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Demand for cheaper cattle feeds hurt Finnish group's Q4 2016 sales

By Jane Byrne

14-Feb-2017
Last updated on 14-Feb-2017 at 14:32 GMT2017-02-14T14:32:48Z

© istock/rakim
© istock/rakim

Finnish food and agribusiness, Raisio, estimates its operating profit for 2017 will fall slightly short of earnings for 2016, and predicts exchange rates will continue to hit its EBIT.

The group, which operates mainly in Finland, Great Britain, the Czech Republic, Russia and Poland, released its Q4 and full year 2016 financial results yesterday.

Comparable earnings before interest and tax (EBIT) for Q4 2016 - €12m - was on par with EBIT for Q4 2015, when excluding certain items, it reported.

Feed business

Its cattle and fish feeds, farming supplies and grain trade business, Raisioagro, recorded Q4 2016 net sales of €24.7m, down from the €28.3m seen in the same quarter in 2015.

Net sales for the full year for those operations came in at €126.6m, a dip from the €145.9m generated the previous year. 

Though there was a decrease in net sales, Raisioagro said relative profitability for the division improved: “The decline resulted from [Finnish] milk farmers’ shift to the use of more affordable cattle feeds and from clearly declined sales in fertilizers and fuels. The profitability of cattle feeds improved as Raisioagro streamlined and extended its product mix to better meet customer needs.”  

'The profitability of cattle feeds improved as Raisioagro streamlined and extended its product mix to better meet customer needs.' © istock

Dairy farmers in Finland, it said, are facing a challenging economic situation due to both the Russian ban on imports of dairy products and the subsequent drop in the producer price of milk in Finland – factors which have intensified price competition and increased the demand for cheaper cattle feeds.

Raisioagro stressed that it did not engage in an aggressive price strategy but instead focused on providing farmers with feeding expertise and digital services to enable real-time optimization of cattle feeding and increase milk yield.

It said despite the lower number of Finnish milk farms, the number of dairy cows did not substantially decline as some of the farms carried out extension investments:

“The key change impacting the feed market was that the number of [total mixed rations] TMR feeding farms and robotic milking farms continued to grow. TMR feeding means that all feed components are mixed with silage and a cow is given only one feed mixture. Sales in Benemilk’s added value feeds fell from the comparison period as milk farms shifted to the use of more affordable feeds with lower added value while the challenging economic situation continued,” explained the board of directors’ report.

Russia

In Russia, economic challenges and weakening liquidity of dairy farms reduced Raisioagro’s cattle feed sales in that market. However, Raisioagro remains upbeat about prospects there:

“Despite the decline in sales, the profitability of exports improved. Russia is investing in its own milk chain, which means that the need to improve the quality of milk and to raise the yield levels will increase the demand for feeding expertise consultation.”

Benemilk expansion curtailed

The directors’ report also revealed a curtailment of international expansion activities for the Benemilk business.

The Benemilk feed range contains fatty acids, glucose precursors and amino acids, as well as certain components aimed at boosting cellular-level functions.

The company had told this publication in September 2015 it was looking to push the range into European markets beyond Finland and Russia, as well as gain traction in the US and Asian dairy sectors through licensing deals following trials.

However, that expansion project would now seem to be on hold: 

Russian ban on dairy products could hamper future earning potential at Raisioagro © istock

“In November 2015, Benemilk Ltd launched a process to examine the conditions and opportunities to obtain new financing. Based on the completed assessment, Benemilk Ltd’s board of directors concluded in June 2016 that it [was] not justified to implement the equity-financing scheme, as the company valuation indicated by potentially interested investors was not satisfactory in terms of current owners.

Benemilk Ltd’s operations were significantly reduced in autumn 2016 and the investment to internationally commercialise the innovation was minimized in accordance with the decision taken by Raisio’s board in August. [The] global crisis in the milk market and potential customers’ unwillingness to change their feeding models were factors behind the decision, and for these reasons, the company’s short-term prospects for the international expansion of the business were not favorable. The office in Seattle, US, was closed,” reported the board of directors.

Raisioagro said the fish feed market in the Baltic Sea region remains stable.

Risks down the road

In terms of related risks and sources of uncertainty in the future, it flagged the profitability and liquidity problems in the Finnish agriculture and livestock farming as having the potential to weaken the purchasing power of the sector and put pressure on Raisioagro's earnings.

It also noted the Russia ban on EU dairy products would continue to directly and indirectly hamper Raisioagro’s operations.

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