Corbion NV
AEX:CRBN
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Corbion NV
Earnings Call Analysis
Q1-2024 Analysis
Corbion NV
Corbion reported a positive volume and mix growth of 1.7% in the first quarter of 2024, along with a 0.7% organic adjusted EBITDA growth in core activities. Notably, the Health & Nutrition segment saw a remarkable 14.4% growth, driven by strong demand for Omega-3 DHA products used in aquaculture and pet nutrition. This growth is promising as the company anticipates continued positive momentum throughout the coming quarters.
Despite the overall growth, Corbion's Food segment, particularly in Functional Ingredients & Solutions, faced temporary softness in the market due to lower pricing and demand, especially in areas like semiconductors and agrochemicals. However, the management expects a recovery to begin in the second half of the year as demand picks up.
During Q1, Corbion also made significant progress on its restructuring program aimed at increasing free cash flow and margins. They mothballed their Peoria, U.S. plant, and completed the divestment of their noncore U.S. emulsifier business. This restructuring is expected to yield benefits moving forward, as the company initiates a €20 million share buyback program and a special cash dividend of €0.10 per share, aligning with their capital allocation priorities.
The strategic joint venture with TotalEnergies experienced impressive organic sales growth of about 25%. This is a positive indicator of operational efficiency and market demand in that segment, contributing to Corbion's overall financial health.
Corbion reported a positive free cash flow of €7.5 million in Q1. The company maintains its full-year guidance for organic sales growth, adjusted EBITDA, and free cash flow, bolstered by the successful execution of its restructuring initiatives. Moreover, management reiterated its commitment to a net debt to EBITDA ratio of 1.8 to 2.3, ensuring there’s a strategic focus on maintaining financial health and stability.
The management indicated a positive outlook for the PLA joint venture, which experienced a notable volume-driven organic growth of 24.3% in Q1. They cited improved visibility and demand trends in the market, driven by an anticipated market recovery in essential sectors. Moreover, the company forecasts continuous growth into the latter half of the year, suggesting robust potential in the coming quarters.
In an important development, Corbion's partner MedinCell recently signed a co-development agreement with AbbVie for products using Corbion's polymers. Although this partnership does not impact sales in the current year, it marks a significant step in reinforcing Corbion's position in the biomedical segment, with additional benefits expected from clinical trials over the upcoming years.
Overall, Corbion demonstrates promising growth trajectories in key segments, particularly in Health & Nutrition, while managing temporary challenges in other segments effectively. Their strategic restructurings and successful partnerships position them favorably for future growth, which should provide comfort to investors looking for resilience amid market fluctuations. Looking ahead, the company expects to continue its trajectory of organic sales, EBITDA growth, and strong free cash flow.
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Good morning, everyone. Welcome to the Corbion's Q1 2024 Results Call. With us today are Olivier Rigaud, CEO; and Eddy van Rhede van der Kloot, CFO. My name is Peter Kazius, Head of Investor Relations.
This morning, we published our Q1 results. You can find the press release and presentation on our website if you go to www.corbion.com, Investor Relations Financial Publication. As usual, for our first quarter call, Olivier will start with a short introduction. After which we'll move pretty quickly into Q&A.
And with that, I would like to hand over to Olivier.
Thanks, Peter, and good morning everyone, and welcome to Corbion's Q1 call.
I'm very pleased to see a positive volume/mix growth of plus 1.7% and an organic adjusted EBITDA growth of 0.7% in our core activities, which are better than previously guided. This volume/mix growth has been driven by the continuation of a double-digit growth in Health & Nutrition of 14.4%, primarily driven by a strong performance in the Nutrition segment, Omega-3 DHA within aquaculture and pet nutrition as well as positive growth in our Food segment.
As indicated in our last call, in these segments, the customer destocking impact has been concluded, and we are starting to see the benefits of an improved sales pipeline. We anticipate to continue this positive momentum in the coming quarters.
