Corbion N.V. (CSU.F) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Corbion's First Half 2025 Results Conference Call. This morning, we published our half year 2025 results, press release and presentation. These can be found on our website, 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. With me on the call today are Olivier Rigaud, Chief Executive Officer; and Peter Kazius, Chief Financial Officers. Now I would like to hand the call over to Olivier.

Thank you, Alex, and good morning, and thank you all for joining us today for Corbion Half Year 2025 earnings calls. Let's start with some key highlights from our latest results. I'm pleased to report for the half year, we achieved an increase in sales driven by robust demand and delivering on our strategic initiatives. We achieved an organic sales of EUR 645 million for the half year results, corresponding to a 2.9% organic sales growth rate. As anticipated, Q1 2025 reporting back in April, phasing of sales into Q1 resulted in a lower sales level in Q2. Our volume mix growth came in at 3.3% for the half year with a Q2 growth of minus 1.3%, again reflecting the phasing effects. In terms of EBITDA development, we've seen significant improvements. Our adjusted EBITDA reached EUR 106.6 million for the half year with our Q2 number of EUR 52.2 million. This represents an adjusted EBITDA growth of almost 24%. Our adjusted EBITDA margin improved by 300 basis points to 16.5%, demonstrating our operational efficiencies and cost management as well as growth in higher-margin product categories. Free cash flow was positive for a net consecutive quarter. We feel very confident and reaffirm our fiscal year 2025 outlook, which I will discuss in more details when we cover the outlook section. So now diving a bit deeper into our segments and starting with Functional Ingredients & Solutions. In this business unit, we showed positive volume mix in 2 of the 3 businesses, our specialty food ingredients and the lactic acid to the PLA joint venture. The half year volume mix growth in Food Ingredients was in meat, dairy and culinary markets as demand for Corbion's natural preservation solutions remain healthy. Our focus on strong customer collaboration and leveraging our broad natural portfolio is paying off there, whereas in the biochemical businesses, some demand softness persists. Looking at our growth initiatives, continued success in focused areas like food ferments, natural mold inhibitors and dairy stabilizers continues. We also experienced strong growth in adjacent culinary applications with our natural mold inhibitor portfolio. Another interesting growth driver has been in high-protein bread fortification in the U.S. driven by strong consumer demand for high-protein diets and also for fortified foods. As recently announced, Corbion is participating in the Ferment for Health project, a research initiative focused on understanding the health benefit of fermented foods and postbiotics, particularly their impact on gut health and inflammation. So Corbion's involvement there will leverage our expertise in fermentation-based ingredients to contribute to the development of functional food solution. From the operational and manufacturing front, our circular tylactic acid plant is wrapping up gradually. And looking forward, we are confident about delivering the full value creation from this investment. Next, our new vinegar plant in Montgomery, Alabama is also ramping up, bringing substantial in-sourcing benefits as we are backward integrating this critical building block in our portfolio of natural preservatives. Nonetheless, we continue to positively impact our EBITDA with cost savings benefit from other initiatives such as operational excellence and complexity reduction and volume mix growth in higher-margin categories. Now turning to our Health & Nutrition segments and our 3 businesses there, starting with Nutrition and omega-3. Despite quarterly fluctuations, there has been continued strong demand for algae-derived omega-3 DHA in aquaculture, pet nutrition, and we have some promising new contracts in Human Nutrition as well. Additionally, there is also positive momentum in our biomedical polymer business in the 2 important key submarkets being drug delivery and orthopedics. Also, our Pharma business containing our high-purity lactic acid derivatives has shown strong double-digit volume mix growth, mainly in the kidney dialysis market in China. As for our exciting growth initiatives, starting first with our biomedical polymers, our products are increasingly being used as a biostimulatory treatment agent to support tissue growth and natural collagen production in the aesthetics markets. This is next to the 2 historical subsegments of orthopedics and drug delivery. Secondly, about omega-3DHA, referencing and first contracted volume in human nutrition end market will materialize in the course of the second half of the year. And finally, on omega-3, we continue to pursue opportunities to broaden our customer base in aquaculture, in pet nutrition, but also recently in some attractive new terrestrial categories. A highlight for the Nutrition business in the quarter was recent Carbon's announcement that the company successfully secured multiple regulatory approvals for China General Administration of Customs. This is paving the way for offering Carbon's high-quality sustainable algae-derived omega-3-DHE solutions in the Chinese fast-growing human and animal nutrition end market. This is opening great opportunity for us going forward into 2026. Last but not least, on efficiencies initiatives, our investment program is delivering the expected capacity increase to secure growth into omega-3s for 2026 and beyond, but also in the biomedical polymer business. Through the microalgae train optimization, we can further increase yields from the existing assets in Brazil. And with that, I'd like to give the stage to Peter to present our half year results in more detail. Peter, back to you.

