Tessenderlo Group NV (TESB) Earnings Call Transcript

Hello, everyone, and welcome to our H2 (sic) [ H1 ] half year performance webinar of Tessenderlo Group. This session will be recorded. After this presentation, we will have time for some questions. So put your questions in the Q&A box, and we will also allow some of our analysts to ask some questions live after the presentation. By this, I hand over to Luc Tack, our CEO.

Good morning, good afternoon, and welcome, everybody, to our half year results call. Thank you for joining us. So I will start with the key events of the first half year. As you are all aware, Tessenderlo Group and Darling Ingredients agreed to combine the collagen and gelatin segments. So the Tessenderlo Group announced in May the signing of a nonbinding term agreement with Darling Ingredients to combine the collagen and gelatin segments of their companies into a new company called Nextida, requiring no cash or additional investments from either party. This strategic partnership aims to create a top-tier collagen-based health, wellness and nutrition products company positioned to capitalize well on global collagen growth. The transaction could potentially be closed in 2026. And of course, this is still subject to customary due diligence, negotiation of definite transaction documents and regulatory approvals. Next, we had the opening of our Picanol Group HQ. This has been a big relief to all our colleagues at Picanol because for years, we have been in containers with meeting rooms and containers with offices around the plant. Now we have new offices. And so Picanol Group officially opened its new headquarters in leper on Friday on April 25 and in the presence of Belgium's Prime Minister, Bart De Wever. As you may all know, Picanol has a long history in Belgium and is a very well-known employer here in Belgium. The modern sustainable work and meeting place provides the necessary space for future growth of Picanol, Psicontrol, Proferro [our goal to] operating Machines & Technologies. Within that same segment, and you see we will already start making more use of the offices, Picanol acquired Osterwalder AG. In June, the Tessenderlo Group acquired the activities of Osterwalder AG in Lis Switzerland. It is a Swiss specialist in powder presses. Osterwalder with over 140 years of experience serves industries such as hard metals and specialty materials and operates globally with 80 employees. We have been attracted also by the business because that business has a lot of technology, which we believe is an important asset for the future of Osterwalder. Then, we had the PB Leiner restructuring process where we are updating you. So in November 2024, the Tessenderlo Group announced its intention to restructure the Vilvoorde facility in Belgium and to cease operations at the Treforest plant in the U.K. within the PB Leiner business unit, operating segment Bio-valorization. During the first half of 2025, a formal agreement was reached with the respective work councils, and the restructuring plan is currently being executed. We are very pleased with the progress we have made here. Then we had some key events after the balance sheet. So our continuing share repurchase program, so in the half year -- in the first half year, the group acquired 562,000 treasury shares at an average price of EUR 22.4 per share. On March 25, the Board of Directors resolved to cancel 987,000 (sic) [ 987,561 ] treasury shares. And as of June 30, 930,000 (sic) [ 929,700 ] treasury shares remained to be purchased under the current share buyback program. Furthermore, we have the pleasure of opening officially today our Defiance facility in Ohio. So Crop Nutrition operating segment Agro celebrates the opening of its newest liquid fertilizer production facility in Defiance, Ohio. This truly is a major milestone in the company's commitment to advancing sustainable agriculture. For some of you to remind, we opened a similar plant last year in Geleen in the Netherlands. So Miguel, I will now hand it over to you.

