Welcome to the AGRANA results for the first quarter of 2023/24 conference call. I am Ali, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Hannes Haider, responsible for Investor Relations. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our AGRANA's conference call, presenting our results for the first three quarters, 2023-24, financial year. First of all, a Happy New Year and all the best and good health for 2024. With us today are two out of three members of our management board. Stephan Büttner, our new CEO, will start the presentation with an overview on the highlights of the last nine months, and he will also comment on the market environment in our three segments. CTO, Norbert Harringer, will tell you what is going on in the group regarding raw materials, production, and investment, and he will report also on the group's ESG news.
And in the last part of the call, our CEO will present selected financial tables of the interim statement, and he will conclude with an outlook for the remaining business year. As announced in our conference call invitation, a presentation is available in reference to our call. You can find this presentation in the IR section of our website. The presentation will take about 30 minutes, and afterwards, the CEO and CTO will be glad to answer your questions. And now I may pass over to our CEO, Stephan.
Thank you. Good morning, ladies and gentlemen. Welcome to our conference call covering the first 3 quarters of our actual business year 2023-2024. Our main messages here, business is still very volatile, as you can see, in raw material prices, also in energy prices and overall market conditions. Our operating performance improved or was improved in almost all our businesses. What we already published, we had a write-off or an asset impairment in Asia in the fruit segment. This is mainly due to the challenging market environment, especially in China, but also in Korea after the COVID pandemic. Markets are recovering very slowly. We have stronger competition there.
The markets are down, there is a lot of cost pressure and the outlook, the midterm outlook is not so good as we expected. Therefore, we had to write down assets with an amount of around EUR 60 million. Also, we had changes on the management board. I will come to this a little bit later. And our outlook for the full year 2023-2024 is that we still expect a very significant increase in our EBIT, which is logical because of the write-down of nearly EUR 90 million in goodwill and partly assets in the food segment last year.
What we also want to state here is that, of course, in the coming months, we see an increasingly challenging business environment due to lower demand and price pressure, especially coming in starch and also expected in the sugar business. The key figures, revenue nearly EUR 3 billion in the first three quarters. This is an increase of 7.5% versus prior year. The EBITDA amounted to EUR 260 million, an increase of 18.5%. Also, the operating profit significantly up by 35.5%, up to EUR 165 million. The EBIT with EUR 150 million, also significantly up. Earnings per share amounted to EUR 1.16. Quickly, as already mentioned, changes on the management board, so Mr. Mühleisen and Mrs.
Arnold left the AGRANA board in the last weeks. So therefore, we have a new board structure here with my colleagues Mr. Harringer and Mr. Kölbl. So Kölbl was already a board member for many years before Helmut Arnold replaced him. Now he is back, Norbert Harringer, the CTO, and then I have now taken over the CEO position. You can see the resources and responsibilities and also can look at this on our website. So now let me hand over to Norbert. I'm sorry, market environment, yeah. So quickly, market environment of the fruit segment. We have the fruit preparations business with the fruit juice concentrate business. The fruit preparations business overall, globally is very stable. We have stable volumes. The only problem that we see right now is in Asia.
I already mentioned that, so this also led to this write-down or this asset impairment. So again, volumes are under pressure there. We have a positive trend in Europe. We have a positive trend in North America. Mexico is doing very well, also Australia is doing very well, and North Africa is also performing very well. Still also some challenges we are facing in South America, especially in Argentina and Brazil. The fruit juice concentrate business, we have good volumes, good margins in the commodities, in the apple juice concentrate business. Berry juices performed a little bit weaker than prior year, but still okay. So overall, the market environment is very stable in the fruit business, I would say. In starch, we already reported in the last month that we see a volume pressure here.
