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Health costs, mortalities drag on Marine Harvest Scotland

The company's feed division was also negatively impacted by a new plant in Scotland which is to start trial production in the first quarter of 2019.

Despite bumper results elsewhere, Marine Harvest’s Scottish operation experienced a 52 percent drop in operational earnings before interest and taxes (EBIT) in the third quarter of 2018, dragged down by lower harvest volumes and cost increases.

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Operational EBIT for the period amounted to €12.3 million ($13.9 million) compared with €25.4 million ($28.7 million) in the same quarter a year ago – the equivalent of €1.36 ($1.50) per kg as compared with €2.33 ($2.60) per kg in 2017.

However, the effect of somewhat lower achieved prices was offset by a higher allocated margin from Consumer Products to salmon of Scottish origin, said the company.

The resulting financial EBIT for the unit amounted to €26.1 million ($29.5 million), a 15 percent increase on the €22.6 million ($25.6 million) a year ago.

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The third quarter harvest volume in Scotland was 9,024 metric tons gutted weight, which is a decrease of 17 percent from the corresponding quarter in 2017 of 10,912 metric tons. This was mainly due to lower opening biomass as a result of timing of smolt stockings, the company said.

“The decline in percentage terms was slightly more than expected. However, in tonnage terms, Scottish harvest volumes developed roughly as expected,” said the company.

Costs jump 20 percent

Meanwhile, Marine Harvest Scotland’s full cost per kg increased significantly compared with the third quarter of 2017.

Biological costs per kg, specifically, increased by 20 percent from the corresponding quarter of 2017 on “increased feed and health costs and negative scale effects.”

The company recognized incident-based mortality losses in the amount of €1.2 million ($1.4 million) in the quarter, mainly due to gill issues and mortality at the Inchmore hatchery.

However, sea lice levels at the end of the quarter were also lower than at the end of the comparable quarter of 2017, said the company.

“Harvest volumes in 2018 are low for the Scottish business unit. However, with increased smolt stockings in 2018 and opening of new farming sites, the positive scale effects are expected to bring down costs in 2019,” the company said.

Complex picture for feed

Operational EBIT in the company’s feed division amounted to €7.3 million ($8.3 million) in the third quarter of 2018, down 22 percent from the €9.4 million ($10.6 million) in the same period a year ago, negatively impacted by €1.8 million ($2 million) related to a new feed plant in Scotland.

Operating revenues from the unit, however, were up nearly 5 percent at €138.5 million ($156.7 million) in the third quarter as produced volumes hit an all-time high at 97,564 metric tons.

That said, the volumes sold in the third quarter were 111,992 metric tons, which is “somewhat down” from the comparable quarter last year, when this figure was 114,203 metric tons.

“This is a consequence of reduced demand from our Norwegian farming operations because of lost feeding days due to treatments,” said the company.

The volume delivered from the feed division accounted for 99 percent of total feed delivered to Marine Harvest Norway, compared with 88 percent in the third quarter of 2017.

Feed price improvements

Meanwhile, feed prices improved in the third quarter of 2018 compared to the third quarter of 2017, in line with the corresponding increase in raw material costs.

“Feed prices are set at market terms and benchmarked against third parties,” said the company. “As the largest buyer of salmon feed globally, we are able to efficiently benchmark our own feed prices versus third party suppliers.”

In terms of feed, raw material costs increased compared with the third quarter of 2017, mainly related to fish oil, but also other input factors such as fishmeal.

“This effect has been offset by increased prices. However, costs were also negatively impacted by the new feed plant in Scotland,” said Marine Harvest.

“After some delays in the construction -- which as such incurred a CAPEX overrun -- the plant is now scheduled to start trial production in the first quarter of 2019.”

The plant will produce fish feed for aquaculture farms in Scotland, Ireland, Faroe Islands and Norway, and will have a capacity of 170,000 metric tons.

“Following our self-sufficiency strategy on feed, Marine Harvest Feed also continues to develop its range of products, including fresh water, organic and cleaner fish diets,” said the company.

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