LSG experienced record-high activity in Q4 2021. The Group reported revenue of
NOK 6,519 million in the quarter, up 26% on Q4 2020. Operating profit before
fair value adjustment more than doubled to NOK 902 million in Q4 2021 from NOK
441 million in Q4 2020. Strong demand for seafood, better prices realised for
the Group's main products and an improvement in underlying operations were
important factors driving the significant earnings improvement in all segments
compared with the same period in 2020.
"The demand for seafood is strong, giving grounds for optimism about the future.
There is a positive development in activity level and prices realised. Compared
with Q4 2020, earnings have increased in all segments," says CEO Henning
Beltestad.
"We are reporting an all-time high revenue of NOK 23 billion for full-year
2021. Our vertically integrated value chain has proved resilient, and the
development is in line with the Group's growth strategy" Beltestad continues.
THE WILD CATCH AND WHITEFISH SEGMENT
The wholly owned subsidiary Lerøy Havfisk carries out the Group's wild catch
operations. 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 had 10 trawlers in operation in Q4 2021. The catch volume in Q4
2021 totalled 17,119 tonnes, compared with 12,619 tonnes in Q4 2020. The
increased catch for the quarter was partly driven by higher quotas for 2021 than
2020 but also by the fact that the company had planned a different catch pattern
through the year.
In 2021, the authorities made it possible to transfer up to 15% of the cod quota
to 2022, measured by vessel. The prices for haddock and saithe continue to show
good development, rising significantly in the fourth quarter. The company
prioritised catches of these species in the quarter. Approximately 5% of Lerøy
Havfisk's cod quota - around 1,350 tonnes - was therefore transferred to 2022.
The coastal fleet also transferred quota from 2021 to 2022, making it likely
that the decrease in the volumes of cod caught in Norway in 2022 will be smaller
than the reduction in the quota.
The price level, and variations therein, in 2020 and 2021 were impacted by
restrictions linked to the COVID-19 pandemic. Prices for cod were slightly lower
in 2021 than in 2020, but improved significantly in Q4 2021. Prices for cod were
up around 16% on Q4 2020, while prices for haddock and saithe increased by 22%
and 32% respectively.
Higher catch volumes and higher prices realised for the main species are the
main drivers for the higher catch value in Q4 2021 compared with Q4 2020. At the
same time, profitability is being negatively affected by higher costs,
particularly bunker costs. The higher bunker costs are linked to more working
days in Q4 2021 than in Q4 2020 and higher bunker prices. Bunker prices were
34% higher in Q4 2021 than in Q4 2020. In total, bunker costs increased by NOK
28 million compared with the same quarter of 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. Processing whitefish in Norway has been extremely
challenging for several years. Earnings came under severe pressure in the fourth
quarter from the rising raw material prices for cod and other whitefish.
Nevertheless, earnings in Q4 2021 were up on Q4 2020, and earnings for full-year
2021 were substantially higher than for 2020. This can be explained by
operational improvements and significantly better access to raw materials than
in 2020.
The Group will continue its long-term efforts to improve the competitiveness of
the whitefish industry but, other things equal, the price level at the start of
2022 makes conditions more challenging for the onshore industry. Over time, the
Group has implemented organisational changes and made significant investments in
facilities, which we believe will deliver sustainable earnings for the onshore
industry.
In total, the segment reported EBIT of NOK 73 million in Q4 2021, compared with
NOK -10 million in the same period of 2020.
"Earnings in Wild Catch in the fourth quarter improved significantly on the same
quarter in 2020, driven by high catches and higher prices. We've seen
significant operational improvements in the onshore industry in 2021. There is
still substantial potential in developing the demand for whitefish," says CEO
Henning Beltestad.
THE FARMING SEGMENT
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 Vestland.
Operating profit for the Farming segment before fair value adjustment related to
biological assets was NOK 702 million in Q4 2021, compared with NOK 296 million
in Q4 2020. During the quarter, the Farming segment harvested 51,000 tonnes,
compared with 48,000 tonnes in Q4 2020.
