FIRST QUARTER 2021
In Q1 2021, Lerøy Seafood Group (LSG) reported revenue of NOK 4,925 million,
compared with NOK 5,305 million in the same period in 2020. Operating profit
before fair value adjustment related to biological assets was NOK 455 million in
Q1 2021, compared with NOK 816 million in Q1 2020. The global COVID-19 pandemic
is having a negative impact on demand and has resulted in lower prices for both
redfish and whitefish. The main factor behind the fall in earnings from Q1 2020
to Q1 2021 is the reduction in prices realised. At the same time, the Group can
report a good underlying demand for seafood.
* The trend in 2020, with a higher share of seafood sold through the retail
channel, has continued in 2021. Price realisation in the quarter is below
the corresponding quarter in 2020, but in our view the underlying demand for
seafood is strong, states CEO Henning Beltestad.
* We continue to strengthen our efficient and sustainable value chain for
seafood. A value chain which not only provides cost-efficient solutions, but
also quality, availability, a high level of service, traceability, and
competitive climate-related and environmental solutions. Recent years
investments in the end markets will contribute to our growth in the years to
come. We have a strong position, says Beltestad
WILDCATCH
The wholly owned subsidiary Lerøy Havfisk's primary business is wild catches of
whitefish. Lerøy Havfisk has licence rights to harvest just above 10% of the
total Norwegian cod quotas in the zone north of 62 degrees latitude,
corresponding to around 30% of the total quota allocated to the trawler fleet.
Lerøy Havfisk also owns several processing plants, which are mainly leased out
to its sister company Lerøy Norway Seafoods (LNWS) on long-term contracts. Lerøy
Havfisk's trawler licences stipulate an operational obligation for these
processing plants.
Lerøy Havfisk has had 10 trawlers in operation in Q1 2021. Due to excellent
catch rates, these vessels have produced the highest catch volume in the
company's history. The catch volume in Q1 2021 was 25,721 tonnes, compared with
25,009 tonnes in Q1 2020. Fishing for haddock proved difficult in 2020, so the
company has focused on haddock catches in Q1 2021. The share of cod in catches
is down from 50% in Q1 2020 to 43% in Q1 2021. Lerøy Havfisk's remaining quota
for 2021 is positive in terms of market outlook.
As described in the previous interim reports, demand for seafood has been
negatively impacted by the restrictions introduced to combat the spread of
COVID-19. It is difficult to project how long this extraordinary situation will
last. According to assessments, the pandemic is the most important factor behind
the lower prices realised. Prices for cod, haddock and saithe in Q1 2021 are
down 27%, 14% and 9% respectively from Q1 2020. Seafood is sold consecutively,
and demand is considered to be good, but prices are lower than witnessed before
the impact of the COVID-19 restrictions in the last part of Q1 2020.
LNWS's primary business is processing wild-caught whitefish. The company has use
of 12 processing plants and purchasing stations in Norway, five of which are
leased from Lerøy Havfisk. Seasonal cod catches by the coastal fishing fleet
represent an important source of raw materials, but the season had a late start
in 2021. For several years now, processing of whitefish has been very
challenging, and Q1 2021 was no exception. At the same time, however, there are
fortunately signs that the initiatives taken are having a positive effect.
In total, the segment reported EBIT of NOK 185 million in Q1 2021, compared with
NOK 270 million in the same period of 2020. Please note that Havfisk has a
higher share of the remaining quota for cod in 2021 when compared with the same
period last year.
* Earnings in Wildcatch is lower than corresponding quarter last year, driven
mainly by lower price realisation. However operations in the land based
industry is developing positively, which gradually is yielding improvement
in profitability, states CEO Henning Beltestad.
FARMING
The Farming segment comprises the Group's three farming regions in Norway: Lerøy
Aurora located in Troms and Finnmark, Lerøy Midt located in Nordmøre and
Trøndelag and Lerøy Sjøtroll located in Vestlandet.
Operating profit for the Farming segment before fair value adjustment related to
biological assets was NOK 251 million in Q1 2021, compared with NOK 562 million
in Q1 2020. During the quarter, the Farming segment harvested 42,000 tonnes,
compared with 39,000 tonnes in Q1 2020.
In Q1 2021, EBIT/kg was NOK 1.70 for Lerøy Aurora, NOK 8.20 for Lerøy Midt and
NOK 6.00 for Lerøy Sjøtroll. In total, EBIT/kg for the segment was down from NOK
14.30 in Q1 2020 to NOK 6.00 in Q1 2021. Costs per kilo are around the same as
in Q1 2020, with the fall in prices realised the underlying factor behind the
lower earnings.
* We have had challenges with winter wounds in Lerøy Aurora in the first
quarter and the start of second quarter. This has negative implications for
price realisation in this quarter, and will also impact price realisation in
second quarter, states CEO Henning Beltestad
* For 2021 our expectation is that recent years efforts and investments within
Farming creates the basis for significant growth in harvest volume, and with
scaling of the cost base, lower costs per kilo produced, he continues.
