Schouw & Co A/S

CSE:SCHO

Earnings Call Transcript 2021-Q4

[Jens Bjerg Sørensen]

Welcome

to

our

2021

Annual

Presentation.

Once

again,

we

faced

a

turbulent

and

challenging

year.

And

I

also –

I

think

I

can

say

that

it

has

been

a

very

difficult

business

climate

throughout

the

year.

In

spite

of

that,

I

think

we

have

delivered

a

very

satisfactory

development

in

Schouw &

Co.

Three

of

our operating

companies

has

really

performed

very,

very

well

even

under

these

circumstances.

So,

I

have

to

say

that

our

management

really

executed

well,

and

all

our

10,000 employees

have

worked

very

hard

throughout

the

year.

I

think

if

you

look

at

our

annual

report

this

year, you'll

also

see

that

we

have

upgraded

our

ESG

reporting

quite

a

lot

and

it's

part

of

the

way

we

are

starting

to

think

in

Schouw

&

Co.,

and

we

will

continue

to

upgrade

and

be

proactive

on

the

ESG

strategy

throughout

the

coming

years.

Just

a

very

quick

glance

on

our

portfolio,

what

does

the

group

or

the

conglomerate

consist

of?

Many

of

you

know

it

very

well,

but

we

have

six

strong

independent

businesses,

all

of

them

within

the

business-to-business

segment

and

each

of

them

holding

a

leading

position

in

their

segment,

something

we

really

put

a

lot

of

emphasis

on

that.

You

need

to

be

leading

in

your

segment

to

be

able

to

be

profitable

and

also

to

build

a

future.

Let

me

give

you

a

very,

very

fast

view

into

the

group.

And

then

after

that,

I

will

take

a

short,

fast

dive

into

each

of

our

companies

to

give

you

an

update

on

what

happened

throughout

the

year.

Looking

at

it

from

an

overall

point

of

view,

I

think

it

came

– yes,

sorry,

yes.

Then

we

have

had

a

very

strong

growth

in

2021.

We

continue

to

grow.

Top

line

was

up

14%

to

DKK

24.2

billion.

Out

of

that,

we

had

organic

growth

of

about

12%.

So,

most

of

our

growth

in

2021

came

from

organic.

We

had

two

minor

acquisitions

impacting

the

top

line

also.

We

delivered

what

we

ourselves

say

a

very

satisfactory

EBITDA

even

it

didn't

grow

compared

to

2020.

We

had

an

EBITDA

of

DKK

2.2

billion

equals

9.1%

in

EBITDA.

Looking

at

our

EBITDA

and

I

said

it's

very

satisfactory,

I

think

also

we

have

to

bear

in

mind

that

costs

around

all

companies

have

exploded

as

input

cost

on

raw

material,

energy,

et cetera.

And

we

have

worked

very,

very

hard

to

offset

these

costs

to

all

our

companies.

But

looking

at

it

at

the

end

of

the

day,

these

cost

increases

had

a

negative

impact

of

around

DKK 150

million

on

our

results.

So,

with

that

in

mind,

I

think

it's

very

satisfactory.

Our

return

on

invested

capital

was

slightly

down

due

to

a

huge

increase

in

our

net

working

capital.

I

will

elaborate

a

little

bit

on

our

net

working

capital

development

on

one

of

the

next

slides.

But

looking

at

the

table

there,

all

in

all,

we

are

satisfied

with

the

year.

Also,

we

had

a

14%

increase

in

earnings

per

share.

So,

as I

said,

looking

a little

bit

deeper

into

our

net

working

capital,

we

saw

an

increase

of

close

to

DKK

1.5

billion

or

47%

of

our

net

working

capital.

A

lot

of

reasons

behind

that

I

think

the

graph

there

also

gives

a

good

view

on

what

has

happened.

Part

of

the

increase

is,

of

course,

we

have

had

higher

activity.

We

have

seen

increasing

raw

material

prices,

all

material

prices

in

general.

We

have

added

a

new

business

into

that.

And

then

we

took

at

the

beginning

of

2021

a

strategic

decision

that

we

wanted

to

build

inventories

on

what

we

call

critical

components

to

be

able

to

supply

our

customers

around

the

globe

and

also

to

meet

the

contracts,

et cetera,

we

have

had

from

or

we

have

from

a

lot

of

our

companies.

And

we

also

thought

that

we

have

the

financial

capabilities

and

opportunities

to

do

that

and

we

think

it

has

been

a

strategic,

very

good

decisions.

We

are

standing

strong

with

our

customers

and

being

able

to

supply

in

most

cases.

So,

that's

part

of

the

net

working

capital.

You

will

also

see

that

it

is

our

inventory

days

increasing

from

76

days

in

average

to

99

throughout

2021.

