Astarta Holding PLC

Ladies and gentlemen, welcome to the Astarta Holding Quarter 3 2019 Results Conference Call. My name is Kieran and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand over to Marcin Gataz. Marcin, please go ahead.

Good afternoon. I'm happy to welcome you to Conference Call of Astarta. Today we will discuss nine months 2019 results which were published yesterday evening on the company's investor relations website you can also find the results presentation and today the company is represented by victor glaski cfo and julia baryschenko business development and ir director so now let me hand over to the company for the presentation and then there will be time for your questions thank you

Thank you, Marcin. This is Julia. Just to quickly walk through a few slides. We will focus just on our nine-month results, while other participants who would like to see our longer-term track record can look at the second part of the presentation. We recorded higher revenues on back of selling last year's crop of corn. We also managed to sell our new harvest of winter wheat in the third quarter of this year and that lifted our revenues by one-third to 334 million euros compared to the previous period. Accordingly, our share of exports in the revenues was roughly two-thirds of total, which is higher than last year. The results are affected by lower revenues in the sugar segment because the pricing environment remains unfavorable, so we are still focusing on reducing our capacity in the planting area to focus on rebalancing the market together with other participants. The other two segments, soybean processing and dairy were doing quite well. This year both the revenues went up and the margin was better in the dairy segment. We continue to report our gross margin with disclosing the impact of IF41 standards. So we single out biological asset evaluation and the measurement of our agricultural produce. You can see our margin both with and without this accounting treatment. The headline number gross margin went down from 34 to 17%. However, if we exclude the IAS 41 treatment, the gross margin actually expanded from 20% to 22%. Turning to the summary cash flows and the balance sheet on slide four, as we announced after our six-month results in the unfavorable sugar pricing environment and now not so favorable agricultural crops environment, we are focusing on deleveraging, on preserving our cash So we relieve our working capital, we repay our debt. In the first nine months, on a net basis, we repaid 76 million euros. We also do only maintenance topics in order to reduce our leverage. However, if we look at our key leverage ratio, net debt to EBITDA, Because of the first quarter of last year, if we look at this ratio on a 12-month selling basis, the ratio deteriorated from 5 to 8. The company is still in a breach of governance, but we do not believe that any of our lenders will accelerate the repayment of the facilities. Going into more detail in the agricultural segment results on slide five, again, you can see that we capitalize on our higher volume of corn sales. We sold nearly all of our harvest of winter wheat, but the prices are not very supportive. Therefore, we focus also on reducing our costs. You can see that both our GNA and selling distribution costs went down in relation to overall revenues. Slide six, we continue to harvest corn and sugar beets. We hope to report the final numbers in the next couple of weeks, but the interim numbers on our yields, as well as the final, to make sure we see in which sense this is reported here. The weather was not particularly supportive this year, as you know, therefore the yields are still better than the average in Ukraine, but lower than last year. on pan and on soybeans. Slide 7, I don't believe it was a payment. You can see from the graph that the pricing environment is not particularly supportive, which actually led to the measurement contribution to my bidet being much lower than the Sugar on slide eight. The prices are slightly up in Europe because the growth margin continues to compress because the costs are going up as well as yields were not doing that well during this quarter. EBITDA is flat for nine months this year compared to the previous year. Slide nine, just an update on the pricing. They are still in the middle of the cycle. This year, as we can see from the official statistics, The sugar output is down 15% to date as of 15th of November. And we expect the overall volumes to be significantly down compared to previous year for the whole sector. We do believe that the sector is adjusting to the lower domestic consumption volumes and unfavorable global prices. But this adjustment is not happening as fast as we all wish. Slide 10, nothing new really. We did declare it that we put one sugar plant out with operations during the last season and another this year, trying to adjust to the new market realities in Ukraine. On 11, soybean processing, the growth margin expanded 16% to 13% compared to the previous period. And EBITDA margin was 10% compared to 9% in the 9 months last year. Dairy is doing nicely and there was a turnaround both on the gross profit and EBITDA margin, because the prices in Ukraine improved significantly. In Euro terms, they were up by a quarter compared to the previous year. This is in a nutshell about our key results, and we would be happy to address your questions.

Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Ladies and gentlemen, We have a question from Jacob. Jacob, please go ahead.

Thank you. Thank you a lot. I have one question regarding the dairy segment. The number of cows that you have decreased at the end of third quarter, what is your guidance about that for the future? Because I see that the milk production also is a little bit lower. Would you go on to decrease the number of cows, the production of milk in the future? Would you rebound it? What is your guidance here?

We are focused on optimizing our dairy production. So the decrease was not that significant. So we do not expect any radical reduction. We believe that our optimization finally gave us the results we wanted. So we will continue on the same level. we are not focusing on reducing production but rather on optimizing on inefficient farms.

I would like to ask also a question about the sugar market because we see that usually at the end of the first quarter and the beginning of the fourth quarter the prices were underpressed and this year regarding this weaker production in the next season. The pricing is quite stable. What are the gossips in the market? Do you feel that the price should go up in a few months?

Well, typically, to the seasonal pattern in Ukraine, the smaller players in the sugar markets sell their produce sugar immediately after completing the season because the smaller players have less access to bank financing, working capital, so they need to sell their crops and harvest immediately. Therefore, despite lower production volumes of sugar, which we estimate probably will be 1.3 million, we do not believe that the sugar prices will raise immediately because smaller players will be selling their volumes straight away. But we do expect the sugar prices to go up by the end of the first quarter, hopefully earlier, but definitely by the second quarter next year.

Okay, and the last question about your net debt, like total net debt, do you envisage that at the end of the fourth quarter, well, in the last quarter, in the fourth quarter, would you going to reduce it more or would it be stable like it is right now at the end of the third quarter?

I'll pass the floor to the CFO to comment. Victor?

Yeah. We expect that net debt by the end of the fourth quarter will go slightly down. And we see that our ratio which was raised net debt to EBITDA to the high level will go down because It was calculated on the fourth quarter basis, and we had a negative result fourth quarter last year. So based on the forecast for the fourth quarter end of the year, it will go down less than five.

Okay. Okay. Thank you a lot.

Yeah. Our next question comes from Matic from Opema Securities. Matic, your line is now open.

Thank you. Good afternoon. I would like to ask about the sugar balance projected for the current season. Could you comment about the current pace of export and how much do you plan to export this year of sugar and how it will affect the domestic sugar balance?

As we mentioned, we expect total Ukrainian production to be at the level of 1.3 million tons. This is roughly equal to Ukrainian consumption. However, whether the price is will go up will depend on the level of exports. At current levels, at current global levels, you can see on slide 9 that the sugar prices in Ukraine are the same as international prices. So we don't believe there is an incentive for any player to export at current price levels. However, if other players have contracted significant volumes, this could happen. What we know is that in the nine months of this year, exports out of Ukraine were only 200,000 tons, which is quite low. So we are not we are not that much different from the other players. We don't see international prices attractive for us to export at this level. So unless situation changes in the global markets, we are not incentivized to export much.

Okay, and could you comment about the amount of domestic ending stocks of sugar at the beginning of the season?

It was about 200,000. Oh, sorry. Yeah, 200,000, 0.2 million.

Our next question comes from Natalia of Dragon Capital. Natalia, your line is now open. Please go ahead.

Good afternoon. Thank you very much. Can I please ask, how does production cost of sugar from the new sugar beet harvest currently look like? Thank you.

There are two forces here at play. On the one hand, the gas prices were down, but On the other hand, Ukrainian currency appreciated. So we do not believe that the overall result will be better than last year.

Thank you very much.

Ladies and gentlemen. As a reminder, to ask any further questions, please press star followed by one on your telephone keypad now.

It appears we have no further questions.

It appears that we currently have no further questions.

Okay, so I think we would like to thank everyone for participation in the call.

Julia, would you like to pass any final remarks?

Well, thank you very much everyone for participating. If you have any further questions, our IRI team is ready to address them individually.

Just send us an email.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.