Hello, welcome to the Schouw & Co. first half 2019 interim report call. Today, I'm pleased to present CEO, Jens Bjerg Sørensen, and for the first part of this, all participants will be in listen only mode, and after, there'll be a question and answer session. Mr. Sørensen, please begin.
Thank you very much. Also a warm welcome to everyone from here to the Q2 presentation for the Schouw & Co. We saw at Schouw & Co. high activity level also in the Q2, despite the softer markets around us. Our revenue was up by 10% to close to DKK 5 billion. The increase was mainly coming from GPV's acquisition of CCS, meaning acquisitive growth. In general, we can say, looking out in the market, we have good and long-term strong market positions, in fact, in all our companies. Our EBITDA increased 5% to DKK 490 million. We have also to mention here that we saw a positive effect from IFRS 16 of DKK 51 million.
In this EBITDA figure also, we had some one-off costs and PPA regulations as well, which materialized upon EBITDA and which of course had a negative effect of around DKK 25 million. Positive was cash flow from operations improved to DKK 128 million. We have, as some of you may remember, a net working capital focus ongoing in the company, but we also have seen that the balance of customer mix and geography has changed a little bit over the quarter. Cash flow, net working capital is on top of the management agenda in all businesses, and we expect good things to come in the second half. Our return on invested capital was reduced to 12.4%, and here especially, we saw an effect from our acquisitions and a very strong investments program where invested capital increased immediately, but it takes time for profit to show. Guidance for 2019 is slightly up.
Our revenue is now expected to grow to DKK 20.5 billion, and our EBITDA will now be seen or expected in the range of DKK 1.85 million-DKK 1.985 million. We have a good feeling for that. We also have to mention that in this guidance, there will be a positive effect from IFRS of around DKK 200 million. From a general view to drilling down to each of our companies, I will start with BioMar, where we saw a flat revenue of DKK 2.5 billion, volume at 2018 level, which was expected. We had 285,000 tons. We saw lower volume in Norway, which also was expected because we didn't gain the last Lerøy contract, and it stopped in Q2. We have seen a good development in all other BioMar sectors. EBITDA was up from DKK 174 million -DKK 191 million Also here, positive effect from IFRS, flat underlying development.
However, we also have to mention here that last year we had an income from our company in Norway, LetSea, of DKK 30 million, which we didn't see in Q2. Salmon division, in fact, delivered quite strong results. Norway, much better than expected, but as expected below last year. As I mentioned from the start of it was due to a loss of our Lerøy contract. During Q2, we got 100% control of our Chilean joint venture, which resulted in a DKK 29 million accounting gain on equity divestments. We reorganized Norway. The entire setup and structure in Norway has shown us a very good development. Margins have improved, and I think we have seen a much better customer balance also on the long term in Norway. We have a good progress on capacity investments. We are building a new factory in Tasmania.
Of course, that will significantly impact the CapEx in 2019 with about DKK 200 million. Guidance for BioMar is increased. We expect now a turnover of around DKK 10.8 billion. EBITDA is increased and received now in a range from DKK 870 million-DKK 930 million. We have to mention also here that there is an IFRS 16 effect, unchanged from the last guidance of around DKK 130 million. Also, everyone has to bear in mind that second half is always very important for BioMar, but we feel that we stand on good and balanced contract situation for the coming half year for BioMar. Turning to Fibertex Personal Care, revenue here was up 4% to DKK 506 million. We saw a flat volume due to continued slow demand in Asia as demand specific goes on the global brands are suffering in China, meaning they are not requiring same amount of material from Fibertex Personal Care.
EBITDA was flat at DKK 72 million. A small negative effect from raw materials, but that has been compensated by a positive effect from Forex. We have had, in the quarter, startup costs of our new print facility of around DKK 4 million. We still see quite fierce competition in Europe, which we expect will continue. We set that off by increasing our sales of what we call value-added products, softer products with a lot of specialty functions. During Q2, we have been seeing our new U.S. print facility positive development. First commercial printing is out of the factory. It's been going quite well, and also we have kept our focus on developing a niche and high-value product specifically for the European market. Guidance for 2019 will be maintained. Turnover around DKK 2.3 billion. EBITDA expected in a range of DKK 220 million-DKK 240 million as also first guidance we gave.
