Ladies and gentlemen, we welcome all of you to our conference call this morning and wish you a happy New Year. The underlying presentation for the call has been published this morning at 7:30 A.M. CET on our homePage. Today, we released a statement for the first nine months of financial year 2021/22. We're going to present the highlights of this period and revisit our full year group guidance for business year 2021/22. Following the call, we're going to answer your questions. A recording of this call will be available on our homePage shortly after the call. Now let me hand over to Südzucker CFO, Thomas Kölbl.
Thank you, Nikolai. Ladies and gentlemen, also from my side, a warm welcome. We wish you all a successful and sound 2022. As mentioned, I would like to give you a brief overview about the business performance in the first nine months of financial year 2021/22, and details about the guidance for financial year 2021/22. Let me start with the highlights on the first nine months, which start on Page four. First of all, let me point out once again, that unfortunately, the coronavirus pandemic is not over and still shows different issues and dynamics in regions as well as in business areas every day. As we are heading towards the end of the second pandemic business year, we are not just facing current pandemic influences, but also facing pre-pandemic driven comps.
Sometimes they are challenging, sometimes they are easy to be exceeded, but in total with no homogenous pattern, neither in quarter one, quarter two, nor in quarter three or the remaining fourth quarter. Südzucker strong quarter three performance was driven by the continued turnaround in our sugar business and strongly supported by the continued success of our ethanol business CropEnergies. Group revenues showed an increase of 17% in quarter three, with EBITDA up by 33% in quarter three and group operating results by 91%. Cash flow increased by 34% in quarter three. After nine months, accumulated group revenues were up by 11% and group operating profit increased by 34%. EPS after nine months came in at +0.33 EUR against -0.56 EUR last year.
Net financial debt end of November 2021 came in EUR 108 million below prior year's level and EUR 259 million lower against end of business year 2021. Now let's have a first look into the segmental performance on Page 5 before we get into more detail segment by segment. First of all, let me flag again that Südzucker has started to report five segments: Sugar, Special Products, Crop Energies, Starch, and Fruit as of FY 2021/22. We continue to include adjusted previous year's number for all quarters in the appendix of this presentation, in all investor relations presentations for your reference. Group revenues increased significantly while the Special Products segment revenues increased slightly. They were up moderately in Fruit segment and significantly in the segments Sugar, Crop Energies, and Starch.
Group EBITDA came in 14% above previous year's level, which was helped by a significant increase in quarter two and quarter three, with operating results increased by 34% in the first nine months and 91% in quarter three. Earnings growth in the third quarter is mainly due to the significantly improved results in the Sugar and CropEnergies segments. For the reporting period as a whole, the group's earnings growth was also driven by the significant earnings increases in the Sugar and CropEnergies segments. The Special Products segment's operating profit fell significantly, and the Fruit segment was down moderately. In the Starch segment, after a good third quarter, the overall profit of the reporting period is now moderately above the prior year. Let's continue with development in segment Sugar on Page seven. Let me revisit our view on the global sugar market.
Its latest update in December 2021, one of the leading market consultancies has confirmed the deficit outlook for sugar market year 2021/22 of 3.4 million tons, the third global deficit year in a row. The stocks-to-use ratio is expected to drop from 42.1% to 36.8%, the lowest ratio since more than 10 years. This still strongly underpins our view of a tight global market environment and a positive fundamental market environment for at least the next 18 months. Let's have a look at the European sugar market environment on Page eight. The European sugar market has changed into a net importer status since campaign 2018, which has led already to two steps of price increase in the last two sugar marketing years.
There are several reasons for the positive European spot price development since end of calendar year 2020. First, the world market price as the fundamental pricing starting point has increased significantly. Second, currently running campaign and expected output confirms the EU net importer status also in 2021/22. In this environment, up to 100% of the Sugar volumes for campaign '21 was up for negotiation, predominantly representing Sugar contracts for the period October '21 to September '22. In order to achieve our original price goal of a moderate contractual price increase, reaching the midpoint of our Sugar earnings guidance, it was our priority to constantly sign contracts whenever matching our underlying goals since spring '21. This has been achieved. We missed out on the Sugar price hike following the contract signing.
