Astarta Holding PLC (AST) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining the call. We would like to go through the presentation quickly at the beginning of it and then go for the Q&A session. [Operator Instructions] I'm going now into the main part of our presentation. Here is the overview of our P&L for the first 6 months compared to the previous year. One can see significant [indiscernible] segments, sugar production and cattle farming. Although the soft commodity prices were going down this year, we still see a quite respectable EBITDA margin and net profit margin. Looking at our balance sheet, it remains very conservative with net debt-to-EBITDA below 1 and we continue to focus on our operating cash flows, which totaled EUR 116 million, and that was also alone our increased investments. In the first half of this year, the key CapEx was spent in agricultural and sugar production business segments. Agriculture, the results were affected by lower soft commodity prices and adverse weather conditions, which not only affected spring crops, but also continue to play out for our late crops. We have already reported our yields for winter crops such as wheat and rapeseeds. We are in the process of sowing for the next season. But corn, soybeans and sugar beets remain work in progress. The weather is extremely dry at the end of summer and such crops as sugar beet and corn more certainty will come in the next months to come. According to the official focus of the local agricultural ministry, the harvest could be down between 15% and 30% depending on prevailing market -- sorry, weather conditions in the autumn. But generally, Ukraine performed well on exports of its produce during last marketing season, and the logistics routes, which are currently available through Odessa reached pre-war levels. And we expect the cost of exports in terms of transportation cost and transshipment costs to go down because of the lower harvest, which is expected in Ukraine this year. The global grain prices continue to decline, but we saw some rebound for wheat prices in Ukraine. In sugar, we are starting our sugar production season as we speak. The first plant has been launched and we are in the process of launching the remaining plants until the quarter to the EU market was imposed in June this year. Ukrainian producers of sugar, including Astarta, will actively export into European market. And we managed to export nearly 120,000 tonnes, majority of which was placed in European southern countries such as Romania, Italy, et cetera. Profitability is lower on account of lower sugar prices globally, but it remains at good levels on a gross margin basis. This year, the acreage under sugar beet is slightly higher than last year, but the harvest forecast are still uncertain. Various forecasts anticipate the range of the sugar production between 1.65 million tonnes to 1.75 million tonnes. Ukraine will have another opportunity to export to EU markets from first of January with a new quarter above 100,000 tonnes. Until then, everyone, including ourselves, is focusing on exporting to other markets outside the European Union. Soybean processing is very resilient in terms of the margins at the gross and EBITDA level, despite meal and oil prices going down compared to last year. Production volumes are steady and crush margin and our margins are steady. There is a record area on the soybeans in Ukraine this year at 2.6 million hectares. However, the weather conditions are not very favorable, and the expected harvest range varies between 4.6 million to 6 million tonnes, depending on the source. Cattle farming is the segment, which contributed to our revenues increase in the first half of this year. We continue to grow our herd and the yields per headcount. In livestock sector, the prices remain quite strong for premium milk, which is a specialty of Astarta. The company is the largest producer of raw milk in so-called industrial production segment of the market, the smaller -- the smaller farmers continue to reduce production of the headcount, but this creates an opportunity for the bigger players such as Astarta to increase production and the margin, which can be seen in our first 6 months P&L. This remains the main update. There are a few other updates in the appendices of our presentation. But in terms of interim results, while we are in the middle of autumn harvesting, these are the main developments. So we would like to go into the Q&A session now.