From Fibertex Personal Care to Fibertex Nonwovens. Here we saw a revenue increase 6% to DKK 443 million. We have seen very good and positive development in our U.S. operation, and it's a good sign because we are investing a lot in the U.S. market. In Europe, we continue to see effect from slightly softer demand. EBITDA was down quite a lot from DKK 52 million to DKK 38 million. Here we saw in the quarter still some negative effect from raw materials positions taken in 2018, but we are out of these contracts now. Unfortunately, we also had some import duty just coming up in Brazil that hit our quarter with DKK 2 million. Then we had some one off costs relating to a strategic review and a restructuring of our set up in India of DKK 7 million.
If you look at EBITDA in general, there's been a lot of unexpected and one-off things going on in that quarter. Looking at the highlights from the quarter, we have our acquisition of our new U.S. factory. The integration is going quite well. I think it's operating even better than expected. We have also done a strategic review, as mentioned earlier, on Fibertex Nonwovens. This review has been finalized, and it was started up to find a way or to see if we could significantly improve profit and return on invested capital in Fibertex Nonwovens, something we have had on our agenda for quite a while. The review found interesting things and also gave us a belief on a long-term profitable way for Fibertex Nonwovens. A strong roadmap has been built. Nine strategic initiatives launched.
Among that, pruning of segments and product mix, but overall also we see ways to find long-term growth for this company. We are going to put much more efforts in growing our ultrafiltration and high-value segments, and also growing more in what we call our good geographies. U.S. has consistently operating with an EBIT margin of +10%. We have a plan for adjustment of capacity and cost reductions, and we expect to see effects from 2020 and onwards. We have now really put on a lot of strong strategic initiatives, and we really expect that this will change the long-term outlook for this company. Looking at 2019, we lower our guidance, especially because of a weak first half and also with the mentioned one-off costs.
Due to first half, we lower EBITDA, and it's now in a range of DKK 150 million-DKK 175 million, meaning also that we maintain sales outlook for second half. Looking at GPV, we saw a revenue of DKK 740 million for the quarter. It doesn't make any sense to try to look at what happened last year because GPV is a totally different company. Now with the acquisition of CCS, a Swiss EMS company, and CCS came with around DKK 400 million of year balance in the revenue. We have seen softer demands from some specific segments, but also encouraging order intake from other segments. EBITDA was up from DKK 24 million last year to DKK 42 million, which we think is satisfactory with the ongoing integration.
We have to mention that what we call the old GPV, they delivered DKK 21 million of out of these DKK 42 million, and there we saw in the quarter quite a negative effect from back, at the time, currency to U.S. negative of around DKK 5 million. We also had integration costs and PPA of around DKK 10 million affecting the EBITDA. Integration is running very well. We have now focused on market and customers. Next step will be factory and supply chain footprint, where a lot of analysis are going on. We still have a very attractive product and customer pipeline. Also important in Q2 is that our Mexican operation continued to show good progress, delivering better quarter month-by-month. Still loss-giving, but delivering better than we planned. 2019 guidance is maintained, EBITDA in the range of DKK 190 million-DKK 210 million.
Here we also have to mention that we have one-off restructuring integration and PPA cost of around DKK 50 million included in this guidance. From there to HydraSpecma, where we have seen a very good development. Revenue as expected, DKK 565 million, mainly driven by strong sentiment and momentum in the wind turbine segment, also in what we call the moving materials segment. EBITDA increased 33% to DKK 64 million. Here, positive effect from IFRS and profit from sales of wheel instead of braking minimum. We also now see productivity and efficiency at a very high level in HydraSpecma. They are stretching their capabilities because of high sales. We have started up a new 3,000 sq m logistics center in Finland. Our new Polish factory shows good development and very interesting also now the production of hydraulic units for wind turbines in China is in very good progress.
