BioMar Group A/S (BIOMAR) Earnings Call Transcript

To get started, I would like to welcome you all to BioMar's '26 Q2 Conference Call. [Operator Instructions] I will now hand over the conference to the speakers, Carlos and Claus. Please go ahead.

Hello to everybody. I'm Carlos Diaz. I'm the CEO of BioMar Group.

And I'm Claus Eskildsen, I'm CFO at BioMar.

Just to start with the agenda, we will talk a little bit about BioMar, some financial highlights, business review and guidance for this quarter. I always like to start my presentations with this, our purpose. This is what guides BioMar. And right now, it's more important than ever because of the turbulent times in the world, but also in the raw material world that we operate. We are innovators dedicated to an efficient and sustainable global aquaculture. Innovation will be key. It has been key during the year, but it will be even more important going forward in the year. Just a reminder of our industry. We operate in a very attractive growing industry, aquaculture, around 22 million tons of production, EUR 25 billion. And feed, as you can see in the slide, is in the middle of the aquaculture value chain. That means that it's a very important part of the value chain, a key part of the value chain, but also we believe the most attractive part in the value chain. Up to 80% of farmers' carbon footprint comes from feed. 50% of the OpEx or cost comes from feed also. It is the main driver on performance and health of fish and is disconnected from the farm price from the prices of fish or shrimp from our farmers. How do we address our model, our business model in this industry? We are the global #3, and we have a very good footprint around the world in the main aquaculture hubs. We have a comprehensive group of feed solutions to address our customers. We are very well invested in R&D solutions and also sustainability solutions. We have an integrated business model with a resilient cost pass-through of especially raw materials through adjustment of prices quarterly, either to baskets or cost-plus models. And because of the importance of the feed, we have more and more longer contracts with fixed margins, which allow us to have good visibility in order to achieve a very nice return on invested capital and finally, cash flow generation. Some key highlights from 2026, Q2. The business model and financial performance proves its resilience. Q2 delivered EBITDA improvement and strong ROIC despite the raw material volatility, geopolitical turbulence, some IPO costs and some tech solutions restructurations in a transition year. Then the underlying feed performance is strong. We have increased our feed volumes by 3% in Q2, 5% year-to-date, while the feed EBIT increased 7% in Q2 and 10% year-to-date. Shrimp is the main driver for this growth. And -- but of course, the mix impacts the EBIT per ton. As we have said, basically, the feed for shrimp is cheaper than the feed for fish. Therefore, the price is cheaper, the turnover is cheaper and the EBIT per ton is cheaper. That doesn't mean that the EBIT percentage is lower. It is as good as in the rest of the fish. Raw material volatility highlights the strength of our business model, our formulation expertise, our sourcing flexibility, commercial model across the world to enable us to navigate this raw material price volatility in a very good way. We have to remember that fish and shrimp do not grow on raw materials. They grow on nutrients. And our knowledge, our formulation knowledge is that allow us to face these raw materials increases, mitigate the effect for our customers, but at the same time, have more value for BioMar. And last but not least, capacity expansions in Ecuador and China are going well under way in a path to transform the business and grow in these very important markets for BioMar.

