Yeah.
Good day, ladies and gentlemen, and warm welcome to today's earnings call of AlzChem Group AG. Following the publication of the Q1 figures of 2025, I'm delighted to welcome the CEO Andreas Niedermaier, CFO Andreas Lösler, as well as CSO Dr. Georg Weichselbaumer, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move forward with the Q& A session and with this, let's start with Mr. Niedermaier. The stage is yours.
Yes.
Thank you for the warm introduction. Good morning together. Thank you for joining us today and welcome to our first quarterly call for that year. As always, we will go through the presentation first and then we'll be available for questions at the end. Let's skip the disclaimer and first slides here and directly start with the highlights. The highlights presented here reflect the robust performance of the AlzChem Group in quarter one. We are seeing strong development trends in the specialty chemicals segment in particular, which made a significant contribution to our sales and EBITDA figures here. In the area of the free cash flow, we grew disproportionately due to initial customer payments in connection with our capacity expansion for nitroguanidine. The details of this, especially the accounting impact, will be explained to us in more detail later by Mr. Lösler.
The global Scientific Creatine Conference held in Munich in mid March underscores our commitment to innovation and leadership in the industry. The Creatine Conference became the meeting place for scientists, health and nutrition experts, the trade press, and interested parties who could learn more about the many benefits of creatine. During the four days of the event, there were exciting lectures on the following topics: aging, diseases, metabolism, cognitive function, pregnancy, female health, and sports performance. Renowned scientists presented the latest findings and research results here. If you are interested in, you can generally find out more about creatine on the webpage Creatine for Health. Since we are asked by many of our investors about the US Tariff situation, here are a few information about that. We are following the topic in great detail and are close to it.
So far many of our products are exempt from the additional tariffs and we do not see any impact, either positive or negative for the products. Only a few products are already affected by the higher tariffs, which certainly led to shifts in sales as our customers expect the situation to ease again in the short term and the customs duty could be eliminated. Overall, we expect few if any shifts in sales. Looking ahead to the future at all for revenue and earnings. We are fundamentally optimistic as we can continue to confirm our outlook and expect record levels of both revenue and EBITDA for that year. Now a few words about the large and new investment project. Only a few words about that. We are on schedule and have started already with the execution.
After receipt of the building permits we have received the first significant customer contributions in the form of upfront payments which you will see later on the balance sheet. Last but not least in USA we have visited and identified the first locations and the selection process is underway in good phase and in time wise already as well. So much for the highlights. Let's analyze the segments now and for that I hand over to Georg Weichselbaumer.
Thank you Andreas as always. Let's start with the basics and intermediate segment which largely developed as expected for the first quarter of 2025. The segment concludes the reporting period with sales amounting to approximately EUR 43 million. This represents a decrease of EUR 6.7 million or 14% compared to the previous year. As shown in the sales analysis, the decline in sales is due to a combination of price and volume effects and is essentially within the forecast. The main reason for the sales decline in this segment was the weak economic development of the European and German steel industry which led to a significantly reduced demand in the metallurgy product area. All other product areas achieved more or less the same level of sales as last year. Most customer contracts within the commodity business act on price escalating clauses.
However, the high electricity cost of Q1 2025 will only impact on pricing in this sector with a delay of up to three months. Accordingly, pricing in Q1 2025 was mainly based on lower raw material costs. In Q4 2024, electricity prices were approximately 40% higher than the previous year and this can be seen in the decline of EBITDA in Q1 2025. The decline was also impacted by the lower revenue. Both effects together also led to a decline in the EBITDA margin compared to the previous year. As explained multiple times, the products of our basics and intermediate segment are not only sold to the market, but are very important raw materials for our following production steps and all raw materials required for the growth of our specialty chemical segment could be produced reliably.