2019 guidance increased, turnover expected around DKK 2.1 billion, with EBITDA now in a range of DKK 220 million-DKK 240 million. We have also to say that we have strong focus on reducing our net working capital. Global footprint and global trends increase inventories for a period. Last company in the portfolio and the newest company also, Borg Automotive. Revenue was unfortunately 14% down to DKK 232 million. All over Europe, we have seen soft markets the last six to eight months, continued in Q2. Especially the OEM/ OES segment has suffered most. It's general trends that we have seen all over. In fact, we have kept market shares and not lost any customers during these months. EBITDA down from DKK 41 million to DKK 21 million, which of course is unsatisfactory. We also have to see here that, of course, there's a clear effect from low volume.
We have also taken some cost restructuring, one-off cost closing down a facility in Belgium, one-off cost of DKK 7 million not included in our expectations. We have been much more cautious on core regulation and sales bonuses. Comparing 2018- 2019, we are much more cautious on a lot of things and also now we have learned the company better and know how the season and the year is rolling in that company. Q2 highlights, we have been streamlining and restructuring our Belgium setup. As I said, 28, 30 FTEs have been out. We have strong cost and contingency plans, scaling down on FTEs in Poland. Started up new machining facility for production of brake calipers to improve efficiency. Overall, meaning that a slow and a weak first half tells that we need to lower our guidance.
EBITDA is now in the range of DKK 110 million-DKK 120 million. We also have to say that we expect market to normalize over the coming months. I think fair to say also we've seen the first signs on that things are going to recover and also we expect that we will not have same one-off costs in the second half as we saw last year. One concern is, of course, Brexit, because we have facilities and operations in U.K., and we can speculate a lot in what happens if it's a hard Brexit, et cetera. It's difficult, but also we have taken a lot of measures to be as prepared as possible for that. All in all, what I would call a mixed outlook for second half because of market uncertainty, global economy, et cetera.
We also think we have a lot of good opportunities, positive outlook in what we call our largest businesses and softer outlook in the two smaller businesses. However, we have seen improvements, as I said, in Borg Automotive. Revenue expected around DKK 20.5 billion. We are now working a lot also on how to prepare the companies for 2020.
Guidance slightly increased, EBITDA in the range of DKK 1,835 million-DKK 1,985 million. I think also here we have to say that, again, that we are at the end of a major investment program that we have been running for the last two and a half, three years. We are now focused on profitably utilizing our capacity and also a strong focus on reducing our net working capital and to eye hard on operational cash flow. Of course, we will always be investing. We are a large company and also we need to continue to invest in maintenance and uplift, et cetera. With this remark, I would like to open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, could you please press 0 and then 1 on your phone keypad now in order to enter the queue? Then after I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press 0 and then 2 to cancel. There'll be a brief pause while the questions are being registered. We go to the line of Jonas Guldborg at Danske Bank. Please go ahead, Jonas, your line is now open.
Yeah. Hi. Yeah, Jonas here. A couple of questions. First of all, on BioMar, could you put some words on how the contract negotiations went? What's the feedback from the market of you kind of approaching them more from a value perspective than from a volume perspective? On nonwovens and the strategic review, you say in your statement that this could lead to lower revenue in the future. Could you share with us how big a share of revenue is at risk here, and also over how long a period we should see this transition happen? Finally, a question on Borg. You showed on the slide that EBITDA is down DKK 20 million in the quarter and DKK 7 million is from the Belgian restructuring. How much is then coming from this more cautious view on the core regulations?
Yeah, thank you very much. Thank you, Jonas. Thank you for the questions. First, let me start on BioMar and saying, I think in general, also we have to say, of course, Norway is very important for us, but also the other segments and divisions in BioMar, they have been doing quite well. Norway, they have performed in a way we planned, but we also said that we are going from volume to value. We are going to change our customer base and the contract negotiations have been, of course, tough, but also were very positives. We have been perceived open. We have changed our customer base, better balance. I think our value propositions, et cetera, has been well perceived in the market. Quality. It's a package of quality recipes, value-added products, distribution, et cetera. That has been received very well in the market.
