Nabaltec AG (NTG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to the first Deutsche Boerse Scale Summit. My name is Judith, and I'm very pleased to welcome you on behalf of Deutsche Boerse. The new format brings together investors and high-growth scale issuers to enable a direct exchange on strategies, positioning and investment stories. [Operator Instructions] And with that, I'm very pleased to welcome Johannes Heckmann, who will guide us through the presentation on Nabaltec AG. And with no further ado, I'd like to hand over to you, Mr. Heckmann.

Yes. Thanks, Judith, for your warm introductory. And I also want to welcome the audience here to our presentation. My colleague, Gunther Spitzer, our CFO, will be in the background later on for Q&A sessions. Who is Nabaltec? We are a midsized chemical company acting in specialty chemical fields. As you can see, with 500 employees, we are acting worldwide with 3 production sites. I will come later on. We have a high export ratio and our revenue last year was around EUR 200 million with an EBIT of EUR 15.2 million. As you can see, we are a worldwide active company. Our headquarter and main production is in Schwandorf in the heart of Europe. We are a little bit 2 hours east of Munich. And we also operate in the United States, where we have a strong footprint since 2006 with our entities, Nashtec in Texas and Naprotec in Tennessee. We also have a sales company with warehousing in Shanghai for our Asian and especially Chinese customers. As you can see, we are very well rooted, deeply rooted in Europe with a share of 54% and as well in Germany, but with an increasing share in United States due to operations. As well, we are more opportunistic active in the Asian Pacific world. Coming to our main 2 specialty segments or product segments, as we call them, the Functional Fillers and the Specialty Aluminas. This is how we also report. Functional Fillers segment is responsible for about EUR 145 million last year, which is 2/3 of our total revenue and the smaller Specialty Aluminas count for EUR 53 million. EBIT margin is in the 2-digit range for the Functional Fillers and was last year roughly above 0 for the Specialty Aluminas. If what is our characteristics in our product ranges, we have in the Functional Fillers, mainly active powders for flame retardancy. As you can see, they are highly eco-friendly, smoke-reducing, and nonabrasive, and the strong character is per se the flame retardancy. The product ranges are the characteristics how the physical and chemical properties are processed for our customers. On the oxide segment on the Specialty Aluminas, we go into a little different sector here. It's a longevity of industrial goods with wear resistency and electrical insulation as well as corrosion resistancy or temperature changes. Our raw materials are aluminum oxide and hydroxide. Two chemical products, which are in abundance availability around the globe. This is shown here on this slide where our value chain operates. The product starts from mining bauxite, which is comparable to iron ore worldwide in a highly availability and a common process refined in the so-called alumina refineries, which are all around the globe. And this is practically the raw material supplier for our industry where we are acting for Germany, for Schwandorf, in particular, we buy the materials in Europe. We also buy some from Brazil, depending a little bit on logistics, whereas from United States, we buy in the United States and also in Brazil. We have typically longer-term contracts between 2 and 3 years on partly fixed pricing per year, which we roll over and renegotiate or on index pricing. So this gives us a quite good visibility. And you have to understand raw materials have a big impact on our P&L. 30% of our variable costs are depending on the raw material pricing. That's why long-term relationships with our customers are very important and crucial to our business. Now we go into depth into the application fields. We have on the Functional Fillers side, a variety of application fields. We are not just exposed to a sector specifically. When we approach our markets, we define it through cable and wire, which is our main application field. And behind cable and wire, there are various OEMs, of course. But the most decisive and most important in terms of development for the future are definitely data cables. And you can combine this also directly with the booming AI trend in the moment where we need a lot of data centers, which are built up in the moment in Europe as well as in the United States and elsewhere, which we are profiting from. And of course, the second leg is energy cables for renewable energies, which has also seen and still sees a big boom. And of course, we are all in all other segments an opportunistic and lately for us, a very interesting market is the battery market, especially here for lithium-ion batteries for the e-mobility and storage. I will come later on and address this. Here, we see in depth, again, Functional Fillers for the cable and wire. What drives this market? Of course, it's electrification, it's AI data centers and infrastructure buildup. Why is this the case? We had a highly regulated market. So stricter fire and environmental regulations are driving that replacement and where our organic flame retardants with what we call fine hydroxides, you might step over this expression later on again, are very crucial. And of course, electrification grid expansions are also responsible for a growing -- a rapidly growing market in the future. We shift here from high performance and customized grades, and this gives us a stable growth and premium pricing. Sorry, what happened here? I don't know. Somebody clicked on that. As you can see, we are also in a very oligopolistic market environment or competitive environment. In Europe, we are momentarily 5 people acting. In United States, we are 2, our biggest competitor is Huber in China, where we are not so active due to high competition. There are another 4 or 5 people, but they are not so active in Europe, and we are not that's