Verbio SE (VBK) Earnings Call Transcript

Good afternoon ladies and gentleman. On behalf of Montega, welcome to the VERBIO earnings call following the publication of the half year figures 2022 and 2023, which will be presented by the CEO, Claus Sauter; and Alina Kohler from Investor Relations. The floor will be opened for upcoming questions following the presentation. Having said that, I hand over to you, Mr. Sauter.

Thank you very much. Welcome, ladies and gentlemen, for our quarterly call. I'm sitting here in the United States so good morning. And I would like to start with our presentation. So the agenda is that we want to show you the new segment reporting, which is going to start in the next business year. And the key highlights in the first half and in Q2 2022, 2023, our financial results, segment results and finally, an update and an outlook for the rest of the year, and the coming year. So about the new reporting system in the next year, we want to change our reporting regarding the business drivers, and this is first generation, second generation and specialties. So in the first-generation biofuels and first-generation biofuels are biofuels based on arable feedstocks like non-food-grade, grains and oil seeds like rapeseed oil. And this is including rapeseed oil methyl ester and bioethanol. The second segment is advanced second-generation biofuels, and these are biofuels based on waste and residues, for example, corn stover here in the United States, wheat straw, rice paddy in India, so these kind of agricultural residues and the product is mainly RNG, so renewable natural gas. And a portion of about 10% of our biodiesel production, which is advanced biodiesel. For the differentiation between first and second-generation biofuel it is important to look -- to have a look on the feedstock. So it's not the product, it's the feedstock. And finally, the third segment will be specialties and specialties will include high-quality pharma glycerine, sterols, in the future chemical feedstocks and also proteins. So these are co-products from our existing production where we enhanced the value chain and take out valuable components from our feedstock, which is not needed for the definition of biofuel. So and in this segment, specialties, we are supplying different markets like pharma, like chemical applications. So these specialties are mainly going not to biofuel applications. So after we -- we have now a stable framework for a second-generation biofuel in Germany and in Europe. We increased the amount of second-generation biofuel. This is our clear focus and approximately 40% of our CO2 savings stem from advanced second-generation biofuels. So in the first half of the business year, we contributed about 1.5 million tonnes of CO2 savings for the biofuel industry. We had a record RNG production in the first half of the business year and especially in Q2 2022, 2023. So RNG production is increasing. And as I said already, where we have generated 1.5 million tonnes of CO2 savings in the first half. This compares to 1.5 million people giving up their round trips from Paris to New York. Approximately 40% of the CO2 savings stem from advanced second-generation biofuels, and we confirm our outlook for the business year. So now yes, now about the RNG production. RNG increased by 22% in production year-on-year due to increase in capacity in Germany and the ramp-up in the United States and in India. Biodiesel and ethanol production, the capacity was utilized at 96%. And -- so in the chart, you can see the production of biodiesel, which was 158,000 tonnes, 71,000 tonnes of ethanol and 261 gigawatt hours of RNG. The EBITDA came down from EUR 147 million to EUR 48.9 million. And this decreased primarily due to falling sales prices, in particular for bioethanol. On the details, we come later when we show you the margin situation, and higher raw material prices and a sharp increase in energy costs, especially energy costs, natural gas and electricity went up by 400%, compared to Q2 of the last business year. And our net cash position from -- during the last quarter, came down to -- by 32% to EUR 177.5 million. So increase in RNG inventories and investments in PPA -- PPE for future growth as well as tax payments offset at cash inflow. So now for the details, I hand over to Alina our Head of IR. Okay. I forgot 1 slide, which is the equity ratio. So the equity ratio increased to 74%. And that shows that the financial stability remains high. But Alina, now, this is your part.

