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

Good morning, everybody. Welcome to the Corbion H1 2023 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. This morning, we published our H1 results. You can find the press release and presentation on our website, if you go to www.corbion.com Investor Relations Financial publication. As usual, for our quarter to go, Olivier and Eddy will walk through the presentation, after which we will move into Q&A. So with that, I would like to hand over to Olivier. Please go ahead.

Good morning, everyone. So we delivered a solid performance in the first half of 2023, demonstrating the underlying strength and resilience of our business, with organic sales growth for core activities of 7.9% driven by growth in all business units with high growth within Algae ingredients. We also delivered a strong organic adjusted EBITDA growth of core activities of 15.7%. Although we experienced some volume decline in SFS and LIS business units by continued -- compensated by price benefit, successfully passing on cost price increase back in '22 and early '23. Our Algae ingredients business continues a very high-growth trajectory but also driving higher profitability for the company. On the PLA front, we believe the business has bottomed in Q1 and we are seeing first signs of recovery. From a noncore business, the divestment of our emulsifier business is anticipated to conclude within this calendar year. Also to know that we've been free cash flow positive as from Q2, and we are expecting to also remain positive for the remaining part of the year. On this, our leverage ratio is within covenant threshold, and we expect this ratio to improve by year-end. Now on the operating climate, there is nothing new there. We've been facing severe customer destocking and as you all know, a softer macro economy climate. And this came from, of course, the supply chain organization where we've seen significant customer destocking that continued across Q2, and we still see some impact in some business for the remaining part of 2023. The volume decline in food markets is visible across almost all regions and categories with a lower impact in Functional Systems and more in the meat and savory market. In our Lactic Acid and Specialty division, we've also seen some slowdown in some biochemical markets like semiconductor, is down in the cycle right now and Agrochemicals. I will come back to that later. Actually, you've also seen the inflationary pressures around, but our price increase there in the course of '22 have compensated for higher input costs. On a positive note, we start to see some relaxation on input prices, primarily chemicals, freight and energy. On the opposite, we are seeing increased sugar prices but we are well hedged for the remaining part of '23. And on sugar price, the bigger impact we see today actually is coming from Europe, but we have flexibility across our network to maximize our global footprint. Last, on sustainability. We still see that at the forefront in several markets, and one of these is our omega-3 business in aquaculture, driven by fish oil shortage and increased pricing but we also see that in our biomedical polymer business due to aging population and health focus. So these are 2 strong items that come back. Now moving to the business dynamic and starting with Sustainable Food Solutions. As I mentioned, we see any customer destocking and soft end consumer markets, we see a difference between our functional systems where it is more about shelf life expansion and lower shortage products, where we see lower destocking because of the shorter shelf life, which is valid for bakery. This is valid for savory as well. but we see more heavy destocking in the meat category and savory category where next to processed food, there is also a lot of frozen products that stay longer, obviously, by definition, in freezers. On the other side, our pipeline remains really healthy and the customer elevation activity remains quite strong. On the growth side, we've completed the expansion of our natural mold inhibitors in Peoria in the U.S., and we started meeting to sell at some major key accounts using our natural solutions, primarily the natural mold inhibitors. So we are ramping up that business across the second part of the year. On the second initiative that we mentioned earlier, being the natural antioxidants, we're also building a pipeline of acerola/rosemary-based products and solutions together with our other organic acids and we are also expecting ramping up over the second part of the year on this mix. Last on efficiency initiatives, we've, across the first part of the year, materialized an acquisition of the vinegar production plant in the U.S., in Montgomery, Alabama. And as you know, vinegar is a strategic product for Corbion. It's being used in many of our preservation solution, so this is about really cost optimization by in-sourcing this product that is really strategic for Corbion, and we expect already some benefit from H2 as the plant is starting as we speak. Moving now to Lactic Acid & Specialties. The business environment there, as I mentioned before, we see a temporary slowdown in the semiconductor and the agrochemical market. We've also seen, of course, the impact of the lower intake of the PLA joint venture. On that note, and I will come back on PLA in the next slide. I just want to say that we are also expecting a weak trajectory on volume of lactic acid to the JV. And again, a weak volume of lactic acid doesn't mean a weak quarter for the JV itself, the JV is going to continue on its trajectory. But what is that basically, there is a one-off element in Q3 related to, on one side, a specific ramp of a specific lactic grade we call D-lactic that we are using to produce each resistant PLA or coffee cups or tea cups. And this is a run we do once every 2 or 3 years. That is, I mean, a high-value end product to make high-value, high-priced PLA but that has a very low yield in the plant. And while we process this D-lactic acid, we do not, of course, need to use any plain lactic acid. So that has an impact on Q3, and that's something we've done in the past, and we're going to still continue to do in the future. And next to that, we take advantage running this D-lactic acid in Q3 to also invest in some efficiency improvements in the plan to increase our yield, and I will come back also on the initiatives on PLA in the next slides. On Biomedical polymer, we see a very positive outlook that started in Q1 and are going to remain strong for the rest of the year. What you've seen probably in the press on the biomedical business is a great and actually a breakthrough where we got FDA approval for MedinCell, our joint venture for a new drug delivery technology and they are working closely in association with Teva on schizophrenia treatment for the U.S. So following this first FDA approval in April, we are working on a second launch product, olanzapine, that is already in Phase III clinical and basically the promising aspect of this technology is that now we have a solid proof of concept that is in the market that we can roll out to other molecules and other diseases going forward. So that's, I think, a great news for our biomedical polymer business. On efficiency initiatives, of course, the major project we have is the completion of our new circular lactic acid plant in Thailand, we are well on track on that, and this will really help us to maximize our planned network utilization. So going to where do we stand in terms of these new investments as you know, this is a 125,000 tonne plant that we are expecting to complete by the end of '23 with a startup early 2024. So the plant we really commissioned as from January there. Right now, we are busy with the utility commissioning and everything is expected -- as expected. So we are expecting the first positive EBITDA contribution from this plant as from 2024. Next to the fact that we will really help get our sales base target and achieve a 19% lower carbon footprint for tons of lactic acid we will produce in that plant. So now moving to PLA. As we said this is early signs of recovery. But first of all, before going into the market dynamic, I'd like to come back on our decision not to pursue PLA2 plant in Europe, in France. We came to the decision earlier this year, basically based on, of course, what we saw in terms of business development. And when looking to, let's say, the current capacity occupation but also the main plate capacity we have on the current pipeline, which is, as you all know, 75,000 tons. We believe when we look at the current run rate, we can almost quadruple our sales with very minor investment and without the financial need on the Thai operation, that is I mean very efficient and low-cost brand. So this is what has been really our decision as there is no urgency to build a second PLA plant. Now moving to the business environment. We are seeing some early signs of recovery primarily in Asia, and we believe Q1 was the bottom quarter. When we look to what's happening in the market back to China, who was one of the reasons with a lockdown where we saw some decline in sales back in the second part of last year. China on the regulatory front is now supporting some important clean environment. They are going with what they are calling development legs with the first leg that comprise bio-based straws, 3D printing and single-use packaging, and that's a major initiative they embarked on in '23 in the first half that we expect first they are going to show some first signals of business momentum in the second half and in '24. Just to give you an example, the only strong market in China, if we would convert it totally to a PLA-based product, would represent over 40,000 tonnes of potential. Obviously, you never get 100% conversion, but these are quite sizable markets. The second leg, Chinese government is supporting, and that will happen in 2024 is more around [indiscernible] packaging envelopes, post envelopes but also reaching addressable packaging. So that is a leg they will pursue in 2024. To make sure that we are really ahead of the curve there. Also, you might have seen we've made some 5 major partnership announcements over H1 from the JVs. I put a few examples on the slides but amongst this, moving to a more differentiated mix, for instance, working closely with also PHA/PLA compounds. We've announced one with Bluepha in China to make collaboration in sustainable solutions, compounds for PLA/PHA China, we've done also with Danimer in the U.S., a co-development to a free compostible coffee capsule for the new market and that are also compliant with new regulation on compostability. And we know this is also a very sizable market when we are able to crack it only coffee capsule in Europe. Today represents over 250,000 tons of polymers potential. And then all the very interesting development I put also one with [indiscernible] there. This is with what we call the BOPLA technology, bi-axial technology to be able to have very few layers of PLA to accommodate the tape application I mentioned earlier. And these are the elements we expect to materialize across '24 as well. So some -- a lot of good stuff happening on the PLA front. And again, I want to remain cautious on the recovery. But as I say, I believe Q1 was the bottom quarter on PLA. Now moving to our Algae ingredient business unit. There, we are benefiting from a very favorable business environment related to a structural issue around fish oil, generally speaking, with very, let's say, poor fishing season and structural fish oil scarcity. This is leading to much higher prices, and we believe that this is there to stay. When we look to the current dynamics, obviously, a continued increased demand in aquaculture, in pet food and human nutrition, but also the fact that we are, let's say, quite some now a big provision that El Nino will kick in next year and we'll only get the situation getting really worse for fish oil as we go into '24. So this is the wider environment. So basically, what we can see now is that the adoption of our older prime solution into aquaculture is step-by-step becoming mainstream and that's a very good signal. And that is also enabling us to do longer-term contracts. As we told before, we've been working hard to debottleneck the plant in Brazil in Orindiúva to make sure that we can follow market demand, but we've also invested in mix differentiation now with the first time having the ability to -- next to the product for agriculture produce a product that is an extracted oil to serve the pet and the human nutrition market. We've launched this into the wider market in May at Vitafoods in Geneva for human nutrition, and we are expecting the first sales into human nutrition to kick in as from Q4, significantly contributing to EBITDA also next year. On efficiency, as you know, we have a dedicated R&D organization in San Francisco that is really over delivering on expectations. Next to the big improvement they made a year-and-a-half ago, you might remember, we've made a further step that we've implemented a few weeks ago to further increase our yield, and that will also positively impact H2 profitability compared to the one we've had so far. So this is also a very promising R&D development that we have implemented early July in the plant in Brazil. When we look to all these dynamics, obviously, we are strategically discussing what's next. And we basically want to come back to you before the end of the year with a strategic road map on this specific BU between 25% and 30%. So we will share that before the end of the year, and we will share more detail about our plans for this business going forward. On this, now let me hand over to Eddy. Eddy?

