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Edited Transcript of SZU.DE earnings conference call or presentation 16-May-19 10:59am GMT

Q4 2019 Suedzucker AG Earnings Call

Mannheim Jun 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Suedzucker AG earnings conference call or presentation Thursday, May 16, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Thomas Kölbl

Südzucker AG - Finance Director & Member of Executive Board

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Conference Call Participants

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* Anton Brink

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Jack Pobjoy

Barclays Bank PLC, Research Division - Research Analyst

* James Reynell

* Karan Samtani

BNP Paribas Global Markets - Trading Desk Analyst

* Marc Gabriel

Bankhaus Lampe KG, Research Division - Analyst

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Presentation

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Unidentified Company Representative, [1]

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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. Kölbl will make reference to the respective pages of this presentation. Today we release the report for financial year ending 28th of February 2019. We're going to explain the highlights of the year and give details about the guidance for current fiscal year 2019-'20, already published 27th of March. We are made to take your questions following the presentation of our CFO, Thomas Kölbl. 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 Thomas Kölbl. Mr. Kölbl, please go ahead.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [2]

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Thank you, ladies and gentlemen. A warm welcome to all of you, especially to those who have not been around to participate in the [analyst] conference in Frankfurt this afternoon. As mentioned, I would like to give you firstly a brief overview about the business performance of our financial year 2018-'19 and, secondly, details about the guidance for financial year 2019-'20.

Let me start with the quick summary on Page 3. As expected we have entered the phase of at least 2 difficult years in our core business, sugar. So we have prepared ourselves for this situation and already performed cost savings and efficiency programs for this phase. The influence on our business is much more pronounced than initially anticipated. Therefore, additional steps were necessary and have been identified with an important restructuring plan, which I'm going to talk about later on in more detail. Having said that, we will try to make as much usage of the currently positive price development in the EU, converting it into favorable contracts for the upcoming sugar marketing year of 2019-'20, starting October 2019. This will let into a step-by-step earnings turnaround over time for our segment, sugar.

Besides that, our nonsugar activities continued their solid performance and delivered again a good revenue and earnings level in 2018-'19 strong cash flow contribution. Even more positively, a culmination of this growth path is already secured, while investments in last year's for additional capacity to be filled with customer demand going forward. Therefore, it is not too ambitious mid-term to target for all nonsugar activities a revenue level EUR 5 billion and then EBITDA level of about EUR 600 million. The running fiscal 2019-'20, we expect, on group level, revenues to reach EUR 6.7 billion to EUR 7 billion; and EBITDA level of EUR 360 million to EUR 460 million; and then operating result to reach EUR 0 to EUR 100 million.

Now let me start with a review of fiscal 2018-'19 on Page 5. Group revenues and operating result development was mainly influenced by negative sugar and ethanol price development impacting segment sugar and CropEnergies. So this price development also negatively impacted segment special products. It showed a good performance with an EBITDA increase and operating result on previous year's level. Segment fruit came in slightly above last year's level.

On the next page, 6, I just want to illustrate again the enormous power of our very sizeable nonsugar business units as shown and discussed in more detail in our presentation this afternoon in Frankfurt. This division has a unique profile and scope further profitable growth. Besides underlying market growth, our internal and external growth checks shown on Page 7, the product targeted growth part.

Now let's jump into details about fiscal 2018-'19 on Page 8. And one of the most important topics was the decision about the restructuring plan, which had already a significant impact on 2018-'19 recorded figures. Therefore, the restructuring result called for the shutdown of 5 sugar factories. The EUR 673 million devaluation of the sugar segment's historical goodwill and an additional charge due to the revaluation of fixed assets at the starch plant in Zeitz. We had equity result, was driven by the recovering sugar segment total with plus EUR 5 million following a loss of EUR 28 million, which relates to mainly to the participation in ED&F MAN. The main contributor in segment special products of EUR 17 million below earning from Hungrana Group's starch and ethanol businesses.

