Corbion Nv Unsp/Adr

Yes, good morning, everyone. Welcome to the Corbion full year 2022 results call. With us today are Olivier Rigaud, our CEO, and Eddy van Rijde van der Kloot, our CFO. My name is Pieter Casius, Head of Investor Relations. As usual, there is a slide deck available from our website if you go to corbion.com, Investor Relations Financial Publications. I would now like to hand over to Olivier.

Thank you, Peter, and good morning, everyone. So welcome again to this 2022 Corbion's results. So I will start with the first slides on our company purpose. At Corbion, we feel very strong about what we are standing for, preserving what matters. And today, 65% of our business is aligned behind three sustainable development goals. This is up from 60% in 2021 with an ambition to be at 80% by 2030. So now moving on to the next slide on fiscal year 22 key points and key results. We delivered in 2022 a record year in organic sales growth and adjusted EBITDA delivery. All key financial metrics were within the earlier provided guidance, with an organic sales growth for core of 24.3%, and this was driven by all three business units. The volume mix was 5.6%, and the price impact of 18.7%. The total adjusted EBITDA was close to $185 million, So an organic growth of 17.9%. And last but not least, we delivered on our commitment to reduce our net debt EBITDA ratio down to three times. Moving on to the second slide on key points, we made significant progress in delivering on our advance 2020. And I'm feeling very confident of delivering updated initiatives and target that we presented at our last capital market day in December. On sustainability, we've made progress and we are really ahead of schedule. I will come back on one major development, having our science-based target commitment increased to 1.5 degrees C later in the deck. We also successfully implemented price increases to mitigate rising input cost inflation. And here, we speak about over 240 million euro over 18 months, achieving unprecedented level of price increase. Algae. Algae omega-3 is another point worth highlighting. As you might remember, we set a target to get into a break-even situation in the course of 22. back in the advanced 2025 original target. And we delivered on that promise. And this led to the creation of an algae ingredient business unit, and also as a new reporting segment. And last but not least, we initiated the divestment of our non-core emulsifier business. Now let's dive on the next slide on the three business units and primarily on some of the business developments. First of all, starting with a sustainable food solution. In preservation, we see a continuous momentum in terms of natural ingredients replacing synthetic and artificial preservatives. We also launched a new antioxidant platform, which is a very close adjacencies to the current business by establishing key partnerships and seeding the market over 2022 to have an impact as from second half of 23 and beyond in 24. Whilst in functional systems, we focused on shelf-life extension, on food ferments as natural mold inhibitors, but also being very active in reformulation driven by some raw material shortages where our customers have been really asking to support them in reformulating their recipes. And we've done that as well, you know, in some reformulations driven by cost inflation. Another adjacency we launched in terms of shelf life extension in the functional systems is a launch of a new dairy stabilizer systems, being the first inroad from Corbion into the dairy category, opening also new growth opportunities. Moving now to the lactic acid and specialties. We saw continued very strong growth in the medical biopolymers segment. The lactic acid cells to the PLA declined in H2-22 due to the PLA market weakness that we previously reported. We'll come back to that at a later stage. The growth in the semiconductor market continued, although Q4 saw some signals of temporary softness in the market. And finally, we've made and are still making very good progress in line with our plans to complete the buildup of our new circular lactic acid plant in Thailand. As a reminder, this is planned to be commissioned by the end of 23. On our third newly created business unit, Algae Ingredients, we've seen across 22 a significant traction in new customer adoption of our solutions, and June, was the first time we were breakeven on EBITDA and we've been profitable since then in that division. We've been busy to invest to enhance our production capacity to allow growth on 2023 and beyond, but also to create flexibility in that plant in Brazil to address new categories as pet nutrition, thus diversifying from aquaculture and also, I think, a way to also optimize our margin. Now, moving to the next slide and coming back to the sustainability of value proposition of Corbion, I mentioned, I mean, the commitment to the 1.5 degree, and this is the most ambitious goal of the Paris