Earnings Call: Q1 2021

May 6, 2021

Quarterly report

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome and thank you for joining the Skow and Co Conference Call 2021 Q1 Report. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. Us. And I would now like to turn the conference over to Mr. Jens Jens, Jens' CEO. Please go ahead. Thank you very much for the kind introduction. And also from our side, welcome to this presentation. Overall, we had a very satisfactory quarter. Our revenue was up 2% to CHF 4,900,000,000 us. General, we experienced a lot better activity during the quarter than expected. We saw strong demand from many of Our markets and segments. At group level, EBITDA increased 12% to DKK 486,000,000. In general, we saw very strong margin developments, and we were more or less able to offset pressure from what we call us. Cash flow from our operations affected by strong end of 2020. We had CapEx during the quarter of €130,000,000 but we have also announced a major investment program or initiated a Major investment program of around SEK 1,000,000,000 Our net interest bearing debt was significantly reduced and to a leverage of 1 us. EBITDA and our return on invested capital was 15.9%, well above our us. Group target of 15%. Guidance for 2021 in general will be increased due to a Strong Q1 and also very attractive backlog in some of our companies. Turnover is now expected around CHF 22,500,000,000 And EBITDA now foreseen at a level of €2,105,000,000 to €2,315,000,000 Full year CapEx, as I mentioned, is still expected to be around $1,000,000,000 at group level. Turning on to Biomar. Biomar Q1 revenue was down 5% to 2,270,000,000 us. Volume, however, was only slightly down 1% to 266,000 tonnes. Also, we have to bear in mind that the first quarter is The low season for Biomark. The turnover of revenue was negatively affected from currencies. EBITDA was also down. It was down today. From $159,000,000 to $140,000,000 Here also currency had an effect of around $7,000,000 And then we saw some effects from different countries, but mainly from low sales in Chile. Also during the quarter, we had less sales of us. Functional feed than the previous quarter or the Q1 in 2020. And we had slightly impact from climate, And among other things, very hot summer in Tasmania. Few highlights from Q1. We decided on a new feed factory in Vietnam in partnership with Viet Juq, so a new feed factory in our shrimp segment. We are going ahead with our yearly contract negotiations in the salmon market. We are being prepared. And so far, it's going as expected. Us. Also good to see over the quarter that the salmon prices now seems to have recovered both in Norway and Chile. Guidance for 2021 maintained turnover around €12,000,000,000 EBITDA at a level of to $950,000,000 to $1,020,000,000 Our associated companies will be down mainly because today. Of impact from our Chilean farming operations and one is on Australia. Australia and associated companies will be down from $40,000,000 to 20 €5,000,000 expected now. Turning on to FibroTec Personal Care. They had a flat revenue in Of $530,000,000 but non loans volume was up 10%, and we also show a good development in our print volume. EBITDA at €80,000,000 compared to €101,000,000 last year. Looking at the EBITDA, you should think that we had It was a very weak quarter. But in fact, it was a strong quarter with huge volume increase With high efficiency, but we experienced a huge negative impact from raw materials of about €30,000,000 Our operations were running at full capacity with high efficiency. In During Q1, we decided on establishing a new production facility in Malaysia. We also are us. Setting up a new printing line in U. S. And both lines or new facilities are well underway and going according to plan. Guidance for FibroTec Personal Care is maintained. Revenue, unchanged, about $2,200,000,000 EBITDA It's expected in a range of €320,000,000 to €360,000,000 However, we also have to say that the raw material situation us. Continues to be a concern, and we expect negative impact also in Q2. Us. Privatext and on Moments had a very strong have very strong momentum, and It continues also into Q1, and they delivered the best Q1 ever. Revenue increased impressive to impressive 17 To EUR 521,000,000, our U. S. Operations continued strong momentum and delivered growth of 35% in the call. That gave a very solid EBITDA development, EBITDA up from 50 $4,000,000 to $96,000,000 nearly a doubling of EBITDA in the quarter. We saw positive impact From raw material good raw material positions effect from having raw material in inventories, us. But also we experienced continued strong development in what we call our strategic high value segments. Us. So also part of strategic decisions we took some years ago. In Q1, we decided to initiate a very large investment program in use on lease capacity. The investment program is of around DKK 600,000,000 And is expected to deliver a turnover of DKK 500,000,000 when they are fully us. Utilized, we also had a continued focus on innovation of our Specialty Product Program. Apotex, I'm almost lifting their guidance. It's coming from the strong Q1, but also from continued good market Demand turnover now around €1,900,000,000 to €2,000,000,000 EBITDA expected in the range of €245,000,000 to 265,000,000 But also here, raw material situation is a concern. And again, we could expect a negative impact over the coming quarters. But still, We expect to be able to offset some of it. GPB also had very strong development in the two orders, revenue up with 9% to us. $741,000,000 We saw strong sales in nearly all our