CropEnergies AG
XETRA:CE2
Earnings Call Analysis
Q3-2024 Analysis
CropEnergies AG
The company experienced a mix of improvements and setbacks. While production and sales figures in Q3 bettered those of Q2 and Q1, operating profit took a significant hit, dropping to about EUR 27 million from EUR 56 million. This was attributed mainly to a drop in ethanol prices, which, despite a decline in raw material prices and higher production volumes, severely impacted profitability.
Looking at the first nine months, production was down compared to the previous year, with revenues seeing a 20% drop to EUR 943 million. Operating profit, a key performance indicator, fell to EUR 61 million—a stark decrease from the previous year's EUR 175 million. While the previous year's performance was exceptionally strong, this change represents a significant challenge for the company.
Despite lower revenues and profits, the company remains financially robust with a net cash position of EUR 300 million and an expectation of continued positive cash flow. This lays a stable foundation as the company moves towards fulfilling its bio-based chemicals strategy with the full support of Südzucker's board and financing programs.
For the fiscal year 2023/24, the company projects revenues of EUR 1.23 billion to EUR 1.25 billion and an operating profit of EUR 50 million to EUR 60 million. This anticipates an operating loss in Q4 due to persistently low ethanol prices, prompting a conservative forecast for the full year's operating profit, expected to be between EUR 40 million and EUR 60 million.
The company is set to acquire the assets of EthaTec GmbH to strengthen its position in the 2G ethanol market. The site's promising technology for producing advanced ethanol from food industry waste aligns with the company's sustainability goals. Furthermore, the company will likely proceed with a delisting offer, set at EUR 11.50 per share, with an effective date expected before the end of the financial year.
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Welcome, everybody, to our Q3 conference call. Thank you very much for your interest and joining today in this conference call. Today, we will comment on the first 9 months of the business year and Q3 isolated. And if I look back to the last weeks, we already had 3 MRF in recently. The first one was on October 18 that we communicated that we assume Q3 to be significantly below our prior year's Q3 but Q3 to come out better than Q2. And this is something when we will look later on to the figures, we can confirm this assumption was right, and the figures that we will present today confirm these assumptions.
On the other hand, which was less pleasant and also surprising we had 2 MRF in -- on 15th of November, the first one where we had to adopt the operational profit guidance for the full financial year. This was due to the significant and not expected price decrease on ethanol markets from EUR 900 to EUR 635, and that there, we adjusted for the first time the forecast and very unpleasant 1 month later on 15th of December, we had to adopt the forecast for the financial year for a second time because added to our expectations, the price drop continued to below EUR 600, and that's why we had at 15th of December, had to adopt the forecast for the full financial year for a second time.
And then if we could now go to the agenda. That's why we have put and this is -- came unexpected to us. And so we will -- also we'd like to use this conference call. If you have a look onto the agenda on Page 2 of our presentation, have a particular view on the development of the ethanol prices to explain or try to explain this development that we have not foreseen. And we will also touch the second point. We will touch as indicated, the financials from the first to third quarter, '23,'24. And we will also, in the third section, we'll give you an update on our strategy, and then we will discuss our recent acquisition of EthaTec and you have also seen the MRF of 19th of December, the delisting offer from Südzucker to the outstanding CropEnergies shares.
So let's get started. That was Page 2. As I said let's have a particular look into markets and ethanol price development so far today, we have not foreseen an update on politics, but there is no significant change. So if you want to have a look on what is actual status on -- current status on politics, you can have a look into our Q2 presentation. This is unchanged. So focus for today is a market development. You find that on Page 4.
And before going into the details, as I said, the price development as of November, the downward trend came not awaited to us. And you will see on this page, when we look into sales and demand figures, this is pretty stable. This is fully in line with what we have foreseen and also what we have communicated in Q2. Our main message is at that time were that we foresee a stable consumption patterns, stable production patterns, a normal development of E10 market shares and so on. And that's fully in line, so you can see this assumption was completely backed by reality, 3 months going onwards. But nevertheless, we had a significant price decrease. We will discuss that on the Page 5.
