Vienna Jul 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Agrana Beteiligungs AG earnings conference call or presentation Thursday, July 11, 2019 at 8:00:00am GMT
Ladies and gentlemen, thank you for standing by. I am Francesca, your Chorus Call operator. Welcome, and thank you for joining AGRANA conference call on the results for Q1 2019/2020. (Operator Instructions)
I would now like to turn the conference over to Hannes Haider, responsible for Investor Relations. Please go ahead, sir.
Yes. Good morning, ladies and gentlemen, and welcome to AGRANA's conference call presenting our results for the first quarter of '19-'20.
With us today are 3 out of 4 members of our Management Board. Mr. Marihart, our CEO, will start the presentation with a highlight introduction; then Mr. Fritz Gattermayer, our CSO, will give you more color on all segments; then CFO, Mr. Büttner, will present the financial statements in detail; and finally, again, the CEO will conclude with an outlook for the remaining business year.
The presentation would take about 30 minutes, and the presentation is available in reference to our call on our website. After the presentation, the Management Board will be glad to answer your questions.
Yes. Good morning, ladies and gentlemen. Thank you for joining our conference call on our first quarter of '19-'20.
Revenue-wise, we have EUR 638.4 million, so EUR 8 million above last year's first quarter. And EBIT-wise, we have EUR 30.9 million, that's EUR 6.3 million less than last year's first quarter. And EBIT margin is down with 4.8% versus 5.9% consequently.
This first quarter is characterized by the full capacity utilization in our Aschach cornstarch plant in Austria and the rise in the ethanol prices, so that the EBIT of the Starch segment is 86% above last year.
On the Fruit segment, the raw material-related onetime costs in the fruit preparations business kept the EBIT of the segment below the year-earlier quarter, and the Sugar segment's negative EBIT compares in this first quarter with a still positive first quarter in the last year.
Revenue breakdown by segment shows that, overall, 1.3% increase is given a flat revenue on the Fruit side, plus 14.5% on the Starch side and a minus of 13.1% on the Sugar side totaling in EUR 638.4 million.
The share of Sugar decreased according to that development to 18.7% and Starch increased from 28.8% to 32.5% and there is a slight decrease also for the share of fruit preparations from 49.5% to 48.8%.
On the EBIT side, the most remarkable thing is that the Sugar segment turned from plus EUR 1.6 million to minus EUR 9.3 million. As mentioned, there is a nearly doubling in the Starch EBIT, and there is a decrease of 14.5% in the EBIT of the Fruit segment, so totaling in the EUR 30.9 million. The EBIT margin in Fruit is 7%. In Starch, it recovered from 5.5% to 8.9%. And in Sugar, it turned into the minus.
Short-term investment overview. We are more or less equal to the quarter 1 in last year with EUR 33.6 million. In Sugar, we spent only EUR 2.7 million. In Starch, the lion's share with EUR 20.8 million, especially according to the big projects; and in Fruits, EUR 10.1 million. In detail, in Fruits, there is a second production line at the new plant in China under construction. There is also additional production lines in our Australian and Russian sites, and there is a new lab for product development in Mitry-Mory plant in France.
On Starch, the doubling of the wheat starch plant in Pischelsdorf is ongoing and now in the final phase. So of course, it will start up end of the year. And the expansion of the starch derivatives plant in Aschach followed the [rent] increase last year. Now we intensified the value-added products by this expansion of the starch derivatives plant. And there are also measures to enable us on the Aschach site to process more specialty corn processing and to make -- to ease in the switch from one variety to the other one.
On the Sugar side, we are completing the new warehouse for finished products in Buzau, in Romania, and we are also investing new centrifuges in our Czech plant in Hrušovany to reduce the energy consumption.
So now I hand over to my colleague, Mr. Gattermayer, who will give you more information on those markets.
Fritz Gattermayer, AGRANA Beteiligungs-Aktiengesellschaft - Chief Sales Officer & Member of Management Board [4]
Thank you very much. Good morning. Starting with the Fruit segment. Concerning fruit preparation, AGRANA successfully defends its position or was able to defend its position in the saturated markets of European Union, also North America. We continued to focus on our diversification in non-dairy sectors like bakery, ice cream, foodservice, and so on with additional volumes and customers. And sustainability is still a main focus and traceability of ingredients, too, and we had -- a lot of products are being launching in all product categories as quick, healthy snacks for between meals and so on.