Agreement, if you might remember. We are pretty proud of that. We've been raising the bar over the last years, and the SBT's target approved our proposal by November, So we are now on a journey in the path to execute on that ambitious target, further reducing our emission and improving our sustainability profile. How does it translate? Let's look at the next slide, where basically we've been raising the bar on the first four bullets. I will not comment them all, but basically whether it is about indeed the percentage of net sales aligned behind the three SDGs that we have prioritized. but also we are moving to a strong reduction for the first time in absolute CO2 reduction on scope one and two, and realign our base versus 2021, raising the target on LCAs, and also, I mean, introduced social value assessments on our product. So quite a lot happening on that front as well. On this, let me hand over to Eddie to dive into the financial performance of 2022. Thank you very much, Olivier. Good day, everybody. I understand maybe the visuals come in a bit with the delays, so I will call out the page numbers I'm on. So let's start with the profit loss, which is page 10. We've been growing the top line very nicely last year, to a level to about $1.5 billion in terms of revenues. So that's a 36% increase versus 21%. And within that, the organic growth has been, for the total company, 24.6%. Also, Q4, we ended up with a very nice growth pace, organically growing close to 27% for the business. So that translated in an adjusted EBITDA growth of 36% for the full year. Again, looking on an organic basis, that's a 17.9% organic increase for the year. Margin profile for the total company has been relatively flat over the full year versus 2021. Then looking at the adjustment line, that's always where we are disclosing certain special elements. Last year, you see a $10 billion plus for the full year that was very much caused by divestment of the land we hold in the Netherlands and Veda, the book profit on that, and also the frozen dough activities that we let go in 2021. In 2022, we also had some special effects, and the most notable one is the total warehouse sale that we already communicated about earlier in 2022. That translates then to an operating result increase of 35% from 82 million to close to 111 million. Financial income has been less negative. Financial income on expense, I should say, has been less negative in 2022 versus 2021, and that's because we have quite some with support from stronger currencies on our intercompany loans that are also recorded in there. Results on joint ventures, so that's of course the results especially on the PLA joint venture, less positive than 21 and that is really reflecting the underlying operational developments in the business which we can talk about later. Texas, more negative than it was in 21, and it's not so much that 22 was special than the more normal tax level, I would say, with the operational results, but it's really that the 21 figures have been positively impacted by the deferred tax asset that we could record in conjunction with the sale of land in Netherlands. So a bottom line that translates to an 15, close to 15% increase on the result after tax from 78 million to 19 million. So then let's take a deeper dive on the different business components. Page 11 is our sustainable food solutions business. We've been growing that organically for the full year at the pace of 21.5%. But within that, a big part has been caused by increases of prices. We've talked about it on earlier occasions, the massive price increase that we have put through the market over the years. Underlying, if you look at the volume plus mix of dynamics, that has shown a pretty consistent pattern over the whole of 2022 to the comparable basis, of course, of 2021. And that's on the total of 3.6% increase of volume plus mix effects for the total SFS business. The EBITDA as an absolute amount has grown very nicely over the year from a 75 million level to 96, so 21 billion up. and the margin has been slightly coming down from 12.9% to 12.3, and that is also partly caused by this huge effort in passing through price increases, because then, mathematically, you will see some margin erosion as a consequence of that. Next page, Electric Assets and Specialties segment. I'm on page 12 now. Also, there are a nice growth, 20.4% organically for the full year. But that has been fully caused by pricing. If you look in the line to the volatilized mixed developments, that has exactly been coming in neutral at zero. And of course, the PLA related activities are also having an impact on that development for the full year. Also here, a nice step up in the absolute amount of the adjusted dividend by about 10 million. And then the margin profile, this similar pattern in terms for the full year, and a nice ramp up still at the last quarter for the year, with a slightly higher margin for the rest of the year, close to 80%.