Thank you. Yes. Hello, everyone. Let me just jump right into it. So despite the headwinds in the ethanol market that we faced in the past quarter, we delivered an EBITDA of EUR 48.9 million, which was actually driven by the Biodiesel segment and underpins that it's a great advantage for us that we have a broad product portfolio. So the higher sales in the Biodiesel segment actually overcompensated the lower sales in the Bioethanol segment. However, we still didn't manage to keep the EBITDA at the same level as last year, as you can see from the slide. Last year, we delivered an EBITDA of EUR 147 million, for the quarter. And this year, as I said, close to EUR 50 million because our EBITDA was burdened by a couple of -- was burdened by a couple of effects. So one, as Claus already mentioned, was the higher material costs and also the higher energy costs more than 400% year-over-year and also an increase in personnel expenses, it was that personnel expenses went up by about EUR 6 million year-over-year as we are ramping up our workforce here in line with our strategic expansion plans. Also, we made out inflation bonuses in the last quarter. So that also had a small impact on the increase in personnel expenses. At the same time, we did have some negative foreign exchange effects year-over-year, that was a burden of EUR 12 million. This is not in our -- this is not cash relevant, though. So [ just went ] through the P&L and relates to our cash in dollars. If we go to the next slide and go into a little bit more detail on the Biodiesel segment. You can see from the chart that also in the Biodiesel segment, not just the renewable natural gas, but also by a diesel. We have achieved record production levels. This is mainly due to a very good utilization in Canada as well and brought us up our sales as well as well, including our revenue increased also due to higher biodiesel prices in North America, but also higher sales prices for the high-value glycerine that we produce from rapeseed oil. Yes, as mentioned before, the higher sales levels didn't really go through to the bottom line due to higher input cost that pressured EBITDA, however, what is really worthwhile mentioning is that we remain significantly above the long-term average. And also the last year number of EUR 96 million EBITDA was actually impacted by attractive hedged rapeseed oil prices that we also communicated last year. So really year-on-year the comparison is a little bit difficult here. If we look at the market at the next slide, you can see 2 charts here. On the left slide, the green line represents this year's spread, the gray line represents last year's spreads. So what does the chart tell you? So for the last quarter, the Q2 that we're currently reporting you can [ for 1 ] see that if you just look at the market prices, so this doesn't necessarily reflect our purchasing prices or our selling prices. But just from a market perspective, why diesel spreads were much lower compared to last year. On the chart right next to it, you can also tell, which represents the selling prices, but also the purchase price of rapeseed oil, you can actually see how the sales prices declined as well as the rapeseed oil prices. So what you also can tell is that we do expect a normalization of spreads in the second half of the year and spreads remain attractive. Coming to the Bioethanol segment. We already mentioned a couple of times that we achieved another record RNG production level. What's really important, though, is that the full earnings benefit from RNG will only be visible in future periods, because currently, we store a large part of RNG in the grid, Claus will talk about this later in his segment. So what's important for the revenues, which is the -- it is the light green bar in the chart is that even though ethanol prices declined very strongly by 20%, we could closely or almost compensated by higher ethanol sales volumes as well as GHG premiums, yet the massive increase in the cost burden, which was mainly linked to material cost but also energy of course, had a huge impact on our EBITDA. So we could deliver a positive result, yet compared to last year, it was quite a decline. So we managed to achieve EUR 1.7 billion of EBITDA in the ethanol segment. As I mentioned before, RNG is largely stored. So the earnings benefit will become visible once we have our downstream business online. But now I hand back to you, Claus, because you want to go a little bit deeper on that.

