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

Ladies and gentlemen, thank you for standing by. I'm Morris, your Chorus Call operator. Welcome, and thank you for joining the AGRANA results for the Q1 '23/'24 Conference Call. [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 AGRANA's conference call presenting our results for the first quarter '23/'24 financial year. With us today are 3 of the 4 members of our management Board. Markus Muhleisen, as the CEO of the group, will start the presentation with an overview on the highlights of Q1 and will comment briefly on the market environment. Our CTO, Mr. Norbert Harringer will afterwards briefly cover the topics raw materials and production as well as ESG and investments. And finally, our CFO, Mr. Stephan Buttner, will report on the Q1 financials in detail, and he will conclude with an outlook for the remaining financial year. As announced in our invitation, a presentation is available in reference to our call. You can find this presentation in the IR section of our website. The presentation will take about 25 to 30 minutes. And after the presentation, the lines will be opened and we will answer your questions. And now I may pass over to our CEO, Markus, who will start with the presentation.

Thank you, Hannes, and good morning, everyone, and welcome to our Q1 conference call. If you turn to Slide 2, just to give you a quick overview, we have started the year well. Our revenues are up 9%. Our EBIT is up 23%, and we are able, therefore, to deliver on our Q1 guidance. We're pleased that we are able to continue and deliver on our guidance with our performance, and we look ahead to reaffirming our outlook for the whole fiscal year. Clearly, it will be another interesting year, full of challenges and very much continued volatility. But as we have proven in the last 2 years, we are set up to navigate these volatilities well, and so therefore, we are reaffirming our outlook for the year. We're not only navigating the challenges in the current business, but we're also looking ahead, and we've made good progress on our strategic agenda. I will lay out, together with the team tomorrow, the key points on that agenda and the strategic agenda in our Annual Meeting. So therefore, I won't speak about it today. But I do want to highlight 1 particular point, which is on our sustainability strategy, where we submitted our SBTi targets last year. The validation actually started now in May. So we're working good front on that part. If we now turn to Slide #3, just a few key numbers. And, as always, Stephan will then go into a lot more detail. As I mentioned, revenues in the first quarter were up 9%. Our EBITDA is up 26%, and that also means that our EBITDA margin actually has improved by about 130 basis points over last year. Operating profit is up 45%, and EBIT is up 23% and our EBIT margin in totality also up 150 basis points over the same quarter last year. In terms of earnings per share, they're up EUR 0.03, and Stephan will then go through the numbers in a bit more detail later. On Slide 4, a couple of points about our Meeting -- our Annual Meeting tomorrow. Clearly, we'll present the financial results for the past fiscal year. But as I mentioned, we'll also lay out the elements of our new strategy going forward. We also have a couple of other important items on the agenda. #1, the distribution of the dividend, the dividend recommendation is EUR 0.90 per share. And secondly, we are putting forward a resolution on amending the remuneration policy, something that we have talked about in the past year that we're working on that to include nonfinancial indicators in our remuneration policy as well as changing the variable portion into a short- and long-term component, plus making a few other amendments. And then also, we have some elections, 1 election to the Supervisory Board, triggered by the resignation of [indiscernible]. And so we look forward to you possibly joining us tomorrow, either in person or via our link, which is sort of at the bottom of Slide 4. Then going forward to the market environment, as Hannes mentioned, I'll say a few words, on Slide 6 now. Here, and, first, talking about sort of the Fruit segment, their environment, which obviously continues to be challenging, we're actually seeing signs of recovery. In particular, in the important Fruit segment, we're seeing signs that it's stabilizing in a number of our global regions. It's actually quite nicely in growth again. And so that is supporting the good development, in particular, in the fruit preparations business. But also in other parts of the Fruit segment, we're seeing some good market trends. I think, again, here, what plays very much in our favor is our global diversification. We have an excellent footprint. Just as a reminder, we are the world's market leader in fruit preparations, and we're also 1 of the top 3 players in juice concentrates. We also have a nicely growing added value business, and we have a terrific access to a broad and diversified portfolio of customers at the global level. We have an excellent footprint here with global, regional and smaller customers. And so we're looking forward here to further improvements for the Fruit segment based upon a good market environment. Starch is facing a little bit of a tougher market environment. We expected that. We knew going into the year that especially in comparison to last year, we were not going to have the benefit of high energy prices also driving ethanol prices high. If you remember last year, at this time of the year, we saw ethanol prices above EUR 1,100 per cubic meter. This year, they are about EUR 300 lower. So we're not having that tailwind. We had a tailwind through most of the first quarter -- sorry, the first half of last year. And so when you do that year-to-year comparison, you got to take that into account. And at the same time, our Starch business is performing well in some more challenging market conditions. We do see a number of our customers struggling with demand. I mean we all have heard about challenges in the building sector. We also know that paper and pulp has some challenges. There's also some sectors, which are hit by slowing consumer demand due to high inflation. At the same time, when you think about this year, keep in mind that after several years of crisis and challenges, in particular on the supply chain side, many customers are now looking to significantly reduce their stockholdings. Of course, further pushed now by rising interest rates, everybody is working on their working capital, and we know from many of our customers that, that's a big, big focus for them lower the inventory levels. So what we're seeing is both a slowdown of fundamental consumer demand in some areas, but also, if you will, this corrective action of reducing inventories. And what we expect to see that throughout the year, and we expect that and factor that into our outlook. On the Sugar side, we continue to see a stable market. We see world production and consumption as well as production and consumption in Europe being quite stable. And as a result also prices are being quite stable. And so we see that continuing. And at the same time, we all have to keep reminding ourselves it's still a lot of volatility out there, a lot of risk, war in Ukraine can be a major factor, other geopolitical risks. So we do also expect that volatility to continue throughout the year, but we're taking all the right measures to make sure we can navigate these volatile times well, and we've demonstrated that over the past 2 years. Then if you want to have a quick look at Slide 7, that just as a reminder on the ethanol prices. And so we are -- if you do the year-over-year comparison, we're comparing ourselves right now to extremely high prices last year. And so when you think about the storage segment, you have to think about in that context. And then Slide 8 is just what I said about sugar prices, they're at a good level now after a number of years of being quite depressed them. It's taken a while for everybody to respond to the liberalization of the markets in Europe, but we do see a stable environment, and we see that continuing for some time. Okay. So that's it for me on overview, and I'll turn it over to Norbert now.

