Covid-19 impact and update
TAKING CARE OF EMPLOYEES
Since the outbreak of Covid-19, employee well-being has been the number one priority for Grieg Seafood. We have crisis management teams at the head office and in each region. We follow the advice of the authorities in the regions where we operate. We have implemented measures to lower the risk of contamination to ensure business continuity, including strict routines at production sites and harvest facilities to limit physical contact and encourage social distancing. Remote work has been endorsed whenever possible, and business travel have been restricted.
During the pandemic, the salmon farming industry has been recognized as an essential function in the regions where we operate. Despite the challenging circumstances, we have been able to maintain efficient operations. Grieg Seafood maintains a constructive dialogue with the authorities in the regions we operate in through industry organizations, continuously monitoring and discussing possible arrangements to safeguard our salmon farming operations in various scenarios.
Since the outbreak of Covid-19, employee wellbeing has been the number one priority for Grieg Seafood.
CHALLENGING AND VOLATILE MARKETS
Covid-19 has disrupted the salmon market, with a significant shift in demand, away from hotels, restaurants and catering (HoReCa) and to a greater extent towards the retail segment. Covid-19 continued to impact both consumption patterns and overall demand during the fourth quarter. Sales to HoReCa has been at a low level, impacted by the second wave of restrictions and lock down in most markets, particularly in Europe. Our sales have remained good, however with global supply growth and volumes to the market at a higher level than the first lockdown, salmon prices have suffered, particularly in the European market. For more information on prices, refer to the Sales and Market section.
The retail segment and home consumption have been boosted. The shift from HoReCa to retail is expected at some point to be reversed, but the current market situation may also lead to permanent changes in consumer behavior. With an increasing share of people preparing food at home, combined with a growing preference for healthy food and the current low prices, the demand for salmon may increase in the retail segment going forward.
Supply lines remained for the most part open during the quarter, and airfreight remains expensive. Most of our salmon is shipped by truck to the markets. Our diversified geographical presence provides some flexibility and reduces logistical challenges.
With an increasing share of people preparing food at home, combined with a growing preference for healthy food and the current low prices, the demand for salmon may increase in the retail segment going forward.
ENSURING FINANCIAL STABILITY
Following the outbreak of Covid-19, market uncertainty increased and prices have come down in all core markets, impacting the Group's earnings negatively. In November 2020, we were granted temporary amendment to our financial covenants on loan agreements with secured lenders through the third quarter of 2021. We were in compliance with the 11 temporary amended financial covenants at 31 December 2020. Our equity-ratio measured according to IFRS was 41% at year end 2020, while the equity-ratio according to covenants was 43%. See Note 6 for more information on loan agreements and the related financial covenants.
Due to higher market uncertainty, the risk of losses on customer receivables has increased. Grieg Seafood has good routines for collecting and managing receivables, and we have an open dialogue with our customers. Countries highly dependent on tourism have been hit hard, and the US market has been impacted significantly due to their high share of HoReCa. The increased risk of loss is reflected in our accruals at the end of the quarter.
Our investment target for 2020 was NOK 1 664 million. Total investments for 2020 ended at NOK 1 689 million, which include both the cash consideration related to the acquisition of Grieg Newfoundland and capital expenditures made in Shetland. In the current market climate with increased uncertainty, we continuously evaluate our investment projects. Low salmon prices and reduced market visibility, in addition to increased project complexity, has impacted the investment pace of our largest project, Grieg Seafood Newfoundland. The changes will not affect our on-growth capacity or our harvest ambitions.
The Company´s long-term dividend strategy states that the average dividend should correspond to 30%-40% of profit after tax, before fair value adjustment of biological assets. Dividends are evaluated twice a year. Due to the increased volatility and uncertainty caused by the Covid-19 situation, combined with an extensive investment plan, the Board has decided to postpone the ordinary dividend for 2020.