Thank you, Alina. So about the segment of biomethane -- Bioethanol and biomethane. So with our investment with our downstream investment, we want to increase the margins, the very attractive margins on renewable natural gas. So the fact to bring RNG into the market, the main cores in the past was that it was sold through CNG filling stations, CNG filling station, the main customers are cars, natural gas cars. And since 2018, we see an upcoming fleet of mainly LNG trucks. And that was the reason where we started the investments in liquefaction unit and to build own LNG filling stations. We are online with these investments. And the focus is that we want to supply these LNG filling stations with BioLNG and to take the whole margin, which is on the table for the renewable natural gas. The renewable natural gas is not anymore a niche regarding CO2 reduction in transport. It has an increasing importance and that shows the acquisitions of big oil majors in this segment in the last months. So VERBIO here is continuing to follow the strategy of increasing inventory of Biomethane in order to be able to capture the entire product margin using its own BioCNG and BioLNG infrastructure. And you can see if you have a close look on our results that the inventories are growing, and the growth comes mainly from RNG. So we stored approximately 700 gigawatt hours in the grid. This is about 2/3 of our production. If we go through the normal market entry with CNG filling stations, which are controlled by cities, by grid operators, then we have to give a significant amount of our margin away. Right now, 100% of CNG at German filling stations are already renewable natural gas, it is attractive. It is the cheaper product, especially after the dramatic increase in natural gas the last year, so if you observe the pricing at CNG filling stations, then you could see that especially CNG at filling stations as a fuel was very stable also last year, and this is due to the fact that 100% of the production was renewable natural gas. So we expect that our downstream business is going to start significantly in the next quarter, so Q4 2022/2023. And our clear target is here that we want to bring all of our RNG production, national RNG production and in the future, also the international RNG production through our own downstream business into the market. So as I said, renewable natural gas is no longer a niche. It's a very attractive product. It's the cheapest way to decarbonize front sport and the fact that all of our production is second generation is advanced renewable natural gas gives us also importance in the margin and the fact that for this segment, we get the highest prices for the CO2 savings. Alina presented already the market development in Biodiesel. And what I show you here is the same slide for ethanol. Also here, you can see that in this quarter, so Q2, prices for ethanol came down significantly. So the margins, the traditional ethanol margins in the last quarter was more or less negative. And especially a traditional -- the traditional ethanol industry in Europe is very much under pressure due to flooding, ethanol imports, mainly from Brazil and from the United States. On the other side, due to the war in Europe, bioethanol, the wheat prices went also significantly up. Prices came down the last few months, also significantly, but we are far away from the level what we had in the past years. Here, VERBIO is reacting in the change of the feedstock. You know that we have, for the ethanol production, a big variety we can use any kind of grain and when we see that wheat is more expensive than corn or rye and we switch to another feedstock. Why we can do this? We can do this because we make from the coproducts from this spillage. We are not making feed, where you have to fulfill quality type criterias. We are making renewable natural gas and our bacterium don't care if the residue is coming from ethanol from wheat or from corn or from rye. Especially in times like this, -- our technology shows the competitive advantage. And I can tell you, it's not only in Europe like this, it's also in the United States. So with our combination -- also here in the United States, we have a significant higher margin than our competitors in the traditional ethanol industry. About the outlook and the investment programs. So we are fully on track with our investments. In the United States, 160 gigawatt hour straw-based RNG plant is operational. Utilization is about 50%. And during the first half now of 2023, we are looking to come to a full utilization. The Nevada biorefinery rollout is running mechanically completion of the biorefinery is expected now in spring. We are going to start the plant up during the summertime and then our production capacity of renewable natural gas in the United States will go from 20 gigawatts to 80 gigawatts -- 20 megawatts to 80 megawatts. So we will be able to triple our additional capacity for renewable natural gas. In India, we have also 20 gigawatts -- 20-megawatt of capacity for renewable natural gas, which is 160 gigawatt hours on an annual basis, plant operational, but with low capacity utilization, and here is the focus on the production ramp-up and to improve the profitability. The liquefaction plant in Germany is expected to be operational by end of summer 2023 and this is, as I mentioned, already very important that we are able to produce the LNG for our LNG filling stations and to be able to monetize the full margin on renewable natural gas. BioLNG, BioCNG stations, we are going to build 20 gas stations. This is the plan, locations are secured. -- rollout is running, ramp up in the first half -- in the second half of this business year. So as I said, we are going to start to deliver BioLNG to filling stations during Q4. The ethenolysis, the entrants to chemical applications based on our biodiesel. So here, the plant location is secured approval process for ethanolysis plant pending. And VERBIO protein, the initial production volumes of feed-grade proteins achieved, expansion for the production of food grade proteins ongoing. So the guidance is fully on track. Our guidance was EUR 300 million EBITDA for this business year and EUR 30 million net cash at the end of the year. So if we have a look on the half year results, and you can see that we are on track. And that was EUR 170 million EBITDA for the first half 2022, 2023 and the net cash was EUR 177.5 million. So we are going to accelerate our investments, mainly in advanced biofuels, and we continue globalization and diversification of end markets. So thank you very much, ladies and gentlemen, listening our presentation. And now I hand over to the operator to present your questions. Let's move to the Q&A session.

