Grieg Seafood reports USD 40 million pre-tax loss in Q3 2022, lowers harvest target

Bergen, Norway-headquartered salmonid producer Grieg Seafood Group’s third-quarter 2022 operational earnings before interest and taxes (EBIT) fell NOK 4 million (USD 401,000, EUR 389,000) year-on-year to NOK 145 million (USD 14.5 million, EUR 14.1 million), despite a larger harvest in the three-month period.

Grieg harvested 22,923 metric tons (MT) of gutted-weight salmon in the quarter, up 12 percent, or 2,444 MT, from Q3 2021. In the quarter, the company posted an operational EBIT per kilogram of NOK 6.30 (USD 0.63, EUR 0.61). By region, Grieg’s Finnmark Norway division accounted for 8,174 MT of the total, followed by its British Columbia operations with 7,908 MT, and its Rogaland Norway division with 6,841 MT. Sales revenue exceeded NOK 1.7 billion (USD 170.3 million, EUR 165.5 million), an increase of 31 percent or more than NOK 400 million (USD 40.1 million, EUR 38.9 million) compared with Q3 2021. The company achieved an average price of NOK 66.60 (USD 6.67, EUR 6.48) per kilogram of salmon sold, up from NOK 58.40 (USD 5.85, EUR 5.68) in Q3 2021.

Despite the positive revenue numbers, Grieg suffered a pre-tax loss for the quarter of NOK 402.5 million (USD 40.4 million, EUR 39.2 million), compared with a profit of NOK 208.7 million (USD 21 million, EUR 20.3 million) in Q3 2021. The company said biological challenges at its British Columbia, Canada operations, combined with inflation, resulted in higher farming costs that impacted profitability.

Overall, the group's farming cost for the quarter was NOK 59.40 (USD 5.97, EUR 5.79) per kilogram, compared with NOK 48.70 (USD 4.89, EUR 4.74) previously, and up NOK 10.80 (USD 1.08, EUR 1.05) per kilogram compared with Q2 2022. These increased farming costs were primarily driven by high costs in BC due to reduced survival in both freshwater and seawater systems. Grieg’s Norwegian regions contributed to 55 percent of the group's farming cost, impacting EBIT through an increased farming cost of NOK 49.80 (USD 5.00, EUR 4.85) per kilogram in the quarter.

Grieg said the main reason for the increase in cost level was inflation, both in feed and other input factors.  Grieg’s Farming costs in British Columbia ended the quarter at CAD 10.10 (USD 7.60, EUR 7.37) per kilo, versus CAD 8.50 (USD 6.40, EUR 6.21) in Q3 2021 and CAD 7.90 (USD 5.95, EUR 5.77) in Q2 2022.

Grieg said in its Q3 results it had detected the spiro parasite at some of its Finnmark farms where it recently released salmon into net-pens.

“The parasite has limited impact on fish welfare and biological performance for most fish, however, fish with sickness signs will be culled,” it said. “The source of the parasite is believed to be water intake at a freshwater facility during a limited period of time, and correcting measures have been initiated. The incident is expected to have limited impact on future harvest volume as actions are taken to compensate the shortfall by transferring more smolt to sea and optimization of sites.”

The company said its Rogaland and Finnmark farming regions were positively impacted by a high share of superior fish, partly offset by contracts and timing of harvest, in addition to lower average harvest weight in Finnmark. Grieg’s cost level in Norway ended the quarter at NOK 49.80 (USD 4.99, EUR 4.85) per kilogram, which was in line with guidance and up from NOK 42.70 (USD 4.28, EUR 4.16) kilogram in Q2 2022, primarily as a result of inflation.

Delivering the third-quarter report, CEO Andreas Kvame said that while the market and demand for salmon was strong for the season, the quarter had been “somewhat challenging,” with farming operations impacted by unfavorable growth conditions and sea lice pressure in Rogaland and Finnmark, as well as algae blooms in Grieg’s Canadian operations. He said algae blooms at several farming sites not yet equipped with the company’s algae-mitigation barrier system had resulted in significant losses. Kvame said the company is responding to biological challenges in British Columbia by “phasing out old sites with challenging biology and high cost.”

“After implementing mitigating efforts, production has gradually improved and is expected to be stabilized in all regions in Q4,” Kvame said.

At the same time, Grieg’s seawater production in Newfoundland is developing according to plan, he said, with two million smolt having been released, now averaging a weight of one kilogram, and the first harvest is expected late next year.

Kvame said the company has shored up its regional management with two new hires. Grant Cumming, who led the revival of Grieg’s Shetland operations before the company sold its holdings in the region in 2021, was hired as its new chief operating officer for North America, to begin in 2023. And it has hired Jennifer Woodland as managing director for its B.C. operations, effective 12 October, replacing Rocky Boschman. Previously, Woodland worked as CEO of Nuu-chah-nulth Seafood and chaired the Canadian Aquaculture Industry Alliance.

Kvame said the biggest threat to the company’s ongoing operations was the Norwegian government’s proposed resource tax of 40 percent on farmed salmon.

“Grieg Seafood previously identified large investment opportunities in our coastal communities in Norway aimed at advancing sustainable growth,” he said. “However, the proposal in its current form will significantly reduce available capital necessary for these investments. Therefore, all new investments that are impacted by the tax are put on hold."

Grieg’s mothballed investments total NOK 2.3 billion (USD 230.6 million, EUR 223.9 million), the report estimates.

“The proposal is subject to a public hearing and adoption by the [Norwegian] Parliament. Once that has happened, Grieg Seafood will assess how the final outcome will impact our strategy and plans and adjust accordingly," Kvame said.

Grieg once again lowered its estimated harvest volume for the full-year 2022 by an additional 6,000 MT to an estimated total 81,000 MT. For the fourth-quarter 2022, Grieg’s expects a total harvest volume of 17,500 MT, with Rogaland producing 6,500 MT, Finnmark 9,800 MT, and BC 1,200 MT.

Grieg estimates its harvest volume in 2023 will be 87,000 MT.

Photo courtesy of Grieg Seafood