Ladies and gentlemen, welcome to the Schouw & Co. Q2 report for 2020. Today, I'm pleased to present the CEO, Jens Bjerg Sørensen. 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. Speaker, please begin.
Thank you very much, welcome to everyone to presentation of our Q2 2020 report. Q2 was a quarter heavily influenced by the global COVID-19 pandemic, our companies have in general responded very professional and diligent to this difficult situation. I think I can say that our conglomerate strategy and diversification really showed strengths during the quarter. We delivered a strong and very satisfactory quarter. Our revenue was flat at around DKK 5 billion, impacted by lower raw material prices, only two out of our six companies were hit by reduced volumes. The group EBITDA increased 23% to DKK 570 million. We saw a profitable product mix and lower raw material prices in most of our companies. We also, as I mentioned, had a very strong execution with high efficiency and good cost management throughout the group. Cash flow from operations improved 375% to DKK 607 million.
We saw some positive impact from the prolonged tax on VAT payments in the different countries. We also had a solid effect from our strong and persisting focus on our net working capital, there's still room for further development. CapEx for the quarter was only DKK 79 million, which also meant that we could reduce our net interest earnings significantly, to a leverage of 1.5 times EBITDA today. We're also happy that we can reintroduce our guidance for 2020. This is due to much better and improved visibility in all our companies. We now expect the turnover for the year around DKK 20.6 billion. EBITDA is expected in a range of between DKK 1.94 billion-DKK 2.11 billion, virtually unchanged compared to the year's guidance we went into 2020 with.
Of course, there will still be uncertainties on the development of COVID-19, but this guidance is the best as we see it today. Looking at BioMar. BioMar delivered the best Q2 ever, where revenue was up 7% to DKK 2.7 billion. They saw a 9% increase in volume to 210,000 tons. Especially, we experienced strong development in our salmon division, whereas both the Latin and the India divisions had slightly lower volume, mainly due to COVID-19 effects. This lower volume was mainly caused by low shrimp exports from Ecuador to China and decline in HoReCa demand in Europe. The EBITDA in BioMar increased very satisfactorily from DKK 191 million to DKK 222 million. Here, we saw a very good product mix with good sales of functional feeds. We have also experienced high efficiency and strong cost control in all areas of BioMar.
Looking a little bit into Q2, we are very pleased to see that we had a smooth start of two new feed factories in both China and Tasmania. In fact, these two factories were started more or less virtually. We couldn't send people to these two markets, but we have managed to run them. We also signed the letter of intent with Vietnam-based Viet-Uc on acquisition of the feed factory in Vietnam. We experienced that our non-consolidated farming companies, Salmones Austral in Chile, were hit by low salmon prices out of Chile. The guidance for 2020 has expected a turnover of DKK 11.5 billion, EBITDA in the area of DKK 940 million-DKK 1 billion.
Of course, also here we have some concerns on how will the important HoReCa segment develop, how will shrimp export to China from Ecuador see out, and will we see a recovery in the U.S. in the third and fourth quarter. On to Fibertex Personal Care, where revenue increased 8% to DKK 548 million. In fact, volume was up 21% in the quarter, which was very satisfying. We experienced strong demand in Asia, more moderate in Europe, but still growth and good demand in Europe. I think we experience effect from changes in the supply chain struggle, meaning large customers more and more sourcing at reliable suppliers. EBITDA at DKK 124 million compared to DKK 72 million last year. Here we see a huge effect from strong capacity utilization. However, also we had a positive raw material gain of DKK 32 million in the quarter.
Throughout the quarter, we saw that the industry continued to focus on specialty and value-adding products. Large customers, as I mentioned, looking for securing supply more long-term, and the industry capacity. We seem to be in a much better balance now. Guidance for 2020 will be increased again due to very strong order intake. Good visibility. Revenue unchanged, about DKK 2.1 billion. EBITDA now expected around DKK 390 million-DKK 420 million, and of course, it's created by very positive effect from corona across the demand. Looking at Fibertex Nonwovens, we saw a really strong execution from Fibertex in this quarter, which also make them able to deliver the best Q2 ever. While revenue was reduced 12% to DKK 392 million, but we saw strong sales of specialty products and wipes, partly offsetting a decline in the auto segment. U.S. market continues very good development in all segments.
