Welcome to the Corbion Half Year 2022 Results Conference Call on the 10th of August 2022. During the introduction, all participants will be in a listen-only mode. After that, there will be opportunity for your questions. If any participant has difficulty hearing the conference at any time, please press the star followed by the zero on your telephone for operator assistance. Please note this call will be recorded. I would now like to hand the conference over to Jeroen van Harten, Investor Relations Director. Please go ahead, sir.
Thank you, operator. Good morning, everyone. Welcome to the Corbion 2022 first half results. With us today are CEO Olivier Rigaud and our CFO, Eddy van Rhede van der Kloot. My name is Jeroen van Harten, head of investor relations. Proceedings for today, we're going to start with a presentation that Olivier and Eddy will walk you through, after which we'll move into Q&A. The presentation you can find either on the webcast or you can download it from our website from the investor relations section. With that, Olivier, please go ahead.
Hi. Good morning, everyone, and really pleased to present our first half results. Starting with the first slide, I'm really pleased like I explained, you know, the business activity and the strong momentum we saw over H1 with organic sales growth on our core activities of 23%. That was driven by the three business units. During the period, we delivered an adjusted EBITDA of EUR 89.9 million. This EBITDA increased by 16.6% year-on-year, corresponding to 13.1% margin and an organic growth of -0.4%. Across the period, we've seen continuous inflationary cost developments and the fact that we moved to quarterly pricing really helped us to pass on these costs to the market.
As we speak, we've had, I mean, the first increase in Q1, as you might remember, and the second round, successful round across Q2, we've also implemented a further round in Q3. This has helped us really to, let's say go for Adjusted EBITDA improvement across the period. I'm also pretty happy to report that June was the first month where we reached breakeven for our AlgaPrime DHA business, algae business, and we see very promising business development there. I will come back to that in a minute. Across the period, we also continued a quite high investment level to support growth. Really next to the biggest project we have in our new lactic acid plant in Thailand, we are further developing into specialty food ferments in the U.S. and our algae ingredients in Brazil.
Last but not least, on sustainability, we made a lot of progress and actually, we decide to apply for a renewed Science-Based Target and to increase our emission level to the 1.5-degree in line with the Paris Agreement. Now, diving into the next slide and discussing about business development and starting with SFS, Sustainable Food Solutions. Looking at the sub-segment, within preservation, we saw a shift in terms of projects pipeline and shifting from purely new innovation to helping customers reformulate either to improve their cost or to overcome, you know, some of the raw material shortage. During the period, we also accelerated the launch of new natural antioxidant platform, primarily working on ascorbic acid, natural ascorbic acid from acerola and carnosic acid from rosemary. These are two very nice complement to the current preservation portfolio of Corbion.
Within functional systems, the focus continued on shelf life expansion in promoting food ferments for natural mold inhibitors. We also, I mean, as in preservation, see some shift really helping customers to overcome some raw material shortage. It being, you know, vital with gluten replacement or fat. This is a big trend we see happening in the market right now. We also execute on our strategy by launching a new dairy stabilizers platform, and we see first traction and first promising sales in that area as well. Moving to lactic acid and specialties, we saw growth in all segments, primarily driven by a strong recovery in medical biopolymer post-pandemic. We do not only see a resume of elective surgery, but we also see a strong development in slow-release drug delivery there.
Across the second quarter, we saw also a nice momentum into the semiconductor with our green solvents and our pharma sub-business segment. We've also had robust lactic acid sales to our PLA joint venture over H1, but I will come back on this at a later stage as well on the PLA dynamic. Finally, on Algae Ingredients, we've seen a significant traction in these new customer adoptions of AlgaPrime DHA. Again, as we stated, really proud of having it in June, the first break-even month for this business. Despite higher variable costs we faced, you know, and that was primarily related to some freight costs from Brazil, as well as some of the ingredients we are using for this product line as rapeseed oil. Moving on to the key investment projects.
