Falling salmon prices hit Grieg third quarter performance – Fishupdate.com

Falling salmon prices hit Grieg third quarter performance Published:  04 November, 2011

THE falling price of salmon is beginning to have an adverse impact on the financial performance of Norwegian fish farming companies as the latest results from Grieg Seafood ASA reveal.

Results for the third quarter of 2011 show that the so-called ‘operating profit’  ( before fair value adjustments)  was in fact a loss of  30.7million Norwegian kroners (NOKs) against a profit of  105.1million kroners last year when salmon prices were approaching record highs.

The company said: “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.

“[The] 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. “

Last month Grieg Seafood established a short-term loan facility for 200 million kroners. 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, the company said. 

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

Looking to the future Grieg said: “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.  ”

The company remains upbeat, saying that 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 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.