AlzChem Group AG

XETRA:ACT

Earnings Call Transcript 2021-Q3

[Operator]

Dear ladies and gentleman, welcome to the conference call of AlzChem Group AG. At our customer's request this call will be recorded. [Operator Instructions] I will now hand you over to Andreas Niedermaier, who will start the meeting today. Please go ahead, sir.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes. Hello. Thank you. Good morning together. Thank you for joining us today, and welcome to our Q3 analyst call. As we usual, we open with an executive summary and then move on to the figures after some strategic and most interesting topics. At the end of the presentation, we will be available for questions for sure -- for sure. And so let's skip the disclaimer and go directly to the Page 5. So I click through the slides and it takes a few seconds. I think, yes. So you have certainly noticed that we have a new look and feel and have prepared a so-called branch and brand relaunch, ACT. The AlzChem Group is setting a new sign here. AlzChem Group AG is flying the flag with a new logo embedded and a new corporate identity in a stylized Pentagon stands ACT, or A-C-T, which is, on the one hand, our stock exchange abbreviation and on the other hand, a clear call to action. We want to help shape the future together competently and with agility, and we want to be part of the answer of the global questions of our time, and this is exactly what the new logo should reflect. And reflect the motivation, the agility and the values of AlzChem Group AG. Tradition also plays an important role in this. The proven is carried forward into the future even as a globally successful company with a leading market position in many fields of activity. AlzChem continues to respect and to cultivate its roots in the region, the company will continue to attach importance to being a good neighbor at all sites, a reliable partner for customers and a company with a sense of social and ecological responsibility. On the next pages, we may give you a few more impressions of the new design world here. Tidy, clear in language, yet finding the details you need to work with us should be reflected in this picture. And modern, crisp in our statements with high recognition value should be seen here in this picture. And in the end, throughout all medias, I hope we have inspired your curiosity a little, we invite you to browse through our pages and we would be happy to receive your valued feedback about our new brand. So -- but now after the short introduction, back to the real business back to the figures and back to the hard facts. So we are on Slide 9 now. Overall, here, we can report another very positive quarter for the AlzChem Group. All key figures are well above the previous year as a result of the implementation of consistent growth in the 9-month period. The third quarter also was well above the previous year, but more on this details later. As a result, we are able to maintain the guidance for the fiscal year 2021, up to EUR 415 million in sales and up to EUR 64 million in EBITDA despite the significant turbulence in the market. The commissioning phase of the new NITRALZ plant has been completed and successfully transferred to regular operational use. There is considerable turbulence on the raw material and energy markets, either shortages are being felt, significant price increases have to be accepted or there is a fundamental lack of availability, including logistic capacities. So far, we have almost always managed to implement everything on time, both on the supply and on the distribution side. And here, of course, the strength of verbund comes into play. -- because we produce our main raw material ourselves in the verbund production and can steer them through all production stages to the product with the highest demand. In the third quarter, we started the market launch of Eminex, and fortunately, we won the Responsible Care Award of the VCI of Bavaria. Thank you for that. The implementation of our Creapure capacity expansion is well on track. Commissioning is scheduled for the end of quarter 3 next year, and is also achievable from today's perspective. COVID is still an issue. Our district of Traunstein is one of the district with the highest incidence rates. Therefore, we continue to act cautiously and prudently, but we have not had any further restrictions due to COVID diseases. So all in all, we can proudly report a very good quarter, albeit a turbulent one from a management perspective. And at this point, the obligatory strategic question, what happens next? Well, here are a few answers from Georg Weichselbaumer.

[Georg Weichselbaumer, Chief Sales Officer & Member of Executive Board]

