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

Good morning, and welcome to Corbion's Third Quarter 2025 Results Conference Call. This morning, we published our Q3 2025 interim management statement press release and presentation. These can be found on our website at corbion.com/investor-relations/financial-publications. With me on the call today are Olivier Rigaud, Chief Executive Officer; and Peter Kazius, Chief Financial Officer. Before we begin, please note that today's discussion will include forward-looking statements based on current expectations and assumptions. These statements 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. Now I would like to hand the call over to Olivier Rigaud. Olivier?

Thanks, Alex, and good morning, everyone, and thank you for joining our Q3 2025 earnings call. We are pleased to report solid results for the first 9 months of the year, which underscore the fundamental strength and resilience of our businesses. Our third quarter performance was in line with expectations, especially considering the strong comparable basis for Q3 2024 across both Functional Ingredients & Solutions and Health & Nutrition. We delivered meaningful margin expansion with adjusted EBITDA margins improving by 240 basis points year-to-date and 110 basis points in the quarter. These gains reflect the successful execution of our cost reduction initiatives, lower input prices for key materials and our continued focus on operational efficiency. In our Functional Ingredients & Solutions segment, we maintained strong sales momentum in both year-to-date and quarterly results. As anticipated, pricing was slightly lower, primarily due to the pass-through pricing mechanism in Lactic Acid to the PLA joint venture. Although pricing declined due to reduced input costs, the decline was limited as our teams continue to capture the value of our differentiated products in the market. Turning now into the Health & Nutrition division. We achieved excellent adjusted EBITDA growth despite a temporary decline in volume mix in the third quarter. This decline is mainly due to the exceptionally strong Q3 2024, particularly in the Nutrition sales to aquaculture. Overall, sales in the segment in the third quarter continued to the momentum from the first half of the year. So our Pharma business also delivered positive sales growth driven by increased volume/mix, both year-to-date and in Q3. Looking ahead, we expect strong volume/mix growth in Health & Nutrition in Q4 to more than offset the Q3 dip. Based on the robust year-to-date performance published today, we are reaffirming our full year 2025 guidance and narrowing the range for the full year volume/mix growth target. This concludes our prepared remarks. Peter and I are happy to take your questions. So Alex, let's start the Q&A now.

[Operator Instructions] So our first question this morning comes from Wim Hoste at KBC.

I would like to ask 2 questions, please, on Functional Ingredients & Solutions. The first one is on the Food business. Can you elaborate a little bit more on the dynamics you see in the various markets? And I'm specifically interested in Bakery, which is -- which was down. I think I recall from the H1 conference call that you mentioned at that point in time that there was some reformulation in Latin America occurring. But I'm wondering if you can elaborate on the various market segments within Food and especially on Bakery in the various geographies and how that will pan out in Q4? And then a relatively similar question on the Biochemicals business. Both agrochemicals and semiconductors were improving in the third quarter after weaker performances top line-wise in the previous quarters. So I'm wondering if you can elaborate a little bit. Is that a structural improvement? Is that just temporary restocking you see? If you can also elaborate on that, that would be interesting. Those were my questions.

