Astarta Holding PLC

one more minute to allow everyone in and then we can start our presentation

are more people joining just another minute hello yes hello if you can put yourself on mute please we're letting people in and we will start the presentation sure

Okay, it's five minutes.

Sorry, one more person. It is five minutes past two, so I suggest we start the presentation. And then we ask everyone to be on mute so that there is a clear line. You're welcome to answer questions as we go through slides. During the presentation, if I may ask to send the questions using the conversation box. After the presentation, you can raise your hand, unmute yourself and ask questions. So I'm putting our presentation on the full screen. If there is any issue with viewing it, please let me know. Very briefly, slide number three provides a general overview of our consolidated P&L. As you can see, there was a decrease in the revenues in the agricultural segment, but that was well explained also with our previous results. We decided to sell our last year's harvest much earlier. in the season. Therefore, the results of the first half of this year reflect the sale of Romanian crops. And that is mainly corn. Sugar production was slightly up, helped by a slight increase in the prices. The volumes, they're steady. Soybean processing revenues were down slightly on lower sales volume and the cattle farming revenues held nicely up. The gross margin expanded both on together with IS41 or without it if you look in the lower hand corner. By excluding IAS 41, we can show you our margins on cash basis. Gross margin was also up from 24 to 26%, and the EBITDA margin was also nicely up from 23 to 27. If we look at the main contributors of EBITDA this year compared to the previous period, we see a decrease in the agriculture, and that's related to our more conservative assumptions for the biological assets, the harvest which is currently growing in our fields. Sugar production was 100% increase in EBITDA from 4 to 8 million. Soybean processing EBITDA was down on decreased margins because of the regulatory change in the sector and cattle farming was stable at nearly 4 million euros. What is worth noting on this slide is our efforts Decreasing our leverage resulted in halving our finance costs from 10 million euros to 5 million euros. But of course, a forex loss had to be booked on the account of weakening of the local currency. Going into the cash flow statement, our operating cash flows were down after the change in the working capital, but before changes in the working capital, there was an increase. Excluding IS41, it was stable at above last year's level, 67 million euros. We continue to tightly control our capex at 10 million euros for the first six months and that is all aimed at further deleveraging bringing our bank down 20 million euros were paid out on a cash flow basis and our net debt to EBITDA coefficient is now at 3.2, which is much more comfortable compared to 3.8 just 12 months ago. We are still technically in breach of the certain covenants, so there is no change on how our debt is presented on the balance sheet. Going into more details into the agriculture, We were mainly selling corn in the first half of this year. Wheat, sun seeds, soybeans, everything was sold much earlier. And 96% of our revenues are coming from exports, no change in that. We invested heavily, but still in a very controlled way in terms of maintenance, CAPEX. before the spring sowing campaign and replaced our machinery. We reported it during the first quarter. By today, we harvested early crops such as winter wheat and rapeseed, and the yield stood at 4.8 tonnes versus 5.1, which is a 6% decrease on account of weather conditions. What are our expectations in terms of harvest for this year? Obviously, we'll know everything for sure when we finish harvesting, but the weather conditions remain quite challenging in Ukraine. I pause because someone joining in just to repeat the last sentence to provide our expectations for this year's harvest. We saw 6% decline in our winter wheat yields and the weather remains challenging. We do hope that our corn and sunflower harvest and yields will be at the level of last year. but we could not exclude that the weather conditions could lower our expectations. On the sugar beet and soybeans, we expect a higher yield than last year. How we address these weather challenges? Again, coming back to our spring plantings, we replaced some of our machinery. We introduced rapeseeds in the crop rotation. Currently this is a modest planting area at one and a half thousand tons of hectares, but we'll see the yields, the results, and we will probably expand our planting area next year. We introduced specialty sun seeds into our crop rotation on the sunflower side. This is high oleic oil which sells at significant premium to ordinary sun seeds and about a quarter of our planting acreage is under this type of oil. And we are selectively looking at irrigation projects and precision farming was of course something that we started utilizing a while ago, but it is