Thank you, Andreas. A focal point of today's presentation will be DYHARD. DYHARD is the brand name for high-performance thermoset epoxy systems and was developed based on dicyandiamide hardeners. Over time, we have added urone and imidazole accelerators and even formulated epoxy resin systems. Those give us a flexible toolbox, which helps us assisting our customers in solving their curing tasks. In the current environment, in-house production of dicyandiamide, building this raw material according to customer demand and production of urones in our multipurpose plants ensures seamless availability and leads to growing market share. With own application labs, we help customers finding the right balance between curing time and temperature while creating highly cross-linked composite systems. DYHARD products have the market as flame retardants in electronic equipment and expanded quickly into lightweight parts for sports equipment, like bicycles or tennis rackets. Due to the lightweight, we had reached construction possibilities, they made their way into rotors of commercial windmills, newest applications offer structural parts in automotive, aerospace and the aeronautic systems. In summary, DYHARD products were always at the forefront of sustainability, creating end products with reduced weight and reduced energy requirement. On the next page, we would like to introduce the newest development along this journey. DYHARD products as raw materials for lightweight hydrogen cylinders. Again, the ability to create systems with high stability yet with low weight makes DYHARD the choice for cylinders in fuel cell electric vehicles. Countries like Japan and Korea rigorously developed passenger cars based on hydrogen-powered fuel cells. And in other areas of the world, hydrogen mobility is considered a serious alternative for heavy-duty vehicles, trains or ships. For those applications, we have developed a range of DYHARD liquid systems, which can be tailored to the development requirements of hydrogen car producers. The system was tested in several end user applications and approved in pressure cycles exceeding 700 bars of hydrogen pressure. Those cylinders are composed of a carbon fiber matrix as base bone and cure epoxy resins as body. A typical cylinder is shown in the lower right corner of the slide. The production process is called filament winding with a carbon fiber soaked in a liquid epoxy curing system, while continuously wound around a solid body. Afterwards, the rotating cylinder is cured at elevated temperatures. Advantages of the DYHARD system in production of cylinders are the long-term stability of the solution during winding, which leads to higher machine utilization, less cleaning and waste, and consequently, high productivity or in other words high profitability. During the curing process, it is of critical importance for the uniformity of the calendar that the heat generated during this process is equally dissipated and hotspots are avoided. Here again, the DYHARD toolbox does its job. Hydrogen-powered vehicles are part of the energy solution for our planet, and DYHARD is well positioned to be part of this process. With these positive statements, I would like to give it back to Andreas.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes. Thank you, Georg. Then I will move on, on Page 12. So in the third quarter of 2021, sales jumped by approximately 20% year-on-year to EUR 95.9 million in absolute terms. Again, the 2 segments, Specialty Chemicals and Basics & Intermediates contributed to the sales growth. The significant increase in turnover also had a positive effect in absolute EBITDA and EBITDA margin. The third quarter of '21, this was EUR 13.8 million and less EUR 1.8 million or 15.4% higher than in the same period of the previous year. Supported by the positive product mix in terms of margin and high raw material prices, the EBITDA margin for the third quarter has now reached a level of 14.4% for the first 9 months. This means an increase in turnover of 11.7% to now EUR 311 million and on EBITDA growth of even 20% to now EUR 49.6 million. Earnings per share rose from EUR 1.46 to EUR 2.14. The increase is mainly caused by the very good earnings situation here. The overall growth is volume-based with a growth rate of almost 11%. And in total, we were able to adjust our prices upwards by about 2% in line with the volume increases, what caused us profitability compared to the previous year. However, where unfavorable exchange rates, especially in the U.S. dollar, and this single effect amounted to about minus EUR 3.7 million. All in all, it was a very successful 9 months despite the turbulent market environment. And so much for the big picture and the overview, let us now analyze in more details the different segments. So -- and therefore, I move over to Page 15. So segment -- the Basic & Intermediates segment comprises the production of Basic & Intermediates products that either required for the manufacturer of Specialty Chemicals or market as stand-alone products. With sales growth across all profit centers of 31.4%. The Basics & Intermediates business performed very well in quarter 3. For the full year, we achieved a sales increase of 20.7%. Both in quarter 3 and for the full year, volume increases