Earnings Call: Q2 2020

Aug 14, 2020

and gentlemen, welcome to the SkoolAco Q2 Report for 2020. Today, I'm pleased to present the CEO, Jens Pearce Sorensen. 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. Thank you very much, and welcome to everyone to presentation of our Q2 twenty twenty report. Q2 was a quarter heavily influenced by the global COVID-nineteen pandemic. But 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 strength during the quarter. We delivered a strong and very satisfactory quarter. Our revenue was flat at around 5,000,000,000, impacted by lower raw material prices, but only two out of our six companies were hit by reduced volumes. The group EBITDA increased 23% to DKK five seventeen 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 impressive 375% to EUR $6.00 7,000,000. Of course, we saw some positive impact on the corona tax and VAT payments in the different countries. We also had a solid effect from our strong and resisting focus on our net working capital, but are still looking for further developments. CapEx for the quarter was only 79,000,000, which also meant that we could reduce our net interest bearing debt significantly to a leverage of 1.5x EBITDA year to date. 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 of around 20,600,000,000.0. EBITDA is expected in a range of between CHF 1,940,000,000.00 to CHF 1,110,000,000.00, virtually unchanged compared to The U. S. Guidance we went into 2020. Of course, there will still be uncertainties on the development of COVID-nineteen, but this guidance is the best as we see today. Looking at the Biomar. Biomar delivered the best Q2 ever, where revenue was up 7% to ZAR 2,700,000,000.0. They saw a 9% increase in volume to 210,000 tonnes, especially in the strong development in our salmon division, whereas both the Latin and the EMEA divisions have slightly lower volume mainly due to COVID-nineteen effects. And this lower volume was mainly caused by low flint extracts from Equator to China and decline in whole wafer demand in Europe. The demand in Biomant is very satisfactory from $191,000,000 to $222,000,000 Also here, we saw a very good product mix with good sales of consumer fees. We had also experienced high efficiency and strong cost control in all areas of the biomass. Looking a little bit into Q2, we're still 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. So we didn't have we could be some people to these two markets that are in their management. We also signed the letter of intent with Vietnam based New on the acquisition of the feed factory in Vietnam. We experienced that our nonconsolidated farming company, Salmoneus Australia, Ausvarl in Chile, were hit by low salmon prices out of Chile. The guidance for 2020 is expected a turnover of EUR 11,500,000,000.0, EBITDA in the area of $941,000,000,000. Of course, also here, we have some concerns on how will the important operator segment develop, how will Swim export to China from Ecuador, see how and will we see a recovery in The U. S. In third and fourth quarter. Then on to Fathertech Personal Care, where revenue increased 8% to $548,000,000. 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 good and good demand in Europe. We I think we experienced an effect from the change in the supply chains, creating large customers more and more sourcing at reliable suppliers. EBITDA at EUR 124,000,000 compared to EUR 72,000,000 last year. Here, we see a huge effect from strong capacity utilization. However, also, we had a positive voluntary gain of 32,000,000 in the quarter. Throughout the quarter, we saw that the industry continues to focus on specialty and value adding products. Large customers, as I mentioned, looking for securing supply more long term. And the industry capacity seems 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 EUR 2,100,000,000.0. EBITDA now expected around EUR $390,000,000 to EUR $420,000,000. And of course, it's created by a very positive effect from corona cost demand. Looking at fiber six membranes. We saw a really strong execution from Fibrotech in this quarter, which also made them able to deliver the best Q2 ever. Although revenue was reduced 12% to $392,000,000 but we saw strong sales of specialty products and wipes, partly offsetting a decline in the Alpha segment. U. S. Market continues very good development in all segments. EBITDA increased from 38,000,000 to 60,000,000 and this was really an effect of move to more high margin and specialty products that gave this impact and also good effect on overall efficiency improvements and cost cutting throughout all components in Farther between brands. During the quarter, we had adjusted the production capacity accordingly, moving from low margin, high volume products to high margin, lower 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 base for future. Guidance for 2020 will be turnover around EUR 1,600,000,000.0 to EUR 1,700,000,000.0. EBITDA increased expectations in a year of EUR $295,000,000 to EUR 25,000,000. And I think we have to emphasize that we continue to see strong U. S. Development and positive sales of spatial energy products. TPV saw the revenue down with 5% to EUR $676,000,000, especially here we experienced soft demand from very large industrial customers across all markets. But then on the positive side, we had an impact on temporary close well, on the negative side, we also had temporary impact from close downs in some of our sites. EBITDA increased with 20,000,000 to EUR 62,000,000. Good impact from high efficiency and product mix, customer mix. Also, have to mention that in 2019, we didn't have a negative impact from PPA, about a bit of 20,000,000. During the quarter, we have continued