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Schouw & Co A/S
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Good afternoon, and welcome to our Q3 presentation. Our company had a very satisfactory development under difficult conditions. We saw a lot of volatility and tough competition continues. Our top line was down 9% to DKK 9.5 billion. Here, we experienced effect from raw materials and in general activity level. Our industrial businesses saw a softer demand in the quarter. Our EBITDA was down 8% to DKK 834 million. And again, we experienced continued good development in BioMar, satisfying also that we could keep our margins at good levels despite of tough competition and softer demand. Our cost base has, however, been under pressure from inflation in the quarter.
We continue our strong focus on delivering results in 2024, a year of consolidation, our investments level lower than in previous years. We are running profit protection plans in all our companies, among other things, reduction of our FTE base and of course, also our cost base in general. We have also decided to investigate a value creating potential in an independent listing of BioMar. We see good opportunities in trying to make BioMar an independent company, and we think and expect that, that will create value for both BioMar and for Schouw & Company. We have transformed the company over 20 years. We started our ownership and our journey with BioMar in 2005 and transformed the company several times over that period. Our guidance is narrowed. We have now 2 months to go. Top line slightly down and the EBITDA now expected to be around DKK 2.81 billion to DKK 2.98 billion.
From [ Schouw ] and then on to BioMar, where we saw continued strong performance, I also think we have to say that Q3 last year was the strongest quarter in BioMar ever. And then it's very satisfactory that we can keep EBITDA at the same level this year. We have been challenged by biological conditions and issues, especially in Norway, among other things, sea lice problems and also declining sea temperatures. Our volumes were due to that down 8%, mainly driven by the Salmon segment. Turnover now DKK 5.1 billion, 12% down. We have continued to focus on our efficiency and commercial excellence, and it really pays out, with EBITDA DKK 463 million and at same level as in 2023.
BioMar continues to build future and position. We have a strong focus on innovation and sustainability. We really think that these 2 issues will continue to drive value for BioMar. We are upgrading our global ERP platform overall investments of around DKK 200 million, and we really think that having this platform will continue to drive efficiency and productivity at all BioMar companies. The guidance for BioMar will be narrowed. Top line reduced due to missing out on volumes in Q3. We have a strong focus on risk and profitability, also meaning that we have declined to take some volumes because of bigger customer risk than we like. EBITDA now expected to be in the area of DKK 1.41 billion to DKK 1.46 billion.
GPV, really still see very challenging markets. Top line was as expected down. It was down 13% to DKK 2.22 billion. We continue to see soft markets in all industrial segments. And I think we flow together with the big global industrial customers we are serving. We see first signs of relief in the market. Our order intake a little bit up, but still not that we can say that the soft market conditions are over. EBITDA was in the period down 6% to DKK 186 million. Here, we, of course, experienced effects from lower sales, less volume. We had a positive impact from reverse inventory impairment and also a general efficiency uplift contributes positively to our profitability in the quarter.
GPV, they have really taken strong measures and initiated contingency plans to mitigate the declining top line and also the pressure on profitability. We have done a lot of factory footprint decisions and capacity reduction has been implemented in the last year. Our FTE base has been significantly reduced over the last year, more than 1,000 employees has left the company, and we are also preparing GPV for future and really looking into our cost base in general. Of course, we expect that the industrial markets globally also will soon start to see a recovery. But as we speak, we see soft markets. Guidance narrow top line now DKK 8.9 billion to DKK 9.2 billion for the year and EBITDA in the range of DKK 610 million to DKK 640 million.
From GPV to HydraSpecma, where we really have experienced a very strong activity in uncertain market, positive that we have really developed our position in the renewable segment, top line flat at DKK 678 million, and as I said, Renewable Division continued to drive our growth, whereas the global OEM and especially the Nordic IAM segment still impacted from softer markets. EBITDA is flat at DKK 79 million in the quarter. Again, our margin maintained despite very strong market pressure. Asia competition is really a challenge for HydraSpecma, and we have managed the competition very well.
