SECOND QUARTER AND FIRST HALF OF THE YEAR
In Q2 2019, Lerøy Seafood Group (LSG) reported revenue of NOK 5,340 million,
compared with NOK 5,042 million in the same period in 2018. Operating profit
before fair value adjustment related to biological assets was NOK 774 million in
Q2 2019, compared with NOK 1,000 million in Q2 2018. Lower earnings for Farming,
attributed to lower prices realised and higher release from stock costs,
represent the most significant reason behind the fall in earnings in Q2 2019
when compared with Q2 2018. Exclusive of earnings from the Wild Catch segment,
this corresponds to an EBIT per kilo before value adjustment related to
biological asset in Q2 2019 of NOK 19.0 compared to NOK 23.4 for the same period
in 2018.
The Group reports revenue of NOK 10,086 million for the first half of 2019,
compared with NOK 10,042 million in the first half of 2018. Operating profit
before fair value adjustment related to biological assets for the first half of
2019 was NOK 1,465 million compared with NOK 1,960 million for the first half of
2018. The profit before tax and fair value adjustment related to biological
assets for the first half of 2019 was NOK 1,524 million compared with NOK 2,038
million for the first half of 2018.
* "In terms of earnings, the second quarter figures are in line with the
expectations we had going into the quarter. However, we know that we have
the potential to do better and that our skilled employees are doing their
utmost to exploit this potential to the full," confirms CEO Henning
Beltestad. "We have made several major investments in Farming in recent
years. The results of these, however, are not immediately obvious as the
projects have long lead times," explains Henning Beltestad. "Release from
stock costs are too high in the second quarter, but we expect to see an
improvement in the second half of the year and into 2020." "Our trawler
fleet for whitefish has been successful in the quarter, while our onshore
facilities in this segment have had a challenging quarter. We have made a
number of investments in this area also, and expect these to provide lasting
improvements by 2020. Downstream, in the VAPS&D segment, we are now
observing the results of investments made in recent years and can report a
strong quarter.
At 30 June 2019, net interest-bearing debt was NOK 3,745 million and the equity
ratio was 58.7%.
The Group currently expects to harvest 168,000 tonnes in 2019 in Norway,
compared with 162,000 tonnes in 2018.
THE WILD CATCH SEGMENT
The wholly-owned subsidiary Havfisk's primary business is wild catches of white
fish. Total catch volume in Q2 2019 was 15,860 tonnes, compared with 18,190
tonnes in Q2 2018. Catch volumes for the main species in Q2 2019 were 6,332
tonnes of shrimp, 3,009 tonnes of cod, 2,250 tonnes of saithe and 928 tonnes of
haddock. The catch distribution in Q2 2018 was 3,279 tonnes of shrimp, 3,817
tonnes of cod, 5,401 tonnes of saithe and 441 tonnes of haddock. Compared with
Q2 2018, the average price realised for all species was up 14% in Q2 2019. The
prices for cod, haddock and saithe increased by 7%, 4% and 24% respectively in
the quarter. The average increase in price compared with the same quarter last
year is impacted by the composition in catches, but the price increase is also
attributed to lower quotas and the growing demand for products.
Lerøy Norway Seafoods' primary business is processing wild-caught whitefish. The
company has use of 12 processing and purchasing plants in Norway, five of which
are leased from Havfisk. The processing of whitefish 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 and early 2019.
In the short term, this always represents a challenge for processing operations.
High raw material prices in the quarter have generated satisfactory earnings for
the trawler fleet, but have presented challenges for LNWS.
In total, the segment contributed EBIT of NOK 40 million in Q2 2019, compared
with NOK 116 million in Q2 2018, when the interim result was affected positively
by the sale of a vessel, generating an accounting gain of NOK 35 million.
* The Group has initiated numerous measures within production and marketing to
improve earnings from our whitefish operations based on land," says CEO
Henning Beltestad. "One of these is a substantial upgrade to the fish
processing plant in Stamsund, where new production started in the second
quarter. We have high expectations for this facility in the future,"
confirms Henning Beltestad.