But let's start on Page 4. We can have a look into the graph on the right-hand side. And there you will see what I just indicated when it comes to total ethanol consumption, this is up 4% to 11 million cubic meters. And if you look at the graph, we can see clearly a stable and positive event development of volumes between 2021 and 2024 expected. So nothing exceptional on the market side. There's still a positive CAGR when it comes to consumption. Also, production turned out normal. Production was up 8% to 8.2 million cubic meters. So on the sales and demand side, this was pretty stable.
Let's have a look on the E10 market share. There you can also see that currently 17 member states, plus Norway and the U.K. have rolled out E10. Nothing special here. Also what is positive, the E10 market share is also increasing. We now reached a market share of 25%. As I said in previous year's quarters, this is still below our European neighbors in other member countries. But nevertheless, it's positive to see that this onward trend is continued. And also, if you have a look into the BAFA data, which are available as of end of September. They always have 3 months delay. And there, you can see that ethanol consumption also in Germany is 2.7% up compared to prior year. So also here, stable environment.
Also, the outlook for E10 is positive. We have the start of E10's sales in Ireland, Austria and Norway. This should give an additional market potential for, let's say, roughly 200,000 cubic meters. And for Poland, it is planned but not yet finally confirmed to roll out E10 also this year. So this could give another market potential of 200,000 cubic meters additionally. That's -- on the market side, you see nothing special and fully in line with our expectations.
On Page 5, let's have a look into the prices, and this is what is not in line with our expectations. I would like to start with the graph on the right bottom side. Let's look into the current financial year 2023, '24. That's the green line. And you see when we were lastly communicating with you, we have been in October with a ethanol price going towards the EUR 900, and we said we assume this trend to continue, but the opposite happened.
So we -- in the beginning of November, we reached the EUR 900 per cubic meter. And since then, a significant drop in prices, which is really difficult to explain towards EUR 600 and then even below EUR 600, the lowest was reached at EUR 550. Since then, we see a small stabilization of prices above EUR 600. When it comes to imports, the pricing difference between the U.S. markets or Brazilian markets and Euronext imports still attractive. So we also foresee imports to come to the EU in the area of 3 million cubic meters. And given the high demand in Europe, while we also need these imports to balance the market, but what we claim from a politics view, we claim this has to be a level playing field.
So all in all, average ethanol prices in Q3 turned out at EUR 761 per cubic meter compared to EUR 882 in prior year period. And as I said, this price decrease since November, which we had not in our expectation, how to explain this drop in prices there. So we see 2 reasons for that or possible explanations. But as I said, it's difficult to have really the full picture on that development. One is that there is a pressure on the greenhouse gas savings tickets due to a suspected fraudulent advanced biodiesel imports. That means there had been a huge or massive imports of advanced biodiesel. They are suspected to be fraudulent from China, but they led to the fact that mineral oil companies or that the GHG saving tickets price decreased.
And as you know, the mineral oil companies, they have different options to fulfill their greenhouse gas reduction targets. They can blend biofuels, but they also can buy tickets. And due to these suspected fraudulent advanced biodiesel import ticket prices decreased significantly, so all the mineral oil companies could have been in the position to buy those cheap tickets to fulfill their lending obligations.
And the second point, which is maybe also more relevant to that we see this downward trend, not only in Europe, we see that also in all the other international markets. So also the U.S. markets, the Brazilian markets, the Asian markets dropped significantly in that period. For example, in the U.S., the prices dropped from the area of EUR 650 to EUR 430, in Brazil from EUR 640 to EUR 450 and in Asia from EUR 600 to EUR 530. So it's not only a European downward trend, it's also worldwide. The ethanol prices have significantly decreased. But as I said, this was not our expectations when we lastly communicated with you on our Q2 figures.
Let's have a look on the next pages, Page 6 and 7 on the feedstock markets and energy markets, but I can be short if you look briefly into the chart, you can see this is fully in line with our expectations and what we discussed last time. So as both feedstock markets and energy markets, they come back to normal. So it's quite flat. And also when it comes to feedstock markets, we can continue to state that there is a good harvesting situation. So on the feedstock market and energy markets, this is pretty stable and fully in line with our expectations.
