Welcome to the Corbion Full Year Results 2024 Conference Call. During the presentation, all participants will be in listen-only modes. After that, there will be the opportunity for questions. Please press star one one to enter the queue at any time. Please note that this call will be recorded. I would now like to hand over to Mr. Alex Sokolowski, Head of Investor Relations. Please go ahead, sir.
Thank you. Good morning and welcome to the Corbion Full Year and Fourth Quarter 2024 Conference Call and Webcast. This morning, we published our full year results, and the press release and presentation can be found on the website at www.corbion.com, Investor Relations, Financial Publications. Before we begin, please note that today's discussion will include forward-looking statements based on current expectations and assumptions. These statements will involve some risks and uncertainties that may cause actual results to differ materially from those expressed. Factors beyond our control, including market conditions, economic changes, and regulatory actions, can impact outcomes. Corbion does not undertake any obligation to update statements made in this call or contained in today's press release and presentation. For more information on assumptions and estimates, please refer to our annual reports.
This is Alex Sokolowski, Head of IR, and with me on the call are Olivier Rigaud, Chief Executive Officer, and Peter Kazius, Chief Financial Officer. I would like to now hand over the call to Olivier.
Good morning, everyone, and thank you for joining Corbion's Full Year 2024 Earnings Call. I'm pleased to share that in 2024, Corbion successfully met its upgraded targets for sales and Adjusted EBITDA while significantly surpassing our free cash flow target. We achieved organic sales growth and double-digit increases in both Adjusted EBITDA and adjusted operating profits. Our strong volume mix performance, our focus on operational efficiencies, and the successful implementation of our restructuring program and our CapEx discipline resulted in this significant increase in free cash flow. Taking a closer look at our 2024 highlights, we achieved positive organic sales growth of 2.2%, driven by a volume mix increase of 5.2% and a pricing decline of 3%. Our organic adjusted EBITDA grew by an impressive 23.3%, and we generated a free cash flow of EUR 98.3 million from continuing operations.
In our health and nutrition segment, we saw strong growth in both sales and Adjusted EBITDA driven primarily by our nutrition business. Our functional ingredient and solution segment also experienced positive volume mix growth, particularly from our food ingredients and the lactic acid sales to the joint venture businesses. Looking ahead to 2025, we remain really confident in our strategic targets and expect to continue delivering strong performance. More on that later when we present our 2025 outlook. Now, let's move on to the opportunities for differentiation in key markets. We've made significant strides in differentiating ourselves in key markets. Our sales into the mature bakery and meat markets have grown thanks to our innovative and differentiated solutions as food ferments and clean label preservatives. By targeting these growing market subsegments, we've been able to capture new opportunities and grow with trends in food markets.
Additionally, our value proposition in the strongly growing health and nutrition market has been confirmed with strong sales and earnings growth. This success underscores our commitment to delivering value to our customers and stakeholders. Turning to the challenges we face, raw material and freight prices were volatile over 2024, while we've seen some relaxation in input prices such as sugar. On the other side, freight and energy costs remain unpredictable in the near term. However, we anticipate an improvement in overall input costs in 2025, which should provide some relief. We're also obviously closely monitoring the potential impact posed by tariffs on goods into the U.S. Health and sustainability continue to be at the forefront of our strategy. The trends towards clean labels and natural preservatives are accelerating, outpacing the overall food market growth.
The proliferation of GLP-1s, the increased scrutiny on ultra-processed foods, and heightened regulation in both the European and the U.S. ingredient space could create increased demand for natural and healthful food ingredients. Furthermore, our sustainable Omega-3 solutions offer structural growth driven by higher adoption in aquaculture and the supply-constrained long-term outlook for fish oil. We're really well positioned to capitalize on these trends and drive sustainable growth. Before I turn things over to Peter to present our financial performance in 2024, I'd like really to emphasize that we are confident in our strategic direction and in our ability to continue delivering strong performance in 2025. Peter, the floor is yours.
