Astarta Holding PLC (AST) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you very much for joining our call regarding Astarta 6 months operating and financial results. We still hear a few people joining. So if you do not mind, we'll wait for a minute or two -- and then I will start. I hope everyone can see my screen. This is our regular investor presentation, which will start with P&L. And if you have any questions, it would be best if you type your questions in the Q&A box, which will allow us to see exactly -- to see exactly the issue that you're inquiring about because online communication inherently is not clear at all times. So without further ado, I would like to go into our P&L. Astarta registered a very good uplift in revenues, courtesy to the performance of all business segments, whether it's agriculture, sugar, soybean or dairy farming. The most prominent increase was in the sugar production -- we also registered a good gross profit margin, which expanded in the first half of this year. And this translated in EBITDA growing from EUR 68 million to EUR 97 million. That further translated into a net profit of EUR 55 million. If we look at our results without IAS 41 impact, you can also see significant margin expansion, both on gross profit and EBITDA margin. I'm just going to go to the next slide. We continued to focus on our operating cash flows in the first 6 months of this year. And they were significantly bigger than last year. It's almost EUR 70 million. Investment cash flows were still contained at the maintenance CapEx level. Having said that, we do expect to have more significant investments into our operating efficiency in the sugar and dairy business segments in the second half of this year. We can talk about it later in more detail once we come to the segment breakdown. Net debt-to-EBITDA is a very conservative level below 1, which allowed the company to pay the dividend, but also to gear up on further development. If we are going into segment results, starting with agriculture, we can see higher volumes of sales for corn and wheat as well as sunflower seeds. The prices that we achieved on corn were flat compared to last year, but for wheat were significantly lower as well for sunflower seeds. Having focused on the cost side of the business because of limited export capabilities out of Ukraine. We managed to expand our gross margin. Our selling and distribution expenses grew to EUR 27 million. Understandably as we are trying to maximize all export routes, including overland by rail and trucks and that was higher than seaborne logistics. Also, you may have noticed, our cash flow and land lease liability is at EUR 22 million compared to the previous 6 months, this is not an increase of growth. It's just that last year, in the first half of the year, there was a delayed on transferring the lease payments to plot holders for logistical technical reasons as it was the first and most intensive stage of the war. Just looking at the crop mix in the Agricultural segment, along with other farmers in Ukraine, we are reducing acreage under green, specifically corn. You have noticed that just 2 years ago, it was 59,000 hectares. Now it is down to [19,000 hectares]. However, we increased acreage under oil seeds, including soybeans, which we process internally. We already declared the results of harvesting of winter crops for Rapeseed and we -- sorry, for Rapeseed and wheat. We also started planting those winter crops for the next season. And we are preparing to harvest spring crops, such as corn, sugar beet, Sunflower, et cetera. I'm sure you follow the developments on the green corridor. This is not available to us at the moment. And this has already been reflected in the widening spread between ex-works prices in Ukraine and the global prices for Ukrainian grain. However, the capacity at the new ports is growing. We can see in July, it was over 2 million tonnes and railways and truck transportations I'll also keep in at the previous space. Sugar was doing quite well in the first 6 months of this year. We see much higher volumes at 120,000 tons. The prices were also quite favorable. And this is not just a domestic market, but also export markets, thanks to the ability of the Ukrainian [showing] industry to export to the EU, where since last year, there is a significant shortage of sugar. The Ukrainian sugar producers are able to export significant volumes. This was quite favorable to us. If someone can put themselves on mute, please? Can I ask 1 of the participants to put themselves on mute, please? Thank you. This also helped with our financial results we were able to register 26% of our sugar revenues from exports compared to 5% last year. Looking at the overall situation in the Ukrainian sugar industry, we can see prices staying at favorable levels. Ukrainian farmers are increasing acreage on the sugar beet and we expect a significantly higher level of production at the level of 1.6 million, 1.7 million tonnes. However, this is also done to enable the exports to the EU of sugar, which was in high demand during the last season, and we expect the situation to continue during the next marketing year. Although Ukrainian governments are spending white sugar exports out of Ukraine until mid-September. This is a regular practice by the government. Just to remind you, last year, there was a ban on exports of wheat until the new harvest was already known for certain, same situation is with sugar. We expect that these exports suspension and low quarter of 20,000 tonnes to be lifted with the start of the new sugar beet processing season. 99% of sugar is exported by [indiscernible] transport, mainly to the EU market. So we don't expect significant difficulties with exports on this front. Soybean processing. We also see higher volumes of soybeans process and our products sold at 100 million tonnes for soybean meal. The prices were favorable for the meal at high level last year, although soybean oil prices have done a bit. Our key market is exports, mainly the [indiscernible] and 85% of revenues in the soybean processing segment came from exporting. This year, we expect the farmers to not only increase acreage under oilseeds in general, but specifically for soybeans, we expect the harvest to be more than 1 million tonnes more. This will increase availability of raw materials for processing by our crusher. So we expect the favorable results, which we have also to continue during this marketing year. Cattle farming is doing also well. We have higher milk production on the account of bigger herd of cows and higher milk. The prices have gone lower compared to the previous 6 months. However, we believe that the market is bottoming ours. This is a seasonal deep during in the summer, and we expect the prices to remain favorable. And even with the low milk price compared to last year, we see our gross margin and EBITDA margin expanding -- this is all for the main part of the presentation, we typically update our strategy and sustainability information on the annual basis. But I would like to draw your attention that our [one] time project come on help Ukraine is continuing to expand. Is there any people online who would like to contribute our effort? You can always contact us. The details are in every presentation. We also wanted to introduce changes to the Board of Directors. We have Viacheslav Chuk who is also on the line our commercial Director, who is -- who has joined the Board. And these are the key changes seen in the first 6 months. We would be very happy to answer your questions. Thank you.

