‘2014 is looking quite rosy for Nutreco but selling Iberian business is key,’ says analyst

“The first quarter is usually a slower one with the revenue base, generally, always low. But, nevertheless, this is a strong achievement for Nutreco and definitely an indicator of things to come for the remainder of 2014,” said ABN Amro’s Maarten Bakker.

Though the group had a sluggish 2013, it was already doing better than most of its competitors in the second half of that year in terms of volumes, said the analyst.

He said this was primarily as a result of the large salmon producer customer it secured in that period.

Nutreco has maintained confidentiality on that score but industry speculation suggests the company in question is Norway's Lerøy Salmon.

Fish feed shows solid growth ​

Solid growth in the Norwegian fish farming sector has bolstered Nutreco’s fish feed revenues.

The Dutch group said those earnings increased 26.6% to €414.5m compared to last year (Q1 2013: €327.5 m), with higher demand for salmon feed in Norway boosting demands.

The company’s revenues for its animal nutrition segment were down 4.6% to €438.8m. 

But Bakker said raw material pricing volatility was at play here and other criteria, including volume results, were far more important in terms of gauging success for a segment. 

“I always look at volume numbers, and a hike of 1% in animal nutrition organic volume is positive for the business – it’s a slight improvement on the trend in recent quarters,” said Bakker. 

Knut Nesse, CEO of Nutreco, said “based on the developments in the first quarter, we expect EBITA before exceptional items for continuing operations for the first half of 2014 to be clearly higher than first half 2013 (€ 80.3m)." 

Sale of Iberian business hinges on price bartering ​

There has been less positivity in regard to the sale of its Iberian activities. 

“Our compound feed and meat business in Spain and Portugal is taking more time than earlier anticipated as we seek a fair valuation that recognizes themarket position, current financial performance and future potential of these businesses,” said the Dutch feed giant.

The company announced its intention to divest of the division back in February, citing the poultry and compound feed assets as non-core business. 

But the move to sell the Iberian activities started some months prior to that. With Nutreco looking to focus on premix, feed specialties and fish feed, it had put the division under review back in July 2013.

Private equity v industry players ​

Bakker said overall earnings for Nutreco in 2014 could be hit if the Dutch group does not find a buyer for its Iberian operations and seal the deal in the coming months.

New York based private equity group, Cerberus, has been the most prominent front-runner to acquire the Iberian business of the Dutch group to date.

“I’d say Cerberus is still in the running. But a private equity company, given that it is not interested in the synergies such feed and meat processing activities would bring to its business, won’t pay top price,” said the ABN Amro analyst.

He said that Nutreco is likely to keep up the pressure on the price for the Iberian units given that the group has flagged up the improvement in Q1 2014 operating results of those businesses compared to the same period last year. 

But Bakker said a feed manufacturer is unlikely to buy the operations.

“I always got the feeling talking to feed industry players that the Spanish and Portuguese operations were primarily appealing to investment firms.

Industry interest is limited as Nutreco wants to divest of the compound and poultry processing activities in one go as there is a certain level of integration between the two activities.

Anyone I have spoken to on the feed side is only interested in purchasing the compound business,” said the analyst.

Marine Harvest impact ‘overplayed’​

Bakker has downplayed the impact of the decision of one of Nutreco’s biggest fish feed customers, Marine Harvest, to start its own feed plant - with 200,000 annual tonnage - on the Dutch group’s earnings for this year. 

“Marine Harvest’s salmon feed facility in Bjugn is not going to be operational until July and I deem it unlikely that plant capacity will be on stream to provide feed for the peak season of July to September.   

I don’t expect there to be any impact on Nutreco earnings this year from the new feed capacity for Marine Harvest.

The salmon company is still sourcing two thirds of its feed from the Dutch group and it has yet to prove that it can produce a better quality and, critically, a cheaper product than the feed it currently gets from Nutreco.” 

Bakker, looking at growth averages per year for salmon production in Norway, reckons that it will take two years to clear the overcapacity generated by the addition of Marine Harvest’s 200,000 MT of salmon feed onto the market.