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

Welcome to Schouw & Company's Second Quarter Presentation 2025. I will take you through, as usual, all our companies, first, give a little update on the group at lasts and then take you through each of the companies. We will open up for questions when I, as usual, has been through the presentation. Looking at Schouw & Company in general, we had yet another satisfactory quarter in a very turbulent and difficult market situation. Really has been -- that uncertainty still persists. Intense competition has been all over the markets, and we see this as the new normal for the time being. All our companies has -- they have really taken strong measures to mitigate and secure our long-term expectations. Schouw & Company's top line was 2% down to DKK 8.5 billion in the quarter. EBITDA was as expected, also down 4% to DKK 706 million. The quarter was impacted of several one-off costs. Our cash flow was again very strong and came out at DKK 442 million (sic) [DKK 542 million]. Our net interest-bearing debt year-on-year is now down DKK 1.3 billion. Schouw & Company continues the evaluation of a potential IPO of BioMar. We have now set a banking syndicate together. They have been established. They are supposed to run the IPO if we are going to do it. If we do it, it's decided that it could happen in the second half of 2026. But of course, we have volatile markets and a lot of things going on. But the intention is still to float and we are investigated how the value will be of that. From BioMar and then -- from Schouw & Company and then on to BioMar, let me just correct and say, I think I said second half of 2026 with the intended IPO, it's, of course, first half of 2026. So on that note, let me just continue into BioMar. Biomar continued to perform very well and deliver on the decided volume strategy. Top line was down 1% to DKK 3.97 billion. However, volume increased 14% to 382,000 tonnes over the quarter, especially salmon and shrimp segments were building the volume for the quarter. EBITDA also, as expected, down 3% to DKK 349 million. EBITDA was driven by sale of more standard products and of course, also of taking new contracts. We also had a one-off gain from the acquisition of the LetSea operation in Norway of DKK 17 million. The working capital in BioMar really were reduced significantly and is now down to DKK 1.7 billion. Also very nice to see that our new tech segment really delivered strong growth, especially as the one company AQ1, delivered strong growth and solid profitability over the quarter and really looking also into exciting opportunities in future. BioMar expects a very strong second half with continued volume growth. Customer and contracts, they are in place for driving a strong second half of 2025. So the guidance for BioMar is narrowed. Turnover now expected to be DKK 16.3 billion to DKK 17 billion. EBITDA now in the range of DKK 1.49 billion to DKK 1.57 billion. Of course, we have full focus on driving volume, getting the market margins in place and also utilizing the very innovative platform and products that BioMar, they are having. So we expect a solid EBITDA maybe in the upper end of the range. From BioMar, moving on to GPV. GPV's markets continued to be volatile. However, I think also we have seen the first signals of increased demand. Top line, as expected, a little bit down 2% to DKK 2.2 billion. However, EBITDA was up 8% to DKK 155 million. Here, we really saw a general effect from efficiency uplift and also good customer mix. GPV, they have been doing a lot of work on their footprint, footprint and supply chain, and we are now in the phase of finalizing a lot of these footprint decisions. We are relocating. We are rightsizing activities to improve efficiency, and we have also adjusted structure and staff accordingly. GPV, they are building on a very strong and promising sales pipeline. Guidance is narrowed. Top line now expected to be DKK 8.7 billion to DKK 9.2 billion. Here, also, we will see and expect further one-off costs to the rightsizing and footprint decisions of around DKK 30 million. But including that, our EBITDA expected to be DKK 600 million to DKK 650 million for the year. So moving on to HydraSpecma. HydraSpecma really continues there, very positive development and delivers a very solid profitability. Top line was up 5% in the quarter to DKK 826 million. So really strong and good development that was driven by our global OEM segment and also the Nordic IAM segment. We have especially experienced very good activity within 2 segments, defense and marine. EBITDA also came up 9% to DKK 96 million for the quarter. Here, we really benefited from strong commercial excellence and all the supply chain optimizations that we have been doing or HydraSpecma have been doing over some time. Also here, we had one-off costs to facilitate relocations. HydraSpecma really plans for future growth. They are finalizing relocation to what we call best cost countries. They are consolidating our 2 Chinese factories into 1, and they are pushing very hard to develop attractive segments. Guidance uplift based on Q1 and 2 solid performance. Top line now expected to be DKK 3 billion to DKK 3.2 billion and EBITDA around DKK 360 million to DKK 390 million. This guidance includes one-off costs of expected level of DKK 30 million to DKK 35 million. Moving on from HydraSpecma into Borg Automotive, where we see a totally different picture for that company. Borg continues to face very fierce competition and combined with a soft demand. Top line was down 11% to DKK 484 million, and especially the brake calipers segment drove volumes down. EBITDA, of course, also down 66% to DKK 20 million. Here, we experienced a general pressure on margins, but also increased salary costs, increasing quite a lot in Poland. Also, we have to say we have taken over the quarter one-off cost of DKK 11 million compared to quarter 2 '24, where we had a positive one-off impact of DKK 10 million. So they have really planned strong mitigations to change the development. We have defined a new operating and strategic plan for the company. We call it Refine4Future and expect this plan to drive DKK 100 million profit uplift over the coming 2 years. A lot of things is going on, relocation, streamlining of footprint. We announced that we have acquired a company in Tunisia, best cost country, et cetera. We have a new management team in front to really front that plan and drive it over the coming year. Borg is downgrading EBITDA also because of the plans and the costs combined with the Refine4Future plan. So we downgrade top line now expected to be DKK 2 billion to DKK 2.2 billion. EBITDA around DKK 100 million to DKK 130 million. In this guidance, we expect the one-off cost to accommodate the Refine4Future plan of DKK 14 million. Moving on to Fibertex Personal Care. They delivered better than expected. Top line decreased 13% to DKK 426 million. Good to see that our European segment, our European market really continues to be very stable. Our U.S. print business doing very well. EBITDA in spite of top line down, was up 7% to DKK 48 million. Here, we saw a rather positive raw material development, but also had gains from efficiency and good operational activities. Fibertex Personal Care setting up for future. Our Asian market, as we have elaborated on several occasions, it's still challenged, but slowly recovering. Maybe we are seeing some opportunities there. We are driving very hard on innovation and focusing niche markets in the Asian area. And we are building a platform for capacity utilization in Malaysia, especially because we are doing a lot of innovation and new product development. Guidance uplift for Fibertex Personal Care. Top line expected to be DKK 1.5 billion to DKK 1.7 billion and EBITDA now DKK 160 million to DKK 180 million. So in general, Fibertex Personal Care developed more positive than we expected when we went into the year. Finalizing the walk-through of the companies with Fibertex Nonwovens. Fibertex Nonwovens finally see tailwind on the U.S. markets that really had a positive impact on Fibertex Nonwovens. Top line, however, down 3% to DKK 581 million, but especially more or less driven everything by exchange rates. We see soft demand from large segments as auto and construction in Europe, but then we have this good development in U.S. EBITDA down 2% to DKK 57 million. Positive here is that the U.S. still is in a buildup phase, but with a very solid profitability improvement and also looking good for future. Margin mix a little bit different due to lower activity in some of the larger European segments. FIN is building on their capacity platform and also on the added value products, they are doing a lot of innovation and R&D, large investments in production facilities is now set to deliver. We have a very attractive innovation pipeline, and we see increasing demand from our global customers. Full year guidance largely unchanged. Top line adjusted slightly to DKK 2.2 billion to DKK 2.4 billion and EBITDA maintained in the range of DKK 200 million to DKK 230 million. So concluding on this company walk through, looking at the guidance at large. Full year guidance narrowed despite volatility, uncertainties, a lot of things is going out there -- going on out there in the markets, but I think we have, from our management teams done a lot to mitigate this uncertainty. EBITDA now expected to be DKK 2.83 billion to DKK 3.09 billion. And in this guidance, we have included one-off costs of around DKK 100 million to accommodate all the mitigation plans. Some key drivers for our positive outlook. We expect a strong second half. We have a solid order backlog that supports our guidance. And there, we see and have contingency plans at hand in all our operating companies. So on that note, let me open up for questions.