with our investment program in efficiency and optimization. We have decided to implement a uniform and adapting execution system of all sizes, meaning we are now really getting two most companies to one company. We are also experiencing stronger demand and interest in backlog from the important medtech segments, meaning that the outlook for 2020 will be a turnover around EUR 2,700,000,000.0 in EBITDA at a level of EUR $230,000,000,000. And as I mentioned, expected cost impact from the Netsk segment. Fibers segment had a difficult Q2. Revenue was down 90% to EUR $458,000,000. We had two very large different segments and with a good side that we experienced good development in our very important wind turbine segment, whereas we saw a very soft demand from the last significant segment customers, especially in our CV solutions. The beta reduced from $64,000,000 to $46,000,000 Of course, a huge impact on negative a negative impact on lower sales. There have been a strong effort on cross cutting and efficiency utilization of capacity on all sites. Also, as mentioned in 'nineteen, we had a positive impact in Q2 of $6,000,000 from real estate sales. We have extended our warehouse facility in November. It's now in June, and we have decided to increase production capacity in China mainly to serve the expanding winter business out there. Outlook for 2020, turnover expected at EUR 1,800,000.0 EBITDA now, 160,000,000 to 180,000,000 wind with the P and P driver, and there are still some uncertainties on big related segments. So also note, also had a very difficult Q2, have to say, than they came out better than fear. Even revenue was reduced 20,000 to EUR 173,000,000. We saw demand from all major European markets was very low. Customers were closed down. And as we say, no cars will repair when there are no cars on the road. And that was really what we experienced, especially in South, Southern Europe and in UK. EBITDA was down from EUR 21,000,000 to 11,000,000. It could have been worse. We saw a really good impact from strong efforts on productivity and cross cutting across all functions. We have also received a positive effect on government schemes of EUR 1,000,000. Throughout the Q2, our factory in new equipment has been closed down, totally closed down for two months. Our Polish facility has been reduced to many. Good thing is now we see demand picking up, especially from last European customers. Outlook for 2020 will be a turnover of around EUR $850,000,000, albeit at the range of EUR 75,000,000 to EUR 85,000,000. Wrapping up, very strong Q2 development and better visibility. Our conformal strategy really shows 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. In doing that, our financial position is good, and we have a potential for seeking opportunities. We are also working hard on preparing our companies for what we call next normal looking starting to look into 2021. We are carrying our guidance back at the same level. The quarter is 2020. EBITDA, however, expected to be stronger than what we delivered in 2019. Strong expect really strong cash flow. But also, we have to mention that the COVID-nineteen 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. So 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 01 on your telephone keypad. Our first question comes from the line of Yelis Gilbo of Danske Bank. Please go ahead. Yeah. Hi. Good afternoon, Yance. I have three questions, and and and let's take them one by one. First of all, I I would like you to talk a little bit about how COVID nineteen is affecting the two five zero six companies. And by that, I mean, is the high capacity utilization you saw in Q2? Is that still going on here halfway through In your prepared statement, you talked about future opportunities in fiber to expand on drones. I think in the announcement, you're saying that on the other side of COVID-nineteen, you don't expect any impact on fiber Personal Care. But if you could talk a little bit about how COVID-nineteen will affect the two Fibrocix companies longer term, if at all? Yes. And so of course, on the phone, it's to really be sharp on, but we do expect that this positive effect will last for some time. We see changes in the way our last customers are thinking, meaning the supply chain will be different, which will provide volumes to us. Especially looking at Babitech Personal Care, we can see that the last customers really are eager to contract for 'twenty one, discussing 'twenty two, having a new approach to the suppliers and so on. So I think that's going to give us a positive effect and really continue to give a good volume for us. Margins and so on, we have discussed we haven't discussed yet, but we are quite positive on the opportunities. Looking at private sector loans, we have seen a total change from selling low margin, high volume products geared to external reserve, and then we have been working on for ten years to change moving on to added value functional products, and it has really happened now. And we see also that what is going on due to the COVID will continue. There will still be a lot of use of face mask materials, especially to your labs, etcetera. So we feel quite confident in that. And also, we have seen on May 9, a great tune in very important filtration segment. So we're quite confident on good opportunities in future. Okay. Could I should I understand the comments around five or six Personal Care as you are also then seeing an easing, what you said, price pressure from the customers, if they want to discuss already now for 2021 and 2022? To be honest, we have not been in really price discussions yet. We do not really see that. And we know when the glass volumes start to be really