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Lerøy Seafood Group ASA: Q3 2020 Results

Lerøy Seafood Group ASA
·13-min read


In Q3 2020, Lerøy Seafood Group (LSG) reported revenue of NOK 4,773 million, compared with NOK 5,102 million in the same period in 2019. Operating profit before fair value adjustment related to biological assets was NOK 370 million in Q3 2020, compared with NOK 501 million in Q3 2019. The most significant factor behind the lower earnings is the challenges on the whitefish market resulting from the COVID-19 pandemic, and the change in catch composition compared with Q3 2019.

The Group reports revenue of NOK 14,790 million for the first three quarters of 2020, compared with NOK 15,188 million in the same period of 2019. Operating profit before fair value adjustment related to biological assets for the first three quarters of 2020 was NOK 1,508 million, compared with NOK 1,965 million for the same period last year. The profit before tax and fair value adjustment related to biological assets for the first three quarters of 2020 was NOK 1,397 million, compared with NOK 1,966 million for the same period last year.

“The restrictions introduced to combat the COVID-19 pandemic continue to impact demand for seafood. In the third quarter, the restrictions have had a particularly negative impact on earnings for the whitefish segment. 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 the end consumer has grown even stronger throughout this period. In the long term, we also believe that demand for healthy, good and sustainable seafood will not change and will experience growth,” says CEO Henning Beltestad.

“One main target also in Q3 has been to keep the value chain open and ensure deliveries to our customers. We have succeeded in this. I would like to thank all my colleagues for their hard work in a challenging time.”

“2021 is just around the corner, and this is a year when we expect to see the initial effects of our substantial investments in smolt and other improvement measures,” explains CEO Beltestad. “Currently, developments are mainly moving ahead according to schedule, and we expect to see considerable growth in the harvest volume for redfish in 2021.”


The wholly owned subsidiary Lerøy Havfisk’s primary business is wild catches of whitefish. As described in the interim report for Q2 2020, restrictions introduced due to the COVID-19 pandemic have had a very negative impact on demand for whitefish species and have resulted in a challenging market for shrimp. There have been signs of market improvements in the third quarter of 2020, but this has still been a difficult quarter with falling prices and lower catch rates compared with Q3 2019.

The catch volume for Q3 2020 is 11,083 tonnes compared with 13,152 tonnes in Q3 2019. When compared with Q3 2019, the prices for cod, haddock and saithe have fallen by 9%, 32% and 8% respectively. There has also been a decline in other fish species. If we compare prices in Q3 2020 with the peak in prices experienced in the first quarter, i.e. partly before COVID-19, the cod and saithe prices in the third quarter are down 22% and haddock prices are down 42%.

Lerøy Norway Seafoods’ primary business is processing wild-caught whitefish. The company has use of 12 processing plants and purchasing stations in Norway, five of which are leased from Lerøy Havfisk. The processing of whitefish in Norway has been extremely challenging for many years. In normal circumstances, lower prices for raw materials should be a positive factor for the onshore industry, but the ripple effects of COVID-19 have been negative for both production and marketing. Market demand for fresh and conventional products saw a significant decline in the quarter.

In total, the segment reported EBIT of NOK -50 million in Q3 2020, compared with NOK 40 million in the same period of 2019. Catch patterns will always affect the timing of earnings realisation. The segment has contributed EBIT of NOK 215 million in the first three quarters of 2020, compared with NOK 252 million in the same period of 2019.

“The impact of the COVID-19 restrictions is currently more significant on the whitefish market than the redfish market, and this is affecting earnings both for our fleet of fishing vessels and our onshore operations. We have reduced our cod catches in the quarter, and the lower catch volume at lower prices realised result in substantially lower earnings,” explains CEO Beltestad.


Operating profit for the Farming segment before fair value adjustment related to biological assets was NOK 308 million in Q3 2020, compared with NOK 362 million in Q3 2019. During the quarter, the Farming segment harvested 44,000 tonnes, compared with 46,000 tonnes in Q3 2019.

In Q3 2020, the EBIT/kg figure was NOK 13.1 for Lerøy Aurora, NOK 11.2 for Lerøy Midt and NOK -3.2 for Lerøy Sjøtroll. In total, EBIT/kg for the segment was down from NOK 7.9 in Q3 2019 to NOK 7.0 in Q3 2020. Compared with the same quarter in 2019, costs per kilo are down, but the reduction in prices realised in the same period is slightly larger.

“The export volume for trout has grown significantly in the third quarter also, compared with last year, and this has an impact on prices realised for trout. This growth came to a halt at the start of the fourth quarter, and we expect this to result in improved development in prices for trout when compared with salmon,” confirms CEO Henning Beltestad.

“Total release from stock costs in Q3 2020 are substantially lower than those reported in Q2 2020, and lower than in Q3 2019. At the time of writing, we expect a further decline in release from stock costs in Q4 2020, and that the growth in volume and measures to reduce costs as we move towards 2021 will provide further cost reductions,” says Henning Beltestad.


With its fully integrated, efficient value chain for salmon, trout, whitefish and shellfish, Lerøy Seafood Group shall be able to supply products that are best suited to the consumers’ preferences. Proximity to key markets and knowledge of the customer’s needs are therefore of decisive importance if the Group is to develop demand for its main products. In the space of a calendar year, Lerøy distributes more than 70 different fish species from Norway to more than 80 different markets. In addition, the Group processes and distributes a number of market-specific seafood products to their respective local markets where Lerøy has operations. Lerøy Seafood Group’s value chain shall be developed further in order to satisfy and increase the consumers’ total demand for seafood.