Concerning the fruit concentrates, the market environment, we had the demand for apple juice concentrate continues to be stable. The available products from the current spring production was successfully marketed and sold. We had a very good sales development out in the United States and the placement of the berry juice concentrates from the 2018 crop and also partly from the 2019 crop is more or less completed.
Concerning the revenue, the revenue of the Fruit segment is more or less stable at EUR 311.5 million. Concerning food prep, the revenue showed a small uptick partly due to a slight increase in sales volume. In the concentrate business activities, the revenue was down moderately from a year ago for price reasons due to the fixed cost of apple of 2018.
The EBIT was lower than in the year before. The reason for that lay in the fruit preparation business. We had onetime impacts related to raw materials in Mexico, mainly mango but also strawberry. We had also due to the big crop of apples in Ukraine and Poland and Russia we had lower sales price for fresh apples in Ukraine, and we had additional staff costs. And the EBIT in the fruit juice concentrate business was pushed up significantly and stabilized in the high year-earlier level of the -- level of last year.
Concerning the Starch segment, the market environment sales volume was -- growth was still going on. We achieved it in all product areas. The sweetener capacity on the other side, especially in Middle Europe and Southeastern Europe, remains underutilized and the market development concerning isoglucose continued to be driven by volume pressure. The competition is still very high. The sales figures for native and modified starches were stable. The supply situation in cereal starches for the European paper and corrugated board industry has eased and increasing spot volumes are on offer again.
Concerning ethanol, we had very high ethanol quotations. The bioethanol business made a very positive contribution to the result of the Starch division. The quotes were supported by supply shortage, mainly in Northern and Western Europe, and also influenced by the insecurity concerning the planting of corn in the United States, and of course, also the price level of the ethanol produced in the United States and have an impact on the growth market, too. The maintenance work at number of sectors made for a shorter supply also within the European Union.
Concerning feedstuffs segment, we had to -- we were able to continue a steadily growing demand for GMO-free feedstuffs and it's why we had stable prices due to the increasing volumes.
The next chart shows you the development of the corn and wheat prices. You see on the right side, that's more or less corn and wheat is on the same level. The gap between corn, normally, wheat is higher than corn. It was -- it's [across wheat] and now we're around EUR 175 per tonne.
And on the other side, when you go back some years in 2006 and in 2011, you see the different levels and we have now a level like in 2016 and 2011, of course, there was a variation and volatile market during the year. Continuing with ethanol and petrol prices, you see the development as already mentioned. The big impact of the ethanol prices, we had a quotation on the 8th of July of EUR 658. Today, it was about EUR 670. And it's still going on for the next weeks and months. We expect it and therefore we can continue -- this impact for our results will continue for the next weeks.
The revenue for the Starch segment went up from EUR 180 million to EUR 208 million. The key reason was substantial increase in ethanol revenue, stronger Platts quotation. And also the sweetener products with declining prices, the revenue was raised moderately through the sale of higher volumes. We were able to compensate partly there, the low prices for higher volumes. And as I already mentioned concerning starches, we were able to continue the revenue and increase our volumes.
And was -- also a positive effect is the revenue from baby food went up from a low level and we are going the right direction. We are very positive on this issue.
The EBIT was already mentioned, went up by 86% from 10 million to 18.4 million tonnes (sic) [EUR 10 million to EUR 18.4 million], and it was primarily from a significant rise in market prices of ethanol and from volume gains in all other product segments.
On the cost side or expense side, higher raw material costs for the 2018 crops remained downside factors for earnings still. And the earnings contribution from HUNGRANA declined from EUR 4.7 million to EUR 3.2 million, minus EUR 1.5 million, strongly affected by lower level of isoglucose and sweetener products.
Continuing with the Sugar segment. Concerning the market environment, still challenging and very tough. The world market price more or less on the same level for the last month. On the other side, there is a slight improvement compared to this 9-year low for white sugar. In August 2018, it was $303.07 per tonne and the 10-year low of raw sugar, it was in September 2018, also 10 months ago at $220 per tonne.
