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Tessenderlo Group NV
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[Audio Gap]We have closed the transaction in respect of the purchase of the 80% of the shares of T-Power, which is a gas-fired of 425-megawatt power plant. So now we can start working on this project and we can see how we can optimize and do for the future of the T-Power plant. We have also been working in respect of our Gelatin business where we are creating a new image for the PB Leiner business. We are trying to show to the market a story of dynamics where we try to find for our customer the best possible solutions, presenting them good products and where we can work together with our customers on new applications, better applications and a better cooperation and integration with our customer base. In our business for PPS, we have created a group of companies in Poland, Germany and Hungary focused on the fittings business, whereby we're creating 1 group with 3 production plants, focusing on the sales and development of fittings in the European market. We have inaugurated our new member on electrolysis plant in Loos very recently, where we have invited major customers and partners. We believe that this is a good future for the site in Loos. Unfortunately, right now, we are faced with some technical problem, which will last till the end of the year. However, we have our technicians and on-site technicians working on this. We have right now a reduced output at something like 60% of the plant because we cannot cope with all the chloride production, which is done -- normally burned into HCl. So we are confident that we get the plant back to 100%, and we are confident that this will be a good investment for the future. Kurt, maybe you can -- maybe update us in respect of the numbers?
Thank you, Stefaan. If you look at the left side of the table, there you see the third quarter results of the group. And we first look at the revenue, then you see that excluding the foreign exchange effect and excluding the contribution of S8 Engineering, the former Tessenderlo Kerley Services, we see that the revenue has increased by 1.3% compared to 1 year earlier. If you look at the different segments, you see that the revenue of the Segment Industrial Solutions increased by 6.7%, mainly related to Plastic Pipe Systems. The revenue of Bio-valorization remained stable. The Agro revenue slightly decreased. The third quarter REBITDA decreased by 0.9% or by minus 5%, when we exclude the foreign exchange effect, when we exclude also S8 Engineering. The REBITDA for the third quarter months to EUR 37 million, EUR 36.8 million, so in line with the REBITDA, we also presented last year. Inventory write-off following accounting estimates concerning inventory obsolescence, they amounted to minus EUR 2.1 million in the third quarter of '18, while the impact thereof was practically 0 last year. The net debt of the group decreased to about EUR 25 million at the end of September 2018, compared to EUR 53 million 1 year earlier. If you look at the REBITDA of the different segments, so the REBITDA of our group slightly increased, where we saw that the impact of the lower Tessenderlo Kerley International volumes was compensated by the performance of the other Agro activities. So in general, it's slightly increased. The third quarter REBITDA of Bio-valorization, it remains stable compared to 1 year earlier. On the one hand, we had a better performance of the Gelatin's activity, and this could offset the continued negative impact of the lower Akiolis downstream market prices. It's mainly about the fat prices, which remained very low and which are much lower than the third quarter of last year. The REBITDA of Industrial Solutions decreased compared to the third quarter of last year. Despite a higher revenue of Plastic Pipe Systems and also the improved performance of Plastic Pipe Systems, but that improvement could not offset the lower Mining & Industrial results. And also, we should take into account that the third quarter of '17 also included a positive impact between EUR 2 million and EUR 3 million of the settlement of the dispute related to the expiration of a contract within the business unit, ECS. As Stefaan has just mentioned, following an unforeseen technical issue at the production plant in Loos, the output of sodium hydroxide has been now at 60% of the normal capacity and it will also throughout the fourth quarter of 2018 be like that. The transaction with T-Power was closed early October, on the 2nd of October, flat from the fourth quarter. T-Power will also start to contribute to the REBITDA of the group and it will be presented in a separate fourth segment. If you look at the outlook, the group confirmed the previous forecast, that the 2018 REBITDA, when including the estimated fourth quarter REBITDA contribution of T-Power nv, which will be around EUR 30 million according to our estimates, is expected to be in line with the 2017 REBITDA despite the evolution of the euro-U.S. dollar exchange rate and the evolution of raw material fat prices. However, the group certainly also wants to emphasize that it currently operates in a volatile, political, economic and financial environment.
Okay, Kurt. Thank you. Just for your information, the financial calendar, we will have the full 2018 results published on March 13, 2019, followed by the traditional explication and presentation of the full results around -- at that date. And, that's it for today. And if you have any questions, we are open and we will seek to get you the best possible response.
[Operator Instructions] We have a first question from Wim Hoste from KBC Securities.