Then we will move to the algae ingredients business, page 13.

We are there, of course, coming from a lower basal, very much on a very high growth pace, 115% for the full year. Also in the last quarter, close to 200% growth. And within that, really the volume component is very important in here. So that's really catering for the majority of this growth. We have announced earlier occasions that we broke even for EBITDA since June this year. That is also what you see here. So for the full year, you see a minus 3.3 EBITDA. i'd like to really highlight that you will find a very nice composition table at the end of the pack but we have now that we have this new segment lg ingredients we have changed our allocation of especially our gna cost line and it means now also lg greens has to take its fair share during those costs for a full year that has been a level of three and a half million so without that carrying of GNA, the underlying EBITDA would have been a positive even for the full year at 0.2 million. So that's the dynamics there. Very nice growth delivery and possibility increases over the year. Moving to incubator, H14. There you see a step up in the investments we're making in terms of expressed in new It just ended up being negative from a level of minus 3 to a much larger level, minus 9 in 2022. But part of that is because the algae-related R&D efforts had a focus in 2021 still very much on the algae ingredients segment. So therefore, a big share of those costs were allocated to the algae ingredients segment. I think about introducing the new strains that we talked about in our Brazil plant. In 22, the focus of the LG-related R&D capabilities are more looking at other initiatives from the LG portfolio, which we talked about earlier questions. Then the PLA joint venture results. This is on a 100% basis, page 15. Here, the EBITDA margin stayed about 26% for the full year. But what strikes here is especially the lower margin profile in the last quarter. And what we have been doing here in the joint venture, we have an active approach to our working capital management. Because of the dynamics that we talked about on the early occasion of PLA, we were getting to too high levels of inventory. And we decided to temporarily cease the production in the joint venture for about 10 weeks. So this has been happening since mid-November to end of Jan, so that's now behind us. We have ceased production, and that means that all the operational costs are flowing through the P&L. So that has really had a downward pressure, if you will, on the EDADA delivery and the margin profile of Q4. But after Jan, we are now back and started to produce again catering for expected further developments. Then moving to non-core, that is our U.S. emulsifier activities, which we have announced we will divest. But within that, very nice growth delivery, both from top line, but also EBITDA, close to a doubling of the EBITDA delivery from about 18 million in 21 to 34 million in 22. So very nice delivery and very successful also passing through here input cost dynamics into increased prices the one page on the funding ratio an important theme we also discussed in the capital markets day in the back of december so we've been able to improve the ratio from the midpoint in june last year where we were cruising at 3.3 terms not talking about the covenant that's towards the level of 3.0 by the end of the year and that sits very nicely in terms of the guidance I've been giving in December, where we stated we would end within the range of 2.9 and 3.2. So we're on the good side of that range, if you will. Going forward, we indicated that we further are expecting to recover and improve the ratio to a level of 2.5 and 2.9 in that range towards the end of the year. And this is all still not taking into account any positive impact from the divestments proceeds of the emulsifiers business in the course of this year. So with that, I hand over back to Olivier on the outlook. Thanks, Eddy. So let's go to the outlook final page. And first of all, why are we feeling confident about 23 outlook? This is in light of the current dynamics we see in the business. is also why we reconfirmed the volume of mixed organic growth of co-activities between 5% and 8%, with SFS growth rate expected to be more skewed across H2, driven by phasing of some of the expansion plans, like our investments in food ferments. In lactic acid and specialties, growth rate in H1 will be impacted by lower cells to the PLH on venture. In algae, we continue to see very strong growth in aquaculture, but also trading up in the new categories, as I mentioned earlier, as pet nutrition. All in all, I am very excited by the new development in our core portfolio, such as petrol mold inhibitors in SFS, the development in slow-release drug delivery in our biomaterials biomedical business in LAS, the good visibility we have on our algae contracts for 2023 we also see the potential for encouraging margin development as the year progresses so we reconfirm the adjusted EBITDA organic growth for the core activity between 15 and 20 percent range this is coming from both volume and mix improvement as well as operational efficiency, such as the ongoing optimization we are doing in our lactic acid production network. On CAPEX, we reconfirmed the guidance in 160 and 190 million. So 2022 was the peak year of investment in our 2025 strategic period. And last but not least, in terms of depth EBITDA ratio, we are expected to further reduce it down to 2.5 to 2.9 range by the end of 2023, excluding the positive impact upon the realization of the divestment of our emulsifier business. So as a conclusion, although there is some disappointment in Q4 EBITDA delivery, we are expecting some of these rolling over in Q1, but I'm feeling increasingly confident in our full year guidance. And we are looking forward to updating you again as the year progresses. So thank you, and now let's open it up for Q&A.

Thank you, sir. If any participant would like to ask a question, please press star 1 and 1 on the telephone. If you wish to cancel this request, you can please press star 1 and 1 again. Once again, it's star 1 and 1 if you want to ask any question. And if you wish to cancel your question, you can please press star 1 and 1 again.

There will be a short pause while participants register for questions.

Okay, let's take the first.

We are now going to take our first question. The first questions come from the line of Alex Sloan from Barclays.

Please ask your question. Your line is opened.

Yeah, hi, morning all. Thanks for taking the questions. A few from me, please. Just firstly on PLA and the potential inflection there. I mean, good to hear that you've restarted production in January. Is that on the basis of kind of seeing any signs of renewed demand from China reopening or is more still... thinking about a kind of a second half recovery at this point. And then just on the second one, I mean, working capital was obviously a large outflow for the year overall and was maybe slightly higher than consensus had been modeling. What are you thinking in terms of, you know, working capital outlook for the business in 23? And then just finally, just on the emulsifiers disposal process, I wonder if you could talk to, you know, how that's going and your confidence levels that that will indeed complete in 2023. Thanks.

