TerraVia acquisition and inflationary pressures impact Corbion results
06 Mar 2019 --- Corbion’s 2017 acquisition of algae business TerraVia is still impacting the company’s results, but inroads into the salmon feed market are now being reported. Corbion, the global market leader in lactic acid and lactic acid derivatives, has reported net sales of €897.2 million (US$1.01 billion) in 2018. Organic net sales growth was 3.7 percent for the year. EBITDA excluding one-off items in 2018 decreased by 19.8 percent to €131.6 million, mostly due to the acquisition of the TerraVia assets and a negative currency impact.
EBITDA for FY 2018 excluding one-off items decreased by 19.8 percent to €131.6 million, mostly due to higher investments in Innovation Platforms and currency effects (a decrease of €9.7 million). Ingredient Solutions EBITDA excluding one-off items decreased by 7 percent mostly due to adverse currency effects. The EBITDA loss excluding one-off items in Innovation Platforms increased to €29.2 million (2017: €8.8 million). This €20.4 million higher loss was mostly due to the acquisition of the TerraVia assets and the full consolidation impact of the SB Renewable Oils joint venture after acquiring the remaining 49.9 percent stake from Bunge in June 2018.
The company stressed that visible progress on the EBITDA loss in Innovation Platforms versus 2018 will be relatively limited as 2019 will incur the full year consolidation impact of the loss-making algae plant in Orindiúva, Brazil (the former SB Renewable Oils joint venture) versus only 7 months in 2018. The EBITDA loss is not expected to exceed €35 million in the year.
"I am encouraged to see Corbion growing at a significantly higher pace than in previous years while we are starting to deliver on long-term innovations such as bioplastics. Our top-line performance in Ingredient Solutions was slightly below our ambition level, mostly due to the slower than anticipated recovery in Bakery,” commented Tjerk de Ruiter, CEO.
“Growth across all other segments was satisfactory. We were not immune to the inflationary pressures in the second half of the year and have started to take pricing actions to address this. In Innovation Platforms we significantly grew our sales to the Total Corbion PLA joint venture, which commissioned its plant on time and within budget,” he added.
In a statement, the company reported that they are developing their Algae Ingredients platform (TerraVia and SB Renewable Oils assets) in several areas. However, it took longer than expected to have the Orindiúva plant producing within specifications. The AlgaPrime DHA product is making inroads in the salmon feed industry. Increasingly, retailers are selling AlgaPrime DHA-fed salmon for a higher omega 3 content and better sustainability footprint, the company reported. Additionally, for the former TerraVia business, developments are focusing on proteins for the food industry and tailored oils for both food and chemical applications.
Tanno Massar, Senior Director Corporate Communications at Corbion confirmed to FoodIngredientsFirst that the production issues that the company faced in the first part of 2018 in Orindiuva (Brazil) have been resolved for some time now. "The plant is up and running with product quality at the right level," he notes.
In terms of the biggest opportunities for these algae products to come from the TerraVia banner, Massar explains that algae based omega 3 for salmon feed has the biggest initial potential. "AlgaPrime DHA certainly is already building a leading position in the market for aquaculture feed," he notes. Thrive culinary cooking oil is finding its way to consumers with distribution now in thousands of outlets, such as WalMart, he adds, however. "Our protein product AlgaVia is providing us with a huge opportunity answering to the fast growing consumer demand for plant-based proteins and alternatives for soy protein, but this is further away from full scale commercialization," says Massar.
Moving forward, Massar stresses that natural is the name of the game in many markets, with the TerraVia portfolio holding clear potential here. "We are well-placed to benefit from that with our portfolio, as you can for example see in the growth of our meat growing fast in the ‘clean label’ area," he notes. "Also health is a trend where we see opportunities, we have seen salmon now being specifically promoted in supermarkets with their higher Omega 3 levels, and also our Thrive cooking oil brings heart-health benefits that have been acknowledged by the American Heart Association," he says.
As a whole, Corbion reported that net sales in 2018 increased by 0.6 percent to €897.2 million (2017: €891.7 million), mostly due to a volume increase (8.6 percent), partly offset by a negative price/mix effect (a decrease of 4.9 percent), and a negative currency impact (a decrease of 4.1 percent). The acquisition of most of the TerraVia assets (including the remaining 49.9 percent stake in the SB Renewable Oils joint venture) positively impacted net sales by 1 percent.
Organic sales growth in the Ingredient Solutions business unit was 1.7 percent. This was driven by growth in Food and Biochemicals of 0.9 percent and 4.0 percent, respectively, both near the lower end of the indicated guidance ranges.