This brings me to the next page where we analyze the situation in our specialty chemical segment. The steady growth trend continued in our specialty chemicals segment. In the first three months of the fiscal year 2025, sales amounted to approximately EUR 95 million, which represents a growth of 2% compared to the previous year. This is particularly remarkable given the fact that the first quarter of the previous year was the strongest quarter of the whole year in terms of sales. The increase in sales was mainly due to higher volumes while prices dropped a bit over the whole segment. With development in both directions, highest volume and sales increases compared to last year could be achieved in our product areas human nutrition with our brands Creapure and Creavitalis and custom manufacturing with the usage of our multipurpose plants.
This development clearly shows the ongoing growth trend of our Creapure products and that our quality promise and marketing activities pay off. As Andreas already said, the Creatine conference in Munich was a huge success. It is also very pleasing that our area of custom manufacturing is once again well utilized and was able to grow compared to the previous year. This development confirms our confidence that the volume declines of recent years were only a temporary phase and that the product area offers further growth opportunities with corresponding contributions to our EBITDA and margin. This contribution was also immediately reflected in the EBITDA of the first quarter of 2025 driven by the sales developments in the areas of creatine, custom manufacturing and nitroguanidine. It contributed strongly to the segment's EBITDA. EBITDA ended up at EUR 26 million which represents an increase of 15% compared to the previous year.
This resulted in an EBITDA margin of 27.6% off the 24.4% of last year. Thus, the growth trend in the specialty chemical sectors continued in the EBITDA margin in the first three months of 2025. Again, we are mostly satisfied with the development within this growth segment and confirm our growth perspective. Let us now move on to our third segment. Other than holding, the sales of the Others and Holdings segment was slightly below the previous year's level. This decline is mainly due to reduced electricity grid fees charged to the Chemical Park customers. All other services taken from Chemical Park customers are broadly stable. The segment's EBITDA was also below the previous year's figure. This small decrease is mainly in line with the revenue development. That was all for our detailed view on the segment development.
Let's now hand over to Andreas Lösler and take a look at the overall group figures.
Also, good morning from my side and thank you, Georg, for the insights of our segment development in 1Q 2025. As always, I will start with a detailed look at our Group P&L figures. First, in terms of sales, we finished 1Q 2025 with total sales of almost EUR 145 million, which represents a decline of approximately EUR 5 million compared to 1Q 2024. My colleague Georg already explains the opposing contributions of our segments to this sales development. With regard to our guidance for 2025, we are completely on track with the developments in the first quarter as we do expect higher sales compared to last year within the second half of the year, mostly coming from our specialty chemicals segment. Our sales split in Q1 2025 shows a 65% sales portion coming from the specialty chemicals segment.
While this relationship was only 62% in the first quarter of the previous year, this development clearly underlines our strategy and supports our growth. Our EBITDA development is a result of this revenue shift into specialty chemicals. Within the first three months of the year we increased our EBITDA by 10% compared to last year up to EUR 27 million. As with the sales and already explained, we saw a different development between our two operational segments. Our EBITDA margin also showed a positive development and a strong increase within 1Q 2025. We could reach an EBITDA margin of almost 19% after 16.6% at the same time of last year. A closer analysis of the cost structure reveals only an increase in electricity costs in the first quarter. Otherwise we can report a fairly stable cost structure.
Our financial result improved materially which was supported by the stable cash position and lower interest expenses. As a consequence, we increased our net result and earnings per share by 20% compared to Q1 2024. That was the big picture of our P& L. Now let's move on to the balance sheet and our cash flow figures. Our balance sheet and cash flow figures are still very healthy but influenced by some special impacts. We have to report a material increase within our total balance sheet of approximately EUR 72 million resulting from the developments within non current and current assets. Within our non current assets we can clearly see the strong investing activities we are currently running for our nitroguanidine and creatine capacity expansions. Approximately half of the investing cash flow in Q1 2025 was spent for our CapEx program in nitroguanidine.
Another major impact on our balance sheet total was the recognition of the first customer grants and the related contract assets and liabilities in conjunction with these capacity expansion here in Germany. As the accounting treatment materially impacts the understanding of our current and future development, we will discuss this issue separately on the next slide. Apart from this, we saw an increase in our inventory level in preparation for a scheduled extended maintenance of one of our carbide furnaces. Equity total could be increased by EUR 15 million resulting from the positive group's net result and the recognition of increased interest rates for pension valuation. However, as the balance sheet total increased materially, our equity ratio remains slightly below the figure of the last balance sheet date. This development was already outlined within our guidance and shows the expected ratio based on the mentioned increased interest rates.
