Earnings Call: H1 2021

Aug 5, 2021

Ladies and gentlemen, welcome to the conference call of Ice Chem Group AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Andreas Igermeier, who will lead you to this conference. Please go ahead, sir. Yes. Thank you. Good morning together. Thank you for joining us Today, and welcome to our Q2 analyst call. As usual, we open with an executive summary and then move on to The figures after some strategic topics. Today, we have a big competition from my point of view. I think I counted more than 15 publishing their figures today. Among them are now lesser ones than Bayer, Adidas, FireSoft, Evonik, Merck, Wacker and so on. And therefore, yes, a big competition is going on. At the end of the presentation, we will be available for a question, As always, and so let's skip the disclaimer and go directly to the Page 4. So I change The pages that you will see the right slide and can follow The conversation here. So all in all, we can report another very positive quarter for the Alstecamp Group. The recovery of business, especially from the steel and automotive sectors, has been faster than expected. Thus, growth is visible across almost the entire product portfolio. As a consequence, we were able to raise our forecast for 2021 financial year to a turnover up to €415,000,000 and an EBITDA up to €64,000,000 here. We have successfully commissioned the new Nitrals plant after construction period of around 15 months within budget And on schedule, at the same time, we commissioned another waste gas purification plant, a so called RTO, which Stands for regenerative thermal oxidation plant with a project sum of approximately EUR 6,000,000 to fulfill our sustainability targets as well. So what we are Already seeing, however, are the very turbulent commodity markets and the challenging logistics situation. So far, we have almost always managed to implement everything on time, both on the supply side and on the distribution side. And this is, of course, where the strength of our Verbund comes into play, because we produce our essential raw materials in the Verbund production in house and can steer them through all production stages to the products with the highest demand here. So in the second quarter, however, we also Completed the share buyback program, for example, and increased our free float by approximately 17% up to 43% through a successful share placement. In the spirit of ESG, we are also able, for example, to offer COVID vaccination to all our staff and even their family members. And we are almost done with it by the beginning of June. Nevertheless, we still run many processes In COVID mode, still wear masks and arrange many online meetings, but our motivation is high. And this has also paid off for quarter 2 as we will see in more detail later. And at this point, the obligatory strategic question, What happens next? And here are a few answers from Doctor. Reichelbamer to whom I want to hand over now. Thank you, Andreas. A focal point of today's presentation will be ClearFuel. Due to its important role in the energy metabolism of every cell in muscles, brain, heart and immune cells, The natural substance creatine is vital for humans. A sufficiently high creatine storage It's crucial for the energy metabolism of the body, increases both the performance and the endurance of muscles and brain, It's relevant for the proper function of the immune system and improve the fitness and support healthy aging. In addition, scientific research shows the positive effect of creatine in post viral fatigue syndrome and diabetes. If the body cannot synthesize its entire demand of creatine, we need to eat fish for meat in order to balance our creatine levels. This is a particular problem for the growing number of vegetarians or vegans. And it compounds there's sometimes limited availability of vitamin D12, which impairs the natural synthesis So supplementation with CreaPure increases creatine levels in vegetarians and vegans And therefore, increases muscular and narrow psychological performance. In an effort to make creatine a component of functional food, AlstChem investigated the stability of application tests with ClearPure in, for example, dairy products Showed very good stability results. In addition, ClearPure can be added to bars, Cereals as well as to meat and dairy alternatives based on plant protein with only very little degradation during the cooking process. Therefore, ClearPure is an excellent ingredient for various foods, providing support for an active life and well-being And completing the diet of vegans and vegetarians. And this is the basis for the following decision. Consequently, Alstechem has taken the decision to invest approximately €11,000,000 In the expansion of the capacity of ClearPure and its precursor. There are a number of compelling reasons, which makes this decision second to none. Ice Chem has worked on a good number of those already. Creatine used to be consumed mainly in Europe and the U. S. To build muscle mass. We observe and actively participate In a change in consumer patterns, it is possible to expand the market regionally into South America and Southeast Asia. New markets can be opened up in endurance sports like running and team sports like football. And As already mentioned, Creapur finds its applications in functional food and lifestyle products, for example, for vegetarians and healthy aging. KreiaPure, as the purest creatine on the market, is a perfect fit for those applications. Also, we received encouragement for our hard work as the winner of the Nutra Ingredients Award 2021, Another positive sign for the increased attention for creatine in the perception of consumers. Other reasons have emerged recently and commanded the timing of the investment. Currently, we observe a severe shortage of creatine in the market. This is apparently caused by ongoing policy changes in China, The only other production location for creatine in