Grieg Seafood ASA: Q1 2020 results

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Efficient production maintained, earnings impacted by biological challenges in Finnmark

Highlights

  • Harvest volume of 18 360, above guiding and up 24% from Q1 2019 (14 800)
  • EBIT before fair value adjustment of NOK 240 million (NOK 267 million)
  • EBIT/kg NOK 13.09 (NOK 18.07), with a positive EBIT in each region
  • Price achievement impacted by harvesting towards the end of the quarter with low market price
  • Good production and low cost in Rogaland, but margin impacted by environmental challenges
  • Margin in Finnmark negatively impacted by winter ulcers and one site affected by ISA
  • Positive cost developments in British Columbia and Shetland
  • Received ASC certification of five sites in Finnmark and three sites in BC
  • Acquisition of Grieg Newfoundland AS, with long-term annual harvest potential of 30-45 000 tonnes
  • Expected harvest of 24 900 tonnes in Q2 2020, maintaining guidance for 100 000 tonnes in 2020

Covid-19

The market situation in Q1 2020 has been impacted by the Covid-19 pandemic. Nevertheless, despite the challenging circumstances, there is a high market demand for salmon and Grieg Seafood’s diversified geographical presence provides some flexibility and reduces logistical challenges. Grieg Seafood has been able to maintain efficient operations throughout the first quarter and the impact on the first quarter results has been limited.

Q1 2020 financial results

The Grieg Seafood Group harvested 18 362 tonnes GWT in Q1 2020, up 24% compared to 14 801 tonnes in Q1 2019.

Average spot salmon price for Q1 2020 was up compared to both Q1 2019 and Q4 2019, but our price achievement was affected by harvesting towards the end of the quarter when prices were decreasing. Grieg Seafood’s revenues in Q1 2020 amounted to NOK 2 055 million, an increase of 25% compared to Q1 2019. The revenue increase is driven by higher harvest volume as well as the currency effect of a weak NOK.

Farming cost during the period (total cost related to fish harvested this quarter) was somewhat up compared to the same quarter last year, partly driven by the currency effect.

The Group’s EBIT before fair value adjustment of biological assets was NOK 240 million (NOK 267) during the quarter, corresponding to an EBIT per kg of NOK 13.09 (18.07). EBIT from the four regions includes value creation from the respective sales activities of the Group’s jointly owned sales company, Ocean Quality.

Fair value adjustments of NOK -779 million (NOK 51 million) was mainly due to lower forward and spot salmon prices compared to Q4 2019. In Finnmark the price is also impacted by downgrading due to winter ulcers. The EBIT after fair value adjustment of biological assets was NOK -538 million (NOK 319 million).

Commenting on the Group’s performance, CEO Andreas Kvame, said:

“The first quarter of 2020 took a dramatic turn when the Covid-19 pandemic hit. Our top priority in this situation is the safety and wellbeing of our employees, their families and the local communities where we operate.

Safeguarding people, operations and partnerships are key priorities going forward, as well as protecting the financial solidity and flexibility of the Group. We also will continue to execute on our ambitions. We hold on to our target of 100 000 tonnes harvest in 2020. By 2025, we aim to harvest at least 150 000 tonnes of Atlantic salmon, to achieve cost leadership and to reposition Grieg Seafood in the value chain. In the first quarter, we took an exciting first step on this growth journey by acquiring Grieg Newfoundland AS.

Lastly, but most importantly, despite the extraordinary situation, we do not yield in our commitment to sustainable and responsible farming. Sustainability is our license to operate and remains at the heart of our strategy and all our activities”

Strategic priorities

Improving sustainability is key to increasing our profits. By focusing on reducing our environmental impact and improving fish welfare, we aim to increase harvest rates and reduce production cost. For 2020, our goal is to reach an annual harvest volume of 100 000 tonnes in 2020 with cost at or below industry average, building a platform for sustainable growth beyond 2020.

Post-smolt improves biosecurity and survival rates and allows for a more efficient farming cycle. Increased growth on-shore also frees up sea water capacity. Digitalization in salmon farming includes applying advanced sensors, big data, artificial intelligence and automation, with the aim of generating better farming decisions.

With a strict focus on biosecurity and fish welfare, Grieg Seafood aims to achieve strong biological performance through the implementation of a broad range of technological and operational initiatives, including large smolt, GSF Precision Farming and other preventive operational measures aimed at combating sea lice and algae. The group targets an average survival rate in seawater above 93%.

GSF 2025

Going forward, Grieg Seafood will build on our existing platform for continued sustainable growth and cost improvements. With an ambition for global growth, we aim to strengthen our market position, while driving increased value creation as a global supplier of sustainably farmed salmon.

The strategy for 2020-2025 comprises three key strategic objectives for continued growth and business development: Global growth, cost leadership and value chain repositioning. Furthermore, increasingly sustainable farming practices is the very foundation of all areas of the strategy.

In February 2020, Grieg Seafood announced the acquisition of Grieg Newfoundland AS, a project with long-term harvest potential of 30-45 000 tonnes Atlantic salmon. This step of our growth journey includes exclusivity for salmon farming in Placentia Bay, which has a farmable area larger than the Faroe Islands. With proximity to the East Coast of the US, the acquisition reinforces our US market exposure and underpins the 2025 strategy to strengthen our position as a global leader in sustainable salmon farming. First harvest in the region is expected in 2022/23, and the region is expected to contribute with at least 15 000 tonnes of annual harvest by 2025.

Outlook

The Group’s total share of fixed price contracts in Q1 2020 was 22% both in Norway and the UK. This is in the lower range of the Group’s target of 20-50% contract share. Currently, the estimated contract shares for the full year 2020 is 20% in Norway and 9% in the UK.

In 2019, a total of 25.2 million smolt with an average weight of 190 grams, was stocked to sea. Our seawater production is good, and despite abnormal mortality during the quarter, we are on track to reach our harvest target of 100 000 tonnes in 2020. Expected harvest volume for Q2 2020 is 24 900 tonnes, comprised of:

  • Rogaland: 4 000 tonnes
  • Finnmark: 7 000 tonnes
  • Shetland: 3 900 tonnes
  • BC: 10 000 tonnes

Results presentation

CEO Andreas Kvame and CFO Atle Harald Sandtorv will present the results by webcast the same day at 08:00 CEST.

The presentation and subsequent Q&A will be held in English and can be followed at www.griegseafood.com or at https://channel.royalcast.com/webcast/hegnarmedia/20200507_3/

For further enquiries, please contact:

Andreas Kvame, CEO
Cell phone: +47 907 71 441

Atle Harald Sandtorv, CFO
Cell phone +47 908 45 252

About Grieg Seafood

Grieg Seafood ASA is one of the world’s leading salmon farmers, targeting 100 000 tonnes of harvest (GWT) in 2020. Our farms are in Finnmark and Rogaland in Norway, British Columbia and Newfoundland in Canada and Shetland in the UK. Our headquarter is located in Bergen, Norway. Grieg Seafood ASA was listed at the Oslo Stock Exchange in June 2007. More than 800 people are employed by the company globally.

Sustainable farming practices are the foundation of Grieg Seafood’s operations. The lowest possible environmental impact and the best possible fish welfare drive economic profitability. Towards 2025, we aim to harvest 150 000 tonnes, to achieve cost leadership in each region and to evolve from a pure salmon supplier to an innovation partner for selected customers. To learn more, please visit www.griegseafood.com

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.