EBITDA increased from DKK 38 million to DKK 60 million. This was really an effect of move to more high margin and specialty products that gave this impact, also good effect from overall efficiency improvements and cost cutting throughout all companies in Fibertex Nonwovens. During the quarter, we have adjusted the production capacity accordingly, meaning moving from low margin, high volume products to high margin, low volume products. We have experienced strong demand from the medical segment, which we think also opens future opportunities. Our nano products continues to development and also creates a solid basis for future. Guidance for 2020 will be turnover around DKK 1.6 billion-DKK 1.7 billion in the year, increased expectations in the area of DKK 205 million-DKK 225 million. There we have to emphasize that we continue to see strong U.S. development and positive sales of specialty products.
GPV saw their revenue down with 5% to DKK 676 million. Here, we experienced soft demand from very large industrial customers across all markets. Positive side, we had impact on temporary close down. On the negative side, we also had temporary impact from close downs in some of our sites. EBITDA increased with DKK 20 million to DKK 62 million. Good impact from high efficiency and product mix, customer mix. Have to mention that in 2019, GPV had a negative impact from PPA, about EBITDA of DKK 10 million. During the quarter, we have continued with our investment program in efficiency and optimization. We have decided to implement a uniform and effective integration system at all sites, meaning we are now really getting two merged companies to one company.
We are also experienced stronger demand and interesting backlog from the important MedTech segments, meaning that the outlook for 2020 will be turnover around DKK 2.7 billion in the year at a level of DKK 200 million-DKK 230 million. As I mentioned, expected positive impact from the MedTech segment. Fibertex segment had a difficult Q2. Revenue was down 19% to DKK 258 million. We had two very large different segments. On the good side, we experienced good development in our very important wind turbine segment. Whereas we saw very soft demand from the large vehicle segment customers, especially in our Swedish organization. EBITDA reduced from DKK 64 million-DKK 46 million. Of course, due to impact from negative impact from lower sales. There have been a strong effort on cost cutting and efficiency utilization of capacity on all sites.
Also have to mention in 2019, we had a positive impact in Q2 of DKK 6 million from real estate sales. We have expanded our warehouse facility in Denmark. It's now in use, and we have decided to increase production capacity in China, mainly to serve the expanding wind turbine business out there. Outlook for 2020 turnover expected at DKK 1.8 billion. EBITDA now DKK 160 million-DKK 180 million. Wind will be a key driver, and there are still some uncertainties on the big renewable segments. BORG Automotive also had a very difficult Q2. I have to say better than they came out better than feared. Even revenue was reduced 20% to DKK 173 million. We saw demand from all major European markets was very low. Customers were closed down, and as we say, no cars to repair when there are no cars on the road.
That was really what we experienced, especially in southern Europe and in the U.K. EBITDA was down from DKK 21 million to DKK 11 million. It could have been worse. We saw a really good impact from strong efforts on productivity and cost cutting across all functions. We have also received a positive effect from government schemes of DKK 1 million. Throughout the Q2, our factory in U.K. has been closed down, totally closed down for two months. Our Polish facility has been reduced minimum. Good thing is now we see demand picking up, especially from large European customers. Outlook for 2020 will be a turnover around DKK 850 million, EBITDA in the range of DKK 75 million-DKK 85 million. Wrapping up. Very strong Q2 development and better visibility. Our conglomerate strategy really showed strength.
All our companies have been executing very professional in difficult times, and I have to pay tribute to all our management and employees around the globe on doing that. Our financial position is good, and we have the potential for seizing opportunities. We are also working hard on preparing our companies for what we call next normal, starting to look into 2021. We are having our guidance back at the same level as before the suspension. EBITDA, however, expected to be stronger than what we delivered in 2019. We expect really strong cash flow. Also we have to mention that the COVID-19 crisis and this terrible situation has not disappeared. We need to continue to take responsibility for people and organization, and we need to be prepared to act accordingly. With these words, I would like to open up for questions.
Ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad. Our first question comes on the line of Jonas Guldborg of Danske Bank. Please go ahead.
Good afternoon, Jens. I have three questions, and let's take them one by one. First of all, I would like you to talk a little bit about how COVID-19 is affecting the two Fibertex companies. By that I mean, the high capacity utilization we saw in Q2, is that still going on here halfway through Q3? In your prepared statement, you talked about future opportunities in Fibertex Nonwovens. I think in the announcement, you were saying that on the other side of COVID-19, you don't expect any impact on Fibertex Personal Care. If you could talk a little bit about how COVID-19 will affect the two Fibertex companies longer term, if at all.
Yeah. Of course, longer term, it's difficult to really be sharp on, but we expect that this positive effect will last for some time. We see changes in the way our large customers are thinking, meaning the supply chain will be different, which will provide volume to us, especially looking at Fibertex Personal Care. We can see that the large customers really are eager to contract for 2021, discussing 2022, having a new approach to the suppliers and so on. I think that's going to give us a positive effect and really continue to give good volume to us. Margins and so on we haven't discussed yet, but we are quite positive on the opportunities. Looking at Fibertex Nonwovens, we have seen a total change from selling low margin, high volume products due to [establish certain].
We have been working on for 10 years to change more and more into added value functional products, it has really happened now. We see also that what is going on due to the COVID will continue. There will still be a lot of use of face masks, materials, especially to labs, et cetera. We feel quite confident in that. Also we have seen a minor breakthrough in very important future segments. We are quite confident on good opportunities in future.
Okay. Should I understand the comments around Fibertex Personal Care as you are also then seeing an easing price pressure from the customers if they want to discuss already now for 2021 and 2022?
To be honest, we have not been in real price discussions yet. We do not really see that. We know when these last volumes start to be really discussed, then one thing is volume and adaptation. I can't really say that we have seen that easing yet, to be honest.
Okay, fair enough.
I think we benefit from high efficiency due to capacity utilization and the way we can run our lines.
Yeah, sure. Okay. If you could help me on BioMar and your guidance there, because you're guiding for negative revenue growth in H2 or after having a + 9% in H1. Also on EBITDA, you have a 18% EBITDA growth in H1, but are guiding for negative EBITDA growth in H2. Could you just explain how that comes about?
I think our EBITDA increased in Q2 could be revised more than that.
You're guiding for a negative growth in EBITDA in H2.
H2.
Yeah.
Of course, we expect that volume will decline some there. We also expect some differences between the different segments and volume. We have some segments with higher margin than others. What we see or expect to be a little bit affected will be in our high margin segments. That's what we are looking into. We also expect volume a little bit down due to maybe restricted feeding in Chile, restricted feeding in Norway. They can't sell as much salmon as expected. That's part of our thinking, that we see softer, not very much, but a little bit softer demand and then changed from region to region.
Okay. Makes sense. Then my last question is just really, if you could give an update on your expected CapEx for 2020.
I'm looking at that right now. We can probably postpone a few investments, but I think it's around DKK 300 million-DKK 400 million. A little more, maybe half a billion, something like that. We are working on postponing some of it.
Okay.
We cannot commit numbers to synthesize.
Fair enough. That will be all from me. Thank you very much.
Okay. Thank you very much.
Our next question comes from the line of Claus Almer of Nordea. Please go ahead.
Thank you. First of all, Jens, with your comment that Q2 was heavily impacted by COVID-19, I almost say I hope it will continue for many years, it was quite a stellar performance you had in Q2. With this caveat that people should not be sick by COVID-19. One question regarding lower revenue guidance for full year, how much of that is due to FX and raw materials? That would be the first question.
Claus, thank you for the comment also on COVID-19. When I say it was heavily influenced, meaning that there was a lot of hard work going on to offset these things and so on. It was really top of mind in all organization and management. I agree, we were very satisfied with the outcome of it. Looking at the turnover and so on, I think the most, it is really raw material prices and FX that are impacting expectations to turn negative.