why we show here. But in principle, you can see oligopolistic market environment. The market has a good footprint and a steady growth from a compound average growth rate according industrial REC studies of approximately 7% in the next years. If you go to the e-mobility, I said to you, that's a very important market for us here in especial the visco-optimized, it's one part of our product range. And this is very crucial for the OEMs because they need adhesives to stack their battery cells into the battery pack. And our customers, which are big adhesive and gap filler manufacturers buy from us. The principal properties is reduce the risk of overheating because we have a good heat transfer in our materials where the glue, the adhesive gets the heat out of the package and extends, of course, battery life and enables fast charging, which is absolutely important to the success of this future electrification of cars. You see there is a rapid growth of 18%, almost 19% in the years to come. Just to give an example, in Q1, we grew at about 28%, which proves that we are here very successful. In this context, I want to inform you, we have just a big project going on, on the Schwandorf side with a $35 million investment to triple our momentarily capacity. Commissioning of the plant is expected beginning 2027. Now coming to also electrobility, we have another product called boehmite, not the visco-optimized, the boehmite. We created that in the late 20s, 2017 to 2019 as a first mover. It was a coating material also for thermal heat resistant on the separator. The separator is ceramic coated also with boehmite and goes into lithium-ion battery. This market was primarily accelerated in the development in China. We exported into China as a first mover, but we saw a big change in competition in the last 5 years. The market totally moved into China, as you might be aware. Today, about 80% or 85% of cell manufacturing is done in China. And so the separator industry moved into China. And with this high competition landscape, we have changed a little bit our strategy into a more opportunistic way of thinking. There is a footprint in Europe, but the cell market manufacturing in Europe is pretty lagging in terms of speeding up this cell manufacturing production as well as separators due to the overcapacities in China. But I'm positive this will change in the next 3 to 5 years and also the footprint of this industry, which helps promote our product better will increase and accelerate in the next 5 years at least. So this development lagged a little bit behind our expectations. Now switching to the Specialty Aluminas, you also see it's a very -- a variety of applications. So we are not exposed to a single market, but you can see already one pops up. This is refractory. It's a total different market. The only thing we have in common here is really the feedstock of the materials. Refractory is strongly related, as you might or some might be aware to the steel industry, a high cyclical market, a lot of pressure. As you could see at the beginning, EBIT margin was almost to 0 or the EBIT due to this crisis in the steel industry. Momentarily, we see a turnaround. It's a stabilizing business, but still, we are working on getting a little bit away from this exposure and move more into the technical ceramics area where we see a more conservative but stronger growth. Now here, you can see the aluminum oxides and reactive aluminas for the technical ceramics. Here, it's more about the electrification and there is a lower risk of substitution because these products are long established in the market and the technical ceramics industry is per se a very conservative industry. This helps us from intruder of markets once you are in, you stay in, and it's a fairly stable price product mix development. Market growth is acceptable with 4%. Momentarily, the industry is changing. I would say we are more growing plus 2% above GDP. The steel industry I addressed, it's more in the difficult area. But I must say, with a move to environmental-friendly manufacturing of steel, H2 steel, green energy usage helps our materials. We are within this industry in a specialty in a niche, and it helps to the longevity of, for example, furnaces in the glass in the steel industry, lower maintenance costs. And I think that addresses exactly the properties of our materials and gives us good justification to have also in the near and the next future, a good footprint and the trajectory in this market. Yes, USPs and market barriers. I told you that we have an oligopolistic world. Why? Because we are very capital intensive. To create Nabaltec or to found Nabaltec, you need probably $0.5 billion to build a plant what we have in Schwandorf. And what's crucial for our industry is energy. Now you can say, how can you exist in Germany, a high energy cost country? And we are still there. You have to know we have a big waste incinerator plant, which is our neighbor, and we have a very special cooperation with the plant. Normally, a waste incinerator is existing for burning waste and the byproduct is energy. So we get fairly highly competitive energy in terms of steam and electricity from this power plant. We have long-term contracts, and this is very crucial and important you have to know for the existence of Nabaltec as we are on the site in Schwandorf. That's why we also invested the money. And this is one of the top 6 or 7 waste material in plants in terms of size for other capacity. So we have room to grow at a reliable energy source for the next years to come. Just an annotation here, the plant, the power plant undergoes momentarily a big renovation, which restricts us on certain cases in energy. They have in excess, but they have always downturns in terms of maintenance, where they -- where we are in extreme exchange of information. So we can, how to say, compensate the lack of steam for this time by firing our own steam boilers, which we have installed to overcome that. This period will last for about another 12, 24 months. And then for the critical situation for the renovation, which is affecting us is over. Coming to sustainability, yes, Nabaltec has committed to report -- to do a voluntary report after VSME standards, even though the Omnibus process from the EU did not oblige companies with our size to do a required reporting. We are proud of that, that we can contribute here, and we have achieved the ESG rating, silver status from EcoVadis. Coming to the financials. As you can see, we had a quite steady growth in the last years. The last 2, 3 years was a little bit more bumpy. 