Welcome to the Corbion Capital Market Update on the 31st of January, 2024. During the presentation, all participants will be in a listen-only mode. After that, there will be an opportunity to ask a question. To register for the Q&A, please press star one one. Please note that this meeting will be recorded. I would now like to hand the conference over to Mr. Pieter Kazius, Investor Relations Director. Please go ahead, sir.
Good morning, everybody. Welcome to the Corbion Capital Markets Update call. With us today are Olivier Rigaud, our CEO, and Eddy van Rhede van der Kloot, CFO. My name is Pieter Kazius. This morning, we published our capital markets update. You can find the press release and presentation on our website if you go to www.corbion.com, Investor Relations, Financial Publications. Olivier and Eddy will guide you through the presentation, after which we'll move into Q&A. The presentation contains 2023 financial figures, which are unaudited at this stage. The final audited 2023 figures are anticipated to be released on March first. I would now like to hand over to Olivier.
Good morning, and thank you for joining the Corbion Capital Markets Day event today, with several of you here in our office and many others joining online. At the time of the Q3 results in October, we indicated that we would be holding this event ahead of the 2023 full year results because of the need to update the investment community on a number of significant strategic developments within our business. We've issued a press release outlining our proposed discussion this morning, in which, firstly, we've confirmed that the key financial metrics for 2023 were in line with our latest guidance. Secondly, we've alluded to a number of significant strategic developments, which include the divestment of the emulsifier business, which we announced last Friday.
A restructuring program starting now to deliver significant free cash flow and the simplified repurposed business unit structure. A review of the opportunity in the PLA market and our position in regard to the PLA joint venture. Going through our medical biopolymer business drivers and our overall ambition for this business, where we are targeting a doubling of our sales over the next five years, and a confirmation of our algae strategy and plans going forward with here as well, outperforming our strategic plan and with the ambition to double our sales by 2028. All of these factors help to underpin our Advance 2025 objectives.
We very much welcome questions today, and there will be ample opportunities to ask them, but I would just stress that as far as the 2023 results are concerned, we remain in a silent period, and further detail will absolutely be provided when we report the results in full on the first of March. So now, moving to, let's say, the agenda of today and starting with the 2023 performance. I'm really pleased to show these results in line with what we stated last October, with an organic sales growth of +3% and an organic EBITDA growth for our core activity of +16.2%. We've also generated almost EUR 90 million of free cash flow, and the performance was pretty good over the second half because over the second half, we delivered over EUR 55 million.
So that's, I think, a good trend also to spot out. As a consequence, our net debt to EBITDA was at 3.1x for the entire year 2023 at the end of December. So total sales of EUR 1.4 billion for an adjusted EBITDA of EUR 192 million, and core EBITDA at EUR 164 million. So we are, you know, at now 13.3% adjusted EBITDA margin. Also important to note that, seeing, you know, the positive continuing trend on our algae business, we reversed the algae impairment we made back in 2019. There is only quickly one non-financial I would like also to spot out here.
That is not on the list, but is a remarkable, you know, safety trend record, as this is one of the key also targets. We have within our sustainability scope, and we measure that on a total recordable index, and we achieved the best year ever in Corbion in 2023, with a total recordable injury rate of 0.51, and the lower, the better. We started the journey above one. Now, back to the emulsifier deal, and we're gonna come back to that later. But we've closed that and we've announced that, sorry, last week, Friday.
Basically, the closing is expected, you know, in the course of Q2, and we basically have a cash purchase price of $262 million and are estimating the net cash proceed of $275 million. So we will come back in more detail to that with Eddy. Now, let me go through what's happening, you know, around us, and obviously, we are all aware about the macroeconomic environment we are operating in. But you know, one of the positive we see is that primarily in our food business, we see customer de-stocking largely behind us now. We had this, to face this severe de-stocking in most of our business in the course of 2023, following the supply chain normalization.
But we can say that we've seen sequential improvement and, actually, as from Q4, primarily in our food business, we see, I think, this, this impact, you know, waning. So that's an important one, although we see a continued soft macroeconomic climate, and this is primarily in some of the biochemical markets, like semiconductors, agro, and also obviously, PLA. In these segments, we do not anticipate any strong recovery before the second half of 2024. In terms of input price, we see a positive trend, although we are not yet at pre-COVID level, but we see some nice relaxation in input price within the chemical ingredients we buy, freight, energy.
Sugar price being the only part that is still going up, although, you know, we are far from the high, you know, we've seen in Q4, and as you know, we have a constant hedge policy, so we are managing that very closely on a biweekly basis, actually. But the good news is that, yeah, the impact anticipated earlier is a lot lower. So overall, when you look to the input cost, we are anticipating some good decline in 2024. On the sustainability, you know, angle, whether we look at our food business and primarily the natural preservative, we see a continued positive trend to replace more synthetic and artificial ingredients, and this part is growing much faster than the overall food market. Around omega-3, there we offer a structural replacement solution to fish oil.
We're gonna also come back into more detail about that dynamic, but today, algae-based omega-3 is the only sustainable alternative to fish oil. And we see, I mean, of course, quite a lot of traction in terms of fish oil replacement going forward. Again, more to come later in the deck. The sweet spot of biomedical polymer, again, has strong underlying growth drivers, primarily related to aging population, more health focus, but also growth being driven by the new launches, you know, and we will also develop that primarily on the slow-release drug delivery and anticipated also nice development in the regenerative medicine.
And finally, around PLA, yeah, although we've seen, I mean, some market headwinds in the overall plastic polymer, you know, area, we believe that the transition, you know, to reduce dependencies from fossil-based plastic towards bio-based alternative, and PLA is one of the option, is a strong underlying trend for the years to come. So now, just looking at where we do play, important there to know that we play in very large addressable market. And this is where also we see nice growth area for the coming period and a lot of value creation also for the coming period. The first one being around natural food preservation and functional systems. As already highlighted, this is growing twice as fast as the overall food ingredient market, and we play on a large addressable market, over EUR 3 billion.
Within the adjacencies that we highlighted before in previous occasions, whether it is around natural antioxidant, dairy stabilizers, the natural mold inhibitors, and the dough conditioner, there as well, we have quite sizable markets. Most of these are new to us, and we are making very nice inroads into this part. Again, something I will come back at a later stage also in the presentation. And on the much higher growth opportunity, whether it is around PLA, the biomedical polymer, and the algae omega-3, there we have also very strong underlying fundamental growth driver on large addressable markets. So as we've announced, we embarked on a restructuring program to deliver business potential and to increase efficiency.
So as part of this restructuring program, we are moving to a simpler, more focused, and more efficient organization, basically resulting in a new business unit structure, moving down from three to two BUs, and also stopping reporting incubator as a separate, you know, reporting segment, and basically making the business more accountable for R&D and more strongly connected to the business. So these two business units, you know, the first one is around health and nutrition, focusing on high growth and high margin, and the second is on functional ingredients and solution, focusing on growth, enhanced operational efficiency, and mix improvement. And I will come back into the identity card of these two business unit a bit later.
Next to the business unit structure, we'd review all the support functions, basically starting with integrated supply chain and moving to a fully centralized end-to-end supply chain, also enabling us to share best practice across the entire company. We also moved back to a fully centralized R&D structure, driving cost efficiencies, generating synergies, but also increasing effectiveness and knowledge sharing. Although we keep a decentralized application labs, primarily for our food business, to ensure market proximity and agility. We've also reviewed the entirety of the support functions, have identified a lot of synergies as well, following the new business unit structure, and also looking at our overall process now that we are coming to the completion of our global ERP implementation.
The last wave of this global ERP implementation being in the upcoming April, where we have the last part, the last wave, impacting our blending operations in the U.S., and we would be done with a four years ERP implementation program. So that's gonna be a major milestones, I mean, on our side as well, and we are intending really to get optimized process following that implementation. Now, let's have a look to the ID card of the health and nutrition division. We are speaking there about the EUR 245 million sales BU. So this is 19% of the Corbion portfolio, and it has experienced a very nice, impressive organic growth over the last two years of 28% CAGR. So this is about nutrition, primarily our omega-3....
in aquaculture, but also stepping into pet nutrition and human nutrition, our biomedical polymer business, and our pharma solution, business. This BU is about focusing on this high growth and high margin business. It's about also sharing, you know, capabilities. We hold market leadership position in these three subsegments. We have either a number one or a very strong number two position in each of these segments. As I said, we are playing on high growth, addressable market with very strong barrier to entries. We have strong IP in the three of these subsegment. In this BU, we are committed to have, you know, continued innovation with high single-digit percentage of sales in terms of R&D spend. We speak about around 8% when we get also incubator back into, you know, this number.
We have capacity expansion options at existing sites, whether you speak about the algae business, the pharma ingredient business, or the biomedical polymer business. So we see this unit growing at around 15% per annum in terms of volume mix and above the 20% EBITDA margin going forward. When looking to the functional ingredient solution business unit there, this is a large business unit, slightly above EUR 1 billion sales, representing 81% of the portfolio, and it has experienced also a nice organic sales growth with a 10% CAGR over the last year. So obviously, the lion's share, so over two-thirds, is about our food ingredient business in there, 18%, the biochemical business, and then 6% being the lactic acid to the joint venture.
So there, again, we maintain our key strength building on the fermentation powerhouse that we have and the tail of blending capabilities we have across the globe to produce blends, systems, and solution. And again, we keep on with the strategy of replacing synthetic and artificial products by natural alternatives, being into the food space or into the biochem space. And all this is being sustained by strong application and tech support all over the globe. So let's say, the way we look at this division, basically, we address, and we have large position in stable market. We have also some great leadership position, again, speaking about the natural preservation or the functional systems. But we can say exactly the same for the let's say, solvent, natural solvent, within the electronics market.
The way we do operate there, from a base of various organic acids, being lactic acid, vinegars, being acetic acid or propionic acid, but also functional ingredients, it's moving up and training up the value chain, you know, to go for organic acid derivatives, where we are adding value or functional blends and combination of both to offer solutions to our customers. And we do that with a very strong tech service, tech support, and application labs in the various industries where we are playing. So this is a business unit with a well-invested organization, well-invested lactic acid capacity, and we will maximize, you know, with this new setup, also, the shared lactic acid base infrastructure. Maybe just also to highlight the way we've been operating the last years and what we're gonna continue to do, this is one of our strength.
