Agrana Beteiligungs AG

VSE:AGR

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the AGRANA Results for the First Quarter of 2024, '25 Conference Call. I'm Alice, your chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Hannes Haider, responsible for Investor Relations. Please go ahead, sir.

[Hannes Haider, executive]

Good morning, ladies and gentlemen, and welcome to AGRANA's conference call presenting our results for the first quarter, '24-'25. With us today are two out of three members of our Management Board, Stephan Buttner, our CEO, will start the presentation with an overview on the highlights of the first quarter. Afterwards, CTO, Norbert Harringer will tell you what is going on in the group regarding raw materials, production, investment.

And he will report also on the group's ESG news and in the third part of the call, CEO, Buttner, will report on the content Q1 financial statements in detail. And finally, he will conclude with an outlook for the remaining '24-'25 full financial year. As announced in our invitation, presentation is available in reference to this call, and you can find it in the IR section of our website. The presentation will take about 30 minutes and after the presentation, the lines will be open and the management board will be glad to answer your questions.

And now I may pass over to our CEO, Stephan, who will start with the presentation.

[Stephan Büttner, executive]

Thank you, Hannes. Good morning, ladies and gentlemen. Yes, let me give you a quick overview on the business development of the first quarter '24-'25. So as expected, we had a quite difficult start in the new financial year. So we saw low prices in sugar and starch. The Fruit segment was performing better than we expected, and we also had an increase of our performance in the fruit preparations business of nearly 25% versus prior year. The juice business was a little bit weaker in comparison with prior year first quarter.

Yes, I mean, still, we are facing challenges with the imported volumes of Ukrainian sugar in the first half of the calendar year. Also other factors are increasing the pressure on the market prices in sugar. So we have quite a good expectation for the harvest sugar campaign '24-'25. World market prices are also more under pressure. Yes, this all leads to price pressure in sugar.

Also, the volumes on the sales side, especially in the retail markets are under pressure. This is but mainly also due to the Ukrainian imports. When we look at the KPI, so revenue decreased by 2.3%. We had around EUR 945 million revenue. EBITDA, significant decrease down to EUR 55.8 million versus EUR 90.6 million in the year '23-'24. Also accordingly, operating profit went down to EUR 30 million and the EBIT to EUR 32.3 million.

Earnings per share, EUR 0.24, also a significant decrease. Let me briefly make a comment on our Annual General Meeting, which took place last Friday, on the 5th of July 2024. So there, we presented our annual financial statements for the business year '23-'24. Also, we had a resolution on the dividend, EUR 0.90 per share, and we took the opportunity to present the status of our internal discussions and on our strategy -- corporate strategy.

So this is still work in progress, and our aim is to finish all these discussions and come to an approval of our corporate strategy next level until the end of the business year. So now let me hand over to Norbert, who will give you an overview on raw materials and production.

[Norbert Harringer, executive]

Yes, also from my side, good morning, ladies and gentlemen. Welcome to our today's conference call. Let me start with some details about production and raw material [indiscernible] by our CEO. First of all, Sugar segment. While we are pleased to have reason to expect sufficient raw material availability in the coming beet campaign in autumn 2024. Thanks to the positive contracting results last winter that generally good crop forecast in the European Union for the 2024 campaign has further heightened the supply pressure.

The cap of 265,000 tonnes on duty-free sugar imports from Ukraine to Europe that was adopted at the European Union level for the 2024 calendar year, only took effect at the beginning of June this year, and will thus only make itself felt in the European sugar market in the coming months. In the Starch segment, good harvests are also likely in our other key agricultural raw materials like corn and wheat, not least as a result of favorable precipitation conditions in our crop growing regions.

Purchasing prices of these commodities for AGRANA should thus remain below the prior year levels and partly offset the margin pressure that has existed since the start of the financial year in almost all starch and saccharification products. On Slide 7, some general remarks on the price development of wheat and corn in the last months. In the first quarter of the current business year, '24-'25, we saw an upward trend in the grain commodity prices. This price increases were mainly caused by uncertainties regarding harvest.

That means, for example, drought in certain regions and other weather extremes in the most important product regions all over the world. On the 31st of May, on Euronext Paris, wheat quoted at EUR 259 per tonne and corn at EUR 224 per tonne. So now some information on our ESG ambition. Ladies and gentlemen, we are happy to report that we remain on track to achieve our sustainability targets at an operational level.

And we will reach an important milestone in sustainability reporting in this financial year by implementing the Corporate Sustainability Reporting Directly and the European Sustainability Reporting Standards. The implementation of this new European Union requirements for financial years beginning on or after the 1st of January this year, represents a significant step in our strategic advancement.

Our aim is to not only to produce an ESRS compliance sustainability report, as part of our integrated management report, but also to intensify the integration of sustainability considerations into our existing corporate structures. These measures are to help enhance the transparency of our sustainability efforts and ensure that we do justice to the rising requirement of all stakeholder groups. We also see these actions as an opportunity to strengthen our competitiveness and add value for all stakeholders and for society at large.

