Alzchem - CEO Interview Andreas Niedermaier

Hello Mr. K., I am pleased that Vermögen lernen is interested in the interview and that we can meet today. Indeed, I have been with the company for 25 years, in management positions since 2010 in the AlzChem environment. I was always very involved in finance and administrative areas. With the change in the board in 2017, I had the opportunity to accompany the IPO. In 2019 as CEO, and then for 5 years combined CEO and CFO. I think that is a long time, especially in smaller operating companies. If you look at the half-life of board members in large DAX companies, it is much shorter. The double burden is relatively high. What is the strategy? The strategy is to become more visible in the capital market. We are a small company that often suffers from not getting enough attention in the capital market, and we want to change that. That is why we brought Mr. Lösler on board. He is also very well suited personally, and we get along very well. I believe he is a gain for AlzChem, will drive it forward, and ensure success. And you surely know that my other two colleagues have now become well over 60, and board changes are coming in the next few years. Mr. Lösler will also ensure continuity, so that at least two people are there to ensure continuity. That makes sense from my point of view.

That is a very interesting question. How did I experience it? They were very turbulent times, very interesting times, also during the years of the merger and the post-merger period. The then managing directors, and I was already largely responsible for finance at the time, made the proposal to set up the business independently in the long term because it had not found its place strategically in the group, where it actually would have needed it, and also did not get the attention. What does it mean when you don't get attention in the group? It means that investments are not made, that investments are difficult. And as I always say, those who don't go with the times go with the times. If you can't develop the company forward, it will go downhill. That is why we started very strongly in 2004, 2005, and then it actually became reality that we were allowed to restructure AlzChem. At that time, I was already allowed to write the business concept and the legal concept and accompany it. Then came the economic crisis of 2008. I remember it like today. We were already in the sales process at that time. We were often asked how the economic crisis affected us and how it looked, and that everything must now go down. But it didn't. Even then, we came through the economic crisis very stably and well because we already had a very good portfolio, were very broadly positioned, which many could not easily understand. If we tense our muscles strongly, we say we are a small integrated chemical site. These integrated systems are not so easy to overview because if you pull on one cell, the whole network wobbles, and you might jeopardize the entire business model. That was a very exciting time during the economic crisis of 2008. It finally came to sale in 2009 to the private equity firms. That was a stressful situation for the employees because no one knew how it would continue. There was always the topic of whether they were locusts or how these people would behave. But in retrospect, we have to say that we ensured continuity. I personally got the chance to move up into management. But our works council also ensured continuity; they took on this challenge, as we all did. For me, changes were always an opportunity to develop something positively. And so it worked out well. You can see that.

Exactly. Over the last 15 years, we have worked very hard to develop towards specialty chemicals. We still have the basic and intermediates area. I am often asked why we don't sell it, as the margins are very low. But that is our raw material supply, and it is one of the key unique selling points. We have many products based on our basic and intermediates, and we want to develop that further, consistently. We want to always have enough raw material for specialties. We steer basic and intermediates so that specialties can grow. We also try to maintain basic and intermediates; closing or selling these product areas makes no sense at all. That is what I said earlier: we are a small integrated chemical site, and in such an integrated system, you have to look very carefully and know exactly where to touch and what to change so that the system runs optimally. Our strategy is to understand the integrated system, keep basic and intermediates on board, and steer them so that the raw materials for specialties are available. In the specialties themselves, we naturally want to grow significantly. And indeed, since 2018, we have seen investments in the specialties area. You have seen that we have invested around 300 million euros in the last 10 years, a lot of it in specialties, but also in our infrastructure because a plant without infrastructure cannot function in the long run. If the infrastructure is secure and stable, meaning high reliability, then you can achieve high utilization in specialties and push the limits of production. We try to achieve both.