Our pension liabilities were reduced by approximately EUR 5 million while real pension payments only amounted to EUR 700,000. The operating cash flow was significantly influenced by the customer grants received for our CapEx program as mentioned already. I will explain this impact in more detail on the next slide. For the first three months in 2025 we can show a positive net cash flow even with this increased investing cash flow. This demonstrates the positive funding effect of our customer prepayments. Financing cash flow showed regular loan repayments and approximately EUR 4 million cash out for the current share buyback program. In total, we spent EUR 5.3 million for the acquisition of our own shares already. Again, we can show a positive net cash position by the end of 1Q 2025 and are able to shortly invest our liquidity surplus in order to earn interest.
As you can see, AlzChem is in a very healthy cash position and the customer grants will support the debt free financing of our largest investment program in history. I will now guide you through the special impacts and accounting treatment of these agreements. We received many questions about the impact and accounting treatment of the customer grant and we decided to give a more detailed explanation about the current and future KPI impacts of these customer agreements. Accounting treatment for the EUR 35 million grant from the European Union is very easy. The cash received will be deducted from the acquisition costs in fixed assets over the construction period. This accounting treatment will reduce the basis for depreciation and future depreciations accordingly and the payments simply reduce our invested cash flow. Accounting treatment for customer grants is somewhat more complicated as different rules apply.
Our customers will pay their related portion over the project time. Some customers will pay based on milestones while some other customers will pay on a monthly basis based on the current agreements in place and in negotiation. We expect the last customer grants by the end of 2029. The expected cash flows are shown in the box at the bottom on the right hand side. It has to be noted that this picture is our current best estimate as we are still in negotiations of finalizing the last contract details with some customers. Contracts for customers with monthly payments are initially recognized as other receivables in our balance sheet. This receivable will constantly be reduced as the payments are received in cash. Customers with milestone payments initially impact our balance sheet as the cash is received.
The initial recognition of those other receivables and milestone payments leads on the other hand to a so-called contract liability within our balance sheet. Once the cash is received, it is shown within our operating cash flow as cash increase and will have a material extraordinary impact on that. The related contract liability represents our obligation to provide our customers with additional capacities once we have the new factory in production. Accordingly, we will reduce this contract liability via recognizing revenue over the related contract period with our customers which will not start before 2027. This revenue will be extraordinary revenue beginning in 2027 as it is not linked to the real sales price based on the invoices to the customers. It is only accounting revenue and it will not lead to cash payments afterwards, but it will increase our EBITDA and margin accordingly.
This impact and our current best estimate of the timely development of our KPI is shown on the table right on top. The current impact on our Q1 figures and the link between all affected positions is shown in the box left on the bottom. We received EUR 39.5 million in cash from customers. We recognized EUR 14.3 million other receivables. Both positions combined represent the amount recognized as contract liability and the increase in our total balance sheet. As shown here, there was no impact on profit and loss in Q1 out of these contracts and payments. After this very detailed accounting discussion, we will now jump to the outlook for the remaining part of the year. As Andreas Niedermaier already said, from today's perspective we can confirm the outlook given in our last financial statement and the developments in Q1 2025 have confirmed our estimates.
Sales are expected to grow to approximately EUR 580 million and EBITDA is expected to grow to approximately EUR 113 million. Our outlook is still based on the same assumptions as at the beginning of the year. The fundamental growth drivers are volume effects within segment specialty chemicals which shall overcompensate a slight sales decline in the segment b asic and intermediate. Sales are expected to be higher within the second half of the year supported by a further increase in demand in the area of custom manufacturing and positive developments within the nitrils product area. As mentioned by Andreas already, we do not expect a material negative impact from the volatile tariff politics of the U.S. Administration right now. That is it from our side with the information for the first quarter and the outlook for 2025.
