Corbion NV
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Corbion NV
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Thank you, operator. Good morning, everyone. Welcome to the Corbion Q3 2020 Call. I'm very happy that you could join us today. From the Corbion side, we have on the call Olivier Rigaud, our CEO; and Eddy Van Rhede van Der Kloot, our CFO. My name is Jeroen van Harten, Investor Relations at Corbion. As usual, at Q3, Olivier will start talking about the quarter, after which we'll quickly move into Q&A. And as a reminder, you can find the presentation with some backup information on the Investor Relations website. And with that, I'd like to hand over to Olivier. Olivier, please go ahead.
Thank you, Jeroen, and good morning, everyone. Thank you for joining us for the Q3 call. As you've probably seen from the numbers this morning, we are pleased with the way the quarter developed, both from the top line as well as on the margin. So a couple of things I'd like to highlight. First in Sustainable Food Solution, this is the star of the moment, with clearly Preservation delivering very good numbers where we saw growth across categories and geographies. We continue to develop strongly in clean label and natural solutions, both in the food preservation space as well as in the Functional System. During the period and in line with our Advance 2025 strategy, we are gearing up in adjacent categories such as dairy and savory and natural antioxidants to complement our product portfolio. In Lactic Acid & Specialties, we're also seeing good growth across the board, with the exception in biopolymers, where, as you know, those polymers are used in elective surgeries and those surgeries are being postponed due to COVID. On the other side, we are making good progress in opening up the additional lactic acid capacity that we commissioned in Thailand earlier this year in June. The deliveries to the Total Corbion PLA joint venture was done in Q3, but that is simply a matter of phasing. PLA continues to do very well, and the trends that we laid out in the last few quarters are continuing there. And then finally, looking at the Incubator numbers, it might seem that we are losing momentum. However, I'd actually say that this is the opposite -- the opposite is true. So firstly, there are some significant volume shifts from Q3 to Q4. So we expect Q4 to be the strongest quarter of the year, which is very different from the previous years. Also, we're starting to get more traction with our new business strategy on omega-3. So although it's a bit early still to say, but we'll keep you posted on development in that area. Then on the outlook, as you probably saw in our Q3 numbers, we are on track to meeting our targets. I do want to stress that we are heading into Q4 with added uncertainty. We are going into the holidays, and obviously in the month of December, we're going to get our -- late November Thanksgiving in the U.S. and Christmas. And it will be one of the first time where -- the first time actually when we get these 2 big festive events during lockdown or in the middle of the second wave. So quite some uncertainty there. Obviously, I mean, again, we will come back on that during the Q&A. So we've raised the CapEx estimate by -- for 2020 by EUR 10 million, as we are trying to speed up lactic acid and debottlenecking programs across our network. And with that, I'd like to open up the call for Q&A. Operator, could you poll for questions, please?
[Operator Instructions] We will now take our first question from Wim Hoste from KBC Securities.
Congratulations with the results. I have a couple of questions, maybe to start with the Incubator. Can you kind of quantify the volume shift from Q3 to Q4? And can you offer a bit of color on the real underlying growth rate or business trends when entering into 2021? Are you -- have you contracted a lot of new customers? Do you see interest in other geographies or anything like that? Can you offer a bit of color on that? And also, can you repeat whether you're still seeing guidance of breakeven in 2022 on that project?And then second question is on Lactic Acid availability and specifically tied to Single Ingredients. Yes, are you now fully back at where you were in Q3 versus the kind of pre-expansion of the debottlenecking on the Lactic Acid capacity? Or should we bank on further short-term growth for the Single Ingredients business now that additional lactic acids gets -- becomes available? Those are my questions.