Of course, there's a way to go, and we will have lower volume in Norway than we had last year. I think we are very quietly increasing volume and share in Norway and also adding better value. If I go to your question on Fibertex Nonwovens, of course, we're saying we approved some segments, will that lead to lower volume and general relation in these segments? We are also saying that we are putting much more efforts into added value segments into the automotive business, et cetera. We have just acquired this company in U.S. I think overall is the ambition still to grow, to grow on other segments, more value-added segments. We have this 10 or nine nanotechnology planned that will take two to three years before we are at the end of them.
We will see hopefully already strong effects from 2020 on that. If we look at Borg, then you could say Q2, as I said, DKK 7 million from closing down in Belgium, but also on core sales bonuses, et cetera, around DKK 10 million. Comparing the quarter, you could say DKK 15 million-DKK 20 million compared to last year. Of course, effect of lower top line also means something.
Sure. Okay. Thank you very much.
Thank you.
We now go to the line of Laurits Kvistgaard of ABG. Please go ahead. Your line is now open.
Thank you very much and good afternoon. Three questions from me. First of all, on BioMar. Can you take us through what type of contracts that you have won in Norway, Chile, U.K.? What can we expect in regards to volume versus value here? Where did it go well, more specifically, and where can you perhaps be getting the better earnings here in those sort of three jurisdictions? Second question on Fibertex Personal Care. We still see a softening as you write in Asia in regards to the larger players. I imagine Procter & Gamble and Kimberly-Clark may be on the radar here. In your annual report, you write about that you're refocusing your sales force or sales activities towards perhaps some of the other players in the markets. Perhaps a few words on that.
The last question is more to do with the car industry growth in terms of nonwovens, but also in Borg. What sort of triggers are you seeing? In your initial statement you saw that you see sort of more positive indicators in the market. What specifically are you looking at here?
Thank you very much, Laurits, for the questions. Of course, BioMar, it's a big question to answer because it's U.K., Chile, and Norway. In general, we do not comment on all contracts and what kind of customers we do have. Of course, everyone knows that we had this very large Lerøy contract in Norway, which we didn't gain or get this year. In Norway in general, normally there will be two suppliers at one customer. We have changed sometimes from having 30% now going to 70%, et cetera. Some of the customers there, we have changed the volume balance, meaning that we are the biggest supplier now. We have been coming in to new customers in Norway, smaller players. We have really worked hard on just getting a much better customer balance and not being dependent on one very large customer.
Also working more on customers where they could see that the profile we are having with our value-added products, our distribution network, et cetera, are the way they want to have us. In Norway, you could say it's something and a strategy that has been planned for, should go for maybe the next years and started well this year. Volume lower in Norway than last year, but more profitable volume. So far so good. U.K., very good contract situation. We have some contracts running for some years now. That has been very good. In Chile, we took over more capacity because we acquired 50% of the remaining 50% from our joint venture. In Chile, we are more or less full now. We have had very good and successful contract negotiations.
Maybe also based on that we finally have capacity enough to approach some of the attractive customers in Chile. If you look at Fibertex Personal Care, you could say, it's right, you said Asia has been soft, and you're right. It is the big customer that's P&G, also some of the Japanese big players. We have been doing a big study in China, and we are setting up a small sales facility in China and looking on how to get a much broader customer base in China. It's just started, let's see how that develops. We're putting resources there. Looking at the development in the car industry, you could say it's twofold because Fibertex Nonwovens is one situation where we supply materials for new cars, mainly to Tier 1 suppliers.
It could be to a seat supplier, to a supplier doing something specific, delivering directly to the car industry. Do we see a soft demand in the car industry in general? We are, of course, cautious on that because what's going on. We have won new contracts for new car models, that's where we are positive. Looking at Borg, it's a totally different thing because that's parts for old cars. If the sale of new cars will be lower, people will be running their older cars much longer. They will need new spare parts and repairs and so on. It could be, in fact, maybe a positive long-term situation for Borg.
Just two follow-ups, if I may. On BioMar here, do you have any suggestions how you can guide the market in the second half of this year and the first half of next year in regards sort of a gross margin perspective on these new contracts? Then also a follow-up there on Borg. Shouldn't there be less of a correlation between new builds and new cars going down and the restoring of old cars?