a drive for a safer and more sustainable environment. And also a growing need for secure supply of the creatine precursor sodium sarcosinate In biodegradable tensides for applications in cosmetics, household and metal cleaning to name just a few. Time is of essence for this investment, and we work very hard to come to the market as early as the Q2 of next year. But there is more interesting news on the next page. Much earlier in Q3 of this year, we will launch our new product, MNX, into the market. As a recap, we have reported already that MNX can virtually eliminate methane emissions during manure slurry storage. In the meantime, our results were independently verified by external research institutes Like DECRA and the Leibitz Institute for Agroengineering and Bioeconomy. Methane remains in the slurry and ends up Add fertilizer on the field. And therefore, with MNx, we can tackle a persistent problem in farming. More than 50% of all methane emissions in Germany come from agriculture. However, M and A can do more for farmers. It captures sulfide vapors and has the potential to reduce the number of severe accidents. As no methane gas is liberated, there will be no volume expansion during storage, and the capacity utilization increases by more than 20%. This is a huge advantage as the application window of manure is only a few months. And in addition, it may avoid a closed system from a newer storage. Also, addition of MNx This increases the overall nitrogen efficiency of the resulting mixture. Consequently, the product recently won The FAULT TE is responsible CARE award 2021 in Bavaria and has a sales potential of €10,000,000 We assume that in the future, the storage of Sladee will get a price tag, And MNx can then be the solution provider to a significant improvement of the environmental footprint And now back to Andreas with the current number analysis. So then I have to Change the slide to the financial overview. So here in the Q2 of 2021, sales jumped by 8.3 year on year to €111,000,000 in absolute terms. Again, the 2 segments, Specialty Chemicals and Basic Intermediates, contributed almost equally to the sales growth here. The significant increase in turnover also had a positive effect on absolute EBITDA and margin. In the Q2 of 2021, this was €19,000,000 and thus €2,200,000 or 12.9 percent higher than in the same period of the previous year. Supported by the positive product mix in terms of margin and still raw material prices at the plant level, the EBITDA margin has now reached a level of 17.1 percent here. For the first half of the year, this means an increase in turnover of 9.2% to now EUR 215,000,000 And an EBITDA growth of even 22.6 percent to now €35,700,000 here. Earnings per share rose from €1.0 68 and the increase is mainly caused by the very good earnings situation. The overall growth is volume based with a growth rate of almost 10% And what cost us profitability compared to the previous year, however, were unfavorable exchange rates, especially within the U. S. Dollar. And this signal effect amounted to about minus €3,400,000 here. All in all, a very successful first half of the year And so much for the big picture. And our view, let us now analyze more details into the segment. And therefore, I change The Slide 2, Page 11. So the Basic and Intermediates segment comprises production of basic and intermediate products that are either required for the manufacture of specialty chemicals or market a stand alone product only to remember. This segment also achieved in all profit centers more than pleasing growth in sales in the first half Year 2021, from the Nitrals product range to Dicyan Diamond, mainly in the pharmaceutical applications to Volker, The Agricultural Application and Metallurgical Solutions sales growth has around 16% for the first half of the year and even 18% for the Q2. The process and cost optimization project, NTM Excellence, which has been running for more than a year, continues to make a significant contribution to compensating for Recently rising external procurement costs. Quarter 2 EBITDA reached EUR 3,800,000 following the very good Quarterly turnover of €45,000,000 for the first half of the year, An increase in earnings of approximately 50% was possible with an increase in turnover of approximately 16% here. The cost burdens Of higher raw material prices and rising CO2 costs, we are still manageable. Nevertheless, we are in the process of Identifying the CO2 reduction potential through our sustainability team. And on the other hand, we must also find solutions with our customers as to how we can jointly manage this additional future cost burdens here. This segment Can therefore be summarized as sales are largely driven by volume and margins significantly improved mainly By Economy of Scale. So, so much for the Basic and Intermediates. Let's move on to the Specialty segment on Page 13 here. Only to remember again, this segment produces and sells High quality specialty chemicals such as Creamino, Priapure, BioSelect, DieHard, Dormex to name but a few. Within the Specialty segments, the trends from the Q1 of 2021 clearly continued. Sales volumes were increased in almost All business units in some cases vary significantly. In addition to high deliveries, the segment also benefited from Economics of scale as well. The pandemic situation has calmed down to some extent, accordingly, a decline In demand for PCR tests and thus for BioSelect products can be seen as an opposite effect. In the Human Nutrition business field, turnover almost doubled. The consistent expansion of worldwide marketing activities For gratifying fruits, as we have already heard, delivery, reliability, availability, quality and purity of the product Are increasingly convincing on the market and therefore supported the growth in this quarter. Acquia Mina business, on the other hand, is currently still somewhat below expectations. So we are sharpening our focus again with an internal