Undercurrent news, 29 Oct 2015: Sea lice tops Marine Harvest Agenda

Sea lice was mentioned more than 60 times inMarine Harvest’s Q3 2015 report, released Oct. 28.

The statistic – calculated by Norne Research – evidences how high the issue now is on the Norwegian salmon farmer’s agenda. In contrast, it was mentioned between 30 and 40 times in last year’s Q3 result.

In his presentation, CEO Alf-Helge Aarskog described sea lice as the “industry’s biggest challenge”, attributing high production overheads for the quarter to mitigation costs.

But, while realistic, Aarskog’s outlook on sea lice management veered more towards bullish than bearish.

More considerable mention was made of the company’s new strategy in combatting what many industry players have long considered to be the scourge of the seas. The new approach is based primarily on early issue discovery and non-medical treatment.

Times “sea lice” is mentioned in the interim report. Source: Norne Research

Aarskog said that when the 0.2 pregnant female lice level is in danger of being breached, the group deems it time to take action. This, he said, was far earlier than the protocol set by the Norwegian government, but pre-emption was the best means of reducing the probability of spread.

Sea lice are now required to be counted in every pen each week, which Aarskog again described as going above and beyond government guidelines.

“We need to be more precise,” he said.

In addition to a greater focus on cleaner nets, the new strategy also has its basis in non-medical tools, including sea lice-eating fish, salmon skirts and fresh-water treatments – “in some areas, it’s the only thing that works,” said Aarskog, referring to the latter.

Aarskog appeared to infer that the days of medicine solutions were over, openly lamenting the use of antibiotics, particularly in Chile.

“Biologically speaking, it’s not sustainable,” he said. “The government there needs to get on top of this, because you cannot use such high levels of antibiotics.”

Marine Harvest has also made no secret of its intention to greater harness technology – namely laser – to drive down sea lice levels. The group has already put its money where its mouth is on this, having entered into a deal with Stingray Marine Solutions in September to install ice lasers in one its farms.

But Aarskog was willing to admit that sea lice treatment was “a huge job, in which we are doing better in some areas than others”.

Treatment failures, can, in some instances, be catastrophic. In October, it was reported that 17,000 Marine Harvest salmon had been killed in the region of Gulesto, in Bremanger, as a result of delousing exercise gone awry.

Referring to the group’s home market of Norway, he said Region North – which achieved earnings before interest and taxes (ebit) of NOK 10.76 per kilo in Q3, compared to NOK 9.76/kg during Q3 2014 – was “under complete control”.

Likewise, the group’s sea lice treatment had “some good effect” in Region South, where the year-on-year ebit rose from NOK 6.67/kg to NOK 8.32/kg, while Region West – ebit of NOK 10.93/kg versus NOK 9.80/kg in 2014 – was doing “fairly well”.

Region Mid, however, saw its ebit slide to NOK 9.28/kg compared to NOK 9.76/kg for last year’s quarter, as profitability fell foul of sea lice.

Marine Harvest operational EBIT/kg per region. Source: Marine Harvest

“It has been challenging, not always great, and it’s going to take a lot of discipline, hard work, and capital in equipment – but the rewards are worth it,” said Aarskog.

Not everyone is convinced. Commenting on the Q3 report, analysts Norne Research said the market has underappreciated the correlation between sea lice costs – both direct treatment and indirect – and lost potential revenues due to the need to slaughter young fish.

Analyst Nordea analyst Kolbjorn Giskeodegard shares a different opinion, claiming “sea lice situation has been better this year than last year, asking Aarskog in a question-and-answer session after the presentation whether this was down to “management or nature”.

“Probably a combination of both,” answered the Marine Harvest chief. “Although, there has been good management, especially in the Region South. The big thing, though, is to take down sea lice that can release eggs. For future growth, we really need to take care of this problem.”

In spite of concerns over the impact of sea lice treatment costs – not to mention losses in Chile and low prices in Canada – Marine Harvest’s Q3 operational earnings exceeded its own forecast and that of analysts, reaching NOK 720 million ($85.09m).

While down 21.05% year-on-year, it is above the level of NOK 710m the company hadguided for on Oct.15.

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