segments And also experienced continued positive order intake, very strong backlog as our customers are planning ahead. EBITDA increase is very satisfying, 65 percent to $76,000,000 Of course, a very positive impact from sales But also strong cost control and high efficiency at all our production sites. In Q1, we have Decided to streamline our factory footprint, and we are closing down the factory in China and moving production to our 2 other Asian, say, Factories, Sri Lanka and Thailand. We experienced also continued pressure on supply of critical parts, something we are Working a lot to offset. Guidance will see an uplift due to the strong Q1 and also our us. Very solid backlog. Turnover expected now around €2,900,000,000 and EBITDA at a level of €250,000,000 to for 2019,000,000. Hydrostegma also saw quite strong demand over the quarter and revenue up 8% to €575,000,000 especially our global OEM customers are driving this sales growth. Us. EBITDA increased 12% to €65,000,000 And here, we are benefiting from strong sales and efficiency gains. Us. Also in Hydrospekna, we saw a negative effect from increasing components and especially transportation of freight costs. Us. In Q1, we decided to establish a new production facility in China, India to accommodate our global wind customers. Us. Heidlod Spegma also delivered guidance uplift due to the strong demand and the solid backlog. Turnover now expected At more than €2,200,000,000 EBITDA in the range of €230,000,000 to €250,000,000 Global pressure on raw material and prices and shortage of component continues. But again, we think IdaSpigma is in a good us. Overall Automotive had revenue up with 70% to 272,000,000 us. Demand and sales normalized. Last year, we saw in Q1 sales starting to decline due to the corona situation. And also we had positive effect from our recent acquisition of TMI in Spain. EBITDA increased 66% to CHF 40,000,000 us. Coming from a very high efficiency and tight cost control across all the bow units. Us. So they are pursuing a very ambitious growth plan, also meaning looking for acquisition. And Yesterday, they could announce the 2nd acquisition this year of SBS Automotive, a Danish based trading company selling, of course, Selling a broad assortment of parts, but main products is brake discs, SBAs. We are having a very strong market position, 130 employees, expected turnover of around €500,000,000 and us. EBITDA in the area of €30,000,000 in 2022. Guidance uplift from Bo due to 2 things, To demand and, of course, also the SBS effect, turnover now around €1,250,000,000 EBITDA, dollars 150,000,000 to $170,000,000 before PPA. We haven't got the overview of the PPA effect yet. Us. But also worth to remark that what we call the overall, in fact, it's a guidance uplift of £10,000,000 on EBITDA for them. SBS adds some $200,000,000 to sales and $10,000,000 to EBITDA in 2021. Us. Just to wrap it up very fast. As mentioned, good and strong Q1 development, our conglomerate once again showed strength because of the diversification. Our financial position It's very good and with potential for seeking opportunities. We have a guidance uplift due to strong performance and good demand. Of course, as I mentioned before, concern on raw material prices and shortness of critical components and our guidance uplift Our guidance now is also based on a normalization in the second half of twenty twenty one. So with this closing remarks, us. Us. Us. And the first question comes from the line of Ulrik Bag of SEB. Please go ahead. Hi, Jens and Kasper. A few questions from my side. You comment in the report a lot about the Scarcity and the increasing input materials prices in several of your portfolio companies. And you state us. There is a lot of uncertainty related to that. But still, you managed to increase the overall guidance based on the strong demand that you're currently seeing. Us. Can you maybe provide some more color on how critical you consider this challenge related to scarcity of the raw materials to be currently and what the potential downside from it could be. Yes. Ule, thank you very much for this question. Us. You could say in some of our companies, as you also know, we have escalating mechanisms, meaning we can pass on raw material increases us. The next quarter. So our guidance is, of course, also based on that, whereas in other companies, we need to fight The price compensation from house to house, we more or less say. And but we have been rather successful in passing on the prices both us. Because of the mechanisms, but also because of driving price increases through a lot of our customers. So We have taken out a lot of risk on that. Of course, if raw materials continues to increase, we have to get to the market again. But we see a Slightly downward trend on some of the raw materials now. But what also is a concern is critical components, us. Electronics and things like that. And there, we don't we still see a lot of uncertainties. We have done a lot to secure as much us. And we see we are not we don't see a very, very big risk as it is now. But of course, we need to continue to Work on compensations and work around our supply chains, which is good to secure a critical component. Us. Okay. So based on the inventory the different companies have, should you be able to reach minimum the us. Lower end of your guidance range in the different portfolio companies. Yes, we don't see absolutely. And also, I And you will see our net working capital might increase slightly because of we are really saying we need to be able to supply and deliver. And The opportunities are there. We are buying and building up