Good morning, everyone. Welcome to the Corbion Q1 2023 results call. With us today are Olivier Rigaud, CEO, and Eddy van Rhede van der Kloot , CFO. As mentioned, my name is Peter Keijzers, Head of Investor Relations. This morning, we published our Q1 results. You can find the press release and presentation on our website, www.corbion.com. As usual for our first quarter call, Olivier will start with a short introduction, after which we will pretty quickly move into Q&A. With that, I would like to hand over to Olivier.
Thank you, Peter, and good morning, everybody. Today, we published our Q1 2023 results. We delivered strong growth in both net sales and adjusted EBITDA in a high inflationary environment. We successfully secured price increases in the course of 2022 as compensation for higher input costs, and we're starting to see some relaxation of these input prices. We saw sales growth in all our three business units. Firstly, Sustainable Food Solutions has increased organically by 8.3% year-over-year, with higher prices more than offsetting a decline in volume mix. Volume mix has been impacted by a continuation of de stocking, which we started to see at the end of 2023, softening of consumer demand in line with macro conditions and some volume losses in the less specialized part of the portfolio.
We expect volume mix to improve over the remaining quarters due to our healthy pipeline and new strategic initiatives with related sales materializing in the second half of 2023. Secondly, Lactic Acid & Specialties has increased organically by 8.5% year-over-year, with similar dynamics where a decline in volume mix was more than offsetting by price impact. Volume mix was influenced by lower levels of lactic acid supplies to the TotalEnergies Corbion joint venture, as well as softness in the semiconductor industry as previously indicated. We continue to see strong positive performance in our pharma and biomedical polymer markets. Thirdly, our new reporting segment, Algae Ingredients, showed strong organic growth of 52.1%, primarily driven by higher sales within the aquaculture sector. We've also started activities beyond aquaculture.
The EBITDA in that segment has improved EUR 2.7 million versus last year. We are on track to meet the Advance 2025 initiatives and targets, among others, demonstrated by our growth in core organic adjusted EBITDA of 18.5%. We are also proud to share that we anticipate core adjusted EBITDA organic growth for the full year will be at the upper end of the previously stated range of 15%-20% as a result of expected continued sales growth and realization of operational efficiencies. The divestment process of our non-core emulsifier business is progressing well, and we anticipate to conclude the transaction before the end of 2023. Concluding, we are proud of what we achieved so far, navigated successfully through challenging times.
We face significantly rising input costs and supply chain constraints, are now seeing supply chain stabilize and several input costs coming down. We've proven to be agile in this rapidly changing environment. With that, I'd like to open the line for questions. Operator, back to you.
Thank you, sir. As a reminder, to ask a question, you need to press star one and one on your telephone. To withdraw your question, you can please press star one and one again. Once again, it's star one and one if you have any question. There will be a short pause while participants register for question. Thank you. We are now going to take our first question. The questions come from the line of Wim Hoste from KBC Securities. Please ask your question.
Yes, good morning. A couple of questions from my side. First one on the PLA markets. Can you update on what you see? You mentioned in the press release also that economic conditions are impacting the PLA market. Is there any light at the end of the tunnel also with regards to the factors around China and freight, et cetera, that's impacted the business previously? So that's the first part of the question. The second part is, do you make any progress on new customers, et cetera, in PLA? Can you share any thoughts on how that is going? Then a second question from my side would be on Lactic Acid & Specialties. The outlook for the semiconductor market, do you see further weakness ahead, or do you see some light at the end of the tunnel there? Those were my questions. Thank you.
Okay. Thank you, Wim. Asking on the PLA and the visibility on PLA, what I can say is that the longer- term PLA outlook has not materially changed. As we indicated, the near-term outlook is indeed impacted by our exposure to China and the impact of the supply chain following the COVID lockdowns, but also the past elevated freight costs from China to the U.S. So far, we've not picked up signals of, yet of a reversal in China, and we've seen further erosion, as you've seen in our numbers to the economic climate. What we see happening and what we've seen is, was a focus on cheaper products. And sometimes, some movement back to some fossil-based polymers, like polystyrene.