Thank you very much, Olivier. Good day to everybody on the call. So let me take you through the financial expectations of the first half year. So first of all, the profit and loss. As you can see on the top line, the sales level has increased by 7.4% to a level of in EUR 738 million for the first half year this year. And within that, it was a growth of 6.7% organic for the total company and the 7.9% so close to 8% organic growth for the quarter. Then the EBITDA, adjusted EBITDA increased by 7.7% to EUR 96.8 million. Again, organically, was closing at a higher pace of 13.3% and for the total company and the core, and that's the key focus, of course, for us. We've been growing in the first half year to a level of 50.7% organically. Margin level was pretty much stable this year versus last year and just over 13%. So then a bit deeper in the P&L, depreciation more or less stayed put, adjustments this may be worth to mention. Last year, you see a positive of EUR 5.5 million adjustment. That is related to the book profit that we made on the divestment of one of the unused U.S. warehouses that we have. So that was 0 proceeds last year, This year, you see a small negative of minus EUR 2.9 million, basically 2 key components. One is some of the costs that we're making in the divestment process of the [indiscernible] business and secondly, because of the development of our Algae business, we still have a few years of earn-out payments to be made as a consequence of the acquisition we did of the Algae joint venture some years ago, so that is also one component. Next slide, to mention is financial income and expenses, EUR 10 million negative for the first half year. That is to be referred to last year here to see a plus 1.8%, but that has been positively influenced last year by revaluation of intercompany loans. If you take that positive out, interest receipt paid last year was close to minus 7%. So the better comparison is minus 7% last year and minus 10% this year. And that, of course, reflects the higher debt level that we have this year versus last year and also, of course, the higher interest rates that we all are being confronted with. Then we come to results joint venture associates that really our PLA joint venture stake of 50%, of course, clear positive last year. This year, a minus 4%. And there, you have to take into consideration that as a consequence of the decision to stop the further project progress of the second PLA plant, the joint venture had to take an impairment of all the costs that were already being made in the preparation of that investments that was about $13 million at a total joint venture level, so at a 100% basis. So our share in the $30 million equates to about EUR 6 million. So if you take that effect out, the underlying performance of the joint venture has been positive to close to EUR 2 million in the first half of the year. So the ventures in all showing result after tax level of about 46% lower than last year. So let's now take you through the different market segments, business units in the company. So we start. With Sustainable Food Solutions. We had an organic growth of sales of 4.7% for the first half of the year. Within that, clearly, positive impact from pricing. And so we have been increasing pricing, as you know, last year and the carryover of that impact is a positive of 11%. So that means the volume and mix, the other component making up our sales development has been negative and that is minus 6.4%. And that's basically what we see more or less stable in Q1 and Q2. The main causes of the fully mixed negative development is what we already alluded to customer destocking, softening of consumer demand and some losses of volume in the more -- less specialized part of the portfolio as we are maintaining our pricing discipline. EBITDA margin is at 11%. So lower than last year and the last -- that's because of the lower volumes, of course. And also, as we are successfully reducing our inventory levels we have some negative absorption effects. So that also plays into the margin profile of this year compared to last year. The last -- that's maybe nice to see in the picture below, we do see some margin recovery in the last couple of quarters coming from the dip in Q4 last year, we were closing at just above 8%, and we have now got that to above 11%. So it brings us to Lactic Acid and Specialties division. Sales growth organically 2.2%. Again, positive price impact of 11.6%, volume mix minus 9.4% really driven by the lower volumes that our lactic acid supplies into the joint venture, delayed joint venture compared to last year, the amount of time PLA was still turning pretty strongly and declines more happened in the second half of last year. And also, we do experience some temporary softness in markets like semiconductor and also the agrochemical products. As we go to single out here to point out that the medical polymers business, biomedical polymer business is really closing very nicely with nice growth rates. So we will see a continued strong development there. Margin profile is on the rise here compared to last year. And again, the medical polymers is really in the key component business in the [indiscernible]. Then we come to Algae Ingredients. Yes, clearly, a very strong growth rate, 103% of the first half year. And if you also look at the dynamics within the first half year in Q2 close to 137%, so really strong developments. Also EBITDA delivery, where we were still closing a negative territory last year clearly on the rise and positive in the first half year and especially in Q2. And I'd like to also point out here as we are having also negative absorption effects in Algae, so meaning we're selling more volumes than what we produce at the moment. We had a negative impact of that, especially in the second quarter. So that's close to EUR 2 million. So if you would adjust for that, basically, the underlying performance is closer to EUR 3.5 million to EUR 4 million in the Q2 quarter. So that gives you a strong understanding of the underlying margin development already in the Algae business. So really, very nice development, I would say, for this part of our portfolio. [indiscernible] the incubator. Now of course, as a consequence that we have now as per the start of this year, singled out the Algae business in a separate business unit. The sales line in the incubator is currently not there because it is really about investing various programs so that now contributing to about minus 5% investment level on the EBITDA level. And within this, really the non-DHA, so the non-omega 3 business of Algae, that is just the main component in this, as we're looking also to see what other products we can address with our Algae innovation platform. And the investment level of minus EUR 5 million. So if you compare it to our core sales level, that's it's about 4% to 8% and that is really more or less in the midpoint of the range that we guided for because we want to see an investment pace in incubator between 0.5% and 1.5% of our core sales. And that's what basically the graph below describes. So that brings us then to the joint venture. So this is based on 100% basis. Yes, an organic sales decline of about 37% again, in Q2 and Q1 last year, PLA was still relatively strong and the weakness really started in the second half of the year. I do want to single out here that we do see some early signs of PLA development in Q2 of this year versus the pace of sales in Q1 this year and Q4 last year. So that's also why you see the revenue base and also EBITDA contribution in Q2 has been higher level than what has not in Q1 this year. Margins are closing in the high teens and also there the margin delivery over the last 3 quarters, you see slight improving over the quarters. The noncore activities that, of course, the emulsifier business, EBITDA-wise, sales growth was very stable, I would say also there in emulsifiers we see an increase in prices, and that is then being offset by negative volume mix, that is really nice that the business develops very stable use market positions. So Olivier, I hand it over back to you on the outlook.