At this point we would like to thank you for your appreciated attention and are now at your disposal for possible questions.
Thank you so much for the presentation. We will now move forward onto the Q and A session and for a dynamic conversation we kindly ask you to ask your question via the audio line. To do so, you can click the raise your hand button. If you've done it by a phone, please use the key combination star nine followed by six. If you're not able to speak freely today, you can also place a question in our chat. We already received some questions. The first one from Duarte Moeta. You should be able to speak now.
Good morning and congratulations on another strong quarter. Two questions from my side. Firstly, on the specialty segment, pricing was down by roughly 2%. Could you elaborate on what drove the decline and what products?
Hello Duarte. Usually we do not give any kind of detailed product information because, you know, we are a single producer for many of our products. From that point of view, we do not like to give that. To say, I think the main topic came and the main development was in the Dormex region, and the second main driver for the specialty chemicals development was the big change in custom manufacturing.
Yeah.
Okay, thank you.
Quickly on Creav italis, you mentioned, I think for the first time directly, that the use of volume increases there. Is there any announcement related to Creav italis that justifies the higher volumes? Maybe a second one on custom manufacturing. On the full year call, you basically had mentioned you already expected a slight improvement, not necessarily dependent on the European chemical industry recovering, but more on restocking by the clients to assure base levels of production. It seems that now you're seeing what could be the start of an actual recovery. As I assume that was not in your guidance, is this something we need to look for to develop and could possibly affect the EBITDA number positively?
That development was already anticipated in the guidance. What is really the case is that the custom manufacturing came really back online. There is a so-called restocking effect. What we see in the market here and what helps us a lot is the higher utilization rate in the plants. That is one of the reasons why we had much better results in that quarter than a sales increase you have already seen.
Yeah.
Okay, thank you.
On Creavitalis volume increases.
Also.
Those volume increases were already in our budget and we see it on a very broad scale. There is no individual single application where that happens. I mean, as we had communicated, creatine has various applications into the health and food sector and we see it happening that we have sales to various customers where individual projects start.
Okay, perfect.
Thank you.
Once again, congratulations and thank you for your time.
Yeah, thank you.
Thank you so much, Mr. Moeta, for your question. We're going to move forward with Konstantin Wichert. You should be able to speak now.
Yeah, good morning.
Thank you so much for the presentation. Also, the comprehensive overview on the nitroguanidine effects. Just maybe a question on your basics and intermediate segment, and particularly to the steel industry. I'm struggling still a bit to really understand the moving parts behind your lower profitability here. Yes, sales are lower year- over- year, but I mean on similar level to the last three quarters. As you said, you even increased inventory levels of your intermediates ahead of the planned turnaround in Hart. I mean, I understand that your selling prices are partly linked to the raw material index, but I guess the selling prices of the fourth quarter should then also match with your inventory purchases of the fourth quarter. I'm not really sure why that's affecting the margin side. Just some color on that would be helpful.
Okay.
Yeah. Thank you very much, Konstantin, for your question. I think we should bring a bit light on the development in this basic intermediate segment. First of all, what was the impact of our negative profitability compared to last year? As you are probably aware of, we had much higher electricity costs in the first quarter, as I mentioned in my part of the presentation. Electricity costs usually impact our basic and intermediate segment more than each other segment and more than each other product. This was mainly the situation with the margins in terms of pricing. You are right. We had the impact from the high electricity costs in Q4, from some higher electricity costs in Q4 and could pass through those prices from the last quarter to our customers.
The impact from the more increased pricing in Q1 will only be seen with the time lag as we do pass through our pricing to our customers with a time lag of, let's say, two to three months of a quarter. In terms of inventory, what you mentioned, we clearly did not increase our inventory level in basic and segment due to an expected upturn of the economy. We do increase, or we did increase, our inventory level as a preparation for a maintenance shutdown in one of our furnaces in Hart. In order to be able to deliver our customers during the shutdown period, we increased inventory levels before and are completely on the expected level here.
Yeah, perfect. Thank you for this. Just to sum it up, does that mean if you kind of your prices will increase over the next quarters, and then we should see profitability return a bit more towards the levels that we have also seen over the last quarter.
