Corbion Q1: Healthy margins for Ingredient Solutions despite market pressures

Reporting its Q1 2018 Interim Management Statement, Corbion says organic sales growth was 2.5 percent, due to a strong increase in Biochemicals and Innovation Platforms, while EBITDA excluding one-off items decreased by 19.2 percent to €38.6 million (US$47 million) due to currency effects and higher input costs.

“The start of the year saw a continued positive momentum with organic sales growth recovery in Ingredient Solutions, that has returned to the 2-4 percent target range. As anticipated, a weaker US dollar and negative raw material price effects have put pressure on our Ingredient Solutions EBITDA. Nevertheless, we were able to maintain a healthy margin in this business segment,” said Tjerk de Ruiter, CEO.

“We are experiencing improving market dynamics in bioplastic PLA, which is encouraging for the future development of our PLA joint venture plant, which is scheduled to open later this year.”

EBITDA margin before one-off items was 18.1 percent (21.0 percent for Ingredient Solutions) and positive one-off item of €0.7 million (US$852,229) related to a land sale in Italy. The company’s operating result was €30.0 million (US$36.5 million), an organic decrease of 9.0 percent.

Ingredient Solutions
Net sales in Ingredient Solutions, which encompasses Food and Biochemicals, decreased by 8.6 percent, driven by a negative currency effect of -10.8 percent. Organic net sales growth continued its upward trend resulting in 2.2 percent growth in Q1 2018.

The EBITDA margin excluding one-off items decreased from 21.9 percent to 21.0 percent, as higher input costs for several key raw materials negatively impacted both the Food and Biochemicals business segments.

Business segment Food
Net sales decreased organically by 0.4 percent. A decrease in sales was expected for the first quarter as Corbion is still facing an unfavorable comparison base in Bakery. The company says it continues to recover lost business, albeit at a slow pace.

A key bakery enzyme recently went off-patent in the US resulting in some sales reduction as a consequence of lower input costs. This is expected to have a neutral effect on company profits.

In Meat, Corbion has seen the portfolio mix shift towards natural preservation solutions continuing, which translates into above-average growth rates. Meat sales growth outside the US was mainly driven by Latin America.

In other markets (Beverages, Confectionery, Dairy), sales increased again after several quarters of slight declines. The EBITDA margin decreased from 20.2 percent to 18.2 percent due to higher input costs, only partly offset by positive portfolio mix effects.

Innovation platforms
Net sales increased by 64 percent, mostly driven by the acquired algae ingredients acquisition. Lactic acid sales to Total Corbion PLA joint venture were relatively limited due to a planned shutdown of the joint-venture lactide plant. PLA plant construction is still on time and budget, with startup expected in the second half of the year.

Corbion says it sees encouraging PLA market developments, which bodes well for the future sales ramp-up of the joint venture plant. The increased EBITDA loss was almost fully driven by the acquired algae ingredients platform as of September of 2017.

Corbion also continues to make progress in the acquisition process of the Bunge stake (49.9 percent) in the SB Oils joint venture and expect to reach a final agreement before the end of June.

Last month, Corbion signed a share purchase agreement with Bunge regarding the potential acquisition by Corbion of Bunge's stake in the SB Renewable Oils joint venture. Corbion and Bunge are 50.1 percent/49.9 percent partners in SB Renewable Oils, a joint venture that operates a facility in Brazil, specializing in the production of algae ingredients, such as omega 3 rich oil, for aquaculture and animal feed.

The completion of the share purchase agreement is subject to certain conditions, including finalization of long-term supply agreements, and regulatory approval.

Outlook FY2018
For Ingredient Solutions, Corbion continues to expect organic net sales growth to be within the guidance bandwidth of 2-4 percent, with the EBITDA margin exceeding 19 percent.

The company continues to expect Food full-year sales growth to be within guidance (1-3 percent). Biochemicals growth is expected to continue in the coming quarters, albeit at a slower pace than in Q1.

In Innovation Platforms, Corbion continues to expect the startup of the joint venture PLA plant in the second half of the year. In algae ingredients, the Peoria plant has resumed operations, raising the fixed cost level from Q2 onwards. For the SB Oils joint venture, the priority is to address the necessary plant improvements.