Emil [indiscernible]. Welcome.

Will start with a broader question on the overall business environment. So similar to last quarter, you highlighted uncertainty and volatility from the geopolitical situation. Maybe if you could start by providing some additional comments on how the customer demand buying patterns have developed through Q2 in light of that. What are customers telling you? Are they taking a cautious stance in some areas? Or has sentiment actually improved as certain areas have become more clear? Any color on that would be useful.

Yes. I think, Emil, that as a caution has softened up a little bit in several of our companies, we see customers pushing more for orders, demanding more. But of course, things -- we are in a period where things are moved suddenly all by a sudden from one month to the other. But in general, we see that companies get more used to the volatility and say, okay, of course, we need to develop and continue and so on. I think -- or not think, we see a little more positive outlook from some of our large global customers. Of course, they are concerned as usually, but I think also our backlog supports that we have a slightly more positive view on the world and on future. Maybe, as I said, companies have been more accustomed to how the situation really is now, new normal.

Okay. And have you experienced any difference between large customers, small customers? Any insight to that?

Yes, I wouldn't say so. Of course, if you look at -- let's just take HydraSpecma as an example that we see our smaller segments, industrial aftermarket customers in the Nordics, a little bit more positive. We also see some segments more positive as defense, marine, then in Fibertex Nonwovens. We have seen the automotive segment, especially in Europe being a little bit soft, but still asking in for more volume demanding more. So in a broader picture, I more see that people start -- or companies start to say, okay, we also need to develop for future and get more used to the situation now.