So thank you, Markus. Ladies and gentlemen, in the next minutes, I would like to briefly touch on some highlights on the commodity and the production side, that seems to be worth mentioning for the first quarter. In the Fruit segment, the berry juice processing season in the fruit juice concentrate business unit has just started. An average raw material availability is assumed for the 2023 Berry campaign. And also from the production side, everything is working well. Coming to Starch, you know that raw material costs are a decisive factor, especially for this segment. Raw material prices in the first quarter of the current business year were still significantly higher than a year earlier due to the after effects of the massive increase in international market prices. On the spot markets, we see a decreasing trend for several months now. You can see this also on Slide #11. This development will have then an impact, of course, for the new harvest. Markus already mentioned signs of a demand slowdown before. I can confirm this, especially for the Starch segment as many customers are facing weaker consumption and are increasingly running down their inventories. This means for AGRANA our production has to be very flexible. Before it was also commented on the ethanol performance. I just wanted to add here that the introduction of E10 fuel blending in Austria will have not only a midterm positive impetus for demand, but also a protracted national debate has ended well is the use of more domestic ethanol in Austria will improve the country's greenhouse gas balance. I will now conclude with the highlights in the Sugar segment. As you know, the new sugar campaign will start in autumn, and we are still confident that the campaign in 2023 will be a better one than the one in 2022. The main reason for this is that the AGRANA Group's seed cultivation area in the current sugar market year will be around 86,000 hectares compared to around 72,000 hectares in 2022. This means, of course, a good basic outlook in terms of fixed cost degression. It can be assumed that the favorable weather conditions give reason to hope for a high-yield seed harvest. However, at the same time, the ban on neonicotinoids in Austria remains a steady cause for concern as there is an increased risk of lower yields per hectare and production volumes for the 2 Austrian locations. Now some things about our focus on ESG. In November 2022, AGRANA submitted its science-based climate targets to the SBTi and the validation by the science-based targets initiative began at the end of May of this year. By 2030/'31 under the target submitted, AGRANA will cut emissions from its own production operations by 50% and reduce those in its upstream and downstream value chain by above 34%. From the analysis of our corporate carbon footprint, we know that most of the emissions arise from the growing of the agricultural raw materials processed. To date, the emission factors used for these crops has to be taken from international databases or the literature to gain a more accurate understanding of the highest and the lowest emission agricultural practices and other drivers affecting agricultural emissions. A project was launched in the last business year to collect primary data, and suppliers of the key raw materials calculate AGRANA specific emission sectors and thus, more effectively identified leverage points and potentials for emission reduction. Regulatory developments and inquiries by customers confirm the importance of primary data in agriculture and, hence, validate the path we have taken. Ladies and gentlemen, last but not least, some facts about our investment activities. In the first quarter of the current business year, AGRANA invested at about EUR 15.5 million or EUR 4.2 million more than in the Q1 of the prior year. In addition to the regular project for product quality and energy efficiency improvement and for asset replacement and maintenance across all production sites, the following individual investments are worthy of note. In the Fruit segment, the replacement of the central cooling system in Centerville, Tennessee, U.S., the acquisition of new stainless steel containers in France and the expansion of our raw material storage in Jacona in Mexico. But the Starch segment, have we invested in specific measures to increase specialty corn processing. In Austria we [ draw forward ] wastewater treatment plants in Aschach and in Gmund in Austria, and we undertook an upgrade of our cooling performance in Pischelsdorf. And finally, in the Sugar segment, we engaged in the modernization of the control systems in Leopoldsdorf in Austria. We optimized the production process by replacing the filter presses in Sered in Slovakia, and we optimized the evaporator station in Kaposvar in Hungary. Let me conclude with the CapEx outlook for the full year '23/'24. The total investment across the 3 business segments in the current financial year at approximately EUR 150 million is to significantly exceed both the '22/'23 value and this year's budgeted depreciation of about EUR 120 million. Around 16% of this capital expenditure will be from emission reduction measures in the Group's own production operations as part of the AGRANA climate strategy. Let me now hand over to Stephan Buttner for overview on financials.

