Lerøy Seafood Group ASA: Q3 2019 Results

THIRD QUARTER In Q3 2019, Lerøy Seafood Group (LSG) reported revenue of NOK 5,102 million, compared with NOK 4,456 million in the same period in 2018. Operating profit before fair value adjustment related to biological assets was NOK 501 million in Q3 2019, compared with NOK 660 million in Q3 2018. Downstream operations have reported positive growth in earnings when compared with the same period in 2018. However, 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 Q3 2019 when compared with Q3 2018.Exclusive of earnings from the Wild Catch segment, this corresponds to an EBIT per kilo before value adjustment related to biological asset in Q3 2019 of NOK 9.8 compared to NOK 16.6 for the same period in 2018.The Group reports revenue of NOK 15,188 million for the first three quarters of 2019, compared with NOK 14,498 million in the same period of 2018. Operating profit before fair value adjustment related to biological assets for the first three quarters of 2019 was NOK 1,965 million, compared with NOK 2,620 million for the same period last year. The profit before tax and fair value adjustment related to biological assets as of Q3 2019 was NOK 1,966 million, compared with NOK 2,729 million for the same period last year.“The Group can report good growth in earnings from its downstream operations in Q3 2019,” confirms CEO Henning Beltestad, although total earnings in the third quarter of 2019 are lower in comparison with the same quarter last year. “We are confident that our business potential is higher and know that our skilled employees are working hard to exploit this to the full,” says CEO Henning Beltestad. “The Group’s Farming segment has experienced more challenges than expected in Q3 2019, says CEO Henning Beltestad. The export volume for Atlantic salmon saw a substantial increase when compared with the same quarter of 2018, resulting in a fall in spot prices. Release from stock costs in Q3 2019 are lower than in Q2 2019, but still too high. We expect falling release from stock costs to remain into Q4 2019,” says Henning Beltestad.The Wild Catch segment’s fleet of trawlers has had successful operations in the third quarter, while the situation for land-based operations remains difficult. However, we also expect the significant investments made in recent years [LA1] to generate lasting improvements in this segment leading up to 2020,” confirms CEO Henning Beltestad.
THE WILD CATCH SEGMENT  The wholly-owned subsidiary Havfisk’s primary business is wild catches of whitefish. Havfisk’s total catch volume in Q3 2019 was 13,152 tonnes, compared with 14,282 tonnes in Q3 2018. Catch volumes for the main species in Q3 2019 were 2,814 tonnes of shrimp, 3,411 tonnes of cod, 4,469 tonnes of saithe and 615 tonnes of haddock. The catch distribution in Q3 2018 was 2,703 tonnes of shrimp, 4,714 tonnes of cod, 3,907 tonnes of saithe and 1,008 tonnes of haddock.When compared with Q3 2018, average prices realised for all species were down 3% in Q3 2019, but this reflects the change in catch patterns with a higher share of shrimp and saithe and lower share of haddock and cod. If we assess the species individually, the prices increased for cod, haddock and saithe by 6%, 4% and 33% respectively in Q3 2019 when compared with the same period last year.Lerøy Norway Seafoods’ (LNWS) 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.In total, the segment contributed an EBIT of NOK 40 million in Q3 2019, compared with NOK 41 million in the same period of 2018. As of the third quarter, the segment contributed EBIT of NOK 252 million, compared with NOK 335 million in Q3 2018, but where the figures for 2018 were affected positively by the sale of a vessel, generating an accounting gain of NOK 35 million.“High raw material prices in Q3 2019 provide good earnings for the trawler fleet, while the situation remains challenging for land-based operations[LA2] . The Group is targeting improved earnings for whitefish, and has therefore implemented a number of measures within both production and marketing. We expect to see an improvement in earnings in the future,” says Henning Beltestad. 
THE FARMING SEGMENTThe Farming segment reported operating profit for the Farming segment before fair value adjustment related to biological assets was NOK 362 million in Q3 2019, compared with NOK 569 million in Q3 2018. During the quarter, the Farming segment harvested 45,983 tonnes, compared with 37,227 tonnes in Q3 2018. Prices realised in the quarter are down when compared with the same period last year, and release from stock costs are up.In total, EBIT/kg for the segment was down from NOK 15.3 in Q3 2018 to NOK 7.9 in Q3 2019. In Q3 2019, Lerøy Aurora achieved operational EBIT per kg of NOK 16.2. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 8.4 and NOK 2.6 respectively for the same period.“We are in the process of implementing a substantial investment programme in the Farming segment, and expect to see growth in volume along with lower costs in the years to come,” confirms Henning Beltestad.
THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)The VAPS&D segment reported revenue in Q3 2019 of NOK 4,813 million, up 9% compared with the same period in 2018. Operating profit before fair value adjustment related to biological assets increased from NOK 72 million in Q3 2018 to NOK 109 million in Q3 2019. Some areas remain challenging, but the development for VAPS&D has been good throughout the quarter and this segment is expected to generate significantly higher earnings in 2019 when compared with 2018.“We are very 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 OUTLOOKThe development in prices for Atlantic salmon has been weak throughout the third quarter, partly impacted by an extremely high export volume from Norway, but also a relatively high volume from the UK. The Group can report a good and sustained underlying demand for both salmon and seafood. The Group expects to see a sustained volatility but nonetheless satisfactory market conditions in the near future.The Board of Directors is not satisfied with the developments reported by Farming in 2019, but feels confident that the initiatives taken and investments made will provide a positive development in the years to come. Operations at both Lerøy Aurora and Lerøy Midt are now back to normal. Lerøy Sjøtroll’s new smolt facility will unfortunately not be completed until the end of the fourth quarter. Smolt production is successful, but the delays in commissioning the plant for production of so-called post-smolt have unfortunately resulted in a six-month delay in access to large smolt. As a result of reduced growth and a slightly weaker than expected price development throughout the third quarter, the harvesting time for parts of the 2019 production stock will be postponed until 2020. Depending on price developments, the Group currently expects to harvest between 172,000 and 175,000 tonnes of salmon and trout in 2019. These figures include the Group’s share from associates. The harvest volume in 2020, correspondingly, is currently estimated to increase to 183,000 to 188,000 tonnes of salmon and trout. The growth in harvest volume is expected to provide lower release from stock costs per kg in 2020 when compared with the estimated figures for 2019. The Group’s contract share for salmon in Q4 2019 is estimated to be around 35%.The Group has made substantial investments in recent years in the Wild Catch and Whitefish segment, with new vessels and investments in several facilities. The segment has a much more evident seasonal pattern than with redfish, and this is particularly 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 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 fourth quarter of 2019 to be substantially higher than those achieved by the Group in the third 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
AttachmentsQ3 2019 ReportQ3 2019 Quarterly presentation