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Seasonal Low Prices Caused Griegs Unsatisfactory Q3 Results

Salmonids Economics +2 more

NORWAY - In the third quarter, Grieg reported that its total Group EBIT before fair value adjustment of biomass was minus NOK 69.4m, compared with minus NOK 30.7m in 2011. The harvest volume in third quarter was 15,233 tons in line with the corresponding period last year. This is in line with the previous guiding.

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The decline in profits was due to the extraordinary steep decline in prices in the USA and biomass write-downs in BC and UK.

Low prices and biomass write-downs have in total led to weak third quarter results for Grieg Seafood. The strong Chilean production increase has in particular lead to unusually low prices on the American market and a price development in the USA that, unlike the historical pattern, has not been correlated to the corresponding price development in Europe. Over the last four years, realised prices in Canada has been in average 7 NOK per kg higher than corresponding prices in Norway, while this difference in the third quarter was NOK 1.8 per kg. This alone represents a negative effect on the result of NOK 20m in the quarter.

The cost development in Norway remains good with costs clearly down on the same period last year. The cost level in Canada is slightly lower than in the corresponding period in 2011, but has been negatively affected by one-off costs and write-downs, while in Shetland costs in the third quarter were up on the same period last year, but lower than in this years second quarter.

Seasonally, the third quarter is when the supply of salmon is at it its highest, while historically it is also the period when the prices are lowest. Salmon prices in Europe in the third quarter of the year were down on the second quarter. As a result of the sharp rise in Chilean production, prices in the American market were unusually low compared with the price level in Europe. The total global supply increased by 18.5 per cent compared with the third quarter of 2011. The relative increase in supply is falling, and this trend will strengthen towards the end of the current year and in 2013.

EBIT before fair value adjustment of biomass was minus NOK 69.4m in the third quarter, against minus NOK 30.7m in 2011. The weak overall result was due to low prices. The improved performance in Norway was mainly attributable to lower costs. The weaker result in BC was due to a clear decline in prices and one-time effects related to biomass write-downs. The weaker performance in Shetland was also due to higher costs and biomass write-downs.

The Groups operational EBIT before fair value adjustments of biomass was minus 4.55 NOK/kg (minus 1.96 NOK/kg). Rogaland achieved an EBIT of 1.55 NOK/kg (minus 0.66 NOK/kg), while Finnmark had an EBIT of minus 2.79 NOK/kg (minus 5.50 NOK/kg). The EBIT in Shetland reached minus 8.77 NOK/kg (minus 3.50 NOK/kg), while in Canada the EBIT reached minus 8.22 NOK/kg in 2012 compared to minus 0.71 NOK/kg in 2011. The Norwegian sales company, Ocean Quality AS, reached an EBIT of NOK 9.1m (1.9 per cent) compared to NOK 11.3m (2.3 per cent) in 2011.

The equity ratio at the end of the third quarter stood at 39 per cent (41 per cent), while interest-bearing debt amounted to NOK 1 358m (1 219m). The cash flow from operations totalled NOK 14.5m in the third quarter alone.


The strong increase in global supply is clearly slowing down, down from above 30 per cent in first half 2012 to 18.5 per cent in third quarter. The increase in supply in the next 12 months will be considerably lower than in the last year, especially in Europe, and this is expected to improve market equilibrium and margins at production level.

The pace of supply-side growth from Chile is also likely to decline, but will remain stronger than the corresponding development in Europe. It is uncertain how long this may cause prices in the American market to develop differently from prices in the European market. The fundamental determinants of demand for salmon remain good, with strong demand in both new and traditional markets, driven by new distribution, new products and changed eating habits.

Fish feed prices have increased in the second half of the current year, driven by higher raw material prices. The raw material prices for fish feed vary in accordance with the production conditions for vegetable materials, as well as quotas and the catch conditions for marine materials. This year, the production of important vegetable materials was negatively affected by drought.

Grieg Seafood expects a harvested volume of 72,500 tons in the current year (up 2,500 tons compared to previous guiding), compared with 60,082 tons in 2011. The harvested volume in the fourth quarter is expected to be appr. 20,000 tons, an increase of nine per cent on the same period last year.

The expected harvested volume has been increased slightly for Shetland (up 2,000 tons) to take account of the new merged production zone on the west coast of Shetland. This is a shift from 2012 to 2013. There is also an increase in Finnmark (up 500 tons). The harvested volume in 2013 is expected to be 70,000 tons, with a volume increase in Norway (up 5,500 tons) and a reduction in both Shetland (down 3,000 tons) and, in particular, Canada (down 5,000 tons). The shift between 2012 and 2013 may be in the form of an adjustment to take account of production and market conditions.