Thank you, Norbert. Good morning, ladies and gentlemen. So I'm happy to give you a little bit more detailed outlook on the financials. So we start with the revenue by segment. So as already mentioned, we had an increase in total revenue of 9%. When we look at the Fruit segment, we have an increase of 11.2%. This was mainly driven by price increases. So in the fruit preparations business, we had a slight decrease in sales volume, whereas in the, let's say, volume drivers in the fruit juice concentrate, we had a decrease of sales volumes of around 10%. So in total, as I already mentioned, the increase in revenue of 11%. In Starch, a decrease of 0.6%, so stable revenue, so significantly lower sales volumes against prior year first quarter with higher selling prices compensating for the lower volumes. And in Sugar, as also already mentioned, we had really significantly increases in the sales prices. Therefore, there, we had an increase in revenue of around 20% in the first quarter. EBIT by segment. So as we can see, so we have overall an increase of 23.1%, up to EUR 63.5 million. Main driver here against prior years, of course, the Sugar business with an EBIT of EUR 17 million. Here also mainly driven by the price increases. In Starch reduction in the EBIT. This was mainly driven by a much lower, let's say, negative contribution on EBIT level from the ethanol business. So here, we lost around, let's say, EUR 28 million on EBIT level versus prior year. So we could not fully compensate this in the Starch business. But overall, let's say, we have a decrease of 24.6% on the EBIT level. And in the Fruit segment, so you can see an increase or improvement on EBIT level of 22.6%. This is coming from both divisions, let's say, from the fruit preparations business as well as the fruit juice concentrate business. So in both sections, we have higher margins. So let me come to the consolidated income statement. So EBITDA EUR 90.6 million, up 25.7% versus Q1 prior year. When we look at the share of results of equity accounted joint ventures or consolidated joint ventures, minus EUR 1.8 million. So this is a significant decrease versus prior year, mainly driven by the low performance in HUNGRANA, but also in the in the sugar joint venture STUDEN. So in HUNGRANA, due to lower sales volumes and also very high raw material cost and energy costs, EBIT, EUR 63.5 million, EBIT margin, 6.6%, also up versus prior year. The net financial items increased significantly up to EUR 13.3 million. This is due, of course, both up to 2 effects. So 1 effect is the higher gross financial debt. And on the other hand, we have a high interest rate, and this leads to a profit for the period after tax of EUR 38 million and earnings per share of EUR 0.58. Energy costs in Q1, a further increase. We think that we now reached really the peak. So we had a total cost -- energy cost of EUR 52.8 million in Starch, the most consuming division with EUR 32 million stable. An increase in Sugar of around EUR 4.6 million, and also up EUR 2 million in the Fruit segment. On the right-hand side, you can see the energy mix, there is no much change. Then we move on to the net financial items. Here, I already mentioned. On one hand, we have a significant increase in the interest expense, of course, significantly high interest rate during Q1 already up to 3% in average. Also, the currency translation differences, weakening of some currencies where we have financing in euro or USD. So it ended up in net financial items of minus EUR 13.3 million. So this is 129.3% higher than previous year Q1. The tax rate, 24.3%. So this is in a normal range. When we look at the cash flow statement, the operating cash flow before changes in working capital showed a significant improvement of 43%, of course, which is hurting us a little bit is our changes in working capital, so EUR 182.6 million minus here. From a cash flow perspective, this is mainly driven by accounts receivable with EUR 79 million and accounts payable with EUR 120 million and the accounts payable mainly are driven by payments to the beet farmers of more than EUR 70 million in Q1. So ending up with a net cash from operating activities of minus EUR 91.1 million and the negative free cash flow in Q1 with minus EUR 106.3 million. Finally, the consolidated balance sheet. So there is no significant change here. So you can see noncurrent assets are very stable and also the current assets show only a slight increase of 2%. Equity with EUR 1,286.7 million. So there is an increase of EUR 30 million, 2.4% up due to the positive profit after tax. The equity ratio was 42.3%, still in a good range especially when we take the high inventories and, let's say, working capital into consideration, net debt up to EUR 800 million, and therefore, the gearing was 62.1%. So now let me come to the outlook for '23/'24. So as we already mentioned, we are confirming our overall guidance for EBIT, which should go up very significantly versus '22/'23 and revenue should increase significantly versus '22/'23. Of course, as you can always see, we have sources of uncertainty. Ukrainian war, volatility in raw material prices, energy prices and so on. And of course, also these projections are always based on the assumption that the physical supplies of energy and raw material remain assured. If the purchasing price increases, especially for raw materials and energy can be more or less be passed on to our customers. Then the outlook for the segments. So Fruit, we expect a slight increase in revenue and a very significant increase on EBIT level. Starch, a moderate increase in revenue and a significant decrease in EBIT. And Sugar, significant increase both in revenue and EBIT. So outlook for the second quarter '23/'24. So here, we compare to the adjusted EBIT, which means before exceptional items in Q2 '22/'23. So there, we had an adjusted EBIT of EUR 48.4 million. Our expectation versus that in Q2 '23/'24 is a moderate to significant decrease in EBIT. So now let me hand over to Hannes Haider for the question and answer session.

