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 publication of the full year figures 2025, 2026. CEO Claus Sauter; and CFO Olaf Troeber will speak in a moment and guide you through the presentation and the numbers. [Operator Instructions] We are looking forward to the presentation. And with that, I hand over to you, Mr. Sauter.

Thank you very much. Thank you everyone for joining us today. Today, Olaf and I will take you through the results of the financial year 2025, 2026, and our outlook for the new financial year 2026, 2027. The financial development or developed more positively than we had originally anticipated. Market conditions improved over the course of the year while the regulatory environment moved in the right direction. At Verbio, we continued to improve our operations and moved important projects forward. The past year also highlighted another development. After many years of political hesitation, biomass is increasingly being recognized as part of the solution for energy security, affordable energy supply, defossilization. I will come back to this topic later. Let me now start with a brief overview of the financial year, before handing over to Olaf for our fourth quarter performance. Production reached new record levels with slight growth in biodiesel and bioethanol production and a significant increase in biomethane output. This was supported by the continued ramp-up in Nevada and improved utilization across our production facilities. Our EBITDA increased to EUR 193.9 million. The improvement was primarily driven by the normalization of the greenhouse gas quota market, improved bioethanol market spreads and higher utilization rates in North America. In addition, the result benefited from the reversal of impairments on greenhouse gas quota inventories and the absence of the negative one-off effects we had recorded in 2024, 2025. This earnings recovery translated into a strong cash generation. Operating cash flow increased to EUR 164.6 million, and free cash flow reached EUR 78 million despite continued investments in our specialty chemicals project in Bitterfeld and the South Bend site in Indiana. As a result, net debt declined substantially to EUR 91.5 million, and our balance sheet strengthened further with the equity ratio increasing to 59.7%. Importantly, the improvement in profitability also translated into returns with an ROCE recovering to around 12%. Let me now look at one of the key drivers behind this improvement in profitability. The slide shows the development of our gross margin per tonne of biodiesel and bioethanol sold. The reference spread reflects the difference between biofuel prices and feedstock prices and represents the value available to all market participants. As you can see, the development of the reference spread, market conditions improved compared to the previous year. At the same time, we significantly expanded the premium we generate above benchmark market spreads. This additional value creation reflects the strength of our integrated biorefinery model. We generate value from co-products, improve our production processes and create additional value through our CO2 savings. You can also see this in our CO2 handprint. It increased to a record of 4.7 million tonnes, driven by higher production volumes and improved CO2 efficiency. Let me briefly explain the progression in quarterly EBITDA during the year. As shown on this slide, EBITDA increased steadily from EUR 15.4 million in the first quarter to EUR 88.2 million in the fourth quarter. A key factor behind this development was the implementation of the RED III in Germany. The elimination of double counting from January 2026 removed a significant market distortion and contributed to a more level playing field in the greenhouse gas quota market. As a result, market conditions improved progressively over the course of the year, supporting earnings across our biofuels activities. In addition, Third quarter EBITDA benefited from seasonal quota sales, while fourth quarter earnings were supported by the reversal of the impairment on greenhouse gas quota inventories. Looking ahead, the regulatory framework is expected to strengthen the market integrity further. From 2027 onwards, market participants will no longer be able to rely on private certification claims alone. Let me now turn over to Olaf. He will take you through our fourth quarter performance, the strongest quarter of the financial year. Olaf, the floor is yours.