discussed, then once there is volume and optimization, but then the prices start. So I can't really say that we have seen that easily. I think we benefit from high efficiency due to capacity utilization and the way we can run our lines. Yes. Sure. Okay. Then if you could help me on Biomar and your guidance there because as I see, you're guiding for negative revenue growth in H2 or after having plus 9% in H1. So and also on EBITDA, you have an 18% EBITDA growth in H1, but are guiding from negative EBITDA growth in H2. You just explain how that comes about? I mean, as I think our EBITDA increased in Q2, could be precise But in more you're guiding for a negative growth in EBITDA in H2? So it's going to be Of H2, course, we expect that the volume will decline somewhere. We also expect some differences between the different segments and volume. And we have some segments with higher margin than others. And so where we see or expect to be a little bit affected will be in our high margin segments. So that's what we are looking to. And we also expect volume a little bit down due to maybe restricted feeding in Chile or restricted feeding in oil if they can't sell as much salmon as such. So that's part of our thinking that we see softer, not very much, but a softer, a little bit softer demand and then that changed from region to region. Okay. Makes sense. And then my last question is just really if you could give an update on your expected CapEx for 2020. I'm looking at this now. We had some of the we we think that we have postponed a few investments, but I think it's around $304,100,000,000. I think it's around 3 like that. But we are working on some of this. Fair enough. That will be all for me. Thank you very much. Okay. Sure. Thank you, Mr. Muhammad. Our next question comes from the line of Klaus Armer of Nordea. First of all, Jens, will you comment that Q2 was heavily impacted by COVID-nineteen? Then I almost say I hope it will continue for many years because there was quite a stellar performance you had in in q two. Obviously, with with this caveat that people should not be sick by COVID nineteen. One question regard lower revenue guidance for full year. How much of that is due to FX and raw materials? That will be the first question. Sorry, thank you for the comment also on COVID-nineteen. When I say in the 70s, was meaning that there was a lot of hard work going on to offset weak states as well. So it was really top of mind in all organization and management. But I agree, we were very satisfied with the outcome of it. Looking at the terminals, I think the most it is really raw material prices and FX that are impacting expectations to Germany. Okay. Then 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 NOK 25,000,000. Not traveling, we are not a company with a very, very large marketing and travel expense and so on. But just to make 10,000,000, 15,000,000 impact from these things. So let's say maybe also there's a NOK 40,000,000 or something like that, including stay rates instead of Okay. And then 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. But maybe I would argue it's not that impressive. You're increasing your use of supply chain financing. You have some duty postponement. You have lower revenue. And I know Biomar is pulling the wrong direction. But are you this is an old question, Jens, but are you satisfied by the cash flow, really? I think I said also in my remarks that net working capital was still room for improvement. So 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 bases. Australia, I'm pleased, but I'm not satisfied. Couldn't you actually say it's actually status quo. The things that has improved the cash flow in the quarter, it was, yes, one off and not really driven by the underlying improvements. Would that be a fair statement? I'm not it's not a fair statement, but it's only coming from there. But I I take your points that that is not only coming from these things. It's coming from hardware in Germany and and and focus on it. So, yeah. And Biomark, is this just due to mix? Or do we actually see an adverse trend in Biomark? It's a lot of people. It's moving volume from an oil and so that we have a huge sales in Norway with very, very short term in terms of the name to Ecuador, Chile, etcetera. It's a different oil and it is a huge market. Okay. Thank you so much, James. Thank you, James. Our next question comes from the line of Ulrik Back 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 was 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, very small compared to the rest. But you have to know also that the main volume was moved from UK to Tasmania. In crude level, it's not really new volume. It's just a move to Tasmania and now produced in Tasmania, meaning it's more profitable. So it's not significantly for the quarter, but it's changed, and it's important that we started it up in a good way. So volume wise, not very big impact. Positive impact on profitability, not big, but we have made losses, start up losses in the first quarter. And now we have got a level already in cash mainly. For the second half, it's difficult then to say we have a little bit better sales in UK than expected there. So yes, I think it won't offset that much because moving from just Energy UK, we need a little bit better margins but not volumes impact. So if I understand you correctly, the growth has majority of the growth has been from this new innovative product offering and customized products for your customers in Yeah. Is it in basically in Norway? No. Very good growth in Chile. We have been growing very low in Chile. Taking market share is a huge growth in Chile. Okay. Thank you. And second question. Your gross profit