Thank you, Olivier. In the first half of 2025, our sales increased by 1.3% compared to H1 2024. This growth includes an organic growth of plus 2.9%. Currency impacts, particularly due to the depreciation of the U.S. dollar in the second quarter resulted in a negative minus 1.2% impact on sales. The organic sales growth was driven by volume/mix growth in Functional Ingredients & Solutions of plus 2.9% and in Health & Nutrition of plus 5%. In the second quarter, mainly due to phasing effects, organic sales growth was minus 1.8% for Functional Ingredients & Solutions and minus 0.6% for Health & Nutrition. I will come back on the dynamics when presenting the individual business units. Turning to our adjusted EBITDA. We achieved a remarkable growth of plus 2 -- plus 23.8% increase versus H1 with an organic growth of plus 29.3%. This increase was driven by sales growth as well as cost-saving measures within Functional Ingredients & Solutions. The adjusted EBITDA margins improved overall by 300 basis points to 16.5%. This resulted in a EUR 25 million benefit on an organic basis. The currency effect, largely driven by depreciation of the U.S. dollar in the second quarter impacted the EBITDA negatively by EUR 2.2 million. The nonrecurring transitionary service agreement benefit last year is minus EUR 2.5 million. On an adjusted EBITDA, we've seen growth both in Q1 as well as in Q2. Looking further down the line in our profit and loss statement, depreciation and amortization decreased year-over-year following the depreciation of the U.S. dollar as well as the Brazilian real. Some assets were fully depreciated, and this was partly offset by an increase of depreciation from our new Thai lactic acid plant. Adjustments were mainly driven by restructuring costs as well as some costs related to the planned settlement of a defined benefit scheme. Financial income and expense came in higher than last year, mainly driven by translation effects of intercompany positions. The interest expense on our debt is EUR 6.5 million, which is an interest rate of around 3%. The 50% of the net results of the TotalEnergies Corbion joint venture were EUR 1.1 million negatively. The positive EBITDA of EUR 6.7 million is offset by interest paid to the shareholders as well as tax. Our effective tax rate stands at 18%, which is relatively low. This is due to tax effects related to currency results. For the full year 2025, we anticipate an effective tax rate between 23% and 25%. Finally, our results after tax have seen a positive impact of 86.8% versus H1 2024. Looking at the Functional Ingredients & Solutions business unit, we experienced a positive volume mix growth of 2.9% for the first half and minus 1.2% for Q2. This growth was primarily driven by our food business units, particularly in meat and dairy markets as well as growth in our key product and market adjacencies. Additionally, we observed growth in lactic acid volumes to our joint venture. In H1, our Biochemical business unit was down compared to last year, primarily driven by weaker demand in some categories like agrochemicals, which especially impacted Q2. This was amplified by phasing of some key customer orders into the second half of the year. Regarding pricing, we saw a negative impact of minus 1% for the first half and minus 0.6% for Q2, following the decline of input costs, mainly passed through the joint venture. Our EBITDA margin for H1 stood at around 12% with Q2 at 11.7%. This represents an increase of nearly 300 basis points versus the first half of 2024. Variable margin improved following the implementation of cost reduction measures and input cost declines, offsetting negative mix from growth in lactic acid to the PLA joint venture. Moving on to Health & Nutrition and starting with our organic sales growth. We achieved plus 6.8% for the first half of the year with Q2 contributing minus 0.6%. Our volume/mix growth for H1 was 5%, with Q2 slowing -- showing a decline of minus 1.1% due to customer phasing within the Nutrition part of the portfolio. The H1 growth was driven by all 3 business units: Nutrition, Pharma and Biomedical Polymers. In the Pharma business, we delivered double-digit volume mix growth, mainly due to addressing the kidney dialysis market in China. In the Biomedical Polymer business, sales grew high single digits, supported by increased sales in our 3 key markets: Orthopedic, drug delivery and aesthetics. Moving on to EBITDA. H1 adjusted EBITDA grew from EUR 41.5 million to EUR 47.5 million, driven by volume mix growth in all 3 businesses. The adjusted EBITDA margin grew 240 basis points to 32.1%, driven by leverage of fixed costs and positive pricing. In summary, our Health & Nutrition segment was impacted by some phasing in Q2, whilst having a positive momentum across the 3 key business areas. And finally, if we look to the results of TotalEnergies Corbion joint venture, the joint venture achieved an organic sales growth of 5.6% for the first half year, with Q2 showing a year-over-year decline of minus 9.3% -- the growth in the first half of 2025 was driven by volume growth, albeit at low PLA prices. The JV achieved a margin of 9.7% for H1 with Q2 at 11.7%, in line with expectations. We continue to expect high single-digit EBITDA margins for the full year 2025. And with this, I would like to hand over back to Olivier.