Okay. No, thank you. So I will basically, first on the Incubator, answer on the trends. And maybe, Eddy, you can come back on the guidance on the breakeven later. And then we'll come to the lactic at the second stage. So back to your question regarding Algae and Incubator, if you remember, as part of this Advance 2025 plan, we decided to position differently and adapt our pricing strategy. So basically, from the past positioning where we were promoting our product based on the sustainability credentials, but also the fact that people could enrich their fish with more omega-3 and get the omega-3 content higher. We kept that, but we've said, okay, we also want to target the bigger fish oil market and cannibalize fish oil. And for this, we need also to work on our cost base and be in a position to price our DHA omega-3 at fish oil parity.What did happen over the last month is that we worked pretty hard on 2 major initiatives. One was to work on increasing the yield of omega-3 and develop a new micro algae strain that was -- I mean, again -- and that is more productive in terms of omega-3. So for the same ton of sugar or feedstock, producing, of course, 1 ton of oil but much richer in omega-3. And we had very, very nice development in that respect from in-house R&D development in San Francisco and transferred to the plant in Brazil. We've been able to implement that across the summer and reproduce that to the point that we could launch this early this new strain with a much better yield. At the same time, the second thing we did to be able to price and position our product against fish oil was to move also to a liquid product form. In the past, if you might remember, we were supplying our products in a powder form. And for convenience reason and be able to simplify the logistics and the conversion customers, we now transferred most of our customers to a liquid form, primarily in Europe. So when you combine these 2 things, we've been approaching the market with this new price positioning, and we have to say, although it's very early days that the feedback we get is giving us some good reason to be optimistic going forward. Having said that, it's a bit early and still too early to claim that we -- to claim victory, if I may say. We still need more time to still prospect and push the products across new customers, new geographies. The last point I want to add before leaving the floor to Eddy on the guidance is what we've also done because we were very limited and more than limited, we couldn't travel because of COVID into the major areas, being Latin America and Chile, in particular but also in the North countries and Norway. During the period, we've also recruited and established local teams to have also local people on the ground because these are mandatory things you need to convert customers. You have to be present on site at customers' plants to make these shifts. So we've recruited, I mean, people on the ground in both Chile and Norway during the period. Eddy, maybe you can take the guidance on the breakeven.
Yes. So thank you, Olivier, and good morning also from my side to everybody. Yes, so based on the comments of Olivier, like we stated in the press release, we're cautiously optimistic about the impact of our revised market approach on omega-3. And that, yes, really is showing that we're on track to leave it at the original guidance that we think indeed is realistic that we will have a breakeven position on the omega-3 in 2022. And at this stage, we don't see any need to change that guidance as it sits.
Yes. Thanks, Eddy. So on the second question about Lactic Acid availability, and obviously, as we told you, we commissioned just, I mean before the summer, a major expansion in our Thai plant. So this is now fully on stream. And of course, obviously, over the first weeks, we worked hard to restore the inventory level across the globe before making more, let's say, volume available to the market, knowing that at the same time, this plan is supplying both, I mean, our PLA joint venture plant and the conventional Corbion market. As we continue to see a good momentum in our business, basically, and we might come back to that, we are also still today, studying additional debottlenecking capacities across the Corbion network. So obviously, yes, there is more availability coming from Thailand. But we are already looking at the next phase on what else can we do in the entire Corbion network to sustain, I mean, the ongoing growth we see before the new plant would be commissioned by mid-'23. So there is an in-between period between now and the mid-2023 where we are working on further debottlenecking initiatives. So that hopefully answers your question.
We will now take our next question from Robert Vos from ABN AMRO.
I have a couple of questions as well. You mentioned temporary reduced costs due to the COVID-19 in the quarter. Is it possible to quantify this impact? And did it occur in all the units? And related to that, would you say that these costs have now normalized a little bit and should we, therefore, assume the final quarter with, yes, a lower EBITDA profitability compared with what you reported in Q3? That's my first question. And second, yes, I still do not fully understand the volume shift in Incubator. Is that then related to what you mentioned, the changed prices and also the change to a liquid form of the product? Can you elaborate on that because I still don't understand exactly why there's such a big volume shift to the fourth quarter? And then the third and final question, your wording on the PLA is very positive. It's above expectations. Is it -- could you, for example, say, whether or not the quarterly performance in the JV increased sequentially in all the 3 quarters in the current year? We saw the half year results, obviously, very strong. Did you see that trend continue into Q3?
