AlzChem Group AG (ACT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and warm welcome to today's earnings call of the AlzChem Group AG following the publication of the Q1 figures of 2025. I'm delighted to welcome the CEO, Andreas Niedermaier; CFO, Andreas Lösler as well as CSO, Dr. Georg Weichselbaumer, who will speak in a moment and guide us through the presentation and the results. [Operator Instructions] And with this, let's start. Mr. Niedermaier, the stage is yours.

Yes. Thank you for the warm introduction, and good morning together. Thank you for joining us today, and welcome to our first quarterly call. For this year, as always, we will go through the presentation first and then we'll be available for questions at the end. Let's skip the disclaimer and first slides here and directly start with the highlights. So the highlights presented here reflect the robust performance of the AlzChem Group in quarter 1. We are seeing strong development trends in the Specialty Chemicals segment, in particular, which made a significant contribution to our sales and EBITDA figures here. So in the area of the free cash flow, we grew disproportionately due to initial customer payments in connection with our capacity expansion for nitroguanidine. The details of this, especially the accounting impact will be explained to us in more detail later by Mr. Lösler. The global Scientific Creatine Conference held in Munich in mid-March underscores our commitment to innovation and leadership in the industry. The Creatine Conference became the meeting place for scientists, health and nutrition experts, the trade press and interested parties who could learn more about the many benefits of creatine. During the 4 days of the event, there were exciting lectures on the following topics: aging, diseases, metabolism, cognitive function, pregnancy, female health and sports performance. Renowned scientists presented the latest findings and research results here. If you are interested in, you can generally find out more about creatine on the web page, Creatine For Health. So since we are asked by many of our investors about the U.S. tariff situation, here are a few information about that. So we're following the topic in great detail and are close to it. So far, many of our products are exempt from the additional tariffs, and we do not see any impact either positive or negative for the products. Only a few products are already affected by the higher tariffs, which certainly led to shifts in sales as our customers expect the situation to ease again in the short term and the customs duty could be eliminated. Overall, we expected -- or we expect a few, if any, shifts in sales. Looking ahead to the future at all for revenue and earnings, we are fundamentally optimistic as we can continue to confirm our outlook and expect record levels of both revenue and EBITDA for that year. So now a few words about the large NQ investment project. Only a few words about that. We are on schedule and have started already with the execution after receipt of the building permits. We have received the first significant customer contributions on the form of upfront payments, which you will see later on the balance sheet. And last but not least, in U.S.A., we have visited and I identified the first locations and the selection process is underway in good pace and in time-wise already as well. So, so much for the highlights. Let's analyze the segments now. And for that, I hand over to Georg Weichselbaumer.

Thank you, Andreas. As always, let's start with the Basics & Intermediates segment, which largely developed as expected for the first quarter of 2025. The segment concluded the reporting period with sales amounting to approximately EUR 43 million. This represents a decrease of EUR 6.7 million or 14% compared to the previous year. As shown in the sales analysis, the decline in sales is due to a combination of price and volume effects and is essentially within the forecast. The main reason for the sales decline in this segment was the weak economic development of the European and German steel industry, which led to a significantly reduced demand in the metallurgy product area. All other product areas achieved more or less the same level of sales as last year. Most customer contracts within the commodity business act on price escalating clauses. However, the high electricity cost of Q1 2025 will only impact on pricing in this sector with a delay of up to 3 months. Accordingly, pricing in Q1 2025 was mainly based on lower raw material costs in Q4 2024. Electricity prices were approximately 40% higher than the previous year. And this can be seen in the decline of EBITDA in the first quarter '25. The decline was also impacted by the lower revenue. Both effects together also led to a decline in the EBITDA margin compared to the previous year. As explained multiple times, the products of our Basics & Intermediates segment are not only sold to the market, but very important raw materials for our following production steps and all raw materials required for the growth of our Specialty Chemicals segment could be produced reliably. This brings me to the next page, where we analyze the situation in our Specialty Chemicals segment. The steady growth trend continued in our Specialty Chemicals segment. In the first 3 months of the fiscal year 2025, sales amounted to approximately EUR 95 million, which represents a growth of 2% compared to the previous year. This is particularly remarkable given the fact that the first quarter of the previous year was the strongest quarter of the whole year in terms of sales. The increase in sales was mainly due to higher volumes while prices dropped a bit over the whole segment with development in both directions. Highest volume and sales increases compared to last year could be achieved in our product areas, Human Nutrition with our brands, Creapure and Creavitalis and custom manufacturing with the usage of our multipurpose plants. This development clearly shows the ongoing growth trend of our creatine products and that our quality promise and marketing activities pay off. As Andreas has already said, the Creatine Conference in Munich was a huge success. It is also very pleasing that our area of custom manufacturing is once again well utilized and was able to grow compared to the previous year. This development confirms our confidence that the volume declines of recent years were only a temporary phase and that the product area offers further growth opportunities with corresponding contributions to our EBITDA and margin. This contribution was also immediately reflected in the EBITDA of the first quarter of 2025, driven by the sales development in the areas of creatine, custom manufacturing and nitroguanidine, it contributed strongly to the segment's EBITDA. EBITDA ended up at EUR 26 million, which represents an increase of 15% compared to the previous year. This resulted in an EBITDA margin of 27.6% of the 24.4% of last year. Thus, the growth trend in the Specialty Chemicals sector continued in the EBITDA margin in the first 3 months of 2025. Again, we are mostly satisfied with the development within this growth segment and confirm our growth perspective. Let us now move on to our third segment, Others & Holding. The sales of the Others & Holding segment was slightly below the previous year's level. This decline is mainly due to reduced electricity grid fees charged to the chemical park customers. All other services taken from chemical park customers are broadly stable. The segment's EBITDA was also below the previous year's figure. This small decrease is mainly in line with the revenue development. That was all for a detailed view on the segment development. Let's now hand over to Andreas Lösler and take a look at the overall group figures.

