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

Welcome to Schouw & Co.'s Q1 presentation. I will, as usual, go through the presentation. And then afterwards, I will open up for questions. Schouw & Co. had in the quarter, a satisfying quarter. We performed well in very difficult times. You could say that somewhat soft development was expected. And we also have to acknowledge that the uncertainty in the business environment, of course, also in one or another way, impacted our businesses. But we came out of the quarter as expected. Our top line was flat with DKK 7.9 billion, and EBITDA was as expected, down 13% to DKK 565 million. 2024 Q1 was positively impacted from one-offs of around DKK 65 million. Our cash flow continued with very good traction and came in with DKK 220 million for the quarter. Schouw & Co. continues to evaluate the potential IPO of BioMar. It's likely that the banking syndicate is established in the near future. Of course, the actual business climate needs also to be taken into considerations when one are considering these IPO thoughts. Looking from Schouw & Co. to BioMar. BioMar really continued to perform very well and strengthened its position. The top line was up 5% to DKK 3.4 billion and the volume increased 12% to 294,000 tonnes. We have over the last year offset tonnage a little bit on -- to get our margins up, and we have succeeded with that. Especially the salmon and shrimp segment delivered the main part of the tonnage uplift. Of course, still, we have continued focus on margin and profitability, but scale is also a very important driver for BioMar. EBITDA was, as expected, down 24% to DKK 206 million. Q1 2024 was exceptionally strong, both on climate issues and on margin. And as mentioned also, we had one-offs of DKK 65 million which came from BioMar in Q1 2024. Working capital significantly reduced to DKK 1.75 billion. Interesting also that our shrimp customer seems to be willing now to invest in innovation, meaning also that our Tech division or particularly our AQ1 had a very good quarter. BioMar continues to invest and build strengths, meaning that we acquired the remaining 50% of the JV we have in Costa Rica. And we also acquired full ownership of our R&D facility, LetSea, in Norway. All in all, investments of around DKK 100 million in the quarter. Guidance for BioMar maintained. Turnover in the magnitude of DKK 16 billion to DKK 17 billion and the EBITDA in the range of DKK 1.47 billion to DKK 1.57 billion. BioMar continues to have full focus on utilizing the innovative platform and are also looking for scale and margin management. Moving on to GPV. GPV's market continued to be volatile with a rather soft demand. Top line was, as expected, 5% down to DKK 2.2 billion. GPV's EBITDA came down 8% to DKK 143 million. As expected, we had, of course, impact from lower volume and mix. A lot of activities is going on across the company to stimulate profitability, factory footprints. This is -- different things is going on. And one ERP system is now implemented or initiated to be implemented across all companies. Decided footprint initiatives is progressing well. we are optimizing the structure and the platform and to accommodate that we will see one-offs in the tune of DKK 40 million in 2025. Soft demand is expected to continue in first half of 2025, but guidance maintained. We expect now a top line of DKK 8.7 billion to DKK 9.3 billion, EBITDA in the range of DKK 590 million to DKK 650 million. And as I mentioned, in this EBITDA guidance that is included DKK 40 million in one-offs. Order intake really supports our guidance seems to improving. We have a book-to-bill the index that is quite good and looking into interesting order intake in the coming months. Moving on then to HydraSpecma. And now we will see if it changes here. On the technology, I'll move on to the HydraSpecma slide here. HydraSpecma really continues to deliver very solid and the top line 3% up to DKK 800 million. There was a very good traction in renewables and our global OEM segment. EBITDA up 27% to DKK 180 million (sic) [ DKK 108 million ]. However, we had a one-off positive impact from sale of real estate. Normalized for one-offs, EBITDA was up 12%. There's been an effect of a very solid margin management and control across all companies within HydraSpecma and also a positive effect of continuously