Thank you, Alex. I will answer the PLA and maybe the other two questions. On PLA, as we discussed before, the major impact came from the Chinese downturn and the lockdown, as we explained last year. And so far, we see a continuation of that trend across Q1. And we are indeed still not expecting any major recovery prior to H2. What we've been really very active with in the meantime, in terms of litigation and actions, I mean, going for indeed new categories development to also reduce dependencies to packaging, but also pushing in terms of some geographical expansions and activity, leveraging our partner in the venture go to market. And this is again in place since early this year. And last is negotiating with some of our key customers, longer term sales agreement to secure further development. But back to your initial question, we expect still the market to remain soft over the H1 and China reopening or adding an impact over H2. Teddy, maybe you want to take the working capital? Yeah, on the working capital, I think we're happy on the components of the debtor development and the payables developments. Also the debtors, we do not see any, for example, aging, deterioration, anything like that. So I think those are very much in control and developing very consistently. When we talk about working capital development, it is really the inventory position that we talk about. Looking at what happened last year, we had an increase of about 100 million value of inventory. So that spans 22 versus 21. Within that, about 11 million has been caused by currencies. That's just from the dollars, for example. Of course, we cannot really influence the second component, but that's the largest. It's about 50 million. It's all to do with price, so it means more expensive kilos of inventory, about the increased costs that we've seen rising, translating in more expensive kilos. Then, of course, as time will go by and once inflation factors on raw materials, packaging, energy, and freight will come down, then some of that value should reverse. But, of course, it's very hard for us to make predictions on how all these input cost factors will develop as time goes by. The third component of the inventory, that's something we can influence directly ourselves, but it's the volume component of the inventory. So, really, the amount of kilos of both materials and fuel stoves. So, that has been increasing by about 40 for zero million in last year. And that is something we actively are working on in the different parts of the business. It's a multidisciplinary approach, as you can imagine. And we are bound to recapture a significant part of that increase in the course of this year. So that's all on the working capital. Your question on the progress we're making on emulsifiers, yeah, we cannot share too much of that. But being said that, we are making very good progress in the process. We are talking with multiple parties, and we are very confident that we will close out this transaction in the course of 2023, so very much also what we have shared in the Capital Markets Day, and I want to leave it at that for now.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Patrick Rockhouse from Kepler Chevrolet. Please ask your question.

Good morning, gentlemen. Thank you for taking my questions. I've got a couple. The first is on SFS. So you did not provide guidance during the capital market day for Q4, but SFS was below at least our expectations. And the recovery was simply not as pronounced as seen in Q2 and Q3. what happened there and could you quantify some of the effects and then second on on algae um yeah great to see the performance um if i'm right there were some tax losses carried forward within your brazilian business so can you remind us here what's the room and uh what's the impact on your corporate tax rate for example for at 23. And then finally, aside from capacity expansion, what are the options for you to kind of explore all the benefits or let's say grab all the growth prospects that are out there? And is licensing to third parties one of the options? Thank you very much.

Thank you, Patrick. So on the SFS, actually, yeah, we didn't update that in detail in the last Capital Market Day, but what I can say is that the work in capital management we've seen in the market that is still going on, and actually we are also doing ourselves, is something that we had anticipated, actually, already at that time. We didn't communicate about it, and it has also been factored in our 23 outlook. Basically, what we've seen as dynamic, and this is what we anticipate, is that supply chain normalizing, if you remember the whole crisis we've had basically in the course of 21 and 22, customer did overstock. We did overstock as well to secure supply and make sure we had business continuity. And now that things have been relaxing massively in terms of containers availability, truck drivers availability, there is no need to have a higher level of inventories. So we've seen our customers being more disciplined and we are doing the same. But we had anticipated, we didn't communicate, but it was anticipated and it was factored in our outlook. On algae, I will answer on the growth portfolio, I will let Eddie discuss on the tax item you mentioned, we are now in sports having the confirmation that you know our model on algae is proven and in terms of of course not only profitability but the developing market and adjacent market next to aquaculture so indeed the question is being posed now and from the strategic aspect to what's coming next and we are actively working on this now Again, if you see the dynamic of the market, we are in a very favorable context where basically now we have a real solid adoption based on very structural trends. First of all, consumers understanding the sustainability aspect of good aquaculture, not relying on wild fish oil. And next to this, you see that there is a structural issue wild fish oil in terms of supply and demand going forward. That will only increase going forward. So we're gonna have to make strategic decision in the coming month, meaning before the end of 23 on what's next for us. And we will keep you posted on about exactly this next step. At that stage, we do not exclude indeed any more, whether it is licensing or whatever. um i think uh i'm feeling pretty good about it because the algae platforms offer quite a lot of flexibility in terms of arrays of categories but also of products going forward so eddie maybe you want to take the text yeah so that's a question on tax uh i think what you're referring maybe to is that in the course of this year and especially in the last quarter we had some So, some support of sales tax that we could recognize. So, not so much income tax, but really corporate income tax and sales tax. You know, Brazil is pretty complicated with all kinds of tax regulations. So, that has been a support, but that has not been the reason, the underlying reason why we had a very strong finish of algae ingredients in Q4, having 1.9 million EBITDA that we discussed. But there was some support. On your corporate income tax, that's always something we disclose as part of our annual report. That comes out about a month from now. We always find the position on income tax that, yes, in Brazil, we have an aggregate in Brazil with this. Some income tax losses that we have not recognized yet on the balance sheet. So the further progress we're making in Brazil, we can further recognize that in the future.

