Südzucker AG (SZU) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome. And thank you for your participation in today's conference call of Südzucker AG. As mentioned in the invitation, the underlying presentation has been published this afternoon on our homepage. Mr. Pörksen and Mr. Kölbl will make reference to the respective pages of this presentation. Today, we released the report for the financial year ending 29th of February 2020. We are going to explain the highlights of the year and give details about the guidance for the current financial year 2020/'21, already published 22nd of April. We are happy to take your questions following the presentation of our CEO and CFO. A recording of this call will be available on our homepage for those who are not able to participate. Now I would like to hand over to Mr. Pörksen. Please go ahead, sir.

Thanks, Nikolai. Ladies and gentlemen, it's my pleasure to talk to you the first time since I've been appointed CEO of Südzucker AG. I hope in future, we can also met each other in person. Let me quickly introduce myself. I'm born in Lübeck, north of Germany, I'm 57 years old, married, proud father of 4 children and living in the Palatinate close to Mannheim where Südzucker's headquarter is located. Right from the start, my focus was on agriculture, studying agronomy at University in Kiel and receiving my Ph.D. in 1991. Starting 1st of March 2020, as CEO, my responsibilities are sales, strategy, public relation, IT, compliance, internal audit and quality management. I'm happy to contribute with more than 25 years of international experience in agribusiness with many years of foreign presence in contact with almost all cultural groups. Following 18 years at BASF and various international positions from sales, marketing to general management, I was appointed as an executive Board member at Nordzucker AG. Before joining Südzucker, I headed to commercial operations and finally, was appointed group executive at Nufarm in Melbourne, Australia. Let's move to Page 3. I would like to allude to my objectives in this new position. Südzucker is a well-diversified multinational producer of high-quality food and animal feed and the leading company within the EU sugar industry. And I'm very glad to lead together with my colleagues at Südzucker into the future. Südzucker offers a huge potential for development. Respective changes and related processes are and will be initiated and implemented. Segment Sugar has already performed structural adoptions amongst those factory closures strongly relating to the European market needs and to further reduce costs. This process will continue to secure a positive contribution of segment sugar to the overall group success going forward. The successful diversification over the past years is a big advantage and in times of crisis in the sugar business, as we have seen it, especially in the last 2 business years. Therefore, the diversification is important and will be enlarged. For me, it is of great importance to continue and to enforce the dialogue with all stakeholders, especially employees, our farmers, customers and investors. Unfortunately, my start at Südzucker coincided with the corona pandemic outbreak in Europe. Therefore, I had only a few days in which I had the chance to meet employees in person, for example, in our headquarter and selected factory sites. I'm grateful to experience such an openness right from the start. I'm looking forward to reenter that fruitful dialogue in the future. But in the meanwhile, I'm positively surprised about the efficiency of alternative communication ways such as virtual meetings via video or phone. Let me move to Page 4 and focus on business year 2019/'20. I would just look at it in a nutshell, and Mr. Kölbl is going to elaborate on detail in his presentation. Group revenues came in on previous year's level of about EUR 6.7 billion, while the sugar segment's revenues fell sharply, the fruit segment held steady at last year's level and the special products and CropEnergies segments rose. Group operating results jumped to EUR 160 million. The sugar segment reported a loss similar to last year's expected but posted considerably better results in the second half of the fiscal year than during the same period last year. While the fruit segment's operating result was sharply lower, the special products segment was much higher. The CropEnergies segment more than tripled its operating results. Both segments, special products and CropEnergies posted record results. In the following, I will focus on selected segmental themes and developments. As already mentioned, Mr. Kölbl is going to elaborate on financial details later on. So let me start with segment sugar on Page 6. On this page, you can see the known sugar restructuring plan. Starting point was to focus on the European sugar market. Therefore, it was necessary to adapt our factory and administration structure. It addressed the structural EU sugar market surplus and helped us to improve our cost structure overall. The following Page #7, I will show you the status of the measures that will effectively support earnings improvements in business year 2020, 2021. Let me stress despite the severity of measures, I'm deeply convinced about the necessity also at this point in time. This focus on serving European customers, we have closed 5 sugar factories with a production capacity of about 700,000 tonnes. Unfortunately, we had to close the factory in Cagny earlier following many strike days. The Polish factory of Strzyzów was already closed following campaign 2018. In total, we have produced about 4.5 million tonnes of sugar, about 4% less against previous year, which was mainly due to lower acreage. We work hard to further optimize structures and processes to reduce cost and improve the sugar segment resilience. In this regard, we have in the wake of the consultancy project performed an assessment of potential optimization steps within the administration. The results shall be implemented in a socially acceptable way, and the dialogue with the employee representatives has been started. So far about the main theme in segment sugar. Now let me turn to segment special products on the following pages. Special products bundles our activities of BENEO, Freiberger, PortionPack Europe and the starch business. Division BENEO will be -- will build the starting point on Page 9. BENEO mainly produces functional food and food ingredients. And due to the global reach, it is an important sales partner for other Südzucker Group entities, too. Also, 2019, '20 saw a continuation of megatrends such as strong demand for healthy food. It is served by BENEO chicory-based fibers, functional rice starches and sugar replaces. For example, in hard candies, chewing gums and other end-consumer products. In light of the ongoing positive demand situation, we have decided to invest in the extension of production and storage capacity in the next years. Page 10. I would like to talk about a product that is particularly in focus of consumers at this point in time. This is chilled and deep-frozen pizza. Following another successful year of Freiberger, the integration of Richelieu sites in the U.S. proceed. We see a