optimizing the supply chain. HydraSpecma is preparing for future, building a very solid project pipeline and relocating a lot of the products to best cost countries. They are also taking strong positions in the defense segment. The top line guidance is maintained. EBITDA up meaning that the top line will be DKK 2.9 billion to DKK 3.2 billion and EBITDA now expected to be in the range of DKK 350 million to DKK 380 million. Borg Automotive is really hampered by a mix of fierce competition and cost increases. Top line was flat, DKK 506 million, but our new segment, Newman really had a good and positive development in the quarter. EBITDA was down 32% to DKK 32 million. Margins at all levels in the Reman segment has been under severe pressure. But also, we have to recognize that we had a core -- negative core regulation of DKK 12 million hampering results in the quarter. Borg is relocating their production to both Poland and Tunisia. Our RECs and PSR produced in U.K. will be moved to Lublin in Poland and basic products as starters and alternators will start to be moved to our newly acquired facility in Tunisia. Borg is downgrading their top line and EBITDA due to fierce competition due to a lot of inflow of new made products from China. China is really sending a lot of products into Europe because they cannot deliver in U.S. because of the tariffs. Top line now expected to be to DKK 2 billion to DKK 2.2 billion, EBITDA is DKK 150 million to DKK 180 million. Borg has initiated a comprehensive profit protection plan and it's initiated to deliver both on the short and the long term. Moving on then to Fibertex Personal Care, really developed much better than feared. Fibertex Personal Care delivered much better than expected. Top line decreased, however, 4% to DKK 447 million. Asia volumes slightly down but Europe came in with a very good development. EBITDA was flat at DKK 49 million. Very good to see that margins in Asia better than feared. Volume in Asia also improving a little bit. We are here benefiting from long-term quality and trust worthiness with a lot of global customers. Also good to see that the future potential is reconfirmed for Fibertex Personal Care. Asia starts slowly to get the momentum back. Our position in Europe has been strengthened. And our innovation platform continues to be very strong. We are giving a guidance uplift on EBITDA. Top line expected to be maintained DKK 1.4 billion to DKK 1.6 billion and EBITDA with a small uplift now in the range of DKK 140 million to DKK 170 million. Then moving on to Fibertex Nonwovens, Fibertex Nonwovens kept sales momentum in rather difficult markets for them. Top line flat at DKK 579 million. Segment and product mix were different than in Q1 2024. The EBITDA down 26% as expected to DKK 43 million. Here, we saw this expected negative effect from mix. Our high-margin segments came out soft. Good to see also that the U.S. volume up, but U.S. volume still with lower margins, but margins in U.S. continuously improving. Our U.S. transformation plan is really starting to show results. Productivity and quality at the new factory in U.S. has really significantly improved. Value-adding volume continues to kick in. And there is really a strong demand in U.S. for domestic produced products, which we expect Fibertex Nonwovens to benefit from in the near future. Full year guidance maintained in spite of soft Q1. Top line expected DKK 2.3 billion to DKK 2.5 billion and EBITDA still expected in the range of DKK 200 million to DKK 230 million. Of course, improvements in U.S. and our decommoditizing strategy, they are both important levers in our expectations. So concluding and looking into -- to our guidance, our full year guidance maintained. Despite volatility, we expect still to deliver EBITDA of DKK 2.82 billion to DKK 3.12 billion. And why are we still maintaining our guidance because we have different positive key drivers. We are seeing very strong positions and long relations with our key customers globally. We have continued innovation and high service. Our solid back order -- order backlog and really progressing. And then in all our companies, we have profit protection plans and contingency plans at hand if things should change. So all in all, guidance for the year maintained. And with that, I will conclude my remarks and then open up for questions.

