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

Welcome to the Corbion full year 2020 management statement on the 5th of March 2021. [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, operator. Good morning, everyone. This is the full year 2020 call for Corbion's results. Thank you all for joining. Today, we have on the call, Olivier Rigaud, our CEO; Eddy Van Rhede van Der Kloot, our CFO; and myself, Jeroen van Harten, Investor Relations. Today, we will be going through a longer presentation, which should take about half an hour. After which, we will move into a Q&A. As you might have seen, we have a conference call, but we also have a webcast where you can see the slides but also can download the slides. You can also find those slides at our Investor Relations page on the website of corbion.com. So first, 30 minutes of presentation and then we'll move into Q&A. The whole call should take about an hour if there's subsequent questions. So with that, I would like to hand over to Olivier Rigaud. Olivier, please go ahead.

Hello. Good morning, everyone, and welcome to the Corbion full year results 2020. So I will start by exposing the results we've got over 2020, waiting for the first slides to come. Yes, here it is. So as you've seen, I mean, we've had a strong year in terms of top line growth. Our core businesses grew 7% with very strong performance in all divisions, being the Sustainable Food Solutions, Lactic Acid & Specialties as well as our Incubator, primarily our algae business. We ended also the year with a 16.1% margin EBITDA. Margin saw an organic growth of 13.4%. As you remember, we presented our Advance 2025 strategy last year in March, a week before the entire world went into lockdown. And at that time, we decided to focus our business, align our resources and balance, in fact, the approach to the market. We ticked most of the boxes on the managed for exit initiatives that we agreed at that time by divesting our frozen dough business. We also exited some of the low-margin co-packing business we had in the U.S., stopped our algae oil consumer products, so quite a lot of progress on that front as well to focus on the core business. We also announced and initiated the construction of our new lactic acid plant and announced also a new PLA plant in Europe, in France, together with our partner, Total. And last but not least, we made quite some impressive progress on the sustainability front where, amongst others, we were awarded CDP's, or Carbon Disclosure Project, A rating on climate changes. We also got rewarded with an EcoVadis Platinum recognition last year, so making good progress on this. I will come back later into the detail. Just moving on to the next slide. So as you remember, so basically, on the strategy on Advance 2025, the first month, we've been busy to refocus our business on core at these 3 sections: managing for growth, manage for value and manage for exit. So this has been put well in place, and we've aligned following these initiatives around 3 business segments and have decided to invest massively into better, more resource allocation to intensify our growth into our 3 business units. When we dive into the Sustainable Food Solutions, in there, as we know -- as you know, we have, I mean, first of all, a Preservation business that has been driving a lot of the growth last year. And we decided to invest in close adjacencies, one being natural antioxidants, whether these are acerola extracts, rosemary extracts. But also, we had several areas of investment, being the natural mold inhibitors for bakery, food ferments as well as dairy stabilizers. And to enable these developments, we've invested also heavily in new go-to-market capabilities, application labs. We built a new lab in China. We are doubling our premises in Singapore. But we've also invested in capability in our centers both in the U.S. and in Europe to be able to further grow dairy food systems, anti-ox, as I mentioned, and improving sales and frontline capabilities across various geographies. Moving to Lactic Acid & Specialties. There, we've embarked on a massive debottleneck program. So as you might have seen, we've announced a large debottleneck in our U.S. facility in Blair, Nebraska next to the announcement we've made in building a new 125,000 tonnes plant in Thailand next to our current operations in Rayong. So basically, these capacities are there to enable us not only to sustain and support the growth in our PLA business but also in the conventional, traditional Corbion business going to the full ingredient and primarily also the preservation space as well as the derivatives space in Lactic Acid & Specialties. We've seen actually strong demand in, let's say, solvent, green solvent, as a more sustainable alternatives as well as more need for antimicrobials and hygiene solutions across the U.S. So we are preparing for these further investments as we speak. So now moving to our Incubator and the progress we've made there. As you know, we decided to focus primarily on our Algae Ingredients. And through this algae, primarily our DHA omega-3 initiatives and then the protein agreement we have with Nestlé. Starting with the progress on algae, we've had some very nice breakthrough in developing a new algae strain in 2020, enabling us basically to increase massively the yield of omega-3 content per tonne of oil produced, and thus allowing us to position differently in terms of pricing versus wild fish oil. So we've had many announcements across the year in terms of bringing our go-to-market capabilities but also improving our distribution network, whether, I mean, we are going to the, of course, salmon industry but also the shrimp industry as well as the pet food industry. In terms of open innovation, we announced 2 investments in funds. One is a SHIFT Invest III and the other is the ECBF, so for the circular bioeconomy, where on this, we have access to some deal flow: SHIFT Invest primarily being on upfront innovation, teaming up with a startup and getting new innovations in our pipeline; ECBF being more on the back end of the funnel, also giving us access to nice partnership companies. So quite a lot of progress being made on that front as well and setting up the structure for the years to come. Now let's discuss, I mean, on the PLA initiatives. And the PLA slides, you've seen that we've had many developments on PLA. We've seen, I mean, a continued market growth throughout the entire year 2020. We've also, I mean, seen a very healthy demand, I mean, supporting PLA price levels. And although we see new entrants emerging that are mostly China-based, we see, of course, some serious investment but also a lot of announcements that are not yet proven. However, we are looking that with, I mean, quite closer scrutiny. But it has been a very strong year in terms of PLA momentum and continue to grow the PLA. Now setting up the priorities with our joint venture partner with Total. Indeed, I mean, we are preparing the construction of a Grandpuits plant in France that we announced earlier. We are also actively engaging on regulatory framework. There are a lot of things being discussed right now globally around PLA and biodegradable plastic. We are also embarking on PLA recycling trials, preparing some of the future development, working on copolymers and new polymer combination to improve biodegradability and also compostability of our product. Having said that, we continue to invest in our current Thai operation to optimize the process and the quality of our product. So a lot of good momentum and a lot of initiatives around our PLA business. I will now move to the sustainability recognition that I mentioned earlier during my introduction. As you've seen again, we are pretty proud of being A-rated in terms of CDP. We've got this Platinum EcoVadis recognition. And actually, we are making a lot of, let's say, nice progress on, let's say, our sustainability footprint, really in measuring the progress we are doing on the various elements, whether this is related to the way we source our products but also, I mean, the way we are running our operations. I would remember you that we engaged in signing the Science Based Targets a year ago, where Corbion committed to reduce its carbon emission by 33% by 2030. And so we are right in line in terms of our road map to achieve these targets. But this is a continuous effort we are embarking in everything we do. So looking to the target we are having, we aim to have over 80% of our revenue by 2030 that would be aligned against the Sustainable Development Goals 2, 3 and 12. And already 100% of our innovation project contributing to these Sustainable Development Goals. So when you look to the various metrics, I will not comment them in detail. But as you can see, we have quite a detailed road map and ambitions behind each of the Sustainable Development Goals. So -- and these are things we are really measuring that are also part of the incentive plans of the senior executive leadership team. So we are really committed to track and again really progress on all these targets in line with our basically purpose on preserving what matters and our strategic intent as described into the Advance 2025 strategy. So moving on, I think -- so now I will leave the floor to Eddy.