Okay. So maybe, Eddy, can you take the first one on the temporary cost, and I will take the other 2 questions?
Yes. Oh, you want me to start, sorry.
Yes. Sorry you didn't get that.
Yes. So on the reduced cost, yes, we got that question on earlier occasion. So the biggest component in that -- what we've done is our global travel expenses. And to give an order of magnitude to that, we are spending something like EUR 10 million on global travel. That is in a non-COVID environment, so a normal course of business. Basically, that relates to the core business, so you can easily translate that to the core business. And where are you with the current travel restrictions, what we see now is that something else on a quarterly basis that more or less equalizes to EUR 2.5 million. But out of that EUR 2.5 million, we're spending something like EUR 2 million or slightly below EUR 2 million. So there's -- sorry, as a cost reduction. So it's a EUR 2 million about positive impact on a quarterly basis. So that translates to about a 1% EBITDA margin point in those quarters that COVID travel restrictions are applicable. The question is how long will that continue? So as you know, with the whole wave 2 coming about, this is certainly not going to change in Q4. Yes, and I think we also need to anticipate that quite likely the opening of next year will also be at this reduced cost levels. So we'll have to see when things turn to normal again. And it might also be expected that more from a structural basis, travel costs will be at a lower level also if COVID restrictions are lifted fully.
Thanks, Eddy. Yes, back on the Incubator and the volume shift on your second question. Basically, this is, I mean, again nothing worrying for us. These are big plants and big volumes, and it depends on some of the specific customers' ordering pattern, whether they come over the last 10 days of a month or over the next -- the following month. The one thing I can say is that if we look to the -- basically the Q4 and the order book we have, we see that shift. There is nothing really massively structural in that. Whether you have more volume in a month or other, it is related to some very specific customer patterns that came a bit later this year versus a year ago. But on that, basically, we would still end the year for Algae with a nice growth overall, so when you look to the entire year. So no big concern on that. And when -- because we are building that business and also converting either to new customers but also, within the same customer, new plants, these things are coming in sequence. This is a business, I think it's important maybe to explain that, that you will never see a kind of a smooth linear growth. And usually, when you convert a plant, it come with a kind of a step up each time because you speak about kind of staircase increase, more than a kind of linear line increase in that type of business. On the question on PLA, we do not disclose the quarterly numbers of the JV. The only thing indeed I can say is that, yes, the momentum is positive from an outlet standpoint. And as we said, we are still in the configuration where the aim is to extend as much as we can our customer base both on a geographical standpoint but also on an application category standpoint, that we have a large enough and a well-diversified customer base that we can scale up and build up on when we get the additional capacity coming onstream. So we are making these choices today. But yes, the -- let's say, the progression is positive on PLA.
Okay. That is very clear. If I can come back on one comment made by you, Eddy. Yes, the travel restrictions are still there. So it sounds as if these costs will continue to be mitigated in Q4. I just want to be sure I'm not missing anything for the fourth quarter, taking into consideration your full year guidance of at least 15% EBITDA profitability for the year, seeing that you already are at 17.6% at 9 months. So any flavor there would be very helpful.
Yes. So typically, if you look at our historical margin development pattern, you always see that Q4 comes in at a lower margin level, substantially lower than the previous quarters. Two prime reasons for that in a normal year, that is, in general, we have a slightly lower sales activity level in the last quarter versus the previous quarters. So that has also to do with order patterns, for example, working capital management of some of our customers. So that's one factor. And another factor is also that we typically make, at the latter part of the year based on the most updated view, our accruals for the bonus programs that are running. So that's typically what we make as extra cost accruals in Q4. Those 2 elements in a normal environment are happening and also we expect it this year. On top of that, we do have some, yes, extra uncertainty on potential COVID impacts that we discussed before. Think about Thanksgiving and Christmas, nobody exactly knows how that will pan out in this year because these festivities, as it looks now, it's quite likely to be celebrated at home without having big family gatherings. So we'll have to see how that translates back in order patterns. So yes, in general, a lower margin besides the travel expenses, which are already elaborated on because I do not expect a upward or downward of Q4 versus Q3 on that component.
