On behalf of BioMar, I would like to welcome all participants for BioMar's Q3 2026 Conference Call. For the first part of the conference call, the participants will be in listen-only mode, and during the Q&A session at the end, participants are able to ask questions by dialing the number you have received and press pound key five on your telephone keypad. I will now hand over the conference call to the speakers, CEO Carlos Diaz and CFO Claus Eskildsen. Please go ahead.
Thank you very much, Basim, and welcome to everybody to our presentation of conference call for the Q3 2026 results. We will start with the in brief of BioMar, then some financial highlights by Claus, business review, and our guidance for the year. In times like now, with the geopolitical turbulences and the El Niño effect, it is extremely important to remember our purpose. I think especially now, innovation, it is extremely important to counteract the effect of lack of some raw materials. Efficiency and sustainability definitely remain extremely important for the growth of aquaculture. It is always good to remember, I like to start with this slide always, to remember what is BioMar. We operate in a very attractive and growing industry, 22 million tons, and an industry of EUR 25 billion with a growth of more than 4%.
Feed, it is an extremely important part of it, a crucial part of it, but also we believe the most attractive part of it because of several reasons that I have explained before. In this industry, we address it with a very strong and resilient business model, as you have seen in our results for Q3. We are number three globally. We have very comprehensive feed solutions through all the stages of fish and shrimp. We have a very well-invested R&D and sustainability capabilities, driving innovation, formulation, and performance. Integrated business model with a resilient cost pass-through model and value creating for customers and partnerships. A very good volume visibility, resilient earning profile, and strong return on invested capital and cash flow generation, as Claus will show later. Some key highlights from the Q3 2026. Record high business activity, accompanied by exceptional earnings and return on invested capital.
Our feed business continue to deliver strong growth momentum, with significantly higher margins during Q3. Strong Salmon and Selected Species earnings more than offset the earning pressure we had in Shrimp from increasing raw material cost, low farm gate price, toll milling, and challenging energy situation in Ecuador, and also the ramp-up in Vietnam. The current energy shortages in Ecuador related to weather conditions could limit growth in Q4, but we remain positive on the fundamentals of Ecuador. Remember that shrimp is only two months or maybe three months cycle, so the possibility to correct in the next quarter is extremely high, different to salmon. So we maintain our current ambitions going forward.
Sourcing flexibility, R&D formulation expertise, this is extremely important, and this enabled us to increase the use of alternative raw materials, mitigating the prices of marine ingredients especially, while maintaining the feed performance and creating value for customers and also for BioMar.
Turning to the financial highlights, we delivered another quarter of strong business activity and exceptionally strong earnings. Feed volumes increased by 5% to a new quarterly record of 488,000 tons in the quarter, with growth across all our feed segments. Year-to-date volumes were also up by 5%. Shrimp remains an important growth engine, with year-to-date growth of 17%, particularly supported by our continued expansion in Ecuador. Revenue increased by 19% to DKK 5.8 billion for the quarter, driven by higher volumes and higher raw material cost reflected in sales prices. Currency movements also contributed positively in the quarter. EBIT increased by 50% to DKK 618 million in the quarter. The exceptional EBIT performance was driven mainly by strong margin development in the salmon division, but also within Selected Species. Feed EBIT per ton of feed we are selling increased significantly, demonstrating our ability to navigate in a highly volatile raw material environment.
Finally, return on invested capital increased to 27%, supported by higher earnings and continued discipline in working capital. Net working capital ended actually below Q3 last year, despite the higher activity level and higher raw material prices. The EBIT bridge shows here that the earnings improvement was fundamentally margin-driven. Starting from an EBIT of DKK 411 million in Q3 last year, higher volumes contributed with around DKK 50 million in the quarter. The most important impact was, however, the margin contribution with DKK 313 million. Our sourcing position and formulation capabilities enable us to manage the sharp increase in raw material ingredient prices while maintaining the required nutritional performance and customer value proposition. The improved margins more than offset increased staff cost, increased other operating cost, and some increases in depreciation and amortization, bringing EBIT to DKK 618 million.