Hello. Thank you, Luc, and good afternoon, good morning, everyone, on the call. Thank you for joining us today for our half year results. I will give some explanations on the results we did publish earlier this morning. Our revenue for the first half year of 2025 is close to EUR 1.5 billion, which is an increase of 7.1% compared to the same period of last year. On EBITDA level, we grew slightly better to 8.4% to reach EUR 163 million of EBITDA, bringing us to an adjusted EBIT of just short of EUR 60 million. The profit or the loss for the period is minus EUR 9 million, but that's mainly related to some noncash foreign exchange translation for intercompany loans and receivables, and I will come back on that one later in the presentation. Our CapEx is relatively stable compared to the year before at EUR 74 million. We still plan to have a full CapEx for the year of around EUR 150 million going forward. We still generate a strong cash flow from operating activities of EUR 128 million. Our net financial debt position has gone from a net cash of EUR 32 million to a net debt of 21 million. This is also mainly due to the acquisition of Tiger-Sul last year in the second half of last year that was financed through partially bank financing and cash. If we go to our group revenue per segment, you see that we still have a very strong Agro division that accounts for 35% of our total revenues. Our Machines & Technologies is growing. As you have probably read the financial figures published earlier today, you will have been positively surprised by our Machines & Technologies segment that has done quite well in the first half of the year. Industrial Solutions has been more stable and Bio-valorization accounts for 21% of our revenues. If we translate that to EBITDA levels, Agro is definitely the big contributor of EBITDA with close to EUR 68 million, while Bio-valorization is positive, but just positive as we have gone through, as Luc mentioned, a restructuring of activities within PB Leiner, EUR 28 million of EBITDA for our Industrial Solutions, EUR 33 million for Machines and Technologies, which is a big jump compared to what we had in the same period last year. So if we go quickly through our segments per segment, and I will start with the largest one, our Agro segment. Agro segment, and if I can remind you, it has our various companies and brands that are operating under the name of the Tessenderlo Kerley Inc. in the U.S. and Tessenderlo Kerley International for our worldwide business, where we produce, sell and market our crop protection and our crop nutrition activities. There, we have actually an increase of the revenues by 13.6% to EUR 521 million. Our EBITDA margin sits at 13% to reach, as I already mentioned, nearly EUR 68 million. Well, we can say that our crop protection business has been very stable in the first half of the year across the world. Our crop nutrition business, which is more our fertilizer business has known a higher sales volume in general in most of the products we market. That has been offset sometimes depending on a product-by-product basis by somehow lower margins here and there, but relatively stable and in a growing environment. In our Agro business, I also have to mention that since last year, we have acquired Tiger-Sul. Tiger-Sul is now included in the figures of our Agro business. However, Tiger-Sul being a very seasonal specific product that is actually more prone to a fall application. The results of Tiger-Sul within the Agro segment for the first 6 months of the year is relatively limited. There will be somehow more results coming from there in the second half of the year. As we go through our second segment, Bio-valorization with 2 companies called PB Leiner and our rendering business, Akiolis. PB Leiner was going through a restructuring process in the beginning of the year and therefore, reported a weaker-than-expected first quarter, but has recovered mainly in the second quarter of this year to where we can see actually the benefits already from the restructuring, and we expect that going forward to further strengthen. Akiolis, even with higher sales volumes on their products, they were still actually the victim of lower margins and selling prices, particularly on fat products. Our Industrial Solutions segments, where we have Kuhlmann and moleko as well as DYKA. Kuhlmann is our water coagulant specialist chemicals. Moleko is our chemicals mainly for the mining industries and DYKA, which is our PVC, PP and PE production facilities. We see various different dynamics, whereby we see that DYKA has done relatively well and even better than last year across the board in Europe on the sale of pipes and fittings, whereby Kuhlmann and moleko have suffered from lower volumes than the year before. However, they were able to keep their margins relatively intact. Our great segment of Machines & Technologies, which is all the Picanol Group. So as Luc mentioned, Picanol is not only Picanol, but it's the weaving machines, but it's also Proferro or foundry and PsiControl or electronical components has done extremely well in the second quarter of this year, which has helped boosting its revenues to EUR 267 million and boost its EBITDA by nearly 163% to EUR 33 million. However, the market in the entire textile industry is not stabilized yet, and we cannot guarantee that the good results of the first half of the year will continue in the second half of the year. T-Power, our power plant, 425-megawatt power plant here in Belgium is still working on the tolling agreement with RWE until June of 2026 and has done relatively well in the first half of this year with a high number of operating hour of running hours, whereby we are contractually getting some benefits on it and with an EBITDA for the first half of the year of EUR 29 million. A lot of you will ask us what is the future after RWE for T-Power, we are currently assessing several options, and we will definitely communicate in due course once we have made a decision on one or the other options. On the EBIT adjustments, and this is what I mentioned earlier in the call, I think it's important for you to understand that our loss of 9 million comes mainly from an unrealized FX loss on intercompany loan. It's a loan that is basically in U.S. dollar between 2 companies that we own totally. So it's noncash items, and this loss amounts to EUR 52 million. Others in the EBIT adjusting items, we have an impairment of EUR 7.1 million related to assets we own in Fresno, California that we are phasing out of the company, but we will still continue to own the land and the assets, but they will not produce anymore. And we had to recognize additional expenses for the restructuring of our PB Leiner activities for about EUR 3.6 million. So the evolution of our net financial debt comes last year. We ended the year at minus EUR 5 million, including the lease obligations of IFRS 16. We made an EBITDA in the first part of this year, as I mentioned, of EUR 163 million. And we used a lot of this EBITDA actually to invest in growth. We invest in growth through various means. One is acquisitions. So we did acquire Osterwalder AG, the Swiss company earlier this year for a total consideration of actually EUR 5.8 million. The EUR 5.8 million, it's only -- it's less than EUR 1 million in cash that has been paid. The rest was taking over existing debt obligation of the company. But so this small debt will be in our balance sheet going forward. And then we also invested in growth CapEx, about EUR 37 million. Growth CapEx is CapEx that we do invest in new projects, in new plants, in new production facilities that we don't have for the moment. So the growth from growth CapEx and acquisition amounts to EUR 43 million for the first half of the year. And then we also use part of [proceeds] to remunerate our shareholders through our share buybacks for EUR 12 million and dividend that was paid in early June this year for EUR 45 million. I will now leave back the word to Luc to give you maybe a statement on the outlook of the company going forward.