Well, our greatest strength is our employees. Our employees are very loyal, have been with us for a long time, we have low turnover. That is a super strength of AlzChem. We are also a very innovative company and very hands-on and fast in our decisions. Where we are not as strong as our large chemical competitors is naturally financing. If a large chemical competitor makes a decision, they talk about a 500 million investment or even a billion and can handle that quickly. We cannot do that. That is why we have to be flexible and fast and move in our niches. We have now worked out a position where we could even handle a 100 million investment if we wanted to. We also have very good relationships with our banks. And I have the feeling that the capital market is discovering more and more that we are a well-managed company and that it makes sense to invest further. So our strengths are our employees, our creativity, our innovation power, and ultimately our products.

Well, our competitors are mainly in Asia. If you look at our business model, what happens? It happens with calcium carbide and calcium cyanamide. We are the only Western producer of calcium cyanamide. For calcium carbide, there are still a handful of Western producers, but they all stop at calcium carbide. In Asia, if you look, you find a huge number of calcium carbide producers. That has to do with the structure of the industry. In Germany, in Europe, in the West, the chemical industry has developed towards crude oil. That means the basis of many chemical products is crude oil or natural gas. In China, the basis of many products is calcium carbide because from calcium carbide you can produce acetylene, and then you can do a lot of chemistry from that product. Historically, China has a lot of limestone and a lot of coal, electricity is subsidized or cheap, oil sources are rare in China, so there are very many capacities in China for calcium carbide. Therefore, you find a lot of competition in China, either horizontally or vertically integrated. So we talk about Chinese competition for many products.

Yes, 3 to 5, depending on how much time we have. I already mentioned, we have a major basic and intermediates area. There we are in steel desulfurization. All notable steelworks that you know desulfurize with carbide. The second stage is our Perk, our fertilizer. From that we have developed a super new product, our Eminex, based on calcium cyanamide. Eminex has the potential to save 5 million tons of CO2. Calcium cyanamide as Eminex mixed into manure causes bacteria to stop producing methane. That is an arrow in the quiver that could become huge and super interesting. Then we have two other branches: our dicyandiamide and our cyanamide branches. In the dicyandiamide branch, we are, for example, a raw material supplier for metformin. By the way, we are the only producer in Europe. We are also with our BioSelect products, for example in the coronavirus test because we are very strong in DNA analysis. Or with our nitroguanidine, we have three applications: one in the agro industry, and also in airbags. And now the defense application is also growing very strongly. At the center of our business model, our family tree, are our multipurpose plants. There we can carry out production by product or recipe. That is also a highly recognized story among our customers because they appreciate our speed and flexibility. If you look at the right part of our family tree, there are our star products like Creapure, Creamino, or Dormex. Creatine is now known to very many people. It has grown very strongly in recent years, emancipated from the sports field as a dietary supplement, as an energy supplier for many areas of life, whether healthy aging, sports, muscle building, or even dialysis. We now have first results also for long COVID or fatigue syndrome. If you take creatine for a long time, you can increase the creatine stores in your cells and thus regain energy and become healthy. We have also copied this into the animal area with our Creamino, which is a dietary supplement for energy supply in animals. You can save CO2 because you need to feed less, or produce better meat quality. Dormex ensures year-round fresh fruit in Europe. Dormex is sprayed on plants like kiwis, blueberries, or grapes because these plants need a winter effect. But they are often grown near the equator, where there is no winter or too few cold hours. We simulate the cold effect for the plant with Dormex, so year-round fresh fruit from these regions is possible for Europe and the USA. That is a small overview. We also have a few small business models alongside our large family tree, like our Silzot or Nerals business. We can go into more detail another time, but they are also very exciting products with interesting growth prospects.

