Aker BioMarine reports strong Q1 sales growth

Aker BioMarine reports strong Q1 sales growth

New and large customers in important markets contribute to continuous growth in sales of Superba Krill.

Operating revenues of the Aker BioMarine Group in the first quarter of 2012 amounted to NOK 83 million, up from NOK 70 million in the first quarter of 2011. Operating revenue growth is mainly attributable to core‐product sales growth: Superba Krill sales increased by 12 metric tons and Qrill Aqua sales were up 330 MT.

Despite revenue growth, operating profit before depreciation and amortization (EBITDA) amounted to minus NOK 7 million in the first quarter of 2012, compared with NOK 11 million in the year‐earlier reporting period. The EBITDA decline reflects lower first‐quarter 2012 production on board the krill harvesting vessel Saga Sea; the reduction in capacity utilization provided poorer coverage of fixed expenses and somewhat weaker gross margin.

Harvesting and production
In the first quarter of 2012, Saga Sea produced 2 852 metric tons of krill meal, compared with 2 926 MT of the product in the corresponding 2011 reporting period. In 2011, harvesting began one month later than in 2012. The statistical effect of a longer harvesting period in 2012 than in 2011 for catches of roughly the same size, is a lower average catch per harvesting day in 2012 than in 2011. Further, in mid‐March 2012, Saga Sea sustained propulsion system damage during a cargo transfer at sea, which resulted in operational problems. Repairs were made during a brief yard stay. In the fall, the vessel will undergo a more thorough shipyard inspection. The first‐quarter 2012 financial statement reflects an anticipated insurance settlement for damage sustained by Saga Sea.

The rebuild of Aker BioMarine’s second krill harvester, Antarctic Sea is expected to be completed in late April/early May. Upgrading has taken somewhat longer than scheduled; among the consequences are somewhat higher costs than previously announced.

Executive vice president for onshore production, Peter Svensson, left his position with immediate effect in April 2012. As a consequence of this, Svensson’s responsibilities have been transferred to Matts Johansen.

Superba Krill
In the first three months of 2012, Aker BioMarine sold 68 MT of Superba Krill oil, 20 percent more than the 56 MT sold in the first three months of 2011. In the first quarter of 2012, the company entered into sales agreements for Superba Krill in the UK and Germany. These are new markets for Superba Krill and the agreements secure attractive marketing and sales volume. Aker BioMarine has also initiated a large Superba Krill clinical study in cooperation with a major European market participant. The purpose of the study is to generate new EUapproved health claims that support an innovative, targeted product. If study findings are as anticipated, development of the new product should lead to a European market launch in 2013.

Recently released market statistics indicate particularly strong growth for Superba Krill in the US market. Superba Krill achieved a sales growth of more than 70 percent in the United States in the Food, Drug and Mass market segment in 2011. Further, krill oil now comprises 7.9 percent of the total sales of omega‐3 products in the United States (USD FDM figures, November 2011).

Aker BioMarine’s partnership with MegaRed producer Schiff Nutrition International includes product development. In the first quarter of 2012, Schiff introduced a new joint health product called MegaRed Joint; the product’s formulation contains Superba Krill oil and other select ingredients. Schiff has been investing in MegaRed Joint marketing and has already received favorable response to its test launch of the new product.

In the Asia and Pacific region, Aker BioMarine’s activities continued at a high level in the reporting period. The company and its dietary supplement manufacturing partner have made considerable progress toward obtaining regulatory approvals in China, and expect the process to conclude shortly.

Aker BioMarine has entered into a distribution agreement with a leading European supplier of animal feed ingredients, for sales of the new high‐value feed product Qrill Pet in the European market. Aker BioMarine is experiencing considerable demand for Qrill Aqua, and the entire 2012 production has been committed at prices somewhat above the contract prices in corresponding periods in 2011. The fact that Qrill Aqua is selling at higher prices in a year in which Aker BioMarine is expanding krill harvesting capacity, confirms solid product demand.

Royalty revenues from licensed CLA/Tonalin production amounted to NOK 4 million in the first quarter of 2012, compared with NOK 3 million in the first quarter of 2011. Aker BioMarine is in ongoing discussions with licensing partners for purposes that include preventing infringement of the company’s intellectual property rights or CLA/Tonalin licensed rights.

Epax Group
In the first quarter, Epax continued to build supply chain strength by further investments in the Ålesund, Norway and Seal Sands, UK locations. The company will invest in these two factories over the next years and intends for both to produce ingredients for the nutraceutical and pharmaceutical markets. Epax will continue to increase its capacity to support its customers’ growth in the marketplace, as well as invest in new technologies that enable an innovative and differentiated product offering. As always, quality and purity remain the most important attributes of an Epax omega‐3 concentrate.

Subsequent to the balance sheet date, Epax’ decided to close down its research and development center in Hovdebygda, Norway. This is in line with the company’s strategy to focus its development efforts around the two remaining production sites. The decision is not expected to have any effects on the financial statements.

On 1 March, the Board of Directors appointed Ola Snøve as new CEO of Epax. Snøve came from the position as Investment Director at Aker ASA and has been on the Board of Directors of Epax since November 2010. Prior to joining Aker, Snøve worked for software development companies Fast Search & Transfer and Interagon. He has also conducted postdoctoral research at NTNU’s Department of Cancer Research and Molecular Biology and City of Hope’s Beckman Research Institute in California. Snøve holds an M.Sc. in Mechanical Engineering and Ph.D. in Computer Science from NTNU, as well as an MBA (Dist.) from INSEAD in France.

Outlook 2012
The first quarter of 2012, was a good quarter in terms of sales of both Superba Krill and Qrill Aqua. In 2011, Aker BioMarine recorded 30 percent sales growth for Superba Krill, and with a continued favorable market, the company expects further growth in 2012. The decisive factor governing Qrill Aqua sales will be the volume of production achieved. In 2012, the company will also conduct a full market launch of Qrill Pet; however, more time will be needed to secure regulatory approvals in key markets.

  • 270 – 300 MT of Superba Krill oil
  • 10 000 MT – 13 000 MT Qrill Aqua.

Although Aker BioMarine is not issuing guidance as to EBITDA, the most significant factors that will affect EBITDA — in addition to sales – are krill harvesting and production volumes on board Saga Sea and Antarctic Sea, and the extent to which overhead costs are covered by volumes and margins.


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