Thank you, Claus, and good afternoon, everyone. Before moving into the individual segments and our quarter-over-quarter discussion, let me briefly put the fourth quarter into perspective. Group EBITDA increased to EUR 88 million in the fourth quarter compared with a loss of EUR 8 million in the prior year quarter. As shown on the slide, the Bioethanol/Biomethane segment was the main driver behind this improvement, increasing EBITDA from a loss of EUR 26 million in Q4 '24, '25 to a profit of EUR 55 million in Q4 '25, '26. Now compared with the prior year, bioethanol market spreads improved in both Europe and North America. The greenhouse gas water market also recovered from market distortions in the previous year. And in addition, our North American operations benefited from higher utilization rates. It should be noted that the year-on-year comparison was also supported by the reversal of the impairment on greenhouse gas quota inventories recorded in the prior year as well as by the absence of several negative effects that weighted on Q4 '24, '25. Biodiesel also contributed positively. However, the Bioethanol/Biomethane segment was clearly the main driver of the improvement at crude level. With that, let me now turn to the quarter-over-quarter performance of the individual segments, starting with Biodiesel. Production volumes increased from 145,000 tonnes in the third quarter to 172,000 tonnes in the fourth quarter. In Europe, Product reached another record level, confirming the strong operational performance of the segment. Production in Canada also increased compared with the previous quarter, following the planned window shut down. Our revenues rose significantly to EUR 280 million, from EUR 202 million in the third quarter. This was driven by higher sales volumes and higher biodiesel selling prices. In Europe, demand benefited from the implementation of the RED III, which increased demand for physical biodiesel. At the same time, low water levels on the Rhine created logistical challenges for some market participants. We, as Verbio, on the other hand, we are able to continue serving our customers through our established rail and truck deliveries. But despite weaker benchmark spreads in Europe, which we will look at in a minute, our gross margin improved significantly compared to the previous quarter. Higher biodiesel prices for the profitability, thanks to our beneficial feedstock sourcing. In North America, higher utilization rates, increased sales volumes and improved efficiency provided additional support. As a result, EBITDA increased to EUR 32 million from EUR 18 million in the previous quarter. Now for some market context, let's now take a look at the reference charts. While this chart show the development of the biodiesel spreads, which are defined as the difference between biodiesel prices and rapeseed oil prices. As always, they do not reflect our specific sourcing strategy, but provide a useful indication of broader market developments. Looking specifically at the fourth quarter, benchmark market spreads deteriorated significantly, and, as you can see from the dark green line on the left of the chart, turned slightly negative towards the end of the financial year. The chart on the right helps explain this development. Both biodiesel and rapeseed oil prices increased during the quarter. However, rapeseed oil prices rose much more strongly than biodiesel prises, putting significant pressure on the benchmark market spreads. The increase in rapeseed oil prices was primarily driven by stronger vegetable oil markets and improved market demand expectations for renewable fuels. A key driver of this improvement expectations was the EPA's final renewable fuel standard decision in March this year, which provided greater regulatory certainty and supported market confidence in future renewable fuel demand. Biodiesel prices also moved higher, supported by the ongoing recovery of greenhouse gas quote market and stronger demand following the implementation of RED III. However, while RED III is improving demand fundamentals, additional biodiesel volumes remain constrained by the blending. In addition, elevated diesel prices associated with the conflict with Iran rated on overall diesel demand, further limiting the ability of biodiesel prices to keep pace with rising feedstock costs. Despite the weaker benchmark environment, we achieved a significantly stronger result than implied by the reference market spreads. This was supported by our favorable feedstock store sourcing, higher greenhouse gas quarter prices and additional value creation for our integrated biorefinery model. Now let's move on to the Bioethanol/Biomethane segment. Biomethane production reached another record level of more than 370 gigawatt hours supported by the continued ramp-up of our Nevada facility. Bioethanol production also increased. The main driver was higher output in North America by production in Europe recovered following the temporary biological disruptions implementation process that affected the previous quarter. Our revenue increased to EUR 243 million from EUR 236 million in the third quarter. Higher bioethanol prices as well as increased sales volumes supported revenue growth. Now while greenhouse gas quota prices also increased further, revenues from greenhouse gas quota business in Europe, they are below the level of the seasonally strong third quarter. Gross margin improved compared with the previous quarter. Large market spreads... [Technical Difficulty]

Sorry, Olaf, you are not heard from my perspective. So ladies and gentlemen, unfortunately, Mr. Troeber is not to be heard in the moment. We try to reconnect. So please stay tuned and wait for a few seconds, please. So ladies and gentlemen, thank you for your patience. Please stay tuned. We try to reconnect to Mr. Troeber. Please wait for a few more moments. Thank you very much, and please excuse this issue. So we can see and hear you again. Welcome back. And so we go...