per kilo has been up over the past three quarters by 10% to 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 you're going to when we are talking about the geographical split, if you look at our EBITDA margins, so that I just have to elaborate a little bit, the EBITDA margin on BioMar is up for the second from 7.6 to 8.2. That's versus revenue if you take it versus volume. Yeah. But it's dependent on mix also. There's a lot on mix between the different segments there. There's really a lot on the mix and the contribution margin. So that's the movement between the different segments really gives that. Okay. Then my final question on Firewall. You mentioned something about less new fire releases could affect volumes in the future. So what is usually the time lag before a reduction in fire releases happens before biomass can kill it in terms of lower heat demand? Again, a very big difference on species. If you take summer, the circle of the period is around from eighteen to twenty two months. And but if you take shrimps, then a circle is maybe three months. So there, you can see a very fast impact if the shrimp business in, if at all, really suffered because of lower export or bandwidth brought to China, and then they can move very, very fast. Whereas salmon, it takes a long time. What they can do in salmon is more kind of a stupid feeding, as in feeding slower and make the salmon grow slower also. Chile is another ballgame because U. S. Is so important for Chile, and we have to see U. Recover. Thank you. Our next question comes from the line of Laurence Kiergaard of ABG Sundal Collier. Please go ahead. Hi, Jens and Casper, and 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 previously flagged that the legacy GPV perhaps had a softening time versus CCS. You talk about the sales development in the first half year and your assumptions for the second half year for those two businesses, please? Yes. As I said, we have seen a soft order intake from last industrials throughout Europe, both in the LGPB and also in CCS, meaning companies like ABB or Interior, whatever we could mention as the large industrial companies, then we have seen another increase and take up in the medtech, and that especially goes for the old CCS. And the expectation for second half is that the medtech will really improve, and we should also be able to offset the very soft not very soft issue, but the soft order intake and expectations for old industrial companies. So I think that's the way it's balanced, and it's very good that we have really strengthened ourselves into the new tech. That's really helped us this year. That's very clear. And for Hyprolispecma and Borg also, I mean, both of them have some exposure to the auto sales industry. And your included guidance, you find sort of similar negative sales development in the second half versus the first half and even slightly lower margins. Obviously, there's some seasonality there granted. But what's your assumptions behind sort of the auto industry for those two businesses? Because obviously, it's really volatile at the moment. But what I see is sort of 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? Yes, it is what we assume. Also, you look at the forward, they have delivered so far, they also need to have a very good second half. Normally, second half is a little slow, especially we have a December not that good. But we see sales picking up, and that has nothing to do with the ultimate industry of car sales. A bit more to do with the we need the cars out in the streets running because then they break down and then spare parts, etcetera. And we also need auto shops or the new cash shops to open up, and that's the expectations we have. And we see improved demand from the larger customers. Looking at Haifa, then it's more volatile because we are supplying what we call large vehicles, trucks, buses, etcetera, and also off highway equipment. It's more blurry, but we expect it to stabilize. We have seen a backlog creeping up a little bit. Okay. And then a question on BioMar. You talked in your report about out of home consumption, especially in terms of the shrimp business, which I believe has quite good margins than 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 U. S. Will stabilize more because it's such a big market for children's salmon. We have seen Europe picking up on the amount of other cream, peanuts, etcetera. So we expect it to stabilize, but we do not expect it really to increase a lot, but it's very important. But all you can just take a segment like the aviation or flight, business flight. If you go on a flight, a plane, normally, you will have a certain semantics and nobody's flying any longer. So of course, they need to find new ways to sell these summoned to the customers. So yes, it's something we are really looking to happen into. Okay. And just sort of an overall broad question. I mean, Skow is known to be sort of an M and A player. Is there any change of sentiment for any of the perhaps the acquisitions that you've been looking at previously? Or has this quarter been I understand there's been a 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 that maybe even could not supposed 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, we, 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 will be ready to take opportunities, and we are also willing to do Just to remind everyone, if you would like to ask a question, please press 01 on your telephone keypads. And there are no further questions at this time. Please go ahead, speakers. Thank you very much for listening and participating on this Friday afternoon with very warm summer event. Wish everybody a good evening. Thank you.