Benchmark Holdings PLC
LSE:BMK
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Benchmark Holdings PLC
Earnings Call Analysis
Summary
Q3-2024
In the third quarter, revenues fell by 7% to GBP 30.7 million, but EBITDA grew by 15%, driven by gains in genetics and reduced health sector losses. Despite a soft shrimp market impacting advanced nutrition, the segment saw an 11% revenue increase. Adjusted EBITDA margin improved to 15% from 12% last year. The company’s health business, reorganized and streamlined, returned to positive earnings. Genetics showed a 28% adjusted EBITDA margin, up from 16%, due to contributions from salmon egg sales in Chile and lower shrimp genetics costs. The company expects continued strong positioning and gradual market improvement.
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Good morning to all of you, and welcome to another quarterly presentation for Benchmark. I am Trond Williksen, and I'm here, as usual, with our CFO, Septima Maguire, and we are going to take you through the financial and operational results for our third quarter in our financial year '24. Following a normal program, also this time, starting with highlights, moving over to the -- give you more granularity on the business areas before Septima is going to take you through the financials. At the end of the session, we are going to cover the outlook for the quarters ahead. And at the very end, of course, there is an opening for Q&A.
Let us start with the highlights of the quarter. A quarter that financially normally represents a low point in the financial year for Benchmark. Having said this, we have definitely not been standing still. Having delivered a quarter with improved earnings from our operations compared to last year with good progress in genetics, solid performance in advanced nutrition, even if we have had challenging market conditions. At the same time that we have completed steps to streamline the health business area and transition to Ectosan Vet and CleanTreat business models.
In terms of the numbers, and you can see it on the screen, Q3 revenues ended at GBP 30.7 million, which in constant exchange rate, taking away the forex noise, is down by 7% compared to what we delivered in our third quarter last year. The top line, if you look behind that has been helped by growth in revenues in advanced nutrition, while we have seen a reduction in revenues, both in genetics and health, and I will come back to comment that later on. While we have seen a reduction in the top line, we have seen a positive development in earnings and we are using the notion EBITDA, excluding fair value for the group in totality. This has grown by 15% quarter-on-quarter compared to last year. And here, we see a little bit opposite -- the opposite movements compared to what we saw on the top line, on the revenue line. Both genetics and health has delivered significant improvements year-over-year, while we have seen a reduction in adjusted EBITDA from advanced nutrition.
Main drivers between the positive development in the earnings, adjusted EBITDA, excluding fair value for the group are, we have seen a positive development in earnings in Chile, we've seen a larger contribution from the joint venture we have in genetics with Salmar in Salmar Genetics. We have seen a reduction in the losses in the shrimp genetics business, and we see an ending of the losses in health where we typically have seen a loss in Q3 over the last 3 last years. After the actions we have taken now in health, this should be a business with positive earnings and cash flow going forward. The improvement that we have seen in Q3 on adjusted EBITDA, excluding fair value is also reflected in the adjusted EBITDA margin for the quarter. It has grown from 12% to 15% in the quarter. For the totality of the year, we stay at 20% adjusted EBITDA margin similar to what we achieved 1 year ago. The results from our operations in the quarter is also reflected in the development of the adjusted operating profit. We have managed to shrink the loss here, £0.3 million versus a loss of £1.2 million one year ago in the same quarter. In terms of the balance sheet, it remains strong, and Septima will comment further on that when she is going through the financials.
In short, we remain a very hard-working group, and we are trading well in a very busy year. When we have faced market headwinds in the nutrition area, which is the biggest part of the group, at the same time that we have done the restructuring of our health business area, both of those things have been taking down the performance short-term, but we have kept the momentum, and we are keeping the medium- to long-term potential in the businesses.
Moving on from highlights to give a little bit more granularity on the business areas and starting off with genetics where we have landed a quarter with solid performance and good progress in our growth vectors. This might not be evident if you look at the top line. If we look at the top line alone, which is down 17% in constant exchange rate compared to last year's Q3. But the reduction in top line is partly explained by the shift we have seen this year from purely direct sales of salmon eggs which is the main part of our genetics business. We have seen a movement from purely direct sales from our own facilities and operations to proportionally more indirect sales through our joint venture, Salmar Genetics. This will, of course, have an impact on our top line, but it has no impact on our earnings and adjusted EBITDA.