Yes. Thank you very much, Olivier. Good day to everybody. So we will first start with the presentation on the profit and loss for 2020. So our sales grew by 1% to EUR 986.5 million. This 1%, of course, is also including quite a negative currency impact. Underlying, we've been growing the business on an organic basis by 5.6%. And if you look at the core business, we've been growing that at 7%, at the top end of the guidance range. That sales growth has translated in an adjusted EBITDA growth of close to 9% to EUR 158.8 million. And the margin development, the EBITDA margin, that has grown from just below 15% in 2019 to just over 16% in 2020. Then if you go a bit deeper into the P&L. You see the adjustment line, last year, we had quite a big negative, minus EUR 24 million. The big component in there was, of course, the impairment that we had to make on the algae business in Brazil mainly. This year, in 2020, we had a positive in terms of adjustments. So that was related very much to an additional payout we got on the lactide plant that we have sold to the joint venture of PLA some years ago. So that translates then to a result after tax, quite a good growth by 183% from EUR 26 million in 2019 to EUR 73 million in 2020. There was one line item I'd like to further pay attention to. That's the result joint venture and associates. You see a minus in 2019. Because at that stage, the joint venture, PLA, was still operating at a loss. But we have turned that into a positive in 2020. It is here saying EUR 4.5 million plus in our P&L. If you look underlying, the performance of the joint venture as such has been at a much more positive note. There's quite some details in the press release in different sections I can take you through later. But underlying, basically the joint venture has performed at close to EUR 28 million positive net results on a 100% basis. So that means 14, a good EUR 14 million, 1-4, positive for 50% share in that. But again, I can take you through the math at a later stage. Jeroen, if we then move to the next page. We thought it was a good idea to share an overall view of the COVID-19 impact on the EBITDA level for our company in 2020. Of course, it's hard. It's difficult to be precise on the direct or indirect effects that COVID has had on our financial results. But still here, we want to provide an overall overview. We have estimated that we have been positively impacted on the EBITDA level in the range of EUR 4 million to EUR 5 million in 2020 for the full year. If you then zoom in a bit on the main components, from a business perspective, on the added value line, we had a small net negative of about EUR 1 million negative, where we had certain market segments adversely impacted by COVID, the foodservice-related business, for example; biopolymers, we've talked about it before, that the people like all of us are postponing elective surgeries, if possible, as to avoid clinics and hospitals as much as possible; and also some higher logistics costs. Especially in the latter part of last year in Q4, there's quite some tightness, tension in the logistics chains in general, where the availability, the access to sea containers is more difficult and thus adding some costs to run our business. Those are some negatives. They have been more or less offset by also we had some positives, of course, in the food retail business. Everything going through retail, packaged food, where, of course, our products are also to be found, had a positive support, especially in Q1, for example. And also in the hand sanitizer business, and so lactic acid, you can also use as a component in hand sanitation. And that also had, of course, a stronger demand because of COVID. So all in all, a small negative. And then on the cost side, so these are now the operating costs. There, we had a positive. The most prominent one is, of course, the much lower travel expenditure. Travel after Q1 came down big time. If you compare it to a normal way, a normal level of travel activities, a good EUR 7.5 million lower cost. And in the last quarter of last year, we decided to give an extra bonus to recognize all the great efforts all of our employees have been doing to get and keep Corbion where we are. So we have distributed a good EUR 2 million of additional bonus in Q4. Next sheet, Jeroen, is on the sales growth. You're familiar with the composition of this table. So again, on the top level, you see the full year's impact. On the left, total growth, 1%, like I said. We had minus 4% currency headwinds, so very much the dollar and the Brazilian reais depreciated over the year. Then in the middle, you see a minor negative impact from divestments overall, the Thrive oil business, the co-packing business that we have shed, had a small negative. And that brings us to this 5.6% organic growth for the total company and in the core, growing at 7%. That growth, by the way, very much carried by volume increases, 7% for the total business and close to 9% on a volume basis for the quarter. Those dynamics are a bit more pronounced even if you compare this on a Q4 basis. So at the bottom part of this table, there you see the currency impacts coming in even bigger if you take the Q4 comparisons, minus 9%. And organic growth has been also more pronounced positively with 9.5% and even 11% at the core level. Moving on to then the different business segments. Sustainable Food Solutions saw a 7% growth for the full year, close to 12% growth in Q4. That is -- yes, organically, that is, by the way, very much carried by a very strong delivery of our Preservation business, really clearly growing double digits in that segment. Also functional food -- Functional Systems had a good positive contribution. And Single Ingredients, where we had a bit of allocation shortages of lactic acid availability in the earlier part of the year, we had quite a good recovery in the latter part of the year. So that also had a nice growth momentum in the last quarter. The margin profile, pretty stable for the full year, from 16.8% to 17%. Why the margin reduction in Q4? Yes, that is very much driven by quite some accruals, cost accruals we have made in the last quarter of last year is this COVID, or care bonus as we call it internally, but also some other bonus accruals we had to make for the STIP and LTIP programs that we're running. Next page, Jeroen, is then the Lactic Acid business. There, we have been growing the business with 6% full year, 4% for Q4. Basically underlying, all segments were in positive territory, except for this biopolymers. Again, people are shying away from visiting clinics, hospitals where it comes to elective surgery. So that gave some reduction in sales development. The rest of the business grew very nicely. And also margin development, slightly