Astarta Holding PLC

we will be presenting our first quarter results. We can see that the company was able to slightly increase its revenues. And this is on account of the sugar segment, which performed really well compared to the first quarter last year. We have reduced profitability on the gross margin side and EBITDA. However, this is explained by the higher share of exports that we achieved this year compared to the previous year and logistical costs getting crops and sugar out of Ukraine are quite significant. We continue to disclose our gross profit and EBITDA on a net of IAS 41 basis. So here we can see a margin squeeze from 37 to 27%. Nonetheless, the cash flows remain strong. Our operating cash flows total 70 million euro compared to 45 last year. And cash flows before working capital were also significant at 42 million euros. Investment program. For the first quarter is only 6 million euros, but this is double from last year because we announced investments into further soybean processing and also we have extra investments going into the sugar segment this did not affect our leverage position in fact as of first of quarter the company is in a net positive cash situation but including land lease liabilities leverage remains below one times net debt to EBITDA. Sorry. If we are going to segment performance, we start with agriculture. There was lowering of prices for corn, sunflower seeds and rapeseeds, but wheat held up compared to last year and continues to increase currently. There are some trading volumes in these results, especially for corn. We disclosed this number for the annual results at 56 million euros. For the first quarter, we don't have the precise number, but it is over 100,000 tons. Now the company already finished spring sowing. The crop mix is changing in line with the last two years. we keep reducing acreage for corn and we increase acreage under soybeans because we would like to increase our self-sufficiency on crushing and we see better margins in soybeans compared to corn and wheat. Our acreage under sugar beet remains at last year's level And there is a minor change in rapeseeds, sunflower seeds also at 18,000 hectares. Our commercial director is online to answer questions, but generally one can see that the pricing differential between global prices and domestic prices for key commodities such as wheat and corn remains but it is much more narrow compared to last year since Ukraine is able to export via idea supports in fact since reopening of this route, the exports for agricultural commodities reached pre-war levels in the recent months. But generally there is a global price decline at the same scale as in Ukraine. if corn was down by 34% globally, Ukrainian corn was down by 28%. And same goes for wheat, if we are talking about first quarter, but there is a small uptick recently in the wheat price. Sugar production. We've just finished planting sugar beet for this season. The acreage remains the same at 38,000 hectares. And last year's sugar volumes are sold well. There is a slight price decline compared to the first quarter of last year. but we still have quite strong results at gross margin of 23%. EBITDA margin was squeezed much more intensively on the account of selling distribution expenses because we exported about half of our produce, and exporting is associated with high logistical costs. Europe was a main destination for sugar exports for Ukraine and for us, but we also diversified our supplies to other markets, including Middle East and North Africa. If we are looking at the general situation in the sugar industry in Ukraine this year, the farmers would like to keep the acreage on the sugar beet same as last year at 250,000 hectares. Ukraine actively exported sugar this year. And the first quarter volumes at over 200,000 tons are actually close to the quarter which was negotiated with the EU. The annual 2024 quarter is 263,000 tons. So we are hitting the ceiling. And it is going to be restarted from January 25. So the domestic price is dipped by 21%. However, global prices remain quite robust. So this is why we are focusing on exports and especially exports outside the EU, since we are hitting the overall ceiling with the EU. Soybean processing largely stable except for the soybean oil, which was down by more than 42% compared to last year. However, we manage our margin well and the gross margin is still 30%. EBITDA margin 24% is quite a good result. Since there is a general trade in Ukraine of decreasing acreage under grains and increasing acreage under oilseeds, We see other farmers also increasing production of soybeans and rapeseeds. For soybeans this year, the harvest is expected to hit 6 million tons, which is all time high for Ukraine. Generally, in the environment where raw materials are abundant, which we expect this year, we expect to enjoy a pretty good crushing margin. Kettle farming increase in production. We increase in our herd, so the increase is not just on the milk side, but on byproduct meat which we sell. The prices for premium quality milk, which Astarte is specializing in, is also holding up quite nicely at above 400 euros per tonne. And that allowed us to hold gross and EBITDA margin at above 40% this year. There is a general trend that small households which keep livestock reducing their output and industrial agricultural producers such as a starter increase production of raw milk and this trend remains intact. So we believe that dairy product processes in Ukraine are very much focusing on consistent premium quality milk which we supply to them. This is it for the main part of the presentation. So we welcome your questions, please. Let me just go into the chat box to check.

One second. OK.

