Schouw & Co A/S

CSE:SCHO

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Schouw & Co. Conference Call 2021 Q3 Report Conference Call. [Operator Instructions]I would now like to turn the conference over to Mr. Jens Bjerg Sørensen, CEO. Please go ahead.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Thank you very much, and welcome to the presentation of our Q3 report.Overall, Q3 turned out to be a really challenging quarter, but we still saw a high demand in most of our segments. We continue to have strong market positions and customer relations was confirmed. We had a huge negative impact from raw material prices and costs that unexpected continue to increase at a very high pace during the quarter. We expect the present market volatility to continue well into 2022. Revenue was up 14% to DKK 6.9 billion. However, EBITDA was reduced 9% to DKK 614 million. Our results from associated companies increased with DKK 80 million to DKK 36 million. Main effect was coming from our farming operations in Salmones Austral. Cash flow from operations was at DKK 489 million.As I mentioned already, we saw effects from increased transport and energy costs of at least DKK 40 million during the quarter. We also had a huge negative effect from not compensated raw material prices of around DKK 50 million during the quarter. We had lower sales of high-margin products and different contract mix. Our net working capital was increasing due to a strategic decision on being able to deliver and also we had an effect from higher raw material prices.Guidance for 2021 is slightly reduced due to these increasing costs. Turnover expected now around DKK 23.7 billion. EBITDA now at a level of between DKK 2.09 billion and DKK 2.205 billion. Full year CapEx still expected a little bit lower than previously guided of around DKK 1 billion. We now expect that some DKK 150 million of this will be postponed to 2022.Starting up with BioMar Q3. Here, we continue to see a very good volume development or increasing negative impact from costs. Revenue was up 17% to DKK 4.1 billion. Volume up 11% to 453,000 tonnes. However, EBITDA was reduced 14% to DKK 282 million. We had a very solid development in our associated joint venture companies and with profit before tax ending DKK 25 million higher than Q3 2020 despite the decline in EBITDA.Volumes in Norway were very strong, whereas Chile struggled due to the effect from lower BioMar. We saw continued pressure on our margins due to difficulties in getting full compensation on raw materials. We see an effect of around DKK 40 million to DKK 50 million on this. We had high prices and lack of availability of raw material means. The recipe changes too often, which lowers efficiency in our factories.Freight and energy cost continues to increase and impact profitability in the quarter. We launched DKK 125 million investment program in new extruded capacity in our important Ecuadorian Sprint market. Our JV in China is in a positive development. And as mentioned already, we saw strong profitability in our Chilean salmon farm. Salmones is strong, where we have a 23% ownership.Guidance for 2021 will be reduced. Activity is still very high and long-term expectation is still very attractive. Turnover 13%. EBITDA now in the range between DKK 890 million to DKK 920 million only due to cost on raw materials and energy. We have difficulties in getting full compensation in these costs. And we also continue to see negative impact from energy and freight. Fibertex Personal Care had supply chain challenges. They continue to impact Fibertex Personal Care. Revenue was up 16% to DKK 593 million due to very high raw material prices. EBITDA, as expected, flat at around DKK 94 million, and our return on invested capital now around 12.5%.Very high transport costs creates new and challenging dynamics in Asia. It's too expensive to move materials out of the region, meaning also we see increasing competition from Asian producers that normally used to export out of the region. We are still going ahead with the investment or installment of our new and advanced Reicofil R5 line in Malaysia, which we expect to operate in midyear 2022. Overall, we have seen very good production performance and increasing efficiency in Fibertex investment carrying throughout the year and also in the quarter. We didn't have any negative or positive raw material effect in this quarter as we expected. Guidance for 2021 is slightly reduced. Revenue now DKK 2.2 billion. EBITDA in the range of DKK 310 million to DKK 330 million only because of raw material prices not decreasing as we expected earlier. Fibertex Personal Care -- sorry, Fibertex nonwovens had an unexpected and very challenging quarter. We will call it the perfect storm from full capacity utilization to reduced demand and stop-and-go production at several of our sites. Revenue was down 13% to DKK 470 