We will now take our next question from Sebastian Bray from Berenberg.
I would have 2, please. The first is on potential group CapEx for the period 2021 through to 2024. And I'm thinking about what might materialize that has not yet been announced. The 100 kilotons of incremental polylactic acid capacity by 2024 are likely to require 125 kilotons of lactic acid. Where will this come from and how much could it cost? That is my first question. The second is on the polylactic acid and the price of this product. How have prices changed sequentially between Q1 of this year and Q3? Is there any sign of the price increase starting to level off? And what do you make of the capacity situation announcements related to PHA and some competing bioplastics?
Okay. Thanks, Sebastian. So basically on -- first, I mean, discussing about the lactic acid to supply PLA, we've always stated that we will, of course, supply from the current network and part of it is the Thai new plant. When we come to PLA 2, so the new plant we've announced in France, this will also, in the early years, come from the rest of our network. Obviously, last time we alluded to the fact that we were looking for another lactic acid investments most likely in Europe, and we are working on that as we speak. But we are also working on looking at other debottleneck options, as I've mentioned before, across the entire network to make sure we could cover, on one side, I mean, current market growth and dynamic on the conventional Corbion's market as well as on the PLA increase. But yes, so we have, I think, quite a good planning for the years to come on this lactic acid availability and capacity to follow demand both on PLA and conventional business. On the PLA, I mean, what we see on pricing, we do not see major changes so far, being honest. So basically, we are in a position where the volume has been contracted for the year, and we are busy contracting for next year. We do not see material changes so far on PLA. Regarding PHA, actually in these announcements, actually we view that as a positive, because on one side, it creates more momentum overall for bioplastics. But we also see that PLA is being, in many cases, also used in combination with PHA. So all in all, there is actually a lot more synergies between PLA and PHA than, I would say, head-to-head competition, where they have different functionalities and not -- one product is not being used to replace the other. Actually, they are complementary functionality and a lot more synergies. So we see that as a positive and actually something creating even better and more momentum. About the group CapEx, Eddy, maybe you want to comment on that on the CapEx. But yes, we've announced, I mean, of course, the new lactic plant in Thailand and the new PLA plant in France. But Eddy, maybe you want to give a bit some comment on that one?
Yes. So on the growth CapEx, that's also what we already shared in the Capital Markets Day earlier this year, that we say on top of a normal recurring CapEx line, that's about EUR 60 million to EUR 70 million per annum, which should cater for all the investments that we do for safety, for small expansions, for maintenance. We said on top of that, we will have also extra CapEx for this lactic acid plant in Thailand that has been announced. And you have to assume a spend level of approximately EUR 55 million per annum, which will cater then for the under the $185 million CapEx outlay for that plant. Then the PLA plant that we have announced with Total, that's the EUR 200 million announcement for a second PLA plant in France. That is something we are going to look at how we're going to fund that. That is still something we're working together with Total to see can we have that also funded via limited or even nonrecourse financing. To be able to attract those kind of fundings, yes, you need to have to build up some kind of track record, of course, with the PLA venture as such. So the current momentum and also where we came from is very encouraging in that sense. But when it comes to really going to fund that specific plant, we will look for those funding opportunities besides our own contributions and Total's. So that is to be seen how exactly that will play out. But even in a scenario that we cannot get this nonrecourse or limited financing, then we will go ahead with that investments on our own books together with Total.
We will now take our next question from [ Manan Tolu ] from [ Erasmus ].
I have one, please. In Food Solutions, you've mentioned more and more in natural solutions. Can we have an idea of how much as a percentage of food sales represent now being your natural solutions versus all your other products, please?
