Iceland Seafood International (ISI) is chopping in half its profit guidance for 2020, expecting the coronavirus pandemic to have a “significant impact” on operations in the second quarter. But that painful recalibration hasn't changed the company's expansion strategy or the top executive's belief in the group's future.

In late February the company was guiding a profit before tax for the year of somewhere between €14.5 million ($16 million) to €16.5 million ($18.2 million), but the guidance now is set at somewhere between €6 million ($6.6 million) to €9 million ($9.9 million).

“It has been disrupted a lot,” Iceland Seafood International (ISI) CEO Bjarni Armannsson told IntraFish.

“For the first two months of the year we were pretty much on budget, but in March our operations were significantly impacted. As a result, we issued new guidance, significantly reducing our profit outlook for the year.”

The group recently released its results for the first quarter of the year, which saw an 11 percent drop in revenues to €107.3 million ($118.1 million) and a 20 percent drop in earnings before interest, tax and depreciation (EBITDA) to €4 million ($4.4 million).

Results in the first quarter were marked by the outbreak of COVID-19 and actions taken to control the outbreak.

The group expects sales to start to recover in the third quarter and to be on track in the fourth.

“Of course, this comes with the caveat that there is not another significant wave on COVID-19 to throw the market into turmoil again," Armannsson said.

Southern Europe foodservice takes a hit; retail helps to mitigate

ISI has grown considerably in the past 10 years, and splits its business into three main areas: sales and distribution; value-added Northern Europe (which includes operations in the United Kingdom and Ireland); and value-added in Southern Europe, predominantly Spain.

This business spread has helped during the current pandemic.

“We are not really affected in Ireland, where our business is solely retail, and in the United Kingdom where the vast majority is retail also,” said Armannsson.

“Our operations in Southern Europe, though, have been significantly impacted because the business there is predominantly foodservice and HORECA (Hotels, Restaurants and Catering).”

Around 75-80 percent of the company’s business in Southern Europe is foodservice, he said.

“The Lent period – that’s to say 40 days before Easter – traditionally sees significant sales in the Catholic countries, but this was pretty much non-existent this year,” said Armannsson.

Nevertheless, “strategically we are in a solid position,” he said.

In Spain, the merged entity of IS Iberica started operating from in January, and the group said it is in a good position to manage operations effectively in the current situation.

Nevertheless, disruptions in production and logistics are causing a delay in extracting expected synergies.

Also in Spain, the company finalized its acquisition of Elba in the first quarter of 2020.

To help with the fallout from the pandemic in Spain, ISI secured liquidity in April by raising €17 million ($18.7 million) in long-term financing from Spanish banks. The resulting group funding headroom at the end of April amounted to €30 million ($33.2 million).

"Clients are paying later than usual so we need to secure payments to suppliers before the situation improves," said Armannsson.

Trading arm sees signs of life

Sales from the company’s fresh and frozen trading arm in Iceland have been around 40 percent of their normal level during the crisis, thanks to a reduction in demand in all markets and product categories.

However, things already seem to be improving.

"Fresh was pretty much completely closed down but is now gradually increasing again,” said Armannsson.

France is by far the biggest export market for fresh fish for ISI, and here the company has seen a “pretty significant” improvement in volume over the last few weeks, he said.

Additionally, in the early part of the crisis there was a downward pressure on prices of about 10-15 percent.

“But we don’t expect this to decrease any further now, if anything there are signs of a slight increase coming back," Armannsson said.

Although sales in the retail sector have increased during the crisis and helped offset losses in other parts of the business, costs have increased as well, with factors such as enhanced safety measures in place for staff and a more difficult general running of operations.

Plants close doors but merger plans on track

A number of the company’s processing plants have been closed down for production during the period, including its foodservice operation Havelok in Grimsby -- which has been shut for the past six weeks -- and a number of facilities in Spain as well.

The company’s IS Barraclough plant in the United Kingdom, which targets retail, is operating at full capacity.

“We have to adjust to the situation, and we will reopen as and when the situation improves,” said Armannsson.

In the United Kingdom, ISI is pushing on with its plans to merge and consolidate processing facilities in Grimsby as well as the refurbishment of a new site, which will operate for both foodservice and retail. That site should be completed in the Autumn, said Armannsson.

The company’s merger project of Havelok and IS Barraclough in the UK is on track despite challenges due to Covid-19. That move will bring the leadership team under one roof at a single site.

In order to be sole shareholder of the merged entity, ISI acquired a 33 percent minority share in Havelok at the beginning of March. Havelok was renamed to Iceland Seafood UK at end of April.

ISI also acquired a 10,000m2 facility in Grimsby at the beginning of March, including three processing halls and 2,000 metric tons of cold store capacity.

Total investment was between £5 million (€5.6 million/$6.1 million) and £6 million (€6.7 million/$7.3 million).

The cold store should be up and running from the beginning of June, while the refurbishment of the production facility is on track with the aim of starting production in the fourth quarter of 2020.

The target is to have all production in a single location in the UK in the first quarter of 2021.

ISI added commercial discussions with key UK retail customers is also on track and in addition to synergies associated with the merger there will be a room for significant growth when facility is up and running.

"The work is slightly delayed due to various restrictions in the UK on construction workers," said Armannsson.

"We are going full steam ahead, but I expect a delay of maybe one or two months.”

How fast will things improve?

For Armannsson, the situation is starting to pick up, but the question now is about the pace of improvement.

“Generally, we are optimistic about the situation and are prepared for a slow recovery. We are starting to see things pick up a little bit, inquiries are increasing and so is trade,” he said.

With important activities related to the foodservice sector opening up -- canteens, schools, restaurants, hotels -- sales in key markets are expected to improve further in the coming weeks and months.

However, uncertainty remains, and there's no clarity on how long sales and profitability will be impacted by the situation.

“Strategically we still want to continue to grow and be a significant player in our business areas and key markets," said Armannsson.

He expects it will take the summer “to wrap things up” and then there should be a “fairly normal” situation in the Autumn.

At the same time the group is still looking to leverage its strong position and act on opportunities that come up in the situation, both with regards to short term opportunities related to sourcing and marketing and longer-term strategic opportunities.

Armannsson said the company is still actively looking at growing and expanding through potential further acquisitions, however, “there is nothing remotely near fruition” at the moment.

“Internally we are always looking at plans but there is nothing for the moment,” said Armannsson.

Despite the pandemic also shedding some light on potential changes that could be made to shelter the company for any similar situations in the future, Armannsson also believes ISI is in a strong position strategically.

“These circumstances are unforeseen, and we must deal with it, learn from it and adapt,” he said.

“But we are not particularly skewed in any one particular direction, and I’m not sure whether we need to be always prepared for something like a pandemic.

“We are always learning and reviewing, but I don’t think this point in time, and at the early stages of recovery, there is any need for a radically different approach.”

--

[Sign up for the FREE IntraFish Digital Event: Whitefish Outlook. Registration is limited!]

---

Finance

Iceland Seafood International slashes profit guidance, but its ambitious plans are unchanged