Good morning, ladies and gentlemen. We welcome all of you to our conference call. The underlying presentation of the call has been published this morning at 7:30 A.M. CT on our homepage. Today, we release the statement for the first three months of financial year 2022/2023. We are going to present the highlights of the period and revisit our full year group guidance for business year 2022/2023 that has been released or raised, better to say, on 15th of June. Following the call, we are going to answer your questions. A recording of the 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 warm welcome from my side. As mentioned, I would like to give you a brief overview about the business performance in the first three months of financial year 2022/2023, and details about the guidance for full financial year 2022/2023. Let me start with the highlights of the first three months results on page four. First of all, let me point out that we are facing additional challenges and uncertainties since the Ukraine war started at the end of February. This situation will certainly impact on the rest of the fiscal year in many ways. Despite these challenges, we have seen a very good quarter one performance for almost all business areas. Group revenues showed an increase of 30%.
Group EBITDA was up by EUR 115 million- EUR 236 million, and group operating result followed that development by an increase of EUR 114 million- EUR 163 million. Cash flow increased by 91% and reached EUR 183 million. Earnings per share after three months came in at EUR 0.43, against EUR 0.07 last year. Net financial debt end of May came in EUR 67 million below prior year's level, and EUR 108 million lower against end of business year 2021/2022. Now, let's have a first look into the segmental performance on page five before we get into more detail segment by segment. Revenues increased significantly by around EUR 500 million. All segments contributed to this increase.
Group operating result increased by more than 100%, while the operating result in the Special Products segment decreased significantly. All other segments contributed to the substantial increase in operating result. Let's continue with segment Sugar on page seven. First of all, let me revisit our view on the global sugar market. This latest update in June 2022, ISO has confirmed its deficit outlook for running sugar marketing year 2021/2022, 1.9 million tons, which confirms another deficit year. Stock-to-use ratio is expected to drop from 39%- 37%. For the next sugar marketing year, 2022/2023, the forecast shows an almost balanced market with a stable stock-to-use ratio at 37%. This confirms a positive fundamental market environment for at least the next 12 months. Let's have a look at the European sugar market environment on page eight.
EU has changed to a net importer since campaign 2018, which has led already to some steps of price increases in the last three sugar marketing years. Looking at the significant further spot price increase in the last six months, we monitor several reasons. First, the world market price as the fundamental pricing starting point has increased. Second, we expect another year of decreasing EU acreage. Third, overall cost inflation leads to higher procurement price for the whole industry. In this environment, close to 100% of our volume of the campaign 2022 is up for negotiation. Now, let's have a look into the complete development in segment Sugar in the first three months on page nine. Revenue increased significantly, mainly due to higher sales volume from sales revenues.
Operating results shows a small positive number, reflecting an improvement by EUR 26 million against last year. It was burdened by a substantial rise in raw material, energy, and packaging costs. Let me continue with segment Special Products on page 10. In the first three months, revenues increased significantly due to an overall increase in sales volumes and sales prices. Operating result, as expected, came in significantly below last year's level. The main drivers were charges for significantly higher raw material, packaging, and energy costs, which so far could only be passed on to customers in part or with time lag. Let me now turn to segment CropEnergies on page 11. Revenues in segment CropEnergies were up sharply. Higher sales volumes and sales revenues contributed to the revenue growth. Operating result developed in line with sales volumes and sales revenues, and increased significantly in quarter one.
The higher sales revenues and sales volumes more than offset the significant rise in raw material and energy costs. The exceptionally good operating result was mainly due to price hedges for raw materials and energies, which were concluded before the start of the Ukraine war and the associated sharp rise in raw material and energy prices. The average ethanol price in the first quarter was at EUR 1,155, against EUR 587 per cubic meter in quarter one, 2021, 2022. The average ethanol price in June was EUR 1,274, against EUR 657 per cubic meter in June 2021. In July, we see so far still a high price level of about EUR 1,250 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 due to significantly higher ethanol pricing. In line with development of revenues, operating result after three months increased significantly too. Also here, substantially higher raw material and energy costs were more than offset by significant sales revenue growth. Price-hedged raw materials had a positive impact in quarter one. Let's move on to segment Fruit on page 13. Revenues in segment Fruit were no exception in the general positive segmental revenues development, showing a significant increase too. This price-related increase was supported by both fruit juice concentrates and food preparations. Operating result came in significantly above last year's level. The profit contribution from food preparations declined as a result of lower volumes and higher costs. By contrast, significantly higher margins for fruit juice concentrates led to a substantial increase in the operating result contribution.