project called Fast Track, and we anticipate a positive development in the coming months as well. So turnover reached €116,000,000 the best half year turnover for this segment ever, Despite the ongoing investment in the future and increased marketing activities, the EBITDA of €28,700,000 and the EBITDA margin Of approximately 25%, we are significantly higher than in the previous year and at any rate at a very good level as we think. In addition to continually rising raw material costs, the current U. S. Dollar exchange rate had a particular negative impact on the segment results, but have been successfully compensated so far. And the growth can continue. We will continuously drive the utilization and market development of Granmino. And as we have already heard today, We will add additional capacity in Kria Pure available next year. So let us now move on to the 3rd segment, Others and Holding, which I have to turn the page to Page 15. So this segment comprises all activities not allocated to the Other segment in the first half of twenty twenty one. The Other and Holding segment was able to essentially repeat the development of same period of the previous year. Chemical Power customers purchased service At a similar level as before and there was also no significant change in the individual services. In the case Of supply chain products, there was a certain shift from warehousing service to shipping, foreign trade and services and increased demand for our process utilities. But overall, the business can be described as stable. All in all, Sales of €6,500,000 were approximately at the previous year's level and earnings of €0,400,000 were in line with expectations here. Okay. That's so much for the business. Let us now take a look at the balance sheet, Which is Page 16. The balance sheet in total increased from €354,000,000 to €365,600,000 What were the main Changes within the assets, tangible assets were more or less stable on the level of €195,500,000 which is an indication of CapEx at the level of depreciation. Inventories were stable Despite the good sales and 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 €50,100,000 a year. It can be assumed At the end of the day, of the year, we will be back at about the same level as the previous year. What else is there to discuss about on the liability side? Equity increased by €13,100,000 to €81,800,000 This led to an equity ratio of 22.4% compared to 19.4% in the previous year. Thus, the very good business performance Could even more than compensate for the dividend paid of €7,800,000 after the annual meeting in May. The long term evaluation interest rate increased from 0.5% last year and are now up on the level of 0.9%. This results In a decrease in the pension provision, namely to a level of €135,500,000 The noncurrent liabilities Decreased due to repayment of loans and our current liabilities increased slightly due to cut off date deferrals. That's it for the balance sheet analyzers. Let us now have some words about a very positive cash flow development. So the cash inflow from operating activities amounted to €25,700,000 and thus more than doubled compared to the previous year. The starting point for the strong operating cash flow was a significantly increased consolidated net profit for the period. Furthermore, the significantly increased The Cash outflow from investing activities has risen sharply compared to the previous year. Major individual projects were missing in the previous year. This year, the completion of the NITRIAL plant and the RTO plant are the main drivers here. The payments for Alstecam's financing activities amounts to EUR 15,700,000 in the first half of twenty twenty one, a significant increase of EUR 14,700,000 compared to the previous year. While the scheduled repayment of loan and lease liabilities remained largely Unchanged no short term money market loans had to be taken out in the current half year under the review and due to the strong In the same period of the previous year, this led to an inflow of €13,700,000 in financing cash flow. So after this short and quick analysis of cash flow, a few words to our target On Page 18 here. So in principle, on the target list, we are well on our way. So with the general development towards sustainability, we have also included this topic in the top of our target list here. All analyses are running at full speed. We expect to be able to present our results and our analyses by the end of the year latest. And here a few comments on the other targets on the list. Starting with the commissioning of the next The capacity step of Nutral's product group. The Nutral's plant started up on time and on budget in May, as we have heard several times now. The capacity utilization is on a high level, which will support the growth of the specialties in the second half of the year here. Increasing our involvement in sales in the pharmaceutical market, we have been delivering here since quarter 1 already and working on the topic of creatine for healthy nutrition for the market development of Levadura target Extension for a significant capacity increase of our cream creatine products has arisen here As we have already heard today as well, so commissioning is already planned in stages from CUDA Q2 of next here. So with regard to our Cremino sales, we also assume that our market activities will pick up more after the corona restrictions in the second half of the year, and we think that we will see a good growth as well. The management of COVID-nineteen effect has been joined by other issues. We have to pay more attention to the security of raw material supplies And see what we manage the logistics in all directions, so that we can facilitate all planned transactions and So finally, let's move on to our outlook, which is the Page 19 here. So due to the extremely pleasing business development in the first half of twenty twenty one, we have significantly revised our outlook For the year 