I really want to leave that question for you. Okay, that's clear, thank you.

We are now going to proceed with our next question. The questions come from the line of Robert Jan from ABN Amro Udu, BHS. Please state your question.

Yes, hi, good morning all, and thanks for taking the questions. I have a few left. First, I want to come back on the Q4 EBITDA of sustainable food solutions. I had the same observation, namely I had expected several millions higher EBITDA in Q4, and I do not fully understand the explanation. You talk about working capital management by your customers, but that says more about, at least I would assume, about revenue And not so much about EBITDA. So I was wondering, is there anything specific why EBITDA is maybe a bit held back in Q4? You mentioned in the press release and also in the presentation the deliberate shedding of some lower margin beverage business. Is that maybe an effect in Q4? So that is my first question. Second question. I noticed that in order to calculate net debt EBITDA for your covenant, you can always add, of course, dividend from the joint ventures. And this year you added both the dividend for 2021 and for 2022. So the dividend 2022 was also paid in 2022. I was wondering, is there any reason for this timing difference compared to last year? And what should we expect from that going forward. And then lastly, maybe specific for Eddie, I think there was a one-off gain somewhere in the first half in the interest line. What can you say about normalized interest costs going forward based on your now disclosed total net debt of 700 million euros? Thank you.

I'm afraid I'm going to take all questions here.

That's fine.

Well, under Q4SFS, that command we made already early in the year of the shedding of the lower margin business on beverages, that has been happening already in the earlier quarters as well. So that's not a specific reason for Q4 as such. I would really highlight two elements that are specifically on the without delivery as an absolute amount as is before. One is the relatively lower volume base, so really lower sales in, let's just say, in kilotons compared also to earlier course. That is always a consistent pattern that we've seen for many, many years. I think what Olivier also said is this year, the year end effect has been more pronounced than other years because we tend to see more active working capital management of quite a few of our customers than what we've seen in earlier years. So that has the more pronounced, I would say, reduction effect in the last quarter. On top of that, we are also looking, of course, at our inventory position. It's always, but then you really have to go very granular on a product level, but always when you produce, if you sell more than what you produce, so if your inventory has come down, you need to look at what is your component in that stock positions, and that really, that's what we call the absorption effect, that has played out in Q4 specifically quite negatively in terms of EBITDA delivery in Q4 versus earlier quarters. So that has really been a one-off effect, if you will, in the quarter, and that will have ups and downs as quarters close by in terms of how the inventory position first is going to develop. that i will say are two clear uh extra elements i will say without a linear search for sfs on the dividend uh yes well it's public indeed so in last year we had that's kind of a bit of a different pattern in paying out a dividend out of the joint venture to the two shareholders This, by the way, is always a mutual decision between this and Total Energies, so it's not something we can drive ourselves. It's always a joint decision, as you understand. The usual pattern that we apply is that we try to get our dividends paid in the last month, if you will, of the running year. So basically, it's not so much that 22 has been yielded out. It's really the 21 payments in mutual consensus of how we have paid. in the opening quarter of 2022 rather than in the last quarter of 2021. So at that time, indeed, therefore, you see a relatively higher paid-out dividend than what you normally see in the year. It has been two times $7.5 million in investments. On your interest expense line, Yeah, maybe the best thing is if I give you the average interest rate. I already shared it with the Capital Markets Day, by the way, what the position was then. Since then, of course, interest rates have decreased a bit. If you look at their total debt structure, you apply the average interest rates, it's close to 2.7% at the moment. So if you take that number versus the total debt spending, then you come at, as per today's markets,

interest expense line for basically that's a level for tradition okay that that's very clear so to to conclude on that dividend question it's not necessarily the case that there will be no dividend then in in 2023 because you tried to have it paid in the last uh or towards the end of the the actual year is that correct

exactly so like i said the usual pattern is that we decide on that in the last board meeting of the year and then we usually have a payout in the last month of the year and it's always based on what's the different capacity in terms of results and is there a different use of results to be made and secondly what is the cash flow outlook of the joint venture workforce because you don't want to pay dividend and then and then a month later have to get back with new gas injections and transmissions. So that's always the components that we as shareholders take into consideration when we come to the exact timing of the decision of the different speed.

