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

Good morning, and welcome to Corbion's Third Quarter 2026 Interim Management Statement Conference Call. This morning, we published our Q3 2026 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 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. I'm 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 would like to hand the call over to Olivier.

Thank you, Alex, and good morning, everyone, and thank you for joining us today. We delivered a strong third quarter with volume-led growth across both segments and a significant step-up in profitability. Health & Nutrition was the key driver. As anticipated, Nutrition volumes accelerated strongly in the second half, while Functional Ingredients & Solutions continue to grow. Importantly, profitability improved materially. Our cost reduction actions and operational efficiencies are delivering, and we also benefited from lower sugar costs and improved Omega-3 DHA pricing. As a result, year-to-date adjusted EBITDA returned to organic growth. So now let me take you through the key developments. Starting with Functional Ingredients & Solutions, where we continue to deliver sales growth both year-to-date and in Q3. Natural preservation remained healthy with good growth in vinegars, in natural mold inhibitors and enzyme blends. High protein bakery applications also contributed nicely, while meat remained softer. Biochemicals maintained the strong momentum we saw in the first half and higher volume to our PLA joint venture supported strong lactic acid sales. This growth came with a mix effect as these activities carry relatively lower margins. But importantly, Q3 showed a clear improvement in profitability, driven by lower sugar costs, our cost actions and better operational efficiency. Now let's move to Health & Nutrition, where we saw the strong recovery we anticipated. Nutrition volume accelerated sharply as the phasing from the first half came through. Higher fish oil prices supported improved Omega-3 DHA pricing, while new customer wins contributed positively to the mix. Together, this drove a strong rebound in Q3 profitability. Biomaterials also continued to grow year-to-date, supported by both volume mix and pricing. The recent FDA approval of WELTRUZA announced by Medincell and Teva is an important milestone and further supports our BRIGHT 2030 growth ambition for that business. Pharma was softer. Sales declined both year-to-date and in Q3, reflecting lower volume mix and destocking at key customers in North America and LATAM. Let me now turn to PLA. We've decided to discontinue the process to sell our interest in the TotalEnergies Corbion JV. The process generated interest, but the proposal received did not adequately reflect the value, the strategic positioning and the long-term potential of the business. So we are clear on the way forward. We believe the best route to maximize shareholder value is to continue to develop the business under the current ownership structure. The JV delivered strong sales growth year-to-date and in Q3 with some improvement in quarterly profitability. Our priority now is straightforward, continue to improve operational and financial performance and capture the opportunity as PLA market dynamics strengthen. Looking ahead, our strong Q3 performance and our Q4 order book gives us really confidence in the full year. We expect continued growth in Functional Ingredients & Solutions. In Health & Nutrition, we expect mid-single-digit organic sales growth in Q4. And as expected, this is a moderation from the 20% growth delivered in Q3 as the benefit from the phasing of first half Nutrition volumes normalizes. We expect Health & Nutrition margins to remain broadly in line with Q3. In Functional Ingredients & Solutions, margin will be seasonally lower with additional cost pressure in Q4 coming from the Middle East conflict, primarily the sulfuric acid cost. Cash generation remains strong. Our 9-month free cash flow supports our full year target, and we remain disciplined on capital expenditure and cash conversion. Our full year outlook is unchanged. Organic sales growth of 3% to 6% and adjusted EBITDA margin above 16% and free cash flow between EUR 85 million and EUR 90 million. So let me leave you now with 3 messages. First, growth is solid and increasingly volume-driven. Second, profitability improved significantly in Q3 as volume recovered and our cost actions delivered. And third, strong cash generation and good Q4 visibility gives us confidence in delivering our full year commitment. So we are focused on maintaining this momentum, strengthening margin and executing our BRIGHT 2030 strategy. With that, let's move to your questions. Alex, back to you.

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

So my first question is basically on the H&N margins. Now given you expect H&N margin broadly in line with Q3 -- in Q4, should we view the high 30s margin as a reasonable exit rate into FY '27? Or should we expect some normalization? And what could cause margins to decline from here onwards? My second question is about your Middle East cost. Like can you quantify the Middle East-related cost headwind in FY '26? And should we expect those costs to reverse in FY '27 in case of deescalation? Or will it remain a structural drag? And my third question is about your fish oil prices. Like how much of the improvement in fish oil prices has already flown through to Omega-3 DH pricing? And how much further upside could come as customer contracts renew?

