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

Welcome to the Corbion Q1 Results 2025 Conference Call. [Operator Instructions] Please note that this call will be recorded. I would now like to hand over to Mr. Alex Sokolowski, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to the Corbion First Quarter 2025 Interim Management Conference Call. This morning, we published our Q1 2025 results. The press release and presentation can be found on our website at www.corbion.com/investor-relations/financial-publications. Before we begin, please note that today's discussion will include forward-looking statements based on our current expectations and assumptions. These statements will involve risks and uncertainties that may cause actual results to differ materially from those expressed. Factors beyond our control, including market conditions, economic changes and regulatory actions can impact outcomes. Corbion does not undertake any obligation to update statements made in this call or contained in today's press release and presentation. For more details on our assumptions and estimates, please refer to our annual report. This is Alex Sokolowski, Head of IR, and with me on the call are Olivier Rigaud, Chief Executive Officer; and Peter Kazius. Chief Financial Officer. Now, I'd like to hand over the call to Olivier.

Good morning, everyone, and thank you for joining us today for Corbion's Q1 2025 earnings call. Let's start with some key highlights from our latest results. I'm very pleased to report this quarter we've seen accelerated organic sales growth of 7.9%, driven by strong performance across our 2 business units. Our adjusted EBITDA reached EUR 54.4 million, margin of 16.5% for the group. Our free cash flow for the quarter came at EUR 8.6 million. This is a great set of results. I would like to acknowledge the great effort of Corbion's delivery. Going a bit into the divisions. Starting with Functional Ingredients & Solutions, we achieved an organic sales growth of 5.8%, driven [indiscernible] strong volume growth of 7.3%. This growth was seen across all 3 businesses within the segment, Food Ingredients and Lactic acid to the PLA joint venture. The adjusted EBITDA margin in Functional Ingredients & Solutions increased substantially to 12.1%, up from 7.5% in Q1 2024 and up sequentially as well. This improvement illustrates the benefits of our efficiencies and cost-saving measures. In our Health & Nutrition division, we delivered an impressive organic sales growth of 16.2% with an adjusted EBITDA margin of 32.2%. This growth was driven by strong volume/mix performance, particularly in the Nutrition business as well as positive pricing impact. Our Health & Nutrition division has shown remarkable growth in both sales and adjusted EBITDA, thanks to volume/mix growth in all 3 businesses. This growth is a testament to our commitment to innovation and the unmatched value of our product offer. Our TotalEnergies Corbion joint venture also saw robust organic sales growth of 21.9% despite the adjusted EBITDA margin contracting to 7.8%, although it increased sequentially from 2.1%. Overall, Corbion's group level adjusted EBITDA increased by 53.9% versus Q1 2024, reaching EUR 54.4 million. Our positive free cash flow for the quarter was EUR 8.6 million. I'm very pleased to affirm our outlook for the remainder of the year. We maintain our full year 2025 guidance of organic adjusted EBITDA growth of over 25%, driven by continued sales growth and margin improvement in both business units. We anticipate organic volume/mix growth in the range of 2% to 6%, supported by ongoing positive momentum in Health & Nutrition and in the Functional Ingredients & Solutions business units. Investments in our business will remain disciplined with capital expenditure estimated between EUR 80 million and EUR 90 million for the year. We are committed to delivering a positive free cash flow in excess of EUR 85 million for 2025. As we navigate the macroeconomic and geopolitical uncertainty, we remain focused on executing our strategy and delivering value to our stakeholders. Corbion continues to provide essential natural solutions that meet our customers' preservation and nutrition needs. The Q1 2025 results highlight the resilience of our businesses and our ability to adapt and thrive in changing market conditions. We are confident in our ability to achieve our fiscal year 2025 guidance with strong growth in volume/mix, adjusted EBITDA and free cash flow. We appreciate your continued support and are looking forward to updating many of you in the next weeks at conferences and road shows. And now Peter and I are happy to take your questions.

