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Edited Transcript of AGR.VA earnings conference call or presentation 14-Jan-20 9:00am GMT

Nine Months 2020 Agrana Beteiligungs AG Earnings Call

Vienna Jan 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Agrana Beteiligungs AG earnings conference call or presentation Tuesday, January 14, 2020 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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Conference Call Participants

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* Vladimira Urbankova

Erste Group Bank AG, Research Division - CEE Pharma Analyst

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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 of the first 3 quarters of 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 AGRANA's conference call presenting our 9-month results from '19, '20. First of all, a Happy New Year and all the best for 2020. With us today are 3 -- 4 out of 5 members of our management board. Mr. Marihart, the CEO, will start the presentation with the highlights update on the results; our CTO, Mr. Harringer, will present an investment overview; Mr. Gattermayer, the CSO, will continue and give you more color and -- on the segments. Afterwards, CFO, Mr. Büttner, will present the financial statements in detail. And finally, again, CEO Marihart will conclude with the outlook for the rest of the year.

As always, the presentation is available in reference to the call. After the presentation, the management board will be glad to answer your questions. And now I may pass over to Mr. Marihart, who will start with the presentation.

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

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Good morning, also, ladies and gentlemen, and (foreign language) 2020. Thank you for joining this telephone conference on our 9 month's results of the current business year. And I'll start with an overview.

The EBIT of EUR 69.8 million in the first 9 months surpassed the 12 month's results of the prior year. So we are a little bit ahead of the full year's results to the prior year. Therefore, we still forecast a significant improvement in the EBIT for the full year. So we reaffirm this.

So the EBIT is EUR 6 million above last year with the EUR 69.8 million. The revenue is more or less the same level, EUR 1.879 billion, prior year it was EUR 1.863 billion. And the EBIT margin improved a little bit from 3.4% to 3.7%.

Segment-wise, the revenue is more or less -- in total, it is more or less flat, plus 0.9%, as I said. Also on the Fruit side with minus 0.1% on the last year's level. There is an increase in Starch by 7.2% to EUR 606.9 million, and the decrease in Sugar of minus 5.8% to EUR 383 million. This brings, of course, a further erosion of the Sugar share in our portfolio, revenue per share to 20% and an increase of Starch to -- close to 1/3 and stable Fruit share.

On the EBIT side, segment-wise, the Sugar on the negative side is still below the line, but it improved a little bit from minus EUR 35 million to minus EUR 33 million. There is a 55% increase in Starch from EUR 36.9 million to EUR 57.3 million. And there is a decrease of 26% in Fruit from EUR 62 million to EUR 45.9 million.

On the margin, there is an EBIT margin of 5.2% in Fruit, of 9.4% in Starch and minus 8.7% in Sugar. So all in all, the mentioned 3.7%.

Now I hand over to Mr. Harringer on the production.

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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. So the next point will be a short overview about our most important projects in the first 3 quarters of the actual business year.

AGRANA invested in these first 9 months EUR 98.6 million, thereof, EUR 31.9 million in the segment Fruit for installation of the second production line in our new plant Changzhou in China. Meanwhile, this new line is in continuous operation and a new laboratory for product development in Mitry, in France.

In our segment Starch, we invested EUR 53.4 million for our biggest project expansion of our wheat starch plant in Pischelsdorf. More on later. And for 2 projects in our corn starch factory in Aschach.

In the segment Sugar, we did some investments in Romania and in the Czech Republic, with a total amount of EUR 13.3 million.

Now a short summary about our project in Pischelsdorf. The expansion of the wheat starch plant, which was completed on schedule. The plant successfully began operation at the end of November 2019, with a total investment of EUR 102 million, retain 45 new jobs.

With the new daily grinds of about 3,300 tonnes, we will be able to process a yearly amount of about 1.2 million tonnes of raw material on our site in Pischelsdorf.

The second important project in our group is the installation of the new factory for the production of crystalline betaine nearby our sugar factory in Tulln, in Austria. The construction is proceeding well and the completion is foreseen in early summer of this year, 2020.

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 [chain] 16 new jobs. The production capacity will be 8,500 metric tonnes a year. Crystalline betaine is used in numerous applications, for example, in animal feed, in food supplements, sports drinks and cosmetic products.

Ladies and gentlemen, now I hand over to Mr. Gattermayer for his view about the market environment. Thank you very much.

