Processing sales volumes and low salmon prices affecting performance of Morpol ASA in fourth quarter
Morpol's operating revenues in the fourth quarter amounted to EUR 150.2 million, which was 12.9 million lower than in the same period last year. The decrease in revenue in the fourth quarter was mainly due to a 6 percent reduction in processing sales volumes as well as a significant drop in salmon prices reducing revenues in farming, reports www.megafishnet.com with reference to Morpol's release.
Operating EBIT for the quarter amounted to EUR 13.6 million, which was a EUR 6.9 million improvement versus the same period last year. The main reason for the improved result was better performance in processing, which more than compensated for the drop in operating profitability in farming.
The result before tax for fourth quarter 2011 includes EUR 64.1 million in one-offs, including a EUR 47.1 million impairment of goodwill related to farming assets.
Morpol had a net interesting bearing debt (NIBD) of EUR 173 million at the end of quarter four, up from EUR 153 million at the end of third quarter. The increase was mainly due to seasonal high working capital requirements in the quarter.
Processing performed well
Revenue in processing was EUR 129.1 million compared to EUR 139.2 million prior year. Lower unit sales prices to customers (excluding contract processing) as well as a reduction in sales volume year on year had a negative impact on revenue. Operating EBIT for processing in the fourth quarter 2011 was EUR 19.2 million (EUR 6.9 million), resulting in an EBIT margin of14.8 percent (4.9 percent). Raw material purchase prices were significantly lower than prior year while end sales prices reduced slower relative to the raw material prices year on year, resulting in higher profitability.
The average spot price for Norwegian salmon in the quarter was NOK 23/kg ex Oslo compared to NOK 38/kg in the fourth quarter 2010.
Processing sales volume decreased
Sales volume excluding Contract Processing fell in the fourth quarter by 6 percent overall compared to the same quarter in 2010. Sales of the principal category, Cold Smoked Salmon fell by 8 percent in volume and sales of specialty products had strong growth with a 30 percent increase in volume. There was a general reduction in prices to consumers for Morpol's main products compared to the same period last year. The fact that Christmas fell on a weekend during 2011 led to a short festive period with retailers forced to cut orders and sell through excess stock that remained unsold post-Christmas. Sales volumes of Other Products fell by 4 percent and by-products fell by 13 percent.
Underlying performance was solid in salmon farming
Revenue in salmon farming in the fourth quarter was EUR 36.8 million (EUR 40.7 million pro forma in same period last year). The drop is mainly due to significant lower prices for salmon. Of the total revenue, EUR 16.0 million was transferred internally for further processing and sales. Farming Operating EBIT (pre fair value and impairment of goodwill) in the fourth quarter was EUR -2.9 million (EUR 1.2 million). The result includes a write down of biomass in the UK, amounting to EUR 4.9 million (due to costs being higher than market value at year end); costs related to the loss of 12 cages with market sized fish in the UK in a storm on Christmas Day, amounting to EUR 0.9 million; losses related to sea lice and Gill Amoeba issues in the UK, amounting to EUR 1.3 million.
An impairment test carried out at year end did not support the recognised values of the three salmon farming operations. As a consequence, EUR 47.1 million of goodwill was written off in fourth quarter 2011.
Salmon farming sales volumes were 8,777MT in quarter, an increase of 3.9 percent versus the previous year.
The new species businesses in Vietnam and Belize are reported as continuing operations in the quarter.
Comment from the CEO
"I am pleased with the performance", CEO Jerzy Malek comments. "Processing delivered an Operational EBIT margin close to 15%, which is very good. Unfortunately we had some challenges in farming in the UK, however, the underlying performance was acceptable given the low salmon prices. We are well positioned for good performance going into 2012 following our significant investments in processing and farming during 2011".
The Morpol Group is engaged in salmon processing as well as sale and distribution of finished salmon products. The Morpol Group's main products are: cold and hot smoked salmon, gravadlax, fresh salmon fillets, frozen salmon portions, organic salmon, wild salmon and salmon specialties. The Morpol Group also has salmon farming activities in Scotland since 2010 and Norway since 2011. The Morpol Group had revenue of approximately EUR 430 million in 2010.
Founded in 1996 in Ustka on the Baltic coast of Poland, the company employs over 3 000 people in eight countries. Morpol Group is the world leader in smoked salmon. The company has achieved its world leading position through the efficiency of processing activities, a constant focus on product quality and service provided to retail and food service customers. Morpol serves customers across Europe, Japan and the United States.