Cermaq will report a reduced financial result for quarter 4, 2008 due
to various issues impacting on the profitability of its operations.
Chile
The situation regarding disease, specifically on ISA, has
deteriorated significantly in the last few months. The industry has
seen a sharp increase in the number of new cases of ISA and Cermaq
operations have had 10 new cases of ISA since the end of September.
The new outbreaks have affected some licenses with larger fish of
2kg+ and others with fish under 500g. The company has decided to cull
3 sites with smaller fish and accelerate the harvest of the sites
with larger fish and sell these fish at lower than optimal sizes,
with a consequential lower revenue than anticipated. In addition, the
company is eliminating a percentage of the freshwater stocks and
reducing the smolt transfers in 2009.
Previously, it has been communicated that Mainstream Chile would
transfer a maximum of 8.7 million Atlantic smolts in 2009, but would
adjust lower if the ISA situation did not improve. Given the
worsening sanitary situation, Mainstream Chile will now stock a
maximum of 6 million Atlantic smolts this year. This figure may again
be adjusted lower if we believe the sanitary situation has not
improved sufficiently in order to transfer to good biological areas.
At the time of Q3 presentation, Cermaq estimated one off write off
costs of NOK 20-40 million in Q4 to adjust the Atlantic stocking
plans. Given the increase in ISA and the additional culling of both
fresh and seawater stocks, the exceptional write off cost in Q4 is
expected to be in the region of NOK 120 million.
Sales volumes
The accelerated harvest of Atlantics combined with lower weights has
reduced the sales volume in Q4 compared to previous guidance. In
addition, sales of Trout, and to a lesser extent Coho, have been
delayed into 2009 due to lower market prices prevailing towards the
year-end of 2008. In general, major markets like USA and Japan saw
reducing demand and market prices during quarter 4 for Chilean and
Canadian volumes of all species.
The sales in Q4 versus previous guidance were as follows (in round
thousand tonnes RWE):
+----------------------------------+
| | Guiding | Actual |
|---------------+---------+--------|
| Norway | 11 | 11 |
|---------------+---------+--------|
| Canada | 9 | 8 |
|---------------+---------+--------|
| UK | 3 | 2 |
|----------------------------------|
| |
|----------------------------------|
| Coho | 5 | 4 |
|---------------+---------+--------|
| Trout | 3 | 1 |
|---------------+---------+--------|
| Atlantics | 7 | 5 |
|---------------+---------+--------|
| Total Chile | 15 | 9 |
|----------------------------------|
| |
|----------------------------------|
| Total Q4 2008 | 37 | 30 |
+----------------------------------+
Due to the biological conditions for production in Chile, expected
sales volumes remain uncertain for 2009. Cermaq does not adjust the
specific sales volume guidance for 2009 at present. However, the
volumes of Coho and Trout will likely increase from previous stated
levels due to the delay in sales from 2008. Atlantics are maintained
at the previous guided level, as some sales will be moved from 2008
into 2009 and the main impact of the new ISA cases is on year 2010.
Cermaq will regularly update the market on the developments in
production conditions and volumes in Chile and other operations
during 2009.
Foreign Exchange Rate Impacts
Cermaq sells and buys in most of the major currencies given its
global portfolio of operations and sales, and has historically been
naturally hedged to exchange rate fluctuations on most of its
transactions.
However, in Q4, the global financial turbulence has caused unusual
and volatile fluctuations in the markets, and had an impact on
Cermaq's results. The Norwegian Kroner weakened substantially versus
the major currencies such as the US Dollar and Euro during Q4, and
this caused a large increase in the group NOK asset and debt base of
Cermaq.
In addition, within EWOS, losses in NOK have been incurred on the P&L
due to outstanding debt to suppliers valued in foreign currencies
such as the Euro, USD and Danish Kroner and also to some customer
contracts being priced at exchange rates fixed at the prior quarter's
end rate. The volatility in exchange rates coincided with a
seasonally high volume period for EWOS. This has negatively impacted
on the EWOS gross margin in Q4 by approximately NOK 30 million.
Although the impact of ISA and exchange rate movements on Q4 and the
2008 results is substantial, Cermaq would like to emphasise that it
is still above the thresholds for its banking covenants using the
standard method of calculation.
Further Information
Steven Rafferty, Chief Financial Officer, mobile tel : +47 97 66 41
04
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