Okay. Thank you, Wim. I will take both questions. So on FIS, so indeed, I mean, on the dynamic, we have to differentiate, of course, regional impact, knowing that we have our largest exposure into the North American market, amongst others in Bakery, but also in meat and culinary, but Bakery is a big chunk. What you see happening in the U.S. is really 2 things. One is really customers focusing on cost optimization and recipe optimization. So really reaching out to look with us how to reduce cost by replacing some ingredients or reformulating or reducing waste. At the same time, you see on the other side, still a continued trend on one side, cleaner label. So this is really underlying already for a few years, but also some impact of the GLP-1 reformulation consequences with the nutrient dense, high protein stuff. So if I dive into Bakery, we see these 2 things. We see, on one side, some of the bulky markets on basic bread type of products where the market is suffering. And discussing with the major industry players, they both see volume decline in the quarter and until the end of the year. And on the other, on some more specialties, if you think about high-protein breads or keto breads, they are still, I mean, experiencing a very strong underlying growth there. So overall, this is compensating some of the shortfall we see in the bulky part of the market, but not fully. The second trend we see in bakery that is also not new, but progressing nicely as we speak is the conversion from primarily synthetic artificial natural -- sorry, mold inhibitors to natural alternatives. So this is where we are nicely positioned where you see that the conversion to natural mold inhibitors is continuing. Having said that, you see these different dynamics, but the overall bakery market in North America remains really, really soft and in decline actually on the second part of the year. Referring to also the point you made in Latin America. Indeed, what we discussed a couple of quarters ago was that at that time, we had some reformulation in LatAm, but we've been able to successfully replace the business impact we had following this reformulation. So -- and that's, I mean, not something that is coming in as a negative anymore. So that one, I mean, is behind us and has been fully compensated. What also we see in Food, I mean, beyond Bakery, where we are making good strides is on the culinary. As you might remember, we've been working on adjacencies. One was going to dairy with functional systems and shelf life extension value proposition. Another is really to expand from the basic meat market into more meat snacks and more culinary preparation. And although you see the major meat market, the more commoditized also being impacted negatively like you might see -- you see in Bakery, you see some pocket of markets that are more niche but higher margin growing very nicely like meat snacks, also based on some of the GLP-1 reformulation because these meat snacks are a great way to get a protein shot within brackets and protein intake, but also culinary. So -- and these are the 2 subsegments where we see very nice growth right now, but also going forward. On your second question around Biochem and this agrochemical, yes, it has been improving, but coming from quite low over the last month. So there is some recovery, but it's not massive. And we are not sure this is really structural today. And we've mentioned that in the past, this is not where we are putting any focus right now. Obviously, these are good business, making good margin and cash, but we do not see a big turnaround in semiconductor area or in the agrochemical. We even know that agrochemical longer term is on structural decline as this is really being market being challenged by regulatory pressure. So again, not where we put any focus. So we don't believe there is structural fundamental turnaround there. I hope it answers your question.

Our next question this morning comes from Setu Sharda of Barclays.

I've got 2 questions. So the first one is about -- you mentioned about the strong order book in your commentary. So can you help us understand like how the Q4 order book today compares to the same period last year? And how much of the implied like 7% volume growth at the low end of your 3- to 5-year full year volume guide do you have visibility on today? And my second question is about -- again, about the volume. Given your Q4 implies quite strong volume growth, what does this imply for Corbion's exit rate into 2026? Like should we interpret this as a signal of sustained momentum or more of a timing-related uplift? Any early view on 2026 in terms of volume growth outlook as compares to the 3% to 5% in 2025 would be great.

Okay. Thanks, Setu. And let me ask -- or answer the question, and I do them all in one. So if you look the order book, the great visibility we have is in the order book of the Health & Nutrition part of the portfolio. And by the way, we already had that in the call we did last quarter. And if you look to the dynamics, then last year, Q3 was really high and Q4 was a bit lower, as you can recall. This year, it's the other way around, which means Q3 a bit lower and Q4 a bit higher. This is really temporarily phasing of our key customers in the nutrition part of the portfolio. So I think there is -- you can't take on that, say nothing on the exit rate from into 2026. It's a bit premature to give an outlook, but I think nothing has significantly changed versus all the earlier announcement, which we did on the kind of multiyear guidance, Setu.

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

I have a couple of questions. You provided guidance for the currency translational impact at the current spot rates for the remainder of the year of EUR 12 million. Can you do the same for the deconsolidations? I saw EUR 4 million negative impact year-to-date. What will this amount be for the full year? That's my first question. Second, if I look at pricing in H&N, it was only marginally negative in the quarter. I thought it would be more negative because of the noncontracted part of the business and expiration of some contracts in Algae. So it appears now that pricing will be materially more negative in Q4. So is it postponed to Q4 this effect that we talked about in the past? Or can you elaborate why the metrics moved in these ways? So hardly any impact in Q3 and apparently, a more material impact in Q4 for pricing? And then my final question, my last question, in your outlook comments, you talked about the profitability in H&N, the year-to-date, almost 33%. So that is quite a bit above the 30% that you mentioned. Yet in the guidance comments, you specifically mentioned that negative pricing in Q4 will not reduce EBITDA profitability to below levels of 30% for the full year. That sounds a bit worrying as if we should anticipate a materially lower EBITDA margin for HN in Q4 compared to Q3 and maybe also year-on-year. So can you elaborate on this, please?

