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Schouw & Co A/S
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Hello, and welcome to the Schouw & Co. Q1 2018 interim report. [Operator Instructions] I will now hand you over to CEO, Jens Bjerg Sørensen. Please begin.
Thank you very much, and good afternoon, and welcome to this presentation. Overall, Schouw & Co. had development in first quarter, as we expected. We experienced difficult climate conditions and also continuing firm competition. Let me also remind you that the Q1 is the low season period in general in Schouw & Co. Our revenue was up by 7% to DKK 3.85 billion and we saw positive effect from our recent acquisitions. But on the opposite side, we saw an effect on fluctuating currencies. Our EBITDA was up by 10% to DKK 314 million. Also there, we saw a positive effect from the acquisitions of Borg and Alimentsa in Ecuador. Here, we saw a negative effect on raw materials and also, on increased prices on components in some of our companies. Cash flow from our operations is normally at a very low level in Q1. Our net working capital increase is due to effects from increased activity and also our acquisitions. The net interest-bearing debt is in the area of DKK 1.5 billion corresponding to a leverage of 8.9x on EBITDA. The guidance for Schouw & Co. 2018 is maintained. We expect our revenue to grow 6% to the area of DKK 18 billion. We expect to see and deliver an EBITDA in the range of DKK 1.665 million to DKK 1.805 million. It indicates an increase in our overall EBITDA margin on the year. We expect to have CapEx in the area of DKK 750 million in 2018. Also in the year, we expect to see difficult markets due to competition but we have seen that over the last year. We operate under volatile, unpredictable market conditions and here, we especially think on raw materials and currencies. From an overall picture and then into each of our portfolio companies, I will start with BioMar. In Q1, the BioMar revenue declined 66% to DKK 1.9 billion. Here, we experienced negative impact from exchange rates of around DKK 140 million negative. We saw, however, a 9% increase in our volume to 223,000 tonnes in the year, in the quarter. Here, we saw, of course, a positive effect from our acquisition of Alimentsa in Ecuador. The EBITDA was as expected, reduced from DKK 87 million to DKK 80 million. We see Q1 as our absolute low season with limited scaling possibilities. We experienced impact from changing raw material positions compared to Q1 2017, where we had really very good positions. And then we experienced lower volume especially in our Salmones division, mainly due to climate conditions. Two highlights from Q1. We saw strong development in our nonconsolidated companies. Here I'm thinking of Turkey, China, et cetera. We are in an ongoing construction of our new client in Tasmania. It's on track. And our China factory is slightly delayed but business case remained intact. We have worked a lot on integrating elements and it looks positive and promising. And as also mentioned in the start of the year, we have seen a positive impact from our associated companies. Outlook for 2018 is maintained. Revenue in the area of DKK 10 billion to DKK 10.5 billion and EBITDA in the range of DKK 720 million to DKK 770 million. As those that have followed us for a long time knows that Q2 is very important. A big contract negotiation is going on. Performance on our end, they can, as always, have a major impact on the year. We have strong focus on integrating elements and are running an efficiency drive all over the group. Fibertex Personal Care increased their revenue by 14% to DKK 541 million. We experienced continued growth in Asia, and our current business is also in very good development. EBITDA was at 2017 level, meaning DKK 83 million. And here we saw significantly negative impact from currencies and raw materials in Malaysia, impact of around DKK 30 million negative compared to last year. We saw good performance in our base operation. We are -- have started constructing print facilities in U.S., and they are on track. We expect to operate that next year, 2019. We also see very positive reception of our new value-added product, LOFT, in the market. As I say, it's getting us a good foothold in the market and we have strong expectations for that in the future. Outlook for 2018 is cautious but maintains. Revenue about DKK 2.1 billion, EBITDA in the area of DKK 250 million to DKK 370 million. And again, we have seen competition in Europe strengthening. It continues to be tough but it's also something we have experienced over the last quarters. Fibertex Nonwovens increased its revenue, 6% to DKK 406 million. And it was very positive to see the development in our U.S. business where the demand in Europe has been soft and a little bit softer than we expected. EBITDA was reduced from DKK 51 million to DKK 45 million. We have had challenging raw material prices. We have had one-off acquisition costs of the entity in Brazil, and we