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Edited Transcript of AGR.VA earnings conference call or presentation 10-Oct-19 9:00am GMT

Half Year 2020 Agrana Beteiligungs AG Earnings Call

Vienna Oct 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Agrana Beteiligungs AG earnings conference call or presentation Thursday, October 10, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Fritz Gattermayer

AGRANA Beteiligungs-Aktiengesellschaft - Chief Sales Officer & Member of Management Board

* Hannes Haider

AGRANA Beteiligungs-Aktiengesellschaft - Head of Corporate Communications & IR

* Johann Marihart

AGRANA Beteiligungs-Aktiengesellschaft - Chairman & CEO

* Norbert Harringer

AGRANA Beteiligungs-Aktiengesellschaft - Member of Management Board

* Stephan Büttner

AGRANA Beteiligungs-Aktiengesellschaft - CFO & Member of Management Board

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining AGRANA's Conference Call on the Results for H1 2019/2020. (Operator Instructions)

I would now like to turn the conference over to Hannes Haider, responsible for investor relations. Please go ahead, sir.

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Hannes Haider, AGRANA Beteiligungs-Aktiengesellschaft - Head of Corporate Communications & IR [2]

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Yes, good morning, ladies and gentlemen, and welcome to our conference call presenting our results for the first half '19/'20. You already got some insights in our figures when we published an ad hoc announcement on the 16th of September. With us today are 4 out of 5 members of the management board. Our CEO, Mr. Marihart, will start the presentation with an overview of the results and highlights of the first half. Our new Board member and CTO, Mr. Norbert Harringer, will present then an investment overview. Mr. Fritz Gattermayer, our CSO, will continue and give you more color then on the segments. Then Mr. Büttner will report on the financial statements in detail. And finally, again, our CEO will conclude with an outlook. As announced in our invitation, a presentation is available in the IR section of our website. After the presentation, the management board will be glad to answer your questions.

And now I may pass over to Mr. Marihart.

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Johann Marihart, AGRANA Beteiligungs-Aktiengesellschaft - Chairman & CEO [3]

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Thank you, Mr. Haider. Good morning. Thank you for joining our conference call on the first 6 months of the current business year.

The revenue is slightly below last year with EUR 11 million. So it's EUR 1.250 billion revenues. The EBIT is EUR 51.7 million, also EUR 11 million below last year. And the EBIT margin dropped from 5% to 4.1%. As expected, the group EBIT reduction is mainly due to a significantly weaker result in the Sugar segment. The EBIT in the Fruit segment also went down significantly because the market trend was below our expectations. The Starch segment was able to boost its EBIT substantially by 70%, thanks to a higher bioethanol revenue and more production, thanks to the increased capacities. So -- but besides that, we expect a significant group EBIT increase for the full year, and we reaffirm this estimate.

And then the breakdown of the revenue by segment shows that Sugar is 11% lower than the first half year '18/'19. It's mainly a quantitative effect. Starch is close to 10% up with EUR 407.8 million. It's price and quantitative effect. And Fruit is minus 2.6%, more or less flat on last year's level. What you can see also is that the share of Sugar is now slightly below 20%, so in the future, we hope that higher prices will bring it up again.

On the EBIT side, the breakdown shows that, the first half year last year, Sugar losses were moderate with minus EUR 4.1 million, but this year, the trend of the second half year of last year's -- last business year was prolonged with minus EUR 18.7 million. So it's EUR 14 million less EBIT on the Sugar side. Starch, as I said, 70% up, that is 69% up, with EUR 34.3 million. And Fruit, EUR 36 million, which is 23% less. The margins decreased in Fruit from 7.7% to 6.1% and in Sugar from minus 1.5% to minus 7.6%. And Starch increased from 5.5% to 8.4% EBIT margin. And all in all, it was a 4.1% EBIT margin in comparison to 5% last year.

Now I hand over to the new CTO, concerning the investment overview.

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Norbert Harringer, AGRANA Beteiligungs-Aktiengesellschaft - Member of Management Board [4]

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Thank you, Mr. Marihart. Good morning, ladies and gentlemen. Now a few words about our most important projects in the first half of our business year. All in all, our product group invested EUR 68.1 million, care of EUR 22.3 million in the segment Fruit for the installation of the second production line in our new plant, Changzhou, in China; and the new laboratory for product development in Mitry-Mory in France. In our segment Starch, we invested EUR 37.5 million for our biggest project, the expansion of our wheat starch plant in Pischelsdorf, more of later; and for our 2 projects in our factory in Aschach. In the segment Sugar, we did some investments in Romania and in the Czech Republic.