Staff cost increased due to our capacity expansion in Ecuador and also the transition of AQ1 towards a direct sales model. Other operating costs were affected by the volume uplift and the operating cost pressure, especially on energy and freight cost. Overall, the EBIT margin increased from 8.4%- 10.6%, and our joint ventures in Türkiye and China report a combined EBIT of DKK 32 million for the quarter on a 100% basis. This is DKK 6 million below same quarter last year, primarily due to the raw material prices in China, where it is more difficult to pass that on to customers in this highly competitive market. The strong earnings performance is translating into both improved cash flow and a higher return on invested capital. Cash flow from operation increased to DKK 675 million, driven by higher earnings and a reduction in net working capital.
Net working capital ended at approximately DKK 1.5 billion, almost DKK 100 million lower than Q3 last year, despite the higher volumes and the significantly higher raw material prices that we have seen, but also helped by increased utilization of our non-recourse factoring and reverse factoring facilities to absorb a part of the higher raw material prices. Net interest-bearing debt was DKK 2.4 billion, with debt leverage improved to 1.37x the EBITDA due to strong earnings performance. The return on invested capital increased from around 22%- 27%. This demonstrates that our earnings improvement is being achieved alongside disciplined capital and working capital management.
Looking at the market, we still see aquaculture fundamentals very supportive across key species. People continue demanding healthy food, healthy and sustainable food. Fish and shrimp remain strong. Overall, actually very good biological conditions this year. Started very good, but lately impacted by El Niño, affecting some markets, Ecuador especially with the energy, and we could see some effect in Chile because of temperature in the water and algae blooms. It is still uncertain, but it could happen. Very strong shrimp production growth in Ecuador so far, but weather-related constraints and energy availability are adding pressure to this, especially to farmers. We have the possibility to generate our own energy, but because of these energy restrictions in this quarter, which took the market by surprise, there could be a reduction on biomass in order to have sufficient oxygen to feed. Having said that, we remain positive. Market fundamentals stay there.
The cycle of shrimp is short. Of course, the correction on generating energy and the rain will come in the right side of Ecuador. This should be a situation for Q4, maybe a little bit Q1. El Niño is tightening global marine ingredient supply. Now the second quota has also been suspended. Of course, the pressure on prices and availability of these raw materials is very important. Under the current market, environmental reinforces the value of BioMar's formulation expertise, R&D capabilities, diversified sourcing platform, and commercial agility in navigating across this raw material availability. Doing a double click on this, it is extremely important to highlight, we do not compromise on nutrition. We work for reduced dependency on raw materials. Oils and proteins are extremely important for health of fish and shrimp, for welfare, performance, and robustness.
We need to be sure that we will have these nutrients available. But of course, at the same time, we need to reduce the dependency on traditional raw materials, such as fish oil and fish meal. Algae oils, plant raw materials, microbial raw materials or ingredients, circular byproducts are extremely important. For being able to use these raw materials, you need to work before. You need to have the R&D knowledge to be able to combine these ingredients and complement or replace fish meal and fish oil when they are scarce. R&D, formulation expertise, sustainability focus, sourcing flexibility is extremely important in this period. You cannot do it and react if you have not been active before. This is just an example of what we did with the oil, but it is the same with the protein or amino acids.
As you can see here, this is the normal cycle to produce fish oil, starting from microalgae, eaten by zooplankton, then wild fish, fisheries, fish oil, and aquafeed. We have been able to, due to technology, with partners and suppliers, to replace the cycle with fermentation and produce omega-3-rich ingredient in order to replace fish oil. This sounds very nice, but we started this in 2013, actually. That was the first trials. The first commercial feed for salmon was in 2016. Together with a customer, we decided to include it, not when there was scarce fish oil, but because we were seeing that this could happen in the future. In 2021, we have produced 1 million tons of feed with these ingredients, and in 2026, we have produced 5 million tons of these ingredients. Of course, it is not enough to look for alternatives when you have no alternative.
You need to look for them and do the research always and try to scale these raw materials up in order to be able to formulate and combine ingredients when it is needed.