We mentioned, obviously, the biggest one being our new gluten-free lactic acid plant, and this is progressing nicely, today. As you can see or might see on the picture, we are progressing well on the construction, and we are still on track to deliver, you know, the commissioning as we planned in the later part of 2023. The second investment, which is more specialty oriented around food ferments and mold inhibitors, is again, to serve the SFS business segment from Peoria in the U.S., where the investment is going on as we plan, and we are expecting a commissioning for end of 2022. We'll have this capacity available to sustain our sales development in that segment in 2023.
The same is valid in the algae plant in Brazil or in Orindiúva, where also there we have a project that is bringing more flexibility to the plant and also will enable us as from 2023 to go from a break-even situation to a profitable future in this plant by also helping us improving the product mix significantly. Moving on the sustainability comment I made earlier, you might remember that at the time, you know, Corbion was a front runner when we applied for the below 2-degree, you know, commitment. What we've achieved over the last couple of years is basically, a very nice reduction in our carbon emission. We're already at a 24% CO2 emission reduction, so we believe that we need to set a more ambitious target.
We have our game, and so we recently submitted, actually last month, you know, a new target based on the 1.5, you know. Hopefully we are going to wait for the outcome of these SBTi validation by the fall. We will for sure revert on that to you later on this year. On this, I'd like to give the floor to Eddie to take you through the financial performance in detail.
Thank you very much, Olivier. Good day, everybody. We are on the page on the profit and loss. As you can see, for the first half year, the net sales for the total company have increased by 33%. Within that, about 23% has been the organic growth. We did also have support from stronger currencies. The adjusted EBITDA level, an increase of close to 17% for the first half year. Again, quite some support from currencies. The underlying organic growth was more or less flat for the first half year. Margins at, for the total company, this is 13.1% first half year.
Please note that there is a margin increase in Q2 versus Q1 because Q2 we had slightly higher margin profile of 13.6, and that reflects the good momentum we're making in passing through earlier cost increases and increased sales prices. The gain that we made in the adjusted EBITDA level, up to 16.6%, we could not fully translate to the result after tax at the bottom line of the P&L, because there you see a -23%. That has really been caused by two key drivers. One is to be found on the adjustment line in the middle of the table, where last year we had quite a sizable positive contribution on adjustments, really being related to the divestments we made in the frozen dough activities in the U.S. and the plot of land in the Netherlands in Breda.
That was a sizable book profit and the majority of the contribution of the EUR 23.5 million of last year. This year we also had a smaller size divestment, and that contributed to about EUR 5.5 million on the adjustment line, and that is related to a warehouse we had in U.S., the Totowa warehouse sale in January this year. The second item I'd like to highlight in terms of comparison to last year is on the taxes line. We read this year's tax line to be more a kind of normal tax level of a good 25% with -EUR 80 million.
If you compare it to last year, we then had a much lower tax expense, and that is again related to the sale of the Breda plot of land value and tax asset. That was a sizable one-off benefit in last year's P&L. We move to the next sheet. That's really one of our key themes, of course. It is about the firm pricing actions that we have implemented, and we continue to implement, by the way. By now you're kind of used to our on a two quarterly basis to update our outlook of all the cost increases. I'm talking here about the variable cost increases, what we have already experienced and what we do expect to experience over a two-year period as is measured. It is 2022 versus 2020.
Top right-hand side gives you the composition of the table. If you compare the situation with the current outlook to the last table or the previous one that we shared late February, then the total cost increase for the company have increased from EUR 165 million measured over this two-year period to EUR 240 million. That means another EUR 75 million step up. That of course is what we've done with our quarterly pricing structure is what we are passing through to the market. Within that 75, a big share is of course everything to do with raw materials and energy, but also freight. About 1/3 of that increase is really caused by freight. That's a sizable component itself.
If we dive in the different businesses, Sustainable Food Solutions. Their organic growth for the first half year in sales is close to 19%. Within that, the volume development was pretty much flat, but I would say that's a nice result because basically we made quite some market share gains last year, and we've been able to hold on to those positive volume developments in earlier periods in this period when we are passing through price increases. That's a good result, I would say. Olivier already talked a bit to a couple of the drivers that we have in different sub-segments within food, the new product introductions, the reformulations, et cetera.
