Ladies and gentlemen, welcome to the Schouw & Co. Q3 Interim Report 2019. Today, I'm pleased to present CEO, Jens Bjerg Sørensen. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Jens, please begin.
Thank you very much. Welcome to everyone to our Q3 presentation. First of all, also, sorry for small delay. There was a technical issue, but I'll continue from that. Welcome again. We have seen continued high activity level all over our companies despite soft markets, and we see it as a very solid and very satisfactory quarter. Our revenue was up by 17% to DKK 5.9 billion. We saw a combination of both organic and acquisitive growth. Our organic growth was at a satisfactory level of 80%. Our EBITDA increased from DKK 445 million to DKK 621 million. If we adjust for a positive effect from the IFRS 16 of DKK 52 million, then our EBITDA increased by 28%, which we think is very satisfactory. We had a few one-off costs also that had a negative effect. Cash flow from operations improved to DKK 724 million.
We see the effect of our ongoing net working capital focus, and it is on top of the management agenda in all our businesses. Our return of invested capital is below our target, it's at 12.8%. Here, of course, we see effect from acquisitions and the strong investments program we have been running in the last years in the company. The guidance for 2019 is adjusted with a small positive adjustment. Revenue is now expected around DKK 20.7 billion and the EBITDA now expected in a range of DKK 1,865 million-DKK 1,955 million. We have to say it's most likely that we end in the upper end of that range. There is a positive effect on the EBITDA from IFRS of DKK 205 million. That was the general comments.
Now I'll move into each of our companies in portfolio, starting with the BioMar Q3, where we had a revenue of DKK 3.4 billion, volume up 3% to 379,000 tons. We saw a good development across all markets, but especially our EMEA division and Chile showing a very good growth. EBITDA was up from DKK 246 million to DKK 345 million, adjusted for IFRS 16. We saw an impressive growth of 27%. As I mentioned, also a good development in all our divisions. It's especially very positive to see that the Norwegian market or our Norwegian company is now in a very good development, and we see the effect from our changed market approach. Looking a little bit into a few highlights from Q3. We have also to say that the farming conditions in general have been good.
We have had good success with selling functional feeds and concepts in nearly all markets, and also we see a good development in the three large expansion projects we have in Denmark, in Ecuador and in Tasmania. We have also mentioned that we see a potential IPO of Chilean Salmon Farmers, known as Australis, probably in 2020. BioMar holds 23% as a non-strategic ownership and the listing platform gives, of course, easier opportunity to potentially exit this holding. Guidance for 2019 adjusted upwards to turnover around DKK 11 billion. EBITDA now in a range from DKK 900 million-DKK 930 million. We expect it in the high end of the range. We have a very good comfort on this guidance. We have to say also that there is a large IFRS 16 effect of around DKK 130 million in this guidance. From BioMar to Fibertex Personal Care. Revenue was flat, DKK 541 million.
Volume also flat due to continued slowdown in Asia, where we see some of our larger global branded customers losing market share in China. EBITDA increased, however, 25% to DKK 93 million. We've had a positive effect in Q3 from raw materials and from ForEx of around DKK 40 million. Also we faced, as expected, start-up cost of our new print facility in U.S. of DKK 10 million in the quarter. Year to date, we have had a negative effect of DKK 9 million. Still see fierce competition in Europe and the new market dynamics in Asia. We also saw a lower market capacity, production capacity in Europe following that one of our competitors has temporarily had to close a factory down. Q3 highlights could be mentioned that we have had a very strong cash flow. It continues.
We've also had a good focus on developing niche and high-value products. We have had a good start of our U.S. print facility. We see good value in what we call post-treatment applications like print. Guidance for 2019 increased turnover around DKK 2.3 billion. EBITDA raised to DKK 330 million-DKK 350 million. Also here we see good comfort for the year. Fibertex Nonwovens had a good revenue increase of 17% in the quarter to DKK 437 million. Especially, we saw a very good and positive development in our U.S. operation. Europe in general, see more softer demand, specifically from the automotive segment. Although EBITDA also increased 17% to DKK 47 million. We have to say also that we had a good development in raw material prices, which of course had a direct effect on our contribution margin.