Okay. Thanks, Peter. So moving on to the outlook for the rest of the year. We are confident to achieve our previously given ambitious targets for full year 2025. We're targeting a volume/mix growth of between 2% and 6%. Moving on to organic adjusted EBITDA growth. We maintain our target growth rate of over 25%. This reflects our confidence in the strength of our business and our capacity to deliver on our cost efficiency program. We target free cash flow of over $85 million and continue to anticipate a covenant net debt to covenant EBITDA ratio of approximately 1.6x by the end of the year. This reflects our commitment to maintaining a strong balance sheet. And now on this, Peter and I are happy to take your questions. Operator, back to you.

Okay. Before going into today's Q&A, I would also like to announce that we are planning to host the Corbion Capital Markets Day 2025 on November 20 at our Horkum site in the Netherlands. E-mail invitations to register to attend the event in person or to log into the live webcast from your computer will be sent out shortly. So please keep your eyes on your inbox. [operator instructions] This morning, our first call comes from Setu Sharda of Barclays Bank.

Q3 is expected to be negative. So how confident you are able to deliver the volume growth for FY '25 of 2% to 6% range? Any risk we should consider? And also if you can give any color on how has been the trading so far in Q3? My second question is on the nutrition volumes. They have been quite volatile since the fish oil prices have come down. So what is your outlook on nutrition volumes in H2? And have you seen any impact of lower fish oil on contracting? And my third question is on the cost savings. Like if you can update us on the progress on cost savings and how much of target is achieved? And if anything is pending, which should be incremental in H2?

Okay. Thank you, Setu. So I will take the first 2, and I will let Peter handle the cost savings one. So when looking at indeed the Q2, but on your question about confidence in delivering in the fiscal year, indeed, we reiterate our target to 2% to 6%. So we feel confident there. Now as we explained, we already discussed about the phase in Q1, is different from a business to another. If I start first with Functional Ingredients & Solutions. If I look at the current momentum starting Q3, the Food Ingredient continues in a nice momentum, and we do not expect that really to change in the rest of the year. We have also some visibility, obviously, on the lactic acid intake to the PLA joint venture that where also we confirm the growth ambition of the joint venture for the full year. I think the nutrition question, your second question around indeed fish oil price dynamic and outlook on H2 is, I think, worth really diving into. We explained that indeed, we had a very strong Q1 and with some phasing into Q2. When we look forward, basically on volume outlook, first of all, we do not expect an outstanding Q3 just because we have a very high comparable if you compare to '24. If you remember, we grew this business with 30% last year. So Q3 will be good, but obviously, we face a very strong comparable. At the same time, we have a very good visibility on our Q4, and we expect a very strong Q4 in Animal Nutrition. I think it's also worth explaining a bit the dynamic in that business because when you speak about omega-3, obviously, in the 3 segments being aquaculture, pet nutrition and human nutrition, they have very different dynamics. In aquaculture, basically, you serve some major global accounts that are less than handful where you are phasing orders from a quarter to another. But basically, what's important in that dynamic is that we supply on one side, the contracted volume and that we have very good visibility. And we said last time, we have basically 30% of our business that is not contracted where we have lower visibility and that is more exposed to fish oil price dynamic. So when we look again at H2 for our Nutrition omega-3 business, we anticipate a low Q3 based on very high comparables last year and a very strong Q4, and we maintain our double digit for the full year. And we also maintain our very strong EBITDA margin for that division. obviously also sustained by a good performance in the biomedical polymer and Pharma business on top of the omega-3. So Peter, maybe you take on the cost savings now.