HydraSpecma continues to build future moving production to new low cost country facilities. Our new segmentation and structure has been implemented. Now we have 3 very clear segments and we are building a long-term partnership with leading customers in all 3 segments. Guidance slightly increased. EBITDA now DKK 320 million to DKK 340 million. We expect a high activity level in the remaining part of 2024.
From HydraSpecma to Borg, where also we saw revenue growth in a very challenging market. Top line was up 4% to DKK 492 million. However, EBITDA was down 21% to DKK 36 million. Here, we really had a lot of impact from increasing production costs, which -- production cost salaries, which we were not able to compensate fully in the market. We have been working a lot on pricing and margins. But if we look into Poland, where we have our biggest production facilities where we experienced salary increases of up to 23%. We also experience -- continue to experience tough competition from China really puts pressure on prices, but we have a very strong margin management going on at all levels in Borg.
Borg have launched several initiatives to improve profitability. They are extending their product offerings across product groups. As I mentioned, strong focus on margin management and what we call commercial excellence. Then also Borg acquired a subcontractor in Tunisia to really lower our cost base in future. We have deliveries from the company already, but expect to move more products to Tunisia. Also, interesting just to mention that the salary difference is 1 to 4 compared to our base. Our guidance is narrowed. Now we expect EBITDA of DKK 170 million to DKK 190 million, and we expect also, of course, here to see effect from our contingencies, but that will really first start to materialize going into 2024.
Then from Borg on to Fibertex Personal Care, top line flat at DKK 474 million. Our European base, really strong with a very strong demand, full capacity utilization. We have managed to shift our customer base and really to use our platform there very strongly. Asia hampered by idle capacity and especially from Chinese competition. EBITDA down with 50% to DKK 40 million for the quarter. Of course, again, fierce competition and low volume in Asia is hurting our profitability, but we also had one-off cost of DKK 15 million from reducing our capacity in Malaysia.
FPC, or Fibertex Personal Care, they have really adjusted diligently to a very tough environment. Capacity in Malaysia has been temporarily closed down to reduce cost base and our FTE base has really been significantly reduced. And at the same time, a new operating model for Asia has been implemented. Guidance now lower to -- due to the one-off in Malaysia. EBITDA expected to be around DKK 160 million to DKK 180 million.
Then finally, touching on Fibertex Nonwovens where we see soft markets puts pressure on Fibertex Nonwovens. Top line, however, up 8% to DKK 563 million. We have seen a growth in our wipes segment and especially also in the European construction products segment. EBITDA, however, down 14% to DKK 42 million. Here, we experienced, as we have done in the previous quarters, negative impact from starting up our new spunlacing assembly line in the U.S. We have lacking some volume in U.S. due to one customer introducing a new product line that has not really got off in the market yet, also being hurt by the big hurricane sweeping North and South Carolina, Helene stopped our production for several days and really means a lot of our profitability.
Good margin balance in Europe. In fact, our European business is quite strong. We have full focus on profit uplift and returns. Of course, most important thing is to getting our U.S. spunlacing line and segment in balance. We prepare the Czech Republic for implementing and starting up the new spunlacing line for operations early in 2026. This line is already part of our invested capital. We have hold back on starting it up due to market conditions. We are also driving harder on our value-adding strategy. So EBITDA slightly reduced to EBITDA DKK 200 million to DKK 220 million, partly because of the difficulties we have experienced in the U.S.
So wrapping up everything, the overall look at our guidance. Top line slightly down mainly because of volumes and raw material prices effect from BioMar. And then we have been looking into all their companies and their guidance. And of course, as I said 1.5 months to go, meaning we have narrowed the band and now expect our profitability, our EBITDA to be in the area, as I mentioned already earlier, DKK 2.18 billion to DKK 2.98 billion. And we expect we see soft markets, but this is the best that we see now. Also, important to mention that we still think we have a very strong and solid platform future opportunities. All companies well invested and ready for also looking into the coming years.
So I think with this closing remarks, I will open up for questions.
Claus Almer?
First of all, congratulations with your decision to look into the future of BioMar. That has been discussed for quite a while, I guess. My first question goes to the company descriptions in the report. A theme for most of the divisions are pricing pressure intensified competitive landscape and so on. So the first question is, to what degree is this materially different to the situation after the second quarter?