Contrary to the expectation, the small deficit for the sugar market in the years 2018-'19, the presence of inventories, mainly in India, led to a strained world market situation. And F.O. Licht, one of the main consulting companies, is projecting a small production deficit for the end of the sugar marketing year 2018-'19.
For us, it's more important the European sugar market. The sugar market in year 2018-'19, it was forecasted until July 2018, a production volume of 20.4 million tonnes of sugar due to dry weather conditions in last summer, however, the estimate of the European Commission from April 2019 puts the production at 7.5 million tonnes (sic) [17.5 million tonnes] of sugar.
Concerning the average sugar price and the price reporting system since the abolition of the sugar quotas, the price declined significantly and it continued. In April 2019, average price also gained somewhat to EUR 320 per tonne and we expect it will continue. Further increase, as I said, is expected for the next several months of the sugar marketing year 2018-'19. And another effect is that there are more or less very low sugar stocks at the end of this year, as I expected.
The next chart shows you the sugar quotation for raw sugar and white sugar. And we see that, as I mentioned before, the 10 years low and the 9 years low, and now we have a price level for raw sugar around EUR 240 per tonne, and for white sugar of EUR 284 per tonne, meaning that the gap between white sugar and raw is only EUR 45 or EUR 44 and that means that the refinery and also the competition between white sugar in the world market and refined sugar within the European Union is still very tough.
And the next chart shows the price reporting system and also the #5 quotation and the average -- and the London #5 and EU reference price is at EUR 404 but more or less you see that since February 2017, summer 2017, it’s more or less a correlation between #5 and the European average price for white sugar due to this big supply, which was produced in 2017-2018, now we have a lower volume and therefore it should be this correlation on a lower level.
Concerning the revenue, due to that what I mentioned before, the low prices, the revenue went down to EUR 120 million, minus 13%, and this is of the year-on-year reduction sugar sales prices mainly. And we had also lower volumes of sugar sold mainly to the nonfood sector. And due to that, the EBIT went down from EUR 1.6 million to minus EUR 9.3 million and it was a decrease mentioned already due to the loss of the volumes, lower volumes, and also on the other side, to the low sugar prices, but we are optimistic that we are more or less going up in a better future.
Thank you. Good morning, ladies and gentlemen. The consolidated income statement shows an increase in revenues of 1.3%, as already mentioned, to EUR 638.4 million.
The EBIT amounted to EUR 30.9 million is a reduction of 16.5%. EBIT margin, 4.8%, also down. And the profit for the period, EUR 18.3 million. Attributable to shareholders of the parent, EUR 16.7 million, also a significant decrease.
The financial result was improved by 11.6%. We had higher net interest expense due to higher average gross financial debt. Therefore, an improvement at the currency translation differences of 36%, down to EUR 1.6 million. The tax rate was considerably higher with 32.5%, mainly due to noncapitalized carryforward tax losses in the Sugar segment where we had still positive results in the first quarter of '18-'19 in Sugar.
The consolidated cash flow statement shows operating cash flow before changes in working capital of EUR 47.9 million. It's comparable with the last Q1. We had a negative cash effect in the changes in working capital. The net effect compared with the Q1 '18-'19 is minus [EUR 53.2 million], mainly driven by lower reduction of inventories in the Sugar segment and of higher reduction in the liabilities coming out of payment for capital expenditures of the last year. So we end up with net cash used in operating activities of EUR 30.7 million.
The consolidated balance sheet shows no significant changes. So the key indicators, the equity ratio was 58.2%, still reasonable. The net debt amounting to EUR 415.4 million, leading to a gearing of 29.2%.
Yes. Finally, an outlook on the full year for AGRANA Group. Despite the continuing substantial challenges in the Sugar segment, the group's operating profit, the EBIT is expected to increase significantly, which means plus 10% to plus 50% in the year '19-'20, and the revenue is projected to show moderate growth.
Our total investment is still above depreciation of EUR 108 million with approximately EUR 143 million. As I mentioned, the main thing is the finishing of our wheat starch capacity in our Pischelsdorf plant.