Margin profile came down a bit compared to last year, and again, Q2 slightly stronger than Q1 in terms of margin development. I'd like to highlight also, and that's true for all our businesses, wherever we are passing through these sizable cost increases, mathematically, you have this, what we call this margin dilutive impact. That is true for all our businesses, and also for food. Next page, lactic acid. Again, very sizable sales growth organically, 26% for the first half year. A small volume uptick, a good 1% for the first half year. It's really again the price increases, plus some mix improvements that are driving the organic growth.
You know, a couple of elements to be mentioned there in terms of sub-segments is indeed the semiconductor industry, which is holding firm. Of course, the good recovery and further growth prospects that we are having experienced and seeing for the medical biopolymers, which is, of course, a high value sub-segment in this business unit. Incubator, next page. There, we continue to invest in Incubator. Within the Incubator, like Olivier has stated, we have turned around the DHA business of Algae as per June into a positive territory. We continue to invest of course in other initiatives in this portfolio. We have always targeted between 0.5% and 1.5% of our total costs.
That is the bracket that we like to operate the Incubator. Also by the way, there's also quite some currency impact in this comparison to last year because the dollar has strengthened quite a bit, also the Real, but also the dollar, and we have quite some dollar cost also in this part of the cost build-up. The next one is about the PLA joint venture results. EBITDA up by about 10% margin, more or less, CapEx closing in the good thirties. Underlying sales growth organically has been 23%. But within that, again, quite supported by currencies. Outside of the currencies, underlying organic growth has been a good 11%. Non-core activities.
This is comprising our U.S.-based emulsifier business, really developed very nicely. We managed it for value, as you are aware. Really the prime focus is here to hold on as much as possible to the EBITDA delivery. As you can see in this picture is, we really have outperformed in that sense also compared to last year. A very strong delivery here in absolute, EBITDA terms, also margin-wise, and, you know, really successful, dynamic, I would say. And again, also handling, managing the cost increases that are also impacting this business, especially soybean oil, for example, is a known one in this area. We're happy with the delivery of this business. The net debt bridge.
As indicated in earlier conversations, in the investment phase we are in, we are expecting to increase the net debt to EBITDA leverage. That's also what happened according to expectations from 2.6 times in December last year to 3.3 as per June. The bridge you can find in this sheet or what has been causing the net debt development. Given time, I don't think we need to go through the whole bridge. Going forward, the outlook, that's also what we shared in the press release, is that we do not see at the current outlook a further increase in this net debt to EBITDA ratio development. As a matter of fact, we've seen improvements towards the end of the year.
Yeah, the EBITDA delivery is one component in that of course.
We bring it back to the outlook.
Yes. Just, I mean, to conclude this presentation and before opening to Q&A on the outlook, you might have seen on the press release, so we are upping our guidance on net sales organic growth for the core activity from 20% to 25% for this year. As Eddy van Rhede van der Kloot just mentioned, we see of course further cost increase for the core, you know, in the range of EUR 190 million, used to be EUR 130 million. As we explained, you know, we are, I mean, very close to the goal on a price increase quarterly, so we are preparing the next one for Q4. On Adjusted EBITDA margin there, we see development into the lower end of our 12% to 15% range.
Obviously, the more we are increasing our prices, the higher the dilutive effect on margin we do see. We are really on track to substantially improve our absolute adjusted EBITDA compared to last year. CapEx-wise, we are guiding in the range of EUR 200 million to EUR 230 million, there with all the key projects being on track. As Eddy just explained on our net debt to EBITDA ratio, we also foresee an improvement, you know, from the 3.3 we have at the end of H1 by the end of the current year. On this, I'd like to open the call for Q&A.
Thank you, sir. If any participant would like to ask a question, please press the star followed by the one on your telephone. If you wish to cancel this request, please press the star followed by the two. There will be a short pause while participants register for a question. The first question comes from Alex Sloane from Barclays. Please go ahead.