Therefore, we've seen a positive market environment of further potential for another price increase for sugar market year 2022/23. Now let's have a look into the complete development in segment Sugar in the first nine months on Page nine. Sugar revenues increased significantly. This is mainly due to the highest sugar sales revenues since the beginning of the last 2021 sugar marketing year, and also since the beginning of the new 2021/22 sugar marketing year. In addition, the higher sales volumes since quarter two, 2021/22 also had a positive effect. Operating results showed a continued expected significant improvement, while quarter one came in at a loss significantly below last year. Since quarter two, we see a positive result again and significant improvements compared to the previous year. As a result, the cumulative nine months result also showed a significant improvement compared to the previous year.
Initially, higher sugar sales revenues were offset, in particular by raw material price-related increases in production costs from the 2020 campaign. Since quarter two, the increase in sales volumes and better utilization of production capacities have had a positive effect. Since quarter three, further, in some cases, drastic cost increases for energy, packaging, and raw materials have had an increasingly negative impact. We expect for the still running sugar campaign a length of about 120 days, against 108 days in 2020. The resulting overall sugar output from beet is expected at 4.2 million tons against 3.5 million tons one year ago. Let me continue with segment Special Products on Page ten. Following a very successful year, 2021, even better than originally forecasted, we are facing high comps in FY 2021/22.
In the first nine months, revenues have turned to growth territory in light of a good third quarter performance. In the previous year, the beginning of the financial year was positively influenced by the partly sudden increase in demand, for example, for deep frozen pizza. Operating results decreased significantly, burdened by rising raw material, energy, and logistic costs. Also, additional burdens were passed on to customers to a certain extent through price increases. The cost burden can still be seen in the development of the operating margins. Let me now turn to the outstanding development of the segment CropEnergies on Page 11. Revenues in segment CropEnergies were up sharply. Higher sales volumes and sales revenues contributed to the increase in revenues.
Operating results developed in line with the development of sales volumes and sales revenues, and increased significantly in the reporting period, despite considerably higher raw material and energy costs. As a result of the strong increase in ethanol sales revenues in recent months, a record operating result of EUR 56 million was achieved in quarter three. The average ethanol price in the third quarter was at EUR 1,019 per cubic meter, against EUR 667 per cubic meter in quarter three last year. The average ethanol price in the first nine months was at EUR 757 per cubic meter, against EUR 609 per cubic meter after nine months in 2021. The average ethanol price through December was at EUR 1,061 per cubic meter, against EUR 519 per cubic meter in December 2020.
In January, we see so far a price level of about 900 EUR per cubic meter. Let's move on to segment Starch on Page 12. Revenues in segment Starch came in significantly above previous year's level. The positive development of sales volumes and the overall increase in sales revenues had a positive effect. In line with the development of sales volumes and sales revenues, operating profit after nine months increased moderately despite significantly higher raw material and energy costs. The positive development of ethanol prices in recent months had a positive effect on earnings development, especially in quarter three. Let's move on to segment Fruit on Page 13. Segment revenues came in moderately higher. Revenues from fruit preparations rose mainly due to higher sales prices. Due to higher price in quarter three compared to the prior year quarter, fruit juice concentrates revenues overall was at the prior year level.
Segment operating results moderately decreased. In fruit preparations, higher sales revenues could not fully compensate for higher costs. Earnings were also impacted by higher costs and a slight decline in sales volume, despite slightly higher sales revenues from fruit juice concentrates. Let me now turn to the main points in the P&L on Page 15 and 16. The equity result was negative, mainly driven by the burden from the development of ED&F Man. The losses of ED&F Man are related to impairments of industrial holdings, combined with high financing costs, and are based on the still preliminary financial statement information for ED&F Man's financial year ending September 2021. The future participation book value of ED&F Man was reduced to EUR 34 million end of November 2021. The financial result came in at -EUR 31 million.
