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

Ladies and gentlemen, welcome to the AGRANA results for the First Quarter of 2025-'26 Conference Call. I am Myra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [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.

Good morning, ladies and gentlemen, and welcome to AGRANA's conference call presenting our results for the first quarter '25-'26. As announced in our invitation, the presentation is available in reference to this call. You can find this presentation in the IR section of our website. Our CEO, Stephan Buttner will hold today's presentation, our Board member, CTO, Norbert Harringer sends his apologies due to illness. As you can see on Slide #2, the presentation is divided into 3 parts. We will start with an introduction and we'll focus on the highlights of Q1 first, and we will go on then with the segment overview, and also comment on the financial statements. And finally, our CEO will conclude with an outlook for the ongoing financial year '25, '26. The presentation will take about 25 minutes, and afterwards, the lines will be opened, and we will be glad to answer your questions. And now I may pass over to our CEO, Stephan, who will start with the presentation on Slide #3.

Yes. Thank you, Hannes. Good morning, ladies and gentlemen. I would like to start with the highlights. So first quarter, so of course, it was as we already expected and predicted a quite challenging first quarter with a very significant decline on EBIT. Of course, very important to mention here is the expected weak operating performance in the sugar business. So the markets are still under pressure. Also you know that we have contracts in place from the last sugar marketing campaign with low prices and higher production costs. So this leads to a weak result, especially in the sugar business. Also, ethanol prices are still under pressure due to high import volumes from the United States. So this is also a big challenge in the first quarter and also ongoing. And we also had extraordinary effects, so expenses of about EUR 18 million, which we had to book in the first quarter, mainly due to the closure of the sites in the sugar business in Leopoldsdorf, Austria, and in Hrušovany, Czech Republic. So for the employees that we had to release. On the other hand, we were successful in signing the contract for the acquisition of the remaining 49.99% of the shares of AUSTRIA JUICE. This is a very important step for us, for the execution of our corporate strategy that we decided last year in November, and now during the process of the, let's say, approval of the competition authorities, we are working on the plan how to integrate the business to AGRANA Group. When we look at the numbers, so EUR 880.2 million revenue, this is a decline from the EUR 944.3 million in the previous year first quarter. Operating profit, EUR 25.7 million. So here, we are not so far away from last year, despite a very poor results in sugar, especially also versus prior year in the first quarter, also the exceptional items I already mentioned with minus EUR 18.3 million with a very negative impact on the EBIT and EBIT with EUR 5.7 million, very significant decline versus the EUR 32.3 million in the previous year. Yes. Sugar segment, we already reported that we closed 2 sites. So 1 in Austria and 1 in the Czech Republic. This also leads to a significant reduction in the contracted beet areas for the campaign 2025. So we will go down from around 96,000 hectares down to 64,000 hectares. This is, of course, due to the lower capacities that we have in place and also in line with the closure of the sites, we already also -- I reported that we had to book this minus around EUR 18 million restructuring costs. So mainly personnel expenses. In the future, we will focus our business in sugar in Austria on one side. This is Tulln with a capacity of around 270,000 to 300,000 tonnes of white sugar production. This is sufficient to serve the Austrian market of around 300,000 tonnes. And on the other hand, we will focus on our plant in Opava in the Czech Republic and here also, we will have sufficient beets available for a good utilization rate of our factory. The free cash flow with EUR 10.9 million is in line with the free cash flow from the previous year. So also lower course -- ordinary course of the business despite the very poor results that we had. Then net debt with the EUR 426.5 million, around EUR 10 million down versus prior year. Gearing stable at 35.7% and the equity ratio, again increased up to around 47%. Acquisition of AUSTRIA JUICE, yes, I already mentioned that this is a company of around EUR 330 million. It was already fully consolidated within AGRANA Group. So we will not see an impact on the top line. On the other hand, then we have 100% of the shares, and we also are entitled to get the full dividend payout in the future of the net results of AUSTRIA JUICE. Also, we will further integrate the company into the group. We will roll out the added value business of AUSTRIA JUICE via our physical footprint in the fruit preparations business with a clear focus in the first step on markets like U.S., Mexico, China and Australia. We will further invest in the future in our flavors business, so to increase our capacity here and also to increase the volumes that we buy internally for the needs of our recipes in the fruit preparation business. But as already mentioned during the merger control process in the coming months, we will make a detailed plan how to integrate the business for the future. Purchase price amounted to EUR 54.7 million for 49.99% of the shares. Our strategic priorities for the coming months and for the financial year '25-'26, in general, on a group level, we will now focus on sales excellence, commercial excellence with a clear customer focus, after, let's say, the last 15 months, really focusing on restructuring activities, also operational excellence, we will put a clear focus on that to gain further savings in our operations. People and culture is also a very important part. So we will also -- yes, we will start also now our initiatives for our leadership development. This is also very important for the future. In the strategic business areas, so Food & Beverage Solutions here, still, we will also sharpen our operative business level strategy. We'll optimize and consolidate further our physical footprint. We will make the conceptual work how to integrate AUSTRIA JUICE, especially also what will we do with the flavors business in the future. And also here, we'll look for further synergies on the cost side, especially with the overheads. In the Agricultural Commodities & Specialties business, of course, target costing sugar. So how can we be successful also with lower market prices in sugar. This means further optimization, lean factories, lean cost structure. And also, we need to further discuss with the suppliers, with the beet farmers about the future model of the beet prices. Beyond Starch is also an important topic. So how will we further develop our product portfolio here besides the optimization of our core products. So also here, a very important strategic work, site optimization, decarbonization, all these things, we will make plans for the future in the