All right. Very clear. Thank you.

We are now going to take our next question.

The next questions come from Valando Sebastian Bray from Barenburg. Please state your question.

Hello, good morning, and thank you for taking my questions. I would have three, please. I'll ask them one by one. Firstly, interest cost. There have been a few effects that have run through the P&L, mainly related to intercompany loans over the last two or three years. What is a decent figure in light of the increase of net debt to assume for the net financial expense of Corbion for 2023?

Sorry, I think I just tried to answer that. So that's 2.7% on the debt. That's our average debt structure. And then we get some offset by interest income from the joint venture loan that we have. The big 2.7%, that's the current market rate that we have for our total debt.

And the 2.7% is... You just literally take the net debt that was reported at the end of the year and think, well, it's the best part of 3% interest rate. Okay, that's understood. The second question is on food solutions, and it comes back to a few that have been asked earlier. I'm still not clear on what has led to the about 4 percentage point sequential decline in EBITDA margins, because if it were customer destocking, one would expect that the volumes of this business would be under pressure in Q4, and actually the relative to both my own expectations and those of the consumer ingredients sector, plus 4% is not bad growth. So what's this, just to understand here, and apologies, the line wasn't very good earlier. The main effect here is Corbion emptying its own inventories and underproducing in order to improve full-year working capital. Is that right?

First of all, we say volume plus mix is 4%. Not only volume, so volume came down, mix came up, so it's the combined of those two effects, that is the 3.6 for the full year, and also a similar pattern for Q4 that was 3.5%. You can find it in one of the disclosure tables. But yes, like I just said, the absorption effect, as we call it, has been negative in the last quarter, and there is a big component in the food solution space.

That's helpful. Thank you. Can you remind me just of a logic before I move on to my last question of putting volume and mix together as opposed to price and mix?

Yeah, that's something we came out with in the capital markets very early December where we sat in a world where prices and input cost inflation and this, our pricing responses to that, sales price responses to that, where we have seen now in the period with excessive price increases getting in the top line. Nobody knows exactly, of course, going forward, is inflation going to continue? Will it stabilize? Will it reverse? Like we see, for example, the freight costs, energy, in Europe, where it was full first, very much on the rise, now it's really in reverse. So there's lots of pricing dynamics, and it would cost the inflation dynamics. And we think it is a better read on the underlying performance of our business to take that separate disclose that separate and show what then the volume plus mix is really developing over time. We think that that is a better read on how we are growing and developing our business. Because otherwise you get a very, you know, I lose it maybe in complex patterns.

That's helpful. Thank you. And just a quick question on pricing. At the start of this year, so the first two months, How have free pricing and raw material baskets of Corbion been performing? Has there been a widening of the spread between the price increases that have been implemented and raw materials that I assume are modestly deflationary, or has this developed in another way?

I will take that question, Sebastian. What we've seen is that the first part of this year, we have, of course, the benefit of the carryover of the whole pricing we did last year. But indeed, we see some deflation. Eddie just mentioned freight and energy. We've seen some of the chemicals, not all over. So I think now, obviously, we are in a reverse situation than last year, where we've been managing, of course, very closely the price increase almost every quarter and every month. Now we are looking at procurement, and the trend is staying short on some of the procurement items and making sure that we're cashing on the price stickiness. So that's, I think, the key on this first part of the year. The price increase on the start of this year has been modest, but this is what we planned, again, in our outlook, because most of it has been realized already across 22. So now it's about really, I think the famous price stickiness as you see some relaxation in input cost. And the big thing for me in 23 is about indeed the price stickiness in the business. So, but we see step by step indeed there's some relaxing input cost elements.

That's helpful. Thank you. And final one, Olivier, do I sense that your enthusiasm for expanding PLA has waned a little bit in light of the margin performance of this business in 2022 because the release doesn't mention anything about the ongoing negotiations with Total with regards to the potential site in France. Is it a plausible scenario that in a few months' time there's a press release saying that Corbillon cuts its stake in the JV in return for reducing its capital commitment?

This is, of course, this is just a speculation, Sebastian, but yeah, of course, you know, in any decision we're going to make, we will have the market conditions and the outlook in mind, definitely, you know, and if I need to answer your question straight, I mean, we are following this discussion very closely with our partner, because definitely, you know, we have to adapt to market circumstances evolution. All in all, if you look at PLA, this is a very recent story. Remember, we start in 18, and if you see the growth pattern between 18 and now, what you see is that basically we've had a flattish minus 5% if you think about volume between 22 and 21, so it's not that the thing has been tanking. In the growth story we've had where the CAGR was 15%, now it has been just flattish. So I don't think there is nothing abnormal in, you know, such a new product line development which is new to the world, new to Corbyn. Can we keep you posted as the discussion with Propel Energy is going?