It contains the net interest expense of -EUR 23 million and the other financial result of -EUR 8 million. Let's continue on Page 16. Taxes on income came in at EUR 64 million after EUR 61 million in the same period last year. Earnings per share came in at +0.33 EUR against -0.56 EUR in the prior year. Let me now turn to the cash flow, working capital, and investment development on Page 18. Cash flow increased in the first nine months to EUR 415 million. The cash flow against revenues ratio improved in quarter three to 7.4%, against 6.3% in quarter two. The cash inflow of EUR 152 million from decline in working capital was mainly due to the sale of sugar inventory.
CapEx reached EUR 203 million against EUR 205 million last year. Let me now move forward looking at the balance sheet on Page 20. Net financial debt end of November was reduced by EUR 108 million against prior year's level and is down EUR 259 million against end of February 2021. Total investments and earnings distribution were fully financed from cash flow and the cash inflow due to reduction of the working capital. Gearing is at 34% against 39% one year ago. Equity ratio is almost unchanged at 44% against 43% in the prior year. Let me now turn to the outlook on Pages 22-26.
Ladies and gentlemen, as we are now heading into the last quarter of fiscal 2021/22, let me clearly point out that we did not foresee a fourth corona wave, nor additional variants like Omicron. On the one hand, we are confident to confirm once again our original earnings guidance of May 2021. On the other hand, we continue to point out that we cannot rule out further unexpected implications from the pandemic, neither for the remaining three months in business year 2021/22, nor for the new business year 2022/23. Besides this, we are still facing a highly negative cost momentum in the current market environment affecting most of our businesses. A very prominent example among others are energy prices in general, and in particular, gas prices tripling since June 2021. Additionally, raw material as well as transportation and packaging costs are strongly up.
Please bear this and the overall market volatility in mind when looking at the earnings quality and confirmation of our full year earnings targets in particular. Having said that, group revenues are now expected between EUR 7.3 billion and EUR 7.5 billion, and operating results in a range between EUR 320 million and EUR 380 million, reconfirming the original midpoint of EUR 350 million, aware of the ongoing challenging and difficult to predict environment. Sugar segment, following many loss-making quarters, has reported positive earnings in quarter two and quarter three with a huge earnings delta against last year. On full year basis, we now expect an earnings range between EUR 0 million and EUR 30 million, which would be an increase of about EUR 140 million against last year.
This improvement is the main driver for the increase in group's profitability. Though there is still a way to go in fiscal 2021/22, and as always, the earnings impact of campaign fluctuations should not be underestimated. Our earnings goal is supported by improved sugar contract reaching our original target of a moderate sales price increase for sugar marketing year 2021/22, but also challenged by the mentioned cost inflation and especially the uncertain further pandemic development. We expect implications from the new corona wave, but we don't have numbers for the running fourth quarter. Special Products segment operating result is expected to come in significantly below the prior year. As mentioned before, especially the segment is burdened by additional raw material, energy, and packaging costs.
CropEnergies segment's operating result is now expected to range between EUR 100 million, EUR 110 million and EUR 140 million, mainly reflecting the continued favorable ethanol price development. Starch segment operating result is now expected to increase significantly. Also within the Starch segment, the positive outlook change is driven by the ethanol price development. Fruit segment is now expected to confirm prior year's earnings level. Let me continue with Page 23. We expect a significant increase in group EBITDA following the positive operating result development. CapEx should stay on a modest level. Net financial debt is expected to be reduced by around EUR 100 million. Higher EBITDA and lower net financial debt will significantly further improve group leverage ratios. Ladies and gentlemen, let me summarize the overall outlook and the presentation on Page 25, with some statements also in regard to the mid-term development.
