Harvest volume of 23 910 tonnes, up 10% from Q2 2019 (21 802 tonnes)
Earnings impacted by low market prices due to effects of Covid-19, amounting to NOK 211 million vs Q2 2019
Margin in Finnmark still impacted by winter ulcers
Continued cost reductions in BC. Shetland somewhat impacted by lower survival rate
Group total of 20 sites ASC certified at quarter end, 36% of net production
Successful completion of senior unsecured Green Bond issue of NOK 1 billion
Construction of RAS facility and approval of licenses in Newfoundland according to plan
First members of the new sales organization appointed
New guidance of 95 000 tonnes (100 000) in 2020 due to reduced growth in Finnmark caused by lower than average seawater temperatures in addition to market adjustments
Covid-19
The Covid-19 pandemic continued to impact the market situation also in the second quarter. The escalation of the pandemic and measurements taken by governments around the world to address the situation, have caused uncertainties for producers, processors and end consumers. Nevertheless, despite the challenging circumstances, demand for Atlantic salmon remained strong and Grieg Seafood has been able to maintain efficient operations throughout the quarter.
Financial results
The Grieg Seafood Group harvested 23 910 tonnes GWT in Q2 2019, compared to 21 802 tonnes in Q2 2019.
Average realized price during the quarter was down compared to the second quarter last year, mainly driven by lower market price impacted by market turbulence related to Covid-19, in addition to lower prices achieved on downgraded volumes in Finnmark. The reduction is partly offset by the 10% higher harvest volume.
Total revenues during the quarter amounted to NOK 1.4 billion, down from NOK 1.5 billion in the second quarter of 2019.
Farming cost during the quarter increased from the same quarter last year. The increase is mainly related to negative currency effects and increased cost per kilo in Rogaland due to lower harvest volume.
Group’s EBIT before fair value adjustment of biological assets ended at NOK 3 million during the quarter, down from NOK 302 million in the second quarter of 2019, where reduced prices and increased costs amounts to some NOK 211 million and NOK 95 million of the decrease respectively.
Commenting on the Group’s performance, CEO Andreas Kvame, said:
“The second quarter of 2020 was impacted by the continuous effect of the Covid-19 pandemic. Thanks to our fantastic employees, I am proud to state that Grieg Seafood has been able to maintain efficient operations throughout the quarter. Employee safety and wellbeing is our priority, and we have kept in place all HSE measures implemented at the beginning of the pandemic to reduce the risk of Covid-19 outbreaks as much as possible.
We have particularly seen disruptions in the US market due to Covid-19, which is mainly supplied by our British Columbia region. However, lower prices in the US have been matched by improved biology, lower costs and increased competitiveness in BC.
In Finnmark and Rogaland, the underlying biology remains strong. However, due to low seawater temperatures during the winter and spring, we have experienced reduced growth in Finnmark. Based on this external factor in combination with expectations of low market prices in the short term, we have decided to optimize production, utilize our existing licenses and postpone some harvest to 2021.
In Shetland, cost has remained high during the quarter, due to few synergies between our operations on the Shetland isles and Skye in Scotland.
In our new Newfoundland region, the first eggs were put into the hatchery in July, according to schedule. First harvest is expected in 2022/23.
While we are in the middle of a pandemic, we have not set our commitments to sustainability on hold. Reducing our environmental footprint and improving fish welfare are key factors to achieve our financial and operational targets. Over the last months, we received ASC certification on two new sites, and we strengthened our greenhouse gas reduction target. With Brazilian soy in our feed, we are also concerned about the increasing deforestation rates in the country. We are committed to use our market power to push towards an end to soy-related deforestation where we source soy, the Brazilian Cerrado biome.”
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.
We aim to provide our shareholders with a competitive return on capital invested and have set a ROCE target of 12%. Our investments reflect our growth strategy: digitalization, post-smolt, biosecurity and fish welfare, including continuous evaluation of expansion opportunities
Digitalization in salmon farming includes applying advanced sensors, big data, artificial intelligence and automation, to support better farming decisions. Post smolt improves biosecurity, survival rates and allows for a more efficient farming cycle, while expansion opportunities will allow for improved flexibility, biosecurity and fish welfare.
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%.
Outlook
In the short term, operational efficiency and biosecurity are the top priorities in Grieg Seafood.
The salmon market will continue to be impacted by the Covid-19 situation adding uncertainty and putting pressure on prices in the short term. However, Grieg Seafood see limited impact on operations due to the Covid-19 situation.
The contract share for the Norwegian operations will increase in the second half of 2020 with prices well above current spot prices. Estimated contract shares for the third quarter is 63 per cent and 5 per cent for Norway and the UK, respectively, with full year estimates of 32 per cent and 8 per cent.
In 2019, a total of 25.2 million smolt with an average weight of 190 grams was stocked to sea, with the aim of harvesting 100 000 tonnes in 2020. However, during winter and spring low seawater temperatures in Finnmark have impacted growth.
Due to the limited growth in combination with expected sluggish market prices in the short term, Grieg Seafood has decided to postpone some harvest to 2021, reducing expected harvest volume to 95 000 tonnes for 2020.
In the third quarter, expected harvest volume is 21 400 tonnes, with the following area distribution:
Rogaland: 5 300 tonnes
Finnmark: 4 500 tonnes
Shetland: 5 600 tonnes
BC: 6 000 tonnes
Grieg Seafood maintains the long-term harvest volume target of 150 000 by 2025.
Results presentation
CEO Andreas Kvame and CFO Atle Harald Sandtorv will present the results by webcast today, Tuesday 18 August at 08:00 CEST.
An English transcript of the presentation will be made available at www.griegseafood.com within a few days after the presentation.
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 95 000 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 to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