Yes. So thanks, Eddy. So moving to the outlook. So we are guiding for the remaining part of the year to an organic sales growth for the core business to be mid-single-digit growth and adjusted EBITDA growth for the core within the 15%, 20% range. And obviously, on finance discipline, as I said before, we expect that with the free cash flow from Q2 '23 onwards. Now on the volume mix, we are anticipating this to be improved by year-end, but we also have easier comparables over the next part, the remaining part of the year. We still see very volatile market conditions in our food primary preservation business, a lot more stable in our functional systems recovery in PLA, as I mentioned, and continue to work on is differentiation. Expect a weak Q3 lactic acid & specialty based on the one-off event I mentioned happening on the D-lactic acid run where this is lasting almost a month over Q3. That's also important to take into consideration. And last but not least, a very strong Algae ingredient momentum, driven by volume mix, but also pricing. On the EBITDA, the initiative I mentioned is one side is maximizing our footprint, our lactic acid footprint by really prioritizing the low-cost plants versus the higher cost plants where we have higher input costs. And obviously, the latest initiative with the vinegar acquisition is to resource our needs, and this will have a nice impact already as from H2. We work very hard on, of course, negotiating our input cost and again, this is a very dynamic environment because we see a lot of moves. But all in all, whether it is chemical we've renegotiated our logistics standards, with very nice, as I said, relaxation. So this is moving in the right direction for margin recovery as we speak. And on financial discipline, working a lot further in also our self destocking. So as our customers are doing, we've already reduced massively our inventory levels and our supply chain pressure is easy. We are continuing over H2. Next to the fact that we've reviewed our CapEx plans. So now we expect to be within EUR 145 million to EUR 160 million range by the end of the year. So on covenants, basically, we are planning our ratio to be between 2.8% and 3.2% by year-end, excluding the emuslifier business disposal. So on this, I will open the call to Q&A. Operator?