I would not say it's materially different, but it just continues. And then we see, of course, also when demand starting to get soft, then at a certain point, pressure on prices become more fierce and more intense. But I also think that we have managed quite well to offset this price pressure in general. So I would not say it's much more intense, but it's just continued and at a tough level, so to speak.
Okay. Because then when I read what -- well, first of all, what you said through this presentation, but also what is in the report, it sounds like most initiatives on the cost side is more a continuation of what you have already put in motion to restructuring Personal Care, Nonwovens and the like, more than a more broad-based cost saving exercise?
Yes. So we have to look at both things. I think if you look into our contingency plans, as I said already, we have more than 1,000 FTEs or less -- 1,000 FTEs less. We have been looking into our operating model. We have now taken out capacity and now [ closed ] factory in Malaysia and also to drive efficiency, et cetera. And then I would say we have been hampered in U.S., especially on lower demand from a large customer that we -- that introduced the new product into the market and then also from these hurricane things and so on.
But in general, we have done a lot of contingencies to offset price pressure and lower volume and so on. I think also we will start to see effect. But you know also, when you start these contingencies, it takes time before the effect really comes in. But it has helped our margin and our profitability again probably.
What I'm trying to figure out, is this just the normal Personal Care and those issues we have learned for quite a while? Or are you being in more of a cost cutting mode given how the macro situation is developing? That was more what I'm trying to --
It's twofold, Claus, you could say. We have -- I think we have elaborated on the Asia situation for quite a while. And now we just see that if we take out capacity, we can improve efficiency at one factory and so on will be good for our profitability. So that's just part of discussions we have had over a long time. The situation in Fibertex Nonwovens in U.S. has been a problem for quite a long time. We have seen much better production. We have seen things developing there, and we also expect breakeven on that in next year, but we just need to continue to work on our cost base. And there's nothing different in that when you experience a softer markets, et cetera, et cetera, you try to predict both guidance and budget by doing things.
Makes sense. Okay. Then my second question, and I know this is early days. And I guess you would be surprised if we didn't ask about BioMar. So BioMar is outweighing my comment or questions about the working capital.
Thanks.
So how should we think about a possible proceed coming out of the BioMar IPO? What is the likely use of the proceed if you decide to move forward with that decision?
Yes. I think in general, no comments on that specifically other than you know our business model, you know how we used to operate. We are -- we have a model where we look into to get interesting platform investments or companies into our portfolio and then try to transform them and try to create value on that. So nothing has changed in our strategy or on that level. So let's see when the IPO, if it's done and how much do we get in and so on.
And you also know if we can't find what we think value-creating investments or things like that, then at the end of the day, we have to give something to the shareholders.
Okay. I guess that's the closer I get in this topic.
Emil Haargaard.
Emil Haargaard?
I'll also try with a question around the announcement around a potential separate listing of BioMar. So I'm curious if you could provide some insights into whether you have explored other options for BioMar because we have seen in the past that peers have been acquired by private equity and strategic buyers. So is the IPO decision driven by a desire to retain a majority? And if so, what would constitute a majority? Would that be above 50%?
Yes. For the time being, we are thinking about 50%, but let's see when it really comes. But that as it is, I think also we stated in the announcement that we intend to keep a majority there. And also meaning that we intend to be a long-term owner in BioMar because we also think that could create strong value for our shareholders and for Schouw & Company at last.
Okay. So if you end up deciding to proceed with an IPO, can you comment on whether this would take the form as a spin-off or an offering to existing shareholders?
We will not comment on that yet. I think also we are saying we're exploring the opportunities. And then it gives us kind of freedom to operate and to move, and we thought it was very good to get it out and announce because now we can start speaking and discussions about a lot of things openly.
Yes. That's fair. Maybe a question on GPV as well. So you're currently ramping up capacity in Mexico, partly to capture the growth potential in the U.S. market.
Yes.
Although, no, it's still early days following the results of the U.S. election, but I assume you have discussed scenarios around the outcome of the election, so including how potential tariffs under the Trump Administration might affect this expansion. I think any thoughts on how you view this impact would be appreciated?
