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

Welcome to the Corbion Full Year 2022 Results Conference Call on the third of March 2023. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Peter Kazius, Investor Relations Director. Please go ahead, sir.

Yes. Good morning, everyone. Welcome to the Corbion Full Year 2022 Results Call. With us today are Olivier Rigaud, our CEO; and Eddy Van van Der Kloot, our CFO. My name is Peter Kazius, Head of Investor Relations. As usual, there is a slide deck available from our website if you go to corbion.com Investor Relations, Financial Publications. I would now like to hand over to Olivier.

Well, thank you, Peter, and good morning, everyone. So welcome again to this 2022 Corbion's results. So I will start with the first slide on our company purpose at Corbion, we feel very strong about what we are standing for, be preserving what matters. And today, 65% of our business is aligned behind 3 sustainable development goals, this is up from 60% in 2021 with an ambition to be at 80% by 2030. So now moving on to the next slide on fiscal year '22 key points and key results. We delivered in 2022, a record year in organic sales growth and adjusted EBITDA delivery. All key financial metrics were within the earlier provided guidance with an organic sales growth for core of 24.3% and this was driven by all 3 business units. The volume mix was 5.6% and the price impact of 18.7%. The total adjusted EBITDA was close to EUR 185 million, so an organic growth of 17.9%. And last but not least, we delivered on our commitment to reduce our net debt to EBITDA ratio down to 3x. Moving on to the second slide on key points. We made significant progress in delivering on our Advance 2025, and I'm feeling very confident of delivering updated initiatives and targets that we presented at our last Capital Market Day in December. On sustainability, we've made progress, and we are really ahead of schedule. I will come back on 1 major development, having, as you know, our sales-based target commitment increased to 1.5 degree C later in the deck. We also successfully implemented price increases to mitigate rising input cost inflation. And here, we speak about over EUR 240 million over 18 months, achieving unprecedented level of price increase. Algae. Algae omega-3 is another point worth highlighting. As you might remember, we set a target to get into a breakeven situation in the course back in the Advance 2025 original target. And we delivered on that promise, and this led to the creation of analogy ingredients business unit and also as a new reporting segment. And last but not least, we initiated the divestment of our non core Emulsifier business. Now let's dive on the next slide on the 3 business units and primarily on some of the business developments. First of all, starting with a sustainable food solution. In preservation, we see a continuous momentum in terms of natural ingredients replacing synthetic and artificial preservatives. We also launched a new antioxidant platform, which is a very close adjacencies to the current business by establishing key partnerships and seeding the market over 2022 to have an impact as from second half of '23 and beyond in '24. Whilst in Functional Systems, we focused on surface extension, on food ferments as natural mold inhibitors, but also being very active in reformulation driven by some raw material shortages where our customers have been really asking to support them in reformulating their recipes. And we've done that as well in some reformulations driven by cost inflation. Another adjacency we launched in terms of shelf life extension in the functional systems is a launch of a new dairy stabilizer systems being the first enrolled from Corbion into the dairy category, opening also new growth opportunities. Moving now to the Lactic Acid & Specialties. We saw a continued very strong growth in the medical biopolymer segment. The lactic acid sales to the PLA declined, sorry, in H2 '22, due to the PLA market witness that we previously reported, we'll come back to that at a later stage. The growth in the semiconductor market continued, although Q4 saw some signals of temporary softness in the market. And finally, we've made and are still making very good progress in line with our plans to complete the buildup of our new circle lactic acid plant in Thailand, as a reminder, this is planned to be commissioned by the end of '23. On our third newly created business unit, Algae Ingredients. We've seen across '22 a significant traction in new customer adoption of our solutions, and June was the first time we were breakeven on EBITDA and we've been profitable since then in that division. We've been busy to invest to enhance our production capacity to a low growth on 2023 and beyond, but also to create flexibility in that plant in Brazil to address new categories as pet nutrition, thus diversifying from aquaculture and also, I think, a way to also optimize our margin. Now moving to next slide and coming back to the sustainability of value proposition of Corbion. I mentioned, I mean the commitment to the 1.5 degree and this is the most ambitious of the Paris agreement, if you might remember, we are pretty proud of that. We've been raising the bar over the last years. And the SBTi's target approved our proposal by November. So we are now on a journey in the path to execute on that ambitious target, further reducing our emission and improving our sustainability profile. How does it translate? Let's look at the next slide where basically we've been raising the bar on the first 4 bullets. I will not comment them all, but basically, whether it is about indeed the percentage of net sales aligned behind the 3 SDGs that we have prioritized, but also, we are moving to a strong reduction for the first time in absolute CO2 reduction in Scope 1 and 2 and realign our base versus 2021, raising the target on LCAs and also, I mean, introduced social value assessments on our product. So quite a lot happening on that front as well. On this, let me hand over to Eddy to dive into the financial performance of '22.