[Operator Instructions] Our first question this morning comes from Setu Sharda from Barclays.

Congratulations on a good set of results. Three questions from my side. The first one on the volumes, like strong Q1 volume growth ahead of your full year target range. So to what extent do you think like Q1 benefited from any order phasing? And would you expect to see any material change in trend in Q2? My second question would be around one of the news flow that is one of your largest shareholders argued that you should consider splitting up the business to realize value. Would there be any material dis-synergy separating Health & Nutrition and Fresh division? And the third question is on the fresh oil prices, which has come down from peak. So does that impact any contract renewal in your Algae Nutrition? And how should we see pricing development in Health & Nutrition in general?

Okay. Thank you, Setu. I will take, I mean, the latest news flows on Inclusive Capital, and the fish oil and Peter will answer the volume on order phasing in Q2. So starting with the news from yesterday on Inclusive Capital, basically, I think the short answer to the question is that we are in the midst of our strategic review. As you know, we are basically going through the end of our Advance 2025 strategy by the end of this year. And it's really a natural moment for us now to really look to the next 5 years, so the '26, 2030 period. And as I said, we are in the midst of reviewing that and are planning to go back to the market in H2 this year. There is not really a lot more to comment than that. And as part of any strategic review, we are reviewing the entire portfolio. So on your second question about fish oil price, actually, indeed, we've seen some really fish oil price drop recently. As we've discussed a few times, we have a sizable part of our business that is on longer-term contract, but not all. So we are expecting some pricing pressure on what is not contracted. At the same time, we still see that there is a structural deficit on the market. So we still see, I think, the consumption of algae-derived products and omega-3s primarily going up in the year to come and in the years to come as well driven by this structural shortage. So our strategy has been indeed to lock some longer-term contract volume to offer also price stability to our customers, which is something they do value. So -- and we are intending to continue this strategy on locking some longer-term deals as we are going and not being subject to every other quarter fishing season outcome to set up a [indiscernible] (00:09:34) pricing strategy. On Q2 volume and the order phasing, Peter, I would leave that to you.

Yes, Setu, thanks for the question. I mean a couple of things to note. I think, first of all, it has been a really strong quarter. And you are right, if you break down a bit to the different elements and give you some flavor. I mean Olivier alluded to it, if you look in Functional Ingredients & Solutions, all 3 businesses did grew, which is Food, Biochemicals and Lactic acid to PLA. If you look to the food business, this is growing quite consistently already over the last 5 quarters. And there, we also plan to consistently grow throughout the rest of the year. If you look in Biochemicals and Lactic acid into the PLA, This has amplified, I would say, the growth in Q1. And therefore, you can anticipate a bit of a reversal during the rest of the year, but still confident to deliver the full year amount. So if you look to Functional Ingredients & Solutions, there is no intent. I mean, always hopeful that we continue to grow 7% per annum on that. If you look into Health & Nutrition, also that nice to see volume/mix growth of 12.8%. And let's reflect a bit back in the year 2024 as well. I mean, we've seen 14% in H1, it went up, then it was returning to mild growth in Q4, and we're really nice to see this being on track from that perspective. So that's a bit, I think, Q1, really nice to see it. Will we potentially have a softer Q2, but still being positive? The answer is yes because there is some phasing.

Our next question this morning comes from Fernand de Boer from Degroof Petercam.

Fernand de Boer from Degroof Petercam. First, Olivier, did I hear you saying that both segments do have the margin potential to improve this year because I thought in the previous discussion we had with Peter that he was actually cautioning a little bit on the margins for H&N. So that's the first question. Then the second one on the capacity of PLA. You had a very strong volume quarter. So could you give a little bit an indication how much capacity it is running now because when is there a risk that you have to debottleneck for the PLA? So that's another question. And then to come back on the phasing, Peter, did I hear you correctly saying softening potentially in Q2? Was that specifically for H&N or for the group as total?

Yes. Maybe you want to address the last one, Peter, and I will take the other 2.

