AlzChem Group AG (ACT) Earnings Call Transcript & Summary

Yes, thank you for this introduction. Good morning together, and thank you for joining us today, and a very warm welcome to our half year figures. As always, we will go through the presentation first and then we'll be available for questions at the end. And let's skip disclaimer and go directly to page, I think it was 5 to start the presentation. So let's now start with a brief overview of the actual situation. Looking at the first half of the year. We are ahead of the previous year in terms of sales and EBITDA. The segments have developed very differently, but we will look at the end in more detail later. The important thing is that we are able to remain on our growth path despite rocky roads and tough general conditions out there. So we presented our climate road map to the Annual General Meeting and received very strong support for it. Incidentally, I personally have also received a lot of encouragement from the investment community, which tells us that we are on the right track here and that we will fit into many new investment categories [ business ], which confirms that we are progressing in the right direction in this way. So with the very strong growth of our human nutrition business, including our star product, Creapure, we are meeting completely our forecast. So forecast is a good keyword here. We will analyze this in more detail later, but this much upfront, we are still within our guidance, albeit at the lower end in terms of sales but at the upper end in terms of EBITDA. What has been extraordinarily better than last year is our free cash flow, which was very strong this year and thus had a very positive impact on our key figures overall. So on the CapEx side, there is also positive things to report starting in quarter 4. We will bring online a further incremental capacity increase in the creatine area, which will then again support our growth, especially with the beginning in quarter 4. And there are also news to report on the topic of growth and CapEx for which we go to the next page. So you are probably all already familiar with our Verbund system and our production family tree here. On the one hand, we are working on new topics outside the family tree. We will be able to say more about this in the next report. On the other hand, we are also growing considerably within the family tree, especially within the fruits, the specialty chemicals part. And here, we may give you a little more detail on our very popular branch product, which is our [ Perlka ]. So from calcium cyanamide, we produce a chemical that represents a major unique selling proposition, namely our cyanamide. On the one hand, an interesting, highly reactive industrial chemicals. On the other hand, the basis is a raw material for further very interesting scheme development. One of our most interesting products is Creapure, a premium brand of creatine monohydride as a dietary supplement not only in sports nutrition, but with good prospects in additional applications. So in order to reach all market potentials of creatine, we are adding our new product, Creavitalis for health and food applications. These 2 markets have profoundly changed in the last years. The increased attention people are paying to health and healthy nutrition open new opportunities for our creatine. With Creapure, we are clearly positioned in the performance sport market where Creapure is the top brand in this market. Creavitalis is targeted for health markets. Based on numerous new scientific findings because of its importance for well-being, it has a potential as well in the functional food market. Livadur is our D2C or direct-to-consumer brand addressing the healthy fitness market. We have been able to obtain even an EU health claim proving that creatine can avoid muscle loss with increasing age. Why Creavitalis as an additional creatine product? With this brand, we follow a trend. End users in health and food markets have product needs and expectations, which differ substantially from application and performance markets or performance sports. To be successful, these needs have to be addressed specifically. Apart from a different marketing approach and language, we are micronizing creatine for better solubility and [indiscernible] and applying a tight analytical check to support close to clinical applications. Supported by clinical studies, we are focusing on applications in female health, in male fertility, in cellular energy, in recovery, in cardiovascular, in brain and cognitive functions and in Post Viral Fatigue. All these body functions need a lot of energy. So creatine is important to them. So we are doing groundbreaking work here since until today, no one has entered these markets with creatine. The potential of this market is important. So all in all, this is our next arrow in the cure to grow further in specialties, but let us now return to our figures analysis of the segments, and in general. So the development of sales in the second quarter of 2023 shows a different picture compared with the first half of the year. Sales decreased by around EUR 14 million to EUR 120.6 million (sic) [ 126 million ], and the decline in sales affected both operating segments, albeit to a different degree. So this mainly affect the basic and intermediate segment, while the Specialty Chemicals segment recorded only a slight decline in sales. Half year sales amounted to around EUR 277 million, an increase of around 8 million or 2.7% compared to the same period of the previous year. So the main drivers for this development were the products from the Specialty Chemicals segment. Looking at the group as a whole, the increase in sales was mainly generated by 15.1% price increases, which overall had to, and was able to compensate for around 12.8% in volume decline. EBITDA in the quarter 2 was EUR 17.9 million, and thus, almost exactly at the absolute level of the previous year. The analysis of the second quarter thus shows that the lower revenue is merely a pass-through of lower production costs, but also the deliberate decision not to sell products with low or negative earnings contributions, the EBITDA margin, thus, increased from 12.7% to 14.1% in quarter 2. Half year EBITDA increased by EUR 1.9 million -- sorry EUR 36.8 million. This corresponds to an increase of 5.5% compared with the same period of the previous year, and we were able to increase the EBITDA margin by 0.4% from 12.9% to 13.3%. So earnings per share follow the result of the period and are at EUR 1.46, 14.6% lower than in the previous year. Here, we see effects from higher interest costs. so much for the big picture and the overview. Let us see some market developments that Dr. Weichselbaumer will present to us on the next few pages.