2025 was especially difficult in the last quarter where a lot of unsecurity from our customers came and we had one of the worst Q4 quarters with about EUR 45 million in Q4 '25. But you can see now in the first quarter, we are picking up. We are not at the level where we want to be, but it looks good, and I will speak later a little bit about the outlook. EBIT margin was quite strong in the last couple of years. We had in the '23, '24 or around corona '22, actually, very strong pricing power. We increased prices over the last years about 30%. Now pricing comes a little bit again under pressure. So we try to be more growing by volume and not so much by pricing. EBIT margin was affected in the first quarter '25 as fixed majorly by higher energy prices through the gas, which we were affected as we have also gas. We are a big gas consumer. Electric power was moderate. And with the steam, we had a stable development. On the other side, of course, we are facing higher depreciations. I will show you in the next slide our investment program. Here, you can see in the cash flow with our investment phase, you can see the cash flow on investments. We had a cycle in 2016 to 2018, where we had a lot of activities in United States, built up the Naprotec and revamped Nashtec. And now we have another cycle here '24, '25 and also '26, we will have investment on cash flow approximately EUR 30 million, where we have built up, I mentioned the visco-optimized project, which triples the capacity on this and is about EUR 35 million in investment. And we had a boehmite for the electromobility, which I didn't mention yet, which was also a project of EUR 22 million, plus revamping our kilns, which we need on the Specialty Aluminas side. This investment phase is done with EUR 10 million. So overall, in this 3 years period, we will invest about EUR 90 million. And after that, we go back into a consolidation phase just for your knowledge. If you look at the Q figures right now, we were a little bit lacking this quarter 1 compared to last year's quarter, but we are in a good -- we have -- we are very positive that this -- we will catch up and grow in the next couple of quarters due to a stronger pickup of the market. If we see now in the Functional Fillers itself, if we look at the segments here, yes, we lacked. We had a little bit of a decrease in -- mostly due to the volume. We did not have such a strong volume pickup in the first quarter as we have seen it in Q1 '25. But here, I repeat myself, we will see a different picture in the next quarters to come as the market, especially renewables, especially through the AI development picks up strongly, and we see the turnaround here into a better development. EBIT margin, of course, went down too in the first quarter compared to last. We had a very strong EBIT margin in the first quarter, but the influence -- the negative influence was by energy prices and the higher depreciation, which weighed on the Q1 '26 figures and EBIT. CapEx, I have mentioned, it was much stronger. This is also influenced by the projects we are still in process to finish. On the Specialty Aluminas side, we also saw a dragging introductory, but we see the margins improved slightly. We are positive that we have now seen the rock bottom and we'll see a turnaround in the next couple of months as well. So there is light on the horizon. CapEx amounted at EUR 1.7 million. This was still due to the general overhaul of the rotary kiln itself, but this project has been finished and the project or the rotary kilns are back in operation. Coming to the balance sheet. As you can see, certainly, property, plant, and equipment increases by 7% due to our investment activities. We have compared to last year where we had a strong increase in inventories also due to our obligations in contracts. And on the other side, our sales decreased. So we built up strong inventory through the winter. We depleted that again, and that's why there is a decrease. On the other side, there is nothing to mention on -- in particular. If we come to the cash flow, as I said, working capital was a little bit increasing through the -- sorry, to the slightly higher than in the last year. Cash flow from investment activities were related to our expansion projects on visco-optimized and the overhaul of the kiln as well as in the boehmite. So the free cash flow decreased or halfened compared to last year due to the stronger activities in the projects. But at the end of the day, cash at the end of the period was still almost at the level of 2025. And as you can see, with EUR 90 million in liabilities, we are almost debt-free in comparison to the cash. Yes. Now coming to the outlook, I'm almost at the end. We saw or foresee a revenue growth of 4% to 6%. We confirm this. And I mentioned several times that we are very optimistic that due to the pickup of the market that we will see a change in the picture. EBIT margin was confirmed at a rate of 5% to 7%. And now I'm at the end, 6 reasons to invest. We are in a worldwide market. We have a strong relationship to our customers over years. We are in a niche market with high entry barriers, as I showed you. The market is overall strong growing with a good trend for future megatrends like electricity and electrification. We have a solid operating profitability. And of course, our current share price is attractive, even so it picked up by 30% in the last 2 weeks, which is good, yes, ending and I think gives us a good perspective for the future. Thank you very much for listening to my presentation, and I'm open now for discussion and answering Q&A.

