AlzChem Group AG (ACT) Earnings Call Transcript & Summary

Good morning, and a warm welcome to the earnings call of the AlzChem Group AG. I would like to introduce the company's CEO, Andreas Niedermaier; and CFO, Andreas Losler, who will guide us through the presentation in a moment, followed by a Q&A session via audio line and chat. And with that, I hand over to you, Mr. Niedermaier.

Yes. Thank you for the warm welcome, and good morning to everyone. It's great to have you with us today. Thank you for joining for the first and quarter 2 analyst call. We will take you through the key highlights of the quarters first and then, as always, be available for questions. So let's get straight to the business and turn to Slide 5 here. Yes. Here we go. So let me briefly summarize our performance in the first half of 2026. We have delivered a very successful first 6 months here with both revenue and earnings significantly exceeding the prior year level. Group revenue increased by 6% year-on-year to almost EUR 304 million. Growth was driven by both higher volumes and an improved pricing environment, reflecting the continued strength of our specialty portfolio. At the same time, profitability once again developed significantly better than revenue. EBITDA increased by 14% overall to EUR 64.5 million, while our EBITDA margin expanded from 19.6% to 21.2% overall. So this strong earnings performance was primarily supported by the high utilization of our specialty production facilities and the continued shift towards higher-margin products. In particular, our Specialty Chemicals segment remained the key growth driver. As you know already, ingredients once again achieved significant growth, supported by robust demand in human nutrition, custom manufacturing and defense-related applications. Despite ongoing geopolitical tensions, we have not seen until now any material impact on our operating business so far. Now this underlines the resilience of our business here and the business model and attractiveness of our end markets. In addition, we successfully secured a EUR 100 million growth financing facility together with our banking syndicate. This provides a strong financial foundation for the next phase of our expansion strategy. More on this later on in the detailed analysis. On the operational side, the refurbishment of our carbide furnace is progressing according to plan and will further strengthen our production base then. At the same time, we have reached an important milestone for our international growth here and the growth strategy by taking the site decision for our future production activities in the United States. Another important milestone has already been achieved in Germany, both the nitroguanidine expansion project and a new guanidine production project have entered into the start-up phase and are progressing according to plan here as well. So these investments will significantly expand our capacity base in strategically attractive markets and support future growth, particularly in defense-related and specialty applications. At the same time, they demonstrate our ability to execute large-scale expansion projects efficiently and translate strong market demand into sustainable earnings. So against this backdrop, we remain confident regarding the remainder of the year and confirm our outlook for '26 as well. So overall, the first half of '26 demonstrates that AlzChem is executing consistently against its strategic priorities. With growth financing secured, major capacity expansion projects entering operation, continued momentum in Specialty Chemicals and the foundation laid for the U.S. expansion, we are well positioned to accelerate profitable growth and further enhance our earnings power in the years ahead. So let me now briefly walk through the U.S. expansion project here. I brought with me some picture and some information here. With the site decision for Bushy Park in South Carolina, we have reached an important milestone in our nitroguanidine expansion for the U.S. Bushy Park offers us a very attractive environment, including an established chemical park infrastructure, strong logistics and access to skilled workforce because chemical plants are already there. And therefore, we think that we will find the skilled workforce here as well. So the project has now entered into the next phase with feed activities already started and permitting as well as a contract finalization currently is ongoing with the DOW. We are targeting the start of construction in 2027. And what is particularly important to highlight is our 2-pillar production approach. We will continue to produce the key intermediates in Germany while establishing nitroguanidine production in the U.S. This setup allows us to combine our strong technological basis in Germany with a growing regional presence in the U.S., thereby strengthening both supply security of our customers and our overall production resilience here. So let us now analyze more details in the basic and intermediates. Therefore, I turn to the next page, which is Page 9 here. And in the Basics & Intermediates segment, revenue for the first half of '26 amounted to EUR 75.4 million. Here, we saw a decline of only 4% compared to the prior year and fully in line with our expectations here. Demand remained weak in agriculture, while competitive pressure from Asian suppliers continued to impact nitriles and pharmaceutical-related products. On the positive side, our metallurgical business showed initial signs of stabilization. So EBITDA reached more or less breakeven compared to EUR 1.3 million in the prior year period. Profitability was temporarily burdened by the scheduled refurbishment of our carbide furnace, including maintenance and shutdown costs as well as lower regulatory energy costs benefiting during the outage period. The furnace repair is almost complete and recommissioning will take place in quarter 3 now. And looking at the second quarter in isolation, the segment delivered signs of some improvement. Revenue increased by 9% year-on-year to EUR 38.7 million, mainly driven by higher volumes in the steel business. While it is still too early to confirm a sustained trend, the development may indicate first positive effects from the European CBAM framework and recent Safeguard measures supporting the competitiveness of the European steel producers here. Overall, the segment performed as expected with the furnace refurbishment successfully completed and first signs of stabilization in selected industrial market. We are well positioned for improvement in the second half of the year. And that is more or less the information of the Basics & Intermediates. Let us now turn to the Specialty Chemicals, which once again was the clear growth and earnings engine of the group. So let's turn the page to Specialty Chemicals segment here. Turning to the Specialty Chemicals. The segment once again delivered very strong growth and profitability. Revenue increased by 10% year-on-year to EUR 214 million in the first half of '26, driven by a combination of higher volumes and positive price effects. You can see on the right corner, the analysis. Growth was primarily fueled by our ingredients portfolio, particularly in human nutrition, defense-related applications and custom manufacturing. Strong demand for Creapure and Creavitalis, continued momentum in nitroguanidine and further expansion in custom manufacturing all contributed to the segment's strong performance here. Favorable product mix and high capacity utilization translated into 19% increase in EBITDA to EUR 64 million. At the same time, the EBITDA margin expanded to close of 30%, highlighting the scalability and operating leverage of our Specialty Chemicals business. Operationally, we continue to execute our key growth projects. The nitroguanidine expansion and the new guanidine production facility in Germany have already entered into the commissioning phase, while preparation, as already said, for the U.S. production footprint are progressing. So overall, Specialty Chemicals once again confirmed its position as the group's clear growth and earnings engine with all key performance indicators developing in line with our long-term growth strategy here. So let me briefly complete the segment review by turning to the Other & Holding segment. So in that segment, revenue remained broadly stable at approximately EUR 14 million in the first half of '26 compared to EUR 14.7 million in the prior year. The development mainly reflects lower grid fee recharges to chemical park customers, while demand for chemical park services remained more or less stable here. EBITDA amounted to minus EUR 0.3 million compared to EUR 0.4 million in the prior year. The decline was primarily driven by energy regulatory settlement effects related to the electricity consumption of the chemical park customers here. So overall, the segment development largely as expected and does not change the underlying earnings momentum of the group, which continues to be clearly driven by our Specialty Chemicals and Ingredients business. So that was all from my side and from the detailed view on the segment development. Let us now take a look at more details and the overall group figures and hand over for that more details to my lovely colleague, Andreas Losler.