THE FARMING SEGMENT
The Farming segment reported operating profit before fair value adjustment
related to biological assets of NOK 595 million in Q2 2019, compared with NOK
833 million in Q2 2018. During the quarter, the Farming segment harvested
37,000 tonnes - in line with the figures reported for Q2 2018.
In total, EBIT/kg for the segment was down from NOK 22.0 in Q2 2018 to NOK 16.1
in Q2 2019.
In Q2 2019, Lerøy Aurora achieved operational EBIT per kg of NOK 17.7. Lerøy
Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 20.6 and NOK 9.2
respectively for the same period.
* "For Lerøy Aurora, the fire in the smolt plant in the winter and an
unforeseen outbreak of toxic algae have impacted the results both for the
second quarter and the first half of the year," explains CEO Henning
Beltestad. "Now that this difficult period is behind us, we are confident
that we have a strong position moving forward into the second half of the
year and into 2020. For our Farming segment the results of the investments
we made in smolt will gradually materialise, and we expect to gain potential
in terms of both increased volume and lower costs per kilogram of fish
produced," confirms Henning Beltestad.
THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)
The VAPS&D segment reported revenue in Q2 2019 of NOK 5,099 million, up 6%
compared with the same period in 2018. Operating profit before fair value
adjustment related to biological assets was up from NOK 62 million in Q2 2018 to
NOK 130 million in Q2 2019.
* We are satisfied with the developments in the VAPS&D segment this quarter,"
says CEO Henning Beltestad. "Some areas remain challenging, but good growth
in activities targeting strategic customers gives grounds for an optimistic
outlook to the future development of the segment," confirms Henning
Beltestad.
MARKET AND OUTLOOK
The Group can report a good underlying demand for seafood. The Group expects to
see a sustained volatility but nonetheless satisfactory market conditions in the
near future.
The Group's harvest volume in the first half of 2019 was, as expected, lower
than in the first half of 2018. The lower harvest volume in combination with
several unforeseen incidents for Lerøy Aurora have contributed to the high
release from stock costs for salmon and trout for the Group during the period.
The Board of Directors and management are not satisfied with the Group's release
from stock costs in the quarter, but are confident that the Group's investments
and continuous improvement measures shall result in reduced costs. At the end of
the first half of 2019, biomass in the sea is 12% higher than at the same time
last year, and it is expected that the higher volume, including higher average
weight, will produce lower release from stock costs in the second half of 2019
when compared with the first half of 2019.
The Group has in recent years implemented and is continuing its long-term
investment plan for larger smolt, including so-called "post-smolt". The Group
expects these investments to generate increased harvest volumes and lower
release from stock costs. The initial significant results are expected to emerge
in 2020.
The Group's contract share for salmon in Q3 2019 is estimated to be around
25-30%. The final harvest volume for the year will continuously be impacted by
biological conditions and market assessments. Estimated harvest volume for red
fish in 2019, including the share from associates, is currently around 183,000
tonnes.
The Group has made substantial investments in recent years in the Whitefish,
with new vessels and investments in several facilities. Whitefish has a much
more evident seasonal pattern than with redfish, and this is challenging for
industrial activities and marketing. The efforts to increase the competitive
strengths of the Norwegian whitefish industry are painstaking, but the Group is
confident that the measures conducted will gradually produce improvements for
those parts of the Group's value chain that currently do not yield a
satisfactory return.
The quota recommendations from ICES (the International Council for the
Exploration of the Sea) for 2020 are to reduce the cod quota by 5% and to
increase the haddock quota by 25%. ICES also recommends increasing the quota for
saithe north of 62 degrees by 15% and to reduce the quota for saithe in the
North Sea by 15%. In total, this will most probably have a somewhat positive
effect on catch values.
The development for the VAPS&D segment has been positive in the quarter, with
factories opened in 2018 making a contribution to increased earnings. There
still remain some areas that are challenging, but the Board of Directors and
management currently expect the level of activity to remain good in the near
future and to see a substantial boost to earnings in this segment in 2019 when
compared with 2018.
At the time of writing, the Board of Directors expects earnings in the second
half of 2019 to be slightly higher than those achieved by the Group in the first
half of 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