Leroy Seafood Group — Earnings Release 2015

Aug 13, 2015

Lerøy Seafood Group ASA : Q2 2015 Results

Lerøy Seafood Group ASA : Q2 2015 Results

GOOD DEVELOPMENT DOWNSTREAM; CHALLENGES REMAIN FOR TROUT

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

adjustment of biomass of NOK 370 million in Q2 2015, compared with NOK 500

million in Q2 2014. This is equivalent to operating profit before biomass

adjustment of NOK 9.2 per kg compared with NOK 12.2 in the same period last

year.

* "This is the highest quarterly revenue in the Group's history and a

reflection of our increased activity downstream," says CEO Henning

Beltestad. He goes on to explain that the main reason for the reduction in

operating profit from Q2 2014 to Q2 2015 is higher release from stock costs

for own-produced salmon and trout.

For Q2 2015, Lerøy Seafood Group is reporting revenue of NOK 3,324 million,

compared with NOK 3,177 million in the same period in 2014. Compared with Q2

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

The Group is reporting revenue of NOK 6,592 million for the first half of 2015,

an increase of 4% on the equivalent period last year and the highest half-year

revenue in the Group's history. Operating profit before fair value adjustment of

biomass was NOK 774 million in the first half of 2015, compared with NOK 1,051

million in the same period last year. Profit before tax and fair value

adjustment of biomass was NOK 754 million in the first half of 2015, compared

with NOK 1,129 million in the same period last year.

At 30 June 2015, net interest-bearing debt was NOK 2,611 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 266 million in Q2 2015, down from NOK 421 million in the

same period in 2014. The Farming segment harvested a total of 40,295 GWT salmon

and trout in Q2 2015, a reduction of 2% on the same period in 2014. EBIT/kg fell

from NOK 10.3 in Q2 2014 to NOK 6.6 in Q2 2015.

In Q2 2015, Lerøy Aurora achieved operational EBIT per kg of NOK 11.4. Lerøy

Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 8.6 and NOK 2.3

respectively for the same period.

* "Russia's import ban on Norwegian salmon and trout that came into force on

7 August 2014 remains in place and continues to affect the market,

particularly for trout," says CEO Henning Beltestad. "The main trend

indicates that volume previously sold to Russia is now being sold to Europe,

which is putting enormous pressures on prices, particularly for trout. Major

efforts are under way to boost sales to alternative markets and are slowly

bearing fruit. However, the prices realised for trout in Q2 2015 were again

below the prices realised for salmon. As the world's largest producer of

trout, this means the Group has suffered a significant negative impact on

its realised prices in Q2 2015."

* "Release from stock costs, especially for trout, remain at an

extraordinarily high level historically," says Henning Beltestad. "However,

we expect measures implemented by the Group in 2014 and 2015, especially

those involving cleaner fish, to reduce production costs throughout 2015 and

into 2016," he adds.

VAP (VALUE-ADDED PROCESSING) SEGMENT - GOOD GROWTH IN ACTIVITY

The VAP segment comprises four units where Lerøy Seafood Group has invested

significantly to increase its capacity for high-value processed salmon and trout

in recent years. Revenue in the segment is up 18%, from NOK 395 million in Q2

2014 to NOK 468 million in Q2 2015. The operating margin is down from 5.3% in Q2

2014 to 3.8% in Q2 2015.

* "We can see that the Group's marketing work, coupled with good domestic and

international customers, has improved capacity utilisation in the segment,"

says Henning Beltestad, and goes on to explain that additional improvements

in capacity utilisation and continued good growth are expected in this

segment.

SALES & DISTRIBUTION SEGMENT - ANOTHER QUARTER OF POSITIVE DEVELOPMENT

The Sales & Distribution segment reported revenue of NOK 3,192 million in Q2

2015, up 6% on Q2 2014. The operating margin is on a par with last year at

2.1%, but this year's figure is encumbered by restructuring costs of almost NOK

10 million.

* "The segment's main focus is driving demand for seafood by launching new

products and pioneering new markets. As well as selling the Group's own

production of salmon and trout, the segment also sells and distributes high

volumes of seafood from external suppliers and alliance partners, ensuring

the Group a broad selection of seafood products," explains Henning

Beltestad.

* "Lerøy Seafood Group is part of the 'revolution' in the distribution of

fresh seafood," he continues.  "In recent years, the Group has invested

heavily in capacity at a number of processing facilities in key locations

around Europe to ensure freshness, service and proximity to customers. We

still have unutilised capacity in several 'fish-cuts' and see great

potential to increase activities and earnings within this part of the value

chain in the years ahead," says Henning Beltestad.

MARKET AND OUTLOOK

Following publication of the White Paper on the Norwegian aquaculture industry

in Q1 2015, the matter was debated and passed by the Storting, the Norwegian

parliament, in Q2. As communicated in the previous quarterly report, the Board

of Directors took a positive view of the long-term nature of the proposals but

was highly critical of the model/indicators proposed for use in order to control

future growth. The Board is pleased that the Storting also recognised this, and

that the model in question has been deferred for the present. It is of vital

importance to the development of our industry that politicians understand its

potential, and avoid becoming too caught up in the immediate challenges.

The Group has invested heavily in using cleaner fish in 2014 and into 2015, and

is seeing positive effects from this in the form of a significant reduction in

the number of treatments. However, the Group is still in a transitional phase

with extraordinarily high treatment costs. The focus on cleaner fish is being

scaled up this year and will not be fully implemented until 2016. The Norwegian

krone has weakened further against key currencies. This dynamic is positive for

prices realised for salmon but also means higher feed prices. As at today's

date, the Board expects release from stock costs in the coming quarter to remain

at a level above what the Board and management consider normal, but with the

potential for significant reductions during 2016.

With a view to the market prospects and the Group's potential for cost

reductions, the Board of Directors has a positive outlook on the future.

The Group currently estimates a total harvest volume of 181,500 GWT for 2015,

including the share of LSG's volume from associates.

The Board has previously been clear in its views on the need for changes in

regulation of the fish-farming industry in Norway in favour of using so-called

rolling MABs, in order to reduce seasonal variation in the supply of salmon from

Norway. In the absence of such change, the Board again expects to see seasonal

price falls in parts of the second half of the year, but expects good earnings

in the Group in the coming quarter, too, thanks to good contract coverage.

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#1945219]