Verbio SE (VBK) Earnings Call Transcript

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of Verbio SE, following the implication of the Q1 figures of 2026, 2027. CEO, Claus Sauter; and CFO, Olaf Trober; as well as Head of IR, Alina Kohler will speak in a moment and guide us through the presentation and results. After the presentation, we will move on to our Q&A session in which you will be allowed to place your questions directly to the management. We're looking forward to the presentation. And with this, I hand over to you, Mr. Sauter.

Thank you very much. Thank you to everyone for joining us today. Olaf and I will take you through our first quarter results -- we had a strong start to the year, underlying profitability improved significantly and cash flow was positive given the better-than-expected first quarter and the continued strong Biodiesel spreads in Europe and North America, we now expect EBITDA for 2026, 2027 for our business year to come in at the upper end of our guidance range of EUR 210 million to EUR 250 million. We also see important progress on the regulatory side. Germany is taking tougher action against falsely declared biofuels. This strengthens compliant producers like Verbio and improves the competitive environment. Let me start with the key figures of the first quarter. Production developed positively overall. Biodiesel production increased to 179,000 tonnes in the first quarter. We saw higher production in Europe and even stronger increase in Canada. Biomethane production also increased to 359 gigawatt hours. Bioethanol production was slightly lower year-on-year at 147,000 tonnes. This was mainly due to lower production in Europe, where we had lower yields and some technical issues during the summer. EBITDA increased significantly to EUR 76.1 million compared with EUR 15.4 million in Q1 last year. This was mainly driven by better margins in biodiesel and bioethanol in Europe. The strong development of our biodiesel business in Canada and a higher contribution from the greenhouse gas quota business. We also saw a clear improvement in cash flow, operating cash flow swung from minus EUR 17.3 million in the same quarter last year to positive EUR 34.1 million. At the same time, investments remained broadly stable at around EUR 20 million. Mainly related to our specialty chemicals project in Bitterfeld, biogas production in South Bend and efficiency measures. In Bitterfeld, the ramp-up of the ethenolysis plant is ongoing. This resulted in positive free cash flow of EUR 13.5 million compared with minus EUR 37.8 million a year ago. The positive free cash flow also helped us reduce net debt from EUR 91.5 million at the end of June to EUR 83.1 million at the end of September. Our equity ratio remained very solid at 60%. With that, let me hand over to Olaf who will take you through the EBITDA development management and the individual segments in more detail.