Yeah. Hi. Morning, all. Thanks for taking the questions. I've got three if okay. The first one, I mean, clearly you've had a very strong price mix performance in the quarter. I wondered if you could help us, within SFS and lactic acid and specialties in particular, maybe breaking out the rough mix contribution versus pure pricing. You know, given you have, I guess, very different margin profiles, particularly within lactic acid and specialties, that would be helpful. Second one, just on the PLA, the lower volume outlook there from your business. I guess, you know, the question would be: How do we think about this, from the broader lactic acid market perspective? I mean, clearly there's more capacity coming on stream, including your own Thai plant.
Is the slower PLA outlook a one or two-quarter phenomenon, or is there anything more structural that's going on there that could actually have implications for supply demand in lactic acid more broadly over the next year or two? Then if I can squeeze in a third, just on the non-core. As you said, a very strong first half performance and decent outlook there. I mean, given you are perhaps closer than you would like to covenants on leverage, how do you think about this business and your options for this business, you know, as potentially a means to accelerate the leverage going forward? Thanks.
Yeah, thank you, Alex. I will cover the PLA and Eddie will cover the price mix and the non-core question. Maybe you start, Eddie.
Yeah. The question on the price mix, and I think the question was especially geared to the second quarter. For the food business, as you've seen, we have organically been growing the business with 21% in Q2. Volume has been already modest at 0.4%, so the remaining is indeed from price and mix. The far majority is price. Mix is somewhere in the order of maybe 3% to 4%. A solid single digits positive mix effect in the food business. On lactic acid specialty business, slightly more pronounced. They're out of the 29.4 organic sales growth in Q2, close to 9%, 9% to 10% has been mix effects.
The biopolymers, medical biopolymers is always known to be a known big one in this mix effects when you're having good development and momentum. I think that addresses your price mix questions on the non-core. Yeah, like you say, it is always an option, but it is not the fair development of non-core. In those five business, we are very happy with the delivery, the solid EBITDA delivery of this business. It proves again how robust and resilient this business is even in the current highly dynamic cost inflation environment. In that sense, it is a solid part of our portfolio, and there's no imminent need to take a different position on the non-core as we have done in earlier conversations.
Just the PLA lower volume outlook. What is happening in PLA, we've seen, I mean, a couple of impacts. The biggest one coming from the Chinese lockdown. You might remember China used to be and has been always a very nice market for PLA. You know, serving this market out of our Thai operations is, I mean, again, giving us a nicely competitive position in China. But we really faced, I mean, a slowdown in China because of primarily the lockdown. Another indirect impact we suffered from, also related to China, is that the freight rate from China to the U.S. into Europe went dramatically up.
Although they are relaxing now, but during the period, we've seen a lot of the Chinese customers getting out of business because simply, I mean, the freight rate was penalizing their business massively, being able to export these products over the world. The last impact we are seeing now is that, because of the surge in energy cost and prices. You might remember PLA, in a lot of cases, is compounded with other type of polymers, whether they are bio-based or non-bio-based. The two we are thinking about, for instance, PBAT, which is, I mean, a biodegradable but fossil-based, or PHA, which is a bio-based as well as biodegradable.
We have quite some, let's say important customers that are co-compounding these polymers together. The demand into these products is much lower on the fossil-based one, as you can imagine. This is related to the high input costs they also face and high energy prices to produce these polymers. In the case of PHA, this is based on vegetable oil, primarily canola oil. I mean, this type of business following the Ukraine situation is also facing not only a massive shortage but a huge inflation increase. Back to also to your question on capacity development, we do not see, let's say any negative from new competition or extra competition.
On the opposite, without giving a specific name, one of the biggest projects in China that came on stream early this year, we understand from our competitive intelligence that this plant has been mothballed since April, you know, on PLA. So we don't see, I mean, that as an immediate, you know, reason or impact. So we believe, just to conclude on these PLA questions, that obviously, you know, now there is a deep primary earnings impact to us on the second half. However, when we look at the pipeline, we are working a lot to diversify our mix, you know, from single-use plastics or food packaging also to some new categories.
I'm thinking for instance about building materials or, you know, new markets where there is today massive use of synthetic polymers or binders where PLA, I mean, has a great future. Now, difficult to tell you know, how fast this could materialize, but the pipeline is looking pretty good. It's a matter of time. But yeah, we are preparing to, I mean, lower sales across H2. That's definitely gonna happen.