Yes. Also good morning from my side, and thank you, Andreas, for the insights on our segment development in the first half of '26. As always, I'll start my analysis with looking at our P&L. Our group sales within the first half of '26 reached EUR 304 million. This represents an increase of EUR 16 million or 6% compared to last year. As anticipated and already evident in the first quarter of '26, the 2 operating segments delivered markedly different performances over the course of the first half of the year. The details have been discussed by my colleague already. It's worthwhile to mention that sales development benefited from the pull forward of sales that had originally been anticipated for the second half of the year. On a regional basis, the major sales increases could be achieved in Europe and the U.S. once again and can be allocated to the Specialty Chemicals segment. The sales portion of our segment Specialty Chemicals could be increased again and contributed 70% to our group sales after 67% within the comparative period. This increase in Specialty Chemical sales, combined with the continued cost discipline resulted in a significant increase in EBITDA and also our EBITDA margin. In the first half of fiscal year '26, we generated EBITDA of EUR 64.5 million, representing a substantial year-on-year increase of EUR 8 million or 14%. And this is completely in line with our expectations and met the guidance. As mentioned, our cost structure is stable. Higher production volumes led to increased waste disposal cost, while the carbide furnace overhaul resulted in elevated maintenance expenses. In contrast, lower foreign exchange losses from currency valuation had a mitigating effect. Electricity costs remained slightly above the prior year level in the second quarter, driven by temporary disruptions in energy markets following the developments in Iran. However, a substantial share of our electricity exposure has been secured through forward hedging, while the ongoing carbide furnace outage is currently resulting in lower electricity consumption. Our depreciations increased slightly and so did our financial result. The latter was impacted by noncash interest for noncurrent provisions and reduced interest income based on lower interest rates on surplus liquidity. All put together, we could also increase our net results up to EUR 35 million. This represents a significant increase again of more than EUR 4 million or 14% compared with the prior year period. And the same applies to our earnings per share. That was the big picture of our P&L. Now let's move on to the balance sheet and cash flow figures. Our balance sheet and cash flow are still very healthy and developed as expected. Our balance sheet total increased by EUR 56 million since our last reporting date. On the asset side of the balance sheet, we observed contrasting development. While noncurrent assets increased due to our continued strong investment activity, inventories were reduced as expected, reflecting the effects of the furnace refurbishment. The strong sales performance resulted in a substantial increase in trade receivables. Here, it's worthwhile to mention that this increase was volume-driven and not attributable to any changes in payment terms or customer payment behavior. Our equity increased by EUR 40 million, and our equity ratio slightly decreased to 40.3%. While our positive net income increased our equity, we had a decreasing impact from our dividend payments in May of this year. Within the second quarter, we have strengthened our financing structure, which can be seen in increased bank loans, higher cash positions and within our financing cash flow. The new financing structure provides access to up to EUR 100 million in debt financing. This includes newly arranged loans of EUR 80 million as well as an additional EUR 20 million of committed term loan facilities, which can be drawn at any time without further conditions if required. EUR 30 million of the newly disbursed term loans were used for the early interest optimized repayment of loans that would otherwise have matured in late '27 or early '28. This refinancing establishes a solid foundation for AlzChem's continued growth and demonstrates the bank's confidence in the company's business model. Our operating cash flow landed at EUR 51 million and seems to be lower than last year on the first view. However, the main reason for this decline were materially lower customer grants for our defense-related CapEx program compared to last year. Adjusted for such customer grants, the reduction in net working capital resulted in a substantial year-on-year improvement in operating cash flow. As you can see, AlzChem is in a very healthy capital and cash position and ready for future growth. Future is a good keyword. Let's now discuss our outlook for the remaining 6 months of financial year '26. As already mentioned by my colleague, we confirm our guidance as set out at the beginning of the year and still see further growth for '26. Sales are still expected to grow to approximately EUR 600 million and EBITDA is still expected to grow to approximately EUR 126 million. This represents a sales increase of approximately 7%, while EBITDA is expected to grow by approximately 8%. The planned sales growth shall continue to be achieved organically. The fundamental growth drivers are expected to be volume effects within segment Specialty Chemicals. As already outlined, we do expect such volume growth in the area of Human Nutrition and Defense, the latter expected in the last quarter of this year. However, given that certain revenues originally anticipated for the third quarter were brought forward, revenue in Q3 may be somewhat lower compared to Q1 or Q2 of this year. For the Basics & Intermediates segments, we expect overall sales to be at the previous year's level or slightly below. Our outlook is based on the assumption that possible raw material increases as a result from the ongoing conflict in Iran can be passed on to our customers. Our EBITDA increase for '26 is mainly driven by the developments in our segment Specialty Chemicals, and this also applies to our EBITDA margins. The industrial electricity price scheme adopted by the German government is expected to have only minor positive impact on AlzChem's cost structure from '27 onwards and has therefore not been included in the '26 guidance. As you can see, we have still interesting times ahead of us. At this point, we would like to thank you for your appreciated attention and are now at your disposal for possible questions.