Okay. We've seen, at least for other companies that, due to no traveling and so on, there's been a lot of cost savings in the quarter, and most likely that will not continue forever. Can you put some color to how much of your cost savings has been caused by both state aid and also, yeah, people not traveling and so on?
Yeah. On the state aid around the globe is around DKK 25 million. Not traveling, et cetera, we are not a company with a very, very large marketing and travel spending and so on, but guess we made DKK 10 million-DKK 15 million impact from these things. Let's say maybe all together DKK 40 million or something like that, including state aid and so on.
Okay. My final question goes to the cash flow, and obviously you are very satisfied by the cash flow in Q2, which is coming from the net working capital. Maybe I would argue it's not that impressive. You're increasing your use of supply chain financing. You have some duty postponement, and you have lower revenue. I know BioMar is pulling the wrong direction. Are you, and this is an old question, Jens, but are you satisfied by the cash flow, really?
I think I said also in my remark that net working capital, there is still room for improvement. I think that was a clear message that even I think cash flow is quite good. I agree totally with you. We have also had a help from these government things, et cetera. Still, I'm pleased, but I'm not satisfied.
Couldn't you actually say it is actually status quo? The things that has improved the cash flow in the quarter is one-off and not really driven by the underlying improvements. Would that be a fair statement?
No, it's not a fair statement that it's only coming from there. I take your point, that it's not only coming from these things. That it's also coming from the hard work internally and focus on itself. Of course, BioMar sticks out because if you look at some of the other players, really doing good on their net working capital.
BioMar, is this just due to mix, or do we actually see an adverse trend in BioMar?
It's a lot of different. It's moving volume from Norway and so that we have huge sales in Norway with very, very short payment terms, and then into Ecuador, Chile, et cetera. It's a different earning, and it is a huge part.
Okay. Thank you so much.
Thank you.
Our next question comes from the line of Ulrik Bak of SEB. Please go ahead.
Yes. Hello, Jens. I have a couple of questions to BioMar. You show an impressive volume growth of 9% in the second quarter, and you write in the report that the growth is a result of the new facility in Australia and as well as more innovative product offering and close collaboration with customers. Can you elaborate what the split is between the two factors, and what do you expect in terms of growth for the second half year?
You could say now the Tasmanian factory is still very small compared to the rest. You have to know also that the main volume was moved from U.K. to Tasmania. Meaning at group level, it is not really new volume, it is just moved to Tasmania and now produced in Tasmania, meaning it is more profitable. It is not significant for the quarter, but it is a change and it is important that we started it up in a good way. Volume wise, not very big impact. Positive impact on the profitability, not big, but we had startup losses in the first quarter, and now we are profitable already in Tasmania. For the second half, it is too because then to say, we have a little bit better sales in U.K. than expected there.
Yeah, I think it won't offset that much because moving from Tasmania to U.K., meaning a little bit better margins, but not very huge impact.
If I understand you correctly, the majority of the growth has been from this new innovative product offering and customized products for your customers.
Yeah.
Is it basically in Norway?
No, very good growth in Chile. We have been growing very well in Chile. Taking market shares, huge growth in Chile.
Okay. Thank you. Second question. Your gross profit per kilo has been up over the past three quarters by 10%-20% year-over-year, but this quarter it was down almost 20% year-over-year. Can you shed some light on what dynamics have caused this development?
I think again, when we are talking about the geographical split, if you look at our EBITDA margins, that are difficult to elaborate, but EBITDA margin on BioMar is up from the second quarter.
Yes.
From 7.6% to 8.2%.
That's versus revenue, your volume.
Yeah, it's depending on mix also. There is a lot on mix.
Right.
If you move between the different segments, there is really a lot on the mix on your contribution margin. That's the main bit.
Okay.
Moving between the different segments really gives that.
My final question on BioMar. You mentioned something about less new fry releases could affect volumes in the future. What is usually the timeline before a reduction in fry releases happens before BioMar can feel it in terms of lower feed demand?