Looking

a

little

bit

also

on

our

net

interest-bearing

debt

increasing

in

2021,

also

an

increase

that

we

have

managed

ourselves.

Part

of

it

of

course

coming

from

this

net

working

capital

increase,

but

also

investments

in

CapEx,

DKK

745

million

CapEx

investments,

small

acquisitions

and

so

on

then

of

course

also

our

dividend

and

our

share

buyback

program,

which

we

initiated

at

the

start

of

– we

initiated

last

year

has

been

good

for

us

also.

So,

all

in

all,

net

interest-bearing

debt

of

nearly DKK

2.8

billion.

However,

our

gearing

still

at

a

low

level.

Net

interest-bearing

debt

on

EBITDA

is

1.2

times.

I

think

that

also

shows

clearly

that

we

have

sufficient

room

for

growth

and

also

opportunities

to

seek

opportunities,

new

opportunities,

whenever

they

arise

and

it's

part

of

the

way

we

think

strategy

in

Schouw

& Co.

that

we really

want

to

have

this

financial

strength.

We

call

it

a

little

bit

dry

powder

we

have

in

the

basement.

And

then

we

intend,

of

course,

to

use

that

when

we

see

what

we

expect

as

value-creating

opportunities.

As

I

also

said,

CapEx

continued

also

in

2021.

We

had

a

slowdown

in

2020.

That

was

more

because

we

were

at

the

end

of

a

rather

big

investment

program.

And

then

we

started

up

investing

again

in

2021.

Even

the

business

climate

has

been

difficult.

We

do

not

stop

investing

and

thinking

in

future.

And

we

have,

as

I

said,

the

financial

capabilities

for

doing

that.

So

in

2021,

DKK

745

million

in

CapEx

and

a

lot

of

new

CapEx

decisions,

in

fact,

taking

– was

taken

in

2021,

which

will

affect

the

coming

years.

In

2022,

we

expect

CapEx

to

be

in

the

area

of

around

DKK

1.3

billion.

Most

important,

we

have

in

our

two

Fibertex

companies

initiated

rather

large

investments.

One

is

in

Fibertex

Personal

Care,

a

new

line

in

Malaysia,

and

two,

new

lines

for

Fibertex

Nonwovens.

Besides

that,

we

are

extending

capacity

at

some

of

our

factories,

especially

in

GPV

in

Asia,

meaning

in

Thailand

and

in

Sri

Lanka.

So

we

continue

to

invest.

It's

part

of

our

DNA,

and

it's

also

necessary

to

be

able

to

reach

our

rather

ambitious

2025

objective

or

ambition.

We

just

disclosed

that

we

expect

to

be

able

to

deliver

a

top

line

of

around

$35

billion

in

2025

with

EBITDA

of

at

least

DKK

3

billion.

So,

we

need

to

continue

to

prepare

for

that

and

pave

the

road

for

this

growth.

Let

me

then

dive

very

fast

into

each

of

the

companies

in

our

portfolio

starting

with

the

largest

company

in

our

portfolio,

BioMar.

As

you

see also

here,

BioMar

continue

to

grow.

Revenue

was

around

DKK

13

billion,

growth

of

14%.

However,

volume

growth

was

8%,

meaning

that

increasing

raw

materials

hit

the

top

line

positive,

but

still

very

satisfactory

that

we

were

able

to

grow

8%

to

producing

and

selling

1.44

million

tonnes

of

fish

feed.

And

those

knowing

about

volume

and

so

on

also

know

that

1.4

million

tonnes,

that's

quite

a

lot.

It

demands

a

lot

of

trucks

and

ships

to

carry

that

around

in

the

world.

EBITDA

was

unfortunately

declining

from

DKK

972

million

to

DKK

911

million. Reasons

were,

among

other

things,

lower

volume

in

Chile.

Chile

has

always

been

a

very

profitable

market

for

us,

was

seeing

lower

volumes

due

to

less

fish

at

sea

because

salmon

prices

at

the

start

of

2021

was

low.

We

have

really

had

a

lot

of

increasing

raw

materials

and

difficult

to

pass

all

of

them

on

to

customers.

Energy

has

increased

a

lot.

Energy

is

big

–

BioMar

is

a

big

energy

consumer

in

general.

And

then,

we

also

saw

on

the

positive

side

a

very

good

development

in

what

we

call

our value-added

products

or

functional

feed

continued

to

develop

positive.

So,

looking

at

it

in

general,

we

are

very

satisfied

with

the

good

volume

development

we

have

had

in

most

markets.

Chile

were

hit

on

the

volume,

and

we

also

were

able

to

offset

most

of

the

very,

very

explosive

cost

increases

we

saw.