Let me now turn to the financial result and tax rate details on Page 9. And as a result as a whole as well as interest expense and result from other financing activities have been significantly improved. Low interest rates are fixed for the next years. Group's tax rate is not meaningful in light of a reported free tax loss.

Let me now turn to the earnings per share and dividend proposed on Page 10. Earnings per share came in at minus EUR 4.14. More importantly and more meaningful is the look at the non-distorted cash flow per share, which is down, but feel safely and solid and positive territory at EUR 1.85 per share. The proposed cut in dividend that reflect this development. Let me now turn to investments on Page 11.

CapEx came in on targeted level, while investments in segment sugar, special products and fruit were above depreciation level. CropEnergies was clearly below depreciation level. Investments into future growth and efficiency have been successfully completed or continued; for example, energy efficiency and logistic projects in segment sugar and additional capacity investments in the starch, functional food and pizza area. There were only minor investments in financial assets in segment special products and fruit.

Now let's take a close look to the net financial debt performance on Page 12. Business year 2018-'19 was mainly marked by a below average cash flow contribution, in light of the difficult sugar market environment and a stable fixed assets investment development. Overall, net financial debt increased to EUR 1.1 billion.

Let me move on to Page 14 talking about segmental -- segment special products. Segment special products has been and will be a reliable and sustainable profit contributor, creating value for Südzucker Group over time as the whole nonsugar area stuff. '18-'19 marks another year in a long row of excellent results, with an EBITDA of around EUR 270 million and close to EUR 300 million, including the at equity accounted Hungrana and Starch activities, segment special products is a huge cash flow contributor in relative and absolute terms on group level. The success of this business area and its divisions is based on healthy megatrends and strong market position. Therefore, has been and will be one of the key areas of investments to explore this position further and to take benefit of the ongoing market growth. In addition, we continuously review business processes and cost structures to defend and strengthen our competency.

Let me turn to the next Page 15 for details about the performance of segment special products. Revenues grew by 15% supported by higher sales volumes and the consolidation of HASA and Richelieu for 12 months. Operating result came in at EUR 156 million, was positively influenced by higher volume. On the other hand, we had to carry in lower sales prices for ethanol and isoglucose, a higher depreciation level and higher raw material costs. Therefore, EBITDA increased about 5% against last year, confirming the higher cash quality of the segment special products.

Let me now turn to the outlook on Page 16. Financial year 2018-'19 we see a continuation of this positive development and increased production and sales level for all divisions should contribute to increase revenue slightly and operating result moderately.

Let me now turn to the segment CropEnergies on Page 17. So I'm going to talk about the operational development in fiscal '18-'19. Let me reiterate our position in the ethanol market. We hold a leading market share in the European ethanol market, while our unchanged stake in CropEnergies of about 69% and via AGRANA and its bioethanol activities in Austria and Hungary. These are valuable assets and positions delivering high cash flows.

Now let's have a quick look at the market environment. 2018-'19 was another year of high market volatility. It was marked by temporary production pausing for many players. Since November '18, we have seen a very positive ethanol price development and it still continuous until today.

Let me turn to the next Page 18 for details about the performance of segment CropEnergies in '18-'19. Revenues were down by 14%, driven mainly by lower production due to the pausing at our UK factory, which we restarted production in March 2019. Average ethanol prices were also down. Operating result decreased to EUR 33 million. Results were positively influenced by lower net raw material cost, but lower sales volumes and lower ethanol prices were reaching on profits.

Let's move on to the outlook on Page 19. For 2019-'20, we expect an increase in -- for ethanol prices, and therefore, an increase in revenues and earnings. The expected revenue range is EUR 720 million to EUR 820 million. Expected operating result range is EUR 20 million to EUR 70 million.

Let me now turn to segment Fruit on Page 20. Fiscal 2018-'19 revenues came in slightly above previous year's level. This is due to higher sales volumes in fruit preparations and higher sales revenues in fruit juice concentrate. Operating result increased slightly to EUR 77 million. Positive margin improvements in division fruit juice concentrates were stronger than negative price effect in division fruit preparations.