Thank you, Olivier, and good morning all. In 2024, our sales increased by 1.9% compared to 2023. This growth includes an overall growth rate of 2.2%. Currency impacts, particularly due to the depreciation of the Japanese yen and Brazilian reais, slightly countered the sales growth, while the U.S. dollar remained flat year over year at $1.08 per euro. Our health and nutrition segment drove our organic sales growth with an impressive 18.5% increase. In the functional ingredients and solution segment, we saw positive volume mix growth, although this was offset by price declines following input cost relaxation. Turning now to our Adjusted EBITDA, we achieved a remarkable growth of 24.8% year over year, with 23.3% of this growth being organic. The key contributor to this strong performance was our health and nutrition segment, which benefited from robust volume growth as well as favorable pricing.
On the other hand, our functional ingredients and solution segment experienced a slight negative impact. It's important to note that our EBITDA was affected by some phasing of costs Q4, as earlier indicated, including delayed transport cost increases from mid-year, maintenance expenses, as well as variable compensation. Looking at our profit and loss from continuing operations, our depreciation and amortization increased year over year. This is primarily due to the completion of our ERP implementation and several capital expenditure projects. Moving on to adjustments, these have been mainly driven by the restructuring program, which resulted in a reduction of approximately 180 FTEs compared to the end of 2023. It's important to note that the adjustments in 2023 were influenced by the reversal of an impairment of our algae fermentation assets in the nutrition business. Regarding financial income and expense, we've observed a decrease compared to last year.
This is attributed to the divestment of our emulsifier business as well as some non-cash foreign exchange items. In terms of our joint venture, the results have been negative. Although we achieved a positive EBITDA of EUR 12 million, this was offset by depreciation as well as interest paid to shareholders and tax obligations. Our effective tax rate stands at 26.6%, which aligns with the jurisdictions in which we operate. Finally, our results after tax have seen a positive impact of 6.5%.
Looking at the functional ingredients and solutions business, for the full year, we experienced a positive volume mix growth of 3.3%, and we achieved 3.4% in Q4. This growth was primarily driven by our food business, particularly in bakery, meat, and dairy markets, as well as key products and market adjacencies. Additionally, we observed growth in lactic acid volumes to the joint venture, driven by increased PLA demands.
Moving on to our biomedical segments, this segment was down compared to last year, primarily driven by weaker demand in agrochemicals and softness in the semiconductor market. Regarding pricing, we faced a negative impact of 4.9% for the full year and 4.1% for Q4, following the relaxation of input costs. Our EBITDA margin for the full year stood at 8.8%, with Q4 at 7%. The Adjusted EBITDA includes the absorption of the stranded cost from the emulsifier divestments, which impacted margins by approximately 200 basis points. Compared to Q3, the Q4 margin was softer as expected due to seasonality and the phasing of expenses, including the mentioned temporary freight cost, maintenance costs, and variable compensation. Looking ahead to 2025, we see continued positive growth and margin improvements as of Q1, as we fully compensate for the stranded cost.
We're implementing a series of initiatives to achieve that, as earlier communicated, including process efficiency, complexity reduction, procurement saving, further insourcing, as well as savings from the lactic acid plant in Thailand. Moving on to health and nutrition and starting with our organic sales growth, we achieved an impressive 18.5% for the full year, with Q4 contributing 8.8%. This growth was driven by strong performance in our nutrition business, particularly in the aquaculture and pet food markets. Our volume mix growth for the full year was 13.9%, with Q4 showing a modest increase of 0.2% due to strong phasing effects in Q3. The substantial growth was primarily due to robust demands for our algae fermentation DHA products, which supports both aquaculture as well as pet nutrition markets. In the pharma business, we experienced volume mix growth, although this was partly offset by reduced sales prices.
Despite this, we continue to see positive momentum in this segment. Our biomedical polymers for the year remained flat, with slight sales degrowth of 1%. However, we anticipate sales growth in 2025, driven by business development mainly in drug delivery. Moving on to our EBITDA margin, we achieved a full-year margin of 29.9%. We've maintained high EBITDA margins consistently throughout the year. The increase compared to last year is attributed to a combination of increased operational leverage, strain optimization, as well as a favorable product mix. In summary, our health and nutrition segment has demonstrated strong performance with double-digit volume and mix growth, sustainably high EBITDA margins, and positive momentum across our key businesses. We remain confident in our ability to continue this growth trajectory into 2025 and beyond. Moving now to the performance of the TotalEnergies Corbion joint venture.