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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 continue with the market environment of the last 9 months for the segments. Starting with the Fruit segment concerning the fruit prep. We have more or less spoonable fruit yogurt, the main market of our division is expected to grow only slightly. But on the other side, we are able to increase our market share. The global market growth is driven by drinkable yogurt mainly also from natural yogurt categories.

Concerning Western Europe and North America, is predicted to see a contraction with spoonable fruit yogurt segment. And region like Middle East and South America and part of Europe and North America are currently negatively affected, too.

Concerning the fruit juice concentrators, we see a continuing good demand for apple juice concentrate, and this is projected for spring 2020.

Most of the available apple juice concentrates on the 2019 crop has already been placed with customers. And the placement of berry juice concentrates from the 2018 crop is complete and more or less also the main part of the 2019 crop.

Concerning the financial results, the revenue of the fruit prep, as it was already mentioned by Mr. Marihart, is more or less stable, EUR 889 million. The revenue was just a small increase in the sales volume -- due to a small increase in the sales volume of the fruit preparation. Concerning the fruit juice concentrate, the revenue was down, while the volume was up significantly.

Concerning the EBIT, it was -- it's lower than in the prior year. The reason for this is mainly in the food pack business because general cost increases could not be fully offset by higher sales volume. It also realized onetime impact related to raw material issues in Mexico, mainly mango and strawberry, and with also exceptional staff cost effects in the division.

The EBIT in the fruit juice concentrate business at a solid level, also it eased year-on-year due to lower volumes and higher idle capacity costs.

Concerning Starch. The main issue for our business, the bioethanol business benefited from high Platts rough quotations, it was supported by rising demand in Europe, mainly in Northern and Central Europe. The demand situation for native and modified starches was able, especially in the food industry, we saw a growth from our -- for the products. There is also continuing demand from the paper industry, concerning growing demand for packaging and due to the online trading mix was discussed several times in the past.

Concerning isoglucose, there is still a high pressure on prices and margin, particularly in Central and Eastern Europe. There was -- it's a new installed capacity and the supply has significantly exceeded the demand. We are still lower volumes on the sales side than it was before the change of the gold division. And concerning wheat gluten. Based on the current and expected corn volumes, a significant price reduction is likely, and is already seen.

Considering the financial results for the Starch segment. The revenue is at EUR 607 million, 7% plus compared to the year before. The main reason for this is the comparable increase in the ethanol revenue due to higher prices. Concerning isoglucose and glucose products, we have -- despite declining prices, revenue was slightly up due to higher volumes.

Concerning native and modified starches, we saw a revenue growth thanks largely to volumes increase, too. And the revenue from animal feedstuff more or less stable.

The EBIT went up significantly by 55% to EUR 57.3 million, and this is primarily due to the significant price increases in ethanol and due to volume gains in all other products of the Starch business.

Equity accounted from HUNGRANA contribution has declined from EUR 13.4 million to EUR 11.2 million, mainly due to the price decline for isoglucose and glucose.

The next chart shows you the ethanol and the pentanol -- petrol prices development you see on the January 6, 2020. The ethanol price was EUR 660.3 per cubic meter compared to 2 years ago with a big increase, and therefore, we are benefiting from that.

I'll continue with the Sugar segment, a challenging one. Concerning the world sugar market, the world market price for sugar fluctuated at a very low level. In July 2010, there was a new 10-year low for white sugar. And despite a small deficit in the sugar marketing year globally, 2018, '19 due to the big crop in India and the policy in India, we see also a continuation of the low price development.

Significant deficit expected for the sugar marketing in year 2019, '20 is also regarded as only moderately supportive for the sugar price development due to this India issue.

Concerning the European sugar market. In the sugar marketing year 2018, '19, the sugar production in the European Union was around EUR 7.6 million. It was a decline of around 17% due to the once again very dry weather in summer 2019, in the Western and Northern part of Europe and also in the Central part.

The European Commission expects only EUR 17.5 million for this year's crop. The further price increase is expected for the next several months, and there is a partly limited availability of sugar in deficit regions. The consumption within the European Union is more or less same, around 18 million to 18.5 million tonnes.

Considering the financial results of the Sugar segment, the revenue went down from EUR 407 million to EUR 384 million due to lower sugar sales volumes. On the other side, we saw higher sales price.

The EBIT is still negative, but improved moderately. Due to a low feed crop, we had to realize high costs due to the crop-related idle-capacity cost. The higher sugar sales price than the prior year had a positive effect on the EBIT.

