Earnings Call: Q2 2021

Aug 12, 2021

Quarterly report

Ladies and gentlemen, thank you for standing by. I am Matt, your Chorus Call operator. Welcome and thank you for joining the Shaw and Company Call. Throughout today's recorded presentation, all participants will be in a listen only mode. I would now like to turn the conference over to Mr. Jens Bjerg Storrensen, CEO. Thank you very much, and welcome to everyone to the short presentation of our Q2 reports. Overall, we had a very satisfying and strong quarter. We are still operating in a turbulent world, but demand for Shaw and conference. Our revenue was up 13% to CHF 5,600,000,000 conference. Looking a little bit into the quarter, we could see we have had increasing costs on raw material components and transportation, and it has really been a key challenge for all our companies. We have seen very high activity levels in all companies, and that has given positive pressure on capacity and also on our supply chains in general. The order intake for most of our companies are at a historic level. The corona situation, especially in Asia, is still a concern. Show and the FICC from high raw material prices. The guidance for 'twenty one is slightly up, and that is due to a strong first half and also the attractive backlog we are having. Turnover is now expected around CHF 23,700,000,000 Still, we expect to implement or to do CapEx at a level around DKK 1,000,000,000. That was the general overview. I'll now move into each of our companies, starting with Biomar, where we in Q2 saw a very good volume development and also saw that market demand slowly is recovering. Revenue was up 6% to $2,850,000,000 and volume was up 4% to 222,000 tonnes. EBITDA was slightly reduced to DKK 250,000,000 Net working capital in the quarter for IMI reached a level of $1,400,000,000 and return on invested capital is still at a satisfactory level of 18%. Volumes in Chile was, as expected, lower and also had a negative effect on our EBITDA. We have seen margin pressure throughout the quarter due to steep increase in costs of raw material transportation and also Last contracts in all main markets, we have good contract positions and increasing volume expectations. We also saw positive development in our joint venture in China. Very good for us is also to see that salmon prices in general have conference. Guidance for 2021 is now a turnover up with DKK 1,000,000,000 to DKK13 billion, that's due to more volume and of positive effect from raw material prices. EBITDA, however, is slightly reduced now to a spread of €940,000,000 to €985,000,000 And that is due to, as I said, increasing raw materials. We see more and more difficulties in getting full compensation at all customers Developed positively, especially will I mention Cellmonis AUSTRAL, our Chilean farming company. We now guide them with results of around $50,000,000 into our books following the recovery in the Tier 1 salmon process. BioMar to FibroGen Personal Care, where we saw very volatile raw material situation and it has been very challenging, revenue was up 2% to €558,000,000 EBITDA, as expected, down more than 50% from down the $63,000,000 to $61,000,000 Return of invested capital now at 13%. We have strong demand. It continues in both Europe and Asia, but a huge negative impact from raw material, So if we look at Fibrotech's Personal Care in general and exclude the impact from raw materials, then we show very strong performance in general, very high efficiency in all factories factory, in fact, at historical high levels. Guidance for 2020 is maintained, revenue unchanged about $2,200,000,000 to $2,300,000,000 And EBITDA is still expected in a range of $320,000,000 to $360,000,000 We keep large Spreads because the raw material situation is a continued concern for us. And then also the corona situation in Asia, In fact, the installation of our new line, number 9, with around 3 months. Looking at the Fibrotech's nonwovens, I think it's a pleasure to see how that has developed. The solid and very satisfactory Development continued also in Q2. Revenue up by 30% to CHF 511,000,000 and EBITDA increased from $22,000,000 to $82,000,000 giving a 16% EBITDA margin and EBIT well above 10%, and 10% has been a long term target we have for FibroTecs and Bone. Return invested capital also had a very satisfactory level conference of 16.2% and well above our target. We have seen a very good and strong development in Europe. Short term demand on specialties in U. S. Is softening a bit. We see that some of our large customers have been building stocks over the last quarters. We have a guidance uplift coming from strong first half, turnover of €1,900,000,000 to €2,000,000,000 EBITDA now expected from €270,000,000 to €290,000,000 Still, raw material situation is a concern in general, could impact negatively in H2, but the strong start and the good order backlog we have is conference. Looking at TPV. Also here, we saw very strong market demand. It continued, and we had a very high order intake. Revenue was up 13% to $763,000,000 EBITDA increased 24% conference. And return of invested capital nearly at our 15% target. It was, in fact, 14.8 It's also pressing our capacity at some of our larger factories. We see continued increasing component costs new lines on several factories, and we have decided to move consolidation of our Asia footprint and investing in developing our facilities in Thailand and Sri Lanka. We have a guidance uplift to a strong first half and a very solid backlog here, we could say we had a really historical high backlog. Turnover now expected between $2,900,000,000 to $3,000,000,000 EBITDA, conference. And that's based on our core customer base and not as last year where we had a We have a big metric order that had a very positive impact on 2020. We won't see that in the second half in 2021. Hi, the Stigme. Saw all the large customers continue to grow. Revenue was also up here with in the 33 percent to $609,000,000 EBITDA increased $40,000,000 to $86,000,000 and ROIC again very satisfactory at conference. 