So then let's continue with the financials. Let's have firstly, a look into Q3 isolated. You will find that on Page 9. And positive things first. You can see that ethanol production was up in Q3, isolated to roughly 260,000 cubic meters. So the overall development of CropEnergies Group is in line with our expectations. We have said at the beginning of the year that we would have a difficult start in Q1 that -- but our base case assumption is to have quarter-by-quarter increase in production sales and -- so this is confirmed. Q3 was better than Q2, better than Q1 when it comes to production and sales figures. But on the other side, operating profit significantly dropped to roughly EUR 27 million from roughly EUR 56 million. And this decrease is -- has 2 reasons but the significant reason is -- the most important reason is the decrease in the ethanol prices as just discussed.
On Page #10, you'll find more details on the operating profit of the third quarter. So we had significantly lower sales prices for ethanol but higher production volumes. And we see also lower prices for raw materials that was positive, but they could not offset for the lower ethanol sales prices and also in line with our expectations, Q3 operating profit was EUR 27 million, was above previous year's second quarter. So the overall trend that's the graph on the right-hand side is positive as we have foreseen that quarter-by-quarter, we should see increase of operating profits and also for production. That's the graph on the right side at the top, here you can also see that from Q1, Q2, Q3, we have an increase in production.
You might ask or see that when we look in more detail into further operating expenses and income that there's a significant increase from Q3 prior year to this year. This effect is not an effect of the current financial year. It is linked to prior year's Q3. And in this quarter, we had a EUR 10 million effect in delta for the derivatives out of -- positive effect for the derivatives out of hedge accounting. That means if we adjust for this EUR 10 million, we are also on the same level when it comes to further operating expenses income year by year or quarter by quarter.
So from Q3 isolated, let's have a look on the first 9 months in total. Here, you can see that despite we could increase sales and production quarter-by-quarter when it comes to the total of 9 months, when it comes to production, we are still below prior year's figures with 722,000 cubic meters compared to 811,000 cubic meters. Revenues showed a significant drop by 20% to EUR 943 million, and more significantly also on the operating profit side, which is our key KPI. The first 9 months, we reached an operating profit of EUR 61 million. This is a reduction of EUR 175 million compared to prior year, but please keep in mind, prior year was exceptionally positive.
It was our fourth record year in a row. And this EUR 175 million delta compared to prior year explains to a major part by the price effect and to also a significant part to the volumes effect. But you know me, I always look also for the positive signs, also in those negative figures, we had a positive effect from the coproducts. They have a good price development, but this effect was not for sure, not able to counterbalance the stronger effect on the reduction of ethanol prices and volumes.
And the second positive also point in the figures of Q3 is our net financial assets position, which is still strong, turned out at EUR 320 million. This is pleasant and this is still for us the good basis for our future projects and to execute on our strategy, and we will have, at the end of our presentation, also an update on our strategy.
Let's move on to Page #12. Here, you find the net earnings situation, so below operating profit, we see a significant increase in the interest income due to rising interest rates for financial results are a positive at EUR 6 million and earnings per share at EUR 0.57. And this follows, for sure, the earnings development in prior year's period, we stood at EUR 2.07. Last but not least, let's have a look on the cash flow. The cash flow, we had a decrease in working capital. So cash flow turned out from EUR 87 million plus a reduction in working capital. So operating cash flow turned out at -- which is still a strong figure, EUR 97 million. We have an increase in the investment plan in the PPE as a plant -- property, plant and equipment. And this is particularly for our ethyl acetate plant inside. When you take all the other effects of expenses and cash in, at the end, we turned out at EUR 320 million net financial assets position. This is still very positive.
Before coming to strategy section, let me please confirm our outlook on 2023, '24 as we have communicated of 15th of December. So we confirm this outlook as of today. We await revenues to be between EUR 1.23 billion to EUR 1.25 billion and operating profit to between EUR 50 million and EUR 60 million. This corresponds to an EBITDA of EUR 85 million to EUR 105 million. But for sure, if you look into Q3 or into this midpoint of EUR 50 million at Q3, we stand at EUR 61 million operating profit positively. That means we cannot exclude a loss in Q4. This is particularly linked to the still low ethanol prices.