inventories to secure delivery situation in the future. Us. All right. Thank you. Very clear. And then a question on these increasing raw material prices. You mentioned that the it had a negative effect of DKK 30,000,000 on Fibotec's Personal Care during Q1. But you also mentioned That it had a positive effect on Fibotec's non loans based on inventory. Can you quantify that, how big the positive effect was for Fibotec Nanwal? Us. It's a double digit million, as we would say. I think we could say between 15,000,000 20,000,000 us. It's more difficult to quantify because it's positions we have taken. Of course, if you should go in the market and buy at present prices, us. We have a different sourcing strategy in Fibotax non bones due to also we use a broader platform of raw materials, us. Yes, polyester, polypropylene, recycled polyester, virgin polyester, etcetera. So it's coming from old positions and also from inventories us. Okay. And for Q2, us. You said that this effect would linger. So what kind of effect would we see from Evotec's Personal Care in terms of these increasing Raw material prices, if Q1 was €30,000,000 would it be a higher or lower number for Q2? I think it could be around the same number for our Q2, and then we Effective to easing off in second half, and the guidance is based on that, and that's also what we see now. Us. Okay. And then for Fibro takes none loans in Q2? We don't have an exact figure on it because it's also us. A matter of price compensations, raw materials, it's much more complicated to give an exact figure on fiber protection and loans. But Of course, we expect raw materials to kick in with a higher effect in Q2 than we saw in Q1, but our guidance Based on that, also, you will also see that our guidance in FibroTecs and Envos, if you take the last three quarters last year or in 'twenty and And then looking at our guidance for the coming 3 quarters here in 2021, there will be I think it's a 15% under us. Last year, something like that. And that's due to this effect. That's very clear. And then also a question related to the us. You previously mentioned that you're currently running at full capacity in FibroGen's Personal Care and will continue to do that for the rest of the year. Us. Does that mean that any earnings volatility should come from the growing material prices and FX effects? Us. Or is there room for some mix effect, which could potentially increase earnings? Yes. I think it's a very good question because there are 2 things in it. Raw materials, set that aside because we can't control that. But the full capacity utilization also means productivity, more efficient runs. And also, we are working on pruning products with low margins innovation and so on. So we expect, of course, effect from a high capacity utilization, but also from a product mix, etcetera. Us. Okay. And for FibroTec's non loans, what utilization level are you currently running at? And if you could put it in perspective compared to last year maybe? More or less, we also and that's also why we have announced a very big Investment program, dollars 600,000,000 2 new lines, upgrade of a line in Turkey. So we are running at Goldstein More or less, there might be a little bit on our geotextilets in Albor, a little bit in a few segments, but Overall, more or less with the best. And U. S, totally full. Us. Okay. That sounds reassuring. Then a question on this new investment in Fibrotech Non Roams. What kind of return on invested capital do you expect from this investment? You said it would generate a revenue of €500,000,000 but us. At what margin? Would it be margins similar to what we've seen during the past few quarters? Or is it lower than that? You You could say there are 2 things in it. Of course, we have our general return invested capital of 15%. From a starting point, Of course, it will be lower and it will also affect our overall mutual invested capital lease use investment. But over a few years, they are expected to deliver plus 15%. Also, it's we are building capacity into high value segments, meaning that it's a capacity that we expect We delivered attractive margins compared to where we're coming from, and it's part of our new not new any longer, but the strategy we Q1 on fiber tech loans a few years ago, building capacity into Advanced Products segments. Us. Okay. Very clear. Then final question on the CapEx level. You mentioned SEK 1,000,000,000 CapEx guidance for 2021, But some of these investments, will they go into 2022 as well? And what indicate can you give any indication about the level for 2022 us. Some of them will, but we haven't I cannot give a full effect on that as On the CapEx level, but some of them will be will go into 2022. But our normalized CapEx as a maintenance CapEx and so on, maybe looking at 2020 where we had, I think, it was around 4 $80,000,000 or something in CapEx without any capacity investments. So anything on top of that and some of these will run into We have not decided other new capacity investments, but that's a long time to 2022. So let's see what happens. Us. Okay. Thank you so much. No further questions from me. Thank you, Oliver. And the next question comes from the line of Clive Kell of Ny Credit. Please go ahead. Us. Yes. Hello. Also a couple of questions from my side. First of all, Could you elaborate a bit on what's going on in Fibrotection on loans? Because it seems like it's a completely new company, to be honest. So at least you must have done something quite right in the The strategic changes that you have made, yes. So yes, just elaborate a bit on what has changed compared to, let's say, 2 or 3 years