As previously indicated, our Food segment within Functional Ingredients & Solutions is facing temporary softness in some markets, including semiconductors and agrochemicals. We anticipate a recovery as from the second half of this year. In line with our earlier guidance, pricing in Functional Ingredients & Solutions has been lower as a result of price reductions in some areas for input cost relaxation.
The TotalEnergies and Corbion joint venture showed an organic sales growth of around 25%. We also saw a continuation of our positive free cash flow delivery. Our Q1 free cash flow was plus EUR 7.5 million. And building on Corbion's first quarter performance, we are on track to organically grow sales, adjusted EBITDA and free cash flow for the full year, in line with our guidance.
In the first quarter, we made good progress in the implementation of our restructuring program intended to increase free cash flow and margins going forward. As part of this program, we mothballed our plant in Peoria, U.S. as of the end Q1. On April 1, we completed the divestment of the noncore of U.S. Emulsifier business. As a result, we have decided on a share buyback program of EUR 20 million and a special cash dividend of EUR 0.10 per share, in line with our capital allocation priorities.
Upon the completion of the commissioning phase of our new circular lactic acid plant in Thailand, we've entered the start-up phase and expect production to gradually ramp up.
Lastly, in April, our partner, MedinCell, signed a co-development and license agreement with AbbVie for several products that will use our polymers.
Now, Eddy and myself are now opening the floor for any questions. Operator, back to you.
[Operator Instructions] And your first question comes from the line of Setu Sharda from Barclays.
I have 3 questions. First is like the Health & Nutrition EBITDA margin was quite strong in the quarter. So is the algae margins in line with division and if so, is this sustainable? And the question is like how reliant is profitability on wild fish prices remaining high? The second question is about the PLA JV, which has returned to growth. Has the JV started restocking from Functional Ingredients & Solutions division and should we already expect some step-up in volumes here in Q2 or is this again H2-weighted? And the third question is about the MedinCell announcement of partnership with AbbVie. Does this have an incremental impact for Corbion or is it built into -- in your guidance?
Okay. Thank you for these three questions. So just I think to answer the first one on Health & Nutrition margin and indeed the high-margin delivery on Q1, we expect indeed a continuation of these high margins for the entire year. And as we've said in our full year results, basically we have a long-term agreement with customers for the next coming years so we are not subject to any volatility related to what might happen or not into the fish oil prices.
About your questions on the PLA joint venture and also the destocking on the Food part, in PLA, what we've seen, obviously, we have an easy comp in Q1. However, the outlook for Q2 and the rest of the year is on a much more positive trend than what we've seen over the last 15 to 18 months for the first time. And in the Food, we've seen a big turnaround in terms of volume/mix development already in Q1, and we expect this to continue obviously in Q2 and later in the year.
Related to the partnership with AbbVie, on your third question, this is, in fact, not impacting this year's sales delivery in the biomedical segment. This is a many -- multi year development program. And this is the first part where they will build clinical trials over the next years. So there is not really a short-term positive impact to be expected. The short-term positive impact in MedinCell is primarily coming from their agreement with Teva that has been initiated many years ago that is now yielding commercial launches. AbbVie will be able to benefit from Corbion at a later stage when these clinical trials will be completed.
Your next question comes from the line of Robert Jan Vos from ABN AMRO of BHF.
I have a couple of questions. It's been a couple of months since your previous guidance also for the stranded costs related to the emulsifier business. You now cut this guidance in a positive way from EUR 15 million to EUR 10 million. My first question is how confident are you about this new guidance of EUR 10 million? Or could this come down even further as the year progresses? That's my first question.
Okay. I can take this one. So Robert Jan, the minus EUR 10 million that we have as guidance for the noncore is composed of 3 components. So one is obviously the EBITDA delivery of in Q1 of noncore, close to EUR 6 million plus. Then we will have now the transaction has been completed by first of April, the remaining 3 quarters of the traditional allocation of costs towards noncore, which is about EUR 6 million per quarter. So that will come in for the next 3 quarters. And then that will be partly compensated by payments from the buyer to us because we are rendering services in terms of this transition year to support a new buyer. So there, we got some revenue. So those 3 components together gives you the minus EUR 10 million. We're very confident that we will be higher and more negative than the minus EUR 10 million impact for this year.