Yes. I have a couple of questions. May be first on Akiolis. What is the outlook for the Akiolis business? I think your fat prices have also in the start of the fourth quarter remained pretty low. Does that mean that the outlook for Akiolis in the near term remains rather difficult? Or are there other elements that might compensate for the low fat prices in the near term? That is the first question. And the second question is on the Agro business. Can you elaborate a little bit on the capacity utilization of your recently added facilities, specifically East Dubuque and Rouen? And also shed some lights on the order books for the fourth quarter in the various Agro businesses.
In respect of Akiolis, we see that palm oil prices, which are the main driver in the area of fat prices is still continuing at lower level. In view of the speech] that it has been going down, we have not been able to pass too much of that decrease to the market. So the next quarters, we will have to see how much we can pass to the -- to our suppliers part of the decrease we have been faced with. So we think it will remain for some while, quite difficult in the Akiolis area. In respect of the capacity utilization, we are satisfied with the ramp-up. We have now a good usage of our plant in Hanford and East Dubuque, but we are on schedule. And I just tell we're really, really happy how the utilization of the plant is at present. Then order books in respect of the agricultural business, agricultural business, we are preparing for the next season, which means that we are putting right now the stocks in place at customers who are maybe distributors, also at our terminals across the U.S. and Europe and in other places in the northern hemisphere to be prepared for the next season. So that's an ongoing process right now. It's getting ready for the next season and we hope that the season for next year will be starting early enough and will be going on longer, so that we have better opportunities for application of our products.
Okay. And then one follow-up question, if I may. If you look at the first 9 months results, there was a gap in REBITDA of around EUR 30 million between the first month -- 9 months of 2018 and first 9 months of 2017. You're hinting at a flattish EBITDA for the full year, including the T-Power contribution, which I estimate at around EUR 15 million, which still would leave EUR 15 million gap to be closed by the organic growth of your activities. What are the key drivers for expecting a much better Q4-- organic Q4 performance than the Q4 performance of last year that explain the reason why you kept the guidance unchanged?
In respect of the gap Q4 this year compared to Q4 last year, the first point is that Q4 was -- in last year was quite low, as we had mainly impact of OpEx activities, which were -- which came to an end during Q4, and where we also had some various impacts during the quarter. This year, don't forget we have a factory that is now running quite well in Argentina for hydrolysates, which will give full contribution during the last quarter. And secondly, we think that in Ag, that we will see a reasonably good volume during the last quarter and both of these, we believe, should contribute to close the gap compared to a situation last year for the fourth quarter.
Our next question is from Mutlu Gundogan from ABN AMRO.
Few questions. Let me start with Agro. So yes, you're preparing for next year. Can you talk a little bit how you view the market? I mean, some of your peers reported last week, they said for example, that they expect growth to pick up because global grain stocks are relatively low. Is that a view that you share? And if so, how are you preparing for that? Secondly, or maybe let's -- it's better to ask questions one by one, so if you could answer this question first?
Well, in respect of the general atmosphere in the Ag world, what we see in the U.S. is a shift from corn to soy because of the great problems that we have seen this year. In soy, there are less use of our Thio-Sul products compared to corn. So there we -- this could have some impact on our business. In respect of what we see right now, we see some fertilizer going up in prices. Maybe urea, the UAN. We hope that this trend will continue because this should offer possibilities for us. However, it could be that the increase we see for the coming quarter could be in anticipation of sales for next year. Whereby, people tried to protect themselves against price increases for the coming year. So right now...
Yes, and I couldn't hear last part of your sentence, apologies.
We see increases in the urea and UAN prices. And we are not sure if people are protecting themselves for next year price increases by starting to buy right now for next year consumption. So we have to wait a bit further during the quarter and beginning next year to have a better idea on this.
All right. I mean your discussions with distributors, how are they? I mean, are you -- the discussions you're having, are you planning for growth in volumes?
We have the plans for growth and volumes and we try to have as much product as possible close to our -- close to the farmer so that we are prepared for an early season, a late season, a short season, high consumption. So we make sure we are ready and we do not miss any request from our customers.
Right, okay. Then let me move on to Bio-valorization. You indicated that your revenues are flat in constant currencies and you do talk about lower prices, so I assume volumes up, prices down on the top line. Can you put some numbers on that? So how much are prices down on the top line and how much are volumes up on the top line?