Turning to salmon division. Volumes increased by 4% and ended at 305,000 tons of feed. Growth in Norway, Australia, U.K. more than compensated some lower volumes in Chile. EBIT increased to DKK 518 million. The strong performance was driven by market share gains, customer mix, and a significant improvement in the underlying margin. Our sourcing flexibility and formulation capabilities enabled us to respond effectively to raw material volatility while maintaining our feed performance. However, the profitability achieved in Q3 was significantly above historical levels, and the supporting factors are not necessarily expected to persist to the same extent in the coming quarters. The reason for that is primarily that prices on alternative ingredients are also increasing. In shrimp, volumes increased by 7%, supporting our continued growth momentum in Ecuador. EBIT, however, decreased from around DKK 40 million- DKK 20 million compared to Q3 last year.
More than half of this gap in EBIT was due to one-off items, reflecting especially bad debt provisions on two previous customers. In Vietnam, we are still ramping up volumes and trying to be more cost-efficient. These items or you can say reasons are actually explaining a big part of the DKK 20 million gap that we see here. However, volumes were increased, so EBIT was also affected by toll milling cost in Vietnam, higher energy cost in Ecuador, or sorry, I said Vietnam, toll milling cost in Ecuador, and also the shortage of electricity that we are realizing in Ecuador due to the El Niño impact. The exceptionally high raw material cost and very low shrimp farm gate prices have constrained our ability to recover cost fully increased by pricing. The first phase of our capacity expansion project in Ecuador, the new production line, is now operational.
The second phase, meaning the new factory, is expected to become operational in second quarter of 2028. This is a small delay compared to previous, and this is mainly because of the situation with the electricity supply. The project internal is actually going as expected. Despite the near-term challenges, the volume development continues to demonstrate our strong market position in the very important Ecuadorian market. Selected Species continued its solid development. Volumes increased by 7%, and EBIT increased by 9% to DKK 107 million. The performance reflects our strong local market position and close customer relationships. Earnings also benefited from product mix, improved capacity utilization, and commercial excellence initiatives. Our formulation capabilities within Selected Species once again enable us to manage the inflationary raw material environment while continuing to create value for our customers. Finally, Tech Solutions delivered revenue growth of 7% to DKK 63 million.
EBIT was DKK 19 million compared to DKK 23 million in Q3 last year. The development reflects the ongoing transition of AQ1 towards direct sales in Latin America. The transition is progressing as planned and is expected to strengthen customer relationships and recurring sales. As anticipated, the transition had a temporary negative impact on earnings during the quarter. Customers' interest in efficiency-enhancing technology remains positive. However, El Niño could, we don't know, but it could create some near-term uncertainty and potentially delay investments decisions, particularly in Q4 and in Q1 next year. But we see this as temporary situation, if it will occur. We remain confident in the strategic direction of the business, but expecting some quarterly volatility during the transition.
Talking about guidance, starting with the volume, we are going to soften our guidance for volume from 1,630,000 tons- 1,700,000 tons to 1,600,000 tons- 1,650,000 tons. Main reasons are bit lower demand in the Salmon segment, mainly because of we see different situations in different markets, but some early harvest in some markets, some different contracts in other markets, and possible reduced feeding in Chile because of El Niño, increase of temperature, and algae blooms. The same in Ecuador, where it could affect the biomass and the volumes. The revenue, even with this lower volume, we increased our guidance, and this is mainly because of higher raw material prices, which, of course, transfer to higher prices of feed. Also, a little bit of currency effect in the guidance for revenue. In terms of EBIT, we increased our guidance to DKK 1,290 million -DKK 1,360 million from DKK 1,200 million-DKK 1,300 million.
We managed to increase this guidance again, actually, for the second time, due to a very strong Q3. Even with the little softening of our volumes, we continue to see a very good performance. Our Q4, even if it is softened, will be online almost with the last year. We have to remember that we started the year, as maybe some of you remember, not compensating for some loss of volumes in Norway. Actually, when we came after Q2, we increased our guidance because we managed to recover those volumes. So that is very positive. We increased our guidance in a, actually, quite a very challenging year. But we softened the volume part and come with this very nice increase in guidance for the EBIT for the year. Last but not least, we maintain our CapEx guidance in the same range.
