Grieg Seafood Reports Improved Results in Norway, Weaker in UK, Canada19 February 2013
GLOBAL - Grieg Seafood has reported an overall weak fourth quarter strongly influenced by negative one-off events outside Norway, but significantly improved market conditions and prices from the end of the quarter.
Highlights – Fourth Quarter 2012
- Low prices and high supply growth in Q4 2012, but a clear improvement in market balance towards year-end and continuing into 2013.
- Operating EBIT, before fair value adjustment of biomass and biomass write-downs, was NOK -48.9m in Q4 2012, against NOK -38.2m in Q4 2011.
- Improved results in Norway, but extraordinarily weaker results in UK and Canada.
- Write-downs related to outbreak of furunculosis in the smolt facility in BC as well as increased mortality in Shetland from the treatment of salmon lice and AGD (amoebic gill disease) reduced the performance by a total of NOK 92m in Q4.
- Good underlying biological development and operations in Norway.
- New bond loan of NOK 400m, refinancing second priority loan of NOK 300m.
Results Fourth Quarter 2012
The Group’s operating EBIT in the fourth quarter, before fair value adjustment of biomass and write-downs came to NOK -48.9m against NOK -38.2m in 2011. The write-downs related to the biological challenges in Shetland and BC totalled NOK 92m. Harvest volume in the fourth quarter of 2012 was 20 122 tons (18 258 tons). The Norwegian regions show improved results, while UK and BC show poor performance due to weak biology in addition to reduced prices for BC.
High supply growth and low market prices were also a feature of the fourth quarter but, as expected, the relative increase in supply fell as the quarter progressed. There was a marked improvement in the market balance towards year-end which has continued into 2013, following 18 months of very strong supply growth. This has been reflected in a corresponding strong increase in market prices.
The biological situation and the development of underlying operations reflect a mixed picture in the fourth quarter. The situation in Norway developed positively, as expected. The results in Canada have been seriously affected by an outbreak of furunculosis in the smolt facility in BC, which has resulted in the eradication of a considerable part of the smolt held at the facility. A number of improvements have been implemented at the smolt facility in BC to minimize the risk of similar disease outbreaks in the future. However, on the positive side, the biological development of the seawater production in Canada has been stable and satisfactory over the last few years. For the second successive year, the two Norwegian regions and Canada have achieved the best feed conversion ratio ever recorded.
The biological situation in Shetland has been very demanding. The underlying main challenge has been high salmon lice levels and low sea lice treatment efficacy. The regulatory framework in Scotland makes the effective combating of salmon lice more demanding than it is in Norway. A new lice strategy has been established for Grieg Seafood Hjaltland. This includes changes in treatment procedures, internal and external treatment capacities, as well as defined threshold values and strategies to ensure that the challenge related to salmon lice and treatment efficacy are maintained at a good and manageable level. The steps taken to deal with salmon lice are based on corresponding practice and strategies in Norway.
The Group’s operational EBIT before fair value adjustments of biomass and biomass write-downs was minus 2.43 NOK/kg (minus 2.09 NOK/kg). Rogaland achieved an EBIT of 1.96 NOK/kg (1.29 NOK/kg), while Finnmark had an EBIT of minus 2.26 NOK/kg (minus 5.55 NOK/kg). The operational EBIT in Shetland reached minus 3.54 NOK/kg (minus 1.31 NOK/kg), while in Canada the operational EBIT reached minus 6.18 NOK/kg in 2012 compared to minus 1.27 NOK/kg in 2011. The Norwegian sales company, Ocean Quality, reached an EBIT of NOK 5.4m (0.9 per cent) compared to NOK 11.5m (2.6 per cent) in 2011.
The cash flow from operations in the fourth quarter was NOK -108.8m, while the figure for the year as a whole was NOK 202.7m. The equity ratio at year-end 2012 stood at 37 per cent and net interest-bearing debt totalled NOK 1 530m.
As 2013 starts, after almost two years with very low prices driven by historically high supply growth, we can see a marked change in the market balance. In 2013 we expect to see a low global increase in the supply of salmon, with a decline in supply from Europe. A further rise in the harvested volume in Chile is likely, especially in the first half of the year. The price difference between the USA and Europe has yet to return to its historical level, even though there has been a gradually improvement compared with the third quarter of 2012.
Grieg Seafood expects a harvest volume of 69,000 tons in 2013. The reduction compared with 2012 is mainly due to a reduction in smolt entries in BC and Shetland, as well as the biological challenges in Shetland caused by salmon lice and AGD. The total harvested volume in the first quarter of 2013 is expected to be 14,800 tons.
Feed prices increased during the second half of 2012 and into 2013. This will be reflected in salmon production costs.
Grieg Seafood still has a larger unexploited organic growth potential under existing production licenses in Norway. The focus in period ahead will be to exploit the potential for improvements in Norway to an even greater extent, in relation to both production volumes and costs. Grieg Seafood is well placed to participate in the growth that has been announced under new green licenses in Norway. The share of the group’s total harvest volume originating from Norway is increasing, and will increase from 56 per cent in 2012 to 65 per cent in 2013.
Measures to improve the operational and biological development in Shetland have been taken. Improvements in operations, productivity and biology will be in focus for Grieg Seafood Hjaltland. Following the furunculosis outbreak in the smolt facility in BC, a number of actions and improvements are being implemented to minimize the risk of similar disease outbreaks in the future.
Improved market balance and higher future price expectations for salmon is expected to improve profitability and earnings in 2013.
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