Let me now turn to the outlook 2019-'20 in segment Fruit on Page 21. We see the Fruit segment revenues to grow moderately mainly supported by fruit preparations. This should also fuel the expected significant increase in operating result.

Let's move on to segment Sugar and a closer look to the restructuring plan on Pages 23 to 29. In the last month, we made several announcements about the restructuring plan. Besides the already published information on Pages 23 and 24, I would like to explain the background to this measure which become necessary in light of changed market conditions. The world market framework has dramatically distorted world market surplus production cost by subsidies in corn producer companies such as India, Brazil, Pakistan or Thailand led to such a low price level that European sugar cannot be profitably sold on the world market.

[Quite] enormous efforts was not possible to escape the economic impact of the dramatic price decrease in the EU, the most important market area for Switzerland. Furthermore, competitive distortions in Switzerland production regions have increased. For example, the different national subsidy policies for coupled payments for beet growing, the various regulation for plant protection, sugar taxes or future energy policy. About 1.5 year after the abolishment of the EU quota system and a changed world market situation, we concluded that the company will have to cope with an even higher market volatility on a sustainable basis.

Also, in the future, the company will be exposed to a higher earnings volatility which cannot be influenced by the company. The objective is to streamline the production and administration structures more alongside the European market demand. Also decided measures cannot guarantee the avoidance of operating losses in phases of market depression as currently experienced, but the measures should improve the company's resilience going forward. We are still convinced about the validity of the consensual market expectations about the annual global demand growth of 1.5% to 2%.

On Page 25, I would like to give you an overview about the main segment P&L and cash related net financial debt impacts. Already 2018-'19 figures were impacted by the restructuring plan and additional issues reflected in the P&L. This means in particular asset write-downs and social plans. All in all, most of the negative impact from the restructuring plan has been already booked in fiscal 2018-'19. Additionally, we have historical sugar goodwill write-down strongly impacted the P&L. A quick view on the following year should illustrate the additional impact which is mainly positive. Savings will mainly kick in about the start of sugar market in 2020-'21, beginning October 2020. About that time, sugar from the last campaign of the 2 factories in France and 2 factories in Germany still running the campaign 2019 will be sold. Based on this sustainable reduced production level, there will be a significant working capital release of about EUR 150 million from October 2020 onward, [will reflect] positive impact on the net financial debt level.

Now let's turn to the sugar market environment on the following Page 26. Let me start off with a quick look at the global sugar market. Current estimates about sugar marketing at 2018-'19, starting October '18, indicates still another year of global demand growth, but a much lower production level leading to a balanced market situation. Sugar marketing in 2019-'20, starting October '19, the deficit is expected in light of no change in production and a further demand growth. This clearly sets a more encouraging market environment for the next 12 to 18 months, so our current guidance for 2019-'20 not taking into account any tailwind from this possible global development.

On Page 27, we see the strong increase in EU spot prices which is going to build the basis for the upcoming new contract negotiations for sugar market in 2019-'20. EU has become a net importer since January 2019. The optimistic trend toward this positive momentum into favorable contracts to improve our profitability step by step into the next year. To conclude on segment Sugar, with the outlook for fiscal 2019-'20, let's have a quick view on the underlying development in fiscal '18-'19 as a basis for this on Page 28.

The last fiscal year revenues in sugar segment decreased by 14%. The main drivers were an increase in sales volume in H1 following an increase in production in the campaign 2017. The decrease in sales volume in H2 following a re-campaign in light of the drought 2018 and, as expected, lower sugar prices especially in H2. Operating result were significantly down. Lower cost will be -- whereby far not enough to compensate for the enormous decrease in sugar prices to historic low levels. As already guided in our conference call Q3 2018/'19, this is also negatively influenced H1 of fiscal '19-'20.

Then we move onto Page 29 and focus now on the outlook for segment Sugar.