with the additional contribution margins played the key role here. Delivery capability and delivery reliability for our metallurgical products, our fertilizers and our pharmaceutical raw materials are the criteria that count in this day. We see a significant increase in the implementation of price increases in the third quarter with 6.4%, and for the full year with 4.2%. We are also able to pass on first cost increases to our customers. This is also clearly reflected in the EBITDA and especially in the EBITDA margin, volumes increased significantly in economies of scale were realized. Furthermore, a significant part of the increased raw material and electricity costs could be passed on to the market. At the same time, various Six Sigma projects along the entire NCN chain are having noticeable effects, which is clearly reflected in the favorable cost items. In total, the segment's EBITDA increased by EUR 3.3 million or around 50% year-on-year, with around half of the increase achieved in quarter 3 alone. This segment can therefore be summarized as sales are largely driven by volume and margins significantly improved, mainly by economy of scale and first price increases. So much for the Basics, let us now move on to the Specialty segment. which is now the Page 17. So the Specialty segment was able to contribute significantly to the overall growth of AlzChem Group in the first 9 months, with a sales increase of 7% and in quarter 3, even by almost 10% here. With very significant volume growth, the product area DYHARD for lightweight construction and renewable energies and Nitroguanidine (sic) [ Nitroguandin ] for automotive applications, in particular, shown reinforcing the positive trend since the fourth quarter of 2020 over the past period of fiscal year 2021. So with very significant volume growth in the mid-double-digit percentage range, the market share of dietary supplements based around Creapure was also strongly expanded. The CapEx of EUR 11 million that has been initiated will enable us to continue to develop this market position in the future. Bioselect product to COVID testing fluctuates with the pandemic. For example, demand was rather weak in the summer, but picks up again significantly in the winter. Creamino is running at about the same level as the previous year. Also, we were able to win many new customers. The Specialty segment was not spared the turbulences on the raw materials and logistics markets in some campaigns. For example, plans had to be changed at short notice due to delays in the delivery of raw materials or postponement of collection dates. Nevertheless, all orders were delivered. All plants operated at high to very high capacity utilization rates, and unplanned plant shutdowns have been avoided to-date. So all effects combined resulted in EBITDA of EUR 38.8 million in the segment and an increase of EUR 4.8 million or 14% compared to the previous year. Price increase rounds have also been started in this segment and should be able to absorb future raw material price increases well. So let us now move on to the third segment, Other & Holding, which is shown on the -- Page 19. So in the first 9 months, the Others & Holding segment was able to essentially repeat the development of the same period of the previous year. Chemical power customers purchased services at a similar level as before. There was also no significant change in the individual services. All in all, sales of EUR 6.3 million were approximately at the previous year's level, and earnings of EUR 0.5 million were in line with expectations. So let us now look at the balance sheet, which is shown on Page 20, and I think you should see already the slide. So the balance sheet in total increased from EUR 354 million to EUR 381 million. What were the main changes on the assets? Tangible assets were more or less stable on the level of EUR 194 million. Inventories are EUR 7.2 million higher than at the last balance sheet date. This reflects 2 effects. Firstly, increased raw material costs led to a higher valuation of inventories. On the other hand, products are currently being produced in stock to ensure supply to our customers, that's increasing the quantity held. In the area of receivables, in addition to reporting date related reasons, among other things, the considerable increase in quarterly sales led to a significant increase in trade receivables up to EUR 56.6 million. It can be assumed that at the end of the year, we will be back at about the same level as the previous year because there were no payment delays. What else is there to discuss about the liability side, equity increased by EUR 12.6 million to EUR 81.3 million. This led to an equity ratio of 21.3% compared to 19.4% in the previous year. Long-term valuation rates for pension changed from 0.5% to 0.7%, but this was offset by pension trends, which had to be raised from 1.5% to 2% here, and this is the reason for a slight increase in pension accruals. Current liabilities mainly reflect the effects of the sharp rise in business volumes. The biggest increase was in trade accounts payable due to the increased purchasing volume and higher raw material prices. The short-term utilization of financing lines also led to an increase in current... [Technical Difficulty]