If you look to the way, I mean, we actually look at mix improvement, looking at the bottom of this chart where you have plain lactic acid, over the last decade, the intent and the strategic intent has always been to trade up, you know, plain lactic acid into more and more derivatives. As you can see on this chart, we've been accelerating that trend as from, you know, 2019, 2020, you know, and in the derivative segment, this is where basically we are adding value. We are bringing more differentiation, where we have also higher margin.
You can see there reflected, obviously, the slowdown we experienced and the market indeed experienced across 2023, but the underlying trend and the plans we have in terms of investment we've recently made and the investment we have also in mind, you know, just a continuation of the strategy to trade up value from base lactic acid into more derivatives, into more blends and solution. Now, also in this division, we discussed earlier about adjacencies and where do we see upcoming value creation next to the big, you know, areas of natural preservation and functional systems. When you look at the adjacencies we described, you know, at last year, Capital Markets Day, we are really pleased to see this really getting quite a lot of traction.
These four initiatives do already represent 10% of our food ingredient sales, so we're gonna really continue there to expand and launch, you know, new value proposition for our customers in these segments. At the same time, in this business unit, our functional ingredient solutions, we are looking really to enhance our margin profile going forward. This is within this BU, where we're gonna have most of the efficiency improvement and cost reduction from the restructuring program. The target for us there is to have this unit growing on longer term at 4% per annum on volume mix and get back to mid-teens EBITDA margin. So important in terms of value creation, really, to realize within this BU, the benefits from all the recent investment we've made over the last two years.
Now, when we look at our asset footprint, you know, also, related to this business unit, we are well invested in fermentation asset capacity across the globe. With the new Thai lactic acid plant becoming operational this year, we've decided to stop the lactic acid fermentation in Spain. However, we are continuing the production of food ferments and other derivatives in the Spanish facility. But as a consequence, we are mothballing our U.S. Peoria operation. This is also part of the restructuring program we've put in place. And we can do that only because we have a unique, and we are the only global player in lactic acid, with plants all over the continents, that allows for flexibility from both a demand standpoint, but also an input cost perspective.
So when you see today volatility in some of the input costs or sugar price, you know, the fact that we have a global footprint is really allowing us to max out profitability by indeed allocating, you know, production where it makes more sense. I just want to end that footprint discussion with vinegar, because this is also one part, important part of, you know, the, the synergies and also, let's say, the EBITDA increase we've presented last year, and we are reconfirming here. We acquired a very small operation last year, and I'm pleased to say that this plant is now fully operational, driving cost efficiency by insourcing, you know, vinegar that we used to source externally. You know, and vinegar, for us, is one of the building blocks that we are further modifying, you know, within our antimicrobial systems.
So this plant is fully operational, is running, you know, in specification, and we have options to further expand, to further insource product at very limited CapEx amounts. Now, some words about, you know, this world-leading lactic acid plant we've just mechanically completed in Thailand. It's important to know that this is the largest ever investment we've made in the company. Yeah. So, this plant basically is a very important milestone. You invest only in these type of capacities every 10-15 years. So as I said, we are now very well invested, and we are very well invested, I mean, with a plant giving us a very important competitive advantage. Whether it is around, of course, I mean, cost, but also significantly lower carbon footprint. And this is important for two reasons.
One is obviously, I mean, also helping Corbion to match its sustainability commitment with a science-based target. But we also know that CO₂ will have a cost and a much bigger cost also going forward. So we also think that this lower carbon footprint, next to the lowest cost position, is also bringing some more competitiveness going forward for the years to come. Additionally, it will really help our customers to reduce their Scope 3 emission and provide also for Corbion an additional competitive advantage. So when you look to that asset, yeah, obviously, we have the investment behind us now, but the value ahead of us, and we see the value on two major components.
One, we communicated already last year, which is the variable cost reduction of EUR 10 million EBITDA impact, but moreover, a volume growth that could represent and will represent over EUR 40 million additional EBITDA. So, we've mechanically completed the plant in December. Now we are busy in the course of Q1, you know, on the, efficient startup. So basically, the ramp-up is foreseen, you know, as we're gonna have the first product getting out in the course of the quarter, you know, and then further ramp up across, Q2. So, giving the floor now to Eddie to go through the financial numbers and in more detail about the restructuring plan. Eddy?
Thank you, Olivier. Good day to everybody. A key objective of our restructuring program is really to accelerate our free cash flow delivery. In the graph, you can see the dynamics that we have seen in the last year. We started in the period 2017 to 2020, with multi positive free cash flow delivery. Then the years 2021 and 2022, you see more than significant negative free cash flows. And that is really being caused by one, is our investment program, especially the lactic acid investments that we've made, of which the Thailand plant, as Olivier has just been talking about, is a key component.
But on top of that, in that period, we've also been faced with global supply chain disruptions, very much as an aftermath of the COVID dynamics, and that's really increased the working capital significantly. So that's where two main factors for the negative free cash flows in those two years. We're very happy to see that we bent the trend in 2023. As you may remember already from Q2 onwards last year, we were already in positive territory. That further accelerated into the second half of 2023, and that's made us into positive territory for the full year of 2023, with EUR 19 million positive free cash flow delivery. And that's also the trends that we see ourselves continuing with into 2024 and 2025, a EUR 50 million cash flow delivery in 2024 and a 75 in 2025.
That, by the way, talking about the year 2024, this year, is excluding—these figures are excluding the net cash proceeds of the Emulsifier divestment, as we announced that last Friday. The next three pages, I will run you through the three key areas of our free cash flow delivery, being operating expenses, CapEx program, and working capital development. Starting with the operating expense, we embarked on a restructuring program to structurally reduce our operating expenses by EUR 55 million on an annualized basis. That is composed of EUR 20 million annualized savings in variable cost savings and 35 savings on the fixed cost level. Now, the variable cost savings, that's something we shared already a year ago with you in the Capital Markets Day. Two main components. One indeed is the full utilization of this new Thai lactic acid plant.
The moment we hit that full utilization, that will give us EUR 10 million savings versus the conventional way of making lactic acid. It is a cheaper way of producing lactic acid in that sense. And then besides that, we've also announced we are insourcing a few products that we have, purchased in the past externally. That will also give us EUR 10 million variable cost savings, and an important component of that is the earlier announced vinegar production capability that we have now in-house. So that is not really new news in that sense. What is new is the fixed cost savings. So the EUR 35 million annualized savings program that we have embarked on, it's really about simplification of our structure, of our processes, efficiency improvements. So very much also the new organization structure, business unit structure, Olivier has been talking about.
A key component in that is the asset optimization, resulting in mothballing one U.S.-based production plant. That's the called Peoria plant. So that's an, a component in that savings realization. And underlying, we are looking at a reduction of 200 positions globally, so that's across the board in all functions, in all geographies. So that is the program that we are embarked upon and will execute this year. To make that happen, yes, of course, we have to incur one-off cost, restructuring costs. We give here an order of magnitude, EUR 15-20 million. There are still a range there because we still have, for example, to negotiate the severance packages. Take, the example here in the Netherlands, for example, with the unions.
It's a mothballing cost of the U.S. plant, and that being stated, the majority of these restructuring costs, cash out will be anticipated to happen this year. The second element of free cash flow delivery is about our CapEx program. On the left side, you see what we've been doing in the last six years. Anything in purple relates to lactic acid capacity expansions, being in light purple, the bottlenecking program on existing plants, and in dark purple, this new Thai lactic acid plant that is now becoming operational. So you really see that we're coming now out of this more significant investment phase and going forward, we are looking at a much reduced CapEx level, with an indication of about EUR 110 million per annum. The composition of that is maintenance CapEx of about EUR 50 million per annum.
Maintenance, by the way, is meaning anything but expansion. So that is not only maintaining the plant infrastructure, but also IT investments, for example, is captured in there. And then you see a EUR 60 million per annum expansion investments, and the breakdown of that, where that lands is in the-- on the right-hand side to be found, the investments we will make to expand our capacity and capability in Algae biomaterials and what have you. So that's all on the purples and on the blue box on the right. And I want to express again that these expansion investments typically come at very nice, high returning rates of return of above 20%, post-tax. Then the last element on the free cash flow delivery is about working capital.
So we see that we are returning our working capital metrics to pre-COVID levels. Metrics, we have here two of them. In the bars, you see it as expressed as days, and in the line, the purple line, is expressed as percentage of sales. And we are coming from a long period where we were trending very stable, 90-95 days, or equivalent of close to 20% of sales. And really, starting in the year 2021, we've been faced with these disruptions, global supply chain disruptions, on the one hand, meaning we had to stack up our inventory in terms of kilos as to continue to well enable to supply our customers, but also on top of that, we had the input cost inflation wave, which we'll talk about later in the presentation, meaning more expensive kilos.
So that was a double hit, really causing us to see higher working capital levels in 2021, 2022. We've reached the peak of those positions by June last year, so that's the H1 column you see there. And we have already bended this trend towards December last year, and we see a further continuation of reducing our working capital positions in the coming two years, based on partly further reduction of inventory positions. So that's a continuation of the successes we already made in the second half of last year, but also increase of DPO, because that was relatively a low payables level in December last year because of low procurement activity as we were winding down our inventory positions. So that concludes this part. Hand over back to you, Olivier.
Yeah. So, just back to this restructuring program and to end on that section. It's important to say that it's all about execution. So, making sure we have a very strong and rigorous execution on this, we've set up a transformation office led by Jennifer Lindsey, that the people present here in the room will see just after the presentation. So the head of transformation is reporting directly to me. And I just want to emphasize, we do not want this exercise to be just a one-off cost-cutting exercise. The aim there for us is really to implement longer-term efficiency improvement across the entire organization.
So next to this, of course, EUR 35 million that Eddy just presented, obviously, the next activity we're gonna work on is how do we compensate for the emulsifier standard costs, you know, immediately. So we're gonna come back to that also in a minute, but that would be under the, let's say, management of the transformation office. So, having said and been through that, now let's go through the three strategic initiatives we agreed to detail today, starting with PLA. And on PLA, we've been, you know, through all options. We have considered all options, from full exit to partial exit. We've been looking to all, you know, business drivers, outlook, and basically our decision following that thorough review has been to stay committed to the PLA business.
