a significant increase in consolidated EBIT for the full year 2021. But this guidance, unfortunately, still remains subject to the currently still unquantifiable commercial and financial impacts as well as the duration of the COVID-19 pandemic. So EBIT and revenue should be significantly up. This was the pre-COVID outlook. And now I will make a breakdown to the segments, but also this forecast before COVID-19, for all segments, based on the budget originally planned, is supplemented by a COVID-19 risk assessment. Starting with the Fruit segment. Before COVID-19 effects, we saw a growth in revenue and EBIT. Fruit preparations business was projecting revenue growth by full utilization of the capacity created and by further diversification in the nondairy business and higher margins and smaller cost increases than '19/'20. This order should raise the EBIT significantly. In the fruit juice concentrate business, the revenue was projected to rise significantly in 2021, and this should bring a solid earnings situation. And now the COVID-19 risk assessment, especially in the Fruit segment, with its global production operations, so it's 42 sites in 22 countries. The forecast is fraught with the high uncertainty, especially regarding the short and medium-term demand situation in many regions of the world. Coming to the Starch segment. Before COVID-19 effects, a slight increase in the revenue was planned for native starches and white -- wheat gluten sales. Prices were expected to come under pressure by our own, AGRANA's increased volumes and by competitors' increased supply volumes. There was no major recovery in prices expected for starch-based saccharification products, due to the persistently challenging sugar market environment. The overall trend in the Starch segment will again be shaped by high ethanol price volatility as we saw it already in the first quarter. And the EBIT was, therefore, projected to decrease due to foreseeable margin reductions resulting from lower sales prices. This was -- before COVID-19, the risk assessment of COVID-19 is that bioethanol is a major product in the Starch segment. Any restrictions on mobility have a negative impact on the European ethanol markets. And the easing of COVID-19 restrictions should lead to an increase in fuel demand in general, as we see it now, and the demand for renewable carbon dioxide emissions reducing energy, in particular, again. Coming to the Sugar segment. Before COVID-19 effects, it was anticipated a continuous improvement of sugar prices in the European Union. On the distribution side, AGRANA's sales volumes and sugar prices in the European Union were expected to rise. And this positive sugar market environment, combined with rigorous cost management, implied a significantly improved EBIT result. I have to add here, as I already mentioned, in our general assembly on Friday, the third of last week, that we -- meanwhile, lost 10% of our beet acreage due to the dry weather conditions and the beet weevil, which will influence our sugar campaign negatively. So we have to -- depending on the weather during the summer, we have to evaluate if we -- how we use our capacities. The COVID-19 risk assessment concerning sales volumes and revenue development in the Sugar segment was positive in the first quarter, but it was mainly triggered by panic purchases of many consumers at the beginning of the COVID-19 pandemic. And it is questionable how the demand situation, especially in the beverage industry, will develop over the next few months. So thank you, and I hand over to Mr. Harringer for the financial calendar.

Before we go on with the data, I just wanted to remind you that after yesterday's ex-dividend date, today, we have the record date for the dividend, 2019/'20. And tomorrow, there will be the dividend payment date. And now the Management Board is glad to answer your questions.

[Operator Instructions] The first question is from the line of Vladimira Urbankova from Erste Bank.

I would have 2 quick questions. First one would be related to the impact of COVID. And you mentioned that you were cost conscious. Did you make any cost savings or cost-containment measures in the company? Or do you plan to do in the future? And did you have also any one-off effects from COVID-related lockdowns on your productions, especially in the Fruit segment? And the next question would be related to the sugar market, and this time on the supply side. Do you see any impact of the COVID-related situation countries like Brazil or India, where there is quite heavy COVID-19 toll on the situation globally on the sugar market? So this would be the first question.

So Mr. Buttner, do want to answer the first question?

Yes. Okay. So the first question was COVID-19 cost savings. Of course, we had significant cost savings in travel costs. During the first quarter, because of the restrictions, this was between EUR 3 million and EUR 4 million, also mainly coming in the Fruit segment, I would say, but also in the other segments. And one-off effects, we had none due to the COVID-19 pandemic because all our factories were running more or less at full capacity.

Yes. And Mr. Gattermayer is -- will answer the question concerning the sugar market, India, Brazil cover.

Yes, it was a very good question. Of course, there will be an impact. But on the other side, you have to keep in mind that the people, mainly in the sugar cane economy, that's more or less are people with less income. They need the income, they need the money, and therefore, I expect that there will be not a big impact from India and Brazil. Maybe there will be some impacts for logistics or supply chain development. But in the whole, I expect that there will be no big impact to COVID-19 concerning the sugar production volume, in total.

[Operator Instructions] The next question comes from the line of Stefan Maxian from RCB.

Also 2 questions from my side. First, regarding the acreage, and as you mentioned, Mr. Marihart, like 10% that is already lost this year. Would it be fair to assume that, as of now, we can roughly forecast, say, a similar harvest volumes compared to last year, because I think you were contracting roughly 12% more in terms of hectares? And that this more would again be lost? So if we could roughly forecast a flat development here in terms of volumes? And second now, I mean, going into the year and having the first quarter behind you, in terms of COVID effects for the individual segments, can you give us a little bit more color on your guidance? I mean, as it looks right now, with Sugar -- the pre-COVID guidance, thanks to sugar price, development seems to be quite firm. For Fruit, it would be not a walk in the park very likely, but also for Starch, with bioethanol prices now coming up, it could also turn out probably a little bit better than feared? If you could give us more color here, it will be much welcome.

Okay. Coming back to the first question, acreage. It's true that we are on the level of last year's acreage. And therefore, production could be similar depending on the summer's precipitation. It could be more or less on the last year's level. Different to last year, we will evaluate capacity measures. So we think that this is now a long-term trend, this acreage, and therefore, we will cut capacities. That's the one thing. The second is a guidance. As we also have shown in our general assembly, we are 75% turnover -- of our turnover is Fruit, and 25% is seed and non-food products for Starches for paper industry and so on. So -- then on the other hand, we read now the forecast for the current year on the GDP developments, which are, let me say, roughly 8% to 10% below that what we expected to have. Instead of a growth of 1.5% or 2%, it's now a minus of 7%, 8%. And of course, I think this will also partly influence us, but we are not able to give a more precise development view. As we hear every day, is there another lockdown, regional lockdown necessary and so on? This influences, of course, tourism. This influences consumption, so it's -- that's the reason why we are not able to give you more color on that.

Okay. Maybe one additional question on the mentioned capacity measures. Would they already be effective for this year's campaign then? So -- if so, when would you announce those measures? So when would they come out?

We will announce them, of course, before we will start the campaign, because they could be effective in the current campaign already.

[Operator Instructions] There are no further questions at this time. And I would like to turn the call back over to Hannes Haider for any closing remarks. Please go ahead, sir.

Yes. Thanks for your participation in the call. We wish you a nice remaining day and a nice summertime. Goodbye.

Thank you. Goodbye.

Thank you.

Goodbye.