The next chart shows you the sugar quotation for raw sugar and white sugar. And as already mentioned before, in July 2019, we saw 10 years' worth of white sugar around -- below USD 300 per tonne. And we have -- now we see on the -- in China, we saw once again, sale of 8 -- $77.8 per tonne and increased by more than 20%.

When you compare the white sugar low and the raw sugar low, you'll see that there's a difference around of 10 months. 10 months, we already had -- already this 10 years low of sugar, and therefore, we've now seen, and we are optimistic that this will be -- go up, even if just slowly.

The next chart shows you the monthly European Union average prices. And you see in October still a very low price EUR 332 per tonne. And the other side you see the quotation for London #5 and also the European Reference Price. Due to some situations, also some (inaudible) management situation, (inaudible) we were able to get higher prices during the next 3 months.

Now I will hand it over to Mr. Büttner. Thank you (inaudible).

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

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Thank you very much. Good morning. Yes, we'll start with the consolidated income statement. So we reached revenues of EUR 1,879.4 million in the first 3 quarters of the business year 2019 -- '19, '20. Also we see an increase in -- on the EBIT level of EUR 63.5 million up to EUR 69.8 million. When we look at the isolated Q3 numbers, then we see also an increase in the revenues. But also a significant increase on EBIT level, also on EBITDA and operating profit, mainly coming out of our sugar activities. Here we already can see that the turnaround in the sugar business started compared with the sugar market in year '18, '19. So we see a significant improvement in results here. Also in Starch, in Q3, we had a better result, as already mentioned, due to the ethanol prices. And improved isolated Q3, we had a decrease of around EUR 5.5 million to EUR 6 million, mainly coming out of the fruit preparation business.

The profit for the period reached EUR 43.1 million, also an increase versus the EUR 37 million in Q1 to Q3 '18, '19. And the earnings per share '19, '20 first 3 quarters reached EUR 0.64.

The net financial items. So we had a net interest expense of EUR 5.3 million. This is an increase of minus EUR 1.8 million, mainly, I would say, coming with an amount of EUR 0.6 million from IFRS 16. Also we had higher net financial and gross financial debt. The average interest rate amounted to 1.55%. We have an improvement in our currency translation differences by approximately EUR 3.5 million. And so the total net financial items amounted to minus EUR 11.6 million.

The tax rate was 25.9%. We see an improvement compared with the prior year. This is mainly due to the activation of deferred tax assets on carryforward losses coming out of the Sugar segment.

So here, we activated around EUR 4.2 million total in the first 3 quarters.

The consolidated cash flow statement. Here we see a net cash from operating activities of EUR 31.1 million. So we see a slight decrease in the operating cash flow before changes in working capital, which amounted to EUR 132.5 million. The changes in working capital are minus EUR 85.6 million. Here we have significant increase in inventories, mainly coming out of the Sugar segment.

And against that also our short-term liabilities, mainly also against the beet promised increase, but not to that amount. And also we had an increase in receivables. And therefore, a change in working capital with an impact of minus EUR 85.6 million in the cash flow statement.

The consolidated balance sheet. Here we see in the noncurrent assets, an increase of EUR 62.4 million, mainly coming out of our capital expenditures in the tangible assets minus the depreciations that we had. So we have a total increase in tangible assets of EUR 18 million. Also still compared to the beginning of the business year, we have EUR 26 million plus out of IFRS 16. And also we have been increasing our financial assets. This comes from our equity consolidated companies. Also the (inaudible) excess of EUR 6 million, as already mentioned, coming out of our Sugar activities.

The current assets, we already mentioned that we have an increase in inventories and receivables. So we also have an increase here. And the liabilities, the accounts payables also increased, as already mentioned also mainly coming out of the Sugar business.

Equity ratio amounts to 53.4%. So still quite attractive. The net debt increased to EUR 484.6 million, leading to a gearing of 35.1% against 22.9% in the prior year.

Now let me hand over to Mr. Marihart, who will give you an outlook for the rest of the business year.

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

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Thank you. Outlook segment-wise. First, the Fruit segment, we expect that the full year will bring a steady revenue, but a significant EBIT decrease split up by division. The fruit preparations are characterized by flat sales volumes and the fruit prep business expects the revenue to move sideways, therefore, the full year EBIT is projected to decrease significantly from the prior year as a result of the subdued earnings trend in the first half of '19, '20. Also the fruit costs increased. The division fruit juice concentrates there the revenue is projected also to be stable. And the EBIT will be significantly less than last year due to the reduced capacity utilization driven by lower raw material availability, especially with efforts.