This is mainly, I would say, also due to the lower demand from the paper industry. Also, we see, and how shall I say this? Prices are coming back to normal in certain areas, especially in the proteins. So the protein, we had a significant increase in prices last year, and prices nearly doubled up to EUR 2,500 per ton of wheat gluten. Now, it's coming back in the direction of EUR 1,300-1,400 per ton, which is, I would say, more or less, a normal price level. Of course, also, due to the lower energy and raw material prices, overall prices are coming down in the starch segment, and where we really have a big challenge is the ethanol business.
So the quotations there are very much under pressure, are in an area of EUR 600 per cubic meter. So this was a dramatic downturn in the last weeks, and this really puts our margins in the ethanol business even more under pressure. In sugar, I already also mentioned still, we see high sales prices. Also, we contracted already significant volumes from our sugar marketing campaign 2023, which will give us stable revenues in the coming months. But and this also due to imports from Ukraine, but also driven, let's say, by lower world market prices, as we saw, the expectations for the harvest in ordinary sugar production in Brazil and partly also India are better now.
We expect a higher surplus in the world markets of around 4 million tons overall. So this led to a significant price reduction in the world market quotations. Also, we see somehow the prices are a little bit under pressure now in Europe. So we will see how this further develops, but we expect that the prices will somehow come down in sugar in the coming months. So now, your turn.
Thank you, Stephan. Ladies and gentlemen, also from my side, a very warm welcome to our today's conference call. After looking at the sales and market environment, let's now turn to the front stage in the supply chain, in the value chain to raw materials and production. Referring to our three segments, I would like to start with the fruit segment. As you already know, strawberries are a cornerstone of our fruit preparations business. In the current season, the global demand volume was fully contracted in the Mediterranean growing regions. The average purchase prices were moderately below the previous year's level because there has been sufficient availability of raw materials. Moving on to fruit juice concentrate, as you know, the most relevant raw material here is apple.
For the 2023 campaign, we noticed that the availability of raw materials was above last year's level, so slightly below an average campaign. This fluctuation is a reminder of the dynamic nature of agricultural production and the importance of adaptive strategies in our operations. In our starch segment, we observed a decreasing trend in raw material prices on the spot market. I will elaborate on this shortly at the next slide. However, it's important to note that the Hungrana group had a significantly poorer performance, mainly due to utilization issues. This has led to an overall decline in our starch segment EBIT for the first three quarters of this fiscal year. Regarding the sugar segment, I'm pleased to report that beet processing in the running campaign has been quite successful so far. We've seen significantly better capacity utilization and higher sugar production volumes.
By the way, negotiations for beet production acreage in the next year are still in progress. We are confident that we can achieve a further increase in the planting area. This will enable us to utilize our capacity even better in the future. As mentioned, in the ongoing business year, we are seeing a decreasing trend on the spot market for our starch segment. Prices on the Euronext Paris have continued to fall in recent months and have shown a slightly volatile sideways movement since the harvest 2023. The quotations in Paris were EUR 199.3 per ton for corn, and EUR 221 per ton of wheat on the 30 November 2023.
These are significantly lower prices than the comparable figures from the previous year, 300.1 EUR per ton for corn and 326.5 EUR per ton for wheat. Although this development helped us with production costs, it also means that sales prices have to be adjusted as well.
... Okay, so then I take over again and let me report about first of all, the revenue by segment. So as already mentioned, around EUR 3 billion revenue on group level. So in the fruit segment, we see an increase of 7.7% up to EUR 1.178 billion revenue in the first three quarters of the business year. This is, of course, mainly due to price increases. We had stable sales volumes, especially in the food preparations business and also in the fructose concentrate, we saw price increases with more or less stable sales volumes. In starch, the sales were moderately lower than in the same period of the previous year.
Selling prices for ethanol, as I also already mentioned, fell significantly, and so on a year-on-year comparison, the prices decreased by 27% in average. So overall, a -8.1% decrease in revenue, down to EUR 907.4 million. In sugar, despite lower sales volumes, so here we really have a decrease of sales volumes by nearly 15%, due to the significantly higher sales prices, revenue went up by 13.6%, up to EUR 861.5 million. The EBIT by segment, so you see that the fruit segment, we had a negative result last year. This was due to the write-down in goodwill and assets of about EUR 90 million.
