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

Ladies and gentlemen, welcome to the AGRANA results for the first half of 2024-'25 conference call. I'm Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Hannes Haider. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to AGRANA's conference call presenting our results for the first half '24-'25. With us today are 2 out of 3 members of the Management Board. Stephan Büttner, our CEO, will start the presentation with an overview on the highlights of the first half. 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. In the third part of the call, CEO Büttner will comment on the business performance in our 3 segments. He will also report on the half year financial statements in detail. And finally, he will conclude with an outlook for the remaining business year. As announced in our invitation, a presentation is available in reference to this call, and you can find this presentation in the IR section of the website. The presentation will take about 30 minutes. And afterwards, the Management Board will be glad to answer your questions. And now I may pass over to our CEO, Stephan, who will start with the presentation.

Thank you, Hannes. Good morning, ladies and gentlemen. So we are facing challenging times, as you could see already in our reports. So as already projected and unfortunately, our second quarter '24-'25 was significantly weaker than the previous year. On the positive side, we see a good performance, solid performance in the Fruit segment. They delivered a very strong result in the first 6 months. On the other hand, Starch is still weak. So the overall market environment is quite difficult. We know that the paper industry, construction industry but also the food industry are facing challenges. Weaker demand is here a key factor. And when we come to the Sugar business, then you already saw that we have a very heavy price pressure. This is a result of, let's say, high inventories in the European Union. This is also caused by the previous import volumes from Ukraine stagnating demand and consumption, also due to the overall market environment, good expectations of the crop especially in France and in Germany and also a weak price development in the world market. All these factors together led to a significant price decrease in the previous months, causing losses in our business and having a negative impact on our overall group results. Nevertheless, so far, we confirm our forecast of significantly lower group EBIT for '24-'25. And also, let me comment on the flood disaster which we are facing in the last weeks in Central and Eastern Europe. So AGRANA was directly affected, especially at our starch site in Pischelsdorf. Now we had the ramp up 2 days ago. So we expect that we will fully run the factory in the next -- in the course of the next week. And then we also were facing logistics issues with a beet transports from Upper Austria. Especially, this is also something which is getting better from day to day. So let's have a look on the key numbers. Revenue, a decrease of 5%, EUR 1.86 billion in the first 6 months. EBITDA declined to EUR 107.6 million, this is minus of 34.3%. Also operating profit down to EUR 55.3 million, minus 50.9%. And EBIT is also down to EUR 56.6 million. This is a minus of 49% versus previous year. Earnings per share, EUR 0.35. Last but not least, our strategy work. So we are making good progress. So we are constantly working on our corporate level strategy, especially on our portfolio strategy and also on the management strategy. We will more and more in the future now focus on the potential cost savings synergies, especially in our agricultural commodities business. And we're also looking for market synergies in our solutions business. Also, an integrated part of our strategy is cost savings program on which we are currently working. So we are not ready yet to report numbers of the cost savings potential. This is -- as I already mentioned, it's an integrated part of our overall corporate level strategy, which has to be approved in our Supervisory Board -- from our Supervisory Board. And we expect that coming in the next weeks. Okay. Then let me hand over to Norbert, who should give you an outlook on raw materials and production.