Thank you very much, Olivier. Good day, everybody. Maybe the visuals come in a bit with delay so I will call out the page numbers I'm on. So let's start with the profit and loss, which is Page 10. We've been growing the top line very nicely last year, about EUR 1.5 billion in terms of revenues. So that's a 36% increase versus '21. Now within that, the organic growth has been for the total company, 24.6%. Also Q4, we ended up with a very nice growth pace organically growing close to 27% for the business. That translate then on the adjusted EBITDA growth of 36% for the full year. Again, looking on an organic basis, that's 17.9% organic increase for the year. Margin profile for the Total company has been relatively flat over the full year versus 2021. Then looking at the adjustment line. That's always where we are disclosing certain special elements. Last year, you see a EUR 10 billion plus for the full year. That was very much caused by divestment of the land we hold in landlord to EBITDA the book profit on that and also the frozen dough activities that we will go in '21. In '22, we also had some special effects. And the most notable 1 is the Totowa warehouse sale that we already communicated about earlier in 2022. That translates then to an operating result increase of 35% from EUR 82 million to close to EUR 111 million. Financial income has been less negative on financial income and expenses, I should say, has been less negative in '22 versus '21, and that's because we have quite strong support from stronger currencies on our intercompany loans that are also recorded in there. Result on joint ventures. So that's, of course, the results, especially on the PLA joint venture were less positive than '21, and that is really reflecting the underlying operational developments in the business, which we can talk about later. Taxes more negative than it was in '21, and it's not so much that '22 was especially a more normal tax level, I would say that the operational results really that the '21 figures have been positively impacted by the deferred tax asset that we could record in conjunction with the sale of land in the Netherlands. So the bottom line that translates to a close to 15% increase on the result after tax from EUR 78 million to EUR 90 million. So then let's take a deeper dive on the different business components. Page 11 is our Sustainable Food Solutions business. We've been growing that organically for the full year at the pace of 21.5%. And within that, a big part has been caused by increases of prices. We've talked about it on early occasions the massive price increases that we have put through the market or the U.S. underlying, if you look at the volume plus mix growth dynamics that has shown a pretty consistent pattern over the whole of 2022 to the comparable basis, of course, of '21. And that's on the total a 3.6% increase in volume plus mix effects for the total SFS business. The EBITDA as an absolute amount has grown very nicely over the year from a EUR 75 million level to EUR 96 million, so EUR 21 million up, and the margin has been slightly coming down from 12.9% to 12.3%, and that is also partly caused by this huge effort in passing through price increases both then mathematically, you will see some margin erosion as a consequence of that. Next page, Electric Assets & Specialties segment. I'm on Page 12 now. Also there, a nice growth, 20.4% organically for the full year that has been fully caused by pricing. If you look underlying to the volume mix developments that has exactly been coming in neutral and 0. And of course, the PLA-related activities are also having an impact on that number for the full year. Also here, a nice step-up in the absolute amount of adjusted EBITDA by about EUR 10 million. And on the margin profile, a bit similar pattern in terms for the full year and then nice ramp-up still at the last quarter for the year, which is slightly higher margin than for the rest of the year, close to 18%. Then we will move to the Algae Ingredients business, Page 13. We are there, of course, coming from a lower base, so very much on a very high growth pace at 15% for the full year. Also in the last quarter, close to 200% growth. So within that really, the volume component is very important in here. So that's really catering for a majority of this growth. We have announced earlier occasions that we broke even for EBITDA since June this year. That is also what you see here. So for the full year, you see a minus 3.3% EBITDA. But I'd like to really highlight and you will find a very nice composition table at the end of the pack that we have now that we have this new segment Algae Ingredients, we have changed our allocation of especially our G&A cost line. And that means now also Algae Ingredients has to take its fair share of incurring those costs for a full year, there has been a level of EUR 3.5 million. So without that, carrying off G&A, the underlying EBITDA would have been positive even for the full year at EUR 0.2 million. So that's the dynamics here a very nice growth delivered profitability increases over the year. Moving to Incubator, Page 14, there you see a step-up in the investments we're making in terms of express in adjusted EBITDA being negative from a level of minus 3% to a much larger level, minus 9% in 2022. But part of that has been caused because the Algae-related R&D efforts had a focus in '21, still very much on the Algae Ingredients segment. So therefore, make sure of those costs were allocated to the Algae Ingredients segment. I think about introducing the new strains that we talked about in our Brazil plant, in '22, the focus of the Algae-related R&D capabilities are more looking at other initiatives from the Algae portfolio, which we talked about in earlier occasions. Then the PLA joint venture results. This is on a 100% basis. Page 15. Here, the EBITDA margin stayed about 26% for the full year. But what struck here is especially the lower margin profile in the last quarter. And what we have been doing here is within the joint venture, we have an active approach to our working capital management because of the dynamics that we talked about on the allocation of PLA we were getting to 2 high levels of inventory, and we decided to temporarily cease the production in the joint venture for about 10 weeks. So this has been happening since mid-November to end of Jan, so that's now behind us. We have ceased production and that means that all the operational costs are flowing for the P&L. So that has really had a downward pressure below on the EBITDA delivery and thus the margin profile of Q4. But after Jan, we are now back and started to produce again catering for expected further developments. Then moving to non core. That is our U.S. Emulsifier activities, which we have announced, we divest. But within that, very nice growth delivery, both from top line but also EBITDA close to a doubling of the EBITDA leverage from about EUR 18 million in '21 to EUR 34 million in '22. So a very nice delivery and very successful also passing through here of all the input cost dynamics into increased prices. Then on page on the funding ratio, an important theme, we also discussed at the Capital Markets Day in the back of December. So we've been able to improve the ratio from the midpoint in June last year where we were closing at 3.3%, not only about the covenant that's towards a level of 3.0% by the end of the year, that fits very nicely in terms of the guidance I've been giving in December where we stated we -- within the range of 2.9% and 3.2%. So we are on the good side of that range, if you will. Now going forward, we indicated that we further are expecting to recover and improve the ratio to a level of 2.5% and 2.9% in that range towards the end of the year. And this is all still not taking into account any positive impact from the divestment proceeds of the Emulsifier business in the course of this year. So with that, I hand over back to Olivier on the outlook.

