Corbion N.V. (CRBN) Earnings Call Transcript & Summary

Welcome to the Corbion Half Year 2020 Results. [Operator Instructions] Please note that this call will be recorded. I would now like to hand the conference over to Jeroen van Harten, Investor Relations Director. Please go ahead.

Thank you, Marguerite. Good morning, everybody. Welcome to the Corbion First Half 2020 Call. We are here today with Olivier Rigaud, our CEO; and Eddy Van Rhede, our CFO. My name is Jeroen van Harten, Investor Relations. The structure of this morning's call will be as follows. So Olivier will give a brief introduction, after which we'll dive straight into Q&A. You can obviously follow this through dial in, but also through webcast, which -- where you will also have the opportunity to ask questions. You will also find the slide deck on our website at corbion.com under Financial Publications/Investor Relations. And with that, I'd like to hand over to Olivier.

Thank you, Jeroen, and good morning, everybody. To start off, I hope that everybody on this call is in good health. As you've probably seen by now, we've had a strong first half of the year, especially taking into account the high volatility due to the COVID pandemic. So I'm really glad to say that our people have done a tremendous job to keep our plants open during the period, keeping everybody as safe as possible and also to help our customers navigate through this difficult period. So focusing particularly on Q2, you saw that our sales growth was substantially lower than the exceptionally high level we had in Q1. In Sustainable Food Solutions that was driven by a strong inventory buildup in March when the pandemic started, followed by destocking in Q2. And this was especially the case in the functional systems part of the business, which contains most of our blending operations. On the other side, on natural preservation, this actually performed very well in both quarters. In the Lactic Acid & Specialties, most of the Q2 COVID impact was seen in the biopolymer sector where we sell medical polymers. And the substantial amount of those polymers are used in the so-called elective surgeries. These type of surgeries, that are not really essential, have been mostly postponed in the past few month. So we are hoping that the situation will improve there. As there is more and more room, let's say, free in the hospitals. The growth in lactic acid was also constrained. As you might remember, we had this plan to upgrade our capacity in Thailand as part of a major debottleneck. Now time has come to start using that extra capacity, and we are planning to show better growth rate in Lactic Acid & Specialties in the coming quarters. On the Incubator side, where the numbers are primarily driven by our AlgaPrime DHA omega-3s, we are making very good progress there on reducing the cost base. And this is happening both on the fixed cost, but also on the variable cost. And these lower variable costs already leading to a more competitive pricing of our products. So on the COVID obviously is impacting the speed of the ramp-up there. And this is primarily related to, let's say, some development projects with new customers that are being, let's say, either on hold or postponed to later in the year as we cannot travel to help to the technical implementation of this novel ingredient. Finally, on the outlook. Now it seems that we are in calmer waters. We've seen the month of July developing quite well. Even though there’s still a lot of certainty out there, we believe, and we reiterate the indicated 4% to 7% sales growth for the year. And now we expect the margin to be higher than the 15% where we first said around 15%. And this is probably because of good cost control and also some temporary items, such as, of course, you can imagine lower travel costs. So all in all, I'm pretty happy with the way we've performed as a company during the first half. And on this, I'd like to open the floor to questions. Operator?

[Operator Instructions] And we can now take our first question from Wim Hoste from KBC Securities.

I have a couple of questions around the Incubator. So I was wondering if you can update us on the underlying business trends for both the AlgaPrime and also protein business, how is contract development working. Can you find your new customers? It is just a matter of timing before this will kick in? And obviously, COVID-19, it was not easy to start new contracts? So a little bit clarity on the underlying trends for the business and the contract development would be helpful.