Based on a strongly weaker campaign 2018 and an expected campaign 2019 more or less on the same level, sales volumes are expected to be down. So average prices are expected to slightly increase. Overall revenue should be moderately down. Operating result is expected to come in on previous year's level as expected price increase for sugar market in 2019-'20, bringing tax fiscal 2020-'21 to a higher extent in comparison to fiscal 2019-'20.

Let's move on to the group forecast on Pages 31 to 34.

Ladies and gentlemen, let me now summarize our projection for fiscal '19-'20 for revenues and operating result on Page 31.

Group revenues should come in at EUR 6.7 billion to EUR 7 billion and operating result should reach EUR 0 to EUR 100 million. Including all the uncertainties, especially in segment Sugar, we see at this point in time in the middle of the expected operating profit range. Segment Sugar should see a strongly negative H1, still executing last year's low price contract. H2 is expected to show an improved earnings level in light of the expected higher contract prices for sugar market in 2019-'20. For a positive impact from the in slated restructuring plan is expected for the second half of fiscal 2020-'21. Segment Special Products is expected to show a slight increase in revenues and a moderate increase in earnings. Segment CropEnergies will see revenues in the range of EUR 720 million to EUR 820 million and an operating result in the range of EUR 20 million to EUR 70 million. Segment Fruit will show a moderate increase in revenue and a significant increase in operating result.

EBITDA range of EUR 360 million to EUR 460 million mirrors the operating development and the further increase in depreciation also reflecting accounting changes according to IFRS 16. Investments in fixed assets are expected below previous year's level.

Let me now turn to Page 34. 2019-'20 is going to be another year for revenues and earnings growth of our nonsugar activities. Segment Sugar should show first signs of recovery from October 2019 onwards in light of a significantly improved European market environment. Overall, despite the depressed full year earnings level in segment Sugar, we're confident to cope with the challenges which remain in the market, especially as we have set many measures to get our sugar business back on track. Diversification as well as solid financial policy and a strong balance sheet will be very supportive in this environment.

Ladies and gentlemen, now let me finish today's presentation with a look ahead on Page 35. Südzucker has invested a lot in product diversification areas outside of its core business, Sugar. As mentioned several times in this presentation, diversification is paying off and it will become even more important in the future. Our nonsugar activities have reached an EBITDA level of about EUR 450 million, representing already high cash quality. The expected to reach above EUR 600 million EBITDA in mid-term. Together with the first step of recovery in segment Sugar into positive earnings territory, increased group EBITDA level will improve financial headroom versus the group going forward as well the growth that's already financed via historic CapEx.

Ladies and gentlemen, thank you, all, for your attention.

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Unidentified Company Representative, [3]

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Thank you, Mr. Kölbl. 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 Jack Pobjoy of Barclays.

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Jack Pobjoy, Barclays Bank PLC, Research Division - Research Analyst [2]

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I'm just wondering there's obviously been a lot to talk about the Sugar segment, and I just wanted to focus more on the nonsugar segment and what you -- what are the sort of strategies you're employing in those segments to get to that EUR 600 million by 2021 to 2022. And yes -- so any color on that would be great.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [3]

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Yes. Thanks for the question. We discussed this topic in detail in the afternoon, in the physical analyst conference in Frankfurt and maybe it's good to refer on my presentation on the Pages 6 and 7 will reflect the main areas and what are, let me say, the individual revenue goals for the divisions and we reached in every, let me say, single division strong market positions, which will be somewhere between -- defend going forward or strengthen. And as explained in my speech, we set all necessary capacities which are needed to follow market growth in the next 3 years, starting with our function food area, where we take, let me say, capacity extensions in all the business fields.

In our deep frozen pizza area we made in 2017-'18 this big step into the U.S. with acquiring the Richelieu Company, which gives us, going forward, a lot of room in the underdeveloped area of the private label big pizza business in the U.S. In ethanol, we have also done a lot of work to make further slight capacity steps into flexible production in that business area. In the starch area, let me say we had over a period of 5 to 6 year and peak CapEx program to expand the capacity of the existing factories or to build up new factories in all European regions in Austria with Aschach, Gmünd and Pischelsdorf in East Germany and Zeitz. And let me say over the next 3 years, these factories will be used fully and will bring revenues and profitability up.