Moving to the financials, where the quarter demonstrates the resilience of our business. We delivered record high volumes, both quarterly and year-to-date with good momentum across our feed segments. Shrimp was the strongest contributor with 18% volume growth compared to Q2 '25, reflecting continued market share gains in Ecuador. The revenue was positively impacted by higher volumes and higher raw material prices that began increasing in Q2, especially the marine ingredients. Currency helped with approximately DKK 90 million for the quarter, but FX impact for the full half year is actually negative with DKK 15 million. EBIT was slowly down as expected, mainly due to higher IPO costs and the transformation in the Tech Solutions plus some higher depreciation from a larger asset base and leasing of vessels. EBITDA was up with DKK 8 million. Return on invested capital not only remains solid, it was further improved to more than 23% after Q2, supported by disciplined working capital management and improved last 12-month earnings. Net working capital declined DKK 100 million compared to Q2 '25, even at higher activity levels and higher raw material costs. So in essence, volume remains strong. The momentum is strong. Combined profits from the 3 Feed segments increased and the EBIT softness that we see in Q2 reflects deliberate investments that we have chosen to make. This slide steps down into the profit and loss and shows how we are building the business for future growth. The EBIT is positively impacted by almost -- sorry, by almost DKK 30 million from higher feed volumes sold, but the increase in EBIT is primarily margin driven, supported by strong EBIT per tonne development in the Feed segment. We see a positive effect from product and customer mix and our ability to navigate raw material volatility through innovation, sourcing and commercial excellence initiatives that are bringing value to BioMar and our customers. The margin impact is more than DKK 90 million compared to Q2 '25. On costs, staff costs are up due to ramp-up activities in Ecuador and Tech Solutions, positioning us for continued growth. The increase is also reflecting general wage inflation, especially in tight labor markets and IPO completion bonus. Other costs are higher mainly due to higher IPO-related costs, consulting costs and manufacturing and IT initiatives that is improving our efficiency. For comparison, maybe it's also worth to mention that we -- in Q2 '25, had a one-off gain of DKK 17 million from the acquisition of the remaining 66% of the shares in LetSea in Norway, which explains a part of the delta increase we see compared to -- of cost compared to Q2 last year. Total IPO costs in the quarter were DKK 18 million, which is DKK 15 million higher than the same quarter last year. Depreciation increased, reflecting a larger asset base from Ecuadorian expansion initiatives last year and also a new administration building in Norway and leased vessels in Norway. EBIT ended at DKK 250 million, but it is worth to have in mind that without the IPO costs, of DKK 18 million. And if it was not for the AQ1 transformation that we're doing right now, EBIT would have been around DKK 280 million. On the joint ventures, we operate 2 joint ventures, one joint venture in Turkey and another joint venture with a partner in China. We have 1 factory in Turkey and 2 factories in China. They have had a very good start of the year. They have sold more than 50,000 tonnes of feed combined for the quarter, and that represents a revenue of a little bit more than DKK 500 million and an EBIT of DKK 34 million. Revenue is a little bit higher than same quarter last year due to primarily raw material prices. Earnings is slightly lower. But again, we see that they have had a very good start of the year. Return on invested capital continues to benefit from disciplined working capital management and increased last 12-month earnings. Net working capital was reduced by DKK 100 million, and we remain at 10% compared to the last 12-month revenue. Within net working capital, inventories are up due to higher activity, but also higher raw material prices and also strategic procurement of specific raw materials. Trade receivables came down, reflecting that a few large key customers have brought down their balance. And we see a higher utilization of our nonrecourse factoring facility that allows us to reduce the commercial risk from a number of specific customers. Trade payables increased in line with the higher inventory levels and higher raw material prices. On the cash flow, we see a decline in operating cash flow, and that is primarily driven by some higher income taxes paid in the quarter following some earlier dividend paid up from the Ecuadorian business to Denmark and the withholding tax is paid in the following period. And this is what we have seen now. Maybe also worth to mention that if you look into our material, you can see that cash flow for the first half year, operating cash flow is minus DKK 100 million compared to plus DKK 200 million after first half last year. And we're actually following our plan for the year, but the deviation that you look at is actually only a timing impact on net working capital, how we start the year compared to the normal level. Remember, we have previously said that we ended net working capital end of December lower than expected. So there is, you can say, a prioritization going into 2026. On the net interest-bearing debt, that has increased mainly due to 2 specific items, the acquisitions of the remaining 30% of shares in Ecuador and the payment of dividend of DKK 850 million to Schouw & Company in Q1 this year. So the key takeaway is returns remains strong.