3%, again, above our 15% target. We sold a facility in Denmark and Drewe and had a Plus to the contribution of the EUR 12,000,000 on EBITDA, but still very satisfactory EBITDA development. We have had a really solid demand for components and systems within the Power and Motion segment, continued strong order intake from all important segments. We are seeing increasing activity in Asia. It requires a new facility we have decided to build in India a big investment, a DKK10 1,000,000 investment in a 4200 Square Meters site. We have a guidance uplift due to strong demand and, as I mentioned, a solid backlog. Turnover expected, dollars 2,200,000,000 to 2,300,000,000 EBITDA now around $240,000,000 to $265,000,000 Here also, we still have global pressure on raw materials and shortage of Components Continuum. And we do not expect the wind segment to continue the strong momentum in the Finally, Thor Automotive really had a solid market position as basis for strong development, Revenue up from $173,000,000 to $293,000,000 nearly $300,000,000 in the quarter. EBITDA Increased impressively from €11,000,000 to €48,000,000 Also here, we have to remember that Q2 'twenty was Here, we also have seen solid demand from all segments and all countries. We have very high efficiency in production and what we call best in class deliveries in the industry, and it really strengthens our position. Bo continues to pursue ambitious growth plan With the latest acquisition of SBS that was approved 1st July, so now we start to implement that into both. We have a guidance uplift also here, positive demand, turnover now around $1,300,000,000 and EBITDA Shah and Company conference. Around in the spread of $160,000,000 to $180,000,000 before PPA and purchase price allocation effects from So wrapping up, strong and satisfactory Q2 developments. We Good position, and we have potential for seeking opportunities. We are, of course, looking and as always, having a lot of dialogues going on. We are lifting our guidance due to strong first half, but still we have 2nd half is our guidance is also based on a more normal market condition in the second half in general. So With that concluding remarks, I would like to open up for questions. Ladies and gentlemen, at this time, we will begin the question and answer session. Our first question will come from Ulrik Bock with SEB. Please go ahead. Yes. Hi, Jens, Congratulations on the solid Q2 numbers. I have a few questions on biomass, if we start with that. You state that part of the EBITDA decline versus last year is due to raw material price increases. But can you maybe just explain this dynamic, how it works? Because I'm quite sure you've previously stated that the changes to raw material prices don't affect biomass earnings because there's almost 100% pass through to your customers. So if you could please elaborate on that. Yes. Thank you very much for the question, Rudolf. I think I stated that in the salmon division, we have this pass on mechanisms in most of our contracts. Of course, there's a time lag. So when prices are increasing Heavily and fast, then we will be lagging, and that will have a negative impact on us in The EMEA division with a lot of small customers and a different way of doing business, we do not have pass On all customers, I mean, salmon division, yes, we have this, but not in the other division. And then as Okay. Thank you. So we would be able to see a similar positive effect if and when raw material prices decline again? We will, yes, maybe also, of course, sometimes we also need even we have passed on mechanisms, sometimes you need Okay. Very clear. Then another one on Biomar. And then declined significantly last year during the pandemic. I believe there was some FX effect, which was unfavorable for you guys. Call. Are there any reason why you cannot return to these peak 2019 levels in the second half of twenty twenty one That's a good observation, Juvekar. And if you look into we think on the longer term, we can. But there are as we also discussed earlier that during the pandemics and so on, a lot of our customers turned away from value added products conference. Our functional feed and on to more ordinary feed and so on with lower margins. Then we have had a huge effect also With lower volume in Chile, we have less biomass in the sea that have been algoglume and a lot of things. So We see a huge effect from less volume in Chile, and we expect, of course, volume in Chile to pick up again. On profitability levels like that. But short term, second half twenty twenty one, we cannot see that. Okay. Thank you. And then a final one. On the competition you mentioned in Biomar, Can you maybe shed some light on whether the competition has intensified compared to pre COVID-nineteen? And if so, Where do you experience it? And is it something that is temporary or permanent? It's difficult I'll say a bit permanent, but it is more fierce and also because some contract has changed hands, etcetera, and we have some This is especially in the salmon segment where we really see it. We also know that there are these annual contract negotiations. And there we see some competitors really pushing hard for getting contracts, not at all prices, but at very low prices. And then we have seen also a change in Ecuador where we have moved into larger customers and so on. So a small change in Ecuador also in competition. If it will last, I cannot say. But we have had very good contract positions fighting for them. And now it's up to us Our next question will come from Klas Ulmer with Nordea. Please go ahead. Thank you. Yes, also some Question from my side and I'll take them 1 by 1. First of all, Jens, I know you are looking forward to this question, net working capital. Unfortunately, compared to past quarters, the development is not as good as we have been used to. Is this Purely due to raw math? Or why is that? That will be the first question. Yes. First of all, I agree on your observation It is not as good. And of course, it's something we are observing on. But I think also I said at last call that we have decided to conference. Delivery being able to deliver and source home critical components and so on. So And we have also seen an other mix of customers in terms of payment and so on and so on. So It's right. But some of it is really a strategical decision and some of it due to the situation. But we will continue to push hard for that But I think for the next quarters, we will allow our companies to be a little bit more soft on net working capital. Sure. That makes sense. Then moving to Hydrospectma, you also mentioned in your presentation, it's also in the report That demand will shift to Asia. Is that Asian customers or is it Asian markets? And does