ago. Yes. Lars, thank you for the question. As you rightly know, we took this strategic review of fibroblaxinib bones A few years ago and said, okay, either we see a future where they can deliver on our long term 15% return invested capital or we might exit this business. The strategic review came out very promising, And we thought there's good opportunities. We also saw in this review that our positions in the market, in general, In fact, we're much stronger than we might have thought. We saw there was a room for adding value to a lot of products. So We have moved into different new segments. We have changed the product mix. Yes, of course, we are still big in automotive, but now we are also moving up a lot into what we call added value for filtration, advanced filtration products us. With Nano into face mask, advanced face mask, advanced specialty wipes for disinfection for hospitals, So we took this strategy and then we had the courage to invest in sufficient capacity us to also meet the market demand. Then we also need some luck. We had a factory coming for sale in U. S. Our Greenville operations in Sponnay is a Turkish company that was more or less bankrupt when we were considering it a lot. We thought it as a Correctly smooth, but it has shown to be exactly the right thing to do because we could take our advanced product us. System into this company and then really start penetrating the U. S. Market. So you're right. It looks like a new company, but it is part of a Very stringent and clear strategy plan we did 2, 3 years ago. But how much of the current demand is due to COVID-nineteen? It's very difficult to say. And of course, we have elaborated A lot of that also also. How sticky is this? But as we don't supply any material for what we call basic face masks Anything, when we are talking about face masks, we are supplying very advanced materials to respiratory face masks to some global us. Accounts, etcetera. We are supplying advanced materials to filtration. So it's a move up In value, of course, we have had positive effect also that some of our competitors have been sold out in the low margin area. But us. Maybe let's just say maybe 10% effect or something like that, but it's not as big as one might think. And it also underlines our new capacity investments in these foundation lines in U. S. And in Czech Republic. Us. Okay, great. And then on TPV, did you say that you had a very strong backlog and a solid visibility? Us. And then what, sorry? Yes. I missed I'm not sure I understood what you said about But did you say that you had a very strong backlog and a solid visibility to this company? Exactly. That was what I said. Yes. We have a very strong backlog, and we have book to bill more or less On the expected 2021 turnover. But then we have the supply of critical components as A critical issue we are working on. Okay. Then my question would be, are you winning a lot of new customers? Or are you gaining market share among your current clients? It's we are winning new customers. We have also taken a new implemented a new sales strategy working on much larger customers Well, we have had quite been quite successful. But also, you should know that most of our large us. Global or international OEM customers, they are also experiencing strong demand. So we are just following their strong demand. So it's a two sided thing. The market in general, our customers, they are asking for more products because they have strong demand and then we have also 1 new us. Okay, great. And then just on group level, us. Did you say that overall, you have reduced the risk profile for the rest of the year due to already implemented price hikes And also inventory buildup of critical components, meaning that, yes, the risk profile for the remaining 9 months us. I think it's important also to underline that we have today. Four companies where we that we lift our guidance on. And we also say there are Still some uncertainties on the raw material prices because we expect to go to the market and compensate most of it. We have compensated a lot, but there's still a way And then I also said we are starting to build inventories on critical components. You will see our net working capital us. Increased, but we are not there yet, but we are working hard on that. We have really set, okay? Even it's my personal KPI, us. The net working capital and so on, we are offsetting this year because it's more important to be able to supply us. Our customers then looking at networking capital. So that's it. And then we have 2 companies where us. 5 or 6 Personal Care, where raw materials have been very, very uncertain. We have had more or less shortage of supply, Close to stopping up production and so on. And we do not we did not lift guidance there. And then we have Biomar, Positive move, but still uncertainties on specialty Chile because of U. S. Market and biological conditions. Us. So that's as it is. But if you ask me, I'm more comfortable than in March, I would say a little bit more. Us. Okay. Okay. Then my final question is that already at the Q4 report, you mentioned that you had a Quite solid the order intake in Q4, and it continued in at least in January February. Us. But could you tell us, yes, what does it look like in April May? And yes, just to get a feeling for what's going on in the real world? Us. General order intake, sorry, Russell. Yes, yes. Generally speaking No, but still Yes. We have seen a positive order intake, and I think also that's the background for our guidance that still demand from large Very solid customers. The demand is very solid and order intake is still picking up. So That's