Let's continue with the market update. The aquaculture market fundamentals remain supportive across all key species and geographies. favorable biological conditions in most of the markets, both in salmon, shrimp but also in other species. Farm gate prices, unfortunately, have declined both in salmon and in shrimp, not yet in other species, which, of course, makes it more challenging to our customers. Raw material markets, as I explained before, are really volatile, especially marine raw materials due to El Nino, and I will explain further what is happening and what we are doing to counteract that effect. And the current market environment reinforces the value of BioMar's knowledge, formulation, being able to replace raw materials and come with good solutions for customers, it is key this year and in Q1, Q2, but also for the remaining part of the year. This slide, a little bit crowded, just to explain what is happening with the raw materials, with the marine raw materials. As we said, we have had a big increase, a big volatility. The main effect is El Nino, which is reducing the quotas in Peru, which is the main fishing country and producer of fish meal and fish oil. Limited supply flexibility, of course, and the demand from aquaculture, but not only from aquaculture also from human consumption continued quite strong. So if you see the graph, there is a decrease in fish oil of around 31% and in fish meal 49%, which is quite significant with the demand that we have right now. And that is the reason why prices -- average prices for the period compared to last year are increasing quite a lot 100% or more for fish oil and around 50% for fish meal. What are we doing? This is innovation, R&D. This is where R&D really comes into play, being able to complement or replace these raw materials and at the same time, maintaining the performance and maintaining a good fatty acid profile, especially in salmon, which needs to be reached in omega-3, EPA and DHA -- this is key. So having access to a big basket of raw materials, it is key in this period, but also at the same time, having the knowledge of how to combine it and having tested these raw materials before preparing for this period. Multi-sourcing strategy, of course, this is what we have had in BioMar all the time, trying to source from different places, different suppliers, but also different geographies around the world in order not to be dependent on one supplier and one geography. Our commercial model, of course, supports that. We try to mitigate as much as possible also for our customers. But what we cannot mitigate, we are able to transfer into prices due to price adjustments quarterly, either on baskets or cost plus. Innovation continue evaluating different sources, novel raw materials, algae oils, single cell protein, different raw materials that can play a very important role in this period with very high volatility and high prices. And of course, we have a diversified footprint. We have, of course, plants all around the world. We feed many species, not only salmon. And that, of course, helps BioMar to drive this period in a better way. As Claus was mentioning, we have some effects from higher costs because of IPO in the quarter and in the first half. We also have the effect of the Tech Solution part, but this slide is showing just the Feed segment. If we look at them, we can see that our volume growth was 3% and our EBIT 7% comparing quarter-to-quarter this year. In the year-to-date, it was 5% and 10%. So the Feed segments are really performing according to plan or better. The lower absolute EBIT per tonne in shrimp, of course, have a dilution of our EBIT per tonne. But as I said before, the EBIT percentage remains attractive and the growth in this segment is what we are pursuing. Our strategy to strengthen the core in salmon and fish for selected species, but at the same time, grow significantly in shrimp is working, and this is what we are seeing in our results.

Turning to the Salmon segment. Overall, we have seen good weather and biological conditions, driving strong volume growth in both Australia and in the U.K. Norway went the other way. Volume decreased a bit, but that was expected and structural. It was not biological. The lower volume in Norway reflects the loss of a customer following a customer consolidation in the Norwegian market. Total volume for the segment decreased 6% compared to same quarter last year. Importantly, EBIT per tonne increased driven by customer and product mix. So the segment is earning more money per tonne of feed that we are selling, even where volume moved sideways. EBIT is on level with Q2, but on a lower volume. Looking forward, our customer relationships in salmon are strong, underpinned by our innovation, sustainability, sourcing capabilities that positions BioMar well to help customers to mitigate and navigate raw material volatility as we are seeing for the time being, which is exactly where the value of the partnerships shows up. So to summarize, healthy underlying performance in the segment, as Carlos also said, a known and explainable Norwegian volume effect and margin quality moving in the right direction. If we move to the Shrimp segment, the strongest volume story in the portfolio this quarter, exceptional volume increase at 18% compared to same quarter last year, driven mainly by Ecuador. The growth was based on a strong relationship with key customers, which is what's allowing us to keep winning market shares in the largest shrimp market globally. EBIT increased 6% due to a lower EBIT per ton. There are 3 reasons why EBIT per tonne is reduced, a higher share of standard feed sold to large key customers, higher use of toll milling in Ecuador that allows us to ramp up volume, while we are waiting until we are increasing our production capacity later this year and also next year and intensified competition in Vietnam. If we move to Selected Species, the segment delivered continued growth, leveraging our position as the preferred feed supplier in the local markets, and that position rests on 3 things: superior performance, deep customer relationship and technical expertise. And in these markets, the combination is difficult to displace. EBIT per tonne also increased. So we are getting growth and margin improvements at the same time. The drivers are product mix, better capacity utilization across the markets and our units and our commercial excellence initiatives. The last segment is the Tech Solutions, where the story this quarter is about transformation, not run rate performance. We are shifting the business model in Latin America from a distributor model to direct sales, and that transition is progressing as planned. The rationale is straightforward. Direct sales lets us capture more of the available business potential and build a stronger base of recurring revenue. The transition had a temporary negative impact on sales and earnings, which we have also informed earlier. That was anticipated and built into our expectations. We expect it to normalize during 2026. And importantly, market demand remains strong. So this is a channel change rather than a demand issue. We are investing in organic growth and R&D to build new AI solutions based on our proven core technology combined with new technical inventions.

