TripleNine wants to create its own raw material pool as not to be dependent on day-to-day purchases

This was one of the conclusions reached at the latest strategy meeting held by the Board of TripleNine.

 

Below, Anker Mejnertz, Chairman of the Board of TripleNine, outlines some of the subjects considered at the strategy meeting, which will be discussed further with the company's shareholders at the Annual Meeting in December this year.

 

The key topic at this year's strategy meeting was TripleNine's future as a limited company.

 

As readers will know, the cooperative TripleNine Fish Protein will be converted into a limited company from 1 November 2012 and for some time the Board has discussed the consequences of this in relation to for instance the opportunities to secure the supply of raw materials and the development of the company TripleNine in general.

 

Securing access to raw materials

The Board's conclusion is that the most important prerequisite for a future TripleNine is access to sufficient raw material, i.e. at least 300,000 tons per year.

 

In the cooperative, the shareholders are bound by a five year supply obligation, which provides the company with a raw material basis known from year to year.

 

This obligation will cease when TripleNine becomes a limited company. That is why the Board at the strategy meeting discussed how TripleNine can secure an adequate supply of raw materials in the future.

 

It can be done for instance by:

 

• entering into 1-2 year contracts based on the prices of fishmeal and fish oil
• providing loans to suppliers with fishing quotas as security
• purchasing fishing quotas
• ensuring the best possible conditions in Thyborøn for vessels landing there
• guaranteeing adequate capacity during the peak season.

 

Common to all these possibilities is that further work needs to be done on them in order for TripleNine to create its own raw material pool of a reasonable size and not be exclusively dependent on day-to-day purchases.

 

Ensuring value growth for the company

Fundamentally, TripleNine will have to continue to pay the same price for the fish as other factories, while at the same time satisfying the shareholders' expectation of a dividend - and preferably also increased value of their TripleNine shares.

 

Initially, most of the TripleNine shareholders will be active fishermen and therefore probably take an overall view of the settlement price for fish and the return on their shares.

 

However, of course TripleNine cannot expect to be able to buy fish at less than the market price either in the short or the long term.

 

The necessary added value of the limited company must therefore, among other things, be created by:

 

• 1. Greater efficiency and cost savings
• 2. Structural development (merger or collaboration with others)
• 3. Product development, for instance of products for human consumption.

 

 

Chairman of the Bord of TripleNine, Anker Mejnertz: - The Board takes the view that TripleNine A/S must focus strongly on these areas, as the aim is to be able to pay a competitive price for the fish while also achieving value growth for the shares in TripleNine A/S.

 

 

1. Greater efficiency and cost savings

Work is ongoing to reduce costs and the aim is to bring them to the level of the best in the industry. This implies reducing the cost per kilo by approx. 10 per cent at the current production volume and at the same time enabling TripleNine Pharma to - as a minimum - meet its own costs.

 

Our discharging costs are also very high compared with other North Atlantic factories. This impairs TripleNine's competitiveness and reduces its ability to attract "outside" fishermen to Thyborøn.

 

2. Structural development and collaboration

A few years ago, TripleNine established a joint venture in South Africa around the sale of South African fishmeal. Subsequently, TripleNine has also become involved in fishing with a local partner. Overall, these activities are a successful enterprise, which will hopefully develop further in the coming years.

 

Since China's ban on fishmeal from Denmark was lifted, TripleNine has sold fishmeal to China as an alternative to Norway. The fact that China is by far the largest importer of fishmeal in the world offers considerable potential.

 

China itself has significant fishing for species that can be used industrially, but the vessels are small and the equipment in China very poor, which in turn results in poor quality end products.

 

Nonetheless, China is an interesting market, even if it is some 30 years behind technologically, and TripleNine should maintain a significant focus on the Chinese market while remaining realistic about the opportunities.

 

TripleNine must also participate in the inevitable developments in our own part of the world.

 

 

Fig. 1. This figure shows the current fishmeal and fish oil factories and their location around the North Sea.

 

As shown in figure 1, the structure within the industry is chiefly characterised by the separation of the production capacity into many small units. Unlike in South America, the structure has not changed significantly in this part of the world in recent years.

 

In other words, there are too many players and few if any of them are able to implement a development at the level of the one going on in Peru and Chile on their own.

 

In 2008, Peru introduced a system of individual quotas, which has led to a consolidation of the industry resulting in larger units. Today, most of the fishing and fishmeal production is controlled by five large companies.

 

A similar development is underway in Chile, sparked off by the renegotiation of the quota system due in 2012. From 2010 to 2011, ten of the large companies have become six as a result of mergers and collaboration.

 

In the Board's view, TripleNine must keep abreast of and actively participate in the structural development which is bound to happen among the players around the North Sea.

 

 

3. Product development, for instance of products for human consumption

Today, TripleNine Pharma is far advanced with the production of marine phospholipids, which is one of the most sophisticated fish oil products, with qualities close to those of krill oil.

 

 

Fig. 2. The figure shows the development in the sale of krill oil and marine phospholipids (MPL) for human consumption. As can be seen, the annual growth rates are practically fabulous.

As shown in figure 2, the sale of marine phospholipids is expected to have a growth rate of 25 per cent a year until 2015. However, in terms of volume development, the interest is focused on the sale of "ordinary" refined fish oil with a high EPA and DHA content, which so far has had a growth rate of approx. 17 per cent per year on already large volumes, cf. figure 3, taken from Epax' Q3-2011 presentation.

 

 

Fig. 3. GOED, the global organisation for producers of EPA and DHA products, estimates that, in 2010, approx. 200,000 tons of fish oil was used to produce approx. 90,000 tons of end products in the form of refined fish oil containing EPA and DHA. The sales growth has been approx. 17 per cent per year.

Source: GOED, Frost & Sullivan.

 

Further capital required for development

Once the interest in fish oil for human consumption really catches on in Asia - especially China - this market is likely to "explode". The Board strongly believes that TripleNine must participate in this development in some way.

 

That is, however, a major task which requires more capital than TripleNine can provide itself.

 

An important task for the Board in the coming year is therefore to work on these opportunities.

 

 

 

Worldwide, developments in the fishmeal industry are characterised by:

 

• Quotas which are very variable and constantly changing - just like many other fishing conditions
• Mergers between fishermen and the concentration of raw materials and quotas on a few units and shipping companies
• Concentration at the production stage, especially in South America, but also to be expected around the North Sea
• Few feed producers with great purchasing power
• Variable salmon prices, which especially affects North European sales
• Increased focus by "grass roots" and politicians on the use of fish and fish raw materials for human consumption.