VAP, Sales & Distribution
With its fully integrated, cost-efficient value chain for salmon, trout,
whitefish and shellfish, Lerøy Seafood Group shall be able to supply products
that are best suited to the consumers' preferences. Proximity to key markets and
knowledge of the customer's needs are therefore of decisive importance if the
Group is to develop demand for its main products. Lerøy distributes more than
70 different seafood products from Norway to more than 80 different markets in
the course of a calendar year. In addition, the Group processes and distributes
a number of market-specific seafood products to their respective local markets
where Lerøy has operations. Lerøy Seafood Group's value chain shall be developed
further in order to satisfy and increase the consumers' total demand for
seafood.
In 2020, the seafood markets were negatively impacted by the COVID-19 pandemic.
The impact was first evident in markets in Asia, spreading globally throughout
Q1 2020 and into Q2 2020. The COVID-19 pandemic has affected the pattern of
demand. The grocery market now represents a larger volume of consumption, while
the hospitality and catering segment on many core markets has practically been
closed down for long periods of time. The pandemic has also had an impact on
logistics, particularly for overseas markets, with a reduction in cargo capacity
resulting in increased costs during the period.
The trend for an increasing volume of seafood consumption in the grocery market
has continued in Q1 2021, with very strong growth in sales via this channel.
Campaigns carried out by major European grocery chains have produced extremely
high sales volumes, particularly for salmon. This trend supports the strong
position salmon and seafood hold with consumers, and provides strong grounds for
an optimistic outlook for future growth in demand.
Prices realised for important species are substantially lower than in Q1 2020.
Despite the 6% drop in revenue from the same quarter last year, underlying
activities in Q1 2021 have been good. Over the past year, the Group has
implemented substantial improvement initiatives in several of the units in the
segment, including facilitating better interaction along the Group's value
chain. These initiatives are now producing results, and the operating profit
before fair value adjustment related to biological assets in Q1 2021 was NOK
101 million, up from NOK 54 million in Q1 2020.
* The continued trend of increased sales through retail, is validating the
Group's long term investments in downstream markets. We have an excellent
position to continue to build on in the years to come, states CEO Henning
Beltestad.
* In second quarter 2021 the Group's increased ownership in Seafood Danmark
from 33% til 78% was approved by competition authorities. Seafood Danmark is
a well run company, and we are looking forward to continue to develop the
operations together with the local management, says Beltestad
Market and outlook
Price developments for Atlantic salmon have again been very volatile at the
start of 2021, substantially influenced by the repercussions of the COVID-19
pandemic. It is not possible for the management and Board of Directors to form
any precise opinion on the duration or consequences of the pandemic, but the
growth in volume on the grocery market does provide grounds for optimism. There
are indications that seafood is gaining in popularity with consumers, and we are
therefore optimistic with a view to the underlying future developments in demand
for seafood, and consequently for the Group's operations and value creation.
The Group's production of redfish currently takes place mainly in Norway.
Norwegian and global salmon and trout production are experiencing relatively
modest growth, which - combined with a weaker Norwegian krone - has resulted in
very high prices. This provides an incentive to start production of salmon in
new areas using alternative technologies. These incentives have existed for
several years now, but with long lead times for developing the industry,
Norwegian production in marine fish farms has maintained its predominant
position. The harvest volume from land-based production of salmon remains
insignificant on the end markets. The market share for Norwegian Atlantic salmon
may, in the long term, be affected by production of salmon and trout in new
regions and locations. Through business development, investments and a clear
operational focus on competitiveness, the Group shall ensure that its value
chain stands strong in the face of competition in the years to come. In addition
to the development of existing farming operations, the Group is accumulating
knowledge and/or competencies within both land-based and offshore salmon
production.
In recent years, Lerøy has made significant investments in several parts of the
value chain, including the construction of facilities for smolt/post-smolt
capacity in all the Group's regions. Lerøy Sjøtroll's Kjærelva facility is now
completed and has an annual biomass production of around 4,000 tonnes. Lerøy
Aurora completed the final construction stage of a new smolt facility in
Laksefjord in Q4 2020, and the facility is expected to reach full utilisation in
2021. Lerøy Midt can report that the second stage of development of the Belsvik
facility is going to schedule. The plan is for completion by the start of 2022,
and the facility will produce around 5,000 tonnes of biomass. The Group's
investments in improved smolt production and post-smolt production, combined
with a number of other initiatives, will support the Group's ambition for
continued growth in volume and improved competitiveness by means of a reduction
in production costs.