Also

positive

to

see

that

a

strong

development

in

what

we

call

associated

companies.

Our

salmon

farming

company,

Salmones

Austral

in

Chile

performed

very

well.

Results

from

associates

was

up

from

negative

DKK 35

million

EBIT

--

DKK

35

million

in

[ph]



2022 (00:10:27),

plus

DKK 45

million

in

2021,

so

that

was

very

satisfactory.

We

are

investing

still

in

BioMar,

two

new

extrusion

lines

announced

to

be

invested

in

Ecuador.

Very

good

development.

We

see

a

change

of

feeding

or

feed

production

in

Ecuador

moving

away

from

a

more

simple,

basic

production

methods

and

into

advanced

extrusion.

Also

started

up

our

new

venture

in

Vietnam,

has

been

very

difficult

because

we

were

not

able

to

go

and

visit

Vietnam.

But

hopefully

now,

we

have

people,

our

feet

on

the

ground

in

Vietnam

and

start

to

see

this

will

develop.

Also

in

2022,

we

expect

further

growth

and

improved

profitability.

Turnover

in

the

area

of

DKK

14

billion

to DKK

15

billion.

EBITDA

expected

in

a

range

from

DKK 980

million

to

DKK

1.040

billion.

We

will see

what

is

going

to

drive

that

will

be,

of

course,

growth

and

volume,

strong

margin

management,

ability

to

pass

on

these

increasing

raw

materials.

And

then

we

expect

to

change

the

tide

in

Chile.

So,

that's

the

main

reasons

for

the

development

in

BioMar.

From

BioMar

moving

on

to

FPC,

has

been

a

very

challenging

year

for

FPC

because

of

their

number

one,

raw

material

polypropylene

has

been

so

volatile

and

has

affected

profitability.

Turnover

increased

6%

to

DKK

2.2

billion

only

driven

by

high

raw

material

prices.

Volume

were

slightly

lower

in

Asia

because

of

the

value

chain

because

of

difficulties

in

getting

products

around,

transport

costs,

cost

of

containers

and

so

on

has

really jeopardized

the

way

you

could

move

goods

around

in

Asia.

EBITDA

was

down

DKK 90

million

to

DKK

315

million,

EBITDA

percent

from

19.2%

to

14%,

so

it

also

really

shows

significant

drive

down.

But

only

affected

by –

because

of

raw

materials,

we

had

a

negative

raw

material

effect

in

2021

of

DKK 77

million.

And

then

energy

also

exploded

for

FPC

very

big

energy

user.

Just

an

example,

also,

when

I

said

sending

materials

around

in

Asia,

we

are

supplying

from

Asia

to

US.

Container

used

to

be

$5,000

per

one

container

at

the

end

of

the

year,

it

was

$29,000.

So

this

is

really

something

that

is

difficult

to

work

on.

We

are

installing

the

new

line

9

in

Malaysia

getting

ready, 15,000

tonnes

capacity

starting

up

here

in

2022.

Line

2

print

facility

in

US

also

in

the

making

and

starting

to

produce

commercial

here

at

the

start

of

the

year.

Expect

to

continue

to

grow

top

line

expected

between

DKK 2.5

to

DKK

2.6

billion

and

EBITDA

in

the

range

of

DKK

310 million

to

DKK 350

million.

We

will

see

some

volume

effect

and

of

course

many

will

ask,

okay,

couldn't

we

see

a

higher

EBITDA

level when

you

expect

to

increase

your

top

line

and

your

volume?

But

we

also

have

to

take

costs

for

running

in

line

number

9

in

Malaysia.

And

we

have

also

decided

that

we

are

going

to

participate

in

some

of

the

cost

increases

in

the

transportation

around

Asia

to

help

our

customers

on

the

long

run.

So

in

2022,

we

expect

to

see

ourselves

also

sharing

some

of

– some

costs

that

are

exploding

towards

our

customers.

From

FPC

to

the

other

company

in

the

Fibertex

family,

Fibertex

Nonwovens,

experienced

extremely

volatile

and

demanding

year.

They

were

flying

in

half

one,

had

a

turnover

of

DKK

1.9

billion

for

the

year,

the

first

half,

all-time

high

profitability

fantastic.

And

second

half

dramatic

down,

very

low

profitability

more or

less

from

the DKK

127

million

EBIT

in

first

half

to

zero EBIT

in

second

half.

That's

really

dramatic.

That

was

due

to

our

huge –

a

lot

of

our

automotive

customers

stopped

their

activity

for

or

had

a

stop

and

go

strategy.

We

saw

our

US

wipes

business

were

hampered

because

of

inventory

build

and

a

lot

of

the

value-added

product

as

protective

face

masks

or

respiratory

face

masks

and

so

on

was

for

a

time

put

on

hold.