Here, sales volumes were slightly higher and significantly higher prices more than offset the increased costs. Let me now turn to the main points in the P&L on page 15 and page 16, starting with page 15. The at-equity result was mainly driven by segments Sugar and Starch. Since quarter one of fiscal 2022/2023, ED&F Man has been reported as other investments as the criteria for at-equity measurement are no longer met. As a result of this discontinuation of at-equity consolidation, currency gains of around EUR 10 million previously recognized directly in equity were recognized in the P&L. The financial result came in at EUR -12 million. It contains the net interest expense of EUR -8 million and the other financial result of EUR -4 million. Let's continue on page 16.
Taxes on income came in at EUR 38 million, after EUR 9 million in the same period last year. Earnings per share came in at EUR 0.43 against EUR 0.07 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 three months to EUR 183 million. The cash flow against revenues ratio improved in quarter 1%- 8% against 5.5% in quarter one 2021/2022. The cash inflow of EUR 39 million from decline in working capital was mainly due to the sale of sugar inventories. Investments in fixed assets reached EUR 65 million against EUR 55 million in the last year. Investments in financial assets and acquisitions represent mainly the announced acquisition of Meatless in the Netherlands in the amount of EUR 49 million.
Let me now move forward looking at the balance sheet on page 20. Net financial debt end of May was reduced by EUR 67 million against prior year's level and is down EUR 108 million against end of February 2022. Investments in fixed and financial assets and profit distribution were fully financed from cash flow and cash inflow from working capital. Gearing is at 33% against 40% one year ago. Equity ratio is at 48% against 46% in the prior year. Let me now turn to the outlook on pages 22-25. After a successful start in the current fiscal, we have adjusted our initial full year forecast upwards June 15. Ladies and gentlemen, let me put this adjusted forecast in the context of the current environment.
The war in Ukraine, which has continued from the beginning of fiscal 2022/2023 to the present day, has further intensified the already high volatility on the sales market and price increases on the procurement markets. The resulting economic and financial impact and the duration of this temporary exceptional situation remains difficult to assess. In addition, there are still risks in connection with the corona pandemic. Therefore, the forecast continues to be based on the assumptions that the war in Ukraine will remain temporary and regionally limited. That despite the current developments, the physical supply of energy and raw materials is assured, and that the sales and procurement markets will return to normal to some extent in fiscal 2022/2023. We also assume that the declaration of the gas emergency plan alert in Germany will not have any significant negative impact on prices.
We expect the significant price increases, especially in raw material and energy, to be passed on to new customer contracts. Ladies and gentlemen, having said that, now to the concrete numbers. Group revenues should now come in at EUR 8.9 billion-EUR 9.3 billion and operating results now in a range between EUR 400 million and EUR 500 million. Segment Sugar should see a break-even result in H1 and an increasing operating result in H2. On full-year basis, we expect an earnings range between EUR 0 and EUR 100 million. Segment Special Products operating result is now expected to come in slightly above the previous level. Segment CropEnergies' operating result is now expected to range between EUR 165 million and EUR 215 million. Segment Starch we see now a slightly higher operating result.
Segment Fruit should be burdened by the charges from the Ukraine war and therefore continues to expect significantly lower earnings. Let me continue with page 24. Group EBITDA should follow the positive operating result development. CapEx is expected to increase. Net financial debt is expected to be above prior CS level, reflecting substantially higher investments in fixed assets against last year. Some investments in financial assets and higher working capital needs in light of the inflationary environment and disruptions in the supply chain. I would like to summarize our presentation with three statements on page 26. First, the sugar turnaround continues to drive group earnings improvement. Second, our diversified portfolio will be able to help managing the additional challenges caused by the Ukraine war. Third, structural cash flow opens up new opportunities to shape Südzucker's future. Thank you all for your attention.