The first question, how much of export-oriented deals were contracted for sugar for second half '24? We will not give the precise number, but these are tens of 1,000 of tonnes of sugar at the pace, which is similar to the last marketing year, but of course, the biggest part during the last marketing year was the EU market. Now we are focusing on MENA markets. Next question, considering the company's very strong financial position, does the company intend to pay in advance on the dividend? I would like to -- well, we -- I just received the remarks from our COO, we are focusing on stability of our operations, and we also strive to stable and predictable dividend policy, which is still in place? Could you please comment on drivers for second quarter agriculture EBIT and how much crop sold externally contributed, how much crops sold internally? I believe it is best to comment on the marketing year overall. This is how the seasonality is viewed by the management. So during the last marketing year, we sold about 700,000 tonnes of grains and oil seeds of which 1/3 was third-party volumes. So I believe it is more meaningful to look at the overall ratio on top of our own produce rather than specifically second quarter because second quarter was the end of the marketing season, and Ukraine already ran out of grain and oilseed stocks. Drivers for agricultural EBITDA in the second half of '24. When we book our remeasurement and -- gain from the remeasurement in our results of the first half of this year, we look at the change in prices, in yields and our [ workforce ]. In terms of the prices, the situation is clear that the prices were down for soybeans. There was price stability for corn and sunflower. For sugar beet, prices significantly down, but winter wheat is up. In terms of our yields, we already reported yields for the early crops, and they were 16% to 17% down. Currently, we see still our yields for very late crops such as sugar beet and corn at the level not significantly lower than last year, but there is a big uncertainty because there are still a couple of months ahead of us. So in such situation, we mostly focus on cost and we managed to reduce our cost of production by at least 10% across the board. This is why we see our gain from remeasurement at respectable levels for our key crops such as wheat, sugar beet and soybeans. I think I answered he next question, remeasurement of agricultural produce. Indian stocks for sugar at the end of June, around 55,000 tonnes, but majority of these stocks have already been contracted out since 30th of June. In addition, right-of-use asset land amount increased from EUR 100 million to EUR 113 million. Has the size of land in Astarta increased or just value of land and also due to that, we have increased cost of lease repayment, cost of lands company using? I will divide the answer to these questions in 2 parts. The first part is regarding the actual cash flow. If we go into Agriculture P&L -- one second we are just switching the screen, one can see that our actual cash outflows on land lease liability is very steady. It was around EUR 30 million for '21, '22 and '23. In the first half of this year, the increase was not that much significant either. So in terms of the value of land on the balance sheet, this is largely an accounting treatment. And that relates to extension of the land leases, for which we renew our land lease contracts as well as our discount rate has been lowered from 19% to 16%. And with a lower discount rate, the accounting value of land liabilities increases. What was the difference in profitability of sales of sugar locally and internationally, including total sales cost on Astarta side in the second quarter? There was a rebound in sugar prices locally, which is seasonal. Sugar prices typically increase during summer months in Ukraine for 2 reasons. One is the end of the marketing year, but also population, general households [ still can their own gems ] and produce, so there was a rebound in the local sugar prices one can observe. And that was contrary to the global trend when the sugar prices were going down. The volatility of the local sugar price will depend on the harvest of sugar beet in Ukraine and also prevailing global market prices because Ukraine will start again exporting sugar to the new markets from January. What plans company has released in investment cash and cash equivalents, EUR 22 million? I think one observation here is that as of 30th of June, we had a dividend announced, but not still paid out physically. So that was an accrual within this EUR 72 million. And also, we -- during our annual results call, we provided our guidance for increased CapEx this year. CapEx is expected to double to EUR 40 million. Our SPC project CapEx started last year. In the first half of this year, majority of CapEx was spent in agriculture and sugar segment, especially given our active involvement into the EU market, we are investing into higher quality and packaging of sugar for European customers. And in the second half of this year, we are expected to continue our chunky CapEx into the SPC project. This is why these plans largely cover expected CapEx and also the dividend, which was announced this year. Is company considering to perform share buyback program? What are plans with already accrued shares? We are paying a dividend. And since we started paying a dividend, we curtailed back the buyback program. The treasury shares, which are on our balance sheet is really a small percentage, and we are still considering our options since migrating from the Netherlands to Cyprus. In the past, Astarta showed profit from asset revaluation in second quarter, has this changed? Will this profit be shown in third quarter? No, we don't expect it to be shown in the third quarter. Can company reveal what exactly CapEx has gone on for sugar processing and agriculture? Is it for new plants or something else? I provided the partial answer to this question already in sugar processing. This is mostly to storage and packaging equipment, which allows us to supply to European clients better. In agriculture, these are also efforts in sugar beet growing and cultivating equipment, which also allows us to upgrade our process to European standards.

Since company invested in sugar production, is company going to increase current levels of volumes of sugar sales next year? What company strategy in case sugar prices go below profitability?

Well, [ Yuri ], thank you for your question. you can see the acreage on the sugar beet has remained unchanged since last year. So this has been steady operations for our in-house production. Sometimes we increase purchases of sugar beet from independent farmers for processing in our plants, but that was at the level of 20%, 25% of total production in the previous years. In case there was a particularly bad weather and the sugar beet harvest was lower in Ukraine several years ago, we even imported raw cane sugar for processing. But generally, this business segment is well established in stadium. The sugar prices went below profitability. That was the case during 2017 and '18. That was mostly related to the restructuring of the sugar segment in the EU. That was 1 -- one can call it one lifetime event, which was already -- which already happened. So we do not expect such dramatic developments in terms of the sugar industry in Europe, which is Ukraine's largest export market. And given that Ukraine is an associate member and now would like to be integrated fully into the EU markets. Is their third quarter local sugar price spike seasonality? Hence, Astarta sold higher volumes of sugar in second quarter instead trying to accommodate price spike on local market? Third quarter, well, there is definitely spike during summer months. But our volumes of placements in the local markets are generally steady because we focus on industrial consumers of our sugar. These are beverage and food processing companies, and their consumption is steady on the current regulatory conditions. Is the purchase of land in Ukraine become possible for foreign companies? Does Astarta intend to buy land? Unfortunately, not. The law in Ukraine with regards to farmland trade remains the same. It is only possible for legal entities to purchase land if they have no foreign ultimate beneficial owners, and there is a cap of 10,000 hectares. Considering that the CEO is present at the meeting, do you intend to continue buying shares? And the second question, can you assure that Astarta will remain a publicly traded company?

[Foreign Language]

[Interpreted] I become engaged in buyback activity when I see that the share price becomes unfairly below its fair value. And by doing these purchases, I'm signaling to our other stakeholders and the business partners, the confidence, and the undervalued nature of shares of Astarta, even under current circumstances. That probably also answers the second question. The company remains a publicly traded company. And this is why the CEO confidence and transactions with shares is another confident boost. Thank you very much for your questions. I believe, we managed to do this call within half an hour. If you have any further questions, please do contact us via e-mail, and we will answer it or arrange for separate calls if there is such an interest. Thank you very much. Bye-bye.

Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]