Okay. Thanks, Robert Jan. Let me ask the -- or answer the questions. So the first one is indeed on ForEx, it's $12 million based on a continuous rate of the U.S. dollar. And currently, it's at 1.16. And last year, by the way, in Q4, it was 1.07. The other one related to the transitional services of the emulsifier business in last year that's behind it. I think Q4, it was only EUR 0.6 million, EUR 0.7 million or something like that. So year-on-year in Q4, no impact from that perspective. If you then look indeed on the Health & Nutrition part of the portfolio, and let me answer the combined questions because it indeed has to do with phasing of noncontracted business on the one hand, which is phased more into Q4 than in Q3. And this is really a timing difference from that perspective. And therefore, you did see indeed quite a stable margin or even increased margin in quarter 3, which we anticipate to slightly reduce in Q4. By the way, this margin pattern has been amplified by the buildup of stock. So we've built up stocks in the course of Q3 in anticipation of delivering the orders in Q4. And then you also have a bit of absorption effect in that, which is then positive in Q3 and will be reversed in Q4 from that perspective. And that's why we kind of gave the outlook. So you are right that in terms of Q4, we anticipate a price erosion and also a margin reduction, which also, in this case, doesn't say anything for the full year 2023.

One, maybe a small addition on next year, as you might recall, and we will expand that more in the upcoming Capital Market Day. We continue to work on the portfolio with basically also our human nutrition effort accelerating in the course of next year. So that's also some of the initiatives that we start to see yielding a nice, let's say, results in H2, but we intend to accelerate across '26, Robert Jan.

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

Fernand de Boer from Degroof Petercam. Two questions from my side. I'd like to come back on '26 and the Algae because I think for most of us, that's the big question mark. And certainly, if it looks now that the pricing impact of the lower algae prices is coming through more in Q4 and also then more next year. So could you give us a level of comfort that you could say, okay, next year, we will see and also the remarks of Olivier, we will at least see the same kind of results in H&N as we have in '25? That's the first one. And then the second one on FIS, the margin is still a little bit up, but of course, given the comparison is less. But on the other hand, it also looks to stabilize if you look quarter-on-quarter. So do you still believe that FIS could go to a kind of margin of around 15%, let's say, in 1 or 2 years' time?

Yes. So thanks, Fernando. I will answer the first on Algae and Peter will take up the FIS margin. So maybe -- so just to recap, of course, on the fish oil price momentum, we all know what did happen with this sharp reduction on fish oil. As you know, we were protected in this period by longer-term contracts for 2/3 of our business and 1/3 being open where we did follow a fish oil price. But looking forward for '26, there are a couple of things to say. First of all, the contract that was ending -- that is ending by the end of '25 has been renewed during the course of the summer already at prices that are lower than the one we used to have before, but really not at fish oil price as well. So that's also a very important element because actually, it's a strong signal that we see and we get from the market that the structural shortage is there whatever happened to the recent hike up and down where this fish oil price went up through the roof back in late '23, '24 and then down back to the $3,000, $3,500. So -- but the large users in that field do all agree that the shortage is really structural. And that gives us really a lot of optimism going forward. So that's one thing. The other thing is that we've been able also to basically convert additional new customers in aquaculture for '26 that we didn't have this year. And that also, I think, is giving us a nice visibility and outlook both on volume and on price for '26. And the last point is what I just said, on one side is how do we grow also our customer portfolio beyond DHA in aqua, meaning further continuous momentum in pet nutrition and obviously, human now. So on human, yes, it's still small on this year because we start to have commercial business on H2, but we have now the first repeat sales, so it's going up very nicely. And there is really further acceleration we are planning next year. Having said that, aquaculture is going to remain the largest chunk of our omega-3 DHA sales next year. But when you start to combine pet nutrition and human in '26, we are really going and basically also adding another nice leg to the portfolio there. So that's, I mean, what we have in play as we speak. So now the big difficulty is what will happen to fish oil price next year. We stay very close. You see that right now lately, it has been slightly increasing, not massively, but slightly increasing. Obviously, the next catch season, spring next year, we will give more insight on what's going to happen. But again, all the signals we get from industry association and discussing with major players are all telling that the structural supply and demand is in deficit midterm. So the big question is when are we going to see the market turning around? So is that in H1 '26 in H2? I mean, we just don't know. Nobody knows. But this is why I think derisking with longer-term contracts, upgrading the portfolio into pet and human are the 2 big measures we've embarked on to also mitigate any volatility we might see in the aquaculture business. On FIS margin, Peter?

