Astarta Holding PLC (AST) Earnings Call Transcript & Summary

Okay. Great. Thank you very much for joining this call, especially in light of us getting together for the discussion just several weeks ago. We will update today on our first quarter results. I'm sure you are pleased to see them as much as we did. All our business segments demonstrated significant revenue growth, especially agriculture, which was the best performer with almost 1/3 uplift of the revenues. We managed to increase our exports and bearing high logistical costs in the selling and distribution part of our P&L, we managed to increase our margin on a gross basis and on an EBITDA basis. If we strip the IAS41 impact, our margins also widened at EBITDA level from 28% to 37%. If we are looking at consolidated cash flows, we continue to focus on maximizing the operating cash flows. We keep our investment program in the first quarter at maintenance levels. And we also repaid part of our debt, which resulted in a low end of our leverage ratio below 1x of net debt to EBITDA. Now going into the segment performances. We start with agriculture, higher volumes of sales of corn and also higher realized prices helped us to achieve good results. The pricing environment for other commodities was less favorable, including wheat and sunflower seeds. But of course, the biggest impact on our P&L are selling and distribution costs, which had to -- which increased several times because of logistical difficulties of getting grain out of Ukraine. We continue to implement spring planting on some crops such as sugar beet. It has already been completed. The acreage area, which is on the screen, is what is our plan for the entire year. We decreased acreage on the corn, but we increased planting of soybeans and sugar beans because we are processing those in-house, and we would like to see a higher sales efficiency in those. The situation in the global market remains rather volatile because of the stop-and-go mode of the seaborne exports out of Ukraine. The news of today is that the seaborne route via Odesa remains open for another 2 months. But obviously, this kind of timeline of 2 months does not provide a high level of certainty. Still, the volumes of exports out of Ukraine are constantly expanding, and we see progress on other ports, such as the [indiscernible] We see expanding rail transportation of grains as well as via trucks. The global prices for the key grain commodities such as wheat and corn lowered somewhat. And what is favorable to us is the eventual narrowing between the Ukrainian ex-work prices and global prices, which are benefited by higher export capacity from Ukraine. There was -- as we explained during our last call, there was a restriction on input of certain grain and oil seeds to the neighboring markets in Europe to Ukraine, but transit remains intact. And we also see positive developments on the Ukrainian side. The government of Ukraine also canceled licensing for other food products from Ukraine. And we hope that the free trade agreement with Europe will stay in place in the foreseeable future. Free trade with EU helped us with exports of sugar, 15% of our revenues in the first quarter came from supplying sugar to the European market. But the domestic market was also quite favorable, which allowed us to register a widening margin on the gross and EBITDA level. With regards to the outlook to this year, we see Ukrainian farmers increase in acreage on the sugar beet. Despite the warm, the level is expected at the pre-war level of over 220,000 hectares. We expect a couple more mills to be in operation during this marketing year. And Ukraine is actively exporting sugar, especially to the European market. Because as you can see, the prices for white sugar remain quite high. We hear that Europe is experiencing one of the lowest stockpiles of sugar in the last several years. So we remain optimistic regarding Ukrainian sugar in the European markets. Soybean processing also remains strong. We are not alone among Ukrainian farmers who are expanding acreage and oil seeds at expense of corn. So this year, we expect the soybean area further increased to 1.8 million hectares, which probably would allow Ukraine to register one of the highest 4 million tonne soybean harvest. The abundance of soybeans in the Ukrainian market means a higher crushing margin for us. And this can clearly be seen in our results with EBITDA margin at 33%, and EBITDA more than doubling from EUR 4 million to EUR 10 million. In the cattle farming, we continue to increase production and sales. The milk price lowered a bit, but it still is at quite acceptable levels. And this allowed us also to register higher EBITDA at EUR 5 million. Since we announced our strategic priorities during the annual results, there is no change. We continue to increase production and sales, we would like to integrate in the European markets, and we would like to move into higher [indiscernible] value products. With this, I would like to conclude the first part of our call and invite the participants to give us the questions. It would be easier if the questions are typed so I can read them out. But you are also welcome to raise your hand if you would like to.

Thank you, Jakub. While the acreage for soybeans will be expanded to maximize in-house crop supply for the processing plant, is it possible to significantly increase processing capacity? Our processing capacity is 230,000 tonnes of soybean crushing per year. And we were operating close to our capacity in the last 9 months. The reason why we operated at slightly lower capacity last year, for example, is because we had to stop crushing operations for several weeks during the most intensive military hostilities in Ukraine. But this year, we hope to operate at full capacity. What increased acreage on the soybeans will allow us is to increase sales efficiency in non-GMO sustainable beans, which will grow at our own fields. In the previous years, only 30% of soybeans were procured internally while 70% was coming from independent local farmers. As increase in acreage on the soybeans in primary agriculture means that more than half of capacity will be covered by our own soybeans, which is the key benefit. Question regarding import ban to Western countries. Do you experience problems in exporting grains in second quarter? I will do a quick introduction, and then I will ask Viacheslav Chuk, who is our Commercial Director, to expand further. The ban was not to Western countries as in total, but there was a 1-month ban in the countries which are adjacent to the Ukrainian border, Poland, Slovakia, Romania, Hungary. The transit and sales into the EU markets remained intact. That was only sale to the closest neighboring markets. Viacheslav, can you provide further comments on this, please?

Yuliya, thank you very much for your introduction words. I think that what I would like to add that the major of our grains, we exported before such ban, which was imposed by neighboring countries. And as we know, starting from today, we have the renew of the corridor. So I think it will not impact our export of grains at the moment. Thank you.

Next question from Richard. Do you maintain all your contracts for land even when you're using less land? How close to your full potential land area are you sowing with spring crops? Yes, we maintain all contracts for land. The usage of land, if we are looking at the crop planting area that we show year-on-year, it does change depending on the crop rotation cycle. It also changed some of what land is shown on our slides, our only land area under our core crops. Our core crops from our disclosure are corn, wheat, sunflower seeds, soybeans, rapeseeds and of course, sugar beet. However, we do use all our farmland, and the remaining lands is under niche crops such as mustard, buckwheat, millet, some land is used for the livestock for growing feed for our livestock. So when you see changes in the land area on the planting in our slides, it doesn't show the whole farmland that we operate, but only those which are under the key 5 crops. Full potential. Yes, of course, we use all our land to the full potential. We gave this example that even 4,000 hectares of land, which was temporarily occupied in the north of the country last year. Once it was free, we managed to return it into the crop rotation cycle for the spring planting. And since then, we operate all the land that we are leasing. Question on transportation fees. Are they still climbing or some stability taking place? Viacheslav, what do you observe in the market as we speak?

Yuliya, thank you very much. We see stabilizing -- the prices have stabilized and for the containers freight, even decrease of prices, less volume still to export from Ukraine. So a bigger supply of grain hoppers and vehicles, trucks. So prices are quite stabilizing and with some even [indiscernible] to decrease.