up over the full year, from below 22% to above 22% on a full year's basis. And again, the same pattern for Q4. That is always historically, by the way, always the weakest delivery in terms of margins. But that's more pronounced even this year because of these extra accruals. Then moving to the third business segment, the Incubator, very nice growth momentum, of course, from a much smaller basis, we all know that. But still for the full year, a 34% organic growth and 163% growth in the last quarter. More importantly is also the EBITDA development. So yes, we are still in an investment mode, if you will. But the investment, the amounts in terms of the negative adjusted EBITDA is reducing. And we're really on track, on our way to break even this business in 2022. And underlying, yes, what is really driving this development is the omega-3. That's the main outlet for the algae business. As you know, the omega-3 business, where on the basis of a reduced cost profile, whereby introducing new strains to produce these products, we get a better yield and a better cost position. And on the basis of that, we are able and that we introduced in the markets early on last year to price position these products, these offerings at a lower price point than before, much closer to the price points of fish oil. And that gets really traction in the market. So a positive development in that space. Next page, that is something new. This is a page, what we call the -- for the joint venture. This is to be read on a 100% basis. So don't read this as our share. This is the financials on net sales and EBITDA for the joint venture on 100% basis. From now on, by the way, we will do that on a consistent basis on a quarterly rhythm. And in addition to that, you'll also find in the press release some further disclosures that we will make on an annual basis. But this at least gives you the margin development, where it comes to EBITDA margins. Of course, a very nice ramp-up from 2019, where we were cruising just below 11%, to close to 37% in 2020. And that is really caused by a development on the top line, both from a volume perspective because we are ramping up the production volumes and sales volumes in the joint venture, in the Thai-based production plants, in combination with higher on average sales prices for PLA. So that is also helping us in the margin expansion of this business, so positive development in that area. Then Jeroen, if we can move a couple of sheets and go to the net debt bridge. I think that is something to highlight as well. So basically, our net debt/EBITDA ratio has slightly improved in the course of 2020. We came out of 2019 at a level of 2 turns. By the end of 2020, we are at 1.7. You will find the familiar buckets in terms of income from EBITDA, of course, some changes in working capital. CapEx is a big cash outflow, of course, of close to EUR 89 million. The dividends that we've paid, EUR 33 million by Corbion. And then we had income of EUR 12 million from the joint venture. So that's the dividend that we received plus these payments on this lactide plant, deferred payments. And then the loans, the USPP loans, the dollar-denominated loans, because of the dollar weakening is also showing a positive in net debt development. It's important to keep in mind where we are with 1.7 because you will also see in the press release that we are entering a phase of much higher CapEx spend. So don't expect us to stay in this 1.7 zone in the course of this year, 2021. We are bound to see an increase in the net debt-to-EBITDA ratio in the range of 2 to 2.5. Then we will skip a couple of pages. Jeroen, we go to investments. So this should show you the overall investments that we made both in CapEx and some acquisitions we did in the last couple of years. In the total, we are looking at a CapEx program of close to EUR 90 million, 9-0, for the year. A couple of big components there is the investments in the new lactic acid plant in Thailand. So we're already making the first expenditures on this new plant that we have announced, which will become operational in mid-2023. So EUR 10 million is already invested in there. We have, on top of that then, a lactic acid debottlenecking. So that is our way of making available further lactic acids to cater for all the growth that we are experiencing on the existing lactic acid plants that we have in the world. So this EUR 13 million is very much related to the Thai facility, where we did already do an increase. And as you can read in the press release, we are even seeing more opportunities to further expand our lactic acid capacity based on debottlenecking. Our multiyear investment in our new ERP system had a cash-out of about EUR 11 million on CapEx. And then the rest is, what we also call them in the recurring, are all the other investments when it comes to maintenance or sustainability or compliance for safety or legal reasons. So all in all, a EUR 90 million CapEx level. Then the next sheet should give you some granularity on where are we with our divestment program. So we really ticked the boxes on lots of intended exits and divestments in the year. So frozen dough, we were just not able to make the divestment in 2020. But in the early weeks of January, we've been able to divest this business, approximately $25 million proceeds and a book profit of $11 million approximately, which we will recognize in the 2021 accounts because it just came after the closing of the year. We have exited, discontinued the co-packing blend business. The Thrive, the algae cooking oil business, has been exited. And also one which we maybe were less vocal about but quite a few of you will know is that we were also still holding on to a piece of land in the Netherlands, Breda, which was hosting a former sugar factory. This was an idle plot of land that we could not use anymore for our operations going forward and that we have been able, after a lengthy process of negotiations, to divest to the local authorities with very nice proceeds and also book profit amount of EUR 23 million book profit, again to be recognized in '21 because that came in January. The only one remaining in the manage for exit column is our FDCA initiative projects. And that, we are working actively on to find a nice good exit in the course of this year. That brings us to the dividend sheet, Jeroen. So we continue to apply our progressive regular dividend policy. And knowing and seeing that we are going to enter our phase of higher CapEx levels, we will propose to the Annual Shareholders' Meeting a stable cash dividend of EUR 0.56 per share like we did last year. And that equates to a 43% payout ratio. And then there are some indications on the timing of the dividend events. So that brings me to the outlook. Olivier, back to you.

