Ladies and gentlemen, welcome to the Schouw & Co. full Q1 2020 report. 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, and welcome to everyone to the presentation of our Q1 report. Q1 was for us, as expected, strong and delivered well in line with our long-term strategy. We did not see any significant impact from the global Corona crisis in Q1. However, it feels a bit strange to spend time on looking back when even the near future is uncertain and changed.
We will do it, and our revenue was up by 3% to DKK 4.8 billion. The continued strong development in BioMar gave a good revenue. We also experienced lower raw material prices, which had a negative revenue effect in Fibertex Personal Care. Our EBITDA increased 8% to DKK 434 million. Here we saw very strong development in both BioMar and Fibertex Nonwovens, whereas BORG Automotive, they really had a negative Corona impact on their EBITDA figures. We also delivered a strong cash flow from operations.
It's to an improvement to DKK 181 million for the quarter. We saw a solid effect from our continuous focus on net working capital, also there is still room for further development. We had CapEx of DKK 133 million, some DKK 50 million below Q1 last year. The actual Corona situation creates, of course, uncertainties, we have also acted. We have established a task force, we have also implemented an overall Corona strategy. All our companies, they are having solid plans to mitigate the impact and protect their earnings. We have a clear strategy saying people first, profit second. We have also secured our long-term liquidity and commitments with a DKK 1 billion committed facility enabled from Nordea and Danske Bank. We do not forget also to look at opportunities or look after opportunities in this difficult situation. We have the strength to do that.
The guidance for the company 2020 will still be suspended due to COVID, but we are still expecting to deliver decent profits. Our previous expected CapEx of around DKK 550-DKK 600 is most likely to be in the lower end. We will, of course, guide the market accordingly if and when we get more visibility. Let's take a look at each of our portfolio companies and start with BioMar. BioMar delivered their best first quarter ever. Revenue was up 11% to DKK 2.83 billion. Here we saw an 8% increase in volume to 270,000 tons. Especially our Salmon division has been a key driver for this growth, whereas EMEA and Latin divisions had a rather flat development. A lot of strong product concepts have really secured good positions at our key customers globally. BioMar's EBITDA increased very satisfactorily from DKK 132 million to DKK 159 million in the quarter.
We saw solid results across all divisions. Again, here we saw a positive EBITDA effect from both volume and also product mix. Our net working capital increased due to, among other things, a different geography spread. In Q1, we saw a positive start-up of our new factories in China and Romania. In spite of difficulties traveling to these countries, we started up, and the companies are producing in very high quality. We also had expected to continue our IPO discussions on our salmon business in Chile, Salmones Austral . That's put on hold. Just after the quarter finished, we signed an MOU with a Vietnamese company, Viet-Uc, to become a shareholder in the feed factory in Vietnam, well in line with our global shrimp feed strategy. Looking at the expectations for 2020, we can say that we still expect BioMar to deliver attractive profits.
It also has to be said that fish consumption, in especially the HORECA segment, that's restaurants, catering, flight businesses, and so on, is for the time being very low and hit by Corona. It may affect fish sales in general, and thereby also affect our customers financially, as well as their feed consumption. We will continue to have a strong focus on our customers' financial development in the coming year. Again, as I said, we still expect to deliver attractive profitability in BioMar in 2020. From BioMar to Fibertex Personal Care, where we could see the first quarter with a decreased revenue, it was only due to raw material prices of raw materials. We had a turnover of DKK 536 million. Our volume was up by 4%.
We experienced strong demand from all customer types, and we also had some interesting new opportunities in the medical segment, mainly for protective clothing. We saw effect from globally supply chains changing. EBITDA, same level as 2019, EBITDA of DKK 101 million. It's a satisfactory development as we in 2019 had very positive one-off effects on raw material and forex. We also experienced a very positive effect from strong capacity utilization in the quarter. During the quarter, we have seen our new print facility in U.S. running well and also being able to attract new customers in the quarter. Our three nonwoven factories, one in Aalborg in Denmark and two in Malaysia, they are now running at full capacity. It gives also a good reason for being much more specific on guidance at Fibertex Personal Care due to good visibility.