First, turnaround in Sugar is due to continue driving group earnings improvement. Second, targeted leverage ratio gains further momentum. Third, the most important key driver is structural cash flow will further increase into a range of EUR 350 million-EUR 410 million. Ladies and gentlemen, this arrangement of the diversified structural cash flow quality in a challenging environment clearly secures the way to actively shape Südzucker's future, especially in conjunction with Strategy 2026 PLUS. Thank you all for your attention.
Thank you, Thomas. We are now ready to take your questions.
Ladies and gentlemen, at this time we will begin the question-and-answer session. Anyone who wishes to ask a question may press Star followed by one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press Star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press Star followed by one at this time. One moment for the first question, please. The first question is from the line of Michael Schaefer from ODDO BHF. Please go ahead.
Yeah, good morning, gentlemen, and also happy new year from my side as well. Couple of questions. Maybe to start with, is on your Sugar segment outlook, which you have lowered by EUR 35 million, compared to the second quarter statement, at the midpoint. Can you help us understand basically how the kind of annualized cost headwinds may look like? Is the EUR 35 million reduction this related to the second half cost inflation? And should we read that this may look like EUR 70 million on a full-year basis when we head into the next fiscal year? Any color on the cost headwinds you face on an annualized basis, given current prices in sugar would be helpful.
The second one also sticks to sugar. Mr. Kölbl, you elaborated on the pricing opportunity which you might see heading into the next negotiation round if current market or price environment sustains. I wonder whether you already today are basically in talks with potential customers on those prices on maybe multi-year contracts already forward or conclude forward contracts basically with your clients on this one. Related to this one, maybe a bit of a hint how your campaign planning looks like for the next campaign, given that you are facing also significant, let's say, competition for acreage from stronger crop prices. This is all on sugar.
Last but not least, on the Special Products side, so how should we think about the pass on of higher raw materials and higher energy and packaging costs which you elaborated on in terms of higher prices? Where are you there in price initiatives and what is still to be done in the course maybe also next fiscal year? Thank you.
Yes, thank you for your questions. starting with Sugar, you mentioned the lowering of the midpoint of the Sugar guidance. There are, let me say, a lot of parameters which influence this lowering. starting with slightly lower campaign volumes against forecast. The third one you mentioned is the cost increases we see, and this is the biggest part to be clear here. The ratio you mentioned, it is higher. Only 1/3 of this cost inflation in the current fiscal 2021/22 and roughly 2/3 will affect the following sugar fiscal year 2022/23.
To the second part of your question is the price environment for the next contract around 2022/23. Clearly, this is a fruitful environment globally as well as in the European Community. We are confident about the next price round, but it's too early to give you any advice. We will start, let me say, in spring, as every year, the next contract season. This is a challenging environment, but we are confident in that environment. The third point to the acreage, it is a challenging environment also for farmers to keep them on board, yeah. There's a lot of pressure in the whole value chain for farmers, industry, et cetera.
Our goal is to do everything to keep average acreage at the level we had in the last campaign, 2021. To Special Products, clearly this is an extraordinary situation that on all input factors we have price increases and this is still the case. Clearly we do everything in our sales organization to put this higher cost forward to customers. But this depends, let me say, and to do that, it needs time. It depends on the contract phase. I think we see starting from the second half of fiscal 2022/23 in some areas the turning point in increasing margins.
Very helpful. Thank you very much.
The next question is from the line of Oliver Schwarz from Warburg Research. Please go ahead.
Thank you, gentlemen, for taking my questions. Firstly, I'd like to head to the balance sheet and ask why we didn't see a material change in inventories after nine months of 2021/22 when compared to basically the same period of last year, given that prices for sugar beets have expanded. Is that due to lower volumes? And if so, why are we seeing lower volumes in your inventory? That would be my first question. Second question would be on receivables, EUR 160 million, give or take, less receivables booked this year compared to the same period of last year. Can you please elaborate on that development as well?
I will pose two other questions, but I think it's better to take them one by one. If you could just answer the ones I just posed, and we continue from there on.
