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

A wonderful good morning and good afternoon, ladies and gentlemen. Welcome to the AGRANA Results for the Full Year 2023/'24 Conference Call. My name is [indiscernible], the Chorus Call operator. [Operator Instructions]And the conference is being recorded. [Operator Instructions] At this time, it is my pleasure to hand over to Hannes Haider, [indiscernible] for Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to AGRANA's conference call presenting our annual results '23/'24 financial year. You already got some insights in our figures when we published an talk announcement on the 16th of April. Today, we will provide you with more details on all segments and on the audited financial statements. As announced in our invitation, the presentation is available in reference to our call and you can find this presentation in the IR section of our website. With us today are 2 out of 3 members of our management Board. Stephan Buttner, our CEO, will start the presentation with an overview on the highlights of the last financial year. Afterwards, Chief Technology Officer, Norbert Harringer, will tell you what is going on in the group regarding raw materials, production and investment, and he will also report on the ESG News. And in the third part of the call, CEO, Buttner will comment on the market environment. He will report on the consolidated audited financial statements in detail. And afterwards, he will conclude with an outlook for the new financial year '24/'25. The presentation will take about 30 minutes. And after the presentation, the lines will be opened and the CEO and CTO will be glad to answer your questions. And now I may pass over to our CEO, Stephan.

Yes. Thank you very much, Hannes. So welcome from our side. So let's start with a quick overview of our financial year '23/'24. So the business environment was still very volatile. Despite the fact, we were able to record an operating profit EBIT of EUR 151 million. This is a significant increase versus prior year where we had EUR 88.3 million. So we were able to deliver on our guidance. What moves us forward? Of course, we still are focusing on our sustainability strategy, on the execution, of course, also of our SBTi targets that were validated in the last financial year, shaping the future. So at our Annual General Meeting, which took place on the 7th of July 2023, so we presented the cornerstones of the AGRANA growth strategy. So we are currently working with high intensity on sharpening our corporate level strategy, and we hope that we will be able to report on that in the coming months. The financial outlook for '24/'25. So of course, we are currently -- still are facing a difficult market environment in starch, especially in the ethanol prices, which are highly under pressure due to imports from Brazil on one hand, in the United States on the other hand, and also we see declining sugar prices in the European Union. The key numbers of the financial year. So we had a revenue of nearly EUR 3.8 billion, an increase of 4.1% versus prior year. EBITDA with EUR 291.1 million, also an increase of 5.1%. The operating profit, a significant increase of 11.6% up to EUR 176.7 million and the EBIT after special [ effects ] with EUR 151 million, also a very significant increase versus prior year. Earnings per share, EUR 1.04 and the proposal for the dividend per share is EUR 0.90. Also, we want to highlight that we have a new Management Board in place since 1st March,s 2024. So Norbert Harringer, is our CTO. Stephan Meeder, the CFO of Sudzucker Group, will be our Chief Audit Officer, and I'm currently holding the CEO position. Let me hand over now to Norbert, who will cover raw materials and CapEx.