We expect the revenue to be unchanged, DKK 2.1 billion, but the EBITDA is now expected in a range of DKK 320 million-DKK 360 million. Of course, it's a strong positive effect from COVID caused demand from Fibertex Personal Care to Fibertex Nonwovens. Happily to announce that they had a very strong development in Q1, the best Q1 ever in Fibertex Nonwovens' history. They have been struggling for some years, and it's very positive to see this. Revenue was DKK 445 million. Our U.S. operation continues very good, strong development, whereas the important automotive segment really reduced the demand significantly, especially at the end of the quarter. We saw a positive increase in sales of materials to medical hygiene segment in the quarter.
EBITDA increased from DKK 39 million to DKK 54 million, and one of the things also was that we could see good effect from overall efficiency improvements in all operations, and then, of course, a changed product mix. In the quarter, we have been working hard on mitigating COVID effects. We have been downsizing our production capacity due to low demand from automotive segment, whereas we have been pursuing the strong demand from MedTech segment to build lasting businesses. Outlook for 2020 is, in spite of the crisis and the automotive negative outlook for the automotive segment, not too negative. We see a kind of a balance between the low automotive demand with demand from new segments. We expect to continue our strong development in U.S. However, we expect also EBITDA to be reduced slightly, but it could end up close to the bottom of our previous guidance.
From Fibertex Nonwovens to GPV. Here we experienced revenue down with 6% to DKK 718 million, and that was caused by rather slow demand from large industrial customers across markets. We also had or saw impact from temporary close down of important production sites, among other sites, our site in China and also our site at Sri Lanka. Our EBITDA was at 2019 level of DKK 46 million. Of course, effect from lower turnover and product mix. It also had to be said that we had in 2019, they had a negative effect of PPA of DKK 8 million. That should be taken into consideration also when looking at 2020. During the quarter, of course, a lot of efforts has been spent on mitigating the COVID effects. We have also, luckily wise, seen stronger demand from customers supplying the MedTech industry, and here we could foresee interesting new opportunities.
We still also have a very interesting project pipeline and large outsourcing cases to look at in GPV. 2020 outlook is blurry, due to uncertainties from our large industrial customers. We expect lower sales and thereby also reduced EBITDA. Q2 is expected to be hardest hit. Order backlog is not too bad, but we expect Q2 to be hit. Then, as I mentioned, we also see interesting opportunities arising in the MedTech segment, with supplies out of Switzerland and with good profitability. From there to HydraSpecma, where we had a revenue 4% down to DKK 530 million. StillWind segment business is a key driver for growth, have been performing well over the quarter. The soft demand we have seen from large customers from the vehicle segment continued also in Q1.
It also had to be mentioned that our two Chinese factories, they have been closed down for some time in the quarter. EBITDA was DKK 57 million, but with the EBITDA margin at 2019 level. We had, of course, a negative impact from lower sales, but then we saw a good effect from efficiency and investments we have been making over the year to increase productivity. Also, our factory footprint with production in low-cost countries is important. In the quarter, again, strong focus on adjusting the business to the current situation, especially in Sweden, where large Swedish industrial customers more or less closed down in March, April. We had to take a hit on that. We are building a new production facility in Gothenburg, and it's well on the way. We also had a successful CEO succession and a new management structure implemented during the quarter.
Outlook for 2020, quite blurry. However, we foresee continued good demand from our important wind segments. Large industrial OEMs will continue to show soft demand. We expect that to last full 2020. thereby, we of course expect lower sales and EBITDA in 2020. last, BORG Automotive, where we saw a flat revenue of DKK 232 million. In fact, we had a very strong start of the year. We were happy, and it was positive. Though now we are back in business, having defended our position in 2019. we have also seen an instant effect when most countries in Europe closed down. No cars on the road means no cars for service, and it has been very difficult to move products around in Europe also. BORG Automotive, by far the hardest Corona hit of our six companies. EBITDA fell from DKK 33 million to DKK 24 million.
Not all Corona related, but here we saw quite strong effect from government-imposed salary increases in Poland and also product mix with increased sales to OEM, meaning lower sales prices and margins as expected. During the quarter, of course, Borg and the management team has had full focus on how to mitigate this Corona situation. We have to say also that at the start of the crisis, it was really difficult to look into the situation. We have now a much better view on what to do, and we have reduced and downsized a lot of places. We've also been able to improve productivity in Poland a bit to offset our salary increases. Again, we are focusing a lot on adjusting production capacity and our supply chain.