This year we have EUR 50.1 million positive EBIT, despite the write-down of the EUR 16 million. Also, if we would not consider the write-down last year and this year, we have a significantly better performance in the food segment on an operating basis. Here, especially Europe and North America performed very well. Russia, still strong, Ukraine, stable, Australia, very well-performing, and as already mentioned, the biggest challenge we face in Asia, especially in China. In starch, we see that we went down from EUR 67.1 million EBIT to EUR 58 million EBIT. This mainly really comes from the ethanol business.
So we had a significant positive contribution here on EBIT level, last year, whereas this year, in the first three quarters, we had from ethanol, a negative EBIT of -EUR 4 million. In comparison to that, last year, we had a positive contribution of EUR 29 million. Of course, the much lower performance in ethanol was not fully, but to a big, big extent, let's say, compensated by the starch business, but overall, unfortunately, a decrease down to EUR 58 million. And in sugar, we saw an improvement up to EUR 41.3 million. This is an increase of 19%, and mainly due to the higher sugar sales prices.
So ladies and gentlemen, I will provide you now with a short ESG update, and will afterwards also comment on our current investments.
Independently of the recent board changes, our commitment to sustainability and environmental responsibility remains one of our guiding principles. We continue to invest in initiatives aimed at reducing our environmental impact, improving resource efficiency, and promoting sustainable agricultural practices. Thus, in the third quarter of the current business year, another regular round of verification of the Farm Sustainability Assessments, in short, FSA, was successfully completed at AGRANA's contract growers of beet, of potatoes, and of corn in Austria, and others in Hungary. The ISO 50001, our energy efficiency certifications of our sugar and starch factories were renewed. On slide 14, you can find a complex summary of our FSA results, split by the segments. Starting with the sugar beet in Austria, the Czech Republic, Romania, Slovakia, and Hungary, we have organized our contract beet suppliers into Farm Management Groups, in short, FMGs.
I'm proud to report that in 2023, all farms in Austria, the Czech Republic, and Hungary achieved at least FSA silver status. In Romania, this was also the case for 100% of FMG members, and in Slovakia, 97% achieved at least the silver rating. Looking to our starch segment, and potatoes, and special- and specialty corn now. In Austria, our contract growers of potatoes and specialty corn are all grouped into two farm management groups. Similar to our beet segment, these groups have undergone audits and re-verifications in line with the FSA requirements. The results for 2023 are outstanding, with 100% of our potato growers achieving at least FSA silver status. So our corn group, the EZG Donautal, 98% has achieved at least silver rating. Finally, in our fruit segment-
... assessments were completed for apples, for berries, and for carrots. Moving to our operation, moving to our operations in Hungary and Poland, our contract growers of apples, sour cherries, elderberries, and carrots participated in mandatory FSA self-assessments and external audits. Since our initial audit in 2017 and subsequent re-verifications, we've seen remarkable progress. In 2023, 100% of our Hungarian FMG members for apples, sour cherries, and elderberries achieved at least silver status. Even more impressively, our carrot growers achieved a 100% gold status. Ladies and gentlemen, let's continue now with our investment activities in the current business year. In the first three quarters of 2023-2024, AGRANA invested a total of EUR 70.5 million, or EUR 11.3 million more than in the year-earlier comparative period.
In addition to our regular projects for product quality and energy efficiency improvement and for asset replacement and maintenance across all production sites, the following individual investments are worthy of note. In the fruit segment, the expansion of the raw material storage in Mexico, the expansion of the food service area in Centerville, in Tennessee, in the USA, and the new wastewater treatment plant in Ostrołęka in Poland. In the starch segment, measures to increase specialty corn processing in Aschach, in Austria, the expansion of the company wastewater treatment plant in Aschach and in Gmünd, here in Austria, and the upgrading of the cooling performance in Fischamend, here in Austria.