Is that a fair assumption, consultant?
That's right. That's the idea we have, and that's what we expect about that.
Okay, perfect.
Thank you. Then, maybe just a clarification question. I had in my mind that you wanted to bring on capacity addition in Creatine already in the first quarter. I think I've read now that you plan now to bring that online in the second half of the year. Any comments on that? Maybe I've just missed that you delayed that a bit or.
Yeah.
How is that running according to plan?
Konstantin, I'm very sorry about that misunderstanding. From our point of view, that was always the case, that we have planned additional capacity in the second half of the year or in quarter four, something like that. There must have been a misunderstanding. I'm very sorry.
Okay, thank you.
Thank you so much, Mr. Wichert, for all the questions. We move now forward with Oliver Schwarz, you should be able to speak now. Mr. Schwarz, you should be able to speak now. You can just press the yes, got it.
As usual. Thank you, gentlemen, for the very comprehensive presentation on the balance sheet effects and on the P & L effects of the prepayments. That was very helpful. Thank you for that. Coming to my questions, when talking about.
The.
Segment of basic intermediates, you related the sales decline mostly or fully to a decline in business with the metallurgical industry in Germany/ Europe, that was a EUR 7 million decline. Can you give me an indication about the extent of the decline when compared to the business? Is that a 10% decline of the metallurgical business that you have, or a 50% decline? Any ballpark number would be helpful. That would be my first question.
Hello, Oliver. That's Andreas speaking. I'm seeing many question marks in the eyes of my colleagues here when you ask that question, that kind of question, because, you know, we don't really want to disclose such detailed information. To summarize in that way, I think the steel industry in Europe is not in the best situation, actually is not that healthy. From that point of view, we lost here in that region quantities and prices together. We hope that with the new government installed in a few days in Germany, that steel industry will come back on stream in a few months, hopefully, from our point of view, hopefully.
Okay.
Okay.
May I probe you or ask you about the, I mean, a lot of what you're manufacturing in the basic and intermediate segment is used internally as a raw material for the specialty chemical segment, obviously. May I ask you what the mechanism of higher electricity prices is in that regard? Is there also a time lag concerning the raw material prices that you internally manufacture? Is that, let's say, a delay as well as it is for external customers? Or is that passed through, let's say from day one on and increases the raw material bill of the specialty chemicals segment.
It is a mix of those. It depends on our evaluation in the stock. We usually try to have a long-term electricity price in stock evaluation. If there is a fluctuation in the daily prices, then you will see that directly in the P&L. From that point of view, I think we have already seen the higher prices of electricity in the first quarter and we will not see any additional higher prices out of stock for specialties in the future or in the next few months. In the future, sorry, I cannot forecast that. In the next few months I do not expect any higher prices out of stock because we do always very prudent evaluation of our stock. From that point of view, that should be safe.
Thank you for that. In that, let's say in that situation, obviously the raw material prices for your specialty chemicals segment have increased based on those higher raw material costs that you incurred due to the electricity costs. Will that also from your point of view lead to price hikes in the specialty chemicals segment due to the higher raw material costs? Is that to be absorbed basically by you due to longer, let's say, contracts that are only renegotiated perhaps every six or twelve months? Is that a part of costs you are willing to absorb due to, let's say, a higher efficiency and a higher capacity utilization that you have? How do you approach your customers in that regard?
We do not absorb costs. That's not our business model. When you listen to the presentation you see, in basics and intermediates, we have cost driven discussions with customers and models accordingly. In the specialty chemicals we look at cost, yes, but prices are driven by what we can realize in the market. Therefore cost is something which we consider internally, but in the market pricing we try to get whatever we can.
Understood?
From that point of view, do not expect any higher prices in specialties out of raw material push up. On the other hand, as I already elaborated, we will not see any higher prices out of raw materials from today's point of view because we have already seen that effect in quarter one.
Understood. In that case, could you—last question, I promise—in that case, could you please elaborate a bit on the price decline in specialty chemicals? Why is it that you feel that you cannot demand the same prices compared to last year but have to accept lower prices?