positive volume development in the EU and in the U.S.A. This motivates us to push for another capacity increase. This includes investments in additional wood-fired production lines as well as storage facilities and value chain extensions, such as pizza crust line in Chicago. Last weekend, you may have seen a project to Freiberger, which has reached a lot of media interest. In cooperation with the most famous German rap star, Capital Bra, and Universal Music, 2 types of pizza were created. Those are available in participating retail since Monday and exceeded our expectations. This is another wonderful example for the power of innovation within the Südzucker Group. As for pizza, we are also pleased about the development in our starch division, as you can see on Page 11. Also in this area, we have invested in our platform to take benefit of the expected sustainable growth between 2013 and 2019. And we have increased an investment amount of about EUR 400 million in total. These secure a seamless continuation of achieved levels in 2019 and '20. Such is a further increase of starch and starch saccharification products, the increase is mainly due to the expansion of production capacities at the Pischelsdorf site. In addition, we achieved a site such as in -- sites in Germany and Gmünd in Austria. Another production volume increased in light of an efficiency increase in raw material usage. The various products, including ethanol and byproducts are used in technical appliances as well as in animal feed products. Strong political support to increase the usage of climate-friendly fuel led to sustainably positive demand and pricing environment for ethanol. Let's turn to the smallest division within the segment, special products. It's PortionPack Europe on Page 12. Following the acquisition of South Africa base Collaborative Packaging Solutions (sic) [ Collaborative Packing Solutions ] in November 2019, PortionPack Europe conduct 6 production sites in Europe and 1 in South Africa. At all sites, we produce according to individual customer needs, a broad product portfolio. And besides this, we integrate our 2 U.K.-based entities customer pack -- sorry, CustomPack and Single Source into one new entity in the U.K. This project as well as integration of Collaborative Packaging Solutions will help us to start and enforce customer projects. The next topic I want to reflect on is CropEnergies. So let's move to Page 14 in talking about this segment. As European ethanol market leader for the fuel sector, CropEnergies is the main contributor to the greenhouse gas emission reduction in the transport sector. Furthermore, CropEnergies produces neutral alcohol and high-protein animal feed as well as liquid CO2. Though at this point in time, the corona pandemic seems to be the only topic, one should not forget about the fundamentally positive momentum within the climate debate in the last 12 months. In this slide, the structural demand for climate friendly CO2 reducing fuel has increased as more and more European member states have increased the climate protection targets in order to meet EU targets. European ethanol achieved 70% lower greenhouse gas emissions in comparison to fossil fuel. Market coverage of E10 fuel has significantly increased in the last 12 months. Now ET -- I'm sorry, E10 is the #1 fuel in many EU countries. For example, Belgium of 80%; Finland, Luxembourg of 70%; France, 50%; and almost 100% in the Netherlands. Beginning of 2020, it has been introduced in Denmark, Slovakia and Hungary as well. Let's move to the last segment, which is the fruit segment. An overview of this segment we will see on Page 16. The main consumer trends impacting the growth of food preparation markets like dairy products, ice cream, baked goods or food services continues to naturalness, sustainability, health, enjoyment and convenience. Additional growth opportunities arise from the trend towards plant-based products and the nondiary area which we want to participate in. Trading-oriented and therefore, structurally more volatile fruit juice concentrates are mainly apple juice concentrates. It's still impacted by the bad apple harvest 2019. It remains challenging to forward the increase in raw material prices to the market. In general, we are convinced about all -- overall positive developments of segment fruit for both revenues and earnings in future. This should be strongly supported by the initiated cost-cutting program. Ladies and gentlemen, I'm going to hand over to my colleague, Thomas Kölbl. Let me finish my presentation looking at the all-dominant theme, corona pandemic on the next 2 pages. The corona pandemic does not only take a major influence in all of our private lives, but also on us acting as responsible company. For us, protecting our employees and the health is top priority. My colleagues in the Executive Board and myself initiated early extensive measures to secure the healthiness of our employees and thereby underpin our corporate responsibility as part of the critical infrastructure. In this regard, we have been fully functionable and able to produce and distribute our products throughout the whole corona phase until today. We thank our employees. They have not just managed to serve additional shifts to fulfill the additional demand for our products, such as pizza, sugar or ethanol, with this infection purposes but at the same time, managed to meet the massively increased safety measures in a disciplined and exemplary manner. In general, we are seeing low infection rates in the group, and many of the affected employees have recovered. There's one exception in our sites in the U.S.A. where there is an increasing number of cases of infection. You all know the specific situation there, and we wish all affected employees speedy recovery. However, as a group, we are also learning in this crisis. Many of these ideas borne from the crisis would certainly established themselves in the future Südzucker working world such as home office, online conferences. Let's move to the last page, Page 18, for my presentation. And I will explain the most relevant identified temporary effects in the different business areas. In general, we are very happy in light of local value chains to contribute to the overall availability of food products and disinfectants products for the population. Let me summarize the most important temporary economic effects observed in the last 8 weeks. At the beginning of the pandemic, we have seen temporary positive hoarding effects. On the other side, the restricted mobility and no-contact policy led to temporary negative effects. Once again, our diversified portfolio has been proven its value. The diversification provides a stable backbone, not only in times of company-specific, but also in macroeconomic exceptional times at it is at the moment. In total and throughout the year, we expect the business normalization. However, it is very difficult to forecast the phasing over time as the development of the corona pandemic is uncertain. Mr. Kölbl is going to pick up this point in connection with our current outlook in detail. Ladies and gentlemen, thank you for your attention. And I would like to hand over to my colleague, Thomas Kölbl.

