Corbion NV
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Welcome to the Corbion Quarter 3 Interim Statement Conference Call on the 27th of October 2021. [Operator Instructions] Please note that this call will be recorded. I would now like to turn the conference over to Jeroen van Harten, Investor Relations Director. Please go ahead, sir.
Thank you, operator, and good morning, everyone. Welcome to this Corbion conference call on the third quarter of 2021. With us today, Olivier Rigaud, our CEO; and Eddy van Rhede, our CFO. My name is Jeroen van Harten, Investor Relations. Please note that this call is accompanied by a short presentation. You can find that presentation as usual on the Investor Relations page at corbion.com. Also, as usual, with our Q1 and Q3 calls, the -- Olivier will start with a short introduction. We'll move into Q&A pretty quickly. So with that, Olivier, please go ahead.
Yes. Good morning, everyone. As you've been able to see from the press release, the sales growth in Q3 was again very strong. The win rates in Functional Systems remain high, but also food preservation continued to grow very nicely in the new natural preservation products.The very positive development in the PLA joint venture has been a key driver in our Lactic Acid & Specialties growth. In Incubator, we simply tripled our sales. Given that supply chains are very strangled at the moment, we're really proud to have been able to deliver this kind of growth, as you can imagine.On the input cost, I can't say that it has become any easier since we published our Q2 results. Volatility remains very high and visibility low. For instance, we've seen increases in carbohydrates, energy and don't forget freight cost. One of the key priorities is to restore the core margin. You already know there is a time lag between our input cost changes and the time we need to incorporate those in our prices. We've already pushed some price increase successfully for all the contracts where that was possible. Also, our customers tell us that they expect price increase to come. So all in all, we remain confident about passing on these higher input costs.Looking to the future, the current input cost inflation is another source of uncertainty. However, we are very encouraged by the continued strong sales pipeline and sales growth momentum and the first results from the Advance 2025 strategy are clearly materializing. So with this, I'd like to open the lines for questions.
[Operator Instructions] The first question comes from Mr. Wim Hoste of KBC Securities.
I wanted to dive a little bit the deeper into the raw materials supply chain disruption and pricing strategy and actions you are taking? Can you confirm the numbers previously stated, meaning EUR 80 million to EUR 90 million inflation spread over 2021 and 2022, of which then EUR 40 million was for 2021, EUR 30 million of which for the core. Is that still the numbers you're looking at?And then also with regards to the contracts that you have already adjusted prices for. To my understanding, in the previous call you kind of hinted that it would require roughly 5%, 6% price increases at least in the core to compensate for the inflation you expected and then something like close to 20% or so for the noncore operations. Is this the kind of magnitude of price increases you are pushing through in the contracts that are already adapted? So that's the first, let's say, set of questions.Then also a question on the omega-3 business. Can you maybe elaborate a little bit on the commercial momentum. We see very good top line growth. Can you maybe elaborate on how much new contracts you have signed? And also maybe update us on when you expect to reach breakeven. I think guidance is calling for next year, but can you maybe be a bit more precise, I guess you're already getting pretty close to breakeven at the moment. So those are my questions.
Yes, Wim, I will take you through your first question on the input cost inflation. So indeed, in the Q2 results announcement, we shared with the markets measured over 2 years period, '21, '22 versus 2020 and total inflation cost increase of EUR 80 million to EUR 90 million. That is for the total Corbion business. Out of that EUR 50 million to EUR 55 in the core and EUR 30 million to EUR 35 million in the noncore.Since then, I would say we are continuously seeing being faced with high volatility in lots of our input markets. In general, in the aggregate, they are on the rise, I would say, significantly on the rise. Think about input factors like sugar. I don't know if you follow the sugar markets, but they have been further running up since our last call.Freight, absolutely not a normalization there are taking place, so that's really translating in higher logistics cost and also components like energy and everybody is experiencing that, I would say. So these are just a couple of examples where in the aggregates we do see -- anticipate with the current markets, higher input cost inflation cost than we have shared 3 months ago.In that, I would say 1/3 qualification I can give there. It is less pronounced from the levels that we announced for the noncore. So the noncore, that is not so much different, I would say, but really these further increases we see in the core business.