The JV achieved an organic sales growth of 13.2% for the full year, with Q4 contributing 7.1%. This growth was driven by recovery in volumes. However, the business faced significant pricing headwinds, which partially offset their volume growth. Despite these challenges, the robust long-term drivers for the PLA markets remain intact. Moving on to the EBITDA margin, the joint venture achieved a full-year margin of 8.7%, with Q4 being at 2.1%.
The margin contraction versus last year was primarily driven by negative pricing dynamics and commoditization in certain applications, which impacted regional and product mix. It's important to note that we anticipate high single-digit EBITDA margins for 2025. I'm pleased to report that we have achieved our seventh consecutive quarter of positive free cash flow. This positive free cash flow generation is a testament of our EBITDA development and disciplined approach to capital expenditures.
We've continued to invest in our key priorities while carefully managing our overall capital expenditure levels. In 2024, we spent around EUR 80 million, and we anticipate maintaining this level of investment for 2025, as well as through our CapEx discipline in both maintenance and expansion CapEx. Our free cash flow in 2024 has been partly impacted by other working capital factors. These include the phasing of customer rebates, the monetization of VAT receivables in Brazil, and variable compensation. While we've made progress in reducing our operating working capital, it has not yet reached our target levels. This had been partly driven by ongoing challenges in the Red Sea region and an increase in inventory in anticipation of the potential harbor strike in the U.S., which ultimately did not materialize.
Looking ahead, we plan to further reduce our working capitals in 2025, and we're confident that our strategic initiatives and disciplined financial management will enable us to achieve this goal. In summary, our continued positive free cash flow generation, disciplined CapEx management, and strategic investments position us well for future growth. Our dividend policy is designed to be progressive, with the ambition to annually pay out a stable to gradually increasing absolute dividend.
This year, following our positive net results and strong free cash flow developments, we're proposing a 5% increase in the regular dividend, bringing it to EUR 64 per share. This proposal reflects our commitment to delivering consistent and growing returns for our shareholders. The proposal is subject to approval at the annual general meeting, which is planned for May 15th.
If approved, the ex-dividend date will be May 16th, with the record date set at May 19th, and then cash dividends will be payable at May 27th. In summary, our proposed dividend increase underscores our confidence in the company's financial health and our dedication to providing value to our shareholders. We believe this approach aligns with our long-term strategic goals and supports our ambition to maintain a progressive dividend policy.
For now, a bit on ESG accomplishments and ambitions, starting with revenue contribution to sustainable development goals. We've seen a notable increase in 2024. In 2024, 74% of our revenue contributed to SDGs 2, 3, and 12, which was up from 2023. This improvement is partly due to the divestment of our emulsifier business, which did not align with our sustainability goals related to preventing food waste, health, circular economy, and biodiversity.
Our commitment to the Life Cycle Assessment has also been strengthened. In 2024, 92% of our products were covered by LCA, compared to 79% in 2023. This comprehensive assessment ensures that we are continuously improving the environmental impact of our products. Our Scope 3 CO2 emissions increased in 2024 compared to 2023, but are still down from the 2021 levels. The increase relates to higher input and supplier mix. We're proud to have received high ratings from CDP, recognizing our implementation of best practices in climate change, and a gold score from EcoVadis for our leadership in sustainability, both achieved in 2024. And now, back to you, Olivier, for the outlook.
Yeah, thank you, Peter. So I'm excited to share our ambitions for 2025, which are in line with our previously shared objectives. These targets reflect our commitment to driving growth, enhancing profitability, and delivering value to our shareholders.
So first, let's discuss our organic sales growth. We are targeting a volume mix growth between 2% and 6%. This growth will be driven by our continued focus on expanding our market presence and leveraging our strong product portfolio. Moving on to our organic adjusted EBITDA growth, we're aiming for an impressive growth rate of over 25% from our continued operations. This target underscores our confidence in our ability to optimize operations, improve efficiencies, and capitalize on market opportunities. And this is in line with the guidance shared previously at the Capital Market Day. Our capital expenditures for 2025 are projected to be between EUR 80 million and 90 million, and this investment will support our maintenance and growth initiatives, primarily including capacity expansions for algae fermentation, the biomedical polymer business, and also some product insourcing.