million, and EBITDA decreased from DKK 80 million to DKK 38 million. We saw a very huge impact from lower demand during the quarter. The important automotive segment is really struggling because our customers have supply chain problems. Our U.S. specialty wipes market was reduced due to earlier stock building. Several of our high-margin customers with lower demand due to market constraints. We still have very good demand and backlog from our Industrial segment, and we are working with a very interesting pipeline of high-value projects based on co-development with some very large international customers. Guidance is reduced due to market volatility and uncertainties. Turnover now expected to be between DKK 1.8 billion to DKK 1.9 billion. EBITDA reduced DKK 50 million. Now in a range of DKK 220 million to DKK 240 million, and also because we expect negative raw material effect also in Q4. And we expect volatility to continue, but the long-term market potential remains intact. From the Fibertex companies to GPV, where we really saw strong market demand continue, and our order intake was at a record-high level. Revenue was reduced 4% to DKK 799 million, but that was due to a lag of one-off MedTech order we had in 2020. EBITDA however, increased 22% to DKK 102 million. And return on invested capital now at very satisfactory 16% and above our 50% target. Supply chain volatility continues, and we see huge efforts from our organization to handle a very difficult situation. We have a very strong efficiency and high capacity utilization, and it really drives our profitability at GPV. Our customers are placing orders for future to secure deliveries. And as I already said, we have a record-high order backlog. We also initiated a DKK 200 million investment program to expand our facility in Thailand and Sri Lanka.Strong Q3 and the very solid backlog is background for guidance uplift in GPV. Turnover expected at around DKK 3 billion to DKK 3.1 billion, and EBITDA uplift of DKK 40 million to a level of DKK 300 million to DKK 320 million with a quite good comfort. The high activity level is expected to continue but uncertainties on our 2020 supply chain will be seen as a challenge. Order book for 2022 already more or less full.HydraSpecma had also high activity in the Commercial Vehicle segment, and it really drives the strong growth. Revenue up 11% to DKK 526 million. EBITDA increased to DKK 65 million. We have also experienced or seen increase in net working capital due to stock builds to secure our ability to deliver. We have more or less full capacity utilization also throughout Q3. And we see efficiency gains from our new Gothenburg factory that really impact our profitability positive. As expected, we have seen a minor slowdown in our wind segment, still a very important and attractive segment.We are building a future by extending capacity at several of our locations and also reframing our Nordic DC setup. Supply chain also for HydraSpecma continue to be problematic with increasing prices and very long delivery times. HydraSpecma can give a guidance uplift due to the strong demand and also, here, solid backlog. Turnover now expected between DKK 2.2 billion to DKK 2.3 billion, and EBITDA in a range of DKK 265 million to DKK 275 million.Last but not least, for automotive, continued good demand. And also, we saw effect from acquired SBS. Revenue up from DKK 192 million to DKK 434 million. Here, we had an impact from acquired SBS of DKK 130 million. EBITDA increased to DKK 43 million. However, we also had a negative effect on EBITDA from SBS on price purchase allocation of DKK 4 million. Return on invested capital is still very satisfactory at 20.6%. The integration of SBS with 135 new employees, well underway. We are developing our customer base and start cross-selling to both TMI and SBS customers. We see new customers in our pipeline.Net working capital increased significantly, but that was due to the impact from SBS and also very low inventory levels in the old Borg Automotive last year. Our guidance will be narrowed. Turnover still around DKK 1.3 billion. EBITDA in -- between DKK 150 million to DKK 160 million. And here, we included at the expected PPA effect on EBITDA from SBS of DKK 10 million.So wrapping up, we see our companies as relevant as ever. Activity level high, but volatility creates uncertainties and hamper efficiency and planning. Many opportunities to enter new markets and also to continue to develop long-term partnerships with customers. So overall, the long-term potential and our opportunities have not changed. We'll soon be out of 2021, and we are preparing for 2022. We expect volatility to continue yet a while, but we have strong contingency plans and actions in place in all our companies. So we are also well prepared to take opportunities.So with these closing remarks, I would like to open up for questions.

