Balanced strategy
That acquisition was part of the company’s multi-year strategy to move away from being solely a fishing company that sold fish meal and oil to a balanced human and animal nutrition company. The first step in the process was the acquisiton of botanical ingredient supplier Cyvex in 2010 followed by the acquisition of whey protein supplier Wisconsin Specialty Protein in 2013.
Bioriginal is the feather in this crown, and very likely the last acquisition for a while, as the company’s cash cupboard is now almost bare, with $1 million on hand as of December 31, 2014. But even as cash reserves have shrunk and debt had increased to $35 million during the year, CEO Bret Scholtes said the strategy is working, and is helping to further insulate the company, which is the largest fish oil processor based in the United States, from the natural vicissitudes of fishing operations. The company exclusively harvests a single species, menhaden, in and around Chesapeake Bay and off the Gulf Coast.
“From 2012 to 2014, revenues increased from $236 million to $309 million. Fish meal as a percentage of total revenue decreased from 68% to 48%, while sales to food and supplement manufactures and retailers grew from 9% to 21%.
“Finally sales of products derived from menhaden decreased from 91% in 2012 to 80% in 2014. For the full year Bioriginal, we expect these trends of increasingly balanced and diversified revenues to continue in 2015,” Scholtes said in an earnings call with analysts that was transcripted on the site SeekingAlpha.com.
Omega Protein is far and away the largest harvester of menhaden, and so has the most to lose when harvest quotas of this species are adjusted. This happened in 2013, when the company had to swallow a 20% reduction in the amount of fish it was allowed to catch in its eastern fishing operations. Scholtes said authorities have completed a new population assessment, one which the company said shows the population of the forage fish species in the bay is healthy and is not over-exploited. Scholtes said the company is optimistic this will allow a return to pre-reduction harvest levels.
Supply, visa questions
Scholtes said the recent closure of the Peruvian anchovy fishing season has disrupted the overall supply picture of omega-3s. Prices for supplement-grade fish oils on the open market have risen, and on the surface this would seem to be good news for suppliers who still have a secure supply of raw material. But with the amount of inventory built into the system overall, Scholtes said many customers have taken a wait-and-see attitude.
“We'll also be monitoring fishing quota announcements this spring to get initial read on the global supply of fish meal and fish oil. Although published prices for these ingredients remain near historically high prices, few of our customers have been willing to enter into forward contracts at these levels,” he said.
Scholtes reported on one issue that rarely is mentioned in the supply of dietary ingredients and has to do with the current uncertainty with regard to national immigration policy. A recent court decision in Florida in the case of Perez vs Perez has had the effect of temporarily suspending H2B visa applications, a program for temporary, non-agricultural workers.
“We've traditionally utilized the program to staff many of our Gulf fishing vessels, so the recent development has created some uncertainty around staffing,” Scholtes said.