And also in fruit, let me say we're steadily growing market area, especially with fruit preparations business, and here we started the market entry in India in a small scale, but going forward, we will see growth in that business field in the second fruit preparation plant in China went on stream in November 2018. And so let me say the basis to have a broader platform from growth especially in the emerging market in fruit preparation is set and that brings, all in all, turnover in our nonsugar activities up from this EUR 4.2 billion in 2018-'19 to the guided EUR 5 billion in 2021-'22. And driven by this volume growth, clearly, profitability will go up in some areas over proportional and so we will see then this increase in EBITDA from this EUR 455 million to this around EUR 600 million.

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Jack Pobjoy, Barclays Bank PLC, Research Division - Research Analyst [4]

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Okay. Great. So I'm just trying to understand that -- obviously, operating profit from -- of this year was kind of sort of flat and -- for Special products. I'm just trying to understand why it was so flat and why -- are you going to see a big shift change in the next few years in terms of growth, just trying to get on -- there on the same 2 sort of parallels.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [5]

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And you're right. Let me say, the operating profit in segment Special Products slightly decrease in comparison to '17, '18. EBITDA was up in comparison to '17-'18. And there are, let me say, some drivers behind. First of all was in comparison year-over-year, the lower ethanol price. Then we had - we produced also in our starch factories, not only the specialized food and nonfood starches. We produced also sweet nonsugar-related product, also isoglucose. And then we have seen price pressure related to the development of the European sugar markets that was -- let me say the price complement the underlying volume growth was fine. And then we had, as explained before, this enormous, let me say, capacity increase program in starch. And that was the bare factors which went on stream which have, let me say, that current stage low capacity usage, which bring the full depreciation, which will bring the personal stuff in. And so going forward, we are confident that we will see as expected and guided this increase in operating profit.

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Operator [6]

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The next question is from the line of Anton Brink of Kepler Cheuvreux.

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Anton Brink, Kepler Cheuvreux, Research Division - Equity Research Analyst [7]

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My question does relate to sugar. Because I would like to better understand the current guidance for EUR 200,000 million to EUR 300,000 million operating loss. According to my information, that guidance looks a bit conservative to me in all fairness. We know H1 will be a very difficult period, but afterwards on the back of the renegotiations of contract, likely lower export volumes. Could you give me a bit more explanation how do I get to your guidance range? What sort of assumptions are you making, I mean, closer to that period? So let's say that the current spot price you see in Europe towards October, what sorts of price development would you expect in that period? Yes, if you could give me some background info on that, I'll be happy.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [8]

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Yes. First of all, the sugar guidance, we set it in end of March 2019, and the range is minus EUR 200 million to minus EUR 300 million. This shows a broad spread, but this is linked to, let me say, the uncertainty we have been guiding at that early stage, let me say, the sugar profits for 2018-'19. First of all, our orders, with current status, as we don't have no -- let me say few -- how big the share -- vegetation period in our main producing countries will go over the next months. There's a lot of uncertainty behind. And therefore, we assume based on that -- what we know the slight decrease in acreage, we assume higher yields. But all in all we, let me say, are guiding a decreasing production volume that meant sales volume increase in year 2019-'20 against 2018-'19 because 2018-'19 still profited from this high campaign 2017. So volumes will go down.

Second point is that we have, as we've said it, the first half year, still difficult period. We stick in the contracts we closed in October 2018. And we have the situation that we, let me say, more or less run out of sugar because in spring '18 we still reconvened a phenomenal campaign, 2018, and we made our contracts. And at the end of the day in autumn 2018, we saw at that time then that we missed 600,000, 700,000 tons sugar due to the drought in Europe. And so in the first half year, we can't profit, let me say, from this nice spot prices which we have in the EU with production -- with our own production. We can profit that from this trading sugar, et cetera with small margins but not with own sugar produced out of beet.

