Lerøy Seafood Group ASA: Q3 2016 Results

| Source: Leroey Seafood Group ASA


In Q3 2016, Lerøy Seafood Group (LSG) posted an operating profit before fair value adjustment of biomass of NOK 481 million in Q3 2016, compared with NOK 253 million in Q3 2015. This is equivalent to operating profit before biomass adjustment of NOK 15.2 per kg compared with NOK 6.2 per kg in the same period last year.

  • CEO Henning Beltestad confirms: "Lerøy Seafood Group can report their highest revenue and highest operating profit as of the third quarter throughout the Group's history." "We are delighted with such a great result. It has not been an easy quarter. We have experienced a number of biological challenges and recorded lower average weights than expected and higher costs than normal," continues Henning Beltestad.
  • "With a positive market, the Group chose to harvest a substantial volume of fish throughout Q2 2016, entering the third quarter with 10% less biomass than in the same period in 2015," explains CEO Henning Beltestad. He continues: "As a result, the Group has had much more flexibility in terms of the timing of release from stock throughout the quarter. Based on the Group's market analyses, a somewhat limited volume has been harvested in the quarter, and the Group has focused on accumulating biomass. This strategy to harvest a lower volume in the quarter, combined with the higher contract share in the quarter, has resulted in lower prices realised. The Group expects higher harvested volumes, prices realised to improve significantly, and lower release from stock costs in the present quarter."

Lerøy Seafood Group reported revenue of NOK 4,268 million, compared with NOK 3,295 million in the same period in 2015. The volume harvested in Q3 2016 is 22 % lower when compared with the same quarter last year. The Group's profit before tax and before fair value adjustment of biomass was NOK 534 million in Q3 2016, compared with NOK 231 million in Q3 2015.

The acquisition of the shares in Havfisk ASA and Norway Seafoods Group AS was completed on 31 August 2016. LSG is now the majority shareholder in both companies, with shareholdings of 67 % and 74 % respectively. Subsequent to the transactions, Havfisk ASA and Norway Seafoods Group AS are consolidated in LSG's figures with effect from September. Consolidation of the two companies had a positive effect of NOK 13 million on the operating profit before fair value adjustment of biomass in the third quarter.

The Group reported revenue of NOK 12,345 million as of the third quarter 2016, an increase of 30% on the equivalent period last year. Operating profit before fair value adjustment of biomass was NOK 1,826 million for the first three quarters of 2016, compared with NOK 1,027 million in the same period last year. Profit before tax and fair value adjustment of biomass as of the third quarter 2016 amounted to NOK 1,901 million, compared with NOK 985 million in the same period last year.

At 30 September 2016, net interest bearing debt was NOK 2,752 million and the equity ratio was 58%.


Operating profit before fair value adjustment of biomass reported by the Farming segment was NOK 397 million in Q3 2016, up from NOK 178 million in Q3 2015. The Farming segment harvested a total of 31,744 GWT salmon and trout in Q3 2016, down 22% from the same period in 2015. EBIT/kg increased from NOK 4.4 per kg in Q3 2015 to NOK 12.5 per kg in Q3 2016.

In Q3 2016, Lerøy Aurora achieved operational EBIT per kg of NOK 18.4. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 8.0 and NOK 15.4 respectively for the same period.

  • "Prices realised for trout remain lower than for salmon, but the gap in prices is growing smaller, and the Group expects to see a positive development for the trout market in the future," confirms CEO Henning Beltestad.


While the VAP segment reported a 9% increase in revenue from NOK 482 million in Q3 2015 to NOK 524 million in Q3 2016, the operating profit was down in the same period from NOK 31 million to NOK 8 million. Correspondingly, the operating margin was down from 6.5% in Q3 2015 to 1.6% in Q3 2016.

  • "The volatile prices for salmon have been and continue to be a challenge for our processing facilities," explains CEO Henning Beltestad. Despite this, he adds: "The segment can report a positive underlying development, and the Group is sustaining its efforts to adapt operations in line with the projections of permanently high raw material prices."