That being said, outlook for 2020 is very uncertain and of course due to our main markets more or less are closed down. Still we expect to strengthen our market position when things opens up again by taking advantage of our size and our product range. We are looking into reduce cost base, but also in respect for being able to take in future opportunities. With this said, we expect sales and EBITDA to see a significant drop in 2020. Wrapping up. At Schouw, we have full focus now on protecting people and their profitability. We have a very clear Corona strategy with strong actions implemented in each company. We are also going to utilize strengths and position both short and long term. We have the willing to be bold if we see interesting opportunities arise in this difficult period here.
Outlook is blurry and uncertain. We think our conglomerate strategy now shows strength and spread risk. We expect in fact to deliver quite strong cash flow in 2020. As I said, profitability will be reduced, but we still expect it to be at a rather attractive level. We also say the world will normalize, but at what speed, we do not know, and that's why we still have suspended the guidance for 2020. With that being said, I will open up for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from the line of Jonas Guldborg of Danske Bank. Please go ahead. Your line is now open.
Thank you, good afternoon, Jens and Casper. I have three questions, I'll take them one by one. First of all, your net working capital in BioMar is up 50% year-on-year. You mentioned a lot of reasons for that in the report, I feel pretty confident that you are not satisfied with this level, which is more than 13% of revenue. Could you talk a little bit about how you see this develop for the rest of the year, what level relative to revenue you will be satisfied, so to speak?
Thank you for the question, Jonas. I'm sure you're right. We are not satisfied with that because you also know that we have a strong focus on net working capital. There is some geography in it also, meaning that we have more volume sold in markets where there are longer credit terms. We have also the utilization of supply chain financing has had an impact also in the quarter. We have our new implementation of a new setup in Norway where we are shareholder in a company called LetSea, and now we have to take the fish stock as inventory. That's also up. Of course, we have our build-up of a new factory in Tasmania, where we have produced a lot in U.K. to make a safety stock in Tasmania. It's tying up quite a lot of capital also.
These four things are key drivers. Of course, also we have the effect from taking over Alitec or our new company, in Chile, the joint venture. These things are main drivers. We expect the net working capital to be reduced over the year, and our objective is 10% net working capital of turnover. We have strong focus on it.
Do you expect to reach that by the end of this year, 10% revenue?
We do not expect that. It's our objective, but we see this year will also We face some customers asking for longer terms because they have still fish at sea and things like that. There, of course, we need to balance risk and outstandings and things like that. It's our objective.
Okay. my second question is on margins in BioMar. First of all, if you could put some color on what is driving the margin improvement in the quarter, and then also try a few comments to what is an attractive earnings level in BioMar for 2020. Is it 4% or 5% or 6% EBIT margin?
Of course, you know it's low season, meaning also that efficiency in the factories in some areas will be low. We have seen a margin improvement, also because we have more some of our segments in shrimps and so on, margins are different than in salmon. There's a species mix, and then there's also a product mix, added value product, things like that. We have had also interesting raw material positions in the quarter. We expect the EBIT margin, of course, to improve over the year, and we have an objective of 6% EBIT margin for BioMar. That's what we are looking into.
Okay. my last question is for GPV and Borg Automotive. If you could give us the growth rates for March and for April for these two companies, that would be very helpful in trying to model the coming quarter. also if you could put a number on the share of fixed operational costs versus variable costs in these two companies.
To be honest, I cannot be that specific. Maybe we can elaborate on that a little bit later, and maybe Casper can look into it. Of course, if you take GPV, it has been more soft demands over the quarter. It's not just end of or mid-March and so on. Whereas, Borg, really, I think, down to index 10% or 20% the last weeks of March. Without disclosing too much on April, I can say that the index in April for Borg was not as bad as we expected or feared.
I think we saw index between 60% and 70%, closer to the 70s. At a 70% index on turnover, whereas we expect May to be lower because there we really see the impact. That's as it is. GPV, more over the quarter. Of course, also now we expect May, June to be lower because we have delivered on our backlog, and the order intake has been lower for the coming months. You asked on, was it specific on costs, Jonas, or?