Thank you, Claus. Good morning, good afternoon and good evening, everyone. Thank you for joining us for today's financial results presentation. Apologies, I've got a few technical issues with my camera. So yes, I hope we can fix it within the next few minutes. Now going back, let me put the first quarter EBITDA into perspective compared with the fourth quarter. Reported EBITDA in Q4 was EUR 88 million compared with EUR 76 million in the first quarter. Well, as a general reminder, Q4 included the shown EUR 19.1 million positive valuation effect in the biomethane business. So excluding this effect, Q4 EBITDA was actually EUR 69.1 million. So on an underlying basis, group EBITDA increased quarter-on-quarter, which is actually a good news. Looking at the segments, biodiesel increased from EUR 32 million to EUR 51 million, while bioethanol and biomethane declined from EUR 55 million to EUR 19 million, again largely reflected the valuation effect I just mentioned. And finally, the other segment also improved both year-on-year and quarter-on-quarter. The improvement was mainly driven by a positive contribution from our trading activities. Now let me take you through the individual segments in more detail. Let's start with biodiesel. The production was slightly higher than in Q4 '25, '26, where the increase coming from Canada. Sales reached EUR 306 million compared with EUR 280 million in Q4 mainly reflecting higher biodiesel prices. EBITDA improved from EUR 32 million to EUR 51 million and the main driver was the strong margin environment. Higher biodiesel prices more than compensated for higher feedstock costs. At the same time, we benefited from feedstock purchases below the market prices we saw during the quarter, allowing us to realize market actions even above market spreads. Overall, the positive development of our Canadian biodiesel business also contributed to the improvement. For some market context, let's now take a look at the reference charts. Here, the charts show the development of biodiesel market spreads in Europe. The spread is -- the spread itself is simply the difference between biodiesel and rapeseed oil prices. It does not reflect our specific sourcing but gives you a good indication of the overall market development. After the very weak levels at the end of Q4 last financial year, spreads recovered strongly during the first quarter. The chart on the right shows what was behind this. Biodiesel prices increased significantly during the quarter while rapeseed oil prices softened somewhat over the course of the quarter. That said, the quarterly average for rapeseed oil was still higher both quarter-on-quarter and year-on-year. Now on the biodiesel side, there we had supportive factors on both the demand and the supply side. On the demand side, the upcoming window -- citizens supported demand for received material Easter or how we call it RME to its better cold flow properties. RME is part of the same plant shown on the slide. On the supply side, well, low water levels on the Rhine limited rapeseed crushing while rapeseed supply from Ukraine also remained constrained. So both factors limited the availability of feedstock for RME production, keeping supply tight and providing further support to biodiesel prices. Overall, the market environment improved significantly during the quarter as displayed in or shown in the chart. As I mentioned on the previous slide, our realized margins were even above these market spreads supported by our feedstock sourcing. Now let's move to the second segment, bioethanol and biomethane. Compared with Q4, bioethanol production declined to 147,000 tonnes, mainly due to lower production in North America where we had some temporary production issues during the quarter. Biomethane production came down slightly from the record level in Q4 to 359 gigawatt hours. Revenue decreased from EUR [ 1,243 ] million EUR 221 million and mainly reflecting the lower contribution from North America. EBITDA came also down from EUR 85 million to EUR 19 million. Here, again, we have to keep in mind that Q4 included the EUR 19 million positive valuation effect in the biomethane business. Now in addition, Bioethanol market margins in Europe were lower than the very strong levels we saw in Q4. However, true to our sourcing, we were able to limit the impact of the increase in market grain prices. Our actual feedstock costs therefore increased much less than the market price development such as -- now in North America, realized margins improved despite a less favorable ethanol crush cash mainly driven by higher cone values. This compensated for the impact of lower production and sales volumes. Let's now take a look at the overall market development. Turning to the greenhouse gas quota market that we're covering in Q4 continued during the first quarter. Demand increasingly shifted towards the 2026 compliance year and the quarter prices remain strong at around EUR 500, EUR 510 per tonne CO2 equivalent. Part of the higher level compared with last year reflects rule of double accounting. But even adjusting for this effect, quota prices are clearly at the levels we saw an year ago. This is also reflected in the higher year-on-year contribution from the Greenhouse Gas quota business. The market itself continues to benefit from a tighter supply and demand balance following the implementation of RED III. Also here, low water levels on the Rhine provided additional support as difficult and expensive logistics made physical compliance harbor for some market participants, especially market participants along the river Rhine. Since the end of the quarter and with the start of the annual tender season, quota prices have come under some pressure. So we remain cautious on the future further price development. Let's move on to the European bioethanol market. As you can see on the left, market spreads came down during the first quarter from the high levels we saw at the end of Q4. The chart on the right shows what was behind this. Ethanol prices initially moved lower, while wheat prices increased through the quarter. On ethanol, the market eased as the import arbitrage had opened up again. At the same time, low water levels on the Rhine restricted movement of product out of the Rotterdam region. This led to a buildup of inventories and put additional pressure on ethanol prices. Towards the end of the quarter, ethanol price recovered again, partially driven by higher natural gas prices and rising production costs for the industry. So while ethanol prices move up, this did not mean the same improvement in merchants -- again, production costs increased. On Ukraine, international prices were supported by continued logistic constraints linked to the war in Ukraine and some better related crop losses particularly in cone. However, this benchmark development does not fully reflect our sourcing situation in our relevant sourcing regions, especially in Eastern Germany and Poland, overall grain availability remained good. We also saw a high availability of lower grain, a lower quality grain, which we can use in our production and which is traded as discounts to benchmark prices. So while benchmark market spreads were lower than in Q4 our actual feedstock costs developed much better than the market benchmark would such as -- now turning to the U.S. Ethanol production remained high during the quarter, but demand was also solid. Domestic blending was supported by higher D6 RIN values, these are the credits used for compliance under the U.S. renewable fuel standard and higher values provided an incentive to plant more ethanol. Together on export demand, this helped to absorb the high production and supported ethanol prices. Now coming to the feedstock prices for corn harvest in '25. So the corn harvested last year also moved higher during the quarter, supported by strong demand from exports feed and ethanol production. As corn prices rose more strongly than ethanol prices, the benchmark spread shown on the left came under pressure. Now looking ahead, the latest crop estimators estimates for the '26 harvest to harvest that's ongoing right now, point with strong yields and plenty of corn available. This is already putting some pressure on corn prices and it should support you U.S. ethanol exports. So for us, higher corn values provide additional support during the quarter. Well, despite the lower ethanol margins, our realized overall margins improved both year-on-year and quarter-on-quarter. Let's go to full financial year. Given the better-than-expected first quarter and the continued strong biodiesel spreads in Europe and North America, we now expect group EBITDA to come in at the upper end of our guidance range of EUR 210 million to EUR 250 million. Our view on the seasonality of the business remains unchanged. As a result, the first quarter performance should not be seen as indicative for the full year run rate. We continue to expect a meaningful contribution from the greenhouse gas quota business. At the moment, quota prices are under some pressure during the ongoing tender season. So we remain cautious here. On the cash flow, the cash flow developed quite positive. So the stronger earnings development together with the planned lower level of investments should support a strong cash generation and a further significant reduction in net debt. So with that, I will hand back to Claus for a few comments on the latest market and regularly developments. Thank you.