Thank you, Stephan. Ladies and gentlemen, also from my side, a very warm welcome to our today's conference call. After the highlight overview by our CEO, Stephan, let's start with the front [ stage ] in our supply chain, what happened in fiscal year '23/'24 regarding raw materials and production. As you know, one of essential core competencies is the large scale processing of agricultural materials into all our different industrial product. And also in the last financial year, our 3 segments, Fruit, Starch and Sugar, processed a huge amount of agricultural raw materials. It was a worldwide total of approximately 9 million tonnes, around 400,000 tonnes more than in the previous fiscal year. 5.7 million tonnes of beet and around 300,000 tonnes of raw cane sugar were processed as raw materials in the Sugar segment. In the Starch segment, our 5 plants processed at about 2 million tonnes of corn and wheat and around 200,000 tonnes of potatoes. Of the 800,000 tonnes of food processed in the Fruit segment, a very large proportion is apple, which is the main input material for fruit juice concentrate production, while strawberry accounts for the majority of fruit preparation production with a total of around 70 different fruits being processed in this business line. After this general volume overview, I would like to highlight now what moved us in the segment in detail. In the last fiscal year, about 336,000 tonnes of raw materials were purchased for the fruit preparation activities compared to 340,000 tonnes in the prior year. The lower consumption of raw materials is explained mostly by reduced demand in the Chinese plants as a result of the declining [ yoghurt ] market in China. The average raw material prices for fruits and ingredients were down slightly overall from the prior year. Higher sugar prices were offset by price reductions on fruits and stabilizers. The 2023 apple crop in the fruit juice concentrate business was slightly reduced from the previous year as there was less availability of raw material in Poland and in China. At the Ukrainian [ site ], the apple processing volume reached an average level despite the difficult circumstances. Due to the high processing volumes of red berries from the 2022 crop, demand for berry juice concentrates in the last fiscal year was significantly lower than in an average year. Accordingly, about 30% less red berries were processed in the last campaign. In '23/'24, AGRANA Starke GmbH processed approximately 26% less corn at the Austrian site in Aschach and Pischelsdorf than in the year before. The share of specialty corn was about 24%. Wheat milling volume at the Pischelsdorf facility for the production of wheat starch and bioethanol was up slightly in '23/'24 from the previous year. Fruit delivery contracts have concluded with growers in advance. AGRANA also secured ethanol wheat at the 2 Austrian locations, a total of about 1.33 million tonnes of corn and other cereals was processed in the financial year. Regarding the decreasing trend on the spot markets for starch raw materials, I will elaborate shortly going on with the next slide. Coming finally to the Sugar segment, I have to state that the beet processing in the last campaign went well with significantly better capacity utilization, the higher sugar production volume than in the previous year. AGRANA's 7 beet sugar factories processed the combined daily average of slightly more than 48,200 tonnes of beet during the campaign compared with the prior year, that was 47,800 tonnes. Thanks to the higher total beet quantities, the factories produced a total of 806,000 tonnes of conventional sugar compared with the prior year, there was 717,000 tonnes in a campaign averaging 119 days [indiscernible]. Looking to the next campaign, we would like to inform you that a further increase in beet planting acreage was achieved in the negotiations with our growers for the contract production of beet in 2024. As mentioned before, we see on Slide #8 some remarks on the price development of wheat and corn. Since the beginning of the fiscal year '23/'24, grain commodities prices have moved downward with the exception of 2 counter movements for wheat in summer and autumn 2023. With prices falling significantly by the end of the last fiscal year, these price declines on commodity exchanges were caused by lower demand in absence of further escalations of the war in Ukraine, [ agreed ] exports corridors from Ukraine, large harvesting import in important production regions and the competition for export volumes. At the balance sheet date of the last of