In Q4 2021, Lerøy Aurora reported EBIT/kg of NOK 16.90, Lerøy Midt reported NOK
15.90 and Lerøy Sjøtroll reported NOK 9.20. In total, EBIT/kg for the segment
increased from NOK 6.10 in Q4 2020 to NOK 13.70 in Q4 2021.
"The Farming segment posted satisfactory results for the quarter. At the same
time, growth in recent months has been slightly lower than expected, and we're
reducing our harvest guidance for 2022 for the Farming segment in Norway from
190,000 GWT to 185,000 GWT," Beltestad continues.
VAPS&D
With its fully integrated, cost-efficient value chain for salmon, trout,
whitefish and shellfish, Lerøy Seafood Group shall 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. In the course of a calendar year, Lerøy
distributes a wide range of seafood products from Norway to more than 80
different markets. 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.
Since 2020, seafood markets have been negatively impacted by the COVID-19
pandemic. The impact was seen first in markets in Asia, spreading globally
through the second and third quarters of 2020. The COVID-19 pandemic has
affected demand patterns. A higher share of consumption shifted to the retail
sector, while the HoReCa segment in many core markets was practically closed
down for long spells. The pandemic has impacted logistics for overseas markets,
with reduced cargo capacity resulting in increased costs during the period.
In the second half of 2021, demand for seafood returned to historically high
levels, driven in particular by strong demand in the retail sector but also by
the gradual positive development in the HoReCa segment as COVID-related
restrictions were lifted. The Group can ascertain there is very strong growth in
demand for seafood. Revenue in the segment grew by 25% in Q4 2021 compared with
the same period of 2020. The growth was driven by high prices and a good level
of activity.
The segment's underlying development is good, but continues to be impacted by
start-up costs for the Group's new factories in Spain and Italy. In total,
operating profit before fair value adjustment of biomass reported by the segment
in Q4 2021 was NOK 202 million, up from NOK 176 million in the same period in
2020. For the first time, VAPS&D is reporting revenue over NOK 20 billion for
the year. Operating profit before fair value adjustment increased from NOK 475
million in 2020 to NOK 630 million in 2021.
"Recent years have been impacted by restrictions linked to the COVID-19
pandemic. We have continued to develop, and are proud of reporting the highest
level of activity and earnings in the segment's history. Our vertically
integrated value chain and proximity to end customers have served us well under
challenging market conditions," says Beltestad.
MARKET AND OUTLOOK
The Board and Management believe the development in demand for seafood,
including in the second half of 2021, gives grounds for continued optimism about
future development, and hence about the Group's operations and value creation.
The Group's production of red fish 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
and using new, alternative technologies. These incentives have been in place for
a few years now but, for many reasons, Norwegian sea-based production has
maintained its global dominance. 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. By means of business development,
investments and a clear focus on competitiveness, the Group shall ensure that
its value chain continues to stand strong in the face of competition in the
years to come. As well as developing existing farming operations, the Group is
accumulating knowledge and/or expertise 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. At Lerøy Midt, the first smolt will be
released into the new facility on schedule in Q1 2022. This facility represents
the final stage of the extension of the plant and will generate growth in Lerøy
Midt's harvest volumes from 2023. The investments were made to raise the quality
of the company's smolt, increase production by means of better licence
utilisation and reduce costs. These investments in the Group's smolt production
were an important driver in the growth in the Group's harvest volume in Norway
from 158,000 tonnes in 2019 to 187,000 tonnes in 2021. At the same time, the new
smolt facilities enable significant changes in our operations that we assess
will help us realise improvements in the years ahead.
In common with the industry as a whole, the Group's costs per kilo of salmon and
trout produced have increased significantly over the last 10 years. There are
several reasons for this, but the global cost inflation the world is currently
experiencing will not make things any easier. In these circumstances,
operational efficiency is more important than ever, which is why it has top
priority in the work under way within the Group's farming operations.
