Astarta Holding PLC (AST) Earnings Call Transcript & Summary

Thank you very much, everyone, for joining the call today. We have published our 9 months results. And today, we would like to go through our results in an investor update presentation. Since we are all in a Microsoft Teams video call, I would like to ask everyone to be on mute while we present. We will try to do it as soon as possible. In the meantime, you can ask your questions by typing it in the text box or wait until we finish the presentation, and we will answer your questions in person after the presentation. I hope everyone can see the first slide on the screen. And this summarizes our P&L for the 9 months of 2020 in comparison to the previous year. As you can see, we had a slight revenue decline. This is largely related to the Agricultural segment since we sold most of our grain, specifically corn stocks of last year's harvest until year-end 2019. For all other segments, the top line was largely the same, which is sugar, cattle farming, but slightly lower soybean processing. On a gross profit margin, you can see good expansion as we managed to focus on our cost. Going down to the EBITDA, there was also an expansion both on the margin side and the absolute numbers, grew from EUR 54 million to EUR 82 million. However, the bottom line is red since we had to register a chunky ForEx loss on the account of local currency devaluation. If we exclude the impact of accounting standards IAS 41, on a cash basis, our gross margin, EBITDA margin were at the level of 26%. Looking at our balance sheet -- 1 second, I'm trying to switch to the next slide, but the system is rather slow. I hope everyone can see now Slide #4, which is a summary of the cash flows and summary balance sheet. If you do have problem with the presentation, it will, of course, will be uploaded on our website and see it in after the call. But all the data was also highlighted in our management report for the 9 months. So as explained during the beginning of the year, we continue to focus on our cash flows. We reduced our CapEx, we are maximizing operating cash flows, and that allowed us to further pay down the debt, which was nearly EUR 50 million on a cash flow basis. As a result, our net debt reduced to EUR 175 million and on a net debt-to-EBITDA basis, 1.6, which allowed us to come within the covenants in all [ engine ] agreements. And you can see on the balance sheet, we now have our loans reclassified as long-term loans, which reflects the true nature of this financing from the banks. Moving on to the next slide. We drill down on our results in the Agricultural segment. As mentioned, there was a lower volume of corn sales since we already sold our harvest before year-end. You can see higher volume sales in wheat, sunseeds at the same level. And there was a positive price development on the wheat and sunseeds side. And corn, if we take our realized prices in euros, there was a slight decrease in euro terms. But of course, you know that the corn is increasing now, and we will show the market situation on the next slide. Overall, the gross profit margin expanded from 24% to 44%, our EBITDA increased to EUR 60 million, and our CapEx is very manageable in this segment despite our massive replacement of agricultural machinery before the spring sowing season this year. We also single out our cash flows related to land lease liabilities. And you can see it is also relatively stable. Traditionally, in this season, we harvest our crop, and we already plant in our winter crop for next season. We completed harvesting of the oilseeds, but the yields are significantly down, especially on the sunflower seed side. I'm sure you know that severe weather conditions in Ukraine were very unusual, and it's not just for Ukraine but for most countries in the Black Sea region. So we can see our harvest severely hit by draught not just from the sunflower seed side, but we also see our interim yields on corn and sugar beet are also down. On the corn side, nearly by 1/5 and the sugar beet side, the interim yields are down by 13%. The new sowing season has already started, as I mentioned, and we already planted our winter wheat on almost same acreage as last year. And we have increased our winter rapeseed acreage from 2,000 to 7,000 hectares. Our strategy in the Agricultural segment remains intact. We focus on optimizing our land resources. We focus on our sugar beet and other crops. We now use our own storage capacities for our own harvest, and we're also actively working with independent farmers to attract their harvest for servicing by our storage facilities. And we are constantly reviewing our crop rotation. We increased rape seed plantings as well as the share of the high oleic oil sunflower seeds to enhance our margins. But of course, we remain to be challenged by the weather conditions, which were particularly severe, and it is also seen from the average harvest yields which are so far also registered for Ukraine in general. The weather conditions, of course, also were reflected in the realized prices. The prices for both wheat and corn are going down -- sorry, going up significantly since August, when the first estimates of harvest were downgraded. And we can see a very strong upward trend, especially in September and October. The prices continue to climb. On the sugar side, the volumes were flat. On the sales side, the prices, again, as of September 30, if we take a 9-month period, were largely unchanged in euro terms, which is different from the situation now. However, our gross profit margin expanded by more than twice, which tripled our EBITDA margin from 4% to 15%. And that is really reflective of our cost-cutting measures and us focusing our production efforts on fewer assets. As you -- as we explained earlier in the year, we idled 2 sugar plants during the last sugar making season. And this year, we also idled a third plant so that we have a more efficient production and much lower direct cost. Recently, the prices are increasing in Ukraine. And one can see this reversal of [indiscernible] on this slide. There was a reduction in the acreage in the sugar beet, as you know, but also due to unfavorable weather conditions we can see much, much lower harvest this year. So according to various estimates, the Ukrainian sugar production this year is forecast at the level of 1.2 million tonnes, but realistically, it could be even lower. So we can see that the restructuring of the sugar market to match demand with output is realizing this year. Therefore, we can see the market anticipating probably a shortfall in sugar. And Ukrainian sugar prices are now spiking. In October alone, they -- it were -- they were up by 31%, and this trend continues now. Again, on the strategy update, no change here. We still would like to be the #1 sugar producer in the market, whatever the size depending on consumption levels. But we are focusing on our cost. We focus on our margins by increasing our product sales into retail, into increase in branded products as opposed to private labels in retail. On the cost side, the 2 sugar plants that we shut down in 2018 and '19, they are put for sale and this is to reflect our optimization efforts. These were the obsolete assets that are now not needed in the eastern part of our regional operations because sugar beet harvest and yields are suboptimal there. So we are focusing on running the most efficient and modern plants, which we've invested in the past. On the soybean processing, the top line is slightly below 9 months last year, and this is because of the lower volumes in soybean meal. The pricing situation was favorable on the soybean oil compared to the previous year. However, that was not the case for soybean meal, which is our main product of soybean crushing. So we saw a slight margin squeeze on the gross profit side, from 16% to 14%. And at the EBITDA level, there was also a decrease from 10% to 9%. We do hope that the recent regulatory changes will encourage Ukrainian farmers to increase soybean planting area for the next season. We can see that the soybean prices are rising globally, especially recently, [indiscernible] the U.S. soybean harvest. So we believe that the Ukrainian agricultural sector will turn around and increase soybean output. Cattle farming, dairy. There was a seasonal dip in terms of the prices, but this is reversed and the prices are, again, near 300 [indiscernible] level. If we are talking about the average for the 9 months this year, that was EUR 330 per tonne for us, higher than last year. And that translated into a 23% gross margin and EUR 5 million EBITDA. There is no change in our strategy. We continue to focus on our cost deleveraging, increase in our cash flows. We are facing headwinds in terms of the macroeconomic environment in Ukraine, related and not related to the pandemic, but also extremely challenging weather conditions. And that really makes us focus on our cost side. And we will continue to focus on our cash flows. And this is the end of our main part of the presentation. There are also long-term data in the appendix. You can also see our -- the breakdown of our debt in the appendix, updated as of today. We are ready for your questions.

