Lerøy snares record profits, but says farming challenges mounting

Norwegian fish farming and fishing company Lerøy Seafood Group (LSG) reported record third-quarter profits, but the supplier said it faces challenges with its farming segment.

LSG’s operating profit nearly doubled, from NOK 481 million (USD 59 million, EUR 50 million) in the third quarter of 2016 to NOK 861 million (USD 105 million, EUR 89 million) in the third quarter of 2017. The supplier’s revenue also soared to NOK 4.4 billion (USD 535 million, EUR 453 million) in the quarter, compared with NOK 4.3 billion (USD 521 million, EUR 442 million) during the same period in 2016.

“We have achieved the highest revenue and the highest operating profit ever to be reported by the group in a third quarter," Lerøy CEO Henning Beltestad said. “We are pleased with such a good result, but there still remains plenty of room for improvement and this is where our focus lies.”

LSG’s farming segment harvested a total of 46,000 metric tons of gutted weight of salmon and trout in the quarter, an increase of 45 percent from the same period in 2016. The farming segment’s profit before tax and fair value adjustment related to biological assets was NOK 899 million (USD 110 million, EUR 93 million) in Q3 2017, compared to NOK 534 million (USD 65 million, EUR 55 million) in Q3 2016.

However, the Norwegian fish farming industry – including Lerøy – is in a transitional phase “with extraordinarily high direct and indirect costs due to biological challenges, political decisions, and regulations,” the company said in a statement.

“Since 2013-2014, the group has made substantial investments in its own production of cleaner-fish. The group can now report very positive results with cleaner-fish,” the company said. “However, as production and utilization of cleaner-fish remain in the early stages, further improvements are expected. The challenge of excessive treatment of fish has not yet been solved, but developments in 2017 have been positive.”

LSG has invested in improvements that include a significant increase in capacity for mechanical cleaning and freshwater treatment in well boats. 

“The significant, long-term investments made by the group within several parts of the value chain shall ensure global competitiveness,” LSG said.

Development and processing of whitefish in Norway also remain challenging, according to LSG. 

“This situation is impacted by political framework conditions, but the group has a clear ambition to increase competitiveness in and earnings from whitefish, with the prevailing conditions and by means of improved marketing and improvements to operational efficiency,” the supplier said.

Despite the challenges, LSG’s wild whitefish segment, comprised of Havfisk ASA and Lerøy Norway Seafoods (LNWS), contributed NOK 62 million (USD 7.6 million, EUR 6.4 million) in operating profit during the quarter.

"We are looking forward to generating lasting values by developing the wild-catch segment together with our employees both on and offshore," Beltestad said. "In order to succeed, we need good, predictable framework conditions, based on a fundamental understanding of what is required to create and sustain jobs and values. I have faith that the Norwegian authorities recognize this, and trust that they will now allow us to develop our business without interruption in the years to come.”

Looking forward, LSG may be impacted by quota cuts in the near future; the total quota for cod is down 13 percent and the reduction in quota for haddock is 12 percent lower in 2018, according to LSG. The quotas for Greenland halibut and redfish, however, are up 12.5 percent and just over nine percent, respectively. 

For 2017, LSG expects to harvest 176,000 GWT of salmon and trout, including its share of LSG's volume from associates and a catch volume of whitefish of nearly 70,000 tons. Its total harvest volume for salmon and trout is expected to reach 180,500 GWT for 2018, including the share of LSG's volume from associates.


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