Finally, the sugar segment, the modernization of the control systems in Leopoldsdorf, in Austria, the production process optimization through the replacement of the filter presses in Ziere, in Slovakia, and the optimization of the evaporator station in Kaposvár, in our sugar factory in Hungary. Total investment across the three business segments in the current financial year at approximately EUR 140 million is to significantly exceed all the amounts invested in the last business year, and this year's budgeted depreciation of about EUR 120 million. Around 14% of this capital expenditure will be for emission reduction measures in the group's own production operations as part of the AGRANA Climate Strategy.
Yeah, thank you, Norbert. So finally, we will give you a quick overview of the financials. Consolidated income statement, we already mentioned or reported on the KPIs. So revenue, nearly EUR 3 billion, EBIT, EUR 150 million, and profit for the period, EUR 78 million. Energy costs went down from EUR 264.6 million to EUR 216.6 million. So we see a significant decrease in starch and in sugar, whereas in fruit, we have an increase of 50%. This is mainly due to the very good hedges that we had in the juice concentrate business last year.
Now we are more to market price levels here, whereas in sugar and in starch, as I already mentioned, we see we have better prices. The net financial items, so this is not a very good development, I must say. So we have a total of -EUR 37.7 million. Of course, interest rates have increased significantly, in average versus prior year, but also on a financial debts are quite high. So when you look at the KPIs, on the same page, the income tax expense, EUR 33.6 million, and the tax rate then with the 30.1%, quite high. I think this is mainly due to the write down of the asset impairment in Asia.
Otherwise, we would have more a normal tax rate. The consolidated balance sheet with the EUR 3 billion total assets. So here we have no significant changes. Of course, non-current assets down by 2.5%, mainly the difference between investments and depreciation. The current assets have increased again. This is of course due to the quite higher stocks, mainly still here in sugar, due to the high sales prices. Equity with EUR 1.273 billion, an increase of 1.3%. Equity ratio, 41.9%, quite stable, also in comparison with the end of the last business year. Net debt, EUR 717.8 million, still very high due to the high raw material and energy prices, so this is mainly reflected in our inventories.
The gearing is at 56.4%, not critical, but also not very good. Outlook for 2023-2024, as already mentioned, EBIT, we here still expect a very significant increase. Of course, also this is logical on this level because we had this write down of EUR 90 million in the previous year. Revenue, so we expect a moderate increase. And the outlook per segment here in fruit, revenue will slightly increase, EBIT, a very significant improvement. Starch, we expect the revenue to go down moderately and the EBIT significantly down, which means more than 10%. And in sugar, we expect a significant increase in revenue and a stable EBIT. So Hannes, financial planning.
Thanks. Before we go on with the Q&A session, I just wanted to remind you that our annual results for the full business year will be published on the fourteenth of May, and the annual general meeting will be held on the fifth of July. We will now go on with the Q&A session.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. I just request you to use only answers when asking a question. Anyone who has a question, may press star and one at this time. Our first question comes from the line of Vladimira Urbankova, Erste Group Bank. Please go ahead.
Yes, hello, good morning. I would have some questions forward-looking, some backward-looking. So let's start with the backward-looking question, and this would be related to the 3Q performance, where we have seen some development in the starch segment and sugar segment, which go against the nine-month figures. I mean, operating results in the starch segment improved in 3Q, and while in the sugar segment it deteriorated, and both quite sizably. Could you maybe comment what was the reason behind this? And next, backward-looking question would be the tax rate in the 3Q, which was effective tax rate of some 45%. I assume it was because of this impairment was not tax effective. That's my assumption.
But at the same time, I noticed that your receivables increased quite considerably. Is it something temporary or something where the source is for it? Then the forward-looking question: in your outlook, you say that from the fourth quarter, 2023, 2024, and subsequent months, you see increasingly challenging business environment. Could you be more specific, which segments are seeing the most of the challenges? And could you maybe fine-tune the outlook for the fourth quarter in terms of what to expect for the EBIT, for example, in fourth Q, 2023, 2024, in a year-on-year comparison, let's say. Thank you.
