Aktieselskabet Schouw & Co. (SCHO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Celia, your Chorus Call operator. Welcome, and thank you for joining Schouw & Co. Annual Report 2020 Conference Call. [Operator Instructions] I would now like to turn the conference over to Jens Bjerg Sørensen. Please go ahead, sir.

Thank you very much, and welcome to everyone on this glorious morning here at the presentation of our 2020 annual report. 2020 was, in many respects, unprecedented year for all of us. But our business model showed strength, and we managed to deliver a very satisfactory and historical high result. I'm very proud and thankful of the strong efforts from all our many loyal and dedicated employees around the globe during these very difficult times. Our revenue was up 2% to DKK 21 billion. We saw a very good development in our volumes, but negative effect from raw material prices and ForEx had an impact on our turnover. We also had a positive impact from segments delivering products to corona-related areas. Our EBITDA increased 13% to DKK 2.2 billion, which was all-time high. Here, we saw a positive effect from volume, product mix in our companies and also from raw materials. We had a very high-efficiency and cost savings in all of our companies. Cash flow from our operations came out very positive at DKK 2.3 billion. Again, a very solid focus in all our companies. Our net working capital were reduced, and we didn't have any big CapEx investments in 2020. That also made our return on investment -- on invested capital go back about 15%, and our net interest-bearing debt was significantly reduced to DKK 1.9 billion. Our guidance for 2021 will show still a strong profitability, but not at 2021 level. Revenue will be around DKK 22 billion. Our EBITDA will be in the range of 215 -- DKK 2,015 million to DKK 2,225 million. We experienced a negative raw material and ForEx effect as well as a different product mix from 2020. We will invest a lot in new Capex, and our total investment will expect it to be around DKK 1 billion in 2021. We have not factored any major corona effect into our guidance but just at present level. Moving on to BioMar. Here, we saw a solid development with revenue up 4% to DKK 11.6 billion. We had a 7% increase in our volumes to 1.34 million tonnes, which was mainly driven by our Salmon segment. EBITDA increased slightly to DKK 172 million . Our profitability in 2 important markets, Chile and Ecuador was hit during the year due to corona. We had also in Q4, lower profit from sales of fish compared to 2029 -- 2019. But else, we saw a satisfactory development in all our other markets. What we also experienced throughout the year was some of our customers trading down on functional feed in some segments. Looking into some highlights in 2020, we would say we didn't have any big CapEx this year. The corona and certainly throughout the year was really difficult to manage. And the important HoReCa segment suffered a lot during the year. We had, in spite of the circumstances successfully started up new production facilities in both Tasmania and China, and both of them are really operating very efficient. Our salmon farming company, Salmones Austral in hit -- in Chile was hit by very low salmon prices. BioMar has strong capital management. The net working capital was down. They created a very solid cash flow and a return on invested capital plus 18%. Guidance for 2021 for BioMar is based on market normalization late summer 2021. Revenue will be around DKK 12 billion EBITDA in the range from DKK 950 million to DKK 1.020 billion. Our associated companies expect profit after tax in the level of DKK 40 million compared to a rather big loss in '20. We also think or see that aquaculture still expect attractive long-term growth. Moving on to Fibertex Personal Care. Revenue was flat at DKK 2.1 billion. It was driven by falling raw material prices because the nonwoven volume was up 10% throughout the year. We had a solid demand from large global customers, and we were running at nearly full capacity the year out. EBITDA increased from DKK 352 million, to all-time high, DKK 406 million. And here, we experienced positive effect from raw materials and from ForEx around DKK 30 million in 2020. We started up our print facility in U.S., it had a negative impact of DKK 10 million. But overall, we experienced very good effect from efficiency and product mix on value-added products. In 2020, our capacity was stretched. And therefore, we also decided investments in a new line in Asia and the print line #2 in U.S. We also had an interesting ISCC PLUS certification throughout the year -- in the year. Guidance for 2021 will show a lower EBITDA than we delivered in '20 due to exploding raw material prices, revenue will be about 2.2%. Volume is flat because we are sold out, running at full capacity. EBITDA expected in a range of DKK 320 million to DKK 360 million. And as I said, negative effect from raw materials and also from and then also, we will expect later in the year more normalization on the corona related demand. Moving on to Fibertex Nonwovens. Revenue increased 5% to DKK 1.8 billion, and I have to say they really delivered on a fantastic year in Fibertex Nonwovens. New level for Fibertex Nonwovens, they have been able really to