Yes. So if you look at the total SFS basically, so the business is split primarily between Preservation and natural preservation solutions, Functional System and Single Ingredients. And the Single Ingredient and Preservation are almost, I mean, fully natural and clean label. In Functional System, we still have -- I mean, a part of natural and a part of, I would say -- I wouldn't say nonnatural, but not necessarily clean label. I'm thinking about some specific products where we would blend different type of emulsifiers or other products. So if -- again, not giving you a fully precise number, but if I look today to the overall split of our business, I would say that at least 2/3 is around clean label today in our SFS business and -- but a lot more in natural. I would say we are not developing or selling any synthetic-based products. So this is really the core strategy. And so there is a difference between, of course, natural and clean label. And the struggle with natural definition is that every geography does have a different definition, whether it is legal or also in terms of perception of natural. So -- but what we consider for us natural renewable, yes, is -- and again, the vast majority, it's over 95% of what we do. Again, you would have to detail that in -- for each country definition. But yes, the fact is that only our Functional System that's still hold some ingredients that are not fully considered clean label, although they are natural today. So I hope it answers your question. I know it's not easy because, yes, these definitions are very different from a place to another.
We will now take our next question from Patrick Roquas from Kepler.
I've got 2 on, let's say, the Q3 numbers. And then I've got a couple on expansion in Lactic and in PLA. So to start with the Q3 in Sustainable Food Solutions, which saw a very strong organic sales growth figure. Can you confirm that Preservation is kind of growing by high single digit, if not double digit in the quarter, and that Functional Systems was, let's say, more low single digit?
No, that's correct, Patrick, yes. And Preservation is built on the trend that, as I said, is already the case for the last 2 or 3 years, yes. So we are building on this foundation.
And if I understand correctly, then the growth in Preservation in the quarter was especially driven by new product introductions. And if that's the case, do you believe this is sustainable for a few coming quarters?
Yes. The answer is yes. If we look at Preservation, as I said, I mean, we have the introduction of new products or product evolution or innovation. So it's basically both the legacy products and new products. But what -- nothing has changed versus what we announced in the strategy that there is still a number of synthetic or fossil-based food preservatives around. And there is also on the same side, some natural food preservatives, but do contain a lot of sodium, which is also on the watch list from regulators in that most of the regulators are trying to remove from the labels. So we are active in these 2 things, helping reformulate out the synthetic and fossil-based preservatives. So -- and we are still in the early days of this shift. So there is still a lot to be done to remove, I mean, all this synthetic-based preservatives. So I believe that this is an ongoing and will continue as a trend generating good growth for Corbion.
Clear. Then turning to the capacity expansion, which is a very sizable CapEx program that you are planning for. So to start with, could you kind of remind us that we all know that the first PLA plant is really like a home run and you're sold out on lactic acid. But can you kind of remind us about, let's say, what are your key considerations for such a big expansion in the coming years?
So basically on the new pipeline, you mean, Patrick?
No, on, let's say, the sort of new PLA plant for the JV in your PLA plant.
Oh, on the PLA plant, sorry.
And then also on, let's say, the indication that you gave that you intend to also build a new big lactic acid plant probably in Europe.
No, on PLA, I mean, as you know, also today, this market is of course covered primarily by NatureWorks, our competitor in Total Corbion. So in the -- we know that, yes, the market is very much, let's say, according to the capacities we see in a sold-out situation. So basically, if you look to the key categories where PLA is growing, the good thing is that it's also growing on the back of added functionality, which is something that indeed we didn't necessarily anticipate in the early, early days, but we see more and more the right positioning where people are looking for strength and hardness in their bioplastic. And we see the product developing as a single use, I mean, polymer, but also in various bio-based compounds. So we see the development of highly technical application, but also across the board, a much wider area than initially anticipated. So when we look at the various trends, actually, there is a very good pipeline. So far, when we considered the European market, everything is either imported from the U.S., from our competitor or from our own facility in Thailand. And we believe there was really room to trigger more customer adoption in Europe by having a local footprint and a local presence.The other thing is, I think, for us as well as Total Corbion, having dual sourcing will help being able to supply global key accounts from both our Thai operations and the French operation in the future. We'll also, I mean, help out to convince customers and accelerate some shift for some of the big users of, for instance, polystyrene, which is, I mean, one of the key products we are targeting as well in terms of replacement. So this is a back from, let's say, indeed some of the comments and the feedback we got from the market over the last month and years. So these are amongst the drivers why investing into this second PLA plant. But yes, just if you look at still today the relatively modest size of the PLA market versus polystyrene, yes, we are still playing -- I have to say, if you combine the production capabilities and capacities of both, I mean, Total Corbion and our competitors, still, I mean, a very minor volume to the field of the polymers. So there is a lot of room to grow. And what we want to make sure is we do not disappoint the market not having the product available on the shelf because this is one of the highest risk we see, is not being able to supply the demand in a booming market and having people look for alternatives that are not PLA, of course, solutions. So this is why it's important for us to stay really ahead of the game and keep investing to make sure we follow demand and we can still develop the pipeline as we speak. So pretty important dynamic. And obviously, this has to go with lactic acid, the capacity and the anticipation we need to have on lactic acid. That's, I mean, the big challenge we're having in terms of planning is, yes, it needs 3 years to build a new lactic plant as we are doing now in Thailand. So we have to be ahead of the game, in any case, in building enough lactic acid capacity ahead of the PLA capacity to make sure we can sustain the strong growth we see.