[Operator]

[Operator Instructions] The first question is from the line of [ Pierre Asmussen ] from Private Investors.

[Unknown Analyst]

Yes, I would like to understand how sensible -- how sensitive Schouw & Co. company is towards inflation. To be more specific, to what extent and on what horizon and what delay do you expect to recover the increasing raw material costs through increasing prices?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Thank you very much for your question. Yes, of course, we are also -- we will also see effect from inflation. We cannot avoid that. But we are working all ways on trying to pass on raw material prices and so on, on our customers. In some of our companies, we have these cost-plus or pass-on clauses. But there's always a lag. And even you have a contract in place and so on, it's still a fight to get price increases. We have had a lot of price increases going on over the year now and some of our customers, they are really struggling now to continue to take or accept the further price increases. But we have a strong program running in all companies on doing that. But we will always lag. When we get the price increases on our raw material or energy, et cetera, then we are lagging a little bit. But we work hard on it, and it's part of our initiatives.

[Unknown Analyst]

Do you have any idea about how much lag there will be? How much delay will there be until you have the cost fully recovered by price increases towards your customer? How many months?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes, it's very difficult to say yes, but you could say, in some companies, if you take Fibertex Personal Care there's a quarterly review on prices, so meaning there will be one quarter where you could struggle and then you will look at the new price for the next quarter and so on. Other companies, you really need to fight from house to house to get the price increases up. So it really differs. And in some places, it's difficult to compensate one -- possibly more or less to compensate 100%, then we need to look into optimization, efficiency gains and things like that.

[Operator]

The next question is from the line of Ulrik Bak from SEB.

[Ulrik Bak, Research Analyst]

Yes, just a couple of questions from my side. Firstly, can you just repeat what the total headwinds from supply chain, transportation and raw material costs have been on EBITDA in -- during the quarter, please?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. It's between DKK 80 million to DKK 100 million in the quarter. And what we call the net negative effect on raw material prices not being able to pass on and then transportation and especially also right freight -- sorry, energy has increased incredibly.

[Ulrik Bak, Research Analyst]

Okay. And to BioMar, how much? What's the impact there?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Around -- on the raw materials around DKK 40-plus million at least. And then we see also some -- and maybe I didn't underline that. We also had some effect on lacking raw materials, meaning there are raw materials we couldn't get and then we have to change recipes and so on. We have not calculated that effect 100%, but it has also had an impact on -- we had to reshuffle and do a lot of recipe things and so on. So we have been quite impacted in Q3.

[Ulrik Bak, Research Analyst]

Yes, understood. And then to BioMar and maybe on the same. The -- can you just explain the major factors and maybe also the magnitude of each factor causing the decline in earnings versus last year? Because, as you say, you grew volumes by 11%, but despite that you declined earnings. And also considering -- you wrote in the report that you had a tailwind of DKK 70 million from FX during Q3. Is that accurate, and -- yes.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. That's a top line effect. That's not an EBITDA effect on BioMar. Just as I said, raw material -- DKK 40 million to DKK 50 million on raw material negative -- net negative effect on raw materials. It's difficult really to -- 100% on energy and other costs, but also a quite important effect. Then we have a mix as we have seen that over the over the period that we have a segment mix or market mix impacting us. Also, is that we have lower volume in Chile than we have been. And we have picked up that volume in other markets where we see lower margins, but maybe also lower risk. Chile used to be -- is a good margin market. So that's one thing. And then we have seen also less sales of functional feed during the quarter than we saw last year. So it's a mix of a lot of things. We are really very satisfied with our volume development because it underlines our market position and our relation with customers, but we have had these really headwind on raw materials, recipe things and costs and so on. And then we also had to look at the market mix.

[Ulrik Bak, Research Analyst]

Okay. But now you decreased the guidance compared to when you -- yes, compared to August. So which of these factors have had the most -- was the negative surprise to you compared to now?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. You could say, negative surprise has been that raw materials continue to increase as they did. Also the struggle of getting some raw materials that has meant that we need to change. Raw materials increasing costs on recipes. The efficiency in the factories you can run when you have to change and do a lot of -- I am not -- what it's called? A lot of magic. So that has really surprised us. And also I have to say, energy continues to increase. We are using a lot of gas in some of our facilities to drive the products and so on. So we have experienced a lot of headwind coming quite so often is the answer.