Hmm, that depends on several topics. Let's take it apart briefly. Concentration risk, I don't see it. We have very many products on board, which is often difficult for analysts to understand. I have often understood from analysts that they would prefer one product or one raw material, process it, and one finished product – that is easiest to calculate. But then they have a huge concentration risk because they would have a one-product company. That is not the case for us. Even if we grow very strongly on creatine or Creamino, regarding competition, it is that we are actually the only producer of calcium carbide, calcium cyanamide, and cyanamide, which are essential raw materials for creatine or Creamino. For creatine, we go one step further: we also produce sodium sarcosinate, as far as I know the only producer in Europe on a catalytic basis, with very little or no contamination. That is why we can produce the highest quality creatine because we produce both raw materials ourselves. It is not impossible for a competitor to enter the market, but the product is still a niche product for a Bayer, a BASF, or a Lanxess. Creatine is still a niche product. The whole AlzChem is a niche, if you will, with 540 million in sales last year. So they see us as a niche. Therefore, it is certainly not unattractive for a competitor to enter, but we are difficult to copy because we have these raw materials ourselves. And you certainly also have the advantage of a production site in Germany and not somewhere else in the world, which is something you don't have control over. That is now more of an asset. I myself traveled a lot in Asia in the early 2000s, and I would say today that not having a production site in Asia is more of an opportunity than a risk. I am glad that we don't have a production site in Asia. In the last quarterly report or at the analyst conference, I learned something about nitroguanidine. I had always classified it as the powder that makes the airbag inflate quickly, and the customer is the auto industry. Now I learned that nitroguanidine is a propellant and is used in the defense sector. Defense, artillery, ammunition, propellant – that is also a topic that unfortunately accompanies us and will probably continue in the coming years. Can you explain a bit more about the function of nitroguanidine and the current market situation? Are you now a systemically relevant company because you are the only Western producer that can produce this explosive? Are you the little Rheinmetall on the side?

Well, nitroguanidine itself is a very interesting substance. We have been producing this substance for many, many years. The perhaps forgotten application in the defense area was relatively small in the past. The application of nitroguanidine goes into airbags, in fact. We inflate quite a few airbags, not only with nitroguanidine but also with other guanidine salts. What is the advantage of our product? Our product is very stable in storage, burns very cool, and when it burns with a high ignition temperature, it produces a relatively large gas volume. That is ideal for an airbag because the airbag is cool, reacts quickly, but is very safe to operate. That means it doesn't deploy when it shouldn't. Competitors of ours have had problems with that. The second major application is so-called neonicotinoids in the agro field. Again, we are the only Western raw material supplier with our nitroguanidine. What are neonicotinoids? They basically copy the effect of the nicotine plant, where if a caterpillar or beetle bites into it, the nicotine makes it unbearable and the insect stays away from the plant. That is a development that I think is very positive, but it is no longer wanted in Europe. Neonics are no longer approved in Europe. However, the growth of neonics worldwide is still very strong and is also accompanied by Chinese competitors, not only by us. The third application now in the defense or defense area goes in the same direction as the airbag. If you mix nitroguanidine into explosives, they are also very safe to transport and handle, produce a large gas volume, and produce a cool gas volume. Similar to the airbag. And you are the only producer in the Western world for nitroguanidine? I would say we are the only significant Western producer. You will not find a second one in Europe and the USA. In the current times, I believe that is an interesting position that one would not have guessed.

I would rather put the customer at the center of the discussion. Why are we actually considering going to the USA? It is indeed also the framework conditions here in Germany and Europe that are not particularly positive, not particularly stable, not particularly industry-friendly. But I don't want to join in the traffic light bashing at this point. They could be better. I would indeed wish for better framework conditions, calculable conditions, so that we also have an investment case and a worst-case scenario for our investments. But what is more interesting for me is to put the customer at the center. There are some customers in the USA who very much appreciate our flexibility, our power, and our quality. In these discussions, it also came out that they would very much appreciate it if we had production in the USA. There is already a trend of turning away from China. If we are brutally reduced only to the price and the price scenario, then we often have difficulties in the West to be competitive. But if you put the whole picture together and say you combine quality, flexibility, reliability, and price at the end of the day, then it might make sense again to work with the AlzChem Group. And we feel that very strongly from some customers. There are actually larger project ideas and project discussions, up to M&A projects, to make the hop over to the USA. The USA is already a relatively important market for us. We have about 100 million in sales on the entire continent, about a fifth. So you can start to think about whether it would not make sense to have our own production facility there. But in which area that will be, which products will be covered, you are not that far yet in your communication. Yes, internally we are very detailed and clear, but the lawyers would lynch me if I already let something out at this point. I'm sorry, but as soon as we have clarity and also communication freedom, we will of course immediately go out with it.