And when do you expect to take the final decision on new LA capacity in Europe? And then also, you will then be constructing 2 LA plants according to the gypsum-free technology, which is not proven on a large scale. To what extent is there a risk?
So on the first question, obviously, we probably expect that this principal decision in the course of next year. We are working on that and on different options. I think about the technology, you're right in saying it's a new to the world and new to Corbion technology. However, we've been scaling that up for the last 10 years, and we've -- I mean, have done -- did the right scale-up with big pilot scale productions in our Dutch operation already. So we are feeling confident about this technology. So -- and I would also remind that, yes, in any case, it wouldn't work. It's not my preferred option, but we still have a plan B. So you can still go to commercial process, which is not something we are even considering as we speak, but there is a plan B so that you wouldn't have to scrub it. But we are feeling pretty confident about our technology. So we don't see that as -- yes, show-stopper right now.
Okay. Then I've got 2 final questions, if I may. So we know that the PLA prices have been increasing a lot and that the JV is very profitable. What can be shared regarding the structure of, let's say, the contract with the JV in supplying them with lactic acid? Will you be selling lactic acid at a higher price?
Eddy, can you take that question?
Yes. So we have, of course, in the first setup in Thailand, engaged in a long-term lactic acid supply agreement, because lactic acid, we are the exclusive supplier for the Thai plant in -- for PLA. So that has been negotiated and installed a few years ago. With this new PLA plant, we have entered in new negotiations that came with a new supply contract for the new plant to be built in France. So it's a different contract, different terms. But I'm not going to share which direction that is in terms of being more or less positive versus the existing contract.
Clear. And then finally, I assume that you will also be expanding your PLA or that the JV will expand the capacity of the plant in Thailand. Is that right?
Yes. We're always looking at options. And it's also true for lactic acid, but also for PLA. These are not production plant that when they come from the draw boards, there's just a fixed capacity. You're always able to find improvements once you are starting to operate these kind of plants and see how you can further tweak and tune the output capacity of such plants, sometimes with small incremental investments. So that's been the case with lactic acid, that is also going to be the case with PLA. So in that sense, yes, we do anticipate to be able to squeeze out higher capacities than the nameplate capacity of 75 kilotons. That is the original capacity. Order of magnitude, you should be able to anticipate something like additional tens of kilotons on that capacity in Thailand with overseeable incremental CapEx.
We will now take our next question from Fernand de Boer from Petercam.
Most of my questions have been answered, but I'd like to come back on the previous question because in PLA, I think you are sold out already at full capacity at the end of next year, maybe earlier. So how are you going to debottleneck that PLA plant? That's the first question. And then the second one is to come back on your guidance, more or less, for the fourth quarter. If you see this very strong momentum you had in the Food Solutions in the third quarter with a lot of volume growth, was there any, let's say, restocking on your clients that you make more cautious for the fourth quarter, because I think the trends will continue in Q4 as well? And certainly, if there is a second wave hitting the market, people will stay more at home, which will be also good for the grocery sales and bakery, and I think that is also going to help you. So could you elaborate a little bit on that.