[Operator Instructions] And the questions come from the line of Robert Vos from ABN AMRO ODDO BHF.

Yes. I have a couple of questions. First on the destocking. Why are these effects so persistent taking into consideration that your exposure is mainly to fast-moving consumer goods companies. And related to this, do you still expect this to be the case in the second half. My second question, you have lowered your CapEx plans for 2023. It appears as if you're doing that to stay within your financial covenants. Can you please comment on this? And what is the delta between what you initially planned to spend in CapEx and your new guidance? Then the question -- a question on guidance. If I read the guidance on the core organic sales growth and also volume mix contribution and take into consideration that pricing in coal was 12.2% in the first half, the guidance implies that pricing will really drop off in the second half to a level of really low single digits. Is that a fair assumption? And finally, I was triggered by the comment on quadrupling sales in PLA. It's possible with low-cost investments. Can you elaborate on that? On what level of sales is that? Is that last year's sales? Or is that run rate sales as we currently see it? Some clarification would really help here.

Okay. Thank you. I will take the first question on destocking and the last one on PLA and Eddy the 2 others. So obviously, the destocking persistence is a key question. And I have to say when we check with our customers. And again, it's very different from a market to another in a region to another and from a category to another. So what we've been facing is that, again, starting with food, as you know, we have 2 major legs, the functional systems and preservation. In preservation, basically, we look at primarily meat and savory and what we've seen basically happening over the first part was primarily destocking and then over Q2, a combination of destocking and really softening consumer demand because of the upper inflation. Now our major customers in the meat industry basically had a massive amount of stock coming from slaughtering a lot of animals already on the back of '22 that were frozen meat -- you know that were kept aside. So you have already ruined the supply chain, not just the finished goods inventory that they were holding, but also quite a lot being frozen. So that we've seen has been impacting the meat and our business severely. The other thing that we didn't expect maybe to that extent was the softening of consumer demand because of what we see actually in many countries, if you look at the U.S., Mexico, but also Brazil recently, government was giving support. And in the U.S., it was $90 a month to support to poor people for affordable food, and we stopped in the course of Q1, Q2 in some important countries for us, primarily Latin America and the U.S. And we've seen a strong impact on the level of purchase. So in demand from consumer. So basically, we can see the similar pattern as we've done ourselves with our working capital management and inventory to the same order of magnitude. Now is that going to be persistent. This is a big question when we check with a big account and the big customers. Back to Q1, a lot of people were saying that we expect some slight recovery across H2 in the food chain. Now people are more on the '24 and remain extremely cautious on the remaining part of '22. So this is, again, what we get from the major account. There is a second item I'd like to say that it's also maybe not always visible, but if you know the food ingredient business, roughly 25%, 30% of your sales are being done through distributors, that do serve the small end of market, the smaller customers. So this is a quite sizable business for all companies, for our peers. And these people are holding also big amount of inventory to respect lead time. And you see that where we see severe -- I mean destocking is also on this 20% to 30% of the market that is being served through distributors. When we look to the major variances, this is where we see most severe impact of destocking happening now and going forward when we look to their projection for the second part of the year. So I want to remain cautious on H2 although we're going to have easier comparable, as you know, but on food I want remain cautious. On the LAS, obviously, a lot is being related to the lactic acid to the joint venture. As you remember, we started really to see slowdown in the joint ventures from Q3 last year and Q4 was also pretty bad. Do not expect to see us benefiting from better comparable in Q3 because of what I just mentioned before, Q3 going to be weak in LAS. The rest, I don't need to come back on Algae. Just jumping to your question on PLA like 4x. Basically, this is based on our outlook of sales for this year. And if I look to our best estimate where we're going to end 2023 if I look to the current installment rate capacity of the plant being 75,000 tonnes, as you know, we are -- I mean, we have options whenever we're going to need it with really minor financial impact to get this plant to a much higher capacity. And this is why when we look to the current business recovery base outlook, we have ample room to almost quadruple that business without the investment there. So this is explaining my comments there. So hence, no urgency to build a second PLA2 platform. Eddy, maybe you want to take the CapEx and the guidance ones?

Yes. So your question on the CapEx program. So let's first start with your final ask there, what is the delta between your original plan and the new plan for the CapEx for this year? So the former guidance was EUR 160 million to EUR 190 million. And we have now reduced EUR 145 million to EUR 160 million. So if you take the delta between those 2, that is a reduction between EUR 15 million and EUR 30 million. So somewhere in that zone is basically what we deduce. Did we do that only for reasons to get an improvement in the ratio. I think that's too narrow interpretation. I clearly want to highlight here, we maintain our -- all of our production plans in a good order to reliably produce because we are not going to short any essential maintenance CapEx, of course, anything to do with compliance and safety investments. We will not shorten that. But also on the expansion side, think about a multiyear investment in China for the new lactic acid plant. Of course, it will be very unwise to stop those kinds of investments. So we fully continue those investments. Same thing for the Algae expansion possibilities and flexibility investments we're making in Brazil. We continue and also the investments in Metro finance in U.S. So basically, all those programs are not changed. What I also shared in earlier occasion, we have acquired a portfolio of different expansion projects. And there, of course, the phasing when you turn on certain investments, of course, you will always align and fine-tune with the development of the markets. So for example, if we now experience which we do a temporary cyclical downturn, I would say, in the semiconductor industry, the investments for the next expansion for those markets, of course, they can be postponed a bit. And that's exactly what we continuously do. We manage our total CapEx program in a very disciplined way to get the right allocation in place. So that's on the CapEx. Your next question was on pricing. Yes, absolutely well. So if you look at us, we have a pricing now for the total core business in Q1 of 16%, in Q2 of 8.9%. So yes, the pricing contribution are still slight development will become less. And that is especially because last year, we, of course, third quarter in a number of pricing rounds we have increased prices. So basically, the comparable every quarter that we progress for the year becomes stronger to be. So in that sense, the price contribution will be less. That's not to say that, by and large, we are very aggressively now reducing prices from the high levels of last year. So we take a very selective differentiated approach only will reduce prices actively where we think that is needed to enhance certain parts of our portfolio.

