Grieg Seafood ASA: Q1 2021 results – Low market prices impacted earnings
First quarter highlights
- Harvest volume of 13 583 tonnes (16 315)
- EBIT before production fee and fair value adjustment of NOK -16 million (216 million)
- EBIT/kg NOK -1.2 (13.3)
- Low market prices impacted earnings by NOK -141 million vs Q1 2020
- Oversupply of downgraded salmon in the market due to winter ulcers impacted margins in Norway
- Good biological performance in Rogaland and BC
- Satisfactory financial situation
- Process to divest Shetland operations ongoing, assets classified as held for sale and not included in EBIT
- New integrated sales and market organization fully operational, handling 50% of volume sold in the quarter
- One new site ASC certified during Q1. Total of 27 sites or 50% of net production ASC certified
- Expect harvest of 15 400 tonnes in Q2 2021, and 80 000 tonnes (ex. Shetland) for the full year 2021
Covid-19
The Covid-19 pandemic has disrupted the salmon market, causing a significant shift in demand and lower prices in core markets. Grieg Seafood’s priorities are to protect our people, the local communities where we operate, our partners, our business operations, and to secure liquidity and financial strength. Despite the challenging circumstances, demand for Atlantic salmon remains strong and Grieg Seafood has been able to maintain efficient operations throughout the quarter.
Financial results
During the first quarter 2021, Grieg Seafood harvested 13 583 tonnes ex. Shetland, a reduction of 17% compared to 16 315 tonnes in Q1 2020.
The average spot price for salmon during the quarter (NQSALMON, weekly average less distributor margin) was NOK 52.8 per kg, down by NOK 15.6 per kg compared to Q1 2020, but up by NOK 9.5 per kg compared to Q4 2020.
Q1 2021 sales revenues from continuing operations amounted to NOK 660 million, a decrease of 43% compared to Q1 2020. The decrease is mainly due to lower market prices in addition to reduced harvest volume. Cross industry challenges related to winter ulcers has resulted in oversupply of downgraded salmon in the Norwegian, impacting prices significantly.
The difference in price achievement, measured as sales revenue/kg compared with Q1 2020, had a direct negative impact on EBIT contribution of NOK 141 million compared to the corresponding period last year. Lower volume impacted EBIT before production fee and fair value adjustment by NOK -40 million, while the price effect of operational cost impacted EBIT before production fee and fair value by NOK -57 million.
Group farming cost (total cost related to fish harvested this quarter) decreased compared to the same quarter last year, primarily due to lower harvest volume, currency effects and lower costs recognized as abnormal mortality of biological assets.
The Group’s EBIT before production fee and fair value adjustment of biological assets was NOK -16 million (NOK 216 million) during the quarter, corresponding to an EBIT per kg of NOK -1.2 (13.3). EBIT from the operative regions Rogaland, Finnmark and BC includes value creation from the respective sales activities. Grieg Newfoundland (acquired in Q2 2020) is reported as a separate region in the segment information as from 2021, however included in "Elimination/Others" in 2020, as the region was under development.
Commenting on the Group’s performance, CEO Andreas Kvame, said:
"The first quarter turned out largely as expected. Covid-19 continued to characterize our markets, impacting price achievement. Equally, our employees and supply chains continued to show resilience and flexibility, keeping the wheels turning on a steady pace.
Our plan stays firm; we will improve profitability, streamline the organization, and secure financial capacity. The bulk of our investment in Newfoundland is now behind us and we have gained increased flexibility through the bridge loan that has been extended to Q1 2022. The process to divest our business in Shetland is ongoing, and is proceeding according to plan.
Operationally, BC continued their strong biological performance, building on operational improvement efforts implemented over the last few years. Finnmark’s performance was impacted by challenging biology in the region, including low temperatures, ISA and winter ulcers. In Rogaland, biological performance was relatively good, with increased survival and no outbreaks of PD. Our Newfoundland freshwater operations also went well and according to schedule, where the first fish will be transferred to sea during the coming summer."
Strategic priorities
Following a period of biological and operational challenges, combined with a challenging market impacted by Covid-19, Grieg Seafood took measures to secure its financial position in 2020, and investments in some of the growth initiatives were either postponed or pace was slowed down . As allocation of capital to growth initiatives will be reduced short- to mid-term, growth will mainly be driven by improved utilization of current operations, in addition to establishing Newfoundland as a new farming region.
In June 2020, Grieg Seafood issued a Green Bond of NOK 1.5 billion, with the aim of reducing environmental footprint and improving fish welfare, and at the end of Q1 2021, 33% of the Group’s financing was “Green”. Over the coming years, Grieg Seafood will invest heavily in post-smolt production, ASC certification, carbon emission reducing initiatives, and the commercialization of new feed ingredients with lower environmental impact.
The company’s long-term ambitions remains, and in the short to mid-term, focus will be to improve profitability, streamline operations and secure financial capacity.
Outlook
The underlying market demand was high during the quarter, demonstrating a strong trend for fresh salmon.
Despite the higher than expected supply growth in Q1 2021, salmon spot prices in both Norway and the USA surprised on the upside. The positive development is driven by stronger than expected demand both from retail in Europe but also solid demand from Asian countries. Grieg Seafood expects an even stronger demand response when the HoReCa market in Europe normalizes, which is expected to happen gradually from late Q2 2021 when an increasing number of countries ease Covid-19 restrictions as vaccination programs progress.
The average price for the first month in Q2 2021 is around NOK 63 per kg. With global progress on vaccination against Covid-19, it seems like prices start to stabilize at levels seen in pre-pandemic periods and the short-term market outlook is cautiously optimistic with forward price quotes on Fishpool around NOK 63 per kg for Q2 2021, NOK 65 per kg for Q2 2021 and NOK 56 per kg for the rest of the year.
The Grieg Seafood Group targets a contract share of 20-50%. Estimated contract share for 2021 is 21%.
In the second quarter of 2021, expected harvest volume is 15 400 tonnes, distributed by region as follows:
- Rogaland: 6 000 tonnes
- Finnmark: 4 000 tonnes
- BC: 5 400 tonnes
Grieg Seafood maintains its long-term harvest volume target of 130 000 by 2025.
Results presentation
CEO Andreas Kvame and CFO Atle Harald Sandtorv will present the results by webcast today, Wednesday May 12 at 09:00 CEST.
The presentation can be accessed at investor.griegseafood.com, or with the following link: https://channel.royalcast.com/landingpage/hegnarmedia/20210512_1/
The presentations and the subsequent Q&A will be held in Norwegian. An English transcript of the presentations will be made available at https://investor.griegseafood.com/.
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 130 000 tonnes of harvest (GWT) in 2025. 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 900 people work in the Company throughout our regions.
Sustainable farming practices are the foundation of Grieg Seafood’s operations. The lowest possible environmental impact and the best possible fish welfare is both and ethical responsibility and drive economic profitability. Towards 2025, we aim for global growth, cost improvements and to evolve from a pure salmon supplier to an innovation partner for selected customers.
To learn more, please visit https://griegseafood.com/
This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
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