Astarta Holding PLC (AST) Earnings Call Transcript & Summary

Thank you very much for joining this call. [Operator Instructions] So we start with our revenues. One can see that we managed to increase our top line in all business segments except for soybean processing. This is a technical -- because of the lower prices for soybean products. Profitability remains solid on a gross and EBITDA margin. If we are talking about our EBITDA margin, it is stable at 30%. Good to see a strong development on the biological assets growing in the ground. And our net profit margin even expanded from 14% to 17%. Without IAS 41 effect, we also show our profitability on the same page, and it is slightly lower on the gross margin level at 37% and slightly lower on EBITDA margin. Talking about our cash flows, we still focus on maximizing our operating cash flows. And we are pleased to report that the increase by almost 3 quarters to EUR 136 million. We were able to continue investments for the 9 months of this year, the key investments went into agriculture and sugar making. Specifically in sugar making, we are building a new silo, which became operational to preserve the quality of our sugar, especially for the premium export markets. We are still on track to invest into the soybean protein concentrate project that we started last year. But this investment is likely to appear in the fourth quarter of this year. But also despite our increase in CapEx in the cash flow, the leverage still remains quite low, below 1x net debt to EBITDA. Agriculture, we see a positive pricing environment, especially for wheat and rapeseeds. Corn acreage was reduced this year as we are focusing on soybeans and sugar beets, which we process in-house. Nonetheless, the revenues and profitability for the crops that we sell to third parties of takers rather than processing internally remains at a very good level. What was not as favorable this year is the weather conditions for growing our crops. For winter crops such as wheat and rapeseeds, Ukraine was enjoying relatively favorable conditions, but drought and hot weather in summer, unfortunately, affected our late crops. We can see average yields in Ukraine in general and for us and specifically down by 15% to 25%, whether it's corn, sunflower seeds or soybeans. We are still in the finishing stages of harvest and sugar beets. And we also expect a similar impact on our yields there, which will bring our yields closer to the average Ukrainian levels. We finished winter crops sowing rapeseeds and wheat for next year marketing season. And this is also in line with general progress in Ukraine at which 98% of winter crops were already completed for next year's harvest. The pricing environment is better than last year, specifically for wheat in Ukraine, but also, we can see that the farmers in Ukraine are able to earn more on a per tonne basis because the pricing differential between global prices and Ukrainian export prices is narrowing down. [indiscernible] exports continue to operate at high throughput capacity despite more aggressive attacks from Russia and unfortunately, fatalities and casualties involved. The volumes continue to flow out. So if this throughput capacity remains intact, Ukraine will be able to further reduce its logistics cost, which is very favorable to the local growers of grain and oilseeds. Sugar production, the pricing environment is worsening now. But if we take 9 months overall, the prices were down by almost EUR 100, which obviously hit our profitability with gross margin contracting from 29% to 24% and EBITDA margin at half of what it used to be last year. Sugar beets harvesting started earlier this year. We have our 5 plants fully operational. And by now, we already processed almost 2 million tonnes of sugar beet and produce 270,000 tonnes of sugar, which was higher than last year on the same -- during the same period. We continue to rely mostly on our own crops in sugar making at more than of 80% of total sugar beet processed. With regards to Ukraine, the average yield is closer to 48 tonnes per hectare. So the overall sugar production is not known yet as sugar plants continue to operate, but it is likely to be slightly lower than last year on the account of lower sugar beet yields. The pricing environment generally as long as it remains above $500 remains more or less favorable despite the 20% drop compared to last year, which allows Ukrainian sugar producers to actively pursue exports of sugar outside Ukraine. After the EU quota was exhausted by the end of the first half of this year, everyone is waiting to restart exports into the EU markets under 110,000 tonne quarter from January. But in the meantime, Ukrainian sugar produces export on MENA markets until the opening of the EU. Soybean processing demonstrating a very steady margin despite lower prices for both soybean meal and oil. This is because management is focusing on the Russian margin and make sure that it remains at good levels, 33% at gross margin level and EBITDA margin nearly 30%. Generally, there is an expectation of continuation of good margin environment for the crushers in Ukraine because the farmers increased production of soybeans from under 4 million tonnes before the war to 6 million tonnes this year. And higher availability of soybeans is very favorable for the Russia's margin. Cattle farming continues growing from strength to strength. we are increasing milk production, our herd and daily milk yields. Pricing environment also remains favorable because there is consolidation trend in the market. The household producers of raw milk numbers going down, while industrial producers such as ASTARTA keep increasing production, market share and command in premium price for its high-quality raw material. This is it for the 9 months results. And we would be very happy to answer your questions.