Thank you, Mr. Pörksen. Ladies and gentlemen, also from my side, a warm welcome to all of you. As we still have enough time for the following Q&A session, I refer only to the selected pages of this presentation, but I will guide you through these pages hinting the respective page number I'm talking about. Let me start with the executive summary on Page 21. As shown on Page 21, and I'm not going to repeat the single lines. So I think that the message is pretty clear. We have reached all of our communicated targets for business year 2019/'20. More importantly, on Page 22, 2019/'20 marks the expected turning point in regard to financial ratios, especially the leverage position. Mentioned by Mr. Pörksen, the restructuring plan 2019 has been successfully executed beside the expected underlying earnings increase in business year 2020/'21, cost savings from these planned efficiently provide the deleverage process. Already in 2021, this will lead to a significant improvement of respective financial ratios. The deleverage process is also supported by our unchanged disciplined approach to CapEx and M&A projects. Finally, let me clearly stress as some market participants are paranoid about liquidity in the current environment. Südzucker Group have and will have enough liquidity at any time. Statement is also supported by the fact that our maturity profile is very sound. Move on to Page 23 and the outlook for fiscal 2021. There will certainly rise some questions about our guidance. I will explain upfront some important details about it, especially why we have chosen this concept. As you all know, in times of preparing for our annual report, according to accounting rules, there is no escape from a qualitative guidance. Having this in mind and knowing that we were not able to quantify effects from corona, we decided to report an outlook pre-corona effects but giving clear qualitative things about potential risks and opportunities related to this outlook. As soon as we are able to quantify the corona effect, we will update this initial guidance most likely within the first half year fiscal '20/'21. I will talk in detail about the pre-corona outlook in the segmental outlook in summary, at the end of the presentation. But let me stress already here at the beginning, 2 important points. Firstly, the expected earnings improvements are as pronounced as to surely expect a significant improvement with or without corona effect. The backbone is our diversified and robust portfolio. Secondly, we had an overall successful start into fiscal 2021. Operating profit in March and April was significantly above previous year's level. Let's move on to Page 25 and the segmental overview for business year 2019/'20. Segment sugar has achieved the expected earnings improvement in H2 in light of the realized price increase from October 2019 onwards. Our nonsugar activities had a very successful year with a significant earnings increase. Operating profit reached EUR 352 million and EBITDA, EUR 553 million. Segment special products and CropEnergies posted record results. Move on to Page 28 and in particular to the income from the company’s consolidated equity. As stated in our October release, October 2019, and explained in the quarter 3 report, ED&F Man had to require significant noncash expense due to the decision to sell nonperforming industrial participations. Beside this, it is important to know that the underlying operating performance in ED&F Man in H2 was positive. Let's take the next stop on Page 29. The increase of the negative overall financial result is mainly driven by noncash currency effects in the other financial result. The increase in the interest result is not meaningful as it contains the first-time adjustment under IFRS 16 leasing. Let's take the next stop on Page 36. Here on Page 36, I would like to show you the mentioned amount of head room in our liquidity profile. Even if you would take out the commercial paper program, as it is temporary might not be available, there's still plenty of liquidity available to serve our short-term and seasonal financing needs. The sound maturity profile on the next page, 37, certainly support this view. Let's move on to the development of our nonsugar activities on Page 42, starting with the segment special products. Revenues in segment special products grew by 5%, supported, amongst others, by higher sales volumes and higher ethanol revenue. Operating result came in at a record level of EUR 190 million, and EBITDA with EUR 306 million, too. Both operating profit and EBITDA were positively influenced by higher volumes and prices. On the other hand, the segment had to carry higher net raw material costs. Let me now turn to the outlook for segment special products on Page 43. Financial year 2021, we see a continuation of the positive sales development leading to slightly higher revenues. Earnings should confirm the high previous year's level. Looking at the corona effect, as of today, we see positive impulses in division Freiberg and BENEO and negative in policies in division PortionPack, as mentioned by Mr. Pörksen. All in all, segment special products had a very positive start in the current fiscal year. Move on to segment CropEnergies on Page 45. Revenues grew by 18%, supported by higher sales volumes and higher ethanol prices. Operating result came in at record level of EUR 104 million. It was mainly driven by higher ethanol prices. On the other hand, it had to carry higher net raw material costs. Before I'm going to talk about the outlook for CropEnergies, let me focus on the current ethanol market on Page 46. In the last 2 years, we have seen a continuous increase of ethanol prices in light of the reinforced climate debate. Therefore, we would clearly mark the current price distortion as temporary as the underlying fundamentals have not changed at all. A closer look at the most recent price recoveries reflecting this and underpins our confidence that we already started phase of easing the mobility on contact with regions will help to support the expected further price recovery, especially in the upcoming summer months. Now I will talk about the outlook for CropEnergies on Page 47. For fiscal 2021, we already expected pre-corona a lower revenue and