what we see. And we are well we have, as I said, a strong backlog also for the coming months. TPV is special because we have such a large backlog, but that's due to the component situation. Other companies, we do not have backlog covering the whole year because There's another momentum in how our customers are ordering. Okay, great. Thank you very much. Thank you. Us. And the next question comes from the line of Claus Elmer of Nordea. Please go ahead. Thank you. Yes. Also a few questions from my side. Jens, the strong performance in Q1, do you have an us. Insight into to what degree this has been a restocking effect? That will be the first question. Us. Yes. As we have had we have also looked a lot into that, and we think the only way we really were fearing restocking was in a GPD. Us. We have really scrutinized the orders and everything, and we don't really see it. Of course, the order us. Your intake is maybe not restocking, but security order they are placing, but we haven't really seen any restocking. Us. Also looking at Hydrospethna, we it's last OEM very large OEMs, and they do not have the space for us. Sometimes it's more or less you have to deliver on time online. So yes, we haven't seen it yet. Okay. And then set aside raw materials FX and all of this, Given the strong demand, do you see an opportunity to raise prices? Us. Yes, we are working on it. And in some segments, we see more opportunities than others. Of course, It's a balance because if you go out in the market and are too aggressive, you also know its customers. It pays back. So it's a balance. I think some of our customers, they really understand that we had with some of our customers, especially private ex personal care, would be us. On that, where we had to go to the spot market and buy raw materials at crazy, crazy prices to be able to run our lines, Their customers have said, okay, we understand it. We accept also that we may be shy or whatever. So there's a good understanding in the market. Of course, customers We don't like price increases, and we work hard on it. But it's a balance. You need to really balance it. And don't be too aggressive, But also take the opportunity when it's there. Sure. Okay. And then about your guidance, looking at, let's say, mid range and the upper end of the guidance What have you assumed when it comes to raw materials and transportation costs and so on? Is it as it is today? And then It will continue throughout the year or yes. Yes. We expect freight or transportation costs to be at a high level throughout the year. We all I also said that we expect a normalization, especially in 2nd half in Biomar, meaning also the U. S. Market opened more up for salmon and going out, entertainment and these things. Us. And then if you look at Private Express Healthcare, we do not disclose figures, let's say, okay, what is expected in Q2 and so on. But Q2 Will not look nice. So that's also part of our guidance. And that's meaning that expected second half us. Improvement on that, we can see it. So it's with that in mind. And then FibroTec's Nondoons, they were flying. Also, I have to say, us. I could see April already also flying, but now the raw material sourcing, we see the new prices coming in, etcetera. So it's with that in mind, Kjell. But so just to be sure, so the high end of the guidance range is still us. Including an unchanged headwind from input cost and transportation and so on. Is that was that correctly understood? Us. Yes. I would say 80% correct because, as I said, we also try to compensate on pricing in the market. We also maybe look at us. A product mix, something we could try to avoid to deliver and things like that. There's a lot of things going on, but still it's happening, yes? Us. So 80%, correct, you understood, and remains 20%, is that the Scott way of guiding or communicating? Us. We are guiding what we are seeing right now. And also, if somebody else like we have also been looking into polypropylene price us. And it has really been crazy. Also looking at transportation costs, so the transportation costs, they are up us. I think looking at transportation costs at our side, it's really a big issue. So that's it. Thanks. Okay. And then just the final question is a more housekeeping question, net working capital, Jens. And yes, you addressed it in one of your replies, us. But you must be really dissatisfied by the Q1 performance, although it's obviously a smart move to build your inventories given the situation. But I guess 2 steps forward and then 2 steps backwards. Call. Yes. And to fight you a little bit close, I call it 2 step forwards, one step back because it's some of it is deliberate us. As of where we really have said, okay, we need to source these products. Then there's different things. It's Q1. It's a small quarter, but I agree with you. Of course, there's still something to do, and We will keep a close eye on it and let's discuss it after Q2. But I know you will exclusion me on it and I all our CEOs are listening now. Perfect. And then just a final, a Big thank you to the Biomar and the Extra segment details. Very welcomed and we are looking forward for the next steps to more disclosure. Us. Thank you for taking my questions. Thank you for taking my questions. Thank you, Clive, because that's good. And we will look into it. We also know us. And there are no more questions at this time. I would like to hand back to the speaker for closing comments. Us. Yes. No further comments. Only thank you for listening, and we'll us. Listen to each other after the summer. So thank you for that. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.