Lerøy Seafood Group ASA: Preliminary financial figures 2018

HIGH LEVEL OF EARNINGS, BUT CHALLENGES WITH TROUT

In Q4 2018, Lerøy Seafood Group (LSG) reported revenue of NOK 5,340 million, compared with NOK 4,567 million in the same period of 2017. The Group harvested a total of 49,000 tonnes gutted weight of salmon and trout in Q4 2018, up 17% from the same period in 2017.

Operating profit before fair value adjustment related to biological assets was NOK 948 million in Q4 2018, compared with NOK 777 million in Q4 2017. Exclusive of earnings from the Wild Catch segment, this corresponds to an EBIT per kilo before value adjustment related to biological asset in Q4 2018 of NOK 18.1 compared to NOK 16.5 for the same period in 2017.

For 2018 as a whole, the Group reported revenue of NOK 19,838 million, up 7% on the equivalent period last year. The operating profit before fair value adjustment related to biological assets for 2018 was NOK 3,569 million compared with NOK 3,717 million for 2017. Profit before tax and fair value adjustment related to biological assets in 2018 was NOK 3,697 million compared with NOK 3,805 million in 2017.

• The fourth quarter of 2018 marked the end of a good year for Lerøy Seafood Group, confirms CEO Henning Beltestad. In 2018, we achieved record-high revenue and record-high harvest volumes. Our release from stock costs for salmon and trout are down on 2017 and we still have plenty of potential to improve, Henning Beltestad continues. I would like to acknowledge the efforts of our skilled employees, and all their hard work in securing Lerøy's success as a fully integrated supplier of high-quality seafood, says Henning Beltestad.

At 31 December 2018, net interest-bearing debt was NOK 2,546 million and the equity ratio was 60%.

THE WILD CATCH SEGMENT

Havfisk's primary business is wild catches of white fish. Havfisk's total catch volume in Q4 2018 was 11,515 tonnes, compared with 12,345 tonnes in Q4 2017. Catch volumes for the main species in Q4 2018 were 6,534 tonnes of cod, 2,567 tonnes of saithe and 961 tonnes of haddock. The catch distribution in Q4 2017 was 8,511 tonnes of cod, 1,545 tonnes of saithe and 1,264 tonnes of haddock. Compared with Q4 2017, the average price realised for all species increased by 11% in Q4 2018. The prices for cod, haddock and saithe increased by 20%, 17% and 10% respectively in the quarter.

LNWS’s primary business is processing wild-caught white fish. The company has use of 12 processing and purchasing plants in Norway, five of which are leased from Havfisk. The processing of white fish in Norway has been extremely challenging for many years. As a result of high demand for seafood and lower quotas, the raw material prices increased throughout 2018, representing a challenge for processing operations.

In Q4 2018, the segment contributed an EBIT of NOK 54 million, down from NOK 79 million in Q4 2017. For the year as a whole, the EBIT figure contributed was NOK 388 million, up from NOK 386 in 2017.

• 2018 was a good year for catches, confirms CEO Henning Beltestad. However, an increase in raw material prices and lower quotas have challenged the shore-based facilities, he continues. The Group has initiated numerous measures within both production and marketing to improve earnings from our operations based on land. We expect these to produce significant improvements. These are, however, long-term initiatives and it will take time before significant improvements are evident, explains Henning Beltestad. 

 THE FARMING SEGMENT

The Farming segment reported operating profit before fair value adjustment related to biological assets of NOK 786 million in Q4 2018, compared with NOK 567 million in Q4 2017. During the quarter, the Farming segment harvested 49,000 tonnes, up from 42,000 tonnes in Q4 2017. In total, EBIT/kg for the segment was up from NOK 13.4 in Q4 2017 to NOK 15.9 in Q4 2018. 

In Q4 2018, Lerøy Aurora achieved operational EBIT per kg of NOK 24.5. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 16.3 and NOK 7.9 respectively for the same period.