Okay. So Wim, so on -- first of all, on these 2 product platform we have on the algae in green business, AlgaPrime omega-3. As you know, this is primarily going to aquaculture. What we have and we had in our initial plan, indeed, was to broaden the customer base and also the application reach. So customer base to have also more global reach from Nordic countries, also developing to South America and Asia Pacific. And we start to act on that by different ways. The first has been to build extra go-to-market resource. So we've recruited -- you might have seen that on the press, new top persons to act both in the Chile market, but also in the Nordic markets. And the second angle is to develop ages and categories, moving, from instance, from salmon to shrimp, where also we see a nice potential use of our AlgaPrime. Back to the famous also market momentum. We are in favorable conditions because on one side, the fish oil prices are still quite high, and this followed a very poor fishing season earlier in the year. So -- and that is, I mean, again, has been confirmed during the second fishing season just before the summer. At the same time, the negative COVID impact has been impacting us in the sense that we had planned some trials during the pre-summer, yes, and pre-peak season for the salmon feed. And because of the travel restriction across the globe, these trials has now -- have not been canceled, but have just been postponed to -- for some of them at a later stage with open date. For others, we have planned dates for later this year. Now we cannot really confirm whether they're going to happen or not. It will depend about, of course, how the situation evolves. That's the only thing that is coming underway. The second thing I'd like to highlight when I was referring to the cost base is that we've been able really to also act quite significantly on our, let's say, variable cost to produce AlgaPrime. And that's also, I think, again, giving us confidence for the future. Having said that, one of the, of course, area of attention for us is, indeed, we need to broaden the customer base and the application base by, of course, converting new customers. And this is, of course, affected by COVID as we speak. On the second question around the protein. There, as you know, we have engaged in this very good partnership together with Nestlé. We also made clear that, at that time, this was a much more longer-term project as we needed to navigate through, of course, not only scaling up the products, but also the regulatory environment. And we know that, that takes time. So -- and this is not a project that we expect will contribute to sales in the next 3 years as we need to go through this regulatory, let's say, approvals both in the U.S. and in Europe. And having said that, the, of course, momentum and the project governance with Nestlé is going very well. So -- and we are just executing on the plans with them to move on the project on protein. So hope it answers your both questions.

Yes. Sure. One follow-up, if I may, is on the SAP rollouts, is there any delay in these rollouts because of maybe travel restrictions by your IT staff? Or is previous guidance on costs per annum still valid?

Yes, I can take that, Wim. So that's also a question we got at the AGM, by the way. So yes, we had to postpone one implementation early in the year. Because at the end of March, we are planning to do a smaller implementation in some of our sales offices in Asia, like China and Japan, and it was just 2 weeks after the lockdown kicked in. So then we had to postpone that because travel restrictions were coming in full force, as you know. So that implementation has been postponed. The next implementation, which is a much bigger one, is according to plan. That is the European implementation, and that's still to take place in the course of the second half of this year. So in that sense, we continue with this initiative. But yes, it is, of course, a bit more cumbersome, to be honest, because we do have these travel restrictions in the different locations.

And we would now like to take our next question from Patrick Roquas from Kepler.

I would like to focus on the jump in associated income, so related to your JV with Total in PLA. So several questions here. So what have been the main drivers for this increase year-on-year aside from volume growth? And is the half year result, is that a good indication for the full year? That's the first question. Secondly, if I remember correctly, the key financial targets for the JV were, let's say, sales of around EUR 150 million and an EBITDA of around EUR 30 million. So assuming a full year profit, net profit of EUR 20 million for the JV, the JV clearly seems to be ahead of this. So the question is, is that the right assumption? And then the third question is related to this. Is Corbion still getting its fair share for supplying lactic acid to the JV? Or is there, let's say, upside in the price that you are receiving for your lactic acid, taking into account that there might not be sufficient lactic acid available? And then finally, let's say, given the very good profitability of the JV, while it's still not running at full capacity, is there any reason to assume that the JV would not expand capacity going forward?

Shall I take first the financial component? Yes, you're absolutely right. So the [ big jump ], as you call it, in the results on the joint venture, as we said, is fully caused by our PLA joint venture. As you know, and as we also wrote down in the press release, we already see the joint venture going from strength to strength. So that is indeed also expressed in a nice development in the net result of the joint venture because that is what you're looking at in our P&L. It is 50% of the net result in the joint venture. That's closing in positive territory. And in that sense, that will continue to be the case going forward. In terms of your potential calculations, we did state in the past and with this first plant setup in Thailand of 75 kilotons capacity at a full utilization. At that time, that's a dollar price or the euro price of 2 that would equate to indeed $150 million revenues, EUR 150 million. That being said, that's already some statements I made in the past. Since then, we have shares with the market that the PLA developments are going pretty strongly also in terms of demand/supply. And that caused the whole market, in general, to really cruise at much higher price levels than that $2 per kilo because $2 per kilo was more or less the standard, how the whole PLA market has been developed in the last 2 decades, if you will. So more recently, say, the last 1 year, 1.5 years or so, we see prices on the rise, and you're really looking at really high 2s, even in the 3s in terms of sales development at this stage. But that sounds the potential is bigger. And the capacity question, I leave it to Olivier.