The inventory, the reason why we are more or less on the same level on group inventory is that we have in comparison to last quarter, higher volumes, sales volumes, yeah. You are right with the assumption that we have some slightly higher campaign volume with higher prices, sugar beet prices, yeah, and therefore sugar total costs, but this was overcompensated by the higher sales volumes. The second question to the receivables, could you please repeat it? Oliver?
I saw that the number of receivables is EUR 1,169 million as of nine months in 2021/22 when compared to EUR 1,014 million. Give or take 165 million less, sorry, more.
Yeah.
than in the previous
Oh, yeah. Now I get it. This is driven by the sales process, yeah.
Okay. Basically same reason here, right?
Yeah. Sales process.
Okay. Okay.
Yeah.
My second question is on the result from participation, which was.
Oliver, coming back to the
Sorry.
Coming back to the first one, yeah. This is the status for quarter three. Looking on quarter four, there may be a change due to lower sales and the full payment of the beets in quarter four.
Understood.
Okay.
Okay. I'll take that into account. Thank you for the hint. The second question would be on the results in participations, which especially in Q3 of this fiscal year was incurring a high double-digit negative number. Is that all attributable to ED&F Man or is there some other, let's say, impact of other developments also included in that number?
No, it's completely the development of ED&F Man.
If so, when can we expect some turnaround of the situation of ED&F Man. I mean, this is clearly a disappointment to you I get. Given the higher sugar prices on the global when talking global numbers, I would have expected a less negative impact from ED&F Man here. Is there hope for the next fiscal year, or is that likely to drag on regardless of how market prices develop? Is that only related to the asset base and the valuation of the asset base of ED&F Man, or is there something else behind that number?
Oliver, first of all, to clarify for all other participants on the call, we talk about the at-equity participation, which is not included in our operating profit development. To clarify that, to be very clear, and also the burdens we have are not cash relevant from that write-down of the participation in ED&F Man. Now coming to the question, ED&F Man is still in a very difficult situation. The core trading business is really doing well with positive results also in the fiscal ending in September 2021. But they have still problems in the restructuring process of selling their industrial assets, and also the burdens of higher financing costs from the last restructuring of the financing lines of ED&F Man.
This difficult situation will stay also in the upcoming quarters.
Okay, understood. Thank you so much for that. Last question, at least for the time being, would be on your guidance. I'm trying to put together your, let's say, group targets and compare that with the outlook you gave for the five segments you did. Basically, I have no problems to come to the low point of your group guidance when employing the lower end of the guidances for the respective segments. However, I run into a problem when I'm trying to aim for the high end of the guidance, so for EUR 380 million, when I'm employing, let's say, the max number you've given for Sugar, for CropEnergies, when taking into account that Fruit might be stable.
That would require either, let's say, the specialties to perform above the negative segment guidance for specialties, or it would require Starch results to basically explode in Q4 2021/22. Which after nine months an increase of 4.3% here is probably possible, but I don't think very likely for them to come up with, let's say, a 20-30% increase for the full year, after nine months showing a 4.3% increase here. Can you talk me through how you come up with the high end of your guidance?
Let me say put together.
Yeah.
When we put together, let me say the high end, these are clearly indications of ranges. Taking the Sugar 30, say taking Special Products with EUR 110 million-EUR 115 million. Taking the 15, 50 of Fruit. Taking EUR 140 million of CropEnergies and EUR 130 million Sugar, yeah. Then an increase and a significant increase in Starch to 50-55 in that area, then you are in that range of EUR 380 million.
Yeah. Let me talk you through what I did. Maybe I did a massive mistake here, so I apologize in advance for that. I took the EUR 330 for Sugar. I took the EUR 140 for CropEnergies. I included EUR 53 for Fruit. I basically, on the top of my head, I took EUR 50 for Starch, which would be a good improvement compared to last year. I come up with EUR 223, and that would require for Special Products EUR 157 to go to EUR 380.
Taking 30 of sugar, yeah?
Yeah.
One hundred, one hundred forty-
40 for energy.
Yeah. 50 for Fruit, yeah?