Yes, we don't think that there would be a big impact for us. And we also think that the U.S. based industry, they need products and components and so on, and they cannot dry out things coming from Mexico. So we think it wouldn't make sense at all and it's electronics, it's important components and so on. So we think we will still let's say simply be a base for us to supply into U.S. But of course, also we supply also international global companies producing in Mexico and so on. So overall, we -- of course, we have discussed it, but we don't see a big trend on that. And -- but we, of course, anything can happen in politics and especially as we speak. Yes.
Yes, understood.
Ulrik Bak.
Ulrik Bak?
Yes. Also a couple of questions from my side. So firstly, on BioMar and the volume development, they declined 8% year-over-year. Firstly, just put some brief words on what drove this decline, but also if your appetite for new volume contracts have increased on the back of the -- yes, the lower volumes that you have now compared to a year ago in order to keep up your utilization level at your facilities? I thought you might be --
Bak, I think it's a quite valuable question. But you could say, as I also said, of course, we didn't expect volume to decline as much as it did, and that's really because of the sea lice and the sea temperature situation in Norway. We also have had some problems in storms and things and difficult to deliver products and so on. But of course, we're also down on volume as we discussed early on because there have been some contract we haven't taken because of too low margins. I think also if you look at the contribution margins in BioMar, you will see that our contribution margin in Q3 quite much higher per kilo as in Q3 '23. So I think we -- pays off. We took a strategy on profit before volume. And of course, now we need to look into could we balance that maybe a little bit more, but we will keep our eye on profitability absolutely. And then, we saw also there's been some energy problems and fallouts and so in Ecuador that has been driving a little bit on our volume so and so. In general, just small volume adjustments across the board.
I understood. And just to get a sense of whether you are losing market share, do you have any measure of how much the market grew across your segments, so in order to quantify how much market share you might have lost?
Yes, we haven't seen that we really lost significant market share. We might maybe have lost a little bit in Norway, but that has been on purpose because I think I also alluded to that earlier in the year that there was a very big contract we didn't take because of too low margins. And of course, we also knew that, that could be a problem on the volume side, but then we took up other contracts with better margins. So I don't really see that we have lost significant market share at all.
Okay. And then a question on profitability also in BioMar. Gross profit per kilo, yes, it's up 10% year-over-year, but sequentially, it's down. And usually, we see the highest gross profit per kilo in Q3.
Yes.
So what -- so why didn't we -- wasn't this the case this year?
Yes. I think compared to Q3 last year, still quite good. But of course, you can have a point there. But again, a balance on market and segments and so on. And we have had a little bit less volume in Norway, where we last year had more volume and with a good and strong profitability. So it has also something to do with the segments. So, in general, just also we had some very good raw material positions last year or over, I would say, not last year, but in the first half of the year, and now we are on a more balanced base of raw materials, still keeping margins at a rather high level.
Okay. And then just to your comment or I think you wrote on the BioMar slide that you have a cautious approach to credit and risk.
Yes.
Have you seen any bankruptcies among some of your customers or some of the market participants? And perhaps just some color on what type of --
Knocking wood, we haven't, but we are very cautious, especially in the Mediterranean. And its things that comes up and we have a lot of lessons learned on that, meaning also that we are cautious, especially if we are speaking certain markets in the Mediterranean.
Understood. And then just 2 questions on GPV. First one, you're right that the order book remains solid, but did it grow quarter-over-quarter? And do you have any impression whether we are past the worst or when is that --
Yes, I think I said also, I think we are past the worst. We have seen very small signs on the market recovering. So I really think we had a very, very big order book or backlog under the Corona crisis and so on and something of that was also companies just putting in orders to be sure that they could have a sufficient supply and so on. And that has, of course, been reduced. But I think we have a sufficient order book, and we see first very weak signs on recovery.
Okay and then final question. This 1,000 FTE reduction that you mentioned, can you just put some words on the phasing of this? And how much you have booked in severance during the year? And whether -- when we will see the true cost level going forward? Was it already in Q3 or will it be in Q4?
