Morpol ASA reports strong improvement in processing margins for third quarter
Morpol ASA reported a positive EBIT pre fair value for the third quarter 2011 of EUR 14.8 million (EUR 0.0 million). The main reason for the increased EBIT was due to the processing results increasing strongly from an EBIT of EUR 1.6 million in the third quarter 2010 to EUR 12.4 million in 2011. The increased profitability is mainly due to a large reduction in cost of sales as a result of reduced salmon raw material purchase prices which dropped significantly throughout the quarter. The farming segment profitability was impacted by the dropping salmon prices, though the UK operation returned a solid performance in the quarter with the Norwegian operation returning a loss due to limited harvest volumes.
High operating revenues
Morpol's operating revenues in the third quarter 2011 were significantly above prior year at EUR 103.4 million (EUR 93.3 million). The revenue increase was due to higher farming revenues in 2011 of EUR 29.0 million (EUR 7.5 million) due to the acquisition of major farming assets in late 2010 and early 2011. Processing revenues decreased in the third quarter due to reduced sales volumes.
Revenues in processing were EUR 83.9 million compared to EUR 86.5 million prior year. Higher unit sales prices to customers were offset by a reduction in sales volume year on year. EBIT for processing in the third quarter 2011 was EUR 12.4 million (EUR 1.6 million). Raw material purchase unit prices were lower than prior year and increased sales prices to Morpol customers year on year resulted in higher profitability.
Revenues in farming in the third quarter 2011 were EUR 29.0 million (EUR 7.5 million). The increase is because Morpol acquired the majority of its farming operations at the end of the third quarter 2010 and in the first quarter 2011.
Of the total revenues, EUR 9.4 million were transferred internally to the Morpol processing division for further processing and sales. Farming EBIT pre fair value in the third quarter was EUR 3.7 million (EUR 1.4 million). The farming operations in the UK - Meridian Salmon Group - generated an EBIT pre fair value of EUR 4.3 million. Sales volumes in the quarter were 6 128 metric tonnes gutted fish equivalent returning an EBIT/kg of EUR 0.7/kg. The Norwegian farming operation - Jøkelfjord Laks - returned an EBIT loss of EUR 0.7 million, the loss being mainly due to limited sales volumes of only 147 metric tonnes not being sufficient to cover overhead costs.
Sales volumes reduced in the quarter
Volumes reduced by over 14 percent in the third quarter compared to the same period prior year. However, sales of the principal category, cold smoked salmon, were stable year on year with only a 1 percent drop in volume. Sales of specialty products had strong growth with a 45 percent increase in volumes.
"The third quarter results brought a big improvement in processing margins achieved, despite a challenging market. In general, we saw a reduction in the sales of some of our products during the third quarter, though sales of the main product category of cold smoked salmon was stable and speciality products showed a strong increase. We expect to see demand picking up as retail prices fall and believe increased processing margins will give us a better platform to enter 2012 than was the case prior year, comments Jerzy Malek, CEO.
Morpol had net interest bearing debt (NIBD) of EUR 153.4 million at the end of the third quarter, a decrease of EUR 32.9 million from the second quarter 2011.