Grieg Seafood posts profit warning – may be in breach with loan agreements

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Negative EBIT and parts of Newfoundland project are postponed.

A matching halt was imposed in Grieg Seafood and related instruments in anticipation of an announcement from the company on the Oslo Stock Exchange on Wednesday.

Shortly after Grieg Seafood posted that EBIT before fair value adjustment for the third quarter 2020 of EUR -17 million (compared to EUR 14 million the year before) due to lower spot prices, higher costs in British Columbia, and EUR 13.7 million directly related to the discontinued operations on the Isle of Skye.

Following the announcement, the stock price was down 14 per-cent.

It is postponing parts of the Newfoundland project due to market uncertainty and lower visibility following Covid 19.

It expects a total harvest volume of 90,000 tonnes this year. Transferring harvest of 5,000 tonnes to 2021 to optimise harvest weight and time to market. The new reporting date for the Q3 is 17th November, changed from 4th November as originally planned.

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Third quarter
Grieg Seafood harvested 21,200 tonnes GWT in the third quarter, in line with the guiding of 21,400 tonnes. In Q3 2019, the total harvest was 21,000 tonnes.

“Following market turbulence and demand shift from hotels, restaurants, and catering (horeca) to retail due to Covid-19, market prices in the quarter were down compared with Q3 2019. In addition, prices achieved in Shetland were negatively impacted by advanced harvesting at Skye resulting in lower harvest weight. Prices achieved in Finnmark and Rogaland were good in the quarter,” wrote Grieg Seafood.

Farming cost in the quarter were negatively impacted by the low harvest weights in Skye, in addition to increased costs from handling of biological challenges in both Shetland and BC.

On the 18th of September, Grieg Seafood announced that it has decided to discontinue its operations on the Isle of Skye in Scotland, with immediate liquidation of parts of the operations. Previously communicated write-down of biomass due to mortalities, combined with low price achievements on fish harvested and high production and other shut-down costs will impact EBIT for the third quarter negatively by EUR 13.7 million.

Total harvest volume for the first nine months of 2020 was 63,472 tonnes. For the fourth quarter, the company expects to harvest 26,500 tonnes, bringing total volume for 2020 to around 90,000 tonnes. This is a reduction of 5,000 tonnes from a previous estimate and is mainly related to the transfer of harvest volume to 2021. By utilising acquired MTB capacity, Grieg Seafood aims to optimize harvest weight and timing to market.

Financial position
“The Covid-19 pandemic disrupted the salmon market, with a significant shift in demand and lower prices in core markets. A priority for Grieg Seafood is, in addition to protecting people, local communities, partners, and business operations, to secure liquidity and financial solidity,” wrote the salmon farmer.

“Following the outbreak of Covid-19, market uncertainty increased, and prices have come down in all core markets, impacting Grieg Seafood’s earnings negatively. With an outlook for lower earnings short- to mid-term, results of performed stress tests on key financial indicators indicate that the company may breach with covenants outlined in the loan agreements. Following negotiations with the banks, Grieg Seafood is granted an amendment to the covenants through the third quarter of 2021,” it added.

Newfoundland
In February, Grieg Seafood acquired a greenfield project in Newfoundland that includes exclusivity for salmon farming in the Placentia Bay area. The GSF Newfoundland project currently comprises licenses for 11 sea sites. Eight licenses are approved, while the rest are in different stages of application. The project also includes a high-end RAS facility under construction.

“Grieg Seafood continuously evaluates its projects. In the current environment with increased market uncertainty because of the ongoing Covid-19 pandemic, low salmon prices, and reduced market visibility, the basis for the development of GSF Newfoundland has changed. Further, due to more need for on-site construction rather than the planned module deliveries, the complexity has increased,” it wrote, adding that:

“Therefore, to lower risk in the initial phase of this large project, the company has decided to slow down the pace of investments. The construction of the planned post-smolt A unit in the first phase is deferred out in time. The RAS facility currently under construction is dimensioned to serve all future post-smolt modules. Consequently, the facility has adequate capacity to ensure necessary on-growth, also in a situation with post-smolt A facility moved out in time”.

The company estimates that the total investment for the RAS smolt facility, excluding completion of the post-smolt A unit, will be around CAD 60 million for the years 2020-2021. The project for post-smolt A will at a later stage be evaluated for construction. Current estimate for finalisation is estimated to CAD 30 million.

“Grieg Seafoods’ ambition for the Newfoundland project remains, and the company is committed to develop the project according to milestones outlined in the permissions granted by the authorities. The first fish is already growing in the freshwater facility and the annual harvest volume target to be reached by 2025 for the first phase is still 15,000 tonnes, with the first harvest planned for 2022/2023,” it concluded.

The matching halt ended shortly after the results were posted.