• The Farming segment reported a record-high harvest volume in Q4 2018, confirms CEO Henning Beltestad. We have identified a positive development in release from stock costs, and these costs were down from Q4 2017 to Q4 2018. Moreover, prices realised are higher than in Q4 2017, although the downgrading of trout has had a significant negative impact unfortunately, he continues. 

For 2018 as a whole, the Farming segment harvested a volume of 162,000 tonnes, compared with 158,000 tonnes in 2017. Release from stock costs were lower in 2018 than in 2017. Prices realised for salmon in 2018 are practically on par with 2017 prices, while prices realised for trout are down around NOK 6 per kg. In total, EBIT/kg for the Farming segment was down from NOK 18.6 in 2017 to NOK 18.1 in 2018.

THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)

The VAPS&D segment reported revenue in Q4 2018 of NOK 5,128 million, up 19% compared with the same period in 2017. Operating profit before fair value adjustment related to biological assets was up from NOK 122 million in Q4 2017 to NOK 134 million in Q4 2018.

For the year as a whole, EBIT before fair value adjustment related to biological assets totalled NOK 333 million, against NOK 435 million in 2017.

• We are not satisfied with the results reported by VAPS&D in 2018, although the segment did have a successful end to the year. Revenue is up 19% on the same quarter of 2017 and earnings have improved. This segment has much more potential than realised in 2018, and we expect to see improvements in 2019, says Henning Beltestad.

MARKET AND OUTLOOK

The Group can report a good underlying demand for seafood, and expects to have satisfactory market conditions in 2019.

The Group's harvest volume for red fish was down 2% in relation to expected volumes for 2018, partly due to price developments but also due to slightly lower growth than expected in the sea towards the end of the year. The lower growth at the end of 2018 will result in reduced harvest volume in Q1 2019 when compared with Q1 2018. 

The Board of Directors and management have acknowledged that the Group's release from stock costs for red fish are lower in 2018 than in 2017, but at the same time specify that they are not satisfied with the cost levels. With time, the Group's investments and continuous work on improvements will result in lower cost levels. As a result of the investments in new smolt facilities, the smolt released to sea by Lerøy Sjøtroll in 2019, for example, will be of a higher quality and considerably larger than before. The Group expects to see Lerøy Sjøtroll gradually increase production and competitive strength from 2020. The material damage caused by the fire at the smolt facility in Laksefjord was also major. The facility was insured and the work to rebuild it has already started. Rebuilding is expected to be completed by the end of Q2 2019. 2.6 million smolt were lost. These were to be released to sea in April 2019. The Group has made good progress on the work to replace this smolt. At the time of writing, the Group expects to be able to replace the full number of smolt, although most probably with a slightly later release date than originally planned.

The Group’s contract share for salmon in Q1 2019 will be in the range from 40 to 45%. At the time of writing, contracts have been signed for 2019 for around 30% of the estimated harvest volume of salmon. Estimates for harvest volume in 2019, including the share from associates, remains around 190,000 tonnes. 

For white fish, developments in 2018 have in the main concurred with the Group’s estimates. It has been a good year for catches, while increased raw material prices and falling quotas have challenged shore-based operations. In 2019, the quota for important species such as cod and haddock will be reduced by 6.5% and 15% respectively, and this reduction will probably result in increased prices for these products. The Group has implemented a number of measures to improve competitive strength. These together with good marketing and product development provide us with an optimistic outlook for the segment.

The Group can report a good level of activity for VAPS&D and currently expects the factories that opened in 2018 and the improvements in operations to produce higher earnings in this segment in 2019, when compared with 2018.

Based on the lower harvest volume for red fish in Q1 2019 when compared with Q1 2018, the Board of Directors expects profit for Q1 2019 to be lower than in the same quarter of 2018. The Board of Directors currently expects to see satisfactory earnings in 2019.

Questions and comments may be addressed to the company’s CEO, Henning Beltestad, or to the CFO, Sjur S. Malm.

This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act

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