Yes. Yes. Thanks, Eddy. So first of all, back to your question, Patrick, on the lactic acid and the pricing. Obviously, to contextualize it, in terms of capacity planning and the allocation, whether it is to the joint venture or to the Corbion legacy market, you have to see the time to build capacity in our business is 2 to 3 years, whether you discuss on the lactic front or on the PLA front. And obviously, we just had this big, let's say, a $35 million investment in Thailand that has been commissioned during the Q2 this year. And that was, I mean, the volume already planned a while ago to, of course, both support PLA growth and legacy Corbion lactic acid and needs. So our, I mean, strategy is obviously to serve both as pre-agreed, trying obviously to maximize margin as well as making sure that we do not out or stop any potential future development primarily also in the scope that, as you know, by May 23, we have a second major plant coming onstream in Thailand, yes? So all this, obviously, as much as we can get visibility on this market is in our industrial planning. But we are not, let's say, today, kind of favoring one or the other because we -- obviously, we are participating into the nice PLA growth market through our joint venture with Total. But we also, I mean, want to support our core business. So today, we also benefit from market conditions where, yes, there are not that much lactic acid availability across the globe. And Corbion has been investing recently -- is planning to invest going forward in this new plant in Thailand, yes. On the PLA capacity, on the second question. Obviously, today, we are discussing a lot with our partner, Total, on a constant base. I think the relationship is excellent. We have a very complementary set of skills. And this is, I think, also one of the critical aspect of this joint venture where Corbion bring the expertise on one side, obviously, on the lactic, and the global supply, but also on the polymerization, and Total on the go-to-market and also on the PLA. We are, indeed, I mean, in discussions to plan for the next steps. A bit early to say, but yes, we are looking at that. Obviously, we are ramping up the current plant capacity, yes, with good results. But yes, we are looking at it. Last point I'd like to make is that, obviously, COVID there is having, I mean, to some extent, positive impact, you could say, in the grand scheme of things, plastic polymers did benefit from COVID because people tend to over package stuff these days, which is good and bad. It's good for us, PLA. However, I'm not sure if you think about fossil-based plastic, this is a great thing. But you could see this plastic market have been booming during the COVID period, and I'm not sure it helps on the environmental side, but it benefits PLA, which is a better solution. Yes. So I hope it answers your question.

Yes, that's very helpful. Obviously, I also have questions on Q2 trading and expectations for the remainder, but I think it's fair to leave the floor to some of the other listeners as well.

We can now take our next question from Fernand de Boer from Petercam.

It's Fernand de Boer from Degroof Petercam. A couple of question on my side. I also have a question on PLA. But if you look at that, it must be running at quite a lot of capacity. [ I like already almost 100 million ] of turnover. Is that the correct figure for the first half? Then, on the Sustainable Food Solutions in bakery, the growth must have been quite negative. Where if you look to all the supermarkets, they report very strong growth. So could you elaborate a little bit on that? What is the mismatch? Why was the destocking necessary, if the growth in the supermarkets continued? And then I saw that there was a kind of 4 million write-down on inventories for the omega products. Could you elaborate on that, why that was? And why is that taken as nonrecurring? Because I think the inventory build up and the fixed cost of that was not nonrecurring. So could you explain that to me? And then maybe the last question on the working capital, the outflow on the creditor side, is that going to be reversed in the second half?