For its consolidated operations, Lerøy Seafood Group currently estimates a
harvest volume of around 185,000 tonnes in 2022. The Group's share from
associates is forecast to be 23,000 tonnes. This includes expected volume from
Scottish Sea Farms Ltd's new acquisition, Grieg Seafood Hjaltland UK. LSG's
total harvest volume in 2022 is thus estimated to be in the region of 208,000
tonnes.
The Group has made significant investments in catching and processing whitefish
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
priority design criteria for Kongsfjord. Consumers are making ever-increasing
demands and expectations on quality. High quality and competitiveness are
essential for success when competing for consumers' preferences. The Group's
target of significantly reducing greenhouse gas emissions makes new demands of
technology within the fleet. The Group is monitoring developments closely.
Developments in the Whitefish segment in 2021 were positive. The development in
demand gradually led to higher sales prices at the same time as we successfully
implemented a number of operational improvements in the onshore industry. Prices
for relevant whitefish species were significantly higher at the start of 2022
than a year ago. This is positive overall, but a challenging situation for the
onshore industry. A substantial increase in raw material prices takes time to
recoup in the market, so this factor will negatively impact earnings in the
onshore industry for much of 2022. Efforts and investments to make the factories
less seasonally dependent continue. Together with structured and meticulous
improvement initiatives in each unit, we believe that this process will generate
results.
The quotas for cod and haddock will be somewhat lower in 2022. Work to finalise
statistics and transfers from 2021 means that quotas have not yet been set for
individual vessels. A reduction in cod quotas of around 20% is expected for the
trawler fleet compared with 2021. The reduction for haddock is around 23%, while
no change is expected in the quota for saithe fished in the zone north of 62
degrees latitude. As well as the quota changes, Havfisk's catch volumes will be
impacted by approximately 1,350 tonnes of the 2021 cod quota having been
transferred to 2022. The fact that the coastal fleet, too, moved quota from
2021 to 2022 is also positive for the onshore industry.
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, e.g., in a new industrial
facility for Lerøy Midt, a new factory in Stamsund and new factories in Spain,
the Netherlands and Italy, close to being commissioned, will make 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. The Board of Directors believes
developments in VAPS&D in 2021 show great promise: the higher activity level
means higher capacity utilisation and thus better operating margins. The Group
has a clear ambition for earnings in this segment to continue to increase
through 2022 and in the years to come.
Scottish Sea Farms (SSF)'s notified acquisition of Grieg Seafood Hjaltland UK
was finally completed in December 2021. The company operates in a region that
SSF knows very well and, although it will take time, SSF is expected to realise
significant synergies by integrating the two companies.
The Group's products are healthy and tasty. 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. At the same time, the Group is experiencing rising prices for key input
factors, which will impact cost developments in 2022. Nonetheless, the Board of
Directors is confident that the Group has a strong position for the years to
come. The Board of Directors currently expects earnings in Q1 2022 to be
substantially higher than in Q1 2021, with a corresponding earnings improvement
for full-year 2022 compared with full-year 2021.
The Board of Directors and group management would like to thank all the Group's
employees for their valuable work in 2021.
Questions and comments may be addressed to the company's CEO, Henning Beltestad,
or to the CFO, Sjur S. Malm.
ABOUT LERØY SEAFOOD GROUP ASA
Lerøy Seafood Group ASA is a global seafood corporation with its head office in
Bergen. The Group's approx. 5,500 employees process 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
red fish and whitefish, and significant activities using third-party products.
The Group's values - open, honest, responsible and creative - shall underpin
everything we do, and we work hard to achieve our goal of creating the world's
most efficient and sustainable value chain for seafood. The target for return on
capital employed (ROCE) is 18%. The Group has set a number of targets within
sustainability, including cutting greenhouse gas emissions by 46% by 2030.