Thank you, Setu. Basically, I will answer the Middle East and Peter will answer the H&N margin and the fish oil price. But just starting on the Middle East, what we've announced in Q2 is that we've had an annualized impact of EUR 26 million that we've already partly compensated, but we would have -- and we are expecting, of course, I mean, also still the same impact on a euro's base in '27. We are planning to take further pricing actions as from January to mitigate. Now to your question, how structural is that. It is structural. We do not expect a huge reversal. As again, when we go through the dynamic of where this sulfuric acid was produced, I mean, structurally, the plants that we are producing this lactic acid have been partially damaged or fully damaged and are not expected to restart anytime soon. So we expect the sulfuric acid situation might become structural at least as long as we don't have any more visibility on whenever the Middle East conflict would cease and this plant would have to be rebuilt. So expect the same impact for sure in '27 there. On fish oil, Peter.

Yes.

If you want to get to the margin question?

No, Setu. So let me do it a bit in perspective. As you know, in H1, we had a margin of around 27%. I did indicate already a significant step-up in the second half of 2026, and that's indeed exactly what we see coming into our P&L. So that's reflected in this margin of 38%. Also, as Olivier alluded to, we anticipate around the same margin profile in Q4 this year and with quite a good visibility on that because as you might remember, the kind of more shorter-term contracts have a visibility of 3 to 6 months. So if I then move into next year, then with where currently fish oil prices are, you could anticipate a kind of Q1 on that one. But after that, of course, it's a bit more difficult because our kind of customers will not have these higher-margin contracts already for the full year. Therefore, I would like to stick with the kind of normal margin guidance what we said, like longer term, we anticipate to be in kind of Health & Nutrition around 30%, but there will be a bit of volatility in that. I hope that answers the questions, Setu.

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

A couple of questions. Why was the pricing component negative in H&N in the quarter? That is my first question. And my second question, you've been very clear about EBITDA profitability H&N in the fourth quarter, similar to Q3. But knowing that you're currently in negotiations about the new contract prices for next year, why so cautious for fiscal year 2027? And why sticking to around 30%? It seems to me that if you can lock in higher prices with no significant changes in the cost structure, Q4 or second half should be more of a proxy for the full year next year. Maybe you can comment on that. And then a third question on PLA joint venture. You're clear that you have withdrawn the disposal process. But I was wondering, have you also tried or have the 2 involved parties, TotalEnergies and yourself, also tried, contemplated selling the 50% to the other partner. Yes. And does it mean that it goes back to the core indefinitely in principle?

Thanks, Robert Jan, and I will straight answer the PLA and Peter will take over the pricing and the H&N margin. So on PLA, as we explained, yes, we didn't get the level we were looking for. So basically -- and this is a profitable business and a cash positive business. And obviously, we see also some good momentum coming up in '27 further with further price increase of PLA with, of course, favorable also sugar impact. Now having said that, this business remains noncore. We will not change the strategy we just presented a year ago. This business is managed totally separately as a JV with its proper governance. So we don't run it as Corbion. There is a dedicated management team. So there is no big distraction for us on that one. So it remains noncore. But we said in terms of shareholder valuation, selling that business at a loss will make really little sense because, again, it's not a bad business. The outlook is looking better as we are going forward now, both on the top line and profitability and it's positive cash. But yes, we will not reintegrate that in the core. So this is not where you're going to see any changes in terms of CapEx prioritization or whatsoever. Now moving to the H&N margin, Peter.

Yes. So in H&N, Robert Jan, what I said is that I anticipate kind of in the midterm this 30% and that I do anticipate a stronger opening basically in kind of Q1 2027. It's a bit premature to go into this shorter-term contract given the fish oil kind of volatility. And I don't anticipate that it will stay around that level. You are right that as we alluded to last call, that we are in negotiation in the course of Q4 in renegotiation of these longer-term contracts. And I think we will comment more on that basically in our next quarterly call. If I relate to fish oil prices, H&N, and I still know your question of H1. So for the kind of H2, I still anticipate a positive pricing. The negative impact or the majority of the price increases are actually impacting volume mix and the pricing impact is reflecting some commercial terms.

So no pricing benefit in Q3, why not? That was his first question.

That's what I just indicated. That is reflecting some commercial terms.

Okay. But you still expect this to be made up in Q4 then?

I still stick with my comment, which I made by H1 that in H2, the combination will be positive.