In terms of free cash flow, we're targeting a figure of over EUR 85 million, excluding divestments and acquisitions. So this positive cash flow will enable us to reinvest in our business, pursue strategic initiatives, and return value to our shareholders. Finally, we anticipate a Covenant Net Debt to Covenant EBITDA ratio of approximately 1.6x by the end of the year. This target reflects our commitment to maintaining a strong balance sheet. So we are confident in our strategies and our ability to achieve these ambitious goals, and we really look forward to sharing our progress with you throughout the year. Now, Peter and I are happy to take your questions.
Thank you, Olivier. Call participants, if you'd like to ask a question on the call this morning, please press star one one on your telephone, and you'll be placed in the queue.
If you'd like to remove yourself from the queue, press star one one again. Also, kindly mute your line while your question is being answered. Our first call this morning comes from Setu Sharda of Barclays Bank. Setu, please go ahead.
My question. I have three questions. The first one is on the health and nutrition volumes. These are flat in Q4, contrary to the expected high single-digit growth expectation you guided in Q3. So what factors are contributing to this slowdown? And additionally, how has the Q1 started for health and nutrition? And in terms of my second question, despite the volume growth in functional ingredient and solution, margins have declined sharply. So how significant is the impact of fixed cost phasing in that decline? And what is your outlook on the margin development for the next year? Can you share some insight on this?
And the third one is on your cost-saving programs, like you announced during the CMD, along with the recovery of stranded costs from the emulsifier deal. So in terms of progress, how much of the absolute EBITDA growth of EUR 35 million this year is attributed to the savings? And additionally, what is the expected contribution from these savings in FY 2025? Yeah.
Thank you, Setu, for the three questions, and let me start answering them one by one. So first, health and nutrition. You're right that for this business unit, we guided double-digit growth for the full year. That's what we also delivered. If you look to Q3, Q4, there is really a phasing of order impact in that one, as we indicated, I think, in the Q3 call as well. So if you look to the combination of H2, it's perfectly in line with our strategic ambition, which is phasing.
If you look to the opening into Q1 of this year, actually, that's in line with the commitments which we did provide with the outlook. So from that perspective, see Q4 really as a phasing and not a kind of starting of decline. Your second is on margins in functional ingredients and solution. And there are a couple of things to note, which we also indicated in the Q3 call because therefore it's not unexpected. So if you compare Q3 to Q4, there's always a seasonality impact, meaning that the absolute sales level is lower in Q4. And if you look on variable margins, it's roughly at the same level. And then it's indeed, as you said, impacted by some phasing of fixed costs, including inventory movement, maintenance, and variable compensation. If you look at margins going forward, then we're on the right trajectory.
That's also reflected in the comment Olivier made on the outlook. We see that margin uptake already happening earlier in the year. Now, if you then look at your question on the fixed cost savings and the stranded costs, a bit of color on that. All these costs are really included in the guidances which we provided both for 2024 as well as for 2025. A key part of the EUR 35 million of fixed cost has been driven by the redundancy of 180 people. You clearly can see in the FTE development a decline from year-end 2023 to year-end 2024. The decrease is roughly the amount I just told. On top of that, we divested the emulsifiers. Therefore, you see an even bigger reduction in annual.
The other significant item was the closure of Peoria, or the mothballing of Peoria, which we did by end Q1, early Q2, and also, as indicated, this reduction of FTEs has been done by starting the end of Q1 and then phased during, I would say, Q2 and a bit of Q3. The project articulated related to the stranded costs will have an effect as of Q1 next year. I hope that gives some color, Setu.
Yeah, that's helpful. Thank you.
Okay, very good. Our next question comes from Robert Jan Vos from ABN AMRO ODDO BHF. Robert Jan, please go ahead.
Yes, I'm here. Good morning all. Thanks for taking my questions. I have a few. To start with functional ingredients and solutions, pricing remained quite negative throughout the year. Very small improvement in Q4, but still materially negative.
Earlier, you said that has also to do with the easing of input costs. But what is your view on pricing for this unit in 2025? Because if I recall correctly, you also said probably at half year or Q3, I don't remember that, that going forward, you will focus more on your pricing towards your customers in order to improve the profitability. And a related question indeed is, year- on- year, you reported an EBITDA decline modest to 8.8%. Why are you still confident that you can achieve mid-teens? And what is the time for achieving that? Can you remind us? My second question is on, and that's more positive, it's on health and nutrition, the EBITDA profitability, one notch shy of 30% in 2024.