Yes. So, thanks for the question. So overall, on cost savings in our program, we are online and in line and therefore, also happy to see the margin delivery mainly in our fifth business unit, which increased 290 basis points versus last year. And if you translate the 290 basis points, then that's roughly EUR 50 million. And therefore, we are also confident in reiterating our outlook in terms of EBITDA delivery for the full year.

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

I have a couple of questions as well. First one is on free cash flow. You delivered EUR 12 million in the first half. The target, if I'm not mistaken, is still more than EUR 85 million reiterated today. So yes, there's a lot of phasing first half, second half. Is that purely working capital? Or are there any other factors that we should take into consideration? That's my first question. Then the second one, you talked in the prepared remarks, but also in the Q&A, you already talked a bit about the pricing of the noncontracted portion in aquaculture in H2 following the fish oil prices that are quite low. Yes, in 2025, you just said that this noncontracted part is 30%, so relatively small in the total portfolio. But for 2026, I assume that all the contracts, which is 70% apparently currently needs to be renegotiated. So my question is not so much on 2025 second half, but what is your first view on new contracts for the upcoming year in this business? In other words, do you still expect to be able to achieve this 30% plus EBIT margin in the division? And my third question is on PLA. What exactly was the reason that the organic sales growth dropped so much in Q2? And at the same time, the EBITDA margin was much higher than in Q1. Maybe you can elaborate a little bit on that.

Thank you, Robert. And I will let Peter handle the free cash flow, and I will handle the other questions. So maybe we start with the free cash flow, Peter.

Yes. So Robert, you're right. If you look to the free cash flow delivery, then there is a phasing between H1 and H2. By the way, also pretty much in line with last year because last year, if you recall, we did also EUR 12 million in H1. And then in H2, we ended up in the full year of around EUR 100 million. So it's really the seasonality in our working capital, which is the prime reason behind that.

