FOURTH QUARTER AND 2019 IN TOTAL
In Q4 2019, Lerøy Seafood Group (LSG) reported revenue of NOK 5,239 million,
compared with NOK 5,340 million in the same period of 2018. During the quarter,
the Farming segment harvested 43,000 tonnes, compared with 49,000 tonnes in Q4
2018.
Operating profit before fair value adjustment related to biological assets was
NOK 769 million in Q4 2019, compared with NOK 948 million in Q4 2018. Exclusive
of earnings from the Wild Catch segment, this corresponds to an EBIT per kilo
before value adjustment related to biological asset in Q4 2019 of NOK 17.0
compared to NOK 18.1 for the same period in 2018.
For 2019 in total, the Group reported revenue of NOK 20,427 million, compared
with NOK 19,838 million in 2018. Operating profit before fair value adjustment
related to biological assets was NOK 2,734 million in 2019 compared with NOK
3,569 million in 2018. Profit before tax and fair value adjustment related to
biological assets was NOK 2,718 million in 2019 compared with NOK 3,697 million
in 2018.
* "The fourth quarter saw extremely volatile prices for Atlantic salmon, but
the underlying development during the quarter and the profit figures have in
the main been as expected," confirms CEO Henning Beltestad. "Looking back on
2019 as a whole, we experienced several unforeseen incidents in the Farming
segment that had a negative impact on the harvest volume and, as a result,
our cost levels. The onshore industry for whitefish has experienced
challenges, while we can report a good development in downstream operations.
At the start of 2020, we are confident that Lerøy has a sound position for
profitable growth in the years to come," he continues.
At 31 December 2019, net interest-bearing debt was NOK 2,641 million and the
equity ratio was 58.8%.
THE WILD CATCH SEGMENT
The wholly owned subsidiary Lerøy Havfisk's primary business is wild catches of
whitefish. Lerøy Havfisk's total catch volume in Q4 2019 was 12,949 tonnes,
compared with 11,515 tonnes in Q4 2018. Catch volumes for the main species in Q4
2019 were 7,215 tonnes of cod, 1,907 tonnes of haddock and 1,595 tonnes of
saithe. The catch distribution in Q4 2018 was 6,534 tonnes of cod, 961 tonnes of
haddock and 2,568 tonnes of saithe. In total, average prices for all species saw
an increase of 11% in Q4 2019 when compared with the same period in 2018, mainly
due to an increased share of fish species with a higher value in the total catch
volume. Prices realised were up 10% for cod, 14% for haddock and 10% for saithe,
all compared with Q4 2018.
LNWS's 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
Lerøy 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.
In total, the segment contributed an EBIT of NOK 42 million in Q4 2019, compared
with NOK 54 million in the same period of 2018. For 2019 in total, the segment
contributed an EBIT of NOK 293 million, compared with NOK 388 million in 2018.
* "2019 was a good year for catches," confirms the CEO. "However, high prices
for raw materials represent challenges for the onshore industry in Norway.
In recent years, the Group has implemented and completed a high number of
measures relating to production and marketing, in a move to improve earnings
for the onshore industry. The Group expects to start to see the positive
results of these measures in 2020.
THE FARMING SEGMENT
The Farming segment reported operating profit before fair value adjustment
related to biological assets of NOK 597 million in Q4 2019, compared with NOK
786 million in Q4 2018. During the quarter, the Farming segment harvested
43,000 tonnes, compared with 49,000 tonnes in Q4 2018. When compared with the
same quarter in 2018, prices realised are slightly higher, but release from
stock costs increased, mainly due to lower harvest volume.
In Q4 2019, Lerøy Aurora contributed an EBIT/kg of NOK 25.40. The corresponding
figures were NOK 10.70 for Lerøy Midt and NOK 7.00 for Hordaland. In total,
EBIT/kg for the segment was down from NOK 15.90 in Q4 2018 to NOK 14.00 in Q4
2019.
* The Farming segment was affected by several unforeseen incidents in 2019,
which had a negative impact on harvest volume and thereby also cost levels
per kilo. For 2020 and the following years, we expect the Group's
investments in smolt to gradually become evident with an increase in volume,
which will also help provide a reduction in the Group's costs per produced
kilo of red fish," says CEO Henning Beltestad.
THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)
The VAPS&D segment reported revenue in Q4 2019 of NOK 4,962 million, down 3%
compared with the same quarter in 2018. Operating profit before fair value
adjustment related to biological assets was up from NOK 134 million in Q4 2018
to NOK 162 million in Q4 2019. Some areas are challenging, but VAPS&D has seen a
positive development throughout the quarter.