Taking into consideration the further plans for pet nutrition and also human nutrition for Omega-3, is it fair to assume that there could be further upside in this margin, or are there other factors to take into consideration and maybe be a bit more cautious there? And my last question is on the PLA joint venture. Why do you expect a high single-digit EBITDA margin following the Q4 margin of just above 2%? What's the background of that expectation? And related also, why describe this business as long-term attractive following the recent steep trend towards commoditization that we are seeing? So those are my questions. Thank you.
Now, thanks, Robert Jan. And I would suggest that to answer the first question on the PLA, and Peter will take on the H&N as well. So I think you're fully right.
If you look at the trajectory of pricing in 2024, indeed, we've had this price erosion, basically related to input cost. What has been very important, of course, is the last pricing round. This happens usually for a big change of the business in the course of Q4 for 2025, and we see, of course, less erosion. We've been also even going for price increase in some markets. So what you will see in the course of 2025 is a lot less erosion in pricing, actually, on the fixed part. Obviously, we are scrutinizing, as we've said earlier, any potential tariffs impact that might happen and occur, but we are preparing for that. So to that stage, we still have, I mean, again, some pricing round to be done for Q2 and for H2.
So there is also some flexibility to react in the course of the year on pricing and movements on the Ingredients direction. At the same time, on the margin, we have indeed this plan to really also compensate for the stranded cost, as Peter alluded to, which is primarily impacting the Ingredients division. So the compensation of the so-called stranded cost that we committed to will really favorably impact also the margin recovery for the FIS BU. This is where the impact is going to be visible. So the initiatives we mentioned in the Q3 results related to not only pricing, but also procurement initiatives, but also product portfolio simplification, SKU reductions, as well as some operational efficiencies related to the Thailand plant ramping up and also insourcing initiatives that we've put in motion will really contribute to the margin recovery into Ingredients towards the mid-teen.
Now, I'm not saying we're going to achieve the mid-teens in 2025. So maybe I jump to the PLA JV, and then we're going to come back on the health and nutrition. I think one of the ways we see and why we see margin getting better than the Q4 one, which was really low, is that the plant is filling up. So we are seeing operational leverage in the plant because you might remember the entire market and ours as well dropped by almost 50% back into mid-2022. And now we start to see and rebuild volume recovery. And we see that translated as operational leverage into the plant on our costs. That's one thing that is important. The second element is that, yeah, the joint venture is also benefiting to some extent from lower input costs related primarily to sugar price.
So as you can expect, it's also favorably impacting the joint venture. However, we mentioned that also in Peter's presentation, the PLA prices do remain depressed. So now when we say the fundamentals do remain intact, if you look at the drivers, we also discussed previously that most of the growth today is happening across Asia and partly in China. And that is something we see continuing in 2025. Obviously, there is upcoming new regulation in China that we are expecting in the course of the year to really come official to even strengthen the usage of PLA in some categories on the Chinese market, which is a very big market. So this is something where basically most of the signals so far are positive on the volume recovery of the PLA market. The big question remains on pricing. So Peter, maybe you take over the H&N question. Yeah.
So I mean, you're right, Robert Jan, that if you look to health and nutrition, I mean, a great success in terms of EBITDA margin with almost 30% and also quite consistently throughout the different quarters. You're right that we are going to these nice attractive markets as these growth areas in there. I would be conservative putting any numbers higher than 30% on that one. So if you look to the EBITDA delivery into next year, that's more, as Olivier alluded regarding fixed, then it's a step up in margin in the health and nutrition part of the fixed.
That's clear. I'm just wondering, Peter, why you advise to be conservative? Are there other factors that could have an impact? Because I understood that margins on human nutrition products can be significantly higher than the margins that you currently realize on the portfolio.
Yeah. So two things on that.
The one is margins in kind of dollar per kilo, definitely. Margins in percentage also higher for human. If you invest in additional capacity, you sometimes need some operators here and there. So do I anticipate? It's no, but I would be cautious.
Maybe it's on my end, but I'm losing connection with you, Peter. But thanks for what I could hear. Thank you.