Also good morning from my side, and thank you, Georg, for the insights our segment development in the first quarter of '25. As always, I will start with a detailed look at our group P&L figures first. In terms of sales, we finished the first quarter of '25 with total sales of almost EUR 145 million, which represents a decline of approximately EUR 5 million compared to the first quarter of '24. My colleague, Georg already explained the opposing contributions of our segments to this sales development. With regard to our guidance for '25, we are completely on track with the developments in the first quarter as we do expect higher sales compared to last year within the second half of the year, mostly coming from our Specialty Chemicals segment. Our sales split in Q1 '25 shows a 65% sales portion coming from the Specialty Chemicals segment, while this relationship was only 62% in the first quarter of the previous year. This development clearly underlines our strategy and support our growth. Our EBITDA development is a result of this revenue shift into Specialty Chemicals. Within the first 3 months of the year, we increased our EBITDA by 10% compared to last year, up to EUR 27 million. As with the sales and already explained, we saw a different development between our 2 operational segments. Our EBITDA margin also showed a positive development and a strong increase. Within the first quarter of '25, we could reach an EBITDA margin of almost 19% after 16.6% at the same time of last year. The closer analysis of the cost structure reveals only an increase in electricity costs in the first quarter. Otherwise, we can report a fairly stable cost structure. Our financial result improved materially, which was supported by the stable cash position and lower interest expenses. As a consequence, we increased our net result and earnings per share by 20% compared to the first quarter of '24. That was the big picture of our P&L. Now let's move on to the balance sheet and our cash flow figures. Our balance sheet and cash flow figures are still very healthy, but influenced by some special impact. We have to report a material increase within our total balance sheet of approximately EUR 72 million resulting from the developments within noncurrent and current assets. Within our noncurrent assets, we can clearly see the strong investing activities, we are currently running for our nitroguanidine and creatine capacity expansions. Approximately half of the investing cash flow in Q1 '25 was spent for our CapEx program in nitroguanidine. Another major impact on our balance sheet total was the recognition of the first customer grants and the related contract assets and liabilities in conjunction with the capacity expansion here in Germany. As the accounting treatment materially impacts the understanding of our current and future development, we will discuss this issue separately on the next slide. Apart from this, we saw an increase in our inventory level in preparation for a scheduled extended maintenance of one of our carbide furnaces. Equity total could be increased by EUR 15 million, resulting from the positive Group's net result and the recognition of increased interest rates for pension valuation. However, as the balance sheet total increased materially, our equity ratio remains slightly below the figure of the last balance sheet date. This development was already outlined within our guidance and shows the expected ratio. Based on the mentioned increased interest rates, our pension liabilities were reduced by approximately EUR 5 million, while real pension payments only amounted to EUR 700,000. The operating cash flow was significantly influenced by the customer grants received for our CapEx program. As mentioned already, I will explain this impact in more detail on the next slide. For the first 3 months in '25, we can show a positive net cash flow even with this increased investing cash flow. This demonstrates a positive funding effect of our customer prepayments. Financing cash flow showed regular loan repayments and approximately EUR 4 million cash out for the current share buyback program. In total, we spent EUR 5.3 million for the acquisition of our own shares already. Again, we can show a positive net cash position by the end of the first quarter '25 and are able to shortly invest our liquidity surplus in order to earn interest. As you can see, AlzChem is in a