[Ulrik Bak, Research Analyst]

Okay. And when looking ahead in Q4 and 2022, what's the status then? Is it -- do you expect the same -- to see some of the same factors influencing the business?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

We expect still a raw material volatility, but we also -- we have seen -- we have had a sensible good start on Q4. Expect to continue to see volatility. Maybe we have better opportunities to handle it now because we have contract -- better contracts in place. We have also our cost-plus contracts. We can get a little improvement from that and also expect development in Chile to become a little bit better. Looking into 2022, we are not guiding on that yet. But still, I think BioMar generally, a little bit more optimistic on 2022 than on what we are seeing now. But I have to stress like raw material volatility is discrete. And just as an example, we saw the price of soy more or less doubling at an unseen high level.

[Ulrik Bak, Research Analyst]

Okay. And in terms of your contract base, you say you are in a good position. Is that volume -- in terms of volumes or in terms of margins? Or is it combination of both?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. But it's -- of course, it's in terms of volume. But as you also know, we have cost-plus contracts, meaning that at a certain point, you will have -- you will also get compensation for the raw material prices. But as I always say, we are always lagging a little bit behind. But we have the cost-plus contracts in place, and then we will get compensation.

[Ulrik Bak, Research Analyst]

All right. It's just you also comment that competition is fierce. And it seems as if competition has increased over the past few quarters. So given that you have a good position contract-wise and good volumes, does that mean that profitability will decrease compared to maybe 1 year ago or 2 years ago?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

I think we need to sell or handle more volume, more tonnes. But we are not saying that profitability will decline. When we're seeing -- the fierce competition, we see it's obvious that if you look at Chile, where the volume is down because of lower BioMar and so on, there's excess capacity and then we know what happens in the market. And we have to look into how to address that. And it's not always that we participate in this fierce competition. We have a clear margin strategy in BioMar which we have worked on over several years now.

[Operator]

The next question is from the line of Claus Almer from Nordea.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

I will first apologize this question. So don't take it in the wrong way. But so you reported Q2 in August, well into Q3. And all these question regarding electricity, freight cost, input cost inflation was -- they asked at that time, and you sounded as more relaxed at that time. So either you underestimated, obviously, the headwinds or everything happened very late in Q3. So maybe you can update us on what is actually happening in these couple of months? That will be the first question.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes, I think you're fair and you're right to ask this question because I think it's a combination of 2 things. And one is that we underestimated that and then we were also surprised by the impact and the magnitude of what really happened. So it's a combination of several things. And in some of the companies, we did the guidance and the discussion. We had a lot of discussions on what do we see where are we. And I have to say also some of the companies, we said, okay, "You are too pessimistic if we look at what you have been doing." So up till now and -- so it's a combination of several things. But I think that the question is very fair. But also, we have been surprised by the impact and the magnitude. Absolutely.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

And what -- as to hitting of electricity, natural gas and the likes, what is your policy? And have you changed the policy given what has happened this year?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Not yet. But -- and we have a different -- not different policies, but some -- to be honest, some companies are much more on it than us. They are a huge energy consumers. But we have -- we don't have a very, very strict policy on energy, to be very honest, also because it hasn't fluctuated that much. And we have, also in some companies, been surprised by this huge fluctuation. But also in other companies, we have good contracts. Of course, we work on contracts also, but we have been surprised by it, actually. And I also have to say that what also surprised us, Claus, was the sales, the volume. If you take the automotive segment that was doing quite well and all of a sudden, we had a stop-go, stop-go in our very important automotive segments. And it just more or less came overnight. So it got us really surprised.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Yes. It has not been an easy quarter. That's for sure. Coming back to BioMar and pricing pressure or your dropping profitability. Of course, you have some external-driven headwinds, but this is an old topic, but 11% volume growth, and I know we can't split up between the different species -- or the markets. But in the same time, you are seeing negative profitability trends. That could indicate at least that you are returning or you're at least contributing to a fierce pricing discipline or lack of discipline, which we have seen so many times over the years. Can you just give us an update on how you're thinking about pricing? And maybe you should put a foot on your volume speaker and then go for the profitability.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes, and it's a valid point. Once again, Claus, and I think -- I think, obviously, you raised the question a little bit last time. And we have been quite firm on that we are not fighting like hell, especially in Norway. And we have had quite a good volume uplift in Norway. But again, there is a difference that we are selling less functional feeds, which is a quite important margin driver. We have had a lot of negative net and negative effect from raw materials, especially in the summer. If you look at the salmon division and you'll also see that's where we're really struggling with EBITDA. Other divisions, more or less in line. And then you can also see that Chile is down on volume. We had a good volume development in Norway at reasonable prices but lower functional sales. And then we have had a quarter where we have been struggling on a lot of costs that we couldn't pass on. So to answer very short, no, we are not in a crazy price competition, but of course we have to defend the system also.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