So we can really state firmly that Corbion and TotalEnergies are committed to PLA. In terms of value creation drivers, we are very well invested in Thailand. I will provide further detail today, but there is ample room to really get much more value creation from the current asset and max out the current asset we have in Thailand to serve in a very short term existing markets, and the mid- to long-term, to build further differentiation. Now, let me come back to what happened and give more granularity on what happened. No surprise, we faced, you know, a massive market slowdown due to the global economic downturn simply just in line with traditional fossil-based plastic. I just put in there the example of PE, but we've seen the same pattern across the globe.
If you see, I mean, basically on the joint venture journey, you know, this joint venture was set up in, back in 2017, start to operate Q2 2018, at the time, and has experienced a tremendous growth pattern. Then we've had this sudden slowdown, mid-2022, as you can see on the charts there. Now, when considering, you speak about 175,000 tons current PLA market following the downturn, this do represent a lot less, you know, than 1% of the global polymer market. Think about the global polymer market, fossil base of 350 million tons. We are speaking about PLA of 175,000 tons there only. So today, the capacity occupation, with all installed PLA capacity, is around 55%-60% at max.
What we can say is that during this period, obviously, we experienced, as you have seen, the same downturn as the entire market. However, we've consolidated or even strengthened slightly our number two position in this market across the period. Now, also, if you go back to what we said last October, we see now, you know, the sales contraction bottoming out already now since a few quarters, and Q4 was a confirmation of that. So, and that's an important also message I want to convey here today, is that we've not seen, and we do not expect any further erosion on the PLA market. With the pipeline we see, we expect recovery as from H2 later this year.
Now, looking to also more granularity, when you look at this 175,000 tons today, two important messages there. First, two-thirds of the PLA is being used in food packaging and food service ware market, and almost 50% is being sold in Asia, with China being the largest market there, and also the market with the most favorable regulatory environment. So when we look at short term and the capacity we have in Thailand, basically the joint venture strategy will be to really max out the asset, and we believe this asset is ideally positioned from both a cost and the geographical perspective, to serve the existing categories and the existing geographies, you know, where PLA is growing. Now, back to basically the longer-term drivers.
As we said, you know, PLA is less than 1%, but we believe longer term, this market could represent up to 10% of the overall plastic market. So PLA plays today in a bio-based market of roughly 3-3.2 million tons of bio-based plastic. However, if you look to the top right chart on the orange piece, it has quite important positions in both rigid and flexible food packaging, into agricultural film, and in food service ware. What we see in terms of regulation is that some geographies are more advanced, and primarily China and some countries in Asia, and U.S. is getting there with the IRA program. The only places in the world where I think the situation is still, let's say, unclear, is Europe.
Europe is, I think, still very disjointed in terms of having, you know, a uniform and harmonized regulation regarding bioplastic and the bioeconomy, despite all the announcement. Second thing to highlight there in terms of PLA technology. The PLA technology is moving about how do you differentiate, you know, the bio-based polymer, bringing more functionality. The most notable progress the joint venture has made is being able to develop a recycled PLA technology. And recycling PLA seems easy, but it's not easy to get a food contact grade. And so far, the JV is the only PLA producer having the approval for food contact on recycled PLA, and we start to market recycled PLA to have that part of the portfolio going forward. Next, to the point that basically innovation in some of technology and end-use application are also moving.
Whether it is, and I will come back to that in a minute, you know, heat-resistant PLA or getting to new application as spanning packaging or textile, or even a medical device. So looking at, the, the differentiation that joint venture has embarked, it's also to have and build less exposure to, I mean, the, the wider cyclical, polymer market. And focus, you know, the fill up of the plant capacity into higher differentiated, market. On this, I've put a few example of what do we have in the pipeline. There are a few ones that could represent, you know, also a very important level of differentiation. I'm primarily thinking about the last one on expanded PLA, where basically there, we bring very nice functionality to replace expanded polystyrene. And the example of noodle cup is a nice one.
We are developing primarily for obviously the Chinese and the Asian market, where we see further development. So to conclude on PLA, yeah, thorough review of our options or opportunities. Conclusion, to remain committed into that. Basically now, going into the next short-term phase to max out, you know, the current asset in Thailand, fill that capacity, and we have ample capacity without the need to invest, you know, there. And continue to work on a longer-term pipeline to bring differentiation and get out of, you know, the cyclical, you know, nature of the wider plastic polymer market. Now, moving to the sweet spot of our biomedical polymer business. This is a business that is, you know, highly functional, strongly differentiated, with high double-digit margins. And we've been outperforming our own strategic plan there. We've experienced a very nice CAGR over the last years.
We have a market leading position, a highly differentiated business with a lot of IP and very high barriers to entry. When you develop, you know, a project, a product for a customer, basically, it's almost tailored for each customer. Once you get, of course, FDA or pharma approval, basically, the effort and the cost to change is too important, I mean, again, to go back and go for alternatives. So what we are expecting in that business is to double our sales by 2028 to above EUR 100 million mark there. And this would be supported by, of course, strong growth within our existing business, but also the high developments of the key initiatives. I will come back on in a minute.
The other point to mention in that business, and this is a very important one for the market we serve, is that we have a dual production footprint, with one plant in Europe and one plant in the U.S. This is fundamental and critical in terms of business continuity for these customers. As I think, again, you cannot take the risk to have a single sourcing, you know. Basically, having also this dual footprint is a critical competitive advantage. We believe we can double our business above EUR 100 million in these two sites with rather limited investment. Now, we address very large market. It's over EUR 1 billion, it's growing pretty fast, and we want to have a dual growth approach there. The first is to maintain our leadership position in wound closure and orthopedics, and to accelerate the growth in the drug delivery segment.
On this, I will come back into the new technology that was launched last year with MedinCell and Teva, but we see very nice opportunities there to further build better cost-effective therapies with our partners there. And last but not least, there are a few areas we are exploring today, where we are developing prototypes. I'm thinking about regenerative medicine, and we have a few others that will secure the longer term growth. But then you speak about a 5- to 10-year portfolio going forward. So let me come back to close with this drug delivery initiative. You might have spotted last year the FDA approval from Teva on, you know, this slow-release drug delivery that was, you know, co-developed with MedinCell, our JV partner there.
We are really happy to see the first proof of concept, actually, with this active drug for schizophrenia being UZEDY. That was approved, again, as I said, back last year in April, and was on the market, and is on the market since May 2023. But more important is that, yeah, this proof of concept then enabled Teva to really accelerate 2 other products that are now in phase three clinical stages, and there are 5 more projects now, you know, in preclinical. So there is a full pipe, you know, happening now based on this massive breakthrough. So probably more to come later, and but, but this is, I think, really also very promising and highly differentiated technology. Now, moving to the algae roadmap.
AlgaPrime, you might remember, you know, the growth journey we presented in the early days of Advance 2025. Basically, looking back to the 2019 to 2022 period, the aim was to fix the business and move it from a loss-making operation to a breakeven. Again, we achieved that back in the summer 2022, and we did that by expanding volume of AlgaPrime into the aquaculture sector. Now, the current period is to leverage our technology and to grow beyond omega-3 in aquaculture, into pet and human nutrition. And we have the first very successful delivery there. Next phase is about really expanding our portfolio beyond omega-3. And to just further build our nutrition capabilities within the health and nutrition division, with other algae oils, with micronutrients, and with natural antioxidants.
So we've had a very successful 2023, continuation of growth, over 40% volume mix growth, expanding the customer base, and now serving over 20 countries with this business. The growth opportunities to generate higher margin, you know, primarily pet nutrition and human nutrition, is progressing very well. As an insight, pet nutrition today is already representing 10% of our overall sales of algae ingredient, and is developing quite nicely at a high margin. So our intent is, you know, to have the same path for human nutrition going forward. So we've developed the technology, we've launched the product, so we are on that track now.
Also, very important achievement in the course of 2023, was to be able, with the R&D infrastructure in San Francisco, to optimize our algae strain with over 15%, even more efficiency, but also capacity investment enhancement, without having to put steel on the ground. And that's quite important, as we believe there is still more to gain from a yield efficiency improvement, and that's important in the frame of our CapEx program. So next to this yield improvement, we've started a debottleneck program in the current facility. We presented earlier an overall EUR 50 million program that started already, let's say, back in 2023. So we still have another EUR 40 million to go, to get to the EUR 200 million sales, we presented earlier.
Finally, obviously, we also strengthen the partnership with key customers, you know, to secure longer-term volume, primarily in aquaculture, but also in pet nutrition. This is an important slide that you've seen before, but I'd like to come back in a minute. There are a lot of questions about fish oil dynamics and obviously whether we're gonna see some cyclicality in our business related to fish oil. Historically, if you could see the bandwidth, you know, the gray dotted line, you know, fish oil supply catches have been between 950,000 tons to 1.1 million tons, yeah? Historically, with a peak back in 2018, and now you can see we are on the very low side, even below the 950,000 tons mark.
So a lot of volatility in this market. However, we believe with global warming, with also more restriction in terms of sustainability and number of catches that are being allowed, structurally, yeah, fish oil, will, I mean, unlikely, you know, go above the one million tons. And even if we would get back to the one million-t on level in the higher end of the range, this will not happen in 2024. And as from 2025, if you consider the supply gap with the omega-3 market strictly growing at 2% per annum, you know, basically, there will not be enough fish oil structurally to fill, this supply gap. And algae-based omega-3 is one of the few alternative available at scale, but also on a competitive base.
The last point I'd like to mention on this slide is that algae omega-3 taps contrary to PLA into an existing market there. There is an existing omega-3 market that we simply replace by algae-derived omega-3. Yeah, so and, so that's also an important statement, thinking about also the volatility, of this, market. Now, this market is today already a large addressable market, over EUR 3 billion. We believe that algae does represent EUR 500 million today, and we see this market growing very strongly, doubling in terms of addressable market up to EUR 6 billion by 2035. So in that respect, we believe, you know, our business could be a, you know, EUR 500 million, business, you know, by, by this period, by this time. Now, looking at the current plant in Orindiúva, Brazil, and the current facility, we are on track.