Yes. No, I can take that one. So I mentioned specifically for Functional Ingredients & Solutions, Fernand. And also within fish, it's biochemical and it's lactic acid PLA. Of course, that then has an overall impact in -- on the total volume.

On the margin, Fernand, so basically, I think on H&N, we feel really confident on maintaining the current margin level, as we indicated earlier, around 30%. So that is, I mean, again, something we feel, again, confident about for the rest of the year. In Functional Ingredients & Solutions, as you know, we are really very active into basically compensating from some of the cost. And as you might remember, last year, following our restructuring and some efficiencies and cost-cutting measures, we are continuing on that journey basically to go, as you've seen, a strong re-rate now in Q1 to above 12%. So we are in our journey over the next couple of years to re-rate up to 15% this division. And so we are well on track also to continue there in [ fees ]. On PLA, indeed, you've seen a strong volume in Q1. What we see is that, as also we discussed a few times, the momentum is good and is primarily good in Asia and within Asia in China. This is what is driving the majority of the growth today with a couple of subsegments being 3D printing growing very strongly as well as everything related to what we call food service ware. Now so the joint venture is able to indeed grow to closer to full capacity, but we are not yet there. So we do not expect to have -- to debottleneck the plant at the current pace when we look at our projection for the year, either this year or next year, by the way. So there is still a lot of room to basically go for even more growth over the next 2 years into the current footprint. So nothing to be expected in the short term on that side.

Maybe one last question on the import tariffs, you say to see little impact. But could this also have a significant impact on, let's say, the Chinese exports to the U.S. and then on the PLA joint venture?

You are specifically referring to PLA or more broadly Fernand?

Yes, maybe you could elaborate a little bit more where you see this impact from the import tariffs specifically. What you do it...

Yes. No, so -- just -- so on overall tariff, why do we think and we say it is limited. If we look to basically maybe 4 different items in there. So the import of [ raw ] material into the U.S. is one. The second is all the flows we have that are intracompany flows of, let's say, products we manufacture in Europe or in Thailand that goes into the U.S. market. That's the second. We look, of course, at the third element being the competitive dynamic, positive or negative that might affect -- impact the U.S. market, but the broader market. And the fourth, which is, I think, the more uncertain is, is that going to trigger any demand destruction? So starting with the number one, if you look to raw material, this is relatively limited. Yes, we have some imports from EU. We have some imports from China, Australia, so no different geographies. However, when we look at the mitigating actions on alternative sourcing options, there are a lot. And in some categories, you know where we are using that in our nutrition, for instance, business fortification, these products are exempted from any tariffs. So this is why the impact on raw material, although there is an important flow of raw mat going to the U.S. is not that big. On the intracompany businesses, we supply from our Dutch and Spanish operation into the U.S. quite a lot basically to serve our customers in North America. But there, primarily in the health and nutrition space, think about all the products we are selling from our biomedical business, our pharma products, they are on the [ exact ban ] list. So we have over 70% of the intraflow business that is exempted today. So this is quite a minor impact for us. Now the other aspect back to the competitive situation is if you think about the carbon footprint, we are a market leader in lactic acid, and we are the only player having plants in all geographies. And this is quite helpful as we are looking to supply chain and manufacturing because it helps and enables us to maybe change some flows in terms of what are we producing where. And for instance, we can leverage the fact that, yes, we have a very nice footprint in the U.S. with 4 plants in total, covering different aspects of our business. So we are reallocating productions and moving some stuff around in terms of where we're going to produce what. Obviously, it gives us a competitive advantage in the domestic market that we are intending to leverage. But at the same time, we know that some of the Chinese volume might be redirected to other regions. And that's also something we are watching out very closely. Now the broader themes, the last one about demand destruction is very difficult to assess. Short term, we do not see any major or if any, negative impact, but we are really watching that out very closely. Obviously, there are some markets that could be more sensitive than others. We don't believe at that stage that if you take the bigger business we are in, I'm thinking about natural preservation that this would trigger people to go back to synthetic alternatives. We are not yet there. We don't believe as well that the salmon market is going to be impacted because, yes, most of the U.S. supplies are coming from Chile, not from Norway, where we are already present. So more to come on that, but this is probably the part where there is more uncertainty of what might happen. Sorry, I made a bit long Fernand, but yes, this is a bit the way we tackle these tariffs and why we believe it's not having a material impact on us.

