Corbion NV
AEX:CRBN
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Corbion NV
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Welcome to the Corbion First Quarter Results 2018 Conference Call on Thursday, the 26th of April 2018. [Operator Instructions] Please note that this will be recorded and will be available by webcast on the website of Corbion. I will now hand the conference over to Mr. Jeroen Van Harten, Investor Relations. Please go ahead, sir.
Thank you, Emma. Good morning, everybody. Welcome to our Q1 2018 call. With us today are Tjerk de Ruiter, CEO; and Eddy Van Rhede van Der Kloot, CFO. As a reminder, there's a PowerPoint presentation on our website. You can find it under Investor Relations Financial Publications. As usual, at Q1 and Q3, Tjerk will make a short introduction to these numbers, followed by Q&A. And with that, Tjerk?
Thank you, Jeroen. Good morning, everybody, and thank you for joining at this call. In the first quarter, we saw a continued upward trend in our organic top line growth in the Ingredient Solutions. We're now back at the targeted range of 2% to 4%. The star performer for the quarter was clearly Biochemicals, with organic growth nearing 10%. And even though Food still declined slightly, it is encouraging to see we're getting closer to growth. On the profitability side, volume and mix growth were not enough to offset the weaker dollar and the negative raw material price effect in our Ingredient Solutions segment. Nevertheless, we were able to maintain our margin well above the strategic guidance in the segment. Fortunately, the impact of raw materials should start to turn from Q2 onwards. Moving to the Innovations Platforms, starting with PLA. The plant construction in the joint venture is on track and on budget. As part of that construction process, the joint venture had to temporarily shut down the lactide plant, which is why our lactic acid sales to the PLA joint venture were low in Q4 and now also in Q1. Given the market developments, we're generally more optimistic about the growth potential of the PLA market. In the Algae Ingredients, we're still in talks with Bunge on acquiring their 49.9% stake in the SB Oils joint venture and expect to finalize those discussions before the end of June. In the SB Oils plant itself, our teams are working very hard to make the necessary improvements to the plant processes. As far as the outlook is concerned, we expect Ingredient Solutions to deliver the 2% to 4% organic growth at a margin above 19%. For Innovation Platforms, we'll issue a new guidance when we've finalized the discussion with Bunge. With that, I'd like to open the call for question and answers. Operator?
Emma, could you, please, start the polling for Q&A?
[Operator Instructions] We will take our first question today from Fintan Ryan from Berenberg.
Firstly, I'd just like to ask 2 questions, please. Firstly, I think you alluded to us in the initial commentary, but can you give us a sense in terms of the raw material outlook that you expect from Q2 onwards and particularly given the recent -- or the continued weakness in sugar prices that you've seen recently? And some -- could you give us a sense of what was actually inflationary in the basket from Q1 and then are -- and in terms of the outlook for some of these areas for the rest of the year? Then secondly, I know the discussions with Bunge are still ongoing, but could you give us a sense of how SB Oils is trading on a stand-alone basis, like in terms of growth rates and profitability and where you think that could go to on a full year basis, please?
Okay. So thank you, Fintan. Talking about the raw materials, and we've spoken several times on this before, we clearly see the sugar prices come down, but there is always a time lag in the effects to our business. And that's clearly what we've seen in this quarter. That's also why we're guiding for the whole year actually to see a neutral effect of raw materials. So EUR 4 million negative in this quarter, which will, over the next 3 quarters, will be compensated to get back to that 0 level. The main impact in that area, where sugar is coming down, it's the chemicals and vitamins that will offset some of those increase -- decreases, giving to, as I said before, a 0 sum at the end of the day, as we see it right now. With regards to the joint venture on Bunge, as I said in my comments, I will not go into the details, but I can give you some color on what we're working on. Very much so, as alluded earlier, it's about getting the processes to run smoothly. We're very happy with how the plant is running on its -- on the fermentation bases. And it's especially on the downstream processes where we're focusing quite now. We have actually, in this quarter, ran a little bit of the Thrive-called products used to confirm that this plant can actually run on multitudes of different products. We ran the Thrive also in the Peoria plant, and it's nice to see that both those facilities work very well in that perspective. When you look at the overall side of the business, visibility of the business is actually fairly difficult, whereas the marketing is extremely positive on the use of omega-3 and the need of omega-3 in fish. The seasonality of this product is really around the second and third quarter, which makes the overall visibility in this difficult until we reach that point. That, I can give you a little bit more color, Fintan, on what's going on, but I'd like to leave it at that.