Very big difference on the species. If you take salmon, the circle or the period is around from 18- 22 months. If you take shrimps, then the circle is maybe three months. There you can see a very fast impact if the shrimp business in Ecuador really suffers because of no export or banned export to China. They can move very fast. Whereas salmon, it takes a long time. What they can do in salmon is more restricted feeding, maybe feeding slower and let the salmon grow slower also. It differs a lot. I think in the salmon business, we do not expect really to see less smolt releases, also because they are finding new ways into the market. Chile is another ballgame because U.S. is so important for Chile, and we have to see U.S. recover.
Okay. Thank you. No further questions.
Thank you.
Our next question comes from the line of Laurits Kjærgaard of ABG Sundal Collier. Please go ahead.
Hi, Jens and Kasper, thank you for the presentation and congratulations on the very good results despite all the turbulence. My first question is on the legacy GPV and the CCS operations, which you've previously flagged that the legacy GPV perhaps had a softening time versus CCS. Could you talk about the sales development in the first half year and your assumptions for the second half year for those two businesses, please?
Yeah. As I said, also, we have seen a soft order intake from large industrials throughout Europe, both in the old GPV and also in CCS. Meaning companies like ABB or Link or whatever you could mention as large industrial companies. We have seen an order increase and take up in the MedTech, and that especially goes for the old CCS. Expectations for second half is that the MedTech will really improve, and we should also be able to offset the very soft, not very soft, it's too harsh, but the soft order intake and expectations for old industrial companies. I think that's the way it's balanced, and it's very good that we have really strengthened ourselves into the MedTech. That really helped us this year.
That's clear. For HydraSpecma and BORG also, both of them have some exposure to the auto sales industry and your implicit guidance, you find sort of similar negative sales development in the second half versus the first half, and even flat and lower margins where obviously there's some seasonality there, granted. What's your assumptions behind the auto industry for those two businesses? Obviously it's really volatile at the moment, but what I see is the world is pretty much opening up, especially in Europe at the moment. Is that what you assume for the second half or could we be surprised?
Yeah, it is what we assume. Also, if you look at BORG, what they have delivered so far, then they also need to have a very good second half. Normally, second half is a little slow, and especially you have December, not that good. We see sales picking up, and that has nothing to do with the automotive industry or car sales. It is more to do with you need the cars out in the streets running because then they break down and they need spare parts, et cetera. Also need the auto shops or the repair shops to open up, and that's the expectations we have, and we see improved demand from the larger customers. Looking at HydraSpecma, then it's more volatile because we are supplying what we call large vehicles, so trucks, buses, et cetera, and also off-highway equipment.
It's more blurry, but we expect it to stabilize. We have seen a backlog picking up a little bit.
A question on BioMar. You talk in your report about out-of-home consumption, especially in terms of the shrimp business, which I believe has quite good margins. It has been so previously. Are we expecting a pickup here in out-of-home consumption or what are you thinking?
To be honest, I think there's a lot of answers to that question. We are expecting that we also will stabilize more because it's such a big market for Chilean salmon. We have seen Europe picking up on out-of-home dinners, et cetera. We expect it to stabilize. We do not expect it really to increase a lot, but it's very important. You can just take a segment like the aviation or flight business. Flying, if you go on a flight or plane, normally you will have a shrimp salmon two times, and nobody's flying any longer. Of course, they need to find new ways to sell these salmon to the customers. It's something we are really looking carefully into.
Okay. Just sort of an overall broad question. Schouw is known to be sort of an M&A player. Is there any change of sentiment for any of perhaps the acquisitions that you've been looking at previously? Has this quarter been, I understand it's been a circling quarter, has it been a quarter where you've been looking more inwards or have you also been looking at potential acquisition opportunities? If there's any targets which are having a really difficult time, there may be even good multiples to be found by acquiring them.
It's part of our strategy, it's part of our business, and we are always looking into opportunities and also now, and of course, as I say, we have a financial strength to look and we have been looking into interesting things, not done anything, but we will be there, and we'll be ready to take opportunities, and we are also willing to do it.
Okay, super. Thank you very much.
Thank you.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. There are no further questions at this time. Please go ahead, speakers.
Super. Thank you very much for listening and participating on this Friday afternoon with a very warm summer here in Denmark. I wish everybody a good weekend. Thank you.