That's helpful. Thank you for taking my questions.

We are now going to take our next question. The questions come from the line of Fernand Bauer from De Groot Petercam. Please state your question.

Yes, good morning. It's Fernand de Boer from De Groot Petercam. Thank you for taking my questions. A couple are still left. Firstly, to come back on the PLA, I think any anti-capital markets that you said around 20% is probably the right margin for the PLA joint venture. Do you still think that it is achievable in 2023? That's the first one. And then to come back on these sustainable food solutions, I think, Olivier, you said that the Q4, let's say, inventory adjustments are also taken into account in the guidance. So what do you exactly mean with that? Do you still assume that in 23 and certainly in the first half, volumes will be down in sustainable food solutions? Or how do we have to read it? Or just that they would normalize?

uh these were the first two questions i had you take the pla and we'll enter the ss just on uh on pla um indeed that statement i uh i made the need for the comparison i think you need to look at this what happened in q4 of course what has been in the ending quarter there's a margin profile we gave the explanation in this temporary seizing of the production plant so that was one and a half months out of Q4, but again, that will also be the full month of January for Q1. So don't expect a big recovery in Q1, in that sense, for margin delivery. Also, yeah, we're modest in our outlook, I would say, especially in the first half of the year for PLA developments. Second half of the year, we might have a recovery. I think we need to be a bit modest in our margin expectations for the total years, particularly margin-wise for the government.

May I follow up on PLA? What could you say at this moment about current market price for PLA? And for me, the big question mark is, what gives you the confidence that a new product development will indeed start to deliver as from H2? Because we have been working here. When you started with PLA joint venture, you had, I think, more than 25 customers in all different kinds, working on all different kinds of applications.

how how will that work to now suddenly estimate to why not earlier no so on this one uh command on because it's like in any other business you know when we start to to see the softness we start to put a lot of business development and pipeline development in place actually um where we we know that any pipeline from the the the briefs to the first business is a year. In some categories, it could be more. In food, usually, it's a bit more. It depends on the category. When we've been re-energizing, getting more, let's say, people on the ground, more application people in the joint venture, back to mid-last year, we see some of this development materializing. Next to, of course, at one point, China going to reverse trend because China has stopped. So when I combine these two things, when I look at our pipeline on one hand and to the signal you get from China, although we don't see the change impacting the numbers yet. So this is what we base our assumption on H2, on PLA. So on the SFS guidance, back to our customer reducing their inventory, we see some continuation of that in Q1, although we expect this to have less impact and to have a small positive in terms of volume and mix over Q1 for SFS. That's our expectations.

And the PLA price at this moment in the market?

I forgot your PLA price. So far on PLA, basically, you know, we've been, I mean, as we communicated earlier, largely above the $3,000 on PLA, and we are still in that ballpark number today.

Okay. Thank you very much.

We are now going to proceed with our next question. The questions come from the line of Vimhost from KPC Securities. Please state your question.

Yes, good morning also from my side. Can you talk a little bit about demand in the semiconductor market? Was Q4 a one-time weakness and do you see that coming back fast and back to the previous levels? Can you maybe comment on that? And then the second question, would be on the potential ramp-up scenario for the gypsum-free plant. What might be the cost impact of ramping up that plant? I think then you start depreciation in that. So can you maybe talk about the timing to fully ramp that up, the impact on the cost curve it might have between ramp-up or the start of production, and then the full utilization of the plant?