We've also seen a stronger reduction in inventories at our customers or the customers of the TotalEnergies Corbion and generally speaking, lower utilization level in industries, and primarily the packaging industry. On your question about new innovation, I think it's important, and we said last time, we are leveraging TotalEnergies application centers both in Europe and in the U.S., but also TotalEnergies sales force. As an example, in the U.S., we also now moved the PLA portfolio to the TotalEnergies sales force, so adding quite a significant amount of new additional sales resource on the ground. Moving from, you know, from the TotalEnergies Corbion sales force to the TotalEnergies means, you know, we have an additional 10 account managers on the field there.
As indicated, yeah, these people are working, I mean, also in renewing the pipeline and improving the pipeline, but we do not see a recovery before H2 on the PLA business. On the electronic, we've seen some softness there. However, again, we've seen that cycles in the electronic industry over the last, you know, also years. Indeed, I mean, all in all, we are not concerned about the midterm prospect of the electronic business. We are just, you know, now in a down cycle, yeah. We've seen that many times in the past, and we, those in, I mean, you know, a stronger recovery later. That's not an area of big concern, I mean, for us.
Okay.
Hope it answers your question, Wim.
Yeah, yeah, it does. Thank you.
We are now going to proceed with our next question. The next question comes from the line of Robert-Jan Vos from ABN AMRO ODDO BHF . Would you, please ask your question. Your line is open.
Yes. Thank you. Hi, good morning, everyone. A couple of questions. On the third of March, you talked about 5%-8% for your mixed growth for the core for the year. That has now been adjusted to low single digits. That is probably something like 1%-4%. What are the main reasons or what are the main new insights you obtained since the third of March for such a strong downwards adjustment in the volume growth expectations in core for the year?
That's my first question. Second, I missed that bit. On PLA, organically, sales was down about 50% in Q1. This will also be weak as well, as I understood. What did you say, Olivier, in the previous answer to the question, did you reiterate to expect a recovery in H2 or no recovery in H2? I couldn't hear that well. Related to this, is it fair to assume that H2 of 2023 will be comparable to H2 2022? Those questions are pretty much the same. The third one, in non-core, we saw an unprecedented volume decline in Q1. Pricing is still similar to Q1 of last year.
At the same time, you mentioned some relaxation of commodity input prices. Can you provide a bit more color on this volume decline in combination with the still growing strong pricing in in the unit? Related to a non-core, you. I think you used the exact same wording on the disposal process. expect it to be completed in 2023 or before the end of 2023. What is the progress made? Are you still in negotiation with different parties or a bit additional color would be very helpful. Thank you.
Okay. No, Robert. Thank you. I will address the first three questions and the emulsifier disposal. On the first question on the volume from the core, as we indicated, we see indeed a low single-digit volume mixed growth for the full year, with an improving trend during the remaining quarters. Although this is lower than originally indicated, it is driven by some short, medium-term drivers, most notably destocking and volume weakness in some end markets. We see, for instance, in some customers, some downsizing of portion size or softer demand. Also what we see that, and we are encouraged by the fact that our sales pipeline remains pretty healthy.
We still see very strong trend into what makes, you know, our portfolio differentiated in SFS in terms of the conversion from synthetic to natural, driven by the clean label trend, but also shelf life e-expansion there. The other part of the business, you know, Algae Ingredients continue to perform very well, and they are basically the full year is already contracted as we stated previously. In the LAS outside the lactic acid sales to the joint venture, we have a very strong momentum into the biomedical polymer business and in the pharma business. No concern in these areas there. Back to SFS, one other element, which is within our control, is also on the low end of our portfolio on pricing.
We are prioritizing pricing versus volume. We've decided to let some volume go into the low end of our portfolio because we do not want, I mean, to give away the excellent job we've done on pricing across 2022 there. This is also has impacted some of the volume in SFS in the low end of our portfolio. Yeah. On PLA, what I just said before, basically is that we believe we are at the bottom, but we do not expect any strong recovery, you know, over the next quarters. What we see is that, and primarily on the China front, is that some people that did stop using PLA are only resuming operations right now and rebuilding some inventory.
This is still very modest on the Chinese front. Cut a long story short there, we do not expect a strong recovery over the next couple of quarters there. On emulsifier, Eddie, or sorry, on noncore before coming to the disposal process, indeed, there is this volume decline. If you remember last year, what did happen is that the market went extremely up because we had and we were one of the few that kept really open across the entire period going through the supply chain disruption. You might remember the huge shortage of soybean oil at that time and vegetable oils.