And

then

we

were

also

facing

here,

as

in

other

companies

exploding

costs,

especially

on

raw

materials

and

energy.

Profitability

was

[ph]



high

(00:15:44),

EBITDA

15%

down

to

DKK

230

million.

I

have

to

say

that

Fibertex

Nonwovens

have

worked

very,

very

hard,

pushing

so

hard on

getting

compensations

on

prices

and

so

on

and

succeeded

a

lot.

And

I

really

have

to

appreciate

what

the

organization

throughout

Fibertex

Nonwovens

have

been

for

handling

this

very

difficult

situation.

We

have

a

large

investment

program

ongoing,

decided

investments

of around

DKK

600

million

that

will

come

into

play

in

2023.

Two

new

lines,

one

in

US

and

one

in

the

Czech

Republic,

supplying

and

building

on

the,

what

we

call,

speciality

wipes

markets

in

this

segment

where

we

are

very

strong

and

we

also

expect

to

grow

a

lot

in

future.

2020

will

be

a

year

of

transition.

Expect

to

grow

the

top

line

between DKK

1.9

billion

to

DKK

2.1

billion.

EBITDA

will

be

down

compared

to

2021,

but

that

has

starting

point

that's

second

half

was

so

slow.

We

have

– we

begin

to

see

things

picking

up

again,

so

that's

positive.

But

of

course,

let's

see

what

happens

on

raw

materials

and

so

on.

But

demand

is

good,

margin

starts

to

improve,

and

the

organization

are

pushing

hard

for

cost

compensation

and

also

changing

the

mix.

So,

from

Fibertex

Nonwovens

or

from

the

two

Fibertex

companies, I'd

just

like

to

show

this

slide

here

where

you

could

see

three

of

the

most

important –

sorry,

I

have

to

go

back.

Yeah.

Where

you

could

see

the

three

most

important

raw

materials

in

Fibertex,

how

they

have

developed

throughout

2021.

Most

important

one

is

the

one

on

the

left

side

as

the

polypropylene

or

PP

where

we

use

more

than

100,000

tonnes.

Just

look

at

the

way

prices

have

increased

in

2021,

very

difficult

to

handle

and

work

with.

Average

now

€1,800

– €1,700

per

tonne.

And,

also,

viscose

and

virgin

PET

has

really

developed

a

lot.

So,

it

takes

a

lot

for

an

organization

to

handle

that.

You

continuously

need

to

work

with

adjusting

your

prices.

Normally,

we

adjust

prices

in

Fibertex

Personal

Care

every

quarter

and

Fibertex

Nonwovens

more

or

less

every

year.

Here,

you

have

maybe

been

out

adjusting

prices

10,

15

times.

Continues

to

work

on

that.

You

need

to

rethink

your

products.

You

need

to

redesign

how

can

you

do

to

get

around

these

prices.

So,

it

has

been

a

big

challenge,

but

good

that

we

have

a

lot

of

experience

in

the

companies

to

handle

this.

From

that,

moving

onto

GPV and

now

onto

the

three

companies

that

have

really

performed

very

well,

what

we

call

our

three

industrial

companies

has

– have

very,

very

strong

years

GPV,

build

on

a

strong

demand

across

all

their

segments,

growing

11%

to

DKK

3.2

billion

and,

in

fact,

getting

out

of

2021

with

an

all-time

high

backlog,

even

orders

covering

well

into

2023.

Strong

profitability.

EBITDA

up

27%

to

DKK

342

million.

We

had

a

positive

currency

effect

on

EBITDA

of

around

DKK

15

million,

but

still

strong

profitability.

Also

came

out

of

high

efficiency

and

capacity

utilization.

We

are

still

work –

GPV

is

still

improving

a

lot.

They

have

a

very

strong

pipeline

of

new

customers

going

well

into

the

coming

years.

One

thing

we

decided

to

do

in

GPV

when

this

difficult

component

situation,

freight

situation

started,

we

decided

we

need

to

build

inventory

on

what

we

call

critical

components.

So,

we

have

increased

inventories

in

GPV

with

around

DKK

600

million.

Strategic

decision

came

out

of

the

difficult

supply

situation,

and

I

think

as

we

speak,

we

are

very

positive

that

we

have

these

inventories

because

we

are

still

able

to

supply

customers

around

the

globe.

We

are

having

needed

capacity

increases

ongoing,

extending

our

two

signature

factories

in

Thailand

and

Sri

Lanka

expected

to

be

ready

in

2022,

beginning

2023.

So,

with

that,

I

can

say

GPV

expect

to

continue

strong

momentum

in

2022,

top

line

between

DKK 3.2

billion

to

DKK

3.4

billion,

EBITDA

DKK

300

million

to DKK

340

million.