We are even ahead of our strategic plan. We have sufficient capacity till 2028 at very attractive return. So we are planning, you know, EUR 160 million sales by 2025, at a EUR 28 million EBITDA, and up to EUR 200 million, so doubling our sales by 2028, over the next five years, for over EUR 40 million EBITDA there. So this is, again, happening because of the yield improvement I highlighted before and the debottlenecking program I also just mentioned. So when you look to the, let's say, longer term, also important to stress that there is no need to have significant CapEx beyond the EUR 40 million. You know, we still have to spend on the current facility, and there is no imminent decision to be taken for the next step. The next decision will come early 2026.
For this next decision, basically, we are considering, and we are actively working on two options. One will be to grow modular at the current facility in Brazil. Obviously, this would be a lower risk approach. Another would be to work on a greenfield operation, you know, on another site. Now, having said that, no imminent decisions are there. We are still working very much on yield improvement on technology, also to minimize or optimize CapEx cost in case of a greenfield. So we will come back in due time, you know, on the options we're gonna select, early 2026.
So back to summarize on these slides, yeah, I think very strong growth trajectory, high level of confidence to reach the EUR 200 million mark by 2028, and big business potential in the years to come, in the decade to come for the algae business. Now, let me hand over back again to Eddy for the financial update. Eddy?
Thank you again, Olivier. So I will take you through the financial update and the related guidance. So let's start with looking at the sales growth. So one of the objectives of Advance 2025 is to profitably grow our company at a higher pace than before Advance 2025. And in the graph on the left, you can see in gray that we really did step up in our growth dynamics. In the years 2014 to 2019, we were growing at 2% on average, and in the period under Advance 2025 from 2020 onwards, we are growing at 12% on average. Of course, we do know that this Advance 2025 period has been quite supported by steep price increases, following the whole input cost inflation dynamics that we will talk about later.
But if you subtract from all the pricing elements, then still the underlying volume mix development also has been seeing a step up to about 5% on average in the last four years. Within that, of course, the last year, so the year 2023, we did see a reduced volume mix development. Part of that has already been explained by Olivier on destocking, that we've been confronted with, like lots of other businesses as well, I would say. And also softness in certain markets. Think about electronics, agrochemicals, and lactic acid to PLA. Going forward, as you will see later on, we do anticipate a pickup again in the volume mix for the years 2024 and 2025, in the range of 2%-6%. So talking about input cost inflation, I think that is nicely depicted on this sheet.
So this graph shows the input cost inflation for the variable cost components for our core business activities. A variable cost that comprises raw materials, packaging, energy, and freight. So this is not showing labor inflation, for example. And what this clearly shows on the left side, that starting somewhere in the course of 2021, we saw an increase in this input cost inflation. It has peaked in H1 last year, so that is in the middle of the chart, and we did already see some relaxation happening in the second half of last year. And with the current visibility that we have and the current contracted positions that we have for this running year 2024, we do see a further relaxation of this input cost inflation.
This also includes all the dynamics of sugar that we see in recently, that sugar is on the rise, but that is all reflected already in this outlook for 2024. I think it's also good to state here that although we do have a relaxation, by no means we are back to pre-COVID levels, huh? It's more or less, if you take the end position in Q4, anticipated Q4 for this year, we've not even recovered less than 40%. So we still have quite some way to go if these all raw materials and what have you will normalize back to where they came from. Then in this volatile environment, we've been able to grow our EBITDA by 8% per annum, both measured in absolute terms, but also on the organic basis.
And on the right-hand side, you see that the reported EBITDA margins for core have recovered a bit in 2023 to a level of 13%, so that sits slightly stronger than the years 2021 and 2022. But if you would take the assumption that the whole input cost inflation rate would never have happened or will-- if it fully reverses, then the underlying EBITDA margin is more or less sitting stable between 15% and 16% for the last five years. At the CMD in 2022, we guided on the EBITDA organic growth rate of 15%-20% per annum, and again, we reconfirm this growth rate guidance. In that, we delivered that first year in the advanced period of 16% in 2023.
The graph shows on the right-hand side, the EBITDA 2025 outcome for the range at the low end or the high end of this guidance range, at 15%-20%. If you take the midpoint of that, so being at 17%-17.5% growth for the years 2024 and 2025, we will land at EUR 226. It's important to state here also, by the way, that this is assuming the same currencies as what we have experienced in the year 2023. So we don't take a forward look on stronger or weaker currencies in the next two years. This sheet illustrates then the key components towards this midpoint EBITDA delivery in 2025. It's a very similar setup as what we shared at the Capital Markets Day a year ago.
So on the one hand, we will have EBITDA growth coming from variable cost reductions. That's the EUR 20 million we talked about before, assuming a full utilization of the new lactic acid plant and the cost reduction of this insourcing of production, vinegar being an important component there. So that's not new information. Then the business growth, very comparable also in terms of outcome compared to what we shared last year, but this is now already structured according to the new segmentation. So EUR 30 million contribution from omega-3, that's the algae-based omega-3, close to EUR 10 million in contribution from health nutrition related to other, and that means biomaterials and pharma. What is really the difference from a year ago is the lactic acid, the PLA contribution.
If you take again the chart that Olivier shared on on PLA delivery in the last one and a half years or so, you do see that we had a year ago a contribution from EUR 10 million expected here, and we are sitting now at minus two for this three-year period. So that's really the big change, I would say, compared to a year ago. And then functional ingredients and solutions will contribute EUR 35 million, and that also includes a big share of the restructuring cost contributions. So that will bring us to a level of EUR 240 million. Then to bring it to 2026, on the right-hand side, we have been faced with currency headwinds.
So if currency remains where they are for the next two years, then we will be faced by the end of 2025 with EUR 40 million, and that brings us to 226. I do like to make a remark on the EUR 240 million. Last year, we made a similar sheet where we've been showing a roadmap to EUR 250 million. That EUR 10 million shortfall that you see compared to here is caused by two factors only. That is the starting point in the year 2022 is EUR 5 million lower than what we then anticipated, because a year ago, we did not have the actuals of 2022 yet. So the starting point is EUR 5 million lower.
Then also the growth rate in 2023 has been sitting at 16.2%, which is slightly lower than the 17.5 midpoint that that sheet was based on. So those two factors are driving this EUR 10 million lower outcome. And I do want to repeat again that we are guiding for organic EBITDA growth rates of 15%-20%. We're not guiding on the absolute amounts because we cannot, of course, influence currency developments as an example in the next two years. So we're actively managing down our funding ratio towards the 1.5-2.5 range that we are striving for. On the right-hand side, you see the development where we have been peaking by June last year to a level of 3.4 turns.
We are already bending the curve in that sense, and came out with 3.1 for the December position last year. If you would apply the emulsifier divestment as if it was already fully closed by the end of December, then I will call that a pro forma, then basically, we will already be sitting at a 2.4 based on the 2023 position. That shows you the impact of this emulsifier divestment, but we all know that that will be closed out in Q2, rather than in December last year, obviously. From that basis, we still see some further room to improve our funding ratio to a level of 1.8-2.3 for this running year, 2024.
So that brings us more in the midpoint, I would say, of the guidance range that we set ourselves. On the left side, by the way, some remarks on the debt structure. You may remember, we have pretty good funding position with average interest rates by the end of December of just below 4%. And also, when it comes to redemption of our debt, the first redemption will only arise by the end of 2025. So there's nothing short-term imminent that we need to refinance the company in any components. New group segmentation core. So we will continue with two units going forward. So as from this year, so that there are the two units, health and nutrition and functional ingredients and solutions, and Olivier already shared what are the key components within those two units.
And then on the right-hand side, shall we maintain the old overview just to keep track of what we've been doing? So you see everything is pretty empty by now on non-core, really showing that we have lived up to all the intentions that we set ourselves three years ago. The one and last remaining non-core activity is, of course, this emulsifier business that we will expect to close out in Q2. So I think that's nice to close it out with this overview. The guidance framework, comparing last year's CMD to now. So organic sales growth, so this is volume mix again. So we take that a notch down in the coming two years.
I think you also have that read to 2%-6%, the current environment, the macroeconomic environment, which still shows some volatility, as we discussed before. We maintain the organic adjusted EBITDA growth, 15%-20%. Free Cash Flow, that's a new one that we added. That was not there a year ago, but given the importance, and we want to give that extra focus, we really see that as a metric to guide on. So EUR 125 million cumulative for the next two years. And then the underlying ambitions. The margin, the ambition that we have there, has already been captured early in the presentation, above 20% for the health and nutrition unit and for functional ingredients and solutions in the mid-teens.
CapEx, we reduced our CapEx intensity for the next two years to a level of EUR 110 million per annum. And again, the covenant net debt, EBITDA ratio, we maintain the original guidance in terms of bandwidth. Then on outlook for this year, 2024, organic sales growth for the core activities. First, focusing on volume and mix components, that's what we guide on. So that we anticipate to be in the range of 2%-6% for the full year of 2024. Within that, we'd like already to signal that the first half, H1, is likely to be flat, and that is especially related to the biochemicals and lactic acid to PLA activities in the functional ingredients and solutions unit. And there is quite some strong comparables, for example, to beat, especially in the first half.
Think about the electronics, agrochemical markets that came down after Q1, Q2 last year quite considerably. We don't anticipate a quick recovery in the opening quarters for this running year. I'm still on continuation of the upwards momentum that we see in the volume mix development in food. So we see a nice upward trend in the course of 2023, and we see that continuing into 2024. So this is again in the functional ingredients and solutions unit, and then obviously an ongoing growth in the health and nutrition unit. So that are all statements related to volume mix developments. On the pricing side, we do anticipate a negative pricing impact, but that's really mainly in the functional ingredients and solutions unit, and that, of course, has to be seen following the input cost relaxation.
Bring back in memory that chart, which we shared before. Adjusted EBITDA, organic growth, higher than 15% for the full year. Then, Olivier already talked about, yeah, whenever you divest something significantly from day one, you're always faced with dis-synergies or stranded cost, whatever you want to call it. What we want to do here is we will separately disclose that in the coming quarters this year, because we really see this as a transition year, so we will separately disclose that. The current estimate is that out of that, dis-synergies or stranded cost, we will have a net negative impact of EUR 50 million, because part of those costs, we will be able to charge through to the new buyer.