Thank you, Olaf. So let's talk a little bit about the regional market and the regulatory developments. We see a number of positive developments in our key markets, at least I would say only positive. In Germany, we are finally seeing tougher action against fraud in the biofuel market. We have to take into account that the [ raunutz ] is moving away January 2027. So this year, we had a special situation. But anyway, with the new rules, fuels with fraudulent sustainability documents can be excluded from the greenhouse gas quota system from January 2027. This is positive for producers like us, like Verbio. Customers, and this is what we see in the actual negotiations are looking more intensively like in the past for reliable partners with compliant supply chains. This can support demand and potentially also better commercial terms. In Europe, the discussion around the post-2035 framework is becoming more concrete. The center groups in the European Parliament have agreed on a compromise. The Environment Committee adopted it last week and the plenary vote is expected in December. The proposal recognizes VEEF vehicles that run only on eligible renewable fuels as zero emission vehicles. Clearly, the problem is not the combustion engine. The problem is the fuel. And this, I think I say now more than 10 years. The problem is not the combustion engine. The problem is the fuel. So if we replace fossil fuels with renewable molecules, we have a solution. This is available today. It's cost -- saving costs and works with the existing infrastructure we already have. We also see growing support for E20 and B10. Both would allow more renewable fuels to be used in the existing vehicle fleet. So the idea from making all electric is slowly moving away. And based on the data we have, registrations for CNG and LNG trucks have recently picked up. This is a positive sign for biomethane demand in heavy-duty transport. And finally, this is what we expected, especially after the war started in March because the gap between fossil, diesel and CNG, bio-CNG and bio-LNG in a truck is significant, and it's about 1/3 of the price then with fossil diesel. In the U.S., strong biodiesel margins have allowed us to change our plans for our Canadian plant in Welland. Instead of originally planned winter shutdown, we can continue production through the winter for the most part. And the proposed Canadian CFR multiplier for domestic production could provide additional upside for Welland. Overall, we see the market and regulatory environment moving in the right direction. There is one other point I wanted to address, and that is the role of fossil fuel prices. We sometimes see our sharp price move with the oil price, so the move of our share. So I want to make it crystal clear about the relationship here. Some of the developments we just discussed are reinforced by concerns around energy security and higher fossil fuel prices. But this does not mean that our earnings simply follow the oil price. The high oil price was supporting our business model because right now, all of our molecules, biodiesel, bioethanol and biomethane, renewable natural gas is cheaper than the fossil brother. So in that case, high oil prices were supportive. I think we would not talk about E10 and B10 without diesel at EUR 2.50. So it was supportive. But this has brought us to that ideological change. Biofuels have their own markets. Their prices depend on supply and demand and are closely linked to their feedstock markets, agriculture markets. They do not simply follow the oil price. Then we have additional value from greenhouse gas quotas in Europe and other carbon incentives. We also get additional value from co-products. Corn oil in our U.S. ethanol business is a good example as we have just seen. And then there is the role, glycerine and in the future, chemicals. On the cost side, feedstock and energy prices are key. And finally, our sourcing, plant utilization and where and when we sell our products all affect the margin we achieve. So the message is simple. Fossil fuel prices -- high fossil fuel prices will support demand for biofuels, but they do not directly determine Verbio's margin or EBITDA. With that, let's move to Q&A.

[Operator Instructions] And I can see we have nothing in the chat right now, but we do have a risen hand by Mr. Schutze. You may unmute yourself. Mr. Schutze, can you hear us? I'm not sure if he can hear us, but we can move on to Mr. Jorge Gonzalez.

So my first question will be on the GHG quotas. You saw that the price has been running EUR 500 to EUR 510 recently. But at the same time, you mentioned that the price was now under some pressure. Can you indicate us where is the price at this point and how the negotiations you are having with your customers are going in this regard for GHG quota?