Of

course,

supply

situation,

component

prices

and

so

on

is

difficult

to

forecast,

but

we

are

still

positive

on

the

development

there in

GPV.

From

there

to

HydraSpecma showed

very,

very

good

development,

global

OEMs

bounced

back.

All

the

global

OEM

customers

in

2020

were

really

suffering,

but

in

2021,

flying

high,

growth

17%

to

DKK

2.3

billion,

and

very

high

activity

level

across

all

segments

in

HydraSpecma.

Also

here,

we

have

all

time

high

backlog,

so

that's

very

positive.

Profitability

was

strong,

EBITDA

up

36%

to

DKK

286

million.

Here

we

also

have

to say

we

had

an

extraordinary

income

of

DKK

17

million,

but

again

still

good

and

solid

profitability

due

to

high

productivity

across

all

facilities

in

HydraSpecma.

And

they

have

also

had

a

lot

of

increasing

prices,

et cetera.

And

they

were

partly

offset

by

strong

pricing, excellent

strategy

throughout

the

company.

We

are

expanding

facilities

throughout

the

company.

We're

growing

with

our

customers.

We

are

building

new

in

Asia.

We

are

building

new

in

Poland.

And

we

are

exercising

what

we

call

the

best

cost

country

strategy

looking

at

where

do

we

have

the

best

cost

opportunities

and

utilizing

that.

HydraSpecma

we

will

build

on

a

solid

backlog.

Expect

top

line

to

be

between

DKK

2.3

billion

and

DKK 2.5

billion.

EBITDA,

around

DKK

260

million to

DKK

290

million

as

we

speak.

Moving

on

to

the

last,

but

not

least,

company

in

our

portfolio,

Borg

had

a

very

busy

year

with

both

acquisitions

and

integrations.

Top

line

we're

growing

57%

to

DKK

1.36

billion.

Borg

came

out

from

a

very

difficult

2020

where

they

had

months

where

the

sales

were

very

low,

but

Borg

regained

18%

organic

growth

on

the

reman

products,

reman

strategy

strengthening.

DKK

345

million

of

the

growth

came

from

the

acquired

companies

TMI

in

Spain

and

the

new

SBS.

Profitability

were

improved

in

general.

EBITDA

plus

50% to

DKK

162

million,

of

course,

also

some

effects

from

acquisitions.

But

as

I

said,

the

reman

business

doing

very

well.

Efficiency

improved

throughout

the

entire

company.

We

took

over

SPS

as

a

new

activity

from

July

2022.

SPS

is

a

trading

company

with

their

own

brands,

two

brands,

NK

and

Eurobreaks

having

160

employees,

strong

positions

in

Germany

even

in

Russia

and

in

France,

a

company

we

extend

– we

have

intention

to

build

on

and

to

develop

brands

with.

Borg,

expect to

continue

to

grow,

top

line

DKK 1.6

billion

to

DKK

1.8

billion

and

EBITDA

around

DKK

170 million

to

DKK

200

million.

So,

we

really

have

now

moved

Borg

in

the

right

direction

and

can

see

DKK

2

billion

company

not

too

far

away.

So,

with

that

very

short

dive

into

each

of

our

portfolio

companies,

let

me

just

elaborate

a

little

bit

on

our

2022

guidance.

And

I

think

as

a

starting

point,

we

should

say

we

expected

really

2022

to

be

a

very

good

year,

high

activity.

We

have

a

solid

backlog,

a

lot

of

things

with

our

customers

we're

going

on.

We

have

added

new

capacity.

We

see

opportunities

but

we

did

not

take

into

consideration

the

critical

development

in

Ukraine

and

it

is

not

factored

into

the

actual

guidance.

But

just

to

lift

a

little

bit

on

uncertainty,

I

could

say

of

course

uncertainty

increased

but

our

activities

in

Russia

Ukraine,

they

are

not

that

big.

It's

around

1.4%

of

our

top

line.

We

do

not

have

any

production

facilities

in

either

Russia

nor

Ukraine.

But

of

course,

we

have

sales,

sales

of

around

DKK

350

million,

mainly

coming

from

BioMar,

Denmark,

and

from

the

newly

acquired

SBS.

And

we

have

also

feet

on

the

ground

in

Russia,

a

small

organization

over

there.

But

this

guidance

here

does

not

include

any

kind

of

uncertainty

from

that

situation

there.

So

we

still

guide

a

growth.

Top

line

2

– DKK

25.5

billion

to

DKK

27.5

billion.

EBITDA

having

a

more

broader

or

wider

range,

DKK

2.15

billion

to

DKK

2.4

billion.

And

as

I

said,

when we

looked

into

the

year,

months

ago,

we

were

very

optimistic

on

this

guidance.

