Lower salmon prices hit Lerøy’s second-quarter earnings

Published on
August 20, 2020

Lerøy Seafood Group saw its revenue fall in the second quarter of 2020 compared to 2019, largely due to downward pressure on salmon prices caused by the ongoing COVID-19 pandemic.

Lerøy achieved revenues of NOK 4.7 billion (USD 525.8 million, EUR 444.1 million) in the second-quarter of this year, down from the NOK 5.3 billion (USD 592.9 million, EUR 500.8 million) that it made in the corresponding period of 2019. Operating profit before fair value adjustments fell by 60 percent to NOK 322 million (USD 36 million, EUR 30.4 million).

In its second-quarter 2020 results report, the Norwegian fish farming and fishing group stated that the most significant contributing factor to the fall in earnings from the same period last year is the lower margin-per-kilogram for its Farming segment, which had been caused by significantly lower prices.

Its profit before tax and fair value adjustment related to biological assets was NOK 303 million (USD 33.9 million, EUR 22.6 million) in the last quarter, compared with NOK 776 million (USD 86.8 million, EUR 73.3 million) in Q2 2019.

Comprising the three Norwegian farming regions – Lerøy Aurora located in Troms and Finnmark, Lerøy Midt located in Nordmøre and Trøndelag, and Lerøy Sjøtroll located in Vestlandet – LGS’s Farming’s operating profit before fair value adjustment related to biological assets was NOK 216 million (USD 24.2 million, EUR 20.4 million), compared with NOK 595 million (USD 66.5 million, EUR 56.2 million) in Q2 2019. Some 38,900 metric tons (MT) gutted weight of salmonids were harvested, up from 37,000 MT in Q2 2019.

The segment’s EBIT-per-kilogram was down from NOK 16.10 (USD 1.80, EUR 1.52) in Q2 2019 to NOK 5.50 (USD 0.62, EUR 0.52).

According to the group’s report, the spot prices for salmon were extremely high at the start of 2020 – at around NOK 80 (USD 8.94, EUR 7.56) per kilogram – but these were “severely negatively affected” by the impact on demand that resulted from the restrictions introduced to control the COVID-19 pandemic. At the start of Q2 2020, the spot prices stood at just over NOK 50 (USD 5.59, EUR 4.73) per kilogram.

However, an easing of the restrictions from the second-half of the quarter has produced improvements in demand and higher prices, it said.

Meanwhile, the average price for salmon the last quarter was NOK 57.90 (USD 6.47, EUR 5.47) per kilogram, compared with NOK 68.50 (USD 7.66, EUR 6.47) per kilogram in Q1 2020 and NOK 62.10 (USD 6.94, EUR 5.87) per kilogram in Q2 2019. That constituted a fall in price of NOK 11 (USD 1.23, EUR 1.04) per kilogram from Q1 2020 and NOK 4 (USD 0.45, EUR 0.38) per kilogram from Q2 2019.

Measured in terms of value, Lerøy said the demand for Norwegian trout has declined less than for Norwegian salmon in Q2 2020, but a substantial increase in harvest volume has resulted in major pressure on trout prices. To date, Norwegian trout exports are up around 25 percent on 2019, putting trout prices considerably lower than salmon prices in the quarter.

The estimated harvest volume of salmon and trout for 2020, including the share from associates, is currently 183,000-188,000 MT. Its target for 2021 is between 200,000 and 210,000 MT.

Within the group’s Wild Catch segment, Havfisk's whitefish landings in the last quarter totaled 19,708 MT, up from 15,860 MT in Q2 2019. This catch included 2,299 MT of cod, 1,046 MT of haddock, 6,218 MT of saithe, and 6,589 MT of redfish. Some 1,972 MT of shrimp was also caught.

While catch rates for the quarter were good, the market for whitefish “suffered a significant blow from the ripple effects of COVID-19” in Q2 2020, the report said, with falling prices for the main species when compared with Q1 2020 and a challenging market situation for shrimp, which has affected both catch strategy and catch patterns.

In total, the segment reported EBIT loss of NOK 5 million (USD 559,019 million, EUR 472,529 million) for the quarter, compared with gains of NOK 40 million (USD 4.5 million, EUR 3.8 million) in Q2 2019.

Looking ahead, Lerøy expects 2021 to be more positive for the segment with the International Council for the Exploration of the Sea (ICES) recommending that Norway’s total cod quota can be increased by 20 percent and haddock by 8 percent. ICES has also recommended increasing the quota for saithe north of 62 degrees by 15 percent and reducing the quota for saithe in the North Sea by 15 percent.

The final quotas will be established by the Norwegian authorities in the autumn.

For the first-half of 2020, Lerøy’s revenue decreased slightly to just over NOK 10 billion (USD 1.1 billion, EUR 944.9 million), while its operating profit for the six months fell by NOK 327 million (USD 36.6 million, EUR 30.9 million) to NOK 1.1 billion (USD 123 million, EUR 104 million). Its profit before tax and fair value adjustment related to biological assets for the period was just over NOK 1 billion (USD 111.8 million, EUR 94.5 million), compared with NOK 1.5 billion (USD 167.8 million, EUR 141.8 million) for the first-half of 2019.  

Photo courtesy of Lerøy Seafood Group

Contributing Editor reporting from London, UK

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