And then the third parties clearly was, what I said in the speech, which is what is around. Clearly, we are in historically deep price levels in the EU over months, and is clearly the whole industry is making losses. And in the framework, let me say, low stocks on an EU level, the market is in import status since January 2019. A decrease in acreage clearly is that the prices will go up from October 2019, and it is also reflected in our guidance. But when you compare then average fiscal year 2019-'20 against average 2018-'19, at the end of the day, only 5 months of higher prices in industrial-wise retail business and retail contract will be negotiated from January 2020 onwards.

When you mix that up, all that you have to have in mind that we have also long-term contracts we phase -- which phase also for sugar marketing year '19-'20. All in all to make it -- but the stretch not too long. The year-over-year average sales price only goes slightly up. And the bigger effect we will see then in fiscal 2020-'21. And so we still stick to that guidance of minus EUR 200 million to minus EUR 300 million. That means a loss more or less on the same level than we had in '18-'19, but clearly, much better picture from October '19 onwards.

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Anton Brink, Kepler Cheuvreux, Research Division - Equity Research Analyst [9]

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Can I ask an additional question related to that last point you make? Because indeed I agree with you that probably we shouldn't compare fiscal year to fiscal year. I will be more interested to compare sugar marketing year to sugar marketing year. And we know that you're currently in a situation where you have quite weak or soft contracts. It seems to be -- I mean if I look at the data for European Commission, that we are heading -- that you're heading into a negotiation period in which inventory levels are the lowest being in -- probably in the last decade, which should imply that there is room for significant growth in price levels year on year. I would think a bit more enthusiasm on that wouldn't be strange. How do you think about those thoughts?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [10]

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Yes, we are going for -- not for slight or moderate price increase. We are going, let me say, for a significant price increase, clearly. But we are, let me say, at the beginning of the negotiations with customers, as I said. Clearly, they have also a portion of long-term contracts which will not be influenced by this price increase. And so let me say, this is the current status. And what I said is also clearly '20-'21 profitability and our sugar business will further go up.

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Operator [11]

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The next question is from the line of Karan Samtani of BNP Paribas.

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Karan Samtani, BNP Paribas Global Markets - Trading Desk Analyst [12]

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Just wondering whether you would be able to hang on to your investment-grade rating now that the agencies have put you on credit watch negative.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [13]

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Yes. They set on credit watch, but let me say the goal of the company, as communicated, is to do everything to support the investment-grade rating status. This is because it is, let me say, the commitment of the company.

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Karan Samtani, BNP Paribas Global Markets - Trading Desk Analyst [14]

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Okay. Just to follow up on that, why is investment-grade so important to you in that context?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [15]

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Yes. Let me say, it differentiates Südzucker from a lot of competitors in our sugar area that we have this smooth entry to capital markets via our investment-grade rating which we have protected over more than 20 years. And we hope that the rating agencies will follow this through the cycle approach and will go with the company -- these additional 6 months to a better future from October 2019 onwards. And as you, let me say, cannot drift from our -- hand out from our stock, we cut down dividend, we cut down CapEx, we do everything to strongly underpin this commitment of [EBITDA].

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Operator [16]

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The next question is from the line of Marc Gabriel of Bankhaus Lampe.

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Marc Gabriel, Bankhaus Lampe KG, Research Division - Analyst [17]

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Similar questions from my side, if I may. First of all, your current stock level of sugar, your report says you have some EUR 1 billion value on stock that refers to some 3 million tonnes. So you're running out of sugar towards the next campaign. And here my question is what are you targeting for volume -- production volume for the next campaign? And then the shutdown or the closure off the plant in Poland is ahead of the new campaign. So could we even expect some 5 million tonnes of sugar volume for the next campaign? And in addition, would you share with us the sales volume of the nonsugar product and the sugar divisional sales in the last fiscal year?

