Corbion NV

Welcome to the Corbion 2022 first half results. With us today are CEO Olivier Rigaud and our CFO, Eddy van Reden van der Kloot. My name is Jeroen van Harten, Head of Investor Relations. Proceedings for today, we're going to start with a presentation that Olivier and Eddy will walk you through, after which we'll move into Q&A. The presentation you can find either on the webcast or you can download it from our website from the investor relations section. And with that, Olivier, please go ahead.

Good morning, everyone, and really pleased to present our first offer results. So starting with the first slide, I'm really pleased to explain the business activity and the strong momentum we saw over at H1 with the organic sales growth on our core activities of 23%, and that was driven by the three business units. During the period, we delivered an adjusted EBITDA of 89.9 million, so this EBITDA increased by 16.6% year-on-year, responding to 13.1% margin, and an organic growth of minus 0.4%. Across the period, we've seen continuous inflationary costs development. And the fact that we moved to quarterly pricing really helped us to pass on these costs to the market. As we speak, we've had the first increase in Q1, as you might remember, and the second successful round across Q2. We've also implemented a further round in Q3. So this helped us really to let's say, go for adjusted data improvement across the period. I'm also pretty happy to report that June was the first month where we reached breakeven for our AgroPrime DHA business, algae business, and we see very promising business development there. I will come back to that in a minute. Across the period, we also continued a quite high investment level to support growth. And actually, next to the biggest project we have in our new lactic acid plant in Thailand, We are further developing into specialty food ferments in the U.S. and algae ingredients in Brazil. Last but not least, on sustainability, we made a lot of progress and actually we decided to apply for a renewed science-based target and to increase our emission level to the 1.5 degree in line with the Paris Agreement. Now, diving into the next slide and discussing about business development, and starting with the SFS, Sustainable Food Solution. Looking at the sub-segment, within preservation, we saw a shift in terms of projects, a pipeline, and shifting from purely new innovation to helping customers reformulate, either to improve their costs or to overcome some of the raw material shortage. During the period, we also accelerated the launch of new natural antioxidant platform, primarily working on ascorbic acid, natural ascorbic acid from acerola and carnosic acid from rosemary. These are two very nice complements to the current preservation portfolio of Carbion. Within functional systems, the focus continues on shelf life expansion in promoting food permanence for natural mold inhibitors. And we also, I mean, as in preservation, see some shift really helping customers to overcome some raw material shortage. Could be, you know, vital with gluten replacement or fat. So this is a big trend we see happening in the market right now. We also execute on our strategy by launching a new dairy stabilizing platform, and we see first traction and first promising sales in that area as well. Moving to laxing acid and specialties, we saw growth in all segments. primarily driven by a strong recovery in medical biopolymer post-pandemic. We do not only see a resume of elective surgery, but we also see a strong development in slow-release drug delivery there. Across the second quarter, we saw also a nice momentum into the semiconductor with our green solvent and our pharma business segment. We've also had robust lactic acid cells to our PLA convention over H1, but I will come back on this at a later stage as well on the PLA dynamic. Finally, on incubator, we've seen a significant traction in these new customer adoptions of AlgoPrime DHA. And again, as we stated, we'll be proud of having in June the first break-even month for this business, despite higher variable costs. we faced, you know, and that was probably related to some freight costs from Brazil, as well as some of the ingredients we are using for this product line as red seed oil. Moving on to the key investment projects, we mentioned, obviously, the biggest one being our new ginseng-free lactic acid plant, and this is progressing nicely today. As you can see or might see in the picture, we are progressing well on the construction, and we are still on track to deliver You know the commissioning as we planned in the later part of 2023. The second investment, which is more specialty-oriented around food permits and more monitors, is, again, to serve the SFS business segment from Peoria in the U.S., where the investment is going on as we planned, and we are expecting a commissioning for the end of 2022. who have this capacity available to sustain our sales development in that segment in 2023. The same is valid in the algae plant in Brazil, Orange Juba. We are also there. We have a project that is bringing more flexibility to the plant and also will enable us, as from 2023, to go from a break-even situation to a profitable picture in this plant by also helping us improve the product mix significantly. So, and moving on, on the sustainability comment I made earlier, you might remember at the time, you know, Corbillon was a frontrunner when we applied for the below two degree, you know, commitment. But what we've achieved over the last couple of years is basically a very nice reduction in our carbon emission. We are already at a 24% in CO2 emission reduction, so we believe that we need to set a more ambitious target. And we have our game, and so we recently submitted actually last month, you know, a new target based on the 1.5, you know, and hopefully we're going to wait for the outcome of these SBTs in organization by the fall. And we will for sure revert on that to you later on this year. On this, I'd like to give the floor to Eddie to take you through the financial performance and the details.