Ladies and gentlemen, thank you for your patience. I would like to hand over to the operator to open up for questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone 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 Oliver Schwarz from Warburg Research. Please go ahead. Please go ahead, sir.
Sorry, I was muted.
Unmute yourself, I would have said.
Yeah. You were perfectly right. I was perfectly stupid. Good morning, gentlemen. Congratulations on your Q1 results. A couple of questions from my side. I like to take them one by one so that we don't run into any confusion. It seems like the CapEx level for the full year has increased by EUR 50 million, from EUR 400 million- EUR 450 million without the impact of M&A transactions. Is that due to your expectations regarding inflation and hence also higher prices for given projects? Or have you added CapEx projects to drive the number up to EUR 450 million?
Oliver, I think both parts are right. We have inflationary effects as well as new CapEx program to increase capacities.
Okay. Very well. In Starch, it seems like the, let's say, the guidance of the company AGRANA, as well as the guidance of Südzucker, seem to be a bit out of tune. While you are expecting a result that is slightly ahead of last year's level, AGRANA expects its result in the Starch segment to decline slightly. Basically that should be the impact of the German operations, which is not part of AGRANA Group. Can you talk me through the different mechanics that affect those two businesses to understand why AGRANA is more negative than you are?
You can't directly compare, let me say, these metrics. First, Südzucker is guiding operating profit. AGRANA is guiding EBIT, and so there is the consolidation of the Hungrana activities with starch and isoglucose and ethanol produced in Hungary. You can't directly compare the numbers.
From what I'm seeing in regard to ethanol prices and profitability of the ethanol business, that business should and obviously has impacted AGRANA results positively in Q1. Obviously, I'm not quite sure what they are expecting for the remainder of the year. So far, that would, let's say, make the discrepancy between your guidance and AGRANA's guidance, even, let's say, larger rather than smaller.
Let us double-check that.
Okay.
We will come back.
Cool.
on that in the individual call. It's to compare-
Yeah. I appreciate it. No problem.
Yeah.
Again, talking about prices and this time, obviously, sugar is very high on the agenda. It seems like the spot prices in Europe have somewhat completely decoupled from firstly, contract prices, which is understandable, obviously, as they are fixed, but also from world market prices. It seems at the current spreads, even imports, let's say, that are highly adversely punished by additional charges, even, let's say, deliveries from Brazil should start to make sense at the current level. Obviously, there is logistics restraints. Obviously, there is a shortage on transportation vessels and so on and so forth.
How sustainable do you think is that discrepancy between the world market price and the EU stock price, which seems to, let's say, nearly almost double the level of the international market price for sugar?
Oliver, how sustainable that spread is hard to predict. It depends on, let me say, the further volume development, the volume balance on a global scale, as well as the volume balance in the EU. We are facing, let me say, the fourth year in a row that the market is import-dependent on imports, then it is supported by these high prices. In addition, we see this cost inflation. That is currently in the mix, which strongly supports spot prices in the EU. It's hard to predict how long that situation will stay, clearly.
Let's just put your assumption that you presented for the global markets into perspective as you are expecting, let's say, sugar balance on a worldwide basis of just, let's say, having just a slight surplus of plus 9 million tons. That should work rather, let's say, in favor of slightly declining global prices. What we see in the EU after this steep ramp up to more than EUR 900 per ton, we are now sitting at an incredible high discrepancy. I don't think we've seen that before in any of the given years that I've plotted that out.
Yeah. Yeah, Oliver.
Mm-hmm.
You're fully right. As said, this is a good framework, globally. Yeah.
Mm-hmm.
The balance we have today with this extremely low stock-to-use ratio, we have in that current situation. Clearly, there's war in Ukraine. There is disruptions in the supply chains. Customers are afraid to get enough volumes. This is a very cloudy situation for the producers, yeah, when we are looking on the other things we later discuss on that. Yeah. The needs of the customers, yeah, to have safety in their supply chain, to deliver those products. That is, let me say, I think a combination of all these factors. Yeah.