take momentum in market. Very strong finish. Q4 was up 28% on sales. U.S. market showed very positive development, meaning also that Fibertex Nonwoven's EBITDA increased from DKK 141 million to DKK 270 million. We saw some positive effects from raw materials in the area of DKK 45 million, but still EBITDA, very strong, meaning coming especially from strong development in specialty wipes and our advanced products. We also had a good effect from high-efficiency and capacity utilization. As I mentioned, I think we saw that and now can show a new profitability level benefiting from all the investments we made throughout the years. And they had in 2020 and really focused on delivering and managing the strong demand, also giving a good development in return on invested capital to 12.2%. Outlook for 2021 is still good, but exploding raw materials also at Fibertex Nonwovens will challenge the profitability. Revenue expected to be around DKK 1.8 billion to DKK 1.9 billion, EBITDA in the range from DKK 220 million to DKK 250 million, slightly below '21. GPV had a very strong finish of 2020, which secured the revenue of DKK 2.9 billion. It has been a challenging year for GPV with huge deviations between the segments they serve. But we have had very strong sales to MedTech customers, especially to one MedTech customer giving an increase in revenue of about DKK 200 million. GPV EBITDA increased from DKK 196 million to DKK 271 million at a very satisfactory level. As I said, strong impact from a MedTech customer, but also very tight cost control and demanning where it was necessary. In 2020, GPV used all their efforts on keeping the factories running on the difficult circumstances, they benefited also from having integrated the acquisition of CCS. So they now operate as one company. They are a very solid pipeline of new projects and a new way of going to market. GPV's return on invested capital increased to 11%. 2020 guidance is based on mixed signals from large customers. Revenue will be in the area of DKK 2.7 billion. EBITDA, also slightly below what we delivered in '19 -- in '20, sorry, giving a range of DKK 220 million to DKK 250 million. We really experienced increasing prices on critical components, and we have to manage that carefully. And we do not expect any corona related orders as we had in 2020. Moving on to HydraSpecma, which really saw uncertainties throughout the whole year. The revenue declined 70% -- 7% to DKK 1.9 billion. They really had a very difficult spring, where some of the large customers closed big plants. But then we experienced strong sales to the wind segment all year. Wind segment is around 30% of total revenue in HydraSpecma. EBITDA was in spite of 7% down on revenue, flat at DKK 211 million, really good cost management and strong efficiency drive and also very solid margin management. HydraSpecma also benefited from compensation schemes, mainly outside Denmark. 2020, they were focusing managing uncertainty and turbulence. At the same time, building a new factory outside Gothenburg, expect this new factory to start producing in May 2021, establishing Electrification Center of Excellence in Denmark, which is very important for future. Outlook for 2021. Here, we now see good demand from many segments. Revenue expected to increase to DKK 2.1 billion, and EBITDA also increasing in a range of DKK 210 million to DKK 230 million. We have a good visibility short term. But long term, we are -- it looks a little bit more blurry, but let's see. For Automotive, revenue decreased slightly to DKK 871 million. I have to say then, though, that revenue developed much better than feared. There was a very low activity in April and May. No cars in the streets. No spare parts was used. EBITDA came out flat at DKK 108 million, which we're very satisfied with, based on strong cost control and demanning especially in our Polish production site and also a very increased efficiency in production. 2020, there was a lot of challenging for borrowers. Demanning low markets, preparation for Brexit, has also taken up a lot. Important, the U.K. market was very important for both, but they have been well prepared on it. At the same time, we acquired the company called TMI in Spain, which reman turbo , which is the fastest-growing segment within reman turbo . Guidance for 2021, Revenue of DKK 1.050 billion, 20% up, mainly coming from the effect of the acquisition of TMI. EBITDA in the range from DKK 130 million to DKK 150 million. So concluding, we expect or continue to grow. We will see a revenue around DKK 22 billion. As mentioned, we are having -- expecting CapEx investments of DKK 1 billion, meaning we are preparing for future growth. EBITDA still at an attractive level in the area of DKK 2.15 billion to DKK 2.2 billion. And very important also to mention that there will be negative effect from increasing raw materials Even in some areas, I would say, exploding prices on raw materials. And we have not factored in any onetime orders due to corona. We will really keep our eye on operational and offset increasing raw material and component prices in the markets, keep cost control and firm capital discipline, but we will also utilize our financial strengths to seize and take opportunities in 2021. With these words, I will open up for questions.