We

are

still

positive

on

the

guidance,

but

of

course,

we

also

have

to

be

realistic

on

what's

going

on

around

the

world.

We

have

a

general

global

concern

on

input

costs,

energy,

freight,

and

so

on,

and

we

are

looking

into

that,

but

we

have

not

seen

anything

that

change

our

present

outlook.

So,

with

that,

just

the

last

slides

also

saying

that,

of

course,

we

have

a

lot

of

priorities

at

group

and

company

level.

We

work

with

a

clear

road

map

on

how

to

continue

to

be

profitable

and

create

growth

within

the

group.

We

have

four

priorities

we

expect

to

deliver

on

and

we

have

put

a

lot

of

activities

around.

We

want

to

improve

profitability

in

general.

We

have

pricing

excellence

teams

working

into

secure

that

we

can

pass

on

all

increasing

costs.

We

have

expanded capacity

also needs

–

means

that

we

need

to

go

in

the

market

and

get

sufficient

volume

in

the

long

run.

We

have

to

balance

our

net

working

capital,

but

also

to

understand

the

market

dynamics.

And

then,

we

–

as

a

new

thing,

not

a

new

thing,

we

will

work

on

it

a

lot

but

we

have

put

ESG

on

as

a

strategic

lever

for

Schouw.

And

we

are

pushing

hard

on

creating

value

and

at

the

same

time

being

a

very

responsible

company.

So

with

that

note,

I

think

I

will

just

put

on

the

next

one

and

then

open

up

for

Q&As.

Thank

you.

[Jens Bjerg Sørensen]

Claus

Almer.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Yes.

I

will

start

out

with

a

few

question

and

I

will

wait

for

the

most

obvious

question

Jens for

later.

[Jens Bjerg Sørensen]

Yes.

I

know

what

it

is,

so

thanks.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

So,

the

first

will

be

for

your

2025

targets.

[Jens Bjerg Sørensen]

Yeah.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

First

of

all,

why

did

you

not

decide

to

single

out

the

M&A

impact?

It

is

slightly

difficult

to

use

your

2025

targets

if

that

includes

M&A

impact,

which

we

don't

know

what

is.

That

will

be

the

first

question.

[Jens Bjerg Sørensen]

Yes.

No.

Claus,

thank

you

for

that

and

I

agree

with

you.

When

we

say

including

M&As,

you

also

know

we

have

small

M&As

going

on

every

year.

As

you

saw

this

year,

we

had

the

TMI,

SBS

with Borg

and

so

on.

Most

of

the

expected

growth

will

be

organic.

That's

what

we

expect.

We

have

also

set

in

capacity

investments

and

so

on

to

meet

that

target.

So,

we

do

not,

in

this

target,

foresee

any

major

acquisitions.

So,

it's

more,

can

I

say,

like

that

business

as

usual,

M&A,

small

bolt-ons,

easy

to

integrate

into

each

of

our

companies.

So,

that's

with

that

in

mind,

Claus.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Okay.

And

then

–

so,

now

you've

set

a

new

direction

or

set

of

direction

for

2025.

It's

a

little bit

difficult

from

the

outside

to

figure

out,

but

have

you

also

– does

this

mean

a

change

of

your

strategy

for

the

individual

divisions

or it's

more

as

we

know

Schouw?

[Jens Bjerg Sørensen]

No,

it's

also

– of course,

it's

built

on

the

back

of

what

we

see

from

each

of

our

companies.

So,

we

run

a

strategy

exercise

every

year

and

update

forecast

and

so

on,

and

we

just

had

our

strategies

seminar

here

in

January

and

then

actually

looking

into

our

2025

strategy,

we

call

it

Build

Future

and

we

could

see

this

is

where

we

expect

to

come.

And

we

thought

it

was

time

also

to

disclose

to

the

market

that

we

are

a company

that

intend

to

grow,

we

are

ambitious,

built

on

the

companies

we

are

having

in

our

portfolio

now

and

not

including

very

big

acquisitions.

But,

of

course,

each

company,

they

have

– had

a

strong

strategy

process

and

have

plans

for

how

to

deliver.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

But

what

–

okay.

But

now,

you're

making

all

these

cash

flow and

we've

been

discussing

this

in

the

past.

So,

why

don't

you

be

more

precise

or

more

ambitious

on

your

M&A

journey?

[Jens Bjerg Sørensen]

No.

But

I

think

it's

–

you're

right

asking

that

question,

but

you

also

know,

Claus,

it

is

difficult

to

be

specific

to

say,

okay,

now

we

are

going

to

make

acquisitions

of

this

and

this

size

and

so

on

because

do

we

find

the

right

companies,

do

we

do

– could

we

find

them

at

an

attractive

pricing

and

so

on.