Yes. So maybe also to go to your second question, wins on contract, indeed, we started our price increase basically back in August on the contracts that were opened at the time. And as we went into fall, we've adapted our pricing strategy to the new elements we got. So basically, we have readjusted upwards in the course of Q3, our level of price increase.So basically, the approach is -- indeed, I mean, to go and pass on the level that you just mentioned. For this, we apply a very strict approach, basically a very disciplined approach. As I stated before, it's not a surprise to the market because everybody is seeing that happening across the board.So far, we've been successful in the price negotiation we've had, albeit these are limited. Big, big chunk is coming up in January. So the dynamic there is that as we speak, we are in full negotiation mode, but the pattern is that most of this negotiation we end in the course of December. So right now, we are, of course, in full negotiation round. But the aim has not changed. We go for full pass on in cost increases to the market.The one thing to add on that point is that, as we said already when we had our half year release, is that we also contract [ open end ] usual because of the uncertainty and volatility. Most of the validity we are going after are limited to the first quarter, so on pricing. We want to keep our options open and not contract longer in the current circumstances.On the third question on the omega-3 business, indeed, I mean, there is a very strong momentum. And there, we'd be very encouraged to see that -- we've been able to continue our, let's say, market share gain against [indiscernible] because this is indeed with a new pricing position in what we were after to increase the addressable market. And we see that strategy paying off. So not only increasing our business, our sales at current customers will also being able to convert new ones. We've done that primarily into the aquaculture market.And you know our primary market is the salmon feed industry. But expanding that into shrimp and also to move to adjacent categories as pet food, which I mean, actually are maybe a lower market in terms of volume, but better in terms of margins. So when we look at the current momentum because that was the thing we wanted to demonstrate was to create a much stronger momentum and pipeline to get to our break-even point.On this breakeven, we are still, I mean, shooting for breakeven next year. It will happen in the course of next year. I don't want to be more specific than that at that point, but we remain confident that we're going to reach that next year. And again, let's not forget that also in that business, we are facing some raw material increase. And also in the algae business, we have to pass that on to the market. And that, I mean, again, is something we're also busy with like the rest of the core.
The next question comes from Mr. Fernand de Boer of Degroof Petercam.
It's Fernand de Boer from Degroof Petercam. First one, to give us also a little bit more guidance or way of calculating. Could you give us a little bit more breakdown on this cost, for instance, how much is logistics of sales, how much is energy of sales, et cetera? That's my first question.Then on the pricing mix. I still have difficulties to understand that if your pricing for the quarter is up 3.5%. The EBITDA impact actually is minus EUR 7.6 million negative on EBITDA. So I can understand that if you have the growth in, let's say, the [ Lactide/PLA ] joint venture that is negative for margins, but I'm not sure why it should be so negative in absolute figures. So could you explain?And then on PLA. I think, we, as analyst community were more optimistic on the sales level. So compared to the second quarter, sales were also more or less flat. So could you give us an update there? And then the margins were quite down also compared to the second quarter, so also here higher cost.But what I understood is that pricing environment for PLA in the demand is very strong. So why not in your contracts more of this kind of cost clauses that you are more protected to higher transport costs, et cetera? Those were my first 3 questions.
Yes. So fair enough. Thank you for your questions. Yes, I think we are not in a position to give further clarity on exactly the breakdown of the nature in terms of quantification of these different input cost factors. What we can share, and I think we also shared that last time is that really it is not only on the raw materials that we talk about, but it's also, for example, on freight rates, logistic costs.So it's really in the aggregate that these price increases are hitting us and each of these categories have a big share. The odd one out is maybe a bit on energy side. Energy, we have quite some good coverage price coverage, so there the impact is relatively more modest than maybe you would expect from energy price developments that you see in lots of different regions. On your pricing mix remark -- excuse me?
Is -- on energy, is that coming down to next year? Or is it simply not that high in...
