Hans J Marter

2 April 2007

SHETLAND based salmon processor Hjaltland Seafarms UK Ltd is in the process of completing a £3.6 million extension to its existing factory, a move that will turn the company into one of Europe's leading fish processing plants.

The development will enable Hjaltland Seafarms to produce a range of value added products and control fish production from egg to plate.

Hjaltland's philosophy of vertical integration is already bearing fruit -in February the company reported record profits of almost £11 million - and managers are confident that this trend will continue.

The Hjaltland Seafarms Group produces more than one third and processes more than half of Shetland's annual salmon production of around 45,000 tonnes. This trend is set to become even more pronounced in pure numbers, but also in increased diversity of products available.

The company is one of the largest private employers in Shetland with around 150 people on its books.

Employee numbers could almost double in early 2008 when Hjaltland Seafarms is to start producing smoked and cured salmon as well as other valued added products from its new extension.

"We are to develop our fish processing plant to become the leading fish processing plant in the UK. We provide our group companies as well as external companies with a new product portfolio, which covers value added products, which offers our customers distinctive advantages such as longer shelf lives of up to five days," said managing director Michael Stark.

The group has three areas that operate as a vertically integrated unit - Hjaltland Seafarms Ltd is the farming and production arm; Lerwick Fish Traders Ltd, with a capacity of 30,000 tonnes annually, handles all aspects of processing; and Shetland Products Ltd controls the group's sales and marketing.

Lerwick Fish Traders and Shetland Products were founded in 1996 by local businessman Frank Johnson. Both companies were taken over by German salmon entrepreneur Laschinger, who also bought a number of salmon farms in the isles.

The new owners introduced new production methods such live transport well boats and the controlled chilled water slaughtering method (CCWSM). Both were firsts in Scotland. In 2001, Laschinger was taken over by a Norwegian consortium led by Bremes Fryseri and Sjotroll Havbruk AS and the company was renamed Hjaltland Seafarms UK Ltd.

Since then the company has benefited from expansion and modernisation in both the farming and the processing sectors. Two years ago, at the height of the crisis in the salmon industry, the management attracted a £4.8 million equity injection from Selvaag Invest AS, making the Norwegian investment company the largest shareholder with 49 per cent.

Mr Stark said: "By integrating our processing, sales and marketing functions, we are able to adopt exacting and timely controls to the entire process and control it under one roof.

"This means we take full responsibility for our product and are completely accountable to our customers. With only one link in the chain, we are always very close to our customers, know what they want and go that extra mile to ensure that we meet their expectations every step of the way.

"The integrated approach also allows us to keep a very close eye on our margins and give us more financial flexibility between the various functions. This is simply not possible for companies operating as completely separate entities."

This approach has also been crucial in riding out the storm of fluctuating market prices over the last few years, which led to the closure of a number of processing plants throughout Scotland. In contrast, Hjaltland Seafarms started making plans to expand in 2004, a strategy that has now proved to be successful.

Following the fall in salmon prices and the subsequent reduction in production, the farming side of the Hjaltland is in the process of recovering. In 2006, Lerwick Fish Traders processed 19,000 tonnes of salmon and sea trout of which 15,110 tonnes were reared on the company's own farms.

For the current year, production numbers are set to rise by a staggering 30 per cent as the fish farming site of the business is in line to produce 20,000 tones of salmon on its 31 sites around Shetland, an increase of 5,000 tonnes.

Hjaltland exports its range of salmon products such as gutted salmon, portions, steaks, loins, belly flaps and fillets to customers mainly in the UK (70 per cent), but also to Europe, the Far East, the United States, Canada and South Africa.

The product is being dispatched the same day an order is taken and the fish slaughtered. Every night a number of containers leave the islands on board the overnight ferry to Aberdeen for onwards delivery to its customers worldwide.

"We are mainly selling to further processing companies in Scotland, the UK and Europe which are then producing retail packs," Mr Stark said.

The company's high standards have led Lerwick Fish Traders to achieve the European gold standard for quality under the accredited Shetland Seafood Quality Control scheme, as well as other quality accreditations including that of Scottish Quality Salmon, Label Rouge, the Soil Association and Freedom Foods.

Extension

As of early in 2008, the work Hjaltland Seafarms is doing will be further enhanced when the new value adding lines become operational.

The investment will not only create around 150 new jobs in the isles, it will also mean the proof that value adding can be done - and is beneficial - in a small island community.

Mr Stark said that by investing £3.6 million into the Lerwick Fish Traders' plant the company was responding to increasing customer demands for semi finished and finished products.

The move also had some distinctive and competitive advantages for the company, such as a more diversified income structure through an expanded processing portfolio, higher sales revenues and a more stable profitability as the company becomes less dependent on market prices for the primary produce.

"We have seen this in 2003 and 2004 when prices for raw material dropped dramatically below the actual production costs. Prices for smoked salmon, for example, have not dropped during the period that saw very low prices for the primary product," Mr Stark explains.

The project is being supported by local landowner Lerwick Port Authority who is investing £1.3 million into the erecting the extension which in turn is to be leased to Hjaltland Seafarms. The company itself has secured European and local grants worth another £1.3 million plus a further £1 million through loans and equity to fit out the plant.

In operating a state of the art food factory, Mr Stark said the company is able to compete on a level playing field with any other salmon processor based nearer to the markets.

"We believe that it is very important to add value to the product before it leaves Shetland. This work should naturally be done in Shetland rather than somewhere else. Shipping 30 per cent of off cuts through Europe does not make any sense.

"There is no disadvantage any longer for being based in Shetland as a value added producer, because we are not losing any time in the production process. The product will be produced during the night and will be shipped the following day," Mr Stark said.

A longer version of this article was published in the March edition of London based seafood magazine Seafood International.