also achieved with the new machinery that we purchased in the first quarter of this year. In terms of the pricing outlook, I believe that Every agency has a diversion in terms of the market trends. It was a fresh USDA report published yesterday, which actually contradicts the estimates by the agencies working locally in the Black Sea region. Nonetheless, such reports support or negatively impact the prices. We've seen a speculative hike in the wheat, but now prices for wheat are going down. And we know that the global prices for corn were significantly down because of the situation with biofuels in the US, the interconnecting fuel market. However, For Ukrainian corn specifically, we saw that the prices were held largely up, which was favorable for us. On the sugar, slide eight, our sales volumes are steady. The prices were slightly up. But exports are not going on out of Ukraine on any meaningful scale, because on a FOB basis, there is not much of a differential between domestic and international benchmarks. However, we put an effort into optimizing our costs. And that allowed us to expand our gross profit margin from 9 to 70%. And that resulted in our EBITDA doubling to 8 million euro, which is still quite a small number. But compared to previous year, we see it as a significant achievement. The outlook for the global and domestic prices remain uncertain. And for Ukraine, much will depend on the new harvest of sugar. The marketing year for the sugar will start several months later than for grains. So we are eagerly waiting for the harvest... during this season, but it's not possible currently to estimate the full effect until we see the yields. But at the moment, the prices are flat-ish. And As we announced before, we keep our target for this year to take one more small sugar mill out of operation so that we have a higher capacity utilization and lower costs. Until the sugar price recovers domestically as well as internationally, we are focusing on our costs rather than increasing the volumes. Soybean processing, this is a market which saw very disruptive regulatory changes, legislative changes which very much influenced the behavior of the farmers. We saw soybean planting area decrease by 15% last year. and that resulted in a shortage of supply of raw materials for the local crushes. But that also helped to push the prices for the raw materials, the meal and the soybean oil up. So once this VAT refund issue is over, and it is over now, we believe that the farmers will be incentivized given the new price levels to increase the acreage under soybeans for next year and hopefully to come back to the level since in the past several years above 4 million hectares. But until this happens, we can see that our margin is down and on EBITDA level it is decreased from 11 to 9%. Kettle farming is steady. We believe that the prices are bottoming out very much like every season. In summer, we can see the prices going down, but we see that our off-takers are ready to accept higher prices for contracting further out during the year. The volumes are down as we focus on the productivity of our milking herd. We see the prices, although decreasing from beginning of the year, but still at very much acceptable levels. And that helped us to keep our EBITDA margin steady at above 20%. Strategy and outlook. There isn't much change since we discussed these items with our annual results. We live in very uncertain conditions at the moment. Difficult macroeconomic environment, although Ukraine is faring better than more developed markets. And we are happy to operate in one of the most resilient sectors connected to food products. However, we closely watch consumption and demand for our key products. We watched the situation with virus containment in Ukraine. We are pleased to report that we have not seen any outbreaks, small or bigger. And we are also in a good position in terms of accessing additional financing if the situation worsens. As an example, we already reported that we received the first tranche of an early approved 20 US dollar loan from the German development bank DAG, but we also recently announced that we have access to a new 10 million dollar working capital facility from the EBRD. So we are fully prepared to face any challenges as they come in the second half of this year. This is all for our presentation. Let me turn the screen to any questions you might have. answer these questions. We also have a fuller starter team courtesy to Microsoft Teams. We can have a much bigger team to answer any specifics you might be interested and this is of course includes our CEO and a major shareholder, Victor Ivanchik, our CFO, Victor Gladke and We have also a team on our commercial side, IFRS reporting side and all other team members here who are ready to answer your questions. I can see the first one. You mentioned that you plan to idle another small sugar mill this year. Is it feasible to restart idle sugar mills again in the future? Is there a risk they will need to be scrapped? Victor Petrovich, do you want to answer this question or should I start?