Thanks very much.
Yeah.
We will now take our next question from Sebastian Bray from Berenberg Bank. Please go ahead.
Hello. Good morning, everybody, and thank you for taking my questions. I have three, please. The first is on the balance sheet situation at the company, and I'm not so much asking about how to get to a reduction in net debt to EBITDA for H2, but I have a question on the definition of covenant net debt and some lease liabilities that appeared in the full year report 2021. As at the full year, there were EUR 67.8 million of lease liabilities that were not included in the covenant net debt, to my understanding, because it's quote, "was not reasonably certain that the leases will be extended." If these were included, the company would get uncomfortably close to its covenants.
Is there any more visibility on whether these lease liabilities will be included at the time for full year 2022 results? I'll pause there.
Part of our net debt definition does include lease liabilities. Basically it says if we are leasing not only office spaces, but also, for example, warehouses for our operations.
I'm losing the connection.
You can still hear us?
Yes.
Oh, yeah.
Oh, sorry. We thought we were there live.
Apologies.
Those lease liabilities are included in our net debt definition. Every time when we renew or extend such leases, they are included in the net debt definition. I'm not exactly sure what other elements you're referring to, so maybe we need to take that in a separate call to see exactly what you're referring to in terms of certain leases that we don't capture because we are consistently applying last year, this year, and going forward.
The reason I'm asking
The definition application.
I appreciate we can take this offline, but the annual report states that potential future cash outflows of EUR 67.8 million undiscounted have "Not been included in the lease liability because it is not reasonably certain that the leases will be extended." Does that mean that the lease liability could go up at the end of 2022 if they were included, or is it best we take this offline?
Like I said, if that's the situation, there's no need for us to include it in the net debt definition because it is too remote. There's always, I say it in a different way how we can apply those leases. It's probably better to take it offline because we need then also to look at the specifics of your question.
Okay. Thank you, Eddy. The second question is on incubator. What are the costs? Is it about EUR 10 million to EUR 15 million of non-DHA business related costs in here? What are these for?
Yeah. A big share of that is, as we said, within the incubator, the Algae platform, the Algae Ingredients platform is the prime activity we have in there. Within Algae, we always say that the prime focus is to be first turning breakeven the DHA related business. Now, that is where we have been making in the last 1.5 to two years, very successful development through. As per June, that has now turned into positive. That means we can now focus the R&D capability we have in the Algae space to also look at other opportunities based on Algae Ingredients.
That is indeed a strong R&D capability, very much related to the acquisition we made quite some years ago in San Francisco as part of the TerraVia acquisition. Yes, we have quite an a strong R&D capability, and that all cost of that group is captured in the incubator. Besides that, we also have some non-algae ingredients developments. But the big component at this moment is this R&D capability in the U.S.
That is helpful. Thank you. My last question is on capital structure and CapEx for 2023 more broadly. The company hasn't commented on what it wants to spend in terms of CapEx for 2023 and, looking at potential investments, how much Corbion wants to allocate to a lactic acid facility expansion for PLA, be that in Thailand or France. The range of outcomes here is probably something between EUR 100 million and EUR 210 million to EUR 220 million. I have two questions. Firstly, are there any indications on which of those numbers is the more reasonable?
Secondly, if it turns out that the projects the company has to invest in 2023 are very compelling, Olivier, what does your gut tell you about the potential to raise equity to make the net debt situation more comfortable? Is this something you would consider? Thank you.
Yeah. I think, you know, for CapEx, we are, I mean, of course, working on our projections. But as you know, the biggest project we need to complete is the Thailand operation, and we are in the middle of it. There is still, I mean, of course, important tranche having to be spent next year to complete the investment and start. We understand and we know that, yeah, the biggest share is, of course, I mean, again, behind us, but there are still indeed this completion to realize. We have to make, of course, some choices primarily on some of the derivatives, and what we're gonna do further if indeed we want to do further.
At that stage, we are not considering any massive equity raise unless we would have a transformational M&A, you know, coming on stream or something similar. We don't see that immediate need, as we see, I mean, the situation on our net debt, as Eddie just mentioned, you know, improving as we are going forward. This is not something we are considering short term.