[Operator Instructions] The first question is from the line of Claus Almer from Nordea.

First of all, congratulations with a very strong performance in 2020. And especially for you, Jens, the net working capital trend, I know it was very high on your agenda for 2020. But it seems to play out also. That said, talking about the CapEx of DKK 1 billion you're guiding for 2021, maybe you could update us what is the criteria for returns when you're doing these CapEx investments? And what about M&A? That will be the first question.

Thank you very much, Claus, and also thank you for mentioning the net working capital. I've really been looking forward to that, so that was kind of you. The CapEx, to mention that, of course, we have the same return on invested capital requirements on CapEx as a long term 15%. But of course, also, when we are doing these huge CapEx investments, we cannot fill volume 100% from day 1. So it takes time, but we really experienced strong demand in special segments. So we have to invest in CapEx. We are running more than at full capacity for the time being. Looking at M&As, we are, as I said also, always on the look for that. And of course, we have a pipeline we continuously work with follow. But M&As, they are coming sometimes when you don't expect them. You can't plan for it. But it's really high on our agenda.

So when we speak again in 12 months down the road, how many acquisitions do you think you have done in 2021?

I will not say a number, a specific number on that, Claus. But I really expect and I would be disappointed if we haven't made acquisitions in 2021. Absolutely. So it's really something that we are working hard on.

Okay. And then the second question. Raw materials, as you mentioned several times during the presentation, that will -- it was a tailwind in last year and will be a headwind this year. And you put some numbers to the nonwovens. But personal care, how much is it delta going into 2021?

It's, I would say, maybe a DKK 30 million to DKK 40 million. But it's -- personal care, there are some escalation mechanisms that we can use. Whereas in the Fibertex Nonwovens, it's not the same. But we expect that as it is now DKK 30 million to DKK 40 million on raw materials in personal care.

The next question is from the line of Klaus Kehl from Nykcredit.

Yes. Can you hear me?

Yes, we can.

Okay. I don't have to unmute my own phone.

Okay.

First of all, a follow-up question about this CapEx level of DKK 1 billion in 2021. Do you have any thoughts about '22 and '23? And what I'm thinking about here is, is it a new level that we will see going forward? Or is it also a reflection that your CapEx level was pretty low in 2020? That would be my first question.

Yes. Thank you for that question. In 2020, our CapEx was, as you say low. But that was because we didn't have any new capacity investments. It's more or less maintenance CapEx you saw in 2020. But I think looking into 2022, you will also see effect from the CapEx decisions we made here, 2 new lines for Fibertex Nonwovens, 1 new line for Nonwovens, so 1 new line for print. And that will also run into 2022. But I really expect that we will continue to invest in CapEx, maybe not the same level in '22 and '23. But CapEx is always at our agenda. And 2020 was low because we were at the end of a big investment area where we really had some new factories built in Tasmania, China, et cetera, et cetera. But we'll continue.

Okay. Great. And then I can see from the annual report that you expect a positive contribution from your associated companies of around DKK 40 million versus around minus DKK 40 million in 2020. And I guess the big delta must be Salmones Austral. But could you just give us some comments on your assumptions about the salmon prices also in the light of the recent spike that we have seen in the salmon price?

