Lerøy Seafood Group ASA: Q2 2023 Results

HIGH REVENUE AND EARNINGS IMPROVEMENT

Lerøy posted a 17% year-on-year increase in revenue for Q2 2023. Operating EBIT was NOK 950 million, up slightly from NOK 927 million in Q2 2022. Operating EBIT/kg through the value chain was NOK 28.7, against NOK 25.2 in the same period of last year. The second quarter has been impacted by price inflation on seafood products and a challenging situation in the Farming segment in the second half of 2022, which has resulted in low harvest weights and a low harvest volume in the first half of this year. The Group’s downstream activities showed a significant improvement from the same period of 2022 and, despite lower quotas this year, Wild Catch posted satisfactory results for Q2.

Henning Beltestad explains that the long production time for salmon means it takes time for improved performance to be reflected in the results. We’ve been impacted in Q2 2023 by a challenging second half of 2022. At the same time, developments year to date have been strong in Lerøy Midt and Lerøy Aurora, while the ISA confirmations on two sites in Lerøy Sjøtroll will impact profitability in third quarter, he says.

IMPLEMENTING NEW TECHNOLOGY

As discussed at the capital markets day in 2022, Lerøy has been working with new technology to protect the salmon from sea lice and hence reduce the number of sea lice treatments and improve biological performance. Lerøy will implement solutions of this type at a number of locations in Lerøy Midt and Lerøy Sjøtroll over the coming months.

CEO Henning Beltestad says that the company’s goal is for around 20% of the salmon to be protected by the technology during the first quarter of next year. He believes there will be more location-specific technology in the future and that these investments have significant potential to improve biological performance.

RESOURCE RENT PROPOSAL ADOPTED BY THE STORTING

Despite a raft of critical consultation responses, the Storting adopted resource rent tax on the sea-based phase of salmon and trout production in Norway on 31 May 2023. Adoption of the tax has resulted in an implementation effect in the financial statements of NOK 1.7 billion in terms of higher tax. This is discussed in detail in the interim report.

There is much that could be said about both the resource rent tax and the process surrounding its implementation, says Henning Beltestad. However, the tax has now been adopted, and the company is working hard to implement it. As well as both the obvious short- and long-term negative consequences the decision will have for the industry’s development, it must be pointed out that the resource rent tax regime places an excessive administrative burden on the industry. At best, this was severely underestimated in the proposal submitted to the Storting, he says.

International rankings have repeatedly identified Norwegian aquaculture companies as the most sustainable protein producers in the world and, according to PwC’s recently published Climate Index, Lerøy is one of a small number of Norwegian companies that is cutting emissions in line with the Paris Agreement. The industry has enormous potential to contribute to the global green shift.

CEO Henning Beltestad hopes the politicians can look at the bigger picture rather than just implementing measures that hamper the development of this fantastic food-producing industry. Instead, he says, they need to focus on measures that ensure continued development and employment along Norway’s coast, so that the industry realises its potential to be part of the global green shift. 

OUTLOOK

Release from stock costs in aquaculture in the second half of the year are currently forecast to be lower than in Q2, says Henning Beltestad.

The harvest volume for full-year 2023, including joint ventures, is expected to be 181,500 GWT. Our Wild Catch segment is impacted by lower quotas, but we have a good basis of operations for the remainder of the year. The downstream activities are showing an improvement, and this is expected to continue in the next quarter.

Historically, demand for seafood has held up relatively well in economic downturns. Our perception is that our value chain meets the market’s needs and that Lerøy is well positioned for the future, he finishes.

ABOUT LERØY SEAFOOD GROUP ASA

Lerøy Seafood Group ASA is a global seafood corporation with its head office in Bergen. The Group’s approx. 6,000 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, as well as 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 ambitious targets within sustainability, including cutting greenhouse gas emissions by 46% by 2030.

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