I can briefly comment on our position on this. We stopped the plant, which, unfortunately, due to its technical conditions, could not achieve the value that exists in our other sugar factories. And a fairly small amount of raw material that was prepared there forced us to stop this factory. I am not sure that it will resume its work next year, because we do not have It is possible to idle a sugar mill for one or two years,

But talking specifically about this small capacity, which is only 5% of our capacities, we believe it is subscale for restarting it unless we have plentiful raw materials, sugar beets growing in the area. We don't see it at the moment. Therefore, we don't believe it will make a big difference to us in terms of expansion but it does make a difference to our course at the moment therefore we believe it will be idled probably for for the next couple years now going back to a question from Ani with regards to the dairy segment has there been any impact on demand for milk from the coronavirus pandemic. In the UK and the Netherlands there have been issues caused by the closure of coffee shops. Yes, Anif, thank you very much for this question. We actually did see demand from horeca and coffee shops very much cushioning the demand after the first quarter of this year. But Ukraine is in controlled social distancing now. And traditionally, compared to the UK, which I can really compare to, there are many coffee shops which are on wheels, just outside, not in the buildings. And that really helped during the most stringent social distancing month when Horeca was not operating indoors, but also we see it coming back and certainly it is coming back during the summer period because Ukraine allowed most of the restaurants to reopen the doors as long as everyone is dining al fresco. And maybe Astap, our commercial director, can also add comments to mine.

Probably Astap is not.

I'm here, I'm here. Thanks a lot for this comment. Indeed, you're absolutely right what you have just said regarding demand for the milk during circumstances that unfortunately we have been experiencing in the recent couple of months. And the only thing I would like to add that currently within the last, I would say, one to two months, we clearly see the revival of the demand on the milk market. And at the moment, we are quite positive with prospects in further price increase. What we have been experienced within the last three weeks, we clearly see good improvement on the demand side, especially in the horeca sector. And we are increasing our price each month within the last I would say two to three months is like that. So we believe that we have already passed the bottom in this. Thank you.

Thank you, Astaf. I believe we can go to the next question from Jakub. Could you comment on current weather conditions regarding corn and soybean planting? Is drought a risk for corn and sunflower? I did commented during the presentation, but just to repeat ourselves. Yes, the weather conditions are not favorable for corn. And we were very cautious about any guidance, however. we do believe that last year the weather conditions were also quite difficult, so we do believe that we probably could achieve same yields for corn as last year. This is our hope. And also this also concerns sunflower. Sunflower is more drought resistant crop, And we hope that the yields will be same as last year. On soybeans also there is a risk, but we do hope to have soybean and sugar beet yields better than last year because we believe they were severely hit last year. Uh.

Yulia, I would like to add a little, to bring, let's say, fresh air in relation to the fact that yesterday I visited Poltava region and specifically traveled almost the whole region. And I would like to say that there is no definite assessment whether it is good or bad. In fact, very fragmented fields And it depends on the height of the underground waters. They are very different from field to field. And from the number and quality of landslides that regularly occur, in fact. You can see one field in very good condition, and literally after 2-3-5 kilometers another field in problematic condition. Therefore, today it is quite difficult to assess the overall level of crop and the physical crop that exists in the field. I also hope, as you said, that we will have crops close to last year. Depending on whether there will be or not experiences in the coming weeks, this may affect the situation in one way or another.

Just to add some color to what we just mentioned, Victor was inspecting the fields in the Poltava region where majority of our assets are located yesterday. and he sees a very fragmented picture during which the situation actually differs from field to field. It depends on the underground water supply under the fields and also depends on precipitation which can also vary very widely within a very narrow part of the region. So it is very difficult to estimate given the fragmented and no clear picture. It's not uniform. However, the next couple of weeks will tell whether we can see yields at last year's level, depending on the amount of rain we get, it might be better or lower. We'll have to see. This is just a matter of another couple of weeks.

And the last thing, I hope that our approach in the past years, when we took land for rent, using or controlling the principles of such geographical diversification. Between our fields, from east to west, about 1,000 km, and from south to north, somewhere, perhaps, the maximum is up to 500 km, 400 km. And this gives us the expectation that if in one place we do not get enough harvest, then in another place. And we see that in the western and southern regions of Ukraine, and in the northern regions of Ukraine, the situation is better than in the eastern and southern. What are our expectations based on?

Just to remind where AOS is located, especially for agriculture, it is very important that there is a diversification and some risk mitigation due to plantings in different parts of Ukraine. The distance between our western and eastern, most eastern parts of our plantings is about 1000 kilometers. The spread between northern and southern is 400 kilometers. And that creates actually a good risk mitigation. Therefore, on the average, we do hope to match or exceed last year's harvest. Going to the next question from Mr. Do you expect the pace of net debt to reduction to continue at same pace in second half and what is the ultimate normalized level you would be comfortable with? I think that is a question to our CFO, Victor Gladke.