[Operator Instructions] Thank you very much. First of all, Mr. Sauter and of course, Ms. Kohler for your presentation. [Operator Instructions] The first questions come from [ Andrea Ariane ] .

Hope you can hear me well. So just a couple of housekeeping questions first. I saw that actually the personnel expense line in Biodiesel was a little bit higher than I expected. I mean you referred obviously already in the presentation to the one-off bonus that has been paid, but actually also a little bit the head count went down. So I was wondering if there are some special effects, but moreover -- on the Bioethanol side, I saw that actually the head count was going down quite substantially. So is there a specific reason behind that? Or what were the effects here? And the third housekeeping question is actually on the amount of methane stored in the grid, which you said is now around 700s. I mean, given that you might have been continuing to store rather 2/3 of the production in the quarter in the period shouldn't we be closer to something like 770,000, and then I might have some longer-term follow-up strategic questions. Maybe we take those 3 housekeeping questions first.

Okay. Thank you very much. First of all, the headcount in VERBIO is increased significantly. Maybe you got the message that we have this structure program, we call it [ Mustang ] due to our green horse. So the head count is increasing, but we have a new organization. We have now a new unit like EPC. So all the engineering team, all the processes to build plant. These engineers in the past were counted in the segments in Biodiesel, so the engineers to build new plants to improve the technologies were in the Biodiesel segment, the same for ethanol. And now it's a new structure. We have ambitious targets to build new plants to increase our capacities. And that was the reason why we have to ramp up our engineers, our technical teams because the know-how is in Germany, mainly in Leipzig. And all the investments, what we are doing in India and also in the United States, the engineering comes from Germany. So it's not that the heads are going down. heads are going up, also the costs for personnel. But this is, as I said, due to the new structure. So there are -- there is a new, let's say, [indiscernible]. And yes. And it is significant. We at least hired about 80 new engineers, and it's not only engineers for technical applications, so to build the plant also IT is increasing, accounting is increasing. So we recognized that during the first phase of the expansion -- when we make Nevada in the United States, when we made India, we stressed our organization. So there was a lack of enough capacities and that is the reason. So heads are not going down, heads are going up. Now your question to methane. We have now production in Germany, in the United States and in India, you are right. If we would store over all the production, the 2/3s in the grid, then it should be close to 800,000. But in the United States, the regulation is different. Market situation is different and also in India. So this product goes normally to the market and is monetized. For the production in Germany, it is like I said, 2/3s that we keep in the grid. Here, we want -- we reduced the amount of renewable natural gas or methane, how you said. We reduced the amount selling through traditional CNG filling stations because we have to leave too much margin on the table. Today, if you want to bring more RNG into the transport market, you -- it's just -- there are no capacities there to do more. So you have to press somebody else out of the market, at least you can just do due to a lower margin. So I think that shows that our strategy to go downstream to invest in an own filling station network was the right decision. And now soon, in the next months, it will give us the opportunity to realize the full margin not in the United States, not in India, but I can tell you that we are also working here on some strategies to ensure to get more of the margin in these markets with new customers, with new ways how to bring the product into the market. We are relatively young in the U.S. market. And our concentration first was on upstream to secure the feedstock, then the investment to build up the plants, to make here the training for the new employees. Our technology is relatively sophisticated. So there was the focus. And the sales is mainly going through focus in the U.S. and also in India. And this is the next step that we are also going like in Germany that we do the downstream on ourselves. So this is the reason and the answer for your questions.