Well, that unfortunately we don't disclose information on the volumes nor on price, itself. But what you see in the market is the palm oil price, which is the driving force and the fat prices is still very low. And biological fat can be replaced by this type of fats. So this means that the overall market is down right now. So in general, we expect this continued pressure. The only thing which we will try to do is pass on part of this losses to the market. And by this way, trying to reestablish part of our profitability.
Right. To what extent is that possible, I mean, the decline is going rapidly, so you're playing catch up? How are customers responding to your price initiatives?
Well, as you know, the entire meat chain is under pricing pressure. The meat chain being from the grower to the distributor. And in this type of environment, you're right, it will not be easy to pass on part of these losses to the market.
I mean, apologies but obviously you're not happy with the result of Bio-valorization. If you can't do anything with your price, I assume you're looking at your cost base, which you have been doing since you became the management of this company. So are you looking at additional cost savings measures?
We're looking at costs. For us, an ongoing continuous point of attention. What I just mentioned to yourself is that the plant for hydrolysates in Argentina is running very well, is performing very well. Hydrolysates is a gelatin that is reworked to make sure that you go into different applications, mainly into health and beauty. So basically, we're shifting parts of our production, which was designed for the food market, we are changing for the health and beauty market, where the margins are better. So this type of products hydrolysates we bring in to the market in a solution. This is being supported this product by clinical studies that it's giving a benefit for joints and for skin. Plus we have a growing elderly population in the world, which needs support on the joint. So hydrolysates from Gelatin is giving good support. And on the other hand, beauty is enormous theme in the world and also there we see a growing consumption of this type of Gelatin products in that area. So basically, we don't think that through cost savings, we can reestablish the profitability of the Gelatin business, but we are looking in diversification to grow more into health, beauty and also into medical application.
Okay. That's clear. But you're now talking about Gelatin whereas, obviously, the pressure is more on Akiolis. So are you able to shift volumes in Akiolis as well into higher margin products?
The fact of Akiolis is difficult to shift to other applications. So in that respect, we have to try and recover part of the market. On your hand, don't forget that we are working on the better Bio-valorization of protein to grow more into pet food and more into agriculture. Because before this means, we're investing in a different type of production lines, in different customer approach and establishing customer relations all over the world for these applications.
Okay, okay. Understood. Then on Industrial Solutions, your EBITDA was down year-on-year, but for a part driven by that ECS settlement. So just wondering, would EBITDA still be down if you would exclude that settlement?
It will be flat.
Okay. It'll be flat. And then, the final question. Let me also have a crack at the guidance. So not so much on a year-on-year basis, it's more on a quarter-on-quarter basis. So your guidance, if we take out T-Power, that implies an EBITDA of EUR 42 million in Q4. You reported EUR 36 million i.e., an increase of EUR 6 million quarter-on-quarter. I mean I think you said already Agro, you'd expecting some SOP volumes to shift from Q3 to Q4. But what else is driving that uplift?
With Agro, it's the -- as I mentioned, the Gelatin business, right. The hydrolysate plant is delivering quite well.
But that is already contributing in Q3. Isn't it?
It is, but was not contributing in Q4 last year and not the same level.
Right. I'm asking from Q3 to Q4. So if you can provide that bridge?
Also, in the Q4, there will be more contribution from the Argentinian plant, as we have now been expanding the capacity with the start-up at the beginning of this quarter already for this. And then the big unknown factor will be our PPS business, which will depend a lot on the weather condition for the next 3 months. And if you have an early winter, there will be downward pressure. But as it looks now, you would think we will have a good quarter for our PPS or our DYKA business.
And I would assume that Loos is negative from Q3 to Q4 because you had 2 months of contribution and at 100% or very high utilization and at 60% for a full quarter in Q4. So has -- so is that all Gelatin and PPS, seems a bit...
Ag, Gelatin, PPS.
Okay. I hope so. All right. I have a few more, but I'll get back in line.
Our next question is from Nathalie Debruyne from Degroof Petercam.
Actually, thank you, Mutlu, you already cleared the way. But perhaps, I would like to have a few specifications on SOP, particularly, because it seemed to be the driver in Q3. So what have you seen there? So I would assume higher volumes, but in terms of prices, where are we and in terms of mix specifically? And how do you see the demand evolving in the coming, I would say quarters, and especially for the start of, probably, next Ag season? That's the first question. And then, secondly, on mining activities. So you already flagged last quarter that Barrick Gold is starting to actually lower the volumes that they're using from your own products recycling on their site, et cetera. Where are we in the process of actually lowering the use of your products? And when do you see that it can start to pick up, again, eventually?
