Welcome to the Corbion Q1 results on April 26, 2024. During the introduction, all participants will be in a listen-only mode. After that, there will be an opportunity for questions. If any participant would like to ask a question, please press the star one one on your telephone. Please note that this call will be recorded. I would now like to hand the conference over to Mr. Peter Kazius, Director, Investor Relations. Please go ahead, sir.
Good morning, everyone. Welcome to the Corbion Q1 2024 results call. With us today are Olivier Rigaud, CEO, and Eddy van Weerden van der Kloot, CFO. My name is Peter Kazius, Head of Investor Relations. This morning, we published our Q1 results. You can find the press release and presentation on our website if you go to www.corbion.com, Investor Relations, Financial Publications. As usual, for our first quarter call, Olivier will start with a short introduction. After which we'll move pretty quickly into Q&A. And with that, I would like to hand over to Olivier.
Thanks, Peter, and good morning, everyone, and welcome to Corbion's Q1 call. I'm very pleased to see a positive volume mix growth of +1.7% and an organic Adjusted EBITDA growth of +0.7% in our core activities, which are better than previously guided. This volume mix growth has been driven by the continuation of a double-digit growth in health and nutrition of +14.4%, probably driven by the strong performance in the nutrition segment, omega-3 DHA within aquaculture and pet nutrition, as well as a positive growth in our food segment. As indicated in our last call, in this segment, the customer restocking impact has been concluded, and we are starting to see the benefits of an improved sales pipeline. We anticipate to continue this positive momentum in the coming quarters.
As previously indicated, the non-food segment, with functional ingredient solutions, is facing temporary softness in some markets, including semiconductors and agrochemicals. We anticipate a recovery as from the second half of this year. In line with our earlier guidance, pricing functional ingredients and solutions has been lower as a result of price reductions in some areas following input cost relaxation. The TotalEnergies Corbion joint venture showed an organic sales growth of around 25%. We also saw a continuation of our positive free cash flow delivery. Our Q1 free cash flow was EUR +7.5 million, and building on Corbion's first quarter performance, we are on track to organically grow sales, adjusted EBITDA and free cash flow for the full year in line with our guidance.
In the first quarter, we made good progress in the implementation of our restructuring program, intended to increase free cash flow and margins going forward. As part of this program, we mothballed our plant in Peoria, U.S., as of the end of Q1. On April 1st, we completed the divestment of the non-core U.S. emulsifier business. As a result, we have decided on a share buyback program of EUR 20 million and a special cash dividend of 0.10 EUR per share, in line with our capital allocation priorities. Upon the completion of the commissioning phase of our new circular lactic acid plant in Thailand, we've entered the startup phase and expect production to gradually ramp up. Lastly, in April, our partner, MedinCell, signed a co-development and license agreement with AbbVie for several products that will use our polymers.
Now, Eddy and myself are now opening the floor for any questions. Operator, back to you.
Thank you. If any participant would like to ask a question, please press the star one one on your telephone. There will be a short pause while participants register for a question. We will take our first question. Your first question comes from the line of Setu Sharda from Barclays. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. I have three questions. First is, like the health and nutrition EBITDA margin was quite strong in the quarter. So is the algae margins in line with division? And if so, is this sustainable? And the question is like, how reliant is profitability on wild fish prices remaining high? The second question is about the PLA JV, which has returned to growth. Now, has the JV started restocking from functional ingredient and solution division? And should we already expect some step up in volumes here in Q2, or is this again, H2 weighted? And the third question is about the MedinCell announcement or partnership with AbbVie. Does this have an incremental impact for Corbion, or is it built into your guidance? Thanks.
Okay, thank you for these three questions. So, just starting to answer the first one on health and nutrition margin, and indeed, the high margin delivery on Q1. We expect indeed a continuation of these high margins for the entire year. And as we've said in our full year results, basically, we've a long-term agreement with customers, so for the next coming years. So, we are not subject to any volatility related to what might happen or not into the fish oil prices. About, you know, your questions on the PLA joint venture, and also the destocking on the food part. In PLA, what we've seen, obviously, we have an easy company Q1.
However, the outlook for Q2 and the rest of the year is on a much more positive trend than what we've seen over the last 15 months-18 months, for the first time. And in the food, we've seen a big turnaround in terms of volume mix development already in Q1, and we expect this to continue, obviously in Q2 and later in the year. Related to the partnership with AbbVie, on your third question, this is a, in fact, you know, not impacting this year, sales delivery in the biomedical segment. This is a many multi-year development program, and, this is a first part where they will build, you know, clinical, trials, you know, over the next years. So there is not really a short-term positive impact to be expected.
