Astarta - strong financial results for the first quarter of 2023

22 May 2023

In the reporting period, Astarta increased profits in most operating segments, the financial standing of the company remains good.

Astarta, one of the largest Ukrainian producers of sugar and milk, as well as soybean processors, reported its financial results for the first quarter of 2023.

EUR M Q1 2022 Q1 2023
Sugar sales, kmt 3351
Soybean crush, kmt 5061
Milk output, kmt 2530
Revenue 119164
EBITDA total 2338
EBITDA Sugar 412
EBITDA Agriculture 1311
EBITDA Soybeans crush 410
EBITDA Milk 35
Operating cash flow 2345

Due to the increase in sales volumes in all business segments, the company's total turnover increased by 37% compared to the same period of the last year and amounted to 163.6 million euros.

In terms of segments, Sugar direction performance improved significantly.

Due to the favorable situation on the global sugar market in the current season, Ukrainian companies are quite active in exporting sugar, which leads to a reduction in producers' stocks and supports domestic prices.

In the reporting quarter, Astarta increased its sales of sugar by 54% to 51,000 tons compared to last year. Exports accounted for only 14% of the total volume of sales (Astarta's share among Ukrainian sugar exporters was only 6%, which is much less vs. our expectations), but even despite this, the company's average sales price of sugar in the reporting period amounted to EUR 669 per 1 ton (vs. 572 euros in the first quarter of 2022).

The average net cost of sugar produced by Astarta in the current season was approximately EUR 500 per 1 ton, so, taking into account the total volume of sugar sales, EBITDA of the segment in the reporting period amounted to EUR 11.7 million (EUR 4.3 million a year ago).

Performance of the soybean processing direction continue to remain at a record level for the company. After one of the best years in the history in 2022 (EBITDA of the segment increased more than five times compared to the previous year and amounted to 27.7 million euros, it is also important that the profit was translated into operating cash flow), in the first quarter of 2023 the financial performance continued to improve.

EBITDA of the direction in the current period amounted to EUR 10.2 million (in the previous quarter EUR 9.2 million with relatively stable sales volumes of soybean oil and meal, in the first quarter of 2022 EUR 4.2 million).

So despite near-record soybean exports from Ukraine in the current season, which reduces the supply of raw materials for processing, due to the still significant difference between domestic and export soybean prices, the crushing margin is still high (about 192 euros per 1 ton of soybeans).

In the Agriculture segment, first of all, we note the fact of the active sale of the harvest of the 2022/23 season and a significant decrease of grain stocks in the balance sheet of Astarta. Taking into account uncertainty regarding export grain corridors operating (from Ukrainian Deep Sea ports), the good dynamics of grain sales significantly reduces the risk of having large stocks of unsold products in the event of blocking the corridor.

In the reporting quarter, Astarta sold a significant share of the current season's corn crop (227,000 tons out of a total of 342,000 tons).

Due to an increase in corn sales and growth in the average sales price (Astarta sold a significant part of corn on FOB/CIF basis compared to DAP/CPT previous years), the revenue of the segment increased compared to last year by 29% and amounted to 80 million euros. On the other hand, logistics costs increased significantly (to a large extent due to above-mentioned change in incoterms), which neutralized the growth in revenues, so the EBITDA of the segment in the current period amounted to EUR 10.5 million (a year ago EUR 12.7 million).

We will also remind you that Astarta, like most of the other largest Ukrainian producers books a significant part of the profit of the Agriculture segment even before harvesting in the form of revaluation of crops, therefore the results of the current quarter (first of all, the break-even sale of grain against the current net cost which includes stocks revaluation) also look good.

In the segment of milk production, the situation, as during a large part of 2022, remains not bad. The average selling price of milk decreased slightly, while the sales volume compared to last year increased by approximately 20% (mainly due to the increase in milk yields). EBITDA of the segment in the current period amounted to EUR 5 million, the margin was 47%.

The total EBITDA of Astarta in the first quarter of 2023 amounted to EUR 37.9 million (EUR 23.2 million for the same period last year), operating cash flow EUR 45 million (EUR 23.3 million last year, the growth was primarily due to good results in sugar segment and soybean processing, as well as improving the VAT refund situation, while the proceeds from the sale of grain were largely directed to the purchase of necessary raw materials for sowing campaign in 2023).

As a result, due to significant operating cash flow, the company reduced its debt burden by EUR 23 million to EUR 45 million (excluding land lease obligations). The amount of cash on the balance sheet remains close to the figure of December 2022 - about 28 million euros.

Regarding the company's short-term prospects, our view is quite optimistic. Main factors 1) the situation on the sugar market remains favorable (we expect profit from the sale of Astarta's current sugar stocks in the second and third quarters of 2023 at EUR 15-20 million), 2) the area under soybeans in Ukraine is expected to grow, which is positive for soybean processing margins in the new season.

We see the situation with the grain corridor out of Ukrainian ports as main risk factor for the gro, as it will largely affect domestic prices for grain crops and sunflower.

Taking into account all above-mentioned notes, we believe that there is a fairly high probability that the company will pay dividends basing on Y2022 financial results of activity (this topic will be discussed at the general meeting of shareholders in the coming days).

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