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Edited Transcript of AST.WA earnings conference call or presentation 15-Nov-19 2:00pm GMT

Q3 2019 ASTARTA Holding NV Earnings Call

Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Astarta Holding NV earnings conference call or presentation Friday, November 15, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Viktor Gladkyi

ASTARTA Holding N.V. - CFO, Financial Director & Executive Director

* Yuliya Bereshchenko

ASTARTA Holding N.V. - Business Development & IR Director

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Conference Call Participants

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* Jakub Szkopek

Dom Maklerski mBanku S.A., Research Division - Analyst

* Marcin Gatarz

UniCredit Research - Analyst

* Marcin Nowak

IPOPEMA Securities S.A., Research Division - Analyst

* Natalia Shpygotska

Dragon Capital, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the ASTARTA Holding's Quarter 3 2019 Results Conference Call. My name is Karen, and I'll be coordinating your call today. (Operator Instructions)

I will now hand over to Marcin Gatarz. Marcin, please go ahead.

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Marcin Gatarz, UniCredit Research - Analyst [2]

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Good afternoon. I'm happy to welcome you to conference call of ASTARTA. Today, we will discuss 9 months 2019 results, which were published yesterday evening. On the company's Investor Relations website, you can also find the results presentation. And today, the company is represented by Viktor Gladkyi, CFO; and Yuliya Bereshchenko, Business Development and IR Director.

So now let me hand over to the company for the presentation, and then there will be time for your questions. Thank you.

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [3]

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Thank you, Marcin. This is Yulia. Just to quickly walk through a few slides, we will focus just on our 9 months results while other participants who would like to see our longer-term track record can look at the second part of the presentation.

We recorded higher revenues on back of selling last year's crop of corn. We also managed to sell our new harvest of winter wheat in the third quarter of this year, and that lifted our revenue by 1/3 to EUR 334 million compared to the previous period. Accordingly, our share of exports in the revenue was roughly 2/3 of total, which is higher than last year. The results are affected by lower revenues in the sugar segment because the price environment remains unfavorable. So we are still focusing on reducing our capacity in the planting area to focus on rebalancing the market together with other participants.

The other 2 segments, soybean processing and Dairy, we're doing quite well. This year, both revenues went up, and the margin was better in the Dairy segment. We continue to report our gross margin with disclosing the impact of IAS 41 standard. So we single out biological assets revaluation and remeasurement of our agricultural produce. You can see our margin both with and without this accounting treatment. The headline number, gross margin went down from 34% to 17%. However, if we exclude the IAS 41 treatment, the gross margin actually expanded from 20% to 22%.

Turning to the summary cash flows and the balance sheet on Slide 4... As we announced after our 6 months results, in the unfavorable sugar pricing environment and now not-so-favorable agricultural crops environment, we are focusing on deleveraging while preserving our cash. So we release our working capital. We repay our debt.

In the first 9 months, on a net basis, we repaid EUR 76 million. We also do only maintenance CapEx in order to reduce our leverage. However, if we look at our key leverage ratio, net debt to EBITDA because of the (inaudible) last year, if we look at this ratio on a 12-month trailing basis, the ratio deteriorated from 5 to 8. The company is still in the breach of covenants, but we do not believe that any of our lenders will accelerate the repayment of the facilities.

Going into more detail in the Agricultural segment results on Slide 5. Again, you can see that we capitalize on our higher volume of corn sales. We sold nearly all of our harvest of winter wheat, but the prices are not very supportive. Therefore, we focus also on reducing our cost. You can see that both our G&A and selling and distribution costs went down in relation to overall revenues.

Slide 6, we continue to harvest corn and sugar beet. We hope to report the final numbers in the next couple of weeks, but the interim numbers on our yield as well as the final (inaudible) in wheat, sunseeds and soybean that we reported here. The weather was not particularly supportive this year, as you know. Therefore the yields are still better than the average in Ukraine, but lower than last year on corn and on soybeans.

Slide 7, I don't believe it will be (inaudible). You can see from the graph that the pricing environment is not particularly supportive, which actually led to the remeasurement contribution to EBITDA being a bit slower than this.

Sugar on Slide 8, we -- the price is slightly up in euro because (inaudible). The gross margin continues to compress because the costs are going up as well as yields were not doing that well during this quarter. EBITDA is flat for 9 months this year compared to the previous year.

Slide 9, just another data (inaudible). They are still (inaudible) cycle. This year, as we can see from the official statistics, the sugar output is down 13% to date as of 15th of November, and we expect the overall volumes to be significantly down compared to previous year for the whole sector. We do believe this sector is adjusting to the lower domestic consumption volumes and unfavorable global prices, but this adjustment is not happening as fast as we all wish.

Slide 10, nothing new really. We did declare that we put one sugar plant out of operations during the last season and another this year, trying to adjust to the new market realities in Ukraine.

On 11, soybean processing the gross margin expanded 16% to 13% (sic) [13% to 16%] compared to the previous period, and EBITDA margin was 10% compared to 9% in the 9 months last year. Dairy is doing nicely and was a turnaround both on the gross profit and the EBITDA margin because the prices in Ukraine improved significantly. In euro terms, they were up by 1/4 compared to the previous year.