In Food, growth was a balance of a strong performance in Meat, a weak (albeit improving) performance in Bakery, and slight growth in Other (Beverages, Confectionery, Dairy). Organic sales growth for the Biochemicals business segment was especially driven by organic growth in Pharma/Medical and Chemicals.
Organic sales growth in the Innovation Platforms business unit was 84.9 percent. The underlying volume increase reflects the higher lactic acid volumes sold to the Total Corbion PLA joint venture. The negative price/mix is largely driven by a changed product mix resulting in a lower average sales price per kilo. The acquisition of the TerraVia assets contributed an additional 41.9 percent net sales growth in Innovation Platforms.
In terms of outlook, the company expects that the organic net sales growth for Corbion to be in the targeted 3-6 percent growth guidance range.
For 2019, Corbion expects Ingredient Solutions organic net sales growth to be in the indicated range of 2-4 percent. Food should return to the 1-3 percent range. The Biochemicals business is expected to grow near the lower end of the 3-10 percent range, with an expected slow start of the year due to phasing. The EBITDA margin in Ingredient Solutions is expected to remain above the indicated minimum level of 19 percent for the year.
Net sales in Ingredient Solutions, which encompasses Food and Biochemicals, increased organically by 1.7 percent in 2018, mostly driven by higher volumes while offset by a lower price/mix. This organic growth was below the guidance range. Organic net sales growth in Q4 was 2.1 percent. The EBITDA margin excluding one-off items in 2018 decreased slightly from 19.9 percent to 19 percent, due to higher input costs.
Net sales in the Food business segment increased organically by 0.9 percent in 2018, which was marginally below the guidance range. As a consequence of 2017 challenges in executing their Bakery channel strategy and customer losses in frozen dough, Bakery sales in 2018 declined, albeit at a slower rate than in 2017. Additionally, a key bakery enzyme went off-patent in the US resulting in sales reduction as a consequence of lower input costs which were passed on to our customers. The company had expected a stable performance in Q4 versus last year. However, several customer projects were delayed, and the adverse impact on net sales of the bakery enzyme coming off-patent was more pronounced than anticipated.
The performance in Meat was strong, Corbion reported. The portfolio mix shift towards higher-value natural preservation solutions continues to support top-line growth and margin improvements. Solutions from the Verdad line, which are based on natural and clean-label ingredients, especially in powdered form, continue to make inroads in the meat industry. The strong sales performance in Meat continued in Q4.
In other markets (Beverages, Confectionery, Dairy), overall sales increased moderately, mostly because of growth in non-bakery emulsifiers and acid powders for Confectionery. Q4 showed a similar sales growth trend as in the first 9 months of the year.
The EBITDA margin decreased from 18.7 percent to 16.9 percent because of higher input costs (e.g. freight, non-sugar-related raw materials, energy, packaging, duties) in the second half of the year, as well as negative mix effects due to several large lactic acid contracts in Asia, the company reported.
Brexit is a major concern for many suppliers in the ingredients space, but Massar notes that the company does not have a very substantial direct exposure to the UK market. "Of course it will be important to see how our customers are impacted. In these somewhat uncertain economic conditions it is helpful that Corbion is well-diversified in terms of portfolio and also geographically," he adds.
Separately, Corbion and BioMar, an innovator in sustainable aquaculture feeds, announced that over 350,000 tons of fish feed with AlgaPrime DHA has been delivered to Norwegian salmon farmers since 2016. AlgaPrime DHA is the leading sustainably produced, algae-based source of long-chain omega 3s. For more than two years, AlgaPrime DHA has been incorporated into fish feed in Norway, enabling farmers to improve the omega 3 content and reduce the fish-in fish-out ratio of farmed salmon.
“Through our partnership with BioMar, we’ve seen strong adoption of AlgaPrime DHA and have shown our ability to make a significant impact on the aquaculture industry over a short period of time,” says Marc den Hartog, Executive Vice President of Innovation Platforms at Corbion. “AlgaPrime DHA is helping to provide consumers with options that are better for their families and the environment and meeting retailer and consumer demand for healthy and more nutritious seafood.”
Today, salmon brands that include AlgaPrime DHA are now available in US, UK and EU markets – offering consumers farmed raised salmon with improved sustainability and nutritional profile, the company reported. Also, AlgaPrime DHA-fed salmon has been included in ready-to-eat and meal kit delivery services – providing consumers with algae-fed salmon through multiple retail touch points.
By Robin Wyers
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