Thanks, Eddy. So let's go through the outlook final page. And first of all, why are we feeling confident about '23 outlook. This is in light of the current dynamics we see in the business is also why we reconfirm the volume mix organic growth of core activities between 5% and 8% with SFS growth rate expected to be more secured across H2, driven by phasing of some of the expansion plans like our investments in food ferments, in Lactic Acid & Specialties, growth rate in H1 will be impacted by lower sales to the PLA joint venture. In Algae, we continue to see very strong growth in aquaculture but also trading up in the new categories, as I mentioned earlier, as pet nutrition. All in all, I am very excited by the new development in our core portfolio, such as to natural mold inhibitors in SFS, the development is slowing drug delivery in our biomaterials, biomedical business in LAS and the good visibility we have on our Algae contracts for 2023. We also see the potential for encouraging margin development as the year progresses. So we reconfirm the adjusted EBITDA organic growth for the core activity between 15% and 20% range. This is coming from both volume and mix improvement as well as operational efficiencies, such as the ongoing optimization we are doing in our lactic acid production network. On CapEx, we reconfirm the guidance to EUR 160 million and EUR 190 million. So 2022 was the peak year of investment in our 2025 strategic period. And last but not least, in terms of debt-to-EBITDA ratio, we are expected to further reduce it down to 2.5% to 2.9% range by the end of '23 excluding the positive impact upon the realization of the divestment of our Emulsifier business. So as a conclusion, although there is some disappointment in Q4 EBITDA delivery, we are expecting some of these rolling over in Q1, but I'm feeling increasingly confident in our full year guidance, and we are looking forward to updating you again as the year progresses. So thank you. And now let's open it up for Q&A.

[Operator Instructions] We are now going to take our first question. The first questions come from the line of Alex Sloane from Barclays.

A few from me, please. Just firstly, on PLA and the potential inflection there, I mean good to hear that you've restarted production in January. Is that on the basis of kind of seeing any signs of renewed demand from China reopening? Or is more still thinking about a kind of a second half recovery at this point? And then just on the second one, I mean, working capital was obviously a large outflow for the year overall and it was maybe slightly higher than consensus had been modeling. What are you thinking in terms of working capital outlook for the business in '23? And then just finally, just on the emulsifiers disposal process. I wonder if you could talk to how that's going and your confidence level that, that will indeed complete in 2023?