Do you see any improvement in transportation costs or costs continue raising -- thank you for your question. I will start answering, but then I would like our new Board member and Commercial Director to add more Color. We believe that the overland bottlenecks and the capacity of the new ports is expanding. But if we are talking about our blended transportation costs, which used to include seaborne transportation than on the average basis that would drive. Viacheslav would you like to add anything to this?

Thank you, Yuliya. Thank you, for the question. I would like to say that we see the stabilization of the transportation cost. Of course, we're developing different kind of fruits. And when you start the new route, the cost could be higher. But then you work on this route more stable, you see a -- the decreasing of cost. So in average, I think the costs are quite stable as of now.

The next question from Jakub. Is it now possible to continue investing in projects that were announced in the previous 2 years? You have already answered these questions on the previous calls, but I would like to ask whether the situation has changed, and the issue of [indiscernible] has been resolved to some extent. I will start answering this question, and then I will let our CFO, Liliia Lymanska, who is also new to our management team as a CFO to add more color. In 2021, just before the war, we announced the SPC project, which is a soybean concentrate -- and we are returning talking to international development and local banks regarding -- regarding its financing. At the same time, we have our strategy on -- stainability on increasing the share of renewable energy to increase our energy efficiency and independence. And to this extent, we expect higher CapEx in investments in the second half of this year. For example, at one of our sugar plants, we would like to switch from coal to burning plant Palace, which is renewable energy. In dairy farming, we introduced new methods of manure management and animal manure will also contribute to higher volumes of waste being processed by our biogas facility. So we are increasing production of biogas. And these operating efficiencies/sustainability projects also require investments. They will be made in the second half of this year. So overall, CapEx for entire year, we expect in the tune of $40 million. Regarding the SPC projects, I would like to pass the floor to Liliia to add more details.

Thank you, Yuliya. This -- we are now in process of discussing of involving long-term finance in line in order to finance this project. And of course, we are concentrating now on securing the proper tenor of such facility. -- In order to be in line with our payback period. And one more thing I would like to add that this increased investment cost till the end of the year are fully secured by investment lines. All of them -- all facilities are signed with our banks. That's why issue that we are fully supported in our investments. We sell partners.