Just a few more words on that shift because the combination between the direct sales in salmon eggs from our own facilities and the indirect sales through the joint venture is also important for the understanding of how our market positioning have been developing throughout the year. If you look at Q3 and the sales of salmon eggs this year compared to last year, you see that the total salmon eggs sales, which means the direct sales from our own facilities and indirect sales from the joint venture are at the same level as we saw last year. This year, we have sold 69 million, last year, we sold 70 million, that's at par. If you look year-to-date, we see the same picture. Total sales of salmon eggs are year-to-date end of Q3, 258 million eggs while it was 275 million eggs year-to-date in financial year '23 million. But you have to remember, it was in a year where we also had extraordinary effect of supply constraints, our main competitor in the market. So, if you correct for the bumper effect that we had in the beginning of financial year '23, that's around 30 million eggs. We have, therefore, continued to experience growth in the underlying salmon egg sales also this year.
Beyond the FX on the top line caused by the shift in -- caused by direct and indirect sales of salmon eggs, we have seen a shift in the timing of harvest income compared to last year. This was affecting our top line positively in Q2, where it has a negative effect on our top line in Q3. Looking below the top line at our adjusted EBITDA, excluding fair value, we see a significant improvement in genetics compared to the third quarter last year. In nominal value, we've gone from £2.3 million to £3.3 million in the quarter, bringing our adjusted EBITDA margin up to 28% versus 16% in Q3 last year. Behind this significant improvement, we have several factors playing positive for us in the quarter. And the main element looking at genetics again is a significant improvement contribution from our salmon eggs activities in Chile, significant reduction in cost and losses in our shrimp genetics activities, as well as larger contribution from our joint venture in Salmar Genetics. All of this comes as a result of our focus to improve our results, taking actions to make the growth vectors become more positive or positive contributors to the earnings of the group.
The financial figures for the quarter is also impacted. It also impacts the figures for year-to-date in Q3. Adjusted EBITDA, excluding fair value is up by 12% compared to year-to-date last year, and our adjusted EBITDA margin, excluding fair value is up to 24% versus 19% year-to-date last year. Then also this time, I will remind you on that a key element in our strategy in our core genetics business, which is a salmon genetics business is to move towards a differentiation of our products, building in trades and new technologies to make sure that we can differentiate, justifying higher value in the genetics than we have today. As I pointed out in previous presentations, a huge value creation potential sits within this in the coming years. This is also why we have had a deliberate strategy over quite a long time to strengthen our efforts to take out this potential. As a first step on the way, we have launched new lines of salmon genetics into the market. These lines are more tailored on specific trades important to the customers. And even if they do not hold the newest technologies we are about to develop, they represent steps on the way to introduce further specialized value-accretive genetics into the market.
We are also advancing our systematic effort on the more transformative technologies within genetics. I've mentioned that also in previous quarterly presentations, both in terms of diploid sterility and gene editing, we are following our plans and programs to enable us to bring forward products and solutions with these technologies in the future. We also significantly advanced our program to launch products addressing the complex gill health disease, which is a key challenge in many salmon production regions, including Norway, especially Scotland. Our plan is to introduce these products to the salmon industry in financial year '25.
Finally, I would like to mention our participation in the Crisp resist project. This is something that we've been working on for a while together with leading salmon production companies as well as leading international R&D institutions. We have, for several years, been looking at how gene editing could be applied in the combat of sea lice, researching the resistance sea lice we see in the core salmon. This is another example of how we most likely will see genetics applied in the future as a main tool driving the industry's sustainability, helping the industry to solve very, very crucial sustainability issues.
Moving over to give the financial overview of the different parts of the genetics business, and this is how we have been presenting it over the last quarters. The financial figures for the core genetics business, which is the sale of salmon eggs out of our facilities in Norway and Iceland, the numbers you all see is reflecting the shift of sales of eggs that we have had in the quarter, as I've been discussing earlier, but also has been impacted by the shift in the harvest income that I also already have commented. You can also see the mentioned progress in Chile, where we continue to build a sustainably profitable operation. This is the second quarter in a row with a positive adjusted EBITDA for our operations in Chile within genetics. We also continue to see the effects of the restructuring and rightsizing our shrimp genetics business, reducing the loss and the gap towards profitability. This is very important for us. So far, we don't see the full effect of other static grips and actions that we have been taking within that business. We are expanding our business model, but we truly believe this also will come through in the period and the years ahead.