We will now move to our next question today from Wim Hoste from KBC Securities.
Two questions from my side also. First, on Biochemicals, you had a very good EBITDA margin this quarter. I assume that is maybe somewhat mix related, with probably Pharma/Medical doing well. But could you maybe talk a little bit around that and also how you see the margin and the mix inside of Biochemicals continuing for the rest of the year? That is the first question. And the second one is on, yes, the PLA markets and outlook. You look pretty positive. But can you offer somewhat more insight in what this means with regards to this feat of filling up the new plant that is to open in the second half of the year, whether you have new contracts or additional commitments from people that already committed to take some volumes? Can you talk something about -- somewhat more about that, that will be helpful as well.
Yes, thank you, Wim. So let's start with the Biochemicals' EBITDA. As you clearly remarked a unbelievable performance, especially in light of also the raw material development, and that clearly refracts -- reflects the mix, as you indicated yourself, in the Pharma and Biomedical. We had a very good quarter. Also, the Electronics was strong. So overall in this business, the higher value segments did very well. I think that also should indicate a little bit for the year going forward, we expect that to even out. As you know, the business is quite choppy. But this quarter, we really had some nice segments coming together. With regards to the PLA market, my positive outlook on that is really based on the momentum we see with a multitude of customers. So it's not so much the fact that we secured business with one or more customers, but it's much more about when we have conversations with different customers is the general interest in PLA. And we believe that, that is driven, one, by the market sentiment that it's about time we do something about a more sustainable -- or packaging supply; and two, that PLA is really one of the few bioplastics that's now available on large commercial scale and also in a price range where it's maybe not comparative, but it's certainly attractive if you're looking for sustainable solutions. It's really that broadness or the broad interest in it that fills us with confidence.
Our next question today comes from Reg Watson from ING.
You alluded to the fact that in 2Q, you expect start-up losses from that Peoria plant. Could you quantify this for us, please?
Sorry, can you repeat that, Reg?
Yes, sure. It's just the start-up losses from Peoria, in the release, you made statements about 2Q.
Yes, yes, yes, I got it. Sorry. So really what we guided you on is, if you look at our expenses in the Innovation Platform for this quarter are relatively modest. And so what we told you there is be careful, now that we have Peoria start-up, you'll see more of that coming through in the year. And that's what the [indiscernible].
So how much of it actually came in Q1? Because my understanding is the start-up actually occurred in Q1. Is that right?
Start time?
Yes, we started later in the quarter, so we have a modest impact in Q1. We should see it more in the quarters to come, and you should be thinking of a couple of million for first quarter.
Okay, makes sense. And then just the outlook for the rest of the business, I guess, the -- we discussed about it. Biochem did well. How sustainable is that going to be?
This is my cross as -- that I have prepared, in that Biochemical is a very choppy business. And I think if you look at us traditionally, you see a good quarter following by a lesser quarter, quite normally, because the size of the orders are quite significant, and you get quite a bit of noise in that from quarter-to-quarter. So you should see this as an exceptional quarter, longer term, but we're guiding really between the 3 and 10 as the -- and I think so. As a result, the quarters to come should be lower than what we just saw.
We'll now go to our next question from Patrick Roquas from Kepler Cheuvreux.
I think most of my questions have been answered. Just a couple of follow-ups. Firstly, on the raw mats, what are your expectations to pass on some of the increases in higher chemical price and vitamin prices? And do you expect to maintain, let's say, the benefit of lower sugar price to yourself in the coming quarters? That's my first question. Second, on the SB Oils JV, any indication possible on what you have been producing so far in the quarter and what you expect to produce in '18?