No, we have quite good coverage for energy. We have quite good coverage for energy. Your question on price mix. I guess your price mix remark positive is on the sales side. So on sales -- on average sales prices, there, indeed, we have positive price mix. That is always a combination, especially in these times of real price increases on individual products to individual customers.That's all about the first results that we have of the price increases that we put through the market and more to come like Olivier saying, based on the ongoing negotiations into next year as well and also mix effects and that means the average sales price of the portfolio that we're selling that is getting richer in these different business segments. Think about the higher premium specialty -- preservation specialties, for example. So that is really all on sales price.When you talk about EBITDA, then you get, of course, this input cost inflation ahead of you. And we are still in the phase of that input cost inflation comes earlier than lagging effect of passing through these higher input costs to the market. And that is basically the phase that we're currently in. That is the going on negotiations and that, based on the work that we're doing, should give us a margin recovery compared to where we currently are in Q3 and also Q4 this year that you get a margin recovery on that basis into next year.
So the price mix is then the balance, let's say, of higher input cost -- the higher prices minus the higher input cost. That's the balance. And actually, the cost increase you see in the EBITDA bridge that is simply on the SG&A. Is that correct, Kloot?
Yes. Yes. If you talk about the EBITDA bridge, you're right, in the EBITDA bridge in the presentation, price mix is absolutely what you're saying. It is the net effect of price increases, richer mix of the portfolio but offset more than offset because it's negative by this input cost inflation. What we mean in the EBITDA bridge on cost is absolutely, that is what we call fixed cost, it is SG&A production cost. That's basically people maintenance, those kind of costs.
And you're still hiring more FTEs at this moment? Or has that stopped now as from Q3?
At an ever slower pace. So we are very selectively in further add-ons to the company. We follow a very disciplined approach there. You know we have lots of good initiatives to further cater for growth. That is also part of the Advance 2025 strategy that we want to invest in capabilities, not only in production plants and expansion of production plants, but also in organizational capabilities, like application labs, for example.So that has been indeed going through in, I would say, in the last year or so. The pace of that, the pace of those additions are going to be much at a lower level than what you've seen in the earlier periods.
Yes. So Fernand, on your third question on PLA. What I think you need to keep in mind there is that basically -- if you look, first of all, to the comparative number, we -- last year, Q3 was the highest quarter of the year. So we have, I mean, a more difficult comparative this year.And again, if you look at in terms of pacing, when we look at the current business momentum of the portfolio, we expect, I mean, this year Q4, so in the quarter we are in, to be stronger than Q3 simply matters of pacing as well. So basically, no worries on that front.In terms of volume momentum and growth, as you know, we are constantly debottlenecking and going further to the next stage in our current Thai operation. So it depends really when these levels are coming in. But to me, no real worry in terms of momentum there on the PLA side, we'll see a bad quarter in Q4.On margin, obviously, we've been constantly increasing our prices on PLA. We have now prices well above $3,000. So -- and we are optimizing as we go to a very high level actually of pricing. Obviously, they are also facing the joint venture, higher input cost from raw material, including our lactic acid, but also [ fried ] that they are facing.Although we are working very closely with Total energy to maximize global logistics, and we are leveraging also what Total energy is adding there. But still, we are facing some of cost increase in the PLA. But again, back on volume, no specific worry. On the opposite, we have a very healthy pipeline. You might have seen this week, we launched the first recycled PLA, and we had a press release out on, I think, yesterday or today. So -- and this is very important because the next step of PLA will be to offer end-of-life options and the first raw material is to have a recycled PLA. The second, which is more an innovation project that is in the pipe is on [ compossibility ] and that's still a work in progress, but we will have the opportunity to come back on that.
The next question comes from Mr. Alex Sloane from Barclays.
First one would just be on the 2022 margin outlook. I appreciate it's still quite -- it's a very uncertain time. You had talked about the first half an ambition to restore the core EBITDA margin above 15%. I didn't note that in the statement today. Is that still the ambition? Or could that be delayed given the higher cost inflation that you referenced in particular on sugar?And then just secondly, just going back to the Incubator and the Algae, omega-3, obviously, really excellent momentum there. I wonder if you could give maybe a bit more color on where you are in the sort of journey to unlocking the long-term total addressable market that you've talked about.I mean, clearly, the product ticks a lot of boxes with prices now at parity with wild fish oil but a more sustainable offering. So what are the main constraints to growth at this point? Is it really just kind of production capacity? And do you have any plans on that front to expand capacity?