Basically last year we inherited a lot of customers from our competitors that could not supply anymore. Things normalizing in terms of supply chain, some customers, you know, also favoring dual supplies are just getting back to dual source situation as it was in the past. There is some volume erosion. There is also another element that we had also to convert or help some customers to convert from competitors into some of our products simply because the capacity was not there. A lot of our competitors, some of our competitors had to declare force majeure last year.
It's just, I mean, now rebalancing on that front, you know, on the non-core. Again, we are feeling pretty confident on margin. Yeah, we see on one side, I mean, our price, being sustained and then the other, you know, also relaxation of some, commodity input cost on the emulsifier. On the disposal process, Eddy, maybe you want to comment?
Yes. Good morning, Robert-Jan. Yeah. I can confirm what Olivier has already been sharing that we are making good progress by having engagements with multiple parties in the divestment process. We indeed anticipate to conclude the transaction before the end of the year. I cannot share too much beyond that, to be honest. Maybe one piece of information is we are in the phase of where the data room has been opened. Multiple parties are in the due diligence phase. Yes, we need to give that a certain amount of time, of course, to come to a good outcome of this divestment process. I want to leave it at that stage.
All right. That's very helpful. Thank you.
We are now going to proceed with our next question. The next questions come from Alex Sloane from Barclays. Please state your question, sir.
Yeah, morning, all. Thanks for taking the questions. Just firstly, just going back to the volume mix and the change in guide there, can you give any color on how Q2 will look sequentially versus Q1? I mean, will there be any improvement, or is all of the recovery that you're guiding to on that front to get to the low single digit for the full year coming in the second half? On the SFS side there, in terms of the pipeline, you know, how much confidence do you have that those new products, you know, will land in the second half? Be good to understand that in a bit more detail. That's the first question.
Just on SFS, obviously the margins again slightly below consensus as they were in Q4. Again, I think you're referring to some inventory reduction that you've been doing that's been part of that drag. Maybe, you know, could you quantify that? Somewhat related, obviously you're guiding to 2.5-2.9 times net debt to EBITDA on the covenant basis. I mean, if I take your EBITDA guidance, you know, your guidance on CapEx, I guess to get to the sort of the low end there, you'd need a pretty big inflow when it comes to working capital. Maybe, you know, related to the work that you've been doing in inventory reduction, you could talk about the outlook for working capital for the year. Thanks.
Thank you, Alex, for these questions. I will take over the first two and Eddy the last two. On the volume mix, as you know, the decline started at the end of December 2022. As indicated earlier, we were facing some more pronounced working cap measure at our customers by year-end. We did see a continuation of this talking during the course of Q1, and this is in line with what we do ourselves. As we've seen, I mean, a really reduction to more normalized lead time. You know, just to give you a few example, before COVID, we used to have, for instance, if I take the U.S.
market, lead time to customers between 5 and 7 days, and during the pandemic, we had to increase to 12 days. The same is valid if you think about, you know, container shipment from whether it was China to Europe, used to be, you know, 4 week, 8 weeks during pandemic, now it's back down to 4 weeks. We see the same from Brazil. There is quite a lot of normalization happening there. Now, what we see, and based from our own experience, back to your question, is that, this impact of this talking is normally only visible, you know, over a couple of quarters, not more. We expect that, you know, to also soft during Q2.
What we see is a gradual improvement of this talking part over Q2 and not going beyond, you know, Q2. On the, let's say, the consumer softness, there, I mean, of course, this is more difficult to anticipate, although, I mean, at the end of the day, if I look at our SFS portfolio in preservation, you know, this is a must formulate in any food product for food security reasons. What we see is that we have a quite a solid, you know, still, I mean, like, older portfolio and customer pipeline in that part. When we look to the forecast over the next quarter, we see a gradual improvement over the next quarters.