Also here we saw strong sales of added-value products and concepts, something we have been working on for quite a long time. Q3, we also took a decision on moving one of two production lines from South Africa, to U.S., because U.S. is expanding and showing strong development. We have adjusted our capacity costs, and we have also seen, and we are very satisfied with that, many interesting requests on materials from our new nano line. The 2019 guidance is narrowed. Sales outlook maintained, DKK 1.6 billion-DKK 1.7 billion. EBITDA in a range now from DKK 155 million-DKK 165 million due to softer demand, specifically in the automotive segment. We know that this segment is reducing stocks and things last quarter of the year. From Fibertex Nonwovens to GPV. Revenue of DKK 741 million, full effect from the acquisition of Swiss CCS.
We saw softer demand in some of what we call the old GPV segments. EBITDA was up from DKK 37 million to DKK 56 million, which we think is a satisfactory development. Integration between GPV and CCS is ongoing. What we call the old GPV had DKK 18 million in EBITDA in Q3, and as I said, was challenged in some of its segments, but also challenged specifically from currency, Thai baht and U.S. dollars, which had a negative impact of at least DKK 5 million in the quarter. Year to date, we see a negative effect of minus DKK 15 million in the period. Then also in Q3, we saw around DKK 5 million in integration costs. What we call integration phase one has been very successful. Integration phase one is on market, it's on customers, well implemented, and also on the organization. Next phase will be on factory and supply chain footprint.
We still see a very attractive customer pipeline, project pipeline. Our Mexican operation continued to show progress, but it's still a loss-making unit. 2019 guidance maintained, turnover around DKK 2.7 billion. EBITDA in the range now from DKK 190 million-DKK 200 million. We say that it's due to negative effect from currency, but it's compensated by lower integration costs. HydraSpecma had a revenue increase 9% to DKK 494 million. The high activity level that we have seen throughout the year continues, mainly driven by wind turbine and what we call stationary material segments. EBITDA increased to DKK 53 million, and even adjusted for IFRS 16, it was 38% up, mainly due to high sales, strong productivity, and efficiency, and meaning also that we can run our capacity nearly to its maximum. We have continued focus on optimizing factory and logistic footprints.
We have decided and announced building a new facility outside Göteborg, and we are investing continuously in optimization and in automation. The guidance of turnover expected around DKK 2.1 billion. We had to take our EBITDA guidance a little bit back to the first 2019 guidance of DKK 210 million-DKK 220 million, specifically due to a slowdown in the automotive or stationary material segment. We see currently significant inventory adjustments from some of our key customers. We have a strong focus on reducing working capital. Of course, global footprint and global presence increase inventories. Last company in the portfolio, but not least, BORG Automotive. Good to see that their revenue was up 12% to DKK 258 million. We saw soft demand for nearly 10 months now, but now we see the market is normalizing, and it starts to grow slowly, but it starts to grow.
We have, end of that period, maintained our strong market position. EBITDA increases 46% to DKK 32 million, of course, it's a positive effect from sales picking up, but also due to very strong cost control and production efficiency. We have continued to focus on expanding and developing our product program so we can have a larger size of share of wallet from our large customers. We have closed down the R&D facility in Belgium. It's now finalized. 2019 guidance maintains turnover of around DKK 900 million and EBITDA unchanged in the range from DKK 110 million-120 million. Also, I have to say that Brexit is still a concern, but obvious now, no impact of significance in 2019, but it's something that we are concerned about. Wrapping everything up, 2019 is closing up, and we have a good comfort on delivering on the year.