More detailed outlook for the same segments. In the Fruit segment, AGRANA expects '19-'20 to bring growth in revenue and EBIT. Fruit preparations, there is a positive revenue trend predicted in all business areas, driven by rising sales volumes. The EBIT should reflect the volume and margin growth, resulting in a significant earnings improvement year-on-year.
The fruit juice concentrates revenue and EBIT are projected this full year to be steady on this high prior year level.
Starch segment. Here, we expect a significant increase in revenue and the markets for starches are expected to be stable as the starch-based saccharification products remaining affected by European sugar prices, specialty products such as infant formula or organic starches and GMO-free products should continue to generate consistently positive impetus.
High quotations for ethanol have recently fired the revenue and earnings situation. And assuming an average grain harvest in 2019 and slight reduction in the raw material prices compared to the drought year 2018, the EBIT of the Starch segment is expected to increase significantly from prior year level also.
The Sugar segment, here AGRANA is projecting still a low revenue in expectation of 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 2019-'20 full year.
Yes. Just a quick reminder. After our Annual General Meeting last Friday and the [execution date stated yesterday], today, we have the record dates for the dividend '18-'19, and tomorrow, we will have the payment of the dividend.
I would have, in fact, a couple of questions, some of them related to the performance in first quarter, some of them to the outlook. Maybe let's do it by segment.
In the Sugar segment, you mentioned cost savings programs that are ongoing to soften margin. Could you please quantify how big savings you want to achieve? And also, if you are speaking about EBIT remaining in negative territory, could you maybe shed more light on what is the magnitude of that negative operating result?
For the Starch segment, you mentioned that, of course, first quarter was highly supported by quotations for bioethanol due to some shortages also contributing to that. What is the outlook, in your opinion, for the upcoming quarters in this respect?
And then in the Fruit segment, in first quarter, you mentioned one-off effects. Could you quantify how big was the impact of these one-off effects? And what should be then the driver for the improvement in the Fruit segment, especially operating result performance?
And then finally, last but not least, for the tax rate, what was the reason for this relatively high effective tax rate? This would be it for the moment.
Okay. Concerning the cost-saving program in sugar, we, of course, are going through all the personnel costs and have some effects there. But the main thing is that we work on a concept of work benches. So this means that we follow with our organization the quota-free situation, meaning that in each country, the organization is -- production organization and the sales and other functions are centralized. It's, from my side, the cost savings. The negative EBIT quantification is difficult, depends on the crop situation this year, it will be there less -- or more sugar than last year, so it's difficult to quantify it in the moment.
And these cost savings, do you have quantification for them or because this is something what you -- it's your internal homework.
Not yet. So we are still working on that. Concerning the ethanol outlook, we expect this will continue for the next week until autumn and it's significantly above the budgeted price due to this big change of the demand/supply situation within the European Union.
Concerning the effects -- negative effects in the Fruit segment, so I think we have mentioned that we had negative impact out of the raw material. So we see a negative effect of approximately EUR 2 million coming out of mango and strawberry with demand of EUR 1.2 million and negative impact in apples in the Ukraine of approximately EUR 0.7 million, so total of EUR 2 million coming out of these one-timers in raw material. And also, we have extraordinary personnel expenses at an amount of approximately EUR 700,000 and also additional costs in personnel expenses of EUR 400,000 to EUR 500,000. And then we had several other effects coming from temporarily decreased volumes in different regions also amounting to approximately EUR 1 million in total.
EUR 4 million compared with the prior year. So $2 million raw material one-timers; EUR 1 million, I would say, personnel cost; and EUR 1 million out of the operating business concerning volumes, et cetera.
Sorry, with the tax rate, I already mentioned, so this is mainly due to the losses that we see in the Sugar segment, which already led to a very high tax rate in the total year of '18-'19, so we do not capitalize these carryforward tax losses due to the midterm outlook in Sugar.
There are no further questions at this time. I would like to hand it back to Hannes Haider for closing comments.
Yes. If there are no further questions, thanks for your participation in the call. We wish you a nice remaining day and a nice summertime. Bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your lines. Thank you for joining. Have a pleasant day. Goodbye.
Post time: Jul-18-2019