But

let

me

be

very

clear

and

say

we

also

have

intention

of

being

acquisitive

also

if

something

very

attractive

and

big

comes

up.

As

I

think

I

started

saying,

we

have

a

lot

of

buying

power

and

we

intend

to

use

that

to

create

value

also

in

future,

so

yeah.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Okay.

And

then,

jumping

to

BioMar,

you

mentioned

Jens that

cost

inflation

or

input

cost

inflation,

freight

costs

and

so

on

was

difficult

to

pass

through

to

the

clients.

[Jens Bjerg Sørensen]

Yeah.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Normally,

you

have

a

sort

of

a

pass-through

structure.

And volume

is

good.

Is

this –

of

course,

the

situation

in

Chile

is

maybe

a

little

bit

not

the

ordinary

as

we

know

about

BioMar.

But

can

you

try

to

add

some

color

to

the

pricing

discipline

in

the

market

and

for

you?

And

what

should

we

think

about

cost

inflation

being

passed

through

to

clients?

[Jens Bjerg Sørensen]

Yeah.

There

are

several

things

and

you

are

elaborating

right

on

that.

And

that

– but

one

thing

is

main

cost

contracts

or

cost

plus

and

pass-on

mechanism

is

within

the

salmon

segment.

The

other

segments

are

much

more

fragmented.

We

don't

have

the

same

ability

just

to

go

out

and

say,

okay,

cost

increased

that

much,

so

you

have

to

do

it,

so.

So,

it's

–

it

goes

for

salmon.

But

I

think

also

we

build

on

industry

kind

of

contract

structure,

saying

that

it's

only

raw

materials

you

can

do

it

on.

But

we

have

had

a

lot

of

other

costs

exploding

as

energy,

transportation

and

so

on.

And

that's

not

built

into

the

contracts

in

the

same

way

also,

meaning

that

we

are

rethinking

how

should

we

try

to

build

contract

structures in

the

future?

On

the other

hand also,

we have

had

some

raw materials

that

all, by

a sudden,

became scarce,

and

we couldn't

get

them.

And

then,

we

had

to reformulate

and

do

a lot

of things.

So,

it

has

really

been

very

difficult.

But

the

direct

raw

materials'

cost

to

large

salmon,

cost

how

much?

You

can

pass

on

within

a

month

or

things

like

that,

how

it's

said

in

the

contract,

but

energy,

transport,

and

so

on, it

doesn't

go

in

the

same

way.

So,

we

have

to

look

into

how

do we

see

contract

structures

in

future

and

something

we

are

rethinking

for

the

time.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Okay. And

then,

just

a –

the

final

question,

and

that

goes

to

net

working

capital

Jens...

[Jens Bjerg Sørensen]

Yeah,

yes.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

...a

old

good

topic

and,

of

course,

I

acknowledge

that

your

revenue

growth

means

higher

net

working

capital

and

also

the

situation

within

[ph]



P2P (00:34:26).

But,

still,

I

think

it

was

a

high

level

you

ended

the

year.

So,

maybe

to

ask

it

in

another

way,

how

should

we

think

about

the

level

when

you

are

leaving

2022?

[Jens Bjerg Sørensen]

Yeah

– No.

But

I

think,

we

should

be

very

honest

and

open.

We

have –

we

said,

okay,

it's

a

strategic

decision.

But,

I

have

to

say

myself

also,

I

got

surprised

that

it

had

to

increase

that

much,

and

it

happened

very

fast

also

because

of

price

increases

and things

like

that.

So,

I

cannot

stand

here and

say

that.

That

was

100%

as

we

expected

it,

but

we

took

a

strategic

decision,

saying

that we

need

to

build

inventories

and

so

on

but

our

net

working

capital

is

at

the

high

end

and,

I'd

tell

you, it's

something

that we

have

been

discussing

a

lot

around

the

table

here.

But

you

should

expect

it

to

decrease

in

2022.

We

are

putting

a

lot of efforts

into it

also because,

when

you

have

strategic

build

inventories,

you

need

to

be

sure

also

to

– you

have

the

inventories

at

the

right

prices.

What

happens

if

market

suddenly

starts

to

deteriorate

and

do

we

then

sit

with

too

high

component

prices

and

so

on?

So,

it's

something

that

is

very

high

at

the

agenda,

but

we

have

been

calm

in

2021

because

it

was

necessary.

But

believe

me,

we

are

focusing

it

a

lot,

and

I

have

been

a

little

bit

surprised.

I

would

lie

if

I

didn't

said

that,

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

So,

it

would

come

down

in

absolute

or

as

percentage

of

revenue.