February '24 on [indiscernible] beet quoted at EUR 191 per tonne, and corn was at EUR 178 per tonne compared with the year earlier, EUR 274 per tonne for wheat and EUR 279 per tonne for corn. Ladies and gentlemen, as always, I would like to provide you now with a short ESG update. With the future in mind, our commitment to sustainability and environmental responsibility remains one of our guiding principles. In this context, we are pleased that in autumn of the last year, the science-based target initiative, SBTi, the globally recognized nongovernmental organization completed its review of the AGRANA Group's ambitious climate targets and officially confirmed that they are in line with the 1.5-degree centigrade goal of the various climate agreement. At the beginning of September 2023, this made us the first food company in Australia benefited emission reduction targets. By 2030, '31, under these targets AGRANA plan to cut emissions from its own production operations, that means Scope 1 and Scope 2, by 50% and reduce those in its upstream and downstream value chain, that means Scope 3, by about 34%. We continue to invest in initiatives aimed the reducing -- aimed at reducing our environmental impact, improving resource efficiency and promoting sustainability agricultural practice. That's in the third quarter of the last business year, another regular round of verification of the farm sustainability assessments was successfully completed at AGRANA's contract growers of beet, potatoes and corn in Austria and of apples in Hungary as well. The ISO 50001, the energy efficiency certification of sugar and starch factories were also renewed. Ladies and gentlemen, at the last point in my part, I will conclude with an overview on our investment activities in the last fiscal year and the plan for the new -- the current fiscal year. In the last year, AGRANA invested a total of EUR 127.3 million or EUR 24.4 million more than in the prior year. Purchases of property, plant and equipment and intangibles were thus above operating depreciation and amortization with the distribution by business segment, you can see on Slide 12. The main focus of capital expenditures in all segments was on energy efficiency projects and product quality improvement. The following individual investments were made in our Fruit segment, the expansion of raw material storage in Jacona in Mexico and expansion of the food service section in our factory in Centerville, in Tennessee, a new wastewater treatment plant in Ostroleka in Poland and installation of energy saving [ can ] -- wafer compression technology in 2 of our fruit juice concentrate factories in Poland. The following projects were carried out among others in the Starch segment, measures to increase specialty corn processing, Aschach in Austria, the expansion of the company wastewater treatment plants in Aschach and in Gmund in Austria and the upgrading of our cooling performance in Pischelsdorf. In the Sugar segment, AGRANA invested EUR 34.4 million primarily for the following projects: the modernization of the control systems in Leopoldsdorf in Austria; the production process optimization through replacement of the filter presses in Sered in Slovakia; and the optimization of the evaporator station in our sugar factory in Kaposvar in Hungary. The total investment across the 3 business segments in the current financial year at approximately EUR 120 million is expected to be moderately below the last year's value and thus only in line with the budgeted depreciation of about EUR 120 million. Around 12% of this capital expenditure will be for emission reduction measures in the group's own production operations as part of the AGRANA climate strategy. Investment in the Fruit segment this year is budgeted at approximately EUR 56 million, which is about 25% above the expected level of depreciation. The planned main focus is on asset replacement, maintenance investment as well as production optimization. The budgeted investment volume for the Starch segment this year is about EUR 34 million. It will thus be approximately 30% below the level of depreciation. Most of the capital expenditure will go to product optimization and plant modernization project. The capital expenditure for about EUR 30 million planned in the sugar segment for this business year are expected to slightly exceed depreciation. Besides asset replacement and maintenance investment, the spending is being directed especially to energy savings, productivity gains and yield improvements. So ladies and gentlemen, let me now hand back to Stephan Buttner.

