Revenues soar but Lerøy’s Q2 hit by cost challenges

Published on
August 25, 2022
A Leroy Seafood employee holding a cod.

Lerøy Seafood Group (LSG) reported revenues in excess of NOK 6.5 billion (USD 670.8 million, EUR 676.3 million) for the second quarter of 2022, a 24 percent increase over Q2 2021. At the same time, the Bergen, Norway-based fish-farming and fishing company’s operating profit before fair-value adjustments of NOK 923 million (USD 95.3 million, EUR 96 million) was 58 percent ahead of Q2 2021.

According to LSG’s Q2 2022 report, issued 24 August, the year-on-year earnings improvement was led by strong demand for seafood with a substantial increase in prices realized for the group’s main products. The company said it had achieved high salmon prices in the quarter, based on continued high demand and low supply.

Comprising the three Norwegian operations of Lerøy Aurora (located in Troms and Finnmark), Lerøy Midt (Nordmøre and Trøndelag) and Lerøy Sjøtroll (Vestlandet), the Farming segment of the business harvested 38,038 metric tons (MT) of gutted-weight salmon and trout in the period, down 10 percent on Q2 2021’s 36,756 MT. Its overall earnings before interest and taxes (EBIT) per kilogram of NOK 29 (USD 2.99, EUR 3.02) was up on the NOK 10.60 (USD 1.09, EUR 1.10) achieved a year previously.

"The harvest volume of salmon and trout will increase in the second half of the year. As usual, there will be a seasonal reduction in prices in the second half, but the underlying market is robust, and we expect earnings in the Farming segment to remain good," Lerøy CEO Henning Beltestad said.

LSG’s estaimated its total salmon and trout harvest volume for full-year 2022 at 203,000 MT, including Lerøy's share in Scottish Seafarms.

Meanwhile, in LSG’s Wild-Catch segment, Havfisk's total catch volume in the last quarter was 18,649 MT, compared with 16,345 MT in Q2 2021. Landings comprised 3,833 MT of cod, 1,330 MT of haddock, and 3,896 MT of saithe. LSG reported achieving price increases for cod, haddock and saithe of 64 percent, 31 percent, and 57 percent, respectively, compared with Q2 2021.

LSG said while bigger catches and significantly higher prices realized led to a higher catch value in Q2 2022 than in the same period of 2021, but its profitability from its sea-based operations is down due to higher costs, including crew and bunkering costs. Its fuel consumption was up slightly on Q2 2021, but fuel prices were around 100 percent higher. As a result, bunker costs were up by NOK 60 million (USD 6.2 million, EUR 6.3 million) compared to Q2 2021.

In total, the segment reported EBIT of NOK 93 million (USD 9.6 million, EUR 9.7 million) for Q2 2022, up from NOK 65 million (USD 6.7 million, EUR 6.8 million) a year previously.

Furthermore, LSG said, while higher fish prices led to greater earnings in its farming and fisheries operations, the group’s other business operations have found business conditions challenging in the short-term.

Lerøy’s Value-Added Products, Sales and Distribution (VAPS&D) segment reported Q4 2022 revenues of NOK 6.3 billion (USD 650.2 million, EUR 655.1 million), up from NOK 5.1 billion (USD 526.3 million, EUR 530.3 million) in Q2 2021. However, it also posted its first-ever operating loss – some NOK 64 million (USD 6.6 million, EUR 6.7 million), versus a profit of NOK 161 million (USD 16.6 million, EUR 16.7 million) in Q2 2021.

LSG’s said volatile prices and an extreme development in prices on the spot market are causing changes in margins throughout the value chain and that it will take time for the various parties in the different parts of the value chain to adapt to the new price level. Moreover, it said price increases for virtually all input factors, including transport, are having a negative impact on the segment’s profitability.

Beltestad said despite the difficulties, the group’s long-term picture is unchanged, and the company expects to see a gradual improvement through the second half of the year.

"Seafood is a sustainable, nutritious, and tasty protein source with attractive market prospects – including in the long term – driven by ever-increasing demand. There is of course great uncertainty in the global economy at present, but history has shown seafood markets to be resilient, even in difficult times,” he said.

The group reports revenue of almost NOK 12.1 billion (USD 1.2 billion, EUR 1.3 billion) for the first-half of 2022, compared with NOK 10.2 billion (USD 1.1 billion, EUR 1.1 billion) in H1 2021. Its operating profit before fair-value adjustment related to biological assets was close to NOK 1.6 billion (USD 165 million, EUR 166.3 million) against NOK 1 billion (USD 103.1 million, EUR 103.9 million) previously.

Photo courtesy of Lerøy Seafood

Contributing Editor reporting from London, UK

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