You could say, of course. I would say our experience from a totally different business, but still, we have been into original spare parts for the agri sector and so on. We always saw when things were a little bit difficult, new sales softened, et cetera, we had good times. I think you could say that when they're selling fewer new cars, the old cars will still be running, and they will be needing spare parts and repairs. That's why we see that maybe that could be good for Borg, which we think so. I think guiding on CM for H2 and H1 in 2019 and 2020, we do not do that. Of course, in general, second half will always be better because of volume and scaling.
Thank you very much for taking my questions.
Yeah, thank you very much.
We now go to Claus Almer at Nordea. Please go ahead. Your line is open.
Thank you. Yeah, also a few questions my side. Yes, I will take them one by one. The first question goes to the whole macro situation. I know your cyclicality might not be as large as we see for other capital goods stocks. Have you taken any steps to mitigate if things should deteriorate from here? That would be the first question.
Yeah. I think just before the summer holiday, we had all our CEOs together where we were looking into what if things go as we could fear. That we discussed, of course, a lot. Every company has contingency plans if things really go bad. We have already said we will be low on investments. We have the capacity we should have. We think we can run our capacity even tighter. We have been looking into our cost base, we are looking into innovation, and also, as I said, we have a strong net working capital program going on. I think we are really cautious on this and we have tried to be in a situation like that before, and some of the experience, of course, we can use again, but it's a new world.
We've been discussing it a lot, and especially on the investment and capacity side, we have been very cautious.
Okay. Is it fair to conclude that so far, it's actually only within the automotive industry you have seen some real softness in the demand picture?
It's more or less that. I mentioned also on the GPV that we have, in fact, some segments we have seen are softening. It could be some of the companies supplying the semiconductor industry. We've seen some other industries softening their demand, but then we have seen an increase in it from some other industries in GPV. You're right. Currently, yes, GPV mixed, but if you look at a company like BioMar, and I should really be cautious when I'm saying it, but maybe they are not having seen the same macro outlook because it's a totally different business, supplying food for fish and food, et cetera.
Okay. You mentioned working capital, and I saw that your working capital drag was much better than last year, but I guess it could be better, I guess. How's it going with your initiatives to push all divisions to improve net working capital? Jens, I know this is your personal KPI.
Thank you very much for asking, Claus, and reminding me. We have just had a big seminar going on on that, and the problem is, of course, it's something that takes a long time. Sometimes you also need a lucky punch. If things soften up a little bit, component supplies will be shorter, et cetera, et cetera, so we can reduce inventories. We've been working a lot on it, and there's a strong awareness on it all over. One interesting thing is, in fact, the mix of geography. Big volume in the whole, in BioMar, terms of payments, very, very short, because the farmers out there have strong cash flow and so on. If we remove that volume and business, et cetera, to export to China, et cetera, then it's a totally different ballgame, and that change your debtor days, et cetera.
There's a lot of things in that also. It's not an excuse, but it's very complicated, and we are working hard on it, and we expect to see reductions on that and also to see a quite strong cash flow.
This year?
This year. Hopefully, yes.
Yeah. Okay. Just the final question. Hydro and the exposure to the wind sector, how do you see your pricing environment? Are you able to take advantage of a very strong demand for your customers?
I think we are able to take advantage of, they want strong, reliable, long-term suppliers. Maybe you can soften a little bit on terms and so on, but always you need to be competitive, and if you are too eager on pricing and so on, they won't forget that for the next time. Of course, there are small things you can work on and so on, but it's not going big.
Okay. There's no really negative impact from all the trade war implications?
Far, not really. Of course, we have moved the production of some hydraulic units to China to supply investors and other turbine manufacturers in the U.S. We have the ball manufacturing set up in the U.K. We have BioMar in the U.K. set up, so of course, it's something we're thinking on it every day, but it's difficult to say what happens.
Okay. Thank you, Jens.
Yeah. Thank you, Claus.
We now go to the line of Lars Heindorff at SEB. Please go ahead. Your line is now open.