Finally, a few words on genetic services, which we have started to carve out a separate column. We do that because we -- this is an area we are focusing on growing and we expect to generate more substantial numbers in the years to come. It's a profitable business, where we have also -- where we have invested and also started to offer competitive genotyping services to clients around the world. The positive financial effect of that so far is coming through with a doubling of the top line in this quarter. You can also see that we have increased the cost, reflecting -- is a reflection of the increased resources that we added to that business area to enable scaling up and execution and acceleration of these services. And going forward, these resources will drive increased top line and margin to an even bigger extent than we have seen in the numbers on that business area so far.
That ends my comments on genetics. And then I can start to talk about advanced nutrition, which is our largest business area. It's known under the name INVE. It's a very well-known brand of this business area in the market. In the quarter, we continue to have a solid performance in what is still a soft market. And we keep very well positioned for when the market again is turning. Market-wise, for this business area, we've been through a tough period for more than a year now, and the soft market conditions, in particular in the shrimp market, which is the biggest market for this business area are continuing. Despite this, we have been able to uphold our performance pretty well. Top line in Q3 is up by 11% in the constant exchange rate compared to Q3 last year, illustrating that we have kept the momentum in the business in the last month. Again, given the market conditions we have been experiencing, we know this is a strong performance. And those who are in the same market, they will surely recognize this.
In terms of adjusted EBITDA in the quarter, we see a drop compared to Q3 last year. That is explained by changes in product mix in general but also more specifically within the Artemia portfolio. We have a bigger influx of lower-grade Artemia from the harvest that we had back in financial year '22 and also financial year '23. That temporarily commands lower margins within the live feed business we have in this business area. But looking ahead, this will even out and normalize while we, in '22 and '23 seasons for low seasons, harvesting seasons, they were low in terms of quality and quantity. The financial year '24 season has been high both in terms of quantity, but also in terms of quality. So that will have effect both on the cost side, Septima probably comment this further, both on the cost side but also on the margin side that we are able to take out in the market.
Another issue impacting our margin in the quarter, which is reminding us that this is truly an international business, global business is the increased transportation cost that we have been experiencing in this business area over this year due to increased container effects, reflecting vessels now avoiding going through the Suez Canal, avoiding the conflicts on there and instead have to go through -- pass Cape of Good Hope. This leads to increased cost on transportation for us and for a lot of other players, but it hits us also, and it has increasingly showed during the year.
Looking at year-to-date revenues, if you go at the constant exchange rate is slightly ahead of what we experienced 1 year ago in actual numbers, it's 7% behind. But if you adjust for ForEx, it's 1% ahead. And this is the part that we in financial 2023, experienced very good trading in the market, especially in the beginning of the year. While this year, we have had significant market headwinds throughout the full year. On adjusted EBITDA, we are behind last year so far, and the reasons I've already explained, mainly product portfolio mix that is temporarily taking us down together with increased logistics cost, both are expected to be temporary.
A few more words on the market conditions. The shrimp market, which is the main market for this business area have so far remained soft with low demand. And we were talking about green shoots that we saw last time, and the green shoots that we saw and are continuing to see have not really translated into market recovery so far. The fundamentals behind the situation have remained the same, macroeconomic factors have, over a period of time, depressed the demand in end markets. This has not been helped by the fact that the retailers in the big markets, U.S. and Europe has not been forwarding the price drops that they have gotten from the producers down to the customers. So, that's kept the situation a little bit, and I know the situation is a little bit similar when it comes to salmon -- has been a little bit similar when it comes to salmon. So that has caused depressed demand in the end markets that has trickled down the supply chain and implies less production, less stocking and eventually less demand for our products.
Based on the latest market reports, there are signs of changes in these dynamics. In the U.S. and the EU, we see consumer confidence is again on the rise, and that's good. And there, we also see signs that the retailers now have started to reflect the price drops from the producers on to their customers. So, this will help the demand. And this is the development we see in the U.S. and in the EU, which are the main markets for shrimp. The remaining question is China, which still seems to be not out of the depression that has led to less consumer confidence in that market. We know that this cycle will turn, but it's difficult to predict when it will act, but we are sure of one thing, with the current setup that we have in the organization and the momentum we have in our operations, we are sure that we are very well positioned to take advantage when the upturn again comes and take back -- and take the advantage of the upturn when it comes.
