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

Good morning, and welcome to Schouw & Company's presentation of our Q3 results. Overall, we had a satisfying and solid development in very difficult markets. All our companies, they continue to deal with uncertainties. I think that we have to accept that this is the new normal. Strong measures has been taken across the board to safeguard profitability and market positions. Our top line was down 4% to DKK 9.2 billion. EBITDA, however, increased to 5% to DKK 878 million. We have had very strong focus on pricing and costs. The quarter was also impacted by DKK 54 million of one-off costs. Our cash flow was again very strong and came out at DKK 894 million. We kept our investments at a very modest level and also satisfying to see that our net interest-bearing debt and leverage now is at a very good level. Just also to conclude on the evaluation and work on a potential IPO of BioMar continues. If we decide to make it happen, then it's expected to be in first half of 2026. Moving on from the more general view and then to BioMar. BioMar performed very well in a quarter where they faced severe biological difficulties in Norway. Q3 is a very important quarter for BioMar. The top line was down 4% to DKK 4.9 billion, but volume increased 9% to around 470,000 tonnes. All segments delivered volume uplift. EBITDA, however, was up 10% to a record high DKK 510 million for the quarter. We saw a very strong development in selected species and our tech segments. Also across the board, solid margin control has been a very important driver for our EBITDA uplift. There's also a continued focus on our very broad product offering to all segments in the market. The joint ventures in BioMar also continues to deliver. We are building a strong position and profitability in China. Working capital was significantly reduced to now DKK 1.65 billion. Guidance for BioMar is narrowed. We are close to the year-end. So turnover now expected to be DKK 16.3 billion to DKK 16.7 billion and EBITDA now in the range of DKK 1.49 billion to DKK 1.53 billion. So still expected to be in the guidance we announced at the end of Q2. From BioMar, then moving on to GPV. GPV markets, they are still fluctuating, but we also see that they are preparing for a rebound. Top line with GPV was as expected, 3% down to DKK 2.15 billion. There was a lot of key customers facing soft market demand across their geographies. And if they face a soft demand, of course, we will also feel it at GPV. EBITDA down 8% to DKK 178 million. But looking on a quarter-to-quarter, then we had a margin uplift. Also, we had a positive effect from reversal of inventories in 2024. So all in all, solid development with also one-off costs in the quarter for restructuring of the magnitude of DKK 10 million. GPV continued to future-proof. They are doing consolidation and rightsizing of their factory footprint. They are really building on a strong pipeline, taking in new customers and also trying to offset supply chain challenges coming up from Chinese suppliers. Guidance is narrowed. Top line expected now to be DKK 8.7 billion to DKK 8.9 billion and EBITDA in the range of DKK 620 million to DKK 650 million, including expected one-off of DKK 10 million to DKK 15 million in Q4. Then moving on to HydraSpecma. They really continues the positive development and drives and delivers very solid profitability. Top line was up 10% to DKK 747 million. We saw a very strong activity in the global OEM segment and also good to see that the Renewable division again growing. EBITDA was up impressive 22% to DKK 97 million. HydraSpecma has really worked with a solid margin management and commercial excellence across the board. Also in the EBITDA of DKK 97 million, it included a one-off cost of around DKK 10 million. HydraSpecma continues to plan for future growth. They are now starting building a 22,000 square meter facility in Tianjin in China, expected to be ready in Q2 '26. They have also a lot of focus on driving innovation and solutions for the hydraulic market. Guidance uplift based on very solid performance. Top line now expected to be DKK 3.1 billion to DKK 3.2 billion and EBITDA in the range of DKK 380 million to DKK 400 million for the year. Moving on to Borg Automotive. Borg is really the company that has been most challenged throughout 2025 in the Schouw portfolio. They continue to face fierce competition and rather soft demand in all segments. Top line for Borg was down 14% to DKK 424 million, especially the brake caliber segment was down on volume, mainly due to Chinese import difficult to compete. EBITDA down by 72% to DKK 10 million affected from different things, lower sales and, of course, continued increase of production cost in Poland. And then unfortunately, we had to do a write-down in France of DKK 24 million due to unaccounted bonuses in the quarter. We need to continue to transform Borg to mitigate the development. We disclosed last quarter, the Refined for Future plan expected to drive a DKK 100 million uplift, and the plan is in solid progress. It's mainly around our footprint and commercial excellence strategies, also looking into a potential closing of the entire U.K. operation. Borg is downgrading because of the write-off, because of one-offs for the Refined for Future. Top line now expected DKK 1.8 billion to DKK 1.9 billion, EBITDA in the magnitude of DKK 60 million to DKK 80 million, including one-off costs to Refined for Future of around DKK 40 million and then the unfortunate write-down in France of around DKK 30 million for the year. Moving on to Fibertex Personal Care. They again, delivered profitability uplift in a very challenging market. Top line decreased as expected, 11% to DKK 420 million. We saw lower volume in Asia, but positive also to see slightly better than expected. EBITDA, however, up 33% to DKK 54 million. We had a positive raw material effect, but also our print business really delivered solid margin uplift in the quarter. FPC is setting up for future. We are building a supply chain out of Malaysia, trying to ship volumes into U.S. and Europe. We continue to innovate and develop advanced materials, especially elasticated products. We also managed and are able to give a guidance uplift, top line DKK 1.6 billion to DKK 1.7 billion and EBITDA now expected to be around DKK 180 million to DKK 200 million. Closing off with Fibertex nonwovens, where we continue to see the -- our U.S., very important U.S. market continue to see growth. Top line, however, down 1% to DKK 556 million, but volume up 7%. The important auto segment still soft, but still at a rather satisfactory level. EBITDA also up 23% to DKK 52 million. And as mentioned, U.S. continues to deliver and also they deliver solid profitability improvement. Also our added value products now delivering profit uplift, and we see increasing share coming from these products. Fibertex nonwovens, they are finalizing their investment plans, a new line in the Czech Republic expected to be ready and starting off Q1 in 2026. So now we have a very solid capacity platform to build future on and expect also to continue to grow volume in the high-value segments for FIN. Guidance narrow top line now adjusted DKK 2.2 billion to DKK 2.3 billion and EBITDA expected to be in the range of DKK 200 million to DKK 220 million. Closing up with a view on our guidance list here, full year guidance narrowed within our guidance band. EBITDA now expected to be DKK 2.85 billion to DKK 3.02 billion for the group. And there, we included one-off costs of around DKK 100 million for footprint, closing down, write-offs, et cetera. So really also preparing Schouw & Company companies and the group for future on that. And with that remark, I will open up for questions.