As you saw also from what Claus presented, our targeted capital structure remains solid, return on invested capital, but also leverage. Basically, a very strong performance in the quarter, allowing us to increase guidance. We maintain and we remain positive on the fundamentals for the business. Even with the uncertainties for Q4, we still believe that shrimp will continue growing. Ecuador will continue growing. Energy will, of course, have a solution. First of all, it will rain in the right part of Ecuador, but also there is generation barges and other measures taken by government and by private sector. We remain positive also in our contract position in Salmon and Selected Species. As Claus said, Tech Solutions segment has gone through a very good transition period, so we remain absolutely positive for the future of this segment. We open the microphone for questions to the audience.
Good. Now we turn to the Q&A session, and just as a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The first question on the line is Emil Haargaard from DNB Carnegie. Emil, please go ahead.
Yes, thank you for taking my questions. A few questions from my side, and I will take them one at a time. If we start off with the comments on lower customer demand in Q4, and if we can start with Ecuador. Correct me if I am wrong, but from your comments, I understand that we should primarily view the lower customer demand as a temporary or near-term disruption caused by this electricity supply constraints, rather than a change in underlying customer demand since your long-term growth expectations for Ecuador remains unchanged.
Yes. That is absolutely correct, Emil. Just to put in context what is happening in Ecuador. El Niño, it is not that it is not raining in Ecuador, actually it is raining a lot, but in the wrong side. Ecuador is 70% depending on hydropower, and the hydro plants are in one side of the Andes, in the Amazon part, unfortunately, and it is raining in the Pacific Ocean part. So, there is no rain or little rain where the hydropower is. That took by surprise, this lack of rain there, because it is raining a lot in that part, actually some floods in the other part. So, this lack of energy should be in Q4, maybe Q1, but definitely generation is in place. The government is also taking generation themselves. Of course, rain will come in the season in Q1.
What happens is that, maybe as you remember, I have shown some shrimp farms where you are feeding, of course, the ponds, and you have aeration. For feeding, especially now using AQ1 and producing much more shrimp, much more efficient by pond, and being much more effective than other countries in the world, they need more oxygen. If you cannot generate oxygen, you need to reduce the biomass. This is what happening. We expect some of the farmers to reduce the biomass in order to continue to have a good performance of the shrimp. Remember that the shrimp cycle is only two months in Ecuador, so that doesn't mean that in the next cycles that this will continue to be reduced. As soon as there is energy enough for the aeration, you should see customers increasing biomass again.
There's no changes on our market share or market fundamentals at all. It is a situation happening actually in September and now in Q4.
Okay.
I hope that answer-
That's very clear. Yes. I know it's difficult to forecast whether these weather conditions could continue into 2027, but as you mentioned, rainfall is expected already in Q4. But are shrimp farmers currently taking any measures that could potentially mitigate this situation in the very near term?
Definitely. Definitely. I mean, it's a little bit of the perfect storm in these months in Ecuador, because Ecuador is also depending. It's a net importer of diesel. So of course, when this happened, took everyone by surprise. It's not only the shrimp industry, it's many industries in Ecuador using more diesel. The infrastructure was not prepared for all that diesel import. Of course, now that is improving a lot. All ourself and most of the suppliers, but also the farmers have a generation. So one solution is the generation. Second, of course, the rain is there, so we just need to rain in the right side of the Andes. The government is also taking measures to bring generation barges from other places in order to feed the net of energy.
Definitely it will be solved either through rain or with rain and also some generation. On the medium long term, we see that the Ecuadorian government has changed the law actually, and they have allowed the private sector together with the private investors to invest in other kinds of energy, especially solar energy, which actually is quite fast. So we see quite a lot of projects coming in consortiums between private sector producers, but also some companies going to Ecuador to generate energy on top of what the government is doing.
Okay, very clear. Thanks for the clarification here. Continuing on shrimp, with the first phase of the capacity expansion in Ecuador now operational, do you expect the capacity to be filled entirely by bringing existing toll milled volumes in-house, or will part of the utilization depend on, let's say, incremental volume growth? Maybe following up on this, how quickly do you expect to ramp up utilization of this new production line?
