Salmon price decline starts to hit, Marine Harvest expects supply shock to persist

While Norwegian salmon spot price continued to fall in Q4 2011 and were 40% lower than in Q4 2010 on average, world’s largest producer of farmed salmon Marine Harvest (OSE: MHG) was not hit quite that hard yet as it had a high share of its sales from contracts carrying over with higher prices. Nonetheless the achieved prices were 23% lower than last year.

Harvest volume increased by 14 000 tonnes on an uptick in Norway and Chile. Revenues and other income were 4.254 billion NOK. Operational EBIT slid to 403 million, where as negative change in fair value of salmon derivates plus restructuring and impairments from Canadian operations affected final result by 200 million. Earnings per share were 0.03 NOK and cash flow from operations was negative on working capital build-up.

For 2011 operational revenues were still up by 5% compared to 2010 on strong start for the year. Operational EBIT was down by 15% to approximately 2.7 billion. After tax profit for 2011 is just over 1.1 billion resulting in an EPS of 0.31.

The company expects challenging supply situation in 2012, on top of the 20% supply increase in 2011, which will keep prices under a lid. Marine Harvest plans to expand the overall market with active sales and marketing efforts. Sales and Marketing was implemented as a business area last April with Farming as the other one.

A cost cutting initiative is naturally ongoing as well and restructuring in Canada is expected to contribute positively from H2. Smolt stocks have already been reduced in 2011 and 2012. Marine Harvest is guiding for a harvest of 360 000 tonnes gutted weight salmon in 2012 with 89 000 tonnes of those in Q1.

The current priority is to further strengthen financial position and to look for organic expansion. Should opportune acquisition targets appear, those will nonetheless be considered. Last summer the company distributed a large dividend but says that this year the scope for dividend distribution is limited unless a notable price increase takes place. The stock closed 1.5% lower at 3.17 NOK.