Marine Harvest refocuses on margins with Norway plan-UPDATE 3

Trade the News

Wednesday September 08, 2010 09:47:13 PM GMT

* Seeks to cut Norway costs 1.5 crowns per kg over 3 years

* Disease-hit Chile production will bottom out in 2010

* Shares down 3 percent, lagging a falling Oslo bourse

(Recasts with CEO and analyst quotes, share price)

By Walter Gibbs

STAVANGER, Norway, Sept 7 (Reuters) - Marine Harvest, the world's largest fish farmer, on Tuesday unveiled plans to cut costs in Norway as it focuses on margins after fish disease stunted growth prospects.

Marine Harvest said in its Capital Markets Day presentations that growing global demand for salmon would support additional supply over coming years as the industry recovers from fish disease which badly damaged operations in Chilean waters.

With higher costs than some rivals in Norway, Marine Harvest said its plans envisaged cutting costs by some 1.5 crowns ($.025) per kg in Norway over three years by better utilising the best sites, boosting health and improving feed.

The planned cost reduction compares with a Norwegian production cost of 20.5 crowns per kg in the second quarter.

"It's not impressive compared to other cost-cutting schemes in other industries, so some people might have expected more," said Geir Kristiansen, an analyst at Argo Securities.

"But I think it was positive. It's a new thing in this industry, where the focus has always been on growth, not cost."

Kolbjoern Giskeoedegaard, seafood analyst at Nordea Markets said that the cost cut would bring Marine Harvest's operating margin up to that of its Norwegian peers, such as Leroy, Cermaq and Grieg Seafood.

Marine Harvest shares fell 3.1 percent to 4.895 crowns by 1225 GMT, lagging a 1.0 percent fall on Oslo's index.

Analysts said the slide was triggered by profit taking after a 5.6 percent rise from Aug. 31 lows, not by anything unexpectedly negative, including the Chilean projection.

"We will get the first half a crown out by the fall of 2011, and another full crown over the two following years," CEO Alf-Helge Aarskog told Reuters.

Other cost savings will come from improving the onland facilities for smolt production -- production of young salmon -- and consolidating operations within the four Norwegian coastal regions where Marine Harvest raises salmon, Aarskog said.

TURNING POINT IN CHILE

Marine Harvest said its production in Chile would hit a record low in 2010 even though the epidemic of infectious salmon anaemia that broke out in Chile in 2007 seems under control.

The rebound will be slow, he said, because it takes three years to grow mature salmon from eggs.

"In 2010 we will harvest 9,000 tonnes in Chile, which is the lowest ever for us," Aarskog said. Marine Harvest said that volumes would increase to 28,000 tonnes in 2012.

Analysts said Marine Harvest's Chilean reintroduction of smolt has been slower than that of domestic Chilean producers.

Aarskog acknowledged that the build-up of Marine Harvest's fish population in Chile will be "conservative".

"We are focusing on quality of production rather than quantity," Aarskog said.

He said Marine Harvest released 2.4 million smolt in 2009 and will release another 8 million each year through 2012. This compares with 40 million smolt released in 2007 -- though few of those made it to maturity.

Marine Harvest said it saw the global supply of farmed fish growing 8-10 percent next year and by 7-12 percent in 2012. Its long-term annual organic growth target is 5 percent.

"Strong global demand driven by fundamental food trends support increasing industry supply in 2011-2012," it said.

Continued high prices for salmon could give the company a dividend capacity of around 2.4-2.5 billion crowns in 2011 and 2012, while lower estimates might cut this to 400-500 million, the company estimated.

According to Thomson Reuters data, Marine Harvest trades at around 7.8 times forecast 2011 earnings, in line with Leroy Seafood's 7.3 times and 7.9 by Cermaq.

(With reporting by Wojciech Moskwa and Terje Solsvik; Editing by Dan Lalor, Mike Nesbit) ($1=6.119 Norwegian crowns)

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