AGRANA ends a successful 2003/04 financial year

Date: 25.05.2004

Good results after drought year even in the absence of any extraordinary factors to increase profits

As CEO Johann Marihart told today’s press conference to present the group’s annual financial statements, “We closed the financial year, which was marred by poor harvests, with slightly lower profit than 2002/03, when extraordinary factors such as the 14-month financial years of the AGRANA International companies had also come to bear.  The fact that our profit in 2003/04 came close to that of the previous year was the reward for the exceptional efficiency with which we dealt with the short campaigns and rise in raw material costs caused by poor harvests.”

Revenues came to € 866.4 million, which was 1.1 per cent down on the year.  Profit from operating activities was 4.5 per cent down on the previous year’s figure of € 80.5 million at € 76.8 million.  Consolidated earnings for the year were significantly down on the previous year’s figure of € 65.4 million at € 56.5 million, but one must bear in mind that earnings had been boosted by sales of interests in 2002/03.  Sixty-five per cent of revenues were generated by the Austrian members of our group, 30 per cent by companies in Central and Eastern Europe, and 5 per cent by Vallø Saft A/S in Denmark, which was acquired in April 2003 as the first member of AGRANA’s Fruit Division and was brought into the scope of consolidation for the first time in 2003/04.

Despite difficult market conditions, the Austrian members of our sugar and starch divisions achieved a small increase in revenues, whereas the group-members in Hungary, the Czech Republic and Slovakia recorded declines in revenues and operating profits.  They were due to the change in their reporting dates during the 2002/03 financial year, fluctuations in exchange rates, a troubled market environment and the drought-related increase in raw material prices in the maize segment.

For the reasons we have described, operating profit fell by 4.5 per cent to € 76,833 thousand (previous year: € 80,476 thousand), but a very good fourth quarter fended off the decline of 13 per cent that was still being forecast after the three quarters ended 30 November 2003.  Improved sales and the systematic continuation of structural and cost optimization programmes in every company in the group had a beneficial impact.  If one also makes allowance for the differences in length between the 2002/03 and 2003/04 financial years of the AGRANA International companies, we were in fact able to build on the previous year’s very good profit from operating activities.

Our net loss from investing and financial activities of € 6.1 million in 2003/04 year did not include any of the previous year’s extraordinary income from selling interests (2002/03: sale of shares in Leipnik-Lundenburger Invest Beteiligungs-AG).  In addition, the adverse development of a number of Eastern European currencies versus the euro in the period up to the reporting date also dented earnings, resulting in a sharp decline in profit before tax.
As reported by Board of Management member Walter Grausam, “Our favourable tax position offset some of our net loss from investing and financial activities, enabling AGRANA to return consolidated earnings for the year of € 56.5 million.  That was the second-best result in AGRANA’s history.  Our ROCE came to 14.8 per cent, as against 15.3 per cent in 2002/03.”

Net cash from profit came to € 100.9 million (previous year: € 105.0 million), which was 11.6 per cent of revenues (previous year: 12 per cent) and 3.5 times capital investments.

In Marihart’s words, “We will therefore be asking the General Meeting of Shareholders of AGRANA Beteiligungs-AG on 2 July 2004 to approve the distribution of a dividend of € 1.80 per no-par share for the 2003/04 financial year.  That would result in a distribution of € 19.85 million on 11,027,040 no-par bearer shares.”

The share
The AGRANA share gained another 55 per cent to € 61.50 during the financial year.  That means that it has advanced from € 20 to more than € 60 in a little over two years.  As of 29 February 2004, AGRANA had a P/€ ratio of 12.0 and the share delivered a distribution yield of 2.9 per cent from an unchanged distribution proposal of € 1.80 per share.  The share was trading at € 64.50 on 30 April 2004 and € 66.00 on 14 May 2004.
The continuing growth that the AGRANA Group is striving for will sustain the share’s potential.

Prevailing conditions
The events of 1 May of this financial year finally justified the investments that we have undertaken in our core sugar and starch segments in Central and Eastern Europe since 1990 in anticipation of the new EU accessions.

Bold and early preparations for EU enlargement were an important element of our group’s strategy.  Our market shares are well secured by quotas.
EU common market organization for sugar (sugar CMO)

The EU sugar CMO is in force until mid-2006.  One of the reform options—market equilibrium between EU output and imports achieved by lowering prices—is not viable.  A CMO based on community preference, regionality and solidarity would require market inflows to be limited.  However, that would in turn necessitate changes to the duty-free market access provided within the scope of the Western Balkans and “Everything but arms” agreements.

The world market price of sugar
The strong euro led to extremely low euro prices.  2003/04 was a year of increased global consumption and poorer harvests, so there was virtually no added accumulation of inventories.  Consequently, the outlook is stable.