Sorry for the inconvenience caused. We had a bit of a technical issue, but it's solved now. You can see the presentation.

We still see the presentation and both of you back in the meeting room. Please go on.

So Yes, I've got interrupted on the Bioethanol/Biomethane segment slide. Coming back here to the gross margin. The gross margin improved compared with the previous quarter. Larger market spreads in both Europe and North America, together with higher utilization rates in North America and India supported overall profitability. As mentioned earlier, the gross margin benefited from the reversal of the impairment on greenhouse gas quota inventories recorded in the previous year, which contributed approximately EUR 19 million in the fourth quarter. As a result, EBITDA increased from EUR 34 million in the third quarter to EUR 55 million in the fourth quarter. Now excluding this effect, the segment still delivered a slight operational improvement compared with the third quarter. Now for some market context, let's now take a look at the reference charts, starting off with the greenhouse gas quota. As you can see on the chart, the recovery in quota prices continued throughout the fourth quarter. One of the key drivers was the implementation of RED III. The improved overall confidence in the market and strengthened expectations of a tighter supply-demand balance going forward. Now most purchasing of the '25 compliances had already taken place in the third quarter of our financial year. However, we started to see the first demand for '26 quotas during the fourth quarter. Towards the end of our financial year, low water levels on the Rhine provided additional support, as mentioned before, logistics became more challenging and more expensive, making physical compliance, more difficult for some market participants. Let's take a look at the European bioethanol market. As you can see from the dark green line on the chart on the left, market spreads improved significantly during the fourth quarter before moderating towards the end of the financial year. The main reason was higher ethanol prices, while wheat prices remained relatively stable for most of the period. Demand for ethanol remains strong and supply was tight. Europe continued to rely on imports, but import availability remained limited. Tensions in the Middle East also pushed [indiscernible] costs higher, making imports into Europe more expensive and supporting domestic ethanol prices. Now towards the end of the financial year, ethanol prices softened again. While supply remained tight, spot prices were pressured by increased selling activity before July 1, when stricter greenhouse gas saving requirements came into effect. At the same time, wheat prices moved somewhat higher concerns about exports from the Black Sea region and weather conditions continue to support grain prices. As a result, market spreads moderated from their peak levels, but remained well above prior year levels. Let's now move to North America. As you can see from the dark green line on the chart on the left, market spreads improved significantly during the fourth quarter and remained well above prior year levels. This was mainly driven by higher ethanol prices while corn prices remained broadly stable. Ethanol continued to benefit from its competitiveness versus gasoline and from attractive blending economics. The continued rollout of E50, the start of the driving season and the strong export demand all provided additional support during the quarter. Overall market conditions remain highly supportive and contributed to the strong performance of our North American bioethanol business. With that, let me turn to our outlook for the new financial year. Let me briefly discuss our outlook for the financial year '26/'27. We expect group EBITDA to increase to between EUR 210 million and EUR 250 million driven by the Bioethanol and Biomethane segment. In North America, production volumes should increase, particularly from our Nevada facility. Biomethane production should also continue to grow. We also see higher contribution from greenhouse gas quota business. Our planning assumes that the year-end greenhouse gas inventories at a group level will be around 5% lower than at the beginning of the financial year. Most purchasing of the '26 compliance year, should take place during financial year '26/'27. As in previous years, a significant share of the related result should be recognized in the third quarter. At the same time, we plan to market most of our surplus volumes in the '27 compliance year. This means that a large part of the associated earnings potential should be realized in financial year '27/'28 and not the current financial year. There is still uncertainty regarding the overall amount of surplus quotas from previous years that may return to the market. Our price assumptions are broadly in line with current market expectations. The main question is, how much of these volumes will ultimately become available. We continue to monitor the market closely and remain flexible in how and when we market our forecast. We work closely with our customers and can adjust volumes and timing as the market conditions evolve. In the Biodiesel segment, we assume a somewhat lower contribution than in financial year '25/'26. Our planning is based on market spreads below the level seen in the past financial year and reflects the remaining uncertainty around market developments and the effectiveness of the anti-fraud measures. Investment spending is also expected to decline. Together with higher earnings, this should support strong cash generation and a further reduction in net debt. Now let me briefly explain that we will continue to invest during financial year '26/'27. Following several years of elevated investment activity, we expect capital expenditure to decline further. We will nevertheless continue to invest in a number of important projects. One focus is South Bend where we are gradually adding biogas production for the existing ethanol facility. Another focus is [indiscernible] of our ethanol uses facility in Bitterfeld, Germany, and [indiscernible], Hungary. This technology allows us to produce renewable specialty chemicals from batch vegetable oils. Start up is currently underway and the official integration is planned for early October, so in a couple of days. We will also continue to invest in improving our existing operations. Overall, we are moving from a major construction project to getting more out of the assets we already have. Now let me hand back to Claus for some final remarks.