The short-term positive impact in the margin sales is primarily coming from their agreement with Teva, that has been initiated many years ago, that is now yielding commercial launches. AbbVie, you know, we look to the benefit of Corbion, you know, at a later stage once these clinical trials will be complete. Hopefully this answers-
Great, thanks. Yep.
Thank you. We will take our next question. Your next question comes from the line of Robert Jan Vos from ABN AMRO ODDO BHF. Please go ahead, your line is open.
Yes. Hi, good morning, all. I have a couple of questions. It's been a couple of months since your previous guidance, also for the, stranded costs, related to the emulsifier business. You now cut this guidance, in a positive way from, EUR 15 million- EUR 10 million. My first question is: How confident are you about this new guidance of EUR 10 million, or could this come down, even further as the year progresses? That's my first question.
Okay, I can take this one. So Robert Jan, the EUR -10 million that we have as guidance for the non-core is composed of three components. So one is obviously, Adjusted EBITDA delivery in Q1 of the non-core, close to EUR 6+ million. Then we will have, now the transaction has been completed by first of April, the remaining three quarters of the traditional allocation of cost towards non-core, which is about EUR 6 million per quarter. So that will come in for the next three quarters. And then that will be partly compensated by payments from the buyer to us, because we're rendering services in terms of this transition year, to support a new buyer. So there we get some revenue. So those three components together gives you the EUR -10 million.
We're very confident that we will not be higher and more negative than the -10 impact for this year.
All right. Thank you. That's clear. I'd like to elaborate on the health and nutrition EBITDA margin. I understood that you said to expect continuation of this profitability for the year, i.e., I assume that you mean the 28-ish margin. What does it imply for functional systems and ingredients, then? Because you reported 10% in Q1. Should we draw a similar conclusion there, that there is... I had assumed that there was quite a bit of upside in that 10% margin sequentially in the next few quarters. But what, based on what you said on health and nutrition, which is quite positive, what is the implication for functional ingredients and solutions?
Yes, for functional ingredients and solutions, you would have to see Q1 to be, in that sense, from a margin profile, the softest, softest quarter for this year. What's going to drive up the margins in quarters ahead is, I would say, threefold. It is what we call operational leverage, which means the size of activities will increase versus Q1. Then you will start to see the contributions, the benefits from the restructuring program, which very much will positively impact FIS, most notably. Now, think about this mothballing of this Peoria, U.S. plant, which we materialized by the end of Q1, and the benefits of that will start to come in, of course, from Q2 onwards. So that's another driver there.
And then the third leg is really the input cost relaxation, but that's a bit more skewed towards the second half of this year, where we do see, with the current visibility, that input costs will come down. And again, that will also help the margin profile of FIS. So please do expect an upward movement from the 10% margin profile that we had in Q1, in the coming quarters ahead.
Okay. That's very clear. Then my final question for now is on the PLA joint venture. I couldn't fully hear the previous question and answer, but what can you say about inventory levels at the PLA joint venture level? Are they back to normal? And related to this, can you elaborate on the predominantly volume-driven organic growth of 24.3% in Q1? Is that, I assume it's more a comparison base, because Q1 last year was the softest of the quarters than anything else, but maybe you can elaborate a little bit on the demand, the real demand side of the story.
Yes, so Robert, I will answer this one. Indeed, you're right, that if you remember last year, indeed, the Q1 was soft, but the big change in the PLA joint venture and the market outlook is that we see market recovery as well. So the joint venture has been destocking itself from their own inventory. But when you look at two things, first of all, traditional market, you know, from the packaging industry, the food service ware, and 3D printing, we see some increased, you know, demand for the first time in 18 months. But also in the outlook, discussing with the customers and also the joint venture forecast is looking to very favorable development over the next quarters, starting in Q2.
So yes, Q1 benefited from an easy comps, but we have a much better visibility on the business for the rest of the calendar year. So that's number one. Now, if you look more specifically at some drivers, China is one of the major positive drivers in terms of recovery, but also in terms of some categories growing very nicely. One I can mention here is 3D printing, and when I mention 3D printing, it is not necessarily, you know, the home 3D printing, but it is the industrial 3D printing, where there is quite a strong demand, you know, in terms of shifts to produce some plastic parts, you know, through this technology. And why is that? It is that the CapEx requirement for industrial 3D printing is lower than traditional molding or extrusion.
We see quite a nice development in the market for this technology for industrial purposes in China. Their PLA is being used not just because it is bio-based or biodegradable, but because of its functionality. It's quite a hard plastic, and the best one that fits into industrial 3D printing. That's quite a nice development we see happening there now. The last point that makes me confident on PLA turnaround and development is that we start to see some materialization of the efforts we've done for pipeline, that the joint venture has done on pipeline development, with new projects coming to a materialization over the coming quarters. So, I can say that, you know, following last year, you know, volatility on the PLA market, we have a much better visibility right now.
