Leroy Seafood Group — Earnings Release 2015

Nov 11, 2015

Lerøy Seafood Group ASA: Q3 2015 Results

Lerøy Seafood Group ASA: Q3 2015 Results

A CHALLENGING QUARTER

Lerøy Seafood Group (LSG) posted an operating profit before fair value

adjustment of NOK 253 million in Q3 2015, compared with NOK 303 million in Q3

2014. This is equivalent to operating profit before biomass adjustment of NOK

6.2 per kg compared with NOK 7.3 in the same period last year.

"The operating profit for Q3 2015 bears witness to the difficulties faced on the

trout market caused by the sustained political trade barriers and the early

harvest of salmon, with lower prices realised and higher release from stock

costs," explains CEO Henning Beltestad. "However, we are experiencing a strong

growth in demand for Norwegian seafood, and the weaker Norwegian krone has

boosted our competitiveness. We expect in the future to witness the results of

the measures and investments made by the Group to reduce production costs for

salmon and trout," Henning Beltestad continues.

In Q3 2015, Lerøy Seafood Group (LSG) reported turnover of NOK 3,295 million,

compared with NOK 2,962 million in the same period in 2014. The operating profit

for the third quarter includes a loss of NOK 3 million from the sale of assets,

compared with a corresponding gain of NOK 75 million in Q3 2014. Compared with

Q3 2014, the Group's volume of harvested salmon and trout fell by 2%. The

operating profit figure, as notified to the stock exchange on 14 October 2015,

has been significantly undermined by political trade barriers involving

Norwegian trout and the early harvest of salmon in Central Norway.

At the end of the third quarter 2015, the Group reported turnover of NOK 9,886

million, up 6% from the corresponding period last year. Operating profit before

fair value adjustment of biomass for the period was NOK 1,027 million, compared

with NOK 1,353 million in the same period last year. Profit before tax and fair

value adjustment of biomass was NOK 985 million for the first three quarters of

2015, compared with NOK 1,423 million in the same period last year.

At 30 September 2015, net interest-bearing debt was NOK 2,534 million and the

equity ratio 53%.

FARMING SEGMENT - DIFFICULT MARKET FOR TROUT, BUT IMPROVING

Operating profit before fair value adjustment of biomass reported by the Farming

segment amounted to NOK 178 million in Q3 2015, up from NOK 154 million in the

same period in 2014. The Farming segment harvested a total of 40,682 GWT salmon

and trout in Q3 2015, a reduction of 2% on the same period in 2014. EBIT/kg

increased from NOK 3.7 per kg in Q3 2014 to NOK 4.4 per kg in Q3 2015.

In Q3 2015, Lerøy Aurora achieved operational EBIT per kg of NOK 16.6. Lerøy

Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 3.9 and NOK 0.1

respectively for the same period.

"We have experienced extraordinarily high differences in prices for the various

sizes of salmon, and have noted that the Group's realised prices and release

from stock costs have been negatively affected by size distribution in the

quarter," explains CEO Henning Beltestad. "Release from stock costs for the

Group in the quarter are at an extraordinarily high level, but we expect the

measures implemented to generate a positive impact as we enter 2016," he adds.

"The difficulties represented by Russia's ban on imports of Norwegian salmon and

trout from 7 August 2014 were exacerbated at the end of August 2015 when

restrictions were introduced on the import of salmon and trout to the EAEU

customs union (Eurasian Economic Union), an area covering several of Russia's

neighbouring countries. These trade barriers have unfortunately had a

substantially negative impact on the trout market in particular," explains

Henning Beltestad.

VAP SEGMENT - GOOD GROWTH IN ACTIVITY

The VAP segment currently comprises four units and the turnover in the segment

is up 17%, from NOK 410 million in Q3 2014 to NOK 482 million in Q3 2015. The

operating margin is down from 6.8% in Q3 2014 to 6.5% in Q3 2015.