Okay. Understood. Thank you.
We are looking on the volume side, balance side, as I said before, we have no signs that could change over the next 12- 18 months. Yeah. Clearly the EU will be a deficit market also in the next sugar market, yeah, 2022, 2023. We know everybody knows the acreage decrease on EU level, etc. There are a lot of points which influence that, you know, discussed about.
Okay. Understood. Lastly, in regard to your income on financial participations, if I understand you correctly, you've referred to currency gains driving that result up to the level you report. How sustainable is that? Is that, let's say, currency gains from hedges that reflect, let's say, the movements of the euro versus U.S. dollar? Given the current exchange rate, are we likely to see that trend to, let's say, continue into Q2? Or is it more likely that these numbers will get, let's say, lower while we go into the additional quarters of this year?
Oliver, it's a classical one-off, yeah. It's linked to our participation.
Okay.
in ED&F Man. So far we accounted it as at-equity. Now we account it as other investments. That brings a recycling of the FX result, the currency gains of roughly EUR 10 million, which previously was recognized directly in equity, and in quarter one was then booked in the P&L. This is a one-off final profit.
Okay. Understood. Thank you for that. I go back into the queue.
Unmute yourself.
The next question is from the line of Jon Ennis from Goldman. Please go ahead.
Hello. Good morning, everyone. I've got a couple of questions as well, and I'll stick with the format of taking them one by one. My first is on CropEnergies. You mentioned that your hedges are of course going to fade as the year progresses. Can you maybe provide a bit more detail on the cost shape throughout the year? And on the sales price, what have you actually assumed as the ethanol price for this division on average to get to your guidance range? That's the first question.
Really, as said in the first quarter, we profit from the hedges we did before the Ukraine war started and we will also profit over the next quarter from that hedging, but not to that extent as we saw it in quarter one. Clearly the effect will slow down. From the ethanol side, we hedge to some extent prices and we have a quotation curve in the market. In the guidance, clearly, the assumption is the price assumption is lower than the current market price.
Okay, that's great. My second question was on the sort of beet cost for the farmers within the sugar division. Can you maybe give us a little bit of a view on how you see the beet cost developing for the next marketing year, given the other agricultural commodity prices have of course risen? Are there any additional premiums in excess of the usual profit-sharing framework that you use that we should be aware of? That's the second one.
First of all, clearly there's an extreme pressure on the whole value chain also for the farmers. Their costs are increasing, fertilizer, et cetera, and energy also. On farmer side, there's the same pressure like on the industry factory side. Clearly, with our assumption of a strong increase in sugar prices, farmers will profit from the formula price that will bring beet prices along the formula up. With the current view, I would say that potential for additional premiums with the current framework we have is limited.
Perfect. Just the usual beet formula. A follow-up question on, I suppose, the EU spot prices really. I guess when you're running into renegotiating prices, the chart on slide eight that you helpfully showed really identifies that the EU reporting price, I suppose better matches the world price rather than the EU spot prices over a longer duration, which tend to be a bit more volatile. Is that a fair assumption to think of the world price as being a better proxy for your upcoming negotiations? Or do you think there's something different this time around where the EU spot price might be a bit more relevant? Thanks.
As said, there are a lot of points which drive EU spot prices as well as contract prices. World market price is let me say the starting point. Then let me say on that is coming the import premium, and this is depending also on the situation then in the EU foreign exchange rate, etc., logistic cost. So this, there are a lot of points which come into play. But the starting point is let me say the world market price. But in the current framework, with the shortage in the European market, there is clearly room for an import premium.
Okay, that's helpful. I mean, if you look at that chart since 2018, I suppose the EU reporting price has been much closer to the world price, but you're saying there's a chance here that it could be-
When you are looking back to 2018, 2019, that time the European market was a surplus market, a heavy
Yeah.
surplus market. The industry had, at that time, weak support on the markets, and therefore there was no room for premium in the European market. Over the last years, yeah, the setup has completely changed, yeah, on the world market as well as on the European market. Yeah.