Right. Yes, I saw actually that group headcount obviously went up. And so we should find the additional people to some extent, obviously, also in the other segment or kind of holding structure, however you want to phrase it. And then a question actually on the spreads that you nicely showed in your presentation, so thanks for that. So obviously, on the ethanol side, you were expecting spreads to resurface on the positive side of things. I was just wondering -- what do you see in the market currently? Is there pressure on ethanol still high going forward when it comes to imports on the United States and Brazil? Or do you see the spreads resurfacing not necessarily that this is coming off a bit, but due to other reasons. So a bit of an outlook on this segment? And then lastly, from my side, before I jump back into the queue, to kind of longer-term strategic questions [indiscernible]. So obviously, we've spoken about India on your short-term plans and also on the U.S. side of things. But first of all, could you remind us actually the CapEx budget, is that unchanged in your guidance? Or should we see additional CapEx coming out in the second half? And longer-term. I know you have not a longer-term CapEx or revenue guidance out. But just from any idea, I mean obviously, it would be to copy the existing facilities that you have over the next couple of years and to grow your production on biorefinery on methane in India. So how should we think of it in terms of speed of how fast can you be? I know in India, it's obviously a regulatory topic or discussions with the government, et cetera? How is that progressing in general? And what about the CapEx amount in the sense of should we brace ourselves for similar magnitudes that you have envisaged for 2023? Will it be significantly less as you do a learning curve here. Just to get your general thoughts on the expansion, let's say, rather medium, longer term on these markets would be helpful.

Okay. But that was not very [indiscernible] Okay. The second part is clear, strategy, everything is fine. But now what was the first...

First one was ethanol. On the ethanol side...

Outlook on ethanol. Outlook, competition from [indiscernible] Sorry.

