Astarta Holding PLC

Good afternoon.

I'm happy to welcome everyone to a start-up 1Q19 results call. Today the company is represented by CEO, Mr. Victor Iwanczyk, and CFO, Mr. Victor Blatki. As always, we'll start with the short presentation from the company, and then there will be a time for Q&A. So now let me hand over to the management for a short introduction.

Thank you. Dear participants of the conference call, we are happy to present to you the first quarter of 2019 financial results of Asarfa Holding Energy. For the first quarter of 2019, consolidated revenues of the group grew by 28% to €116 million. With bigger volumes and improved prices, the agricultural segment became the main contributor to consolidated revenues. and the share, a total sales of 54% in Euro 62 media. The segment was, as usual, contributing to exports, volume, and as a traditional was very strong, contributing 94% during reporting periods. In the first quarter of 2018, Asarta has traditionally focused on the selling campaign. which had begun the year earlier due to favorable weather conditions and timely preparatory work. Several IT solutions were introduced to digitalize the farming processes at all stages in order to improve overall management and efficiency control over all farming operations. Slaving processing segment was the second largest contributor to revenue during 24 million As local and international sugar markets remained suppressed during last time, the company reduced long-term sugar sales by 42% to 34,000 tons for reporting periods. After two years of excessive sugar production in Ukraine, the local sugar price remained suppressed, hitting the overall profitability of the industry. Aligned with the domestic trend, the plant has responded to adverse market conditions by reducing sowing area under sugar leaves by 12% this year in comparison with previous year to 36,000 hectares. Ukrainian farmers, as of today, according to the Ministry of Agriculture information, planted roughly 230,000 hectares of sugar beet. Daily farming as well contributed positively to the financial results of the company. Revenues of the dairy segment increased by 16% to 9 million euro. This is brief information which you already have seen from our financial results and published information. and I would like to pass the word to our CEO, Viktor Ivanch. Good afternoon, ladies and gentlemen. I would like to thank you for being present at our conference. First of all, I would like to introduce our empowered team, which takes part in the conference. Good afternoon, dear participants. I am very grateful for your participation in this conference call. And first of all, I would like to introduce a new member of Management Bonds who is strengthening our team. This is Mr. Valery Sokolenko, the President-Director of Kaslany, Two months ago we appointed chief operation officer Valeriy Sokolenko, who was head of sugar business segment. Now he is responsible for overall operation of the company. In addition, we have already published this information. Our team joined Yulia Greshchenko as a director for development and IR relationship. Yulia knows the company very well because she was a member of the team who brought the company to the IPO in 2006. I know a lot of you, and you also know Julia well, and you will have direct and transparent communication with her. I would like to start by commenting on the situation that has taken place. First of all, with our secret instrument, which showed a significant decrease in sales compared to last year. I would like to make a comment regarding our sugar segment business, which demonstrated a slowdown in comparison to the previous year. This situation was dictated by unfavorable conditions in local market during first quarter and prices were not in the expected level. And we, of course, did not force the implementation of the process, trying to get the best propositions for our quality sugar and only for the comfort of consumers. And we are not in position to force our sales in order to get the best price from our customers for our good quality shulga and with good reliable logistics of supply. As I predicted at last conference call, that swing area or surely it could be decreased and we see that this information of 270 000 hectares of land we just published has demonstrated this prediction and at the same time i would like to to add that 17 000 of this planting area is or is share of small farmers said last time that up to 200,000 hectares were sown in Ukraine. And the population itself today is aware of the fact that the quality of the land this year, unfortunately, the quality of the land, unfortunately, in the whole of Ukraine is worse than on this date last year, when it was sown about 285,000 hectares. We confirm our forecast that should be planting area is around 200,000 hectares of land and we have to recognize that quality of this sowing season is worse than as it was the same season last year at the same time. Regarding the volume of sugar that Ukraine can produce this year, I confirm my previous forecast that it will be around 1,000,000-1,100,000 tons with the appropriate weather conditions. So I would like to confirm my forecast with regards to sugar production in Ukraine. It's an amount of 1.1 million tonne. Taking into consideration that climate conditions will be favourable. As for our pastures, in general, and, in particular, the Sugar River, which is located in Bishviniya, in the east, In terms of our own fields of sugar beet, we would like to inform that conditions of sugar beet are better than we had in previous years. The same applies to other crops and crops of different cultures. Of course, there were stressful periods associated with large losses and a lot of long-term losses, but the early harvest that we managed to do and the timely implementation of measures still gave good results. The harvest was able to be preserved in relatively good condition. At the same time we could refer to other crops and the soil seeds and despite the fact of different impact on vegetation process we would like to inform that conditions of the crops are in good shape. That's why we see today that our plans and future plans that we have in mind have a guarantee, maybe not a guarantee, It still depends on the weather conditions of summer and autumn. Of course, you will remember that at all our conference calls, as a mantra, I repeat that I will show everything. And, first of all, in the autumn months, it is September, October and October, regarding the volume of sugar that we can get from these beetles that we sowed. Because the quality of beetles, the volume of beetles, and especially the amount of sugar, So at the moment we have a good platform for achieving our business goals for the year. But having in mind that we have half of our summer in autumn and as I mentioned already several times speaking to you that last month could demonstrate the final stage of maturing our sugar beet quality and we hope that with all conditions we will get expected result. Therefore, we see that the amount of sugar that we have on the 1st of May, and according to the Ministry of Agricultural Policy, the amount of sugar left on the 1st of May is close to 60%. With the volume of sales per month in the area of 130,000 tons, the supply will be minimal for the last 3-4 years. And it will depend on the ability of the companies to ensure the sugar consumption market. Today we see that the market has improved, demand, demand began to increase, and we can see that the prices of sugar today are about 10% higher than the average price in the first quarter. According to the information of the Ministry of Agriculture, at the moment, at the last reporting date, Ukraine had a stock of 606,000 tons of sugar. With monthly consumption roughly 130,000, we see by the end of the sugar season there will be the minimal stock, which we observed for the last three-four years. It will be minimal, really. And we see last week's growing demand on sugar with adjustment of price up to 10% in comparison with first quarter average prices. I will not spend much time on the foreign markets of our food groups. We are closely monitoring the results of the analytics of the experts. We see both positive and negative trends that affect the price trends of our main food groups of grain, olive oil and sugar. But today we still do not see I will not give analysis of global markets, but in general we don't see major factors which could impact current situation. Thank you for your attention and please go ahead with your questions. We, our colleagues, are ready to respond.

