Lerøy Seafood Group ASA: Q1 2019 Results

LOW HARVEST VOLUME, BUT GOOD PRODUCTION As reported after the fourth quarter, the harvest volume from Farming was down from Q1 2018, and this is the most significant factor behind the lower operating profit for the quarter when compared with Q1 2018.“The harvest volume for salmon and trout was low in Q1 2019, having a negative impact on release from stock costs. The Group can, however, report successful production at sea. There has been good demand and lower quotas for whitefish,...

In Q1 2019, 14/05/2019 (informazione.news - comunicati stampa - cibi e bevande)

As reported after the fourth quarter, the harvest volume from Farming was down from Q1 2018, and this is the most significant factor behind the lower operating profit for the quarter when compared with Q1 2018.

Associates play an important role, and income from associates was NOK 73 million in Q1 2019, compared with NOK 87 million in Q1 2018. Corresponding figures before fair value adjustment related to biological assets were NOK 94 million in Q1 2019, compared with NOK 84 million in Q1 2018. The figures for Q1 2019 include the Group's share of the gain on sales in Seistar Holding AS of NOK 42.5 million.

The Group's profit before tax and fair value adjustment related to biological assets was NOK 748 million in Q1 2019, compared with NOK 1,018 million in Q1 2018. Estimated tax expense for the quarter is NOK 112 million, compared with a tax expense of NOK 426 million in the same period of 2018.

At 31 March 2019, net interest-bearing debt was NOK 2,889 million and the equity ratio was 58.8%.

THE WILD CATCH SEGMENT

The wholly-owned subsidiary Havfisk's primary business is wild catches of white fish. Havfisk's total catch volume in Q1 2019 was 20,536 tonnes, compared with 22,268 tonnes in Q1 2018. Catch volumes for the main species in Q1 2019 were 8,881 tonnes of cod, 3,214 tonnes of saithe and 5,246 tonnes of haddock. The catch distribution in Q1 2018 was 9,275 tonnes of cod, 3,683 tonnes of saithe and 6,545 tonnes of haddock. Compared with Q1 2018, the average price realised for all species was up 6% in Q1 2019. The prices for cod, haddock and saithe increased by 14%, 13% and 1% respectively in the quarter. The increase in prices is a natural direct result of lower quotas and increasing demand for the products.

LNWS's primary business is processing wild-caught white fish. 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, representing a challenge for processing operations.

In total, the segment contributed an EBIT of NOK 171 million in Q1 2019, compared with NOK 178 million in the same period of 2018.

THE FARMING SEGMENT

The Farming segment reported operating profit for the Farming segment before fair value adjustment related to biological assets was NOK 510 million in Q1 2019, compared with NOK 740 million in Q1 2018. During the quarter, the Farming segment harvested 32,000 tonnes, compared with 38,000 tonnes in Q1 2018.

In Q1 2019, Lerøy Aurora achieved operational EBIT per kg of NOK 24.7. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 18.9 and NOK 10.1 respectively for the same period.

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

In the VAPS&D segment, revenue in Q1 2019 amounted to NOK 4,514 million and operating profit before fair value adjustment related to biological assets was up from NOK 64 million in Q1 2018 to NOK 79 million in Q1 2019.

MARKET AND OUTLOOK

The Group can report a good underlying demand for seafood, and expects to have satisfactory market conditions in 2019.

As described in the Q4 2018 interim report, the lower than expected growth rate in Q4 2018 was to have a negative impact on harvest volume in Q1 2019. The harvest volume for red fish in Q1 2019 was 14% lower than in Q1 2018. This has a negative impact on release from stock costs in the quarter. At the same time, growth in Q1 2019 has been good, and the biomass in stock at the end of the quarter is 6% higher than in the corresponding period last year. This provides strong foundations for good production throughout the rest of 2019.

The Board of Directors and management are not satisfied with the Group's release from stock costs for red fish in the quarter. With time, the Group's investments and continuous work on improvements will result in lower cost levels. In this context, it is positive that the first smolt from Lerøy Sjøtroll's new smolt facility were released to sea in April 2019. Production in the new smolt facility, and to date in the sea, has been good. In the years to come, Lerøy Sjøtroll will have access to larger and higher quality smolt, and the Group expects this to have an impact on production volume and costs for the company in the future.

The Group's contract share for salmon in Q2 2019 will be in the range from 35 to 40%. At the time of writing, contracts have been signed for 2019 for around 30% of the estimated harvest volume of salmon. Estimated harvest volume for red fish in 2019, including the share from associates, remains around 190,000 tonnes. 

The Group aims to further develop its own value chain and ensure that the Group's raw materials are exploited in a sustainable manner, both in terms of economy and the environment. The season for white fish follows a much clearer trend than with red fish, and this results in a higher volume of frozen fish during the periods when seasonal demand is less than supply. This affects the Group in the form of increased tied-up working capital due to increased inventories. The process of improving the Group's competitive strengths is a painstaking one. However, successful initiatives within marketing and product development give us confidence in the future, including for those parts of the Group's value chain that do not yet generate a satisfactory return.  Within fisheries, quotas for 2019 are lower than in 2018 and this places more stringent demands on productivity and an even higher focus on correct utilisation of the company's fleet throughout the fishing seasons. Havfisk has reported a successful start to the year.

The Group can report a good level of activity for VAPS&D and currently expects the factories that opened in 2018 and the improvements in operations to produce higher earnings in this segment in 2019, when compared with 2018.

At the time of writing, the Group expects to see earnings in Q2 2019 in line with, or somewhat higher than achieved in Q1 2019. The Board of Directors remains confident of satisfactory earnings in the present year.

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

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