Verbio Se

Good afternoon everyone and a warm welcome to the Verbio earnings call for the first half of the fiscal year 2024-25. Today's speakers are Klaus Sauter, CEO of Verbio and Olaf Drüber, CFO of the company. They will walk us through the company's performance of the first half of the fiscal year, touching on key milestones, market trends and strategic initiatives. But before we dive in, a quick housekeeping note. The conference is being recorded and all participants are in a listen-only mode. If you have questions, please submit them using the chat box and we will address them in the Q&A session after the presentation. Please make sure to preface each question with your name and the name of your company in order to be considered. And without further ado, I'll hand it over to Mr. Sauter and Mr. Trüber. The floor is yours.

Thank you very much, Harry. Good afternoon, everyone. And thanks for joining us for our second quarter of 2024, 2025 and half year earnings call. I am here today with Olaf Trüber, our CFO. Looking back at the past six months, we've made good progress on our major growth project, our ethanolesis plant in Bitterfeld. From 2026, we will produce first amounts of renewable molecules at our Bitterfeld site for the chemical industry. Speciality chemicals are key ingredients in detergents, cleaning products, high-performance lubricants and plastics. With this, we are driving the transition from fossil-based to renewable raw materials in the chemical sector. Meanwhile, the ethanol plant startup in Nevada hasn't gone as smoothly as expected due to equipment malfunctions. We are working at full capacity to resolve these quality issues and ramp up operations. The technology and process in Nevada are proven and reliable. Hence, our long-term outlook remains fully intact. Shifting to our operating results, the recovery of the greenhouse gas market is not happening as quickly as we anticipated. Operating conditions continue to be challenging in the German greenhouse gas quota market due to the huge oversupply of greenhouse gas credits created from fraudulent products. Fortunately, we are seeing things stabilize thanks to national and international measures and expect to see significant improvement in the region in calendar year 2025. Despite these challenges, we delivered a strong second quarter, particularly thanks to our biodiesel segment performance. Verbio continued to focus on operational excellence which resulted in cross-margin improvement quarter over quarter and year over year in the segment despite lower spot market spreads. With that, I'd like to turn it over to Olaf to take us through some financials and then I'll come back with my thoughts on 2025. Olaf, the floor is yours.