Yeah. In many times we are the single producer of products around all the nice trees we produce. In some cases we have some competitors, they undercut our prices. In many times that is the case when the customer is China based. From that point of view we have seen some price reductions within Creapure and Dormex where we see a Chinese competition out there.
Very clear. Thank you very much for that. [audio distortion] .
Thank you so much. Oliver for the questions and also for the answers. We move forward with Patrick Speck. You should be able to speak now.
Yes, good morning gentlemen. Can you hear me?
Yeah.
Very good.
Also from my side. Thank you for the very detailed presentation. My first question is on the custom manufacturing business area.
Again, I was a bit surprised, too.
Be honest by the trend reversal you mentioned. In this segment or in this area, could you give us some ideas which end markets this is coming from?
Why do you think this is ongoing?
Effect despite the economic slowdown we all might fear in the upcoming quarters?
We have had that discussion already during the last calls and we see a couple of effects. The first one is that inventories are depleted at the customers and that effect is gone. We see now the return of the regular business. In addition to that we have individual projects which were slowed down but which are now coming back. There is no single direction which those products go. It's a various mix of different industries where we see an upturn now and it is not for a new project. It is for projects which we have had in our development portfolio for quite some time.
As I mentioned, with regard to our forecast and your question about whether this is a stable development, we do expect this development to be stable over the year. Our internal forecast showed some higher sales even in the second half of the year out of the custom manufacturing.
Do you expect some positive effects in this business area also from the infrastructure program that is put in place in Germany?
That's a good question. We have answered this question a lot of times in investor poll last days. I think right now it's too early. Where the infrastructure program goes to. We haven't discussed internally. Maybe if the infrastructure program can support the steel industry, for example, that could support our basic and intermediate segment.
Right now there's no clarification on where they want to buy the EUR 5 billion or to spend the EUR 5 billion. From that point of view it's too early. We do hope that the economy recovers more than expected and that we will profit out of this as well.
Understood, thank you. My next question is on the customer grants. You mentioned you received EUR 39 million the first quarter already. What's the overall amount of customer prepayments you expect for the year?
You can see that here in that picture on the lower right corner. Here you can see, or here you get the feeling about the subsidies we get. The CapEx we have given to the market is approximately EUR 140 million. From that point of view, most of that is supported by the subsidies. One of the EU Commission, EUR 34 million, and let's say around EUR 100 million from our.
From other customers, plus, minus.
All over the term. Not only this year. If your question was related also to the amount we do expect for this year, as I mentioned, we are still in negotiation with some customers.
Not really.
All is finalized. You can imagine or you can assume that the highest portion for this year is already received. We do not see an additional EUR 40 million for the remaining part of the year. Maybe let's say EUR 10-12 million or something like this.
Understood, thank you. That's it from my side so far.
Thank you so much, Patrick. We have another question from Thjor Bjorn Kaap, you should be able to speak now.
Hello.
Can you hear me now?
Yes. Congratulations also from my side on your numbers and thanks for the good steering of your company. I'd like to have a look in the future when all your big investment projects will have been finished. This should be the year 2030. For this year 2030 I have a vision of a proud Bavarian company with revenues of EUR 1 billion.
Earnings after tax of roughly EUR 100 million.
Do you feel comfortable to share this vision with me?
Yeah. That is the idea we share as well. From our point of view, the EUR 1 billion turnover is really our target to reach. I think we have nailed down many projects to reach that. Not all of them are already nailed down, but that could be really a good idea for our development here.
Thanks and good luck on this way.
Yes, thank you.
Thank you so much. We have another question from a phone number. I would kindly like to ask you if you could please say your name as well and you should be able to speak now. Okay, the person did not raise the hand. We move forward with Oliver again. Oliver, you have a follow up question. I guess you should be able to speak now.
Can you hear me?
Okay, to add on questions, please. We briefly touched the coalition treaty and I want to do the same exercise with the shenanigans that Mr. Trump imposed on the US market and hence also on the world by introducing a lot of very interesting tariff schemes. Can you elaborate on the likely, let's put it that way, impact that this, these tariffs might or might not have on your company in regards to your products? That would be my first question,
Oliver.