Yes. No. So thanks, Fernand. So the ambition level is still to reach the mid-teen levels and a couple of without all granularity for the coming period because I think that's better to do in the CMD. I mean we see some further optimization in terms of efficiencies. And also keep in mind, if you look at the sugar development and the way that we are hedged, you will see that also into next year, there is quite a favorable benefit in that. So the answer is clearly, yes, Fernand.

Come back on Algae. Could you say because you did mention human. Could you say now how much pet food? I thought it was around 10% of revenues in Algae. How is that progressing?

No. So pet food is indeed from this 10% slightly up. But we know pet foods at one point is quite a concentrated market. So this will never be 25% of total sales. So just to put things in perspective, but we are grasping a few percent up on the total. And human, yes, the ambition is to get quickly to the similar level. We are not yet there. We are not yet at 10%, but it's ramping up very fast. And for us, it's also important -- if you remember on the capital investment program at the time we discussed on Algae, one was to have ability to produce a human nutrition grade, which was important to basically, first of all, prove technology, but also reference into the market, which is the steps we've been through in the course of '25. And once the approval were made in H1, we've started commercial business in H2. So -- and this is where we stand in the whole process. But what was important was to, first of all, have the first contracts in hand, but then to have repeat because it's, of course, Algae in human nutrition nutraceutical is still relatively small as a market. The biggest chunk of the market is still based on fish oil for food supplement. So it's about making sure that we capture our fair share whilst the market is converting from fish oil-based to algae oil based. But yes, we expect to really continue the strong momentum in '26 by converting more customers and capitalizing on the one we have today.

Okay. We currently have 2 more questioners in the queue. So our next question comes from Sebastian Bray at Berenberg.

Could I start with the cash flow and investments required for Corbion for the next 2 or 3 years? How has cash flow been behaving through Q3 and on a longer-term basis? Can you remind me of what investments are currently planned for Algae, if any? Is it just fully invested? And there are a few bits and pieces of debottlenecking, but any color on that is helpful. And secondly, can you distinguish a little bit about the definitions of Pharma and Biomedical at Corbion? Because I sometimes get these 2 confused. What is the fast-growing exciting part of this business that is mentioned? And what is the order of magnitude of size at the moment as far as drug delayed drug release is concerned? Are we talking EUR 20 million, EUR 30 million, but any color on that is helpful.

So let's have Peter answer the first one, and I will take the second, Sebastian.

Yes. So in terms of free cash flow, I think, Sebastian, let's do the longer-term outlook in the CMD. But if you look to the free cash flow delivery in this year, there is always a seasonal impact between Q3 and Q4 or actually Q4 is normally the highest one. We've seen that last year in Q4 and also in Q4 2023. If you look in terms of our kind of key metrics and also articulated in the previous CMD, it's really on kind of organic sales growth margin as well as free cash flow delivery. So don't expect a significant kind of uptick in terms of CapEx over the coming years. And the details, I think we will do on November 20.