[Operator Instructions] Yes, Marcin. Please ask your question.

I actually have a few questions. So maybe let me go for them one by one. I noticed that in the third quarter, you sold entire stock of wheat -- entire harvest of wheat from 2020, and much of part of sunflower harvest. What should we expect from fourth quarter in terms of a co-selling policy? Given the current pricing, should we expect that you will sell entire remaining agriculture volumes in the fourth quarter?

By the remaining agriculture, do you mean corn?

Corn and the remaining part of sunflower.

Okay. Just 1 second, I'm just trying to check whether one of my colleagues would like to take on this question.

[Foreign Language]

Marcin, since we are still in the middle of harvesting, we haven't finished it. So we do not have the final outlook for the total harvest. It would be difficult for us to answer this question. The yields were negatively impacted by extreme weather for more than 3 or 4 months this year. I can also see that Natalia send this question as well. She asked to comment us on our final corn yield outlook. What we put in our presentation in terms of the guidance that currently, our interim crops are down by 1/5, by 20%. Whether after we harvest the remaining 1/3 of our harvest will change the average picture. Still remains to be seen.

Okay. And the second question would be regarding the Sugar segment. What's your outlook for sugar beet area now for 2021? Should we expect an increase given the current favorable pricing of domestic sugar price? And the second part of the question, given the margin...

Sorry, Marcin. Can you repeat? I did not get -- sugar beet...

Sugar beet area outlook for 2021?

Oh, you mean planting area? Yes.

Yes, planting are. Yes, exactly. If you expect an increase given the current local favorable pricing? And given current premium of local price to [ local ] benchmark, is there possible to see any sugar imports over the next few months? So is the demand pressure on the market?

[Foreign Language]