Yes. Thank you, Eddy. So looking to the outlook for '21. We enter into this year with confidence, and we are planning for a core business organic sales growth towards the high end of our guidance, so towards the 7%. We see still, I mean, continuous momentum in our Sustainable Food Solutions business, primarily Preservation but also Functional Systems, as I mentioned before, moving into close adjacencies. Regarding the Lactic Acid & Specialties, the joint venture is still, I mean, running at a high pace. But we also see a strong momentum in all the derivatives that are continuing to perform pretty well. And finally, on the Incubator, the algae business remains strong. And we expect this year significant volume and sales increase in our path to the breakeven in 2022. Next to this, obviously, on the EBITDA, as we mentioned, we're going to still continue to invest in the organization expansion in '21 as we announced in the early days of the Advance 2025. So we are guiding, I mean, above 15%. But as we discussed, there are still some investment to come there across 2021. And last but not least, as Eddy just mentioned, we are entering into a much higher CapEx phase right now with all these new lactic capacity coming on stream but also some debottlenecks in some of the finishing legs. So we are expecting this to continue over 2021. On this, I would now, let's say, open to Q&A. Operator, back to you.

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

Yes. A couple of questions from my side. Maybe, first, I wanted to dive into the cost base and a few topics I would like to have some clarity about. First, maybe on Q4, can you elaborate on how much higher FTE and maybe additional infrastructure costs there were in the quarter? And also, I understood that apart from the EUR 2 million exceptional COVID, there were quite some other bonus accruals. Can you maybe elaborate a little bit on that? And then also, certainly looking into 2021, the infrastructure cost for additional labs, et cetera, can you offer some quantification and also quantification on the costs to be expected from the SAP rollout? Was there some kind of temporary pause because of COVID in 2020? And how should we [indiscernible] next few years? Maybe through [indiscernible] question. And then the second one for me would be on the adjacencies you mentioned, the antioxidants, food ferments, et cetera. Can you offer some additional clarity on the momentum you're seeing there and also what kind of earnings contribution, et cetera, we can expect from that in 2021 [indiscernible]

Okay. Thank you, Wim. I suggest, Eddy, if you can elaborate on the cost base and I will speak about the adjacencies.

Yes. The line was breaking a bit, but I think I got to your question, Wim. So on the cost basis, in Q4, again we made quite some accruals in Q4. So some are -- what we always do every year that there are the usual accruals for our STIP and LTIP bonus programs, where in the course of the year, we get, of course, better visibility of the potential outcome. That basically in Q3 and then we have to finalize it in Q4, we make the final accruals. For this year, that was a slightly higher figure than in previous years also because some of the outcomes were more pronounced, especially on the sales growth. The Q4 sales growth came also to our expectations at a higher level. And this, we're requiring a higher accrual pace. To give a bit of a granularity, you have to think about a range of EUR 5 million to EUR 6 million total accruals we've made in Q4. So that is including this care bonus, the COVID bonus of EUR 2 million that is mentioned also in the press release. So that gives you, in a nutshell, a bit of a feeling. On the Coupa rollout, we have stated in the past, the Coupa program you have, of course, on CapEx components and an EBITDA component and an OpEx component that depends a bit on the specifics where you are in implementation, whether you're running a design of a template, which is then more in the building of a template, which is CapEx, versus a rollout when you're training people, then you're more talking about OpEx. We have provided on an earlier occasion on the EBITDA impact, EUR 2 million to EUR 4 million could be the EBITDA in an individual year impact on this Coupa rollout. In 2020, we had -- we were on the low side of that range because we had to postpone our intended implementations to 2021. In this year, we are going to have implementations, so expect to be on the high side of that range that I mentioned for the impact for 2021.

Yes. So thanks, Eddy. And on the second question, Wim, about the adjacencies. As we developed in the strategy rollout, we mentioned that we were looking to, for instance, our preservation space and looking to next to what we are doing today and where Corbion is very strong, being the pathogen control and the shelf life extension. We were looking to also freshness and other functionalities and antioxidants. Natural antioxidants are coming really very close to what we are good at. It's just a portfolio addition that makes a lot of sense for Corbion. So we had these 3 adjacencies that we developed, natural antioxidant being one. Food ferments and natural mold inhibitor would be another that would help us to bridge between our Preservation offering and the Functional System offering. And the last one was the dairy functional system stabilizers, where also the approach is very close to the expertise we have in terms of application within our current bakery business or meat. So all these are, let's say, immediate next steps where we've been expanding capabilities, recruiting some technical people there and R&D people. But all in all, these are initiatives that are -- each of them representing several tens of million euros of revenue in the years to come. If I just give an example, for instance, the natural mold inhibition, where we are making very nice inroads now to replace synthetic alternatives into bread and bakery, just at U.S. level, this is an addressable market of over USD 100 million, for instance. And we are making nice progress on this one. So we are still in the early days. But actually, these are things that are materializing as we speak pretty fast and where we are pretty confident that this will deliver additional sales revenue already in '21 and in the years to come.

And our next question comes from Alex Sloane from Barclays.