A positive element that I also mentioned last time, I think I'm a little bit proud of it so I would like to mention it also this time is that when the markets are where and what they are, the farmers tend to stick to what they know and to the relations that are well established. And this is something that we see that we are benefiting from being a well-respected player in the market with well-known brands, and it has partly -- I think it's partly explaining why we're doing so well despite the challenging market conditions. It should also be mentioned again that we continue to develop -- our effort to develop product portfolio to make sure that our core technologies are added that strengthen our position to provider of specialized products and solutions commanding high margins. A clear example of this is that our sale of Artemia with technologies has grown from 4% to 6% over the last years, bringing this business away from being a commodity business towards a highly specialized business combining entry barriers to competitors as well as making sure that we have higher margins.
And finally, as mentioned here on the slides that we also see some positive developments on the regulatory side around the shrimp industry that we think that will help the industry both recover, become more stable over time. One of example of that is in India, for instance, which is a very important production region in the shrimp world. We see now that the Indian -- they have reduced import duties on aquaculture supplies to that market, which will again help farmers, which will, of course, help the recovery of the industry in that important production region. And likewise, we see in Ecuador that the government are supporting more value-added production, which again will drive further demand, it's another example and there are probably many others that also from the outside there are initiatives that will help the industry grow going forward. That was what I had on advanced nutrition.
Let's move to the smallest business area, health, which is an area where we have taken very decisive actions to migrate the business model and become less capital-intensive and rightsized the organization in terms of infrastructure and the size of the organization over the last quarter. This has been addressed for several quarters, we have now taken the actions. And the financial figures also reflect this, both in terms of top line as well as adjusted EBITDA for the quarter. We are significantly down on top line, but due to a significant reduction of the financial burden and exposure, we've been taking out the 2 PSVs that we had for Ectosan Vet, and we have been slimming the organization. We have delivered a breakeven quarter on adjusted EBITDA as opposed to negative numbers that we have shown for this business area in previous third quarters. Where we are right now within health, also with actions partly taken after the end of the quarter we have an agile health organization covering what is needed to run an effective and profitable business based on our initial product suite, Salmosan and Purisan.
At the same time, we have retained the resources needed and competencies needed to continue to offer Ectosan Vet and CleanTreat as a solution. But that will be subject to a customer willing to invest and take the exposure of running the CleanTreat systems on alternative platforms. This could be the barge solution that I mentioned in previous quarters or it could be the integrated solutions into the wellboats that I've also been talking about in previous quarters. Both solutions we have prepared and are able to support when the customers are willing to invest in those.
As I've stated earlier, in earlier presentations on Ectosan Vet and CleanTreat, what we've done over the last years is that we've proven the concept. It's a highly efficacious sea lice medicine, Ectosan Vet, combined with the transformative purification system, CleanTreat. And together, it offers the farmers a very environmentally-friendly way of treating sea lice, at the same time, as it is a very gentle way of treating fish, both from a fish health as well as fish welfare perspective. The interest of the solution is definitely still in the industry, not surprisingly, given the sea lice pressure, we again now see in the industry this summer, so we're getting inbound calls on that. And we are in dialogue with farmers on the solution, the timing of when the solution, again, becomes available will be dependent on the investment decisions by the farmers. Meanwhile, we have the capabilities but with a very low financial exposure to distribution.
Finally, at the end of my initial part of the presentation, a few words about Salmosan and Purisan, which is the remaining main products within the health business areas. This is a solution that keeps getting new life as a very efficacious solution and it's one of the very few medicinal solution tools that the industry has now for treating sea lice. Our belief in Salmosan and Purisan has grown over the last 2 years, and it continues to do so. And we also see new regions that are coming in with an obvious need in the years to come. And we expect that the sale of this medicine will continue to develop normally over the periods to come, which is the backbone of the health business as it is now, and makes it a cash-generative business going forward. With these words, I end my part of the presentation so far, and leave it up to you, Septima, to go through the financials.
Thank you, Trond. So as Trond noted, operationally, we as management have been focusing on navigating our way through quite difficult markets in nutrition, restructuring our health business and continuing to deliver a solid performance within our genetics business area. Overall, with the objective to strengthen each of the business areas and move them towards full profitability. As you can see on the slide here, we've got both on the quarterly and the year-to-date figures. I'm going to speak to the quarterly to give you an idea as to how we've progressed as a group in totality. From a revenue perspective, as Trond noted, were behind set by 7% at a constant exchange rate. Nutrition grew by 11%, which was driven in the main by selling the lower grade Artemia products that we have in our portfolio. But this had the added benefit of unwinding that working capital and ultimately giving us the cash and crystallizing the cash out of that initiative.