Okay. Moving on with a few questions on BioMar. So you reported 14% volume growth year-on-year with double-digit growth across all 3 segments, but this was offset by lower raw material prices and customer mix. So maybe looking at -- given the strong BioMar's growth we have seen recently, both in Norway and Chile, it provides a solid base for continued volume growth. So maybe if you could elaborate on your expectations for pricing and customer mix for the last 2 quarters. Will they continue to offset the potential continued volume growth? Or how should we view that part?

Yes, I think you should read it as I also said, we have had and we elaborated also on that last year that we had a very, very strong 2024 with BioMar. Also we had all the good things, all things going in the good direction for us and so on. And we also said maybe we have been a little bit too low on volume, and we started up a volume strategy to utilize production efficiency more, and we are pursuing on that strategy. We got the volume as we wanted. And then I think also I said that over the last 2 quarters, we have seen more moving into standard products and so on because biological situation, things like that has been good. We have -- we expect a very strong second half. You will also look at the figures and say, okay, we need to deliver a strong second half. And we have volume, we have contracts. We have raw material positions to deliver on that.

That's very clear. So the mentioned effect from a customer mix with higher volumes towards large customers, did that in isolation have any impact on margins in the quarter? And what was that change in mix already anticipated? Because I ask because the narrowed full year guidance still implies the same midpoint EBITDA margin as in your previous guidance. So is there any effect on margin from the change in customer mix in the quarter?

Yes. Of course, We have seen a little effect on -- there's a product mix effect that is difficult, of course, to put an exact figure on that has been the raw materials. Then, of course, also we have negotiated new contracts. We have moved in some countries. Let's just take Ecuador's example -- to larger customers, and we have discussed that over some years that we -- when we acquired our Ecuadorian business, we had a lot of small customers, and we needed to move the business into having these larger customers. And that we, of course, see an effect of that we are into larger customers, but also then risks are much lower. So it's a combination.

Okay. I'll move on with a few questions on GPV before I jump back in the line. You have mentioned that demand remains soft, but showing relative improvement versus Q1. So should we view this as the start of the turning point you expect materializing in the second half of the year? And maybe if you could provide a comment on current trading. So has the improvement continued so far in Q3?

What you have seen so far, yes, it has improved. It's slowly step-by-step, but I think we are also saying here that we see the first signals of increasing demand. We see customers more positive on future. Of course, a lot of things is still stop and go because what happens on the tariff side into the U.S. and so on. But yes, we see a slightly recovery and expect that to continue. And we have a very attractive pipeline, both new customers, but also with the projects from old customers that they really want to put into action.

Okay. And by this time of the year, I assume you have a very good visibility on the order book for the remainder of the year. So how does the segment mix compare with a year ago? Are there any segments that is now waiting more on the overall mix you can share some insights to?

Yes. To be honest, no, we don't see really that some segments are sticking out more than others. I have to say that our Chinese business is doing very, very well. We have a strong position in China into Chinese customers and into Chinese railway and other customers that have been doing super well. But we still over -- across markets and customers, we see this small first signals of positive sentiment to say it like that.

Okay. And the China effect is that -- can that be related to the trade tensions? Or how do you...

Not at all. It's internally China. We have a strong market position also in China. Yes. Wei from SEB, welcome.

Wei from SEB. I have 2 questions, one at a time. Firstly, I just want to follow up on the BioMar EBITDA margin. I mean the midpoint of the guidance range is indicating 9.1%, but you only delivered 7.5% if my calculation is correct, then you probably do around 10% EBITDA margin in the second half, which would be the historic high level or historical record level. So what would be the margin drivers? And could you please elaborate a bit more? You have mentioned a bit in the press release.

Yes, the margin drivers, volume running efficiency high. As I also said, we have -- we expect to and need to deliver a strong second half, and that's also what we guide on. So volume will be a strong driver, customer mix, of course, but also efficiency along the supply chain, you can move a lot more on into the logistics and things like that. So it's a combination of internal efficiency, our supply chain efficiency and then, of course, also utilizing the raw material basket and mix to optimize on our recipe, which is very important also for BioMar.

So is it fair to assume that you do expect the EBITDA margin for second half should be more than 10%?

We don't comment on EBITDA margin so far. So a lot of things will be going on. But of course, we need to drive volume, et cetera, and the guidance is based on these things.

Okay. Fair enough. And then could you also comment a bit on the FX impacts in the second half given the big change in the U.S. dollar. BioMar has quite a lot of U.S. dollar exposure. I know it's not 100% neutral on the EBITDA impact.

We have not taken any significant adjustments into our guidance on U.S. dollar.