And to my calculation, I assume that you're heading for some at least EUR 75 per tonne price increase to get to the lower end of that guidance, so the minus EUR 200 million. And maybe 2 words on the provisions I saw. In your statement, you were heading for EUR 180 million to EUR 220 million restructuring charges. Now in the report I found some EUR 150 million, EUR 40 million for the job cuts. And what is with the rest of EUR 32 million, EUR 70 million? And the final question is on Hungrana. They always halved their profit, any reasons? Especially are you -- as AGRANA is targeting for further starch factories, that will be great.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [18]

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Yes. Thank you for the question. Pardon me, this will be last one question, the easy one. Hungrana is, let me say, more isoglucose and ethanol-related business area not with the speciality starches in the portfolio, and therefore, the business development of Hungrana in the last fiscal year 2018-'19 was more negatively influenced from the low ethanol prices and low sugar, and therefore, isoglucose prices than the corn starch factories.

Then start with the other questions with the stocks to closing, it is, let me say, lower closing stock level than the years before. And we will, let me say, be run earlier out of stock than the last year, especially in the months of July to August.

And then from the production side for the campaign 2019 is, as explained it in the speech, as well as before we calculate with lower acreage and we calculate with the average yield. And putting both together, let me say, the production volume will be more or less in the area of last year, maybe slightly higher. But this is, let me say, at that point of time only a theoretical approach to come to that figures. We have to see how the vegetation period will play.

And then going forward it was 1 question to the provisions for the restructuring plan. And therefore, we have the situation that in fiscal year 2018-'19 we booked for provisions for close down the factories due depreciation of assets, et cetera, including social plans of around EUR 150 million and the cash out of that provision is on the -- at that current date EUR 40 million for the social plans. And in comparison that will start early is '20-'21. And they have a positive point that if the working capital is released because we will produce going forward after 2020-'21 structurally 700,000 tons less sugar. And that means then again we have slowed down these volumes. We have a release of EUR 150 million cash in positive. And these are, let me say, the numbers.

And with the current knowledge we have, Marc, we can say that the big portion of the restructuring is booked in fiscal '18-'19. There are, let me say, maybe some minor restructuring efforts going forward but the big portion is done. And looking to the Q...

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Marc Gabriel, Bankhaus Lampe KG, Research Division - Analyst [19]

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Okay, thanks.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [20]

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It's okay? Thanks.

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Operator [21]

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We have a follow-up question from the line of Anton Brink of Kepler Cheuvreux.

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Anton Brink, Kepler Cheuvreux, Research Division - Equity Research Analyst [22]

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Yes, I mean if everybody's done asking their questions, I would like to go back to the assumptions of the guidance for the sugar segment. And because basically this situation, I look at it. In the European market, if I look at S&P Global Platts numbers, we're seeing a price of roughly EUR 400 per tonne in -- probably in the German market. I think formerly, we've been informed that the contract prices in the last sugar marketing year -- sorry the current sugar marketing year were roughly EUR 330 per ton. If the European Commission is right and we get to a very low inventory level in October, I would assume prices from now onwards to further increase, which should imply I mean probably something like EUR 100 per tonne year-on-year increase in terms of your contract. Is that -- am I missing there something? Or is that reasonable? How should I think about these numbers?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [23]

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Let me say with the -- for the spot price area, you are absolutely right. These are the prices currently in the market to import sugar in the EU. Adding lower sugar, adding logistic cost, adding refinery cost, further logistic cost in the market, the duty which the importer has to pay, yes, clearly, the prices are EUR 100 or EUR 150 above -- in some areas above the average EU reported price. But this is the spot price, and we are going for contracts from October onwards. And so clearly we are, maybe from your point of view, a little bit cautious but we see that still is a realistic approach what we set in the guidance as price increase for the open contract from October '19 onwards.

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Anton Brink, Kepler Cheuvreux, Research Division - Equity Research Analyst [24]

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May I ask, I think the first sentence that you mentioned in your answer was this was the guidance that we set in March. Do you -- in your guidance, do you include any price increases that would come between the period March to October? Are you basically assuming a flat line there?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [25]

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Yes, we have more or less, let me say, only small spot volumes free which we can profit from this price increase. They are own-produced sugar out of beet with high margin. What we can do, we can, let me say, serve the market via import with small margins behind, yes. But we can't profit from, let me say, own produced sugar with the highest margin. That's the situation up to October.