Thank you, Alex. I will answer the PLA and maybe the other 2 questions. So on PLA, indeed, as we discussed before, the major impact came from the Chinese downturn and the lockdown, as we explained last year. And so far, we see a continuation of that trend across Q1 and we are indeed still not expecting a major recovery prior to H2. What we've been really very active with in the meantime in terms of litigation and actions is, I mean, going for in these new categories development to also reduce dependencies to packaging, but also pushing in terms of some of geographical expansions and activity leveraging our partner in the joint venture open markets. And this is again in place since early this year. And last, negotiating with some of our key customers, longer-term sales agreements to secure further development. But back to your initial question, we expect still the market to remain soft over the H1 and China reopening or having an impact over H2. Eddy, maybe you want to take the working capital?

Yes. On the working capital, I think we're happy on the components of the debt development and the payables development and also first we do not see any, for example, aging deterioration, anything like that. So I think those are various other control and developing very consistently. When we talk about working capital development, this is really inventory position that we talked about. Looking at what happened last year, we had an increase of about EUR 100 million value of inventory, so that spans '22 from spans '21. Within that, about $11 million has been caused by currencies. That's a stronger dollar, for example, that is something where we can not really influence. The second component, but that's the largest, it's about EUR 50 million is all to do with price. So it means more expensive kilos of inventory to improve costs that we've seen rising translating in more expensive kilos. And of course as time will go by, and once inflation factors on raw materials, packaging and energy and freight will come down and some of that value should reverse. But of course, it's very hard for us to make predictions on how all the input factors will develop as time goes by. The third component of the inventory, that's something we can influence directly ourselves or is the volume component inventory. So really the amount of kilos of both raw materials and suppliers. So that has been increasing by about EUR 40 million, 4-0 million in last year, that is something we actively are working on in the different parts of the business may disciplinary approach as you can imagine. And we are about to recapture significant part of that increase in the course of this year. So that's on the working capital. Your question on the progress we're making on emulsifiers. Yes, we cannot share too much on that. But being said that we are making very good progress in the process we are talking with multiple parties, and we are very confident that we will close out this transaction in the quarter of '23. So very much also what we have shared in the Capital Markets Day. I want to leave there on that front.

The questions come from the line of Patrick Roquas from Kepler Cheuvreux.

I've got a couple. The first is on SFS. So you did not provide guidance during the Capital Markets Day for Q4, but yes, SFS was below at least our expectations. And the recovery was simply not as pronounced as seen in Q2 and Q3? So what happened there? And could you quantify some of the effects? And then second, on Algae. Yes, great to see the performance. if I'm right, there were some tax losses carry forward within your Brazilian business. So can you remind us here what's the room? And what's the impact on your corporate tax rate, for example, for '23? And then finally, aside from capacity expansion, what are the options for you to kind of explore all the benefits or, let's say, grab all the growth prospects that are out there and it's licensing to third parties, 1 of the options?

Thank you, Patrick. So on the SFS, actually, we didn't update that in detail at the last Capital Markets Day. But what I could say is that the working capital management, we've seen in the market that are still going on. And actually, we are also doing ourselves. This is something that we had anticipated actually already at that time. We don't communicate about it and it has also been factored in our '23 outlook. And basically, what we've seen as dynamic, and this is what we anticipate is that supply chain normalizing, if you remember the whole crisis, we had basically in the course of '21 and '22, customer did overstock, did overstock also to secure supply and make sure we have business continuity. And now that things have been relaxed massively in terms of containers availability, truck drivers availability. There is no need to have a higher level of inventories. So we've seen our customers being more disciplined, and we are doing the same. So -- but we had anticipated, we didn't communicate, but it was anticipated and it was factored in our outlook. On Algae, basic -- I will answer on the growth project, I will let Eddy discuss on the tax items you mentioned, but we are now, of course, having a confirmation that our mobile on Algae is proven. And in terms of, of course, not only profitability, but the developing market and adjusting market next to aquaculture. So indeed, the question is being posed now from a strategic aspect to what's coming next. And we are actively working on this now, again, if you see the dynamic of that market, we are in a very favorable context where basically now we have a real solid adoption based on very structural trends, first of all, consumers understanding the sustainability aspect of good aquaculture, not relying on white fish oil and next to this, you see that there is a structural issue with a white fish oil in terms of supply and demand going forward. But yes, we'll only increase going forward. So we're going to have to make a strategic decision in the coming month, meaning before the end of '23 and what's next for us. And we will keep you posted about exactly this next. But at that stage, we do not exclude we did any mold, whether it is licensing or whatever, I think I'm feeling pretty good about it because the Algae platforms offer quite a lot of flexibility in terms of arrays of categories but also of products going forward. So Eddy, maybe you want to take the tax payment?