Okay. Now on the raw materials, first, I think, Patrick, we're working very hard to position our products more and more on a scale -- the scale of innovative solutions. And as a result, we're actually fairly careful of passing on raw material movements if we don't have to. So I think as you already indicated, in vitamins, prices go up. And the products which are based in sugar, they'd come down, and I think we'd try and find a balance. And the more we can move away from these continuous price increases or decreases, the better it is for us on the long term. Obviously, with the movement in the vitamins, as you see, sometimes, we have to take action, but we try and balance that. And we will get compensation more and more on innovation and try, with that, improve our overall mix. Now with regard to SB Oils, I think, Patrick, I gave a nice color on what we're doing there and what [ we're experiencing. ]
We will now take a question from Fernand de Boer from Petercam.
Fernand de Boer of Petercam. Two questions left from me. One is you say about meat, it's above-average growth. For some reasons, do you also mean with that, that you expect it to slow down in the coming quarters? That's the first quarter (sic) [ question ]. And the second one is on PLA. You mentioned indeed you had good amount of -- good interest, et cetera. Does this also make you more optimistic to bring your, let's say, breakeven point forward? And could we expect, given the fact that this plant will start up in the second half, I'll also expect more start-up costs in your Innovation Platform for that purpose, for trading and that kind of thing?
Okay. So let's start with the meat. Really, what we're seeing here is the clean label trend that's benefiting us. So that, overall, drives the growth in the market for our ingredients, right, and that's what we really meant with the comment, where meat as a segment is modestly growing. We continue to see a higher growth of Ingredient Solutions in that segment because of demand for clean label. And we would expect that to continue for the quarters to come for that -- from that perspective. So we really see better growth in ingredients over the total volume growth of the meat market itself. I hope that I gave you some clarity on that. On the PLA, I think you asked a bunch of questions in one, I think, and so let's start with where we're at. As you clearly said, the year will be signified by the start-up of the plant and the costs of that start-up, as a start-up, could be -- as I indicated before, we've built that into our forecast, but of course, start-ups are always uncertain. And I think that's where we guided you before. Be careful, if the start-up takes longer than expected, not all costs are covered. But we clearly took some assumptions that we think are prudent. Do I believe that the -- we're pulling forward the breakeven point? No, I think that's too early. We clearly see good momentum in the market, and that gives us confidence that we made the right decision moving into PLA. And in that, the market is trending in our favor.
We'll now take our next question from Cathal Kenny from Davy Research.
Two very quick questions from my side. Just firstly, on the enzyme that went up [Patent] in the first quarter, just with the reality of the sales reduction there, I presume that will continue for the remainder of the year. Maybe just a little bit of color on that would be great. And secondly, just on PLA, I mean, is it possible to get an early indication of the type of applications you foresee the facility in total producing at least in the initial couple of months post commissioning?
So I'll start with the enzymes. As you all know, Cathal, this is an industry-wide phenomena -- phenomenon that we all have to deal with. The impact will be on the top line, not on the bottom line, as we expect to manage this market downwards. There's, of course, always in a downward market the risk that one of your competitors becomes more aggressive and takes a piece of business, but we believe we're managing this very well. How exactly this will impact this year, it's actually very difficult to predict because nobody knows how fast this will work through. And so let's see how the year develops. But I think the guidance for us is be careful in the Bakery segment. This is one area that we're dealing with. On the PLA and asking what applications, it's really the wide range of applications that gets us excited. When we talk to different compounders, we clearly see that people realize the specific properties of PLA, one of which is the strength that it can add to the product. The other is the clarity. And it's how they find new applications for that, that creates excitement. Whether that is in 3D printing or as a specialty film in between the products and the final packaging, so it's really the multitude of different applications and the fact that people see where PLA can --now can play is what gets us excited. It's not one single large application that I can think of it.
And Tjerk, you're agnostic to the application, ultimately, or the end use?
Yes. I think we work on a broad range, trying to serve our customers as good as we can and work with them on showing where our specific properties are.
There are no further questions. Please continue.
Okay. If we have no further questions, thank you very much. I know you guys are very busy because there's -- we're not the only company coming out with results, and looking forward to seeing you in the half year results, if not earlier, at 1 of our 2. Thank you.
Thank you. This concludes the Corbion First Quarter Results 2018 Conference Call on Thursday, the 26th of April 2018. Thank you for your participation. You may now disconnect.