Yes. And you're right, everything is coming from Salmones Austral, so we expect them to turn. Also, in '20, we had this value adjustment of the biomass within Salmon. So it's not only based on sales, but it's a value adjustment of the actual biomass standing at sea. But we expect also prices to increase. We have seen a positive start in 2021, especially in Chile selling fillets into U.S. market. And we expect, as I said, that the guidance in BioMar and also in Salmon is based on a normalization after summer. So that's really the factor. And we have also seen, just to comment on Norway, their prices are higher, slightly higher than in Chile. But they expect also prices to go back. And really, Norway, there's an expectation that if the world opens up, then the salmon prices will once again hit the sky. Let's see. It's Norwegian way of viewing it further.

Okay. Final question from my side is that lately, there has been a lot of -- there's been some increased focus on land-based fish farming around the world. What could that mean for BioMar? And yes, just your thoughts about all these land-based farming things that are coming up?

That's right. There's a lot of projects in the making and in the pipeline. Very few have materialized yet. But there's a lot of discussions about it. And I think one thing is also depending on the cost of farming onshore. But BioMar, we are very, very well positioned to this RAS, as they call recirculated aquaculture systems. Because we have been supplying in farms, et cetera, in Europe for many, many years, so we have a strong position in feed. And it would be a new segment that I think we could take a lead in.

The next question is from the line of Ulrik Bak from SEB.

Jens, congratulations on the strong Q4 results. And also a few questions from my side. The first one on BioMar. It looks like BioMar during Q4 felt the largest effect from COVID-19 so far as EBITDA decline in volumes were only up 5% compared to the Norwegian market where volumes were up double digit. On that note, can you elaborate on the components of the negative EBITDA growth for BioMar? And if you could quantify each effect, it would be great.

Yes. Thank you. I can comment, maybe not quantify into details Absolutely, you could say one thing is that we have seen some customers trading down on functional feed, and functional feed is general better margins than traditional feed. So they have been trading down, especially in markets where sales of this has been low. So that's one effect. Another effect is, as I mentioned, we had sales of fish in Q4 '19 out of Norway, which, in fact, there's a difference of DKK 12 million in EBIT on that. And then we have, in general, lower volume in LatAm, especially in Chile and Ecuador because Chile was hit by low sales to U.S. of the Chilean farmers. Ecuador, at the start of Q4, still suffering a little bit from China. But luckily, they are more or less back on that. But that's the 3 main things: less sales of fish, DKK 12 million EBIT sales of functional feed and lower volume may be the 1/3 on each, so around that area.

Okay. That's very clear. So can you comment a bit on the current trading here in Q1 if there's been any development in Chile and Ecuador, as you mentioned, as some of the main factors. Is it the same trajectory that you're seeing as in Q4? Or has it improved in any way?

As I said, Ecuador seems to be tracking back. Deal is still low due to U.S. But the good thing is that the salmon prices improved or the price you mention in Chile is on fillet and the fillet prices into U.S. improved. It's very low season though, but maybe a small indicator on things are developing on a positive note. But it's really early days in BioMar because as you also know, it's a really low season now.

Understood. And then in terms of your BioMar guidance, you mentioned that you expect this normalization of the COVID situation by the end of the summer. But how do you expect this to affect the fish feed demand? Is it just that customers will then trade up again to functional feed? Or are there any more underlying drivers behind a normalization for the fish feed industry?

Yes. I think one is really this a functional feed trading up again and really pushing for growth. That's important. The other thing is when do -- how much small do they put at sea and how confident are they on future. And of course, small, it takes time before you start feeding on them. But in the long term, of course, it means a lot. I would say, volume-wise, you cannot change that much in 2021 because the fish at sea now. That's what we are feeling it maybe slightly up. But most important for us is that they start really having -- being optimistic and setting small at sea again.