[Operator]

Ladies and gentlemen, we seem to have a technical issue. Please stay on the line while we fix this. Ladies and gentleman, thank you for standing by we will now resume the conference call.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

So I'm very sorry that we have lost our line but I think telephone lines in Germany are not as stable as they are used to be. So I've heard on the radio today that lines are not really stable and now it happened with our conference call as well. So I restart my presentation at the Page 21 at the cash flow. So in principle, the cash flow development continues to be very positive here. The cash inflow from operating activities amounted to EUR 24.9 million and is that behind the previous year as we have significantly built up receivables. If we were to exclude the net working capital buildup, we would be well above the previous year, which is permissible from our point of view as we expect to see lower net working capital again at the end of the year. So the cash outflow from investing activities has risen compared to the previous year. Major individual projects were missing in the previous year. This year, the completion of the NITRALZ plant and the RTO, which is standing for a Regenerative Thermal Oxidation plant, are the main drivers. Payments for AlzChem's financing activities amounts to EUR 13.7 million, which corresponds approximately to the previous year. Okay. So that's it for cash flow. After this, analysis, a few words to our targets on Page 22. So in principle, on the target list, we are well on our way with the general development towards sustainability. We have also included this topic at the top of our target list. Here, all analysis are running at full speed. We expect to be able to present our analysis by the end of the year, respectively, at the beginning of the next year. So we are here on our time schedule. And here, some few comments on the other targets on the list, starting with the commissioning of the next capacity step of NITRALZ product group. The NITRALZ plant started up on time and on budget. In May, capacity utilization is at high level and is already supporting the growth of the Basics in the second half of the year. Increasing our involvement and sales in the pharmaceutical market, we have been delivering here, since quarter 1, working on the topic of creatine of Health & Nutrition for the market development of creatine, a target extension for a significant capacity increase of our Creapure products has risen here. Commissioning is already planned in stages from quarter 2 of next year, and the project is on schedule, both in terms of time and cost. With regard to our Creamino sales volumes, we're roughly level with the previous year. New customers acquisition is going well. Also, there has certainly been competition so far. So nevertheless, we expect good growth rates in the coming months here. So the management of COVID-19 effect has been joined by other issues. We have to pay more and more attention to the security of raw material supplies and see that we manage the logistics in all directions, so that we can facilitate all planned transactions and sales. So finally, let's move to our outlook, which is printed on Page 23 here. Also, we see major turbulence in the raw material and logistic markets. We are sticking to our outlook for this year, which we raised again on July 15. Order intake is very good, and therefore, plant utilization is high. The risks lie in successful managing the following effects. First, COVID-19. We are located with our production in the high incidence area of Germany. Currently, the incident rates are often above 800. And I checked the internet today and I think we are close to 1,000 actually. Thanks to the cautiousness of our employees, we are safe on the road, so far. Raw material availability. So far, we have always succeeded in procuring all raw materials on time. The price increases are partly immense, which is why we are very much in talks with our customers in order to be able to pass on this price increases. So far, our customers have been receptive to this. Electricity prices. You all know that the price of electricity is an important input factor for us. In some cases, industrial electricity prices for band and spot have multiplied. We are hedged at about 70% for this year. So the impact is still manageable. However, we are already seeing significantly declining electricity prices for the next year already. And with our electricity-based chemistry, we are definitely in a better position from a sustainability perspective than crude oil-based chemistry. With more and more renewable electricity, our input factors automatically become more sustainable. And then the fourth point, logistics. This is the biggest challenge for us. We are putting off ever higher order backlogs because we often get the goods on the ship late. We will make every effort to meet all delivery deadlines here as well, but it remains still challenging. Okay. As I said, tough times. I always say that we sail the stormy weather. And so far, we are getting it right and are doing very well. So that's it from our side with the information for quarter 3 and the 9-months for the year. At this point, we would like to thank you for your appreciated attention, and sorry for the [cutted] line, and we are now at your disposal for possible questions. Thank you.

[Operator]

[Operator Instructions] And the first question is from [ Konstatin Schmidt ] , Baader Bank.

[Konstantin Hammerschmidt]

Yes. Many thanks for commenting on the energy costs so far. Can you maybe give us an idea of how much of your energy cost is now hedged for the year 2022 and 2023? And what do you expect from the potential end of the EEG tax? Can you give us maybe some insights on your thoughts there? And also on the CO2 cost, that would be my second question. How many certificates do you maybe have bought by now? And how do you expect that to impact your cost structure in the future?

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes. So some information about electricity. As we have already heard today, we are secure at the 70% level for this year. For the next year, we have already prepurchased approximately 50% for the overall group at a favorable price from the days of -- a very favorable price for sure. And what we see is that the electricity price is coming down slightly for the next year, and we expect definitely lower prices -- lower marketing prices as well. So we have had first discussions with our customers, as have already seen in our P&L. We have been successful to increase the prices and the price increase round is going on. Our customers are definitely receptive for that. And we think that we will have higher prices and compensation for this higher raw material prices for the next year. So this is the issue on electricity prices. Of CO2 topic was the second thing, so we do not really need CO2 certificates, only on one side, this is the Swedish side. We have already purchased CO2 certificates for this side, and we are fully filed, I think, for the next few years. And therefore, we don't see direct effects of CO2 within our P&L here.

