Agrana Reports Slight Loss, But Expects Recovery

Operating profit before exceptional items declined from € 111.4 million to € 37.8 million, owing largely to one-time write-downs of € 32.4 million on apple juice concentrate inventories in the first half of the year, narrower margins as a result of commodity and energy prices, and start-up costs for the additional bioethanol production capacity.

20/05/09 In the AGRANA Group the 2008|09 financial year (ended 28 February) was defined by volatile energy and raw material prices, depreciation in many Eastern European currencies and the effects of the worldwide economic crisis. With revenue of € 2.03 billion (up from € 1.89 billion in the prior financial year) AGRANA achieved growth of 7.1%. The revenue increase was driven by the Starch segment, which also includes the new and expanded bioethanol capacity in Austria and Hungary.
 
Operating profit before exceptional items declined from € 111.4 million to € 37.8 million, owing largely to one-time write-downs of € 32.4 million on apple juice concentrate inventories in the first half of the year, narrower margins as a result of commodity and energy prices, and start-up costs for the additional bioethanol production capacity. Net financial items fell from a net expense of € 28.4 million to a net expense of € 67.1 million. The reason lay in unrealised losses caused by the declining external value of some Eastern European currencies. The bottom-line result deteriorated to a loss for the period of € 15.9 million (prior year: profit for the period of € 63.8 million).
 
“In the first half of the 2008|09 financial year it proved not possible to make up the combined effect of the high prices in raw material markets and low selling prices for apple juice concentrate and we thus had to report a pre-exceptionals operating loss of € 7.8 million. In the second half of the year, our business almost fully regained stability, with an operating profit of € 45.6 million before exceptional items, bringing the full-year figure to € 37.8 million. However, the depreciation in some Eastern European currencies during the last quarter led to a loss for the year of € 15.9 million,” comments AGRANA Chief Executive Officer Johann Marihart on the completed financial year.

The Sugar segment’s revenue of € 702.5 million was 6.5% lower than in the prior year. Its share of Group revenue was approximately 35% (prior year: about 40%). While sales volume grew for quota sugar, prices were down. In the Eastern European countries, the currency depreciation triggered price changes in national currency that detracted from regional margins and sales volumes. 
 
The segment operating profit of € 15.8 million before exceptional items (prior year: € 32.6 million) included the effects both of the receding prices and the high costs of the prior-year production (caused by the restructuring levy) that was sold at significantly lower prices in 2008|09. The profitability of production was also hurt by significantly higher energy costs. On the other hand, a positive impact came from the market-restructuring proceeds for returned quota under the reform of the EU sugar regime. The new raw sugar refinery in Brcko, Bosnia-Herzegovina, was still in the start-up stage.
 
The Starch segment’s revenue expanded to € 519.4 million, well above the prior-year level of € 288.1 million. This revenue growth of 80% was driven by higher bioethanol sales thanks to full-scale operations of the bioethanol plant in Pischelsdorf, Austria, since June 2008, and by the new starch and bioethanol capacity in Hungary. Higher trading revenue and co-product sales, in addition to greater volumes of core starch products and baby-food sales, also contributed to the revenue expansion. The share of the Starch segment in Group revenue rose to 25%, from 15% in the prior year.
 
Starch segment operating profit before exceptional items amounted to € 27.5 million; this was below the year-earlier level of € 35.3 million. Next to energy costs, a detrimental factor in the first half of 2008|09 was the processing of high-priced raw materials from inventory. With the start of the new harvest in autumn 2008, raw material prices fell, leading to better profitability in the second half of 2008|09.
 
The revenue decrease in the Fruit segment from the prior year's € 852.5 million to € 804.4 million was attributable to lower sales volume in the fruit juice concentrates activities, combined with drastic price erosion for apple juice concentrate beginning in the second quarter of 2008|09. This led to a write-down of € 32.4 million on AGRANA’s apple juice concentrate inventories, which was the main factor in the segment’s operating loss of € 5.5 million before exceptional items (prior year: operating profit of € 43.5 million before exceptional items).
 
The fruit preparations unit was able to raise prices slightly compared to the year before. The crisis in the milk sector and the global economic downturn adversely affected the worldwide fruit yoghurt market and sales quantities of fruit preparations. It is too early to discern whether or to what extent there will be lasting changes in consumer behaviour. The Fruit segment accounted for almost 40% of Group revenue (prior year: 45%).
 
AGRANA expects Group revenue in 2009|10 approximately in line with last year’s level. While Sugar revenue is forecast to decrease, Fruit revenue will see slight growth.
 
Lower commodity and energy prices, together with internal cost savings, should counteract the current downward pressure on sales prices effectively. Based on current information, AGRANA thus expects Group operating profit to recover significantly in the 2009|10 financial year.