"The VAP segment can report a steady and positive rate of development," confirms

Henning Beltestad in a comment. "The Group's work on marketing, along with good

national and international customers, has resulted in improvements to

utilisation of total capacity, and the segment can report a good underlying

development. However, there still remains room for improvement in terms of

exploitation of capacity for several units," the CEO adds.

SALES & DISTRIBUTION SEGMENT - ANOTHER QUARTER OF POSITIVE DEVELOPMENT

The Sales & Distribution segment reported revenue of NOK 3,024 million in Q3

2015, up 7% on Q3 2014. The operating margin is in line with the figure reported

last year of 2.0%.

"The Sales & Distribution segment's main point of focus is on driving demand for

seafood in the form of new products and new markets. In order to ensure a wide

product range for the Group within seafood, the Sales & Distribution segment

sells all its own produced salmon and trout in parallel with efforts to develop

a significant collaboration with third parties," explains CEO Henning Beltestad.

"We are delighted that the Sales & Distribution segment can report an increase

in turnover in the third quarter of 2015. Moreover, we can see a high potential

to continue increasing activities and earnings within this part of the value

chain in years to come, based on the level of unexploited capacity remaining in

several fish-cut facilities," confirms Henning Beltestad.

MARKET AND OUTLOOK

It is of decisive importance that the Group and the Norwegian fish farming

industry as a whole uphold the capacity for sustainable operations in the

future. The authorities and the industry must collaborate to ensure that future

framework conditions are based on fact-based knowledge, so that such conditions

continue to generate growth and increased value generation in the years to come.

The Group has made substantial investments in the use of cleaner fish. In

locations where cleaner fish have been in use, the Group has achieved positive

results. However, as previously reported, the Group will not reach full-scale

utilisation of cleaner fish in all locations until 2016. Cleaner fish represent

an important tool, but other measures are also required to achieve optimal

production including mechanical cleaning and fresh water treatment. In 2015, the

Group is in a transitional phase, requiring extraordinarily high direct and

indirect treatment costs in addition to major costs for prevention.

The Norwegian krone has weakened against key currencies. This dynamic is

positive for prices realised for salmon but also means - all other factors being

equal - higher feed prices. As a result of our description of a challenging

situation for Lerøy Midt, the Board of Directors expects release from stock

costs to be higher than those deemed normal by the Board and management in the

fourth quarter, but with the potential for reductions in 2016.

One very positive factor was the re-establishment of imports to parts of the

EAEU customs union towards the end of October 2015. At the time of writing, it

appears that there are very limited opportunities for growth in the global

supply of salmon and trout for the next few years. This gives rise to

expectations for a tight market in 2016. The Board of Directors has a positive

outlook due to their confidence in the potential for substantial improvements to

own production.

Kontali currently estimates a decline in the supply of Norwegian salmon in

2016. This implies in principle that there has not been any growth in Norwegian

production since 2012. Given the prevailing political framework, neither are

there any prospects for growth in the medium term. It is important that the

industry and political premise setters do their utmost to ensure that the

industry can exploit its potential for a lasting increase in value generation

and increased employment. It is crucial that Lerøy and the industry are able to

solve current challenges, but of equal importance is the willingness among both

local and national politicians to take a long-term perspective towards decision-

making and framework development in order to allow the industry to fully exploit

its major potential. The rapid response from the Norwegian authorities to the

industry's need to implement provisional growth in maximum allowable biomass

(MAB), as a result of the above-mentioned trade barriers, is extremely positive

for value generation and facilitates continuity in employment.

The Group currently estimates a total harvest volume of 173,000 GWT for 2015,

including the share of LSG's volume from associates. The Board of Directors also

currently estimates a corresponding total harvest volume for 2016 of 185,000

GWT.

At the time of writing, the Board of Directors and management expect to see a

result in Q4 2015 in line with the figures reported in Q3 2015.

Queries 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 of the Norwegian Securities Trading Act.

[HUG#1965921]