So thank you for the questions, and let me start with the backward-looking question. So performance, third quarter, starch, and sugar. So in starch, we have different factors. One, yeah, important factor, of course, is the performance of Hungrana. So we had a very weak performance in the last month in Q1 and Q2, due to the very low utilization rate in the factory. This is now recovering, and Hungrana is slowly coming back on track, and therefore, we saw a better performance in Q3, especially Hungrana. This is one of the major impacts why on EBIT level, starch performed better.
Of course, we see a downwards trend in energy, especially electricity and raw material prices, still having in place some good contracts on the sales side, and I think this then, in combination, lead to the better performance in Q3 in starch. In sugar, let me tell you that we already, let's say, made some corrections, let's say, or booked some corrections on our inventories, in expectation of the price pressure looking forward. This mainly led to this lower result in sugar. This is really mainly due to the fact that we made some, let's say, provisions for the expected price pressure on not sold quantities that we had on stock at that time.
The tax rate, as you already gave yourself the right answer, so this is due to the write-down of our assets in Asia, which are not tax effective. Receivables, yeah, this is always in combination with our sales. Sales are still up and on a quite high level, therefore, also receivables are higher, but I would not see there any extraordinary development. So this is then for a temporary effect, more or less. But of course, as long as our revenues are on that level, I would expect a stable development also on the receivable side. But let me also tell you that we are constantly working on an improvement program for our working capital, which is very important for our future performance and also our ability to invest in additional businesses.
Forward-looking, challenging, yes, of course, and I think I already mentioned it today that we expect challenges, especially in starch. Here, ethanol is very much under price pressure, so we cannot tell you when prices might recover. The quotation with 620 EUR per cubic meter is a big challenge in combination with the actual raw material and energy prices, so there we hardly make any profit. Therefore, this is a challenge. On the other hand, still, paper industry and other industry are not on, at, at the level that we had, let's say, in previous years. So therefore, we expect also here some price pressure due to lower demand. Yeah, so overall, this is due to the macroeconomics in starch and in sugar, also already mentioned.
Yeah, I mean, we expect a different situation in the world market. Here, surplus, I mean, stock use ratio should go up somewhere to 38%. It is still a low number, but, you know, there are dynamics. It's a lot of speculation and expectation here, and we see already a downward trend in the sugar prices, so we don't know what will be the price level of the next sugar marketing campaign. But, yeah, I think it will be more difficult than the situation we had in the last month. This is open call. Is this okay for you or-
Yes, as I said, if you could be a little bit more detailed regarding your EBIT outlook for the fourth quarter, as you usually give us, some kind of guidance?
Yeah. So this also all refers to the different segments what I already mentioned. Let's say, in the group segment, we still see a stable situation. We expect stable results also in the coming months, also in the Q4. In starch, as already mentioned, prices are significantly down, so I think that especially December, January and February will be challenging months in starch. Here, we'll see a downward trend. And in sugar, yeah, I mean, it really also depends on the development of the imports from Ukraine. On one hand, it depends on the final evaluation of the stocks unsold that we will have in our inventories at the end of the business year.
So, you know, these are the things which are, let's say, difficult right now to evaluate. So therefore, again, starch and sugar are... So sugar will still be stable from the sales side, I think, more or less, and the prices, because the contracts we have in place, but we do not know what will be the development of the market prices, and this in combination with our stocks at the end of the business year, which are unsold. And in starch, overall, a challenge, price pressure, volumes down, ethanol.
Thank you. I was just thinking of an overall EBIT guidance rather than the description of the situation in segments, but okay. Nevertheless, thanks for the answer.
Thank you.
Our next question comes from the line of Baptiste de Leudevill e, Credit Suisse. Please go ahead.
