Astarta Holding PLC (AST) Earnings Call Transcript & Summary

I suggest we start. Thank you for joining the call today. We are pleased to report our financial results for the first 6 months of this year. I'm just going to go briefly through our key numbers. I think everyone appreciates that the external environment in which the business operates was very difficult this year. Nonetheless, we are pleased to report a good level of profitability. In the first half of the year, we had significant increase in our revenue on account of agricultural produce. We will talk about this in more detail, but we managed to sell higher volumes of our grain before the war. We also have growth on the revenue in every other segment, which includes sugar, soybean processing and cattle farming. Profitability was down on the gross profit margin on account of the effect of the remeasurement of agricultural produce. This is the crops which is still growing in the ground as we report our results. If we strip the effect of IAS 41, which is a biological assets revaluation on our P&L, you can see also very solid margins on the gross profit and EBITDA level. Last week, we also reported harvesting of our winter crops, which is wheat and rapeseed. The weather conditions were less favorable than last year, and we can see that the yields are slightly down. Now going to the cash flows and our balance sheet. We managed to preserve our cash flows and preserve our low leverage. Operating cash flows before working capital changes, in fact, increased by 40%. And our net financial debt was down, if we take into account the significant cash balances on the balance sheet. Our investment program was limited to maintenance CapEx on comparable scale as of last year. The only difference is that last year, we had divested a few of smaller assets. If we drill down to our segment results, one can see strong sales of corn in the first half of the year, that was before the war started, then we continued our efforts on exporting our produce in the second quarter. That was mostly overland, but Ukraine also worked on the seaborne routes reopening through Greater Odesa. And since August, we can see this route to be delivering the first million tonnes since opening. As we also explained during our first quarter results, given the logistical problems of exporting from Ukraine, we managed to adjust our crop mix for this year, targeting lower acreage of corn and increase in acreage on the wheat and soybeans and sunflower seeds, which are processed domestically in Ukraine. When presenting the market picture, we are showing current prices on Ex Works basis because, unfortunately, when Ukrainian ports were shut, except for the new route, the FOB market quotes for Ukrainian wheat and corn were not present. So here, we present the statistics on an Ex Works basis. And as we mentioned, we see very encouraging growth in traffic through the Greater Odesa port. Currently, the government authorities target increasing its capacity to 3 million tonnes, which looks achievable in light of the 28 days, 1 million tonne turnover. Also, we can see an increase of volumes through [indiscernible] ports. For July, the turnover was 1.4 million, and the target is 2 million. So overall, according to the market consultancies such as UkrAgroConsult, it is within reach for Ukraine to export 5 million tonnes per month going forward. Sugar was delivering better volumes in the second half -- in the second quarter of this year. During the first quarter results call, we explained there was some decline for 1 month of the initial military hostilities in Ukraine. Since then, we see not only retail volumes, but also industrial consumption of sugar recovery in Ukraine. And we also see strong volumes, and we also see better prices. Also since the EU opened its doors to Ukrainian goods on a quota-free, duty-free basis, there is an opportunity for the sugar players to export into the EU market. We also managed to export 4,000 tonnes since the market reopening. And we can see that this particular segment might be delivering strong in the second quarter of this year. It would be difficult to estimate forecast consumption of sugar in Ukraine because that will depend on how many residents will return to their homes in the second half of this year. But in terms of the sugar output, according to Ukrsugar Association, production is expected to be around 1.1 million tonnes. This is lower than last year, and that will result in a smaller number of sugar mills operating. The estimate is 23 out of 33 sugar plants. Soybean processing. Again, we can see strong volumes of crushing as well as sales. Our plant operated on a nonstop level, except for the first 2 weeks of the aggression. And there was a strong demand domestically for meal and oil from domestic poultry and livestock players in the market. That allowed us to not only increase the volumes of production, but also to achieve higher profitability that was due to demand -- stronger demand on the domestic side. You can see our gross profit margin widening by 100% and same goes at the EBITDA level. Since Ukrainian farmers anticipated difficulties with exporting grain, they increased acreage under soybeans, in line with what ASTARTA predict, and we expect a good harvest at the acreage of 1.5 million tonnes this year. Cattle farming is also a beacon of stability for our business. This segment managed to increase production slightly and increased productivity yield ahead of livestock. We had stable sales and the pricing was also favorable. That allowed us to increase our profitability, and we expect the demand to remain strong. We can discuss outlook in more detail during the Q&A session, but we would like to repeat that, of course, the current environment remains very volatile. And we -- it will be difficult to estimate any key trends, but what we promise to our investors and partners that we will never -- we will still do our commitments on the sustainability. We restarted our project for improving our climate corporate governance and working on decarbonization strategy of our business, together with EBRD and E&Y. And we also continue a more dedicated program to the agriculture on decarbonization of agricultural activities, specifically with Syngenta. The summary of our sustainability assets so far, you can find on the next slide. And we also continue our humanitarian efforts, helping displaced people and those who are affected by military hostilities. The number of partners of our project is growing, and this is the help which continues, unfortunately, to be in need for the millions of Ukrainians. So if you would like to contribute or know of the partner who can join this project, please contact us separately. We are now ready to go into the Q&A session.