[Operator]

[Operator Instructions] And the next question is from Peter Hasler.

[Peter-Thilo Hasler]

First would be on NITRALZ and the capacity expansion, where are you now in the -- in your target? And are there going to be further CapEx in the NITRALZ area?

[Georg Weichselbaumer, Chief Sales Officer & Member of Executive Board]

I'm not clear on the background of the question. When you say where are you on your targets. I mean we have expanded capacity and we have already high utilization of the capacity. It's not completely full yet. And at the time being, we do not consider any additional expansion of NITRALZ' capacities.

[Peter-Thilo Hasler]

Okay, that was...

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Did that address the question?

[Peter-Thilo Hasler]

Yes. No, that was the question exactly. And on Creapure, you mentioned that the capacity expansion is on track. When do you expect to reach the expected capacity?

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes. So we try to have the commission of the plant between quarter 2 and quarter 3 next year. So we have repurchased all material, which is used to build up the plant. So the delivery dates are actually on time and therefore, we feel confident that we can commission a plant in the next year, quarter 2, quarter 3 between these dates, I think.

[Georg Weichselbaumer, Chief Sales Officer & Member of Executive Board]

And just to add, we do everything possible to advance the commissioning because the market is waiting for that expansion. And if it means that we need to spend a little higher expense to get the plant commissioned earlier, we're doing this because it's a good opportunity for us, and we are just waiting for being able to supply to the market.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes. We are fully sold off of creatine and we can sell every kilo at the end of the day, actually. And big customers are really waiting and we are in a position to sell creatine already for the next 2 to 3 years and to get a long-term contract for creatine as well. So the situation is really, really good actually for us.

[Peter-Thilo Hasler]

Congratulations. And the final question on Eminex. You mentioned that the market -- the product launch has been reached. Maybe you could give us an indication how it was, how is it going right now? And especially, I would like to know what is the incentive for a farmer to buy this product?

[Georg Weichselbaumer, Chief Sales Officer & Member of Executive Board]

Actually, you almost answered your question yourself because that is the real question, what is the incentive? When we look at Eminex, it saves quite a lot of methane emissions from liquid manure storage. This has been defined as one of the biggest targets of methane reduction within the EU, in the recent summit. So we think we are very right on timing with it. On the other side, we also are aware that the farmers need assistance, potentially subsidies, to really absorb Eminex. However, the methane reduction is not the only advantage of Eminex, it also reduces the space requirements for liquid manure. It also -- we have proven that, in real examples, increases the yield in certain crops since fertilizer is more readily available. And as a consequence, we have been -- we have started selling Eminex, and it is received in the market over and above of what we had initially expected, because even farmers are buying the material at the prices at which we asked for without a compensation for their expenses. So apparently, there is a need for the product and people would like to try it.

[Peter-Thilo Hasler]

I get it. So the increase in the yield is right now the driver for you, assuming that the farmer will not spend money for saving the climate.

[Georg Weichselbaumer, Chief Sales Officer & Member of Executive Board]

Correct. I mean, as I said, it's not just increase in yields, it's also easier handling of manure. So it has a couple of advantages for farmers, which will most likely not fully pay for the increased price, but it makes it easier for people to get advantage and at least try to see how it works.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

But additionally, we are in discussion with some farmers and a group of farmers. They are very close to the topic of sustainability, and they want to use and they plan to use this product as well on their own decision. And because they want to be really sustainable and they use this as an advertising argument as well. So -- but at the end of the day, the success is dependent on the compensation for the farmers. Is this the compensation of some State's payment or something like that, I don't know. But we are in deep discussion with the authorities, and we think that this compensation will come.

[Operator]

And there are currently no further questions. [Operator Instructions]. And we haven't received any further questions at this point. So I hand back to the speakers for closing remarks.

[Andreas Niedermaier, CEO & Chairman of Executive Board]

Yes, okay. Thank you for your questions here. We can now offer you the opportunity to visit us again virtually or in person at the conferences as shown above here. We are pleased to invite you to these events. If you are interested, you should register quickly as we are already pretty well booked. So otherwise, we will be back with year-end information on February 24 next year. We have revised the year-end process and will report significantly earlier. And should we not see each other by then, stay safe and sound. Stay in our good graces. And thank you, and goodbye.

[Operator]

Ladies and gentleman thank you for your attendance. This call has been concluded, you may disconnect.