Yes. So thank you. And so on the first one, neither, we stated last time we had the ambition to restore margin above 15%. And I think we said -- this is an ambition we still have. We know we are moving into a very certain environment. But what I can say there is that we have, of course, 3 major levers that we are working hard on.One, as we said, the price increase. And this is, again, a very strict disciplined approach with honestly very little room to the organization on this. So -- and as I told last time, we have a biweekly process within the business, including Eddy and I. So that's one thing we are doing. Another, I think Eddy also alluded to that is a much stricter control on our cost, whether it is indeed, I mean, on SG&A accounts, but more widely. And the third is, as you know, we ensure this very nice volume growth momentum is, of course, the operational leverage we can get out of that. So to me, I mean, again, it's about being very disciplined, very focused on these 3 elements to make sure we can restore the margin as soon as we can.Having said that, we discussed about cost pricing impact and volatility. You do not want to come back a minute on freight and logistics, for instance, where everything is still open in the air. The challenge these days is not necessarily only price, it's getting available space on sea freight line and -- or making sure that if you consider some specific [ power ] that you have a space for unloading.Today, we still face. And again, we face every day's disruption. And again, it's not unique to Corbion about having the containers in the right place, but not only to unload at docks, I mean, as an example. So it's about making sure also that in this round of negotiations with freight we also secure the space. And again, this is as much as important as the pricing being honest these days, which makes a lot difficult. But so far, we've been able to go through and navigate through that. So that's on, let's say, the margin.On the omega-3, I think if you look to the overall addressable market, we have mentioned, on the space, we are active in, you speak about 150 million, 200 million addressable market. If you consider the aquaculture industry, now there are ways to expand, let's say, these addressable markets, as I said, by moving to other categories.We see also more and more awareness about the lack of sustainability of wild fish oil. And it's about, as I said, not only life cycle analysis on CO2 impact, it's also on biodiversity. For us, it's making sure that we are more vocal about the benefits we are bringing and also converting new customers. Now if you stick to the salmon industry, this is quite concentrated market. You find really less than 10 major global players that are, what we said, the fish compounders. So at one point, when you have a high degree of conversion, we did, we are not yet there, so there is still room to indeed increase our presence in these top 10 payers. But at one point we need to go beyond that.What we are looking at to give you more color is we see the next step as going for mix improvement. Today, we have been a very good suitable product for the sound market, addressable market, but there are ways where we can improve our mix moving to more specialty products. And we see an important next step there and saying, okay, how can we move on, whether it is by refining, improving our products to move up the margin ladder.And that, of course, is something that we paused for a while because we said, guys, we have no business if we don't get to breakeven. So the focus was very much on getting the yield up and focus on the current DHA omega-3. But the next step is really now that we see that horizon, not too far is to reenergize the innovation pipeline to get also for mix improvements.The second point you touch is indeed at the current pace. We're going to quickly be in a position where the plant is eventually sold out, which is great news. But -- and indeed, it's about looking on how we could further debottleneck expand on this and how can we even further leverage the fact that we would run flat out on this plant in Brazil. So we are busy on these 2 fronts as we speak. But obviously, this is something that we would have to come to a decision later next year. And so that's the game plan we have in omega-3.
The next question comes from Mr. Sebastian Bray from Berenberg.
I would have a few, please. I'll start with PLA. There have been some rumblings around capacity announcements by BBCA and other Chinese producers more recently. And in some cases, they seem to be targeting a 2- to 3-year time horizon for ramp-up. How's your view of the supply-demand situation for PLA over the next 2 to 3 years changed over the last 6 months? I'll pause there and then I'll move on to the other ones.