Yes. So Patrick your question on tax. I think what you're referring maybe 2 wins that is in the course of this year and especially in the last quarter, we had some support of sales tax that we could recognize. So not resonating impacts with the profit in contract and sales as Brazil is pretty complicated with all kinds of tax regulations. But that has been a support. But that has not been the reason -- the underlying reason why we had a very strong finish of Algae Ingredients in Q4, have EUR 1.9 million EBITDA that we disclosed, that was on support. On your corporate income tax. That's always something we disclose as part of our annual report. But that comes out about a month from now, we always find the position on income tax that, yes, in Brazil, we have in aggregate in Brazil that is some income tax losses that we have not recognized yet on the balance sheet. So the further progress we're making in Brazil, we can further recognize it in the future. But I really want to leave that question once we come out of that.

We are now going to proceed with our next question. The questions come from the line of Robert Jan from ABN AMRO ODDO BHF.

I have a few left. First, I want to come back on the Q4 EBITDA of Sustainable Food Solutions. I had the same observation, namely, I had expected several millions higher EBITDA in Q4. And I'm not -- I do not fully understand the explanation. You talk about working capital management by your customers, but that says more about at least I would assume about revenue and not so much about EBITDA. So I was wondering is there anything specific while EBITDA is maybe a bit held back in Q4? You mentioned in the press release and also in the presentation the deliberate shedding of some lower-margin beverage business. Is that maybe an effect in Q4? So that is my first question. Second, I noticed that in order to calculate net debt to EBITDA for your covenants, you can always add, of course, dividend from the joint ventures. And this year, you added both the dividend for 2021 and for 2022. So the dividend 2022 was also paid in 2022. I was wondering is there any reason for this timing difference compared to last year? And what should we expect from that going forward? And then lastly, maybe specific for Eddy. I think there was a one-off gain somewhere in the first half in the interest line. What can you say about normalized interest cost going forward based on your now disclosed total net debt of EUR 700 million?

I'm afraid I'm going to take all questions here. So I'll give it a try.

That's fine.

Well, under Q4 SFS, that command, we made already early in the year after shedding of the lower-margin business on beverages. That has been happening already in the earlier quarters as well. So that's not the specific reason for Q4 as such. I would really highlight 2 elements that are specifically on the EBITDA delivery as an absolute amount of this Q4, one is the relatively lower volume base, already lower sales in just say, in kilotons compared also to earlier quarters. That is always a consistent pattern that we've seen for many, many years. I think what Olivier also said is this year, the year end, the effect has been more pronounced than other years because we tend to see more active working capital management of quite a few of our customers than what we have seen in earlier years. So that had the more pronounced, I would say, with reduction effect in the last quarter as such. On top of that, we are also looking, of course, at our inventory position. It's always -- but you really have to go very granular on a product level, but always when you reduce if you sell more now what you produce. So if your employees come down, you need to look at what the sure fixed cost component is in that stock positions and that's really -- and that's what we call the absorption effect. That has played out in Q4 specifically quite negatively in terms of EBITDA delivery in Q4 versus earlier quarters. So that has really been -- and yes, one-off effect, if you will, in the quarter. And that's -- yes, we'll have ups and downs as quarters grows by in terms of how the inventory position versus going to develop. So that I will say are 2 clear extra elements, I would say in the EBITDA delivery as such on SFS. On dividend, yes, well profit indeed. So in last year, we had that sounds a bit of a different pattern in paying out a dividend out of the joint venture to the 2 shareholders. This, by the way, is always a mutual decision between us and Total energy. So that's something we can drive ourselves. It's always a joint decision as you understand. The usual pattern that we apply is that we try to get our dividends paid in the last month, if you will, of the running year. So basically, it's not so much that has been open outlets really the '21 payments in mutual consent on how we have paid in the opening quarter of '22 rather than the last quarter of '21. So at that time to date, therefore, we see a relatively higher paid out dividends and what you normally see the year has been 2x several millions in investments. On your interest expense line. Yes, maybe the best thing is if I get you the average interest rate, I would share the with the Capital Markets Day, by the way, what the position was done. And then, of course, interest rates have increased a bit. If you look at our total debt structure, you apply the average interest rate, it's close to 2.7% at the month. So if you take that number versus the total debt or spending, then you come as per today's markets, interest expense line for basically at that level for precision.

Okay. That's very clear. So to conclude on the dividend question. It's not necessarily the case that there will be no dividend then in 2023 because you've tried to have it paid in the last -- or towards the end of the actual year. Is that correct?