Thank you, Miguel, for your outstanding explanation on the numbers. So we are doing a forward guidance that for the full year, we expect our EBITDA will be between the EBITDA of 2024 and 2023, so between EUR 265 million and EUR 318 million. We understand this is, of course, according to our original outlook. But I must say, though, we see a lot of uncertainty. And I'm sure you're not the first CEO who is telling you that. I'm sure you have heard that from other locations as well. I have been traveling in Asia. And so visiting different countries, we know how volatile the situation is there in respect of duties, we will have a good deal. We have a bad deal with the United States and that can change in a few weeks or a few months where people originally think we're going to have a good deal. So let's make plans and then they come back, oh, it's a bad deal and put everything on ice. So I think also like our collagen products that travel around the world, you need to pass borders importing into the U.S. that also has its challenges. And therefore, we are cautious on the outlook. We believe the fundamentals of our business are strong. And of course, always have room to grow, and that's what we work for every day. We believe we can still get better in the future. But we also need to be realistic with the economic environment. And so that's why we are cautious on our outlook. So with that, I will give it back to Bjorn to see if there are any questions.

Yes. Thank you, Luc. Maybe just before we go to the analysts to ask some questions, there is also the financial calendar. So we will have our Analyst and Asset Manager Day on October 7 next -- this October. And then our 2025 results, we will launch on March 26 next year, of course. Okay. Let me check here on people. I see -- I will put Christian Faitz from Kepler. First, let me bring you on screen. You can unmute yourself now Christian.

I have 3 questions, please. First of all, by creating Nextida, can you already quantify synergies by putting these 2 businesses together? Should I go question and answer or shall I ask all 3?

All 3, please.

All right. So second would be what is behind the changes in market conditions you referred to in your release that caused the closure of the Crop Nutrition facility in California? And third question, I'm trying to understand the Picanol business a bit more. Can you give us a feel for the average selling price of a weeding machine? Background to this question is to get a feeling how much one or a few machine deliveries before or after the reporting period can actually impact this business? And when do we expect the textile market to recover according to the feedback you get from your customers?

Okay. Thank you, Christian, for the questions. This is Miguel. I will take the first question. The synergies for Nextida. Well, obviously, we have not signed binding agreements yet. And the closing is subject to regulatory approval from the antitrust authorities around the world. So we're not in a position to comment on synergies yet. But I understand also that maybe the underlying question is when do we expect to finalize those binding agreements because the closing we mentioned might occur in the course of 2026. So we expected to close those binding agreements in the third quarter of this year, so in the coming weeks and months.

