Farmed salmon and trout biomass in June, 2012. (Graph: Sernapesca/fitchratings.cl)

Salmon firms’ cash flow to remain under pressure in 2012

CHILE
Monday, September 03, 2012, 03:50 (GMT + 9)

A report issued by the risk rating agency Fitch Ratings predicts that this year the deterioration trend will remain in the credit profile of the Chilean salmon industry observed in recent quarters. This prediction is based on "the contractive situation of prices, higher costs associated with disease control and the higher investment requirements."

However, the entity details some variables that could dampen this deterioration, including: "a timely control of its growth plans, business management as to diversification and opening up new markets, financial flexibility and cash flow position each company has."

The report analyzes the evolution of the Chilean salmon industry in recent periods, its production recovery after the health crisis caused by the infectious salmon anemia (ISA) virus, the strengthening of the regulatory framework and the operation of the new production system.

The agency also investigates market behavior in terms of volume and prices, and their prospects in a very competitive environment. Besides, it describes the evolution of the financial profile of the main salmon firms with public information.

"In the years 2010 and 2011, the stock market debut and capital increases in salmon companies have meant an injection of resources for approximately USD 773 million to the industry, diversifying funding and strengthening cash flow in periods of strong investment," explains Fitch.

Therefore, it considers that those companies that were able to strengthen their cash flow by means of these inflows and to keep moderate debt levels, "are more likely to capture the industry potential growth in the coming periods and to lead possible consolidation opportunities."

Fitch notes that in May, salmon exports reached USD 1,445 million, a figure which shows an increase of 13.6 per cent over the same period of 2011.

"This growth was significantly boosted by a 37 per cent increase in Atlantic salmon exports coupled with a 19 per cent growth in coho salmon exports," the report points out.

Until May 2012, Chile exported 82,000 tonnes of Atlantic salmon, 94 per cent more than in 2011, but the price fell 30 per cent.

On the other hand, last June the number of operational centres increased by 30 per cent compared to the same period of 2011, and reached 514, which means 119 additional units. This increase was mainly concentrated in the Aysen Region.

The report by the agency states that the in terms of total biomass, a 46 per cent growth was recorded in the first quarter of 2012. And, it highlights a 78 per cent growth in the Aysen Region (which represents 57 per cent of total) and 94 per cent rise in Magallanes Region. Thus, the reached biomass levels were similar to those in the pre health crisis (500,000 tonnes), while "historical production levels are expected by 2012."

Finally, Fitch expected in 2012 prices will remain under downward pressure (in the case of Atlantic salmon) due to the increased Chilean and Norwegian supply.

"This situation would stabilize only from 2013, when harvests reach greater stability considering that stocking plans have assimilated these effects. Additionally, it is expected low prices will be transferred to final consumers, which would increase the demand and encourage sales," the report concluded.

By Analia Murias
editorial@fis.com
www.fis.com

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