Atlantic Sapphire, a Florida-based company aiming to build one of the largest salmon recirculating aquaculture system (RAS) facilities in the world, recently announced that it expects to breach financial covenants in the second half of 2023. This breach is based on the company’s projected decline in revenue and cash flow.
In its H1 2023 results, released on August 24, Atlantic Sapphire revealed that it is preparing interim consolidated financial statements based on a going concern assumption. The company anticipates a breach of its Q3 2023 financial covenants due to expected reductions in revenue and operational cash flow.
The company’s revenue for H1 2023 dropped to USD 8.1 million, compared to USD 9.7 million in the same period of the previous year. Furthermore, Atlantic Sapphire incurred a loss of USD 43.7 million in earnings before interest and taxes (EBIT), and a loss of USD 36 million in earnings before interest, taxes, depreciation, and amortization (EBITDA). These numbers reflect a significant decline compared to the previous year.
Atlantic Sapphire harvested only 870 metric tons (MT) of salmon in H1 2023, a considerable decrease from the 1,217 MT harvested in H1 2022. This falls far short of the expected volume of 10,000 MT of salmon annually, which the company projected when it completed phase one of its construction in 2021.
These revenue decreases were primarily due to a lower volume of salmon, partially offset by higher sales prices. However, the cost of goods sold saw an increase of USD 4.3 million in H1 2023 compared to the previous year.
The company had reported issues with water quality at its Florida Bluehouse farm, resulting from elevated farming temperatures, which required the installation of new water chillers. These challenges have impacted Atlantic Sapphire’s performance and its ability to meet the terms of its amended 2020 credit facility.
In anticipation of not meeting the EBITDA requirements, the company received a formal waiver from its lender for the quarter ending June 30, 2023. Atlantic Sapphire’s existing shareholders on the board of directors have expressed their continued financial support, and the lender has shown indications of resetting covenant levels or granting necessary waivers upon successful financing.
To strengthen its finances, Atlantic Sapphire conducted a private placement in March, securing NOK 595 million. The company also decreased its liabilities in H1 2023, and its debt-to-equity ratio decreased from 39.1% in 2022 to 20.1% in the same period.
Looking ahead, Atlantic Sapphire expects a decrease in its H2 2023 performance due to the temperature issues it faced in H1 2023. The company believes its infrastructure improvements and a more experienced team will set the stage for stable operating conditions and strong biological performance in the future.
While the financial covenant breach presents a challenge for Atlantic Sapphire, the company is actively seeking solutions to regain stability and ensure the successful operation of its salmon recirculating aquaculture system facility.