Okay. So let me start with the PLA and then I think elaborate more on the fish oil question. So on PLA, again, when we look at again to the phasing -- in the full year, we see indeed, I mean, a reduction on some of the key markets, primarily China in the Q2. But this has been also phasing because we see until the end of the year, a consistent forecast on the PLA joint venture outcome. So I would say the joint venture is sticking to its target for the full year. Now as we've discussed many times, the portfolio is still quite widely exposed to what's happening in Asia and primarily in China. So this has not changed. But there is no structural changes suddenly from a quarter to another on the PLA that are leading us to say, yes, we're going to change the outlook for the joint venture for the year. Now as we said earlier, the pricing remained depressed, also back on the fossil-based polymer competition that is also really low right now. So what we see is that the margin are being impacted by pricing. At the same time, as you know, the major input cost being lactic acid, and we have a pass-through in terms of price formula to the joint venture. The joint venture is benefiting largely from the relaxation in input costs coming from sugar, which is also, of course, benefiting the wider Corbion as this is one of our major input costs. And you might have seen the dynamic around sugar over the last month that is trending very positively for us because in some extent, we are back to some pre-COVID level in sugar and even lower. So that's a different point, but we are taking indeed advantage of the current situation to basically hedge longer-term sugar for Corbion. And of course, we're going to start to benefit from that in the second half of the year, but really moreover, a lot more in 2026 as we are now, I can say, fully covered for '26 and our sugar needs a much lower price. On fish oil and noncontracted questions, we've all seen the fish oil price dynamic and the strategy having indeed longer-term contract did pay off. Now on this 30% uncontracted, we had to, of course, I mean, adapt our pricing there in line with the fish oil trend. To your question on '26, and this is a very critical one, -- and let me a bit elaborate on the current dynamic, although it's very early, but you might know that Peru just concluded the first launch of it's fishing season, and they put a quota target of 3 million tonnes, and they decided to stop at 82% of this 3 million tonne last week actually on July 23. It's also important to understand that if you look at the numbers, of course, Peru, to a large extent, is setting the price of fish oil. But you have to look at the 13 countries that matters and you have the big countries being Peru, Chile, Denmark, U.K. and U.S., they do represent roughly 50% of the global fish oil output globally. And this is what's making the price trend. When you look to what's happening, obviously, they didn't match the quota. What's going to happen on price, still to be seen, but we are still very much in the balance of supply and demand where things might turn with a slight surplus or a slight deficit on the pricing dynamic because this is a commodity. And there is another important element is that in the same time, China being also an important player there in terms of fishing and what they call marine ingredients. The domestic production of marine ingredients in China continues to be limited due to really ongoing fishing bands along the coast line. And we can see that, of course, in the first half of '25, the Chinese domestic marine ingredient output has been really decreased substantially. So we see some very slight signals of potential rebound in price, but it's minor. You speak about 2.5% right now on fish oil, but we cannot make any conclusion yet. What we have seen is that basically the increased stocking activity, the declining cost of feedstock -- feed costs, sorry, and the more positively profitability outlook for the fish farmers suggest that the aquafeed demand by the end of the year may surpass the 2024 level. So -- and that could point out to potentially a stronger demand for marine ingredients as the year progresses. So now we are not in a position to make any speculation for 2026 on fish oil. Back to the contract discussion, we still have contracts running until the end of '26. For the contracts that are to be renegotiated by the end of the year because we have some ending 2025, we have already initiated discussion to renew these contracts already in the course of Q2 because we are not waiting last minute, but we are in the middle of negotiation rounds on these contracts that are going to end by the end of the year. Structurally, we believe that at one point with everything that we are seeing in terms of fishing quotas and fish oil dynamic that the market is really structurally short anyhow. And whether the quota going to lead to at 1.2 million or 1.3 million tons of fish oil, that's going to make either a shortage or a slight surplus. But structurally, we are still in the year where there is no more fish you can catch. And structurally, the fundamentals of the business remains really strong. So let's see how it moves over the last month. You still have a small fishing season in October, and that will tell a lot more whether the '26 is going to be really a shortage or a slight surplus. But if a surplus is going to be really tight. So that's our current analysis of the market dynamics.

Okay. That is quite clear. But maybe if I may ask an add-on, what is the general -- yes, let's say, outcome of the discussions you currently have with customers for whom the contracts end at the end of this year on the pricing?

It's difficult to disclose, of course, the detail, as you understand. But basically, our aim is not to align, of course, right now to the current fish oil price because when you negotiate multiyear, and that's what we are looking for, the aim is really to see what is, of course, the right price to basically what we offer that fish oil can offer is security of supply and 0 volatility. And some customers do approach it not as fish oil being a commodity, but as a security of supply and a risk mitigation supply because they know structurally you know fish oil is going to be short. And if you want to stay in the omega-3 market and you guarantee the omega-3 level in salmon, you have to secure a minimum amount of omega-3. So we are more keen to discuss and favor these customers that do not speculate on fish oil, but see that as a risk management and supply guarantees over the long term than the short-term players. And just to end on that topic, this is why also the diversification strategy going more to pet, moving to terrestrial, but also primarily human nutrition is crucial in our ongoing strategy for Omega.

Very clear. I have one small question for Peter, I think. You elaborated briefly on depreciation. Is it fair to assume that depreciation will increase with the lactic acid plant in Thailand now coming into stream?

So that's the right assumption, Robert Jan. So -- and especially, if you look moving forward, if currencies do not fluctuate because we have quite some assets in U.S. dollar and Brazilian real, then you are right.

And what is the step-up approximately? So if you look to the step-up, and I look a bit back. So in total, if you look to the CapEx amount, then you talk about roughly EUR 240 million. You have a depreciation between 15 to 20 years. So if you calculate that back, then it is quite a significant amount, which will come. The depreciation, by the way, we will do in a unit of measures and not a straight-line depreciation. So it's ramping up in line with the ramp-up of the entire lactic acid plant.

Okay. Very good. We have 3 participants in the Q&A queue. Our next question this morning comes from Fernand De Boer from Daf Petrocam.