Our next call this morning comes from Wim Hoste from KBC Securities.

I also have a couple of questions, please. Maybe first, there is quite some FX volatility. Can you maybe elaborate or give an estimate what, with the current FX rates, the negative impact might be on your full year guidance adjusted EBITDA? So that's the first question. The second question, can you be a bit more specific on the efficiency contribution or the impact from efficiency measures on first quarter EBITDA. And also give a bit of a time line in building up towards the remainder of the year. And then a third question would be on the pricing in PLA. I think the press release mentioned that price erosion has halted. Can you maybe elaborate on the outlook for pricing? Is there any chance that prices will go up anytime soon in PLA or not? Those were the questions.

Okay. Wim, let me take the last one, and Peter will cover the first two. On PLA pricing, as we stated, yes, we've seen -- and the joint ventures has seen erosion on the back primarily also of the fossil-based products going down sharply. So we've seen that. Actually, of course, it comes at a time where also the input cost for the joint venture are going down as sugar is substantially down as freight cost is also substantially down. However, you've seen this margin contraction at slightly above 8%. So it's about continuing, of course, efficiency improvement in the plant, which they have already done partly. But it's also looking at the future on sugars because, as you've seen, sugar prices went down substantially. And when we look at 2026, we start to cover even '26 now at even much lower prices than the one we have for '25. So that will also, I think, bring kind of security on that input cost as well if you look to the 2026 year as well. When we discuss with the joint venture, they do not see price recovery in the short to near term for PLA. So the basically active mitigation plan they do have, but this is not new. And this takes long is you might have seen in the press the last weeks and months, they are really active in launching this differentiated product offering. And again, there is nothing new there, but you might have seen expanded PLA to new categories, quite a lot of partnership. But this is a longer-term project they have embarked on, which is to build up more differentiator that could enable a mix improvement over the years to come. So I will not speculate on that having a strong impact in '25. Peter?

Yes. No, happy to take the other one, Wim. Now giving a bit of color around ForEx without trying to predict the ForEx moving forward. So if you look on the U.S. dollar, I mean, we're quite exposed in terms of translation impact to the U.S. dollar. And in our annual report, we disclosed the sensitivity quite explicitly, which is 1% of the U.S. dollar is having an impact of [ 2.3 million ]. If you look at Q1, by the way, it's a positive impact because the U.S. dollar in our Q1 results is something of [ $1.05 ], whilst last year, it was [ $1.09 ]. So if you carefully look to Q1, then the U.S. dollar actually became stronger versus Q1 2024. I did call out in the results call for the full year that our U.S. dollar rates, which is the most sensitive one is [ $1.08 ] basically for the full year of 2024. So that's on currencies. If you look on the building up of all the efficiencies we do. If you compare year-over-year, as you know, that we started the most sizable restructuring program by the end of Q1. So therefore, there is a sizable contribution from the step-up of 7% (sic) [ 7.5% ] to 12.1%, which is nice to see and also in line with our plan. If you look to the full year outlook, there will be a lesser extent, but still a sizable impact in Q2 to Q4. And that leads, I would say, to the full year outlook of more than 20% or 25% in adjusted [ EBITDA growth ].

Our next question this morning comes from Robert Jan Vos from ABN AMRO -- ODDO BHF.