Yes. Thank you, Stephan. Good morning, ladies and gentlemen also from my side. Welcome to our today's conference call. Let me start with a short overview about the actual situation on raw materials and production. In the Fruit segment, and here in the fruit preparation division, we purchased about 185,000 tonnes of raw materials within this first half of the current business year. The harvest of the principal fruit, strawberry, was completed in July in all relevant procurement markets. And the purchase prices, I have to say, were above the previous year's levels. In the fruit juice concentrate business, we see an overall weaker harvest in our principal fruit, apple, all over Europe, also in Poland. Consequently, we are confronted with rising raw material costs to be expected in this campaign which is now underway. In the Starch segment, the wheat prices on the market exchange in Paris tariffs fell considerably with the 2024 harvest. The corn quotation followed this trend until the end of August. You can also see on Slide #8 the development of the crisis. After the end of August, we were confronted with, again, rising trend by corn and by wheat. End of August, we saw quotations for wheat at about EUR 206 per tonne; for corn, EUR 199 per tonne. And nowadays, 2 days ago, on the 8th of October, we saw a price for wheat of EUR 230 per tonne, and for corn, EUR 214 per tonne. In the last days of this August, we started with potato starch campaign in our potato starch factory in Gmünd. And also in the last days of August, we started to harvest wet corn for our corn starch factory in Aschach here in Austria. And the wet corn volume in this campaign for Aschach will be 110,000 to 120,000 tonnes. Last but not least, the Sugar segment. AGRANA contracted for this campaign at about 99,000 hectares of sugar beet compared to the last, 13,000 hectares more in this campaign. Here in Austria, which is the most important country for our sugar production, we are expecting an average yield of about 75 to 76 tonnes per hectare. Based on these estimations of the beet volumes, we are expecting a factory utilization in this year of about 105%. So let me now come to environmental safety and health topics. You can see on Slide 10 that we have in this year an important milestone in the sustainability reporting and the implementation in this year of the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards. The aim here is not only to produce an ESRS-compliant report but also to intensify our integration of sustainability considerations into our existing corporate structures and also in our strategy. We continue to make good progress on achieving our emission reduction targets. We started the project to switch in our last charcoal site, a sugar factory in Opava in the Czech Republic, from charcoal to natural gas. The finalization of this project is expected end of summer 2025. And so we will be able to have our last charcoal-fired sugar factory until now also on natural gas from the campaign 2025. And this will be a major and very important step on our efforts to reduce our emissions. Last but not least, some words to our investments in the first half of this business year. AGRANA invested EUR 47.1 million in this first half, EUR 19.7 million in our Fruit segment. The most important projects are the capacity expansion in our fruit factory in Jacona in Mexico, the expansion of the foodservice area in Centerville, in Tennessee in the U.S.A. and the expansion of our solar power supply in China, France and South Africa. In the Starch segment, we invested EUR 12.2 million in the increase of production capacity for drum-dried, nonfood specialty starches in Gmünd in Austria, the increase of bagging capacities for wheat and for -- wheat to wheat gluten in our biorefinery in Pischelsdorf in Austria, the upgrading of the biofiltration equipment in Aschach. In the Sugar segment, we invested EUR 15.2 million almost for energy efficiency projects: the optimization of the evaporator stations in Roman in Romania and in Kaposvár in Hungary and the mentioned conversion of the fuel supply from coal to natural gas in our sugar factory in Opava in the Czechish Republic. The total investment across the 3 business segments for the full year '24-'25 will be at about EUR 120 million. This is expected to be moderately below the last year's value and in line with the budgeted depreciation of EUR 120 million. Around 12% of this capital expenditure will be for emission reduction measures as part of our climate strategy. So back to Stephan for his overview about the results by segment.