earnings level, which was mainly driven by a cautious approach following a very strong record year 2019/'20. Prudent about ethanol pricing, mainly expecting higher net raw material costs, putting some pressure on the high-margin level. Including the temporary corona effects, it is obvious that the temporary mobility restrictions will have a negative earnings effect. Therefore, CropEnergies has already informed the market to expect a difficult quarter 1 period. On the other hand, there are additional opportunities in the disinfection market. Therefore, it is still unclear what the overall impact for CropEnergies could look like. Let's move on to segment fruit on Page 49. Revenues in segment fruit grew by 1%, supported by overall higher sales volumes and fruit preparation prices. Operating result came in significantly below previous year's level at EUR 58 million. It was burdened by higher costs in fruit preparations and lower prices for fruit juice concentrates. We elaborate about the outlook for segment fruit on Page 50. For fiscal 2021, we expect a moderate revenue and earnings increase. This should be achievable via the targeted top line increase and the initiated cost-cutting program to control historic and future cost inflation, especially in fruit preparations. So fruit preparations had a good start into fiscal 2021. It is not yet possible to differentiate between positive corona effects and underlying performance. Another point of uncertainty is the global presence of division fruit preparations being impacted with different timing and extend in the respective markets. Let's move on to segment sugar on Page 53. Revenues in segment sugar were down by 13%, driven by lower sales volumes. Operating result came in at the expected loss level on a comparable base against 2018/'19. It is important to note, we have realized the expected earnings improvement in H2 in light of a significant price increase for volumes that were up for renegotiation from October 2019 onwards. On Page 54. I will adjust a few words to what you have already heard from Mr. Pörksen. As it concerns the financial impact, let me remind you that the almost -- that almost the whole burden from the restructuring plan 2019 has been booked in fiscal year '18/'19. The benefits of EUR 100 million per annum will kick in from October 2020 onwards. Additionally, we will realize about EUR 30 million from a follow-up project, addressing mainly administration costs. Let's move on to the sugar market perspective on Page 55. We shortly revisited our view on the global sugar market. In its latest update in April 2020, F.O. Licht has reduced its deficit outlook for sugar marketing in '19/'20 from 11 million tonnes to 9.6 million tonnes, which is still reflecting a massive deficit. The stock-to-use ratio is expected to drop from 43% to 38%. It's important to note that this already partially contains the expected sugar production increase in Brazil due to the switch from ethanol to sugar. For sugar market, in year 2021, F.O. Licht continues to forecast a slight deficit of 1.6 million tonnes, which would lead to another decrease of the stock-to-use ratio to 37%. This clearly confirms a positive fundamental market environment for the next 18 months. Let's have a look at the EU sugar market environment on Page 56. The EU has changed into a net importer status since campaign 2018, which is leading to a price increase with its expected time lag from October 2019 onwards. Creation of a continued net importer status, also beyond October 2020, has led to a confirmation of European spot price level in the last couple of months until today. Most recent press reports about a bad beet sowing season and continued drought in EU agriculture environment supported the pricing level. In this environment, up to 100% of our volume of the campaign 2020 are up for negotiation. Let's take a look at the sugar outlook for '20/'21 on Page 57. Fiscal '20/'21, we expect a significant revenue increase and a massive positive earnings delta against loss-making fiscal '19/'20. Higher sugar prices should more than offset the significant sales volume decrease in light of difficult agronomical conditions and factory closures. Despite H1 to post another loss, expected price increase in addition to further volume up for renegotiations, H2 should turn into positive earnings territory, also helped by benefits from the restructuring plan and further measures. So effects from corona are not yet foreseeable. We expect, in any case, a significant earnings improvement for our segment sugar in 2021. Let me summarize the pre-corona outlook and the presentation on the following pages, starting with Page 59. Group revenues should come in at EUR 6.9 billion to EUR 7.2 billion, and operating result should reach EUR 300 million to EUR 400 million. Segment sugar should see a negative H1 and positive H2 operating performance. On a full year basis, we expect an earnings range of minus EUR 40 million to plus EUR 60 million. Segment special products is expected to confirm the record earnings level of '19/'20. Segment CropEnergies should come in below last year's level. Segment fruit should be able to regain some of the lost earnings in '19/'20. Let me now turn to Page 61. In '19/'20, we have seen a cash flow-to-revenues ratio of 5.6%. This means we have been above the ratio of 5%, and we'll continue to pay the hybrid bond coupon. For '20/'21, we expect to be above the 5% threshold with and without corona effect. Let's now turn to Page 62. Ladies and gentlemen, let me summarize my presentation highlighting 3 important points for Südzucker Group. Firstly, the sustainable deleveraging phase has started. Secondly, we expect a significant earnings improvement with and without corona effect. And thirdly, yes, overall, we had a successful start into fiscal 2021. And finally, on Page 63. Here, we would like to visualize the regained free cash flow situation. We will realize a substantial deleverage effect in light of improved earnings and lower CapEx in 2021 and beyond. Already in 2020/'21, this will lead to a significant improvement of respective financial ratios when other work for Südzucker Group is back on track. Thank you all for your attention, and I hand back to Nikolai.