The new production line is ready. It's already working, and it's absolutely fully occupied from day one. Actually, next year we reduce significantly our toll milling, but we will still have to use toll milling waiting for the second phase. Unfortunately, this energy constraint in Q4 has also delayed a bit the second phase, which instead of being at the end of 2027 or first quarter 2028, it could be Q2 2028. So the answer is yes, it's ready. It's absolutely fully occupied with contracts. We will still use some toll milling, but less, and waiting for the second phase to come in in 2028.
Okay. Will it be a combination of existing toll milling that you bring in-house and some new volume growth, or-
Yes, both.
both?
Both. Remember that the market has increased around 17%. That is a lot. That is a lot. So, only by the growth of the market, we are filling our lines. I mean, we will have also filled the line in 2028 with existing growth, and as I have said before, the long-term contracts that we have signed before committing for this expansion. So, of course, it is nice that we will reduce our dependency on toll milling because our cost will decrease, but the market growth will absorb our capacity utilization. The market is not decreasing. I think what you see now is that there is more consolidation. So, as in salmon, you will have many big customers consolidating the small ones.
Okay, perfect. If we can move on to the Salmon segment, you also mentioned that you expect a somewhat softer customer demand in certain salmon markets in Q4. I think it would be great if you could provide some color on which markets in specific are driving this. You touched on it a bit in the presentation, but also whether this is primarily related to biological or weather-conditioned earlier harvest, as you mentioned, and changing customer purchasing patterns due to the lower salmon prices. Do you also see some more fundamental changes in demand here?
Yeah. It's different from market to market, but let's start by Norway. In Norway, we have seen, first of all, very favorable biological conditions until now. Still good, of course. We see that the lice treatments have increased a bit, not to the extent of last year, but higher than in 2024, for example. We see some early harvest, at least in our customer portfolio. We also saw, to be very honest, some buffering in September before October, because of the Q3 adjustment of prices. That's also affecting a bit, especially the volumes for October. That's Norway. Remember that in Norway, we entered the year losing an important customer that was bought by Mowi, and we decided not to go and replace it. After Q2, we could see that we increased our volumes and we gained some customers there.
Actually, this is decreasing compared to the last increase of guidance, but it is absolutely on par with what we thought, or more than what we thought at the beginning of the year, and absolutely on par with what we saw in Q4 last year. Chile is the most affected by El Niño, by weather conditions. The biology has been good there, but this is the time of the year where you have algae blooms. As you have maybe heard, maybe read also, there is a lot of people who worry about algae blooms. There have already been a couple of them. But even if there's not algae blooms killing the fish, reduced feed will come. So we expect, and we're already seeing some reduced feeding in some areas of Chile. So Chile is the part where we see a reduce of volume because of that.
Then you have U.K., which is more or less on par, and Australia is always weather dependent, depending on the summer, how it looks. We see still a strong volume, but it's mainly Chile and Norway, the ones that we see the decrease that you see in the table.
Perfect. Thanks a lot, Carlos. Last question from my side, just to put some numbers around the lower Q4 demand outlook. Could you give a rough indicate how much of the reduction in volume guidance can be attributed to salmon versus shrimp?
Oh, that's a good question. The volume is going down to, I think, maybe half and half.
Yeah.
More or less, something like that. If it happens, huh? Of course, there's uncertainty on volumes in Ecuador. We believe that they will decrease. But so far, in our assumptions, it's more or less half and half. Especially because of what I told you about October. October was especially affected in Norway because of the buffering and the early harvest.
Perfect. Thanks a lot. That was all for me.
Thank you.
The next person on the line is Claus Almer from Nordea. Claus, please go ahead.
Thank you. First of all, congratulations with the very strong Q3 results, and also the net working capital movement, by the way. The first question is about shrimp. Carlos, I think you said during your presentation that if we adjust for the write-down and also the ramp-up cost in Vietnam, those two things were explaining the negative EBIT development year-over-year. So that also means underlying Ecuador was flattish. Is that the right way to look at it? That would be the first one.