We are confident that this greater focus on sustainability performance will contribute to AGRANA's long-term success. Last and not least, some information about our ongoing investments on Slide 11 stated that in the first quarter of the current business year, AGRANA invested EUR 18.4 million, EUR 2.9 million more than in the prior year.

The distribution by business segment, you can see on the actual Slide 11, EUR 9 million were invested in our Fruit segment to rise the capacity in Jacona, in Mexico. We did an expansion of our food service capacity in Centerville in Tennessee and with the emission reduction projects at all of our sites, here, for example, in Brazil, in South Africa and in Poland.

In the Starch segment, with an investment of EUR 4.7 million, we proceed within the project to increase the production capacity for special nonfood starches and within the expansion of the wastewater treatment plant in Gmünd in Austria and we did an optimization of the water supply in our cornstarch factory in Aschach, in Austria.

With an investment of EUR 4.7 million in our Sugar segment, we began to optimize the evaporation stations in Roman, in Romania and we did the next major step in our decarbonization plan in Opava, in the Czech Republic, the switch to natural gas from hard coal in the primary caloric energy boiler.

A total investment across the three business segments in this financial year at approximately EUR 120 million is expected to be moderately below the last year's value and thus in line with the budgeted depreciation of about EUR 120 million. So thanks, now back to Stephan for the overview of our results by segment.

[Stephan Büttner, executive]

Thank you, Norbert. So let's have a look at the results by segment. When we look at the revenue, so we see, as already mentioned, that we have a decrease in total of 2.3% when we look at the different segments. So in fruit, we have an increase of 3.6% up to EUR 415.6 million. So this is mainly driven by slight volume -- sales volume increases in both areas in the fruit preparations business as well as in the concentrate business. In starch, we have a significant decline in revenue down to EUR 265.5 million.

I already mentioned that we have pressure on the sales prices, therefore, a significant drop in our revenue and in sugar. So last year, in the first quarter, we had a very low sales volume overall. Really the impact was there from the Ukrainian imports significantly. So we have quite a recovery in sales volumes versus prior year. Still, we are not back to normal volumes, I would say, but these increases in sales volumes could compensate the decline in sales prices when we compare it with the prior year.

So therefore, an increase of 6.2% in revenue. When we have a look -- let's have a look at the EBIT by segment. So as also already reported, we see a further increase in EBIT in our Fruit segment. This is driven by the fruit preparations business. So here, we could improve our performance by nearly 25%. So EBIT in the fruit preparations business amounted, therefore, up to EUR 23 million. In the juice business, we had around EUR 4 million EBIT, so a decrease versus the EUR 6 million we had in the prior year.

In Starch, here, you see the impact of the lower sales prices and the margin pressure, a significant drop from EUR 22.1 million, down to EUR 9.4 million. We had a better performance in our joint venture, HUNGRANA, which is an equity consolidated ethanol business, was especially in the first quarter, still under heavy pressure. So we had nearly zero EBIT contribution from the ethanol business.

Last year, it was worse. There we had around minus EUR 4 million from ethanol so here we see an improvement, but overall, the performance is very poor. And in Sugar, yes, you also see the impact of the sharp decline in sugar prices. So we already have a negative EBIT in the segment sugar of minus EUR 4.1 million.

The effect is mainly coming from higher supply versus demand and also overall a good expectation for the harvest in the sugar marketing years in the campaign '24, and this is also in combination with the pressure on the world market prices. The financials, when we look at the consolidated income statement, so I already mentioned EUR 944.3 million revenue, EBIT EUR 32.3 million, EBIT margin 3.4%, low. And this also resulting in a profit for the period of EUR 16.1 million and earnings per share at EUR 0.24.

The energy cost. So energy costs are further slowing down. You see that we had EUR 52.8 million in the first quarter, '23-'24. This is now going down to EUR 39 million. So we are more and more coming in a direction level prior to the Ukrainian war, but we are still not there yet. Net financial items, you see a negative result of EUR 9.2 million. This is significantly better than prior year. The tax rate was reported at 30.3%.

The cash flow statement shows an operating cash flow before changes in working capital of EUR 63.7 million, of course, driven by the lower profitability, changes in working capital. So we still have a negative impact here, but it is much lower than prior year. So this ends in a net cash from operating activities of plus EUR 26.4 million and a positive free cash flow of EUR 10 million (sic) [ EUR 10.2 million ] in the first quarter '24-'25.

The consolidated balance sheet. There are no significant changes. So we have a moderate decrease in our current assets. This is mainly driven by lower inventories. Equity ratio went up to 46.7%. We slightly reduced our net debt down to EUR 626.4 million, therefore the gearing is 48.7%.

Now let me have -- give you a financial outlook, outlook for '24-'25. Total business year, still, we expect a significant decrease in EBIT and a moderate reduction in our group revenue. Outlook by segment, fruit, stable revenue, a significant increase on EBIT level. Starch, a moderate decrease in revenue and a significant decrease in EBIT. And in sugar, a significant decrease in revenue and a very significant decrease on EBIT level. For the second quarter '24-'25, accordingly, we also expect an EBIT, which should be around 50% of the result of the second quarter '23-'24. So thank you very much, ladies and gentlemen.