In principle, actually we don't see any troubles out of the tariffs. We have some products where we have received additional 10%, but many of our products don't receive any tariffs or any additional tariffs, let's say that in a precise way. There could be a big chance for us and we wait for that situation because if Trump takes more tariffs on China than on Europe and at least Germany, then the price gap will be closed or more than closed between Germany and China and that could help us a lot to increase our sales in the US. From that point of view, we see for our company more upside potential than downside potential. Out of the actual view.
May I.
Have an add-on to that one? I fully agree that this will improve your competitive situation in the U.S. just due to the fact that the tariffs on China are almost prohibitive at this point in time. On the other hand, obviously the Chinese also want to fill their capacity and will try to evade the tariffs, the U.S. tariffs, by probably trying to dump more material in other markets, e.g., the EU. Would that also imply, let's say, a tougher competition on prices in the EU due to the fact that there is a crowding out of Chinese material from the U.S. that needs to be absorbed elsewhere?
Oliver, to be honest, it could always be the case that the Chinese undercut our prices a lot. What we have seen in the past is that they undercut prices already a lot and from our point of view, in many cases they could not cover their production costs at all from our point of view. There is not much room for longer price reductions from our point of view. Probably we see some price reductions in some periods, but we do not see longer price reductions from today's point of view because the prices we see for some products are so low already. From that point of view, I could not imagine that they could survive on that price level.
Many times the prices of the Chinese are so low that even if they go slightly lower, it will not have an impact on the gap which we already have and it will not change decisions of customers.
Understood, thank you for that. A second question is quite different topic. You might have seen that BAE Systems from the U.K., not the U.S., published a press release nine days ago, I think it was, where they claimed that they had developed a new innovative approach to the production of, as they call it, of energetics and propellants, citing that this process basically removes the need for nitrocellulose and nitroglycerine from the production of that specific propellants which are geared to propel especially the 155 millimeter artillery shells that are common in NATO usage. Does that in any way or form increase or probably even reduce the demand for nitroguanidine? Because I'm not sure when they exclude nitrocellulose and nitroglycerine from the equation with what substitute they are coming up in this new process. They didn't elaborate on that.
I have no means to have an insight in that, at least not for the time being. Hence probably you can help me out in that regard.
At least we can try because we have seen that publication also and it is written in a way that it is hard for us to understand what they really have invented. I mean, I've had discussions with other customers and for them they actually see from a trend point of view from our customers when BAE Systems, I mean, I can say that, but it's not one of the bigger customers which we have. The rest of the customers to which we sell sees rather an increase of nitroguanidine in demand than a supply.
From my point of view, I think the defense industry is a very conservative industry and will not change quickly if there is any new development around. To be honest, we haven't seen any effects that there is a reduced demand. We have seen the other way around. We think about the topic already if we have to speed up our US plant because demands out there are very high.
Thank you for that.
Thank you so much for the questions. We have another question from Konstantin Wichert again. Konstantin, you should be able to speak now.
Thank you. Just also a follow up, just a regular question I basically ask every quarter, just maybe an update on if there's any change in timeline regarding your US expansion, any progress in the search for a site and maybe if you want to give some indication or updated indication when we will or could expect a site to be found.
Yeah, so that was already in my very first presentation. Maybe you haven't received that information already. In USA we have already visited and identified the first locations. Parts of our teams has visited already some locations and the selection process is underway. From that point of view we see that we can find a good place to be and a good place to invest, let's say that year and hopefully we have a contract in place. Latest next year then.
Perfect.
Thanks for the clarification.
Yeah, thank you so much, Konstantin. We have another question from this phone number. I would like to try it again. You should be able to speak now and if you could say your name as well. Phone numbers ending with two, six, six .
Hello, do you hear me now?
Yes, we can hear you perfectly.