Ladies and gentlemen, thank you for your patience. Let me hand back to the operator to open up the floor for your questions. [Operator Instructions]. Thank you.

[Operator Instructions] And the first question comes from the line of Michael Schäfer of Commerzbank.

Yes. The first one -- and welcome, by the way, Mr. Pörksen for joining the group here. I'd like to address the first question to him. On -- in your prepared remarks, basically, you talked about continuing diversification you're planning with the group but also adapting basically the global sugar sales organization. So my question is, what are your thoughts on when it comes to diversification and in which direction should we think about? And related to the global sugar sales organization, so maybe some words on what are you planning basically or any revivement with ED&F Man participation, which was kind of a problem child here over the past couple of years. So this would be my first question to the CEO. The second question would be on the sugar market, obviously. Looking into your guidance and Mr. Kölbl, you elaborated. Basically, did you expect a loss contribution in the first half and then basically cost savings you are making today in the second? So I wonder, what have you baked into your expectations for the second half price-wise? You elaborated on 100% of the volumes coming to the market for negotiation. So any thoughts on this one would be helpful. And the third one is on your special products outlook pre-corona and then potentially post-corona. You expect pre-corona rather flattish operating profit in special products, while highlighting basically that corona has a helping hand for Freiberger, BENEO and a bit of a headwind for PortionPack. So I wonder what your thoughts on the ethanol component baked into special products and potentially serving as a headwind here. So any kind of thoughts on this one would be helpful as well.

Thank you, Michael. You're baked in more than 3 questions actually into 3 questions. Thank you for that.

