Earnings Call: Q4 2019

Mar 6, 2020

Ladies and gentlemen, welcome to the Scope and Company's Full Year Report 2019. Today, I am pleased to present CEO, Jens Jagdsodenson. For the first part of this call, all participants will be in listen only mode and afterwards, there will be a question and answer session. I will now hand you over to Jens Stregs Sorensen. Please begin. Thank you, and good morning to everyone. Welcome to presentation of our twenty nineteen Annual Recall. 2019 was a good and strong year for strong company, and we are very satisfied with our results. We experienced challenging market conditions, but we also benefited from our strong positions. It was a year where we nearly finalized a major investment program. Our revenue was up 15% to almost DKK21 billion. We had a positive full year effect from our recent acquisition of the Swiss EMS company CCS. Biomark continued their strong development also in 2019. EBITDA increased 24% to DKK 1,950,000,000.00 or 10% like for like if we exclude our IFRS 16 from that. The effect from IFRS 16 was $2.00 €8,000,000 out of this EBITDA. We had a good development in four out of our six portfolio companies. Cash flow from operations improved from around DKK800 million to DKK1.4 billion. We saw a solid effect from our ongoing focus on net working capital, but there's still room for further development. We had CapEx investments of $774,000,000 throughout the year and acquisitions of around DKK $260,000,000 in 2019. Our guidance for 2020 is still expecting a growth, however, lower level than last year. We expect revenue to grow 3% to DKK21.6 billion and our EBITDA is now guided in the range of DKK1.935 million to DKK2.105 million. We expect CapEx in the area of around DKK550 million to 600,000,000 in 2020. We have not factored any major corona effect or estimate into our guidance at this time. Turning on to Biomar. I would say Biomar had a strong finish to 2019. The revenue was up 8% to DKK 11,200,000,000.0. We saw a 3% increase in volume to 1,200,000 tons. Especially, we had a very good development in our salmon segment and we also saw a hit from full ownership of our joint venture in Chile. EBITDA increased from DKK $713,000,000 to nearly DKK $966,000,000. In Biomar, we had a positive effect from IFRS 16 of DKK 128,000,000. Still, we are very satisfied with the EBITDA development. Some of the development came from strong profitability in Norway. Norway had been taking back positions after losing a large customer in 2018. We also saw and experienced increasing sales of our innovative and functional feeds. 2019 was again a very busy year for Biomar. We implemented a new market strategy in Norway. And as I said, we gained more momentum and improved profitability significantly. We have new factories built in both China and Tasmania, and they are both ready to start production in 2020. We added new capacity in Denmark and in Ecuador, and we gained 100% ownership of our joint venture in Chile that increased production capacity in Chile with almost 50,000 tonnes. We have also been investigating a potential IPO of our stake in San Manuel Salsa Strahal, the farming company in Chile. BioMar and Chile were unfortunately accused by FME for having participated in a consolidated practices in Chile. We do not agree, but we cannot comment any further on an ongoing case. It should also be said, we have not made any provisions for any future potential. Guidance for 2020 shows that the solid progress is expected to continue, revenue of around DKK12 billion, EBITDA in the range from DKK1 billion to DKK1.60 billion. We have some corona effect seen a small corona effect in Biomar due to the shrimp export from Ecuador to China has been affected. And of course, we expect for some months lower feed sales in Ecuador. Our associated companies expect profit after tax in the level of around 60,000,000. From Biomar to Arbitex Personal Care, where we saw a flat revenue in 2019 of around €2,200,000,000 The competition continues to be fierce in Europe and also in Asia. Asia remains challenging. We saw lower volume in Malaysia, lower than expected due to the situation on the big global brands in China. The EBITDA increased from DKK $315,000,000 to $352,000,000. Here, we saw a positive effect from raw materials and currency of around DKK 50,000,000 compared to 2018. We started up a new print facility in U. S, which had a negative impact of around DKK 12,000,000 on EBITDA. Then we had a positive effect from sales of added value in Capital Exportationary Care. In 2019, we had strong focus on starting up our print facility in The U. S. In North Carolina, where we have now one printing line in operation. We also had continued focus on building these products and being innovative, and we have streamlining of structure ongoing. The guidance for 2019 shows revenue in the of around DKK 2,100,000,000.0. EBITDA is expected in the range of DKK $280,000,000 to DKK $310,000,000. Looking back at 2018 and 2019, it's around the same area if we exclude for impact from ForEx and from raw materials. We also see that competition continues to be tough due to excess capacity in the main markets. However, we have experienced some short term positive demand due to the corona situation to meaning that we have seen more volume coming to our factory in Malaysia. Fibrotech nonbones increased the revenue 8% to €700,000,000 but in general, it was not a satisfactory year for Fibrotech nonbones. Growth has mainly been driven by a new facility in U. S. And I have to say that our U. S. Operation in general had a very solid year. We experienced some soft demand from our Automotive