Back to your second question, also accelerating over H2, more related to new initiatives and new strategic initiatives. We mentioned a few in the capital market day, you might remember. In there, we have one around the natural mold inhibitors. If you remember, we had an investment in Peoria, in our US plant around food ferment and natural mold inhibitors. This was commissioned early this year. As we speak, we are going through referencing phases at major customers, and we have some positive sign that this referencing will materialize in new business as from H2. A second large initiative we embarked on is around the natural antioxidant. There as well, I mean, we've been busy building a pipeline over H2 last year and this year.
You know, typically in the food ingredient space, it takes a good year to materialize a pipeline into business and we see that also materializing over H2, and we have good signals there. On the margin, I would hand over to Eddy and then the leverage.
Yeah. On your question on the absorption effect, as we call it, that the inventory impact on the margin delivery. Yes, that over quarters, that can be pretty pronounced. To give you some range of how we also have seen that in the past and also happening this year and going forward, you typically look on the business line level, so that's SFS or LAS, for example, in a range of up to 0-2%. That's what it can be from -2% to +2% margin points. That can be quite sizable. Yes, we are actively working on the inventory component where it is concerning the volume.
That is really what we can influence, of course, really, looking at going back to more optimized supply chain setups and this lower stocks that we have to have as a safety in our inventory positions. We're actively working that down. Yes, that did give an suppression effect, an adverse effect on the margin delivery in SFS and also in LAS, by the way, in this quarter. By the way, if you compare it to quarter one of last year, there we had an upward support from margin on when we were still in the phase of inventory buildups.
Just to give you a small insight there, if you strip the inventory impact over those two quarters, Q1 this year versus Q1 last year, the underlying margin delivery for SFS was pretty much at a similar level. That's a very comparable outcome. On the net debt to EBITDA ratio, yes, you're right at 2.5, 2.9. That's the guidance towards the end of the year. In there, working capital is indeed an important component. We do indeed expect, and we're working against that, again, on this inventory reduction volume-wise. We turned in already some of that in Q1, but we have more initiatives ongoing, which should give us further working capital reduction from inventory reductions from a volume component.
That's one that we can really control. What we could anticipate, especially when input costs are coming down, when these raw materials and freight and those components are coming down, also the value component per kilo, you should expect a reversal of earlier rises. That will also help us in getting lower working capital positions. As you know, we are typically not talking about balance sheet positions in Q1. Please want to refer back when we come out with the Q2 results to give you more insight on exactly what we have achieved in this first half of the year.
That's really helpful. If I could just squeeze in one more, I mean, you guys have talked a couple of times about, you know, input cost normalizing coming down. I mean, in that context, I mean, how confident are you that you can hold on to price versus maybe as we go through the year, have to deal some of that back to your customers?
What we've seen so far in Q1, because this trend already started, you know, in the course of Q4, but is that our price are holding pretty nicely, except in the low end of our portfolio, as I indicated earlier, where basically, we are also testing the market and, yeah, we've lost some volume, but not to the extent, you know, that we are seeing a huge erosion on the entire portfolio. We mentioned a few times, you know, about price stickiness. Of course, I mean, we see that happening in the high end of our product portfolio.
If you think about, you know, the biomaterial medical business or the pharma business or even into the very specialized differentiated food preservation where we have differentiated product. Now, what we see going forward is that I think it's very important for us, again, hold as much as we can to the increased level, and also making sure that we favor the mix improvement. So far, although we've seen, again, some competitive pressure, it is really impacting only the very low end of the portfolio, not the majority of our portfolio.
Thank you.
We are now going to proceed with our next question. The next question comes from Fernand de Boer from Degroof Petercam. Please state your question, sir.
Good morning. It's Fernand De Boer, Degroof Petercam. A couple of my sides, also coming back on Sustainable Food Solutions, because I'm a little bit puzzled because also in Q4, you did have some, let's say, saying goodbye to some of the low margin contracts. You still had a positive price of a positive volume mix, and now that turned into -6.3%. Is it then only volume which is deteriorating so much, even versus Q4, where you already had destocking, or is this also something in the mix effect? That's the first question. If I remember correctly, in the past, certainly biopolymers was a very erratic pattern. It was a low level, but if it came through in a quarter, it was very helpful to the EBITDA.
Is it now better spread throughout the year? That's another question. If I look at the presentation in the EBITDA bridge, you have now put everything together on the impact of price, mix, volumes, et cetera. Could you give us a little bit more color on what is actually driving this EUR 70.7 million?