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Anton Brink, Kepler Cheuvreux, Research Division - Equity Research Analyst [26]

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Sure. But doesn't the spot price give us an indication of where prices could be at in October, especially given that you say that you run out of sugar at the end of the sugar marketing year?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [27]

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Yes. Maybe -- yes.

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Operator [28]

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The next question is from the line of James Reynell of Credit Suisse.

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James Reynell, [29]

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Just a few on my side. Firstly, my first question relates to sources of financing, particularly with the increase in short-term bank debt year-over-year. As the business will likely continue to require cash in the first half of this year, would you consider looking to the capital markets, in particular, at the bond market? My first question.

Secondly, following up to the investment-grade rating, S&P note they could affirm you if you show measures other than those announced on March 27. Can we expect other measures? If so, what could these include? Do you yourself think that other measures are required?

Lastly is on your 2021, 2022 EUR 600 million target I noticed that in the second description below, basis for further revenues and earnings growth secured by investments. Does that word, investment, include any inorganic acquisitions into the number?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [30]

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To your question, first, short-term increase in financial liabilities, clearly, we have absolutely no plans, let me say, to tap market short term besides our normal, let me say, commercial paper program. This is, let me say, the preferred instrument, let me say, to handle the enormous seasonality in our working capital needs due to the big sugar business. And so currently no bond placement, especially no major one. And then -- clearly is -- this is normal, let me say, that way housekeeping that we are not only, let me say, now execute the decided restructure plan, we are looking on the whole, let me say, supply chain, yes, to further improve efficiency, et cetera. But this is daily business. This is not, let me say, no stage that we can say, okay, a visible amount to inform capital markets about that. But this is, let me say, normal housekeeping that we are looking on the whole of supply chain. And the last question for was the EUR 600 million EBITDA. This is the current factory structure without any additional M&A activities.

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Operator [31]

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(Operator Instructions) The next question is from the line of [Sonal Sunhai] of Morgan Stanley.

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Unidentified Analyst, [32]

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I had a question on the liquidity facilities. They're maturing '19, '20, '21. So do you have like sort of an idea that you want to get them refinanced this year and so that we are not getting to a point where sort of you have probably another sort of stagnating year where earnings are not growing? So just wanted to understand that plan because you say there is ample liquidity, but the duration of that liquidity is fairly short.

And just secondly, just going back to the investment grade. So just to understand, because I mean, it seems like as you're saying, the agencies want to look at the entire cycle but at the same time I mean the metrics are way below what an investment-grade company should be. So are you also willing to look at some asset disposals? Or you think that you have enough headroom or dialogue with the agencies that you can get through this year and then we can look forward to improvement next year?

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [33]

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So liquidity is very good, as you can see in our -- in the chart in the financing sector. And the big Südzucker RCF, the plan is clearly here to prolong it 12 months ahead of maturity. And from the portfolio question you asked, we talk about core businesses, all 8 divisions, and there are absolutely no plans to dispose any business.

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Unidentified Analyst, [34]

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Okay. So in terms of just -- sort of like you think that probably with these numbers and then improvement coming in '21 that you have enough sort of like headroom there or dialogue with the agencies is such that you should be able to stick to your investment-grade rating. Because last I remember last call you said that -- and you reiterated today that it's pretty important for you to be investment grade because you're dependent on the bond market and not just the bank loans and so on.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [35]

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We believe, but at the end of the day it's the decision of the rating agencies.

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Operator [36]

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And there are no further questions at this time. I hand back to Thomas Kölbl for closing comments.

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Thomas Kölbl, Südzucker AG - Finance Director & Member of Executive Board [37]

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Yes. Ladies and gentlemen, thank you again for your interest in Südzucker Group, and please do not hesitate to contact us in case of additional questions.

Goodbye, and thanks again for participating today in our call.