The Sugar Division
The flood year of 2002 was followed by the drought year of 2003 and per-hectare yields were significantly down on the year throughout AGRANA’s markets, resulting in very short processing campaigns.  However, favourable weather during the harvest allowed us to make up for some of the setbacks.  Increased sugar contents reduced energy usage, and smaller amounts of earth adhering to the beet reduced beet delivery costs.  Notwithstanding the beet’s higher sugar content, our factories’ processing throughput stayed at the same high level as in 2002. The poor harvests in the EU accession countries also helped take the edge off sugar surpluses on 1 May 2004.
We have increased areas under beet in 2004 to make up for low inventory levels.
In all, the AGRANA Group processed 4.2 metric tons of beet (previous year: 5.3 million metric tons) into 636,000 metric tons of sugar (previous year: 764,500 metric tons).  In addition, AGRANA made 139,000 metric tons of sugar from imported unrefined sugar in Romania.

The Starch Division 
The dry weather led to a 30 per cent drop in the potato harvest and the group only used 67 per cent of its quota as a result.  In 2004, we will be combating the effects of paying suppliers’ transportation costs by enlarging the area planted with potatoes.
Exploding raw material prices considerably increased costs in the maize starch segment, and it was only possible to pass a part of the increase on to the market.  That was equally true in Austria, Hungary und Romania.

Our Romanian starch subsidiary has settled in well.  Following Hungary’s accession to the EU, Hungrana in Hungary will have an isoglucose quota of nearly 138,000 metric tons, turning it into Europe’s largest isoglucose manufacturer and giving it an excellent competitive position.
The situation in the maize market is not going to ease until the new harvest is in.  Thanks to the cut in the set-aside rate (from 10 to 5 per cent), the harvested area will increase.

Energy costs are a particularly important factor in sugar and starch production.  From that point of view, Brussels’ endorsement of Austria’s energy-tax solution will be crucial, as will obtaining sufficient CO2 emission certificates.  It will be essential for AGRANA to obtain adequate free certificates to cover its future growth in the starch segment.

Fruit juice concentrates and fruit preparations
To ensure the AGRANA Group’s continued growth once we have achieved our primary goals in our core sugar and starch segments in Southeastern Europe, the Board of Management looked at a number of possible growth options within the scope of a Strategy Project.  The result was the development of a new business segment, namely Fruit Juice Concentrates and Fruit Preparations.

The AGRANA Group put its fruit strategy into effect within the space of a year by taking over or acquiring stakes in Vallø Saft in Denmark and Steirerobst AG in Austria and by way of its planned takeover of the Atys Group in France.  After their gradual acquisition, those companies will generate new revenues of about € 700 million.  That will be a quantum leap for AGRANA.

We will be able to meet the cost of the acquisitions out of free cash flow.  The next step will be to obtain all the necessary competition authority approvals and then to successfully implement the new business segment.  The challenge will then be to assimilate the segment and structure it in the right way to enhance synergistic benefits.  Given the global dimension of the playing field onto which AGRANA is moving by entering the fruit preparations market, that is going to be a complex task.

The current 2004/05 financial year
The Austrian Sugar Division concluded beet cultivation contracts with 9,500 farmers to plant 44,750 hectares with beet for the 2004 harvest. That represents an increase in area of 3 per cent compared with 2003.  The beet’s growth this year has been in line with the long-term average.  We concluded growing contracts for a total of 2.2 million metric tons of beet in Hungary, the Czech Republic and Slovakia (previous year: 2.3 million metric tons).  It proved impossible to concluded the minimum number of beet growing contracts needed for a beet campaign in Romania, so we will only be refining imported unrefined sugar in Romania during the 2004/05 financial year.

Domestic sugar sales in Austria during March 2004 were 25 per cent up on the same period of the previous year at 30,600 metric tons, and the trend continued in April 2004 with an increase of nearly 30 per cent.

In the potato starch sector, we were able to conclude cultivation contracts for 233,000 metric tons of starch and organic starch potatoes (previous year: 213,000 metric tons).  Because high maize prices and the cut in the EU set-aside rate have increased areas planted with maize, supplies of maize both in Austria and in Hungary and Romania should be adequate during the 2004/05 financial year.

In the Fruit Division, competition authorities in France, Hungary, Mexico and the USA have already approved the AGRANA Group’s acquisition of the Atys Group.  A decision in Austria is expected in the next few days, and the Czech Republic and Slovakia will follow soon after.  Our appeal against the denial of approval by the Bundeskartellamt in Germany is pending in the Land court of appeal in Düsseldorf.

We expect the consolidation of Steirerobst AG from the 2004/05 financial year to take our annual revenues close to the billion euro mark.  Because of the adjustments that will be taking place in Hungary, the Czech Republic and Slovakia in the wake of their accession to the EU and in view of the present development of energy costs, a reliable profit forecast will not be possible until mid-year.

It is with optimism that we face a future that will bring with it years of tough economic challenges.  Following our successful preparations for Austria’s membership of the EU and the European Union’s subsequent enlargement, we are pleased to have been able to set a new course with the creation of our Fruit Division.

Growth has in turn increased our need for office space.  AGRANA has therefore moved to new premises in the STRABAG Building at Donau-City-Strasse 9 in Vienna’s 22nd District.