Yes. Thank you, Norbert. So [indiscernible] have a look at the market environment in the financial year '23/'24. So we were quite happy with the developments in our Fruit segment, the fruit preparations business. So we had stable sales volumes for the dairy customers. Markets in Europe, U.S.A., Mexico and Australia were quite strong. Also, we had significant growth in our strategic growth areas, food service and ice cream. In the fruit juice concentrate business, our situation also remains stable and to our satisfactory. So we had improved contribution margins in the apple juice concentrate, especially from the crop 2022. Starch segment, we already had some headwinds. So we saw lower sales volumes as well as lower sales prices. So we know that the overall market environment is still challenging, especially in the construction and paper industry, but also in the food industry. We see declining raw material prices. On one hand, it helps us for a lower cost basis. On the other hand, we also have to reduce sales prices at our customers. Ethanol was very challenging last year. So we had a shortfall in our profits of more than EUR 20 million versus prior year, and this still is under pressure. The Platts quotations are still under pressure. Main reason for that are high import volumes from Brazil and the United States. Sugar segment, yes, a big challenge with the increasing import volumes from Ukraine, especially in our core markets, Romania, Hungary and Bulgaria. So overall, we nearly lost 15% of our total sales volume, which, of course, in the commodity business is a very significant negative impact. So let's have a look at the revenue by segment. So the EUR 3.8 billion in total, thereof EUR 1.56 billion were made in the fruit segment. So we -- this is an increase of 5.7%, mainly driven by higher sales prices and some volume growth in the food service and ice cream channel. In starch, of course, due to the lower sales volumes and the decline in sales prices, we had a reduction in our revenue of 11.2%. And in sugar, despite the lower sales volumes, we could increase our revenue by 24.3%, up to more than EUR 1 billion revenue. The profitability. EBIT by segment saw a significant improvement in our Fruit segment. So we were negative last business year with minus EUR 38.5 million, but there was also included an asset or a goodwill impairment of nearly EUR 90 million. Also this year, we had extraordinary negative effects of EUR 25 million in the Fruit segment. But overall, the operating profit of EUR 85 million was a solid result. In starch, a reduction of nearly EUR 30 million, mainly due to 2 factors. On one hand, we are missing EUR 20 million profit from the ethanol business. On the other hand, also our joint venture in Hungary, HUNGRANA had nearly 0 results, whereas the profit was nearly EUR 10 million in prior year. So in total, we are missing here the EUR 30 million. And in sugar, of course, declining sales volumes. On the other hand, higher prices overall, including also the holding costs, a decline of 13.3% down to EUR 40.4 million EBIT. The financials. Consolidated income statement are already reported on the main KPIs. So revenue, EUR 3.8 billion. EBIT, EUR 151 million, significant increase. The EBIT margin was 4%. Yes, it's not where we want to be in the future. Of course, I mean, with the total amount of EUR 151 million, also taking into consideration that we had nearly 0 result from our equity consolidated joint ventures where the profit in the prior year was EUR 20 million in total and we also are missing the EUR 20 million from our ethanol business, I would say that the 4% EBIT margin is okay for the time being. But here, of course, we need a further improvement. And the profit for the end of the period, of course, also affected by -- highly affected by our financial results, which is more than minus EUR 15 million, of course, due to the very high interest rates compared with prior year and also our higher net financial debt in average. Exceptional items, yes, I already mentioned the Fruit segment, EUR 20.8 million. Also in the fruit juice concentrate business where we were close one factory producing carrot juice concentrate and also an asset impairment on our operations in China. In the fruit preparations business also, we impaired our assets in China or let's say, Asia with around EUR 17.8 million. And then also we had to make some provisions for restructuring in Europe, mainly for the reduction -- future reductions of FTEs in Europe, but these are provisions that we have to pay to the employees who are leaving AGRANA. Energy costs in the mix. So we see, of course, a decline of nearly 16% in our energy costs, of course, mainly driven by lower prices for electricity and gas. So it was in the right direction, I would say. Net financial items, I already mentioned that we had a very high net interest expense of EUR 32.3 million. Total net financial items, minus EUR 53.3 million. Here, we need to work on that. So we need to decrease our working capital significantly to decrease also our negative net financial results. And tax rate, there is nothing special to report with the 29%. The consolidated cash flow statement, yes, operating cash flow before changes in working capital of EUR 316.3 million. Changes in working capital, minus EUR 46.1 million. Yes, result of a net cash from operating activities, EUR 240.2 million, and we also had a positive free cash flow of EUR 125 million in the financial year '23/'24. Balance sheet, there is nothing special to report on current [ assets ], are still quite high, of course, mainly driven by our working capital, still influenced by high raw material prices, especially in high inventories. Equity ratio with 43.2% is solid. Net debt decreased to EUR 636.1 million. This is a decrease of 7.1% versus prior year. Gearing with 51% is, yes, acceptable, I would say. So then let me come to the dividend proposal. So we will propose to the Annual General Meeting, which takes place on the 5th of July, 2024, a dividend of EUR 0.90 per share for the '23/'24 financial year. There is no change in the dividend payout versus the financial year '22/'23. So this then would mean based on the closing share price at the last balance sheet date, a dividend yield of 6.7%. The financial outlook. Yes, here, we must -- we have to report that we expect a significantly lower EBIT in '24/'25 than in '23/'24. So as already mentioned, we see challenges ahead, especially in the sugar and in the starch business, and our revenues for the full financial year '24/'25 are expected to decrease slightly. Outlook for '24/'25 by segment. So in fruit, revenue should be stable. EBIT with a significant increase. Starch, a slight decrease in revenue and a significant decrease in EBIT. In sugar, we here expect a moderate decrease in revenue and a very significant decrease on EBIT level. The outlook for the first quarter, yes, will be in line with our total outlook for the full financial year. So for the first quarter we expect a significant decrease on EBIT level. Thank you very much, and let me hand over to Hannes for the financial calendar.