Yes. Thanks. Before we go on with the Q&A session, just for your information tomorrow's Annual General Meeting will be an event in presence only. The web link posted on Slide 4 will bring you to our AGM website, including all relevant supporting documents for our AGM. And tomorrow at 11 a.m., you can find here also a PDF link to tomorrow's CEO and CFO presentation on the financial statements and the strategic agenda. We will now go on with the Q&A session.

[Operator Instructions] And first question comes from Vladimira Urbankova from Erste Bank.

Yes. I would have 1 question related to the outlook for the second quarter. What are the major reasons for the anticipated moderate to significant drop in EBIT? And next question would be to the performance of HUNGRANA. You mentioned that you did not manage to pass on to customers price adjustment. So how the situation looks like now? And is there any improvement on horizon? And then yes, last but not least, energy prices, you said that you managed to be past the peak, what about the personnel cost because I do not see your detailed P&L. And I'm just wondering what kind of increases we should anticipate in this year? This would be it for now.

Thank you, Mrs. Urbankova. So let me answer or try to answer your questions. So a significant drop in EBIT. I mean, yes, this is currently our expectation, as we already mentioned. So in several areas, we see, let's say, significant drop in sales volumes, especially in the Starch segment. So also we expect, let's say, in some areas, lower sales prices. There is some kind of price pressure, of course, in the market also triggered by lower raw material prices and lower energy cost. Of course, due to risk limitation, we also, of course, also hedge some raw material prices in energy costs. And therefore, this will a little bit squeeze our margins. This is our expectation, especially in the starch business. Sugar also, we have to keep an eye on the sales volumes. So overall, this is our expectations, so mainly driven by lower sales volumes. HUNGRANA, yes. So the whole, let's say, calendar year for HUNGRANA will be quite difficult. I mean last year, we faced enormous raw material cost due to the poor harvest in Hungary, in corn and also very high energy costs. Of course, these costs also were, let's say, fixed. And then we saw a significant slowdown also on the sales side. Therefore, our coverage on the raw material side and on the energy side is much longer than we expected. Also, prices are a little bit under pressure. Therefore, we do not expect a significant improvement of the situation in the calendar year for HUNGRANA and next year, this should go up again when the lower raw material prices and the lower energy prices will kick in. Personnel costs, so sorry for that. So there, we have an increase in the first quarter versus the first quarter prior year of 13% and the total personnel cost amounted to EUR 97.9 million. Yes. Energy prices, sorry, this was also a question. So what was the question again?

No, no, no. It was like the missing information on personnel costs. So you said that how much was it up year-on-year? Or how do you expect for the full year, the increase in personnel cost, is better?

So we expect that this will be more or less stable, let's say, in the deviation versus in the Q1, yes. So we have around 13%. This is our average expectation.

[Operator Instructions] There are currently no more questions. So I hand back to Hannes Haider for closing comments.

Thanks. As there are no further questions, thank you for your interest in our call, and we wish you a nice remaining day. Bye.