very healthy cash position and the customer grants will support the debt refinancing of our largest investment program in history. I will now guide you through the special impact and accounting treatment of these agreements. We received many questions about the impact and the accounting treatment of the customer grant and we decided to give a more detailed explanation about the current and future KPI impacts of these customer agreements. Accounting treatment for the EUR 35 million grant from the European Union is very easy. The cash received will be deducted from the acquisition costs in fixed assets over the construction period. This accounting treatment will reduce the basis for depreciation and future depreciations accordingly, and the payments simply reduce our investing cash flow. Accounting treatment for customer grant is somewhat more complicated as different rules apply. Our customers will pay their related portion over the project time. Some customers will pay based on milestones while some other customers will pay on a monthly basis. Based on the current agreements in place and in negotiation, we expect the last customer grant by the end of '29. The expected cash flows are shown in the box at the bottom on the right-hand side. It has to be noted that this picture is our current best estimate as we are still in negotiations of finalizing the last contract details with some customers. Contracts for customers with monthly payments are initially recognized as other receivables in our balance sheet. This receivable will constantly be reduced as the payments are received in cash. Customers with milestone payments initially impact our balance sheet as the cash is received. The initial recognition of those other receivables and milestone payments leads on the other hand to a so-called contract liability within our balance sheet. Once the cash is received, it is shown within our operating cash flow as cash increase and will have a material extraordinary impact on that. The related contract liability represents our obligation to provide our customers with additional capacities once we have the new factory in production. Accordingly, we will reduce this contract liability while recognizing revenue over the related contract period with our customers, which will not start before 2027. This revenue will be extraordinary revenue beginning in '27, as it is not linked to the real sales price based on the invoices to the customers. It is only accounting revenue, and it will not lead to cash payments afterwards, but it will increase our EBITDA and margin accordingly. This impact and our current best estimate of the timely development of our KPI is shown on the table right on top. The current impact on our Q1 figures and the link between all affected position as shown in the box left on the bottom. We received EUR 39.5 million in cash from customers. We recognized EUR 14.3 million other receivables. Both positions combined represent the amount recognized as contract liability and the increase in our total balance sheet. As shown here, there was no impact on profit and loss in Q1 out of these contracts and payment. After this very detailed accounting discussion, we will now jump to the outlook for the remaining part of the year. As Andreas Niedermaier already said, from today's perspective, we can confirm the outlook given in our last financial statements and the developments in Q1 '25 have confirmed our estimates. Sales are expected to grow to approximately EUR 580 million and EBITDA is expected to grow to approximately EUR 113 million. Our outlook is still based on the same assumptions as at the beginning of the year. The fundamental growth drivers are volume effects within segment Specialty Chemicals, which shall overcompensate a slight sales decline in the segment Basic and Intermediates. Sales are expected to be higher within the second half of the year, supported by a further increase, demand in the area of custom manufacturing and positive developments within the NITRALZ product area. As mentioned by Andreas already, we do not expect a material negative impact from the volatile tariff politics of the U.S. administration right now. So that's it from our side with the information for the first quarter and the outlook for '25. At this point, we would like to thank you for your appreciated attention and I'm now at your disposal for possible questions.