Yes, Sebastian. So on PLA, indeed, true, if you look at all these announcements primarily coming from China. Yes, there is, I mean, of course, some huge numbers in there. So we, again, have done our own analysis of what is most likely to happen. And obviously, it's never given. But when we look next to this year, the majority of the other projects are you know projects where you can build, of course, an active capacity as well as PLA capacity. And we know that in the best case this takes a more 3 years time horizon, providing everything would materialize.And so one thing is that things will materialize in China. That's a given, and we are getting prepared for it. We don't think this is going to happen before '25. However, we are getting really ready for that. We mentioned in former calls, as you know, one of the competitive advantage that we need to maintain is twofold.And this is why I think it's important we run the best and most efficient operation in terms of cost, but also in terms of CO2 footprint. And this is what's driving the current investment in the new plant in Thailand. We know that basically customers are more and more aware about, indeed, the environmental impact.And this is why CO2 footprint is of extreme importance because most of the customers now also from the PLA standpoint are asking also some strong commitment in terms of CO2 reduction. And with this new lactic acid process, we're going to be the first in the world to have a [indiscernible], as we say, negative [indiscernible] impact there so -- on the active process.Next to that, it's a process that will provide us a better cost, which is also not negligible. So when you combine the lower cost, plus we know CO2 going to become in the years to come, if you follow a bit what's happening in some markets and probably in Europe in terms of the EPS, but also people do speak about [ CITA ] which is going to be carbon import tax. This is planned coming on stream by '27, '28.We want to be in a position where we are not only the lowest cost producers, but also the lowest carbon CO2 emitter for lactic acid because it has not only impacted sustainability credentials, but also on cost and then if you look at the carbon price. So this is what I call our life insurance, you have got to stay ahead.Having said that, no doubt the Chinese will be there. They will come. They will come in a big way, and it's up to us to get ready for that. But this will happen, we think between '25 and '27, '28. So again, we are very conscious about that. So I hope it answers your question.
Yes, Olivier. If I may just probe your own market analysis for the PLA. On a 3-year time horizon, so let's say by the end 2024, if the current market size at the moment is around 300-kilo tonnes, maybe a little less. Do you think it's plausible that there could be an additional 300 kilotonnes of capacity on the market at that stage? Or is that net high or too low?
Before the value?
This is for the total PLA market. And what I was saying is that if we have, at the moment, let's say, a little less than 300 kilo tonnes of available global capacity. And is it plausible that they're added to that is an incremental 300 kilo tonnes or so over the next 3 years?
I think it's too high over the next 3 years, to be honest, because you've seen some announcements of basically ADM and NatureWorks that all these investments are coming after [indiscernible]. So the only thing coming up between now and '25 is the debottleneck that we are doing right now as we speak to get to a full capacity.And NatureWorks has announced 10% to 15% debottleneck in the U.S. And now we have a small volume in China from BBCA, but it is really far from being another 300,000 tonnes between now and '25. So the market is going to remain constrained between now and '25 on PLA, for sure. I don't see 300,000 tonnes coming in that period. It is later '25, '26.
That is helpful. If I may switch back and move on to the noncore of your [ multiplier ] segment. The pricing increase for this area was more substantial than the core food business at Corbion. And the volume growth was quite nice as well. Is this just a product of contract structure because clients know that the price increases are coming more quickly so they buy upfront? Or is this business actually going to grow a bit more quickly than many members of the investment community for 6 to 12 months ago?
I think now if you look at the underlying growth dynamic of that business, honestly, we've benefited also from the fact that we've been able to manage better some supply chain disruption in the U.S. than some of our competitors. So this is, again, what really happened.Of course, the team has done a very good job in maintaining the service level despite, I mean, current environment because they all follow what's going on in soybean oil. In the U.S., the whole chain is diverted from food to biodiesel. So it has been a real struggle to keep operations running.But I have to say that in very tough context we've been able to secure supply of soybean and serve our customers, and we've gained quite a lot of shares because of these strong supply chain management. And again, in an environment that has been volatile because I can tell you that even on soybean, we've had quite a lot of disruption from some suppliers there. So that's one thing that is being translated into the numbers.On pricing as well, obviously, this is where if you remember, we had a huge challenge, and we still have, where the level of price increase is very, very high. And we started early on already as from July and what we see is that there basically, it has been very successful in pricing.So we've put in the first big amount of price increase in July in this noncore business. There is another step we're going to do in January. So basically, we are managing this business for cash. So basically, we have been able to secure EBITDA absolute level. Obviously, we have a lower time lag in emulsifier than in the core, and this is why we could manage this pricing there.