Genetics was 17% behind the same quarter of last year, of course, was driven by the timing of the harvest income. And as we continue in our genetics business area, we will see that evolution of the relationship of the Salmar joint venture and direct sales that we would have previously had into Salmar. So, all in all, we believe it's a very solid quarter, part of a very solid year. And then, of course, health, where whilst we did reduce our revenue down, it was because we made a conscious choice to decommission the PSVs and ultimately, pause the Ectosan initiative due to the capital-intensive nature of it, and ultimately, the return on capital employed.
For the gross profit, it reduced to GBP 15.6 million, including fair value uplift. When you look at it, part of that, of course, is driven by FX headwinds, but also in terms of the ultimate trading of the business. Nutrition's gross profit reduced by GBP 1.5 million in totality, which was GBP 1.1 million due to the product mix because of the low-grade Artemia and 0.4% because of the logistics costs, as Trond alluded to, with respect to the alternate trading routes. Genetics, actually, excluding fair value uplift, grew by GBP 5 million in the quarter. Fair value movements actually were negative quarter-on-quarter by GBP 1.5 million. And then, of course, health. Health, due to the fact that we've decommissioned the vessels and ultimately have taken that cost base out, the gross profit actually grew by GBP 0.6 million in the quarter, reflecting that conscious choice to conserve cash and ultimately focus on what's the profitable component of that business. When we look at research and development, we continue to effectively maintain it flat. But we're also internalizing quite a lot of that spend ultimately to get more out of the money that we spend, as we've noted in previous quarters.
Operating costs fell to GBP 9.9 million, which was slight increase in costs in terms of the nutrition business area, but offset by excellent cost control in genetics, health and corporate. When you look at the adjusted EBITDA, each of the individual parts of the business all of course, play a solid role in this. Genetics delivered growth, excluding fair value uplift of GBP 1.2 million. Then also Nutrition with difficult markets was GBP 1.6 million behind, but the changes that we've made in half have resulted in us being able to grow versus last year, which is a good outcome for this quarter and it's what we have been working towards in that business area over the last number of quarters. When you look below the line at exceptional costs, we've got exceptional costs of GBP 2.6 million. The majority of that, of course, is the cost associated with the ongoing strategic review program. But there was a component of the cost within our genetics business area, which pertained to the ISA incident that we had in Salton earlier this year of GBP 0.6 million, which was the inventory, the biomass that we had to call being written off.
When we look at the net finance costs, that's purely driven by servicing our debt, any FX gains we had offset against FX losses. When we look at it with respect to the previous quarter of the same -- of previous quarter and last year, there would have been historical ineffectiveness within our movements on our hedges in last year, which did not reoccur this year. But overall, that reduced trading and higher exceptional costs and finance expenses resulted in the loss before tax growing to GBP 9.4 million. So, maybe now on to the next slide to look at the cash generated from operations or to look at the cash flow. So, as I noted, the cash generated from operations has been relatively low in the quarter, which is actually quite normally, but it's generally driven by the lower trading that we've had in the period in question and, of course, we have had an incremental increase in our working capital. The CapEx of GBP 0.8 million is a continuation of what we've seen in previous quarters as we maintain good cash control to make sure that we've got a solid cash position and balance sheet as we move forward.
When we look at our interest and taxes, this includes our lease interest of £4.5 million, that is 50-50 split in effect in terms of what component relates to interest and taxes. One point in terms of the leases. In this quarter, we had lease payments of GBP 1.8 million as we sort of are moving to finish out both the leases for the PSVs. This is in comparison to GBP 2.7 million in the same quarter of last year. So, we can see an incremental cash benefit coming through from the decisions made to exit the PSVs. But we will see the full year effect of that coming through in FY '25 as we move into that landscape. But all these factors as well as a negative ForEx of GBP 1.2 million contributed to the net debt position of GBP 75.1 million at the end of the period.