Yes, no -- okay. But on the debottleneck, as Eddy just mentioned, on the nameplate capacity we have, which is 75,000 tons of PLA. Indeed, when you build these plants, there is always some design capacity for limited incremental CapEx you can do, and this is exactly what we're going to do. So it could be still substantial for not huge CapEx. So that is the things that we will do sooner rather than later in Thailand. On the Q4 and SFS, now that we expect a huge peak as we saw in March because, actually, if you look at the U.S., which is our biggest market, actually, they didn't have any transition between -- from the first to the second wave, actually. So there is various lockdown from a region to another, but we do not expect the same peak. The only question mark we have and concern to some extent, although it's still, I mean, again very difficult to assess, is that usually in the U.S. -- and this is almost 50-plus percent of our business, the people and the family gathering where people do meet to eat in families for Thanksgiving and Christmas, and this is the most busy period of the year, this will -- is unlikely to happen to the extent it happened over the last previous years in the U.S. And the fact that we have these 2 holiday festive seasons almost in one month in December, yes, is a question mark. Having said that, it doesn't mean either that, yes, the business would necessarily tank in December. We are just cautious in saying, yes, we have very limited visibility on what's going to happen there because we see the amount of people traveling even for family events is massively reduced in the U.S., massively reduced. So it's not that, again, we are extremely concerned, but there is a question mark, I mean, about what's going to happen there. And even for this family event where people cook at home, we do not expect that, yes, the consumption will be as high as in the previous years. Difficult to say more than that. Obviously, the lockdown in Europe is -- but it's further impacting foodservice and out-of-home. And Corbion is not that exposed to foodservice. When we look at it today, it is a very small part of our business in Europe. It's a bigger one in the U.S. all in all, but it's a very small part of what we do in Europe. So we do not expect a massive impact, a negative impact because of foodservice, yes? So I don't know if it answers your question, Fernand.
No, it answers. One question on the Algae base omega-3. Do you price in dollars or in Norwegian krone or Brazilian real in the tendering?
It's in dollars.
[Operator Instructions] We will now take our next question from Reg Watson from ING.
Can I please just clarify something you said earlier on the call that fourth quarter is going to be your strongest of the year, which is against normal seasonal patterns. Is that just in the Incubator business? Or is that for the company as a whole?
That's only for Algae, Reg.
That's just for Algae, so just for the Incubator. Okay.
Yes.
And just a second question, probably for Eddy. I would have expected some margin drag from the startup of your capacity expansion in Thailand. Did you experience any of that in Q3? And therefore, would margins have actually been stronger if you haven't had the start-up of the lactic acid expansion there?
No, you'll hardly see an impact of that because this is really an incremental investment on existing capacity, so that's something else. Then if you started a completely new plant where you have to get a whole new setup of operators and staff or what have you, this expansion in Thailand on lactic acid is basically on a common infrastructure. So...
But -- so you don't have a fixed cost drag on this?
No, not [indiscernible].
We will now take our next question from Alex [indiscernible].
Yes. I wondered if you could touch upon the outlook for input costs as we look out into 2021. And what, if any, incremental pricing that might require for the group?
Yes. The total of the input cost, it's a relatively stable development, I would say, if you take it from an aggregate view. If you look at one of the key commodities as an input cost, it's of course sugar for us. You see that you're at a level that's basically the main price that we're buying it at is on the rise lately. So there are some increases. But we do have hedge accounting from a price perspective. So basically, we locked in our prices for the whole of next year already. So in that sense, don't anticipate major deviations in terms of input cost development from where it stands as per today.
As there are no further questions at this time, I would like to turn the call back to Olivier Rigaud for any additional or closing remarks.
I just want to thank you, everyone, on the call today for this results announcement. And hopefully, we're going to meet again for the full year results. So thanks, everyone. I don't know, Jeroen, if you want to close the call.
No, that's absolutely fine, Olivier. Thank you all for dialing in. And any questions, you know where to find me by e-mail or by phone. So hope to speak to you soon. All the best. Take care.