Our next question comes from Fernand De Boer, Degroof Petercam.

A couple of questions from my side. First, Peter, why is the fish oil pricing included in volume mix, as you just said? I'm really puzzled on that one. And then coming back on PLA. Could you give a little bit of an idea of what the growth was in price and what the growth was in volumes in this quarter? Because first quarter, you said, we are going to step up our price efforts. So how much did we see and how much we still can -- it will come? And then maybe the last comment, question. I'm not sure whether you can answer or will answer, but there has been quite some speculation in the press recently about Lesaffre, CVC, et cetera. Olivier, what's your stance staying independent as a company because also with eye on your, let's say, departure next year?

No, Fernand, obviously, on speculation, we will not comment, as you can understand, I'm sure. And whatever would happen, there is fiduciary duty from the Supervisory Board. And if anything would come, it would be dealt at that level. So let's not comment on any rumor. Just before giving the floor to Peter on pricing, just also to give you an indication on PLA dynamic and trends because that's important. If you look at pricing over the last 18 months, pricing has been deteriorating nearly down to levels that were USD 2,000, USD 2,100. We've been able -- or the JV actually management has been restoring prices partially already in July, and there is another layer of pricing that came in October and the bigger one planned for January. So today, the prices have already rebounded in the USD 2,200 to USD 2,300 for PLA. And there is further improvement that we are expecting, as I said, in January. So combining this with basically also lower cost because they will benefit from the good hedge we've done in sugar for full '27. This is where we expect also the PLA profitability to improve nicely next year. Peter, can you comment on the potential?

So in terms of the year-on-year, so if I compare year-on-year price in Q3 versus Q3 last year, then if you do this kind of on the shorter-term contracts and if these are kind of new customers, then it actually impacts mix fair enough. So it is the kind of customer composition why that is the case.

So Peter, maybe just to add to what Peter just said. As you know, we have a large part of our business that was contracted on multiyear till the end of December, where prices have not been moving and are not moving because we are contracted at a good price and prior to an increase. So we are busy renegotiating this longer-term agreement now for '27 and beyond. And the whole arbitrage we're going to have to do over the next weeks will be pricing level versus duration because you can imagine that we could go higher price short term for a 3-month or a 6-month deal. But we have had the strategy to derisk our business and providing we can maintain healthy margin at the level we've been able to demonstrate so far for even much longer period than the one we've had before. This is what we are after. Just as a reminder, we don't want to be caught in a commodity fish oil pricing where you have $12,000 for 3 months or 6 months and then going back down to $5,000 or $3,000 or whatever as we've seen in the past. So we don't want to be caught in a commodity play because we cannot, with the industrial model we have, having to put steel on the ground, having to add sugar on 12 to 18 months being a commodity game. And fish oil is a commodity game. We believe we offer a very strong sustainable alternative to fish oil. So the whole game in negotiating our long-term agreement now will be to balance between pricing level and duration. And our preference is to go for long term to lock that. On short term, back to what Peter said, you have spot businesses that we enjoy right now and that you find in the mix part because we've landed quite a lot of new nice customers on spot. Some of them, we hope to convert into longer-term agreement as well. But this is in full motion. As you know, a lot is being negotiated now. But our aim is not just to max out on spot opportunity that's going to last only 3 months because we want to make sure we are consistently delivering the healthy margin around the 30% for much longer because in that, we can plan our capacity expansion, we can hedge our sugar and guarantee really, the profitability of the company for multiyears.

Understood. Can you say anything on the inventory situation in the chain on fish oil?

It is very tight because the supply gap now that the market estimate, if you get it back to where, you know there is 1.2 million tonnes of fish oil under quota more or less. The market estimates the gap around 200,000 tonnes, which is the highest ever seen because this is quite significant. And actually, the issue is even more tense on fishmeal, which is the, of course, main product of this wild fish industry. It creates a massive protein shortage as well, but the price is also quite an issue. So fish oil is also, of course, a bigger issue. But -- so the gap is 200,000 tonnes roughly from what we know based on the '26 fully allocated quota. Now the big question mark is what about '27 because the next big catch season are going to be during spring. Some people speculate El Nino are going to last beyond this catch season. Some people say, yes, maybe not. And honestly, we will not start speculating about weather forecast and El Nino dynamics. What we know is that the gap is really now becoming heavily structural with or without strong El Nino going forward. And this is what I think matters that we really want to force ourselves not to speculate on one El Nino event only.