Okay, thank you very much for the question. Very helpful. Ethanol is a commodity business, and it's a global business. And the biggest producers are the United States and Brazil. And as you can see here on this chart, we had huge spreads during this, let's say, difficult year 2022, October, November, December, we made a lot of money. But the market is backward-dated . So the traders, they look on the curve. And especially 2022, even with the backwardation -- with a significant backwardation opened the arbitrage for imports. So these guys were able to secure their imports on the curve. But and we saw significant imports. Brazil increased by 400%, the same United States. Europe was just too attractive. But they imported now so much ethanol that they brought the price very much under pressure. And on the level, especially what we saw in December, which is -- which was for a short period, even below EUR 700 per cubic meter. Nobody in Europe from the traditional ethanol producers, so ethanol and DDGS, which is wheat are able to make money, especially with this high energy prices. For the ethanol industry, it was the perfect storm. But the possibility was given during the summertime with the backwardation of the curve. So at the moment, the arbitrage is closed. And by the way, 1 of the reasons of our strategy to become global is that we saw this arbitrage as well. And finally, nobody knew how much volume is really coming but it was clear that margins will not stay as high because the ethanol molecule in Brazil and the United States is the same molecule. But you need an open arbitrage because when you start the import you need at least 2 or 3 months. But the message at the moment is the arbitrage is far close. So the deals for the imports coming at the moment were made during late summer and fall. And now we see that it's going down from the imports and margins or prices are coming up. We have now nearly every day, an increase in prices. We are at [ EUR 820, EUR 830. ] The curve has not like traditional a backwardation, it has a carry. So margins now are coming back and it is necessary. But what I mentioned here is for ethanol producers and for the traditional ethanol producers. And I mentioned it during my explanation. Here, it shows the competitive advantage of our setup because at the moment, we are making the money on the gas. The gas is the product is the favor of the base. But as I said, market must recover. All European producers went down with their volumes because they are losing money, especially the -- even the most competitive. What is also difficult to predict was national influence like cap and gas prices like cap in electricity prices. In the U.K., you have already a cap, in Germany, the cap should come now during the next months but we will not need it anymore because gas and electricity came down. So 2022 was really a crazy year, a lot of unexpected things, I think we made a lot of things right, but not everything but especially ethanol will come now to a more profitable situation. So now to come to your second part, about CapEx and what is our strategy. The biofuel business, let's say, the development in the last 20 years, was very weak due to political weaknesses. But what we are seeing now the last 3, 4 years is especially after the ESG rules that companies now more and more looking to reduce their CO2 footprint. So the driver is not is not only political decisions anymore. It's mainly coming from the business world. What is very surprising for me. But I just give you an example. Here in the United States, we are facing more and more interest of our renewable natural gas from a voluntary market. So even without it obligations in the chemical industry, in the steel industry, in other industries, companies are contacting us and tell us, can we buy renewable natural gas from you? And the prices are similar to the transport sector where an obligations [indiscernible]. So it's an interesting development. So I would say the lack of investment security, what we were complaining in the last years, every day becomes stronger. And I'm 25 years in the business. And many times, I saw that even the politicians were telling us that they had to increase their efforts to reduce the CO2 emissions in our society, Political decisions went the other way around, they reduced quota or they postponed it. And these postponements or even reductions were harming our development very, very much. So we are careful. But now we have to learn that we are entering into a new period. And -- the last years, we just gave the guidance for the next 12 months. But right now, we are working, Alina, Olaf and me on a longer-term plan. And longer-term plan means, yes, higher CapEx, but you see our balance sheet is strong, 72% or 75% equity ratio. So there is a lot of space for CapEx. But as I said, we are careful. And the second part is that we also want to increase our abilities for these trading options. This is a main part of our strategy to become an international company, the next years, we want to be able to use arbitrage for the different products, not only ethanol. There is also arbitrage in Biodiesel. There is arbitrage in RNG and we are developing these things. My last point is the IRA, the investment reduction -- the inflation, I say investment, but it is inflation reduction. But for us, it is an investment act. So the U.S. government is supporting the renewable energy industry with huge money -- and there is -- there are a lot of opportunities for us, especially with our technology, the Bioethanol and Biomethane because nobody is reducing CO2 emissions per ton of corn more than we are doing it because corn goes in and only energy goes out and the, let's say, the main purpose of this inflation reduction when we are talking about renewable energy is the focus on CO2 reduction. So we will be able to raise 30% to 50% of our CapEx in renewable natural gas expansion in the -- and the idea to produce scientific gas, so based on renewable hydrogen, we will be able to get 30% to 50% of the CapEx from the government. Right now, we are analyzing the law, we are analyzing the market situation, but the dynamic here, especially in the United States is -- yes, it's crazy. And that allows us now to be a little bit [indiscernible] to be a little bit more ambitious to increase our plans -- our CapEx plans, but also look on the opportunities on the market and establish a trading unit. Last point, India. The discussions what we are having in India are very, very constructive. But India is a third world company. So energy must be cheap. Energy India cannot afford to spend as much money as the first world to reduce their CO2 footprint. They are very interested to do it. And if you look to India, and to the area where we have our investment, we are not only talking about CO2 reduction, which is the much bigger problem is the so-called stubble burning. If we take -- if we don't take the straw, the paddy straw or the wheat straw from the fields, the farmers are burning it and you can see it over the whole continent, all the haze goes, yes, from the Himalaya, South and Southwest over the whole country. So the main focus for the Indian government is to stop stubble burning. And because of this, we are in very constructive discussions the Indian energy. It's market is not a free market like our market. So if oil prices are going up and gas prices are going up, the Indian government is subsidizing the end consumer energy. And they were not aware about the environment, the regulatory environment, which is, in some cases, harming our business. For example, the farmers in Punjab, which are producing rye and wheat, the electricity for the irrigation is for free. The fertilizer for agriculture is for free. And finally, even if they continue to burn their rye straw, which is forbidden, but it has no consequences. So especially these subsidies in the traditional fuel business is harming our business. It's harming our business with renewables. So what we told the government is, sorry, but with your strategy to subsidize fossil products you are harming our business. So farmers are not interested to buy our fertilizer, which is a revenue contribution because they get the fertilizer, state-owned fertilizer for free. So one thing is that if you want to continue the strategy, we want to have the same amount of money. So the state has to pay. So there are a lot of small things finally. Nothing is a big issue. But first of all, you have to get to the right people who have the power to decide something like this. And I used to say that our technology and our investment in India is a win-win, win-win situation for India. First of all, we stopped stubble burning. Second, we bring investment. We bring chops and we bring value in rural areas. We want to pay the farmer for the rye straw. We bring chops there, chops in our production and chops and agriculture. And the final win, number 4 is that we have a local production of renewable natural gas, finally natural gas. So India was now importing in the last year for huge money, LNG from Qatar, from everywhere in the world, and the deficit went just through the roof. So there are more wins for India than wins for VERBIO. So if they want and they want that we roll out our technology, we have to fix a few things. And this is when I say we are on a good way. But first of all, you have to get the attention. Secondly, what are the things what we have to do. Just last week was an announcement from the Indian government that they want to implement the law that 5% of natural gas in India must be renewable natural gas. So we have to establish their a market. We have to establish the right environment, and I think it's a little bit contradictory when we say the government is subsidizing fossil energy, fossil oil, fossil gas. And we, as somebody who brings added value to India, has to fight against, subsidized energy prices. That makes no sense.