Thank you. As a reminder, ladies and gentlemen, that's 12 followed by 1 to ask a question. If you are doing the side web, please click the request to speak button. Please ensure that your phones are unmuted locally. Our first question today comes from Martin Nowak of IPUNIUS Securities. Martin, your line is open.

Good afternoon, gentlemen. Thank you for the presentation. I would like to ask first about the update about the bridge co-balance on your bank loans. Could you provide more comment regarding the bank's attitude towards your financing and their potential plans regarding

Thank you for the question. The attitude of the banks is very positive. We have seen from the report we received New long-term loans from the bank on very, very favorable conditions, which replaced our more expensive working capital lines. So it means the trust from the banks remains stable. We didn't see, as of today, any decrease of the limits which were approved to us. For sure, violation of covenants is a trigger for all financial institutions. However, all our bank partners stayed with us for many, many years, and this is a cyclical natural business, inherent business of our business model, so we don't have any unusual warning signal from the banks. With regard to Covenants, we have, as you can predict, mainly net debt-free data violations, which is about five, however, including this interest payment. However, our current liquidity is very strong. We decreased our, as of today, our cash portfolio to $225 million. And still we see some potential for decrease within next month. You are for sure during harvesting period it will be stable. However, we expect by the end of the year to do a decrease of overall debt.

Okay, thank you. And some question is about the domestic sugar price, which didn't move. much after the new flow regarding the cut in package of sugar between Ukraine and also about the new flow of the potential ending by the end of the season. Do you still keep your guidance that you expect the increase in domestic sugar price around summer?

Or do you see any potential change in the outlook?

Thank you for the question. Of course, the sugar market is relatively volatile. We can see a drop in prices on the southern half of the country. We do not rule out that prices may continue to rise, but it will depend on the decision of the countries that have sugar today to sell one or the other volume. My view on that is that sugar market could be volatile. This volatility depends on the behavior of other sugar market players, which will supply on the market different size of sugar. different volume of sugar. With regards to our company, our policy is to spread equally our sales within a year to satisfy our main permanent consumers and to have leading position in the market as usual.

Okay, thank you. And the last question from my side is Could you please comment whether the scheduled ATM for Friday or last week took place? Because I didn't see any revolutions of the system provided by Antarka. Okay, so today is the evening.

Yeah, today is the evening we will publish this information, so it will be available.

Okay, thank you.

Our next question today comes from Natalia Sukotska of Dragon Capsule. Natalia, your line is open.

Good afternoon. Thank you very much for the presentation. I have a question with respect to the company's sugar sales strategy for this year, meaning split between local sales and export sales. Given potential recovery in local sugar prices, does the company plan to proceed with exporting sugar? Thank you.

Mr. President, thank you for the question. Mr. President, I have a question. Ukraine has no ambitions to develop So, first of all, statement the company has not ambitious to gain share in the global market with all the size of business. In comparison, there are other players which are in the global market. We were always focused on the domestic market and saw it for the first time. We were always focused on local market and that was our priority for us. We have two-time partners. They are powerful manufacturers of food products. We always focused on the local markets and we have long-term consumers and partners from the manufacturing industry and from the oil industry. So our marketing strategy is based that we would like to get higher price on our good quality products. Yes, thank you.

Thank you very much. Would it be right to assume that this year local sugar sales might be more profitable than potential exports? Okay.

Today they are more profitable. And this is traditionally so. And this applies not only to the Ukrainian domestic market, but practically to any national market in the world. Therefore, I believe that on export, as a rule, only the surplus of this product is displayed. Today we see almost no surplus. Today local prices are higher than export prices. And if you are talking about generally the national economies, they have a higher level of local sugar prices than world prices. And usually to the world market goes success of the production from certain markets. We see that this year this success is disappearing and, for example, in local markets we even can predict some deficit in the coming years.

Thank you very much. And one final question from my side. Could you please update on the company's CapEx outlook for this year, please?

Yeah, CapEx remains the same as we informed you last conference call. It's around 30 million euros, and it includes completion of our grain silo project, some logistic expenses, and modernization of our machines.

Understood. Thank you very much.

Thank you.

We have no further questions on the line, so I'll hand back for any further remarks.

If there are no more questions, the company will distribute a presentation which we will post on our website. And if you have any further questions, you can email me. I also look forward to meeting everyone in person at the earliest opportunity in CF, Warsaw, or elsewhere so that we can build a multi-scale dialogue with respect to IR function at Astarta. Thank you very much for the call.