Olive oil giant Deoleo sees next harvest lowering price

‘NEW BREATH’

to the market,” he said in an interview.

In Jaen, a city in southern Spain that’s a trading hub for the oil used in salads and cooking, prices for the finest extra-virgin quality have held above three euros (US$3.50) a kilogram (35 ounces) for most of the past three years, after climbing from less than two euros in 2014, according to prices tracked by the European Commission.

Higher prices have pushed homemakers and restaurants to seek cheaper alternatives such as sunflower-seed oil, which trades at about US80 cents a kilogram in Rotterdam. “Many consumers in mature markets such as Spain and Italy have started buying cheaper seed oil. Once they shift, it’s really unlikely they’ll go back” at current prices, Tosato said.

Spain’s annual olive oil consumption fell by about 90,000 metric tons in the past five years, while sunflower-seed oil rose by 140,000 tons, according to Vito Martielli, a grains and oilseeds analyst at Rabobank in the Netherlands. Italians now use around 160,000 tons less olive oil than in 2011, while sunflower-seed oil rose by about 200,000 tons, he said.

“If olive oil is not on the market, consumers have to find alternatives,” Martielli said. “We have some substitution in effect, and the oil that’s been winning, by far, is sunflower.”

Revived demand would help Madrid-based Deoleo. The producer of the Carapelli and Bertolli brands is forecasting a return to growth as it completes a restructuring. Its shares have dropped 24 per cent this year, the worst performance on the 26-member BI Europe Packaged Food Valuation Peer Group index. Its market value is about one-tenth the 2 billion euros it had in 2007.

The company, which considers itself the largest marketer with a 10.4 per cent world value share, is completing a financial restructuring plan and forecasts growth returning.

The outlook for a bigger crop may bring relief, with the International Olive Oil Council forecasting 201718 global output will rise by about 300,000 metric tons to 2.85 million tons. Spanish benchmark prices for intermediate quality virgin Higher olive oil prices in recent years have pushed homemakers and restaurants to seek cheaper alternatives such as sunflower-seed oil. oil fell to about 3.50 euros on Thursday, down from about 3.70 euros a month ago, according to industry price tracker POOLred.

“The Spanish, Italians and Greeks like to consume olive oil — it’s the preferred oil,” said Martielli. “If it’s more affordable, they’ll switch back.”

Higher sales induced by lower prices would constitute only one pillar of the plan Deoleo has set in motion for a business rebound. The other will be a 15 million-euro investment mainly focused on expanding in international markets such as the U.S. and India.

In the U.S. and northwest Europe, as well as in emerging markets including Brazil and India, where olive oil is a niche product that’s appreciated for its health benefits, demand is still good despite high prices, according to Rabobank’s Martielli.

“This year has been a year of transition, the next one is going to be the year of expansion,” Tosato said, in remarks confirmed by his spokesman on Friday. “Our target for 2018 is having no losses after paying interest on debt.”

To achieve its goal, Deoleo can count on the support of its main shareholder, U.K. private equity firm CVC Capital Partners, which holds a 50.01 per cent stake. “The relationship with CVC is very good. They see Deoleo as a long-term project and will invest in the company for many years,” said Tosato, who rules out a capital increase for now. “CVC said it will do it if it’s needed. It would be their own decision, but I don’t think it’s necessary.”

The company posted a nine-month loss of 5.4 million euros, down 80 per cent from a year earlier. Earnings before interest, taxes, depreciation and amortization dropped 29 per cent to 26.8 million euros. Net debt rose 3 per cent to 549 million euros.

Deoleo “is always looking for acquisitions, even if the company isn’t yet ready, and would always have the support of CVC” for a potential transaction, Tosato said.