Yeah.
We are at 2:20, right?
Yes.
Taking.
Yeah.
EUR 100 for the Special Products, we are at EUR 330.
The Starch. Mm-hmm.
The Starch, we are at EUR 380.
Okay. Okay, cool. Okay.
Okay. We are now at five.
I just wanted to. Okay. EUR 130 for specialties. That should be the upper end of the guidance range then for specialties. EUR 110.
EUR 110 for specialties. Without Starch, yeah.
Is the upper end of the Specialties guide.
No. If you get to the upper end of the group guidance, you take EUR 1 million-
Mm-hmm. Okay.
You're at the upper-
Okay. Got it.
Yeah.
Okay. Got it. Thank you.
Okay, thank you, Oliver.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press Star followed by one on your telephone. The next question is from the line of Alex Sloane from Barclays. Please go ahead.
Yeah. Hi, good morning, gentlemen. Yeah, a few questions from me. I think if I heard correctly, at the start you said a third of the cost inflation pressure in Sugar is being felt this year and 2/3 impact next year. I wondered if you could kind of quantify that in EUR million terms in terms of the headwind that you're facing for next year on the cost side. I think last time out you said that you were 80% hedged on gas for FY 2023, if I understood that correctly. I'd just be interested in terms of at what point do you need to make the decision to re-hedge, and are you comfortable doing that at the kind of current levels?
Finally, just in terms of the longer term, you know, Strategy 2026, I think back in May, when you presented that strategy, you talked about maybe coming back to the market with some, you know, accompanying sort of financial quantitative targets, over the next 12 months. Just wondering if that's still something that we should be expecting. Thanks.
starting with the last one with financial figures around Strategy 2026 PLUS, you are right. We clearly guided in May in our analyst conference that we will do that in the current fiscal. If I mentioned it, and we are aware that if we are in a really challenging environment with extreme high volatility and so, we decided to do that exercise to share financial figures with the knowledge of today in the next analyst conference in May 2022. To your second question, the hedging of gas needs is right. Also for 2022 campaign as well as for the campaign 2023, we are hedged with more or less 80% of our needs.
This is a very comfortable situation for our Sugar business. To the indication for the cost inflation in absolute terms, it is very difficult to do so, especially with not having the concrete final numbers of the still running campaign, the final booking of cost of inventories, et cetera. Therefore, we don't disclose, let me say, concrete numbers. Taking the, let me say, the figures Michael Schaefer raised, I think it's a good indication for everyone to use that number.
Okay, thank you.
We have a follow-up question from Oliver Schwarz from Warburg Research. Please go ahead.
Thank you for taking my question. CropEnergies seems to model a project, moving up the value chain, converting a part of its bioethanol to, let's say, a starting material for the pharmaceutical and the chemical industry, so basically, starting to diversify its customer groups. Your, or better say Südzucker's, long-term strategy seem to imply also, let's say, a diversification of the product, converting some of the products you currently generate, namely sugar, to products further up the value chain. Basically my question would be, can we expect something from Südzucker as well, similar to what CropEnergies just did in the press release from yesterday?
Are you still in the planning phase and do you think you'll require some additional time before you can come up with, let's say, announcements in regards to which way you wanna go when it comes to the diversification of your product portfolio? Thank you.
No, it is completely in line with the group Strategy 2026 that CropEnergies plan to make this first step in biobased chemicals. Südzucker on sugar side is also evaluating to do further steps in that new business field biobased chemicals. We will give more color also, as said before, in the analyst conference in May 2022. Latest, maybe there are options earlier, we will also disclose to the market.
Thank you very much.
There are no further questions at this time, and I hand back to Mr. Baltruschat for closing comments.
Yeah. Thank you all for your participation today and your interest in Südzucker. In case of further questions, you know you can reach us all the time. Yeah, we wish you all the best again for the current running year. Yeah, please stay well and tuned, and we will see each other very soon, hopefully. Thank you. Goodbye.
Bye-bye.