Lerøy Seafood Group ASA : Q1 2018 Results

STRONG DEMAND FOR SEAFOOD

In Q1 2018, Lerøy Seafood Group (LSG) reported revenue of NOK 5,000 million, compared with NOK 5,459 million in the same period in 2017. Operating profit before fair value adjustment related to biological assets was NOK 960 million in Q1 2018, compared with NOK 1,277 million in Q1 2017. The decline in profit in Q1 2018 when compared with the same quarter in 2017 is mainly attributed to a lower harvest volume and lower prices realised for salmon and trout. Exclusive of earnings from the Wild Catch segment, this corresponds to an EBIT per kilo before value adjustment related to biological asset in Q1 2018 of NOK 20.8 compared to NOK 25.8 for the same period in 2017.

"I am satisfied with the result we have achieved in the first quarter of 2018," confirms CEO Henning Beltestad. He continues: "There is a strong demand for seafood and this has produced a positive development in prices in the first quarter of 2018."

"The process of developing Lerøy into a fully integrated company with both whitefish and redfish in our value chain continues at full pace," explains CEO Henning Beltestad. "I am proud of the Group's highly skilled employees who work towards targets in every part of the value chain and who constantly have to adapt to developments in line with customer requirements," confirms CEO Henning Beltestad.

The Group's associates play an important role and have successful operations. Income, before fair value adjustment related to biological assets, from associates were NOK 84 million in Q1 2018, compared with NOK 63 million in Q1 2017.

The Group's profit before tax and fair value adjustment related to biological assets was NOK 1,018 million in Q1 2018, compared with NOK 1,294 million in Q1 2017.

At 31 March 2018, net interest-bearing debt was NOK 2,293 million and the equity ratio was 57.5%.

THE WILD CATCH SEGMENT  

Havfisk's primary business is wild catches of whitefish. Havfisk's total catch volume in Q1 2018 was 22,268 tonnes, compared with 20,586 tonnes in Q1 2017. Catch rates in the first quarter have been good. Catch volumes for the main species in Q1 2018 were 9,275 tonnes of cod, 3,686 tonnes of saithe and 6,545 tonnes of haddock. The catch distribution in Q1 2017 was 9,425 tonnes of cod, 2,841 tonnes of saithe and 7,380 tonnes of haddock. In comparison with Q1 2017, the average price for all species increased by 11% in Q1 2018. The prices for cod and haddock increased by 12% and 20% respectively in the quarter, while prices for saithe fell by 1%.

LNWS's primary business is processing wild caught whitefish. The company has use of eight processing 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, the raw material prices increased throughout the first quarter of 2018, representing a challenge for processing operations.

In total, the segment reported operating profit of NOK 178 million in Q1 2018, compared with NOK 158 million in the same period of 2017.

"Havfisk's new trawler, Nortind, was delivered from the shipyard in January 2018 and has had very successful operations so far," confirms CEO Henning Beltestad. He continues: "The new trawler and the increase in catch volumes and higher average prices have all resulted in a good quarter for Havfisk."

"The processing of whitefish in Norway is a challenging business. The Group has implemented a number of measures within both production and marketing to improve earnings, but these are long-term initiatives and it will take time before significant improvements are evident," explains Henning Beltestad.

THE FARMING SEGMENT - strong development in prices throughout the quarter

The Farming segment reported operating profit fair value adjustment related to biological assets of NOK 740 million in Q1 2018, down from NOK 1,047 million in Q1 2017. The Farming segment harvested a total of 38,000 tonnes gutted weight of salmon and trout in Q1 2018, down 13% from the same period in 2017. EBIT/kg fell from NOK 24.2 per kg in Q1 2017 to NOK 19.7 per kg in Q1 2018, mainly attributable to the fall in prices realised.

In Q1 2018, Lerøy Aurora achieved operational EBIT per kg of NOK 28.4. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 21.8 and NOK 13.2 respectively for the same period.

   "Lerøy Sjøtroll's costs remain too high, but Lerøy Midt and Lerøy Aurora can report a very positive development. At the time of writing, the Group expects to see this positive development in release from stock costs continuing in 2018, with an even higher impact in the second half of the year, confirms CEO Henning Beltestad.

THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)

The VAPS&D segment reported revenue in Q1 2018 of NOK 4,690 million, down 6% when compared with the same period last year. Operating profit in the quarter suffered from volatile and rapidly increasing spot prices for whitefish, and also Atlantic salmon towards the end of the quarter. Operating profit before fair value adjustment related to biological assets was down from NOK 86 million in Q1 2017 to NOK 65 million in Q1 2018.

"It is evident that the Group's wide product range, delivery reliability, product development, traceability and efficient logistics are of increasing popularity on the market," states CEO Henning Beltestad. "A high level of price volatility has had a negative impact on earnings in Q1 2018, but the underlying development in the segment is positive," he confirms.

MARKET AND OUTLOOK

The Group and the Norwegian fish farming industry have experienced a positive development in the production of salmon in 2017 and the first months of 2018. This has resulted in a slight increase in growth, putting some pressure on the spot prices for salmon and trout. The Group has close links with the end market for seafood, and the reports of a sustained strong, underlying demand for salmon from Q4 2017 still apply in 2018. The market for Atlantic salmon and seafood is strong.

The Group has identified room for operational improvements in all three regions where the Group carries out fish farming. The Group's investments will provide organic growth in volume in all the regions, and substantial reductions in production costs in two of the regions. The current estimate for harvest volume in 2018, including the share of LSG's volume from associates, is 179,000 GWT. The harvest volume may, for numerous reasons including biology and market evaluations, differ from estimates. This difference was not major in 2017, and the Group does not expect this to change in 2018. 

Developments within whitefish in 2018 have been positive, even though industrial development and processing of whitefish in Norway remain difficult. This situation is impacted by political framework conditions, but the Group has a clear ambition to increase competitiveness and earnings for whitefish, with the prevailing conditions and by means of improved marketing and improvements to operational efficiency. The process of industrial development of whitefish requires patience, a long-term perspective and considerable investments. Such investments require framework conditions that are predictable, and the Group and its employees fervently hope to be able to carry out such work without any obstacles in the years to come. The Group can report a positive development in catches to date in 2018, and its best estimate remains a catch volume of whitefish and shrimp in 2018 of approximately 65,000 tonnes.

The Group feels that uncertainty relating to the framework conditions for the seafood industry in Norway has increased in recent years. It is unfortunate and difficult to understand that the various key premise setters in Norway have generated an overall impression that the Norwegian farming and whitefish industry does not create value or spin-off effects in local Norwegian communities.  The reality is that direct and indirect value creation from the seafood industries are of decisive importance for employment and settlement in large parts of Norwegian society, not least in areas close to the coast.  The seafood industry contributes substantial value in local communities along the entire coastline of Norway, and the Group and its colleagues shall continue to do their utmost to sustain this. In 2017, Lerøy had operations in around 60 municipalities in Norway, and annual investments reach the billions - along the entire Norwegian coast. In 2017, the Group purchased goods and services in Norway from 287 different municipalities for a total NOK 12.5 billion. For a more detailed description of the significant spin-off effects generated by Group operations, please refer to the annual report for 2017.

The seafood industry is the second largest export industry for Norway, employs tens of thousands and has extremely positive spin-off effects. The industry is a globally competitive food producer measured in terms of both costs and environmental parameters - something very rare. Norway's seafood industry has a strong position from which to sustain its positive development, but is entirely reliant on an understanding among Norwegian authorities and politicians, when laying down regulations, of what it will take for the Norwegian seafood industry to remain globally competitive in the long term.  The Group will continue in its efforts to contribute towards a knowledge-based dialogue that creates value for society, regarding the need for appropriate framework conditions in the future.

The Board of Directors currently expects high earnings in Q2 2018 and 2018 as a whole.

Questions and comments may be addressed to the company's CEO, Henning Beltestad, or to the CFO, Sjur S. Malm.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

Q1 2018 Report
Q1 2018 Presentation

---

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Lerøy Seafood Group ASA via Globenewswire