Thank you. Just one question for my part, and that's regarding BioMar. I think on previous conference calls and presentations, you have been talking a little bit about the market situation and mentioning that it would have been nice with some sort of consolidation or maybe that some of your competitors withdraw because of a very basically unsatisfactory competitive situation. What is it that has changed now since you believe that you can actually turn around BioMar by doing internal measures only and only rely on that, and has something changed in the market that will support that, or how should we view that?
I think in general, of course, we have said the competitive situation is tough, but I think also we have said in the other Fibertex business, that's where we see the really tough competitive situation, especially in Europe. Still here we have tough competition, but we have changed the segments we are going to work in. We are moving out of the low margin segments over time. We have invested a lot into facilities where we can produce more value-added products, and we have seen strong demand after some of them, particularly nanotechnology, special products for the automotive industry, for wind turbines, et cetera. We see a strong move that way, and now we have capacity, we have product, we have innovation in place. Also we have been working a lot on factory footprint and capacity, et cetera.
It's a plan involving all aspects of the value chain.
Okay. When you say that you expect that this will be, if I understand correctly, will it be completed next year, or will we start to see the impact of it next year?
I said we'll see the impact, hopefully, already we are working on the plan now. Things will start materializing, but we will see impact in 2020, and it's a plan running over two to three years because there's a lot of factory footprint, building facilities, structures, et cetera around it. It's a plan that we work on, and also there will be strong measures in that plan also that will be taken.
Would it be advisable for us to put in some sort of restructuring cost in relation to such closures? That's the first follow-up. The second one is, do you actually believe that Dan W illiams be able to deliver return on invested capital, which is in line with group and some of your targets?
To address the last question without being too specific. First target of this, because we need to be realistic, is we want to move treatment, we have a plan for that into the range of 11% to 12% return on invested capital, and there we have a plan, and next step is pushing it towards 15%. We have to see first that this 11%-12% materializes. We have not considered any restructuring costs so far. There might be some, but it's not significant.
Okay. All right. Thank you.
Thank you very much, Lars.
Okay. Before going on to the next question, which is the line of Ulrich Bach at SEB. If anyone else has any final questions at this stage, please do press 0 and then 1 on your phone keypad now. Ulrich, over to you. Your line is now open.
Yes. Thank you. Two questions from my side, I'll take them one by one. My first question is regarding BioMar, where it is mentioned in the quarter report that BioMar has focused on greater efficiency and more flexible collaborations with customers during the first six months. Firstly, can you please elaborate a bit on that? Secondly, will this have an impact on costs or earnings during the second half of 2019?
Yeah. Thank you. This is specific. It goes specific on Norway. As I also mentioned, we have restructured Norway quite a lot, meaning we set up a new team in some areas, new ways of approaching the market, even new ways of working with our recipe optimization, feeding regimes, et cetera. It's a lot of things that has been going on. Then also the way we approach the customers, maybe mid-size, smaller customers demand something else than a very large system like Europe, et cetera. That's what we mean by this being more flexible, even more of increasing productivity by also utilizing a broader recipe spectrum.
Okay, thanks. Yeah, my second question is regarding raw materials. In the report, it is mentioned that the guidance for several of the portfolio companies is highly dependent on these raw material prices. Which raw materials are you most exposed to, if you can name a few or the main ones?
PP, polypropylene, especially to Fibertex Personal Care, where I think it's 100% raw materials, meaning 100,000 tons of that at least. We are in polyester and viscose. Of course, we have a lot of raw materials, actually proteins in general to BioMar, meaning fish proteins, vegetable proteins. It's a fish meal, it's soya, it's a lot of niche products. Specifically proteins and oils, and not to forget electronic components that we use in GPV. I think that's the main raw materials. We have a raw material sourcing of plus DKK 10 billion in the group in general. Of course, it's very important to us that we have a strong set up and in general.
Okay, thank you. No further questions from my side.
Thank you very much.
Okay, there are no further questions on this call. Can I please pass it back to you for any closing comments at this stage?
Thank you very much, and thank you for questions, and thank you for listening. This will finalize our Q2 2019 call. Thank you.
This now concludes the call. Thank you all very much for attending, and you can now disconnect your lines.