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Article Excerpt
WOUT DEKKER, CEO, NUTRECO HOLDING NV: (Audio in progress) 2008. Nutreco, just a sheet on who we are; we are in the global top three animal nutrition companies in the world in revenues, with slightly less than EUR4 billion in sales in animal nutrition and fish feed. Of course, Cargill is the global number one.
We have 100 factories in 30 countries. Nutreco had a sale in 2008 of EUR4.9 billion and like you know, since 1997 we are a public quoted Company and we created Nutreco as a management buyout out of certain assets of BP nutrition in 1994.
We have a workforce now over 9,000 people and it is interesting to note that less 1,000 are working in the Netherlands.
The cornerstones from the present Nutreco are family companies, and some have their heritage more than 100 years ago, like Skretting in Stavanger. But in the Netherlands companies like Trouw and Hendrix are well known.
We listed the Company in 1997. Then it seems that almost every three to four years we had a hard look at our strategy and especially the re-balancing for growth period had an impact on our portfolio. And the last years are characterized by the focus on animal nutrition and we also made our acquisitions in animal nutrition.
The highlights for 2008, we are describing it as a solid performance in a volatile year, but if you look at animal nutrition and fish feed, 2008 has been the record year for us in performance, but where we have done everything to take the volatility out of our portfolio. I must say that the world around us is more volatile than ever before.
Our revenues are up by 23% to EUR4.9 billion. Our operating results up 14.7% to EUR182 million with strong results in Premix and Feed Specialties. Like discussed in the past, if you are in agriculture then a well spread portfolio is important, animal diseases, food scares. So we have a broad portfolio; we are active in 30 countries, sales in 80 countries, but we are also active in most of the fish species and in the different phases of the life of the animal.
In 2007 when we implemented the re-balancing for growth strategy, we gave a mid-term target, an outlook, where we said looking at 2006 we'd like to double the EBITDA from EUR115 million to EUR230 million and we will do that in 2010. What you see now is that we still confirm this target, but we say it can still be in 2010, but maybe also in 2011 or 2012 and we will come back on that issue.
Our net profit decreased by 6.6%. Our interest rate is higher due to the capital remittance of 2007, the acquisitions and also our tax rate is now at a more sustainable level than in 2007. We have a sound balance sheet and a healthy capital structure to support further growth. And we are going to propose a dividend of EUR1.43, which is at the maximum of our policy, the 45% payout ratio.
Some sheets about the global market developments; 2008 was a remarkable year; really two distinct phases in the year. It was only 12 months ago that all the headings in the newspapers were about food security in the world, sky high commodity prices, scarcity of food, and even some unrest and hunger was back on the political agenda.
Now of course at the end, in the second half of 2008 and also today, it is all about global financial crisis, about recession fears. So where scarcity in the beginning of 2008 was much more linked to food and raw materials, now it seems that money is becoming scarce again; so two different halves in 2008.
Global feed volumes continue to develop and increase. For the first time ever on page 10 you see that the animal feed is now -- has grown over 700 million tonnes in the world. It's a huge market but also a highly fragmented market, so we have seen a 2.9% increase.
We always talk about animal nutrition and fish feed. Somehow in the definitions people still don't -- do not take fish feed as part of the definition of animal nutrition. Since years we have seen a small decline on the global salmon feed volumes of minus 1% after two years of double digit growth. And that does not have any -- it has to do with the ISA, the virus outbreak in Chile. It does not have anything to do with the lack for demand.
On the demand side of salmon, the markets are still very strong. It is illustrated on sheet 11, in 2008 we have seen a decline in Chile of 9% and there is a lot of uncertainty in this moment in Chile. Chile is producing Atlantic salmon, coho and the big trout. So that's the big difference with Norway, which is only producing Atlantic salmon, but the Atlantic salmon production in Chile in 2009 will show a big decline.
Markets are strong for salmon, so Norway will show a growth and Norway is the biggest market -- the biggest producer of Atlantic salmon. Norwegian market is expected to increase by 12% and we also see increases in Canada and in Scotland. All in all, we do expect that salmon feed will be confronted with a decline in the market in 2009.
I already mentioned the high volatility in raw material prices. In sheet 12 we have given some indications on commodities like soy and wheat, but also fish oil and fish meal prices. Commodity prices peaked during the summer and then came down. On fish meal we have seen more or less a stable situation that had to do with a lack of demand for fish meal coming from China.
On the fish oil side we have seen first an explosion in the price, and that had to with that Omega 3 story, where also the pharma and the human nutrition industry was interested in and in this moment we see that fish oil prices are back to the levels of early 2007.
On vitamins we have seen a strong increase due to the fact that Chinese vitamin suppliers had two issues. In the first place, they had to deal with the food security issue; melamine has been a very visible issue in Asia; once again with the milk, but two years ago it was with the pet food contamination and a big recall in North America.