Exactly. So like I said, the usual pattern is that we decided on that in the last board meeting of the year, and then we usually have a payout in the last month of the year. And as always, based on what's the dividend capacity in terms of results. Is there a dividendable revenues on to be made? And secondly, what is the cash flow outlook of the joint venture of course, because you don't want to pay dividend and then a month later and have to get back here with new cash injections in transmission. So that's always the components that we, as shareholders, take into consideration when we come to the exact timing of the decision of the dependency. Yes.

We are now going to take our next question. The next question comes from Sebastian Bray from Berenberg.

I would have 3, please. I'll ask them one by one. Firstly, interest cost. There's been a few effects that have run through the P&L mainly related to intercompany loans over the last 2 or 3 years. What is a decent figure in light of the increase of net debt to assume for the net financial expense of Corbion for '23?

So I think I'll just try to answer that. So that's 2.7% of the debt. That's our average debt structure. And then we get some offset by interest income from the joint venture loan that we have, the take 2.7%, that's the current market rates that we have are talking about.

And the 2.7% is just literally take the net debt that was reported at the end of the year and think, well, it's the best part of 3% interest rate. Okay. That's understood. The second question is on Food Solutions. And it comes back to a few that have been asked earlier. I'm still not clear on what it has led to about 4 percentage point sequential decline in EBITDA margins. Because if it were customer destocking, 1 would expect that the volumes of this business would be under pressure in Q4. And actually, relative to both my own expectations and those of the consumer ingredients sector plus 4% is not bad growth. So what's -- just to understand here, and apologies, the line wasn't very good earlier, the main effect here is Corbion emptying its own inventories and underproducing in order to improve full year working capital? Is that right? Or?

So first of all, we say volume plus mix is 4%, that's not only volume. So 1 came down, mix came up. So it's the combined of those 2 effects, that is the 3.6% for the full year and also a similar pattern for Q4, that was 3.5% in 1 of the disclosure tables. But yes, like I just said, the absorption effect, as we call it, has been negative in the last quarter, and there is a big component hitting you in the Food Solution space.

That's helpful. Can you remind me just of the logic before I move on to my last question of putting volume and mix together as opposed to price and mix?

Yes, that's something we came out in the Capital Markets Day early December, we respect in a world where prices and input cost inflation and this our pricing responses to that, sales price comes through that, where we have seen now in the period with excessive price increases getting in the top line, nobody knows exactly, of course, going forward is inflation going to continue? Will it stabilize? Will if reverse?? I like to see, for example, freight cost energy in Europe, that was full first, very much on the rise now in reverse. So there's lots of pricing dynamics, and it would cost the inflation dynamics. And we think it is a better read on the underlying performance of our business to take that separate, disclose it separate, I show what then the volume mix really developing over time. We think that is a better read on how we are growing and developing our business. Because otherwise, you've got a very alluded to maybe complex patterns to projection.

That's helpful. And just a quick question on pricing. At the start of this year, so the first 2 months, how are the pricing and raw material baskets of Corbion been performing? Has there been a widening of the spread between the price increases that have been implemented and raw materials, I assume are modestly deflationary? Or has this developed in another way?

So I will say that question, Sebastian. What we've seen is that obviously in the first part of this year, we have, of course, the benefit of the carryover of the whole pricing we did last year, whilst indeed, that we see some deflation, Eddy just mentioned, freight and energy, we see some of the chemicals not all over. So I think now, obviously, we are in a reverse situation than last year where you have been managing, of course, very closely that the price increase almost every quarter and every month. Now we are looking at procurement and the trend is staying short on some of the procurement items and making sure that we cash in on the price stickiness. So that's, I think, the key on this first part of the year. The price increase at the start of this year has been modest, but this is what we planned again in our outlook because most of it has been realized already across '22. So now it's about really, I think, the famous price stickiness as you see some relaxation in input cost. And the big thing for me in '23 is about indeed the price stickiness in the business. So -- but we see a step-by-step indeed, some relaxing input cost elements.

That's helpful. And final one, Olivier. I sense that your enthusiasm for expanding PLA has waned a little bit in light of the margin performance of this business in 2022, because the release doesn't mention anything about the ongoing negotiations with Total with regards to the potential sites in France. Is it a plausible scenario that in a few months' time there's a press release saying that Corbion cuts at stake in the JV and returns for reducing its capital commitment?