Thank you very much, Olivier. Good day, everybody. So we are on the page on the profit and loss. So as you can see, for the first half year, the net sales for the total company have increased by 33%. And within that, about 23% has been the organic growth. So we did also have support from stronger currencies. The adjusted EBITDA level, an increase of close to 17% for the first half year. Again, quite some support from currencies. The underlying organic growth was more or less flat for the first half year. Margins for the total company, this is 13.1% first half year. And please note that there is a margin increase in Q2 versus Q1 because Q2 we had slightly higher margin profile of 13.6. And that reflects the good momentum we're making in passing through earlier cost increases and increased sales prices. The gain that we made in the adjusted EBITDA level up to 16.6%, we could not fully translate to the result after tax had a bottom line of the P&L, because there you see a minus 23%. That has really been caused by two key drivers. One is to be found on the adjustment line in the middle of the table, where last year we had quite a sizable positive contribution on adjustments really being related to the divestments we made in the frozen dough activities in the US and the plot of land in the Netherlands and Vreda. So that was a sizable book profit and the majority of the contribution of the 23.5 million of last year. This year we also had a smaller size divestment and that contributed to about 5.5 million on the adjustment line and that is related to warehouse we had in the U.S., the Totowa warehouse sale in January this year. The second item I'd like to highlight in terms of comparison to last year is on the Texas line. We, this year's tax line, to be more a kind of normal tax level of a good 25% with minus $18 million, but if you compare it to last year, we there had a much lower tax expense, and that is again related to the sale of the Pereda product not very could value a tax asset that was a kind of one-off benefit in last year's P&L. So then we move to the next sheet. That is really one of our key themes, of course. It is about the firm pricing actions that we have implemented, and we continue to implement, by the way. By now, you are kind of used to our, on a two-quarterly basis, to update our outlook of all the cost increases I'm talking here about the variable cost increases, what we have already experienced and what we do expect to experience over a two-year period as it's measured. So it is 2022 versus 2020. The top right-hand side gives you the composition of the table. And if you compare the situation with the current outlook to the last table or the previous one that we shared late February, then the total cost increase for the company have increased from 165 million measured over this period to 240 million. So that means another 75 million step up. And that, of course, is what we've done with our quarterly pricing structure, contract structure is what we are passing through to the market. Within that 75, a big share is, of course, everything to do with raw materials and energy. but also freight. About a third of that increase is really caused by freight. That's a sizable component itself. Then a big item in the different businesses, sustainable food solutions. Their organic growth for the first half year in sales is close to 19%. Within that, the volume development was pretty much flat, but I would say that's a nice result because basically we made quite some March share gains last year, and we've been able to hold on to those positive volume developments in earlier periods in this period when we are passing through price increases. So that's a good result, I would say. And Olivier already talked a bit to a couple of the drivers that we have in different sub-segments within food, the new product introductions, the reformulations, etc., Margin profile came down a bit compared to last year. And again, Q2 slightly stronger than Q1 in terms of margin development. And I'd like to highlight also, and it's true for all businesses, wherever we are passing through these sizable cost increases, mathematically you have this, what we call this margin dilutive impact. So that is true for all our businesses and also for food. Next page, electric asset. Again, very sizable sales growth organically, 26% for the first half year. A small volume uptick, a good 1% for the first half year. And it's really, again, the price increases, plus some mixed improvements that are driving the organic growth. And a couple of elements to be mentioned there in terms of subsegments is, indeed, the semiconductors industry, which hold on firm, and of course, the good recovery effort of prospects that we are having experience and seeing for the medical biopolymers, which is, of course, a high-value subsegment in this business unit. Then incubator, next page. There, we continue to invest in incubator. Within the incubator, like Olivier has stated, we have turned around the DHA business of LG as per June into a positive territory. We continue to invest, of course, in other initiatives in this portfolio, and that we have always look at it between half and one and a half percent of our total courses, so that is the the bracket that we like to operate the incubator. And also, by the way, there's also quite some currency impact in this comparison to last year, because the dollar has strengthened quite a bit, also the AI, but also the dollar, and we have quite some dollar cost also in this part of the cost derivative. The next one is about the PLA joint venture results. EBITDA up by about 10%. Margin more or less kept on cruising in the good 30s. Underlying sales growth organically has been 23%. But within that, again, quite supported by currencies. So outside of the currencies, underlying organic growth has been a good 11%.