Revenue from the Sales & Distribution segment totalled NOK 3,845 million in Q3 2016, up 27% on Q3 2015. The operating profit for Q3 2016 was NOK 82 million, up 36% from NOK 60 million in Q3 2015. Correspondingly, the operating margin saw an increase from 2.0% in Q3 2015 to 2.1% in Q3 2016.

  • CEO Henning Beltestad reports: "The Sales & Distribution segment can report a very positive development in both revenue and operating profit for the third quarter, and still has significant unutilised capacity in several of its fish-cut facilities. Unutilised capacity in fish-cuts continues to provide major potential for an increase in operations and earnings within this part of the value chain, and one aspect of this strategy is an increased focus on white fish in the future," confirms the CEO.


On 2 June 2016, the Group signed an agreement to acquire 64.4% of the shares in Havfisk ASA and 73.6% of the shares in Norway Seafoods Group AS. Once the statutory approvals were obtained, the transaction was completed on 31 August 2016. On 16 September 2016, the Group made a voluntary offer for all the shares in Havfisk ASA and Norway Seafoods Group AS. The deadline for acceptance of this offer was in the fourth quarter. On 27 October 2016, Lerøy Seafood Group obtained 100 % ownership of both Havfisk ASA and Norway Seafoods Group AS.

Consequent to the transaction, both companies were consolidated in Lerøy Seafood Group as of 1 September 2016. The two companies made a positive contribution to the Group's operating profit before biomass adjustment of a total NOK 12.6 million.


The Board of Directors and management have been clear in their views on the need for changes to the regulation of the fish-farming industry in Norway, and have also made clear their views on the need for rolling figures for maximum allowance biomass (MABs). These would reduce seasonal variation in the supply of salmon/trout and thereby improve terms and competitiveness for industrial operations in Norway. It is important that changes to regulatory conditions are based on long-term thinking that will facilitate investments, industrial development and growth to ensure the industry's competitiveness in the global food markets. The Board sees considerable potential for value generation in the global growth in demand for seafood, and believes it is important for Norway - from a socio-economic perspective - to ensure that parts of this value generation can take place in Norway. Positive and constructive dialogue between enterprises in the industry and the authorities is essential if we are to exploit the potential for increased value generation and employment in Norway. The Board takes a positive view of initiatives from Norwegian authorities that aim to facilitate growth in Norwegian seafood production, but is uncertain as to the impact of the proposals launched to date. It is important to re-establish predictability in framework conditions for the Norwegian fish-farming industry; a 5 to 10-year time frame is needed to secure future global competitiveness. Framework conditions of this nature must be based on an understanding of environmental sustainability and value generation. Future competition to win global consumers will leave no room for non-essential costs, or taxes or charges particular to Norway.

In more recent years, the Norwegian krone has weakened against key currencies. This dynamic is positive for prices realised for salmon but also means - all other factors being equal - higher feed prices. The Norwegian krone has grown stronger against key currencies in the third quarter of 2016. If this trend continues, it may have an impact on the Group's realised prices for seafood, but may also help reduce feed prices.

In Q3 2016, the Group became the majority shareholder of both Havfisk ASA and Norway Seafoods Group AS. The LSG Group has been a driver towards the end market via its fully integrated value chain, product development, increased traceability and availability, particularly for salmon. The Group has also launched equivalent products for white fish, and is noticing the same trends as for salmon and trout. The Board and management are confident that there is considerable value generation potential in further developing the white fish market, including increasing capacity utilisation in Lerøy Seafood Group's downstream activities. The investments in Havfisk ASA and Norway Seafoods Group AS are important to achieve the Group's vision of being the leading and most profitable global supplier of quality sustainable seafood.

The Group currently estimates a total harvest volume of 44,000 GWT for Q4 2016, including the share of LSG's volume from associates. The Group currently estimates a corresponding total harvest volume for 2017 of 180,000 GWT salmon and trout, including associates.

The management and the Board of Directors maintain its expectation that the second half of 2016 will be significantly better than the second half of 2015. In view of the planned increase in harvested volume and the positive market outlook, it's expected that the Group's earnings in Q4 2016 will be considerably better than in Q3 2016.

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 of the Norwegian Securities Trading Act.