All right. Thank you. That's clear. And I'd like to elaborate on the Health & Nutrition EBITDA margin. I understood that you said to expect continuation of this profitability for the year, i.e., I assume that you mean the 28-ish margin. What does it imply for Functional Ingredients & Solutions then because you reported 10% in Q1? Should we draw a similar conclusion there that there is -- I had assumed that there was quite a bit of upside in that 10% margin sequentially in the next few quarters. But what -- based on what you said on Health & Nutrition, which is quite positive, what is the implication for Functional Ingredients & Solutions?
Yes. For Functional Ingredients & Solutions, you really have to see Q1 to be, in that sense, from a margin profile, the softest quarter for this year. What's going to drive up the margins in quarters ahead, I would say, threefold. It is what we call operational leverage, which means the size of activities will increase versus Q1. Then you will start to see the contributions, the benefits from the restructuring program, which very much will positive impact fish most notably. And think about this mothballing of this Peoria U.S. plant, which we materialized by the end of Q1, and the benefits of that will start to come in, of course, from Q2 onwards. So that's another driver there.
And then the third leg is really the input cost relaxation, but that's a bit more skewed towards the second half of this year, where we do see, with the current visibility, that input costs will come down. And again, that will also help the margin profile of fish. So please do expect an upward movement from the 10% margin profile that we had in Q1 in the coming quarters ahead.
Okay. That's very clear. And then my final question for now is on the PLA joint venture. I couldn't fully hear the previous question and answer. But what can you say about the inventory levels at the PLA joint venture level? Are they back to normal? And related to this, can you elaborate on the predominantly volume-driven organic growth of 24.3% in Q1? Is that -- I assume it's more a comparison base because Q1 last year was the softest of the quarters than anything else, but maybe you can elaborate a little bit on the demand, the real demand side of the story.
Yes. Robert Jan, I will answer this one. You're right that if you remember last year, indeed Q1 was soft. But the big change in the PLA joint venture and the market outlook is that we see a market recovery as well. So we -- the joint venture has been destocking itself on their own inventory. But when you look at 2 things, first of all, traditional market, from the packaging industry, the food service ware and 3D printing, we see some increased demand for the first time in 18 months, but also the outlook discussing with our customers and also the joint venture forecast is looking to very favorable development over the next quarters starting in Q2. So yes, Q1 benefited from the easy comps but we have a much better visibility on the business for the rest of the calendar year. So that's number one.
Now if you look more specifically at some drivers, China is one of the major positive drivers in terms of recovery, but also in terms of some categories growing very nicely. One I can mention here is 3D printing. And when I mention 3D printing, it is not necessarily the home 3D printing, but it is the industrial 3D printing, where there is quite a strong demand in terms of shift to produce some plastic parts through this technology. And why is that, is that the CapEx requirement for industrial 3D-printing is lower than traditional molding or extrusion, and we see quite a nice development in the market for this technology, for industrial purposes in China.
And there, PLA is being used not just because it is bio-based or biodegradable, but because of its functionality. It's quite a hard plastic and the best one that fits into industrial 3D printing. And that's quite a nice development we see happening now.
The last point that makes me confident on the PLA turnaround in development is that we start to see some materialization of the efforts we've done for pipeline, that the joint venture has done on pipeline development with now projects coming through a materialization over the coming quarters. So I can say that, following last year volatility on the PLA market, we have a much better visibility right now.
All right. That's very clear. Maybe one final comment. I assume that, Eddy, this is your last presentation as CFO. So thanks for the collaboration in the past years and all the best for the future. Thank you.
Thank you, Robert Jan. We much appreciate it.
[Operator Instructions] The question comes from the line of Fernand de Boer from Degroof Petercam.