Thank you, Norbert. The market environment highlights. For Fruit segment, overall, we see a stable market environment especially in our big regions, Europe, United States, Australia, Mexico. So the performance is solid. Of course, still, we have difficulties in high inflation regions, especially South America. Also, China is still a challenge. Things are getting better step-by-step but still difficult. Turkey, also quite a challenge due to hyperinflation. Overall, we are okay. We are fine with the market environment in the fruit preparations business. Fruit juice concentrate also is quite a challenge currently due to the frost that we saw in the main regions for apple in spring, especially Poland. But also Hungary was affected here. So this led to lower supply of raw materials and a very, very steep increase in prices. Nevertheless, we see quite good demand, and we are able to market our volumes in a good way. Starch segment, it's back and forth, let's say. So at the beginning of the second quarter of the business year, we saw a better situation especially in the paper industry and so on. Now it's getting a little bit more difficult again. So it's not -- we are not yet there that we can talk about a significant recovery of those markets. Also, saccharification products are now under pressure in combination with the lower sugar prices. And ethanol is also affected by the import volumes coming from the United States, which are impacting the Platts quotations. And therefore, whenever prices are going in the direction of EUR 700 per cubic meter, then imports are increasing again and prices are coming under pressure again. In Sugar, this is already well known, so we had a massive price pressure. We had a massive price pressure during the last month. Major effects here are imports from Ukraine, good expectations for the harvesting period '24, lower world market prices, carryover stocks from the previous year, let's say, quite a weak demand overall. General market environment is quite difficult, also in the food industry. So we saw this significant price decrease and this has negative impact on our business. And this will also accompany us during the next month. So it will not get better soon. The revenue by segment. You can see that we had an increase in Fruit of 4.2%, up to EUR 824.5 million. So as already mentioned, we had an increase in volumes in the fruit preparations business of around 3% to 4%. Prices are -- were declining a little bit in the juice business, increase in volumes and prices especially in apple juice concentrate. In the Starch segment, I already commented on that and also Norbert told you that we had a decline in energy prices and in raw material prices, a significant decrease here. Of course, the impact on the sales side comes much quicker than the full effect on the cost side. And this also is putting pressure on our revenue. Sales prices in ethanol also, 12% in average below last year in the quotations. And sugar, you see the decline of 8.9% in revenue. So we made -- we had higher sales volumes, but this could not compensate the significantly lower sales prices. EBIT, similar picture. So an increase in the Fruit segment, up to EUR 50.4 million. This is a solid performance. Still, there is room for improvement, let's say. But so far, we are on a good track here in both businesses, in the fruit preparations business as well as in the fruit juice concentrate business. On Starch, so let's start with the ethanol business. So the result is positive. It's a little bit better also than previous year. But the margins are -- or the performance is still on a very low level. And we have an enormous pressure on our starch products here in the margin over the whole portfolio. So it's starch products, it's byproduct and it's the saccharification products. In Sugar, negative result of EUR 18.7 million. This is driven by the decrease -- the significant decrease in sales prices. Let me come to the consolidated income statement now. So I already mentioned the key numbers: revenue, EUR 1.86 billion in the first half year; EBITDA, EUR 107.6 million. Also, you can see that the performance in the second quarter was quite weak here. So negative effects, especially from sugar, coming more and more into effect. And as I already also mentioned, it won't get better during the next months. We see a positive effect in the share of results of equity-accounted joint ventures. This is due to the better performance in HUNGRANA. EBIT, EUR 56.6 million. And the key performance indicators in here, let's say, the profit for the period is EUR 23.5 million; and earnings per share of EUR 0.35. I already mentioned that. When we come to the next slide. Energy prices are further going down. So we already reported in previous sessions that we saw from our perspective the peak of the energy prices, and now we are constantly going down. So we hope for a further reduction. But as you might well understand, all these geopolitical crises that we are facing are not supporting the downward trend currently. The net financial items. So we saw improvement in, let's say, the numbers here, the total, EUR 19.4 million. Still quite a high negative impact on our overall group profit. Net interest expense, of course, still high due to the high interest rates and our high net financial debt. We had an improvement in our currency translation differences versus previous year. The tax rate is 36.8%. So this is of course higher than, let's say, the normal tax rate of around 25%, where it should be. There are two major reasons for that. One is that we had an additional tax payment after a tax audit, in total amounting to EUR 1 million. And the other effects are coming from countries where we have negative results. But we cannot book tax income with deferred taxes because we do not expect, let's say, positive results in the future in these countries. So this is overall a negative impact on the tax rate. The cash flow statement, of course, impacted by the lower operating cash flow before changes in working capital. This is down by 30.1% to EUR 125.8 million. We see a positive effect in the changes in working capital. So this is a turnaround versus previous year. We see lower inventories and receivables, especially in the Sugar business. So net cash from operating activities resulted in EUR 118.3 million, and this is despite the fact that we have a significant lower operating profit, a positive development. The consolidated balance sheet. So we see a decline in current assets especially, this is already mentioned, that is lower inventories especially in Sugar but also in Starch and also lower receivables here. Equity ratio with 46.3% is solid. Net debt, EUR 621.2 million. So we expect a further reduction in the course of the business year. And the gearing ratio with 50.9%, not very good but acceptable, let's say, under the current market environment and circumstances. So then let me come to the financial outlook. So as already mentioned, our expectation for the EBIT '24-'25 is a significant reduction versus previous year. And for the revenue '24-'25, on a group level, we expect a moderate decrease. Outlook for '24-'25 by segment: Fruit, slight increase in revenue, a significant increase in EBIT; in Starch, we expect a moderate reduction in revenue and a significant reduction in EBIT; and in Sugar, a significant reduction in revenue and a very significant reduction in EBIT. And finally, let me inform you about our outlook for the third quarter. I already reported that things are not going to get better soon, especially in the Sugar business. So therefore also, the expectation for the third quarter of '24-'25 is very significantly below the performance of the previous year. So thank you very much for your attention. And let me hand back to Hannes.

Thanks. Before we go on with the Q&A session, I just want to inform you that our financial calendar for the next financial year '25-'26 was published recently. You can find all details on Slide 28 but also on our website. And additionally, you can find there also our current roadshow table. We will now go on with the Q&A session.

