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Grieg Seafood ASA: Q1 2013 - A strong market and strong salmon prices driving improved profitability

Highlights - first quarter 2013

  • Strong price growth in Europe throughout the first quarter, also in the USA towards the end of the period, due to lower supply-side growth and continued strong global demand.
  • Operating profit of NOK 51m before fair value adjustment of biomass, against NOK 5m in 2012.
  • Low seawater temperatures have reduced planned production growth, especially in the south of Norway.
  • Higher cost level in Canada and Scotland due to biological events in previous periods.
  • Better access to replacement smolt will give higher smolt entry in Canada in first half of 2013.
  • Strong market outlook with likelihood of low supply-side growth and further good demand in 2013 and 2014.

Results first quarter 2013
Group operating profits before fair value adjustment of biomass totalled NOK 51.1m in the first quarter, against NOK 4.9m in 2012. During the same period the harvested volume was 4 494 tons down at 13 715 tons, which was 1 085 tons less than previously guided. The improvement in profits is entirely due to higher prices. 

Production costs in the first quarter were higher than last year's corresponding figure in all regions. The south of Norway was particularly affected by low temperatures, and two PD diagnosis from 2012 have also resulted in weaker biological production. Combined with an underlying general increase in costs (especially feed costs) this has resulted in some increase in the production cost compared with the same period last year. In the north of Norway the salmon harvested from North Cape in January and February had a high production cost, but the underlying cost trend in Finnmark has been positive and a significant reduction in costs is expected in the period ahead. Finnmark also harvested 50% of the total volume in January, the period with the lowest market prices for salmon during the first quarter. In both Shetland and Canada costs have shown an unsatisfactory development. This relates to major negative biological events in 2012 which have led to lower production and high production costs biomass harvested. Status of actions taken to remedy the situation in both Canada and Shetland are at the current stage in line with plans and should bring an improvement in both the biological and the economic results for both regions.

Seawater production in the first quarter was weaker than expected. Seawater temperatures in the south of Norway have been unusually low for the time of year and this is reflected in substantially lower production. Production in the north of Norway has been as expected. Production in Canada has also been slightly below expectations due to environmental factors. In the UK production has been lower than normal mainly because of a reduction in biomass and more frequent sea lice and AGD treatments in accordance with implementation of the new sea lice strategy.

In spite of low seawater temperatures and the low growth rate, the overall supply of salmon has developed as expected in the first quarter. The positive trend in market prices has been even better than could have been expected, driven by further strong demand combined with lower supply-side growth.

The accounts for the first quarter of 2013 show pre-tax profits of NOK 101.4m, against a loss of NOK 9.3m for the corresponding period last year.

The Group's EBIT before fair value adjustments of biomass was 3.72 NOK/kg (0.27 NOK/kg). Rogaland achieved an EBIT of 8.05 NOK/kg (1.71 NOK/kg), while Finnmark had an EBIT of 4.93 NOK/kg (0.25 NOK/kg). The EBIT in Shetland reached minus 2.93 NOK/kg (minus 1.30 NOK/kg), while in Canada the EBIT reached 2.57 NOK/kg in 2013 compared to 2.74 NOK/kg in 2012. The Norwegian sales company, Ocean Quality, reached an EBIT of NOK 8.7m (1.5%) compared to NOK 11.7m (2.6%) in the same period in 2012.

The cash flow from operations in the fourth quarter was NOK 106.8m. The equity ratio at the end of first quarter 2013 stood at 39% and net interest-bearing debt totalled NOK 1 463m.

Outlook
Based on current forecasts for global salmon production and harvested volumes, the outlook for salmon in 2013 and 2014 is very good. Supply-side growth in 2013 is expected to be marginally positive, and the production forecasts for 2014 also indicate a modest increase in the supply of salmon. 

The market for salmon continues to be very firm, with increasing demand driven by a number of fundamental factors. New channels of distribution in large, emerging markets, the perception of salmon as healthy and modern food, innovation and new product launches are all contributing to the strong, long-term increase in the demand for salmon.

Grieg Seafood is continuing to focus on and prioritise growth in Norway, with increased utilisation of existing licences. In 2012 Grieg Seafood harvested close on 1 000 tons per licence in Norway. With maximum allowed biomass (MAB) utilisation over a greater part of the year and optimisation of smolt placements, Grieg Seafood still has great organic growth potential in Norway. Exploiting this potential is the Group's highest priority. In the UK there is a concentrated focus on biology and better management of biological production and challenges, especially related to sea lice. In the UK there is great scope for improvements in both operations and biological production. Harvested volumes in Canada will be lower in 2013 and much of 2014 due to the major biological challenges which affected the smolt facility in 2012. Comprehensive actions have been taken at the facility to minimise the risk of this ever happening again. The focus will be to re-establish the required scale of production in BC. The harvested volume in 2015 is expected to be in the order of 15 000 to 17 000 tons in BC.

In 2013, Grieg Seafood expects a total harvested volume of 66 000 tons (3 000 tons less than last guidance). The decline is due to low temperatures and growth rate in the south of Norway and the UK, as well as minor changes in BC and Finnmark due to production optimisation. In the second quarter of the year Grieg Seafood expects to harvest a total of 14 000 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.com.
 

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

GSF Q1 2013 report
GSF Q1 2013 presentation