I tried my best.

Yes. So well done. Yes, thanks for the questions, and I'll try to answer the first 2, which obviously work. So one is the diversification and what we're going to do with the diversification. So first of all, I have to say we are most likely probably focusing on what we have and will invest further into what we have already on hand. As you have seen in the presentation from myself and from Thomas is that we have already invested in increasing production capacity, and we will go on wherever we see opportunities here. That's one big part of the diversification. And as we also have seen this part is the biggest part of the company at the moment. The second thing is this diversification is really relying on innovation. So R&D is what we are going to invest in as well. So we need products, we need products that developed together with our customers just to be prepared for the future demand of customers in the market. So R&D is the second pillar we are looking at and trying to improve what we have done so far. And the next thing is a bit more complex probably. So what I've shown on one of my slides is that there's one thing we have to focus on and sharpen it a bit for everybody, for us internally and for the outside world as well. It is the strategy of the company, the overall strategy of the company. So we have a lot of clear definitions in the different departments, what they are going to achieve. But the segue into the full global strategy and the strategy of the company, it's not really clear and sharp. So by doing this over the next months, we will also find out where are the segments at the moment, we probably should be stronger or we should be in at all, which we are not at the moment. And having done this work, I will probably answer this question also a bit more in detail. What are the targets we are going for and where we are going to invest our money? So that's the answer to the first one. The second one, ED&F Man. ED&F Man is, as you know, one of our investments, where we don't have a majority. We are just minority shareholder. But we are looking at ED&F Man still as our kind of scout for understanding global markets, understanding the commodity business and trying to see what the trends and developments are using them whenever necessary impossible to buy or sell our commodities, our sugar. So there is no decision at the moment that we don't want to go on with this. Yes, there's a lot of things ED&F Man has to do, and we will do, but there's not the decision at the moment that we don't want to participate and that we don't want to go on as we did in the past.

Then, Michael, to your question about the increase of the sugar profitability. Clearly 2 main effects. This is one, which is a very robust one, which are the cost savings from our restructuring plan 2019, this roughly EUR 100 million per annum. And they will kick in from October 2020 onwards. And let me say, the full effect we will see from that in '21/'22. And then the second main effect from this improvement in profitability of sugar earnings is the price increase we anticipate from October 2020. And here, we have, let me say, also 2 effects in. This is the assumption of an overall price increase. And the effect that in October 2019, roughly 50% of the contracts were blocked or not free for negotiation. And so at the end of the day, we foresee in comparison financial year 2020/'21 against '19/'20 and significant slight increase for our sugar volumes. And then to your last question, special product, yes, pre-corona, we guided a more or less flat level on a record earnings level. And now having in mind, the development of the first 2 months in the smallest division PortionPack, we have seen so far heavy downwind. And -- but in the other 2 big divisions, BENEO as well as Freiberger, we have seen so far a good volume trend. And no signs that this trend will be distorted in -- for example, in May. But it's clearly after 2 months hard to make in that, say, volatile environment corona effects. And as we already gave clear guidance that the flat situation is valid or maybe there is potential room for improvement, especially in [indiscernible]. We have also in that segment, negative ethanol price effect in the starting months, but here, we have also clearly flagged the wheat starch business. 2021 will be the first year where we can fully use our capacity expansion, especially in the wheat starch factory in Pischelsdorf, Austria. So there we have also a positive effect from the volume side. So clearly, a good start in 2021. But it's clearly too early to give you a concrete guidance within corona -- with the corona effect.

Next question is from Marc Gabriel at Bankhaus Lampe KG.

Welcome on board, and good luck for the start. Yes. I have 3 questions. I was a little bit surprised about your comments on the sugar market, especially the sugar market and the impact from COVID-19. I understand on the retail side, but on the other hand, we have the beverages. And as far as I heard that Coca Cola, for example, has already reported a 25% drop in volumes for April. That should impact your business, your volume business also this year. I would like to see how you see this development. Or do you have anything to compensate for such heavy impact? That's your first question. The second question is the forecast for the current year includes an increase in sugar prices to a level of around EUR 500, if I'm right with my calculations, and that is a price level that is significantly higher than the current world market prices. Assuming you achieve these price increases with your customers, imports to Europe will become, again, a topic or -- and that could, of course, lead to price pressure in the coming year. So what's your intention to prevent this development? And the final question is also on the ED&F Man. I mean the commitment to ED&F Man, the whole investment that is a disaster, and who's going to bear the consequences, and how do you want to contribute in that company to bring sustainable profits into the future of Südzucker from that investment? I mean you are the global market leader in sugar, and you need scouts for the trends in the global sugar trading market. To be honest, you should know what's going on in the sugar market globally as well. These are my questions.