So at this stage, Mr. Sauter, we can't -- yes, now your camera and microphone should be working. If you unmute yourself, you should be able to speak.

You hear me?

Yes.

Okay. There is something with the grid. Okay. So thank you, Olaf, brilliant. Now let's have an outlook, and we prepared here 3 slides where we compare fossil fuels and biofuels. On the left side, you see BioLNG and BioLNG is significantly cheaper than diesel. The gray line is the development of the diesel prices since January 2026, and the green stable line, remember, we are talking about affordability and price stability. That is BioLNG. This is the price we and our competitors are providing BioLNG as a transport fuel at our filling stations, and it is significantly cheaper than diesel. On the second slide, you have ethanol. Ethanol is competitive with gasoline. And here we are talking about European ethanol prices especially in the last few months. Ethanol is significantly cheaper than gasoline. So also here, we are competitive with fossil fuels. And if you look to the U.S., ethanol is by far the lowest liquid fuel in the world. Here, the difference between fossil gasoline and U.S. corn ethanol is even more significant. So the way biomass is fueled is changing. We mentioned it already. For many years, the discussion focused mainly on decarbonization or defossilization. Today, biomass is especially seen as a contributor to energy security, affordable energy and industrial competitiveness. The economics shown on these slides are a good example. In a number of markets, renewable molecules provide a cost-effective alternative to fossil products. In some applications, they can even be cheaper in addition to reducing emissions. We can see this change in regulation, but also in the growing number of applications for renewable molecules. Biomethane is 1 example. Interest is growing, not only in transport, but also in industry and shipping. So despite ongoing economics and geopolitical uncertainties, we believe that the structural drivers supporting biomass and renewable molecules remain intact. We believe this creates opportunities for Verbio, and supports the direction we have been following for many, many years. This is something we will talk about in more detail at our Capital Markets Day in a few weeks. And what is even more interesting is this last slide. Here, we compared RME, biodiesel, diesel HVO and BioLNG. So we have 4 charts on this picture. The baseline, the cheapest way of fuel at the moment is BioLNG. And you see over all the time, despite the global distortion and fossil fuels, we and our market, our competitors keep the price for BioLNG stable. This is euro per gigawatt hour -- per giga jewel, and you see the huge difference between the other compliance option HVO. So we talk about prices for HVO between EUR 50 and EUR 60 per giga jewel, while bio LNG is available at slightly above EUR 10 per giga jewel. So if the target is to decarbonize transport, BioLNG, bioCNG is by far the cheapest option. The second cheapest option is is biodiesel, RME and the most expensive is HVO. I think this slide should show how strong the competitive approach of Verbio with our product portfolio is in this smart segment to decarbonize the transport sector. And I'm really happy that we are now back in the game with facts and figures and that at least the costs of decarbonizing transport are more in the focus of political deciders, and I think that is a good development. So saying that, I would like now to start the Q&A session. Please go ahead.

[Operator Instructions] So everybody is invited to post questions in the Q&A chat, and we will be happy to read them out. [Operator Instructions] And we already have an analyst with a raised tell Jorge Gonzales. You should be able to unmute yourself please switch on your microphone, and you should be able to ask your question. Mr. Gonzalez, please.