Revenue, as I said, around DKK 20.7 billion. Guidance EBITDA narrowed DKK 1.865 billion-DKK 1.955 billion, which we expect to deliver in the upper end of that range. Cash flow and net working capital is, of course, still top of mind in all our companies. I have to say that in 2019, we will finalize most of our very ambitious investment program, and we will, moving into 2020, have focus on profitable utilizing our capacity. We're still investing, at a much slower level. We are now preparing all our companies for a more challenging 2020, still with a lot of opportunities. We have some companies that are seeing slower software demand, also companies that, to a limited degree, are affected by global economy. All in all, expected to end 2019 on a good note and then looking into 2020, where we are preparing for whatever comes.
With that, I will hand over to questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. Our first question comes from the line of Jonas Guldborg Hansen from Danske Bank. Please go ahead.
Yes, good afternoon, all. Let me start, pick up on the cash flow side. Very good execution here in Q3. I would just like to hear how convinced are you that you have broken the trend now, and from here we will see a continued improvement in net working capital and thereby in cash flow? As a follow-up to that, maybe you could just remind us what you expect CapEx to be in 2019, and maybe also to what extent that will decline in 2020. Then lastly, if you could put some more words on the development in BioMar associated companies in China and Turkey. Revenue is down 15% and EBITDA down 40%. What exactly is happening there?
Thank you very much, Jonas, for the questions. Let me start, of course, with the first question on cash flow. It's not to say very, but I am very convinced that we are on a good track, and you will see strong cash flow the coming years, mainly because we have a really strong focus on net working capital, but also on our CapEx utilization of whatever we have invested in. We expect to continue this positive development also into 2020. Had a very good comfort on that. CapEx in 2019, I don't have the figure 100% here. It's coming in a few seconds, but I can tell you that in 2020, CapEx will be significantly lower than in 2019, where I think the only really the larger CapEx investment we have in 2020 is installing the South African line for fabrication of wings.
In the U.S., we will have to build and so on, but it's not that big. Looking into BioMar's, you could say the JVs, there are two things in the JVs. First of all, also Cellnex, our star, have had a smaller profit in so far this year, not much, but they have had. We have in Turkey slowed down a little bit due to debtor risk. The economy in Turkey have been a little bit challenged, we have stopped for some supplying some customers because we don't want to take the debtor risk. China factory has not been up and running as expected, been a little bit difficulties in importing from Denmark. Also in the southern part of China, we have been more cautious on credits and debtors. That's the rationale behind that. Okay. Yeah. Okay, sorry.
That's just a follow-up on China and the development there. Do you expect, or do you see any positive impact from the African swine fever out there?
What we see effect, we also expect that there will be a more stronger demand on functional feeds and so on definitely in future. We will see that. Also when we get our factory up and running, expect to really run extruders end this month, beginning next month. Then we'll be able really to supply the market with high-quality feed, which is a strong demand for.
Okay. Did Kasper find the CapEx number for 2019?
Kasper.
800, including all the investments.
Thank you very much, sir.
Okay. Thank you.
The next question comes from the line of Laurits Kjaergaard from ABG. Please go ahead.
Thank you very much, and good afternoon to everyone. I would like to start in the other end, looking at the BORG Automotive there. You experienced a soft demand in the past 10 months, and I feel like it was a little bit difficult to explain what was actually happening there, if it was inventory reductions or what was happening. Now it seems that this position is turning around a little bit. Do you have more insight to what was happening and what was the reason for this soft demand?
It has been blurry, to be honest. We have asked markets, we have asked customers, et cetera, even also heard rumors from competitors that it has been soft due to inventory, a lot of different things. Now it's started coming back, and also as we have said, it's spare parts and the car has to run, and at a certain point, you need to replace these spare parts. Yeah, we have really been searching for it, but we have seen inventories being brought down, definitely. Also one thing, there's been some consolidations going on in this business, and we think these consolidations also have had that people have looked more carefully on their inventories.
Okay, fair enough. Looking at the BioMar, we saw that Bakkafrost acquired The Scottish Salmon Company there, which is one of your customer. As far as I remember, you have sort of a contract expiring in the end of 2021. Any insights to this acquisition and to what we can expect in the market? Obviously Bakkafrost, they sort of produce their own feed for their salmon. Any thoughts?
