Atlantic Sapphire will likely breach financial covenants after losses jump 233 percent

Atlantic Sapphire, the Miami, Florida, U.S.A.-based company aiming to build one of the largest salmon recirculating aquaculture system (RAS) facilities in the world, said it is expecting to breach financial covenants based on its projected revenue and cash flow in H2 2023. 

In its H1 2023 results, released 24 August, the company said it is preparing interim consolidated financial statements for the period spanning 1 January 2023 to 30 June 2023 based on a “going concern assumption pursuant to section 3-3a of the Norwegian Accounting Act.” The company said that it expects to breach its Q3 2023 financial covenants due to expected reductions in revenue and operational cash flow.

The announcement comes as the company posted USD 8.1 million (EUR 7.5 million) in revenue for H1 2023, a drop of USD 1.6 million (EUR 1.4 million) compared to the USD 9.7 million (EUR 9 million) in revenue it had in H1 2022. The companies earnings before interest and taxes (EBIT) for the period plunged to a loss of USD 43.7 million (EUR 40.5 million), compared to a loss of USD 12.3 million (EUR 11.4 million) in 2022. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) also dropped to a loss of USD 36 million (EUR 33 million), compared to a loss of USD 5.7 million (EUR 5.3 million) in H1 2022.

Overall, the company posted a net loss of USD 48.4 million (EUR 44.9 million) in H1 2023, 233 percent higher than the 14.5 million (EUR 13.4 million) loss it posted in H1 2022. 

The company harvested 870 MT of salmon in H1 2023, compared to the 1,217 MT it harvested in H1 2022. That total is a far cry from the expected 10,000 MT of salmon it projected it would harvest annually when it completed phase one of its construction in 2021.

The company said its decreases in revenue were largely the result of the lower volume, partially offset by higher sales prices for its salmon. However despite the lower volume, its cost of goods sold in H1 2023 was USD 36.4 million (EUR 33.7 million), an increase of USD 4.3 million (EUR 4 million) over H1 2022.

Atlantic Sapphire posted an update in early August indicating that “elevated farming temperatures” had impacted its water quality at its Florida Bluehouse farm, requiring the company to install new water chillers to ensure sufficient water capacity for its salmon farming operations at peak cooling demand. 

As a result of the poor performance, the company said it won’t be able to meet the terms of its amended 2020 credit facility, which required certain financial milestones and metrics, including: “minimum required annualized production level to be maintained for at least two months, aggregate positive EBITDA over the last three months prior to drawdown, a minimum EBITDA level prior to drawdown, and compliance with financial covenants agreed under the amended 2020 credit facility.”

Atlantic Sapphire said in anticipation of not being able to meet the EBITDA requirements, it received a formal waiver from its lender on 29 June, 2023, for the quarter ending 30 June, 2023. 

Atlantic Sapphire said its existing shareholders on the board of directors have “indicated their continued financial support and the lender has provided indications to either reset its covenant levels or grant the necessary waiver upon successful financing.”

The company managed a private placement on 16 March that secured NOK 595 million (then USD 56 million, EUR 51 million) that helped bolster its finances. The company also decreased its liabilities to USD 61.1 million (EUR ) in H1 2023, down from its USD 102.1 million (EUR 94.6 million) in liabilities in H1 2022. The company’s debt-to-equity ratio also decreased to 20.1 percent, down 19 percent from the 39.1 percent it posted in 2022. 

Looking forward, the company predicted that the temperature issues it underwent throughout H1 2023 will result in a decrease in its H2 2023 performance. Despite the financial woes on the horizon, the company said that its U.S. phase two is roughly “one third” along the way toward construction completion, and the company said it now has the appropriate staffing level needed for a large-scale project.

“We have strategically selected a design consultant with proven experience on large water facilities, and we have partnered with a construction contractor with vast experience in constructing water treatment facilities locally in Florida,” the company said.

It said the challenges it has faced throughout its goal to reach steady-state production in its phase one facility have added to its ability to mitigate risk in the future.

“With the significant infrastructure improvements that have been completed in H1 2023, Atlantic Sapphire believes its Bluehouse is more robust than at any other point in its past,” the company said.  “Combined with a more experienced team operating the systems, the group believes it has set the stage for stable operating conditions, good water quality, and strong biological performance going forward.”  

Photo courtesy of Atlantic Sapphire