Thank you for your question in respect of the closure of the fertilizer facility in Fresno. It is a division within that plant there. We didn't close the plant, but it was the bentonite sulfur production line that we did close, and we closed that because of an opportunity, of course. So what we were doing there is we were producing bentonite sulfur and we were launching bentonite sulfur on the market. But then the opportunity came there to buy Tiger-Sul, which is also producing bentonite sulfur. And then in respect of looking at the economics, Tiger-Sul has also a plant in California. And so there is no use to have 2 plants there. So that's why we took the decision to close Fresno because of the Tiger-Sul setup, we have a much stronger position with our production in Canada, California and Alabama. In respect of Picanol, I kind of alluded a little bit to it in my presentation. Look, I was in Delhi a few months ago and sitting there with the teams and we're looking at the projects and the pipeline of the projects. And at that time, Mr. Modi had also been in the United States and people are kind of bullish there's going to be a good trade arrangement there. And then all of a sudden, things turned and then it's 25%, possibly 50% duties and then the projects go on ice, and that is the volatility that we have and which is quite troublesome right now that there is a lot of hesitation from customers to invest. We hope that will clear out in the coming months and that there will be some more certitude on what the outlook will be on tariffs. Then in respect of price and amount of lubes, et cetera, as you can imagine, for competition reasons, we never disclose details on that. So it will be difficult for me to give you further guidance on that one. But thank you for your question.

Thank you, Christian. So the next one that I will put on screen will be Frank Claassen from Banque.

I've got 2 questions. First of all, on the Bio-valorization, you still had a tough first half. While your new partner, Darling Ingredients, they talked about, let's say, improved supply-demand situation for gelatin. So my question is, do you still see the same? And so do you expect a better second half for Bio-valorization? That's my first question. And then secondly, Kuhlmann, that normally is quite a stable business, but yes, the profits declined in the first half. What are the dynamics here? Is it economic uncertainty? Or could you elaborate why at Kuhlmann profits were down?

Well, thank you, Frank. This is Miguel. I will take the first question, and Luc might take the second question. We might help each other if needed. Bio-valorization, yes, indeed, there is -- well, first of all, we've got 2 markets. We've got in Bio-valorization, we've got the rendering market, and we've got also the gelatin and collagen market. The gelatin and collagen, as already mentioned, we were going through a restructuring of bone gelatin in the first quarter of this year, which has taken a lot of efforts and demand on our teams. That has obviously not helped ourselves to place ourselves in the best way in the market. But indeed, the second quarter was much better, and we see an improvement in the demand of the gelatin worldwide. That's for sure. So we believe that the second half of this year should be better than the first half of this year. However, we have some contractual obligations that our -- whereby our prices might be for some customers fixed for a period of time and all those positive market sentiments and market dynamics take some time to translate directly in our P&L. On our Akiolis business, we see there an overall increase in our volumes, and we are doing quite well in -- mainly in France. We're doing less well in Spain, but we're definitely working hard to make Spain more profitable in the very short term. I hope that answers your questions.

And then in respect of Kuhlmann, there we had an unplanned event in our sulfuric acid plant, which went down unexpectedly. We were down for a few weeks. So this impacted our volumes. And then secondly, in respect of the ferric chloride, it has been quite dry. And when we are in a drought, then there is also less demand from the municipalities for the water treatment plants and actually less consumption because of it. So these 2 matters were temporary. And so we should be okay for the second half of the year.

The next one I will put on will be Wim Hoste.

I also have a couple of questions. First, touching on the Agro business. Can you clarify the current situation around MOP sourcing? Is it still mainly coming from Canada? Can you elaborate on that? And also the difference in profitability between the SOP and the sulfur businesses? And the reason I'm also asking that is that your profitability is okay. But if we look back a few years ago, you had EBITDA margins, which were significantly higher. So I'm trying to guess certainly with respect to SOP, whether there is a pathway to move back towards the older margins if the MOP sourcing situation does not change versus the current status. So that's the questions I would like to ask on Agro. Then on T-Power, also a question here is that I think you mentioned that there is an increase in operating days. So I'm wondering a little bit what the underlying profitability of that business is today? I know in the past, there were very few operating days. But if you would be on a Tessenderlo business without a tolling agreement with the current rate of operations, yes, how much profitability would that business generate? If you can clarify that a bit that would also be helpful. And then last question is on the strategy. You're not known for doing a lot of partnerships. The collagen and gelatin partnership is probably a bit of an exception for you in the history of the company. So the question is here, yes, are there other businesses that are under scrutiny for potential divestment or teaming up with somebody? Or is that gelatin deal really an exceptional situation because of the profitability in the market? If you can clarify the strategy on that point, that would also be helpful. Those were my questions.