Atlantic Sapphire optimistic despite COVID setbacks hampering US operations

The ongoing COVID-19 pandemic has shut down seafood processing plants, stalled commercial fishing seasons, gutted the foodservice industry, and put aquaculture operations at risk. One of the most heavily hit companies in the aquaculture industry might be Norwegian aquaculture firm Atlantic Sapphire, which has run into plenty of road bumps getting its U.S. recirculating aquaculture system (RAS) farm off the ground in Miami-Dade County, Florida.

In late July, the company was forced to initiate an emergency harvest of close to 200,000 fish, with a total weight of approximately 400 tons, only 150 tons of which were  sent for processing to be sold. The company pinned the loss on disruptive construction and the weakness of the fish caused by the challenges of delayed construction and commissioning, due in part to the COVID-19 pandemic.

Now it appears those construction issues have pushed back completion of the farm in general. Construction on the facility outside Miami is far behind schedule – originally the company was set to begin commercial harvest in April, then the third quarter of 2020, and now just the largest fish will be harvested in September.

“The fish’s appetite and system capacity are in line with expectations, when feeding is not held back due to construction delays,” according to the company's Q2 report.

The company is currently looking at opportunities to finance its long-term debt for the second phase of construction of its Miami facility, including replacing the short-term debt of USD 30 million (EUR 25 million) before December either through loans, bond loans or other types of debt or equity transactions, the company wrote in an update issued in late August.

"We are looking at all possibilities for optimizing financing in the future," Karl Oystein Oyehaug,  the general manager of Atlantic Sapphire ASA, as well as CFO of the group, told Norwegian newspaper Dagens Naeringsliv.

According to reports, investments in the facility bumped up from around USD 3.00 (EUR 2.50) per kilo, to around USD 22 (EUR 18.35) per kilo — hitting around USD 30 million (EUR 24 million) total for the facility.

"It has been difficult. In addition, there are periods of corona[virus] restrictions in the workplace and some labor who can not show up for work due to quarantine," Oyehaug said.

After Atlantic Sapphire released its financial reports last week, share prices fell to NOK 99 (USD 11.00, EUR 9.33). Investment banker Kepler Cheuvreux has downgraded the recommendation on Atlantic Sapphire’s shares to "hold" from "buy" while adjusting the price target to NOK 110 (USD 12.23, EUR 10.37) per share, from the previous NOK 146 (USD 16.23, EUR 13.77).

“We do not rule out that the company will raise capital, but we now assume that lower capex [operating investment] will result in sufficient funding at the moment. We are downgrading the recommendation to 'hold' because of the financial risk,” the investment bank wrote.

Despite the delays to the project and the uptick in debt, the company and investors remain confident in the future success of the U.S. facility.

In a conference call with investment analysts on 28 August, CEO and co-founder Johan Andreassen opened up about how the pandemic has given the new RAS facility an edge over net-pen growers in Norway and Chile.

“The new situation of COVID-19 is highlighting some of our advantages as a local producer of salmon,” Andreassen said. “A lean integrated value chain is something that we believe is going to be more important for the future.”

He went on to talk about how a short supply chain and truck delivery will be in a better position in the next few years than air freight, which transportation experts say will remain costly until 2023 or 2024.

Andreassen spoke extensively on a selling point Atlantic Sapphire has boasted since day one – product quality.

“We are very, very satisfied with the quality of the product we are producing,” he said. “It has a fantastic taste, quality, and texture to the extent that I think it has never been seen before in the U.S. market. The U.S. consumer is not used to buying what we call ‘fresh’ because of the distance it is from the source and the freshness and the product quality and the extended shelf-life, which goes toward less shrink on the shelves.”

Atlantic Sapphire now has around four million fish in its Miami facility and the first fish is expected to be ready for harvest later this month. The company expects to harvest around 1,000 metric tons in the fourth quarter.

Andreassen told analysts that Atlantic Sapphire now has a commitment from as many as 10,000 store locations to sell its product at a premium price. The company’s food service to retail ratio will be about 80/20 now, due to the pandemic’s effect on the restaurant industry.

The company now expects the construction needed for phase two expansion to begin during the second quarter of 2021 – the company previously stated that it expected to more than double production at that stage.

“South Florida has actually been, arguably, the epicenter of COVID-19 in the world the last couple of months, and that has caused quite significant challenges for us in the, in the construction phase and production phase,” Andreassen said. “It is looking better. Now, fortunately, we are crossing our fingers that the worst is behind us.”

Photo courtesy of Atlantic Sapphire