[Operator Instructions] And we already received some questions. The first one from Duarte Murta.

Congratulations on another strong quarter. Two questions from my side. Firstly, on the Specialty segment. Pricing was down by roughly 2%. Could you elaborate on what drove the decline and what products?

Usually, we don't give any kind of detailed product information because we are a single producer for many of our products. And from that point of view, we don't like that to give that. But to say, I think the main topic came and the main development was in Dormex region. And the second main driver for the Specialty Chemicals development was the big change in custom manufacturing.

Okay. And quickly on Creavitalis, you mentioned -- I think, for the first time directly that you saw volume increases there. Is there any announcement related to Creavitalis that justifies the higher volumes? And maybe a second one on cost of manufacturing. On the full year call, you basically had mentioned you already expected a slight improvement, not necessarily dependent on the European chemical industry recovering, but more on restocking by the clients to assure base levels of production. It seems that now you're seeing an actual -- what could be the sort of an actual recovery? So as I assume that was not in your guidance, is this something we need to look for to develop and could possibly affect the EBITDA number positively?

So that development was already anticipated in the guidance. But what is really the case is that the custom manufacturing came really back online. So there is a so-called restocking effect, what we see in the market here. And what helps us a lot is the higher utilization rate in the plant. That's one of the reasons why we had much better results in that quarter than sales increase you have already seen.

Okay. And on Creavitalis volume increases?

Also, those volume increases were already in our budget, and we see it on a very broad scale. There is no individual single application where that happens. I mean, as we had communicated, creatine has various applications into the health and food sector, and we see it happening that we have sales to various customers for individual projects start.

We're going to move forward with Konstantin Wiechert.

Thank you so much for the presentation and also the comprehensive overview on the nitroguanidine effects. Just maybe a question on your Basics & Intermediates segment and particularly to the steel industry. I'm struggling still a bit to really understand the moving parts behind your lower profitability here. Yes, sales are lower year-over-year, but I mean on a similar level to the last 3 quarters. And as you said, you even increased inventory levels of your intermediates ahead of the planned turnaround in Hart. And I mean, I understand that your selling prices are partly linked to the raw material index. But I guess, the selling prices of the fourth quarter should then also match with your inventory purchases of the fourth quarter. So I'm not really sure why that's affecting the margin side. So just some color on that would be helpful.

Okay. Yes, thank you very much Konstantin for your question. And I think we should bring a bit light on the development in this Basics & Intermediates segment. First of all, what was the impact of our negative profitability compared to the last year, as you are probably aware of, we had much higher electricity costs in the first quarter, as I mentioned in my part of the presentation, and electricity costs usually impact our Basics & Intermediates segment more than each other segment and more than each other product. So this was mainly the situation with the margins. In terms of pricing, you're right, we had the impact from the high electricity costs in the Q4 -- from some higher electricity costs in Q4 and could pass through those prices from the last quarter to our customers. But the impact from the more increased pricing in Q1 will only be seen with the time lag as we do pass through our pricing to our customers with a time lag of, let's say, 2 to 3 months of the quarter. And in terms of inventory, what you mentioned, we clearly did not increase our inventory level in Basics & Intermediates segment due to an expected upturn of the economy, we do increase -- we did increase our inventory level in -- as a preparation for a maintenance shutdown in our -- in one of our furnaces in Hart. And in order to be able to deliver our customers during the shutdown period, we increased inventory levels before and are completely on the expected level here.

Yes. Perfect. So just to sum it up, does that mean you kind of -- your prices will increase over the next quarters, and then we should see profitability return a bit more towards the levels that we have also seen over the last quarter. Is that a fair assumption?

Konstantin, that's right, that's the idea we have, and that's what we expect about that.

Okay. Perfect. And then maybe just a clarification question. I had in my mind that you wanted to bring on capacity addition in Creatine already in the first quarter. I think I've read now that you want a plan now to bring that online in the second half of the year. Any comments on that? Maybe I have just missed that you delayed that a bit? Or yes, how -- is that running according to plan?

Konstantin, I'm very sorry about that misunderstanding. So from our point of view, that was always the case that we have planned additional capacity in the second half of the year or in quarter 4, something like that. So there must have been a misunderstanding, I'm very sorry.

We move now forward with Oliver Schwarz.

Thank you, gentlemen, for the very comprehensive presentation on the balance sheet effects and on the P&L effects of the prepayments. That was very helpful. Coming to my questions, when talking about the segment of Basics & Intermediates. You related the sales decline mostly or fully to a decline in business with the metallurgical industry in Germany/Europe. That was a EUR 7 million decline. Can you give me an indication about the extent of the decline when compared to the business. Is that e.g. a 10% decline of the metallurgical business that you have or a 50% decline, any ballpark number would be helpful. That would be my first question.

