Alzchem Group Ag

Dear ladies and gentlemen, welcome to the conference call of AltCam 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. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Mr. Andreas Niedermeier and Dr. Georg Weichselbaumer, who will lead the conference today. Please go ahead, Sirs.

Yes, thank you for the intro. Good morning, everybody. Thank you for joining us today, and welcome to our analyst call for the quarter one. As always, we start with an executive summary and then move on to the figures after the strategic issues. At the end of the presentation, Dr. Weichselbaumer and me are available to for a question. So let's skip the page four and go directly to the highlights. I hold on a moment that you have the chance to get the delay managed. Here is a brief overview of our highlights for the quarter one. Despite the COVID-19, production, sales, and earnings are stable due to diversified product portfolios and compensation possibilities within the Altcam group. So, which we are particularly pleased about, the expected very strong growth of Criamino was successfully realized in the quarter one 2020 and developed within the forecasted corridor. BioSelect. rises to the star of the year, as we have always been represented in the DNA analysis kits. Due to the increased analysis triggered by COVID-19, the demand has risen significantly. We are delighted that the basic and intermediate segment is performing very well in what we see a challenging market environment. And this quarter was again better than the previous year, both in sales and in EBITDA. Those were the positive aspects. But what are the most concerned about is the steel and automotive industry. Products for this sector are in some cases showing significant declines. All in all, we can report a good start to the year 2020. EBITDA is in line with our forecasts. In addition, the good business start lower capital expenditure and strict networking capital management led to a very strong cash flow. And this brings me straight to our next slide, the detailed cash flow analysis. So I think the slide should be switched. So we are starting today with our cash flow as we have been able to achieve an extraordinarily positive development here. The cash inflow from operating activities increased from minus two to 8.5 million year over year, and this reflects the decrease in networking capital, lower capex, and a strong operating business. The most positive aspect of the previous year, the cash flow being burdened by the increase in stocks, This year, the decrease in stocks has boosted the cash flow almost twice. And this shows again how important networking capital management is. At 4.8 million, the cash outflow from investing activities was lower than half of the previous year. The main reasons are, of course, the absence of major projects for the time being and somewhat slower capex activities due to COVID-19. As a result, we have a clearly positive free cash flow compared to the previous year. Alskens financing activities in the first quarter of 2019 were still largely characterized by the payment of the remaining loan amounts to finance the new Creamino plant in the amount of approximately $30 million. And in contrast, financing activities in the first quarter of 2020 focused on the scheduled repayment of loans and repayment of leasing liabilities. Overall, this led to a cash outflow from financing activities to 2.7 million. Despite the cash outflow from CapEx and financing activities, cash and cash equivalents increased overall due to the strong cash inflow from operating activities. So after the first analysis of figures and the cash flow, a few words to the operating details, and therefore I would hand over to Dr. Weisselbaumer and switch the slide to the slide six. So the floor is yours.