This is in a nutshell about our key results, and we will be happy to address your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Ladies and gentlemen, we have a question from Jakub Szkopek.

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Jakub Szkopek, Dom Maklerski mBanku S.A., Research Division - Analyst [2]

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I have one question regarding the results -- regarding the Dairy segment. The number of cows that you have decreased at the end of third quarter, what is your guidance about that for the future? Because I see that the milk production also is a little bit lower. Would you going to -- decrease the number of cows, the production of milk in the future? Or would you rebound it? What is your guidance here?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [3]

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We are focused on optimizing our dairy production. So the decrease was not that significant, so we do not expect any radical reduction. We believe that our optimization finally gave us the results we wanted. So we'll continue on the same level. We are not focusing on reducing production, but rather on optimizing on inefficient farms.

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Jakub Szkopek, Dom Maklerski mBanku S.A., Research Division - Analyst [4]

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Okay. I would like to ask also a question about the sugar market because we see that usually at the end of the third quarter and the beginning on the -- of the fourth quarter, the prices, they were under pressed. And this year, regarding this weaker production in the next season, the pricing, they are quite stable. What are the gossips in the market? Do you feel that the price should go up like in a few months, up?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [5]

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Well, typically, to the seasonal pattern in Ukraine, the smaller players in the sugar market sell their produced sugar immediately after completing the season because the smaller players have less access to bank financing, working capital, so they need to sell their crops and harvest immediately. Therefore, despite lower production volumes of sugar, which we estimate probably will be 1.3 million, we do not believe that the sugar prices will raise immediately because smaller players will be selling their volumes straight away. But we do expect the sugar prices to go up by the end of first quarter, hopefully earlier, but definitely by the second quarter next year.

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Jakub Szkopek, Dom Maklerski mBanku S.A., Research Division - Analyst [6]

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Okay. And the last question about then your net debt, like total net debt. Do you envisage that at the end of the fourth quarter -- well, in the last quarter, in the fourth quarter, would you going to -- reduce it more? Or would it be stable like it is right now at the end of the third quarter?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [7]

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I'll pass this one to the CFO to comment. Viktor?

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Viktor Gladkyi, ASTARTA Holding N.V. - CFO, Financial Director & Executive Director [8]

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Yes. We expect that net debt by the end of the fourth quarter will go slightly down. And we see that our -- the ratio which was raised, net debt-to-EBITDA, to the high level will go down because EBITDA was calculated on the fourth quarter basis, and we had the negative results fourth quarter last year. So based on that -- the forecast for the fourth quarter, end of the year, it will go down to less than 5.

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Operator [9]

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Our next question comes from Marcin from IPOPEMA Securities.

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Marcin Nowak, IPOPEMA Securities S.A., Research Division - Analyst [10]

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I would like to talk about the sugar balance projected for the current season. Could you comment about the current pace of exports and how much do you plan to export of -- this year of sugar how it will affect the domestic sugar volumes?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [11]

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As we mentioned, we expect total Ukrainian production to be at a level of 1.3 million tons. This is roughly equal to the Ukrainian consumption. However, whether the prices internally will go up will depend on the level of exports. At current levels -- at current global level, you can see on Slide 9 that the sugar prices in Ukraine are the same as international prices. So we don't believe there is an incentive for any player to export at current price levels. However, if other players have contracted sales at significant volumes, this could happen. What we know that in the 9 months of this year, exports out of Ukraine were only 200,000 tons, which is quite low. So we are not that much different from the other players. We don't see international prices attractive for us to export at this level. So unless situation changes in the global markets, we are not incentivized to export much.

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Marcin Nowak, IPOPEMA Securities S.A., Research Division - Analyst [12]

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Okay. And could you comment about the amount of domestic ending stocks of sugar at the beginning of the season?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [13]

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It was about 200,000 -- sorry -- yes, 200,000, yes, 0.2 million. Yes.

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Operator [14]

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Our next question comes from Natalia of Dragon Capital.

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Natalia Shpygotska, Dragon Capital, Research Division - Research Analyst [15]

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Can I please ask how does production cost of sugar from the new sugar beet harvest currently look like?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [16]

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We -- there are 2 forces here at play. On the one hand, the gas prices were down, but on the other hand, the Ukrainian currency appreciated. So we do not believe that the overall result will be better than last year.

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Operator [17]

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(Operator Instructions) It appears we have no further questions. It appears that we currently have no further questions.

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Viktor Gladkyi, ASTARTA Holding N.V. - CFO, Financial Director & Executive Director [18]

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Okay. So I think we would like to thank you, everyone, for participation in the call. Yuliya, would you like to pass any final remarks?

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Yuliya Bereshchenko, ASTARTA Holding N.V. - Business Development & IR Director [19]

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Well, thank you very much, everyone, for participating. If you have any further questions, our IR team is ready to address them individually, just send us an e-mail.

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Viktor Gladkyi, ASTARTA Holding N.V. - CFO, Financial Director & Executive Director [20]

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Yes, thank you.

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Operator [21]

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Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.