Going through the quarter and all what we have elaborated with Claus, we are prepared to raise our guidance and reflecting the momentum uptick. We are increasing our volume guidance from [ 1.61 to 1.67 million tons ] to [indiscernible]. The main reason for this is, as Claus mentioned and I mentioned before, good biological conditions in many of the markets, but also new -- bigger share of some contracts and new contracts in some of the segments that we are operating. In terms of EBIT, we are raising the bar from DKK 1.1 billion, DKK 1.2 billion to DKK 1.2 billion, DKK 1.3 billion. The main effects are higher-than-expected volume growth, which, of course, is bringing more EBIT. improvement in product and customer mix is different customers, different contracts and they require different products, which is more favorable for us. The ability to navigate in this very difficult period with marine raw materials, where we have good solutions in order to mitigate our customers, but also that creates more value for us. And we have also some FX in the figures, which are helping to increase the guidance. Revenue is increasing from previously DKK 16 billion to DKK 17 billion to DKK 17 billion to DKK 18 billion. The main effect is volume growth, again, but a lot of it is coming, as you know, we transferred the raw material costs. So a lot of it is coming also from the inflation of raw materials, plus also a significant effect from ForEx exchange. Last but not least, CapEx, we made before a guidance with DKK 300 million to DKK 500 million. Now we are well into the year. So we know better what is happening, especially with the investment in Ecuador. So we narrowed this guidance to DKK 400 million to DKK 500 million, which is where we believe we will end. We continue having the same target in our capital structure, 1x to 2x interest rate debt over EBITDA. And we target our dividend policy continue to be the same. Our return on invested capital, as I said before, is very good. So we are well also into our guidance on return on invested capital. And having said that, we open the microphone for questions.

Good. That concludes Carlos and Claus presentation. [Operator Instructions] We have some questions coming in. Emil Haargaard from DNB Carnegie.

Well done with the guidance and solid Q2 report. A few questions from my side. I suggest we take them one by one. So my first question goes to the guidance upgrade. Can you add some color on how significant a lever are the current elevated marine ingredient prices in determining whether you end up at the lower or upper end of your new guidance ranges relative to the other components you mentioned where I assume the full year visibility is stronger given it's related to wallet share gains, new contract wins and mix effects. So is this the key moving factor to the new guidance on revenue and EBIT? That will be the first question.

Yes. Should I answer. I think actually more clear is this one because we know what to do with this. And we have the positions in place and our knowledge in place. So we know exactly what to do in the second half on our recipes to do this. So that is more or less on place. There's a lot of uncertainties also because our positions are on place. Actually, the biggest uncertainty, I would say, is the volume, the biology as usual. I mean you know in this business, biology can play a big role. So if you have to put a percentage to it, a part of it is volume. Another part is what you were mentioning, maybe 1/3. And the third part is because of the different volume is the contract mix and the product mix. if I have to give you a good guess now, it's 1/3, 1/3 and 1/3. So it's not fully dependent on what you're mentioning. The other ones are more variable.

Perfect. That's very clear. Moving on to the second question, which is also related to the current and the new situation, and thank you for the detailed walk-through of the situation as part of the presentation. So my question goes to when customers shift toward alternative nutritional solutions, how should we think about the margin dynamics there? So does the wider price gap between marine ingredients and alternatives translate into margin? Or is pricing structured, so it's largely margin neutral? Because it seems like from your updated guidance that this is not only a cost tailwind in absolute terms, but also provides the potential of lifting margins. So any color on that would be appreciated.

Yes. As I said, there's many different customers, contracts, species and pricing mechanisms. First of all, we have to remember what I said before, fish and shrimp grows on nutrients and not raw materials, okay? Having said that, of course, especially salmon, but also other species need a certain level of omega-3 EPA and DHA that either using only fish oil or you can use a mix of other alternatives in order to do exactly the same level required or even better sometimes. And that happens not only with fish oil. This could happen with proteins. The protein -- the fish and shrimp don't need fish meal or soya oil, they need a certain amino acids in order to build muscle. So the ability of being always on top of innovation, creating these mixes and these alternative ways of mimicking what a certain raw material has, that is what BioMar do. Today, it could be fish oil or fish meal. Tomorrow, it could be protein. We, as BioMar are always looking not for a competitive advantage, but for a renewable competitive advantage. So in some of the contracts, it's a cost plus. In some of the contracts, it's a price. In some of the contracts, it's a basket. So it varies from species to species, contract to contract and customer to customer. It's not one way of doing it. But the main philosophy is what I explained to you before.