Then just moving to look very quickly at the year-to-date position. Probably the most relevant part of this year-to-date position is the cash generated from operations, which includes cash fully invested working capital of GBP 14.1 million. This represents both the reduced trading that we're seeing coming through from nutrition, but then also higher payments on the nutrition take-or-pay contract that we have for our Artemia. You can see that CapEx has been very moderate through the year as we maintain good CapEx control. And of course, we have our interest and taxes, of GBP 12.4 million, which we continue to service. But at the end of the day, we have GBP 22.8 million of cash and GBP 37.1 million of available liquidity as at the 20th of August, and we continue to maintain a solid balance sheet as we move forward. So, I'm going to hand you back to Trond, so you can look to the future.
Thank you. That was financials, and let's go over to the outlook for the rest of this financial year, but also a little bit into the next year. In short, as I said also in the highlights, we remain hard working, and we remain trading, I would say, well in what has been and is still a very busy year for us. We have been facing market headwinds in our nutrition business, which is the biggest business area at the same time as they've done the restructuring of health business area. Both are taking down the short-term performance, but we do it as we keep ensuring the medium- to long-term performance and potential in the businesses. Development of our business is never a straight line. But we are confident that the actions that we have taken during this particular year will bring all business areas forward on the rate path to develop value creation for our shareholders in the medium- to long-term.
Commenting the different business areas. In genetics, we keep good visibility as usual of seminal deliveries for the full year, a year where we do not have the benefit from the extra uplift of the market conditions that we saw back in '23, it should be noted, as well having seen a shift in the sale of salmon eggs in between direct from our own facilities, but also towards indirect sales from our joint ventures. The fundamentals of the operations in our core genetics business goes very well. On the other hand, we have a separate element of that, which is the lump price activity on Iceland, which is a secondary income stream. We do not see the same demand for this in previous years and this will likely cause that we end the year in totality, just shy of what we achieved last year. Given the bumper effect that we had back in financial year '23 with the extreme market conditions, we see this as a very good outcome. It should also be mentioned that we keep our focus and work to develop our core growth vectors, both in Chile, shrimp genetics and genetic service with a clear aim to make them more profitable over time to come.
In advanced nutrition, we still expect to continue to work hard in what is still a soft market. We are not the persons that bet on the market simply turning, we are rather focusing to do the utmost of the market that is there, a recipe that has shown very effective over the last years. Then as I said, we are sure that we are very strongly positioned for when the market again turns, but we don't expect that turn to happen within this financial year. The fundamentals in the operations and positioning of the nutrition business area are very strong, which we are very sure will pave the way for a strong value generation in these business areas in the time to come.
In health, we have, as we have explained, and now taking the steps to streamline this business area to become a cash-only business based on the suite and sales of Salmosan and Purisan, but we are still offering the capital to customers to invest in -- who would like to invest in Ectosan Vet and CleanTreat. We are in dialogue with customers on solutions for this, but the timeline for when the solution, again, will be operational, is subject to investment decisions to be taken by the customers. But looking at the sea lice numbers, how they are developing in Norway at the moment, the fundamentals behind these such decisions should definitely be there. So, with these words, I end our presentation, and we are moving over to Q&A.
We'll start off with any questions in the audience. Yes. Okay. So, questions from the web. Are you pleased with the current adoption rates of Ectosan Vet and CleanTreat? And is it where you would expect it to be at this stage?
No, it's difficult to say that we are -- in general, we are not satisfied with anything. We are always striving to do better and all the things that we are doing. That's what is driving a business forward. We're always trying for the better. In particular, this, well, as I said, we have proven the concept in the market. Nobody questions that Ectosan Vet is a very efficacious medicine, but it has the properties that we promised. And nobody is questioning that we have a cleaning system for medicinal treatments that I think not only me, but everybody thinks is the future of how to apply medicines in aquaculture. So, we have proven the concept. Am I satisfied with the speed of adoption the industry has been able to take? No. I think the industry should have taken the opportunity to invest more actively into this solution. Because if you look at the toolbox that you have to combat sea lice, and sea lice is the plague of the salmon industry. It's the one thing that determines the speed of development of the whole industry, more or less. And it has a lot of, not only, direct consequences, but a lot of indirect consequences.
If you look at the toolbox, it's getting narrower and narrower in the industry. There are big questions around mechanical treatments, there are big questions around now using freshwater. And the number of medicines that you can use, which is the most gentle way of treating sea lice, is shrinking. You have some of Salmosan and Purisan, which we have, and you have Ectosan with the transformational cleaning system on top, but beyond that, it's not much. So, you should think that the industry with all the financial progress it has, would have been more willing to invest into this new solution when it was introduced. But having said that, it doesn't help anybody to complain, and we are not doing that. What we have done is to make sure that we have proven the concept, we have positioned the group with the capability to offer this solution to the industry when the industry is taking that decision. And as I said, we are in active dialogue with customers who are looking at the ways of doing this going forward. But when it will become operational again, we will be ready to do that, but when it will be operational again, it will be dependent on the decisions of the customers. So, that's where we are.