So maybe I will start with the bakery question, and then we'll leave the other 3 points to Eddy. So on bakery, what we've seen and in functional systems, to a wider extent, is that, indeed, I mean, we had a high surge in sales in -- during March where people rushed to supermarkets and bought a lot of packaged breads, and we saw a less impact on what we call the sweet goods and the more indulgent type of products, the doughnuts of this world. However, what happened is that later on, we have on one side, a double effect. We had, not only customer rushing on the supermarket shelves, but we had as well, our own customers, the processors that build up, I mean, quite a lot of safety stock because of the unknown nature of the length of the pandemic. And as, I mean, we could demonstrate that after a few weeks, we were in capacity to supply. We saw that this safety stock have been, let's say, reduced quite a lot by the end of April and May. But if we just analyze, let's say, our bakery business, we have some exposure to what we call the so-called foodservice area and the in-store bakeries, where some customers would supply in-store bakeries, you find in Walmart and Costco. But this is not a huge part of our business. It could be for bakery, between 15% and 20% of our business at max. So we've seen the impact. But actually, we do not have, I mean, big negative in bakery over Q2. What we see on the opposite is that now there is a request for some, let's say, better functionality. So it's up to us to reorient our sales to a different type of solutions in bakery. People are looking now to extend freshness or to have also different shelf life as there is more processed and packaged foods. So yes, I'm not that, let's say, worried about the outlook, but it has been very difficult to understand the dynamic of pantry loading and pantry unloading and also change in some consumer habits. When we look every week actually to the IRI consumer data in the U.S., it shows now already, for the last 2 months, quite some stable consumer purchasing pattern. So that's what I can say on that. So on this, I mean, Eddy, maybe you can take the questions related to PLA and to the more financials, working cap and write-down issues.

Yes, I will do that. Fernand, so your first question on the revenue level in the joint venture. Yes, we're not in a position to give too many disclosures on that, as you can imagine. But if you're factoring in 100 million revenue level, $100 million revenue level on a half year basis, then you're going a bit too over the top, to be honest. So you should figure in a lower figure for that. But that being said, you can see that everything that we shared that the development of surge is going very positively in the joint venture. On inventory, yes, so this is an inventory write-down related to the active decision to let go -- to divest the Thrive business that was in the managed for exit portfolio component, as you know, from our Capital Markets Day. We try to find a new owner for Thrive that proves to be not on too easy, I say, it’s a sell opportunities. So we actively decided based on the activities in the last half year to stop that business, exit it. And then all the related stocks related to the business we see it as a component of the decision to divest and to let go of the business. You could argue was that an adjustment, yes or now, we are very transparent on how we classify on which titles adjustments, i.e., entries, and we have disclosed it also in the adjustment column. Then your last question on working capital development creditors. You're absolutely right. So you see in, yes, increased cash out on the trade payables, especially. So yes, that is typically something to do with the phasing of the individual payment runs, if you will. And is it just before or just after a certain month cutoff. And typically, you see this indeed reversed towards the end of this year in a big amount of that.

Thank you also for the comment on PLA because that means actually, that March are much higher than we anticipated.

The margins in the PLA joint venture are indeed higher than what we had in the past. And that is very much caused, like I’ve said, on the higher price -- sales price development in PLAs, which then the original assumptions 2, 3, 4 years ago, that I already talked about earlier.

We can now take our next question from Robert Vos from ABN.

I have a couple of questions remaining. Maybe for Eddy, can you explain a little bit more about the U.S. tax audit? And is that done and over with now? That's my first question. And on the noncore activities, you mentioned that you have commenced with the process to divest frozen dough. So question one, is it fair to assume a transaction there, so it will be disposed and not terminated? And also, on FDCA, you say that you have started the process of exiting this project. So that means termination, likely, can you confirm that? And finally, you had a noncash increase in the financial charges, you've explained it a little bit in the press release. But can you add some more color there. And what to expect here going forward because of these intercompany loans?