On your questions around Pharma and Biomedical, so we have 2 different type of businesses there. What we call Pharma primarily is our lactic acid derivatives we sell into the dialysis market. So this is a long-lasting historical business of Corbion that is really progressing on the back of indeed the increased number of diabetics globally. And knowing that, unfortunately, these diabetics when they are in terminal phases, very often do need dialysis. And where we play there is that indeed the functionality of our product is based on the high purity level on one side and the fact that the design of our product is really fit for purpose for a big new trend related to home dialysis that we see developing. So there is an underlying momentum. This business is a high-margin business with a very nice underlying growth year-over-year on these drivers. On the Biomedical, which is also a health value proposition, but a different angle. There, as you know, we have 3 underlying pillars around orthopedics, slow-release drug delivery and aesthetics. We will also deep dive a lot more in the next CMD around this business because, again, it has been a business with a very strong growth momentum. It was a small business 5 years ago. It has more than doubled now. And as you know, we intend to double it again with high profit, high growth. And we have very encouraging news. You might have seen in the press the last days from basically our partner, MedinCell, in association with Teva launching a lot of this slow-release drug delivery on schizophrenia. With now next to the U.S., they got approval in Korea and in Canada for the first product they launched, UZEDY, but they're going to launch in '26 olanzapine, which is a second drug on schizophrenia that is very promising. And every time this is carbon polymer behind the formula. So -- and recently, there is also a big news is that they got also a new medical treatment approval from FDA, which is this drug can be used for bipolar treatment, which is even a wider opportunity. So that's one thing where we have a great visibility of what is in the pipe on this slow-release drug delivery. An emerging segment also we will detail in the CMD is aesthetics. So it's a sector in between regenerative medicine and cosmetics, where basically the mechanism of action is pretty nice and attractive where we see a big player to go and replace everything related to hyaluronic acid in this type of applications. And we didn't mention a lot so far because it was emerging with a few customers, but we see customer base now enlarging. And again, more to come in the CMD on these segments, but very exciting segment, very attractive, high margin and with a very strong R&D pipeline actually. So we'll come back on that, Sebastian.

Our last call today comes from Eric Wilmer at Van Lanschot Kempen.

Yes, I also had a question on the wording you provided regarding a strong Q4 you're anticipating for Nutrition. It sounds like you've landed quite a material deal on the Algae side. So I guess some sort of a similar question to the previous questions. I believe your Algae business is running at a margin of roughly 25% EBITDA. So given what is going on, on the fish oil pricing side despite some stabilization now, would you expect this margin to trend more towards, let's say, I don't know, 20% a bit above during '26? And then lastly, I had a question on what you just mentioned on the fact that MedinCell recently announced to have received approval from the FDA for UZEDY treatment related to bipolar disorder. Would you be able to quantify or perhaps maybe qualify this a bit further?

I will let Peter answer the Algae. I will take the Biomedical. Just on the Biomedical quickly because it's, of course, difficult to quantify. But when obviously, just to put things in perspective, when Teva, I mean, the end user is speaking about billions of, of course, sales for UZEDY or olanzapine -- if I recall well, I think UZEDY was EUR 340-ish million sales on the first year of launch. Relatively to the polymer amount in such a product, you really have to divide a lot. So these are things between for us, EUR 3 million and EUR 5 million but a very decent EBITDA. So just to put things in perspective, now there is, I mean, quite a lot in the pipe because we know Teva has 6 in the pipe in terms of launches. You know also in the next 10 year, you might remember, MedinCell also announced a very nice partnership with AbbVie going forward. So basically, this is the way this business works. But you don't speak about hundreds of millions. These are more blocks between EUR 3 million and EUR 5 million EBITDA for each of these launches for us incremental, yes.

Let me give a bit of the answer, Eric, and it's in line with the previous answer. So Q4 because there is quite some impact in terms of customer mix from that perspective on non-contracted and contracted business. So always be careful around taking certain percentages. But if I do a bit of the longer-term outlook, then Olivier already alluded to that we have visibility of contracts into 2026 as well, not fully covered. And also keep in mind that what I mentioned on sugar prices moving forward is impacting both the FIS business as well as the H&N or the Algae business because also there, we do fermentation of sugar. So sugar is an input cost in that one as well. I hope that helps on the question, Eric.