Okay. Thank you, Fernand. On SFS, if we look at, indeed the trend is we've seen an acceleration of destocking compared to Q4. I mean, again, this was the main impact, if you want to compare Q4 to Q1, was really a strong acceleration of destocking. Obviously, we have also a few losses, as I said, on the low end of the mix. Really destocking had a big impact and again, that's the difference. What, you know, on biopolymer, what we do see usually historically, indeed, we've had strong quarters, lower quarters, depending on some of the product launches.
If you look to the mid and longer- term and the trend, you know, we've had really high sustained growth in that business year over year over year. When we look at also the pipeline in biomedical polymer, it's very strong. Indeed, we might have, you know, a low quarter or it might inflate a quarter and, from time to time. Structurally, you know, this has been really going up and up, I mean, a very, I mean, constantly.
Yeah. If I can add to that, Fernand, because you're with us for quite a while. Indeed, also take a connotation that erratic pattern is very much to do with also certain individual customers who are ordering for example, a half year's supply. Given that the base now of the biopolymer business on the growth that it has turned in over many, many years, it's a much bigger sized business now at EUR 50 million last year. That means the impact of individual customers' order pattern is having, of course, less impact on the total erratic nature, I'm not sure if that's an English word, in this delivery of this business.
That being said, we will still have some stronger and less strong quarters, on that order pattern, in certain situations. Your other question on the EBIT average, yes, we indeed are not going to split it out as we used to do that because, we made a change, of course, in how we split out the top line, volume mix on the one hand and price on the other hand. If we would apply that, how we used to do it in splitting volume and mix effects in the EBIT average, then you could exactly deduct what is then the volume component.
Basically then we give all the three components of the sales composition. I don't think that is the way we want to approach this. We will keep that together in one element in the EBIT average, while indeed in the top line, we will give the disaggregation in volume mix on one hand and price on the other.
Okay. One follow-up. In your press release, you state despite some challenging circumstances, you raise actually your EBITDA guidance. Is this, let's say, more tough environment regarding volumes, the challenging condition, or is it for instance, the sugar prices which recently moved up strongly? Could you elaborate a little bit on that? What are the challenging factors which have become more challenging?
Yeah, I would say that it's not so much in the sugar price because that one, if you look at the input cost, you're indeed singling sugar out, rightfully so. That's. We see some relaxational input cost factors, but sugar is moving the opposite way. For this year, we have the far majority of that position already covered from a price perspective. That is not really in a risk exposure for us that much this year. It's more indeed about how is the volume developments going to further develop going forward, giving the destocking, which should be of course, at a certain moment, stop, because that can only be a temporary phenomenon. More the general economic conditions, how is that going to reflect back to consumer behavior, what have you. It's more to be seen in that light than on the input cost element, I would say.
Okay, thank you.
We are now going to proceed with our next question. The next questions come from Patrick Roquas from Kepler Cheuvreux. Please state your question, sir.
Yes, good morning. A couple of questions also on the outlook. Your guidance for organic sales growth seems to assume quite a pickup in volume mix, and at the same time, sharp deceleration in pricing. A couple of questions here. I think you need, like, volume growth in the second half of more than 6%, assuming that Q2 will still be soft. You've alluded on, let's say, the initiatives in Sustainable Food Solutions. What if LAS sales to PLA remains under pressure? Also, the volume growth in all the ingredients in Q1 was much lower compared to previous quarters. The question is the 6% for the second half, is that a fair assumption? Where should it come from?
On the relaxation of input cost, your outlook still assumes, let's say, 3%-4% pricing in the rest of the year, which seems limited following, let's say, what we've seen over the last quarters. Finally, follow up on sugar prices, which increased, like, let's say 30%, over the last couple of weeks, at least looking at the ICE No. 11 price. Could this further delay the recovery in PLA? Is there a possibility for you to switch to other inputs? Those are my questions. Thank you.
Yeah. Eddy will take the first two, and I will take the PLA related one, Patrick. Eddy.
Oh, sorry.