Thank you, Andreas. Let's start with Basics & Intermediates. In the Basics & Intermediates business, we recorded a decline in sales in the half year from EUR 115.4 million to EUR 103.4 million or approximately 10%. The decline in sales in the quarter was even stronger from EUR 57.9 million to EUR 46 million or approximately 20%. The volume decline in Q2 was about the same as in the first quarter at approximately 26%. Only in Q1, the price increase of 15.1% counterbalanced more than the 6.5% in Q2. In general, but above all, the energy electricity intensive product suffer, especially our fertilizer Perlka. In addition to higher electricity prices, alternative fertilizers also produced outside Europe are imported to Europe in large quantities. We are currently refraining from contribution margin business with very low margins, and the price roll with Asian manufacturers. This has already a positive effect on both the quarter and the half year figures due to our flexibility to cut costs and to shift employees to higher capacity utilization plants in Specialty Chemicals. We achieved EBITDA of EUR 5.2 million for the half year and EUR 2.4 million for the quarter. Both are significantly better figures than in the previous year. So the positive effect of the volume reduction is that we were able to slightly improve our margin. However, the weight of Basics & Intermediates is also decreasing in our group which has an overall positive effect on the figures at all. So much for the Basics & Intermediates segment. Let us now move on to the Specialty Chemicals segment. The Specialty Chemicals segment was on the growth path in the first half of 2023, increasing sales by EUR 17.5 million to EUR 159 million, which means plus 12%, mainly due to strong sales in the first quarter of 2023. The increase was driven by higher prices but also by volume increases in individual product areas. Also, overall, a slight decline in volumes was recorded for the segment as a whole. The situation is somewhat different in the second quarter. The Specialty Chemicals segment also saw a slight drop in sales in the second quarter by EUR 3 million to EUR [ 73.2 million ]. Overall, volume declines had a somewhat stronger impact here than price increases. However, it can be seen that the price increases are no longer as severe as those in the second quarter of the previous year. High increases were necessarily there due to the considerable cost increases. On the sales side, the picture in the second quarter was mixed. Here, too, the dietary supplement groups achieved strong volume growth with Creapure. Sales also increased for some products in the automotive area and the use of guanidine salts. In the other areas, sales were down on the prior year quarter, albeit to varying decreases. Here, the decline in volumes outside the increase in product prices. As production in this segment is not so electricity intensive, and the remaining raw materials remained at the high level, only a few price reductions where necessary. However, particularly in the Specialty Chemicals segment, customers are currently giving preference to reducing their own inventories. One of the reasons for this is the company's own liquidity situation which is forcing them to reduce working capital as interest rates rise. On the other hand, however, the improved logistics situation is also allowing safety stocks to be reduced as delivery time can now be planned more easily again. EBITDA for the second quarter was around EUR 15 million, only a slight decrease and essentially in line with revenue. However, half year EBITDA remained almost stable at EUR 31 million. This is a slight decline in the EBITDA ratio to 19.5% compared with 21.6% for first half of the previous year. Let us now move on to our third segment, Other & Holding. The Other & Holding segment generated sales of EUR 1.7 million higher than in the previous year. This is mainly attributable to general price increases for the services purchased from customers at the chemical park and to higher grid work fees from AlzChem's grid operations. Last year, prices for media and services at the chemical park would mostly only be adjusted retrospectively due to rapidly rising costs, whereas current prices already take into account the increased cost level. The segment's EBITDA of EUR 0.9 million was slightly above the level of the previous year. This is mainly due to the external grid work operations of AlzChem, higher approved grid work fees and lower electricity losses led to improvement in earnings year. Let us now take a look at the balance sheet, and back to Andreas.