No, yes, so I will answer. And the semiconductor, indeed, we saw some softness in Q4, but nothing alarming at all because, you know, this is an industry which has this pattern, you know, where you cannot really make a statement from a quarter to another. What we've seen is that, and still there is a number of investments because, you know, the market is still short. And there are some big investments coming on stream today that will have a positive impact in the course of the next two years. So we are not specifically worried about that. On the opposite, you know, at one point, the thing is that today we supply that business from a highly specialized plant in the Netherlands here in Hocken, which is the only one in the world to get these very pure quality level at, you know, 99.99% of purity on this green solvent. And at one point, it's about how do you, you know, expand this capacity for a semiconductor. This is more the type of discussion I think we're going to have over the next 18, 24 months. And this business is becoming so important and crucial that at one point, you might need to have dual sourcing in terms of plant for security of supply and business continuity. So this is a is something we are studying as we speak. Eddie, I think, do you want to tackle the EGLE-1? Yeah, EGLE-1. I think I shared already in a couple of remarks there, so please refer back to that. She's already quite explicitly what the contribution, EGLE-1 contribution is. Basically, that outcome of cost savings on the variable cost-life articles, we are having a much more efficient process but it's a savings compared to conventional technology. And then of course, you need to staff it, you need to maintain the plant, so therefore you have needs in your fixed expense line. The combination of the two gives an immediate contribution. How does it plan out next year? The plant will become operational by the end of this year. So yes, depreciation will start to kick in next year. Say, for example, the 10% level of the CapEx that we have announced. that will be depreciation line for years impact but not hitting even down officially that's excluding depreciation and operationally it depends all about how quickly we are able to rent up the plant to full capacity because whenever we have the possibility we will use this plant as maximum as possible because this is the cheapest time to operate and that that is something that we have to go through next year because it always takes some some periods to go through the learning curve of a new plant and this is then also in the terms of technology and newer and newer types of technology so that will take some some periods to get us if i may add to that as you know i think one of the strengths we have because of the electric acid plant network having this five global plans is to be able, indeed, to max out capacity when we have the better cost position and also the best CO2 footprint, to be the case with this new plan from Thailand. So one of the things is that, obviously, we're going to max out that value, you know, as fast as we can. And we believe there is a lot of value creation going forward, starting in 2024, when we do that. the the maybe give you some granularity where do we stand because these are these are as you know massive plans um we've already started commissioning of utilities in that part so we know when you speak about different utilities side and and all the the the side processes this is progressing very well as we speak obviously the the the key part of the commissioning will happen over q4 when you start to put the the bugs the bacteria in the system and the and get the first batches. But so far, we are really well in line in this schedule. And the extensive commissioning will happen really over the second half.

OK. Then one other question, if I may. Can you maybe comment on the PLA landscape? I think in previous calls, there was a discussion that some capacity was mud-balled by Galactic's Chinese partner. Is there any change to that situation, but also in general to the PLA production landscape?

Actually, what happened in China really has been impacting quite a lot of these projects that were announced in China. And the situation in the Chinese capacity is also, I mean, when we look at the the statistics and what's going on is very similar to what we see ourselves. So in the sense that there is not a difference pattern in terms of market share or market development. Obviously, you know, what's happening on this softness we've experienced last year, last half year, has been also making people think about revising, you know, the millions of tons that were announced at the time. This is now quite low profile, to be honest. So on that respect, having a fully installed running capacity as we have in Thailand makes us confident that as soon as the recovery in the Chinese reopening hits, we're going to be there full steam.

Okay, thank you.

We are now going to proceed with our next question. And our last questions come from the line of Alex Sloan from Barclays.

Please state your question.

Thank you for taking the follow-up. Just two very quick ones. Just in terms of the inventory reduction in SFS in Q4 and the profit drag that had, are you expecting in your guidance for that impact to continue into 23 and and then I guess more more more broadly on the on the 23 guidance I mean it sounds like the five to eight percent volume mix target is going to be certainly second half weighted both in SFS and lactic and specialty on the on the top line and Would you expect kind of a similar phasing in the EBITDA growth, or might you get kind of more of the price stickiness benefit that you talked about in the first half to compensate for that? Thanks.

Maybe I can take this, so I'll give you an answer for the total for it. We're very confident about the 50% EBITDA growth, the organic EBITDA growth that we have reconfirmed for 2023. And also, we do expect that to see also in the opening quarters of the year. So we'll put the back a little bit in that sense. And by the way, the small thing you say, 5% to 8% volume, I'd like to make a small adjustment there. We always say volume plus mix. So that's really volume plus mix. And that is the 5% to 8%.

It's not the volume that we are trying for. We take a combination of the two.

Yeah, sorry, I meant volume mix. The line was a bit bad there. Can I just confirm that you're saying for the 15 to 20 that you're not expecting phasing there? That's the growth that you're expecting?

No, there's not. So when we talk about this skewing to the second half, that is more applicable for the pipeline development and the volume plus mix rather than the EBITDA growth delivery.

Okay, very clear. Thank you.

We are less...

seeing a pattern of skewing towards the end of the year.

Super. Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.

So let me close the call and thank you for all the questions. So as I said, as I mean, again, we discussed, although we had this disappointment in Q4 on EBITDA, uh i'm feeling increasingly confident in in our full year guidance and also as just eddie mentioned so we're going to look forward to update you uh as the year progresses and again we're going to speak again for sure for the q1 release on this have a very nice day goodbye