July 21, 2011


Marine Harvest's shares sink to two-year low



Marine Harvest's shares dove to a two-year low after the world's largest fish farmer revealed it was to cut costs and production volumes in the face of a jump in the salmon sector output which has sent prices tumbling.


The salmon market has been "unable to adjust to the sudden supply shift" caused by a recovery in output from Chile, the second-ranked producing country after Norway, following a 2007-09 slump caused by an outbreak of infectious salmon anaemia.


Norwegian salmon prices fell some 19% to NOK32 (US$8.00) per kilogramme in the April-to-June quarter, as Chilean production volumes jumped 23%.


"The price was put under significant pressure during late May and June," the group said adding that "the resulting accumulation of inventory of the fresh commodity led to a buyers' market".


And Chile's output growth is set to accelerate further - potentially to 163% - in the July-to-September period, Marine Harvest forecast, saying it was "somewhat concerned" over supply rises expected heading into 2012.


"Let there be no doubt, we see tough times in the next 12 months," Alf-Helge Aarskog, the group's chief executive, told investors.


The group said it would, in the light of the output growth, "review production plans with the potential to reduce future production growth somewhat".


And it unveiled a cut capital expenditure this year by NOK200 million (US$36.61 million), saying that "in this environment, it is more important than ever to focus on improved cost performance and strict capital management".


As an extra headwind, the group has also faced a growth in outbreaks at its Norwegian salmon farms of pancreas disease, a potentially fatal viral illness which has killed more than 60% of fish at one site.


The group took a NOK24 million (US$4.39 million) charge in results for the April-to-June period to account for losses caused by the nine outbreaks so far in 2011 as many as in the same periods of 2009 and 2010 put together.


Marine Harvest also took a NOK23 million (US$4.21 million) charge related to an outbreak of bacterial kidney disease at northern Norwegian operations, and lowered by 10,000 tonnes its forecast for Norwegian production volumes this year.


"The period was affected by substantial losses due to biological issues," the company said.


The charges, coupled with a hefty downgrade to the fair value of salmon stock reflecting the weaker market conditions, slashed Marine Harvest's operating profit for the second quarter by 64% to NOK380.6 million (US$69.67 million), despite revenues soaring 23% to NOK4.39 billion (US$0.80 billion), lifted by higher volumes.


And, with the gloomy outlook also weighing, Marine Harvest shares plunged 8.8% to close at NOK3.258 (US$0.60), their lowest finish since May 2009, and down 54% from a February high.

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