also experienced some cost on implementation of a new IT system in Turkey. These 2 one-off costs together amounts in the area of around DKK 5 million. Two highlights from Q1. As I mentioned, acquisition of Duci in Brazil, a company we have good expectations on. We already started integrating this new Brazilian company into the Fibertex Nonwovens one company strategy. New capacity and technology upgrades all over are on stream. Outlook for 2018 is maintained, revenue around DKK 1.6 billion and EBITDA in the range of DKK 195 million to DKK 250 million. As I mentioned in the beginning, we have seen a slightly softer demand in Europe but we expect demand to pickup in the coming periods. HydraSpecma increased its revenue, 5% to DKK 599 million, and we have really seen a good momentum in the market and a strong backlog. EBITDA was as expected of DKK 49 million, a little bit lower than last year but has something to do with a product mix and high cost base in Sweden. We have invested a lot in optimization in Sweden and it has increased capacity and expect that it will lower costs in the coming period. Net working capital increased quite a lot but it's part of a strategic decision. We see longer lead times on some strategic components and decided that we need to have sufficient stock to supply our [ cost base ] on that. A few highlights again from Q1. Our setup China is progressing and improving our results. We finalized [ the cleaning up of ] our position of [indiscernible], and expect China to improve further in 2018. We have seen capacity increases in Sweden due to optimization, and we are constructing a new facility in Poland, and it's well on track. So our outlook for 2018 is maintained also on the basis of rather solid backlog, revenue DKK 1.9 billion is expected and we leave it there in the range of DKK 155 million to 175 million. Borg Automotive, which was acquired in 2017 remanufactures spare parts to cars and holds a leading position in Europe. Revenue in Q1 from Borg was as expected, of DKK 242 million. We've seen positive demand across segments and markets. And especially interesting that we are seeing good demand and a strong market from the EMEA segment. EBITDA increased from DKK 12 million to DKK 38 million. It seems to be quite an increase but you also have to bear in mind that in Q1 '17, it was affected by several one-off costs in the level of DKK 22 million. We've seen also good efficiency in our Polish production facility. Two highlights from Q1 being a positive market development across all our products and segments. We are expecting a lot of interesting demand in our pipeline, so we expect to land new customers across Europe in the coming period. Outlook for 2018 is maintained. Revenue, around DKK 1 billion and EBITDA in the range of DKK 155 million to DKK 175 million. GPV, a Nordic leading electronic manufacturing service supplier, had a revenue increase of 9% to DKK 283 million. And here, we saw a positive effect from new customers and products. Demand has, in general, been a bit soft in Q1 on top of a very high record order intake at the end of the year. EBITDA increases, as expected, only slightly to DKK 25 million. We have still a negative impact, as expected, from starting a production facility in Mexico and expect also in 2018, Mexico to deliver negative EBITDA. Also, in GPV, we see longer lead times on components, which really challenges our growth opportunities and also our efficiency. In Q1, we decided to expand our Thailand production facility, and we expect to increase capacity in Thailand by 50% to be able to take expected growth over the coming years. We have a strong pipeline of larger outsourcing cases but [ assumption ] it takes a long time for that. We still have our outsourcing cases, complicated stuff. But we have still expectations on that. 2018 guidance is maintained. Revenue of around DKK 1.2 billion and EBITDA in the range of DKK 125 million to DKK 135 million. So just wrapping up on this presentation. We can say, overall, that Q1 faced challenging markets with tough competition. The guidance for our group is maintained. Q1, as expected, with both growth in the revenue and earnings, and we see that we have solid claims and strong market positions in all of our companies to withstand and to fight competitions. Revenue expected in the area of DKK 80 billion. Of course, we see a positive full year effect from Borg and Alimentsa acquisitions. And also, we are pushing hard on utilizing our new capacity. EBITDA is expected in the range of DKK 1.665 million to DKK 1.805 million. Of course, in a company of our stature and nature, we have always uncertainties on raw materials and currency fluctuations but this is the expectations we have and as we see them at the time being. And we have also strong plans and continue to invest in the future for our companies. So with that remark, I will hand back and ask if you have any questions.
[Operator Instructions] And of our first question comes from the line of Jonas Guldborg from Danske Bank.