My first one is on pricing in Health & Nutrition. In the press release, you mentioned that the positive pricing is the comparable effect of pricing realized late Q1 2024. So my question is, now that this has annualized, should we anticipate lower pricing in the coming quarters or maybe even negative? That's my first question. I'll continue. Okay. Yes. My second question is on free cash flow. You mentioned free cash flow in the quarter was positive EUR 8.6 million. Of course, you have this target of at least EUR 85 million for the full year. So can you elaborate a little bit on what are the components in Q1? Is that normal seasonality? Is that working capital? Maybe a few words of clarification there. And then my final question is on PLA. I remember, if I'm not mistaken, that Olivier, you said that you expect some changes made by the Chinese government that could benefit the business. You reported a very strong Q1, more than 20% organic growth. Is there any changes in legislation included in that already? Or is that still pending? Those are my questions.

Thanks, Rob Jan [indiscernible] (00:27:21). Let me jump on the PLA straight before giving the floor to Peter. So indeed -- on PLA, indeed, I mean, I mentioned that in the past. And actually, I was on a business trip in China a few weeks ago, just checking also what is happening not just on the market but regulatory-wise. And the government is indeed, I mean, looking to officialize their directive by the summer. So -- and there is a strong recommendation/incentives to increase usage of PLA in certain categories. So not to go into all details, but basically, they go for a strong recommendation on even percentage of incorporation into various categories, whether these are the food service wear or the plastic bags or even all the [ possible ] Chinese services. So that is something that is indeed happening and will happen across the summer for implementation in 2026. So we've not seen in Q1 any impact yet of this. What we've seen really happening in Q1 is, as I said, really a very strong drive in a couple of leading categories being primarily 3D printing. And that's a very interesting one because this is the category where PLA is primarily used because of its functionality. It's really working very well in terms of hardness and resistance into the filament industry for the 3D printing machines. And there is a big shift in China that is probably going to extend globally on moving in the way you produce plastic spares pieces through 3D printing instead of traditional molding and injection. So you have a big development of the so-called 3D printing farms in China that are changing the way these products are being manufactured with very low basically CapEx, a lot more agility in being able to change also frequencies of production rates and so on. So that's one big driver. And the second is the food service ware, yes, the Chinese market also is obviously exporting outside China, but also changing and moving everything related to [indiscernible] strows, cutlery from fossil-based to bio-based products. So Q1 is really, I think, driven by increase in these 2 categories primarily. We expect really the new Chinese government directive to have an impact more on the '26 volume, not in '25.

Let me answer the other 2 topics. Robert Jan. So in free cash flow, you're right, it's really driven by a seasonality pattern in working capital and nothing specifically. If you look to the components, I mean, CapEx is really in line what we guidance, quite stable. If you look at interest and tax, also nothing to note. So it's really the kind of working capital components. I would see the same dynamic as last year a bit in Q2. So will we see also this year a phasing between H1 and H2, like we've seen last year? The answer is yes, but still confident to deliver this more than EUR 85 million for the full year. If you look in pricing in Health & Nutrition, and let me go to algae and dissect basically in 2 different components. One is the longer-term contracts and the other one is the more shorter-term or spot contract. So you are right that from a longer-term contracts, we entered into this contract by the end of Q1 with nice price increases. And therefore, this positive price impact will stop by the end of the year and positive price impact is year-over-year also of course components. So from a Q2, Q3 and Q4 perspective, it's therefore relatively flat. From the other parts, which are kind of more spot related, there, we did follow more the fish oil pattern than the other ones because we wanted to move more to longer-term contracts. And therefore, with these longer-term contracts, we say, look, we do a relatively low price, really disciplined but a longer-term one. On the kind of more spot related, you might see indeed a bit of negative pricing in Q2. But overall, leading to the margins, which we alluded to of around 30% of Health.

That's clear, Peter. Maybe an add-on. If you say that the contracts part of the business for the coming quarters is relatively flat and the more volatile short-term contracts may be a bit negative, then overall, the pricing could -- for that part of the business could turn negative in the coming quarters.

Right. Correct.

Our next question this morning comes from Sebastian Bray from Berenberg.

