Tessenderlo Group NV (TESB) Earnings Call Transcript & Summary

Hello, and welcome to the Tessenderlo Group Half Year 2024 Results. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] For today's event, we have Luc Tack, the CEO; and Miguel Potter, the CFO with us. I will now hand over to your host, Luc Tack, the CEO to begin today's conference. Thank you.

Good morning, good afternoon, and thank you all for joining us today on our half year results release. I will start by talking to you first about some key events that happened in the first half of the year, after which my colleague, Miguel will give you in depth comments on the numbers. So let me first start by telling you that as of January 1, we have a new ExCom, Miguel de Potter has joined Tessenderlo Group as the Chief Financial Officer. Meanwhile, Mrs. Sandra Hoeylaerts, who started on September 2023 as a Chief HR Officer at Tessenderlo Group, has taken up the position of Chief Transformation Officer as of January 1. The new ExCom is as such, made up of myself, Sandra and Miguel. We have been keeping working on new investments. And in March 2024, Kuhlmann Europe disclosed a strategic move by unveiling an investment of approximately EUR 35 million to expand the current ferric chloride production capacity at Loos in France. This investment aims to fortifying the position of Kuhlmann in Europe as a prominent coagulant manufacturer in Europe solidifying the position of Loos as the continent's largest ferric chloride production plant. The construction of the innovative chlorination installation is scheduled to commence by the end of 2024, with the delivery anticipated in early 2026. Construction works for the Defiance plant are further progressing. The Defiance plant will produce the leading liquid sulfur-based fertilizers, and sulfite chemicals for industrial markets. The Defiance plant is scheduled to start operations in the first quarter of 2025. In the meantime, the Geleen plant progressed around. The construction of our Thio-Sul plant in Geleen in the Netherlands at the Chemelot site is in its final stage and is expected to be operational late third quarter of 2024. So I will now hand over for the key events after the balance sheet and the financial figures to Miguel. Miguel?