As I said, they have stabilized over the last days, but spot prices still are in the field of, let's say, EUR 620, which is still a low basis and that's why we cannot exclude for Q4. The loss situation, this is possible. So we have a prudent approach stating that for financial year, our operating profit is seen between EUR 40 million and EUR 60 million. But the final outcome will be dependent, as you know, on the volatility of the market, on the development of the ethanol price.
Our general assumptions for this outlook is that we gradually see a decrease in volatility in the sales raw material and energy markets. We still believe that there is a stable supply and demand situation. That means the introduction of E10 and for the European countries points out to a stable sales of fuel ethanol, and we will also have the assumption that this will be met by continued high import volumes.
This having said, let's come to the strategy update. And you find on Page 16, a snapshot on our strategy. This is unchanged. You can -- we can start with the right-hand side with the graph. So we are fully convinced that fighting climate change, we need all measures to help that the fossil carbons remain in the ground and from our position that the best thing to do is innovation from biomass and to focus on green carbons. So we still and will continue to see and to strengthen our biorefinery concept for the entire CropEnergies Group. That means as raw materials, we have the intake of sugar syrup, of all kinds of feed grains and increasingly also for waste and residues. And it's a concept of circular economy and by working on production or taking those raw materials and then producing ethanol and proteins, biogenic CO2, fertilizers, neutral alcohol, fuel ethanol and green energy, this is a strong strategy going forward and we are fully in line with our projects.
There's 1 view that we want to put into focus today. This is on Page 17. We have closed an asset deal on 17th of November, and we intend to acquire the assets of EthaTec's GmbH. The site is in Weselberg, that is in Rhineland-Palatinate Südwestpfalz close to Kaiserslautern. The closing is to be foreseen in the coming months. So my best guess is a closing 1st of March. You will see that the key message here is, yes, it's a small business, but it's a very promising business. With that, we will strengthen our position in the 2G ethanol market. And we really like, and that's why that's the key motivation for this acquisition. We have a very highest team for the technology used by EthaTec. So the idea that what is EthaTec doing, they produce advanced ethanol, 2G ethanol from food industry waste and what they use can be all kinds of food waste.
That means food waste that is production that is not compliant or out of date for consumption or whatever reason. And so it can be dough residues from bakeries or pizza factories, but they can also use all kind, let's say, when I was there last time, I've seen chocolate bars or all kind of products which contain carbon hydrates from the food industry, but it could also -- but it's also possible that we've seen also from pharma industry when they have glucose that they can no longer use. So all kind of carbon hydrates can be used in their technology and then produced into second-generation ethanol. And also interesting in this concept is the parts of the raw materials that cannot be converted to ethanol, they are fed into a combined biogas production.
So that means those sites, they are fully energy autonomous or can even produce a surplus and then with additional biogas then fed into the grid. So this is very promising. Our intention is to increase here the production on site and to use this concept then step-by-step also in our existing plants to increase our production of 2G ethanol.
This having said, let's come to the delisting offers. You will have seen on 19th of December, Südzucker has decided to submit a public delisting tender offer to all outstanding shareholders of CropEnergies. So the price offered is EUR 11.50 per share. This is a significant premium, so it corresponds to a premium of roughly 37% of the volume weighted average share price over the last 6 months and a premium of roughly 70% compared to the latest share price of CropEnergies this year and the day before the offer. So we have thoroughly analyzed this offer and both CropEnergies Board and CropEnergies Supervisory Board, they support this offer.
So we have agreed on a delisting agreement. And the big advantage that we see is we like very much our being separately stock quoted, but we also see the complexity of this structure and also the administrative burden that goes with that. And we believe, all in all, there are advantages also to CropEnergies. And for example, we can focus much more in our daily work or strategy execution with the capacities freed up. And all in all, we fully support this offer. You can find all relevant information on this delisting offer on the powerofplants-offer.com. So this is our presentation as of today. We would now like to go into the Q&A sections to your questions and Heike Baumbach and myself, we are happy to take your questions.