[Operator Instructions] And as I can see, there are already some risen hands. Mr. Christian Faitz, I will ask you to unmute yourself now.

Congrats on the results. Christian Faitz here from Kepler Cheuvreux. Three questions, if I may. First of all, when do you plan the start-up of the refurbished furnace? You mentioned Q3, but is this more in August or in September, just for modeling purposes? My second question would be around your comments in your Basics & Intermediates segment. Can you elucidate a bit the weaker demand in -- particularly in agriculture? I understand the farmer side with China, but is this weaker demand in agriculture due to weaker farmer profitability on the back of higher fertilizer prices? And third question, how is the business in creatine for dairy going? Can you share any underlying growth rates for this business or for this pocket of the segment?

So start-up of the furnace, first question will be precisely in September. But that year, we try to have only 1 kiln online. So from that point of view, we try to reduce stock level and only have always 1 kiln online. Actually, next year is planned that we run 2 kilns already. Weaker demand in agriculture, yes. So what we have seen is that the prices of the farmers are quite low. And from that point of view, that's our picture about that, that they avoid already fertilizing because they don't earn the money back through fertilizing. So that's the situation as we see that year, probably next year, hopefully, it comes back on a higher level, because the second point, [ insecurity ] about the use case of Perlka through the ECHA process could be solved then and that could help supporting usage of the fertilizer as well. And business for dairy, usually, we don't really disclose single information about that business. But what we see is that the interest is quite high of additional dairies, not only the [ German ] story. So the growth story is quite well online and in line, and that is the reason why we increased the capacities for our creatine. And we urgent need additional capacities, let's say, in that way around to fulfill all the market demand latest by the end of next year.