coming months. And of course, also, our cost programs on the holding level, but also in our commodities area play a very important role. And here, we need to execute that we will achieve the EUR 100 million savings from EUR 27 million onwards as we announced. Yes, we will have a new segment reporting now from the first quarter onwards. So currently, the old structure with the Fruit segment, Starch segment and Sugar segment, we will transform now than we -- in the future, we will report Food & Beverage Solutions segment, which is currently the same as the old Fruit segment. We will have Agricultural Commodities & Specialties Starch and Agricultural Commodities & Specialties Sugar. So we will report Sugar and Starch separately also in the future as 2 segments. And also separately, we will report the holding, which was up to now part of the Sugar segment. But here also, you will have more transparency in the future about the cost development in our holding. Let's move on to the financials. Revenue, I already mentioned a decline of 6.8% on group level down to EUR 880.2 million. This is mainly price driven. So we have a further decline in sugar prices, also ethanol prices are heavily under pressure. On the other hand, our FBS segment, we have an increase of revenues of nearly 7%. So here, we are on a very good way. We have further growth and when we look at the sugar business, yes, of course, I already mentioned prices are further under pressure. This comes from the last sugar marketing campaign. Yes, it's really, let's say, a very challenging situation here. And as you see, 33.3% decline in revenue in the first quarter. This really shows how massive the price drop was versus prior year, and you can also see this on the next slide, where we have really this very significant drop of sugar prices. Now we are in a phase where we see a stabilization and the slight increase. It's slowly recovering the market also from the massive import volumes duty-free from the Ukraine and the huge quantities processed from sugar beets in the campaign 2024. Now we see a decrease implanted acreage, imports from Ukraine temporarily have stopped. So these are all positive developments, which, of course, also leads to a stabilization of the sugar prices in the European market. And now it really also depends on the weather, what happens with the beets in the coming weeks. Especially will there be a drought, massive heat and so on. This could lead to a further reduction of the expected sugar production volumes and might also lead to a further price increase. The EBIT, yes, here a significant improvement, again, on our Food & Beverage Solutions business. So we are really on a good track. We are constantly improving our performance. Starch, very challenging. This is really mainly due to the very low and the sharp decline of the ethanol prices in combination still with high raw material prices, especially for corn, but also for wheat from the last harvesting campaign for wheat, we expect lower prices for the new harvesting season in corn. This is hard to predict what happens. We also see the first damages for corn due to the massive heat in the last weeks, but we will see how these things will develop further. And in Sugar, of course, significantly lower sales prices. So -- and we also have the negative impact of around EUR 18 million here. So the operating result was around minus EUR 10 million, which is, let's say, in the actual environment and the circumstances, which is a poor result, but it's not, not a catastrophe, let's say. So we are also here on the way of a slight recovery, I would say. Consolidated income statement, I already mentioned the key numbers here, EBIT, EUR 5.7 million in Q1. Of course, then loss for the period due to the net financial items of minus EUR 11 million also, therefore, a loss per share of EUR 0.16. Yes, then the tax rate reported 46.3%. Of course, this is due to the positive results in various geographies. On the other hand, the losses in -- especially in the sugar business, which we could not offset with other profits. Therefore, we have this high tax rate. On a group level, consolidated cash flow, yes, you see still operating cash flow was lower than in Q1 '24, but free cash flow slightly better. So acceptable performance here. We are further working on the reduction of our payment terms on the side of the receivables. On the other hand, also, we are working on our inventory levels to gain again, more free cash flow in the coming months for, let's say, potentially also then making it possible that we have further -- potentially further acquisitions or investments. Yes. Equity ratio, yes, of course, as you can see that the total equity and liabilities or total assets went down further by 6%, this automatically also leads to a higher equity ratio of around 47%. We are going in the right direction. So our target is around 50% net debt, okay, we will see a further decline here in the coming months. So our target is that we go significantly below the EUR 400 million. But then also we have to take into consideration the potential payment of the EUR 54.7 million, which will come at the end of the calendar year for the acquisition of AUSTRIA JUICE. But still, we expect a reduction versus prior year on net debt level despite this acquisition and the payout gearing ratio is very stable. And then please let me come to the financial outlook. So for '25-'26, we report still stable EBIT compared to prior year and a slight reduction for the revenues on of group level. And when we look at the different segments, for the Food & Beverage Solutions segment, we expect a slight increase in revenue, stable EBIT, so this is an improvement versus our previous guidance. So here we see -- as you can see in our first quarter results, better performance than we expected and therefore, we also improved our outlook for the Food & Beverage Solutions business. In the last year, we had an operating result of EUR 101 million. So our -- and also EBIT, EUR 99.7 million, so we expect a steady result here. Starch revenues steady, EBIT steady as well. So here, we decreased our expectation mainly and really due to the low ethanol prices and the challenges that we see in this business area overall and in sugar, a significant reduction in revenue and a moderate improvement on EBIT level. Outlook for the second quarter here reported our expectation, a very significant decline in EBIT. This is, of course, mainly due to the low sugar marketing prices coming from the last year's campaign and the pressure from the ethanol business. And maybe last but not least, investment plan for '25-'26. So currently, we expect a CapEx of EUR 115 million. This is in line with our budgeted depreciation. And when you look at the investment split, so 53% will be dedicated to our Food & Beverage Solutions business, 18% to Starch and 11% to Sugar, 18% on holding level are not, let's say, dedicated yet to this is a position which will be then are dedicated to the one or other activity in the different segments during the business year. So let me hand back to Hannes Haider, which will give you more information on the financial calendar. Thank you for your attention and participation, and we are happy for you to receive your questions. Thank you.