In terms of, would you consider dipping your toe, i.e., something a bit smaller, but that makes the balance sheet a little more comfortable in 2023, or it's too early to say?
I think it's a bit too early to say, I mean, today.
Okay. Well, that's helpful. Thank you for taking my questions.
You are welcome.
We will now take our next question from Peter Kazius from Kepler. Please go ahead.
Good morning, all. I've got three questions. The first one is on inflation. Just to check, in order to fully recover all of the cost increases, you obviously need further price increases in the second half. But to what extent do you also need it in the first half next year or even in the second half next year? Then on the PLA, previously, the JV was expected to run at full capacity this year. What should we now expect? Related to that, you will not or hardly supply lactic acid to the JV in Q3. Could you give any indication on the magnitude of the volume decline for lactic acid and specialties overall in the second half? Then finally on SFS.
Yeah, you indicated in the press release that the market for processed meat was in decline. Any indication on your volume performance in Q2? What we should expect for processed meat in the second half? Thank you.
Yeah. No, thank you, Peter Kazius. Maybe starting with the inflation and the pricing, as you stated, indeed, I mean, we have to continue our efforts, although what we see now is that the level of price increase are more modest than what we had to do in the first part of the year. This is of course, we see now in terms of inflationary cost, things are leveling off. Yeah. We do not see that, I mean, across the board, fully. What is becoming clear, of course, to us, primarily relates to your questions on 2023, is that, we will have to go in, I mean, anyhow further on in terms of, you know, covering some basic inflation as well in the 2023 pricing round.
We are monitoring very closely this type of dynamic. We are looking exactly to, I mean, the key variable cost components to see, you know, how this might develop. Right now, we have to say that we have still little visibility because we see, for instance, as I said, some relaxation on freight, but this is on certain routes. When actually, you know, to take a couple of real examples, you ship your entire algae business from Brazil to Norway, this is a very specific route where you do not see any relaxation. But we expect, you know, to see primarily the freight from Asia to Europe and to the U.S. to relax in the coming months. Again, let's not speculate.
You know, there is still very little and short-term visibility on this. We want to stay very focused and be as close to the ball as we can to pass that through. Yeah, we are already, I mean, you know, considering what we're gonna do as from Q1 2023. On this. Just on the SFS, process needs, there are a couple of things that we've seen, because one thing is, of course, to see the entire category development, but also, what is the current dynamic within, you know, the move to clean label. In that we see still, I mean, quite a lot of activity.
If you look to the volume momentum that was impacting us, again, without going into too many details for SFS, part was related to meat, but the biggest part of the volume, you know, the negative volume impact in SFS came primarily from the beverage industry and to be more specific, the brewing industry, which is not a key category for us, where we deliberately decided to, you know, abandon some of these businesses in favor of the price increase. You know, I already mentioned a couple of times, when you have to go to the market with such a substantial level of price increase, what I've experienced in the past is that, you know, you need to be very disciplined on not chasing for volume, but making sure you prioritize pricing.
This is what we've done. In categories like the brew industry, which is usually at the low end of our margin profile, this is what we have in the tail. We prefer to just step out of that business. This is our business, it can come back, I mean, tomorrow morning, if you want to. It's just a price play. We said, yeah, let's not, I mean, compromise anything on pricing in that current period. This is a business we deliberately let go. I'm not concerned, the day we need to have more volume, we can go back any time. In the meat industry, it is more a mixed things. Also, we still had, if you remember, you know, some negative impact from the Blair incident that was more affecting us Q1 and a little bit Q2.
That was also what is playing in the meat sector. I'm pretty confident that as we speak, you know, we are recovering most of this, let's say shortfall we've seen across the first half in the meat. On the PLA, to just end on that one, as you said, I mean, we were planning to be running close to full capacity. Now, we are reassessing in terms of plant balance. As you know, Thailand is our most cost-effective and efficient plant. For us, what's important is to see exactly how we can maximize our network. You know, that's also the beauty of our network, is that, as we face a significant increase in carbohydrate cost in Europe, we are prioritizing production in Thailand versus Europe.