Actually, we have one last minute addition to the question queue. So this is from Reg Watson at ING.

Apologies for the late addition. I was experiencing technical problems. Peter, if I can just cast your mind back to the first half call, I asked about the seasonality of EBITDA into Q4 and your expectations at that time. And reviewing the transcript, I think you suggested that FIS EBITDA seasonality would be normal this year, but that H&N would see a strong rebound in Q4 relative to Q3. Given what you've told us today, is that still likely to be the case? Or would you revise that expectation?

If you look a bit high level, the only thing where I've seen a difference is in terms of FIS margin in terms of seasonality, which is in Q3, it went, I mean, mildly down around the same level. And normally, seasonality-wise, you see a bit of dip in Q4 but given where sugar currently is trading and how it impacts in the P&L, I don't see basically that reduction in Q4 because sugar actually started to help in our EBITDA delivery as of Q4. The other one, but that's in Health & Nutrition, and that's also following the previous answers. We've seen a bit of shift of orders between kind of Q3, Q4. But overall, perfectly in line if you look to the kind of H1, H2 dynamic, Reg.

Okay. And then can I take that a bit further forward and sort of look into next year. If I look at your guidance for the H&N margin this year of more than 30% based on 9 months to date, that means that Q4 margin is going to be more than 23% and therefore, second half more than 27.8%. Given that we don't have the full effect in the -- and based on your loading and your explanation earlier this morning on the call, it feels fair to take the second half margin of 27.8%. Is that realistic going forward into next year then as a sort of suitable run rate even though we haven't fully annualized all the decline in the spot contracts?

The only additional -- or there are 2 additional comments to make, Reg, on that one. One is sugar, as I indicated, we clearly see that trending down also into next year. And the other one is the underlying mix improvement into next year into human nutrition.

Okay. And then on that sugar question, apologies if I missed it on the last bit because as I said, I had to dial in for technical reasons. How confident are you that you can retain the benefit of that? Because obviously, I think we've seen some pricing pressure already this year due to lower sugar prices.

Maybe just to answer quickly on the -- because it's a different dynamic in algae fermentation, Reg than in lactic acid, yes. But as you know, I mean, we compete against fish oil that has nothing to do with sugar as a feedstock. So there, we have a disconnect, which makes us feeling pretty good because, as you know, we are fully hedged for '26 and even seen the very low price now partly early '27 as well. So we have great visibility at very low prices for the next 15, 16 months. That's going to really be also a very nice asset for the Algae business.

Okay. And then final question. Gypsum-free lactic acid, how is the ramp-up of that progressing?

So we are -- I mean, according to our plans. So as you know, this is really the new to the world type of processes. So we have had some stop and go in the course of the year, but we've been running now really steadily. Actually, in August, we beat our best 14 days throughput there. So we are aiming still to continue in the course of '26 to go to a much higher level. But at the same time, we've not been constrained by capacity because we have enough lactic acid invested in network. So yes, so far, look, I mean, the major thing for us was to qualify this product into the joint venture because this is, of course, an easy outlet next door. And as you might have seen, okay, we didn't discuss the joint venture, but yes, the joint venture is nicely up on volume, not on price, but on volume this year because if you see the volume of the joint venture, they are up 11% this year. So this is a nice outlet over the fence for the product -- for the plant.

Okay. That's great. And Peter, on that, are you able to give us some guidance on the depreciation charge associated with that yet because again, at the first half, it was dependent on sort of the run rate of throughput.

Yes. No. So it's still dependent on the run rate of throughput. So if you look to the kinds of lactic acid alone, that might go slightly up more into next year, I think, than into this year.

All right. Thank you to all the call participants this morning. I look forward to engaging with you all again at our aforementioned upcoming Capital Markets Day 2025 on November 20. A link to the live webcast is available on our website at corbion.com/investor-relations/capital-markets-day. So thank you all for participating and your attention. Operator, you may close the call.