I would also like to add one more detail to this picture. [indiscernible] insurance, I think, is still in the making, and this is an effort by international development institutions. However, the Ukrainian government also -- propose loan to promote investments in Ukraine over EUR 12 million and there will be tax benefits available to those who implement such projects. So we believe that our project will qualify it qualified under the previous effort by the Ukraine. But now there is a wider loan and possibly, there will be more benefits available to us. So while international, [indiscernible] insurance still in the pilot stages, I understand by international development institutions. We believe that Ukrainian government will -- will provide sufficient benefits for such projects to take off in Ukraine. Marcin, Oh yes, you have a big list. Okay. The first one, has Astarta secured gas for '23 '24 campaign at which prices if sold. Well, we operate in the market environment. Current gas prices are at the level of 17,000 hryvnia as is known from public sources. But we do believe that the cost of production of sugar this year will be somewhat low -- so we are quite optimistic in this respect. With no Black Sea export options, have you secured export capacities from agricultural volumes have contract with a trade down. I would like to pass the floor to Viacheslav a straight away because he is, of course, dealing with all the traders, including global ABCD companies.

We have secured the alternative routes even when Black Sea corridor was working. As of now, of course, for those oil seeds for example rapeseeds, we cooperate with EU clients and we deliver by inland routes to these crushers and users to destinations -- and of course, we have routes which brought us to the Seaport in European Union and to the clients which are located in inland to European Union does. Thank you.

I think compared to the previous 6 months of the year, we are quite encouraged by the presence of ABCD traders because at the beginning of the war, they literally disappeared. But now they are fully present in the market, and that probably gives you enough confidence that if the global traders can operate in the Ukrainian market, then somehow we will find a way. How profitable in comparison to '22 reality would be export operations in second half of this year and first half next year. So this -- during this marketing season, what is the expected increase in broad transport logistics course Well, I will start also answering this question and then pass the floor to Viacheslav to add more color. Of course, Black Sea ports are deep seaports and it was possible to load very large Panamax ships from there and reach further destinations in Asia, in China, in Africa. And now Ukraine has more limited options and the ports in Constanta or [indiscernible] not suited for deep water vessels. So this, of course, does present a challenge. But on the other hand, we know that the Ukrainian agriculture is adjusting. And now we have lower [indiscernible] volumes vis-a-vis oil seats and of oil sets are being processed basically in Ukraine. So we expect the adjustment to continue. Viacheslav would you like to add regarding the increase in the transportation costs, please?

I think that it's worth to mention that transportation was stabilized, as I mentioned before. But again, it depends on the route we are going to reach because our intention is to find the best price we can find via inland routes and via river route. So the far we go with our commodity, the higher expense -- the higher expenses we'll have. However, we also, every time look into the parity of the price we can get and logistics, we could carry. So of course, inland logistics stabilized container shipments that decreased last year, even on the -- in the first half of 2023. And we see that potentially the prices should not be increased.

I think generally, also, you may have noticed Astarta did a few interviews with Chinese media. We try to explain to the Asian consumers that Black Sea ports are as important to them as a consumer of Ukrainian grain as to us because, obviously, Ukrainian grain is very cost competitive, and we can sell it to Spain. We can sell it to Egypt. But if Asian customers do want bulk deliveries from Ukraine, then they also need to put pressure on Russia to reopen Black Sea Route. With no Black sea export option does a startup plan to continue proprietary trading in agriculture. Did Astarta have proprietary agriculture volumes as of 30th of June 2023. Over to you, Viacheslav again.

When we talk about our trading activity in Hungary, we use this opportunity when we have additional capacity in our infrastructure and logistics. As soon we have these analytics, we trace it every time. So as soon as we see any window, of course, we purchase. So as of now, I suggest that the potential trading could be without Black Sea, could be appearing in bigger volumes in first half of 2024.

Can you comment on the estimated cost inflation in agriculture for 2023 and '24 harvest. I would like to start answering this question myself by saying that we -- everyone in Ukraine is now focusing on cost. And according to our estimates, the cost per hectare for winter wheat for sun flower, corn and then soybeans is lower compared to last year because we are very closely managing them. So while there is a cost inflation for the key ingredients or inputs, a lot of things also depend on weather. And last year, there were expectations that this year's harvest will be lower because Ukrainian farmers were not able to procure previous volumes of fertilizers or other inputs. But nonetheless, as you know, the harvest was upgraded upwards because of the favorable weather condition. So from this point of view, again, you see the bottom line results still in our 6 months, and we expect it to hold bearing weather conditions in the second half of this year, which, obviously, we don't know yet. Yes, Corp, CEO, Viktor Ivanchyk mentioned in the recent areas that Ukraine has able to export 1/3 of sugar produced. Are there any reasons for this? Or is it just your opinion Viktor is online, but this is a question also for our commercial director to handle as he is personally handling the exports of sugar.