Thank you, Mr. Niedermeyer. We have often talked about CRIAMINO and customer acquisition, which is why we have recorded a typical sales pitch here. The critical point of contact is typically with the technical person of the customer. This is generally a nutritionalist. It can take months, sometimes a year to get the customer to agree to such a meeting. As the benefits of creatine are not always well known even to nutritionalists, the entree is not simple. From the time of the first meeting, A timeline of average 15 months starts until first commercial sales. It takes an average three months each to convince the customer and to prepare the trial. Usual duration of the trial is three months for fostering animals like chicken and much longer for pigs or cattle. Finally, The results need to be evaluated, and in case of a positive outcome, test production in a commercial plant will start. The feeding trial is the most critical part of this sequence and needs to be well designed and carried out in order to get reliable results. Breeders with trial farms operate those to solve their own problems first. Tests for new products are assigned on a priority base on the unexpected results. The feed for those trials need to be perfectly mixed and controlled. They require two comparable stables. Samples need to be drawn systematically and analyzed in calibrated equipment. We try to join those trials whenever possible and allowed by the customer to ensure that the agreed feeding protocols are adhered to. Through COVID-19, we see at one point or another that our customers are concentrating on their core business and testing fewer new products. So far, however, we have not seen any negative effects on our business. Now I would like to go to the next slide, where we will have a closer look at creatine and creatinine benefits. Reliable energy supply supports many functions in the body required for healthy growth. Healthy growth is key to sound economics in feed production and animal growth. Here, creatine is the most reliable way for an efficient energy metabolism in the body. Creatine becomes creatine in the body, and creatine causes the main positive effects. Many of them are important for healthy growth. On this slide, you can see an extract of the effects, starting with the positive nutritional effects, sustainability, reproduction, immune support, muscle strength, and higher energy. Last time, we analyzed the energy effect. Today, we will take a closer look at the immune support arena. Creatine improves cell wall strength. Stronger cell walls make cells more resistant against disturbances from the outside. This applies in particular to gut cells. Also, those benefit from higher energy levels and have an improved feed absorption. This, once again, helps the robustness of the body in general. Infection resistance. immune response requires energy. Because of better energy availability provided from creatine, macrophages perform better and the immune system is more robust. There are studies available to support this claim. As a consequence of increased creatine levels, mortality rates are lower. This positive effect was also demonstrated by independent studies. Excess energy has a positive effect on the immune response, muscle endurance, and other factors. I would like to leave it at that and summarize that there are many reasons to use CreAmino in feeding. Because not only humans, also animals need a strong immune system. The topic of immune system brings us back to our next topic, the coronavirus and its effects on Alzheimer's. Mr. Niedermeyer, I hand back to you to continue the presentation.