That is helpful. I've taken enough of your time, but I'll squeeze one more in. The pricing development in both Lactic Acid Specialties and the Incubator, why was the price down in Lactic Acid Specialties. And as far as I'm aware, in Incubator the goal has been to increase the accessibility of the product by cutting price. Is this just simply a response to higher raw material prices? Or what has gone on here?
Yes. So I can take this one. So lactic acid, you may remember an important growth element in lactic acid division, as we call it, is our lactic acid sales into the PLA joint venture. And that lactic acid is having, on average, a lower price than the rest of our portfolio. So the more we're selling, and especially if the growth rate of lactic acid into PLA is at a higher pace than the rest of the portfolio of loss then on average, you get a negative mix effect, if you will.So that is playing an adverse impact if you purely look at the net sales price development in the lactic acid business. In Incubator, Olivier already alluded to that. So yes, on the one hand, of course, we started to price this from a strategic development perspective to lower levels a good 1.5 years ago, which at a very nice -- what we are seeking, of course, the development in terms of volumes in this business.But that is not, of course, without that, we also have a critical look on what's happening on the input cost factor side. And one -- few of the input cost factors is also on the rise in Incubator. So wherever possible, we're trying to find all the time, the optimal outcome of also pricing in that sense.So yes, we also look in that part of our portfolio for price increases. But at the same time, don't want to frustrate the development of the potential of this business, given where it is currently in its maturity curve.
The next question comes from Mr. Robert Vos of ABN AMRO.
I have two on the PLA joint venture. Similar to Fernand, I was also in the impression that there was pretty much no issue because of higher costs and passing them on to your customers via higher prices. But apparently, there is a bit of a lag. Can you maybe give some color on how long that lag is? Is that one quarter? Or how long does it take you to pass on the higher costs in the PLA joint venture? That's my first question on that.The second one is, can you maybe give a bit of an idea where your capacity utilization is currently at, is that already above 70%, for example, maybe some color there. And my third question, I think, Eddy, you mentioned that you are covered for energy. My question would be for how long are you covered? So when are your energy contracts up for renewal? Or is that also, let's say, a rolling situation. Those are my questions.
So on PLA, Robert, so -- what's also, I think, again, maybe did not explain that it's also a mix -- customer mix dependent, for instance. We are also preparing for the upcoming investments in Europe and also developing other markets than the traditional market where the joint venture was present. So we are trying to balance now in between the 4 geographical areas as well. You know our presence.So there is also in the pricing you see translated today and the margin a mix element in terms of geographical spread. We see also that our own customers are also because of supply chain constraints, relocating their operations some time or production.So for instance, today, for some finished goods, it makes no sense to produce them in China, see the price of container, and it makes more sense to produce it back in Europe. So we see some geographical mix shifts related to that also, and that are translated in pricing and also a different level of margin.Now obviously, we are working on possibly optimize, I mean, the sales price of PLA. We are already, I mean, at a very high level -- don't forget we come from prices, I mean, of a few years ago that were in $2200, $2400 range, and now we are close to $3,500. So it is already a huge step that we've seen happening in the market.On the back of indeed, I mean, the tightness of the market, but also the overall market going up. So we are busy in implementing that. On capacity, you're right. I mean we are in between 70%, 80%, and we are ramping up every day. And debottlenecking every day, whenever we can, and we see an opportunity to get more out of these plans in turn. On energy, Eddy?
Yes, on your question on energy. So I made that remark just to give an order of magnitude that the energy impact of the total input cost inflation that we see coming out of this, energy is not the biggest component in that. Indeed, we are very well covered, not fully covered, but very well covered this year and also for the next year, not 100%, but we have a very good coverage. So that sense, energy is not our biggest worry in terms of volatility when it comes to input cost inflation dynamics.
[Operator Instructions] The next question comes from Mr. Patrick Roquas of Kepler Cheuvreux.