Understood. Thank you. That's all from me, so I'll let somebody else jump on the line. Thank you.
Okay, thanks.
The next question is from the line of Alex Sloane from Barclays. Please go ahead.
Yeah. Hi, gentlemen. Thanks for taking the questions, and sorry I was a little late to the call, so apologies if you covered some of these already, but maybe just to pick up on a couple of those questions from Jon. The CropEnergies, I think you said that your guidance is assuming a price that is lower than the current market price. Maybe could you sort of quantify that as to what price levels the guidance range does imply? Then the second one, just trying to go a bit further again on the Slide eight. I mean, I think previously you talked about 200 EUR per ton uplift is what you were aiming for in you know, the upcoming contracting round.
You know, as I understand it, the sort of the last contracting round, you sort of achieved the mid 400s level and obviously the spot price that you show is a lot more than 200 EUR per ton higher than that. What is the reason that I guess you can't go for more? Is the 200 EUR per ton target still what we should be thinking about? Thanks.
The second question, the target is at least EUR 200 a ton.
Sure.
Yeah. To your kind of balance this question with the ethanol price in the guidance, no further disclosure than that, what I said, that the assumed price is below the current market price.
Okay, thanks. Just on the EUR 900 per ton, are you able to? I know that's not necessarily quite like for like because it includes the transport cost. Can you actually break out what those transport costs would be roughly so we sort of know what it is on a like-for-like basis at this point?
Yeah. It's hard to predict, but the transport costs in this spot price with the higher costs we have today is surely close to EUR 80-EUR 100.
Okay. Very helpful. Thank you.
The next question is from the line of Michael Schäfer from Oddo BHF. Please go ahead.
Yeah. Good morning, gentlemen. Thanks for taking my question. I'll also raise them one by one, if you don't mind. On your outlook statement, well, there's one condition you're setting, basically that the whole gas situation in Germany, and I mean, we have seen the second level of emergency plan now raised a couple of weeks ago, and you're assuming that this should not have any significant impact on prices. Well, the reality is that it's rather different. We have seen the opposite, since basically the Russians stopped delivering 100% via Nord Stream. We have seen gas spot prices skyrocketing by 70% or something. The question is, first of all, what makes you so confident, and is this linked to your hedging situation?
If you can just remind us. I mean, I recall basically back at the Q4 call that you're hedging for 2022, 2023 was around 70%, which leaves an open position, obviously. Do you see this as a threat to your outlook statement? This would be my first question.
Okay. Michael, thanks for your question. This is an important one, clearly. First of all, I would confirm the hedging rates we have for the group wide 70%. Yeah. In the sugar core sugar region, slightly higher. Those are the hedging rates, and they are clearly above current market prices. Now also for those who follow Südzucker, not so in that detail, let me say in a broader context, yeah. Südzucker is present in many European countries, yeah. We face, for example, rather low risks in Belgium, France or also in the U.K., where we have access to LNG gas as a really good alternative.
In other countries like Poland, we have also alternatives, which are available, for example, for coal. Now let's have a closer look at the German situation, because it's a pure legislative German issue you raised, yeah. As you know, Michael, this is a dynamic process which has also changed several times in the past days, yeah. This is a new topic, the discussion started for two weeks. I think we will also see certainly changes in the next two, three days. We are watching the development closely and prioritize possibly to prepare for the different scenarios. So far, different mechanisms have been discussed, yeah, in Germany.
One is a price mechanism which has potential impact also in parts of our hedging positions, yeah. On the other hand, a pay-as-you-go mechanism is discussed that would affect all players equally. Overall, it is important to understand that there are both price and volume risks for us, which are difficult to assess, to quantify from today's perspective. You will have also gathered from our disclaimer that we have not yet taken these effects into account in the forecast. We cannot rule out that those could be material, but clearly it is a German issue.
If we look into just sort of a follow-up on this one, looking at your German hedging, should we assume this above what you reflect as a basically group-wide hedging rate? Is this a fair assumption?