Two questions from me, if that's okay. Firstly, just on the Incubator and the algae omega-3 business, obviously, good momentum in Q4 and good news that you're on track for breakeven by 2022. I was just wondering if we can kind of think beyond that, obviously, breakeven is not your sort of ultimate ambition. I think in the past, at the Capital Markets Day, you talked about a long-term total addressable market of potentially $400 million-plus. Maybe you could talk more about the ambition beyond 2022? And ultimately, if that potential market proves accurate, what sort of profitability could this business make? That would be the first question. And then just the second one, just delving back into Q4 and the margin weakness in Q4. I appreciate the accruals was the main factor there. But in your EBITDA margin bridge, which you have on Slide 27, you also flag a negative EUR 8.5 million from pricing and mix. So I was just wondering if you could kind of give a bit more color on what that is, please.

Thank you, Alex. So I suggest I will take the first question on omega-3 and Eddy, the second one. So yes, as we said, I mean, of course, the ambition is not just to be at breakeven, we intend also to move that business to a very decent profitability. And obviously, there is a lot related to the volume and how we're going to fill the capacity in Brazil -- in our plants in Brazil. You remember the total addressable market. Basically, we are targeting wild fish oil. So it's quite a large market. And you have out there over 1 million ton of fish oil. But obviously, we are addressing primarily some of this market into the salmon feed as well as shrimp and pet food. So there is a large market, where today, obviously, you know 1, 2 or 3 plants will not be enough if this value proposition would come as a longer-term replacement option, which I believe. So when we look at it, for us, I still confirm the $400 million-plus addressable market. We have not changed our assumptions there. And what we've seen in terms of momentum is that for the first time, we have been able to price our product really in a competitive manner in terms of being able to cannibalize some of the fishery. And so that is a big change that has been allowed by this new algae strain we've implemented in the course of 2020. In terms of profitability, actually, once, I mean, we run at much higher capacity rate, this is a business that where I would say the margins are in line. The gross margins are in line with the rest of the Corbion portfolio. So we would really aim, once we are able really to have, I mean, a further big step-up in volume, maximize our plant efficiency to get to a level that is very close to what we have within Corbion as an average. Eddy, I would leave it to you for the second question.

Yes. So the second question was on the EBITDA bridge Q4. So that pricing mix, that's always a bucket that includes lots of different dynamics that we mentioned a few, where the adverse impacts have been in Q4 2020 versus Q4 2019, think about the lower biomaterials, the biopolymers, that is really our highest margin business and that came at a lower pace than the previous year. Lactic acid to PLA was on the rise. So that is an increase, but that comes at a lower margin profile than our average for the total business. So that is also a reducing factor. We had some additional logistic costs, like I said, in Q4 last year because of this shortage of availability of sea containers. So that kicked in, in Q4. And maybe also that the growth -- the way above-average growth of algae, algae still comes on average with a lower margin profile compared to the total portfolio. So with the huge increases in growth rates of algae in the mix that then also has some dilution effect. So again, it's a handful or more than a handful of factors resulting in this negative in the bridge.

And our next question comes from Fernand de Boer from Degroof Petercam.

I have a couple of questions. First of all, you had a 6% step-up in FTEs towards the end of the year. How should we look at that for 2021? Is this number -- will that another be 3% to 6%? Or is this the level we should expect also going forward and that as from 2021, the real operational leverage will come in? That's the first question. Then the second one on PLA. If you make the calculations in the fourth quarter, you are around 2/3 of capacity. Could we expect that you will move to full capacity in 2021? And also there, what would that mean for March? Is there still a lot of operational leverage coming in? Or is the 38% to 39% you had in Q4, is that about it, which is, by the way, quite good? And then I had a question on the pricing environment, maybe a little bit following the previous question. Could you say anything about the pricing environment of lactic acid? Because we hear a lot of stories that there was a lot of scarcity. And then if you look at the negative pricing mix, that doesn't assume that there was a lot of pricing power. And how do you feel about that in 2021, taking into account that some of your raw material prices are moving up? And then the last question I had but not so important, but still strange to me, in Incubator, you had a minus 75% currency impact. I'm not sure which currency that could have been which is down of 75%. So these were my questions.

Thank you, Fernand. So I suggest we'll take up the FTE impact and then we're going to share, together with Eddy, the other questions around the PLA and lactic acid. So on the FTE step-up, indeed, I mean, we've had this 6% increase in 2020. We are expecting the level in 2021 to also, I mean, be high. However, we are now in '21 doing it in a phased approach, where again we are looking also carefully to the various initiatives. But for instance, just to give a couple of real examples as we are building the plant in Thailand, for instance. As you know, these people, I mean, you cannot just recruit the day you start the plant in '23. But we have to make sure that we recruit right now these people, that they are being trained, and travel allowing, they are being trained in the Netherlands or in Spain, for instance, and then we move people back to Thailand. So there are still quite some degree of investment in terms of FTE, primarily related to investment across '21. What we've done in priority is, obviously, as I said before, a lot related to go-to-market and frontline application capabilities. This is what we've done in the first stage in 2020. And this is also to enhance the commercial pipeline and making sure that we can run full blast when also new capacities are coming. But there are still some investment to be done in -- primarily in the operations with everything, we are planning to sustain the growth for the 2025 plan. I will take also the question on the pricing environment on lactic acid and then leave the floor to Eddy on the PLA capacity and the Incubator currency impact. But yes, on the lactic acid, it is correct that the market has been short and that Corbion is one of the few player having spare capacity. If you remember, we invested in a quite sizable debottleneck last year in Thailand already. And in the meantime, we've been working on various debottlenecks. If you look to 2021, we are expecting the market to be still with a level of scarcity and some tension. However, we know that there are some projects coming up. There is, I mean, one competitor that is investing in China. But we understand they are quite late in terms of, let's say, starting their operations. But there are not that many new projects being announced either. When we look at the impact on the price of raw material, it is correct that we see some upward movements in terms of sugar or corn in the U.S. But as a reminder, we are hedging our raw material and feedstock. So we do not expect a very bad surprise on this, let's say, for the 2021 fiscal year. And we've already anticipated whenever it is the case by reviewing upwards some of the pricing. So if I could now move to you, Eddy, on the PLA and on the Incubator currency question?