Thanks, Klaus, and good afternoon, everyone. I will start with an overview of the first half of 2024-2025 before diving into Q2. So the first slide, key figures. We once again can report record production volumes. The year-over-year increase in ethanol volumes the light green bars in the chart on the far left, was driven by better utilization in all regions and specifically at the plant in South Bend. No previous owner of this ethanol plant has managed to produce volumes like that in the past 20 years. Our R&G production volumes also increased thanks to better utilization at our plants in Nevada and India. Yet our EBITDA declined to 14.3 million euro, mostly on the back of week first quarter, of the week first quarter. Average product margins in the first half of the year were much lower than in the same period last year. This was largely due to an oversupply of greenhouse gas reductions caused by the fraud in the German market. Notably, in the first half of 23-24, WERPI was still benefiting from higher contractually fixed greenhouse gas premiums, making last year's comparison basis quite tough. Our net debt at the end of December stood at roughly 97 million euros as we continued to invest into our key projects. These include mainly South Bend ethanol and our plant for speciality chemicals in Germany, Klaus mentioned before. While we continue to invest, we proceed with caution and keep our focus on our balance sheet strength. Capital expenditures totaled €36 million in the second quarter and €62 million for the first half, 24-25. Meanwhile, our operating cash flow remained positive and, well, quite good. The equity ratio was still close to 65% and remained largely stable. With that, I will turn to Q2. So overview Q2 24-25. As Klaus already mentioned, the second quarter was overall satisfactory considering the challenging markets and the continued burden from our North American operations. As expected, we saw a strong recovery in the second quarter 24-25 compared to the first quarter of the current financial year. EBITDA for the second quarter stood at 20.8 million euros compared to minus 6.6 million euros in the first quarter and 26 million euros in the same period last year. Quarter over quarter, both main segments, biodiesel and the combined segment bioethanol, biomethane, showed a significant improvement in EBDR. In biodiesel segment alone, EBDR more than doubled. The significant recovery is due to attractive production margins, thanks to favorable rapeseed oil purchases compared to the spot market. The recovery in the bioethanol biomethane segment compared to the previous quarter is largely due to the development of changes in the value of financial assets and commodity futures next slide please biodiesel segment um then let me now give you a bit more color on the individual year-over-year performance of the segment as you can see in the chart on the left revenues remained largely stable at 242 million euro at comparable production and sales volumes higher average biodiesel prices in the quarter were partially offset by lower greenhouse gas premiums and effect that our Canadian plant has operated through processing contracts from December 23 through November 24, November last year, which essentially means lower revenues and raw material costs. Despite more attractive greenhouse gas premiums last year, we managed to increase ABDR by 25% year over year, due to our focus on spread or margin management. We capitalize on high biodiesel prices thanks to favorable rapeseed oil purchases. Next slide, please. Well, and update, yeah. But speaking of Canada, much like many of our biodiesel peers in North America, We have reduced our production volumes at Wellend due to difficult margin environment. And well, it's worth to know this had been conservatively anticipated in our initial guidance because of expected challenges linked to the transition of incentive schemes from the Blender's tax credit BTC to the production tax credit PTC. The BTC is feedstock agnostic, means eligible parties receive $1 per gallon, or it translates to roughly 280 euros per ton, whereas the PTC intensifies a low carbon intensity and gives a different value for each feedstock. We are planning to ramp up the plant in March again as the recent PTC guidance should work in favor. So why? Excluding canola oil from the PTC puts American producers at a disadvantage. Canola oil, which mostly comes from Canada, is not eligible for the PTC. And with this, we can produce biodiesel approximately 35 euros per ton cheaper compared to an US player who would opt for soybean oil, which comes from the US. Biodiesel market development in Europe is the next slide. Back to our operating performance in the second quarter. um the result of our margin management becomes evident when we look at a chart on the left on average spot spreads were almost 30 euros per ton of biodiesel less in the fourth calendar quarter compared to last year while the contract greenhouse gas premiums were lower this year we still managed to improve product margins year over year. The demand for biodiesel was lower compared to the same period last year, mainly due to macroeconomic factors and reduced mileage. Additionally, parties with quota obligations have moderately put back on their blending by the end of 2024 since the transfer of quotas was suspended. As a result, the decline in biodiesel imports from China only partially helped biodiesel spreads. If you now take a look, you will notice that the spread between biodiesel and rapeseed oil were significantly lower than last year. However, it's worth pointing out that both biodiesel and rapeseed oil prices did rise during the reporting period, mainly due to trends in the vegetable oil market. Next slide, Alina. Thank you. In the bioethanol biomethan segment, sales declined to 147 million euros, as you can see in the far left bar for Q2 2024-25. This is despite the fact that production volumes increased. The sales trend was driven by lower sales prices and specifically lower greenhouse gas premiums. And the decrease in earnings to minus 15.3 million euro was primarily the result of a lower gross margin somewhat offset by lower personal expenses and favorable changes in fair value of commodity forward contracts and FX effects. Well, it's also worth to mention that the dollar cash holdings had been increased to the upcoming payments at South Bend Ethanol to safeguard the ITC, the investment tax credit for the investment. But the general approach remains unchanged, which is to optimize with as little exposure as possible to avoid unnecessarily increasing sensitivity. Sensitivity, sorry. bioethanol market development. Well, due to higher blending mandates and the introduction of E10 in Poland, there was a strong demand for ethanol. Apart from that, ethanol remained a cheap blending component. So we expect that those with quota obligations in Germany only slightly reduced their blending by the end of 24. They hence continue to build up greenhouse gas quota surplus that won't be available until 2027 due to changes in regulation. Relatively lower bioethanol spreads during the quarter compared to last year can be partially linked to imports from the US. Now turning to the US. In the US, the good harvest and low corn prices drove the bioethanol prices lower in the summer months, as you can see in the chart on the right side. At the same time, manufacturers pushing production to a maximum and thereby squeezing margins compared to last year, as depicted on the left. Also, seasonal demand trends kicked in. In summer, more thriving lead to higher bioethanol demand, but margins usually dip in the winter and the demand drops in the colder months. Now back to Klaus, who will give you more insight on the quota and what's happening there.