Thank you, Yuliya, very much. I think this position of the company. We are, as a sustainable producer of the sugar. We see -- we have -- also as a public company, we do cooperate and have communications and contracts already with the same -- the same companies as we are in European Union. We see from these partners, potential demand to substitute partially nonsustainable sugar from Latin America and sugar beet sugar produced by also sustainable way from Ukrainian sugar beet belt is -- was demanded previous year. And even as of today, we see demand for the season, which is coming. Thank you.

I can see 3 questions from [indiscernible] , which I believe they concern the same item cash flow from operations. I'll start with the last one. No, we do not provide any forward guidance on cash flow from operations or any financial metrics like EBITDA. We didn't do it before the war, and we certainly cannot do it during current times. Relating to the past, could you please tell what impacted cash out, cash outflow to work in capital the most? Do you expect additional cash flow to working capital until the year-end? And if yes, how much? To be honest, I'm not clear on this question, but I'm going to flick to the page with our cash flows. Yes, we have working capital changes at EUR 59 million versus EUR 21 million. Perhaps Liliia would you like to comment on this line, please?

Thanks Yuliya. The main item in our cash flow in terms of outflow, you can see in our report, it was the increase in biological assets. And as you understand, it is our investment in the future crops. So answering your questions. The main impact here is caused by storing campaign. And it is in increasing of biological assets. As for the next question about the estimations of [indiscernible] . Do we expect additional cash outflow to working capital until the year? And if yes, how much? Actually, as you understand, until the end of the year, we will see the transformation of biological assets into inventories. And you can see, of course, some increase of inventories as every year. So it is are -- as usual seasonal practice.

All right. Now going to the next question. Will the company be able to secure export of winter wheat harvest this year without the grain deal? If it does require further price discount or higher selling costs. Again, this is a question to Viacheslav -- winter wheat has been harvested. It's in our storage facilities and he's the one who's going to sell it.

Thank you, Yuliya. Thank you for the question. I would like to comment that, yes, we will be able to secure export of winter wheat harvest. But the question is, what means this year till the end of this year or marketing here -- clarification. And of course, as I mentioned, we are looking for the -- we cannot influence the price we as a sole producer. So we are working in the market conditions we have. Of course, we are looking at the better price we can find. But as of now, we see such capacities and possibilities.

Okay. Is the management board waiting for this decision to buy back on shares to be made when the situation in Ukraine stabilizes? I'm not sure what this decision means, but we started as a mature company. And our buyback programs were extended on the annual basis, the size of it in on a year-per-year basis was not very large. So we, at the moment, do not expect change in -- in the previous practice. Viacheslav, I think there was a clarification on the calendar year, meaning would we like to sell winter wheat until 31st of December?

I think that until the end of the calendar year, we will sell a major part of the wheat, but half part of this will be also sold in the next year.

All right. I don't see any other questions in my books. I take it as that we have answered. Hi Marcin. -- buyback was not extended on AGM this year instead approved dividend and eligible period of buyback approved in June 22 shall end around December, Astarta plan to return to approving buybacks next year? It's a big question to our Board and AGM next year, maybe our CEO will comment, but I believe it is a bit premature to comment so much in advance during the war. But currently, we do not have plans to return to approving buybacks.

Thank you, Yuliya. Good afternoon, everyone. We did not have any planned this such situation at this moment. It's maybe in the future, but -- we will see. Thank you.

Okay do company have plans to pay dividends on an annual basis. I think we answered this question also before that because of the nature of agricultural business, we can see the dividends on an annual basis. So we did not start paying our dividend with an intention to stop. But obviously, last year, during the war, we had to. So this question is considered on an annual basis by our Board and the shareholders. I think -- we should wrap up the call. Thank you very much for everyone participating in it. If you have any further questions, you're welcome to send us an e-mail, and we will answer them. Have a great afternoon. Thank you. Bye-bye.