All right. That's very clear. Maybe one final comment. I assume that, Eddy, this is your last presentation as CFO, so thanks for the collaboration in the past years, and all the best for the future. Thank you.
Thank you very much, Robert Jan. Much appreciated. Thank you.
Thank you. We will take our next question. As a request, participants, please note that when asking your questions, please ensure you are asking your question loud and clear. We will take our next question, and the question comes from the line of Fernand de Boer from Degroof Petercam. Please go ahead. Your line is open.
Yes, good morning. It's Fernand de Boer with Degroof Petercam. First coming back on, let's say, the margin in functional ingredients. Could you elaborate a little bit on the impact of the sugar prices? Because I normally, when all the inflation moved up, margins automatically went down, mathematically. So now with prices coming down, you should expect also here, some support on the margins, maybe not on absolute, but on the margins. So could you say how this work? Is this because of the higher sugar prices now, of last year now coming in, and that in the coming quarters you will see a relaxation of that one and also going to help your cash flow?
That's the second one, or maybe also here related to that, did you have some inventory losses then on sugar prices being now much lower at the end of the quarter? Then, on the, MedinCell release, in the, in the MedinCell release, it was said that they received a milestone payment, I think of $30 million. Is this also something what is dripping through to your, joint venture with, with MedinCell, or is it purely only for MedinCell itself? Yeah, those were my two main questions.
Okay, thank you, Fernand. So Eddy, would you like to take the first two, and I will take the MedinCell one.
Yeah, so on sugar price, you know, we are applying a sugar price hedging policy. And if you follow the sugar markets, there after an initial hike towards the end of last year, sugar came down quite prominently in the opening, especially the last months, I would say. If you look at how it's flowing through our PNL, then indeed, in the first two quarters, so Q1 and also Q2, we have, relatively speaking, still high sugar costs, which is a big part, of course, ending up in our fish unit. And towards the second half of the year, sugar costs will come very much down, because we have already taken in quite some positions, and also for the rest of the year.
So that should help indeed the margin profile towards the coming quarters, but more pronouncedly in the second half of the year.
Are you now extending the hedging period, or do you think that the sugar price could still come down a little bit?
No, as you—on the earlier occasions, we always discussed the hedging period for sugar, at minimum 6 months out, and at max 24 months out. So yes, we started last year to shorten it in terms of duration. We are still not on the long range in that sense. So, for this year, as we are already now moving into 2, obviously, the majority of sugar prices have already been hedged. But for next year, we are still having opportunities to capture the downward movement of the sugar markets that is taking place. And on a biweekly basis, we take our hedging decisions to see when we cover.
On the MedinCell and AbbVie, in fact, the way you have to look at it, indeed, there is no, I mean, any payment dropping into the Corbion MedinCell joint venture. Whether it is the EUR 38 million, and then they even mention EUR 1.9 billion of potential milestones, this is not part of our model. What is in there for Corbion is obviously we are the exclusive supplier of the polymer, and the technology from MedinCell, the depot and long-acting injectables, is based on our proprietary polymers. Just to set expectation, because this is a fantastic news, because it's gonna really secure the pipeline, you know, for the 3-10 next years.
On the next three years, the major impact in this business will come from the Teva work. Because the dynamic in this business, when they start, is that you have to first go through a clinical three stages before and get FDA approval before you can get revenue. So now, basically, the big thing for us, as you remember, Teva launched the first product with our technology, and we start to have sales for the first product called UZEDY in the U.S. for schizophrenia for Teva. Teva has another two in the pipe, and they are expecting further outcome in the second half of 2024 for further launches. So this is now start to cash in the last five years of work and the clinical stages approval with Teva.
The great thing is that AbbVie gonna come, you know, three years from now to further enhance massively that portfolio. But there is no short-term impact from the deal, but it's great news for the mid to long-term future of, you know, this polymer business for Corbion.
Maybe, maybe one follow-up. This morning you also announced 20 million share buyback and extra cash dividend. So meaning more cash out. Was that already baked in, in your earlier guidance, or do you see actually a better-than-expected cash flow this year, and that allowed you for doing the share buyback and extra dividend?
So the two items we have announced this morning are fitting in the earlier covenant guidance that we've given, which is a net debt EBITDA development in this year, in the range of 1.8-2.3. So this fits into that guidance.
But it's not that you say, "Okay, actually, we foresee a better-than-expected Free Cash Flow, and that also addition gives us some additional room," or does it mean that earlier you anticipated, let's say, 1.9 times, and now you are going to land at 2.2x in your calculation?