Yeah, how we see the volume mix, you say volume, but I guess you mean volume mix. If we look at the dynamics, how we currently have it in our visibility over the course, is that indeed, from the minus 6 that we've seen in the opening of Q1 this year. As we will progress through the course of that, volume mix will gradually step up. Indeed, as a consequence, the second half volume mix growth is not too far from what you are assuming there, Patrick. The price question. Yeah, let's we come out of a relatively high, of course, elevated price level based on all the price increases that we have passed through in the market last year.
This year, we have been able, in certain segmented markets still, to have another smaller sized price layer. That's an additional price layer on top of the already elevated level of end of Q4 last year. Indeed, looking forward now that the input cost dynamics are changing in that sense for the better, meaning reversing in the aggregate. Of course, that dynamics will change. Then you come back to the earlier discussion that Olivier shared. This is about the price stickiness in the different segments we are playing. Indeed, pricing also through the quarters will be less of an factor going forward because also the sheer comparables of last year are getting stronger and stronger per quarter, assuming that.
Just also, Patrick, on your algae related question, I think it's important to see indeed that Q1 historically is not a high quarter in algae, although we've done pretty well. If you think about the aquaculture and primarily the salmon industry, and so the growth season is related to the water temperature. In the winter, the fish are less active and eat less so, and opposite is happening during the summer months.
Usually, if you think about Norway being one of the main markets, Q4 and Q1 are therefore always somewhat lower, yeah? In Chile it's the other way around, we've seen indeed that pattern over the last years, that is not a concern at all. We, we see?
If I may interrupt here, Olivier.
Yes.
In previous first quarters, you saw volume mix growth of an average over 100%.
Indeed. We've been again, also I think and again, maybe going into more detail, we've been also preparing some of the expansion we had over Q1, you know, to increase capacity as well. We commissioned the plan, so I think there is no really conclusion you might draw on Q1, Patrick, you know, volume. If we look to, I mean, the full year forecast, you know, with all the various customers, it's really well aligned with what we presented during the CMD in December and reaching the targeted number we mentioned at that time, you know, for 23. Don't read anything really special in the Q1 number in terms of, you know, consumption pattern or any trend. I mean, it's really not something you should read there behind, I think.
Just to quickly follow. Was it partly caused by the fact that you could not produce probably in the first quarter because of, let's say, the initiatives you took in Q4? Should Q4 be substantially better year-over-year because of the additional capacity that you have created compared to Q2?
I think I mean, when we develop additional categories than aquaculture, yes, you could assume that. Because, you know, if you go to pet nutrition or human nutrition, then we will smooth the seasonality you have in aquaculture. we are not yet there. I think for this year, we can still assume the seasonality related to the salmon industry with a, generally speaking, softer Q4 and Q1. Yeah. as we are moving and upgrading the product mix to pet nutrition and human nutrition, this will be less and less relevant going forward.
Clear. Thank you.
Yeah. On your question about PLA and sugar price related could delay the recovery of PLA, we don't see that for. The reason that Eddy mentioned before is, as you know, we have a hedging policy on sugar. Basically, we've been able to hedge, you know, quite a big large chunk of the 2023 sugar need, you know, already months ago, prior to the spike you see today, yeah? I wouldn't state we are fully hedged for the full calendar year, but we are hedged to a very large extent for 23 on sugar.
All right. Thank you very much, Olivier.
We are now going to proceed with our next question. The question comes from Reg Watson from ING. Please state your question.
Morning, everybody. I hear everything you have to say about de-stocking and customer behavior, et cetera. What I'm curious to understand is that you've put through significant price rises in every quarter last year. In fact, I think the price increase in Q1 this year is the smallest in core of all the five quarters, if we include all four from last year. Yet it's also had the greatest volume mix impact. I'm wondering if you can summarize whether or not we're seeing some shift in price elasticity of demand here from the customer base, ultimately, the price increases are now simply too much and they're taking their toll on volume.
Yeah, Reg, thank you for your question. The price increases that we are showing in Q1, again, that is much more related to the carryover of last year's price increases than new price layers. There's a small additional price layer this Q1 versus the ending position of last year. If you look to the businesses, the impact that where we are currently with our pricing on volume development, I guess that's your underlying question. For LG, that does not play. For the lactic acid business, also there, we have not really seen volume contraction because of pricing. In the SFS line, there we have some.