Claus Almer, welcome.

I do have some questions and I will start off with some specific BioMar questions. So given the Q1 performance, and I know you think this was in line with your own expectations, but margins is down year-over-year at least. Should we expect BioMar to heading for the mid to the lower end of the range? Or how should we think about this?

I think we have the range, and we have no concerns on not being able to deliver in the range. And I think also normally we say okay in the range, most likely in the midpoint of the range, but still opportunities for BioMar, we see biological conditions good. We are in a good margin management situation and so on. So we're still confident on guidance with BioMar. Still it's first season, you know also that Q1 is a low season and so on, but still positive on BioMar.

Even in the high end of the range?

I'm not commenting on that. We have a range, and we could -- when we have the range, Claus, means also that we could also deliver up there if things goes well.

Sure. Okay. Then raw materials are coming down. Does that have an impact on your profitability at least compared to last year? Is there anything on the raw material development that is impacting your profitability?

Not, as we see it right now, because we also know that especially in the Norwegian salmon, we have -- under contract, we have this pass-on mechanisms is on and off and so on. But mainly at the rest of the world, it's we need to go and discuss with our customers on every contract and so on, but also we do a lot of recipe optimization, utilize our raw material platform, and we have a very, very long experience in that. So we don't see any issues on that side.

Right. But -- okay. So then talking about the margins. Margins year-over-year is down when we adjusted the DKK 65 million one-offs last year. Maybe you could put some more color on -- above 6% is still very, very positive in a historical perspective, but it's still down versus '24. So what did really happen in the quarter?

Yes. So there's -- of course, there's a mix. You also know when we are having a high volume in salmon, margins are a bit lower than in the other segments. And we saw -- I think also you could see that volume in salmon segment was positive and up. And also, it's in the first quarter where we have not had the same sale of functional feed as we have in the other quarters and so on. So it's a mix of functional feed. It's a mix of species, et cetera, and also you saw shrimp business significantly up. So it's a mix of less functional sale, species mix, et cetera, but we are not concerned on the margin development as such.

I'm sorry about all these questions, but -- all these -- the lower functional feed share down. Is there any specific -- and I only talk about salmon because it's salmon that is seeing lower margins. So why is it down in this quarter?

Yes. But you can say, of course, it's also a small quarter in volume in general compared to later on, but also you don't use as much functional feed in the quarter -- in the first quarter because there has been a good biological conditions. We haven't seen as many sea lice. A lot of things has played good out in the quarter compared to earlier.

Right. Okay. And then just a final one. Chile is down year-over-year on volume. Why is that? And I would have thought -- I would -- that was not the development I would have expected at least.

Yes. But Chile have had some difficult biological conditions. And then also, we have changed around on some contracts, but we have regained contracts, and we expect volume to pick up in Chile. But of course, if you move around on one or two contracts, things can happen in a quarter.

And regain contracts written on lower margins? Or is that on unchanged terms?

No, that is on unchanged terms or at least at good margins. And then you also know the drill that when we get in on a contract with what we call basic feed, then we need to work on selling up and really getting the product mix changed and so on. It's a big challenge, but we have been very strong in doing that over the last years. Sindre, welcome.

I think Claus asked a lot of the questions about BioMar, but I have a couple more. Looking at the volume side. I think doing computation here, salmon feed volumes were up like approximately 7%, I think. Can you say something about market share development in Norway because I think at least feeding statistics indicate like about 25% volume growth in the first quarter, but that's feeding, it's not feed purchasing. So...

Yes, you're right, yes. Yes, I think we have kept our market share. Also, we have our customer base. And of course, it can fluctuate a little bit up and down, how much does your customer base have in BioMar at sea. So we haven't seen a huge fluctuations on market share, and you also know it's a capacity question and so on. And we are with the customer for longer term. So no significant movements on market share.

Okay. And just a detailed question on that. I thought during your fourth quarter call, you said that Nova Sea was a customer of ours, and that's been acquired by Mowi. So how does that play out?

Yes. So normally, we don't comment on individual customer contracts. But I still -- I think that we still have Nova Sea in our customer portfolio and also expect to have them in the longer run.

Okay. Finally on BioMar, I think your Tech segment is doing well. You commented briefly and when looking at your EBIT, it's come from virtually -- or EBITDA from virtually 0 to DKK 13 million, not a big number of the total yet, but can you say something about the outlook there?

So I didn't hear that to be -- yes, sorry, sorry, yes, the AQ1 but it has -- they've really delivered a quite solid Q1. And I think also we are testing that we see some of the major shrimp customers globally starting to get interest back in new technology and so on. So we are positive on that and expect it to continue to grow in the market.

Okay. So this growth more than 100%, is that ...

Of course, it's not a big, big impact on BioMar's EBITDA or EBIT, but still if they push on and develops -- we expect them to develop significantly better than last year, of course, and that's also part of our positive guidance on profitability within BioMar. Yes, Emil Haargaard, Carnegie?

I think the specific company questions have already been asked. So my first question is of a more general character across all portfolio companies. Could you provide some additional color on the macroeconomic environment as you see it specifically where you see the greatest areas of exposure, the expected impact of tariff, and I think importantly, the measures you can take to mitigate these? And additionally, how have you experienced demand in the market post these tariffs? That will be the first question.