That's how it is. You know the regulations better than I do. We are in the quiet period, and I may and should not say anything about the results. But a good measuring instrument is the ad-hoc. Ad-hoc is also ad-hoc, meaning ad-hoc is to be issued whether you want to or not if you have knowledge of a certain fact. Our top lawyers, whom we also have in-house and whom I appreciate very much, always preach that to us. So as long as no ad-hoc comes, we are well within our corridor, and I feel very good about that. That is also a topic that we may not have highlighted earlier. Earlier we said what the strength of AlzChem is: mainly the employees, mainly the innovation capability. The second or third strength at this point is also the quality of the numbers. Such an integrated system control is a challenge, but if you have mapped the system properly, we have mapped it properly in our SAP system, then we know very exactly what we are doing. What is always an open flank is that we can only assess the customer; we naturally don't know exactly what the customer decides at the end of the day. But that also makes us high quality because we are very close to our customer and can then close that flank quite well. And that is the transition: our forecasts also fit quite well because we have our figures well under control. Of course, something unforeseen can happen there too, I don't want to tense my muscles too much at this point, that can happen with us as well. But the basic quality of the numbers is very high, and our new board member, Mr. Lösler, does that very well too. He has been active in this area for a long time, earlier as an external consultant and now, thank God, as our own employee. That is also a super quality that he delivers with his team. So we can feel very comfortable in our forecasts and in that environment.

In 5 years, I see AlzChem significantly grown again in the specialty area. We have super prerequisites with our creatine. I said earlier, we are becoming broader in applications. The application of creatine is emancipating from sports into healthy aging, into supporting topics like fatigue syndrome, or maybe even dialysis. There is a patent for dialysis. If that realizes, we would have super volume growth. Creamino is also becoming more established because meat can be produced more cheaply. We are very strong in chicken meat, which is the fastest-growing meat spectrum in the world. We often forget that in Europe and Germany because we eat less meat, but the rest of the world also wants to eat meat. So Creamino has a very positive future and very strong growth. Dormex with fresh fruit supply is, in my opinion, a very important topic. I know the discussions about export bans, and of course the discussions about fresh fruit that you only eat when it is seasonal and locally grown. But there is also the argument that you can supply yourself with fresh fruit year-round to need fewer medications because you can live healthier. I would put that forward, and we can grow superbly there. We have a product with our BioSelect in the direction of DNA analysis, which is only at the beginning of DNA analysis, in my opinion. In the future, there will be customized medicine, for which you need a lot of DNA analysis. We will also see growth there. In light construction, we are active with our Diard, and currently, the defense sector will also support everything. How long that will last is hard to say, there are different forecasts, but I think the Ukraine war has changed a lot, so in the next 5 to 10 years, depots will have to be refilled and we have to restore defense capability. So we have very many products that fit into the megatrends. I could personally imagine that we will someday touch the million – I hope I'll experience it in my board term – the billion in sales. The next 3 years, touching the billion is perhaps too big a challenge, but the next 5 years, why not? We would certainly aim for that. And you would probably not want to reduce the EBIT margin in the process. Exactly, the idea is to grow more in specialties. The more specialties we add and the larger we can become, the better the overall margin of the group will be automatically. That is our idea of how to present growth.

Yes, I have one more very important question, the most important one, so to speak: what do you get at AlzChem after 25 years as a jubilee gift, and who holds the laudatory speech for you at the Christmas party? Well, I am very unpretentious. Usually, we hold speeches for the 25-year, 40-year, and we even have some 45- and 50-year employees. I have had the pleasure of welcoming a few 50-year employees in recent years. I am personally very unpretentious. I only have fixed-term contracts; I am basically only a temporary employee. So I would not overvalue that. What is important is that the company is running well and that we are successful in the markets. Everything else is fine. Super closing word, Mr. Niedermaier. I thank you very much for this very interesting interview. I would be happy if we stay in touch and see if we can do the next interview after the US expansion, for example. That would make me very happy. By the way, it was also a lot of fun talking to you. Thank you very much. I also thank you and am pleased that you support us here. Thank you, bye.