Of course, it's a new situation. As you also said, we have a contract running for Scottish Salmon Company, and yeah, we hope they will honor that. We supply quality feed and yeah. To be honest, we don't know yet because Bakkafrost is first taking over now and maybe, of course, they supply feed from Faroe Islands, but it's also very, very complicated to supply because there's a lot of small sites in Scotland. Let's see what's going to happen. Of course, we think we can compete in the market and maybe also we can supply some of these sites still. We have to see.
Okay, that's very clear. One last question, Fibertex Nonwovens , you conducted this strategic review, which you discussed in your introduction in the first half. I think this is the first time we've actually heard of some tangible plan from this review. Could you give some insights to what other things that you're looking at more specifically?
Of course, as I think most of you have also asked us on South Africa and what are we doing, and now we have here reshuffling capacity, moving it to the U.S. market was part of the plan. Closing down on costs and things in South Africa. We have been looking a lot into our product portfolio. We are in a lot of different segments. I also think we elaborated a little bit on that we are pruning our product portfolio. Looking into the low-margin products, we are stepping out of some of them over some time now, moving more into advanced products. We are reshuffling capacity, closing down lines in some factories, moving to what we call best cost location, et cetera. A lot of things is going on.
It seems like this is only the beginning, then.
Yeah. We have a very solid or strong objective on improving return on invested capital from the very low level it is at now and then up around 12%. A lot of things has to materialize to reach that objective, and we feel rather confident on that.
Okay. That's very clear. Thank you for taking my questions.
Thank you very much.
The next question comes from the line of Claus Almer from Nordea. Please go ahead.
Thank you. Yeah, also a few question from my side. The first will go to BioMar. In the report, Jens, I'm not sure if that was you who wrote it, but at least it is mentioned that BioMar will defend its market share. I guess that's a kind of a different wording than you said previously this year. How should we think about that?
Yeah. I think you should think about it on a more differentiated way, saying that we have a very, very clear strategy in Norway. Saying that we are going for profit instead of volume. We have succeeded quite well on that, we are going to continue doing that. Of course, now we have a customer base that is different from what we had before, meaning, of course, we need to defend our customer base, still with profitability as objective number 1. Looking in other markets where we are very strong, where we have decided that if something happens, we defend our market share. It could be in Greece, it could be in our shrimp business, et cetera, where we have some large customer bases we are defending the same. In Norway, we are continuing to pursue the strategy we made early this year.
By this different strategy, I thought, BioMar was going to act more rational, something this industry probably needs. It only goes for Norway.
Not at all, no. I think you interpreted it a little bit wrong, because of course, we are in a growth industry in certain markets, but there are many ways of defending our markets. Suffering and letting profitability go, it's not first objective. Of course, there's a balance. How can you utilize your capacity, et cetera? I think maybe it's, to you, and that's good you're asking, maybe it's too strong a word. We are not going blindfolded into a fierce competition on volume and so on. We have tried that. We have been there.
Okay, good. The second question about BioMar. In the emerging markets, you reported a volume decline. Emerging markets is including Ecuador, where growth should be pretty solid. Is it China that is declining that much, or is it Costa Rica, or what's behind this negative trend?
Yeah. China has been declining a little bit, as I also said that we have decided not taking debt or risk. We saw that there were too many customers where we had too large outstandings, et cetera. We have been rather tough on that. Costa Rica, we have also decided on a few customers and so on. In general, our large markets, we have not seen a volume declining. In some areas, we have decided not to go for volume because risk was too big.
Those markets are actually larger than the growth you saw in Ecuador. This must be the case.
That I didn't really get, to be honest.
Sorry. You must have had, given the size of Ecuador, where you also have decent volume growth, I'm slightly surprised that these smaller markets can eat all of the volume growth in Ecuador and dragging down the whole region of emerging markets.