Yes. And I would say thank you and super relevant. And so first, you could say, of course, I think also elaborated a little bit on that in my introduction saying that, of course, we have seen volatility, meaning also some customers holding back a little bit on orders, waiting and things like that. So of course, it has had an impact but not as significantly impact on that. Then moving on to say, what's our business in U.S. We have annually business of around DKK 2 billion in U.S., and we are producing ourself in U.S. of around, I think it's DKK 800 million, DKK 900 million altogether, meaning the rest is imported into to U.S. Some is coming from Mexico and some is coming from Asia. So of course, we're looking into tariff impacts and so on. But our mitigation and our way of viewing it is saying we are not participating in this tariff, our customers needs to pay the tariff and we have also products that a lot of our customers, they cannot be without them because it goes into their production and so on. So we have a clear stand on that, and we look at it from a case to case and say we cannot really prepare a lot because we don't know what happens tomorrow, but of course, looking into supply chain and more regionilization and things like that, that's what we are working on, Emil.

Okay. So as I understand it, to a large extent, you expect to be able to pass on these tariffs through to customers?

So far, yes, we do. And you could also say if we should take, let's just say, some of our -- we are low-margin business in general, and therefore, we need to have a quite firm stand on that saying that we cannot support and offset all these tariffs. Because then we cannot make a business out of it, then it's better to say, okay, sorry, we are not the one supplying if you want us to take full responsibility for these tariffs. But let's see what really happens. We were very nervous on Mexico. We have a big facility in Mexico for electronics and things has changed so much there that maybe that could be a small opportunity for us. And then also producing in U.S., especially in the fiber businesses where we do not import a lot of raw materials from China. So that's the way it is.

Makes sense. So as of now, with the ongoing uncertainty around this, you have not included any of these tariffs in the current guidance?

No, we haven't. And maybe one thing I should comment on is, of course, also we are looking cautiously on what happens in the world, would the business climate be a little bit more negative, meaning that in general, demand would be soft and things like that. Of course, that's a concern we are having. And then all by a sudden, you could say the automotive industry in Europe starts to suffer a little bit, meaning that they are not taking the orders we expected and things like that of the renewable business and so on. But so far, we are cautiously optimistic on future.

Perfect. Thank you for the additional color on this. Just a last question from my side. And I, of course, have to ask about the ongoing evaluation of potential IPO of BioMar because there's naturally quite some market interest in this. So could you provide any kind of indication of when you expect to be in a position to communicate a final decision from the evaluation to the market?

To be honest, I cannot say when but I think also we commented on it in the report saying that we are closing up on being able to appoint a banking syndicate also meaning that we are moving. We are, of course, looking at valuation and opportunities. And I think also as said that with the present business climate, of course, things are also going on. So we have to evaluate is it the right time to do it. And then, of course, also preparing BioMar to what we call IPO readiness, but honestly could -- we could not do it before very, very late '25 or into '26 because a lot of things need to be done, but we are moving. And I think banks syndicate is first real indicator of that things are going in that direction. Yes, Yiwei Zhou, SEB, welcome.

It's Wei from SEB. I just want to follow up on the BioMar margin. You mentioned this mix effect in Q1. But what do you expecting for the coming quarters? Any factors we should consider that can drive the year-over-year margin improvement or even at the same level as last year in the coming quarters? And I'm asking because I can see that Q2, Q3, Q4, the comparison will not be that easy when looking at the gross profit per kilo, which is an important margin driver.

Yes. No, thank you for asking that specific question because I think you're pointing at something very interesting is that Q1, of course, lower volume meaning that scale and volume and factory utilization, of course, will drive margin in the good direction. And as I also said, in the coming quarters, we will see much bigger effect from selling functional feed. We are getting into the real grower season and things like that. So effect of scale, productivity, logistics and then, of course, also functional feed. So it's a multiple of different levers that will secure that margin increase, and we always see that. So we feel quite confident on the margins in Q1, they are always lower than looking into to the coming quarters. Good. And with that question, we don't have any other questions online. So thank you very much for dialing in and listening to this presentation. Thanks for the questions. Goodbye from here.