Sorry, could you repeat?
The German hedge ratio is
Yeah.
Should we assume this, since this is very sugar-centric, is this?
Yeah.
Should we assume this being above the 70% group-wide hedging rate? Is this a fair assumption?
No, it's also at the, maybe it's up to 80% hedged.
Mm-hmm. Okay, thanks for that.
Yeah. Clearly also, from the volume side, et cetera, pricing side, you would have to do also an individual factory by factory approach, yeah?
Mm-hmm. Understood.
It has to also be clear. This is very difficult to make your assessments. We have to wait and see what will be the outcome.
Mm-hmm.
For the distribution.
Understood. The second question is on your special product segment outlook. I mean, you have raised the earnings outlook for this segment. I wonder whether you can shed some more light on what has essentially changed since you presented the full year outlook back a couple of months ago. Is there any kind of better visibility on cost pass-through or anything? What are and if you could basically split this into the various bits and pieces and special products would be helpful. Where's the major change compared to your previous assumption?
The major change in our assumption is that we have seen in some areas a better than expected production and sales volume development. That we are also confident now that the price increases, which will be to the main part effective from the beginning of H2, will bring, let me say, margins in that special products segment up, that are the main drivers. Strong also we have seen in some areas which were burdened from the Corona pandemic in last year, especially also in our functional food areas, that we have seen then a strong base effect. Sales volumes were up in the first quarter.
That will phase out because there are stocking effects also on customer base, but it helped also in quarter one and helped therefore also for the full year guidance.
Mm-hmm. This improvement is true for all the three subsegments you have there in special products. Freiberger, vinegar, BENEO, PortionPack.
The main effect we have, we assume in the functional food ingredients area.
Okay, understood. My last question is coming back to sugar, to let's say, current growing condition, let's put it that way. I mean, we have seen rather dry weather over the past couple of weeks and months, so in reports in southern Europe of severe dryness. I wonder whether you can shed some more light on how you assess basically beet quality right now, whether you see this as a threat already to the beet yield, which we should be aware of. Any color would be helpful. Thanks.
So far when we put all knowledge from all the regions together, there is still the assumption valid that we will see an average yield in 2022.
Okay. Thank you very much.
Clearly, Michael, the variance is big between the different regions. On average, we still stick to the average yield of the last five years, yeah.
Okay. Thank you.
As a reminder, if you would like to ask a question, please press star followed by one. We have a follow-up question from the line of Oliver Schwarz. Please go ahead.
Look, I unmuted myself. Thank you for taking my two additional questions. In relation to what Michael just asked, could you perhaps flesh out the volume of gas you are using in your German facilities or have used, let's say, in past financial years, so that we might be able to do some back-of-the-envelope calculations in regards to what the likely impact, especially regarding prices, might be? That would be helpful. That would be my first question.
Oliver, this is really not possible.
Okay.
We have really a different mix of energy sources in the different factories. We are working really hard to bring alternatives to those factories which would normally use gas, to use heavy fuel or light fuel. We would have to do that exercise case by case, not only for the sugar factories, also for the other factories we have. We don't disclose these numbers.
Understood. Lastly from my side, I think that was the first time I haven't seen any, let's say, any part of your guidance alluding to possible Corona effects. Obviously the shutdowns, the lockdowns in China have become less. What I heard currently, they are on the rise again and at least the German minister for health is painting a rather bleak picture for winter 2022-2023. What makes you more positive today than, let's say, in May or in the periods before?
We have a disclaimer to Corona.
Mm-hmm.
In our outlook. Yeah. There is still some uncertainty, and you're fully right when you are looking at the latest developments. We are in the middle of the summer and therefore we still lack that Corona is an issue, especially in our business.
Okay. Thank you very much.
There are no more questions at this time. I hand back to Nikolai for closing comments.
Yeah. Thank you to all of you for all the questions, muted and unmuted. The muted questions were the best, actually. Thank you. If you have additional questions, you know that you can call us anytime. Thank you. Bye-bye.
Thank you. Bye-bye.