Well, Yes, Olaf mentioned, quota prices came down because right now, we are in the negotiation phase. So as I mentioned in my speech is that the focus from our customers are more drifting about compliance, security of supply resilience. So right now, the market -- there are not a lot of market action. And we see this every year that during this phase, that quota prices are coming down. But negotiations are still ongoing. So right now, we don't have many signed contracts. So I cannot give you a real outlook. We expect that all of our production will be needed next year because also everything which is palm related, also pume is not counting in 2027 anymore. There is no double counting. So rapesesed oil will remain strong. There are not many options. So these are the main arguments at the moment in the negotiations, but it is too early. We cannot give you too much feedback for this. But anyway, for 2027, you saw that the obligation is growing by 5.5%, so from EUR 12 million to EUR 17.5 million. The frozen CO2 savings from '24 will also come to the market. Anyway, we expect firm quota prices, not at -- not maybe at these top levels. This is not what we expect, EUR 500, EUR 510, but we expect that the quota prices will be surely between EUR 400 and EUR 500.

That's very helpful. One question on the inventory increase in your P&L. Is this related to also GHG quotas generated during this quarter that you will sell later on? Yes, sorry, in this case, are you -- have you changed the way you account them, internal cost or something.

No. Jorge, thanks for the question. Actually, that is more volume driven. It's partially the quota -- increase in quota inventory and also a fraction offices increased volumes in biomethane. So that's actually quite natural, so you buy and sell the biomethane. So there's a fluctuation between the inventory and with respect to the quota itself. As you know, the majority of the quota is sold in March, April of the following year. So there will be an increase even over the course of the next quarter.

Jorge, at the moment, the focus is they want to make -- they have to get the feeling what will be in 2027. So right now, the main focus is to secure the new volumes for 2027. And the changes -- the regulatory changes are significant. So once this is done, they look how much fossil fuel they sold and then they prepare their CO2 balance sheet usually Q1. In the last years, it was also postponed for Q2. So at least at the end of March or June, they have to be compliant. So the focus at the moment is mainly on getting the hands on the molecules for next year. And especially, that was a very interesting year also the low water in the Rhine showed how important it is to have local supply because all the inputs are coming usually from Rotterdam on the Rhine. And if there is no water, then logistics is also a key issue. So that was really a very, very interesting year.

Very last one. On the Bioethanol, you commented that the strong demand for ethanol and the good production of corn could maybe change the negative rates is what you want to pass in your methods? Were you suggesting that the spread is stabilizing? Is this...

You mean the U.S.

In the U.S., yes.

If we could foresee the margins...

What we see is that the global demand for ethanol is growing everywhere. And the cheapest molecule is U.S. corn ethanol. So I used to say the challenge in ethanol is still that it is not seen as renewable liquid energy. Most of the ethanol production is seen as something to make the local farmer happy, but this is disappearing due to the high oil prices. So we clearly -- we saw it in 2026. And we first expected in '27 that the global demand for ethanol will grow because it is a cheap component. It helps to bring fossil prices down. So -- and related to this, '26 was already very good on margins. Additionally, on the 45C and all this. So we expect at least that the margins will stay on that level, but I think there is also upside potential.

As we have not received any further risen hands, and Firsa has put a question in our chat box. I will read that one out loud for you now. First, based on current hedging and feedstock positions, how much visibility do you have that realized biodiesel margins will remain above market spreads in Q2? And secondly, has the timing or size of the previously outlined EUR 30 million to EUR 50 million EBITDA potential from higher Nevada utilization and South Bend biomethane integration, you have communicated on the CMD changed?

No, I do -- What we communicated on the CMD doesn't or didn't change. And what was the first question?

Yes, of course. The first question was based on current hedging and feedstock positions. How much visibility do you have that realized biodiesel margins will remain above market spreads in Q2?

But first of all, we don't disclose our hedging strategy. But we have acquired a visibility on -- especially on biodiesel. And yes, as I tried to explain before, some feedstocks are going out of the market, everything which is palm oil related. So rapeseed oil will be one of the most important feedstocks, especially for crop based. And we are quite positive to be able to continue what biodiesel means also for the second quarter.

We have one more question here. Another one is how about development in the biogas segment, revenue growth, margins?

Well, our main target is increase the utilization. So we have no focus and no new projects on building new plants. There is still -- and you saw it in the presentation, there is a space of increasing the production. And well, at the moment, we have a very interesting development because natural gas prices tripled. So we have to see how the impact will be. Right now, our main focus is that we bring our RNG into the transport sector. There, we need more trucks because one of the reasons that natural gas, bio-LNG, bioenergy is so cheap related to diesel is that we have not enough trucks because of this, I mentioned it. We need more trucks, then we can utilize our filling stations better. And I think here is also a possibility to increase the margin. But we have to see what next months are bringing any way here, even if the oil prices and natural gas prices are coming down. We will see this positive impact because the products which we have bought the last months, LNG and CNG trucks are still not on the road. They are coming, and what we heard from the producers that most of them are all sold. So here, a lot of demand is moving away from diesel to CNG and LNG.