Thank you, Luc for this, and thank you, everyone, for joining our webcast this afternoon. So first point for my agenda is the share repurchase program. As you know, in March '23, we started first share repurchase program, for which at the end of December last year, we canceled about 1.1 million of repurchased shares. This year, in April, we started with a second repurchase program for a maximum 2.3 million shares which you have followed in the weekly press release has been going well. in 2023, as you all remember, the activities of the Tessenderlo and Picanol merged. Picanol had 21.8 million outstanding shares. Yesterday, the Board of Directors of Tessenderlo Group decided to cancel those 21.8 million shares held by Picanol as well as the shares acquired during the second repurchase program. For our half year '24 results here are operational key highlights. Our revenues is slightly off compared to last year by nearly 15%. Revenues of EUR 1.389 billion, our adjusted EBITDA of EUR 150 million is still an EBITDA margin of close to 11% compared to 12.6% last year. Our adjusted EBIT amounts to EUR 51.5 million. We have seen, and I will go in detail in our business units, an increase in our agro business, EBITDA-wise of nearly 36%. Very stable EBITDA in our T-Power business units. Other segments have suffered a decrease compared to the first half of 2023. Our capital expenditures amount for the first half of the year to EUR 75.4 million, you could assume that about 50% of this figure goes to growth CapEx and the other 50% to maintenance or non-growth CapEx. Our cash flow from operation activities, and I will go in details around that. There are further in the presentation, is growing strong to EUR 172 million, on which we have definitely put a lot of focus on our working capital going forward, which brings our net cash position stronger than it was in December to EUR 32.6 million. If we see now the group revenue per segment, you will see growth is 33% of our revenues; Bio-valorization, 23%; Industrial Solutions, 25%; and Machine & Technology, slightly lower than last year, only 16% compared to 24% of our total revenues. The group adjusted EBITDA per segment or agro business in our T-Power business, the one that have not decreased since last year are amounting for 57% of the total EBITDA, respectively, EUR 59 million and EUR 27 million of EBITDA. Let me now walk you through the segment per segment figure. Agro segment, as you remember, these are our 4 different brands, Tessenderlo Kerley, Crop Vitality, NovaSource and Violleau. We managed to have an increase compared to last year. The increase is mainly due to an increase in volumes rather than in prices. We have an EBITDA margin of 13%. We see that actually, depending on the brand, we have various stories to tell. Crop Vitality, we have decreased margin and some pressure because of lower selling prices and increased competition. And also some high valued stock, which I'll come back on. Tessenderlo Kerley International increased not only in volumes, but also could offset lower prices and increased their margin by lower raw material prices. NovaSource has decreased slightly because of phasing of customer demand and Violleau has no real material impact on the overall EBITDA of the Agro segment. For the Bio-valorization segment, where we have our 2 brands, PB Leiner and Akiolis, the increase in sales volume overall could not basically offset the lower selling prices for the different products we bring to the market, mainly gelatin, collagen, fats and proteins. We were actually starting the year with a very high valued stock. Last year, we had, at the end of the year, significant inventory writes off, so actually, our adjusted inventory items, actually, they were sold were made without any real contribution to the adjusted EBITDA. That was also the case for a agro division. We have no further inventory write-off in the Bio-valorization currently. And we also made an investment in Akiolis Iberia that has not been fully contributing to the EBITDA yet. You might ask yourself if those adjusted inventory items were not really made and there would have been a contribution to the EBITDA, what would be the EBITDA then with both the agro and the Bio-valorization segment? I could say that this would have pushed the EBITDA of the group closer and very close to the result of the consensus of the various analysts that are following our share. In the Industrial Solutions segment, we have 3 main brands: DYKA, for the piping and the construction. Kuhlmann, for the coagulants for mainly water treatments. And Moleko for the mining industries in chemicals. Here, our adjusted EBITDA margin is still double digits, around 10.4%. DYKA Group was the most negatively impacted in our Industrial Solutions segments, basically due to lower construction demand in Europe where DYKA is active. Kuhlmann Europe and Moleko were basically in line with last year, although Kuhlmann results have decreased slightly because of less favorable market circumstances for It's -- one of it's product which is caustic soda, but it's a relatively small product compared to the ferric chloride star product of Kuhlmann. In the Machine & Technology segments, we have Picanol weaving machines Psicontrol, and Proferro, all companies have a strong interlink and you can also see that in the figures. Picanol weaving machine is currently suffering from the downturn in the textile industries, which has adverse impact on both Psicontrol and Proffero, who, in the meantime, also managed to gain third-party customers that will maybe materialize in 2025 in the figures. But here, our EBITDA margin has been gone below 6%. On the T-Power segment, our only sole -- currently sole power plant in the Tessenderlo, Belgium. We are basically going as per contract and the tolling contract that, as you know, we have with RWE, is lasting until the end of June 2026. So the plant is behaving as per contract and with an adjusted EBITDA of nearly 75%. It's still a very safe and reliable partner in the current energy mix. We are assessing several options for the plant going forward after the date of June '26. When we do the recoup of our adjusted EBIT to profit, details or adjusted EBIT as reported is EUR 51.5 million. We have mainly finance costs of -- finance income of EUR 15.7 million coming from the sales of our retail shares in the first half of this year and also from some FX gains that are unrealized foreign exchange gains on intercompany loans of nearly EUR 15 million. Our income tax expenses of EUR 10.5 million mainly relates to our activities in the U.S., which brings us to a profit of EUR 61.4 million for the first half of the year compared to EUR 83.4 million for last year. Our net cash position reconciliation. Last year, we ended the year with a net cash position of EUR 10.1 million. This year with our adjusted EBITDA and a strong focus of the entire group on working capital, where we improved our working capital by EUR 28 million. We'll continue to focus on working capital in the second half of the year with the sales of our retail shares that were helped by our Picanol subsidiaries. And still managing about EUR 80 million of payments to shareholders and partially through repurchase of shares and partially through dividend paid to shareholder with some strong capital expenditure of EUR 75 million in total, which I repeat, 50% of it is about growth CapEx. We have improved our cash position and net cash position at the end of the year, the month of June to EUR 32 million. That brings us to the outlook and you have read most of you -- the outlook that we published this morning in our press release. We are currently operating in a very volatile environment. Our adjusted EBITDA guidance for 2024 is 5% to 10% lower than the same adjusted EBITDA achieved in 2023. Our CapEx guidance for the end of the year is in the EUR 150 million to EUR 170 million range. Let me show you first the calendar where you can expect in March [ '25 on the 26th our ] results and give back the word to Luk for closing remarks before we take some questions from the audience. Thank you.