To give you an example, to make sure we max out our profits and do not compromise our profits simply because we might have a short-term, you know, softness in PLA. This is what we are doing. Now it's about looking very closely at, as I said, the pipeline in PLA looks still, I mean, pretty good. It's the speed of recovery and new category materialization that's gonna tell us, you know, the capacity occupation over the next month. Again, no very big worry on that front, I mean, today it's.
Just as a follow-up, Olivier. If the situation in China and freight cost would stay as it is today, would that imply that you would also not need to supply lactic acid to the JV in Q4?
No, I don't think that would be that extreme. No.
Okay. Okay.
No.
Okay. Clear. Thank you very much for your answers.
Yeah. You're welcome.
We will now take our next question from Reginald Watson from ING Financial Markets. Please go ahead.
Morning all. I just have a quick question about the JV, the TotalEnergies Corbion proposal to build a PLA plant in France, at Grandpuits. I noticed that steel prices in France have risen dramatically in the last year. I was just wondering if you could update us, please, on the latest CapEx estimates for that project.
For sure, Reg. Actually, if you remember what we said in the Q1 and full year results announcement, we're seeing the highest inflation in steel, stainless steel, engineering costs and freight when we look at the project in Grandpuits, we said again, it's probably a better and wiser decision to wait and postpone the decision, knowing that we were, I mean, you know, still very much on time according to our development scenarios and strategy. We've had, I mean, a very constructive and, you know, we are very well aligned with TotalEnergies on this type of decision.
In the meantime, we continue to work, you know, really hard on a couple of different scenarios whether we can also maximize, you know, the CapEx level and look for different optionalities in terms of, you know, the scope of the product mix that this plant will produce in the future bec ause you can go more or less complex or decide to do certain products in Thailand and others in France, looking forward.
We said, "Okay, let's not go too fast if you see the current inflation, because it's the worst moment to take a decision, you know, as everything costs 30% to 40% more than in the normal times." Also what we are expecting, and we start to see that in some of the other projects, is that the steel prices are softening as well. We are really well aligned. I mean, continuing the work, as I mean, again, we had to do. Saying that we have a bit more time before making a final decision. That is done in full agreement with TotalEnergies. Yeah, we're gonna keep you posted on the next steps.
So far, you know, we've tasked the team to continue to work on pre-engineering and everything, you know, with the different functionalities for this site, knowing that we gave ourselves, you know, some flexibility in terms of date. When that will come probably, you know, in the course of next year. We have ample time to make a final call.
Okay. Understood. Because I guess, you know, what I'm trying to get at is that there's clearly a balancing act between the delay to that project, pushing further price increases into the PLA end market, which then starts to make the IRR on the project look more acceptable despite the increased steel costs, et cetera.
Yeah. No, this is correct, Wim. Also, you know, let's not forget that if you look at the size of investment, I mean, for Corbion, when we take a PLA-2 decision, it means we need also to take a lactic acid capacity decision for Europe, which, in the current market environment, wouldn't be wise to take. Because for us, you know, the impact is not just, I mean, when you look at inflation, the impact is not just on PLA-2, but will be also on what do you do to serve this PLA-2 plant in terms of lactic acid capacity?
The risk level to take those decisions combined is too high in the current volatile market environment. This is not a risk we are willing to take as we speak because the visibility is too low. We would have exactly the same impact, you know, if you believe you have to build a new lactic acid capacity in Europe as we said intentionally.
Yeah.
You can see that the cost of a lactic acid plant in Europe is much bigger than a PLA-2 investment in Europe. We are not ready to make that type of decision in this environment.
Okay. Understood. Thank you very much.
Yeah.
We will now take our next question from Robert Jan Vos from ABN AMRO. Please go ahead.
Yes. Hi. Good morning. I have a couple of questions. First on non-core, the EBITDA margin was 17% and despite inflation and the dilutive impact of price increases, as far as I can see based on your provided disclosure, this is the highest margin in the second quarter. Are you not pushing this a bit too much with pricing? That's a question. Secondly, EUR 14 million EBITDA in the first half. Any reasons to assume that it will be completely different in the second half, the EBITDA contribution of non-core? That is my first question. Secondly, working capital investments were some EUR 60 million in the first half. Will there be any reversal in the second half, or can you say anything on working capital going forward?