Yes, thank you. So on page nine, we have drawn down some measures and some effects of the corona. And since March of this year, COVID-19 has had a strong grip on us in the corporate environment as well as in the private sector. How is Altschem affected? So as early as February, we had set up a very close monitoring system for raw materials. So far, almost raw materials have reached us on time, even from the destinations Italy and China. Only from India, nothing is coming in and nothing is going out at the moment. But so far, this has affected us very little. So we quickly updated the 2006 pandemic plan and set it up a task force. Very early on, we paid attention to the separation of jobs. Hygiene measures were strengthened. Shift systems changed so that people meet as little as possible. Shift systems were introduced in laboratories and workshops. Within short notice, mobile working was increasingly implemented. Company agreements coordinated and agreed with the employee representatives. So crisis scenarios were calculated and many topics converted to digital. So we produced and supported the district with disinfectants and so on and so forth. As you can see, a whole bunch of additional topics And how does this affect the outcome business? We see this on the next page. It's page 10. So on the basis of a highly diversified product portfolio, it was possible to almost completely offset the effects of the global economic disruption in connection with the COVID-19 pandemic in quarter one, some of which were significant. Nonetheless, We are already seeing a clear downward trend for the steel and automotive industries in the first quarter and for some products, for example, CreaPure, as there was significantly less training due to COVID-19. On the other hand, the current environment also shows business opportunities for the Altschulm Group. In particular, the areas animal nutrition, pharma have been characterized by an almost erratic environment. increase in dynamics since the end of February. Especially in the field of BioSelect, we have always been part of the DNA test kits and therefore now also part of the Corona test kits. Based on long-term and thus reliable stable supplier relationships, the group has been able to maintain all major supply chains to date. The raw material supply of the Altschem group is, with a few exceptions or supply bottlenecks, robust. and thus supports a continuously production process. What are the specific figures now? You see this on the next page. In the first quarter of 2019, 2020, sorry, sales increased by 2.8% year-on-year to 94.7 million. Most of the sales growth was achieved in the specialty chemical segment, although the basic and intermediate segment contributed slightly as well. In this quarter, we grew structurally above all with 1.7% in volume, 0.6% in price, and 0.5% in currency. The EBITDA decreased by approximately 0.9 million to 12.3 compared to the same quarter of the previous year. This development was due to an anticipated increase in personal cost increases in connection with the market launch of CreaPure Derivates, Leverdure, and DuringCore. and some postponed deliveries of PGR to the next quarter. Earnings per share fell from 0.54 to 0.43 per share. The decrease is due to the following issues. On the one hand, the lower result led to this, and on the other hand, depreciation is also significantly higher due to the high investments of the past. Significantly lower interest rates and somewhat lower taxes had a positive effect, but could not offset the overall effect. Overall, we think we have made a very good start to the year compared with the current environment. We would now like to invite you to join us in analyzing some further details of the different segments. And therefore, we turn the page to page 14. So the basic and intermediate segment comprises the production of basic and intermediate products that are recently required for the manufacture of specialty chemicals or marketed as standalone products. The latter serve a wide range of applications, for example, agriculture, steel production, automotive, industry, and pharma. Sales in the basic and intermediate segment in the first quarter of 2020 were up on the previous year despite initial setbacks from the steel sector. The market environment here is currently very short-term in the steel sector, so that we have to decide on the volume distribution within the NTN chain virtually from week to week. The volume development of our neutral product range was encouraging, although the color pigments business also had to contend with order cancellations in connection with the declining demand from the automotive sector here. Basic chemicals for application in the pharmaceutical industry, among others, are showing strong demand, and thus contributing to the segment's positive development. The intensive efforts to expand the areas of application in countries for perl-car are reflected in the sales volumes above the previous year's level as well. So, above-mentioned raw material and electricity price effects had a positive impact on the segment's EBITDA margin. In line with good sales, we were also able to convert the whole into an EBITDA of 1.9 million, which already represents a significant improvement compared to the previous year. The increase in sales was driven on the one hand by more or less balanced volumes on the other hand by price increases and change in product mix with 1.3%. Additionally, there was a positive currency effect of 0.3%. So much for the basic and intermediate. Let us now move to the specialty segment. This is on page 16. And I think that page is already shown. So only to remember the specialty segment produces and sells high quality specialty chemicals such as Creamino, Creapure, BioSelect, Diehard, and Dormex, for example. So developments within the specialty segment are generally in line with the forecast. Creamino has enjoyed pleasingly strong growth, although this was already expected. In the environment of creatine, We accompany the marketing offensive of our new product, Livadoo, and during core with high resource input and in the area of custom manufacturing, we successfully reversed the downward trend of the first quarter of 2019. There was also a stronger demand for existing molecules, especially for the pharma sector. and our special product Dormex was not quite able to match the previous year's level. However, this is merely a matter of monthly delivery postponement into the second quarter. So the development within the specialty chemical segment was basically in line with forecast sales in the first quarter amounted to 52.2 million after 50 million in the prior year period and as planned, Our EBITDA and EBIT were negatively impacted by marketing activities in connection with the clear fuel derivates and unplanned by the decline in demand in the global automotive sector. We see lower