“We faced heavy pressure on margins [in Norway],” a spokesperson for the Danish fish feed company told us.
BioMar operates 14 feed factories and is currently constructing another two. The factories are in Norway, Chile, Denmark, Scotland, Spain, France, Greece, Turkey, China, Costa Rica, Ecuador and Australia. The company claims that roughly one out of five farmed fish produced in Europe, South and Central America is fed on BioMar feed. Its core business areas are feed for salmon, trout, sea bass and sea bream and shrimp.
While volume sales in the salmon markets of Chile and Scotland improved for the company, it said the Norwegian salmon feed market has become fiercely competitive. BioMar has had below-normal volumes since the second half of 2018.
Towards the end of 2018, the group said it executed several initiatives to improve the company’s competitive standing in Norway through organizational changes and efficiency improvements, building upon its strong product portfolio within salmon.
“Having said this, we believe the actual competitive conditions in Norway are not sustainable in terms of profitability,” noted BioMar CEO, Carlos Diaz.
Commenting in its annual report, BioMar’s parent company, Schouw & Co, said:
“The Norwegian salmon market, the world’s largest market for quality fish feed, has changed in recent years. The market has always been very competitive, but it has also become more volatile.
“Feed contracts, and by extension, risks have grown larger, and earnings have been squeezed to unsustainably low levels. This is a situation requiring a firm reaction from BioMar. We cannot and will not accept orders that do not sufficiently cover our overheads. We cannot run a responsible feed business if earnings do not match investments made and risks taken.”
For its overall business though, the Danish feed group reported an increase in both revenue and volumes sold. It said it generated earnings before interest, taxes, depreciation, and amortization (EBITDA) of DKK 713m (US$107.2m), thus reaching the high-end of the 2018 EBITDA guidance communicated in Q3 (DKK 690-715m). Its revenue grew 4% from DKK 9,9bn in 2017 to DKK 10,3bn in 2018, mainly derived from growth in volumes of 5%.
New lines, new plants
BioMar said the shrimp feed operations it acquired in Ecuador in 2017 were a revenue driver; it continues to see possibilities for growth in that market, and has been investing there as a result. It has installed a new pelleted feed production line in existing buildings, which will add about 25,000 tons of feed to the annual output capacity. That line is scheduled to begin operations by the end of the Q1 2019. In addition to that installation, it has commenced construction of a new line for extruded feed, which will increase capacity in Ecuador by a further 40,000 tons of feed. That line, costing around DKK 50m, is expected to become operational in Q1 2020.
"BioMar will defend its market share [in Norway] and expand its position by developing and implementing new products and continuing to strongly focus on optimizing margins, enhancing efficiency and on customer communication."
BioMar also reported that share of profit in associate Salmones Austral, the Chilean fish farming business, has developed well, and that its non-consolidated joint ventures in Turkey and China are progressing nicely, steadily growing in importance for its total business activity.
In China, it is currently building a new fish feed factory in Wuxi near Shanghai in a joint venture with Chinese partner Tongwei. It said the new facility will have an annual capacity of 50,000 tons. Construction of the plant has been delayed several times, in part due to challenges arising in its work with a local contractor, but the facility is expected to be commissioned at the end of Q2 2019.
In March 2017, BioMar announced an almost DKK 300m investment in a new feed factory in Tasmania, Australia. The project was previously moved back a few months due to regulatory processing, but the company said it is now progressing to plan, and that it expects the new facility, with annual capacity of about 110,000 tons, to be ready in early 2020.
On top of that, the group has initiated a project aimed at lifting the output capacity at Brande, Denmark, and reducing the load on the existing production facility. “Demand continues to grow in the European markets, particularly for the specialty feeds BioMar manufactures at Brande.”
In terms of outlook, Diaz said BioMar expects a year with revenue at the same level as in 2018 but with increased earnings. “We expect to generate EBITDA in the range of DKK 820-890m from our consolidated companies,” said the CEO.
Parent company, Schouw & Co, outlined its expectations for the fish and shrimp feed player for this year: “BioMar has operations in 12 countries, and in each of these markets, except for Norway, we expect the group to leverage its good momentum and either maintain or improve earnings in 2019.”
Annual growth rates for the species BioMar manufactures feed for are estimated at 3-6%, according to Schouw & Co's annual report.
It said the priorities for BioMar in 2019 are:
- Winning profitable feed contracts in the important Norwegian salmon market
- Completing capacity expansion in Denmark, Ecuador and Australia
- Achieving cost savings and optimizing margins throughout the business
- Setting up the organization and commercial production at the factory in Wuxi, China
Its outlook pointed to the fact that demand for farmed fish and shrimp is generally developing well in many markets: “There are no immediate indications of any changes to this trend.”
It said the overall salmon market is expected to grow at a moderate pace in 2019 driven by generally good biological conditions, while the shrimp farming business in Ecuador is expected to see more pronounced growth.
“BioMar expects market conditions in Norway will be challenging in 2019, as moderate growth in demand combined with high supply makes for an extremely competitive market. BioMar has considerable output capacity in Norway, but due to the challenging market conditions, the company must give priority to long-term sustainable earnings over short-term volume sales. BioMar will defend its market share and expand its position by developing and implementing new products and continuing to strongly focus on optimizing margins, enhancing efficiency and on customer communication. Prices of farmed fish, including salmon prices, are expected to remain at a level that will provide solid earnings for fish farmers, which will reduce BioMar’s risk of bad debts.”
In terms of threats from the UK’s pending exit from the EU, Schouw & Co, said Brexit would, of course, affect BioMar’s operations in Scotland, especially in terms of procuring raw materials from areas outside the UK. “While this is not expected to have a material effect, BioMar is still trying to mitigate possible negative effects by building inventories and identifying potential alternative suppliers.”