Yeah, we expect, thank you for the question, we expect that net debt will be flat by the end of the year. And net debt to EBITDA ratio will be less than three.

Closer to two.

Next question from David. Could you elaborate a little more what were the main areas of cost control and the agriculture segment in the second quarter. Victor Petrovich, can I start? Well, first of all, this is a new machinery that we purchased for planting. I believe in our presentation we have just a few figures to demonstrate that it frees up our resources. So given the Productivity we were able to replace 47 units such as tractors with 31 with exactly replacing the same productivity. But it also allowed us to free up 30 employees for other jobs within this our sector and also this machinery is capable of performing precision planting at an amazing 3 centimeter distance. So for example, if this John Deere unit started planting and the driver wants to have a lunch break and get off the field this unit will get him back to the same spot within three centimeter difference so this is of course something that probably not noticeable in the aggregated financials but we did complete our planted season within much shorter period of time and for agricultural segment it is quite important that you correctly choose the timing of the plantings with the optimal temperature, precipitation, humidity in the moisture. So we believe that we had a much more optimal planting season this year. compared to last year, which will allow us to achieve better yields. And of course, you might see other cost savings in other areas. Some are under our control, such as purchasing of fuel and fertilizers. They were cheaper this year on account of lower oil prices but of course bulk of them we had to purchase before the planting season but for additional works which we are doing between planting and harvesting and also for harvesting we do enjoy savings on the fuel costs And last but not the least, the local currency depreciated by double digit numbers this year. And that also creates some savings, which are beyond our control, but nonetheless favorable to us on the local cost side, such as labor and taxes. Viktor Petrovich, do you want to add anything?

Yes, Julia, I would like to add that our focus in recent years, and especially in the last year, was aimed at improving our operational efficiency. This is a very systematic, deep work that covers all levels of our management and our performers. And this work has already given significant results. This is the first point. The second point is the maximum speed of implementation of our IT technologies, which were developed by our startup project, our subsidiary structure, AgriChain. I think it will take us a long time to talk about all the modules of this program. If you are interested, you can post an open presentation again or give a link to this open presentation so that colleagues understand how deep and comprehensive the approach to digitization of all operational and logistical processes is.

Just to add and illustrate the efforts that we have been making, operational efficiency specifically in the agricultural sector was the point of our focus for several years and we believe that we are now approaching it in a systematic way which involves all top to bottom management and employees But also we are in line with ag tech, agricultural technology implementation. We believe we are in the forefront in implementation in Ukraine, the project, which is called AgriChain. It would take too much time to devote it on this call, but we obviously can share publicly. We already did it before the presentation, which covers the integrated IT solutions, which cover everything from managing the land bank, planting, monitoring, storage, and sales in one IT solution, which we are actively introducing at Astarta, and this product will also be available for other agricultural partners in Ukraine. So we will... Perhaps, Pavel, I will ask you to share the link to this presentation in this chat.

Okay, will do.

I think there was another question. Do you expect further gas price decrease year on year in the fourth quarter as the prices hit multi-year low in Europe? I think I'll start. This is, of course, a billion dollar question. Fourth quarter this year and the gas prices will depend on the oil price performance, of course. But it would be great because the fourth quarter of this year is when we are running our sugar plants and we use natural gas in our production. But certainly the volumes that we already started contracting for the processing season, we can see that the prices are lower, at least by one third. If I'm mistaken, Victor will correct me.