Yeah. How much is fixed and how much is variable in these two companies as a share?
Yeah, I think we could come a little bit back to that, but of course, fixed costs are not that big because component costs, especially in GPV, are very, very high, so. Let's come back on that.
Okay.
You cannot do a lot of things on fixed costs, to be honest.
No
in these companies. No. More to say it like that, it's not that you could say, "Okay, let's half the fixed cost, and then we will see a significant improvement." That's not possible.
No. Okay. Fair enough. Thank you very much for your answers.
Thank you.
Yeah. Thank you.
Thank you.
Our next question comes from the line of Claus Almer of Nordea. Please go ahead. Your line is open.
Thank you. Also a few questions from my side. Coming back to Jonas' question regarding how Q2 has started. My question is a bit broader. How have you seen Schouw group performing so far in Q2? That would be the first question.
To be honest, Claus, and thank you for the question. We have April and then a few days into May. to be honest, our FPC business, and we also, as expected, they have really been doing well. Fibertex Nonwovens, better than feared, because when I say feared, you always look into what is going to happen. they have been doing quite well. As I also said, both, a bit better than feared. BioMar, good and as expected. I don't really know about the GPV and HydraSpecma segment precisely, but not disasters for the first months here. far, April is not a disaster. We feel quite comfortable on that. We are a little bit more reluctant or hesitant when we are looking into May, June in some of the companies, because there we see backlog and orders and so on really reducing.
Excluding those being exposed to automotive, do you think, is it 20% revenue drop? Could it be 40%? I know this is the impossible question, but if we tried anyway to give some color to the magnitude.
Yes. Claus, I couldn't really hear what was the question specifically.
No, sorry. A bit more into Q2, and I know it's very difficult to give any exact answer, but in round numbers, do you think it was on group level? It is - 20%, it's - 50%? Your best guess.
Yeah, it's absolutely not - 50%. I have to say that. It will not be that. We will see things down, but again, it's a mixed bag of candy. As I said, the Fibertex Personal Care, they really had a strong April, without saying too much. As I said, the one who has been most hardest hit is Borg. They were index 70, will be lower in May and June, but we will not see a disaster. Not at all. BioMar, they are so large in our portfolio, and they are not looking into disaster either. They are working hard to try to keep volume at the level they expected. It doesn't look too bad.
Okay. Maybe keeping an eye on BioMar. When you have discussions with customers, what are they saying about volume, about their willingness to still buying high-value added products? That will be the second question.
Yeah, that's a good point, Claus. You could say, of course, also always in crisis like this, they will start to challenge value-added products. Not because they are not good, but they don't need to grow the fish as fast as they would before, because they have too much biomass standing at sea. they need to feed, so there will be more basic feeding. when you have a lot of fish at sea or a big biomass, then something could happen with diseases, things like that, and then they will have a use for that. it's for certain that they are, of course, more on, what should we say, traditional feed. they will have to feed. of course, if you look at it from segment to segment, you could say looking at South Europe, where Greece, Spain is big on farming bass and bream.
Majority, let's say 70%-80% of these fish, they are sold fresh, and they are sold to the restaurant business, most of it. You cannot freeze that fish down. Of course, that's something they are nervous, will consumption come again? I think in the salmon business, you would see they can freeze, they can do a lot of things, and they are quite smart in changing supply chains. They have a big marketing set up, more and more moving into the supermarket, private consumption. One that has really been a concern for us has been shrimp. Out of Ecuador. Ecuador is the largest exporter of the shrimp, high-quality shrimps to China. That stopped. No Chinese New Year, things like that. It's back nearly 90% consumption in China now. That's the broad perspective on it.
of course, some of the customers having fish at sea don't sell the volume as expected. They can be a little challenged on liquidity. there we have to really carefully look at that and balance that.
Okay. just my final question. That's about this wording guidance you gave in the report. Maybe you can try to explain what is behind this guidance.
Yes.
Is it the normal input from the different managers, and then you are putting the Schouw & Co filter on top of that? How are we really-
Yeah, it's a kind of a combination. Sorry.
That's okay.
It's kind of a combination, Claus. Yeah.
A combination. What do you mean by that?