Thirdly, sorry to get back on CapEx for next year, but based on the old guidance of maintenance CapEx of EUR 60 million to EUR 70 million per year on average, and the EUR 50 million that is still in the pipeline for the lactic acid plant in Thailand, so that adds up to EUR 110 million to EUR 120 million. Are there any main components that we should be aware of for next year? Related to this, what about general inflation in yeah in for your investments? Is the EUR 60 million to EUR 70 million still a valid number? Thank you.
If I can take these questions, Robert, on. First on the non-core. You're right. The margin profile development looks very favorably. I don't think we are pushing prices too much. That's your question, because really the volume development, yes, there is a small negative as you can see in our sales table, but that has no consequence because of our pricing dynamics. It's much more that there were a few earlier in the year, a few disruptions in supply chain. Some of our suppliers having also some temporary issues. That is more explaining the volume retraction versus the last year, and also based out of pricing.
The margin is, I would say, in this part of the year, also slightly supported by still some favorable procurement contracts that we could roll over from last year into this year, again, related to this, some of the supplier disruptions we've seen. Going forward, I cannot give the indication here that we hold on to this margin profile for the full year. With that being said, the robustness of this business is very comfortable and we do expect, of course, positive contributions also in the second half of this year.
When it comes to working capital investments, yeah, a couple of dynamics are there. Yeah, the big reversal I would say is really when inflationary cost environment really reverses globally.
Talking about-
Regarding the raw material in terms of pricing. Yeah, the big question is when will that happen? Like you've seen with our bi-quarterly update on the input cost, variable cost dynamics, we don't see that yet. At least not for this year. Could it happen next year? Potentially. But that's one question. I would say underlying the volume component in our working capital, especially inventory, there we did step up a bit in terms of reducing the risk of supply. Yes, we stacked up a bit in our safety stock levels, and I don't think it is wise to reverse on that given the continued volatility in the global dynamics.
That I would say we hold on for structural reasons for the time being. The debt component, I think holds pretty nicely. There's some reduction that we can still get in collecting the tail end of debtors in terms of aging. I would not expect, unless the input cost inflationary environments really develops more favorably, I would not expect big reversals in the foreseeable quarters. On the CapEx, yes, those are indeed the indications. On top of the recurring level, you're absolutely right. The Thai lactic acid plant, we were just beyond halfway the total CapEx outlays. About half of the remaining CapEx is still projected this year, about half still next year.
That's a EUR 50 million to EUR 60 million outlay for next year on top of the recurring level. There are other sort of opportunities for us to invest in for supporting our growth, but those are more that we have to take a decision on one by one to see is the market development such and the growth outlook such that we will push those buttons. That's also potentially going to be a sizable component of the total CapEx program. Probably there's a better moment in time to further discuss that later this year when we come back with the Capital Markets Day projections. That is probably a better moment in time to give indications for next year in terms of total CapEx program.
Okay, thank you. If I can come back on the non-core, I was not exactly referring to EBITDA margin, but well, the EBITDA absolute level was also quite encouraging. Is there any reason to assume a big difference second half, first half, or what can you say on that?
No, not big reason, but you never know exactly how that margin develops for us. Like I said, we had some support from favorable procurement contracts in the first half, which will not fully translate in the second half this year. In that sense, I would not automatically double the current level.
Okay. That's very clear. Thank you.
As another reminder, to ask a telephone question, please signal by pressing star one on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Mr. Rigaud, there are no more questions. Please continue with any points you wish to raise.
Okay. No, I want to thank everyone for joining this call, and, obviously, we give you, I mean, rendezvous to the Q3 results announcement. As Eddy just alluded also, as you might have seen, we will host the Capital Markets Day, early December. More information to come around that. Thank you everyone, and speak to you soon. Bye-bye.
This concludes the Corbion half-year 2022 results conference call on the 10th of August, 2022. Thank you for listening. You may now disconnect.