deliveries to the dietary supplement market as an indirect consequence of the COVID-19 pandemic and less training activities here. So last year's quarter was very strong in PGR revenues which this year has partly shifted into the second quarter, and therefore we expect a really good second quarter this year. So let us now move on to the third segment, and this is others in holding, and I turn the page to page 18. So the others in holding segment comprises all other activities not allocated to the other segments. These services are mainly related to the Chemical Park Strosberg and Hart which Altschem operates also for third parties. In addition, administrative services are allocated to this segment. So the business volume at the chemical parks in Trosteck and Harz remained essentially stable. Sales revenues totaled 6.5 million compared to 6.6 in the previous year's quarter. The segment's earnings reflect a price increase based on planned cost increases. It also shows that the cost discipline measures introduced are having the desired effect, especially decreasing consumable costs can cover other cost increases, for example, in labor costs. So let us now take a look at the balance sheet. This is the page 19. The balance sheet in total decreased from 342.6 to 338.9 million. there were some essential changes to the assets. In line with lower CapEx, tangible assets decreased by 3.3 million to 183 million. And compared to December 2019, inventories came more or less on the same level. Receivables always rise in quarter one due to seasonal products and reached to the level of 39.3 million here. On the liability side, there are some obvious changes again. equity increased by 19.8 million to 81.1 million, mainly due to the re-evaluation of pension accrual and good operating business. This led to an equity ratio of 23.9% compared to 17.9% in the previous year. Following, the pandemic long-term evaluation interest rate increased from 1.1% to 1.7%, which has an effect of approximately 21 million on the pension provision. In contrast, there are still deferred taxes, so that circa 15 million was recorded in equity as a result. In addition, the scheduled repayment of loan liabilities led to a reduction in non-current liabilities of approximately 3 million here. At 61.3 million, current liabilities are more or less stable compared to the year 2019. So that is it for the balance sheet analysis. Let us now move on to the targets. This is page 20. So before the coronavirus determined everything, our goals were and are the following. Further development of the market for preamino will be our main priority. and we are absolutely on schedule with this goal. The further development of neutral strategy with the next capacity expansion and CAPEX is also an important topic for this year. Here we are in the evaluation phase and can possibly say more about the next report. We also intend to intensify the topic of sustainability. The two most important topics are zero accidents and the goal of CO2 neutrality. In terms of accidents, we started lower than last year thanks to the excellent safety work of our employees. As far as CO2 issues are concerned, we are in the middle of the analysis phase and may be able to say more about this in our next report. And as already described at the beginning, we are trying to generate our first sales in Libidur and implementing our strategy here. In detail, this will be the following topics, training pharmacists, push various promotion activities, analysis of Asia market entries, do first test sales in the U.S. branded by URINCOR. And here we are also on the planned route. And we can probably tell you more about this in the next report as well. So Corona. unfortunately controls a big chunk of the complete daily routine and we are in the process of meeting all hygiene regulations. So far our plans are up and running and we have made a good start to the year, also due to our important product portfolio. For example, we sell raw material critical for essential drugs, we supply chemicals for virus test kits, and we are well positioned with our agri-products, even in the crisis, and have a stable raw material base due to our backward integration. Nevertheless, if corona cases occur more frequently, we cannot rule out that our plants are shut down by the health authorities, despite a good order situation. If this happens, it will be very difficult to make a forecast at all. If this does not happen, we can imagine that the forecasts could look as follows on the next page. So this is page 21. The sales growth is planned to be achieved organically. Volume effects are anticipated to be the primary growth driver. Business development in the segment could show good growth depending on the duration of corona shutdown. In the specialty chemical segment, we expect the main growth within the Criamino business and the BioSelect part. Basic intermediate segment will be supported by further growth in the neutral product area. The agricultural part of the business is expected to remain at least stable and the steel sector should suffer even more with the recent closure of production in the automotive sector. The others and holding segment is expected to generate stable sales at the chemical stocks introspect and part. On the profit end, we see positive signs from the raw material sector. And given these conditions, we expect group revenues to rise slightly to strongly on an organic basis. And adjusted EBITDA to remain at least at the previous year's level until parallel to revenue, a strong increase. So some final words to our presentation. No one would have believed a few weeks ago that a crisis situation like the corona pandemic could catch up with us as quickly as we are witnessing it right now. As of today, our business has hardly suffered at all from the global restrictions. Here and there, we see some bottlenecks in the logistics. Some customers are reducing orders. orders and others are increasing orders. All in all, we have not yet experienced any major economic problems. However, the overall situation is already demanding a big portion of our time. It is essential to separate employees and reduce social contact in order to minimize the risk of infection. And without doubt, the health of our employees is our top priority. At the same time, however, We also try to keep our business running and consistently implement our targets as we have presented today. So we hope that we were able to give you a good overview of the current situation and are now available to answer your questions if there are any. Thank you.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 01 on the telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your questions answered before you turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question received is from Laura Lopez of Baader Bank. Your line is now open, madam. Please go ahead.

