BioMar profits undermined by ‘increasingly competitive’ markets

BioMar reported Q4 2017 revenue was slightly higher than expected. Full-year 2017 for the Danish fish feed manufacturer was DKK 9.9bn (US$1.64bn), a 12% increase on DKK 8,8bn in 2016.

However, it said its overall earnings before interest, taxes, depreciation and amortization (EBITDA) for 2017 - DKK 712m – were slightly down on the year prior.

On the earnings before interest and taxes (EBIT) front, the overall figure for the full year was DKK 559m, against DKK 581m in 2016, the latter figure including “significant income streams relating to special circumstances that did not recur to the same extent in 2017", ​according to the newly released annual report of BioMar parent company Schouw & Co.

BioMar said the increase in volumes sold had a positive effect on full-year EBIT, particularly in the salmon division, but due to the “increasingly competitive market in Norway”​ in 2017, the larger volumes only made up for the drop in earnings to a limited extent.

Nevertheless, it stressed that Norway, Scotland and Chile all had favorable biological conditions for fish farming last year. Furthermore, it said its new production line at Karmøy gave it the extra production capacity needed to generate growth and to increase its market share in Norway.

Its operations in Chile improved on both revenue and volumes sold last year, mainly, it said, as the Chilean market normalized the setback caused by the natural occurrence of severe algal blooms in the spring of 2016. Nevertheless, it noted the volumes it sold in Chile in H2 2017 fell slightly short of expectations.

“BioMar reported strong growth in volumes sold with the largest improvement taking place in the salmon business, but developments in foreign exchange rates and prices of raw materials have curbed the revenue increase. ​

“Performance fell slightly short of the exceptionally good results of the preceding year, mainly due to more competitive markets. ​

“The company’s non-consolidated joint ventures in Turkey and China are developing well and are steadily becoming more important for BioMar’s overall business activity. In addition, BioMar is preparing to establish a new factory in Tasmania, which is scheduled for completion by the end of 2019.” ​

– Review of BioMar's results in Schouw & Co (BioMar’s parent company) annual report 2017​​

EMEA, Ecuador, Turkey and China ​

The emerging markets division, it said, contributed to the group’s growth performance, mainly through the acquisition of Alimentsa in Ecuador - that business was included in the consolidated results for the last four months of the year with revenue of DKK 164m, it said.

Its Turkish joint venture increased sales by a significant margin year on year, as the factory began commercial operations in mid-2016. The Turkish operations are not recognized in consolidated revenue and EBIT. The same applies to the JV operations in China. The Chinese operations reported revenue and earnings improvements for 2017 after acquiring the Haiwei factory in November 2016.

It said its EMEA division reported increased volumes sold in several markets in northern and southern Europe. However, BioMar said Greece generated volumes sold in line with 2016 due to the long, cold winter in that market.

On a 100% basis, the non-consolidated feed businesses, comprising the company, Salmones Austral, and the Letsea and ATC Patagonia research centers, reported 2017 revenue of DKK 699m and EBIT of DKK 39m.  

BioMar said developments in foreign exchange rates had a negative overall impact of about DKK 170m on revenue and of about DKK 10m at EBIT level, mainly due to lower USD, GBP and NOK rates relative to DKK.

Looking ahead ​

The Danish group anticipates moderate growth rates in its core markets in 2018.

In addition, the group said it expects to increase volumes sold in emerging markets like Ecuador and China.

Unlike in 2017, it said Alimentsa will contribute full-year revenue and earnings in 2018. BioMar’s new factory at Wuxi in China is scheduled to begin production in the coming months.

Salmon market conditions ​

However, it sees general salmon market conditions as remaining a challenge in 2018, as moderate growth will combine with intense competition in core regions.

The market in Chile has recovered following the algal bloom difficulties in 2016, and developments going forward will depend on how the authorities and the fish farmers regulate and manage growth, said BioMar.

Competition accelerated considerably in the Norwegian market last year, and the effects will affect 2018 earnings, it added.

“Competition in Scotland will also intensify in 2018, as Marine Harvest is expected to start up its own fish feed production, which will reduce the accessible market.” ​

BioMar said it is looking to defend its Scottish market share and to expand its position by developing and implementing new products, while continuing its focus on optimizing margins, enhancing efficiency and on customer communication.

It expects the prices of farmed fish, including salmon prices, to remain at a level that will provide solid earnings for fish farmers, and which will reduce risk of bad debts.

It predicted that changes in foreign exchange rates and shifts in product mix will reduce average selling prices per ton relative to 2017. Against this background, BioMar said it expects to generate full-year 2018 revenue of about DKK 10.0-10.5 bn.

The full-year EBIT will also depend on how foreign exchange rates develop, but based on the current outlook, BioMar expects to generate EBITDA in the range of DKK 720-770m compared with DKK 712m in 2017.