Yes. Thanks, Marc. Let's start with the COVID-19. So yes, you're right. The -- there are parts of the business, which is impacted by the demand in the market, and they are at the moment under more pressure than other areas. And you're right, the retail business is increasing. The beverage business is probably suffering a bit or some of them are suffering even more than a bit. So there is a shift of business. We are not sure at the moment if this shift is a sustainable trend or is it just a shift of uptaking. Is this market gone? Can we recover certain things? And we have a very broad spread of customers, and some of them are still demanding in the same amount of -- as agreed, and some of them are asking for some shifts. But in total, it's at the moment, not really the biggest issue of the sugar business. So we will have a look at this and try to get a better and more sound answer to this. But at the moment, we cannot confirm what you were just asking that this is a big impact to our business. Increase of sugar price, downside of sugar price, where is the sugar price in the future? What is the world market doing to the sugar price in Europe. All good questions. We have the same questions. We have the same look at certain markets. But what we still know is there is a reduction in -- or there is still a demand in deficit market in Europe as far as we see. You have seen in the last weeks, 4 or 5 weeks, the weather conditions all over Europe. It was dry. It was sunny. It was warm. It was good for the people. It was not good for the sugar beets. So now we have some rain, but still not enough. So no one really knows, and no one is clear what the demand -- or what -- sorry, what the new season will bring. So therefore, there's a lot of uncertainties, how much sugar is where available and when. You also know that certain areas in the market are increasing their stocks. Others have problems to facilitate exports and other things because of COVID-19. So a lot of uncertainties. So I would say, very difficult to say where the market is landing at the moment. Coming back to ED&F Man, yes, you're right. It's probably not the only and the single source for us to understand what the global market is doing, for sure, not. But it's one of the things that we are looking at. And it's also clear, and you might have seen some public presentations from ED&F Man as well, but there's a lot of things to do, and we know that there is things to do, and we know that there is a plan in the company how to do and get back on track. And we are in very close relationship to facilitate and support this as well.

Marc, from my side, only one advice to your second question, you mentioned the price of EUR 500. Clearly, if you keep 2 points in mind, I said that we have an average and substantial increase in our pricing, but have also in mind that we have an extremely low starting point due to the fact that in the last contract around 2019, we had 50 -- more than 50% contracts blocked. So we are clearly below the level you mentioned.

The next question is from William Dennis of Bank of America Securities.

Yes. This is Chris Ryan. I just have a follow-up on the price increase in October 2020. Just to clarify, are you expecting prices for new contracts in 2020 to increase? Or is this going to be an increase in the average prices in that -- the prices that were multiyear, say, 2 years ago at lower prices are now rolling off and maybe the overall average price is increasing? And then secondly, are you able to give any guidance for working capital in the upcoming fiscal year 2020 and 2021? And then lastly, can you discuss the importance of the credit rating and how important it is to keep an IG rating? That's it for me.

To your last question, investment-grade rating is one very important for the group. And we managed this so far through, let me say, the difficult period of the disruption from the abolishment of the sugar quota. And from the working capital development for 2021, we see in comparison to last year, only a slight cash out from working capital. So substantially below the cash out of EUR 200 million we had in last fiscal '19/'20, substantially below so that we can fully use the cash flow from operations. And the first question was for pricing. Average pricing, as I said, that we -- fiscal year '20/'21 against '19/'20, we include a substantial price increase in our calculation.

[Operator Instructions] Our next question comes from the line of Antonio Casari of Northlight.

Two questions, please. First, you mentioned specifically deleverage in the presentation a couple of times. I was wondering if you have a target in terms of deleveraging. And then the second question is about -- based on the guidance that you provided this year, you should have a positive free cash flow after everything, let's say, after positive changing in cash before financing. But I noticed that you mentioned a conservative but potential interest in M&A. So I was wondering, also linked to the first question, could you please frame M&A in the context of how much of the cash generation of the year could be tested or targeted or invested in M&A, and how that would fit with a deleveraging target?

Yes. To begin with the M&A activities, so far, we have -- clearly, we plan to be very disciplined in the M&A area, and we have not on the -- rather to invest in financial assets for 2021. And to give some light for the space of deleveraging in the last fiscal year 2019/'20, we saw the peak in the net financial debt close to EUR 1.6 billion. And with the pre-corona guidance with the increase in earnings with a CapEx of EUR 300 million, we plan to decrease net financial debt in a range of EUR 1.35 billion up to EUR 1.45 billion. So that will bring also our financial ratios substantially down, cash flow to net financial debt or EBITDA to adjusted net financial debt, clearly.