First, coming back on, let's say, the margin inflection on ingredients. Could you elaborate a little bit on the impact of the sugar prices? Because, normally, when all the inflation moved up, margins automatically went down mathematically. So now with prices coming down, you should expect also here some support on the margins, maybe not on absolute but on the margin. So could you say how this works? Is this because of the higher sugar prices now of last year now coming in. In the coming quarters, you will see a relaxation of that one and also going to help your cash flow. That's the second one or maybe also here related to that, did you have some inventory losses then on sugar prices being now much lower at the end of the quarter? Then on the MedinCell release, in the MedinCell release, it was said that they received a milestone payment, I think, of $30 million. Is this also something what is dribbling through to your joint venture with MedinCell or is it purely only from MedinCell itself? Yes, those were my two main questions.
Okay. Thank you, Fernand. So Eddy will take the first two, and then I will take the MedinCell one.
Yes. So on sugar price, we are applying a sugar price hedging policy. And if you follow the sugar markets there after an initial hike towards the end of last year, sugar came down quite prominently in the opening -- especially the last months, I would say. If you look at how it's flowing through our P&L, then indeed in the first 2 quarters of Q1 and also Q2, we have, relatively speaking, still high sugar costs where -- which is the big part, of course, ending up in our fish unit and towards the second half of the year, sugar costs will come very much down because we have already taken in quite some positions also for the rest of the year. So that should help indeed the margin profile towards the coming quarters, but more pronounced in the second half of the year.
Are you now extending the hedging period? Or do you think that the sugar price could still come down a little bit?
No. As you -- earlier cases, we always discuss the hedging period for sugar at minimum 6 months out and at max 24 months out. So yes, we started last year to shorten it in terms of duration. We are still not on the long range in that sense. So for this year, as we are already now moving in Q2, obviously, the majority of sugar prices have already been hedged. But for next year, we are still having opportunities to capture the downward movement of the sugar market that is taking place. On a biweekly basis, we take our hedging decisions to see when we recover.
On the MedinCell and AbbVie, the way you have to look at it, there is no -- I mean, any payment dropping into the Corbion MedinCell joint venture. So whether it is the $38 million and then they even mentioned of $1.9 billion of potential milestones is not part of our model. What is in there for Corbion is, obviously, we are the exclusive supplier of the polymer. And the technology from MedinCell the depot and long acting injectables is based on our propriety polymers.
So just to set expectations because this is a fantastic news because it's going to really secure the pipeline for 3 to 10 next years. On the next 3 years, the major impact in this business will come from the Teva work because the dynamic in this business when they start is that you have to first go through a clinical three stages before you can get FDA approval, before you can get revenue.
So now basically the big thing for us as you remember, Teva launched the first product with our technology, and we start to have sales for the first product called UZEDY in the U.S. for schizophrenia for Teva. Teva has another 2 in the pipe, and they are expecting further outcome in the second half of '24 for further launches. So this is now start to cash in the last 5 years of work in the clinical stages approval with Teva. The great thing is that AbbVie is going to come 3 years from now to further enhance massively that portfolio. But there is no short-term impact from these deals, but it's great news for the mid- to long-term future of this polymer business for Corbion.
Maybe one follow-up. This morning, you also announced EUR 20 million share buyback and extra cash dividend. So meaning more cash out. Was that already baked in your earlier guidance? Or do you see actually a better than expected cash flow this year, and that allows you for doing this year by announcing the share buyback and extra dividend?
The two items we have announced this morning are fitting in the earlier covenant guidance that we've given, which is net debt to EBITDA developments in this year in the range of 1.8 to 2.3. So this fits into that guidance.
But it's not that you say, okay, actually, we foresee a better-than-expected free cash flow and that also gives us some additional room. Or does it mean that earlier you anticipate, let's say, 1.9x and now you're going to land at 2.2x in your calculation?
I want to repeat, we want to cruise this year in the range that we've guided for. By the way, that will also already in Q2. So really, every quarter that we will come out, we're already in that guidance range. We're happy with the free cash flow development. Let me repeat that. And you know us that we will constantly monitor and look at what our financial outlooks are in terms of what we can fit in terms of these extra measures.