Firstly, a question around currencies. You mentioned that the negative impact on BioMar on the top line was around DKK 140 million. But if you look at Schouw in total, how much was the currency impact on revenue and on EBIT?
On Schouw, you would say, it's mainly in BioMar, we have had the biggest impact. So impact is in the area of around DKK 161 million, DKK 180 million on top line. And EBIT impact is not significant. However, if you look at Fibertex Personal Care in Malaysia, because of the U.S. dollar conversion, we see a negative impact offsetting our volume increase in Malaysia.
Okay. Okay. So in absolute terms, the negative impact from currency equals the growth?
We had a slightly -- small negative impact but it's not significant overall at group level.
Okay, got it. And to try and understand the development in BioMar then, could you tell me how much did Alimentsa contribute in the first quarter on both -- on volumes and revenue and EBIT?
We do not disclose precisely on single companies within the group, but Alimentsa contributed as expected. And I can say that it was in the area EBIT-wise of around DKK 20 million. I think that's as far as we can go on that.
Okay, that's fine. And then my last question is also on BioMar. This colder water in the northern Europe space, how much did volumes drop in the Salmones division due to this and how much of that is -- do you expect to recoup during the remainder of the year?
It's always like that in the Salmones business. The salmon is -- the BioMar is standing in at sea and harvest volumes are expected to level out, meaning that the salmon need to feed to reach the right size. So we expect to recoup most of it, and I would say, it's a little bit difficult to say how much was it in general to climate, because we have some contracts we have and didn't have last year. So that -- but in the area, 7% to 10% down on volume in the salmon. And we expect to recoup most of it.
Our next question comes from the line of Claus Almer from Nordea.
Also a few questions from my side. The first question goes to the full year guidance. You, as always, said you touch upon tough competition, et cetera, et cetera. Is this a tough competition more or less than we have seen in the past quarters?
No, and I think I've started this discussion maybe August last year, where we really saw that things were changing a little bit. And I have also maintained the comments on that especially, and it's no secret that in the Salmones condition, BioMar, we see tough competition. We also see tougher competition in the automotive segment, and in the new textile segments I also mentioned in Fibertex Personal Care in Europe, whereas Asia is pretty stable. I shouldn't say good but stable. But in Europe, it's still tough competition. So I think, it's same as we have seen over the last 3 quarters of the year. I would say, so it's not tougher.
Okay. So maybe if I was trying to translate Schouw wording, does that mean you are now aiming for the mid-end of the range? Or is it still in the high end of the range?
I don't think we have said specifically that we are in the higher end. We're always aiming after the higher end but I think we have a range and it remains to be seen what happens on the contract negotiations in BioMar. Because it is, as you know, it is a big factor [ clicking in here ] in second quarter. So we are still confident on our guidance, and we work as hard as possible to get it in the high end, but I will not say it's in the high end. I'm just saying that is always what we are aiming for.
That's what I'm trying to translate this Schouw wording. Did you say that Fibertex Personal Care that the guidance was cautious or did I not hear you right?
Yes, I said it was cautious because -- I think also we guided at the level of the 2017 because we had this competition situation in Europe. And to be honest, we haven't really seen the full effect of that. And also, as I mentioned, that in fact -- although we had EBITDA at the same level as 2017, we had a negative impact of raw materials and currency spread of DKK 30 million in Fibertex Personal Care. So if we could look -- if that wasn't there, we would have had a very strong Q1, but I'm still cautious on Europe.
Okay. So cautious [indiscernible] in your guidance, yes. In your model. It is the assumption behind your guidance that is causing this cautious guidance, right? There's nothing change compared to when you report the full year?
Not at all.
Okay. Then just as a final question, which is at BioMar. Maybe you could put some more wording to the mix effect and pricing effect, both in Q1 but also maybe what we could expect to happen in the second quarter of '18.
Yes. We expect, of course, volume to feed up a lot. Climate has improved. It always takes a little time, so we expect more volume, also meaning we can have scaling back in our supply chain because scaling means a lot. We, I think, also elaborate a little bit on that in Q3 last year that we think that we have seen the competition at its toughest level there, meaning that we expect to keep margins plus/minus in the coming period. So -- but that's in the Salmones. Then we had a very strong EMEA last year. Expect to have that again. We expect Alimentsa to continue to deliver strong. So I think where we have our uncertainties, if I could say it like that, it is in the Salmones division because it's big contracts, it's big negotiation, and it's very short period to supply and deliver.