Thank you, Georg. Then some words to the balance sheet. The decrease in our total assets by EUR 3.7 million to EUR 419 million resulted mainly from a decrease in other noncurrent assets and is a subsequent effect of more cautious CapEx activities this year. [indiscernible] is slightly at last year's level, and will rise again slightly during summertime as we stockpile more favorable summer electricity prices in the form of our central product, carbide and calcium cyanamide. Furthermore, there were no extensions to payment terms and only very little bad debt losses in the customer side, and thus, receivables were roughly on at par with the previous year. Our equity also increased by EUR 2.4 million to EUR 140.8 million as a function of the good results despite payment of the dividend in May. The equity ratio remains at a stable level of just over 35%. So in the first quarter, EUR 30 million in noncurrent liabilities were raised, the short-term line was, therefore, reduced by this amount, but the original volume of short-term commitments was also maintained. So we have large reestablished a reliable and sustainable financing structure. So that's it for the balance sheet. Let's go to the next page and do some analysis on the cash flow statement. For the half year, we generated a quite positive cash flow from operating activities of around EUR 40 million. This represents an improvement of around EUR 57 million compared with the previous year. The reason for this are the now positive effects from the strict working capital management, which was started in the second half of the last year and has been consistently continued since. Furthermore, the very high sales in the first 3 months led to significant cash flows, and the change in working capital resulted in an inflow of EUR 6.7 million for the group after an outflow of EUR 49 million in the previous year. Capital expenditures reflect the more cautious investment policy of the first few months of the fiscal year, which is constantly reviewed in the light of developments in the economic environment. So that's it for the cash flow. And let's talk about our main targets. You may know our target list. We are focusing on mainly 3 areas here: improvement, growth and sustainability. Let's talk about improvement. Our top priority this year remains to pass on oil raw material prices increase -- price increases to our customers. Conversely, if raw material prices were to fall significantly. This could also mean that we would give some of this back to our customers. We have decided to further increase flexibility in production. To this end, we will run one of our furnaces along the electricity price curve. This means that when electricity is cheap, we increase output, and when electricity is expensive reduce output or even shut down the carbide kiln. The third point is our 0 waste strategy. This could also be classified as a sustainability goal. But for us, it has always been an important economic issue. We are in the middle of implementing all the improvement measures here, and are well on our track. Talking about growth. In the target area of growth, we are primarily focusing on filling the remaining spare capacities in Creapure, Creamino, NITRALZ and silicon nitride activities. We are already well on the way here, which we will see then in the forecast. In addition to filling capacities, the focus is on establishing Eminex as a methane reduction product. With Eminex, it would be possible to save up [indiscernible] up to 5 million tonnes of CO2 per year through already existing production capacities. We are in close coordination with politics and authorities and assume that it will only be a function of time to make that product great. And there's always -- growth is also about plant expansion, where we are planning the next steps for our multipurpose plant and our silicon nitride business. So with respect to sustainability targets, we are persistently pursuing the goal of 0 accidents and 0 waste. Another key point here is the implementing of our climate road map. And last but not least, we are working on the EU taxonomy regulation and the CSR reporting. [ Year 2, ] we are in full implementation mode of our climate road map. So -- but right at the top of the list is, of course, our revenue and EBITDA target, which we will look at on the next page. So from today's perspective, we can continue to confirm the forecast up to EUR 590 million in sales and around EUR 70 million in EBITDA. In contrast to what we saw in quarter 1, we now see sales at the lower end of the forecast range and thus closer to around EUR 560 million. In many product groups, product prices also follow raw material price developments, which trigger the somewhat lower sales forecast. The fundamental growth drivers are volume effects, as already described earlier, in the target list via Creapure, Creamino, et cetera. Specialty Chemicals will remain to be the growth engine. In the Basics & Intermediates segment, we mainly expect price fluctuating with raw material prices. Volume declines in agriculture will be offset by higher average prices. And demand for the metallurgical products is likely to decline slightly with the economy. And the pricing formulas will allow cost changes to be passed on. On the earnings side, we expect higher raw material prices more or less similar to the 2022 average but with slight relief trends in the second half of the year. So that's it from our side with the information for the half year figures. At this point, we would like to thank you for you -- appreciate the attention, and are now at your disposal for possible questions if there are any.

[Operator Instructions] And we already received the first question. Mr. Markus Mayer.

Do you hear me?

Yes, we can hear you very well.

I have 4 questions, if I may. The first one is, today, we've heard from [ Biva ] that farmers have restarted their ordering behavior in the third quarter for fertilizers and all the other agrochemical products. So my first question, do you also see this in your third quarter for your agro product so far? The second question will be on destocking. Can you quantify if you have seen destocking at your end customers? And if so, [indiscernible] if you also expect to continue this in the third quarter? Then the third question would be on your expectations for the second half for your others and holdings line, as this is quite hard to judge the development here? And then the last question, would be on your financial costs. Can you quantify the effects of your financial costs from the refinancing of the EUR 13 million liabilities.

