LEROY SEAFOOD SECOND QUARTER AND FIRST HALF OF THE YEAR
In Q2 2020, Lerøy
The Group reports revenue of
- “Earnings in Q2 2020 are substantially lower than expected at the start of the year,” says CEO
Henning Beltestad . “The key factor behind this is the fall in salmon prices caused by the impact on demand of the COVID-19 pandemic. We have no way of knowing how long we will be affected by the pandemic, but we are experiencing that the Group’s model of close integration with our customers has grown even stronger throughout these challenges. We are confident that the long-term demand for healthy and sustainable high-quality seafood has not changed and will remain high,” says Henning Beltestad. “Our main focus has been to keep the value chain open and ensure deliveries to our customers. We have succeeded in this. I am proud of and grateful for the hard work and determination my colleagues have shown,” says CEOHenning Beltestad .
THE WILD CATCH SEGMENT
Lerøy Havfisk’s primary business is wild catches of whitefish. The total catch volume for Lerøy Havfisk was 19,708 tonnes in Q2 2020, compared with 15,860 tonnes in Q2 2019. Catch volumes for the main species in Q2 2020 were 1,972 tonnes of shrimp, 2,299 tonnes of cod, 6,218 tonnes of saithe and 1,046 tonnes of haddock. The catch distribution in Q2 2019 was 6,332 tonnes of shrimp, 3,009 tonnes of cod, 2,250 tonnes of saithe and 928 tonnes of haddock.
The market for whitefish suffered a significant blow from the ripple effects of COVID-19 in Q2 2020, 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.
Lerøy Norway Seafoods (LNWS)’s primary business is processing wild-caught whitefish. The company has use of 12 processing plants and purchasing stations in
In total, the segment reported EBIT of
- “In the second quarter, the whitefish market has also suffered the impact of the ripple effects of COVID-19,” confirms CEO
Henning Beltestad . “Based on market status, we have focused on targeting our catches towards lower value species, resulting in an average price realised for all species in the second quarter that is substantially lower than the price realised in the same quarter last year. Towards the end of the second quarter and at the start of the third quarter, the Group has seen a more positive development in demand,” confirms Henning Beltestad.
THE FARMING SEGMENT
The Farming segment reported operating profit for the Farming segment before fair value adjustment related to biological assets was
In Q2 2020, the EBIT/kg figure for Lerøy Aurora was
- “Due to extremely high export volumes from
Norway , price developments for trout have been much weaker than for salmon in the second quarter and start of the third quarter,” confirms CEOHenning Beltestad . - The total release from stock costs in Q2 2020 are higher than in the same quarter last year, but – as previously reported – we expect to see a decline in these costs in the second half of the year,” confirms Henning Beltestad.
THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)
The VAPS&D segment reported revenue in Q2 2020 of
- “In 2020, the markets have suffered a severe impact from the COVID-19 pandemic. We have noticed a change in demand and trends relating to demand, and an impact on logistics for overseas markets, with a reduction in transport capacity generating increased transport costs. Our main focus has been to keep the value chain open. The situation at the start of the quarter was challenging, but we have seen signs of improvement towards the end of the quarter. Still it remains significant uncertainty relating to developments in the second half of the year,” says Henning Beltestad.
MARKET AND OUTLOOK
Price developments for
Currently, the Group’s production of redfish takes place mainly in
Capacity for flexibility and change is also important for global salmon production. Lerøy is developing its existing business by investing in knowledge and facilities to ensure competitive strengths. Irrespective of the above, the Group constantly seeks new knowledge and expertise within both onshore and offshore salmon production.
In line with its plans, the Group has reported a positive development in harvest volume in the first half of 2020, with a high share from Lerøy Sjøtroll, but has at the same time release from stock costs it considers to be higher than normal. The factors behind the high release from stock costs are a challenging situation for Lerøy Aurora and the sustained high release from stock costs for salmon at Lerøy Sjøtroll. To date in the third quarter, production in the sea has been as expected, and the current outlook is for a significant reduction in release from stock costs in the second half of 2020 and beyond. The investments made by the Group in recent years in larger smolt will gradually start to become evident. The average size of released salmon smolt at Lerøy Aurora and Lerøy Sjøtroll will be around 300 grams in 2020. Both the corporate management and the Board of Directors expect the completed investments in new smolt plants, and the ongoing investments, to provide considerable growth in production in the sea in 2020 and the years ahead. From 2020 onwards, this increase in production will gradually result in higher year-on-year harvest volumes over the next four to five years. The estimated harvest volume for 2020, including the share from associates, is currently 183,000-188,000 tonnes salmon and trout. The Group’s target is for the corresponding figures in 2021 to be between 200,000 and 210,000 tonnes.
The Group has made substantial investments in whitefish in recent years. One new vessel was added to the fleet in 2018 – Nordtind – and another in early 2020 – Kongsfjord.
For the onshore whitefish industry, the start of 2020 was difficult, but did show some signs of improvement when compared with 2019, until the ripple effects of COVID-19 started to emerge. The industry is subject to extremely strong seasonal fluctuations and Lerøy is of the opinion that profitability for the industry will depend on innovation and opportunities for specialisation. It is therefore sad and discouraging that the Norwegian Storting has not taken the input provided by the company and its employees into account in its resolution of 7 June (quota report or “Kvotemeldingen”). This resolution, implying a reduction in the quota basis for catches of cod by the trawler group, undermines the Group's raw material basis and will have negative consequences for industrial development and employment. The Storting appears to accept our proposal for more flexible utilisation of raw materials between the different facilities, but increased flexibility does not provide sufficient compensation for the disadvantages of having less raw material. In recent years, Lerøy has made a start on the work to facilitate utilisation of such increased flexibility by making substantial investments. A new processed fish factory opened in Stamsund in 2019, and phase 1 of a major conversion of the filleting plant in Melbu was completed at the start of 2020. Considerable investments have also been made in other facilities. The Board of Directors and the Group expect these investments, together with diligent, organised improvement measures in each factory, to gradually generate results.
The quota recommendations from ICES (the
Lerøy works to develop an efficient and sustainable value chain for seafood. This not only provides cost-efficient solutions, but also quality, availability, a high level of service, traceability, and competitive climate-related and environmental solutions. Investments in recent years, e.g. in a new industrial facility for Lerøy Midt and new factories in
The Group’s products are good for health and high quality, and their production is sustainable in terms of finances, the climate and the environment. The Board of Directors continues to expect good underlying growth in demand in the near future. The management and Board of Directors do not have the medical expertise to assess how long the COVID-19 pandemic will last, but are confident in assuming that demand will with time return to historical levels and continue to develop from there. The Board of Directors emphasises that the outlook is subject to much greater uncertainty than normal, but current estimates are for earnings in Q3 2020 to be significantly lower than would normally be expected. The Board of Directors underlines that the total result for the year is contingent upon how the pandemic develops and the ripple effects this will have on demand for seafood in the near future.
Questions and comments may be addressed to the company’s CEO,
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act
Attachments
- Q2 2020 Report
- Q2 2020 Presentation
© OMX, source
