Grieg bullish despite profits fall
THE Grieg Seafood Group saw its 2017 fourth quarter operating income decline by 16 per cent to NOK 1,731 million, largely due to lower market prices and reduced harvest volumes.
And the operating profit showed an even sharper fall. But the company does expect an upsurge in demand and stronger demand this year.
Grieg harvested 18,667 tonnes of salmon in Q4 2017, compared with 20, 917 tonnes in Q4 2016, corresponding to an 11 per cent decline.
The harvested volume is lower than expected, mainly as a consequence of the transfer of 3,000 tonnes to 2018.
During the period, the Group\’s total operating costs increased by NOK 0.50 per kg, and the group\’s EBIT (operating profit) before fair value adjustment of biomass was NOK 151 million, compared with NOK 456 million in Q4 2016. EBIT per kg amounted to NOK 8.1 for the quarter, compared with NOK 21.8 in Q4 2016.
The company pointed out that the average spot price (Nasdaq Salmon Index) for the period was NOK 49.42 per kg, down NOK 17.70 from the same period in 2016.
As the contract prices were higher than the spot prices over the period, the realised price reduction amounted to NOK 12.40 per kg, compared to Q4 2016.
Grieg Seafood\’s total operating income in Q4 2017 amounted to NOK 1,731 million, down 16 per cent from the corresponding period in 2016.
Outlining its strategic priorities, the company said its overall goal is to increase production by a minimum 10 per cent per year up until 2020.
Furthermore, the company\’s ambition is for production costs to be on level with or lower than the industry average. One of the most important initiatives to boost production is to increase smolt capacity and to release larger smolt.
As part of this initiative, Grieg Seafood said it has entered into cooperation agreements with Norway Royal Salmon (NRS) and Bremnes Seashore, to increase the companies\’ smolt capacity in Finnmark and Rogaland, respectively.
‘In addition, GSF\’s own hatcheries in Norway will be expanded by several separate lines,’ the company said.
‘Together, this will disperse the biological risk related to smolt production between several onshore facilities.
‘Secure access to smolt is critical to ensure future growth. Releasing larger smolt means shorter sea production time, thus contributing to reduced biological risk and increased survival.’
Another pivotal point in the growth strategy is increased utilisation of the company\’s licences. High site flexibility is essential to improve utilisation.
Increased volumes, improved utilisation of capacity and shorter production time at sea will contribute to higher efficiency and reduced cost of production.
The company also continually undertakes various cost reduction initiatives to help achieve its cost targets.
Along with growth, these initiatives are designed to ensure that the cost per kg is reduced to industry average levels, or lower.
To reach this goal, Grieg Seafood has started an internal improvement programme, which will operate until 2020.
The group\’s total share of fixed price contracts in Norway in Q4 2017 was 21 per cent. For Q1 2018 the share of fixed price contracts is estimated to be 46 per cent. For 2018 as a whole, the share of fixed price contracts is estimated to be approximately 22 per cent.
Grieg said that in the longer term, the relationship between supply and demand for salmon is expected to stabilise. This gives grounds to expect good market prices in the future.
GSF expects to harvest around 8,900 tonnes during Q1 2018. For 2018 as a whole, a harvested volume of 80,000 tonnes is expected, corresponding to an increase of 28 per cent over 2017.