Congratulations on the results. My question is on food and pricing in food preservation. This looks like it's gotten better between Q1 and Q4 without having a volume drag associated with protecting and improving the spreads. What has happened in this business over the last 9 months? Is it -- has most of the more price-sensitive business already gone away? And could this be expected to continue for the rest of the year?

So on the full pricing, basically, we went for -- as you remember on the stranded cost discussion for basically a few initiatives that one was primarily on portfolio rationalization and SKU optimization. so we've been looking at our -- the tail of our business and either phased out some of the products or address the pricing and the margin on the tail and removed quite some complexity in SKU. So you can see an improvement related to those initiatives. The next initiative that we did, basically when we negotiated Q1 pricing, is that we went for Q1 correction that did work to some extent and in some geographies, not in all geographies. But basically, we've been really also for stronger price management earlier this year in the food business. So -- and we intend looking forward to stay very disciplined on pricing as we go. So...

Our next question this morning comes from Reg Watson from ING.

So Peter, I'd just like to come back to the first quarter boost in Biochemical and the Lactic acid sales to the JV. Please can you quantify the percentage points of growth boost you received in Q1? Because I'm presuming you're going to hand that back in Q2 if this is just a phasing issue.

So without getting into the full details, but if you look a bit to Food was positive, Biochemicals and Lactic acid was even more positive than in the normal flow. I mean if you look to what we guided it overall for Functional Ingredients & Solutions, if you remember in this Capital Markets Day, it's around 4%. So if you take that kind of philosophy, then the plus, what is it, 7.3% is significantly higher. I think that's how you need to look to it, Reg.

Okay. So we should basically take the first half as an average between the 2 quarters?

That's a fine guess.

Okay. We have one more caller on the line. Eric Wilmer from Lanschot Kempen.

I had one question. Can you talk a little bit about your sensitivity to freight rates, particularly from Europe to the U.S. One could argue that these rates may go up if more global trade volumes are being directed through Europe to the U.S. instead of from China.

Yes. That's, I think, of course, I mean, a critical one also for us. And to be very transparent on that, we've been, of course, tendering all our freight the last month. As we also discussed, that was a big initiative in terms of efficiencies, improvement and cost reduction. Now there is, I mean, maybe several streams to take into account. If you look to our flow out of the EUR 1.3 billion business we have in total, there is, I mean, something around about EUR 100 million flow we have from Europe to the U.S. So it is big, but it is not massive to the point it would disrupt our cost. Now we are so far well contracted, I mean, on our freight for the rest of '25. So we are not extremely concerned about that. The only disruption that could happen, I mean, honestly, for us is if something would happen still further in the Red Sea, things would relax because it could sound positive at the first site, but when we discuss with experts and specialists, a reopening of the Red Sea, it's really counterintuitive this year would mean a massive port congestion basically in Europe, and that would have really negative side effects on the short term. That's the only thing on freight that we cannot anticipate, but that potentially would come when you discuss with experts. So far, we do not have any negative noise on the U.S. route. And again, for us, it's quite limited.

So that means that your hedging policy in place would also not cover any scenario, which would include a reopening of the Red Sea, I assume?

Not this year. This year, basically, everybody we are discussing with, I mean, I do not expect a reopening this year. When this would reopen, whenever that would happen, it would entail a massive disruption, at least for 6 to 8 months in terms of port congestion in Europe. This is what the experts in the field are telling us, but nobody sees that happening this year so far. Of course, again, that's something we don't control.

Okay. Thank you all for your questions. It looks like there's no more questions or requesters on the line. So with that, we'll end the Q&A session. And I'd just like to say this concludes our conference call this morning. Thank you for your attendance. We look forward to discussing at upcoming roadshows and conference in the next weeks. Please note that we will report our second half year results 2025 on July 31. Information to attend is available on the Investor Relations page of our website, and we look forward to engaging with you all again. Operator, you may end the call. Do you want to say anything?

No, goodbye. Thank you all. Thank you.

Bye. Bye.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.