No, I mean, of course, when you said, is there a normal Schouw & Co filter on that? That's why we are here. We are collecting all the numbers. We're discussing it with the CEOs, and of course, we have our view on things also. Of course, we take a lot into consideration what's coming from each company. Just to be specific on it, you could say, why do we continue to suspend guidance? Because still there's a lot of speculations. We don't know if things will open up next week or what will happen and things like that. That's why we're saying, when we don't know more about what's going on the political side, then we cannot be more specific. Still, we have a flavor.
Looking into BioMar, when we are saying that we are still expecting attractive level EBITDA, it will be challenged, meaning that because our customers are challenged, then of course, they'll challenge us, and so we will fight back, and we'll see if we can defend our EBITDA position or even our original guidance. of course, there will be challenges around it. We do not expect BioMar to be hard hit. you take FPC, no reason to comment on that. That's a clear figure. If you take Fibertex and nonwovens, we expect them really to We can see it. They are stepping up on added value products, on nano for protective clothing, masks, et cetera. That will compensate a lot. we have GPV, where we're seeing a little bit under the expected first guidance because we think they can compensate something from MedTech, new customers.
We have HydraSpecma , where we're seeing quite a bit, or not quite, but some below the expected guidance because the entire heavy vehicle construction segment is down a lot. We have wind to compensate that. Well, to be honest, very difficult to say anything about because, a small garage at our main markets, U.K., France, Spain, Italy, closed down. When do they open up again? That will be speculations. That's kind of flavor, Claus, on that.
That is very helpful. Thank you so much, Jens.
Good. Thank you.
Thank you. Our next question comes from the line of Ulrik Bak of SEB. Please go ahead. Your line is now open.
Yes. Good afternoon, Jens. Just a couple of questions from my side. In your guidance for BioMar, you seem more confident that the revenue will be close to the original revenue guidance at DKK 12 billion. You seem to be more confident than on EBITDA, where you say that you will be lower, probably. Can you please elaborate a bit on that? Is it because you assume the same volumes and less profitability, or how do you look at that?
Yeah, more or less you would say, because as we discussed previously, I think some customers will change their feeding machine, meaning they are not too eager on functional feed because then the fish might grow too fast, and they can't sell it and so on. Profitability on some of our functional feed is a bit higher. That can maybe be offset a little bit by medicated feed or things like that. That's the rationale behind. Also geographical spreads where some of our maybe more profitable smaller segments are a little bit challenged compared to the larger ones. That's the way we see it.
Okay. Also another question for BioMar. You alluded a bit to it earlier, but have you seen a drastic change in customer demand between mid-March, when the COVID-19 pandemic really kicked off, and now when adjusting for the normal seasonal swings, and in particular in the salmon division, which showed very strong volume growth in Q1?
We haven't. What we have seen is that contract negotiations might be postponed because customers are not doing that for the time being. They are sticking to their normal suppliers, et cetera. There's been a little bit around that, but we have not seen big volume changes. Not yet. No.
just, can you remind me how much more capacity you have in Q2 this year compared to Q2 last year as a percent?
In Chile, even we have taken over the joint venture. No more capacity. Sold out. Norway, it's a seasonal capacity, but you could say in Norway we have capacity to maybe run 60,000-80,000 tons more annually based. Yeah.
Okay.
Some of the other smaller countries, we do not have much capacity.
Okay. A final question on Fibertex Personal Care. You increase your guidance on EBITDA. How much of this guidance increase is due to FX and raw material working in your favor?
Nothing. It's only on volume and product mix based on a level index on raw materials. We have not taken that into consideration.
On Fibertex Nonwovens, you report a very strong EBITDA margin for Q1. Can you just put a few words on that performance, and can this level be sustained in Q2 despite low activity in the automotive sector?
I think it can be more or less sustained as of the margins in the new products. It can, but it's depending on how much sale will we lose to the automotive segment. The index for April, or for May, sorry for that, was not encouraging. We had the other businesses quite promising. I think the volume we are getting from the new businesses, they have very attractive margins compared to the automotive.
Okay. Thank you.
Thank you. Just to remind you, 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, speaker.
Okay. Thank you very much. Thank you for listening to this report in these difficult times. I wish all of you a good small holiday. Weather seems to be good. Thank you for that. Bye.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.