So that's a whole list. So let's start with the U.S. tax audit. So this is a state tax audit. It's not federal tax, but state tax in California that is. This relates back to 2012, by the way. So this is older item, very much related to the split up of the company CSM into Corbion and the divestments of parts of CSM at that stage. So this is something that has been all other than in discussion for already quite some years. We have already elaborated on that in previous annual reports. What made the change to be made this quarter to make this provision is that we have now come to a position that the state tax authorities have put in a formal assessment, as they call it, see it as a formal claim that basically now triggers a process to further enter into discussions and see how we will settle that claim. The provision we've taken is the max exposure. So in that sense, you cannot expect other figures going forward. On the noncore frozen dough, so that, again, is a part of our portfolio that in the Capital Markets Day, we've positioned in the managed for exit portfolio components. This relates to a physical plant. It's really one of our production plants in New Jersey, very nicely located, facing Manhattan. So prime location in that sense. That also explain it has a certain real estate value in the line. So we will never simply walk out of this. There is value to be captured there. And it also is having, of course, an ongoing business related to that. So yes, we formally started that process to divest that also in accounting terms, triggers then that we had to reclassify the related book value of the assets, liabilities as held for sale. That's about 10 million. You can see in the balance sheet, 10 million of assets book value related to that. And when you classify something held for sale, typically, you intend to divest it within a 1-year term. And internally, of course, we're trying to find an earlier solution for that. So that is a process, and we will keep you updated the moment we get further traction on that. FDCA is a slightly different animal. Again, a component that we have hosted in the manage for exit. This is really more, I would you call, that a major innovation initiative that did it very well in the previous strategy setup as a separate bioplastic, apart from PLA and [ silicone ] and what have you. But in a new strategy, we said, yes, that there's not really something that probably we're the best owner of to further develop that because that takes long-term efforts and investments and management attention to further materialize. We do believe in the bioplastic of FDCA. That is the pet-based alternative call, PET. But again, it takes quite some effort to further mature that. And what we're looking forward there is to see how can we find the best solution to, on one hand, to keep the value and get the initiative further maturing. But on the other hand, let's not do that on our own. So we're looking there for partnerships, whether that will be a long go, a full exit or in the transition phases, different stages of reducing our stake. That is the different solution areas we're looking at. Again, that will take more time to further mature on. Then the last one, the big increase in financial charges in the year-to-date P&L is very much caused by an intercompany loan from our corporate entity to our Brazil entity. You've probably witnessed that the Brazilian reais has devaluated, has depreciated big time in the last half year, about 35%. So the reais loan, and this is an intercompany loan between, again, the Netherlands and Brazil. That is denominated in the reais currency that had to write -- to be written down because of the devaluation. Going forward, that can mean if the real strengthens again versus the euro, then, of course, you will see the reverse effect of that. At the same time, we are working on to see, can we reduce and have a different financing structure to reduce underlying amount of this reais and above. So we further reduce the volatility, if you will, going forward on this intercompany financing stream.

We can now take our next question from Sebastian Bray from Berenberg.

My first one would be on the polylactic acid market. Prices have been inflationary as you said seemingly for some time. I was wondering how you see supply increases outside the top 2 of NatureWorks and Corbion over the next 2 to 3 years. My understanding is that Hisun and Galactic may have larger projects in the pipeline. When, if at all, do you expect these to come to market? And could you give a bit of insight into how regularly you discuss pricing with customers that's not a spot price for PLA? Do you negotiate every 2 or 3 months? Or how does this work?

Sebastian, so on the PLA supply, obviously, you -- as you know, next to NatureWorks, being the market leader, Corbion is today, the only, let's say, other major player having spare capacity, yes? And what also is important to understand, I mean, on the PLA market is that what, of course, drives any capacity expansion is the availability to supply lactic acid. So today, yes, the market, as we've discussed before, is rather short of lactic acid. And yes, there is this new capacity that just came on stream from Corbion, and there were some other capacity that we’re applying in China that were rather modest. And again, not for us to comment what's happening there, but they are, let's say, next to a one, let's say, investment in China that looks reasonable in terms of size. There is not that many other projects. And this Chinese investment look, as we speak, to be strongly delayed. So I cannot say more than that. And this is maybe related to COVID, but we do not have more information on that. So let's say, for the coming month, I think still, the situation in lactic acid would remain, let's say, as is today, and Corbion is one of the few player having a spare capacity in lactic acid. And this was what drives PLA as well. So on the pricing, on your next question. Basically, these are not a 3-month type of business because of, indeed, the availability situation, you can understand. I mean our commercial policy is to go also for some longer-term agreement primarily in current pricing environment. So we are looking for longer-term agreement to secure our business going forward.

If I might take the corollary of your comments on the tight supply/demand in lactic acid. Can I ask why H1 pricing was, therefore, down 5% in Lactic Acid & Specialties. Is this to do with the transfer of pricing associated with Corbion selling to the JV? Or is there another factor at play here? Because my understanding is that the transfer pricing is done at close to market prices. Is this right?

No, it's primarily a mix issue, as we discussed before. For instance, we have in lactic acid derivatives, the only segment that did suffer was the biopolymer, as we said, which is typically a very high-margin fill. And back to this elective surgery being postponed to Q3, Q4 this year. This is primarily related to that aspect, Sebastian. So it's a mix coming from biopolymers.