[Jens Bjerg Sørensen]

That

we

will

–

we

work

on

a

percentage

of

revenue,

but

we

also

look

into

inventory

days,

[ph]



debtor

(00:36:12)

days,

things

like

that.

So,

there

is

a

lot

of

components

that

we

play

on.

And

I

think

also

we

have

– we

took

also

a

decision

to

say

that

some

of

our

customers,

we

need

to

protect

and

help

some

of

our

customers,

meaning

we

are

extending

their

credit

days

if

we

think

there

is

security

behind

it.

And

I

think

let's

say

that

the

situation

gets

difficult

in

2022,

then

we

intend

to

use

that

facility

again

because

we

can.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Sure.

But

do

you

think

in

a

normal

situation

as

it

is

today,

would

– will

your

net

working

capital

in

absolute

terms

be

lower,

at

the

same

level

or

higher

when

we

are

leaving

this

year?

[Jens Bjerg Sørensen]

In

absolute

terms,

I

could

put

it

that

way,

depending,

of

course,

on

the

activity

level

if

that

increases

a

lot.

But

in

percentage,

we

will

see

it

down,

and

we

will

also

see

inventory

days et

cetera

coming

down.

Absolutely.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Okay.

I

will

–

I

have

to

just

use

that

reply.

Thank

you

so

much,

Jens.

[Jens Bjerg Sørensen]

Thank

you,

Claus.

Thank

you

for

your

questions.

Was

it

[ph]



Claus

Keil (00:37:26) that

was

on?

Yeah.

[ph]



Claus (00:37:29).

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Yes,

hello.

[Jens Bjerg Sørensen]

Hello,

[ph]



Claus (00:37:35).

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

A

question

related

to

your

guidance.

Obviously,

you

stick

to

your

guidance

for

2022.

But

you

also

say

that

yeah,

risk

has

increased

following

what

is

going

on

in

Ukraine,

and

I

can

fully

understand

that.

And

I

guess

it's

not

your

direct

exposure

to

Russia

that

I

should

be

most

concerned

about.

What

I'm

more

concerned

about

is

your

input

cost,

your

energy

cost,

everything

that

goes

into

your

production.

So

generally

speaking,

are

you

hedged

for

2022?

Or are

you

buying

in

the

spot

market?

And

what

kind

of

input –

sorry.

What

kind

of

impact

could

it

have

if,

for

instance,

gas

prices

stays

at

current

levels

for

the

next,

let's

say,

six

months?

[Jens Bjerg Sørensen]

Yeah.

We

have

factored

high

gas

prices,

et cetera,

into

our

guidance.

And

we

are

hedged

at

certain

level.

So

we

have some

hedging.

Hello?

Somebody

is

– should

unmute. Okay.

[ph]



Claus (00:38:43),

can

you

hear

me?

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

Yes.

I

can

hear

you.

[Jens Bjerg Sørensen]

Sorry.

There

was

a

lot

of

noise.

Somebody

unmuted

and

had

a

lunch

going

on

or

something.

But,

no,

[ph]



Claus (00:38:55),

we

have

hedged

some

of

our

energy,

of

course,

also

for

a

longer

time

and

so

on.

And

we

have

factored

rather

high

energy

costs

into

our

guidance.

But,

of

course,

if

things

really

goes

bananas,

we

have

to

readjust,

and

we

are

following

the

situation,

I

would

say,

on

a

weekly

basis.

And

if

things

really

happens,

we

had

to

come

out

to

the

market

again

and

clarify

how

we

see

things

and

so

on.

But

for

the

time

being,

we

still

think

that

we

are

covered.

[Claus Almer, Analyst, Nordea Bank Abp (Denmark)]

And

that's also

including

what

has

been

going

on

for

the

last

week.

[Jens Bjerg Sørensen]

Yeah,

you

could

say.

Of

course,

we

see

some

[indiscernible]



(00:39:37),

and

we

have

not

taken

what's

going

on

the

last

week

into

our

guidance.

I

said

that

also.

We

have

– it

has

been

impossible

to

evaluate

still,

but

we

are

looking

at

it,

as

I

say,

on

a

weekly

basis.

We

have

a

follow-up

meeting

in

our

executive

committee

at

4:00

today

where

we

are

looking

into

where are

we,

what

happens,

and

so

on,

and

we

need

to

do

that

every

week

now.

Okay.

Great.

Thank

you very

much.

Thank

you,

[ph]



Claus (00:40:05).

[Jens Bjerg Sørensen]

Super.

As

we

can

see

on

the

screen,

no

more

questions.

So,

thanks

to

everyone

for

listening,

also

thankful

for

the

questions.

And

I

wish

all

of

you

a

very

good

weekend

in

spite

of

these

dark

times.

Yeah.

Thank

you very

much.