No, Claus. First of all, the drop in EBIT in Q3 compared to Q3 last year, DKK 20 million can more or less be explained by Vietnam and Costa Rica. This is actually where we have taken a bad debt provision for some actually specific two customers. So I consider this as a one-off item. Then remember that we are still ramping up volumes in Vietnam, so we are trying to be more cost-efficient. We still do not have the critical volume mass in Vietnam, so the profit is simply not as expected yet. So when you analyze the shrimp performance, please remember that Vietnam and Costa Rica is also part of this division. But as I said, volumes are increasing, and we have increased volumes in Q3 this year compared to last year.
There is an underlying margin pressure coming from higher raw material cost in Ecuador being difficult to pass on to customers in this specific situation that we believe is temporary with the higher energy cost and also problems with the energy supply. So there is an underlying impact on Ecuador, but I think that looking at the numbers on the slide I presented, it is important to remember that Vietnam and Costa Rica is actually impacting the figures quite a lot this quarter.
Yeah. Claus, just to be sure, the EBIT is down by DKK 20 million year-over-year, right? So from DKK 41 million- DKK 20 million or DKK 21 million.
Yes.
You have DKK 13 million from the write-down, and you also say the ramp-up and the write-down is DKK 20 million. So in my calculation, that means that the whole EBIT decline year-over-year comes from those two elements. Isn't that correct?
Yes. You can say that if you look at Ecuador directly, yes.
That also means if ramp-up is happening in Vietnam, then Ecuador must have had same EBIT as it had last year. Obviously, there's a small margin pressure given-
Yeah.
Slight volume growth.
Yeah.
But plus/minus, Ecuador is more or less showing the same absolute EBIT year- over- year, correct?
Almost, yes.
Yeah. Okay, good. Just wanted to make sure. Then when I look at your implicit Q4 guidance and try to estimate or calculate what you are saying around the EBIT per kilo in Q4, it seems to be in the other end of the range at least, flattish to slightly up. Given what we have seen for the last couple of quarters with very strong margin trend, isn't that a bit cautious? Or is something really going to change in Q4 compared to what we have seen in Q2 and Q3?
No. Yeah, what is changing is, Claus, as I said, that the fundamentals behind this very strong margin uplift in Q3 is being a little bit, let's say, it is lower in Q4. It's not that things are stopping up just because that we're talking about 1st of October or 1st of November. But the thing is that the ingredient, the alternative ingredients that we're using, prices are also increasing for those ingredients. So, the alternative solutions is also becoming more costly. And so this-
Sure.
is what is changing. Yes.
Claus, I totally understand compared to a very, very strong Q3, that will be difficult to replicate. But year-over-year, then we are now comparing with Q4 last year, and then I think you should still be able to have some benefits of your increased use of novel ingredients and so forth.
That is also right, but remember also that it is also, coming back to Ecuador, for example, it is a challenging period also for the farmers. We consider our business model to be very strong. We have a good opportunity to pass on costs to customers through the pricing mechanisms that we are having. However, there is also a limit. First of all, we have to be competitive as always, but it is also difficult for farmers to absorb higher raw material costs as we have seen. At the same situation, they also have higher energy costs and a challenging situation with lack of electricity. It is more the situation, Claus, that we need to consider as well. It is not only BioMar's business model that is not working anymore, not at all. It is the environment around us that is also changing.
Yeah. Sorry. If we look at the salmon in Q4, do you see a different pattern on your pass-through mechanism that worked very well in both in Q2 or Q3? As you said, with higher input costs, maybe the farmers are complaining more about them taking the full hit on the higher input cost, or do you see more or less the same structure as we saw in Q3?
It depends on how things will develop. First of all, they are not taking the full cost. We are also taking a part of that. It is also about finding new solutions. We are constantly trying to work with feed solutions for our customers in different periods and circumstances. It is not easy to give you an exact answer on that, Claus.
That is fair. That was all from my side. Thank you so much.
Thank you.
Thank you very much, Claus. Just as a reminder, if you have a question, please dial pound key five on your telephone keypad. The next person on the line is Ulrik Bak from Danske Bank. Please go ahead, Ulrik.
Yes. Hi, Carlos and Claus. Also a couple of questions from my side. The first one, just following up on Claus' question on the implied guidance for Q4. As noted, your EBIT growth was 50% year-over-year in Q3, and at the midpoint, it's flat for Q4. I know you're probably not going to guide for 2027, but given this exit rate, should we also expect somewhat flattish into 2027, or what are the levers that you expect will provide earnings growth into next year, given what your guidance was for Q4?