Yes. So -- yes, Fernand, thank you for your question. So indeed, the PLA question on -- you did more or less the math and you came to about 2/3 capacity utilization of the 75 kilotonnes nameplate capacity, at least that's what you're referring to. So that's indeed more or less where we're sitting. So yes, in the course of 2021, this year, we will further ramp up that utilization. Whether we get to the 75 or how exactly where we will end, we cannot, I said, bank on that yet because we are still in a phase of knowing the plant. Again, these are not production plants that you just switch on the power and there you go. You need to learn the plants, optimize it, get familiar with all the different grades that you're operating. So I don't expect we will be fully at the 75 kilotonnes this year. But we do make a further step in this utilization rate. What is the impact on the margins? Of course, a very nice margin development already in last year. Yes, obviously, if you get further capacity utilization, that should bring some margin lift. But maybe more importantly, it is the margin development between the PLA price on average and main raw material cost price going into the joint venture, which is the lactic acid price to the joint venture. So both factors will show developments in this year. As a consequence, will the overall margin increase on that, yes or no? That is to be seen. But I would say, the margin level is already very interesting and at a good level. Then on the currency question, Incubators, that's very much related to the reais depreciation. So the Incubator, the main business is out of Brazil, as you know, and we record that in reais. And if you translate that back to euros, which is our corporate functional currency, the reais has had a tremendous depreciation last year, very much if you look at Q4 versus Q4. So that is explaining this big negative. The reais is a bit more stable in the last couple of periods. But it has depreciated tremendously in the last year.

Maybe one last question. If I look at the CapEx for the debottlenecking, the EUR 65 million. It looks quite a high number to me. I thought always that, let's say, debottlenecking CapEx was around EUR 1 million per kilotonne and that expansion CapEx was around EUR 1.4 million. And now we are at EUR 1.3 million. Well, actually, dollar has come down. So is it getting more expensive to build this kind of capacity? Or is this more complicated and that makes the higher cost?

Yes. Good question, Fernand. So indeed, when you're looking at the bottlenecking opportunities, you always start first with the cheapest to get there. So indeed, in that sense, and we've done it in the past already in a couple of operations, where we've increased our capacity for lactic acid on the existing plants with earlier expansions. But still, the need for lactic acid is such that it still makes sense for us to further go to the next level of debottlenecking investments. And that is indeed coming at a slightly higher cost per kilotonne, so you're absolutely right, because you're getting now to a level of slightly more complicated CapEx expansions. But for us, the big benefit is, Fernand, is that we can come to market much earlier than just to wait for another newbuild. Newbuilds, you typically look at 3 years or so between taking the decision and become operational with the new plants. This will come to the market much earlier. Some of them are already delivering within a year. Some are [indiscernible] 1.5 years, some in 2 years. So in that sense, it makes sense for us to do these investments.

We can now take our next question from Patrick Roquas from Kepler.

Yes. I have four, if you allow me. So the first two are on the outlook. How should we see your indication for organic sales growth at the high end of the 4% to 7% range? I do understand that at this stage, you do not want to boost expectations too much. But Sustainable Food Solutions, you are growing by 7%, especially in food preservation. And you also indicated during the Capital Markets Day that once PLA would take off, the 7% growth target for LA and Specialties would be conservative. So that's the first question. The second is on the EBITDA margin for '21. You provided several drivers for the margin. But on balance, do you expect the margin to be up or down or flat versus 2020? And then I have two questions on PLA. The first one is a follow-up on Fernand's question. Clearly, PLA has substantially exceeded expectations this year or in 2020. How do you see PLA prices evolving in '21? And do you still see those substantially above the $3 a kilo? And then Olivier indicated the potential for new entrants in PLA. The question is based on your expectations for PLA demand. How do you consider the risk of oversupply in the next few years, also in view of the, yes, the substantial investments in capacity from your side?