We are now going to proceed with our next question. And the questions come from the line of Sebastian Bray from Berenberg.

Could I start on inventory write-offs, please? I didn't catch this earlier in the call. But how big was the impact of inventory write-downs on the food business at Corbion? And why did the company write down inventory in food and Algae. My second question is just on the timing of the Thailand plant ramp up for lactic acid, is this delayed versus expectations 6 to 9 months ago that the plant would come online late Q4? Or was it always foreseen that the first sales would be at the start of 2024. And my last question is on PLA. Have I understood you correctly, Olivier? The statement from the company is that a 75-kiloton plant can be quadrupled in size without much incremental investment or the quadrupling refers to from the sales run rate currently?

Thank you, Sebastian. So let me take the Thailand and PLA and Eddy will speak about inventory. So first of all, on Thailand, there is no delay actually. When we said we expect to start it by the time, by Q4, actually the ramp up what we've done actually didn't communicate about it, but we already start commissioning utilities, some utilities already in May this year. So there is a ramp-up plan and basically, the way this works is you start with easier activity and you move to a more complex one in terms of recycling. So we've done steel and water [indiscernible] all these things to make sure that all the surrounding of the plants are up and running and ready and reliable. So this is being done as we speak. And and quite a lot behind us. The critical moment comes when you put the first sugar and the fermenters, and then you have to wait for the fermentation cycle to get the first lactic acid and what is the plan there is indeed that we're going to have the first sugar in Q4. And obviously, the first run you test and run and check the quality and we expect to be, what I would call, commercially running early next year. So as we speak, yes, the costs are very minimal because the plant has not started. There is no major use of chemicals, processing aids or carbohydrates, whatsoever. So that is expected to kick in, in terms of throughput and cost but also margin early next year. So I hope that clarifies, but we are well on track with our time actually, which I have to say, we never took pride of it, but in the COVID and supply interruption, that was one of the highest risk we had at the time to get the long lead items and the equipment in place to comply with the start-up. So that's a great achievement from the operations within Corbion. On your second question, I think it's a misunderstanding. It's not 4x 75 kt, it is 4x versus the current sales rhythm we are expecting by year-end. So when we look to what we are selling right now, we can really diversify that, but not the 75 kt. So Eddy, do you want to take the inventory?

Yes. So thanks to you for your question. It is not that we had an inventory write-down because inventory write-down means you have physical stocks that you cannot sell anymore and that is what you are closing the write-down. What I'm talking about is an accounting impact and we call it absorption effect or inventory movement is also how we [indiscernible]. Well this is purely an accounting consequence that if you are selling more than what you produce, so then your inventory volumes go down, that means that on a net basis, you have less production costs that you can capitalize on your inventory positions and those production costs end up in your P&L. So in periods where you are building up stock, you've got a positive impact, so your EBITDA is higher, and that's basically what we have faced a bit last year because then we are really in a mode where inventories in terms of volumes went up because of all the turbulence in the global supply chains whatever. And now successfully in Q1, and especially in Q2, we are reducing our inventory levels because we are selling more to produce and now you get the offsetting effects where you have negative inventory movement impacts on this slightly negative impact on EBITDA. So these are more timing differences. But again, that's not an inventory write down.

That's helpful. Can I just follow up on the EBITDA guidance. And as it relates to some of the questions that Olivier, you helped me with on the new lactic acid plant in Thailand there's quite a large plant relative even to the market cap of Corbion. Is the existing 15% to 20% EBITDA guidance range for the core business net of any ramp-up costs that might be incurred for this plant? And just as a second one on CapEx. In Algae, is there any spare capacity? Because if it's purely based upon demand, one would assume that this business continues to grow quite healthily through '24. But I have a niggling feeling that some of the cementers might be full and building new ones or debottlenecking could take the best part of a year. So could you give any visibility on that?

Sure, sure, Sebastian. So on Algae, basically, as we said last time, during Capital Markets Day, we already had basically 2 initiatives to make sure we get growth this year, but also next 18 months or mid '24 and part of '25. And beyond that, this is what I said before, we're going to come back to you before the end of the year with a very detailed one. But -- so what we've done so far to make sure we can accommodate the upcoming growth is basically on 3 things. On one side, as I said already last year, we implemented a new strain that provides a much better yield. So for the same form of sugar in the same plant, we get a much higher throughput of omega-3. And this is what we implemented mid last year that is giving all the benefits we are seeing now. And we were working on the third generation to do exactly the same. And that is something we've just implemented in the plant early July very successfully. So of course, there is an end to the year's optimization. But this is new to the world due to Corbion, let's say, technology and we learn every day, and I have to say that the team in San Francisco, they're indeed doing an outstanding job in the plant to be able to scale up these developed strains. So that's what we benefit and then capacity for the same ton of sugar for omega-3 is much bigger. So that's one element that is helping both volume and profitability. The second is we have invested, as I said, in some oil extraction, okay? This is not big CapEx, and this is just behind us. So we are able with this to target higher end market will be not necessary to more volume, but much higher revenue. So when you go to pet nutrition and human nutrition. This is a way that's going to help us to enhance revenue as from Q4 this year, but primarily next year. So that's the second initiative that we've put in place already, and that we're going to create value going forward. And the third is that, yes, we've got also small debottlenecks here and there in the plant on our filtration, whatever capacity, that also is giving us a few other thousands of tons. So we've put really this plan in place the last month. And so we are feeling okay to have a secure, let's say, a room to generate further growth in '24 and part of '25 on this but then on the outlook, '25 '30, we're going to come back to you before the end of the year. Eddy, on the other question.