The Group's substantial investments in post-smolt facilities have not only
increased the Group's annual harvest volume by means of improved utilisation of
existing assets, but also provided significant competencies related to RAS
technology. This is in the main the same technology used in full-scale land-
based production of salmon. The Group is now negotiating for a possible further
development of a new RAS facility in the region of Vestland. The plans are
initially to develop the facility in three stages. The first and second stages
represent further increases in the Group's post-smolt production. The final
stage will also provide facilities for post-smolt production, but may be used
for salmon production up to harvest size. The newly acquired industrial site,
including the links to the Group's farming operations in West Norway, could
potentially improve interaction between sea and land. If applicable, the lessons
learned may alternatively be exploited at some point in the future to realise
land-based projects in other regions. The development will take place in stages,
but initial estimates indicate that the first stages will represent estimated
costs of around NOK 1 billion. The development is projected to provide an annual
increase in production in the sea of 8,000-10,000 GWT. Construction work is
scheduled for completion in 2023.
The Group can report significant improvements in production in the sea in 2020.
The harvest volume was up from approx. 158,000 tonnes in 2019 to 171,000 tonnes
in 2020. Moreover, standing biomass increased from 111,000 tonnes at year-end
2019 to 119,000 tonnes at year-end 2020. The first months of 2021 were cold,
negatively affecting growth conditions, but the Group maintains its projections
of a harvest volume for 2021, including associates, of 205,000-210,000 tonnes.
Ongoing investments and additional improvement initiatives will provide further
growth in the years to come.
For the Group, the aim is clear - for this growth, combined with other
improvement measures, to provide reductions in the Group's release from stock
costs for salmon and trout in 2021 and the following years.
The cold winter has also had an impact on the development of winter ulcers,
which will affect the Group's prices realised in the second quarter.
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. Further improvements to fish quality were established as important
design criteria for Kongsfjord. Consumers' expectations and quality requirements
continue to increase, making high quality and competitiveness key factors for
success when competing to attract consumers.
The whitefish industry, also including land-based operations, has suffered
significantly from the impact on demand of COVID-19 at the start of 2021. It is
naturally not possible for the Group to know how long the restrictions will
last, but Lerøy's long-term plans remain the same. The work on and investments
in making the factories less seasonally dependent continue, along with well-
organised and meticulous work on making improvements to each unit. We believe
that this process will generate results with time.
The Group's quotas for 2021 are up 17% for cod, up 22% for haddock, up 16% for
saithe north of 62 degrees, and down 43% for saithe south of 62 degrees.
Lerøy works to develop 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 competitive climate-related and
environmental solutions. Investments in recent years in, e.g., a new industrial
facility for Lerøy Midt, a new factory in Stamsund and new factories in Spain
and the Netherlands, now commissioned, will represent a positive contribution in
the years to come. The management and Board of Directors are confident that
Lerøy has a good starting point for continued profitable growth and development
of Group operations.
In Q2 2021, the Group has increased its shareholding in the company Seafood
Danmark from 33% to 78%. This is the result of a long-term relationship between
the parties, and Lerøy looks forward to having this company as an integrated
part of the Group. Seafood Danmark's collaboration with demanding customers has
afforded them a strong position on the Danish seafood market, but the company is
also active on other central markets. Thanks to its well-established
organisation, Seafood Danmark will strengthen Lerøy's downstream operations. The
company has local management who have demonstrated strong operations and good
earnings over several years. The company reported operating profit of approx.
DKK 70 million in 2020.
The Group's products are healthy and good. Production is sustainable, from a
financial, climate and environmental perspective. The management and Board of
Directors continue to expect good underlying growth in demand in the years
ahead. It is not possible for the management and Board of Directors to estimate
how long the COVID-19 pandemic will last, but we are confident in assuming that
demand will with time return to historic levels and continue to develop from
there.
The Board of Directors underlines that uncertainties related to assessments of
future developments are much higher than normal, but current estimates are for
earnings to be negatively impacted by the effect on demand of the COVID-19
restrictions for some time to come. At the same time, the Board is of the
opinion that the Group's underlying development is positive, and that Lerøy has
an excellent position for improved profitability in 2021 when compared with
2020. The Group currently expects earnings in Q2 2021 to be better than in the
first quarter of the year.
The Board of Directors and corporate management would like to thank all the
Group's employees for their hard work to date during the COVID-19 pandemic.
Questions and comments may be addressed to the company's CEO, Henning Beltestad,
or to the CFO, Sjur S. Malm.
Lerøy Seafood Group
Lerøy Seafood Group ASA is a global seafood corporation with its head office in
Bergen. The Group's approx. 5,000 employees handles between 350,000 and 400,000
tonnes of seafood every year via our value chain, corresponding to around 5
million meals every day. The Group has a vertically integrated value chain for
redfish and whitefish, and significant activities using third-party products.
The Group's values - open, honest, responsible and creative - shall represent
the very foundations of everything we do, and we work hard to achieve our goal
of creating the world's most efficient and sustainable value chain for seafood.