Yes. Thank you, Patrick. So I'm going to answer, I mean, on the outlook and also maybe on the last one on the new entrant and leave Eddy on the EBITDA question. So yes, we are, as I said, I mean, confident on the 2021 organic growth. What we can see in both businesses, first, in SFS is that the investment in the frontline, but also the major business we are in being the natural preservation, is, I mean, again still a very hot topic for our customers. And I think the COVID has only reinforced the value proposition as people wants to make sure that their food is safe and healthy. And the move from synthetic and fossil-based to natural versions is still very strong. And although we have been, of course, not able to visit customers as we wanted, I mean, across 2020 and still now, what we see is that the ratio in terms of customer push-and-pull project has changed, but the conversion rate is much higher. We have, of course, more customer pull project when they are coming to us. It is because the need is there. And in these cases, we have very nice conversion rate that is compensated for the inability to have more push today. And that, we still see this continuing across 2021. Actually, I see the challenge more in us pushing further to build a decent pipeline for '22 and beyond. But for '21, we are in a good position. And I mentioned Preservation, but it's also valued in Functional System, where we have a very decent growth now and quite some nice projects coming in. And by moving to these close adjacencies I was discussing before, it's also a very nice growth complement. On the lactic acid and derivatives, yes, there is, of course, the strain to PLA. And in that, the sensitivity is more a matter of anticipation. Because when you, of course, plan a debottleneck in lactic acid, we have, of course, the PLA needs as a big part of the equation there. And basically, any time we go for a debottleneck or a capacity expansion in lactic, we need to anticipate at least 1 to 2 years ahead of the real time that PLA is going to need it to make sure that we do not, let's say, shortcut PLA and the potential growth in PLA. So we are in a dynamic where basically, because, as Eddy said, it takes 3 years to build a brand-new lactic capacity as we are doing in Thailand, we have also this in-between debottleneck plans to make sure that we keep on the kind of high-growth momentum for PLA but also for the traditional Corbion business. And we see other nice drivers behind the lactic acid derivatives. As you know, we see nice momentum into electronics, semiconductor. This is driven today by the 5G rollout globally. But also the fact that working virtually, there is a lot of needs for screens, tablets, computers, TVs and you name it. We see as well strong momentum in our pharma business. Unfortunately, this is for kidney dialysis people. But there are some also nice technological steps, where now you have more and more in-home dialysis, where our product is playing a big role and there is a sustained growth in there as well. So yes, quite nice momentum also for the lactic acid derivatives there. So I will also discuss about the PLA question about indeed exceeding expectation and on the price. Indeed, I mean, today, we have pricing above the $3,000, which indeed, I mean, are very high prices. But when we look at the dynamic within the polymer market as well and the recent also oil prices, also keeping in mind that PLA is one of the few available bioplastic at scale today, we see that at the end of the day, when you look at the overall synthetic polymer market globally, you speak about 485 million tonnes, PLA is less than 0.5% of all this. So we still see the -- really, I mean, the joint venture able to sustain a high-level pricing still, I mean, in the next couple of years at least. So again, difficult to predict but for sure in '21 and later. And what we can see about the new entrants and the risk of oversupply, I think we discussed that in the past. You know the technology to get to PLA is not an easy one. Obviously, I would say there are other lactic acid producers. But the step in between the lactide, the step is what makes the whole difference. And this is what we've experienced ourselves to get to the level where we are today. It requires, I mean, a lot of R&D innovation. And then obviously, you need that base to have the right polymerization yield. So although there are new entrants, people that have made announcements. You have very serious people there. You have other projects that we think are [indiscernible]. But all in all, it's about anticipating always on having a low-cost acid supply, lactic acid supply upfront that we can always plan 2 to 3 years ahead of the time there and making sure that we keep on the technology to maximize the lactide step, which is, I think, essential in that PLA overall production chain. So we do not expect, back to your question, risk of oversupply in the near short term, let's say, in the 2 to 3 years to come. I would turn to Eddy for the EBITDA 2021. Eddy, if you want to take that question from Patrick?

Yes. Patrick, so indeed, your question on the EBITDA margin development into this year, I think we still need to be considering the factor of uncertainty with COVID. We are still, as a global economy, dealing with COVID as such, and that still brings uncertainty. So the mere fact that we have had a positive net outcome last year of this EUR 4 million to EUR 5 million EBITDA that's not automatically stated that, that will be repeated or increased or in what way reduced into this year. So I think we need to be careful and we need to be a bit cautious in our statements in that respect. So that's the first statement. The second thing is the 16.2% margin in the core business in the last year, of course, that has been supported by this, for example, this COVID dynamics. If you normalize for that, if you take that out, then you're typically looking at the good mid-15s performance or 15.6%, 15.7%, something like that. And yes, I think we have really also stated that in the Capital Markets Day, we really want to use this strategy period by investing in the business to cater for a sustainable higher growth pace of the business. And that means in the earlier years of the strategy period, expect us to operate at slightly higher margins and that's -- lower margins in that sense. And so we came out of 15% margins in 2018 and '19. Okay, it's slightly higher in 2020 now. But we really want to continue to invest to be able to get not only the growth but also a higher margin profile in the latter part of the strategy period. So we want to hold on, on that strategic path. That is exactly also the reason how we have guided the margins for this year, that it will be above 15%. So we want to leave it at that. And let's build a bit more proof points in this year, also given corona. Because let's also take a factor like travel expenses, and what is it, a difference of EUR 7 million, EUR 8 million in the year with or without COVID, has already a big margin impact as one factuality.

Clear. And yes, I'd take the comments of Olivier, I see them as pretty positive.

And we can take our next question from Robert Vos from ABN AMRO.

I have a few questions left. First, on the joint ventures line, Eddy, you explained that, on a normalized level, the -- your part of the Total Corbion joint venture net profit is around EUR 14 million. If I look at Page 18 of the press release, you mentioned an adjusted income from joint ventures of EUR 10.5 million. So maybe as a confirmation, the difference between the 2 is your other joint ventures, i.e., a small loss of a few millions in the other joint ventures. Is that correct? That's my first question. Secondly, are there -- is there any update already about how you will eventually finance the construction of the new joint venture PLA plant in France? Is there any news there? And also a question on your non-core business. You explained that you ticked the boxes on managed for exit basically and what is left is the emulsifier business. Can you update me on what your final plans are there? Is it simply managing that business for value for the coming years? Or is it also possible that you will dispose those operations in due course? I think those were my questions.

Yes. Thank you, Robert. I think, Eddy, you can take those, I guess.

Yes. So on the first question on the JV, I think your conclusion is right. But you can also have maybe a slightly simpler approach to the different pieces of information that we've given in the press release. So to help you a bit there, if you look to Page 20, it's a bit technical now, Robert. But if you look at Page 20, a bit at the bottom, you see profit for period for the joint venture in total at EUR 16.3 million, that is. So that's at 100% basis. So that's the net profit reported by the joint venture. That is also including a EUR 12 million accrual and cost the joint venture had to be making for payments of this lactide plant. So if you add that up, you come to EUR 28.3 million. And that is basically the underlying profitability of the joint venture, excluding these one-time payments that had to take place. And that is, if you take 50% of the EUR 28 million, then you come to this EUR 14 million that I stated. And why is that coming back to EUR 4.5 million? In our P&L, that is if you deduct then these payments, there's a dividend phasing element and there's indeed some non-PLA joint venture negative results in 2020, then you come to the EUR 4.5 million, which is in our P&L.