Taking into account that we are very close to the Capital Markets Day, maybe I would like to focus on the spreads. I think it is interesting that you mentioned you are expecting, so how a weaker margin in biodiesel for the year? But having in mind that the Q4 theoretically, not for you specifically because of the -- your own trading and your own bilateral contracts, you probably did better than the market. But I'm wondering how worse you are expecting '27 compared to '26 for the biodiesel? Do you think that there is a little bit of seasonality explaining the weak margins in Q4, and then we should expect some pickup within the year? Or how is your view on the development the margin, please? That would be my first question.

As I outlined before, we take a little bit more conservative stance with respect to the biodiesel margins. So we are planning a little bit lower comfort to last financial year. One of the reason is actually that we expect later on in the financial year, stronger increase in [indiscernible] prices, which could add some pressure on the overall biodiesel margin. If you look at the first quarter, I mean, September is virtually over. The market -- develop the market margins developed a little bit better than we expected. So overall, yes, we are quite happy. This stance, as I said before, is a little bit more cautious. So maybe there is some room for EBITDA improvement.

And then my second question is on GHG for Germany. You know that it's always difficult to find the reliable market sources for the prices. The last reference I see in your presentations are around EUR 500 tonne. Can you confirm if the levels are still at these price levels? Or where are we at this point for the '27?

Yes. For the current financial year, the prices are still above the EUR 500. For the next calendar year 2027, we are approximately at EUR 420, EUR 440 so in that range, and we also planned with, yes, the market range you can observe right now.

Okay. Would you consider to anticipate some sales of the '24 quotas if the prices go in the right direction? Or do you think it's too early to even consider this?

Well, it's not always about selling the quota. It's rather realizing the additional margin. Point is, we can sell today and to transfer the quota in March next year. So the full profit you will achieve only in Q3 because you can only activate it to production costs right now. And then the additional margin to the selling price will then be actually where you lock in when you transfer the quarter itself.

Okay. And a quick follow-up on that one. So for your guidance, that you're also considering prices in line with the numbers you have mentioned?

Yes. Yes. Actually, we focus on market prices, anything else would be speculation or guessing.

Thank you very much, Mr. Gonzales for your questions, and we move to Ms. Stuerzer. Ms. Stuerzer, you should be able to mute yourself and please your question Mr. Stuerzer, please.

Can you hear me now? Okay. Perfect. So this is Manuela Stuerzer from Deutsche Bank. Several questions from my side. First one is maybe could you quantify the earnings sensitivity to the current very high current diesel prices? And also play in how the price assumption is embedded in your guidance and how it compares with current spot prices?

Well, as I touched before, you cannot compare the current spot prices, which are well above the average margins you can observe during the last couple of years. So what we have done is simply we took the average spreads we achieved in the last financial year with respect to biodiesel and simply rolled them forward with as I outlined before, with a slightly negative stance. So to be a little bit less aggressive, it's more prudent stance. It's, in my opinion, even though a more conservative stance with respect to the margin.

But maybe I can can add here. You asked for the diesel price, the fossil diesel price. Right now, it looks like the digital correlation between us and our share price with the development of the crude oil prices. There is no correlation even if it looks like. So our feedstock is mainly rapeseed oil. And what I showed on the last slide is just sometimes investors ask how competitive you are compared to fossil fuels? Therefore, we prepared this slide that shows. But anyway, I think what is significant for the next year is not the development of the fossil diesel price even if it's going down. The main driver of the business next year is that the quota, the compliance, the obligation is increasing from 12% and to 17.5%. And everything what is related to [indiscernible] is out. And if you compare that the double counting is away from 2025, then we are talking about nearly doubling the demand on molecules in 2027 compared with 2025. So the only uncertainty at the -- so there is a significant increase in demand. So the only uncertainty is that we don't know how much quota was frozen in 2024 because these frozen quotas will come back to the market. But even though if there are significant amounts coming back, the increase in quote, and, I think that is, let's say, the contribution from the government that it said, okay, there was a lot of fraught, a lot of unjustified CO2 savings coming to the market in 2024, even in 2025, and therefore, to compensate this situation, the quota is increasing so significantly. So that -- these are the drivers, not the fossil diesel price. We have other feedstocks. Our business is driven by fulfilling the compliance issues, and these are the important things.