Well, I can add that we are really very careful about the prices of energy. And we apply the approach that we try to buy when the prices are low enough. And as for gas, then almost 60%, or even more, depending on the volume that we use, we have already bought at the levels that were the lowest this season. Just to add, this has been our long-term practice.

we purchase or contract at least two-thirds of our gas needs for sugar with processing before the planting season. And this year the situation is the same. 60% was purchased during the bottom of the gas prices this year. And we do hope that the remaining 40%, we will be able to achieve prices which are favorable for our course. There was one more question, which I probably scrolled down unnoticed and my team let me know that I need to address it. You mentioned selective capacity expansion in soybean processing. Do you plan to construct another plant? This is something that we put in our presentation several quarters ago, before the COVID situation. Yes, we believe that soybean processing is one of the most successful segments within our business mix. and we are looking at expansion, but in a careful way. We probably will be looking at further value added and further processing of the soybeans. But of course, This year we are now in a very uncertain period and it's something we are not jumping into and therefore it's still on our list, but we wouldn't commit or provide much detail at this stage because we need to see how the second half of this year develops. Um, ladies and gentlemen, if you don't have any further questions, uh, we may, uh-huh. Okay. That was not the question. Uh, thank you, Jakob. Um, Natalia. Uh, yes. Hi.

Uh, may I speak now? Uh, yes, you're already speaking. Thank you very much. Thank you very much for the presentation. Uh, two questions from my side, please. First of all, to sum up your comments on corn yield outlook and your comments that local corn prices in Ukraine remain comparatively stable this year as compared to international prices. I would just ask if the lower per hectare valuation of the corn plantings this year's company reported at the end of June this year reflect company's cautious stance at this point? I mean, in view of uncertain yield outlook and price outlook, or is this some preparation for quite adverse profitability scenarios this year?

Thank you. I believe, Natalia, we are being more cautious because we saw the situation unfolding last year. However, as we mentioned, the next couple of weeks will be critical for the more definite outlook on corn. Viktor Petrovich, do you want to add anything?

Thank you very much.

And then the second question, I would like to check what is the current company's liquidity position. As I saw, the company's cash balance as of June declined to a bit more than 2 million euros. What is the current company's liquidity position? Thank you.

I'm passing the floor to Victor Gladke, our CFO.

As you saw from our numbers on net debt and comments which Julia gave with regards to available lines, we have quite a strong position on liquidity currently. And as I told on responding to the previous question, we see flat situation by the end of the year, if you don't have any stress scenarios.

Victor, I believe the question was about the cash balance, which was unusually low as of 30th of June, but Natalia, we... Sorry, sorry, cash position, which is unbalanced, doesn't affect liquidity of the company.

So it's cash balance, yes.

Okay, Natalia, we have committed working capital credit lines, we obtained a new one, this is tens of millions of dollars and euros, so I believe the number on the balance sheet should not be in any way worrying.

Understood, thank you very much.

Viktor Petrovich, do you want to thank everyone? Yes, why not? Thank you very much for the inescapable interest in our company. We really try to do everything that depends on us so that the company's indicators grow. both shareholders and management companies. We are going through a difficult period in our history due to an unusually long period of low sugar prices, unfavorable weather conditions, and, of course, political and financial risks. Nevertheless, I continue to be absolutely confident in the ability of management, the ability of all of us to act carefully, calculatedly, and sometimes go to not very popular decisions, such as, for example, closing or stopping factories. Yes, we have passed the closure of the plants, because there is a solution, one of the plants that we stopped two years ago, most likely it will not be restored in further work. There is a need to concentrate efforts on those assets that are able to work effectively in the future. Our modernization of our logistics, construction of elevators, purchase of grain, is also a testimony to this. Therefore, thank you, stay with us. I am sure that the best time is still ahead of us. I wish you all to be optimistic and believe that the best time for each of you is still ahead. Be healthy.

I'm trying to be brief here, which is not entirely possible, but we're really grateful for your questions, for your interest in our company. And we are going through a very difficult period. And these are the risks which are general for companies in Ukraine, such as political risk, but we also additionally face climate change, adverse weather conditions, and specifically for us, the sugar market is not very favorable at the moment, but we do believe that we are doing, we provide measured responses to such downturns. And yes, we are idling excess sugar capacities. And one of the plans that we stopped idle two years ago this year will probably shut it down forever. But we do believe that that will increase our profitability, optimize our costs. And all our efforts such as building our own storage capacities or grain hoppers are also aimed at achieving this. So we believe that together we will go through this difficult period and the main thing for everyone and I wish everyone to stay healthy. Again, thank you very much and if you have any further questions, don't hesitate to drop a line to Investor Relations email and we will answer it. Thank you. Have a nice day. Bye bye.