SalMar Q2 2014 – Top 10 quotes

SalMar Q2 2015 main highlights

Did you miss the key messages from the Salmar Q2 2014 presentation? Don’t worry. I have created a list of the TOP 10 quotes and comments from management – flavoured with my own comments. Enjoy!

What I found most interesting about CEO Leif Inge Nordhammer and CFO Trond Tuvstein presentation was their comments about how little volume impact they expect from the new temporary production regime in Norway and how much costs that can be saved if challenges associated with sea lice and PD in Central Norway is contained.

Here are the slides from the presentation.

Download the PDF file .

Next follows the 10 most important messages made by management at the SalMar Q2 2014 presentation.

Quote 1: “We are extremely happy that the government has implemented a flexible maximum allowed biomass, and we do not believe it will result in a dramatic increase in the production”.

MySalmon: The positives seen by management is a delay of harvest in the beginning of September (avoiding the period of the year where supply is too high and demand is too low = low prices). Rather supplies will increase in the periods of the year where the market traditionally has lacked fish, i.e. closer to Christmas and in Q1. Fish farmers with own processing, like Lerøy Seafood and SalMar, have had large challenges in periods with little salmon supplies, in particular in Q1. Management says flexibility will not be used to increase volumes but to fine-tune the harvesting profile. Management does not expect much more production from the companies that initially were opposed to the flexible MAB regime.

Quote 2: “We believe that being banned from the Russian market only will have short term effects on the market balance. Within the 6 months we have been given flexibility in the MAB, I believe the much of the market has regained balance.”

MySalmon: SalMar had little exposure to Russia in the period before the ban. This salmon will be redistributed, mainly to existing customers and market. Lowering the price has made that switch possible. If the strong demand growth in other markets continues, it should absorb the Russian overhang during Q1 2015. In addition, it helps that the supply growth in other global farming regions is expected to be low.

Quote 3: “The 8 new green concessions will be phased in during Q3 and Q4 2014”

MySalmon: SalMar expects full volume impact of the new concessions during 2015 and 2016. Compared to what other “nominees” have said (NRS, GSF), this might seem early. However, based on the price SalMar bid for some of the licences (66 million NOK) SalMar gambled on a win – at least to win some concessions. This, in turn, resulted in SalMar transferring some smolts early into the sea, making early harvest possible. Remember also that SalMar has applied for concessions in Group C, but that all applications were rejected. SalMar has appealed the decision but a final verdict is still pending.

Quote 4: “PD and sea lice cost us between 2-3 NOK per kg. When it comes to biological challenges in region Central Norway, it is mainly PD and sea lice. Direct costs related to sea lice in Central Norway in Q2 was 0.95 NOK per kg “

MySalmon: Costs associated with PD relates mainly to low seawater growth and lower weights. Elevated mortality is rare. PD can also give reduced quality, i.e. for use in processing and result in lower product yields. On sea lice,  direct costs are related to the sea lice treatments. In addition to direct costs, there are costs such as lost seawater growth and an increase in feed conversion ratio (fish must be starved prior to treatment). In Q2, SalMar’s indirect sea lice cost was another 0.95 NOK per kg. All in all, the savings potential from containing sea lice and PD is significant.

Quote 5: “We expect more sea lice treatments and higher costs in Q3 compared to Q2, mainly because Q3 traditionally has more costs related to sea lice containment”

MySalmon: Management sees upside to the average direct costs related to sea lice, which in Q2 was 0.67 NOK per kg. PD has resulted in a lower harvest weight than planned on the biomass that is in the sea, also increasing production costs.

Quote 6: “The margin in Q2 in region North Norway of 10.6 NOK per kg is not satisfying.”

MySalmon: It is mainly the achieved sales price that has impacted the margin in region North. SalMar harvested very little salmon in April, when prices were high, and most in the latter part of Q2 when prices were at the lowest. In addition, some fish was harvested out because SalMar bumped into the maximum allowed biomass on some locations, resulting in sub-optimal weight on some fish and therefore higher production cost per kg. There was also some elevated mortality due to HSMB (muscle and skeleton disease), impacting production costs. The costs associated with sea lice in region North is about 25% of the cost in region Central Norway.

Quote 7: “Although Sales and Processing made a 12 million NOK profit, the results in Processing was negative. Still, all in all, we believe S&P is on the right track”

MySalmon: The negative margin in processing comes from high raw material costs in Q2, in particular in April (Easter) when salmon prices were high. The harvesting plant did not have optimal utilisation in Q2 either. They also harvested large-sized salmon from external farmers which requires a manual operation and is not efficient.

Quote 8: “In Scotland (NorSkott), the biological situation is good and we will have two new licences in operations within the next 6-9 months”

MySalmon: there are few, if any treatments for AGD this summer, a positive development compared to 2013. Regarding the two new concessions, one will be in operation this fall and one is expected in Q1 2015. One will be on Scottish mainland and one on the Orkney Islands. This will increase the production capacity for Norskott with 5,000-6,000 tonnes (today annual harvest volume is around 25,000 tonnes), most likely with full volume impact in 2016.

Quote 9: A very high number of fish individuals have been harvested this summer, and now there is only 1.5 million more 13G compared to 12G. For volumes to be much higher Y/Y, the average weight must be much higher, and we do not really see that coming”

MySalmon: with the new flexible maximum allowed biomass, we doubt that volumes in Norway for the rest of 2014 will be much higher than in the same period in 2013. boding well for prices, even without Russia.

Quote 10: “We are investing in a new smolt facility in North Norway and Central Norway, which will save us money.”

MySalmon: The plan is to produce smolts of minimum 200 grams, while the number of smolts to be produced is uncertain. Management signals “some million smolts in 2016”. The advantage is shorter time in sea, in particular in region Central Norway. If SalMar can release a large smolt in sea in March, and harvest in March / April the next year (before the large challenges with sea lice) could result in saved costs. To some extent the picture is more complicated since farmers operate in zones where farmers must coordinate harvest, transfers, treatments and fallowing periods.

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