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Grieg Seafood ASA Q3 2013: Strongly improved prices and results

Highlights - third quarter 2013 

  • A strong market and high prices give significantly improved results.
  • EBIT before fair value adjustment of biomass was NOK 76.5m in third quarter (loss of NOK 69.4m in 2012).
  • Harvest volume of 13 953 tons in third quarter (15 233 in 2012). 
  • Strong performance in Norway with operating profit of NOK 10.8 per kg.
  • Turnaround in Shetland proceeding well. Implemented measures have resulted in improved biology and cost development, but results remain weak.
  • Exceptionally weak results in BC due to low underlying production and high unit costs.
  • Compliance with all loan covenants as at end of third quarter 2013.
 
Results third quarter 2013
Group operational EBIT before fair value adjustment of biomass totalled NOK 78.8m in the second quarter, an increase on a loss of NOK 69.4m in the same period last year. The ordinary operating profit totalled NOK 76.5m in the third quarter. Increased prices were the reason behind the strongly improved results.
 
The salmon market was strong in the third quarter, driven by good demand and stable supply, compared with the corresponding period in 2012. The third quarter is normally characterised by seasonally falling prices as a result of an increase in harvest volumes, but this year salmon prices developed unusually strongly, with only a brief dip in prices at the end of the third quarter. This, in turn, was again replaced by increasing prices at the start of the fourth quarter. The overall increase in global supply in the third quarter of the year stood at 0.4%, while the price growth stood at more than 40% over the same period.
 
Grieg Seafood Finnmark has applied for 4 new green licences in in accordance with criteria as announced. A total of 10 new licences have been announced at a set price of NOK 10m.
 
The third quarter was again a period characterised by weak results from the two regions outside Norway, still affected by biological events in previous periods as well as abnormally high costs and lower underlying production. The results from BC were unusually weak due to the low underlying production as a result of previous biological events, which caused exceptionally high unit costs for biomass harvested in the third quarter. Underlying production volumes are expected to normalize towards the end of 2014. Results from Shetland showed an improvement on the first half-year, although still weak. Implemented measures has improved the underlying biological situation and cost level, which is expected to continue.
 
The Group's total harvested volume in the third quarter was 13 953 tons, which was a reduction of 1 280 tons (-8%) compared with the same period in 2012. The harvested volume is 1 000 tons less than previously guided.
 
The equity ratio at the end of the third quarter stood at 41% (39%), while interest-bearing debt amounted to NOK 1 291m (NOK 1 358m). The cash flow from operations totalled NOK 129m in the third quarter alone. At the end of the third quarter the Group was in compliance with all of its loan covenants, which has originally been waived up to and including the fourth quarter of 2013. 
 
The Group's operational EBIT before fair value adjustments of biomass was 5.65 NOK/kg (minus 4.55 NOK/kg). Rogaland achieved an EBIT of 12.91 NOK/kg (1.90 NOK/kg), while Finnmark had an operational EBIT of 9.58 NOK/kg (minus 2.52 NOK/kg). The EBIT in Shetland reached 0.05 NOK/kg (minus 8.77 NOK/kg), while in Canada the EBIT reached minus 2.71 NOK/kg in 2013 compared to minus 8.22 NOK/kg in 2012. The Norwegian sales company, Ocean Quality, reached an EBIT of NOK 8.7m (1.1%) compared to NOK 11.0m (2.2%) in the same period in 2012.
 
Outlook
Forward prices for salmon have also firmed considerably both for the remainder of the year and for 2014. The demand for salmon has been very strong and is expected to remain strong going forward. Supply growth is again expected to be low in the fourth quarter, indicating that salmon prices will remain at a very high level.  The global salmon supply in 2014 is expected to remain stable to marginally growing, which compared to the long-term demand growth, indicates a continued strong market and high prices also in 2014.
 
Grieg Seafood expects a harvested volume of 60 000 tons in 2013, which is 4 000 tons less than previously guided, of which 2 000 tons is transferred to 2014. The reduction is due to lower production. This has also given scope for further optimisation of production by postponing harvesting in the fourth quarter of 2013 until the start of 2014. In 2014 the harvested volume is expected to rise to 67 000 tons, an increase of 7 000 tons (12%). This is despite the fact that the harvest volume in BC will again be unusually low in 2014. The harvested volume in BC is expected to be re-established in excess of 15 000 tons in 2015.
 
Throughout 2013 steps have been taken in Shetland to reverse an unacceptable operational and financial development. The steps taken have improved the biological situation which is the key to lower costs and improved results in the future. There is still great scope for improvement of both operations and the biological situation in Shetland. Implemented actions include the entire value chain from smolt and seawater production through harvesting and sales. The Board believes that this will provide Grieg Seafood Hjaltland with an improved operational and economic development in the future. 
 
The results in BC have suffered greatly from the effects of a low underlying production volume due to an outbreak of furunculosis in the smolt facility at the end of 2012. It is believed that costs peaked in the third quarter of 2013 and will gradually decline, especially from the second half of 2014 when the underlying production is at an acceptable level. The Board expects that the steps taken at the smolt facility in BC have substantially reduced the biological risk and that BC will be re-established as a region with sound operations and good profitability.
 
Grieg Seafood is well positioned to benefit from the growth in Norway that will result from the allocation of new green licences, and has therefore applied for 4 licences in Finnmark (out of a total of 10 on offer). Focus will remain the unutilised organic growth potential, concentrating on improved operations and strengthening of the Group's relative cost position. There is especially great scope for improvement of operations and cost levels in regions outside Norway. Grieg Seafood is also one of few companies which still has good organic growth potential in Norway.

 
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 Q3 2013 report
GSF Q3 2013 presentation