Ulrik, thank you for the question. No, we cannot comment on 2027 yet. We're still working on budgets for next year. I think we don't see any changes in our midterm targets. So, we expect that we will still follow those targets and be able to deliver on those. So, we expect a growth in the coming years as well.
All right. Then in terms of the shrimp recovery, perhaps just a quick update on how the production stoppages and the electricity shortage, how it has evolved through Q3 and in Q4, if it has intensified, and whether we should actually see weaker growth for the market in Q4, Q3. Is there actually, you mentioned the two-month growth cycle for shrimp. Does that mean that we could actually see negative industry growth in Q4 for shrimp, Ecuador?
Yeah, that's a very good question. As I said, the main driver is the capacity to generate oxygen and to have electricity to operate the farms at the densities they have now. I mean, Ecuadorian farmers have become so efficient compared to the rest of the world that the ponds, of course, are having a lot of biomass that they have to deal with. Even if the densities are lower than in the rest of the world, definitely, with the technology, AQ1 and other technologies, you require more oxygen. So, actually, we know some customers that are reducing density in order to cope with that performance and yield per hectare of land to produce the shrimps. We also know some other big customers which are not doing that, and they believe that they will be the consolidators and that they will survive, and they have also other sources of energy.
It's very uncertain now. I don't believe it will be a huge decrease, but it should be a slowdown in Q4 compared to before. I still believe that the growth in Ecuador for the year will be quite strong, over 10% for sure. How much will be the decrease during Q4? Very uncertain to say right now. We don't control all the customers there, but we should see some slowdown compared to Q3. Again, Q3 started the energy crisis around end of August, September, so we already should have seen something in Q3. But definitely Q4 will be the highest point, and hopefully things coming back to normal in Q1 and Q2 next year.
Okay, thanks for that. Perhaps just to follow up on the low shrimp prices in Ecuador. Is that an obstacle for continued volume growth in the industry in Ecuador, or yeah.
To be honest, right now, no, because the farmers are. The combination of low prices and higher cost, of course, yes. Because now they have to have higher cost of energy, so they could be thinking. We see that the big farmers, the consolidators, as we call it, they continue growing. The big thing right now is, of course, with the lack of energy, also the process plants have a challenge. Simple things like producing ice can be a challenge. Until they have that in place, that could delay a bit Q4. But we see a big appetite for growth, very strong companies with a very nice cash flow, so I doubt that the consolidators and the big ones, which is a big part of the industry, will put a break because of the shrimp prices.
Understood. Perhaps a question on the alternative ingredients that you are using in your fish feed. What kind of contracts, how are you sourcing these ingredients and so on? Have some of those run off, given that now talking about price increases, or have you needed more than you expected beginning of the year? Just the mechanics of this, or is it just market pricing that now where demand is actually higher than what they can produce?
Yeah. This has been evolving. Of course, I showed the example of algae oil, but it is not only oils, it is also proteins that have gone up. As you have seen also maybe in Norway especially, we started using poultry byproducts, and some other raw materials to compensate also the protein part, the amino acids. So it is different from raw material to raw material. In the case of the novel raw materials, like novel oils or novel proteins, usually you can have a longer term contract. But remember, we are also interested in scaling up these raw materials. So they also have the ability to increase their prices compared to what they are replacing. So you can have a long-term contract, but usually, also because of our benefit, we have tried to link it somehow to the prices of the main ingredient that they are replacing.
So you can have a long-term contract, but hopefully there is a win-win methodology to adjust the prices in order for having ourself protected from up and downs, but also to promote that this alternative scale up, because we need to scale up some of these alternatives for the future to be prepared to replace especially EPA/DHA and fishmeal. The answer is, it varies from source to source. Some of them are shorter term contracts, some of them are longer term contracts, some of them are frame agreements on volumes and a mechanism for price. So it is a diverse price mechanism for ingredients. The important thing is to secure supply, actually.
Right. Just the Q3 very strong result, the reason for that is that, is it phasing of the higher alternative raw material prices kicking in from Q4, and you have the benefit in Q3? Is that how we should see it?