I don't see anything in the chat box, but we have a few research analysts online. If you would like to raise your hand and ask your questions, please, you're very welcome. Pawel, can you hear me? Hello?

Yes. Yes, we can hear you.

Okay. Okay.

There's a short question in the chat box. Do you see it?

No, I'm not in mine. Okay. Okay. Jakub, thank you very much. Gas question. Have you already secured gas prices for the upcoming sugar campaign? At what gas prices? With high gas prices and lack of funds for working capital at the beginning of the sugar campaign, can you expect an extraordinary supply of sugar? Jakub, I will try to answer your questions, but some part is not very clear. Yes, we procured all the necessary -- contracted all the necessary amounts of gas for the sugar processing season this autumn. And we are pleased to say that in hard currency terms, in euro terms, it is not significantly higher than during the previous season, although many other elements of the costs are going up. We -- lack of funds for working capital, perhaps this is an issue for smaller producers, but we do not lack funds for working capital. You can see from our press releases communications that we keep drawing working capital facilities from local banks, which are also backed by multinational institutions. We are one of the borrowers in -- the most desirable borrowers in the country, so we don't have lack of funds. But because the acreage on the sugar beet was lower this year, and it may not be economic for some sugar mills to run, the sugar supply could be lower because not all mills will be operating. So extraordinary supply of sugar. There will be no shortage of sugar we -- compared to last year. In fact, there are some growing exports to the neighboring markets, if by extraordinary supply, you mean that there will be lack of sugar because of a small amount of sugar mills. Question from Marcin. A significant decline in local Ex Works prices is observed. How it may affect agricultural segment in coming season? Marcin, I assume that this question is relating to the grains. Yes, Ex Works prices for grains are falling because of the difficult logistics. However, we see that our seaborne capacity is growing. This is a big game changer. So we expect the "FOB market" to come back very soon. And that should increase the Ex Works prices. We have the Commercial Director, Viacheslav Chuk, is online. And I will ask him to add comments on this topic.

Thank you very much, Yuliya. Good afternoon to all. I would like to add to Yuliya's feedback that general, the market, those players who doesn't have exit to seaports or to dry ports will be affected by the lower prices. Well, ASTARTA being a public company and with good reputation in the market, already received quotas on the seaborne -- on the seaports and planning its selling through ports, not realizing current Ex Works price in Ukraine, but looking for longer destination and better pricing, including ports in Constanta, Turkey and other destinations. Thank you, Yuliya.

Okay, thank you. Next question relates to grains. Eric is asking total grain export capacity for Ukraine and detail the amount between rail truck, Danube and Odesa. Obviously, these moving targets -- but today, we put together the numbers, which will come in directly from the Ministry of Infrastructure, Ukrainian Railways. And it looks like in the 28 days of operating of 3 ports in Odesa, August volume was 1 million tonne. The target here is to grow to 3 million tonnes. In July, Danube turnover was 1.4 million. The target here, which was announced by the Ministry, is 2 million tonnes. Train, August volume was 1.2 million tonne, which is only 17% of total cargo because there are other cargoes used by the Ukrainian Railways. And trucks, July volume was 0.4 million tonnes. These are the actual numbers reported recently by government officials in Ukraine. Does the interruption of production of fertilizers and high prices of those products affect the company? Well, we are one of the largest players. And on one hand, we are affected along all other peers in our industry. But on the other hand, because we procure larger volumes, we have a more stable relationship with our suppliers. So obviously, the pricing of fertilizers and, first and foremost, nitrogen fertilizers, which are linked to gas prices are increasing. But we have procured all the necessary volumes already. This year, there was no interruption for our spring planting and following field works. And we also have all the necessary volumes for the second half of this year. But of course, the high input costs, and that is not only fertilizes generally drives the cost inflation for the industry. If we are looking at U.S. dollar cost per hectare, depending on the crop, there could be 20% to 30% increase in the input costs. Another question from Marcin. Significant decline in local Ex Works prices is observed. How it may affect agriculture segment in the coming season? Would ASTARTA be able to sell more volumes since start of the invasion if it were accepting lower prices from traders? Again, I will start and would then pass the floor to Viacheslav. The traders -- A, B, C, D global traders, which handle the majority of the global trade worldwide were not present in the Ukrainian market at the beginning of invasion. So the market is coming back only now on the trader side with reopening of seaborne channels. So that gives you the answer to the question that since the beginning of invasion, there was -- the traders were not here, and that would not make a big difference to the early months since the invasion. Viacheslav, would you like to add?