segment in Q4. EBITDA decreased from €160,000,000 to €141,000,000 First part of the year, we were challenged by very high raw material prices. But now we see a positive effect from that. We had, due to a strategic review, some one off costs in fiber textile loans. We have restructured our operations in India and South Africa with an effect of €13,000,000 on EBITDA. We had one off costs on acquisition, M and A and also on our strategic review program going on. In 2019, we expect to see 2019, yes, we had the strategic review going on, and it outlined our strategic direction. We have had very good integration of our new Spodumene facility in U. S. We decided to downscale our operation in South Africa and move line number two to U. S. Where we are out of capacity and expect to see positive impact from that in future. We have also started production industrial scale production of nano products and advanced filtration meters. Outlook for 2020 is revenue of about 1,750,000.00 sorry, and EBITDA in the range from 165,000,000 to 185,000,000 We will see an uplift in U. S. We have a strong position now in U. S. And we think also we will see a positive effect from a more focused European operation. We have, due to the corona situation, short term experienced strong demand of materials to face masks. So for the time being, we are running full capacity at our nano lines. Turning on to GPV. Revenue increased to €2,850,000,000 It was a total different GPV we saw in 2019. We had full effect from the acquisition of Swiss CCS. However, we also experienced a few larger customers showed slower demand, especially in the semiconductor industry in Swiss, but we have gained a very solid position in European EMS market. EBITDA increased to 196,000,000 We had a negative a very negative impact from currency from the tieback of around 17,000,000 and, of course, also some costs on integrating two companies in the size of around DKK 11,000,000. We are still struggling with the profitability in our Mexico operation due to lack of top line. The operation there is now running efficiently, but EBITDA effect is around €29,000,000 negative of €29,000,000 In 2019, as I mentioned, we have had a very successful integration of CCS. We can now say we have one company, one name, and name is now GPV. We have extended our factory facilities in Thailand to secure capacity and liquidity. Our Mexico operations shows operational progress, but as I mentioned, for instance, Flex top line, we have been working on establishing a long term factory footprint strategy and decided on that. Looking at 2020, revenue is expected to be flat, 2,800,000,000.0 EBITDA in the range of $210,000,000 to $240,000,000 We see some uncertainties on demand from several large industrial customers among other things due to the corona situation. HydroSpecner increased there. Revenue 6% to €2,100,000,000 especially the wind segment were the key driver for growth. We had a strong sales to the wind segment in 2019. In Q4, we experienced soft demand from large customers from the Vehicle Cement segment, especially in our Swedish operations. EBITDA increased in 2019 from DKK 175,000,000 to DKK $250,000,000. In Hydrospectne, we had positive IFRS 16 impact of around DKK 30,000,000. Hyderabadma have had strong focus on cost out projects at all levels and also on production efficiency at all the facilities. 2019 had a strong focus on setting up future supply chain. We have been ramping up production in China, and our Chinese operations were very profitable in 2019. We have relocated our own setup to a new and efficient 7,000 square meter facility. We have implemented our open green warehouse and logistics setup in Finland, and we decided to build a new facility in Sweden outside Credelborg. Outlook for 2020 with a revenue of around DKK2 billion in the range of DKK200 million to DKK220 million. And also here, we see some uncertainties on demand from several large industrial customers also due to corona situation. Our Automotive had lower turnover in 2019 with €918,000,000 in top line, we experienced soft demand throughout the year. However, it started to pick up again in the last months of the year, but this soft demand started already Q4 in twenty eighteen and something we have seen all over in the markets, customers, competitors, etcetera. We will confirm that we have a strong and leading market position. EBITDA declined from DKK 131,000,000 to DKK 110,000,000. Here, we really saw effect from lower volume and, of course, efficiency and things, regulations and costs and so on is affected here. We restructured our agent setup in the OEM and R and D and also took some one off costs on that. We also activated some R and D costs in 2018, which we can do in 2019 through new structure. Also in 2019, we had a full focus on strengthening structure and growth internally. We have been building a strong pipeline in most markets, interesting new customers in the pipeline. We restructured, as I mentioned, our R and D and our OEM sales setup, and we have adjusted our general cost base and implemented IT structures throughout the company. Guidance for 2020, we expect growth revenue of around DKK $975,000,000 and EBITDA in the range from DKK 110,000,000 to DKK €120,000,000 Maybe we could see some positive short term impact from the corona situation as goods from China may not be flowing into Europe at same pace as in 2019. Wrapping everything up and outlook for 2020, in general, we see continued challenging markets but also interesting opportunities. We expect to grow in 2020 despite this softer demand, and we really think that our strong positions