Because the new buyer, we will allow for a smooth transition, and we will service that new buyer for quite some periods this year in terms of IT, finance, HR, and also we will help there on the commercial side as well. So the net impact is EUR -50 million for this year. For 2025, we will fully recover this stranded cost going forward. Restructuring costs, we stated before, EUR 15-20 million as one-offs, and our free cash flow delivery over EUR 50 million for this year. And within that, CapEx between EUR 100 and EUR 110, and the ratio, like I explained before, covenant that is between 1.8 and 2.3 turns, measured at the end of the year. That's always what we guide for here. Olivier, then I'll hand it back to you.
Okay. So, just to conclude, I think you've heard a lot from Eddy and I over the last hour. So I'd like to thank you for your engagement. And before going to Q&A, what are the key messages I'd like you to reflect upon? So I would stress the following, so that the 2023 full year outcome was in line with what we had indicated in October last year, and at EUR 164 million EBITDA for our core activity, reflecting an organic EBITDA growth of 16%. The sales of the emulsifier business not only addresses an outstanding strategic adjustment to our portfolio, but also significantly benefits our balance sheet position. As highlighted, this will be enhanced further by our restructuring program to deliver significant free cash flow and starting now in 2024.
Given how 2023 developed and with an ongoing geopolitical and macro factors, although we see this talking now behind us, we believe we should remain cautious in our near-term expectation, particularly in the first half. But over the recent months, we've reconfirmed the growth opportunity in our addressable market, in food, in algae, in biomedical. So we've simplified our business structure to enhance efficiency, and we are very confident in terms of value creation for both 2024 and the remaining of the Advance 2025 strategy. On this, I would open to Q&A.
First question is from Robert Jan Vos .
Yes, thank you. I have a couple of questions. Do you want me to ask them one by one or...?
Yeah.
All at the same time?
One by one.
One by one? Yeah. The first is on PLA. You updated us today with your mid, short term, mid-term, and longer term outlook or expectations, but that has not really changed versus what you said last year. So my first question is, why now the decision to continue? Is it in any way related to the successful disposal of emulsifiers? And related to that, did you try to sell the stake to Total? Maybe you can elaborate on that.
Yeah, no, so this is a good question. So, answering straight on, and I don't want to speak for Total, we didn't try to sell the stake to Total. You know, the statement, the only statement you know we have there on Total is that they are committed to this business, yeah. When you look to the overall, not just the recent downturn, but the overall JV performance over the last years, whether it is in terms of EBITDA delivery, I mean, even in a tough year, like 2023, you know, the EBITDA margin was above 15%, yeah? So not, of course, related to the previous level, but still, you know, a decent margin.
So the other thing, and an important element, is that if you look to the asset we have and the technology, the JV has in Thailand, if you look at the value creation, where we did end 2023 in terms of sales and EBITDA, you know, there will be a very important, you know, volume impact going forward to really enhance, you know, profitability of that asset. And, and we see now, really, finally, we discussed about early signs of recovery last time. These are confirmed now, and we've been confirmed by the Q4 delivery as well. So when we look to both the short-term drivers and the long term, yeah, we have better visibility than what we had before on PLA. So this is primarily what has been, you know, driving the decision.
We believe, yeah, there is still, I mean, a lot of value we can create from that business. It's also important to understand in the bigger frame, is that, yeah, we still have a long-term supply agreement to the GV, and whatever would happen to not only the GV, but to the wider PLA market, has an influence on our lactic acid business, yeah? And that's an important factor as well, you know, being part of that decision.
Very clear. Thank you. Really, maybe a small related question. I think you kind of answered it already, but we saw a sequential improvement in sales in the PLA business. Does that also apply to the EBITDA in the Q4? Was it better than in Q3?
I think-
I don't think we want to disclose now, 2023. We're still in the silent period, and we only gave some key headlines, financials, and that's what we shared today. And let's park, if you're okay with that, further 2023 discussions, a month from now.
Okay. Then I have a question on the algae update. You talk about two options to expand capacity-
Mm-hmm.
beyond 2028. The modular one you said has lower risks. What then would be the reason not choose for the modular option in first place? What is the flip side of choosing for that modular-
Mm.
- option to increase capacity? And what are the costs, roughly, of a greenfield new plant?
So, two different angles to answer your question. I think, the reason why is that we do not want to miss any business opportunity in case, you know, we would have a faster growth. So for us, we don't want to lose the opportunity in case, you know, the market would even grow faster than what we are anticipating. So, that's one, I think, driver in terms of which type of option we would go after. And as I said, obviously, we would only commit to a greenfield with strong and firm customer commitment. Yeah, so that's number one. The other thing that is important also to state is that we are making great progress, even better than anticipated, on this yield improvement as well.
But also, from the discussion we've had a year ago together on the technology side, you know, in terms of CapEx, I think also to remind that, yeah, when we acquired, you know, TerraVia, we also acquired at that time a plant that was designed for jet fuel, yeah, oil, and not food or nutrition. So we've learned really across the last few years how to optimize that plant. If we would rebuild that plant today, we would rebuild very differently. And we've been optimizing processes, technologies, and we see now, you know, with the pilot facility we have in San Francisco, that we can come, you know, to a lot more efficient type of design process. So we are working on that. Yeah.
So, because again, I see some numbers out there, we are trying really to optimize downwards these type of CapEx numbers, benefiting from the yield improvement on one side and the new technology we've developed in Orindiúva at the same time. And I think, although we are not ready per se today, we think that we're gonna make good progress by the time we have to make the decision early 2026. But again, a wider investment would come only when we have firm commitments and further validation steps of this technology we are working on.
Okay. Yeah, thanks. I, I have one financial question for, for Eddy. The working capital. If I look at the, the slides, the percentages that you project for, or aim for, for, for the next two years, is it fair to assume that for 2024 and 2025 each, you expect an absolute euros working capital reduction of EUR 25-30 million? Is that approximately what you're aiming for?
No, maybe even more, but we are, we are further reducing the absolute amounts, yeah.
Okay, because you also give a guidance of free cash flow of at least 50-
Yeah.
Fifty million.
Yeah, that's part of that is,
Is working capital.
Yes.
But it also includes, of course, the stranded costs,
Yeah
... the restructuring costs-
Yeah
... the CapEx.
Yeah.
But, working capital still needs to be quite a significant contribution,
Working capital is a component in the Free Cash Flow delivery in both 2024 and 2025, indeed.
... The exact phasing, of course, 2024, 2025, that is not always easy to pinpoint.
Okay.
That's why we are guiding also on a cumulative basis for the next two years, for cash flow delivery.
Okay, clear. And then my final question. You just showed the slide of the pro forma leverage guidance for 2023.
Mm-hmm.
Is that including these stranded costs?
Yeah, you see, you will see in the footnotes that, that is assuming the net cash proceeds of $275 million.
Yes.
And then the underlying EBITDA, about $50 million. So we are selling a stronger EBITDA, so that's indeed reflecting a big part of that stranded cost.
Okay. So it's, it's negatively subtracted from the EBITDA?
Yeah. So yeah.
Okay. Thanks.
Mm-hmm.
Okay. Then the next question is from Fernand de Boer.
Yeah, it's Fernand de Boer from Rabobank, more than a question, one question. So I start with the first one, and it's all PLA related. I think you said that the startup of this new gypsum-free plant will ramp up in the first quarter, but I always understood that lactic acid starting up is quite risky. So what could be the risk there involved, that it's not going that smoothly as you-
Mm-hmm
... are showing here?
No, so, as I think, as I said, we started the, the what we call mechanical commissioning and utilities commissioning already back, you know, in basically August, September last year on various steps. The way you do this type of commissioning is you go backwards from utilities and wastewater treatment plant to the various, you know, chemical recycling. The last part of the real commissioning is when you get sugar feedstock and you start to ferment. This step still has to come, but we've, of course, been going through all the critical steps in terms of this new Gypsum-free Technology, you know, over the last weeks and months.
So the concern, or if you would have any risk, is not necessarily the fermentation piece, because, yeah, but this is more related to this technology around fermentation, not to have any gypsum. So we've done synthetic runs there. We are optimizing that as we speak. Then it's all about having the whole train able to produce, you know, the right quality. In our current plan, we've already foreseen, you know, that you don't get, you know, standard product day one. So basically, we have already prepared our business on how we're gonna also market, you know, some B grade, A minus grade, and come to A grade in the course of Q2. This is part of our plan because we are taking this risk into account already in the startup phase. So that's pretty important. Give you maybe a bit insight.
You know, we have options, in terms of market, you know, reach to sell lower grade quality in some categories that we've already contracted for the startup phase to, help, you know, get this risk away as any startup. Obviously, you know, I think it's fair to say that any startup of this kind has a level of risk. I think we have, we believe, well prepared for it, but obviously, yeah, so we are, again, very much focused on this is the largest investment we've ever made, as I said. So I think, you can think about all the key technical strengths, engineering strength of the company are focusing on this Thai operation as we speak.
Okay. Then on the pricing for PLA, because you actually say-
Mm-hmm
... it's an alternative for polystyrene, and I think polystyrene price is very much under pressure. So how do you look that forward? Because that, I think, is still a risk, that price of EVA is still okay because pricing is still healthy.
Mm-hmm.
But that's only a matter of time, certainly, if NatureWorks also start to ramp up its production with PLA.
No, so we see. Of course, we've seen already some pressure on PLA prices in the course of 2023. Yeah, so the GV is not yet at, you know, the EUR 3,000-3,200 price level anymore. So they are below the EUR 3,000 mark already. So now what we can say, I mean, again, is that obviously in terms of EBITDA delivery it will be a matter of indeed the pricing going forward. But the contracting for the first, you know, half of the year is something where the GV has good visibility.
The same is valid on sugar because we are hedging the sugar for lactic, you know, the triggers, the transfer price to the joint venture. So now, going forward, it will all depend also on sugar market's gonna evolve, you know, later on the year as well, because the EBITDA will be dependent on, of course, the lactic acid price. And there, as Eddy mentioned, you know, there is a formula that reflects both sugar and energy price in terms of lactic acid price to the JV. So that's a big component of the PLA EBITDA margin.
Then, on PLA again, the new Luminy innovations you have in mind. I think two years ago, you also had a number of new innovations in mind. I think coffee cups and all that kind of things-
Mm-hmm
... which I don't see back, which I, by the way, saw also with your competitors all. How are those new launches going? Is that driving the sales in Q4, or is that still too limited and-
No, it's still-
Or not coming true?