Yes. So your question on the preoperating expenses for the new lactic acid plant in Thailand. So let me give us a bit more granularity there. So if you look at the cash costs to run that plant, that it's really 2 key components is personnel for us and maintenance. I'm not talking about depreciation because that is a noncash component, as you understand. But from a cash component that ends up in our EBITDA, it's about personnel and maintenance. Personnel order magnitude to run such a plant about 100 people. You know more or less importantly what the European cost base is for that. But in Thailand, of course, at a lower level of cost for us than it is in a year. We are and have been already recruiting people starting last year because this is not a plant that you recruit people and the next week, they are fully operational. This takes time to run such a plan to build experience to be trained. So that is what we had already been investing a bit last year. And as per quarter, it is true that we're getting closer to the plant being fully operational by the end of this year, of course, the [indiscernible]. So basically, that part will gradually phase in as a cost component for this year. Maintenance and the other cost components, that is you have some benchmark figures there or the magnitude, 2%, 3% of your new build investment level, so you know more or less than where we are that's a normal level for such kind of plants. But that, of course, is not happening this year because there is no maintenance in place because we are now still building the plant and investing in number to the final stages of that. So that's not going to hit us this year. So yes, all these pre-operating expenses are included in our guidance of 15% to 20% organic EBITDA growth.

We are now going to proceed with our next question. And the questions come from the line of Fernand de Boer from Gruppen.

First of all, on your remarks on the lactic acid footprint, what does that mean? Are we going to see a kind of restructuring of multiple part of your production in the U.S. in favor of the tile plant? And are there then any impairments or restructuring costs in force. That's the first question. Then I had a question on your organic EBITDA growth. If you look at the bridge, the annexes of the presentation, you see that it's around EUR 5 million, EUR 6 million in the first quarter and a couple of million in this quarter. ForEx where does that come from? Because if you only take the translation effect, then it is much less. So could you elaborate a little bit on that one? Those were my questions for the timebeing..

Thank you, Fernand. So on the lactic acid footprint, as you know, if you think about lactic acid, we have obviously the biggest plant in Thailand, and we have Netherlands, Spain, U.S. and Brazil. So we have this 5-plant network. And obviously, when you look to the less competitive areas produce lactic acid today is Europe, you all know that sugar price more than doubled the year from EUR 500 to EUR 1,000. So that makes you uncompetitive for most of the finances, not just probably not just lactic acid but most of the fermenters and Europe is admiring today with this sugar price and this energy. So what we embarked on is cordoned already years ago which is the strategy we are pursuing is that we are specializing our EPM network into high-end derivatives. Our Spanish plant is, for instance, where we produce most of the pharma product. We've recently also announced that we can invest in encapsulated organic acids for high-end application within confectionery as an example. In Horcon in the Netherlands, we do the same. This is where we did the [indiscernible], the biomedical polymers, quite high-end products. So when we were really tight on capacity, we've been reopening running this plant on plain lactic. Now that you know, the plant in Thailand is coming up, it's easy to just [indiscernible] or produce something else. And the flexibility we've built over the years is a nice one because just taking the Spanish example, we've been producing a large amount of lactic acid in our plant when we had a shortage 18, 20 months ago. Right now, it's a plan that can accommodate our natural mold inhibitor capacity. We do procure fermentation and ferment. So there will not be any impairment on the opposite. I think it's a way for us to have CapEx avoidance on the next phase of growth from derivatives. But obviously, we will not, of course, look at the U.S. in that context because U.S. is very competitive. And I know a lot of people just think about increased sugar price for '24 but the U.S. is running on corn and prospect on corn in '24 is that, again, we have to see with the crop in the planting, but prospect is that corn price is going to relax heavily for next year. So I expect U.S. to become also quite competitive. And today, this is the largest lactic acid plant in the U.S. So the optimization we have is, first of all, within Europe. And then in Thailand itself, we might want to fill as soon as we can the new plant and use the former plant as the buffer capacity. These are the things we are considering calculated so that's to answer your first question. On EBITDA, I will ask Eddy to take it up.

And where is this D minus lactic acid is going to be produced? Is that in Thailand or...

It was produced from Spain. In our Spanish brand because it's a high specialized product. It's one of the things that only this sort of plant can produce but it's a round that is produced, as I said, only every years in one campaign.

Okay. Yes. Yes. But then the impact on volumes on group level is quite big while the Spanish production is actually relatively small.

No, it seems because when you run that in the PLA plant, basically, the yield is very different and it's highly paying for greater. To be efficient, you better do one shot and stock it for 2 or 3 years. And then we do another run. But on Q3, this will impact our sales of LA2 -- PLA but again, it will not impact PLA performance because we prepared for that, as you can imagine, and that we have 0 impact on PLA sales.

So on your question of CapEx, basically, what was known to be headwinds for us and is headwinds for us is [indiscernible] coming out very strong later part of last year which will be depreciating now in close [indiscernible]. The yen is another one. Yen also depreciated quite a bit. And basically -- so yes, we are not hedging at all our translational exposure. We're investing in a long position on the dollar, if you will. And there's also some transactional exposure because we never fully hedged for our transactional closures. So that is basically what is causing the headwinds on the currency level.

Yes. And going forward, that depends where the currencies will develop from here on.