Now a short summary about our project in Pischelsdorf, the expansion of our wheat starch plant. The aim of the project is to meet the increasing demand of starch from the paper and corrugated board industry. For these reasons, we are doubling the production capacity for wheat starch and vital wheat gluten, with a total investment sum of about EUR 102 million. Opening and commissioning is foreseen by the end of November in 2019.

A second important project is the installation of the new factories for the production of crystalline betaine nearby our sugar factory in Tulln in Austria. We do this within a joint venture with our partner the Amalgamated Sugar Company. This project with an investment volume of about EUR 40 million, will chase 16 new jobs. The production capacity will be 8,500 tonnes per year. Crystalline betaine is used in numerous applications, for example, in animal feed, in food supplement and sports drinks and cosmetics products. Thank you very much.

I will hand over now to Mr. Gattermayer.

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Fritz Gattermayer, AGRANA Beteiligungs-Aktiengesellschaft - Chief Sales Officer & Member of Management Board [5]

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Thank you very much. Good morning. I will start with the Fruit business, the Fruit segment. Concerning the food preparation, the relevant market for the dairy product is forecast to grow by 3% in 2020, mainly driven by drinking yogurt and others. Spoonable fruit yogurt grows only plus 0.2% in our regions. The planned growth in South America, Middle East, Europe and North America is currently affected negatively by macroeconomic influences concerning consumption, but also currencies. We continued the -- we continue to focus on our alternative market segments like ice cream -- such as ice cream and food services. And for the time being, it's going -- showing us good results.

And then fruit juice concentrates, we have the demand for apple juice concentrates moderate in anticipation of the new harvest, mainly in Poland and Hungary. The spring production was successfully marketed and everything was sold. And the berry concentrates from harvest 2018 are almost completely contracted. In 2019, we had a lower crop and therefore a lower volume.

Coming to revenues. For the Fruit segment, in total, it went down by 2.6% to EUR 595.6 million. The revenue concerning the fruit prep business was flat, with stable volumes and prices. Concerning the juice concentrates, it was higher volumes and lower market price levels.

The EBIT was lower than the year before. The reasons for this is mainly we had onetime impacts related to raw materials in Mexico, strawberry and mango; purchasing low sales -- lower sales price for apples in Ukraine, mainly for the fresh market; extra staff costs in some areas. And also we had general sales development was below our budgeted expectations. We expected an increase and it was difficult to get the goods in some areas. And the general cost increases could not be fully offset by higher sales volumes.

The EBIT in the fruit juice concentrate business remained at the expected level, thanks to stable operating performance, although it was down on the previous year because the idle costs are already being booked in anticipation of a lower apple harvest in 2019 as best realized.

Continuing with Starch. The market environment for the Starch segment in the first half of the financial year '19/'20 was characterized by stable sales development. The market situation for sweeteners, mainly isoglucose, is still under pressure concerning volumes. And the positive development of the organic maltodextrins were positive, but it's difficult to compensate what's going on in the isoglucose side.

We see or we have a stable demand for native and modified starches. The tight supply in cereal starches for the European paper and corrugated board industry has eased. And we had also a very positive development concerning the ethanol quotations, the bioethanol business made a very positive contribution to overall result. The prices were supported by higher demand and supply shortages mainly in Northern and Western Europe. Concerning feedstuff, we have a steadily growing demand for GMO-free feedstuffs. And that's we are one of the main supplier in this business, and therefore we had a very good development and stable prices.

Concerning the financial results. The revenue went up by 9.6% to EUR 408 million, EUR 4-0-8 million. The main impact was substantial increase in the ethanol revenue. On the other hand, we had the sweetener products with declining product -- prices. Revenue was slightly raised due to higher volumes. Concerning native and modified starches, we had to see and we were able to get the revenue growth, partly thanks to volumes mainly in potato but also cornstarch. And concerning baby food, due to increased volumes, there's an increase concerning the revenue.

The EBIT for the Starch business, therefore, went up to EUR 34.3 million, plus 69%, and mainly due to price increases of the ethanol and the higher sales volume in the other segments. On the other hand, we have to realize the 2018 crop raw material costs was higher than we expected at the beginning. And HUNGRANA's contribution declined from EUR 9.1 million to EUR 7.2 million, strongly affected by the price decrease for sweetener products.