It's still limited. There are some sales, whether it is coffee capsule and so on. But as you've seen in the – and this is why I want to provide this granularity on the market. Still, the vast majority is in the food service where in the rigid and flexible packaging. And if you look at the pie chart, it's still limited in terms of other categories, yeah. Although there are still very nice pocket of growth, higher margin, like 3-D printing. Now, it's about, and this is a bit what I said in comparison to the algae. It, it's about also creating this market that takes quite a lot of time in PLA. Maybe that's something we underestimate. So we just continue the effort because we need to continuously launch and try out and test out.
Last year, we've announced these five partnership, you know, obviously, not the five of them gonna work going forward, but when we go for, you know, heat-resistant PLA, or we are working on the biaxial PLA development, it's about how do we differentiate the PLA portfolio mix as well? Not only do we have only a one single trick pony, you know, versus our competition. Again, back to the PLA environment, I think it's also important to know that indeed, there are a number of projects that, as you know, were announced for millions of ton of PLA two or three years ago. Most of them, not all of them, have disappeared so far.
Okay.
It's important to also realize that.
Then a question for Eddy. How will the return on invested capital look like in 2025? I can make maybe this a calculation, but if you view, what's your target there? Because at the end of the day, I think if you look today, it's very low, and I think it has to go up significantly. So I think that of course, all this message should lead to that, but-
The ROIC, you mean?
The ROIC, yeah.
Yeah, we will come back with that once we have the spin out, the whole, divestment emails for us. But emails for us, as you can understand, that the underlying EBITDA and this operating results, which is in the ROIC metric and the book value, I think we are looking at a dilution in this more nearby years, from that divestment, as a consequence.
Because of the new plant, the depreciation charge for your core activities will rise significantly, I guess.
Yeah, depreciation. So the plans will be, starting to depreciate the moment you turn out good quality electric assets. So coming back to that, so somewhere in the course of this year. And depreciation period, you have to look at somewhere between 15 and 20 years, probably a bit more on the higher side.
Okay. Then I stop with the last question. You gave two options for PLA expansion.
Mm-hmm.
But I'm actually missing the licensing opportunity of option. Is that an option for you and your view or not at all?
We've revisited that. It's not on our list today. We believe we can capture, you know, most of the value on this one, and the real value of the business lies into the algae strain library and the yield we've developed. So this is the real jewel, and the fact that we've been able to scale up, the moment you license that, you give away, you know, quite a lot. So, if you think about licensing option of a few percentage compared to the EBITDA, we believe we land in that business when you go to above EUR 500 million and above EUR 100 million EBITDA, you will never have this type of return with a licensing option.
Thank you.
Okay. The next question is from Wim Hoste.
Yes, good morning. Also, a couple of questions from my side. Maybe to change subjects a little bit, first, a few questions on foods.
Mm-hmm.
The adjacencies are now 10% of your food sales, which I guess is roughly EUR 75 million or so. Out of the 4% growth in the category that you predict, how fast do you expect the adjacencies to grow? And then can you also elaborate a little bit on the underlying growth trends in the various food markets, bakery, meat-
Mm.
... et cetera? I think these were all subject to destocking, but also to underlying declines in 2023. So, how do you see trends going forward for those markets?
No, true. I think we've seen the underlying trends primarily in the large markets in the U.S. and Europe for bakery and meat being on the negative side. However, you know, and also experienced severe destocking out there. However, when you look at, for instance, what we are doing and developing in the bakery segment, as an example, in our functional systems, we are able to gain a lot of market share based on a different value proposition. We mentioned dough conditioning there. You know, this is one of the example where we are coming with a very nice and novel functionalities when we are using, you know, for instance, enzyme cocktails instead of emulsifiers or other hydrocolloids, you know, to extend shelf life or to strengthen dough.
This is places that despite, you know, the underlying negative trend in bakery, we see also a nice growth. The same is valid when you move to natural preservatives. They are still in food, a large amount of synthetic, you know, preservatives or artificial antioxidant. So we still see that underlying trend, you know, moving forward. I think the key for us as well is to reproduce the successful U.S. model into new geographies. Although we've made very strong progress in Latin America over the last couple of years, there is still a lot more opportunities we can have in. I'm thinking about primarily Asia and Southeast Asia, you know, going forward. So these are the focused area we have in food.
Now, if you look at the adjacencies that you mentioned, a few of them where we were looking for proof of concept, whether indeed, you know, the approach was convincing and successful, and now we've validated that, whether it is on the natural antioxidant, yeah, or on the dairy stabilizers. We've had a very good start from almost a scratch base in this segment. So now it's about how do we accelerate, you know, these, these segments, yeah? So, so again, I think, we have solid position. We were really impacted by the downturn, and the destocking was a lot more severe than what anticipated in 2023. But it was good to see, primarily also in Q4, the sequential improvement in terms of, volume mix on the food part.
Yeah, you remember, this is 76% of the functional solution division, so it does the lion's share on this part. You know, we have much better visibility than what we had early in 2023. So this is not only reassuring but also makes us quite optimistic about the trend in these adjacencies development in the food business.
Okay, then a question on the algae business. Can you elaborate a little bit on the momentum that you have outside of aqua, so in pet and in human?
Mm-hmm.
What kind of contracts are you able to conclude with your customers? Durations? Also, is it fixed pricing? Is it, yeah, some index-based clauses? Can you maybe elaborate a little bit on that as well?
No, generally, usually we go for a yearly contract in that industry. However, on some big accounts, we go for multi-year. Yeah, so, there are no specific raw material related clauses, if you may. There are sometimes some freight-related clauses, yeah, because of the overall disruption we've seen, you know, in the supply chain the last years, so you have these type of clauses around. Now, typically, when you go for, you know, higher value markets like human nutrition or pet nutrition, these are yearly contracts. I think there is a couple of difference because pet nutrition is a market that is also a nascent market, but growing very fast, where omega-3 was being used, but not to the extent where it's developing right now.
So it's big, but also creating and developing a market from a small base. Human nutrition is a more established, you know, already, existing market that is, of course, primarily served by, official, supplies, yeah? So the move to, algae-based, with some, vegan credentials, as an example as well, or, you know, plant-based source, is an important driver there. But we are in the early days of human nutrition. What was important for us is, to make sure we had the right technology, and last year, was an important focus for us to, basically, scale up the technology from the pilot in San Francisco to the plant. And now we are able to produce this, refined, oil for human nutrition purposes in Brazil.
That was the important focus of last year, validating the technology and validating the products within the human nutrition and the pet nutrition application. But, usually there is not a big difference in terms of contracting terms in these two divisions. These are yearly contracts. In aquaculture, we are looking for longer-term commitments.
Okay. Next question is from Reg Watson.
Hello, it's Reg Watson from ING. Olivier, can I just clarify something you said in your opening remarks on slide 6, please? You mentioned that the 2023 results shown on that page included the reversal of the algae impairment as well. Is that correct?
I can answer that, if you will. So yes, we will reverse the impairment that we made in 2019, and we say a full reversal, but what you can only reverse is the amount, as accounting says, you need to depreciate. So we reversed EUR 22 million out of the more than EUR 40 million-
Okay, so the figures-
Back in 2009.
Okay.
It will be part of the net result of 2023.
Okay, so the figures on that page include the reversal?
No, because it is the net. It's coming, it is not part of the EBITDA.
Okay, that's why I wanted to check-
It's lower.
Because of the way it's-
It's below the EBITDA.
Yeah, I expected it to be below, but it-
Yeah.
sounded as if it was included.
No, no, no.
I wonder if you found a-
It's a kind of reversal of the negotiation line.
To bring it above the line.
Outside of the EBITDA, otherwise,
Okay.
Otherwise, we would have shared different figures here.
Okay, great. Thank you. Then in that case, I too will move to algae as well. And why, given the potential you have in algae and the potential market size-
Mm-hmm.
and profitability, are you now rolling it back into a subset of another reporting division? So we won't get visibility going forwards on how algae is performing as a standalone business.
I think we have higher ambition in the nutrition segment to build on the platform. You know, basically, we look at algae as seeing a key building block to further develop a nutrition portfolio. So starting with omega-3, as we've said, but even within omega-3, as you know, we are marketing a DHA, but there is a lot more we can do. And when we look at the opportunities within the wider nutrition space based on algae, but also the other portfolio we have, you know, finally, we can have a very nice critical mass we can build on and accelerate, yeah? So far, we are not able to do that. When we, you know, start the algae story, we had EUR 7 million sales and then 31, and so on.
But now when we look to the entire division, we have critical mass, share capabilities, so we can really accelerate that within algae, but also beyond algae. And that's the aim, to create, you know, a sizable division, going forward. So that's the key rationale, strategic rationale behind it. It's not just that we want to report, because we will still give granularity, you know, every year and as we go, I mean, on algae. But the strategic business rationale is that now finally, with the growth momentum we have, with what we have in the pipeline, we're gonna have really critical mass to become, I mean, a player in the nutrition space building on that.
Can I just check technology? You've referred to technology development from San Francisco. Are you now able to extract the oil from the algae? Because my understanding is, up until now, you've only really been selling algae solids and-
Sure.
and emulsified solids.
Sure.
And that DSM and Evonik have an oil extraction process, which is patented.
True. So basically, you know, the step into pet nutrition and algae was indeed, I mean, triggered by our ability to develop a technology and freedom to operate with, you know, more refined oil. So I think it's the beauty of our, I think, process today, is that basically when we serve aquaculture, we have a zero waste, you know, no by-products value proposition.
Mm-hmm.
You know, and that's, I think, quite important. There is simply zero waste on that plant, you know, for aquaculture.
Mm-hmm.
When, of course, you move to pet or human, you have biomass as a leftover that you need to valorize into feed application. Yeah?
Yeah.
That's a big difference, so yes, the answer is indeed, the value of San Francisco has been really to scale up what we believe is a fantastic technology.
Are you using something similar to DSM/Evonik's?
No. It's very different.
So totally different.
Yeah.
Are you happy that it's more efficient than theirs?
I think—I mean, again, it's difficult to comment a lot more, I mean, on this technology. We believe that this is truly unique.
Yeah.