[Operator Instructions] Okay. First question coming from Adam. How many percentage of sugar amount that can be imported to -- do you mean EU rather than UA? I hope this is Europe from Ukraine will be assigned for ASTARTA or company like ASTARTA may export as much as we want. I'm going to pass the floor to our Commercial Director, Viacheslav Chuk.

Good afternoon, everybody. Thank you for your question. I would like to mention that as of now, there is number of volumes of sugar set to be delivered by all Ukrainian producer, which is not allocated between separate players. And until the June 2025, around 100,000 tonnes of sugar could be exported to the European Union. We are the biggest producer -- we are the biggest exporter of the sugar from Ukraine, both to EU markets and world markets. And of course, we will be looking in this environment without no specific allocation, we will be willing to export according to our forecast to be -- to preserve our numbers. While that were the reasons now, there are discussions and still with the government to allocate the quota to the producers according to the share of the production as per market. So it means that our share to the EU could be according to our share of production of sugar in Ukraine. So it's around 25%.

Yes. I would like to add my -- one of the areas I'm responsible for is sustainability. And it should be noted that EU consumers of sugar and other products very much focused on sustainability attributes of the products imported from Ukraine. And this is not just a concerning deforestation regulation, which is coming into force next year, but also regarding sugar. We are an industrial producer of sugar, which is focusing on regenerative agricultural methods or decarbonization of our sugar making. We have sizable renewable energy biogas, which is fed into one of our sugar plants. And this all plays a very positive role in negotiating our volume placement into the EU market, and we believe we can be seen as a supplier of more sustainable products compared to our domestic competitors. So we do hope that our exports will be as strong as in the previous period once the market is officially reopened. Next question from Jakub. Could you comment on lower cost of production of sugar in third quarter? Do you believe you can maintain this level in 2025? Do we have it shared on the screen? So we go back to sugar production on the scree. Right. Third quarter. Jakub, to be honest, we look at our results on a cumulative basis because of the seasonality of our business. So I suspect our costs were low, we were still -- our costs were lower because of lower exports in the third quarter, but also we have a mix of old and already newly produced sugar in third quarter. And we do -- we did focus on our -- the cost of sugar for the new season. We were able to lower the cost on raw material side, on sugar beet cost, on gas prices. So this is probably a blended cost reduction from 2 seasons in the third quarter. Okay. Next question. And a word of comment to high unit cost of milk and grains in third quarter. To be honest, Jakub, it would be easier for us to comment on what we have on the screen. I cannot deduct currently separated quarter from 9 months results. But I suggest we will handle it offline if we are talking just about third quarter results. Could you please comment on the decline in local sugar price over recent few months? What are your expectations for it? Is sugar exports in other destinations and EU profitable if the transport cost is considered? Viacheslav, please comment on the prices.

Thank you, Yuliya. I would like to add that it's traditionally the prices are dropping during the high season when there is a production. You can also see this on other markets like Europe. And some stabilization will come after the sugar campaign is over and the storages are packed with sugar. From the perspective of profitability of other export destinations, as you know, most -- bigger part of the export destinations are linked to the London Stock Exchange tickets of the London sugar. And the fluctuation of such London for the recent couple of months gave opportunity to export the sugar with profit to other markets.