Yes. That's clear. I forgot one question, and you mentioned it yourself, Page 20. It gives this overview. And it also states an income tax expense. Maybe I'm totally wrong here. But I thought you were tax-exempt for, well, basically a tax holiday in the joint venture for a number of years. But apparently, that is not the case. Can you elaborate on that?

The tax holiday only relates, of course, to the Thai activity. So the joint venture has a Dutch entity and a Thai entity. So you're right, the Thai entity, sort of profits we make in Thailand, those are tax-exempt. But because of transfer pricing, you cannot have all your profits of PLA of the joint venture residing in Thailand. So there's a share of profit in Thailand and there's also quite a substantial part in the Dutch entity. And on the Dutch entity, you just have your tax pressure, of course. So on the funding, yes, we are looking at the funding. That's still work in progress, so no update to be given at this stage. So one of the things we're working on and looking on is, is there a possibility to have a different way of funding or at least partially a different way of funding for the joint venture going forward from external lenders on a unlimited recourse basis? So there's no news on that front at this stage yet. And then thirdly, yes, the emulsifier business, exactly how we have positioned it in the Capital Markets Day, so that's the managed for value bit. That is where, indeed, the U.S. emulsifier business resides in. Again, it is a nice, profitable business. It is cash-generative. So it's throwing off cash. The only thing what we don't expect of that business is high growth rates. And that's also what exactly 2020 has been showing. It is more or less stable, maybe slight decline last year, about 1%. But again, it is a very good, profitable business and has some positive interactions also with some of the businesses that is residing in the core business. So we are holding on to that.

Okay. Yes, it sounds a bit like that still is a core business. But I get your point.

And our very last question comes from Sebastian Bray from Berenberg.

I would have three, please. On firstly, on PLA, on a quantitative basis, what do you think is a reasonable level of capacity reaching this market over the next 2-or-so years from peers? Is it about 100 to 150 kilotonnes? Secondly, could I ask, conceptually speaking, once the Chinese have mastered the ability to produce their own lactide and then buying turnkey technology, what stops the pricing in this industry going down longer term, given that we're probably above incentive levels? And as a related point, when you look at expanding or building PLA plants, what is the long-term price assumption that you are using? And thirdly, on your French investment in PLA, where is the lactic acid for this going to come from? Are you considering building a larger new plant within Europe, given the lead time, as Eddy mentioned, is about 3 years?

Okay. Thank you, Sebastian. So on this, let's say, PLA-related question, absolutely speculating about, of course, the capacity going forward in a few years, we are working on, as you can imagine, different scenarios. But what we can see today is that this is a niche market in the overall polymer world, as I said. And it's going to remain a niche market. So in the sense that today, our aim is to continue developing the portfolio of PLA or even copolymers on PLA, diversify in terms of recycled PLA as well. These are all the avenues the joint venture is working on. But yes, obviously, this market could and I think will become a few hundreds of thousands of tonnes. And indeed, you know -- you just have to think that the limiting factor is going to be the ability on one side to provide the lactic acid to scale that up to millions of tonnes. And so there is inertia there in building sufficient lactic acid capacity. And then even if you are able to build obviously lactic capacity, ultimately one of also the issues we're going to have to resolve as an industry is to have also alternative feedstock being able to ferment nonfood feedstocks, which is another challenge that is probably over 10 years away. So there are all these dynamics that let us think that PLA although could increase with several hundreds of thousands of tonnes in the future would still remain in the entire polymer landscape a niche market. Now speaking about the Chinese, and we all have example where, indeed, the Chinese are coming to markets and indeed are getting the prices down, I have no doubt that 1 day someone going to crack the lactide technologies. And I think that will happen at one point. For us, I think it's all about the strength of the Corbion model on 2 things. One is to always be located in geographies where you are on the best local supply positions in terms of feedstock on one side, whether it is sugar in Brazil or in Thailand, corn in the U.S., for instance. And we all know that feedstock is becoming quite a severe issue in China. If you look to what is available in China, it's primarily about corn. China is a big net importer and corn prices in China are quite high. So we have also to look in terms of being able to feed the population, longer-term prospect on having affordable feedstock and what China will, of course, be able to do with their own feedstock looking forward. So that's one element that is part of the equation. The second element that is part of the equation we mentioned is that investing in new technology. And that's the plant we are currently building in Thailand. The aim is, of course, to improve our sustainable carbon footprint. But it's also to get to a lower cost base as well. And for us, it's never a given. We are continually investing in our operations to make sure that we keep some competitive advantage in Thailand with the gypsum-free technology. It's also to prepare ourselves in case the price would, I mean, be, let's say, different in the future. Now of course, all this, I mean, you can have a lot of speculation. But so right now, as we are building the market in PLA, it's a market that is being built and created, it's very difficult to get long-term price assumptions. So we are working on very different scenarios. About our investment in France, we are indeed planning that in the early years, this plant, as we're going to build capacity, is planned to start in 2024, will be supplied from various plants from the Corbion network in the early stage. But that, we are considering and right now analyzing, we have to build a second gypsum-free facility with Europe being one of the likely option. So actually, we are, as we speak, working on that options, obviously also on the feedstock landscape because, as you know, we have different dynamics again in Europe, benchmarking beet sugar versus wheat versus corn. So this is something where we expect potentially to make some decisions by the end of fiscal year '21. I hope that answers your questions, Sebastian.

Yes, indeed, Olivier. Congratulations on the results.

I think that was the last question.

Yes, that was the last question. If you would like to use your closing remarks now sir. Thank you.

Yes. Thank you, operator. So I think we want to thank you all for the time you dedicated to this important call. And basically, we're going to regroup together for the Q1 results pretty soon. So thank you again, and hope, I mean, you all stay really safe and healthy during the period. Bye-bye, everyone.

This concludes the Corbion full year 2020 management statement of the 5th of March 2021. Thank you for listening. You may now disconnect.