It's Andreas speaking. So I'm seeing many question marks in the eyes of my colleagues here when you asked that question, that kind of question because we don't really want to disclose such detailed information. But to summarize that in that way, I think the steel industry in Europe is not in the best situation actually. It's not that healthy. And from that point of view, we lost here in that region quantities and prices together. And we hope that with the new government installed in a few days in Germany, that steel industry will come back on stream in a few months, hopefully, from our point of view, hopefully.

Okay. Okay. And may I probe you or ask you about the -- I mean, a lot of what you're manufacturing in the Basics & Intermediates segment is used internally as a raw material for the Specialty Chemicals segment, obviously. May I ask you what the mechanism of higher electricity prices in that regard? Is there also a time lag concerning the raw material prices that you internally manufacture? Is that, let's say, a delay as well as it is for external customers? Or is that passed through, let's say, from day 1 on and increases the raw material bill of the Specialty Chemicals segment?

So it's a mix of both. It depends on our evaluation in the stock. So we usually try to have a long-term electricity price in stock evaluation. And if there is a fluctuation in the daily prices, then you will see that directly in the P&L. So from that point of view, I think we have already seen the higher prices of electricity in the first quarter, and we will not see any additional higher prices out of stock for specialties in the future or in the next few months -- in the future -- sorry, I cannot forecast that. But in the next few months, I don't expect any higher prices out of stock because we do always a very prudent evaluation of our stock and from that point of view, that should be safe.

In that -- let's say, in that situation, obviously, the raw material prices for your Specialty Chemicals segment have increased based on those higher raw material costs that you incurred due to the electricity costs. So will that also, from your point of view, lead to price hikes in the Specialty Chemicals segment due to the higher raw material costs? Or is that to be absorbed basically by you due to longer, let's say, contracts that are only renegotiated perhaps every 6 or 12 months? Or is that a part of costs you are willing to absorb due to, let's say, a higher efficiency and higher capacity utilization that you have? How do you approach your customers in that regard?

We do not absorb cost. That's not our business model. And when you listen to the presentation, you see in Basics & Intermediates, we have cost-driven discussions with customers and models accordingly. In the Specialty Chemicals, we look at cost, yes, but prices are driven by what we can realize in the market. And therefore, cost is something which we consider internally. But in the market pricing, we try to get whatever we can.

Understood.

So from that point of view, do not expect any higher prices in specialties out of raw material push up. And on the other hand, as I already elaborated, we won't see any higher prices out of raw materials from today's point of view because we have already seen that effect in the quarter 1.

Understood. In that case, could you -- last question, I promise. In that case, could you please elaborate a bit on the price decline in Specialty Chemicals? Why is it that you feel that you cannot demand the same prices compared to last year, but have to accept lower prices?

Yes. So in many times, we are the single producer of products around all the nice 3 we produce. But in some cases, we have some competitors, they undercut our prices. And in many times, that is the case when the customer is China-based. And from that point of view, we have seen some price reductions within Creamino and Dormex, where we see Chinese competition out there.

We move forward with Patrick Speck.

Thank you for the very detailed presentation. My first question is on the customer manufacturing business area again. I was a bit surprised, to be honest, by the trend reversal you mentioned in this segment or in this area. Could you give us some ideas which end markets this is coming from? And why you think this is an ongoing effect despite the economic slowdown, we all might fear in the upcoming quarters?

Yes. We have had that discussion already during the last calls, and we see a couple of effects. The first one, inventories are depleted at the customers, and that effect is gone and we see now the return of the regular business. In addition to that, we have individual projects which will slow down, but which are now coming back. And there is no single direction in which those products go. It's a various mix of different industries where we see an upturn now. And it is not for a new project, it is for projects which we have had in our development portfolio for quite some time.

And as I mentioned, with regard to our forecast and your questions about whether this is a stable development, we do expect this development to be stable over the year, but our internal forecast showed some higher sales even in the second half of the year out of the custom manufacturing.

And do you expect some positive effects in this business area also from the infrastructure program that is -- yes, put in place in Germany?

That's a good question. We've answered this question a lot of times in investor call the last days. I think right now it's too early where the infrastructure program goes to. We haven't discussed internally, maybe if the infrastructure program can support the steel industry, for example, that could support our Basics & Intermediates segment. But right now, there is no clarification on where they want to buy the EUR 0.5 billion -- to spend EUR 0.5 billion. So from that point of view, it's too early, but we do hope that the economy recovers more than expected and that we will profit out of this as well.