Emil, welcome.

First of all, congratulations with a very strong operational performance in BioMar this quarter despite some biological headwinds in Norway. I will start off with a question of a more general nature. So in the report, you mentioned that potential proceeds from a separate listing of BioMar are expected to be reinvested in the existing business with the possibility of expanding the portfolio to a new platform investment. So do you have anything in pipeline in terms of a new platform investment? Or are these just the main priorities as of now?

Yes. Thank you for commenting on that because I think it's important also that we are emphasizing that we continue to build on the strategy we have with Schouw & Company, and that's to build a portfolio and platform of business-to-business companies. So looking at the platform investments, we have, of course, always something in the pipeline. But then we are looking at the companies we can match the existing companies business to business, a certain magnitude and so on. But of course, we do not have anything specific at the table, but always working on that. And then within the portfolio also, we still see rather interesting opportunities to build further and grow these companies. So that's the strategy we build on.

Okay. And would this -- with the potential IPO during first half of next year, would this be something that we should potentially expect already during 2026? Or are we looking further out in the future in terms of adding a new platform investment?

Yes. No, I think, Emil, what is very important is that we do the right move. We do not buy just for buying. We are very cautious on that. And of course, would be super if we could add a new platform investments during 2026, but we cannot guarantee anything on that. But we -- I think we need to be cautious on the business case and the opportunities and so on. But there are interesting opportunities out there.

Makes sense. Moving on with a few questions on BioMar then. So the first question is on volumes and market share. So you reported 9% volume growth year-over-year. So could you elaborate a bit more on how this developed across key regions because regaining market share is a strong strategic focus of yours. And I recall that you mentioned particular opportunities for higher volumes in Chile during the second half of 2025. So has this developed in line with expectations or anything we should be aware of?

Yes, we have added new contracts in BioMar in Chile, and we have added contracts volume also to existing contracts. So we have added and taken market share in Chile. Also in Norway, we have had seen a good development. But however, as you also know, there has been a volume decline because of biological issues, sea lice, et cetera, et cetera. But we have had a volume uplift as we also mentioned starting 2025 that maybe we have been too cautious on not taking volume due to profitability and so on.

Okay. And then also a question on the shrimp segment because volumes is up 23% year-over-year, revenue is up 10%. But this is basically growth rate that's almost on par with the first half of the year. So it seems like you continue to gain strong market shares in this segment. So any comments on the, I would say, longer-term outlook because I know you have high expectations for this segment. So what is the potential here? You have moved more towards larger customers. But yes, any additional comments on that?

Yes. And I think you just mentioned it. We have deliberately moved to larger customers because we want to continue to grow and also to take off risk in this segment. And if we really want to grow, we need to tie a team up with the larger customers. And we really see strong growth potential within the shrimp segment and also looking at some attractive long-term contracts there.

Okay. So it seems like a good outlook for this business in order to continue to gain momentum in this space.

Yes, and that's well aligned with our strategic priorities. So definitely, yes.

Good. Then moving on, just with the last question on HydraSpecma before I jump back in the line. So last quarter, you talked about postponements in the renewable divisions. And this quarter, it's contributing positively to the growth. So these postponements, can we conclude that they have not continued into Q3? Is that fair to assume?

Yes, not with the same magnitude as in Q2. We have seen postponements, but we have also -- we have seen an increase and also improved efficiency and profitability around that. So it's not -- they are not postponing as much as they did in Q2, yes. Claus Almer.

So first of all, congratulations with the net working capital performance, not least to Carlos, it seems he is doing a great job in BioMar.

Yes, absolutely. I fully agree. Thanks.

So a few questions regarding BioMar. The significant improvement within tech, is that a new sustainable level? Or how should we think about that? That's the first one.

We have seen a new level of profitability, definitely also because the last years, we did a lot of development, reorganization and so on. But of course, it's a project business, project sales, but we are building more and more on recurring revenue, software and things like that. So we will see a profit uplift. We have a very strong profitability in 2025. I'm not saying we're going to have the same in '26, but really expect the tech to continue to deliver at a very high level, yes.

Yes. So it's more -- you mentioned strong this year. But should we just put into the model that it is volatile. So Q3 may be a bit out of the ordinary or maybe a little bit of help on this one would be appreciated.