In Q3 2020, the segment reported a revenue figure that was down 4% on Q3 2019. In recent years, the Group has implemented substantial initiatives for improvement of several of the units in the segment, including facilitating better interaction along the Group’s value chain. These initiatives are now starting to produce results, and the operating profit before fair value adjustment related to biological assets in Q3 2020 is NOK 131 million, up from NOK 109 million in Q3 2019.

“The COVID-19 pandemic has had an effect on the level of activity on the markets in the third quarter also. The value of the Group's long-term investments in downstream operations is all the more apparent in light of the consequences of COVID-19. The initiatives for improvement implemented are starting to show results. This provides an underlying growth in earnings in the segment when compared with 2019,” confirms Henning Beltestad.


Price developments for Atlantic salmon have been highly volatile in 2020 also, substantially influenced by the ripple effects of COVID-19. The situation improved in the third quarter, partly because restrictions on end markets were gradually lifted and logistics costs for exports from Norway fell. However, the situation is once again more uncertain at the start of Q4 2020. The ripple effects of COVID-19 have had and will continue to have a negative effect on dynamics in 2020. It is not possible for the management and Board of Directors to form any precise opinion on either the duration or the consequences of the pandemic.

The Group’s production of red fish currently takes place mainly in Norway. Norwegian and global salmon and trout production are experiencing relatively modest growth, which – combined with a weaker Norwegian krone – has resulted in very high prices. This provides an incentive to start production of salmon in new areas using alternative technologies. These incentives have existed for several years now, but with long lead times in the industry, Norwegian production in marine fish farms has maintained its predominant position. The harvest volume from salmon produced onshore remains insignificant on the end markets. The market share for Norwegian Atlantic salmon may, in the long term, be affected by production of salmon and trout in new regions and locations. Through business development, investments and a clear operational focus on competitiveness, the Group shall ensure that its value chain stands strong in the face of competition in the years to come.

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 recent years, Lerøy has made significant investments in several parts of the value chain, including building facilities for smolt/post-smolt capacity in all the Group’s regions. Lerøy Sjøtroll’s Kjærelva facility is now completed and has an annual biomass production of around 4,000 tonnes. In Q4 2020, Lerøy Aurora will complete the final stage of construction on a development that will provide an increase in biomass production of around 4,500 tonnes. Lerøy Midt has started work to extend the Belsvik facility, scheduled for completion next year and forecast to provide around 5,000 tonnes of biomass production. The Group’s investments in improved smolt production, and post-smolt production, have been substantial and will, in combination with a number of other initiatives, support the Group’s ambition to achieve growth in production and thereby significantly improved licence capacity utilisation.

The Group can now produce smolt of a much higher quality than only a few years ago. The average size of released salmon smolt at Lerøy Aurora and Lerøy Sjøtroll is already showing signs of a positive development in 2020. The average size, in Lerøy Aurora and Lerøy Sjøtroll, is moving towards 300 grams, and the Board of Directors and management expect that both completed and ongoing investments will provide substantial growth in production of fish for consumption in the near future.

Over the past year, the Group has worked with a projected harvest volume in 2020, including associates, of 183,000-188,000 tonnes of salmon and trout. Current projections are that the harvest volume will be closer to the lower end of the range, but with a somewhat higher biomass in the sea at the end of 2020 than originally planned. Current projections for 2021 are for a harvest volume, including associates, of 205,000-210,000 tonnes. Harvested volume may obviously be impacted by biological development, but also commercial decisions dependent on expectations for price development. Both completed and ongoing investments will provide further growth in the years to come.

For the Group, the aim is clear: for this growth, combined with other improvement measures, to reduce the Group’s release from stock costs for salmon in 2021 and the following years.

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. Further improvements to fish quality were established as important design criteria for Kongsfjord. Consumers’ expectations and quality requirements continue to increase, making high quality and competitiveness key factors for success when competing to attract consumers.

The whitefish industry, including onshore operations, has suffered significant impacts on demand from COVID-19 in 2020. It is naturally not possible for the Group to know how long the restrictions will last, but Lerøy’s long-term plans remain the same. The work on and investments in making the factories less seasonally reliant continue, along with structured and meticulous improvement work in each unit. We believe that this process will generate results with time.

In June 2020, ICES (the International Council for the Exploration of the Sea) published its recommendations for the total quotas of cod, haddock and saithe in 2021. These entail an increase of 20% for cod and 8% for haddock. ICES also recommends increasing the quota for saithe north of 62 degrees by around 15% and reducing the quota for saithe in the North Sea by around 25%. At a meeting on 16 October 2020, the Joint Norwegian–Russian Fisheries Commission issued quotas for cod, haddock and saithe in the north in line with the recommendations. The Norwegian authorities will establish the final quotas in the autumn, and the quota increase for cod for Lerøy Havfisk is expected to be slightly lower than the increase in the total quota, due to the above-mentioned changes in the sharing ratio between sea and coast in the wake of the quota report.

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 Spain and the Netherlands, now commissioned, will make a positive contribution in the years to come. The management and Board of Directors are confident that Lerøy has a good starting point for continued profitable growth and development of Group operations.

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 management and Board of Directors continue to expect good underlying growth in demand in the years ahead. It is not possible for the management and Board of Directors to assess how long the COVID-19 pandemic will last, but we are confident in assuming that demand will with time return to historic 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 Q4 2020 to show a significant improvement on the third quarter. The Board of Directors underlines that results in 2021 will also be affected by the development of the pandemic and the impact this will have on demand for seafood. The Board of Directors’ best assessment, at the time of writing, is however that Lerøy is well positioned to achieve considerable improvements in profitability in 2021 compared with this year.

The Board of Directors and corporate management would like to thank all the Group’s employees for their hard work to date during the COVID-19 pandemic.

Questions and comments may be addressed to the company’s CEO, Henning Beltestad, or to the CFO, Sjur S. Malm.

This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act