Thanks. Before we go on with the Q&A session, I just wanted to remind you that our integrated annual report of '23/'24 was published today in the morning. And we would like also to invite you to visit our digital annual report on reports.agrana.com. And having a quick look on our financial calendar, I just wanted to highlight that our AGM will take place on the 5th of July. We will now go on with the Q&A session.

[Operator Instructions] Our first question today comes from Baptiste de Leudeville.

I have a question on sugar. It's -- my question is simple, it's regarding the distribution with the Ukrainian imports in some of your key markets. How -- do you expect some developments? I imagine that developments, it's at the EU commission level, I guess. But do you expect some new developments that would be in favor of positive developments compared to Q4? And also [indiscernible] with this, is it possible to imagine that the operating profit -- or at the operating level you made some losses this year in the sugar business? And the second question is about the -- can you remind us of the portion of variable interest rates, your exposure to variable interest rates and fixed interest rates at the debt levels?

Thank you very much for the questions. So let me answer first the sugar related question. So yes, Ukrainian imports increased significantly up to 500,000 tonnes, duty-free into the European euro in the year '23. There was a decision made by the European Parliament that duty-free import volumes will be limited for the calendar year, sorry, in '24 to 265,000 tonnes. This is the average of the second half of '21, the year '23 -- '22 and the year '23 of imports coming into the European Union from Ukraine. So the -- this regulation will become effective from June 24 onwards, which on the other hand means that until this date, volumes will still come into the European Union. For the calendar year '25, this means duty-free import volume of 110,000 tonnes until the 5th of June, 2025. And then, yes, a new policy must be decided, let's say, or we will fall back to a duty-free import volume of 20,000 tonnes as it was before June 2022, sorry. This is the actual development on the imports of Ukrainian sugar. Our profitability for the business year '24/'25 is quite difficult to -- visibility is quite low currently. But what we can already see is that the market prices for sugar are, yes, let's say, under pressure. So we cannot -- yes, let's say, we cannot -- [indiscernible] -- we cannot exclude that we also make operating losses in the financial year '24/'25, but all depends on the future price development. We will see what impact these regulations on import volumes of the Ukrainian and sugar will have on the market, as we also saw the world market prices fell down significantly in the last weeks. So yes, the industry in Europe is again under pressure. The last question was the split of interest rates, fixed and variable, and I think it's a 60%-40% split, 60% is variable and 40% fixed interest rates.

The next question comes from Thomas Unger from Erste Group.

I'd like to ask you, coming back to the [indiscernible] outlook '24/'25, you talked about sugar. Maybe you could talk about what you expect for the starch segment for the full year? And then also how you arrive at the pressure on profitability in Q1, what developments have you seen? Or what do you expect for the first quarter '24/'25?

Yes. So in the -- for the Starch segment, our current expectation is a decrease, I would say, around -- on EBIT level of around, maybe somewhere between 15% and 20% potentially for the full financial year. The first quarter in total, we had a very good first quarter in '23/'24, we reported an EBIT of more than EUR 63 million. So when we say that we expect a significant decrease, this means a range between minus 10% and minus 50%, I would go rather in the direction of minus 50% than in the direction of minus 10%.

[Operator Instructions] And our next question comes from Teresa Schinwald from Raiffeisen Bank International.

I also have a guidance question and this time regarding the Fruit segment, where you see the EBIT up. But am I right to assume that this is based on the EBIT that has been impaired -- that has been suffering from impairment? That's the first one. Second one is, there has been some talk that due to rising other commodity prices, especially also fruit juice, the sugar content in some beverages might increase. What's your take and potential impact regarding this conversation? And the last one is on -- some regulations have been lifted following the pharma protest. Do you already see any impact on your business from that?

So yes, so first answer is yes for the first question. Second question, fruit juice. I think you are referring to the situation in the orange juice -- concentrated orange juice, not from concentrate area. So this is -- yes, this is a huge issue for the juice industry. I mean I also saw the recent discussion from Eckes-Granini, for example, where they are selling now nectar instead of juice, which means, of course, nectar -- the difference between nectar and the juice is that nectar also consists of sugar up to 50%. And I think yes, this is something which has to be done because there is not enough availability of pure, or let's say, 100% pure [ in the ] orange juice, yes, sales. So yes, there might be added sugar, but then it's not a juice anymore, it's a nectar. So the consumers must be educated in that direction so that they have clear visibility of what they are buying. What this means, is there a big impact to the sugar sales volume? I would say, no. And the third question...

The third question was, what's the result of the farmers protest and regulation, which didn't come into place. Yes, we understand the protest of the farmers which we had in the last month. And one of the results was that the new sustainable [ juice ] regulation was not taken in place. And this will lead the European environment that we will be able also in the future to have a safe supply with fruit here in Europe.

That was our last question, and I would like to turn the conference back to Hannes Haider for any closing comments.

Yes. As there are no further questions, thank you for your interest in AGRANA and your participation in the call with a nice remaining day. Goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.