Lerøy posts strong results, but faces ongoing challenges with trout
Lerøy Seafood Group reported operating profit before fair value adjustments of NOK 948 million (USD 111.1 million, EUR 97.5 million) for the fourth quarter of 2018, up from NOK 777 million (USD 91.1 million, EUR 79.9 million) in the corresponding period of 2017. The Norwegian fish farming and fishing company cited an increase in the harvest volume of salmon and trout and higher prices as the main reasons for the improved profit.
Lerøy’s revenue for the last quarter exceeded NOK 5.3 billion (USD 621 million, EUR 545 million), up from NOK 4.6 billion (USD 539 million, EUR 473 million) in Q4 2017.
For the full-year 2018, its revenue totaled NOK 19.8 billion (USD 2.3 billion, EUR 2 billion), up 7 percent on the previous year, while its operating profit dropped by NOK 148 million (USD 17.3 million, EUR 15.2 million) to less than NOK 3.6 billion (USD 421.9 million, EUR 370.2 million).
Lerøy CEO Henning Beltestad said that the fourth-quarter marked the end of a good year for the group.
“In 2018, we achieved record-high revenue and record-high harvest volumes. Our release from stock costs for salmon and trout are down on 2017 and we still have plenty of potential to improve,” Beltestad said.
The farming segment of the business harvested 49,000 metric tons (MT) gutted weight of salmon and trout in the last quarter, up from 42,000 MT in Q4 2017. Its EBIT-per-kg of NOK 15.90 (USD 1.86, EUR 1.64) was up on the NOK 13.40 (USD 1.57, EUR 1.38) achieved a year previously.
For 2018 as a whole, Farming harvested a total 162,000 MT, compared with 158,000 MT in 2017. While prices realized for salmon in 2018 were on par with 2017 prices, trout prices were down around NOK 6 (USD 0.70, EUR 0.62) per kg. In total, EBIT/kg for the segment was down from NOK 18.60 (USD 2.18, EUR 1.91) in 2017 to NOK 18.10 (USD 2.12, EUR 1.86) for 2018.
Lerøy explained that its Lerøy Sjøtroll Q4 2018 harvest comprised 48 percent trout, and that towards the end of the quarter, the group “encountered significant challenges” due to the downgrading of trout as a result of reproductive maturity. This, it said, had a substantial impact on the prices realized in the quarter, and will continue to affect prices at the start of Q1 2019.
In Q4 2018, prices realized by the farming segment for trout were NOK 12 (USD 1.41, EUR 1.23) per kilogram lower than for salmon.
Following the acquisitions of Havfisk and Norway Seafoods in 2016, Lerøy is also Norway’s largest whitefish corporation. These two businesses make up Lerøy’s Wild Catch segment, with Norway Seafoods being renamed Leroy Norway Seafoods AS (LNWS).
Havfisk's total catch volume in the last quarter was 11,515 MT, compared with 12,345 MT in Q4 2017. Landings comprised 6,534 MT of cod, 961 MT of haddock and 2,567 MT of saithe. Compared with Q4 2017, prices for cod were up 20 percent, while prices for haddock and saithe were up 17 percent and 10 percent, respectively.
LNWS’s primary business is processing wild-caught whitefish. The company has use of 12 processing plants in Norway, five of which are leased from Havfisk. However, Lerøy highlighted that 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, representing a challenge for processing operations.
Beltestad said that the group had implemented a number of measures within both production and marketing to improve its land-based earnings, but stressed that these were long-term initiatives and that it will take time before significant improvements are evident.
In Q4 2018, the Wild Catch segment contributed an EBIT of NOK 54 million (USD 6.3 million, EUR 5.6 million), down from NOK 79 million (USD 9.3 million, EUR 8.1 million) in Q4 2017. For the year as a whole, the EBIT figure contributed was NOK 388 million (USD 45.5 million, EUR 39.9 million), up from NOK 386 million (USD 45.2 million, EUR 39.7 million) in 2017.
Meanwhile, the VAP, Sales and Distribution (VAPS&D) segment reported Q4 2018 revenues of NOK 5.1 billion (USD 597.9 million, EUR 524.5 million), up 19 percent compared with the same period in 2017. Operating profit before fair value adjustment related to biological assets was up from NOK 122 million (USD 14.3 million, EUR 12.5 million) in Q4 2017 to NOK 134 million (USD 15.7 million, EUR 13.8 million) in the last quarter. For the year as a whole, its EBIT before fair value adjustment related to biological assets totaled NOK 333 million (USD 39 million, EUR 34.3 million), against NOK 435 million (USD 51 million, EUR 44.7 million) in 2017.
“We are not satisfied with the result reported by VAPS&D in 2018, although the segment did have a successful end to the year,” Beltestad said. “This segment has much more potential than realized in 2018, and we expect to see improvements in 2019.”