On the Starch segment, the revenue will moderately increase. The markets for starches are expected to be stable. The Starch saccharification products still remain affected by the European sugar prices. And the EBIT of the Starch segment is expected to increase significantly as it did already in the first 9 months, thanks primarily to the year-on-year increase in ethanol prices.

Finally, the Sugar. The Sugar segment for the current business year projects consistently low revenue in expectation of a challenging sugar market environment. And a beet crop below average with also low capacity use, and therefore, some idle costs. The ongoing cost reduction programs will be able to soften the margin reduction to some extent, the EBIT is thus expected to remain negative in the full year. However, in relative terms as a result of higher sales prices, the sugar marketing year '19, '20 EBIT is expected to improve significantly in the financial year.

Now the full year outlook for the group. Despite the challenges in the Sugar and Fruit segment, the group's operating profit, EBIT, is expected to increase significantly, which means between plus 10% and plus 50% for the full year '19, '20, and the revenue is projected to show a slight growth. The total investment across the 3 business segments will add up to EUR 140 million and exceeds the budgeted depreciation of about EUR 110 million.

Now I hand over to Mr. Haider concerning the financial calendar.

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

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Yes. Before we go on with the Q&A session, just as a reminder, registration for our Capital Markets Day is possible by mid of next week. And our annual results for the full year '19, '20 will be published on the 7th of May, 2020.

We are now ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Vladimira Urbankova with Erste Bank.

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Vladimira Urbankova, Erste Group Bank AG, Research Division - CEE Pharma Analyst [2]

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I would have a couple of questions. I would start with the question related to the outlook. I noticed that you slightly revised your revenue outlook from the moderate growth to slight growth while sticking basically for all segments to the same revenue guidance, so where does the difference come from? What is expected now to be lower on the revenue side than you were expecting earlier? Then also on the Sugar outlook, I just wanted to double check if you say that you project consistently lower revenue for Sugar segment. But if I look at your guidance, there is estimated slight growth in revenue. So I wanted to double check if you really mean the slight revenue growth is on the agenda. Then to the Sugar segment, you said that there were some lower idle cost in year-on-year comparison, in particular in 3Q. I would be interested how much lower that it will cost in a year-on-year comparison? And what do you see as a outlook for the Sugar segment, maybe going beyond the current fiscal year? Then for the Fruit segment, question, did we reach bottom in 3Q regarding EBIT margin? What is the outlook? Where we should see the progress coming from and what is achievable? Is there progress in this segment? And yes, I think this will be it. I think I should leave space for some other people, too.

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Stephan Büttner, AGRANA Beteiligungs-Aktiengesellschaft - CFO & Member of Management Board [3]

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Yes. So a lot of questions. So maybe let me start with the outlook. So we see no difference in our guidance, honestly speaking. So of course, we expect lower revenues, mainly in sugar, in (inaudible) lower volumes, I would say. On the other hand, we expect an increase in prices compared with the prior year. But therefore, it's more or less obviously stable, but between a slight decrease in stable revenues. So I think there is the deviation mainly coming from. I want to give you an answer also to your second question with the lower revenue in Sugar. The idle cost, I would say, are more or less on the same level as in the last year. So the deviation is up to EUR 1 million to EUR 2 million difference in that amounts up to EUR 14 million to EUR 15 million in total. And the last question was...

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Fritz Gattermayer, AGRANA Beteiligungs-Aktiengesellschaft - Chief Sales Officer & Member of Management Board [4]

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The progress should come [from the] bottom of the margin…

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Stephan Büttner, AGRANA Beteiligungs-Aktiengesellschaft - CFO & Member of Management Board [5]

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So for the full year, we expect in the fruit preparations season has an EBIT margin between 4% and 5% depending, of course, on the development of the revenues. And in the juice business, we expect an EBIT margin also around 5%. So in total, also between 4% and 5% in the total segment.

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Operator [6]

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(Operator Instructions) There are no further questions at this time. I hand back to Hannes Haider for closing comments.

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Hannes Haider, AGRANA Beteiligungs-Aktiengesellschaft - Head of Corporate Communications & IR [7]

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Yes. Thank you then for taking part in our conference call. Have a nice remaining day, and goodbye.

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Operator [8]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.