Yeah, I want to, again, repeat, we want to cruise this year in that range that we, that we've guided for. By the way, that will also already be in Q2. So really, every quarter that we will come out, we already in that guidance range. We're happy with the Free Cash Flow development, let me repeat that. And you know us, that, you know, we will constantly monitor and look at what our financial outlooks are in terms of what we can fit in terms of these extra measures we announced this morning.
Maybe one then, on the cash flow, because probably you received the proceeds from emulsifiers already this quarter, but then the cash out for the taxes to be paid is probably in the second half, or is that going to move to next year?
Yeah, you're right. So that will be in Q3. So the tax payment to be done will be in Q3.
Okay. Thank you. And Eddy , the best for the future.
Yeah.
Thank you for all the work in the past years.
Thank you. Thank you, Bernard.
Thank you. We will take our next question. Your next question comes from the line of Sebastian Bray from Berenberg. Please go ahead. Your line is open.
Hello, good morning, and thank you for taking my question. So I would have two, please. The first is on the improvement, as it seems, in the profitability of the algae business. Back when Corbion was disclosing this separately at the Capital Markets Day in 2022, I believe it provided 25 guidance, which implied an EBITDA margin, something in the region of 20%. Is the level of profitability of Algae already comparable to that level as at the Q1 results? My second question is, can you give us a reminder of what exactly the relationship is between Corbion and MedinCell? So my understanding is, as a JV, Corbion sells a product that goes into the delayed release drugs.
Was there ever an official 2030 guidance or other indication given on how big this business could be for Corbion? Thank you.
Yeah. Well, thank you, Sebastian, and I will let Eddy answer the Algae margin, and I will get the MedinCell one. So, Eddy?
Yeah. So, now, with the new allocation of our businesses, we typically do not go deeper in per unit. But that being said, we are very happy with the profitability development within health and nutrition, and with that also in Algae. So indeed, we are very comfortable in what's happening in the Algae space.
So, on MedinCell, and on the business model, basically, we have with MedinCell a joint venture, a 50/50 joint venture that is called the CMB, so Corbion MedinCell Biomaterials there. So, and, we are developing together very specific polymers, that basically, then MedinCell is introducing into their overall full solution to encapsulate actives, drug actives, for their own customers. So if you think about the relationship with Teva or with AbbVie, these are relationships between, MedinCell and the, the final, pharma labs. Obviously, the big part of the credibility, they also bring, and we as Corbion do bring through this JV, is that, for MedinCell it's about securing supply, quality, of manufacturing, dual GMP pharma manufacturing facilities.
As you know, we have one here in the Netherlands and one in Tucker, close to Atlanta in the U.S. All the DMF files, so the pharma files are filled by the JV, both in the U.S. and Canada in that case. So and that's the contribution we bring, so we make sure that their business continues, security of supply and pharma grade are there. But the long-acting injectable technologies and the chemicals are made in between MedinCell and the final pharma labs. So for us, what's in there is obviously next to the exclusivity of the relationship, is that we get the polymer sales and revenue and margin contribution through this JV. So that's the model there.
We are not involved in building the clinical phases and the clinical studies, Sebastian. So now, if you have to understand this, if I take the example of the product that is currently on the market, how it translate, just to give you order of magnitude numbers, this, this, risperidone, anti-schizophrenia, you know, drug, is a $4.5 billion, you know, business for potential addressable markets for Teva, only in the U.S.. This is a market growing 10%-12% a year. They will try to capture a fair market share of that market. When you get it back to what does it mean for Corbion?
You have to see that the polymer, it represents, I mean, roughly 1% of that, you know, market potentially, if you were to convert it, yeah? So, so that's a bit, you know, the order of magnitude and how does it play into the whole scheme. So, now the big advantage is that once you've got clinical studies and then the approval, basically, you are in there forever.
That's helpful. Thank you, Olivier, and Eddy, for taking my questions, and Eddy, all the best.
Yeah. So, maybe just to close on MedinCell, if you are interested, there is a very nice presentation on the MedinCell website in January, where they've laid a strategy, and they also explain the relationship with Corbion. So if you are interested, you can go to their website and see their corporate presentation that is only a couple of months old, where there is more detail.
Thank you.
Thank you. Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.
No, thank you. I would take the opportunity before closing the call to also say a very big thank you to Eddy, because I've been working very closely with Eddy the last 5 years. You know, he's been with Corbion 18 years, so I developed a very strong relationship with Eddy over the last year. So I want also to express my really big gratitude to him, you know, for helping me as CEO. And also to have, you know, developed Peter, as a successor, because that's important. I'm really pleased also to welcome Peter into the board of management, as from Q2.
So, with those words, I would like to close the call and see you, you know, the next opportunity, probably AGM for some of you and for the Q2 release later this year. Thank you and have a good day.
Thank you.
This concludes the Corbion Q1 2024 results on April 26, 2024. Thank you for listening. You may now disconnect.