This is -- of course, this is just a speculation, Sebastian. But, yes, of course, in any decision we're going to make, we will have the market conditions and the outlook in mind, definitely. And if I would like to answer your question straight, I mean, we are following this discussion very closely with our partner because definitely, we have to adapt to market circumstance of evolution. All in all, if you look at PLA, it is a very recent story. Remember, we start in '18 and if you see the growth pattern between '18 and now, what you see is that basically, we've had a flattish minus 5%, if you think about volume between '22 and '21. So it's not that the thing has been tanking just in the growth story with that where the CAGR was 15%. Now it has been just flattish. So -- and I don't think there is nothing abnormal in such a new product line development to the world neutral Corbion. Can we keep you closer after the discussion with Total energies.

We are now going to take our next question. The questions come from the line of Fernand Boer from Degroof Petercam.

It's Fernand de Boer from Degroof Petercam. A couple of still left. Firstly, to come back on the PLA. I think Eddy at the Capital Markets Day, you said around 20% is probably the right margin for the PLA joint venture, do you still think that it is achievable in '23? That's the first one. Then to come back on the Sustainable Food Solutions, I think Olivier, you said that the Q4, let's say, inventory adjustments are also taken into account in the guidance. So what do you exactly mean with that? Do you still assume that in and certainly in the first half, volumes will be down in Sustainable Food Solutions. So how do we have to read it or just that they would normalize? These are the first 2 questions I had.

Eddy, maybe you take the PLA and then I will take the Sustainable one?

Yes. On PLA, we expect, I think you need to look at it what happened in Q4 or what has been in the ending quarter as well as margin profile we gave out the explanation in temporary ceasing of the production plan. So that was 1 month out of Q4 that again, that will also be the full month of January for Q1. So don't expect a big recovery in Q1 in that sense for margin delivery. Also, yes, remote has been our outlook, I would say, especially in the first half of the year for related customers. Second half of the year, we had recovery. I think we need to be a bit modest in our margin expectations for the total years, margin-wise for the year.

May follow up on PLA. What could you say at this moment about current market price for PLA? And for me, the big question mark is what gives you the confidence that say, new product developments will indeed start to deliver as from H2? Because we have been working when you started with the PLA joint venture, you had, I think, more than 25 customers in all different kind of work and all the different kind of applications. How will that work through now suddenly as suites to why not earlier?

So on this one, Fernand, because it's like in any other business, when we start to see the softness, we start to put a lot of business development and pipeline developments in place actually where we know that any pipeline from the debriefs so you know the first business is a year in some categories could be more in food. Usually, it's a bit more depends on the category. When we've been reenergizing getting more let's say, people on the ground, more application people in the joint venture back to mid last year. we see some of this development materializing. So next to, of course, at 1 point, China is going to reverse trend because China has stock. So when I combine these 2 things, when I look at our pipeline on 1 hand and to the signal you get from China, although we don't see the change impacting the numbers yet. Yes. So this is -- I mean, what we based our assumption on H2 on PLA. So on the SFS guidance back to our customer reducing their inventory. We see some continuation of that in Q1, although we expect this, I mean, to have less impact and to have a small positive in terms of volume and mix over Q1 for SFS. That's our expectation.

And a PLA price at this moment in the market?

I see, I forgot the PLA price. So far, on PLA, basically, we've been -- I mean, as we communicated earlier, largely above the $3,000 on PLA, and we are still in that ballpark number today slowdown.

We are now going to proceed with our next question. The questions come from the line of Wim Hoste from KBC Securities.

Can you talk a little bit about demand in the semiconductor market was Q4 a onetime weakness? And do you see that coming back fast and back to the previous levels? Can you maybe comment on that? And then the second question would be on the potential ramp-up scenario for the gypsum-free plant. What might be the cost impact of ramping up that plant, I think then you start depreciation and that Olivier can you maybe talk about the timing to fully ramp that up, the impact on the cost curve, it might have between ramp-up or the start of production and then the full utilization of the plant?

No. Yes. So Wim, so I will answer on the semiconductor and we saw some softness in Q4, but nothing alarming at all because this is an industry which has risk factor where you cannot really make a statement from a quarter to another. What we've seen is that -- and so there is a number of investments because you know the market is still short and there are some big investments coming on stream today that will have a positive impact in the course of the next 2 years. So we are not specifically worried about that. On the opposite, at 1 point, the thing is that today, we supply that business from a highly specialized plant in the Netherlands here in Hague, which is the only 1 in the world to get this very pure quality level, that's 99.99% of purity on this green solvent and at 1 point, it's about how do you expand this capacity for semiconductor? This is more the type of discussion I think we're going to have over the next 18, 24 months. And this business is becoming so important and crucial that at 1 point, you might need to have dual sourcing in terms of plan for security of supply and business continuity. So this is something we are studying as we speak. Eddy, I think do you want to tackle the other one?