All right. So the BioMar guidance that you announced, is that -- I guess there's not a lot of wiggle room to go outside that range if you say that volumes cannot change that fast.

Of course, there are the normal market mechanisms as competition market share. And we have also markets where we are very strong. So the EMEA business has been quite strong. Hopefully, you could say, the door it bounces back more in China. They are -- and they have also spread less. They have opened up more markets and so on. So of course, there are always opportunities really to be found. And I think BioMar is -- they really see the effect also that this big segment of HoReCa is slow, and nobody knows when it's really back on business. But we think -- and that's our assumptions on the guidance that it's after summer. We need to assumption

[Operator Instructions] The next question is from the line of Laurits Kjaergaard from AGB.

Jens, again, congratulations on your results. I would like to focus a little bit, if I may, on Fibertex Nonwovens, GPV and HydraSpecma. All 3 companies delivered a very strong end to 2020. And it seems that the guidance that you're giving in your initial comments were that, especially the second half of 2021, which seems a little bit more uncertain in terms of the transparency that you do have. Could you talk about -- is there any readthrough from Q4 into Q1? And is this a correct assumption that there's still very low visibility into the second half of 2021?

Yes. I would say that maybe very low is being too pessimistic, but there's a low visibility compared to what we normally see. But then at the other hand, we have had quite a strong backlog or order intake in Q4 starting in '21. So -- and we're discussing, is that because there are really component shortage on critical components? Is that because then large global OEMs, et cetera, they are building stocks, so they can continue to produce? It remains to be seen, but there will be an effect of these very increasing component prices that the customers will build stock. So that's one reason behind it. But you're quite right, these 3 companies. That's maybe where we feel most confident for the time being, because we have had a good backlog and a good start. Yes.

And what's the upside or downside in the guidance for those 3 companies?

So when we guide -- that's based on what we think is right now. And so it's difficult to say upside and downside. Of course, it's obvious that if raw materials continue to explode, then there's downside. And if it levels out, then there could be upside on that. Of course, as normal, winning new contracts, adding -- working much more on added-value products and so on is something that's really going on. And then margin management, strong margin management going into the market, see if we can offset raw material prices and so on. So it's a balance. But what we say now that's really what we see. But of course, we will work hard on doing things better.

And is your backlog better or on par with sort of the backlog you had moving into 2020?

In some areas, it's better. But also one thing maybe I didn't mention it, if you take GPV, I mentioned also, we had this very specific momentum in specific MedTech order, 100% corona-related, supplying the respirator industry in U.S. We do not foresee an order like that in '21. But in general, in the industry, we have -- I would say, we have a better backlog than we saw when we entered into 2020. Yes.

Okay. And then maybe just a last question on the CapEx that was discussed before. It seems that in the past 5 quarters or so, you've been talking about letting your assets sweat and not having such a high CapEx level, but it seems now to be going quite high. But could you just talk about maybe the underlying maintenance CapEx? Is that still the case that you're letting the asset sweat? Or is this sort of a change in perception?

No, and thank you for mentioning, in fact. Because it's really part of our DNA, what we say, respect for every cent, let the assets sweat. And we have in 2020, really been -- we couldn't supply our customers. We are full up and the demand is really there. And you also know that you can run your capacity full for some time and then customers start to look elsewhere because they want volumes. And the 3 large capacity investments, one is in Malaysia for Fibertex Personal Care for the diaper business, it's really growing strong, and we are running at full capacity. And this one will first be up and running end '21. Then the 2 others in Fibertex Nonwovens for the specialty wipes and advanced products where we could sell much more than we have been doing and we have been nearly overrun by customers. So it's also really to respond to strong demand.

And is maintenance CapEx on level with sort of the past 3 years on average? Or is it higher or lower?

It's on par with the average. And we have a philosophy. We keep our capacity and our machinery well kept.

There are no further questions at this time. I hand back to Jens Bjerg Sørensen for closing comments.

Yes. Thank you very much, and thank you to everyone listening this conference and also thanks for the questions. So goodbye from here.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.