Yeah. But yeah, I will not-
It's just I appreciate that extracted oil comes at a much higher market price.
Mm-hmm.
The revenues look better, but obviously the costs of extracting it are also a lot higher.
It's true. I think when you produce through traditional methods, this is a correct statement, but we, we do not produce with the traditional method.
Okay.
Um, and, uh-
Then your yield improvements. My understanding is the algae has about 60% oil in it, and you were historically up to around 56%-57% omega-3. I was led to believe previously that there was a technical limit to how much yield you could actually get out of the algae.
Oh, we were much lower than the second that you mentioned.
Oh, okay.
So...
Okay, fair enough. And then the 15% you mentioned in the presentation-
Mm-hmm.
That appears to be a combination of yield improvement of the organism itself, but also capacity bottleneck. Can you-
You know, it was, it was primarily related to the strain, the 15%, not to the bottleneck in the plant.
Okay.
So it was primarily related to the strain-
Right.
-uh, improvement.
Okay.
Yeah, so,
Then can you just please give us a set us a baseline for where you are at now, capacity of the plant? Because my understanding was that historically you had a sort of 50 kiloton nameplate capacity, but you were restricted to around 25 kilotons due to lack of drying facilities. So can you just reestablish for us where you are today, what the bottlenecking has achieved, and what you hope to achieve with the additional?
Now, we wouldn't disclose, I mean, our capacity, I think, and the simple reason, I mean, is, of course, for competitive purposes. But also, in terms of strategy development, at one point, yeah, we might want or not to trade up, you know, the liquid suspension we sell into aquaculture, into highly refined oil.
Mm-hmm.
and then capacities of a very different nature, yeah? The more you decide to go for refined oil or not.
Yeah.
So, I think what's important is basically to get everything back to the omega-3 content we are selling into the market. So, the only thing I can say is that, yeah, we've improved significantly from the initial design, yeah, that was mentioned at that time.
Mm-hmm.
We've seen a lot of numbers around the 30,000 tons. We've improved massively on that. But yeah, we won't disclose current capacity in the plant.
Okay then, but you have talked about an additional EUR 50 million of CapEx. What would that-
Mm-hmm
... do to your capacity? Are we talking another 50%, a doubling?
Well, actually, this is to get to the EUR 200 million sales mark.
Yeah.
This is what we need, and also to get to, let's say, the mix improvement we are looking for-
Mm-hmm
... by accelerating further in pet and human nutrition. So this is both driven on capacity, the bottleneck, and mix improvement, to get to the EUR 28 million EBITDA and, sorry, the EUR 40 million-
Forty million
... EBITDA and the EUR 200 million sales.
Okay, thank you. I'll, I'll pass the microphone.
Mm-hmm.
Okay, next question is from Sebastian Bray.
Hello, everybody, thank you for your hospitality today. Can I start with a question on the reallocated emulsifier cost? It's quite big relative to the size of the business divested, to see an amount of cost akin to the EBITDA, less being reallocated amongst the group. It's not shown in the 2025 EBITDA bridge, and is this another way of saying that incrementally cost savings will be made by the end of 2025, that fully offset this? Because it's quite a lot to just simply absorb and remove in two years. That's, that's my first question.
Exactly that. So indeed, we will recover that stranded cost, if you will, in 2025, and we have already multiple initiatives running, I will say, to close that gap. But not in 2024, but in 2025.
What is stranded, what is the stranded cost in this case that is the EUR 25 million a year associated with this? In practice, is it people sitting in offices, or where does it come from?
We have followed an allocation mechanism already since the beginning of Advance between core and non-core, if you will. So part is to be found in the U.S. itself. So yes, the emulsifier business that we divest has some dedicated costs, as we call it, think about all the costs associated with the two production plants. But anything or nearly everything related to the sales efforts or the support functions like IT, finance, HR has not been dedicated to the business and will not be sold as part of the transaction. So that is cost out of the U.S., where basically the emulsifier business make use of, and that is not divested to the buyer. But yes, the moment we don't have to render any service anymore to the buyer, then we can reduce those.
The rest is about central allocation key, so that is outside of the U.S. So you can look, for example, to our G&A, P&L line item, and that we have an allocation key, for example, on, on sales. So we always follow the same philosophy there in the years. And obviously, yeah, if you let a piece of business go, it's not then automatically that, for example, one of the three of us is not leaving. So that is how we have to look at it. So yes, we have to compensate, we will compensate, and we will do that in different drivers. So that can be further fixed cost measures, variable cost measures, it can be anything in those areas.
Will the buyer use Corbion to continue to sell the emulsifiers? My understanding was that sometimes these solutions were bundled together, and I think there are even a few examples on Corbion's website of products containing these emulsifiers.
Mm-hmm.
-that were sold. How does that work in practice? Is it just an arm's length commercial relationship, or does the buyer or the new, the new standalone emulsifiers entity under private equity ownership purchase or agree to sell to Corbion emulsifiers in future?
Yeah. So we have two arrangements in that respect. One that survives longer than this year, that is us selling lactic acid into the new buyer, if you will, because some of the emulsifiers you'll make use of lactic acid. So that is indeed at an arm's length contract. And the mirror side is that Corbion sourcing certain emulsifiers that we then use in our continuing business. So those are supply agreements that will survive beyond this year. Besides that, we have service agreements, and that is very much geared for this year, maybe some overrun into next year, but the majority will just be this year.
Again, covering areas like support functions, IT, HR, finance, but also commercially, we want to have a smooth transition commercially, because, yeah, lots of the customers related to this business are not only customers for the new buyer, but are also customers that we, that we have for our continuing business. So we want to have a smooth transition. So for that service that we provide in transitioning over, we also get a compensation this year.
That's helpful. Thank you. If I might turn to an element of this restructuring, which was the closure of the U.S. Peoria plant that was announced today. What was made there? I remember back from the 2022-
Mm-hmm
... Capital Markets Day, there was talk about expanding natural fermentation capacity at that site. What was initially made there, and did this CapEx investment go ahead that is now potentially being mothballed?
Yeah. So I think it's a great question because the reason why we announced mothballing and not full closure is that we want to keep and retain the asset. Yeah? So I think this is coming as a consequence of what we explained with Thailand coming up, you know, at a much more competitive cost, optimizing our lactic acid fermentation in Spain. So far, we were producing our food ferments both in Spain and in Peoria. In Spain, it was produced in campaign, you know, next to lactic acid in the same fermenters. Yeah. So, so obviously, you know, now reallocating more lactic acid into Thailand is freeing up food ferments capability to Spain, who has large installed capacity.
And then, I mean, looking to how also we can max out our profitabilities, I mean, again, in Spain versus Peoria, we made this call to mothball Peoria and then max out the former fermentation capabilities we have in Spain for food ferments. So this is how this asset optimization, let's say a restructuring, is working.
That's helpful.
Yeah.
Thank you. Can I ask a question on food and the margin? I appreciate that this might be provided with the full year figures. It's two questions. Number one, when do we have pro forma financials under the new segment structure? Is it at the full year results, or is it just firstly at Q1? And what is the current food margin, EBITDA terms, is it about 10% or slightly there or thereabouts?
Yeah. So on your first question, the intention is indeed to share that by first of March. To have the pro forma restated figures on sales we already shared with you, but also the margin pro forma.
Mm-hmm.
So that's the intention, because it takes quite some work to adapt all the systems, as you can imagine. Again, on food margins, we will not give further disclosures at this stage on Q4 delivery.
That's understood. And final question, the biomedical segment, I believe most of the sales now are relatively mature, even if they're still growing nicely, which is the wound care and orthopedics you alluded to.
Mm-hmm.
To increase the sales in absolute terms by EUR 50 million by 2028, I cannot remember if this was touched on at the 2022 Capital Markets Day, but the component of that is related to the drug release. Is that about EUR 30 million, or is it, is it not disclosed?
It is not disclosed, but it's not that, as big as that, I mean, no.
Where does the growth come from?
No, actually, as we said, I think, we have just. Because if, if you look at that business, yeah, we've had at one point, that was the only business within Corbion that was impacted in terms of, you know, growth during the COVID year, back in 2020, because of people, you know, not being able to go to hospital for elective surgeries. Since then, we've seen this business picking up, so but basically the traditional orthopedics market and the wound closure, you know, has recovered to pre-COVID level and still has a very nice sustained growth. So there is further development, primarily in the orthopedics markets, that are also very promising. So, we just capitalize on these existing two building blocks. What we see in drug delivery is that, yeah, there is nothing new in drug delivery.
However, what is new is the, this type of technology that, you know, we are bringing to market with, even more sophisticated, copolymers, because you speak about many, many copolymers, there, yeah? Based on organic acids. This is really taking off over other technologies, and this is why I emphasized on the, the MedinCell one. Not that per se, this, I mean, is the only game changer, but the proof of concept on this type of drug delivery, is an important milestone because, next to, schizophrenia, where basically the aim is to have long-lasting active drug to avoid crisis, you can think about many other, you know, drugs where you need a long-lasting, lasting mechanism.
You know, MedinCell have a very close partnership with the Bill & Melinda Gates Foundation on, you know, contraception or malaria treatment, these type of things, where so are quite promising. They are mid to longer term, you know, projects. But we see a lot of very nice upside in this because of this proof of concept in the new technology of of MedinCell. Now, the other big new area is around this regenerative medicine. This is very early days, but yeah, these are things as I said, this is quite a unique business where you have years and years of development, and you have years to get to a clinical phase three.
Once you get FDA approval on this phase III, then the business only starts, but you have a good, you know, normally five years to get to clinical three. In an accelerated way, it could be three, but, but, but usually it's a good five years. So the MedinCell pipeline is looking good because there are a few things already in the pipe that are gonna yield to business, but there is more to come. But then you speak about a 5-10 years, yeah.
Okay. The next question is from Karel Zoete.
Yes. Good afternoon. Thanks for question. I have two questions. One, to be crystal, you know, crystal clear on the EUR 50 million stranded costs. Facing those out is not part of the EUR 35 million efficiency program, right?
Correct.
Yeah. All right, so it's only for 2024, and then, yeah, they are out. Okay. And then the other one is the use of cash. And you, you, you intend to generate EUR 125 million or so in free cash over the coming two years. That's meaningful, and net debt is now looking much more comfortable. How should we think about use of cash going forward?