Thank you, Stephan. Before we go on with the Q&A session, just one reminder. As you know, last Friday, 4th of July, our Annual General Meeting has resolved to pay a dividend of EUR 0.70 per share. Yesterday, we had the ex-dividend date. And on Monday, we will have the dividend payment date. And during summer months, we will also prepare the financial calendar then for the next financial year '26-'27, and this new calendar will then be published in early autumn. We will now go on with the Q&A session.

[Operator Instructions] First question comes from Vladimira Urbankova from Erste Group Bank.

Thank you for interesting presentation and a lot of details. I would like to focus on the outlook because what I can see is a second quarter in a row with very significant decrease in EBIT. So what makes you optimistic for the second half of the year? What should happen to see a steady EBIT for the full fiscal year? In particular, in the Sugar segment, how do you see the situation with the possible increase in Ukraine imports into the EU? And then maybe if you can provide a very quick update. You already touched that Fruit segment is affected by U.S. tariffs. Is there anything new? Or could you summarize here how the situation looks like?

Yes. thank you for the question. So first of all, what makes us confident that we will reach the guidance of a stable EBIT for the whole business year. This is quite simple. You know that we had significant negative impact in the second half of the last business year due to the developments in the sugar business. We were confronted with a sharp decline in prices with inventories with high production costs. So we had to face significant losses here. Now we see a slight recovery in the market, stabilization. We start with -- let's say, we do not start with stocks or with inventories in place, which have a high production cost, and therefore, then we will face significant losses out of that. So this will not take place. Also, we will not close further sites. We also have not this extraordinary impact. So we already had this now in the first quarter. So -- and therefore, we will see a significant better performance in the sugar business in the second half of the year versus prior year. So overall, this makes us very confident that we will at least reach the EUR 40 million EBIT for the business year '25-'26. Imports Ukraine to the EU, you know that we are, let's say, very disappointed with this development. So it's not about the quantities. It's in principle a development that we cannot understand and we are not supporting. This is really something which is very difficult to understand that on one hand, let's say, the burden is increasing and increasing due to the, let's say, ESG initiatives, especially when we look at different factors, it makes it more and more difficult for farmers to be competitive. It's getting more and more difficult. Also with the high standards imposed by the European Union for the industry. And then when we open the markets for imports with significant lower standards, quality-wise and also ESG-wise, and then we are confronted with these cheap products, then it's understandable, I think that we are not very happy with this general development. The 100,000 tonnes, yes, you can say, okay, we had 260,000 tonnes 1 year ago. So it's a lower volume, but we are coming from 20,000 tonnes, and we do not understand why 100,000 tonnes is the right number and why the decision is made that it is 100,000 tonnes. Our opinion is that it should be 0. U.S. tariffs, no changes here. So we see no risks, no significant risks for AGRANA Group. So we are constantly assessing the developments here. And when we have to report a risk, then it would be in the low single-digit million area.