As I said also, it was LTM as a running 12 months where we have seen, I think, in so far in 2024, we have seen around 500 up to 600. And of course, you will just see that we don't hold the cost because we also do that when turnover is declining, where we just announced a big reorganization on our structure and administration and so on where we will reduce quite significantly on the white collar and that you will first see in 2025. But I think around severance costs in the magnitude of DKK 20 million or something like that, DKK 20 million, if you look into it in general over the period.
Okay. And the benefit from this cost exercise, '25 versus '24 in terms of cost?
Yes, we are not commenting on that yet. We are looking into it, and [indiscernible] of course, it will have a quite significant impact.
Andre Thormann.
Andre?
Yes. Can you hear me?
Yes, loud and clear.
So also a few questions from my side. Let me just start with BioMar and realize that there has already been a lot of questions around this. But, but why now? What's the reason for the timing here? Can you maybe comment a bit on that? Because I realize this is something you have been discussing with people for many, many years?
It is. And sometimes when it is the right time, we just felt now that BioMar is on a very interesting journey, has a lot of opportunities. We also would like to show -- really show the value in Schouw & Company. And we think, as I said, it could create -- be value creating both for BioMar and for Schouw & Company. So I think you can always argue and discuss on timing. We just felt that we have discussed that also internally for quite a long time, and we just saw it's a window now, and we would like to go out and test it off in the market.
I think that's the most -- the best answer I can give on the rationale. Of course, although we think there's a good opportunity, and we think it will be well received in the market. But we are, as said, investigating and let's see what comes out of that.
And because we have seen the profitability go up quite a bit in BioMar. Has that in any way been related to preparing this transaction just to be sure?
Yes. To be 100% honest, not at all. BioMar and we cannot prepare and drive profitability very much in BioMar because there's so much dynamics in the market and so. But BioMar has been on a very good journey. We took a new strategic direction some years ago, focused on profitability, as also elaborated on earlier on commercial excellence and a lot of initiatives that has paid off over the last years. So BioMar is in a strong position and also in a position to develop even further.
Okay. Okay. And then maybe what about the rest of the business? Now if you take out BioMar, does that put the rest of the business in a specific situation? Will it be easier to manage? Or can you comment anything around that?
I think -- first of all, I think we intend to be majority shareholder in BioMar. So we cannot let that go, of course, also we need to have focus on that. But there is no difference in managing or running the other companies we have. We have the strategy of management hold the keys, and every company they have their own boards, et cetera, et cetera. So I don't think we will see any big differences in that respect.
Okay. Okay. And then just also another question around BioMar not related to this transaction, however. Can you give any comments around what you see in 2025 already now? Anything we should be aware of? Is there more profitability improvements to come from the better contracts? What about volumes? Anything you can indicate here?
To be honest, I'm not commenting on 2024. I just saying that as I mentioned also that we are standing on a strong base. We have developed BioMar, and we continue to believe in a good development for BioMar with all the initiatives we already had put it to see it stays like that.
Okay. Okay. And then now since Claus didn't ask around working capital --
Yes.
Then I might ask because I thought it would actually be even stronger. I mean, can you comment on what you are seeing here and what -- why the working capital, especially in BioMar wasn't stronger?
First of all, thank you for taking over. No, fair enough. You could say, if you look into BioMar, we have especially on our supply chain that we have less credits, things like that also there's a lot of mix -- market mix means a lot if you increase volume in Ecuador and decrease volume in Norway, then there's a big difference in terms and payment terms from customers and so on. So it's a mix of shorter supplier credits and then longer customer credits in some markets. So that's the mix and sometimes also on the quarter things just happens.
And we are on it.
Of course for next year.
And then in terms of working capital as well for GPV, I mean, can you comment on how far you are with this journey on optimizing working capital there now?
Yes, we are -- there's still some way to go, but we have really developed it a lot and if you look at the inventory levels, I think we have DKK 1 billion down on inventories LTM. So we have really done a lot there. And there's still more to work on, and we have full focus on that.
Okay. And then just 2 more smaller questions. This move to Tunisia in just to be sure, how much of production do you expect to move there? And when will it be finalized?