And I -- after last question always comes a very last question, and that's actually on India to understand it a little bit better. So I fully share your view and must be a [indiscernible] for both sides. But the point is under the current prerequisites that you find in the market -- and just assuming you would spend all your CapEx in India as of tomorrow, nothing for the rest. Would that mean in principle, today a dilution for your methane margin? Since there's not the system of the quarter, so it must be, right?

Absolute. But massive dilution.

Right. In spite of the fact that the input material that you get there must be nearly for free or something, right? Because -- in the stubble.

Look, it is for free. The input is for free, but we have to collect it. So the cost of the material is not the lion's share. You have to dry it, you have to collect it, to bail it, to store it, to bring it into the production. These are costs, okay? The costs are significantly lower, like in the United States or in Europe. But on the other side, you have no [indiscernible] for the molecules. So right now, we are competing with natural gas in India. With natural gas, if we go to the traditional natural gas market or with LPG or diesel at the filling station, which was many, many years, our business model in Germany. We are not afraid, but if the Indian government is subsidizing diesel and LPG at the filling station, is harming our business. In India, especially the last year, we would be super competitive with natural gas, with LNG from Qatar or the United States on these price levels. But the Indian government was subsidizing them down very much. We are working on it. And we made our first investment. India has a huge potential. We talk about 500 million tonnes of agricultural residues. This is a tropical and sub-tropical area things are growing 3 to 5x faster like in North America or in Central Europe. So huge amount of unused biomass that is the reason why the farmers are burning it, what they should do with it. They have to get rid of it. And this is the feedstock of our production.

Right. And farms are very small, and so it's very complex to get all the stuff done.

But this is not something bad. If you have a lot of partners around your plant, your purchase power is bigger than to have 2 or 3 big farmers in the direct surrounding of your plant because they are the same on the pharma side. So we -- it's a different world. In the United States, the average size of a farm is 2,000 acres. In India, for 2,000 acres, you need 500 farmers okay? It's a different world, but there's a lot of potential. We made 1 investment. We built 1 plant to show the Indian government that we are able to do it that we have the technology. Now let's fix the market situation and then roll it out.

We continue with the questions from Jonah Emerson.

Can you hear me?

Yes. We hear you well.

Loud and clear.

So first of all, congrats. And I only have 2 small questions. My first 1 is concerning the potential acquisition of the next plant in the U.S., right? I mean the environment seems good. Could you maybe clarify a little bit on this and also how the inflation reduction act might also help you with this? And then my second question is, can you maybe rate a little bit on the Biodiesel benefiting specifically in North America? I think Alina has mentioned Canada, maybe just explain why exactly that was the case.

Sorry, Jonah, what about Canada Biodiesel? I didn't get what is the question? Just how things going?