Q3, of course, is a very high volume, actually, as you saw. So, of course, in this business, when you have covered your cost, everything that comes on top of that goes directly to the bottom line. So it is not that directly 5% is 5%. The effect is much higher. We have, of course, some very good positions on some ingredients, not only oil, some other ingredients. It varies from market to market. You have different price and contract arrangements with different customers. It is not only that one, it is also the product mix. The product mix have been quite favorable. So, everything went fine in Q3, as we have said. We have an underlying business which is solid, a business model, and we will take opportunities when they come.
Our fundamentals of the margin that we have compromised in the past and the guide that we have given, it is there. So, of course, we will take benefits when it can, but you should not assume that the sky is the limit. We also have to take care of our customers, not only in shrimp, but in salmon. They cannot afford to pay an out of limit price. So that is also part of what we are thinking strategically when we adjust prices for customers.
Understood. Thank you so much.
Good. Thank you, Ulrik . That actually concludes the Q&A session. I would like to hand over the conference back to Carlos Diaz for any closing comments. Oh, sorry, there just came in a new question. Henrik Knutsen from Pareto Securities, please go ahead.
Thank you. Just to follow up on the ingredient or the alternative ingredient prices increasing. Does that mean that we should see another step up in feed prices from Q4 and into Q1?
It depends on the whole basket. Remember, this is not only about the EPA and DHA, this is all ingredients. So it depends on the whole basket. We have seen, of course, different variants of prices in poultry meal, in fish meal, in fish oil, in vegetal meals. So it will depend on actually more on the rest than only the novel ingredients. As I said before, we also have to take care of our customers. The sky is not the limit here. So, we need to secure supply because especially salmon need EPA and DHA, so they cannot work without this. But I think for Q1, Q2, we expect that the first season of next year will be okay for fish meal and fish oil, and that will reduce pressure.
But for Q1, it will depend on the evolution of other raw materials and not only the novel ingredients.
Okay, thank you. Looking at the margin in the Salmon segment now, of course, very strong, but how much of the uplift on a year-over-year basis can you attribute to FX movements?
FX?
FX movement.
In the salmon only or in the total BioMar?
Salmon.
Salmon.
I don't think I have
I don't have the figures, but of course, there is a positive impact from the Norwegian krone against the Danish krone. We also see that the Australian dollar and also U.S. dollar has helped us a little bit this year. It's not only the Norwegian krone having an impact here. You're right, there is an impact. I don't have the number, to be very honest.
Okay. Last question from my end. Without giving a precise guidance for next year, just looking at your customer portfolio that you mentioned right now, saw some early harvesting in Norway, et cetera. Do your customer portfolio in Norway and Chile respectively target growth, and how much of the market for coho versus Atlantic salmon over in Chile?
Yeah. We have quite a good market share in coho, to be honest. Yes, we see some growth in Chile, definitely, in our customer portfolio. Chile as a whole for next year, I'm not sure, depending on El Niño and other. In our customer portfolio, we see a growth. We also, of course, every year, we have customer negotiations, both new customers, but also renewals, both in Chile, Norway, everywhere. Of course, we need to do our job and renew the contracts and gain the volumes that we have to get. We have a big part already committed, but we see growth in Chile in our customer portfolio. We see also opportunities in Norway, and we see some growth there. Definitely in Australia, where we have a very strong position. Of course, it's also weather-related. This year has been extremely good for Australia.
El Niño has the opposite effect in Australia, cooling down the water in the summer, which is good for salmon in Australia. We will see how the summer is in those markets. In general, yes, we are optimistic that we have a growth in salmon going forward.
Yeah. Thank you.
Thank you, Henrik. That concludes the Q&A session, so I would like to hand over the conference back to Carlos Diaz for any closing remarks.
Yes. Thanks, Basim, and thanks to everyone for the questions and for attending this conference call. A very special quarter. I would like to focus more than the extraordinary results, that we remain extremely confident on the fundamentals of this business, and that is the important message we want to convey. We remain confident in shrimp and in salmon, and the growth of BioMar in this important segment. Thanks to everyone, and see you after Q4. Bye.