That we have to discuss another time, yes. But defense has at least in the past, been a very costly strategy. But I guess that's a different time to have that discussion. Just a final one. Looking at your implicit guidance on profitability for nonwovens, and GPV is out and looks pretty depressing even versus Q3, if you're just looking at the midrange. So if you take nonwovens, why would your profitability, I think, is being cut in half versus Q3, which was already 50% down or something like that since Q2? Maybe a few words on that one.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. In Fibertex Nonwovens, we expect raw materials to increase, difficulties in getting short-term compensation on that. We have, as I said, also very important automotive segment, very volatile. We expect a much lower volume in that segment. And if we can't run full capacity or not -- but run at very high capacity in some of our factories, it's really [ difficult ]. And then we have the specialty wipes segment that has really been low, maybe starting out a little bit again. But we have -- last year, I think also we mentioned that we have some very attractive sales to a med -- kind of MedTech business filtration business for...

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

I'm just comparing for the last couple of quarters. So we are excluding this MedTech order.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

No, that's now -- it's not disclosing -- yes. I was saying with nonwovens, that we didn't have. I just say, we had some attractive customers with high margins. We -- where we don't sell anything for the time being, and we don't expect to do that in Q4. That's the reason, yes. Yes. And if you take GPV, then we had a very, very good profitability so far. And we have a very high backlog, but we are also struggling on components and prices and doing a lot of magic in production and so on. But still expect to grow GPV in Q4. But if you look at -- sorry?

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Just continue. No. When I do the math at least, then the EBITDA, Q4 over Q3, is more or less cut in half. If I done the math right, midrange of the guidance. That's -- and Q3 was an extremely strong quarter, but why would it sort of be the same if you are more or less sold out?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Yes. As I said also because we are starting to suffer from components and prices increasing. So that's part of the game. I think also, I said that we have this range DKK 310 million to DKK 330 million with quite good comfort. So meaning that if we can keep efficiency, et cetera, then we feel very comfortable on that. But we are uncertain on -- still on supply chain and so on. Of course, we are well into November now and we have had a quite good start on the quarter. But still, things changes week by week. So that's...

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

And then just my final question. You forgot mentioned the nonwovens, all this headwind from raw materials. Is there, going into next year, a reversal? Or do we have to wait for cost inflation before that will turn up? There's no clauses that you will...

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

No, we will see from a quarter-to-quarter, so that -- it can fluctuate on a quarterly basis. And meaning if we go into Q1 2020 with high prices, that's the level we start at and then we will see what happens over the year. But we will adjust on a quarterly basis.

[Operator]

The next question is from the line of Laurits Kjaergaard from ABG.

[Laurits Louis Kjaergaard, Lead Analyst]

So a few questions here. First of all, I echo what Claus was saying about your comments around Q2 when you were giving guidance, and it seems that this has been extremely fast in terms of how much deterioration seems to be and how fast prices seems to increase, et cetera. My question is more, the next time you're going to guide, you're going to guide on a full year next year. And there's obviously quite a lot of volatility in the market. How do you intend on doing that?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

I think we will comment on that when we are closer on 2022. We don't have an overview at all for the time being. But as I said, we expect volatility to continue well into 2022. And then we have to work a lot on contingencies and we prepare for this volatility. We have been in storms before and also work with volatility. So it's more, let's look into our contingency plans. And we are also slower in practice on doing the budgeting than we used to be because we need to get much closer to the year-end before we really finalize our budget and so on. So -- but I think, we will guide in a range as we used to do and really scrutinize it as hard as we always scrutinize our guidance a lot.