So first question from Carol. You haven't plans to increase land area used for crops production, including sugar beet. And yes, so let us reply. Let us do the first question. Because the second one is actually different. At the moment, we are happy with the acreage we have. As coming back from the history of Astarta, it was primarily an agricultural and sugar producing company. And our acreage is very much affected by the crop rotation process related specifically to sugar beet. According to agronomic science, sugar beet should be sown once in five years. So at 40,000 hectares of land under sugar beet for the crop rotation, we need over 200,000 hectares overall. And this is exactly what we have at the moment. But we will continue to monitor the situation in the market, and see how the land market develops in Ukraine, if there is any opportunity to expand in the medium term. Current outlook for buying land that are leasing in area where company is operating, Unfortunately, under the current law on the land market, companies which have foreign beneficial owners are not allowed to purchase land. And this has been our business model from the start. We are a large scale operator of land. We operate land on the basis of leases we focus on having long-term leases in place and since we have foreign shareholders we are not allowed to purchase land the land market in general was opened up to foreign ownership or sorry, to corporate ownership from this year. But we did not observe significant turnover in this respect. So for the moment, the Ukrainian agriculture continues to operate on the basis of long-term leases. Marcin, why farmers have seen similar acreage with BEAT in 24? if the export to destinations outside EU squeezes margin by that much. Vyacheslav, maybe you have more idea about other farmers. I will start replying regarding Astarta since we are... one of the largest sugar producers in Ukraine. We would continue to produce the amount of sugar that we produced last year. We see opportunities in the other markets. And the question about other farmers, I will pass on to Vyacheslav.

Thank you, Julia. Thank you for your question. I think that as you may know that the preparation to cultivate the sugar beet is in place before, much more before the actual decision. So in March, you need to do something at least already in summer and in autumn. And I think that quite a lot of farmers already prepared their land when the prices still were higher. and the price and the quotas were not still decided. However, still, as of now, also the crop rotation for them with the sugar beet is still sufficient. Thank you.

So there is a time lag between Within the agricultural cycle, definitely, and I think one of the considerations for sugar beet is because corn and wheat is also much less profitable at the moment, but this may change. Next question, did a starter had positive EBITDA on sugar volumes exported in first quarter 24 or simply considering all cost financing capex allocation proportionally. Did sugar export generated cash in the first quarter 24? I think if we are talking about general first quarter on sugar volumes, as you can see in our first quarter results. I'm going to.

Go back to this slide.

Uhm? The the margin contraction on EBITDA was from 32 to 10%, but it is still quite positive. Given that half of the revenues were done by exports. Uhm, So perhaps Vyacheslav or our CFO, Lilia, would like to add anything to this answer.

Julia, I would like just to confirm that the cash generated was positive in the first part. Thanks.

Yes.

Next question, given a very limited visibility of origin of reported volume sold, do you plan to split reported sales volumes into own propriety on regular quarterly basis? And if not, why not? Is proprietary trading right now profitable for a starter? I will start answering this question and then also pass the floor to Vyacheslav and Lilia. As I mentioned during the main part of the presentation, we did disclose our revenues from trade in the annual results. We did not do it for the quarter because you may appreciate that the logistics of delivery of grain is quite complicated. But trading grain is not just about pocketing trading profit. It is also about leveraging on the inland infrastructure, which Astarte has, which is over a half a million tonne at any one time. So our silos, Grain silos offers storage services to third party farmers. We procure grain from them. We treat dry grain and this is also part of the agricultural P&L.

Uh.

I don't know if Lilia and Vyacheslav would like to add anything to my answer.

Julia, thanks. I would like to add, we will decide, I think, when the new marketing year starts after the 1st of July, in case the volumes and profitability will be substantial for our total profitability and in case if it is we will of course split the sales of volumes and our profitability But now we're seeing that it is not so substantial to be a separate segment. That's why you can see it inside the agriculture segment. And the second answer was trading is right now profitable.

Yes, it is profitable.