Just to read, again, on your first question, what we mentioned, we mentioned that Agro REBITDA slightly increased. And the impact of the lower Tessenderlo Kerley international volumes was compensated by the performance of other Ag activities. So we have lower volume of Tessenderlo Kerley international. But we did not -- it's not the main driver, on the contrary.
No, no, but I was referring more to SOP actually. Because I would assume that it's compensated, that would be SOP or NovaSource.
Yes. The SOP is included in the Tessenderlo Kerley international volumes.
Okay, that is new. All right, all right. But can you then just elaborate a little bit on the mix evolution?
On the mix evolution?
Soluble versus standard grades.
Well, I can tell you, we are very satisfied on the evolution of our soluble products. And we are being recognized in the world as one of the leaders in that product and it is developing very well right now. And we hope we can further grow in that business on a worldwide basis. So I think we're quite positive about business line. Then in the respect of the mining activities, we really hope we have touched the bottom with Barrick Gold. Will it go up again? This will depend on the mine activities, when they will start expanding, again, the throughput to this line. We're willing to wait for the decision of the mine. We have no visibility right now.
Okay. Because of when I look at gold price in general, I see it's more or less coming up. And I see from other companies, that also are active in the mining industry that -- actually the opening up of new mines is really coming and expected for next year. So I was wondering, yes, you say that you have limited visibility and that you hope that it has touched the bottom, but that's also what you said in August. So.
Yes.
So I don't know.
And don't forget that this process is for the rock, for the ore at that specific location working very well. So any new development on the site of the mine, it's a multi-million-dollar investment that has to be made. And I think we have to wait until a mine is coming to the decision that they want to invest in this type of process using our chemicals for the leaching, which is not the case right now.
Our next question is from Giel-Jan Triest from ING.
My question is more related to the capital allocation I would say. So you have invested in T-Power and leverage will be up between 1 and 2x now. You've always said that there are lot of opportunities within the agricultural sector due to the sector consolidation. Are you still actively looking at those? And if so, do you still have enough room to invest in any of these opportunities?
Okay. There is indeed a consolidation going on. Unfortunately, the pricing is quite high right now. So as mentioned before, we have decided that we go for organic growth investing in new factories debottlenecking of capacity, which we believe we can do at a better price than investing in the -- or taking over other companies, which will take a bit longer, but in the end, we believe that it will be a more sound business model for the future. If that means for further investment for organic growth in new factories, we believe that indeed, that there is still room to, in that respect.
So in terms of CapEx for next years, should we model in an increase then?
No. We think it will be at the same level.
Okay. And then, a question related to the new fertilizer plants in Europe. Could you give us maybe a picture of how that market is developing? Because you always said that you need to develop the market first, educate your customers. So what should we expect from the first full year, next year?
In respect of our Thio-Sul factory in Rouen, we are clearly helped with the move to precision agriculture in Europe. And thereby, also, the legislator is pushing the sector to adopt the precision agriculture methods to try and reduce the lot of nitrogen in nature of being it in the rivers by [ Rouen, ] so a positive trend and possibilities for ramping up our factory quicker, and we are really confident for next year that we will have a good result for our Rouen factory.
Okay. And this year, has the factory been contributing positively to the EBITDA line already? Or not?
It has indeed had a contribution to our REBITDA. However, in the startup of the factory, we have had some technical problems, which we are solving. But we believe that, as you know, we started it up at the beginning of the year. We think we are through the technical learning curve of the factory getting through this. And so that's from that side also and also from the market, we will have a good year next year.
Our next question is from Mutlu Gundogan from ABN AMRO.
A few more questions. On Ag, there's been a lot of talk about Iran sanctions from the U.S. Is that a net positive or a net negative for you? I know that's SOP, it's [ net ] markets. On the other hand, it's a competitor to the almond markets to which you sell KTS in the U.S. So on a net level, what is it of the two?
What we run is one of our traditional SOP markets. They are very important importer in the world of SOP and because they have the type of soil where they need a chloride, where they need fertilizer [ purine ] chloride to be applied. So this is creating an additional difficulty right now. Let's say, from a fertilizer point of view, we believe we could export to Iran. The difficulty is that the financial settlements and the logistics to Iran, which are becoming very, very difficult.
Okay. So what does that say Stefaan, I mean, are you selling anything to Iran at the moment?
Right now, we are awaiting a clear sky, some of our partners being financial institutions and shipping companies to be able to have transactions with Iran.