Yes, yes, I achieved. It's Susanne Haas, LMU Munich. Thank you for your patience. Most questions have been answered by now. I still have one follow up question for my understanding. Could you give us a split up concerning the cost of materials between electricity and what have you? What you have done to increase your inventories with regard to the plant carbide when it's shut down?
Yes, good question. I would say the most, most of the increase in our inventory level comes from quantity impacts to increase or to be prepared for the shutdown. I do not have the figure exactly available but I would say like 70%-75% comes from the quantity impact and the remaining comes from pricing impacts.
Okay. Okay, thank you. We have already discussed this issue about China and the tariffs. I would rather have some more clearance about the products. The first product I think about is Creapure, which are the other products where you have this kind of very tough competition with Chinese competitors where you might benefit sometime in the future.
I mean that's something which we have shared in the past already. I mean one of the reasons why we are in trouble with our nitriles is the tough competition from China. There we are developing alternative products which will have a major impact in the second half of this year. The other one is for [audio distortion] DCDA where we have tough ongoing competition from China. But we have learned how to live with that.
Okay, thank you. I have, yes, you have probably read it. There is a new study from Agora where they are again asking or demanding that Germany should introduce a regional electricity price zone solution. Are there any, I would say, tactical measures you might use like artificial intelligence or other things to further optimize your energy consumption or are there any ways to prepare for this?
Yes, Susanne, that's a really good question. We elaborate on a long time already. That was for example, one effect that we step out of production if we see very high electricity prices. That was the case for I think in February where we took out one of the carbide kiln for approximately four days. We try to steer and we try to learn more about steering production and to change the run rate of the production, to increase the production when prices are down and to decrease production when prices are high. At the end of the day you have to pay with higher maintenance costs because usually chemical processes don't like to change too lot or too much. From that point of view, we are in the middle of that process to learn more about to reduce that costs.
There is one additional thing, what I bear in mind about that discussion, what we have received is that there could be industrial electricity price in the future out of the new government. We have heard some rumor about that and that could support our business quite well and could help us a lot, at least in the commodities.
Okay, yes, that's what we also just the positive side and the other side might also be for the consumers more, for the private consumers.
I'm sorry, I haven't got the last question.
I totally agree with you. There are so many things they're discussing right at the moment.
Yeah, yeah, for sure.
Yeah.
Uncertainty is quite high.
Okay.
Yes.
Okay, thanks.
That has been all my questions. Thank you a lot.
Yep, thank you.
Thank you so much. Anyway, we have the last follow-up question because we have to end this call at 11 A.M., so please unmute yourself and thank you so much for raising your hand again.
Yeah, thank you. Just a quick one. I promise the $150 million subsidy that the DoD will grant you if you are able to, let's say, get a plant operational in the US I think by 2029 at the latest. How is that structured? Is that something that will be granted to you in advance to cover your CapEx or will that be paid after the plant becomes operational? You have to provide the CapEx upfront and they will compensate for that once the plant is running. Is there or is that something that contains milestones or something? How is that structured?
Yeah, Oliver, this is not finalized yet. What we have is called the UCA, Undefinitized Contract Action, where there are EUR 150 million earmarked to be spent on a nitroguanidine plant for AlzChem in the US. Once we have identified the site, we need to definitize that contract and then we will most likely have a mix of all the elements which you have already asked for. There will be some cost-based elements, there will be some price-based elements, but in general we will get money as we spend it.
Understood. Thank you for your patience.
Thank you so much. This was the last question and we're coming now to an end. Today's earnings call. Dear participants, thank you so much for joining us and the AlzChem Group for today's earnings call. A big thank you also to Mr. Niedermaier, Dr. Weichselbaumer, and should any questions arise in the future, you can also contact us, the IR team, at any time if you'd like. From my side. Have a beautiful day and I hand over for some final remarks to Mr. Niedermaier. Thank you so much.
Yeah, thank you very much for the questions here. We can now offer you the opportunity to visit us again virtually or in person at the conference as shown above. Otherwise, we will be back with our annual meeting next week on Thursday with the half or with the half year figures on July 30, as you can see here on the list as well. Thank you for your support. Stay safe and sound. Stay in our good graces and good.