Miguel, thank you for this outstanding explanation of the numbers. So as you have all seen, trading environment has been quite tough for us in the first half of the year, generally speaking, but especially also in Europe. In Europe, we remain challenged with construction going down. We have high energy costs and increases of costs in general. Just to give you an example, in Belgium, some of you who are from Belgium know that we have the automatic indexation of labor costs, et cetera. But to give you an idea, on 2,500 people working for our group in Belgium, over the past -- of the last 2.5 year since the inflation started. We are looking at increases between 22% and 25% on the labor cost just to give you an idea, 2,500 people. That means that we have to pay for 600 extra people that have been added as a pure cost without producing anything, without producing -- so -- and all of this then we need to try to automate, but you cannot automate quickly enough to compensate for these increases in costs and markets are not accepting price increases. We are confronted with international markets. And I'm telling you that makes it quite challenging. And so at the end of the day, there are things that we can influence and there are things that we are not -- that we cannot influence like this automatic cost increases. But where we can influence I really need to thank all of the collaborators within the whole group because we did work very hard on where we could influence things, and we did indeed achieve results, such as managing inventories better, reducing working capital. And this is why I'm happy, I'm even proud to say that we were able to improve in the first half of the year despite a very difficult trading environment to increase our cash position while executing on our growth investments, as you have seen, EUR 75 million and returning nearly EUR 80 million to shareholders through dividend and share repurchase. I think that is a remarkable effort, which has been done and delivered by the whole group, and I'm sincerely really thankful for everybody who contributed to this. Going forward, for the second half of the year, a lot of it remains what I said and what we have shared with you in the first half of the year. Trading environment remains difficult. Cost of money has gone up considerably. So customers are reducing inventories, are buying just in time because also they are challenged on their working capital. And then needless to say, we all know what's happening in the construction sector. There also even interest rates, hopefully getting reduced in the coming months. To restart, you have the process of permitting first. People must get permits before they can build. So all of this will take time. Despite these challenges, we are confident that we, as a company, can continue to contribute to society, to contribute to food production to Bio-valorization to a greener future. And that is what we are focused on, and that is what we will remain focused on. So thank you all for listening to this. And now we will open the floor for questions. Thank you.

[Operator Instructions] We will take the first question from the line of Christian Faitz from Kepler Cheuvreux.

I hope I can ask a couple of questions. First, looking at your DYKA activities within your industrial activities, just to get a feel for its sales and earnings dynamics. Could you share with us the rough split between renovation and newbuild construction exposure? And then on Picanol my second question. How does the order book for Picanol look like at present in comparison to, let's say, the average of the last few years?

So I will take the second question first. I am also the President of the Belgium Textile Machinery Federation and as such, I'm also a Board member at Cematex, the European Textile Machinery sector. And as for Picanol and as for the whole textile machinery sector, the order activity is lower right now for the second half of the year, and we still do not see a reinvestment into new capacities or -- and to begin new projects. Then the first question was...

The first question on our DYKA activities, how do you see -- well, actually, if you look at DYKA, Europe, the activities are pretty much balanced between construction and infrastructure work. Construction, we do not really make a difference between what you mentioned, newbuilds and renovations, but we do definitely make a difference between infrastructure works and pure construction works. So on an aggregate level in Europe, it's pretty much balanced, but then when you deep dive country per country, you can see huge differences. Countries like France have much more revenues from the infrastructure business, countries like the U.K. are much more focused on the construction side.

There's no further question at this time. I'll hand it back over to your host for closing remarks.

Well, thank you all for joining us on this call this afternoon. Be assured, we will keep doing our utmost best to navigate the company through these challenging times as they are. And we will keep you posted on all important evolutions within the company at the due courses. So thank you all for joining us on the call this afternoon.

Thank you. Have a nice afternoon and rest of your day.

Bye-bye.

Thank you for joining today's call. You may now disconnect.