AGRANA cannot fully escape the influence of the overall economic environment. Although cyclical market fluctuations in the food industry are not comparable to those in other industries, the economic trend will have an effect on consumer behaviour in the food industry as well.
Based on our estimates of market trends for our products, AGRANA expects Group revenue in the 2009|10 financial year to remain at approximately the same level as in the prior year, with decreased revenue in the Sugar segment offset by a slight increase in revenue from the Fruit segment. Lower commodity and energy prices, together with internal cost savings, are expected to counteract the current downward pressure on sales prices effectively. Based on current information, AGRANA believes that operating profit will recover significantly in the 2009|10 financial year.
2009|10 financial year: Group revenue at last year’s level, significant recovery in Group profit, investment of about € 50 million, reduction in Net debt.
Towards this end, an optimisation programme aimed at exploiting Group-wide synergies was initiated in the past months. The objective of the programme is to analyse internal process flow within the AGRANA Group and identify savings opportunities, thus optimally leveraging Groupwide synergies not just centrally but at local organisational units.
Under the sugar regime, restructuring proceeds for surrendered quota will be fully paid out in advance in June 2009. This will have a favourable effect on Net debt, which is to be reduced significantly in the 2009|10 financial year. The credit lines available to AGRANA adequately cover its funding needs for the 2009|10 financial year.
AGRANA’s management expects currency volatility to decline over the medium term and exchange rates to return to their normal ranges. It should be possible to partially recoup present currency translation losses on financial liabilities.
INVESTMENTS
AGRANA is limiting planned investment to around € 50 million for the 2009|10 financial year. In addition to replacement investment in Austria, planned expenditures in the Sugar segment are focused on a total of € 11 million for installation of a biological wastewater treatment system in Roman, Romania, and a new packaging facility for 1 kilogram packages in Buzau, Romania. Further capital spending is planned for the environmental and energy areas. The € 12 million budgeted for the investment programme in the Starch segment is a significant decrease from the prior year, and is limited to necessary replacement expenditures. The Fruit segment has an investment budget of around € 27 million for the 2009|10 financial year. In addition to productivity-enhancing investment in Valence, France, a production line for new product areas is to be added in Centerville, USA, as a step towards the further diversification of AGRANA’s customer base. In the fruit juice concentrates activities, AGRANA is investing only as required to maintain production and satisfy legal requirements.
SUGAR SEGMENT
AGRANA is focusing primarily on developing its market position in the Eastern European region, which has become a deficit market with the sugar regime reform (demand now exceeds local production). In addition, import quotas for raw sugar will come to an end in Romania and Bulgaria at the end of September 2009, and it currently appears doubtful that raw sugar supply in these two countries will meet demand. The reduction in the price of sugar, together with lower production, will strongly shape the market environment. Revenue is therefore expected to ease somewhat in the 2009|10 financial year due to the price reductions resulting from the sugar regime reform. The elimination of the restructuring levy and normalisation in energy prices should have a positive effect on profit in the Sugar segment.
A total planting area of approximately 85,500 hectares of sugar beet is planned in order to utilise the 618,500 tonnes of sugar quota allocated to AGRANA in the 2009|10 marketing year after the surrender of around 117,000 tonnes of quota.
STARCH SEGMENT
AGRANA expects revenue in the Starch segment during the 2009|10 financial year to reach the prior-year level. Sales prices are well below those of the first half of 2008|09, and although the resulting decrease in revenue is partially compensated by full utilisation of bioethanol capacity and higher availability of isoglucose, the slowdown in economic activity has caused a drop in demand for industrial starch products. At the present time, it is not possible to reliably forecast the magnitude of these effects on revenue and profit during the 2009|10 financial year.
About 200,000 tonnes of conventional and organic starch potatoes are being contracted for the 2009 campaign year. Most of the starch corn required until the new 2009 crop for the Aschach facility has already been contracted, as has most of the wheat, corn and triticale for Pischelsdorf.
Hungrana will process approximately 970,000 tonnes of corn in 2009. Purchasing arrangements are in place for most of the corn required until the new 2009 crop.
FRUIT SEGMENT
Consumer behaviour in relation to fruit yoghurt will continue to be the dominant factor in the market for fruit preparations. AGRANA expects retailer own brands to increase at the expense of brand-name products. In addition to cost optimisation, emphasis will also be placed on innovation and the launching of new products. Although AGRANA, as a result of its global presence, anticipates that sales quantities will decrease slightly, the combination of the company’s strong focus on quality, uncompromising food safety, proximity to customers and innovative product developments are expected to buttress its position.
AGRANA is projecting sales volume for fruit juice concentrates to increase during the 2009|10 financial year, with regional reductions in market size (particularly in Russia and Ukraine) likely to be compensated by additional sales in other regions. Most of the production from the 2008 campaign is contracted with customers. Due to global excess supply and low apple costs for the 2008 crop, market prices are likely to remain low.