2021 financials year upwards in an ad hoc announcement dated on 15th July, The forecasts are now as follows. Here, we are able to increase our original revenue forecast from the upper end of €15,000,000 to €114,000,000 and raise our EBITDA forecast from €57,000,000 to €64,000,000 The new forecast It's based on the assumption that the economic recovery will continue unchanged and that there will be no negative impact on the commodity pipeline, and there will be no severe constraints from the corona pandemic in the second half of twenty twenty one. So the planned growth in turnover will continue to be achieved organically. The main growth driver will continue to be volume effects. The current order situation shows sustained high demand for the coming months. And with the full commissioning of our new capacities, we see a good opportunity to place the additional volumes. On the earnings side, we do not expect any relief in the short term to medium term. We continue to see rising or at least persistently higher raw material costs, high electricity and EUA prices for CO2 as well as significantly increased costs in the logistic environment. We also the U. S. Dollar exchange rate to remain unfavorable in the sales area, and we do not expect any delivery failure due to logistic topics or COVID related plant shutdowns. Also a corresponding risk cannot be completely ruled out here. So that's it from our side with the information for quarter 2 and the first half of the year. At this point, We would like to thank you for your appreciated attention and are now at your disposal for possible questions if there are And the first question is coming from Gerhard O'Kronos from Berenberg. Please go ahead. Hello, good morning. I have a couple of questions please, maybe 1 by 1. First of all, I was a little bit late on the call. Could you just tell us the timing of the Craya Pure investment again? And maybe the CapEx guidance for the company for 2021 2022? Yes. The timing is as We have already started the project and commissioning will be Latest or will begin in quarter 2 next year. The CapEx is About €11,000,000 And therefore, we expect overall CapEx This year and next year of approximately EUR 30,000,000 as yes, in the past or always in the past. Perfect. Okay. Second question is on the COVID testing product. How important is that for revenues? And how do you see the future of that? Do You think this is a long term product for you or a temporary tailwind? It's a combination of both. We already had reported that the income from the COVID related sales Have come down. That was also our anticipation. But we also think that it will remain as a product Since the products, which are PCR kits, will remain on the market, be it with COVID, but be it also With other virus related diseases, we have customers who use our products. It's mainly the clonidine salt also for tests which are not COVID related. In parallel, the traditional business of BioSelect is going to increase, And we see ongoing positive effects here with additional growth in existing products and also new products. So to summarize, the product is not so hot as in the last year, but quite on a very good level. Okay. And then maybe an update on Queramine or where are you spending right now? Do you have sales force in place? Are they visiting Farmers are pharma testing it. What's the situation there? Yes. The other situation is also improving. We have started to visit customers again. But more importantly, the test stables of Customers have started to work again. And we were finally able after quite some time to get Has started at some very large customers, which makes us positive that we will be able to increase the AMINO sales in the not too distant Do you see any market impact from Evonik or not so much? Evonik is definitely on the market, but this is not a surprise. They work with us. They'd like To get some of the market share back, but Evonik has not only negative effects, it has also positive effects, It will help us also to increase the overall market. And we have the original product. We have the raw material Behind us, we can deliver the market and we are the sustainable market driver here for Cuermino. So because you know Evonik purchases this product only from China, and therefore, it's more unsecured than our Okay. And maybe a last question on commodity prices. You talked about it a couple of times, High electricity, CO2 and logistics cost. I mean, a lot of it for 2021, I assume that you have Hedged out. What is the situation going into 2022? How much of a hit should we expect from raw materials? Yes. 2021 is the first half of the year was more or less hedged. Yes, we will see Higher raw material prices ongoing in the second half of the year already. For electricity price, we expect some higher prices as well in the next year. But our target is to get solutions with our customers at the end of the day And to keep the margin stable, yes. That's how we try to solve this Also in basics, you think you can keep the margins stable, nearly? At least in the basic intermediates, we have Invented some formula prices already in the distribution contracts, and we have developed better products already and at least in this segment. And therefore, we think that we are in a position to increase the prices At least to keep the margin stable. Okay. Thanks very much. The next question is coming from Oliver Schwarz at Warburg Research. Please go ahead. Good morning, gentlemen. Thank you for taking my question. I'll ask them 1 by 1. The share buyback program was concluded end of June. However, I don't see the numbers of shares outstanding much. Why is that the case? Why is There are no change in the number of shares outstanding. Why are this 4,600 shares not deducted From the shares outstanding? That would be my first question. So to be honest, The share buyback was approximately 40,000 pieces, I think, and They are deducted from my point of view. So I don't