There is another risen hand from Julia Winckelmann.

Can you hear me?

We can hear you.

I have 2, please. One is on the NQ prepayment slide. The Q2 chart looks a bit different versus the chart in Q1. So to me, it looks like the self-funded contribution increased on the Q2 chart versus the one in Q1. Is this the right way to read this? And if so, is this because you expect higher CapEx or lower customer prepayments? And yes, maybe also I saw that in Q2, there were no new prepayments signed. So maybe it would be helpful if you could comment on this. And then my second question is on the accelerated sales in Q2. Which contract or products does this relate to? And was this prebuying ahead of price increases? Or what was the reason behind this?

Julia, I'm going to take your first question. It surprises me a bit because we did not really change anything in our structure of presenting the contract liabilities. So our contract liabilities are now somewhat higher than EUR 90 million. We, for sure, get some new customers payments in the first quarter and in the second quarter of this year, which can be seen in the cash flow statement. So overall, in the first half of the year, we received approximately EUR 8 million of customer payments. Whereas in the comparable period, we received more than EUR 50 million, but nothing has slowed down here. And as you know, some payments are based on milestones, some payments are based on monthly installments. So as we have now -- as we are now opening up the plant, you can be sure that some milestones are met now and that we do expect some more contributions in the second half of the year. But overall, the situation is completely stable, and we will start reducing the contract liabilities in '27.

Okay. So your overall contribution that you expect for the NQ plant, I guess it's the blue bar on Slide 21, that hasn't changed versus your estimate in Q1?

No, that hasn't changed.

And some words about the sales increase in quarter 2. What are the effects behind. So what we have seen is a good growth in nitroguanidine and creatine business because you may know that we have increased capacities for creatine last year as well, and that delivers additional quantities now. And what we have seen is a pretty good custom manufacturing business. But therefore, we have seen some effects what we have planned in the second half of the year that we have already delivered that customer demand in the first half of the year. And from that point of view, we are a little prudent by forecasting that business that is only contract that we have seen already in the first half of the year.

With this, we move on to the next risen hand from Peter-Thilo Hasler.

First, it's about the price effect of 4.9%. Is this all due to offset rising costs? Or is there also part of it a margin increase? And the second question would be about the raw material prices or energy prices. Are there parts of that, that cannot be passed on to customers or only in part to customers? And do you see risks if this may happen in the second half of the year? And the third question would be on your EUR 100 million funding finance, where EUR 80 million you already have disbursed and paid back existing loans and EUR 30 million. Will it be necessary to raise further debt if all projects are implemented as planned?

So let's catch the first question about the EUR 100 million funding. So from our point of view, we are financed for our growth, no doubt about that because you may know that the U.S. project is already financed and will be financed by the DoD. The German projects are financed as well, some through prepayments and precash assets, as you see on the balance sheet already and we only need additional financing for the creatine additional capacity. So from that point of view, no. But never say no. So if we have -- and if we see additional growth opportunities, then we can think about that, and we are really prepared for additional financing. Bank support is very high and from that point of view, we can do an M&A project or we can do additional growth. So for raw material prices, a very interesting question. Due to the lower carbide production this year, we are not severely affected by the higher electricity prices and high price fluctuations here because we are living more or less from stock as well. And from that point of view, we don't see that high fluctuations that saves our business quite well. And usually, in the Basics and Intermediates, we can hand over the fluctuations to our customers. So for the price effect, I will hand over to you, Andreas.

Yes. For the price effect, I think it's a combination of both. It's -- as you mentioned, it's a pass-through of cost increases. And additionally, there are some additional price increases, which have a small impact on the margin as well. So yes, you're right with your assumption.

And if I may, about the creatine, do you -- have you noticed any increase in capacity investment by competitors so far?

So for sure, the creatine market is growing like hell, let's say.

Not from China.

And the market has to be delivered, and there are only, let's say, 2 suppliers around the world. So there are the one German player, which is AlzChem with Creapure and Creavitalis, and there are many suppliers out of China. And to support and to supply the market, we see additional capacities growing in China as well. So -- but the demand is high for the highest quality, and we really urgent need our additional capacity for our growth.

The next person with a risen hand is Patrick Speck.

Can you hear me?

Yes.