[Laurits Louis Kjaergaard, Lead Analyst]

And the word contingency is also the last word that you mentioned in your opening statement, that you mentioned that we are soon out of 2021 and you have strong contingency plans across your businesses to take opportunities. I was just wondering about, take opportunities, what could that mean? Could you maybe walk us through a few scenarios of what you can essentially do? Because obviously, when we talked in Q2, you said that you are engaging in a lot of long-term relationship with your customers, and we're just -- I'm a little bit wondering that if any -- if you start really forcefully increasing prices that, that could potentially damage customer relationships. And that wouldn't necessarily be a good thing in the long term.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

No, we are not thought we need to act as reasonable and also protect our long-term partnerships. So there are a lot of things you can move because customers have the same intention as us to reduce cost and so on. We can work on innovation, we can work on optimizing recipes, downgrading weights and a lot of different things we can do. And then also, of course, when we say we're prepared to look for opportunities, there will always be a lot of opportunities when things are difficult. We have good muscles to take these opportunities, both from a financial perspective, but also from an operational point of view because we have capacity. We are well positioned in many markets. So that's what we are meaning by that.And then another thing also, of course, also looking into could there be attractive M&A opportunities coming up, small and large and so on. So that's part of our thinking. But of course, we understand very much we also need to protect customer relations. For that point, we also need to protect our margin.

[Laurits Louis Kjaergaard, Lead Analyst]

And in terms of capacity, can you -- without guiding for next year, obviously, could you give some sort of flavor on how much capacity you have? If the market can take it, how much can Schouw & Co. as a whole deliver for next year? Because obviously, your CapEx program has been quite high. For Fibertex Personal Care, there's some production lines up and running in the mid next year. Can you give some flavor on sort of volume? How much volume you have next year, which you don't necessarily have this year?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

I would say let's take half budget, but maybe 10% up on Fibertex Personal Care next year. Fibertex Unwovens, it's difficult to say now because we have had a very difficult Q3, but we were sold out first half. So we have a potential to increase also Fibertex. I think in all our companies, we have potential to increase maybe only a place where we can't increase volume will be in Norway in the salmon market. I don't think we will be able to increase volume. Very little. Of course, we will always be able to debottleneck and things like that, but we have opportunities in most places, not increase.

[Laurits Louis Kjaergaard, Lead Analyst]

And this negative geographical mix that you mentioned for BioMar with Chile having a little bit lower volume, more in Norway, et cetera. Can that turn around next year? If you're saying that there's not so much more volume in Norway, can you grow more in Chile and then get a margin appreciation?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

We can grow more in Chile. Yes, we have quite a lot of capacity -- excess capacity in Chile, so we can grow more in Chile. And we have very good in relation with customers and very good contracts in place. And meaning, if our customers grow and some more, then we grow also. And we can say so.

[Operator]

[Operator Instructions] The next question is from the line of Ulrik Bak from SEB.

[Ulrik Bak, Research Analyst]

Just a follow-up question on BioMar. So this functional feed, you say that sales has been lower than usual. What is the reason for that? Any particular reason for that?

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Sometimes -- yes, there are several reasons. Of course, if the biological situation is good when we are selling less functional feed. And it has been quite good in Norway. And Chile used to be a very big functional feed market. And volume, in general is much lower in Chile. So where we, of course, obviously, is selling less. And then we also see customers. If they don't need to grow the BioMars as fast because of prices and so on, then you reduce on what we call high-energy feeds and things like that. So it's a combination of different things. It's not because we think that customers are turning away from functional feeds, it's more a short-term situation.

[Operator]

There are no more questions at this time. I hand back to Mr. Jens Bjerg Sorensen for closing comments.

[Jens Bjerg Sorensen, President, CEO & Member of Management Board]

Thank you very much, and thank you for everybody listening, and also thank you for the questions. So goodbye from here.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.