A very good morning, and thanks for taking my questions. First, I will start with last week you announced a COPEX announcement for BioSelect or an expansion. So can you maybe give us a guidance on that? How much will the investment be and maybe how long will that take? I can imagine that you have to react quickly as demand is going up significantly rapid. And maybe also how big is this capacity expansion? So how much can you actually increase your capacity? So kind of easily or are you building like a whole new building, production plant? And then maybe together with that, if you can give us a guidance for CAPEX for the group. I know that the NITRIO investment is still pending, but let's say until what has been decided until now, more or less, where are your CAPEX guidance for 2020? That's the first one. And then I move to another one.

Thank you, Laura, for the question. You asked about bioselect. How quickly can you ramp up? what is associated with the ramp up. When you look at the very, very dynamic situation in the market, we cannot take too much time to increase our capacity. And that more or less answer I think both of your questions. We will try to maximize the available technical capacity by addition of people, which gives us already quite a strong increase. And we can only take one or two months to increase the capacity because otherwise the market will be taken by other participants. What does that mean in terms of volumes which we can sell? We think that we can at least double our capacity within one or two months.

Okay, and this doubling of capacity then is coming mainly from just hiring more people and not so much like in the operation itself. Did I understand that correctly?

Yes, that's the right answer about this question.

Okay, very good. Thank you. And then moving maybe on Livador. And your Encore, can you maybe tell us what your Encore is? I think this is the first time I heard about it. What is the difference with Livadur or which market are you targeting with that product? And then can you give us any guidance on how high were the marketing costs in the first quarter?

For the end-user products which we have, which both Livadur and your Encore are, we have decided to go with different brand names into different markets. In Europe, we will have more scientific approach supported by the brand name Livadur. In the U.S., it's more of an emotional campaign supported by the brand name Jur & Cure.

Okay, that is clear.

Yeah, so we are in a very early stage of the market penetration, and marketing costs are below $1 million, so between half a million and a million for the first quarter. And we hope that we can show you some positive effects already in the second quarter, and therefore we will stress this topic more in the second quarter report then.

And this marketing cost, will they continue about the same level for the remaining of the year or do you expect them to increase?

No, I think this will be a flat for the year. This will be more or less the same level, but in the future should be balanced out by sales and by earnings from the product.

Okay. Thank you. And then maybe I ask one more. Can you maybe give us a guidance on the volume drop on steel in April? And I don't know if you already have an indication on the first weeks of May. I think we have heard from other steel companies volume drop of over 40% in April. And in general, in the chemical industry, let's say the majority have already reported they have mentioned something like 15% in April. So can you maybe give us a guidance for you in the businesses that are more impacted by the current situation? How has the volume development been in April?

For April, the answer is fairly simple. For the development in the next couple of quarters, it is almost impossible. So what we did for our planning purposes, we assumed that the decrease in deliveries to the steel industry will be a number which is double digit and to which is approaching 15 to 20%. Okay.

And that's for the remaining of the year. So not only second quarter, but you're also planning for such a, development for the full year?

It is too early to make that call. We have established those plans for the second quarter and updated almost daily because the reports which we get are frequent.

Okay, very good. And maybe just a last question related to that. I remember in the first quarter we discussed that You were being able to, let's say, partly compensate the very weak demand by lower exports coming from China. And that's why your demand, let's say, did not correlate one-to-one to the very weak performance that we were seeing in the market. Are you still seeing this or now that China is ramping up again, are exports again, let's say, becoming also more available for the steel industry? with regards to the products that you sell, or are you still partly being able to compensate that by, let's say, lower demand, lower exports from international markets?

No, this is an effect which was fairly small in the first quarter, and compared to the bigger effect, which we now see in the second quarter, it doesn't play a role anymore.

Okay. Thank you. If there's time, I will go again and ask more questions. Thank you.

Yeah, okay. Thank you, Laura.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press 01 on the telephone keypad now. And we've received a follow-up question of Laura Lopez of Baader Bank. Your line is now open, Madam, again. Please go ahead.

Okay. Sorry, me again. Now that I have the opportunity, I will ask a couple of more questions. One is on the dividends. I think I didn't saw anything regarding that. So does that mean that the dividend statement is still standing for 2019? And then the AGM? The date is still the one that you have communicated. And then maybe on Crayamino, so you did mention higher volumes here over here in the first quarter. Nevertheless, I remember at the beginning of the year, we talked about an acceleration towards the second half. Is this still what you are expecting? I mean, you also mentioned in your presentation that, of course, the current situation impacts like the market penetration of new products. So maybe what is your view on that? And maybe is there any update on the whole situation with Evonik? Do you still continue to be there on conversations with the company regarding the brand and the future production of preamino also by them?