[Operator Instructions]
And the first question comes from Pablo Cuadrado from Kepler Cheuvreux.
Just 2 quick questions on my side, if I may. The first one will be if you can help us to understand a little bit in the current market structure, where you have this decrease in ethanol prices and such a low prices, whether you can keep, let's say, the production levels going for Q4. I was wondering whether you think that with these prices, you will need to readjust your operating capacity or even talking about peers. That would be helpful.
And the second question is a little bit more on the strategy side. Clearly, we saw the advanced ethanol investment EthaTec you have explained it. But I was also wondering whether you can give us a final hint on where do you stand on the other, let's say, parts of the innovation for biomass strategy, particularly looking to the renewable ethylene or the solar PV investment and the renewal hydrogen, that would be also helpful to know where do you stand. Or if you are seeing basically at the moment, better grounds to keep working on second ethanol prioritizing versus the other investments that you commented in the past?
Thank you, Pablo, for your questions. When it comes to the ethanol price, yes, you're fully right. This level of ethanol prices is not satisfactory to us. And in this context, we check for all our sites, if we can keep on the same production level of whether to reduce. And we already have decided to reduce the production where we can. We have some kind of flexibility both on the sales side perspective, but also on the raw material side of perspective. And there where we could, we already decreased the production volumes.
And when it comes to strategy, we fulfill all our projects. So they are ongoing. But as we cannot do everything with the same pace or the same capacity at the same time, we focus clearly on bio-based chemicals and second generation. So this is our focus. And within bio-based chemicals, there's a clear focus on ethyl acetate. So the first plant is up -- is in production. So we are on track and on budget here. And the second one, which is also in our focus is all activities linked to second generation. But we also -- the others are also fulfilled, but priority at the current time is given to bio-based chemicals and 2G.
And the next question comes from Hartmut Moers.
Well, I would like to follow up a little bit on the first question. I mean, I guess you want to be -- you don't want to be a bit more specific on production, and I understand fully that this is also -- has a relevance with regard to competitors. But let's say, starting from your -- roughly 260,000 production in the third quarter, I would guess the indication that you're giving is that from this level, you will go down and not from a more ordinary level that you would have at, I would say, some 280,000. But you're indicating that for the fourth quarter, we should calculate with less than 260,000. Is that the right way of viewing it?
It's -- for me, it's too early to say. What we do right now with our plants, we check at all our plants here to see what is the -- what are the customer contracts, what is the raw material flexibility and -- but I would say -- so it's too early to say. But we check on it so for sure, we also have an interest, we will fulfill our contracts and we stick to a high capitalization wherever we make positive contribution margins, but we are right now in the process of checking everything. This is not only linked to one particular plant as we look into our plants.
The second point I have is with regard to material cost development in the third quarter. Based on the prices we saw with regard to wheat, I was a bit astonished that material costs were so high. And I would like to get a feel for where this is coming from. So probably I was completely wrong. But did you have a material impact from hedging, which could have increased the burden on the wheat side? Or was -- should I more look into, let's say, other operating costs, which might have been at a more elevated level compared to previous levels?
The only significant one-off element is in other operating income that we don't have in Q3 isolated the income from derivatives accounting out of hedge accounting. That doesn't affect Q3 prior year. When it comes to raw material expense, I mean, quarter-by-quarter, there can be shifts there. If I look into the 9 months figures, we can see clearly that we have a slight increase -- a slight decrease in grain prices. So the -- it is 1% better than prior year's period, but for 9 months. And the effect then when it comes to the -- is from the much lower grain or feed grain in total that we use because given the lower production, for sure, there's also volume-wise lower raw material procured. But on pricing level for full 9 months, we see a slight decrease of roughly 1% in the prices. So it's a better one.
Okay. Last question, more something strategically going forward. I mean, you were saying that you're still pursuing all of the projects that you had indicated at the start of the previous year. So I would assume that also the methanol production still is on the agenda, though you were saying that this has probably been shifted a bit into the background. I mean, this is very capital-intensive. And you were saying at the time that financing could be done via banks. But at a time where CropEnergies was -- is still listed also the capital market.