The next chart shows you the development or the charts of the commodity prices, corn and starch. Starting on the right side, you see that, corn and wheat, more or less there's just a difference of EUR 15 -- or EUR 13 per tonne. When you go back 1 year and you see a bigger difference, meaning that the wheat prices normally are EUR 25 to EUR 30 higher than the corn prices. And due to the different crops in the regions and the crowd in the Western European parts, now we have a very good crop to expect concerning corn in the eastern part of Europe that's why corn price and wheat price are closing together. Just to get this squeezing.

The next chart is looking at ethanol and petrol prices. You can see we have ethanol prices. Last -- yesterday, we had EUR 600 per cubic meter, the petrol price was EUR 414 per cubic meter. And you go back 4 or 5 years and you'll see that started to blend, that the ethanol prices are -- will -- above the petrol prices. The years before, or 2010 to 2014, we saw a different development. And we expect this development, which we see now for the last 2 or 3 years will continue.

Last but not final is Sugar segment. As it's no surprise, the world sugar market is still challenged. It's still at a very low level. And we saw a 10-year low for white sugar in July this year at below $300 per tonne. Against the expectation of a small deficit in the sugar marketing year '18/'19, we realize that it's mainly India had higher volumes. And also that's had an impact coming out to lower world market prices. Therefore, the deficit expected for the sugar marketing year '19/'20 is also regarded as only moderately supportive for the sugar price development due to this Indian -- India sugar production impact.

Concerning the European sugar market. In 2018/'19 sugar marketing year, the sugar production was -- in the European Union was around 17.6 million tonnes, minus 17% to the -- compared to the year before and due to dry weather conditions in the summer. And for this year, it's expected, a crop of 18.3 million tonnes in total, according to the August forecast. Concerning the European Union price reporting system, since the abolition of the sugar quotas, which was end of September 2017, the prices decreased significantly and continually. In July 2019, the average price increase was -- increased again to approximately EUR 320 per tonne, still a very low level. Further increase is expected for the next several months, also because the European beet harvest in 2019 is expected only at the level of the year 2018. And concerning our region, we expect the sugar deficit in certain areas before we are positive concerning -- and optimistic concerning the price development, mainly in our -- the Eastern European regions.

Concerning the financial results, you see that the revenue went down to -- by 11.1% down to EUR 246.6 million due to lower sugar sales volumes, mainly in retail, mainly in Romania and Bulgaria. But there, we'll have to see it now the change during the last months coming in that we had higher price and also stable volumes development. And the sugar sales prices comparable with prior year level, more or less.

The EBIT decreased significantly, as you can see, from minus EUR 4.1 million to minus EUR 18.7 million. And the sharp decrease was caused by lower sugar sales volumes and also squeezed margins.

The next chart, you will see the sugar quotation for raw sugar and white sugar. As was mentioned before, you have the 10 years low white sugar in July 2010 (sic) [2019]; and the 10 years low for raw sugar was in September 2018, 1 year ago. And due to this India effect, therefore, also the premium between the raw sugar and white sugar is squeezed now. In the past, it's more or less $80 to $100. Now it's $60.

And the last chart shows you the monthly European average prices which is published by the European Commission. And you see that, already mentioned, EUR 320 per tonne for July. It's for the main regions in the western part of the European Union, and the eastern part is the prices are higher. Thank you very much.

And now I hand over to Mr. Büttner.

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Stephan Büttner, AGRANA Beteiligungs-Aktiengesellschaft - CFO & Member of Management Board [6]

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Thank you. Thank you very much. Let's start with an overview of the consolidated income statement. As already mentioned, the revenues amounted to EUR 1.25 billion. EBITDA EUR 90.8 million is a reduction compared with H1 '18/'19 by EUR 6.2 million. We achieved results of equity-accounted joint ventures of EUR 7.7 million. We included our joint venture in Starch, HUNGRANA; and the AGRANA-STUDEN joint venture in Sugar. No exceptional items and therefore an EBIT of EUR 51.7 million. This is a decline of EUR 11.3 million.

EBIT margin declined to 4.1%. The net financial items was minus EUR 7.9 million. And therefore, we had a profit for the period after-tax of EUR 28.9 million; attributable to shareholders of the parent, EUR 27 million; and earnings per share EUR 0.43.