[Operator Instructions] The next question comes from Baptiste de Leudeville from Kepler Cheuvreux.

My question is actually quite similar to the first one. I understand that you could be in a position to negotiate much better prices in, let's say, during time of negotiation in October, I think, for the sugar. Can you confirm that? And second question would be on starch. You're obviously facing a lot of pressure on price. Can you -- do you expect some turnaround or at least a stabilization in the next 6 months at least for the rest of the year?

Yes. So as I already mentioned, I can confirm that the market -- the sugar market has stabilized in the last weeks and months. So yes, I mean, when we compare with our starting point in the campaign 2024, we have a much better situation because we do not have these stocks with this very high production costs in place. So this gives us a better starting point. And on the other hand, yes, we are also able to increase the industry prices. I mean this is a positive development. It will not lead to a very positive result, honestly speaking, but we will be much better off when we compare it to the sugar market in year '24. So I can confirm that up to now. But again, we are in the middle, let's say, of the growth of the sugar beets in the middle of the season here now. So everything can happen. So we will also have to wait what will be the impact of the weather on the beets, especially also in Germany, in France, but for us also, of course, in Austria. So how will be the yield, what will be at the end of the day, the expected and the real sugar production out of the beet. So we will get a further shortage, then prices might increase even further or we will see record yields, then prices might get a little bit under pressure maybe again or, let's say, at least we will see no further increase. So -- but I can confirm that the situation is actually much better than in the previous year. And this makes us optimistic, let's say, when they look at the very negative result in the previous year for our sugar business compared to our expectations of the new sugar marketing campaign 2025. And in starch, yes, so short term, honestly speaking, I do not see a big chance for a recovery in the ethanol business. This is simply due to the very low corn prices actually in the United States and also the softening of the U.S. dollar versus the euro, which makes imports even more attractive into the European Union of the American ethanol. It gives us a little bit a headache right now. We will see how this further develops. But short term, I do not really expect a significant recovery here. So starch will be challenging also for the rest of the business here, yes.

The next question comes from Philip Hettich from ODDO BHF.

I hope you can hear me. First question is on the fruit juice concentrates. You mentioned that you had a significant increase in profitability connected to beverage solutions. Is this more of a one-off? Or is this rather sustainable? And then second question, you mentioned you're working on the payment terms. Do you mean here an employment of factoring? Or is this rather a more deeper change in terms with the suppliers and customers?

Yes. First question, no, this is operative course of the business. In our fruit juice concentrate business, we have good margin. We were very successful in marketing our products in the previous campaign, and this will go on, let's say, at least until the harvesting season starts in September for the apples. So -- but here, we have a very good performance in the previous years, and we expect that this will also go on like that, maybe not on this high level, but similar levels compared with the last 2 or 3 years. This is no one-timer. And payment terms, you mentioned working capital. No, this is a structural work. So of course, factoring gives us more flexibility to temporarily increase also our headroom, but we are here working on structural improvements in our working capital positions, and this contains always our receivables, payables and also inventories.

[Operator Instructions] We have a follow-up question from Vladimira Urbankova from Erste Group Bank.

This is just a technical question. Related to your Starch segment, I did not notice any one-offs, but you mentioned that you have got some money from insurance for the floods. Can you specify how much was your EBIT result in the starch segment affected in the first quarter?

EUR 5 million.

EUR 5 million? Because this is quite a big amount. Where was it recorded?

In March, I think.

No, no. In the starch...

So operating profit negative without this in the first quarter.

Okay. Okay. This is what I wanted to double check.

You are completely right, yes.

Okay. And maybe as we are talking for the last year, as you restated segments, would it be possible to receive some full breakdown for last year's sales, EBITDA and EBIT in the new structure just to have a good starting base for projections. I mean, I can do some recalculations, but it is rounded if it would be possible to get it in thousands like in the same format you have in your annual report, this would really help.

Yes. First of all, we have 2 reconciliation sheets on the Slides 27 and 28. And we can have also a follow-up call after this conference call if you need additional information.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the speakers for any closing remarks.

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