Great. You mentioned that you're seeing some green shoots in the market for advanced nutrition in shrimp, can you expand on what it will take before the market is considered to be in recovery?
No, I think it's -- I said that we see some signs now of the dynamics in the shrimp market changing. It has to start with -- it has to start with increased customer demand and customer confidence that we see now, is not only me that see that, I always see that you have an increased customer confidence in the U.S. market and in the EU market, which are the 2 main markets. I think that will eventually drive an increased demand; it will drive increased demand also eventually for our products. How long that will take and how the magnitude of that will be, it's difficult to predict. That's why we are so careful in saying that it will happen tomorrow or next week or 2 months. But we've seen these cycles before, what we've been focusing on is to perform as good as absolutely possible in the market conditions that we have had, and I think we have done great in that. And we have also been very, very focused on maintaining our firing power in that business area, so when that turns, we will get recovery.
I just have to remind everybody that back in 2020, I think we had an adjusted EBITDA margin of our advanced nutrition business of GBP 6.5 million or something, we've been up to GBP 20 million, so that's been doubling. And so, what we see now is where we are right now, which is on a very high level in terms of performance. If you get a market recovery on top of that, that shows the potential of what this business can be going forward. But when that turn happens, it's just speculation and let's focus on doing the best as it is now and position for when the turn is, but we are not expecting that turn to come in this financial year.
Could you please elaborate on the topic and explain the difference between direct and indirect sales of eggs? And more specifically, is this shift towards a more indirect sales, a desired result of your strategic efforts? And do you expect indirect sales to become a bigger share of your total egg sales going forward?
Well, it's a good question. If it's what is called [Foreign Language] in Norway, we would like both of them to happen actually. The joint venture we have in Salmar Genetics is definitely a deliberate strategy from our side and has been that for many years. That gives us a very, very good relationship to a very, very significant player within the salmon industry that has a very big demand for eggs. And the sales that we have through that channel, we are hoping that, that is increasing and it impacts -- if you're selling through that channel, it impacts our top line, but on the EBITDA, we don't have the same effect. What it does, when we are shifting some of our sales to that indirect channels, it takes away some of what we could have sold from the direct channels -- from our own facilities. That loosens up -- that frees capacity to sell more eggs from those facilities to other producers. So, in a way that's a desired thing that we want to have -- want to happen because a key to have a profitable genetics business is that we are getting -- we are not in -- that we don't need to invest in very, very big and heavy infrastructure in order to grow sales. So, this will help us grow the sales in totality without doing a significant investment in a new facility. That's a positive thing.
But at the same time, when we are taking away some volume from the direct sales and going into the joint venture, we are also -- the mechanics of the egg business is that you have a certain level of sales that you need to have to have breakeven to cover all the fixed costs and then you have super profit on top. So that takes down a little bit of that potential in the intermediate. But longer-term, if we are filling our capacity in the existing facilities at the same time, as we are utilizing the joint venture that we have in Salmar Genetics, that's the desired direction. And just to say that going forward also, I think other constructions like this, all the joint ventures, similar to this could be a way to expand the genetics business holding the CapEx down at the same time as we get more effect out of our genetics business going forward. So, that's the thinking around that. I'm not sure if you clarified it, but that's at least the thinking.
Okay. So going into what looks to be the last question. Looking at the breakdown of growth vectors in genetics, other products account for 15% of revenue contribution in Q3 compared to shrimp and genetic services, which represent a total of 5% in revenue contribution. How many products are there and what are they?
Septima, that's a question for you.
Well, Trond would have touched on one of the more significant ones of them, which would be our lungfish business, which we run out of Iceland. We also have where we do genotype services and screening of eggs for the customers associated with the salmon eggs that they would buy. So, it's ancillary products. We also have very small items like caviar, where if we have excess eggs and things like that. But they're not core products, but they're ancillary to the actual business that we run as well.
Great. And that concludes the Q&A session.
Okay. Thank you, and thank you for attending in presence here, and thank you for those who have been on the web. And that concludes our Q3 presentation. Thank you.