Okay. Let's answer the questions one by one. I'll try to do that with number 1 and 2 and then hand over to Andreas for 3 and 4. On Perlka and digital sales in Perlka, I mean, we continue to get orders for Perlka because there are still applications there where it gives a benefit to the farmers. We have just -- are in the process of announcing our pricing where we actually will go up to make the market understand. And that's the key issue at the fertilizer market that people will wait for the lowest price and then buy. And therefore, it has a very little buying activity. And we think we can trigger the market by showing them that we have reached the trough of pricing. On the destocking, yes, we have seen destocking in Q2, and we expect that to continue in Q3. Again, mainly in the specialty chemicals area, but we do not expect that it will continue beyond Q3 and expect then an increase again in Q4, also mainly driven by the commissioning of capacity expansions on our Creapure business line and also by seasonal business, for example, in the agricultural area.

Yes. Okay. Then I try to go on with the next questions. This was how will second half year will be the forecast for Other & Holding? From my point of view, we will see more or less the same situation as the last year, only at a little bit higher price levels. And therefore, there could be that the margin will be as healthy as for the first half of the year. So if you calculate more or less with the same situation as in the first half of the year, that would be a good idea from my point of view. And then what is the cost of financial -- cost of refinancing. So I have opened that information on the slide show. You should see that on the Slide 27. And you see that information on other interest and similar expenses. So last year, we had a reverse effect here because of the accrual -- of the pension accrual and the reevaluation of the pension accrual, there was a positive effect on other interest similar income. This year, we don't have this effect further on, but we have already higher interest rates from our financing banks, and you see that in quarterly figures here, EUR 1.8 million for the first quarter and EUR 1.6 million for the second quarter.

And should we expect -- basically, should we model in -- or model the run rate of Q2 and also going forward for the quarters. Does it make sense?

Yes. It makes sense from our point of view. So because of the good cash flow, I expect a little lower interest costs, but it could be compensated with high interest rates to be honest here.

And we received another question from the person that has dialed in by phone ended by 553.

This is Peter Hasler. You mentioned that energy prices are passed. There are absolute peaks, and I remember that you have formulas where you have to pass on the prices with a delay of approximately 1 quarter. Has this already been happened in the second quarter of this year. Is this so fast? Are you so quick in passing on energy price declines to your clients? Or are we going to see this in the third quarter?

Unfortunately, both directions function at a similar pace. As we tried very hard to increase it quarter-by-quarter. And now we have to give the effects of reduced energy prices as quickly back to customers as we increased it.

I see. So this is what you meant when you said that energy price [ escalator clauses ], which led to price declines, you need to listen to your...

Correct.

Okay. Can you quantify how much revenues you deliberately lost or not wanted to have in the first half year? Is this possible? Or are you willing to do this?

So I think you see that more or less on Basics & Intermediates analysis, you see that we gave back volumes about 25% to the market or we avoided to make that business because otherwise, we had too much losses. But there is a price increase already overall of 15.1%, but we have seen that there is some price decrease, especially in the steel market. And in the steel industry, we have to -- gave back price increases on revenue.

Okay. I get it. And then something which will probably increase your blood pressure right now, if you ask you about the EU decision on [indiscernible] cyanamide. Can you tell us what the revenues have been in the European Union last year with that product? I suppose there is a lot of it going outside the EU already.

I mean when we look at the revenue side, it's negligible. We are talking here -- it's around EUR 1 million or EUR 2 million. Still, we will strongly oppose that decision, and we are currently preparing a court appeal. We will go to the European Court and fight that decision because we think it is fundamentally wrong. And it has actually -- they have actually acted against legal procedures, against laws, which were in place, and we are not prepared to accept that.

Understand it. I understand it. And finally, a question on Creapure. Are you going to address also professional sports, persons with Creapure or your creatine products? Should this be limited to private [ sport ]?

No, no, no. So the growth story of the past comes from professional sports. So what we see is that all professional sports, men and women, take creatine or creatine products. So that's the success story of creatine. And at the actual point, this story goes more to private use because of healthy aging issues and people avoid eating efficient and meat. And therefore, they have to less create intake. And from this point of view, this is a very interesting market development for us. we try to act in this market, at least with Creavitalis.

Okay. So this means that you can also guarantee that these professional sports persons will not eat anything which are listed on [ anabolic ] list or something like that.

Absolutely. I mean, we are on the [ Cologne ] list. It's considered a natural body of the substance. It's not considered as smoking. And every professional athletes, people who attend the Olympics, everybody takes creatine in the meantime.

Well, in the meantime, we have received no further questions. We, therefore, come to the end of today's earnings call. A big thank you also to the gentlemen presentation and time you took to answer the question. Should further question arise at a later time, please feel free to contact Mr. [indiscernible] from Investor Relations or us. Thank you for listening, and I wish you all a lovely week.

Yes. Thank you very much for your questions. We can now offer you the opportunity to visit us again virtually or in person at the conferences as shown on this slide. Otherwise, we will back with quarter 3 figures on October 19. And should we not see each other by then, stay safe and sound and stay in our good graces and goodbye.