Yeah, you have to say, I'm not quite sure what you're writing 100%, to be honest, because we have
You're writing that you're seeing a negative volume growth in emerging markets.
There you are suggesting that Ecuador is going down. Are you seeing a flat or a-?
No. Jens, the other way around. I'm saying that Ecuador should hopefully be growing nicely, as we've seen in the past. If the region is declining despite the positive trend in Ecuador, then other markets must be performing poorly. I'm surprised that Costa Rica and China should be enough to crack down the positive performance in Ecuador.
Yeah, if you say the positive growth in Ecuador, then you expect that it's a two-digit growth that we are having. Of course, Ecuador is not that big and it's rather big volumes coming out of China. China and Costa Rica have seen a small setback, but Ecuador is not going back.
Okay. Thanks. Coming back to Jonas' question regarding working capital, maybe I'm not as impressed as Jonas about the working capital performance. Nevertheless, I know, Jens, this is a key KPI for you, a personal job to bring down working capital. Are you satisfied by the performance so far this year, or how should we really think about how working capital is trending?
I think you should think about it that there's still a way to go, and we are not satisfied because we have a higher target. We see a very good trend, and we are pleased with that good trend we see. I think also you will see that a net working capital objective and cash flow, so there's also something running into 2020. It is, and I think I said it also in first quarter, that it is something I'm really putting a personal focus on. There's still a lot to do. We are on a good development. We cannot sleep satisfied. Definitely.
No. Okay. Just finally, did you mention a CapEx number for 2020?
No, we didn't, because we are mentioning it when we are coming out with our 2020 guidance. I said one thing, that was significantly lower than 2019.
Okay, good. Thank you so much.
Thank you very much.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. The next question comes from the line of Ulrik Bak from SEB. Please go ahead.
Yes. Hello, Jens. Also a few questions from my side.
Yeah.
First one is regarding BioMar, where the EBITDA margin has been 10% for Q3, EBIT margin 8%, which is a significant improvement from previous Q3s. Of course, there is this IFRS 16 effect, I was just wondering whether this is a new normal, a new plateau that we could see in the future.
We are aiming for that, definitely. You are right that there is IFRS 16 effect coming from the leasing of charter boats, especially in Norway. Now we have this level, and we are aiming of maintaining that definitely, yes.
I remember Kasper at one saying that a target of 6% EBIT margin. This 8% in that view, I think it seems quite high. Could you comment on that?
Yeah. Now you are commenting on also, we have had a very strong Q, and you have to see BioMar over the whole year. Of course, if you're looking at this quarter here, we have a good EBITDA margin of 8.3%, but if we take EBIT, it's 5.4%. We're still some way up to the 6%. We are aiming for that, and there's still a way to go. Depending on segments, geographies, et cetera, but we are tracking quite well on that.
All right, thanks. Then to the revenue growth of South Salmon division of almost 30%. Can you please elaborate on the underlying drivers for this increase?
Yeah, easily. We took over the 50% owned JV we had with AquaChile, and that's why now we run 100% of this capacity, and it goes in on our EBIT line. That's in our journal. That's why.
Okay. One last final question on, in the report you mentioned that the salmon market is growing moderately and the shrimp market is accelerating growth. Can you put more specific numbers on these terms, moderate and accelerating?
That's difficult. If you look at the salmon, you also have to look at it from both a regional and a global perspective. Chile is growing. We have the unrest in Chile, what's happening there. If you're looking at Norway, you can see it has been growing quite good this year with, I think it's around 4%-5% up. Shrimps more. Ecuador growing maybe at the lower end of 9% or something like that. Maybe shrimp could be around a double-digit growth in future, that remains to be seen. There is a difference between the two. Shrimps are growing more.
Okay, thank you. No further question from my side.
Thank you.
As there are no further questions, I'll hand it back to the speakers.
Okay. Thank you very much for questions. Thank you for listening, and goodbye from Schouw & Co.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.