Reduced production costs lifted Grieg Seafood’s Q1 result

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Salmon farming multinational aiming for 80,000 tons in 2018.

Operating costs/kg were down by in the quarter, mainly as a result of higher harvest volumes in addition to a more stable biological situation. The lower costs combined with strong price achievement in the quarter resulted in an EBIT/kg of NOK 14.20, according to a press release from Grieg Seafood.

The company’s EBIT (operating income) before fair value adjustments were NOK 162.1 million, after harvesting 11,433 tons of salmon in Q1 2018.

Grieg Seafood are operating salmon farms in Norway, the UK and Canada.

 

Strategic priorities

Grieg Seafood’s overall goal is to maintain an annual production growth of minimum 10 % until 2020. Furthermore, the company aims to keep production costs at – or below the industry average.

Continued access to high-quality smolt is critical to ensure growth going forward. In addition, larger smolt will result in shorter production time at sea, thus contributing to reduced biological risk and increased survival. Another pivotal aspect of Grieg Seafood’s growth strategy is the increased utilization of the company’s licenses. High site flexibility is essential to improve utilization, and Grieg Seafood cooperates with local authorities on an ongoing basis to optimize flexibility.

Increased volumes, improved capacity utilization and shorter production time at sea will contribute to higher efficiency and reduced production costs. The company also continually undertakes cost reducing initiatives and has established an internal improvement program, which scheduled to run until 2020.

 

Market developments

Year-to-date, the supply of salmon has been lower than previously expected, which can partly be explained by the lower-than-normal sea temperatures in Norway. The spot price increase in the quarter points to a continued strong demand for salmon. The Group’s total share of fixed price contracts in Norway was 46 % in Q1 2018. The high contract share was mainly due to the low harvest volume in the period. For Q2 2018, the estimated share of fixed price contracts is 27 %. For 2018 as a whole, the company expects a fixed price contract share of approximately 28 %.

 

Outlook

Low global production has led to increased spot priced throughout Q1 2018. The relationship between supply and demand is expected to stabilize in the longer term, which will likely give grounds stable, strong market prices in the future.

For 2018 as a whole, Grieg Seafood expects to harvest approximately 80,000 tons, which corresponds to a 28 % increase over 2017.