[Operator Instructions] Mr. Heckmann, what is the planned annual CapEx for '26, '27 and '28?

As I said, '26, we are expecting about EUR 30 million. And then the ongoing years, we will consolidate depending a little bit on structural programs at about EUR 15 million to EUR 17 million. That's what we explained for the next couple of years. So this year, it will be a bigger chunk to finish all our projects. And next year, it will be decreasing to this range somehow.

And what opportunities does Nabaltec see for reducing its dependence on gas over the next 5 to 7 years? Is it possible to switch to biogas, hydrogen, solar, wind, batteries, et cetera? Or would it be technically visible to source all energy from the waste incineration plant starting in 2032 once the facility has been upgraded so that gas is not needed anymore?

Of course, we are trying to convert thermal processes more to steam. What we are momentarily doing is substitute our gas to electrical power. We can electrify a lot of thermal processes, which we can then switch to CO2 neutral, but it also depends a little on the pricing. But these are the projects which are on the way where we have high temperatures like our rotary kilns, we are still depending strongly on gas, yes, fossils, but there is H2, which can be substituted, but it needs to be much more price competitive in the future to make that happen.

You are guiding for a return to revenue growth from Q2 onward. What concrete order trends or customer signals give you the confidence that this inflection is already materializing?

One signal is certainly the order book grew from December or from last year significantly from EUR 32 million to EUR 45 million and -- sorry, from EUR 52 million now -- sorry, I have to read the figures. I don't have it. From EUR 62 million to EUR 66 million. So we have a strong signal in terms of order book increase. And a lot of customers say, yes, we see an uptake in the market. There is a but, the visibility is not as good as was years before. So we have to be a little bit cautious. Things are still sensitive. They could change. But in overall, a lot of customers signal optimism to us and the proof is the growing of the order book.

And as we have received no further questions for now. One more question just came in. What are the biggest risks that could prevent you from achieving your 2026 targets?

The biggest risk would be another geopolitical crisis where the market again changes or gets in unsecurity. It would be a complete stop again. Nobody knows what the Iran war, how this will be really finished. I think we have all the industries get along now with the congestion of Strait of Hormuz, no supply chain interruptions. But if there is again something firing off that would disturb the global market. Besides that, I think infrastructures have to be done, especially in Europe, especially in U.S. and the AI will come no matter what. So I'm more on the optimistic side than on the higher risk end side.

And we have one last fast question. What is necessary to come back to EBIT margins above 10%, and when?

Definitely gross volume. We have to grow by volumes. The higher our capacity loads are, the better the cost structure becomes. And of course, in line that the gas price is again a little bit decreasing. So we have better control. I didn't mention 50% of our gas we secured. If we get a good introductory here to secure more and it's secured by the end of the third quarter. If we have here a chance again, then the cost control is on the good side. And of course, with higher volumes, higher outputs, we also create a decrease in the burden through the depreciation.

And as we are already over time, ladies and gentlemen, please place your questions to Investor Relations. I see that there is quite an interest in Nabaltec. Thank you very much for that. We come to the end of this roundtable. And if you have any further questions, as mentioned, place them to Investor Relations, please. A big thank you also to you, Mr. Heckmann, for your presentation and your time. I wish you all a successful day around the world and handing back over to Mr. Heckmann for some final remarks.

Thanks, Judith, for the moderation. I thank the audience for listening, and I hope I could attract Nabaltec that we will see you in the future as an investor, and I'm happy to talk to you later at any event we can -- we will participate. Thanks a lot for everybody -- to everybody. Goodbye.