Great. Okay. So at this point in time, I see there are no further questions. So Michael, you had 3 questions at the beginning. You're done? Otherwise, we are completely done. There he is, Michael, please go ahead.

Asked me so kindly. Coming back basically to your, let's say, organic growth potential. I mean in the beginning, you elaborated on capacity expansions you are planning for deep-frozen pizza for Freiberger and Richelieu but also for BENEO. Maybe you can shed some light on what you're planning there, maybe qualification, what kind of volume expansion we should look at? And maybe also in regard to Freiberger/Richelieu, any kind of update where are you in terms of bringing efficiency of Richelieu towards Freiberger level so maybe in terms of profitability? So this would be my first question -- one of my first follow-up questions on this one.

Let me start with the -- let me say that the CapEx increase for our volume-growing area, as Niels mentioned in his speech, we invested a lot in the period up to 2020 in the starch area. And so we can cover the expected volume growth going forward in the starch businesses over the next 2 to 3 years. The investments are fully financed. In the BENEO area, we foresaw, half year ago, 1 year ago, that there will be some capacity restrictions going forward. So we decided to increase in the BENEO area in all 3 main product categories Orafti, Palatinit as well as Remy. The capacities -- and they will go onstream, let me say, over the next 2 years. So that we are also in that areas where we have clearly the highest growth, also capacity for the next 3 to 4 years available. And these numbers for this growth CapEx is included in our forecast of close to EUR 200 million CapEx for '20/'21. And I can say also, from today's perspective, this is a good number also going forward for '21/'22. Fruit preparations there, also, we did a lot in the past. Growth rates have come down, still growth, but not to that extent we saw in the past. So on that area, there are no major capacity steps needed. And main point is U.S. and here, let me say, we are working hard to bring efficiency up as well as let me say, to increase -- improve the overall factory efficiency to bring know-how from Europe to the U.S. to follow also the market needs. So to sum it up, the nonsugar activities have underlying growth. Volume growth and the capacities are still there to follow market needs.

Okay. To quantify, basically. So are we talking about 20% capacity expansion at both BENEO and Freiberger basically or it's less Richelieu? Or what kind of order of magnitude are we talking about?

When we talk, for example, at BENEO, in average, I would say, the capacity increase is by 10% to 15% across all product categories. So it's just a more visible step in a, let me say, in a cloudy environment. We believe in the underlying growth. But this is not, let me say, the big step that maybe we did when we expand the business to Chile or when we increased [ our demand ] in Germany. This is our, let me say, more capacity expansions in existing plants. But on the other hand, that we'll have an enormous leverage in the existing structure, yes, where we increase, let me say, capacities. And Freiberger, here, we have steady capacity expansion in Europe. And now let me say, in 2 plants in the U.S., also installing new machines to be able to produce, let me say, also in U.S. different pizza applications.

Okay. That's good. And maybe a follow-up on the sugar side or primarily on the special product side. On the isoglucose type of business, given the plunge we have seen in world sugar prices, so can you elaborate what -- how should we think about the profitability of this business in the current fiscal year? So where we have EU beet sugar prices probably still at fairly decent levels, high levels as you have shown but on the other hand, pressure from world market prices. And obviously, also raw materials are significantly up on this one. So how does -- how is your view on this one?

We also foresee for the sweetener prices in Europe, increasing prices. In that space, we are coming from an extremely low level. And so we'll here also see over the next quarters, slightly increasing prices, and that will help our wheat starch factory in Zeitz as well also as well as the AGRANA operations going forward.

And since you mentioned sites, I mean, we have seen operating losses, startup losses, basically over the past couple of years. So from today's perspective, should we expect positive contribution here from the size plant basically to the overall special products results?

With the knowledge of today and the uncertainty around, I would be very cautious for '20/'21. But then looking forward in '21/'22, when we have then 12 months of also higher sweetener prices in our books, then clearly, it is possible that to be breakeven on operating profit level, clearly. But there are many points in play, including prices, et cetera, raw material prices. But this is, let me say, a fair assumption. We will see an increase in 2021 against last year, but not to break even.

And there are no more questions at this time. I hand back to Nikolai Baltruschat for closing comments.

Thank you, again, for your interest in Südzucker Group. Please do not hesitate to contact us in case of additional questions. Goodbye and stay well.

Thank you very much.

Thanks.