Grieg Seafood's second-quarter report blames biological challenges for reducing earnings in Shetland. Photo: Grieg

Lice and algae hit Grieg Shetland earnings

The costs of countering sea lice and algal blooms have slashed Grieg Seafood’s earnings per kilo in Shetland by almost two-thirds.

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In its financial report for the second quarter of 2017, Norway-based Grieg Seafood Group (GSG) said EBIT (earnings before tax and interest) before fair value adjustment of biomass was NOK 8.3 per kilo (83p) in Q2 2017, against NOK 22 per kilo (£2.20) in the corresponding period last year.

The drop in EBIT comes despite steps to reduce costs by releasing larger smolts and an increase in harvest volume to 3,231 tons, against 2,865 tons in Q2 2016.

As a result of the biological challenges, Grieg has reduced its expected 2017 harvest volume in Shetland by 3,000 tons to 67,000 tons.

Grieg Seafood Shetland's figures have been affected by lice and algae costs. Image: Grieg

In its report, released today, GSG states: “For some time Region Shetland has been taking steps to reduce the production time in the sea from 24 to 18 months. Q2 2017 saw the start of harvesting of the first fish under the new production plan, and because of this the costs have fallen slightly.

“The increased harvest volume has also helped to reduce costs per kilo. This applies particularly to the harvesting plant.

“Neverthless, costs remain high in Shetland. This relates especially to biological challenges, where sea lice and algae are the main concerns. There is close collaboration with other fish farming parties in the region with a view to finding solutions to these challenges. As a consequence of the above-mentioned biological challenges, the harvest volume from Region Shetland in 2017 is expected to be 3,000 tons less than previously guided.”

Overall GSG, which farms in the Rogaland and Finnmark regions of Norway and British Columbia, Canada, as well as Scotland, has had a solid Q2. Its harvest volume in Q2 2017 was 18,503 tons, up from 16,263 tons in the corresponding period last year, an increase of 14 per cent.

Operating income up 21 per cent

Combined with higher prices this resulted in total operating income of NOK 2,030 million (£203m), an increase of 21 per cent compared to the same period in 2016. Value adjustments totalling NOK 77m related to biomass have been charged in the accounts bringing the reported operating profit for Q2 to NOK 315m. In last year’s second quarter value adjustments were positive totaling NOK 116m and the reported profit for the period was NOK 427m.

EBIT for GSG before fair value adjustment of biomass was NOK 392m in Q2 2017, compared to NOK 312m in Q2 2016. EBIT per kilo in the period was NOK 21.20, up from NOK 19.20 per kilo in Q2 2016.

The average spot price rose by NOK 3.60 per kilo, while Grieg Seafood's realised prices showed an increase of NOK 7.70 per kilo. The difference was largely due to higher contract prices. Costs were NOK 5.70 per kilo higher compared to Q2 2016, largely attributed to the challenging biological situation in Shetland.