Let me hand over to Hannes, who will give you information on the financial calendar.

[Hannes Haider, executive]

Thanks. Before we go on with the Q&A session, I just wanted to remind you that the dividend payment date is on 15th of July, on Monday. And I would also like to inform you that our financial calendar for the next financial year, '25-'26, will be prepared during summer months and will be published in autumn. So we will now go on with the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from the line of Vladimira Urbankova, Erste Group Bank.

[Vladimira Urbankova, analyst]

I would have a couple of questions if you allow me. Your guidance for the second quarter assumes that it will be half of the result of last year, but still if I look at the first quarter, there is a progress. So could you maybe elaborate what should be the drivers of improvement in second quarter versus first Q. Next question would be, of course, after first half, you will see your EBIT roughly 50% down year-on-year.

Your guidance for the full year was reiterated with the range 10% to 50%. So should we assume that for the full year, it will be minus 50%? Or is there any reason to believe that second half of the year would be better and then, of course, the drop in EBIT will be not so material? And last but not least, in the first quarter, if you could maybe elaborate a little bit more on what was the year-on-year growth in material costs and personnel costs?

[Stephan Büttner, executive]

Thank you. So let me try to answer your questions. Yes, improvement in the second quarter, this is mainly due to the lower performance in the second quarter last year. So therefore, we expect the 50%. When we look at the full financial year, yes, we stated that we expect a significant drop in EBIT for the full year. And we also stated that this is a range from 10% to 50% minus. And we're expecting that we go more in the direction of minus 50%.

So this is our guidance for the full year. And therefore, actually, we see no significant changes versus our expectation. Yes, in the first quarter, so you asked for the changes in personnel costs, we had EUR 106 million actually in the first quarter of '24-'25 versus the prior year. We had a -- give me one second, I cannot read the numbers, sorry. I can tell you now, EUR 106 million actually versus EUR 98 million prior year, and material expenses, we had EUR 728 million this year versus EUR 722 million last year.

[Vladimira Urbankova, analyst]

Still my question regarding second quarter was not the year-on-year, but comparison to the first quarter this year because If I look at the first quarter this year, in absolute terms compared to the estimated second quarter this year, there is a material progress from some -- yes, it's -- so that to see that.

[Stephan Büttner, executive]

Yes, give me a second, I will come back to this later so maybe...

[Vladimira Urbankova, analyst]

Or decrease just -- yes, I'm looking at the numbers...

[Stephan Büttner, executive]

Can you give me the numbers?

[Vladimira Urbankova, analyst]

Yes, EUR 47.4 million was -- so it will be half of that. So the second quarter even than first quarter, which was EUR 32.3 million, so deterioration. So what would be the driver for that deterioration? Yes, just the dynamic in the course of this year.

[Stephan Büttner, executive]

So it's across all segments, yes. So typically, in the second quarter, the profitability in the Fruit segment is lower than in the first quarter. but this is normal. This is due to seasonal effect. And in Sugar, we also, let's say, expect a challenging quarter. And these are the effects leading to our expectations.

[Vladimira Urbankova, analyst]

Okay. So you expect that the -- no further decrease in profitability in sugar and starch and rather fluid delivering plus or decrease compared...

[Stephan Büttner, executive]

I would really say the biggest effect comes from the fruit segment, but this is a seasonal effect. Second quarter is typically weaker than the first quarter.

[Operator]

Our next question comes from the line of Teresa Schinwald, Raiffeisen Bank International.

[Teresa Schinwald, analyst]

First one is whether you can already observe any effect from the Ukrainian tariffs? I know it's only a few days probably anticipated, but if you could shed a bit more light on that? My second question would be on this rather nice working capital improvement. Also here, what's now improved versus last year? And the third one would be on your investments in the first business in the U.S. Could you remind us as of when you expect the additional capacities to come online?

[Stephan Büttner, executive]

Yes. So let me answer first the question on working capital. So we have clear targets for the business year. Our target is to reduce our working capital by around EUR 75 million over all segments with stable -- when we assume stable prices. So this is our target for the actual business here.

Of course, we also expect further decreases because we see a drop in raw material prices, but we cannot assess the effect now exactly. Then let me answer your question on the investment in the U.S. So when we talk about our investment in Centerville, concerning our food service business.

So now we are in the trial phase with the customer. And this will, I would expect, last for another three to four months until we have really also the trial successfully completed, and then we will start with the deliveries in the fourth quarter, let's say, of the actual calendar year.

And the third question is, yes, impact from the duties introduced on European level for Ukraine and sugar imports. So Currently, we do not really already see positive effects, but this is mainly due to the imports, which came in until June '24, then all this sugar can be stored. So a lot of volumes came into the EU was more than 300,000 tonnes, and it takes some time until these volumes are consumed.

[Operator]

[Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Hannes Haider for any closing remarks.

[Hannes Haider, executive]

So as there are no further questions, thank you for your interest and your participation in the call. We wish you a successful remaining day and a nice summertime. Goodbye.

[Operator]

Ladies and gentlemen, this conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.