But even then, if you look at the transactional exposure, then it looks quite big if you look at the bridge of your EBITDA. It's minus EUR 5.2 million in the first half. That looks minus EUR 5.8 million in the second quarter, if I write, that looks quite a big impact for me, if you look at the transactional impact on the U.S. dollar exchange. So then the rest is transactional impact. And if you have that based on the current spot rates, could you then give an indication what that means for the full year. Because there is I think, quite a big difference in your 15% EBITDA growth versus the actual reported EBITDA growth. And if we're also going to see that, let's say, for the full year, then probably at the end of the year, you say okay? We are coming in with 50% organic EBITDA growth, but you land at 8% and the market is actually expecting you to do 50% organic growth if I look at consent figures and that's not organic what the consent figures are.

Yes. So that again -- so these are the exposures we have, and we don't hedge. On top of that, we also had some what we call -- when we invoice it is at a certain currency, collected, say, 2 or 3 months later. And then if you are in an environment where the dollar depreciates in between periods, and we're collecting lower value dollars if you will compared to what you are importing so that element is also components in the FX elements that we are experiencing in the average.

Because normally speaking, you should expect that these invoices are hedged if you have a 3-month later payment on that. Is there any reason why you don't do that?

We don't do that for all the positions.

We are now going to proceed with our next question. And the questions come from the line of Setu Sharda from Barclays.

So I have 2 questions. First is, what is the net input cost inflation outlook for 2024 at this point? Like will deflation in corn for energy and other commodities more than offset pressure from higher sugar costs? And my second question is about your EBITDA growth guidance of FY '23. You increased at the Q1 stage, but decreased at Q2. So how much visibility do you have currently on the business? Like what is the risk we have not been conservative enough on H2 volume expectations.

Eddy, do you want to take the cost inflation?

Yes. Sorry, input cost inflation, the current visibility. So yes, our outlook is that the reductions on all these input categories, the size is bigger than the increases that we are seeing in the sugar side. So on a net basis, we will see a significant reduction in input costs as of next year.

So on the second question, If I heard you well so basically -- and of course, what happened between the increased guidance and now back in the 15% to 20%. Basically, as I explained before, looking at the current visibility we have in the market, but also the dynamic. This is, I mean, again, when we revised our forecast and we checked with our top customers, our distributors, we see that basically the severity of destocking that we were expecting to soften in Q2. I mean, it was still very high and still very high. And we see a much bigger impact in what, at the time, we had in mind on consumer demand. So that's one luxury, on the rest, when you look at the current macroeconomic environment, everybody is expecting China recovery. Though we see that to build up in PLA, we do not see that necessarily in the other food or biochemical markets yet. To the extent that we had in mind in Q1. I don't know if it answers your questions, Setu.

We are going to proceed with our next question. And the question comes from Patrick Roquas from Kepler Cheuvreux.

I have got a couple on Algae. So Q2 saw a very good doubling of sales and EUR 5 million to EUR 7 million increase year-on-year on EBITDA. Is that something that we should also expect for Q3 and Q4, given that the contracts that you have in place, the shorts for fish oil, et cetera. And then secondly, on Algae, Olivier indicated that the oil extraction capacity allows for more revenue in pet and in human. I also assume that these segments are more profitable than fish feed. Is there any indication for the difference? And then a question on the disposal of noncore. Yes, it would be great if you can provide a bit more color behind, let's say, your confidence here also given the relevance for the leverage ratio? And then a final question on PLA. Much discussed already about the early signs of recovery. But does this also take into account for the, let's say, sustained high sugar prices.

Thank you, Patrick. So I will answer the PLA and the Algae extraction question and Eddy the other 2. So just starting with the PLA. As you know, so we have our hedging policy, and we are of course fully hedged for this year and already for part of next year. Obviously, when you look at '24 and that's important to note. We see some volatility in sugar. And you know it has increased quite a lot, but it also came back recently quite a lot. So in May or June this morning is down to EUR 0.21 [indiscernible]. And there are some big crops to be completed between made by India, that is in progress. There will also see some arbitration in Brazil. So what we are doing now is that we are cautiously covering already part of '24. Yes, these are at increased prices, but not the one you see what we offset in the spot market by far. So I want to put some balance there because I don't think when you see a price of EUR 0.28 per pound that we bought [indiscernible]. So we are really far from this level. At the same time, what we expect in the balance of PLA cost, although we're going to have some sugar cost increases, we see big drops in citric acid in other components. That are part of important pieces of cost of our lactic acid production and we see also freight and we ship from all over the world are back to pre-COVID level. So I mean when we look to see [indiscernible] out of our type. So there are many things that are going in the right direction. The only thing so far not going into the right direction in the sugar price. But again, there is still a lot of things going to happen before we need to book the vast majority of the '24 sugar plant related to what's happening in the entire balance around sugar and I include ethanol and dynamic on ethanol and bio ethanol as well, which is a big part of the speculation around sugar. On Algae and oil extraction, this is a great question. Obviously, if you look at current fish oil price today, which are above $5,000 and you remember, maybe a couple of years ago, we were pricing Algae prime at 2,500. So we've been following the official trajectory, but we also do not want to be only opportunistic because we want to convert customers for the long term. And I think one of the big advantage of our Algae value proposition and pricing is that we have a stable top that is not a volatile product. So we are not necessarily looking to just max out price to be at official parity anymore, but we want to contract longer term and value-added and disconnect as much as we can from the sites of fish oil. That's one. When you think about price around $4,000, $ 5,000 for our products culture, which we have kind of fish oil market. When you go to basically pet nutrition, you can easily double to triple these type of things, this type of price and human nutrition is probably quadruple at least quadruple the level -- the current level. So it doesn't mean you get there from day one, don't get me wrong. But there is a very high margin later as you specialize and as you move at the application category margin. So we are starting with the current capacity, again small but basically, there is more to come when we present the road map before the end of the year on what is the intent in terms of development in that field because indeed, the good thing about our business model is that we can trade them quite a lot. So these are about strategic choices. I still believe we need to continue supplying our fish oil business because it is the great foundation to further build new categories, but also new adjacencies. If you're just in aquaculture, it's a nice platform to, of course, sell DHA today, but to more maybe other fatty acids, maybe proteins, may be antioxidant out of Algae, and when you move to nutrition, then it's also a great platform that we can build around DHA to maybe sell acerola extract and Rosemary extract that are key building blocks in our preservation business that could have nice synergy in the future Algae Nutrition business. So this is the way we look at it as well. But again, more to come before the end of the year. Eddy, maybe you want to take on Algae?