Right. Right. Okay. Did you sell anything in Q3, just wondering?
I could not say -- you're asking a zero-one question. I could not confirm that there has not been one containership, maybe a very, very small quantity.
Okay. And usually, you are selling more to Iran?
Indeed.
Okay, okay. That's clear. Then on Bio-valorization. I think Wim asked a similar question. But, you expect that at the negative elements lower fat prices to continue, but if I'm not mistaken, your EBITDA -- Q3 EBITDA was flat year-on-year, despite having a negative inventory write-down. So on an organic basis, it was up. And given the fact that I mean, I know fat prices continue to go lower, but you are adjusting -- you're probably trying to increase selling prices. So my question is, should we expect EBITDA in Q4 to be flat again, to be up or down or what is it?
It will be -- it should be up in last quarter because the last quarter as mentioned before, we have the full contribution of our hydrolysates, Gelatin plant in South America and in Argentina. So in that perspective, that should be positive, provided the fat prices don't go down further.
Yes. And can you remind me the new -- I mean contribution from Argentine from SOLUGEL, when did it start to contribute materially, as of which quarter?
It started materially second quarter this year.
Second quarter. So on a year-on-year basis, you still have a benefit until Q1?
Yes.
And then, just to remind me, are there more plants for your up...
They're also expanding the capacity, as I mentioned to you. And we are -- when we have the opportunity, we always debottleneck first existing plants and this is what we're actually doing in Argentina.
Okay. Then on Industrial Solutions. So I understand in Loos that is an issue with the HCl burner. Can you tell me what the problem is? I mean, I know that you're not an engineer, I'm not either. But was there a design issue? Because this is a brand-new plant so it surprised me that, that was a malfunction of a product.
This type of HCl burner is being used in the other electrolyzers. And apparently, in our case, there has been a technical problem, which emerged after 6 months of operation. But it's a standard design, which is being used in other installations. So it's quite exceptional that we have this type of problem.
So who's to blame? I mean, is it the supplier, is it possible that you get some money back?
We do not normally give any comments in respect to good relations with suppliers, if you don't mind.
I understand, but it is really a pity to put it lightly because caustic soda as well as the prices are soaring in Europe, so the fact that you are operating at a lower utilization that hurts a lot, I would say. So I assume that you are blaming someone.
I tell you, we do not comment on good relations with suppliers.
Okay. And you I mean, obviously, we like to model, so can you tell me what the impact is from that 1 month of lower operating rate? Or maybe given indication what the negative impact will be on Q4?
We believe the negative impact in Q4 will be around EUR 2.5 million.
EUR 2.5 million?
Yes.
Okay, okay. That's helpful. And then, final question. On mining, when will you receive an operational planning from Barrick going forward? Is it that in December?
That's -- I think, which I'd better leave over to the specialists between Barrick and our local people, this is an operational question, which we believe Barrick has the right, will take the right decision in that respect. It's very difficult to give a clear answer on this right now.
I understand. I mean, obviously from us -- from the financial community, if I can just speak for maybe for a few people. Everyone was negatively surprised that the volumes of this product came down, whereas it seems that the relationship with Barrick Gold is very good. So I was just wondering how, I mean, your volumes are down significantly, so just wondering how that will recover? And it seems that you don't know either at this point, end of October?
So what I mentioned to you in previous calls is that Barrick is doing an optimization of its process by recycling part of our product. We believe that the right action to be taken to optimize the process for Barrick and have a correct cost price for the utilization of our product. We are also convinced that we have together developed a very good technology and we are convinced that at one stage that this will pick up again, by increasing volumes, again. When this will happen, that's a Barrick decision, on which we have no view right now. But there is no doubt about that we have a solid process, which is recognized to be very good and that's the basis of the business.
Understood. And any views on the combination between Barrick and Randgold? I assume it's an opportunity. Is that something that you can confirm?
Well, we hope there is more opportunities together with Barrick to develop new business. But once again, it depends on the ore and that is where the gold is extracted. And we have to see together with Barrick what are the opportunities.
Thank you. We have -- please go ahead for the conclusion, gentleman.
All right. I thank you very much for your attention. We speak again to each other in March. We and all of our colleagues at Tessenderlo keep working very hard to achieve the best possible results. You can count on this. And we wish you a good last quarter for this year. Thank you.
Ladies and gentlemen, this concludes today's conference call. A replay of this webcast will be available on our website. Thank you all for attending. You may now disconnect.