AGRANA Starch and Fruit Largely Counterbalance Challenging Sugar Market Environment

11/10/07 In the first half of 2007|08, AGRANA’s revenue rose from € 923.2 million (prior year’s first half) to € 933.3 million. While revenue increased by 30% in the Starch segment and by 14% in Fruit, revenue in the Sugar segment was off about 16% compared to the prior-year comparative period. Despite the difficult sugar market environment, consolidated operating profit was € 54.4 million in the first half of 2007|08 (H1 2006|07: € 59.3 million).

“After a difficult first quarter, we were able in the second quarter of 2007|08 to improve significantly on revenue and on profit for the period compared to the year-earlier quarter. We accomplished this despite the pronounced adverse impact of the EU sugar market reform, as the Starch and Fruit segments’ results largely made up for the poor conditions in the sugar market,” comments AGRANA Chief Executive Officer Johann Marihart on the latest business performance. “By the end of the second quarter, we narrowed the gap vis-à-vis the year-ago results. For the full year 2007|08 we are optimistic that profit will match the good performance of the 2006|07 financial year. This trend highlights the appropriateness of AGRANA’s threefold strategic focus,” says Marihart.

In the first half of the year, profit before tax increased to € 50.0 million (H1 2006|07: € 48.9 million); profit for the period rose to € 36.6 million (H1 2006|07: € 33.4 million) as a result of a reduction in the tax rate from 32% to 27%. The rise in profit for the period combined with a decrease in minority interests allowed earnings per share to grow to € 2.55 (H1 2006|07: € 2.23).

Investment in the first half of 2007|08 reached € 107.9 million (H1 2006|07: € 50.5 million), an increase of 114% that was driven above all by the starch and bioethanol activities.

Net financial items improved in the first half of the financial year to a negative balance of € 2.8 million (from € -10.4 million) thanks to proceeds from the optimisation of securities holdings and as a result of foreign currency translation gains.

The Sugar segment’s revenue in the first half of 2007|08 was € 376.2 million. In line with expectations, this was 16% below the comparative prior-year period’s € 449.0 million. This decrease was attributable mainly to the reduction in the volume of sugar sales compared to the first half of the prior year, when all C sugar had to be sold by the summer amid the termination of C sugar exports. Coinciding with the prior year’s good harvest, this led to high export volumes last year at a good price level. This export channel now no longer exists. The restructuring levy paid under the EU sugar market reform also detracted from profitability, thus bringing operating profit for the first half of the year to € 14.6 million, versus € 28.6 million in the first six months of 2006|07.

In the current reporting period, sugar sales returned to a more normal 458,000 tonnes from the H1 2006|07 level of 660,000 tonnes. As a consequence of the poorer fruit harvest, less sugar for home preserving was sold to food retailers; however, more sugar was sold to the beverage industry, thus winning back market shares.

For its 2007 campaign, the AGRANA Group expects to produce about 737,000 tonnes of beet sugar, with a quota of 655,103 tonnes after the temporary quota cut.

In the Starch segment, revenue in the first half of 2007|08 reached € 154.7 million, growing 30% from the prior-year level of € 119.3 million. This expansion was due especially to higher sales of saccharification products as well as of ethanol in Hungary. Stronger exports of starch syrup, liquid dextrose and isoglucose, together with greater domestic demand, all fuelled the growth. Revenue grew more strongly than volume thanks to higher selling prices amid the uptrend in commodity prices.

Operating profit was boosted to € 21.2 million (H1 2006|07: € 13.4 million) as a result of several factors: the upgrading of the product mix in favour of higher-value-added starch products and natural products; raw material procurement contracts that were still favourably priced; and the significant volume growth.

The expansion of the corn starch factory in Hungary, involving a planned doubling of corn processing capacity to 3,000 tonnes per day and an increase in bioethanol capacity, will be largely completed by the end of the 2007|08 financial year. Bioethanol production in Pischelsdorf, Austria, has begun on a test basis as planned, but in view of the high raw material prices, the plant will not be commissioned for regular production until the spring of 2008.

In the first half of the financial year, Fruit segment revenue was pushed up to € 435.1 million (H1 2006|07: € 381.7 million) and operating profit grew to € 18.7 million (H1 2006|07: € 17.2 million). The revenue growth arose primarily from the sustained high volume gains and from higher prices.

For the first time the results included the newly built fruit preparations plant in Cabreuva, Brazil.

Revenue in the AGRANA Juice operating unit was up compared to the prior-year period as a result of higher sales of fruit purees and fruit juice concentrates from red berries. The amount of apple juice concentrate sold was higher than a year earlier, with significant price increases on new contracts. The small size of fruit crops drove up raw material prices, in some cases dramatically. Concentrate prices to customers were adjusted accordingly.

AGRANA Fruit performed to expectations, with high organic growth. However, in the period under review the operating unit was not yet able to fully pass through the crop-induced rise in raw material prices. Negotiations with customers are in progress.

Consolidated revenue for the financial year 2007|08 as a whole is expected to be only slightly below the prior year’s, despite the fact that last year included two additional months of Fruit revenue amid the change in the segment’s year-end. While Sugar revenue will be less than in the prior year due to temporary quota reductions and the elimination of C sugar sales, Starch and Fruit revenue will rise.

As to profits, the Fruit segment is expected to see a positive trend in the second half of 2007|08. However, raw material prices, which are currently higher than in the first half of this financial year, will tend to burden existing supply agreements with customers. 

In the Sugar business, under the EU’s current changes to accelerate the sugar regime reform, AGRANA will participate in the voluntary relinquishing of quota in an amount equal to the spring 2007 temporary quota reduction.

On balance, AGRANA maintains the full-year profit target of matching the prior year’s result.