Like we stated also in the press release, that is very much only looking at the less specialized part of the portfolio and more the plain vanilla lactic acid and some simple derivatives. It is certainly not that at these price levels, we see volume contraction across the board, not only in our portfolio, but also not in the SFS business as such. Going forward, of course, yeah, we will manage this very delicately. We really want to maintain our price discipline, of course, and we will monitor this and steer this very cautiously to balance out the price dynamics versus the volume dynamics.
Okay. If I can come back to you on that. I, you know, if I look in both Lactic Acid & Specialties and SFS in the quarter, there was a significant decline in volume mix. You just haven't seen that order of magnitude coupled with the price increases that you had in those parts of the business in previous quarters, with I think the exception of Lactic Acid & Specialties in Q3. If we just, you know, just step aside from that one. If I look at all the previous quarters, you just haven't seen this kind of volume mix reaction to your price increases in the prior year. I'm really trying to understand what has changed in Q1 versus the year.
Okay. Again, I think Olivier Rigaud already tried to explain that. If you look at the volume mix decline in Q1 this year in the Lactic Acid & Specialties business is not because of pricing, it is because the lactic acid to PLA volume has decreased, it's not because of pricing. It's because of the global PLA market dynamics that Olivier Rigaud talked about on top.
Sorry, can I just jump on that?
And another.
Yeah. Just on that, I mean, yes, I understand that there's been lockdown, et cetera, but Olivier, in his remarks, did also mention that customers are switching to PS and other forms of packaging, so that is price related.
No, I think there is indeed, I mean, a part price related, I mean, on PLA, on the PLA joint venture pricing. Yeah. That could be a reason. The fact is that if you look to the entire packaging industry and polymer industry, you've seen a demand destruction in the packaging industry on that side, on the polymer side. Yeah. That's indeed different from our own pricing, to our direct customers, on PLA. Indeed, I mean, this is a very different dynamic because there you speak about the polymer world, fossil-based, you know, PLA is still a very minor, you know, competing product in that space. Then you're right. I mean, you see demand destruction in there, because some people went back to cheaper options, I mean, in that field, yeah.
Yeah. Okay.
On PLA. We don't see that in our, you know, direct, lactic acid business at all.
Okay. Understood.
On SFS, so Reg, so basically, yeah, we have these three blocks. We have destocking, we have softer demand, and we have some losses related to pricing in the low end of the market. Now, we believe destocking gonna really, I think, yeah, be mini-minimal over the next quarters because at one point, yeah, people will have the right, you know, inventory and will have done all their work in capital optimization exercise. On consumer demand, this is very related to the hyperinflation you see all over, and I guess, yeah, you see, I mean, most of the FMCG companies and peers facing the same softness.
Obviously on losses, I think this is. Pricing, this is on the low end of our portfolio under our own control. So far we want also to protect margin and EBITDA, and, you know, we don't see, you know, a huge risk, I mean, so far. With the losses we've had, you know, that is not really material and worrying at, you know, so today.
If I could then sort of summarize on that, Could we agree then that softer consumer demand is a result of pricing, and that the low end of your portfolio, the losses there are also a result of pricing? Destocking, it's harder to discuss because, you know, we've had big price increases in previous quarters and your customers have not destocked. That is a change in behavior that doesn't seem to necessarily be related to pricing unless they're expecting pricing to roll over and therefore they're destocking expensive inventory ahead of an expectation that the next round of inventory will be at a more modest price.
Yeah. Again, the most difficult one is your remark on softer demand. Of course, it's related to food pricing and overall pricing. We are such a small component in the recipe, you know, we are between, you know, usually preservative are in the 0.2%-0.3% inclusion, maybe 1%. Functional systems, we are in the 2%-3% range. The fact that, I mean, you know, there is a softer demand is primarily coming from the base commodity. You know, if you think about flour, meat, of course, you know, veg oil, these type of things. Obviously the energy impact on some of the processing aspect. This is what is driving softer consumer demand, not really the Corbion type of ingredients. This is still very minor in the overall.
That's clear. Yeah. Yeah. Okay. No, I hear you on that. Thank you very much. Thank you both for your replies.
Yeah. Welcome.
Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise. Thank you.
Also on this, I would close the call. I would thank you all for the questions and for the attendance today. Thank you very much and have a good day.