A final one from me. European carbon prices are fairly high at the moment. I believe Corbion has about 1 million tonnes of regulated emissions. How does it see the potential headwind from higher carbon prices over the next 3 to 4 years? Does it have any reserve of certificates to compensate for this? Or will it take some capacity off-line when the new plant is finished in Europe because it's not as competitive because of the CO2 emissions?

Yes. It's a good question because, yes, we are lacking clarity, of course, of some countries position on also carbon tax. But yes, so far, I think we have different scenarios on carbon prices. We are not -- I mean, again, planning necessarily to take capacity out of the market, unless this would change dramatically from now to the future. We can say that, of course, European cost competitiveness is obviously primarily related for us to the feedstock raw material, which is, for us, a higher concern in the volatility of the market than the CO2 or the carbon tax. And I think this is why we are constantly developing new process, new technology to work on our cost base and the Gypsum-free process we're going to implement in Thailand is a good example of that. But we are looking at constantly to, let's say, how do we get our cost on a lower base. But I would say the feedstock aspect is probably a much bigger element than the carbon. Looking forward, as you know, the sugar regime impact and -- is very unclear. And the consequence of the sugar industry in Europe today is still very unclear.

[Operator Instructions] We have one more question from Patrick Roquas from Kepler.

So on the expectation for the margin, which you expect to be higher than 15% on a full year basis. So following your around 17% margin in the first half. There is some seasonality based on which you had profitability perhaps in Q4 could be somewhat lower. Is it fair to assume, let's say, aside from that and assuming that the volume growth is good, yes, that you -- sorry for wrongly rephrasing this, but the question is on the Incubator. So the, let's say, the 3 million EBITDA loss for the incubator, is that something that we can, let's say, assume as a going-forward rate for the second half? And aside from the seasonality, is there anything else that could impact your margin in the second half? So I hope that's clear. Sorry for -- yes.

Yes. Okay. I can take that, Patrick. So yes. You do know, you're following us already for a long time. You do know that Corbion always have a lower margin profile in the second half, especially in Q4 versus the first half. So in that sense, don't assume 17% operates at a margin level for the core business for the first half of the year to be kind of normal and to be extended automatically in the second half of the year. So that's the first statement. I think, at the same time, we also need to be careful for COVID, in general. Nobody exactly knows how that will play out. So I think we need to be careful to make the 2 strong statements in that sense because, let’s face it, we're still in a potential -- I understand from our Prime Minister, we're not allowed to call it the second wave yet, but at least the signals are not getting more positive more recently. So I think we need to be careful there. So what we do know is, and what we are confident about is that, yes, we will turn out at a higher than 15% margin level. So that is a confident statement, if you will, compared to the earlier outlook that we provided. But I'd like to say at the same time, let's be a bit cautious on expectations going forward in that sense. On specific question on Incubator, Q2, minus 3, you cannot multiply that times 4, and that is the closing rate. Why? Because in the Q3 -- sorry, in Q2, we did have a positive contribution from absorption effects. You may know this is a production plant where we have pretty big fermenters. So the moment you produce something you produce also something for stock. So you do have some -- and we're running that in campaigns. So you do have some inventory swings as you cruise through the different quarters of the year. So sometimes, inventory has come down a bit. So we’ll get more cost in the P&L, sometimes your inventories go up. So you have less cost in the P&L. So Q2 has been, in that sense, positively influenced. For the first half year, that has also been slightly the case. So I would say, see it more as a count of 5 million negative per quarter. That's more or less the closing level as we are in the current Incubator operation.

We can now take our next question from Fernand de Boer from Petercam.

Fernand again. Just on the meat business. There were some disruptions in meat in the U.S. in the second quarter. Could you give a little bit indication how that is running now? How that looks for the second half? And also how meat is going outside of the U.S.?

Yes, Fernand. So yes, we've seen indeed a lot of disruption during Q2 in terms of plant closure. I have to say that the impact was not huge on us for the simple reason is that we've been able to help out customers that reroute operations from plants that were -- and there are closure to others. And usually, these big groups, there are a few large companies in the U.S. have multiple plant. So we could, at the end, I mean, although we had a few losses, but it was pretty limited. We've been able to navigate pretty nicely across all these. It required a lot of supply chain efforts at one time, and even we had to airfreight a few products to make sure we would supply. When we look at the meat category and we look at, as I said before, for bakery, we look at the whole of meat category. Every week, we see a nice increase in terms of meat and processed meat consumption, and that is also something that when we think about preservation has been driving sales up over the last couple of month despite the -- everything that happened in the meat area. In the same way, we see also a similar very strong pattern into the meat industry in Europe. And yes, we've heard about this major closure in Germany, meat plant closure. But all in all, in the grand scheme of things, it has been let's say, a positive momentum and growth area for Corbion during Q2.

