Highlights - third quarter 2011

• Weak results in third quarter due to strong increase in global supply and falling prices. 
  
• Higher cost of fish harvested in several of the regions in third quarter.
  
• Harvested volume in third quarter 7.3% higher at 15 663 tons.
  
• EBIT before fair value adjustment of biological assets was weak at minus NOK 30.7m (minus NOK 1.96 per kg).
  
• Higher earnings reported by sales company Ocean Quality AS.
  
• New financing of NOK 200m and waiver of loan covenant through 2012.
  
• Good biological production in the quarter.
  
• Measures to reduce capital requirements - reduction in investments and reduced smolt entries.

Results third quarter 2011
Operating profit before fair value adjustments was a loss of NOK 30.7m, against a profit of NOK 105.1m last year.

The strong increase in supply continued in the third quarter and has led to a further decline in salmon prices in all markets. With only a small proportion of Grieg Seafood's production covered by contracts in the third quarter, the company has been largely exposed to the spot market. Cost of fish harvested was high in the third quarter as previously indicated. In both of the Norwegian regions the harvested fish had a low average weight which resulted in a correspondingly high cost. In Shetland the cost of fish harvested was especially high for the weak 2009 (fall) generation which was harvested out in July.

In third quarter the total harvested volume increased by in excess of 7 to 15 663 tons.

The Group's operational EBIT before fair value adjustments of biomass was -1.96 NOK/kg (7.20 NOK/kg). Rogaland achieved an EBIT of -0.66 NOK/kg (7.61 NOK/kg), while Finnmark had an EBIT of -5.50 NOK/kg (9.12 NOK/kg). The EBIT in Shetland reached -3.50 NOK/kg (10.40 NOK/kg), while in Canada the EBIT reached -0.71 NOK/kg in 2011 compared to 3.89 NOK/kg in 2011. The Norwegian sales company, Ocean Quality AS, achieved an EBIT of NOK 11.3m (2.3%). All figures are Q2 2011 figures on isolated basis.

At the end of the third quarter the equity ratio was 41.0% (46.0%), while net interest-bearing debt totalled NOK 1 219m (1 036m).

In October Grieg Seafood established a short-term loan facility for NOK 200m. At the same time, the NIBD/EBITDA loan covenant was waived until the end of 2012. The process of establishing a final new loan facility will continue. 

Due to the low salmon prices and the market uncertainty, Grieg Seafood has implemented reduction in investments, reduced smolt entries and will continue reviewing further capital reduction measures.

Outlook
The strong supply growth of salmon was maintained throughout the third quarter. This had led to further reductions in the price of farmed salmon, but as yet with no corresponding reduction in the price of salmon in the consumer markets. Favourable production conditions this autumn have added to the supply growth and put further pressure on salmon prices .In some markets the effect of price reduction has become more immediately apparent and this has led to a significant rise in demand. A great increase in demand has been especially noticeable in Russia, but other markets too are showing signs of increased demand and a higher level of activity as the prices have fallen. 

The price development in the salmon market is clearly supply driven. Good growth conditions and an increase in the number of smolt entered to sea have also resulted in higher production in most fish farming regions. Simultaneous growth in production in Norway and Chile will also result in a further increase in supply in 2012 compared with the previous year. With the exception of Chile, the capacity utilisation is likely to be at a very high level in the period ahead, and unless new licences are issued this will limit supply growth in a more long-term perspective.  

Historically, the demand for salmon has been developing strongly and is driven by a number of fundamental factors such as increased distribution, new markets and new eating habits, and a focus on healthy eating. So far, the turbulence in the financial markets has not given any signs of reduced demand and the outlook for the supply side therefore still seems to be good. Demand will pick up when the effects of the price reduction are fully felt in the market. 

Grieg Seafood will continue to be focused on organic development and operational improvements. Steps have been taken to reduce the capital requirement in a period characterised by a demanding market. At the same time, the main initiatives needed to reduce future costs have been maintained through completion of the smolt investments. The reduction in the number of smolts entered to sea from the fall of 2011 to the fall of 2012 will reduce the future growth rate, but it will still give Grieg Seafood scope for growth.

The strategy that has been implemented with the establishment of a new sales company is an important element in the process of establishing preferred customer relations and driving more systematic sales and market development. This will be even more important in times of increasing supply than when there is clear shortfall in production. This strategy is being realised as planned and the results from the third quarter are encouraging.

Grieg Seafood expects a harvested volume of 63 300 tons in 2011. This is in line with the previous guiding.  In 2012 the harvested volume is expected to be 69 000 tons.

For further information, please contact:

- CEO Morten Vike (cell phone: +47 994 911 65)
- CFO Atle Harald Sandtorv (cell phone: +47 908 45 252)

For more information, please see www.griegseafood.no.