Norwegian equipment manufacturer Akva group said it is facing fierce competition from rival cage and feed barge makers, leading its return on capital to halve in a year.
"We are relatively satisfied with the start of the year, after a couple of quarters with some headwinds. It has been positive across most areas," said CEO Hallvard Muri during its first quarter earnings presentation.
Both order intake and turnover reached record highs, driven by both organic growth and the acquisition of net-technology, services and equipment supplier Egersund Net.
Akva posted sales of NOK 852 million (€87.4 million/$97. 7 million) in the quarter, of which NOK 200 million (€20.5 million/$22.9 million) came from Egersund Net.
"Overall, this is a good start to the year -- and we have a record order backlog of NOK 1.6 billion (€164 million/$183 million)," Muri said.
In the company's largest segment, cage-based business in the Nordic countries, revenue was up around 20 percent from the same quarter last year -- not counting Egersund's business.
"We also have a relatively good pipeline of projects we believe we will succeed in, both in Norway and outside Norway," said Muri.
He also reported that the integration of Egersund Net is moving along well, "but there are still effects to be seen."
In the Mediterranean region, Akva executives have noticed that companies are hesitant to make investments.
"It's not the pace in the Mediterranean that we had hoped for seabass and seabream," said Muri, adding this is heavily related to the political situation in Turkey.
Tough competition
Finance Director Simon Nyquist Martinsen reported fierce competition both on cages and barges in Norway.
"It is a tough market out there, and in the future it will be important for us to balance growth and margin, perhaps to a greater extent than we have previously done," he said.
Muri said that feed barges are "a relatively important part of our sales."
"Sale of feed barges also involves the sale of other technology, and also services. The development of margins is not satisfactory. It's also about capacity on the shipyard side. When there is greater demand, returns must be higher, so we must try to get higher returns from our customers," Muri said.
Akva Group's net cleaning business is also facing intense competition from rivals. Previously the company's services arm could command fees of NOK 3.50 (€0.31/$0.34) -- 4.0 (€0.41/$0.46) per square meter. But contracts are being signed as low as NOK 1.90 (€0.19/$0.22).
Chile cage business bouyant, skepticism on land-based
In the cage-based technology segment in Chile business is buoyant, so too in the land-based segment, Akva reported.
"There are a considerable number of projects we are working on in land-based. We have been abstaining on fish feed. Today we have five pre-projects on fish feed, where we make preparatory work for which we have been paid. So we are not completely absent, but on land-based it is mainly smolt and post-smolt we work with," said Muri.
He said that the Akva Group is generally a little skeptical about working with fish for the production of salmon on land.
"For us, the resources have been prioritized on smolt and post-smolt, something we can and have delivered. Some may say that is the same, but there are still some challenges that have not been resolved. On a large scale, there is still something left to prove," he said.
The company is also concerned that those who plan to build facilities for land-based fish production of salmon must possess a certain level expertise.
ROCE takes a hit
While Akva Marine Services has renewed its entire fleet, cutting into the company's top line, return on capital employed peaked at 16.4 percent in the first quarter of 2018, this is now down to 7.9 percent.
"Unfortunately, this is not a satisfactory return. The are several reasons. We have had operational challenges. In addition, we have had very large investments in Helgeland Plast, and it will take time before we get a return there,” said Martinsen.
He expects the return to increase again, although not to previous levels with the acquisition of Egersund Net having also changed the group's capital structure.
Muri added that the competitive situation means that the company must look at opportunities to cut costs.
Selling out?
Aside from this there is a feeling among Akva Group executives that "it is not natural for Akva Group to be a co-owner of a salmon-producing company."
Against this background Atlantis Subsea Farming received a development permit for a submersible cage with an air dome. Akva Group owns 66.6 percent, while SinkabergHansen owns 33.3 percent of the company.
"It is not natural for us to be a co-owner of a company that produces salmon. When there is fish in the sea to be fed it is not Akva in the driver's seat, [but SinkabergHansen]," Muri said.