So equity markets would have been an option of financing. Now with the tender offer, you're foregoing that option. So are you saying that Südzucker and the banks is the right means of pursuing in particular, this very capital-intensive project, though it may come at a later stage?
Yes. I think -- fully right. So what -- methanol is on our strategic agenda. But as I said, it shifted time-wise in the background because the political framework still is not that clear. But I believe that methanol will play an important role in the decade to come because we need this technology of liquid fuels or liquid methanol, can also be ammonia to buffer down surpluses in green electricity, which will come when all the investments will be continued in solar and wind and because then you need also this BAFA technology, which can be methanol to have a synthetic fuel carbon-free also for liquid fuels that can be applied in cars, it can be applied in ships. So methanol is still on our strategic agenda, but it's, as you said, it's not tomorrow.
When it comes to financing, I don't see an issue because at the moment, we have this net cash position of EUR 300 million. So this is sufficient to fulfill the projects in the year to come. And also, we will continue to have positive cash flow.
So -- and when it comes for the remainder, that means that it is -- we cannot have a direct access to the capital markets via equity. But fully confirmed also by Südzucker with our strategy, we are then integrated into Südzucker Financing and Südzucker Finance has already all the debt instruments in place or can use all kind of debt instruments, and we have full support from Südzucker Board to fulfill our bio-based chemicals strategy. So it's a little bit even the other way around, being the fact -- I mean, you are fully aware of our share price development, we have been above 16. And even though we have communicated this, what I believe, very stringent and forward-looking strategy, we did not get the positive feedback from the capital markets on that.
I would like to say is although we have this very good strategy going forward, the share price of CropEnergies did not fully respect this potential in bio-based chemicals. And so it's a little bit the other way around and Südzucker said in this context and Südzucker is also fully standing behind this bio-based chemical strategy, it makes sense to have this delisting and then to make that internally and to finance it, we are -- then Südzucker indicates that CropEnergies' cash flows or net cash position would go from EUR 300 million down to 0. But we have full commitment from Südzucker about for this bio-based chemical strategy. And also for finding [indiscernible].
I hope we see each other in person before you make the move to Südzucker.
[Operator Instructions]
Since there are no further questions at this time, and I hand back to Stephan Meeder for closing comments.
Yes. Thank you. And then let's please go to Page 19, yes. So because we assume the delisting offer project is, at the time being, fully on schedule and going to plan. And if this -- everything continues like this, this would mean that the delisting would be effective before the end of the financial year. And under this assumption, this can be our last conference call is isolated for CropEnergies, and that means we would like to say farewell. And thank you. And -- but this is not an easy task because we at CropEnergies, we also -- it is also mixed feelings if we say goodbye to the stock markets because we always have been very proud or are very proud of this being stocklisted and we put it -- have put a lot of efforts and hard work in our also shareholders communication, investor communications.
And as I said, also we recognize that it's complex, that it's [indiscernible] and that we also see the advantages of being integrated into the Südzucker Group. But nevertheless, for us, it's very important to say thank you to you for all your support that you have given us since our IPO in 2006. And we will not be of a viewer that means that we will be -- still be visible. You will hear us, you will see us not isolated with our isolated CropEnergies stock being quoted, but as part of Südzucker Group, and there we will be visible and we kindly ask you to give us the same interest and support and the commitment that you have shown in the past then via Südzucker. So thank you very much, and we highly appreciate working together with you and we'll continue this in the future. And also, Heike wants to say some words.
Yes. Okay. Thank you all for very good collaboration in the last year -- Investor Relations, at CropEnergies together with [indiscernible] in 2011 and then together with Stephan Meeder since 2015, it was a great time. Challenging discussions, very interesting, particularly challenging discussions and special thanks to Hartmut Moers, who always kept on asking critical stuff and made me use my brain quite a lot. So it was very good. So I say goodbye. I hope to speak to all of you soon. And yes, have a good time. It was a pleasure to work with you.
Thank you. Goodbye all.