it mean that you're more going for offshore than on Sure. What's actually behind that comment? Yes. It's Asian market. It's not Asian customers. It's large construction material producers as OEMs for off highway and so moving activities into Asia. So we follow them, and we are there. Okay. Then you mentioned that you don't expect the current demand or the first half demand within the winter will continue in the second half of this year. Is that correctly understood? And why is that? That's correctly understood. Also, we saw investors yesterday announced that they conference. We're not expecting to be able to deliver until we see that the activity level is declining a little bit, also due to Circumstances from our side, difficult to get the components enough, transportation and so on. So it's not because we lost orders or anything, but they are just postponed due to supply chain struggles, you could say. Sure. And then coming back to Uli's question regarding biomass and price. You mentioned, yes, conference. This coming back to the old discussion, price versus volume. And as I heard you stating in this call that you are actually fighting for volumes in contract negotiations, Which I think is a different wording that you have said for quite a while. Maybe it was a filing for is maybe it was too hard We are also defending positions as we have not we have had a very good contract period, in fact, without being really Because we have customers that really wanted us as a supplier because we have had a very, very good quality and delivery situation over a long time We have, of course, defended our positions and got more volume with some of our key customers. But we know price is a Intense margin pressure contracts and thereby trying to help more pricing discipline in the industry. That sounds Yes. I would say also we still have the same opinion on that. But also we have to see that in Chile, we have lost a lot of volume, not because we lost, Because the biomass is much smaller and so there's a situation also where we need sufficient volume to run the factories at an efficient level. So that we look into also, but we have not really been fighting to take new contract. We have been defending, and we have also been in position where we said, okay, this one we don't take. In fact, we had a rather last contract that we declined. Okay. Thank you so much. Thank you, Our next question will come from Klas Kell with NY Credit. Please go ahead. Yes. Hello, gentlemen. A couple of questions about these raw materials. First one, if at the beginning of August. Yes. It's based on the actual contract situations we have on raw materials and, of course, also on the expectations on some of the very large raw materials, for instance, polypropylene, Okay. And then if we turn to FibroGen Personal Care. Then here in the first half Of the year, you have generated an EBITDA of €140,000,000 And if I just say that you generate the same in the second half, that will take you to 280,000,000 conference. But your guidance is somewhat higher. So and I guess, I would say personal care It is pretty affected by these raw material prices right now. So how certain are you about this outlook for 2021. As we are as comfortable as we can be because we've been looking into Expectations of as our input costs, probably probably in, we have also contracts going on. And we can see now it's something that Cracking capacity, as it's called, on Polypropylene has come into the markets, basically in Europe. So we feel quite comfortable. Although we could also say I think we said also that we maintained a spread of €40,000,000 also into 2nd half in our guidance, and that's because there are still some uncertainties. But we feel quite comfortable that we will be within that Okay, great. And then if we turn to FibroTec's non loans, then I guess They also will be pretty affected by the higher raw materials, especially in the second half. And If I look at the margins, then I guess you have produced a margin of around let's see here, let's see here, on EBIT level of around 12% in the first half of the year. And the implicit guidance for the second half of the year is around 5% or something like that. So how should I think about the dynamics in this company And especially going into 'twenty two, what would be a reasonable starting point for 'twenty two in terms of margins? Yes. Good question. We have not disclosed that yet, and we are, of course, looking into it. When I think maybe it's not the 5%. But you are right that we expect margins to decline in second half Q2. Raw material prices, we have been we have had good raw material conference. In the first half, easing it off in Q2, but now we see we face high raw materials Maybe 12% EBITDA is not what we are aiming for. It's not maybe we are aiming for plus 10% EBIT Could you repeat that? You're aiming for what? 10% EBIT margin, and we think that is realistic. So 10% margin for 5% non loans going forward? Yes. That has been part of our long term. In fact, we had a long term margin when we started that on 9%. And now we see that if you're looking a little more long term with our Now we see if you're looking a little more long term with our new investments, with our the way we have positioned ourselves into these high margin We have a follow-up question from Ulrich Baak with SEB. Just a follow-up question on Fibrochex Personal Care. I think you stated in the report that volumes dropped in Q2 compared to Q2 last year. And considering that You're now investing in new capacity and you're also talking about softening demand in the high margin segments of Fibotec non loans, where you also are investing in additional capacity. Are you in any way concerned about this development We're always looking into it. And of course, we have also done our analysis and so on, but we see underlying that the market continues to grow. We see Asia really continuing to go to auto. And this line 9 in the cyberattacks personal care will 1st, the other one in hopefully late first half twenty 22, and we have a lot of activities going on securing volume and so on. And then also, we are looking into efficiency conference. Maybe we are reducing production on one of the old lines because the new one is most likely similar. So I think we have Okay. Thank you. There are no further questions at this time. I hand back to Mr. Jens Bjerg Sorenson for any closing comments.