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

I would have two questions, basically. First one would be related to the impact of the recent floods. You said that you were directly affected. Do you have any quantification for the damages which we would see maybe in your P&L? Or everything is insured and impact is minimal? Or if you can a little bit spend more on that topic. And I think maybe what was mostly affected, if I understand, is the Starch division, if I'm correct, and maybe to a certain extent, also Sugar. So yes, if you can maybe go a little bit the financial aspect of that. And then the next question would be related to your outlook for the 3Q. If you could maybe a little bit elaborate more on the division outlook for the 3Q. And if you maybe -- this would be the third question. Do you see already any light at the end of the tunnel for the Starch -- for the Sugar segment? And when it could be and what would be the prerequisite for that?

Yes. Thank you, Mrs. Urbankova, for your questions. Let me start with the flood disaster. So we cannot finally now tell you or quantify the negative impact that it will have on our P&L. You are 100% right. The major impact, if there is a major impact, will be in the Starch segment. But we do not expect a significant financial impact yet. And on the other hand, we have also insurances for these cases. The question then will be if there is, let's say, an amount -- a negative impact on our P&L, then the question is when will come the insurance payment? Will it then also be this year or next year? So this might have a delay potentially. But again, we do not expect a significant negative impact on our P&L. And Sugar, yes, we had problems with the transport cost. There is a delay a little bit due to the weather conditions now with the start of our campaign in Austria especially. So maybe there might be an impact in the yield when we process the beets at the end of the campaign. Because now we expect that the campaign will last till the end of January, which is quite long. So let's see what could be the impact, but this is nothing material. And your second question, the light at the end of the tunnel. Of course, we see that there will be a light. So I personally or we personally think that we already now saw the bottom when we look at the price development. We also see the major, let's say, market players here reacting much faster than in previous years or when we had the same situation in 2017-'18. So we expect significant lower acreage next year for sugar beets. So this will, of course, have an impact on the price development. But to be honest, there are several factors playing an important role here. So the question is, on one hand, what will happen with the overall demand. Second question is what will happen with the regulations of the import volumes of the Ukraine in the second half of '25. Third question is what will happen to the world market prices. So it's a challenging situation, and we need to accept that this will last for the next, let's say, 6 to 12 months. But we expect a much faster recovery than we saw it in the years from 2018 onwards. And finally, let me comment on the quantification of Q3. So again, it will be driven by the Sugar results. So this is the major impact that we will see. And so you see that already the results were much lower or more negative than in the first quarter. So this is expected to move on in the third quarter as well. I cannot give you exact numbers now.

Okay. So we should expect that Fruit segment will be year-on-year improving in 3Q, while in Starch, it's a balance for the -- on the EBIT line between the output and input prices.

Yes.

Or how to see the segment's performance, something similar to second quarter? Or do you see any of these segments also seeing some...

So Fruit, Fruit will be much better, let's say, stable versus previous year; starch, lower; and Sugar, very significantly lower.

And the next question comes from Teresa Schinwald from Raiffeisen Bank International.

So my questions were rather similar to Vladimira's, especially when it comes to the full year guidance. Because from the wording and the momentum, which seems to be getting worse EBIT-wise in the third quarter, it is very significantly down. The fourth quarter would seem to be baked in a bit more hopeful expectation. So what makes you think that the fourth quarter is better? And the second one is, would your EBIT guidance include any flood impact? Because I guess -- or from the experience, what others did, they would first provision for the flood damages and then release once the insurance payment is coming. So what's the technicalities we can expect with regards to the guidance?

Yes. So when you -- okay. When you work the numbers, when we guide a significant decrease versus prior year, then, let's say, we need a minimum of -- an EBIT minimum of EUR 77 million or EUR 76-point-something million. So our current expectation is that our overall result at the end of the year EBIT level will be not lower than that. This is our current expectation. If we go below that, then we are very significantly below prior year. Did we already, let's say, consider a negative impact from the flood disaster? A slight negative impact, maybe up to EUR 3 million to EUR 5 million could be reflected in that. But again it's a close race, of course. So let's see what happens at the end of the day with the rest of the marketing of our Sugar volumes what will be the final production cost in our inventory. So yes, I mean, when you see our first half year result with EUR 56 million, this means that we need at least EUR 20 million in the second half. Currently, we are still convinced that we will be able to reach that. If not, we will announce it.

[Operator Instructions] It seems like there are no further questions at this time. And I would now like to turn the conference back over to Hannes Haider for any closing remarks.

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

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.