Okay. So if I understand correctly, that there's potential to increase margins based on this situation due to your, I would say, superior feed flexibility or raw material flexibility, if that's correct?

You are competitive and as long as you are mitigating the biggest effect to the customers, definitely.

Yes. Understood. And last question from my side will be on the shrimp business. So the first leg of the Ecuador capacity expansion comes online at the end of this year and in part in late '27. So is it possible for you to just roughly quantify how much of the capacity is effectively presold through customer contracts?

Yes. As you mentioned, the first project is coming the last quarter this year. So of course, the full effect will not be this year. And that is around 110,000 tonnes of capacity on a full year basis. And the second project, which is the biggest part comes at the end of 2027. That's a much bigger project with another 200,000 ton capacity. We have -- as I said before, as I mentioned in the industry outlook, more and more feed suppliers are becoming extremely important for customers. It was the case in salmon before, but now it's moving very fast into other species, especially into shrimp in Ecuador that customers are securing feed and going for long-term contracts. So specifically in Ecuador, without mentioning names, of course, we have signed 2 big long-term contracts and on the way to signing. So we could say that most of the capacity is committed for Project 1 and Project 2. And that is exactly the reason why we are having to use toll milling in this period in order to ramp up immediately when we have the capacity ready.

The next on the line is Ulrik Bak from Danske Bank.

'll also take them one by one. So the first one is, on your upgraded volume guidance. Could you perhaps be a bit more specific about what segments you have won additional contracts in? And if you can provide any details about the contract duration and anything else on -- of the nature of the contracts would be appreciated.

Yes. We cannot name the customers, but we can -- it's mainly in the salmon segment. And it's both new volumes, contracts, some of them 2 to 3 years, some of them 1 year and some of them are increase of our share in a long-term contract. That's the main effect. So it's the salmon segment. We are able to compensate what we were losing. As you remember, in the Q1, we were losing in some of your reports, we can see the Nova Sea because of the acquisition of Mowi. Fortunately, we -- this second half, we are able to recover a big part of those volumes through other contracts or higher share of existing contracts in the Salmon segment.

And perhaps on that note, earlier this quarter, we saw SalMar acquiring a controlling stake in another fish farmer called Masoval. First of all, is that a customer of yours? And if so, what do you expect to happen to those volumes? And perhaps in more general terms, as this consolidation of the Norwegian fish farmer market continues now with Nova Sea acquired by Mowi and Masoval by SalMar, how do you think about your salmon division in Norway going forward based on those dynamics?

Yes. We are confident that we are extremely well positioned to be very honest. Well, Masoval just happened and Masoval is partly our customer. We have a good relation with SalMar. So I don't see any reason why not to continue. But of course, that will be their decision. But we are well positioned in many customers in many of the -- what you could call the consolidators. So the capacity in the Norwegian market is not unlimited. So to be honest, no matter who buys whom at the end of the day, they need feed. So someone needs to supply it. So at some stage, I don't know if -- let's say that it was the stream that someone buy everything, you need to use all the suppliers. So one thing is the consolidation and the other thing is the feed capacity. And the feed capacity in Norway, it is quite limited and constrained right now. So we are not worried, to be honest, of losing volumes. And as we explained last year, this year, we lost Nova Sea and there was not that many contracts for renewal. That situation is changing, as we also said in last year. So the new volumes are up now for renewal. So some movements can come and change of hands in different big customers. So the answer is no, we are not worry now about the future of our business in Norway.

Then a question about Chile. According to market data, feed demand and biomass growth has been negative in Q2. Is that also been in your business? And are there any signs that this is turning around to become less of a headwind in H2?

Not in H2, actually. And in half 2, I don't think it will turn around. Maybe it will stay the same or the opposite actually, which to be honest, could be good for the prices of salmon in Chile. But going ahead, I think a lot of what you see in Chile is regulations. And Chile, so I know the government there, what they do and they do not do. It has been really restricted in the past. But I think the Chilean customers can tell you the regulations are possibly changing for the good, for the positive, and that could allow more growth in Chile in the future because a lot of it is regulations and restrictions.