* "The VAPS&D segment has reported a positive development throughout the
quarter," says CEO Henning Beltestad. "Although some areas remain
challenging for the segment, the Group has a target to sustain the increase
in level of activity and earnings throughout 2020 and the years to come,"
confirms Henning Beltestad.
MARKET AND OUTLOOK
Price developments for Atlantic salmon have been very volatile in the fourth
quarter, significantly impacted by relatively high variations in the export
volume from Norway. This is a continuation of the extremely volatile prices on
the salmon market in recent years. However, looking at trends from year to year,
the Group feels that the underlying demand for salmon and seafood remains good.
The Group expects to continued volatility but nonetheless satisfactory market
conditions in the near future.
In 2019, the Group's Farming segment has experienced several interruptions in
production, some unforeseen. As previously mentioned, production at Lerøy Aurora
was interrupted by the fire in the smolt facility and the outbreak of toxic
algae. Lerøy Midt had a good first half year in terms of production, but
reported significant reductions in growth compared with expectations in the
second half. Production at Lerøy Sjøtroll remains impacted by our inability to
date to achieve the projected smolt yield.
The Board of Directors is not satisfied with the performance reported by Farming
in 2019, but feels increasingly confident that the initiatives taken and the
investments made will provide a positive development in the form of increased
volume and improved competitiveness in the years to come.
In recent years, the Group has followed a long-term investment plan, aiming to
increase production of larger smolt (post-smolt). Lerøy Sjøtroll's new facility
in Fitjar in Vestland, with a capacity of around 4,000 tonnes biomass
production, has now been completed and will contribute to the company's
production with larger and more robust smolt in 2020. The Group is also in the
final part of a three-stage development project for Lerøy Aurora's plant in
Laksefjord, Finnmark, increasing capacity at the plant to approx. 4,500 tonnes
biomass production. The project is scheduled for completion in December 2020,
but those parts of the plant already completed in previous development stages
will already be supplying a substantial volume of large smolt earlier in the
year. Work has started on development of the last stage, production of post
smolt, in Belsvik. On completion, the plant will have capacity for around 5,000
tonnes biomass production. These plants already represent substantial assets for
the Group, but the most recent building developments are expected to contribute
to higher production and lower release from stock costs in the years to come.
Gradually, the new facilities will increase the average smolt size in the Group,
and for 2020 the Group expects the average size of the released salmon smolt to
be around 300 grams both at Lerøy Aurora and Lerøy Sjøtroll. Both the corporate
management and the Board of Directors expect the implemented and completed
investments in the smolt plants to provide considerable growth in production in
the sea in 2020 and the years to come. From 2020 and onwards, this increase in
production will gradually result in higher harvest volumes every year over the
next four to five years.
Estimated harvest volume for 2020, including the share from associates, is
currently 183,000-188,000 tonnes salmon and trout. The Group's target is for the
corresponding figures in 2021 to be between 200,000 and 210,000 tonnes. The
Group's contract share for Q1 2020 is approx. 40%.
The Group has made substantial investments in whitefish in recent years. One new
vessel was added to the fleet in 2018 - Nordtind - and another in early 2020 -
Kongsfjord.
For the onshore industry, where operations are based on whitefish, 2019 has been
extremely difficult. Lower quotas, along with a number of large new operations
opening in an industry that already had excess capacity, have resulted in
challenging framework conditions. The industry is subject to extremely strong
seasonal fluctuations, and Lerøy is of the opinion that profitability for the
industry will depend on innovation and opportunities for specialisation. In
recent years, Lerøy has made substantial investments to start facilitating this.
A new processed fish factory opened in Stamsund in 2019, and a major conversion
of the filleting plant in Melbu is expected to be completed in early 2020.
Considerable investments have also been made in other facilities. The Board of
Directors and the Group expect these investments, together with diligent,
organised improvement measures in each factory, to gradually generate results.
The Board of Directors and corporate management expect to see higher earnings
for the segment in 2020.
Lerøy has spent many years developing an efficient and sustainable value chain
for seafood. This not only provides cost-efficient solutions, but also quality,
availability, a high level of service, traceability and sustainable solutions.
At the start of 2020, the Board of Directors and corporate management feel that
Lerøy has a sound position and good starting point for continued, profitable
further development of the Group's downstream operations (VAPS&D).
At the time of writing, the Board of Directors expects earnings in the first
quarter of 2020 to be substantially higher than those achieved by the Group in
the first quarter 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