Hello, thank you for presentation. Most of the questions I had has been answered, but I have some left. On the debt and the cost of debt, net interest expenses are up. Can you tell us what is the proportion of debt that is at fixed rate and the proportion at variable rate, please? And what is the average cost of debt, basically, at the group level? And I had a second question. So on the working capital, you said that it's an important focus for you. Maybe you could share some kind of quantitative targets you could have in terms of working capital, in terms of sales or things like that. Thank you.
Yeah, thank you for the question. So yeah, cost of debt, in average, around 3%, and the ratio fixed and variable, is, it always depends, you know, on the total level of debt. But actually, I would say it's around, 60% fixed, and the rest is variable. And your second question, sorry.
Working capital. Working capital.
Ah, yeah, working capital. I mean, our target is around, I would say, 25%-26% of revenue, yeah, round about, but it's mainly driven by our raw material prices. So but again, we must come down here, and of course, midterm target must even be lower, let's say, than the 25%-26%. Currently, we are higher, I think. We are 28%-29%.
Thank you. Thank you. Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Star followed by one. We have a follow-up question from Mr. de Le Vigne, Credit Suisse. Please go ahead.
... Yes, me again. Can you elaborate on the difficulties in Asia for the preparation business? Because overall in Europe, it is quite strong, also in Australia, North America. So I understand that China is a problem, also Korea and Brazil. So how, actually, can you explain those differences depending on regions? Thank you.
Of course. So China is very special. Yeah, so it's a very dynamic market. We are heavily depending on two or three big customers there. As you might have heard, the business environment is very challenging there due to the, let's say, the COVID pandemic, so there we had a dramatic downturn in consumption, especially also for fruit yogurt, yeah. This is somehow comparable with the food service, with the decline of the food service business in Europe. You know, the consumption habits in Asia are totally different than in Europe, yeah. So many products are consumed on the way to the office or somewhere else, so on this, these overall lockdowns really led to a dramatic downturn in consumption.
The recovery comes very slowly, not as fast as we hoped and expected, and also somehow we see a certain shift in consumption, more to fresh milk from yogurt. So this is also something which puts our sales volumes under pressure. Also, we see a rise of competition there. There are more players in the market now, and therefore, overall, due to our very enlarged capacity, let's say, when we opened our second factory in 2019, we have a very low utilization rate of our factories. It's around 50%-60% only, and this of course is also very much price pressure on our side. So we had to fight for volumes. The markets were declining, so recovery comes slowly, more competition. Overall, the situation is not very positive there.
So in Brazil, yeah, I mean, this is not so important. It's not so relevant to our whole group. I mean, we have revenue sales around EUR 15 million, so it's slightly positive. Overall, I just wanted to mention that the macroeconomics, you know, that the market developments in Argentina, you know, this hyperinflation is still ongoing there. Brazil also is quite a difficult market in terms of macroeconomics, so there we see slow growth. This also will be the challenge, but it doesn't have this huge impact on our overall profitability, also compared to the past. It. There, China plays a much more important role.
Thank you. Can you still hear me?
Yes.
Okay, yeah, last question. Sorry, on the, on internal business. What would be the spot market price for ethanol that will make you break even at the EBIT level for... Can you basically, can you give us some element of elasticity, sensitivity of your EBITs according to market prices? And you said the internal contribution to EBIT was negative EUR 4 million, was for the nine first months, the four million negative, EUR 4 million loss against EUR 29 million loss. That's it?
Yes, that's right. With the falling trend of the raw materials in the last month and the falling energy cost, we have fuel cost of about EUR 700-750 per cubic meter. So did this answer your question?
Yes, very much. Thank you.
Thank you.
Once again, to ask a question, please press star and one on your telephone. Star followed by one. Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Hannes Haider for any closing remarks. Hannes Haider?
Thanks, as there are no further questions. Thanks for your interest in AGRANA and your participation in the call. We wish you a successful remaining day, and goodbye.
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