know what your reference is actually. Actually, my reference is Reference is your presentation numbers of shares outstanding 10,176,335 unchanged from the presentation of Q1 2021. Last page, Page 35 in Okay. Then it must be a mistake. Very sorry, we have to correct Okay. No problem at all. In Q2, was that mainly due to increased competition from Evonik? Or were other factors holding So no, this was lower than expected because we have Yes. Very, very hard targets from our point of view. And so this was a little lower than we have expected here, yes. But no, not really surprised. Yes, I get that. But what was the reason behind the shipping being below expectation? Also. It was a combination of 2 things. I mean, I had answered The question before already that the testing did not occur as high as anticipated. This was Pushed back by COVID. That was actually the main reason. And I mean Evonik is in the market, But that wasn't the biggest effect. Okay. Thank you so much. And looking at balance sheet. Inventory level has been stable despite sales going up And also prices and I guess also raw material costs rising in Q2. Is that a level of inventory currency that you deem to be sustainable? Or are we expecting That number to inflate as higher raw material costs increase working capital Requirement in H2? And if so, what level of working capital would you expect at the end of the here. So from the inventory part, there could be a slight increase due to the prices. As you have mentioned, yes, But this will be only a slight increase. We are working hard to keep this figure stable. And as you have seen in the past, we were really successful here. From the accounts Receivable, we expect that this is more or less a seasonal effect. As always for the first half of the year that the accounts Receipts will increase due to the more agribusiness for the half first half of the year. This will more or less Disappear by the end of the year and will go back to more or less the same level that we have seen in the last year. Thank you. And lastly, looking at the drivers of sales in H1, obviously, The volumes were the key drivers, prices not so much. You alluded to raw material costs on the right, Probably also in H2. Will we see a change in that pattern? Will prices inflate quicker or at a higher level? And will volume, at least on Your comparison likely go down in the second half of this year? Volumes will be Slightly down compared to the first half of the year since, as Andreas pointed out, our First half is always stronger also in terms of volumes due to the agricultural business. On the price side, that's one of our main targets To pass on the increases of raw materials to the customers, we work on that. And we have been successful in the first half of the year. We have been successful in Q1, even more successful in Q2. And we will continue on that. Okay. Very clear. A tiny last one. Can you So The launch costs are relatively low because it's more or less marketing costs And the development costs has been already or were already included in the quarters before. So therefore, the costs are relatively low, you will see in the quarter 3. Thank you so Okay. The next question is coming from Nathaniel Zukin from Baader Hevia. Please go ahead. Hello. I have a question I have three questions actually. Firstly, I wanted to ask If you could elaborate on your assumptions for the upper and lower end of the guidance. Secondly, I wanted to ask why there was a gain in market share in the Specialty Chemicals segment. In the presentation, it said that oh, no, sorry, not in the Specialty Chemicals segment, in the Basic and Intermediate segment. In the presentation said that market shares in the metallurgical products increased significantly. And the 3rd year, I wanted to ask Why in the Specialty Chemicals segment, price went down on a half year basis? Okay. Let me answer first on the question on which products we have gained market And what are the reasons for that? It's a number of products in which that happens. It Was in the products where we supply into the metallurgical field. And there, We saw that some of our competitors has problems and we could take advantage of that. We also were able to deliver and we not only gained market share, but we also significantly increased our Overall turnover in that area, we have also seen increases in market share, for example, on Our CCBA product, because there seems to be a shortage of material, which is coming out of China and we could take advantage of that also and were able to increase also the volumes, which we supplied out of our plants. Those are the two main effects. So and you mentioned that the price went down in the specialty chemicals. So this is an issue of product Mix always because we have very different products in the sales portfolio of the specialty chemicals and This is only a mix a product mix effect. And the assumptions of the outlook, as we have already described, So we see higher raw material prices for the second half of the year. And the second half of the year is Margin wise, always a little lower than the first half of the year. But from our point of view, we try to keep the margin stable. And therefore, from our point of view, we try to hand over all the raw material price increases to the market as well. Okay. Thank you. There seems to be no further questions at the moment. For closing remarks, I'll give back to the speakers. Yes. Thank you very much for the questions. There has been more questions than expected due to the A very hot day today. So we can now offer you the opportunity to visit us again more virtually than in person at the conferences Here, we are pleased to invite you to this event. Personally, I may now go on a couple of weeks holiday and will be available to you again from September in time for the planned conferences. Stay safe and sound. Stay in our good Great, and good bye. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.