and innovative products will be key drivers for us in the coming years. Revenue expected around DKK €21,600,000,000 We have capacity to grow and also want to defend our market shares. EBITDA is now expected in the range of 1,935,000,000.000 to 1,200,000,000.0 And we have a really strong focus on profitability in all companies. We do not forget our focus on net working capital in 2020. We will still be prudent on that, And there is still something to do that. So with these closing remarks, I would like to open up for questions. Thank you. And our first question comes from the line of Jonas Goldberg from Tanske Bank. Please go ahead. Your line is now open. Good morning, Jens and Kasper. A few questions from my side. First of all, talking about net working capital. Like you reduced net working capital to sales from around 19% in 2018 to around 18% in 2019. Still a high level, I guess we should expect further improvement in 2020. So confirmation on that would be my first question. Then secondly, you have previously flagged some pretty good risk in especially in and in. Could you just elaborate a bit on how you view the world right now given the Brexit and how it is implemented into your guidance? And then lastly, on nonvolumes, future nonvolumes, just remind me of the total one offs in 2019. Thank Thank you, Jonas, and thank you for your questions. So first one on net working capital. Yes, think you know it has been my personal focus area in 2019. And as I said, we have not won the battle yet, but we are we expect also to reduce in 2020. Of course, if we see activity level increasing and so on, we have to adjust to that, but we have strong focus on that and expect to reduce. And we have some areas where we still there's still room to improve on. Looking at Brexit, you could say, if we look at Biomar, we are not that concerned because most of what's going on in U. K. There was some discussions on picking raw materials in. But as long as there's no deal, etcetera, and it will first be in June 2020, if something happens, we haven't factored anything into that. It's always a little bit the same with Paul, where we have been nervous on what about a hard if a hard Brexit itself came, now we expect no real impact in 2020. But of course, we have to consider and look at what happens throughout the year when the negotiations are ongoing. If we turn to Fibrotechnic loans, we have had one offs of around 20,000,000 in 2019. Thank you. Thank you. You. Our next question comes from the line of Claus Ellner from Nordea. Please go ahead. Your line is now open. Yes. Also a few questions from my side, and we'll take them one by one. The first question goes to Biomar. Jens, you mentioned that you expect negative volume Ecuador in 2020. Shouldn't that have a negative EBIT margin impact? That will be the first question. Yes. As My point is that the first months we have seen some lost volume on feeding because they didn't sell any shrimp to China. But China has opened up again, and maybe I didn't remark that 11%. But China has opened up again, and Ecuador is now exporting shrimps back to China. So we will lose some volume, but we have factored that into the guidance we are giving now is because we know what we have seen so far, and we don't expect big losses in the coming months on volume. Okay. And then coming back to the big theme, net working capital. And congratulation with the first important steps in the right direction. But looking at Biomar, net working capital is up by, I think, 45% versus 2018. What is driving is that the consolidation of your previously partly owned Chilean farm? Or is it what's going on in that area? That's one, but it doesn't explain everything. There's a multiple of factors going on. One thing is we are building our new facility in Tasmania. In Tasmania, they are supplied from U. K, and we are ramping up volume. And we have had a lot of volume from The U. K. On the sea and down to Tasmania. And we have also built up security stocks in Tasmania. So it means quite a lot. Then we have changed the sales more volume in geographical areas with longer credit terms for customers. Norway, where we used to have more volume with very, very short payment terms, etcetera. So it's a mix of things that we expect net working capital in Biomare really to fall in 2020. As a percentage or absolutely? Absolutely, but also as a percentage because one of the key drivers is really building up in Tasmania. It's really a lot. So these lumpy credit terms, that's is that a temporary issue? And why do we really offer that to farmers who are making a lot of money these days? Yes. That's it's of course, it's something we are on every day, but it's part of the way you compete in the market, its price, its payment terms, its whatever goes. So if you move more sales to the Mediterranean area, to South America and so on, there are normally longer payment terms than in around the North Sea area. And of course, it's something we are addressing a loss and working on. Yes. And there's no change in the sure. And there's no change in your use of supply chain financing, so still around this DKK $05,000,000,000 as I recall? There's no change in that. We have yes. Okay. And then just my final question, share buyback. Given the strong cash flow and hopefully the same in 2020, shouldn't we expect a program to be announced? Of course, it's one of the tools we have in the toolbox, and we discussed it, of course, on a running basis. We have not decided anything on that, but I'm not excluding anything on that. But it's not in the making for the time being. So does that mean there's an M and A potential