Yes. So let me take your question on the Algae profitability perspective. Maybe the best thing is to look at the Q2 performance as a promotional support or, of course, where we had close to 5% EBITDA margin. Within that, we had this negative absorption effect. That's also why we highlighted that so if you would correct for that. So underlying business is performing already close to 10% EBITDA margin. I think it's safe to use that as an assumption for the second half of the year, apart from any absorption effects in the second half being positive or negative as that's always dependent on exactly the production levels. Then maybe second command [indiscernible] because Q2 has been very strong. So that should be -- what's your base assumption there for the full year? But all in all, a very clear run up, I would say, with the profit delivery of the year also purchasing the level of last year. On your emulsifier question, again, I'd like to stress that the ratio, the net debt-to-EBITDA ratio outlook that we've given for the full year by the end of this year, EUR 2.8 million to EUR 3.2 million is excluding any potential proceeds from the divestment of [indiscernible]. And we did that on purpose because it never exactly possible to plan out when such time takes place. On the process itself, yes, I really want to stick to what we have shared in the press release that we anticipate to conclude the transaction still in this calendar year. We will really not disclose any further information as not to interfere with the divestment process switch. I don't want to leak that.

[Operator Instructions] And the questions come from the line of Reg Watson from ING.

I just have a few questions. Olivier, I'm struggling a little bit to reconcile your bullishness on the PLA market with the decision to cancel the compre, because if I understand correctly, you're running at about 50% capacity in Thailand. So if there's enough demand to quadruple, you'd actually need a second PLA plant the size of the current one in Thailand. So if you could help us with that, that would be really useful. My second question relates to the guidance. So if I rewind to the start of this year, your adjusted EBITDA core growth guidance was 15% to 20%. But since then, you've downgraded your volume mix assumptions quite significantly. You've also downgraded your revenue assumptions and yet, the adjusted EBITDA guidance remains the same, having been upgraded in the meantime and now cut again. So I'd like to understand the moving parts behind that, why we don't see the EBITDA guidance range dropped from 15% to 20% to perhaps a lower range. And then finally, I noticed that your Chief Technology Officer has resigned from the company Marcel Wubbolts. What's -- how far are you in terms of making progress of replacing him? Because obviously, he was a member of the Executive Board. So clearly quite an important individual and I was surprised that we didn't see notification of his departure.

Thank you, Reg. So I will mention on the CFSO and the PLA question. So CFSO, Marcel Wubbolts left us earlier in the year. So we are, as you can imagine, actively in a recruitment filling the position. It doesn't mean that it is not being run, we have an active person [indiscernible] that is taking care of that portion. But indeed, that's something that happened earlier in the year as part of the dynamics of senior management team, as you can imagine. On PLA, basically, my statement is when we look to the current run rate for the full year 2023 so as you see and if you look to, of course, the last quarter's history we ran much lower than what we've been running across '22 or the first part of '22. So there is big spare cap to reach the current main plate capacity of 75,000 tonnes. So basically, without giving you all the detailed number, but we can see already doubled there. And then with very minor investment, we can further double on the current run rate. So this is my statement. So it's very simple. So I mean I know you can do the math because if you just look to the export stats from Thailand to see our numbers or from the U.S. to see our compared numbers, you know what would be the price.

Okay. So could I clarify? So if we take it as read that the current run rate is around 50% capacity if you've got 4x the demand as you say yourself, if you double, then you fill the capacity. But if you double again, you need another 75 kilotons of capacity. Is my reading is that correct?

No. The utilization at the moment is slightly lower than 50%.

It's a little bit lower than 50%, okay? But even then, if we're quadrupling from a bit lower than 50%, it's still well in excess of 100.

Correct. But yes. So and again, there is no decision being made. I just said we have the convention to get there. The market will turn up, yes. And just maybe to clarify that when we went to the PLA 2 discussion, we had multiyears, as you can imagine, the strategic road map for PLA. Step 3 would have been that one. So we would have stayed on the growth trajectory we experienced in 2020, 2021. For strategic reasons, Step 2 was this plant in [indiscernible]. Step 3 was exactly the one I explained now. So it was already in the car box. So now not doing the French investment, yes, you better do that one on the installed capacity but no formal decision has been made, just to be clear on this yet by the joint venture.

The other question on the EBITDA growth guidance versus the downward adjustment in the equal mix guidance. So yes, there are other levers, of course, impacting EBITDA. So first of all, EBITDA, we have the [indiscernible] within the range so here's a need like you might expect an adjustment in the guidance apart from the top line development, of course, what we also see happening is the input cost inflation that is getting more positive as a picture, if you will, compared to early indications. So that is a position that sounds to -- which is offsetting downward for buying development. And secondly, also, our fixed expenses are those something we are employing. So really we have a very disciplined approach on all the fixed cost component that we have in the company, so that is offsetting a bit the downward adjustment from the top line.

Okay. That's really helpful. And just sort of come out in support of Fernand, I also find the FX waterfall quite excessive because if I look at the yen and the dollar moves in the half -- half-on-half, it roughly amounts to 3.5% and yet you're posting an EBITDA hit of a translation impact of close to 7%. So it does seem a lot higher. But let's leave it for now and maybe come back with it.

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

Okay. So I just want to thank you all who participated in the call today, and we will listen again to each other in Q3 results. So on this being a good rest of the summer to everyone, and have a good day. Bye-bye, everyone.