In detail of the net financial items, you see that our net interest expense increased by EUR 1 million to EUR 3.5 million. This included the -- an expense for IFRS 16 of EUR 0.4 million. Then we had a positive development in the currency translation differences, the amount here is minus EUR 2.9 million. This shows a stable situation with the currency exchange rates where we are active in those markets. And the Other financial items amounted to minus EUR 1.5 million. Here is also included EUR 0.5 million expense for the promissory notes that we took in the last 2 weeks in the amount of EUR 200 million with a run time of 6 years in average.

The tax rate. You can see a significant increase in the tax rate, up to 34%. This is, of course, caused by the losses in the Sugar segment. You can see that we had EUR 18.2 million losses in H1. And most of these losses, we did not activate as deferred tax assets, and therefore the tax rate overproportionately increased.

In the cash flow statement, we saw the operating cash flow of EUR 81.8 million, reflecting our results more or less; the changes in working capital, minus EUR 9.3 million. So working capital was more or less stable compared with the year-end of '18/'19. And therefore, the net cash from operating activities amounted to EUR 59.7 million. Net cash used for our CapEx investing activities was minus EUR 69 million, therefore a negative free cash flow in H1 by approximately EUR 10 million.

And lastly, consolidated balance sheet. We can see an increase in the noncurrent assets by approximately EUR 52 million. This is mainly our investment activities of around EUR 68 million, minus the depreciation of EUR 14 million. And then also we have included the IFRS 16, so the activated liabilities we have out of our leasing agreements they amounted EUR 26.5 million at the end of H1.

The current assets, we see a decrease in inventories by EUR 83 million, partly offset with an increase of our receivables by EUR 43 million. This leads us to total assets of EUR 2.4 billion. There's no major deviation to the prior year. Equity reduced by EUR 54 million. Mainly here we have the profit of the period attributable to the shareholders with EUR 27 million, and we had a dividend payout of EUR 62.5 million. These are the main factors here for the decrease of our equity.

And the noncurrent liabilities here mainly is included the promissory notes of EUR 200 million. And we also paid back a loan for -- which we took of EUR 85 million. In the current liabilities, we had a decrease in our liabilities, short-term liabilities, of EUR 64 million.

The KPIs. So equity ratio of 56.5% was still quite high. Net debt amounting to EUR 423.6 million, of course due to the high -- still high CapEx amount and in connection with our results and the increase of 31.5%. And therefore, we had a gearing of 31.2%. Thank you.

And I'll give back to Mr. Marihart for the outlook.

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Johann Marihart, AGRANA Beteiligungs-Aktiengesellschaft - Chairman & CEO [7]

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Thank you, Mr. Büttner. So now 2 slides more for the outlook. On the group level, there is no change of the positive outlook for the full year. Despite all challenges in the Sugar and Fruit segment, the group's operating profit, the EBIT, is expected to increase significantly. This means in our -- in terms of plus 10% to 50%. And the revenue is projected to show moderate growth. Our total investment will be EUR 140 million. This is more than the depreciation of EUR 110 million, but after starting up of our big investments, next year, we will be below that depreciation.

Segment-wise, the outlook in detail. There is some change. The change is that in the Fruit segment, we will have a stable revenue on a full year basis but a significant EBIT decrease. The reason is that we have stagnating volumes in all business areas of the fruit preparations. The EBIT is expected to show a significant decline compared to the prior year due to the subdued earnings trend in the first half of '19/'20. And the juice concentrates, the revenue is projected to be steady. The EBIT will be significantly lower also there because there was an excellent prior year. And this year, there will be lower capacity utilization because of lower raw material availability, especially apples. So we will have other costs there.

On the Starch segment side, there is a moderate increase in revenue expected. The markets for starches are expected to be stable, but the starch-based saccharification products remain affected by European sugar prices. The EBIT of the Starch segment is expected to increase significantly from the prior year level, especially also because of the higher ethanol prices.

On the Sugar segment side, there is still projected a low revenue and expecting a continued challenging sugar market environment. Ongoing cost-reduction programs will be able to soften the margin reduction to some extent, but the EBIT is thus expected to remain negative in '19/'20 full year. Nonetheless, a significant improvement in earnings is anticipated due to higher sales prices and lower idle costs in the sugar marketing year '19/'20. So thank you very much.

I hand over to Mr. Haider with the calendar.

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Hannes Haider, AGRANA Beteiligungs-Aktiengesellschaft - Head of Corporate Communications & IR [8]

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Yes. Thank you, Mr. Marihart.

Before we go on with the Q&A session, I just wanted to inform you that today we also published our new financial calendar for '20/'21. So starting with today, you can find all dates of our most important financial events also on our website.

And now the management board is glad to answer your questions.