Yeah, I think there are. First of all, the closing needs to be done, but that will be done. Of course, if you see the trend where we are with the covenant net debt, EBITDA, we are just coming in the range where we are striving to be. So the cash will clearly be applied to reduce the RCF. And RCF, by the way, is the highest interest component in our, the old debt structure. So the moment the cash comes in, that's what we will redeem first. Let us first operate soundly in the bandwidth, and also not forget, we still have also a loan component beyond the covenant net debt. And because we have also this, about $100 million USPP, which is supporting the net debt.
So if you would apply that, then we're still higher than what we have for the covenants. So that's where we sit at the moment.
Okay. So I think we have no other questions. Oh, unless there is a last question.
Do you have one, if I may?
Please.
Yep. I have a question on the raw material input costs on slide 49. Obviously, we talk about your sugar hedging, so we-
Mm-hmm.
We understand the mechanism of that quite well.
Mm-hmm.
But my understanding is that, the vast majority of your bill of materials is not hedgeable, and that you're pretty much exposed to spot pricing. So I'm wondering how you can provide any degree of certainty, on slide 49 with regards to the decline in your input costs?
Mm-hmm. So I think for 2024, so, whether these are usual chemicals we are using in our processes, yeah, we have we have already good visibility on what we've contracted for 2024. Yeah. So, so there, we have pretty good visibility. It's only on commodities where you speak about corn or in the case of emulsifier, soybean oil or sugar, where we have this hedging policy, where we, we have a strict policy in terms of risk management, but we can still play within these boundaries to, stay pretty short when we see, I mean, you know, the market on the upside or vice versa. So, as I think, you, you can imagine on the sugar, yeah, right now we've stayed very short, and I think that was, the right decision because we never bought at $0.28 per pound. Yeah.
So at the peak, you know, that everybody saw last year, so and basically we are still staying short on sugar. Now, you know, for the first time, the market speaks about a three million sugar surplus in 2024, where only three months ago everybody was speaking about a deficit, with India being largely surplus, a good crop, you know, in Brazil as well. So yeah, the sugar prices are higher, but yeah, I think rightfully we stayed short. So obviously, yeah, we have a higher price on the next two quarters, Q1 and Q2 this year than last year. But yeah, we are still very open on Q3 and and Q4, so we monitor that very, very closely. On the rest, I think we have pretty good visibility.
Obviously, the only thing that could happen, and we've all seen the Red Sea impact, we have some traffic over the Red Sea, and suddenly you have a surcharge on the containers that go through the Red Sea. Yeah, so this is, we are facing, you know, as an adverse impact in Q1, but in the grand scheme of things, in the overall procurement bill, this is not—I mean, it's, it's big, but it's not dramatic, per se. Yeah, we-
I recall previous instances where things like sulfuric acid prices were, even though you were contracted, you still had to buy higher prices, et cetera. So,
Yeah.
Um.
Even, even the region-specific.
Yeah, yeah.
Right.
Okay. Thank you.
Yeah.
Yeah.
Yeah, Fernand? You need a mic.
Yeah. Just to be sure on the definition of Free Cash Flow, are we talking about Free Cash Flow after tax payments, after interest payments, and after lease payments?
Yeah.
Operating lease payments, okay. Clear, and then the second question, on pricing.
Mm-hmm.
You said that it's going to be negative for functional, et cetera. Any idea, or could you give a little bit guidance on that one for our modeling?
That's a difficult one because we, we have different level of stickiness or impact, as we've said, yeah, we have no stickiness on lactic to the GV because there is a formula. We have high stickiness in other segments, like the biomedical. We have prices, not necessarily discussion, so.
But you specifically mentioned functional ingredients-
Yes
... and solutions. For that part, you have some visibility there.
Yeah, we have in that segment good visibility on the lactic acid to PLA, indeed. Yeah. Where we're gonna have some impact. But all in all, I mean, yeah, we see again, and we monitor pricing in line with what we see happening for the less differentiated product lines with input costs. Yeah, so we monitor that very closely in our pricing policy. So if I look to the food ingredient solution, Fernand, we have, for instance, in our functional systems, generally speaking, higher stickiness than in some of the plain lactic acid supplies to, you know, the semiconductor industry, as an example, or into what we call a harvest intervention for food preservation, which are more commoditized the market.
So we adapt, I think, really to the end market quite a lot. What we see overall is that for food ingredient solution, we're gonna have, I mean, this pricing negative impact, as in some markets we have less stickiness than in others. But yeah, we manage that very closely. Now, giving you the detail is, I think, quite difficult. I mean, right now, publicly, I think this is also quite sensitive in terms of, you know, the message outside.
One question on the centralization of R&D.
Mm-hmm.
How is that then algae is going to be integrated with lactic acid, and is then San Francisco to be closed, or?
No, not at all. No, no. San Francisco is a key asset. So what we are doing is, you know, we had, I mean, so far, R&D functions being decentralized within the BUs. Now, we've decided to recentralize all that, yeah. So, basically, the major impact is in our Dutch R&D facility. So, San Francisco is part of our global R&D footprint, yeah, with specificity on algae, but is there to remain. And so there is no impact on the algae R&D there.
Last question, and then I will stop.
Mm-hmm.
On the, let's say, executive team, because with the new segment structure-
Mm-hmm
... change is going to be made, but that's of later announcement or?
So there are already some changes that did happen. As you know, last year with the departure of our CSO, yeah, and basically going down to two business units. We have also Marco Bootz, who's left, you know, the company to pursue other opportunities. So you will have the opportunity to meet the entire executive committee now in the break. You know, they are all there to also have a, you know, a separate conversation, informal conversation with you all. So you will see the management team there. So, more to come there.
Thank you.
One thing, before we continue with the next question. On your previous question, on the cash flow definition, so tax interest, absolutely part of free cash flow, dividend payments and lease liability, repayments are excluding, that's not in the free cash flow, because that's in the financing cash flow. You can see that from the cash flow composition, you can follow it.
Yeah, lease payments means is rental payment.
Yeah. Yeah, but that's how-
Yeah
... IFRS accounting is determined.
Sure.
Yeah.
Okay, then, a question on the incubator pipeline.
Mm-hmm.
Can you maybe update what, yeah, key projects are still in there? And also what then the R&D costs,
Mm.
Would be? Would it be similar to the, yeah, previous disclosure-
Mm
... of 0.5% to 1% of?
No, so it's a great question because, yeah, we don't want by reorganizing R&D to compromise the mid and longer term growth opportunity. So if you remember, we had within the incubator, yeah, the new biopolymers that were primarily dedicated to the biomedical business, so that remains. The algae portfolio expansion does remain, and then we had a series of food ferments that also remain. And the last but not least, was around net zero commitment. You know, the whole initiatives we have around sustainability in our operations to reduce our carbon footprint or reduce energy cost, that also remains. So basically, this pipeline are transferred to the new one central global R&D. But, yeah, we don't want to compromise on the, let's say, our mid to long-term innovation pipeline in future. Yeah.
So also, just to back to the latest part of your question, when you look to the overall spend, obviously, proportionally, the Food and Ingredient Solution will have around about a 3% R&D spend, while the Health and Nutrition division will have 8% R&D spend of sales. Yeah, so basically, we're gonna have a higher R&D intensity in the health and nutrition division as it's understandable. Okay.
Sebastian?
Just last one from me. Olivier, to come back to the theme of the PLA joint venture, perhaps I misunderstood your earlier comments, but I think you alluded to the impact on the wider lactic acid market if Corbion were to pull out of JV. What exactly does that mean? Does it just mean that there wouldn't be visibility on where the lactic acid volumes would go, so the company would end up de facto having to dump capacity onto the market? Or, because one of the big questions, I think, in my own mind about the lactic acid from Thailand, is where exactly it all goes. I assume that most of it will end up going to the Corbion Total joint venture, but any comments you can provide are welcome. Thank you.
No, it's a great question because indeed, I think one of the strength, as I mentioned about Corbion, is to have the opportunity to have a global footprint. And we are quite unique in that respect, that we can really also, let's say, maximize our throughput and also profitability with the flexibility around the network. This is exactly what we are doing now, you know, in Spain, but we could do tomorrow, I mean, also, according to the market conditions, you know, increase back up or...
I think what's important is that in the frame of the new Thai lactic acid plant, you know, this is something that are gonna secure our growth and value for the 10, at least 10 years to come, and, and give us very competitive, you know, room to, to play in the market at, at a low carbon footprint. So the, the big interest in this 10 million, you know, of, of, let's say, additionally, be that from an operating cost standpoint that we presented in the bridge is about maxing out that capacity, you know, first, yeah, from other more conventional process.
Now, obviously, you know, if you think about the wider lactic acid market, and we could elaborate more on that, if you think about PLA prior to the downturn, you know, the lactic acid to PLA was around about if you have a 1.4 ratio, you know, between lactic and PLA, it's easy to, you know, understand how much of lactic acid is going into the 175,000 tons I've just mentioned before, yeah. And this market has dropped by 50% over the last, you know, 15-18 months. So you can easily calculate how much lactic acid this PLA downturn has freed up. Yeah. So this is why I think having such a competitive asset as the new lactic plant is really, I think, crucial and very important to us going forward.
We have to secure our competitive position, our leadership position as well in lactic acid. Now, the great strategic advantage of Corbion is that, you know, most of our lactic acid is going into derivatives, and this is also why and how we want to de-risk, you know, any capacity we put on stream by moving to always, I mean, derivatives. That's our strength. You know, the lower plain lactic acid volume, you know, we sell directly to the market, the better. And our strain, our stream, sorry, of lactic acid to the PLA is a captive stream. It's an overdefense, you know, business. Of course, we are suffering from the downturn on that respect, but mid to longer term, you know, this is gonna bounce back for sure.
And, and then, yeah, we have a long-term agreement with the joint venture on this one, so I think it's pretty much secured volume, you know, when the PLA joint venture are gonna be back up, you know, to previous level.
Yep. Okay, so I think we need to close. Thank you all for your questions here in the room. Thank you for the people who are joining us online. So, and obviously, next touchpoint will be for the first of March, when we're gonna go into more detail about the 2023 results. Thank you, and have a good day.
This concludes the Corbion market update on the 31st of January, 2024. Thank you for listening. You may now disconnect.