Next question is, is there any work related with EU CBAM, Carbon Border Adjustment Mechanism regulation in ASTARTA calculation system or preparation for such calculation? Right. As you know, CBAM does not cover agriculture and food processing in the EU. And it is not expected to cover same sectors in Ukraine. Maybe European regulators decide that after shipping and transportation, they would like to turn to another sector. But given the food inflation, it is unlikely in the next several years. However, it doesn't mean that carbon is not something that we don't take into account in our strategy and general focus on decarbonization because sugar plants are one of the largest fossil fuel consumers as an industry. Our boilers at sugar plants are included into the MRV, monitoring, reporting and verification project. In fact, our first report was supposed to be evaluated by Ukrainian authorities before the war, but we didn't receive any feedback in 2022 for obvious reasons. So we know that the Ukrainian government is still working to implement emission trading system in line with the EU requirements. And this is where the economic costs and opportunities will materialize if Ukraine launches ETS. But this is not a CBAM issue. We do not expect to pay an import duty related to carbon emissions for the food products. Can companies share some insights on Agrichain tool? The company have any progress on it? And what costs are Agrichain tool support and development among other expenses? Is company going to profit from it in the future? Okay. Sorry, my screen jumped to the next question, but I will come back to the previous one. So regarding Agrichain tool, this is our in-house software, which allows us to streamline our agricultural operations, but it is also the core for regenerative agriculture. The key decarbonization tools and regenerative agriculture tools in agriculture is reduced [ spillage ], precision farming and cover crops. So Agrichain is our key tool for precision farming. If we can deliver crop protection, fertilizers and other inputs directly to the plant, then we will reduce our cost in agriculture. And Agrichain now covers all stages of agriculture production. It also covers maintenance of agriculture equipment, storage facilities, transportation. So it really is becoming more than just primary agriculture tool, which monitors crops, diseases and satellite images of our crops. It does present some modules which are of interest to other players. And I think we mentioned in our previous calls that selected modules used by other agricultural producers in Ukraine under licensing agreements. So from this point of view, Agrichain is recognized as a primary IT agri management system. Do you observe any M&A activity in the Ukrainian agricultural sector? Well, there is always activity in Ukrainian agricultural sector. First of all, related to farmland, it usually changes, hence, right after each harvest, which are 2 harvest in Ukraine for spring and late crops. But if we're talking about anything sizable above $100 million, no, we haven't seen any of these large-scale transactions recently. Follow-up from Marcin. Shall I understand that 25% decline from the top in July is a regular high season pattern? I think it's -- this question is probably for the sugar price at domestic level.

I would suggest that in the market where there is EUR 1 million consumption and EUR 1.8 million forecast for the production. And not all of the players are eligible or in compliance to the export to destinations like [ I mean ] ASTARTA. So that provides for the conditions of such drop of price in the high season.

Another question. Currently in West country media, we get a lot of news related to the electricity supply problems in Ukraine, how much this impact your sugar and other production facilities? Sugar production is based on gas, natural gas suppliers, plant pellets, coal, which we have in stock or access to currently and the sugar making season should be over soon. So this risk is already very much behind touch wood. For soybean crusher, it operates on biogas, which is produced in-house from sugar beet processing residuals, sugar beet pulp. It is converted in our biogas facility into biogas and then supplied to the soybean crusher throughout 11 months of the year. And also, we are now thinking about converting more biogas into electricity for in-house needs. So we would expect a higher share of renewable electricity in total consumption this year compared to previous year, and we always look forward to increase this share. So from this point of view, we're pretty much well supplied. And we also have backup diesel generators for our operations when we have intermittent access to the grid. Is your production cost of sugar within breakeven for '24, '25 campaign with 20,000 [ grain ] per tonne, excluding the [ ACM. ]

I think that still the season is ongoing. So we need to wait the closing of the season to calculate the price.

Yes. But at the moment, our costs are lower than the price in Ukraine globally. Do you recognize any proprietary volumes in sugar segment? Or all reported volumes are from your own production? We provide a breakdown of in-house sugar beet in total every year. And for the remaining 15% to 25% depending on the year of sugar beet processed, this is supplied by third-party farmers. And the conditions we work with them on can vary from a tolling arrangement to purchase on our own books, processing and selling as our product. So in the overall scheme of things, majority -- well, overwhelming majority of sugar is our own proprietary product.

If I may add on the purchase from third-party sugar. It depends, of course, on the periods when the farmers are willing to sell. But in produced sugar, if we talk about the current campaign, which started in the third quarter of 2024, we already purchased around up to 3,000 tonnes of sugar.

Our plans for current cash assets, what plans for current cash assets? Sorry, can you please specify what you mean, Yuri? I mean the company is going to do with significant cash on balance. Well, I don't want to sick joke that I'm like we're not buying crypto assets, but to be totally open, we continue to invest. You see that we modernized our agricultural equipment. We built new silo specifically to have in mind serving the European market of white sugar. Second year of investment into the soy protein concentrate, which is also destined -- will be destined for the European market. Overall, our CapEx program is higher starting from last year compared to the previous year. So we have development plans and this cash is obviously -- will be employed in our development program. I hope we answered your questions. I don't see any more questions popping up in the box. So I would like to thank everyone for your interest and dialing into this call. We are available to follow up on any more questions on the one-on-one.