Yes. Yes. Good.
I could hear you, Tim, pretty well. Questions from my side. Can you talk a little bit on the outlook of the biochemicals part, agro markets, semi markets? How do you see that evolving in 2025? And then also, can you provide a bit more granularity on the status of the product adjacencies in foods, the dairy stabilizers, etc.? How much are they contributing to revenue in 2024, and how much growth you are still seeing in 2025 and beyond for those products?
Those were my questions. Thank you. Yes, it does. Thank you very much.
Yes. Hello, hello. Good morning, and thank you for taking my questions. I would have two please. Can I just ask about why Corbion is staying in PLA at all? Because the explanation given at the moment is, well, maybe Chinese regulation comes to the rescue, but it feels like this business has a problem and one that could get worse when Cargill, PTT bring on new capacity in the late 2020, in the later this year. What stops the company turning around and tomorrow putting a press release out saying, "We are exploring options to exit this JV"? Why is it still an attractive business to be in? My second question is on the underlying volume growth in the food segment.
How has this actually developed if we exclude mix over the last three or four years? Has there been any volume development? And my third one is just on the outlook as you see it for the biochemicals area. So the health, semiconductors, and so on in 2025. It all looks pretty positive, but any color on that is helpful. Thank you.
So everything is fine on the audio side, and Emma is just checking on the webcast side. Just give us a moment. Thank you so much. Dear participants, please stay connected. Yes, Peter. Are all the participants on the audio side of the call able to hear you? You're more welcome to resume your call on audio side at this moment. Yes, please proceed.
Yes, indeed. I'm still here. That's helpful. Thank you. That's helpful. Could I just quickly follow up with one on CapEx?
The number is down on what was guided in 2024. Where has the EUR 30 million cut roughly come from? And can you make any comments on how you'd expect working capital to perform in 2025? It looks like it was pretty good in 2024. That's helpful. Thank you.
I believe Emma is looking into the side of the webcast side. Emma, please, can you confirm? Just give us a moment, Alex. Thank you so much. Alex, as it is confirmed, on audio side, the participants can hear you, but not on the webcast. We're going to proceed with the audio side of the call.
Yes. I can hear you, but I think that I missed most of the call. Since Robert Jan's questions, I hardly heard anything. So no answers at all. But so I don't know. I heard the question of Sebastian, but also didn't hear the answer.
But fine, I'm not sure how you're going to solve that problem that we didn't get that information. But I had a—yeah, but then we still missed the other part. But yes, that would be fine. In the meantime, 2025, and I look at your leverage guidance for 2025 of 1.6, and you say, "Okay," and your EBITDA guidance of plus 25%, so that means an EBITDA of at least, or let's say roughly EUR 220 million. Then I end up with a net debt of around EUR 350 million, which is covenant net debt, which is similar to what is now. So then the question is, where is all those free cash flow going to? Because that's my first question. And I'm not sure, but did you pay the taxes for the—on the gain you had from the emulsifiers unit disposal already? Okay.
That is it. my calculation correct that your net debt is then expected to land at around EUR 350 million? Yeah. How did you call that last one? Booming payment? Okay. Clear. Yeah. And yeah. Okay. Very good. Yeah. And the other question, I missed the answer, so. So I think that because I also had the question on the H&N growth in Q4 and going forward, but I think that's it. Okay. Thank you.
Okay. I've reconnected.
I can hear you loud and clear. Hopefully, all participants can. I have another question in the queue. This is from Alex Sloane at Barclays. Alex, I hope you can hear me. Please continue with your question. Again, that's Alex Sloane at Barclays. You're on stage. All right. Currently, I have no callers in the Q&A queue. If you'd like to ask a question, please press star one one. I think we have the audio working now.
All right. There seems to be no further questions. Thank you all for tuning in. We'll make the replay available with audio if many participants did not hear. This concludes our conference call this morning. Thank you all for your attendance and questions, and we look forward to having discussions in person on our upcoming roadshows and conferences in the next weeks. Please note that we will report out our Q1 2025 results on April 23rd, and we will speak with you all then at the latest. Operator, you may end the call.
That does conclude our conference for today. Thank you for participating. You're now on audio disconnect. Have a nice day.