So I think regarding the dividend, we will decide this next week on Tuesday when we have the general annual meeting, and therefore we see no change. We will stick to our dividend level of 7.6 million, or I think it was 0.75 euro per share. So no change there. about CreAmino and the situation of Evonik. Dr. Waikodama, you can answer this question, I think.

Yeah, I think I'll do it more broadly to address all of your questions. I mean, we were very pleased with CreAmino development in the first quarter, and the product is still going very strong. We also at the same time see that we have mentioned that before the testing is not as quickly and as efficient anymore because customers do not operate the testing facilities as much anymore and they have switched to different priorities. This has not had too much of an impact on the business development so far. But it remains to be seen how it continues and it's beyond our knowledge what will happen. With regard to Evonik, I mean, Evonik is one of our customers and we will and are going to negotiate and serve them as we do it with other customers as well.

Okay. And then the last one on Agro. You mentioned or you reported a strong first quarter. Maybe how has the situation started in April? And you mentioned new applications or new markets for PERCA. Can you maybe give us a little bit more information there? And just is PERCA actually a margin dilutive part of basic and intermediate? It is, yeah.

It is, yeah.

Okay. Yeah, I just wanted to confirm that. Yeah. And regarding the new markets or applications, it would be nice to hear what is going on there.

The market, the sales for Perka in the first quarter was very strong. And it was particularly strong outside of Europe. This is a strategy which we pursue to diversify more, and we were able to get more deliveries into the Southeast Asian market.

Okay. Great. And I think that will be it for my side, and thank you so much. And yeah, very solid numbers, so hopefully it continues to be like that.

All the best. We hope as well.

Ladies and gentlemen, as a final reminder, if you would like to ask a question, please press 01 on the telephone keypad now. And we received a further question of . Your line is now open, so please go ahead.

Yes, hello and good morning. The following question to the relationship to Evonik. You mentioned Evonik is a client, a customer, a normal customer. Does it mean you sell CreaMino to Evonik or does it mean that Evonik took a licensee from you to be able to produce

Those are two questions which are independent from each other. To address the question, is Evonik a client? Yes, Evonik is a client and we negotiate with them as we do with every other customer as well. It's also correct, your assumption that Evonik has taken a license in order to be able to market CREAMino. And that's independent from any negotiation, which we have with them on potential sales to them.

Okay. And you mentioned you're satisfied with the development of CREAMino in the first quarter. As I remember, in the first quarter last year, see situations in the market with the overhang of still from that base from last year wasn't as high. Taking this into account, are the volumes really satisfying? And are you on plan, meaning ramping up your capacities, which would allow to sell five times more.

We do not compare sales in particular in the first quarter to what we have sold in the first quarter of last year. If we did that, we would have a very, very pleasing development because as you clearly said, the growth compared to the first quarter of last year was tremendous and is not the basis of our further planning. The sales plan for CRIAMINO anticipates a ramp up of volumes. We have been able to follow that ramp up plan in the first four months of the year consistently. We have looked at the potential effects in particular also of the corona And there is, and there are some effects. We have adjusted our development for that. And we still are confident that we will be able to grow CreAmino sales, not to what we had anticipated without the pandemic, but to a very significant level.

And the production capacity is available. There is no problem. The production is up and running. and the capacity is there. So whatever we want and we plan to sell is available within the production.

Maybe a last question from my side. As always to the shareholders' direction, did you get any information of change, mainly to the major shareholders? The majority of shareholders, did they reduce?

No, from our point of view, not. So our strategy is, as it always was, to increase the free shareholders, and therefore we are working hard on this issue, but we don't have seen any sign that one of the big shareholders will sell shares within short notice. But we are not involved in this process at the end of the day. Therefore, it could happen, but we don't have this information available.

Are your questions answered, Mr. Pionke?

Yes, it is. Thanks. Okay.

So as we have no further questions, I hand back to Mr. Niedermeyer for some closing remarks.

Yeah, so thank you very much for your questions. We can offer you the opportunity to visit us virtually at our annual general meeting next Tuesday on May 19th or to return not later than the next quarterly call on August 11th. Stay well and stay healthy. And thank you for being here. Goodbye.

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