All right. And Jens, just to be sure. So keep margins in Q2, meaning compared to Q2 last year, right?
No, not compared to Q2 last year. We see it as second half into Q3. Q4 is the level because we had a very good Q1 last year. Also quite good Q2. Because price levels were driven but also we had some very, very good [ raw material ] positions and we should not forget that.
But for the activity level in Q3 and Q4 was significantly higher than in Q2, for instance. So I guess you can't maintain the margins in Q2 as you did in second half '17, or I'm misunderstanding what you were saying.
No, I'm not saying that we can't keep the margin. I'm just saying that if we look into the Salmones, there we had better margins last year because of a lot of different factors. But overall, because of mix and companies, we expect to continue that.
Sorry, you -- I couldn't hear the final part.
We expect to keep margins. Because of the mix and the new companies, it's better.
Our next question comes from the line of Lars Heindorff from SEB.
Just a couple questions from my part, if I can stay in BioMar and maybe follow upon Jonas' and Claus' questions regarding the guidance. I don't know if you can give us any insight to what kind of -- I mean, you've been talking about price pressure here in Q1 and do you assume that pressure will continue in the forthcoming price negotiations? And is that included in the guidance for BioMar?
The guidance we include -- the guidance that we have is, of course, including what we -- the outcome we expect from the negotiations. So you could say the guidance we have, it's -- that we expect to close contracts at margins within our guidance.
Yes. But is that -- those margins and those prices, are those something that is similar to what we have seen here, during the winter in the first quarter?
Yes. On the margin side, there's always a difference when you have high volume and low volume. Q1 is the low volume and difficult to have scale. Q2 is also lower volume than if we look into third quarter. But as I said, the margins is an effect also of mix and new companies and so on. We will see low margins in Salmones as we saw Q3 and Q4. And that means our guidance is made on the basis that we get the contracts that can deliver the EBITDA we are guiding.
Okay. I remember once, I think, you talked about both the softer demand in Europe, but where the U.S. was good. And then, I think, you said that you expect the demand to pickup in Europe in the coming quarter. So I'm clarifying exactly what is the reason for that expectation.
As I said, we saw a softer demand in Q1. One thing was because of climate, because the big new textiles and project business and so on. I cannot do anything, it's too cold, it's [ closed ] and so on. So we expect that to come back. Then we have also had a soft demand of some of our composite products because a change of -- one of our big customers has changed specifications, et cetera, and we expect that to come back.
Our next question comes from the line of Klaus Kehl from Nykredit Markets.
Klaus Kehl with a couple of questions. And first of all, if we look at Fibertex. Is it then correctly understood that here, in the beginning of Q2, you have implemented price hikes, meaning that all else equal, earnings will go up by DKK 30 million in Q2? That would be my first question.
That's too simple, Klaus. We have, as always, raw material escalators and depending on how we land out in the previous quarter and the DKK 30 million. There is one thing, was the currency effect as of the mix between Malaysian ringgit and U.S. dollars and then the other one was raw materials. So it was not all DKK 30 million that we can compensate. We expect, Klaus, in the margin compensations on raw materials in Q2 but it's not all of the DKK 30 million. A big part of that was from currency.
But it's always -- it's the same always if the raw materials are increasing, we are lagging. And if we are lagging and if we are on the positive side and if we are decreasing, we are lagging.
Okay, but -- so that means that you can't compensate for the currency impact?
We cannot. It's a split between -- it's very complicated because it's -- something is done in [ euro ] and something is done in U.S. dollars and this split just gives us -- when we convert it back, that gives us a negative effect.
Okay. Okay. Fair enough. And then second question. You have quite a lot of activities here in the Nordics and in Europe. I was just wondering, we have the Easter in Q1. Last year, Easter was in Q2. Has that, in any way, affected your numbers?
Not significantly, to be honest. As I -- again, we are not supplying consumers as a consumer-oriented company. It can have some impact on stocks and so on but it's not -- we cannot use this as an excuse or as something. It's not significant for us, to be honest.