Maybe 1 then on the cash flow because probably you receive the proceeds from emulsifiers already this quarter, but then the cash out for the taxes to be paid is probably in the second half? Or is that going to move to next year?
You're right. So that will be in Q3. So the tax payments to be done will be in Q3.
And Eddy best for the future. Thank you for all the work in the past years.
We will take our next question. Your next question comes from the line of Sebastian Bray from Berenberg.
I would have two, please. The first is on the improvement as it seems in the profitability of the algae business. Back when Corbion was disclosing this separately at the Capital Markets Day in 2022, I believe it provided '25 guidance, which implied an EBITDA margin something in the region of 20%. And is the level of profitability of algae already comparable to that level as at the Q1 results?
And my second question is, can you give us a reminder of what exactly the relationship is between Corbion and MedinCell? So my understanding of the JV, Corbion sells a product that goes into the AbbVie delayed release drugs. What's the amount of -- was there ever an official 2030 guidance or other indication given on how big this business could be for Corbion?
Yes. Thank you, Sebastian, and I will let Eddy answer the algae margin, and I will get the MedinCell one. Eddy?
Yes. So with the new allocation of our businesses, where we typically do not go deeper per unit. But that being said, we are very happy with the profitability development within Health & Nutrition and with that also in algae. So indeed, we are very comfortable in what's happening in the algae space.
So on MedinCell, the business model, basically, we have with MedinCell a joint venture, a 50-50 joint venture that is called CMB, Corbion MedinCell Biomaterials there. So -- and we are developing together very specific polymers that basically MedinCell is introducing into their overall full solution to encapsulate actives, drug actives for their own customers. So if you think about the relationship with Teva or with AbbVie, these are relationship between MedinCell and the final pharma labs. Obviously, the big part of their credibility, they also bring and we as Corbion would bring from this JV is that for MedinCell it's about securing supply quality of manufacturing dual GMP pharma manufacturing facilities.
As you know, we have one here in the Netherlands and one in Tucker close to Atlanta in the U.S. All the DMF files, so the pharma files are filled by the JV both in U.S. and Canada in that case. So -- and that's the contribution we bring. So we make sure the business continuity, security of supply and the pharma grade are there. But the long acting injectable technologies and the clinicals are made into MedinCell and the final pharma labs. So for us, what's in there is obviously next to the exclusivity of the relationship is that we get the polymer sales and revenue and margin contribution through this JV.
So that's the model there. We are not involved in building the clinical phases and the clinical studies, Sebastian. So now, what you have to understand is, when -- if I take the example currently in the market, how it translates. Just to give you order of magnitude numbers, this risperidone anti-schizophrenia drug is a $4 billion to $4.5 billion business for -- potential addressable markets for Teva only in the U.S. This is a market growing 10%, 12% a year. They will try to capture a fair market share of that market. When you're getting back to what that means for Corbion, you have to see that the polymer represents, I mean, roughly 1% of that market potentially, you should convert it. That is the order of magnitude and how that plays into the whole scheme.
So now the big advantage, once you've got clinical studies and FDA approval, basically you are in there forever.
Yes. So maybe just to close, if you are interested, there is a very nice presentation on the MedinCell website in January, where they have the strategy and they also explained the relationship with Corbion. So if you are interested, you can go to their website and see their corporate presentation that is only a couple of months old, where there is more detail.
Thank you. Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.
No. Thank you. I would take the opportunity before closing the call to also say a very big thank you to Eddy because I've been working very closely with Eddy the last 5 years. And he's been with Corbion 18 years. So I developed a very strong relationship with Eddy over the last year. So I want also to express my really big gratitude to him for helping me as a CEO and also to have developed Peter as his successor because that's important. And I'm really pleased also to welcome Peter into the Board and management from Q2. So that -- with that words, I would like to close the call and see you at the next opportunity, probably the AGM for some of you and for the future release later this year. Thank you, and have a good day.
Thank you.