SalMar weathers COVID turbulence to deliver strong Q2 results, but Arnarlax struggles

Published on
August 28, 2020

Despite the ongoing COVID-19 pandemic causing turmoil in international markets, SalMar’s latest Q2 earnings report indicate the company had a “strong quarter” and the company’s earnings are up overall in the first half of 2020.

A strong biological performance by SalMar’s Norwegian salmon farming operations contributed to operational earnings before interest and taxes (EBIT) of NOK 882 million (USD 100.2 million, EUR 84.1 million) for the second quarter of this year, down from NOK 990 million (USD 112.5 million, EUR 94.4 million) in Q2 2019. Its Norwegian operations made an operational EBIT of NOK 912 million (USD 103.6 million, EUR 87 million) for the period, compared with NOK 964 million (USD 109.5 million, EUR 92 million) a year previously.

“The SalMar Group has had another strong quarter, despite persisting turbulence and uncertainty in the global salmon market caused by the COVID-19 pandemic. Efficient operations and a strong biological performance at our Norwegian operations helped to reduce costs and secure good margins,” SalMar CEO Gustav Witzøe said.

Frøya, Norway-headquartered SalMar generated gross operating revenues of NOK 3.3 billion (USD 374.7 million, EUR 314.8 million) in the last quarter, up 0.4 percent year-on-year, while the harvest totaled 40,900 metric tons (MT), compared with 41,400 MT a year previously. The operational EBIT-per-kilogram decreased to NOK 21.56 (USD 2.45, EUR 2.06).

It attributed the decrease to the average spot price in the period being NOK 4.85 (USD 0.55, EUR 0.46) per kilogram lower than in the same period in 2019. However, the reduction in margin was partly offset by lower costs for the harvested volume.

Regionally, Fish Farming Central Norway, the group’s largest business segment with 68 farming licenses, harvested a total of 27,200 MT of salmon in the last quarter, some 2,600 MT more than in Q2 2019. Fish Farming Northern Norway harvested around 12,000 MT of salmon in the last quarter, which was 2,100 MT less than a year previously.

According to the quarter’s report, Fish Farming Central Norway posted “a highly satisfactory result” in the period, driven by efficient operations and strong biological performance. SalMar expects the segment harvest around 103,000 MT in the full-year 2020.

Fish Farming Northern Norway, meanwhile, posted “an extremely good result,” thanks to efficient operations and stable biological development, with correspondingly low production costs. However, its result was affected by low price achievement due to a high volume of fish harvested early in the period, when prices were at their lowest. It is expected to harvest around 49,000 MT of salmon in 2020.

Icelandic subsidiary Arnarlax harvested 1,700 MT of salmon in Q2 2020, compared with 2,800 MT a year previously. Its operating revenues totaled NOK 99 million (USD 11.2 million, EUR 9.4 million) for the quarter, down from NOK 177 million (USD 20.1 million, EUR 16.9 million).

The report states that Bíldudalur-based Arnarlax posted “a very weak result,” characterized by high costs and weak prices in the period. The Q2 harvest mainly derived from sites that had suffered a high rate of mortality due to winter wounds earlier in the year. The low volume also led to poor capacity utilization at the harvesting plant.

For the quarter, Arnarlax achieved an operational EBIT loss of NOK 30 million (USD 3.4 million, EUR 2.9 million), a reversal of some NOK 56 million (USD 6.4 million, EUR 5.3 million) compared with the same period of 2019. The operational EBIT loss per kilogram gutted weight came to NOK 18.10 (USD 2.06, EUR 1.73), compared with a gain of NOK 9.43 (USD 1.07, EUR 0.90) per kilogram in Q2 2019.

The sites that had suffered from a high rate of mortality have now been harvested out, and in the third quarter, the company will harvest fish from sites with a better biological performance and lower level of costs, the report said.

Arnarlax is expected to harvest 12,000 MT of salmon this year.

Additionally, Norskott Havbruk (Scottish Sea Farms) harvested 6,500 MT in the quarter, up from 2,900 MT in the previous quarter and from 5,800 MT in Q2 2019. SalMar owns 50 percent of this business.

SalMar’s Sales and Processing segment, which sells all of the fish that the group harvests in Norway, generated higher revenues of almost NOK 3.3 billion (USD 374.6 million, EUR 314.8 million) in the last quarter. The unit’s operational EBIT totaled NOK 70 million (USD 7.9 million, EUR 6.7 million), compared to breakeven in Q2 2019, with the report citing a combination of factors for the improvement in profits, including a positive contribution from fixed-price contracts as a result of lower salmon spot prices during the quarter, and improved capacity utilization as a result of the higher volumes harvested.

Overall, for the first six months of this year, SalMar generated gross operating revenues in excess of NOK 6.9 billion (USD 783 million, EUR 658.1 million), up from less than NOK 6.3 billion (USD 714.9 million, EUR 600.9 million) in the first half of 2019. Excluding Norskott Havbruk, the Group harvested 80,900 MT in the first six months of this year. In the same period last year, the group harvested 76,900 MT.

The price of salmon for H1 2020 averaged NOK 63.16 (USD 7.17, EUR 6.02) per kilogram, compared with NOK 62.39 (USD 7.08, EUR 5.95) per kilogram in the same period last year.

SalMar’s operational EBIT for the first six months of this year totaled NOK 1.9 billion (USD 215.6 million, EUR 181.2 million), up from NOK 1.8 billion (USD 204.2 million, EUR 171.7 million) in the first half of 2019. This gave an operational EBIT-per-kilogram of NOK 24.06 (USD 2.73, EUR 2.29), compared with NOK 23.35 (USD 2.65, EUR 2.23) in H1 2019.

Photo courtesy of SalMar

Contributing Editor reporting from London, UK

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