around the corner? We are always looking at after interesting M and A opportunities. And of course, also we think maybe with is the world a little bit nervous, etcetera, maybe it could open up opportunities. So of course, that's also part of our considerations, yes. Okay. Thanks so much, Jens. Thank you. Thank you. Our next question comes from the line of Laurit Kiergaard from ABG. Please go ahead. Your line is now open. Thank you, and good morning, Jens and Caspar. First of all, on the CapEx program, which you announced for 2020, DKK $550,000,000 to DKK 600,000,000 versus DKK $774,000,000 in 2019. Could you give some flavor on the seasonality of this? And what's the biggest impacts for 2020 that we should look out for? Yes. I think the biggest impact will be in TPV, where we are investing and rebuilding in Sri Lanka, doing something in Thailand, etcetera, then we will see impact of our new facility in Vuta Stigma in Vuta Pore, also just outside Vuta Pore. So in Vuta Stigma GPV, and then we are finalizing Tasmania, the factoring Tasmania, but it's not a big one. So a lot of the biggest impacts are coming on normal operation and CapEx, you could say. Okay. And as far as I understood, a lot of it would be coming in the first two quarters and March 2020. I believe that was mentioned last year? Yes. I mean, this normally as at the end of the year, normally, you have finalized your running CapEx, etcetera. So I think you could say, yes, the first half, maybe the first March of the year, yes. Okay. And just to get a sense of that, so basically, you will be completing a lot of these larger CapEx throughout the first half. And then I guess over the summer, you'll be looking at your book negotiations with Bioma to get a better idea of your capital structure. Could we perhaps expect the potential buyback that I believe Jonas was talking about or even an extraordinary dividend to be paid during the summer? Or is that totally ruled out? I think that extraordinary dividend is totally rolled out. But you never know, of course, what happens and what the Board decides on. But I think it's not in our thinking. Share buyback is something we have done occasionally and are looking into. And of course, we need to have a balanced capital structure. But depending again on what happens in the market, interesting opportunities, nothing at all, etcetera. So and of course, we also know we cannot sit too long on cash, etcetera. So but extraordinary dividend. That's not our throughput for the time being. That's very clear. And just lastly on Hytrospasma. You're looking at a slowdown in vehicles, but probably could result in wind, which you mentioned. Could you give some flavor into what's the mix here between vehicle and wind slowdown or any flavor there? So wind has really been strong in 2019, it is our largest segment, that's wind. Then with around €05,000,000,000 or something in internal. So it's a very important segment for us. But also vehicle as a construction equipment, off road equipment, etcetera, is a strong segment for us. We which came in with the acquisition of Spectra. It's mainly big Swedish companies, yes. So vehicle is how much if Windows, DKK $05,000,000,000? I think maybe 400 or something like that. Yeah. And would you give us some clearance of what it was last year? No. I'd say it's around May maybe around 400 last year. Yeah. Okay. Sounds good. Thank you very much. Thank you. Our next question comes from the line of Ulrik Baat from SEB. Please go ahead. Your line is now open. Yes. Good morning, Jens. Also a few questions from my side. As I see it, you performed very strongly in BioMar in Q4 and have continued a very wide revenue cost per kilo spread. And I was just wondering because we saw a hike in that in Q3 and now it has continued also in Q4, if this is a sustainable level also throughout 2020? Yeah. We think so as we have we have worked a lot on becoming more efficient. Also, when you get volume and scale and so on, you have the opportunity to make supply at a time, you know, across the area. I it's part of it. And any particular geographical split of this improvement? Is it primarily Norway where you've done a lot of initiatives or or is it elsewhere? It's more it's in general. But of course, also Norway, they have really been doing well on a lot of things. And the cost split is, of course, also depending on what kind of products are you selling. When you sell more on the functional feed side, higher prices, etcetera, then, of course, you will see a better cost structure. And it's across the company, you could say, but, of course, Norway has contributed a lot also. Okay. Thank you. And then the corona impact on shrimp feed. Why is it only shrimp feed that is being affected and not famine? It's because it's so direct in Ecuador where we have this operation that 60% of the export of shrimps out of Ecuador goes directly to China. So it has a huge impact. Growing grow out period of shrimps is lower short and meaning that there's a lot of shrimps in the making. So yes, that's why. Thank you very much. Can stop feeding for some time and then reduce feeding and so on to secure the growing segment. That's the reason, yes. Thank you, Jens. No further questions. Thanks. Thank you. And as there are no further questions registered at the moment, I will hand the word back to you, Jens, for the final comments. Please go ahead. Thank you very much, and thank you for questions, and thank you for listening in. And wish you all on a good weekend when it's coming here. Bye bye. This now concludes today's call. Thank you all for attending. You may now disconnect your lines.