Yes, it is profitable and it affects profitability for silo operations which are consolidated into the agricultural segment. Why is there a constant year by year decrease of overall sowing acreage in use? Is the company going to increase the sowing acreage in the future? If not, why? This is true. We had shown of couple percentage points every year in our overall acreage if we're looking at the long term trend. This is because we were focusing on the efficiency of our operations and as I explained before, we really need five times sugar beet acreage overall. Anything on top of it is something that we have to justify in terms of profitability. For example, we have 2000 hectares of land under organic crops. Despite being 1% of our total acreage, it is not part of the conventional crop rotation. It's a separate business with separate margins and technologies. And we do it on a We work with these crops in different markets. To increase acreage on the grains or sugar beet would require overall understanding where we are going to process. Currently, our sugar beet processing plants operate at quite high capacity. And the same goes for other crops. So, we do monitor the land market situation in Ukraine. Obviously, it is very much affected by the war situation. About 20% of the land bank is currently occupied, and about extra 10% of the land acreage is adjacent to the battlefield situations. So, from this point of view, It probably would be not very timely to look at the acreage expansion in this particular year. We focus on putting our investments into soybean processing. This is where we believe we have higher returns than land bank expansion at this particular point of time. Next question, potential targets with land lease rights to be acquired to boost land bank. Marcin, I think I mentioned it that this year in the current situation it would probably be quite difficult. decision, unless there is some attractive target comes along, which we always happy to look at. But currently we are focusing on the processing side of the business. What is the expected sugar export tonnage in 2024 considering quarters? Vyacheslav, I think this question relates to us. And maybe you can comment on the general industry.

Julia, thank you very much. I would confirm that the quotas which we have is 262,000 tons to EU. But we still have opportunity to export to the Mediterranean regions. and we target that we will have more than 100,000 tons of sugar plus export to all those destinations.

Thank you.

Okay, 100,000 tons just for start-up.

I mean that our export, start-up's export to the final market, to the export market, 100,000 tons plus, but for Ukraine, I think it will be not less than half a million tons.

Okay. What is the current state of building the new deep soy processing plant when it is expected to be ready? The process of plant construction and equipment manufacturing and Everything else is a several year process. So we are in the second year and we expect another year to be part of the.

Of the of the process before it is launched.

When may we expect fully operation of new soybean plant? How it should impact increase production amount? I will start with the second question. The production amounts in terms of soybean processed. are not going to change. It will be the same amount of soybean processed. I'm just going to click on the right slide. Yes, so we are going to process the same amount over 230,000 tons of soybeans. But if now we process it into soybean meal and oil, By the launch of the plant, we are going to have additional product, which is soybean concentrate, which is a further processing of soybean meal into the new product. And in the first year or so, half of soybean meal will be converted in concentrate. Another half will still be sold as meal. and later our plan is to process all meal into the concentrate. Uhm, on the exact timing again, we would like to stick to the previous estimate. It takes at least two, two and a half years to build it and given situation. in Ukraine on the war front, certain things are not within our control. When it comes to delivering the equipment and fine tuning, obviously that may take time because the equipment manufacturers have to do the installation work. So we need to watch the situation related to the war in this respect. How large a batch of sugar has been exported to African countries since the beginning of the first quarter? And are there plans to purchase your own specialized ship for transporting sugar? And how much do you plan to export annually based on your estimate to African Middle Eastern countries? Vyacheslav, over to you.

Thank you, Julia. If I understand the question correctly, it means how much we've spoken already until that day, since the beginning of the Quoted First. As of now, it's more than 30,000 tons of sugar, and we still see the demand, and this demand would be around 60,000-70,000 tons of sugar per year. As for the specialized ship for transportation, we see that there is enough capacities and vessels for operations to deliver the sugar. And as of now, we consider to take it as a rental.

Thank you.

Okay, moving on to the next question on the main owner of land that Astarte is leasing. Is this private investor's properties or government land properties? Overwhelming majority of the land that we lease is private individuals. These are people who live in the rural areas. They were given small land plots, two to three hectares. And they have been renting out it to us for many years already. So we continue to lease from them. And these are tens of thousand individual land lease agreements. So we have a big land management team which continually Extend is the leases and negotiates with such individuals. Yeah, thank you very much Carol for your. Gratitude for hard work and engagement. The next question is can you please give an update on M&A activity in the agricultural sector, if any? I will start with probably saying that land market and the change of ownership from private individuals to corporates with Ukrainian UBOs is something which started recently. but the turnover remains quite low. And this is probably the main area where M&A activity takes place. I don't think any of my colleagues are aware of anything large scale which can be added to the answer to this question.

If we talk about the M&A in agro, Julia, you mean?

Yes, in agro.

Last deal was closed by Oko Group, so they purchased 50% of stake in one of the agri companies, around 30,000 hectares.

Yeah, it is about land bank again, yes.

So we, yeah, yes. So all M&A activity is focusing on land and we are not aware of any deals closing in the agriculture processing, correct? Is company is company is Is company planning to make some big investments considering available cash? I think this question would be fair if Ukraine was not in war. Given the situation, we believe that we selectively continue investments where we believe we have most experienced competence and profitability, which is soybean processing and sugar. We continue to pay dividends despite the situation in Ukraine, and this is probably