Next question comes from [ Manan Coulon from Rasmussen ].

My first question was about elaborating on your subsegment, but I think now with the question on the bakery and the meat, we are now pretty much okay. Maybe elaborate on your other subsegment, what happened in Q2? And what are you expecting for these subsegments going forward? My other question will be on Americas. It's a subsequent -- it's a huge part of your business. The crisis is poorly managed right now. So what's -- how do you see that situation? Do you think it's very concerning for your business? Or are you okay with that?

So on the other segment, outside the bakery and meat, what we can say is that we have obviously in the Sustainable Food Solutions, obviously, other categories in the preservation area and that is, again, following the same pattern. So everything around preservation is still pretty strong as well as fortification when we sell, for instance, some different lactic acid salts, whether these are potassium, magnesium and so on. We've seen a good traction on, let's say, what we call everything related to health and fortification. Other subsegment that is important to us is the pharma business, where there we also sell various lactic salts for dialysis. And this has been a pretty also stable and growing market. As you know, dialysis people -- I mean, and for me, they need their products COVID or not COVID, so we've seen still, I mean, an ongoing momentum there, so on these other segments. And yes, the last one is around sanitizing products where basically lactic acid and salt derivatives, by nature, are antimicrobials. And we've seen, I mean, again, very nice development, but I think there is a lot more to come. But we've seen nice development in, let's say, going for the cleaning product in industrial areas with lactic-based derivatives. So on that one, recently, you might have seen that in the press, we launched new solutions to enable customers to lower the ethanol content in hand gels. As you know, ethanol has been really scarce during the pandemic crisis. And we offered a solution to reduce potentially up to 30% of the ethanol content in sanitizing solutions but, in the same time, improving the antimicrobial properties. So that's, I mean, a nice development we've done during the period to also participate to offer the best solutions. Last subsegment we didn't touch is the electronics, again, on lactic derivatives, that is still showing nice momentum. And this is on the back as we all are used to today on digital activity during the pandemic, more things happening, more, let's say, 5G being rolled out where our products are coming into play. So that is on the positives. Where we see that uncertainty, we mentioned biomaterials. We mentioned as well, of course, bakery in-store and foodservice portion. Although we are less exposed than some competitors in there, this is still an area of attention. So jumping on your second question on North America. Obviously, you know here, we speak about the potential second wave. I think over there, it is still, I mean, really in the highs of the first wave. And I think they might jump in the second without having any transition. So what we see in the U.S. is that we've had very tense situation in New Jersey to start with. Then it moved them to the Chicago area. Now it's very sensitive in San Francisco, where we have our R&D lab for algae. Yes, we stay very close to people. It's still a serious situation. We are not that concerned in terms of, of course, plant operations as we speak. However, I think it's very important to stay very focused. What we see as well is that, yes, there is an overall concern in the population and amongst -- I mean, of course, colleagues in the company, but that's an overall issue. It's not specific to Corbion. So we are not worried for our own business continuity as we speak. But obviously, yes, this -- we are far from being out of the woods, if I may say, in North America. So we stay very alert. So this is what I can say about the U.S. I hope it answers your question.

Yes. Can you just remind me what is the exposure to foodservice because I think it's something like mid-single digits, but I'm not sure?

Yes. It is 15% to 20% of our food -- of our SFS, Sustainable Food Solutions business, roughly speaking. This is a rough estimate.

There are no further questions at this time. I would now like to turn the call back to Jeroen for any additional or closing remarks.

Olivier?

Yes. No, so I want to thank you, everyone on the call. Yes. So I think, again, as I said, I mean, really looking forward to the next quarters and the second half of the year. As we've said, okay, we remain confident, although, again, still very uncertain times. But on this, I want to wish you all good health. I mean, stay safe. And hopefully, we're going to get in contact pretty soon for the next release. Thank you, and have a good day and a good weekend.

Thank you, everyone.

That concludes the Corbion Half Year 2020 Results Webcast. Thank you for listening. You may now disconnect.