Another element was, of course, the Olympics in China, which forced local producers also to respect the same environmental issues as Western producers are doing. So where we have seen a softening of most of the commodity prices in the second half of the year, we are still looking at quite high vitamin prices.
On poultry we have a strong position in Spain. We are still the biggest producer of poultry meat. In the graph on page 12 we have given you an indication for the development of the poultry feed costs. They were up 25% towards farmers in 2008 due to the high commodity prices.
And like you can see in that graph, farmers and meat processors were unable to pass on those raw material price increases towards the consumers. So it was negative for most of the months and you know that especially the summer season when 60 million people are -- tourists are visiting Spain, it's a very important period for us, and normally that's where we make our margin.
The good news in Spain is that feed prices are coming down, that the spot prices of poultry are coming up and there is a better balance between supply and demand, and 2009 started with positive results for the Meat business in Spain.
On sheet 14 the positioning of Nutreco in this animal nutrition industry, what I already mentioned, that the global top 10 players only have a 13% market share, so animal nutrition is still a highly fragmented market.
On compound feed we have three big positions in Canada, the Netherlands and Spain. And in all those three countries, we are the leading players, and especially in Canada, that is the business that we acquired. There we have a 23% market share in compound feed equivalents.
On premix and specialties it is more consolidated. The four global players have a 50% market share. DSM who bought Roche Vitamins a couple of years ago, is the clear number one with 24%, 25% market share. Nutreco is a visible number -- globally number two with a 12% market share.
Most of the integrators in the world in the big feed companies are working with two premix companies, because the premix companies are also supplying the knowledge and doing the advice on the total formulation. So it means for us that we are in a weekly contact with 25% of the global animal nutrition industry.
On the salmon feed market, Nutreco is the global number one with a 35% market share. That is a couple of percentage points lower than we indicated with previous presentations; especially the decline in Chile has given a shrinkage of the free market.
So in Chile what we see is that the integrated players who have their own feed mills have a relative higher market share. So we did not lose in the free market, it mainly has to do with that shift free market and the integrators.
25% of the fish feed is non-salmon feed and there we had a good year and we also made two good acquisitions.
On sheet 15 Nutreco is at a critical junction as an animal nutrition company. We are connecting two worlds with the world of the plant growers and the producers of co-products and by-products; think about DDGS, which is a co-product from the bioethanol industry. And we are connecting that with the meat and the fish producers in the world. So if you are in this spot in the value chain, it is a critical junction because raw materials will become scarce again.
So what is important in the first place? It is the nutritional knowledge for the species, but also in all the different stages of its lifecycle. A global presence is required to connect the Company to all the knowledge centers and research institutes, feed to food safety. Now, the melamine example is a very visible example that raw materials are sourced on a global basis and that everything is connected, not only the food travels. Also the raw material streams are going global and Nutreco already for 10 years is -- has that system of NuTrace in place.
Innovation and research and the acceptance of technology will become more and more important. On page 16 -- you see that of course we are focusing on the animal and the nutritional knowledge, but attention is nowadays asked by many stakeholders about the production of meat and fish. So, environmental issues are becoming more important. The whole issue about sustainability and natural resources, but also the yields and animal welfare remain to be very important.
We do expect that the effects we have seen in the first half of 2008, where we all realized that raw materials, even commodities can become scarce, that maybe not in the first month of 2009, but those issues will come back in the near future.
On page 17, Nutreco we are listed since 1997. We had a period -- so animal nutrition and fish feed was always at the core, we had a couple of years where we invested more upstream, and now we are looking more downstream also with our whole desire to be more involved on the technology side of the business, being more involved on premixes and the whole additive business.
Over this whole period, we created value also by active portfolio management and rebalancing for growth. I like to remind you that over the last three years, for example, we returned [EUR18 million] in capital to shareholders with super dividends, dividends and the capital remittance of 2007.
Our strategic direction is to become more involved and have higher market shares in the higher value products. On sheet 18 and 19, we are explaining what type of different feeds there are in animal nutrition. It consists -- a feed can consist of the premixes, the vitamins, the micro elements, calcium, phosphor, the proteins and the energies.
Sometimes we deliver the complete feed like we do with Hendrix in the Netherlands, Nanta in Spain and partly in Canada with our Nutreco Canada activities, so it consists of all those elements. But we are also supplying to integrate as concentrates and premixes and towards big integration on a global basis more and more the higher concentrates of premixes and some additives.
On page 19, our desire to be more involved on the specialty side, a couple of examples.
Nowadays in dairy, where cows are producing 8,000, 9,000 liters or kilos per year, you can compare it, of course, with Olympic athletes and we are used on the human side that athletes have a different requirement than average working people. The same is true for animals. So the higher...
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