Yes, the other one for share already in the Capital Markets Day. So as we refer back to that change already quite explicitly what the contribution -- in that contribution. Basically, that outcome of cost savings on the variable cost line ease are in much more efficient process, making lactic acid, but as a savings compared to conventional technology. And then, of course, you need to staff it, you need to maintain the plant. So therefore, you have needs in your fixed expense line. But the combination of the tool gives an EBITDA how to do pan out next year, the plant will become operational by the end of this year. So yes, depreciation will start to kick in next year to take, say, for example, the 10% level of the CapEx that we have announced, so that will be a depreciation line years impact, but not hitting EBITDA, obviously, that's excluding depreciation. And operationally, it depends all about how quickly we are able to ramp up the plant to full capacity because whenever we have the possibility, we will use these plans as maximum as possible because this is the cheapest plan to operate for us. And that is something -- yes, that we have to go through next year because it always takes some periods to go through the learning curve of new plants, and this is then also in terms of technology and newer type of technology. So that will take some periods to get us going.

If I may add to that, as you know, I think 1 of the strengths we have because of the lactic acid plant network, having the global plants is to be able, indeed, to max out capacity when we have the better cost position and also the best CO2 footprint to be the case with this new plant in Thailand. So 1 of the things is that, obviously, we're going to max out that value as fast as we can. And we believe there is a lot of value creation going forward starting in '24 when we do that. Maybe to give you some granularity where do we stand because these are, as you know, massive plans. We've already started commissioning of utilities in that part. So we know when we speak about different utilities side and all the side processes. This is progressing very well as we speak. Obviously, the key part of the commissioning will happen when you start to put the bugs, the bacteria in the system and get the first batches. But so far, we are really well in line in this schedule and the extensive commissioning will happen really over the second half.

Okay. Okay. Then 1 other question, if I may. Can you maybe comment on the PLA landscape? I think in previous calls, there was a discussion that some capacity was mothballed by Galactic Chinese partner. Is there any change to that situation, but also in general to the PLA production landscape?

Actually, what happened in China, actually has been impacting quite a lot of these projects that were announced in China and the situation and the Chinese capacity is also -- I mean when we look at the statistics and what's going on is very similar to what we see ourselves. So in the sense that there is not a different pattern in terms of market share or market development. Obviously, what's happening on this softness we've experienced last year -- last half year has been also making people think about revising the millions of tons that were announced at the time. This is now quite low profile being honest. So on that respect, having a fully installed running capacity as we have in Thailand makes us confident that as soon as the recovery in the Chinese reopening it, we're going to be there for the team.

We are now going to proceed with our next question. And our last question comes from the line of Alex Sloane from Barclays.

Just 2 very quick ones. Just in terms of the inventory reduction in SFS in Q4 and the profit drag that had, are you expecting in your guidance for that impact to continue into '23. And then I guess more broadly on the '23 guidance. I mean, it sounds like the 5% to 8% volume mix target is going to be certainly second half weighted, both in SFS and Lactic & Specialty on the top line, would you expect kind of a similar phasing in the EBITDA growth or might you get kind of more of the price stickiness benefit that you talked about in the first half to compensate for that?

Maybe I can take this. So I'll give you an answer for the Total part. We're very confident about the 6% to 20% EBITDA growth, maybe organic EBITDA growth that we have reconfirmed for '23. And also, we do expect that we'll see ultimately opening quarters of the backlog of the sense that we worked in.

And by the way, a small thing, you say 5% to 8% volume be a small adjustment there. We always say volume mix that's really on that 5% to 8% of the volume that we are guiding for take the combination of the 2.

Yes. Sorry, that volume mix. The line was a bit bad there. Can I just confirm that you're saying for the 15 to 20 that you're not expecting phasing there? That's the growth that you're expecting in the first?

So when we talk about this skewing to the second half that is more applicable for the top line development and the following us mix rather than the EBITDA growth delivery. We are less from seeing a pattern skew towards the end of the year.

Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.

So let me close the call and thank you for all the questions. So as I said, as, I mean, again, we discussed, although we had this disappointment in Q4 on EBITDA, I'm feeling increasing confidence in our full year guidance and also as just Eddy mentioned. So we're going to look forward to update you as the year progresses. And again, we're going to speak again for sure, for the Q1 release. And with this have a very nice day. Goodbye.

This concludes the Corbion Full Year 2022 Conference Call on the 3rd of March 2023. Thank you for listening. You may now disconnect.