Not significant. Okay. Excellent. Final question. In these contract negotiations in BioMar, could you try to give us some kind of feeling for what your assumptions are? How aggressive you have been in your assumptions about the new capacity? Just any kind of flavor. Or have you, in fact, perhaps, been very conservative?
As these contract negotiations, they are going on every year, starting up in Q1 and peaking in Q2. And unfortunately, it's a game that has been going like that for many years, all the big contracts, all the major contracts except one. They are negotiated in this very short period. We had, last year, more or less full capacity utilization on the contract base we had. We expect to get that again in 2018. But of course, if something happens in the market, if somebody drops prices dramatically, we could say, well, maybe we are not interested in taking contracts at these margins and so on. And it's the same game that has been going on year by year now. So we are -- it's kind of a game we have been in for many years and, of course, it's always a lot of speculations and so on in that period. So nothing new there. And we do not know how our competitor thinks, unfortunately, but we don't know that. We have our strategy and how we're going to approach the contract negotiations but we're not disclosing that.
Our next question comes from the line of Claus Almer from Nordea.
Just a follow-up question. This is regarding your working capital, which, as traditional, is somewhat negative in the first quarter. But working capital has also been very high on the management agenda for years now. Could you give an update? Are you succeeding in your aims? Or are divisions not performing as you wanted them to do?
To be honest, Claus, we have not succeeded on what we expected. Our working capital has increased too much and we have put strong efforts on it. We have already -- let's see, in Q2, but we've already seen quite of -- things happen. But again, you also have to bear in mind that the acquisitions take a lot of this -- as new companies bringing in more working capital. Also as acquisition is adding along DKK 400 million in working capital compared to last year. But in all fairness, and it's a good question, we have not been satisfied with the development, and we have to push it hard.
What should we think for the full year guidance?
We expect working capital to decline. That also said, we have -- because there's been a nervousness on components. We have -- I think we have too much components on stock. But the problem is, if you are going to supply one of these big automotive customers, and you know how it is, they are so tough and if you don't supply all these big tenants, et cetera, et cetera, and we have been too cautious on that, I think. And then also on the [indiscernible] side. So there is room for improvement, and we are going to push that, and we have not been too good on doing that.
Okay. And then just on the GPV, this existing customer is slowing down. Then you're hoping to get some new clients on board. Could you put a little bit more flavor to this? Is that a traditional pattern? Or have some of your clients just bought too much in the past?
Interesting is that, in fact, we had -- as also said, we had record high order intake for a long period. Then we had December, January, February, we really saw a slowing down on order intake. And so it started to come up again. And it's one of the things, I note from April, that we have seen it continue to improve. But it does really -- why are they slowing down? But we still have a strong backlog. So I think some of them maybe took too much on stock, some of our customers. Also because they were nervous on component shortages, et cetera.
But you said April has started out solid. Was that -- backlog should -- a fast growing business should -- I guess, the backlog should always be growing.
Yes. But it was declining -- in 3 months, it was declining on the back of very, very strong growth on the backlog. And now, we are back on track again. So saying, I hope, it's something that's maybe that was somebody that just had too much on stock.
[Operator Instructions] And we have another question coming from the line Klaus Kehl from Nykredit Markets.
A follow-up question about GPV. You write in the report that you're building out an operation in Mexico. It is my impression that, that business, yes, obviously, is loss making here in the beginning of the year, pretty natural. But what kind of loss do you have in Mexico, will you have here in this year?
We expect a negative EBIT in the year as a double-digits, you could say. Let's say, between DKK 10 million and DKK 60 million negative EBIT. We are -- it's a very complicated business to build up. We are just starting to supply and get approved 2,200 different products. So it takes long time and it is as expected. We had a little slower start than expected, because we couldn't get the right components so we couldn't get the products approved et cetera, et cetera. But we are on track and we have the customers we expect. But it's an operation that takes long time to start up, as expected.
Okay. And what kind of build cycle could that then give into '19? I'm thinking that if it then turns, could it turn positive on the EBIT in '19?
We expect it to be positive on EBIT in '19. Yes, we do.
And there are no further telephone questions, I will turn the conference to our speaker.
Yes. But thank you very much for the questions, and also thank you very much for listening on this presentation. So goodbye from here.