So we already -- it's a company we already acquired some products, especially 2 product categories, starters and alternators and we expect to move even more to double the output there over the next year. So it's a good opportunity for us really to move production to a very cost efficient and also productivity-wise, very efficient country. And that will have -- should have impact on also from next year.
But is it -- I mean, is it -- I guess it's not the entire production or --
Not at all. We cannot --
Maybe it would quantify in some way?
15%.
15%. I'm just getting a word here from 15%.
15% of Reman work.
Yes, 15% of all our Reman product could eventually be between Tunisia and then let's see because it's really, as I said, a very efficient, very -- with very high productivity in that factory down there.
And is that from next year or is that 15% --
We already have -- I can't remember the figure 100% now, but we have -- we are acquiring products down there. And of course, we are the owner and then we will start moving around. So we will move more products down there. Absolutely.
[indiscernible]
Yes. Congrats with the reasonably strong results, especially in BioMar. Three questions from my side, 2 of them on BioMar.
Yes.
First, if you look at margins and [ EBITDA ], kilo is at an all-time high and even accounting for the fact that third quarter is usually the strongest, it appears as exceptionally high in a historical perspective. Can you give any insight into what extent this could be, let's say, related to a raw material tailwind in the sense that a lot of the raw materials have come down quite significantly lately?
Yes. Yes, of course, we are not disclosing all our secrets on recipes and so on but as I said with a small smile. But you know also that we have worked a lot on recipe optimizations, the way we utilize our cost material base and so a lot of optimization has been going on over some years now. And then we have a much broader raw material platform to play on, meaning also you can really work around on the recipes. So that's really a strong driver in the profitability.
Okay. So but looking into, for instance, the marine ingredients, fish meal, fish oil has come down --
Yes.
And is continuing to go down this quarter and most likely into the next year due to -- yes, you're aware of the quality situation in Peru.
Absolutely.
I'm sure. So near term, do you see, let's say, scope for still or increased margins due to ever or continuing raw material declines?
I don't think so. It's more on the way we optimize our recipes and so on. You also know that our large customers, they are aware of especially protein and oil price developments. And we have also in some of the contracts, of course, price review mechanisms and so on. So it's not a free lunch. And then the market knows when these important ingredients go down, then you also need to follow on prices and so on.
Of course. But looking at your visibility, isn't it so that you have a larger proportion of longer-term contracts now than it used to be?
Yes, we have a larger portion, but of course, also with a lot of clauses and visibility, traceability and so on in it. So it's not just you can take whatever margin you want, you know that also. So it's -- you need to be still competitive and tested out in the market continuously.
Yes, of course. Another question on BioMar. This investment you referred to an ERP of DKK 200 million, can you give an indication of the split between CapEx and costs and also, let's say, indication of the time line?
And to be honest, I don't have at hand a specific split. But of course, it's software investments and implementation investments, most of it and we are moving still -- we are already in the process of implementing, but it will take some time.
Expensed. Mainly expensed.
Yes. It will mainly be expensed, not depreciated. Yes. So we expense it over the year.
Okay. So 2 years to 3 years maybe?
Yes, I think you could count on that, something like that, yes.
Okay. Okay. And then on -- my last question is on GPV. Despite the fact that volumes or top line fell by 13%, you actually managed to nudge up the EBIT margin for the first time in -- on a year-on-year basis for the first time in many quarters.
Yes.
Should we interpret it as unless the volume declines intensify, margins should be flat or increase from here?
I think we also have to take into consideration that we had some impairments on inventory that was positive on margins. But still, we are on a better margin journey with GPV and also margins are not at our targeted level yet. So of course, we continue to press and push for margin increases. And when we get the top line back, then you will see margins increase.
Yes. But I did interpret as, let's say, cautious optimism in the sense that you said that orders had increased somewhat or was that to your --
I said very little, but we see -- I think I said we see small positive signs of potential recovery.
Andre?
Sorry, I just forgot to take my hand.
Okay.
No more questions.
Okay. No more questions. Thank you very much for listening and asking questions, et cetera. So thanks from Schouw & Company too.