So firstly, this must be a very weird year seeing such a strong sales growth and seeing that your strategy is working, while at the same time being impacted by inflation. But that said, I've got three questions left. The first one is on Sustainable Food Solutions. So clearly, ongoing strong organic sales growth. But did you benefit here also from supply chain disruptions from some of your competitors. And is it possible to quantify this effect?Second is on PLA. So I think the JV highlighted that it's on a full year run rate of 75 kilo tonne Is that also the expected volume for '22? Or how much could possibly be added because of debottling in Thailand? And also a follow-up on Robert Jan's question, what kind of pricing is needed for the JV to pass on inflation fully?And then finally, on the Incubator. So Olivier talked about reenergizing the innovation pipeline in Algae. What does this mean for the overall EBITDA loss of the Incubator? And this does not sound that you might kind of be a bit more disciplined next year in order to mitigate some of the pressure that you see in raw mats. That's it.
Thank you, Patrick. And you're right. I mean, of course, we knew when we did Advance -- we have this ambition to get a much higher growth momentum. So this is materializing, but also [indiscernible] will not be a linear curve. And [indiscernible] in the middle and think again. Not being specific to Corbion, but that's something we are addressing.Now if you look at in the SFS business momentum, so the first impact obviously of the growth is having played a very strong good underlying pipeline from more technical sales, more application mats. And yes, we see the quality of projects, we mentioned last time also the higher conversion rate than usual that we can see.Having said that, there is for sure, 2 other elements that I think are explaining the strong momentum. Although they are not the primary part, but we've seen some suppliers having more disruption than us, and I think we navigated through that. It's difficult to say. I don't want to sound too arrogant there, but yes, we've done a good job. And I think the other is that we also in the preservation space benefited from some tight lactic acid market supply mats, yes, which is still the case now.Now if you look to the 2 businesses we have in SFS. On the one side Functional Systems and on the other is preservation, what we see now is a change pattern where we see an increased momentum in the functional systems and a growth that will come down in preservation simply because we've been growing really like crazy in preservation, so the comprehensive is going to be much more difficult going forward. But at the same time, we see a very strong pipeline in functional systems.We mentioned also a couple of times, some work we are doing in the natural mold inhibitors, which I think are very promising development where today the market is looking for natural alternatives, and we've developed a very nice mold inhibitor solution that is making good stride into the market. So but you can expect the growth in preservation going forward that will slow down compared to what we've seen this year. That's one thing. On the other side, still very strong momentum on Functional Systems. On the PLA run rate, yes, I think that you are spot on. I mean around the 75,000 tonnes for next year is what we are planning there. And on the Incubator -- yes, sorry, Eddy?
So on the Incubator, so Olivier has been alluding already that for next year we still have the confidence that the DHA will break even. You know our financial guidance framework that we released to the market March last year, and that was steady, at the moment that is happening. Then the rest of the Incubator, we will see that as an investment component in our portfolio.And we have applied strict guidance on that, which is 0.5% to 1.5% of our net sales in the quarter. So if you assume a core of something that currently is at the EUR 1 billion, you talk about EUR 5 million to EUR 15 million negative EBITDA as an investment, and this is apart from the breakeven position of DHA. So that is what the guidance is and loss and that is what you may expect for next year in that range.
Yes, that's clear. Just to follow on, on PLA, Olivier. You will be debottlenecking in Thailand or perhaps even expand the capacity of the JV plant there. How much could that possibly add? And also, I think I didn't understand what kind of pricing the JV needs to pass on inflation?
I think on the PLA, yes, there is a couple of 10,000 tonnes that we can get out of this financial year and we constantly work on yield improvement and we told you a few times that there is important pieces of the process [indiscernible] the order of magnitude.So of the view on the inflation [indiscernible] I mean we have, again, we're not disclosing, the detail of our contract is that indeed, we have some royalty of close, as you can imagine, in terms of pricing or things that are passing from the contract, so they have to make an upgrade, as we do in Corbion. Of course, logistics, I mean there is a coming on top of that, yes. So -- but they are active as we speak, really same as Corbion to go to the market to pass on these input costs.
Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.
Okay. I would like to thank everyone for this call, for attending this call. And I was really -- so I wish you all to stay really safe, as you know, we are still in a certain COVID environment. And basically, we're going to -- we'll discuss again for, let's say, the full year results, so that's the next opportunity we're going to have to be together. Okay. Have a good day, everyone. Bye-bye.
Bye-bye.
This concludes the Corbion Quarter 3 Interim Statement Conference Call on the 27th of October 2021. Thank you for listening. You may now disconnect.