Leroy Seafood Group — Earnings Release 2016

Aug 18, 2016

Lerøy Seafood Group ASA: Q2 2016 Results

Lerøy Seafood Group ASA: Q2 2016 Results

RECORD PRICES GENERATE RECORD PROFIT

In Q2 2016, Lerøy Seafood Group (LSG) posted an operating profit before fair

value adjustment of biomass of NOK 760 million, compared with NOK 370 million in

Q2 2015.  This is equivalent to operating profit before biomass adjustment of

NOK 18.5 per kg compared with NOK 9.2 per kg in the same period last year.

* "The price of Atlantic salmon reached a record high in the second quarter,

which was the key driver in Lerøy Seafood Group achieving its highest

revenue and operating profit in any quarter in the Group's history," says

CEO Henning Beltestad. "We're pleased to be able to announce record profits,

but there is still considerable potential for improvement and this is where

we're concentrating our efforts," he continues.

In Q2 2016, Lerøy Seafood Group reported revenue of NOK 4,262 million, compared

with NOK 3,324 million in the same period in 2015.Compared with Q2 2015, the

Group's volume of harvested salmon and trout rose by 2%. The Group's profit

before tax and fair value adjustment of biomass was NOK 775 million in Q2 2016,

compared with NOK 364 million in Q2 2015.

The Group is reporting revenue of NOK 8,077 million for the first half of 2016,

an increase of 23% on the equivalent period last year. Operating profit before

fair value adjustment of biomass was NOK 1,345 million in the first half of

2016, compared with NOK 774 million in the same period last year. Profit before

tax and fair value adjustment of biomass was NOK 1,367 million in the first half

of 2016, compared with NOK 754 million in the same period last year.

At 30 June 2016, net interest bearing debt was NOK -7 million and the equity

ratio was 61%.

FISH FARMING SEGMENT - HIGH PRICES GENERATE HIGH EARNINGS

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

segment increased from NOK 266 million in Q2 2015 to NOK 674 million in Q2

2016. The segment harvested a total of 41,132 GWT salmon and trout in Q2 2016,

up 2% from the same period in 2015. EBIT/kg increased from NOK 6.6 per kg in Q2

2015 to NOK 16.4 per kg in Q2 2016.

In Q2 2016, Lerøy Aurora achieved operational EBIT per kg of NOK 22.4. Lerøy

Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 17.5 and NOK 14.1

respectively for the same period.

* "As previously communicated, the Group has implemented a number of measures

that aim to reduce production costs for salmon and trout," says CEO Henning

Beltestad. "In that respect, it's pleasing to report that the number of

treatments was significantly down in the first half of 2016 compared with

the first half of 2015, and that the treatments carried out in the second

quarter were largely mechanical treatments," Beltestad explains. "At the

same time, release from stock costs were significantly higher in the second

quarter of 2016 than in the same period last year, with higher feed costs as

the key driver. We expect release from stock costs to fall through the year,

and to be lower for the second half of 2016 than for the first half," says

CEO Henning Beltestad.

* "We've seen a positive price trend for trout in the second quarter, but

prices realised for trout remain significantly lower than those for salmon,"

says CEO Henning Beltestad. "The trout market has been extremely challenging

in the wake of Russia's ban on imports introduced in autumn 2014, but we're

now seeing our long-term efforts to develop new markets for trout starting

to bear fruit," he explains.

VAP SEGMENT - HIGH PRICES A CHALLENGE

Revenue in the segment is up 23%, from NOK 468 million in Q2 2015 to NOK 574

million in Q2 2016. Operating profit for the segment has increased from NOK 18

million to NOK 23 million in the same period. The operating margin in Q2 2016

was 4.1%, compared with 3.8% in Q2 2015.

* "High raw material prices have been and remain a challenge for processing

activities in the VAP segment," comments CEO Henning Beltestad. "The Group

is continuing its efforts to adapt to the expectation of permanently high

raw material prices and is pleased that the operating margin shows an upward

trend in the second quarter compared with the first quarter this year," he

adds.

SALES & DISTRIBUTION SEGMENT - GOOD LEVEL OF ACTIVITY, BUT HIGH PRICES A

CHALLENGE

Revenue for the Sale & distribution segment totalled NOK 4,062 million in Q2

2016, up 27% on Q2 2015. The segment's operating profit for Q2 2016 was NOK 74

million, up from NOK 67 million in Q2 2015, but the operating margin fell from

2.1% to 1.8% in the same period.

* "The Sales & Distribution segment increased its revenue again in the second

quarter of 2016," says CEO Henning Beltestad. "However, high prices are

putting pressure on the operating margin, which is down compared with the

same period last year. But," he adds, "there is still extensive unutilised

capacity in several of the Group's 'fish-cuts', and we see great potential

to increase activities and earnings within this part of the value chain in

the years ahead."

AGREEMENT TO ACQUIRE SHARES IN HAVFISK ASA AND NORWAY SEAFOODS GROUP AS

On 2 June 2016, the Group entered into an agreement to acquire 64.4% of the

shares in Havfisk ASA and 73.6% of the shares in Norway Seafoods Group AS.

The acquisitions are subject to the approval of the Norwegian Ministry of Trade,

Industry and Fisheries and the relevant competition authorities. The completion

date for the transactions will depend on when the necessary regulatory approvals

are obtained.

Completion will trigger a mandatory offer of NOK 36.50 per share for the

outstanding shares in Havfisk ASA. The Group also intends to make a voluntary

offer of NOK 1.00 per share for the remaining outstanding shares in Norway

Seafoods Group. The total consideration for 100% of the shares in the two

companies will be NOK 3.2 billion.

MARKET AND OUTLOOK

The Group is in a transitional phase within production of salmon and trout, with

extraordinarily high direct and indirect processing costs, combined with

increasing costs for infection prevention. The Group has made substantial

investments, including in the use of cleaner fish, and is seeing good results

from this. The Group is also investing in other tools to optimise production,

including increased capacity for mechanical cleaning and freshwater treatment in

well boats.

The Group notes to its satisfaction that the number of treatments for the first

half of 2016 is significantly lower than in the corresponding periods of 2014

and 2015. It is also pleasing to note that, of the treatments carried out, there

has been a significant increase in the share of mechanical cleaning. Towards the

end of Q2 2016, the Group essentially carried out only mechanical treatments.

The Group is now more confident that the measures taken are proving effective

and that costs in connection with treatment will fall going forward.

The Board sees considerable potential for value generation in the global growth

in demand for seafood, and believes it is important for Norway - from a

socioeconomic perspective - to ensure that parts of this value generation can

take place in Norway. The Board takes a positive view of initiatives from

Norwegian authorities that aim to facilitate growth in Norwegian seafood

production, but is uncertain as to the impact of the proposals launched to date.

It is important to re-establish predictability in framework conditions for the

Norwegian fish-farming industry; a 5- to 10-year timeframe is needed to secure

future global competitiveness. Framework conditions of this nature must be based

on an understanding of environmental sustainability and value generation. Future

competition to win global consumers will leave no room for non-essential costs,

or taxes or charges particular to Norway.

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

positive for prices realised for salmon but also means - other things being

equal - higher feed prices. The best estimate continues to indicate that feed

costs for fish harvested in 2016 will increase compared with 2015, though the

Board of Directors still sees opportunities for cost reductions in other areas

in the second half of 2016.

The Group currently estimates a total harvest volume of 173,000 GWT for 2016,

including the share of LSG's volume from associates.

In view of the potential for better productivity and the positive market

outlook, the Board of Directors and management currently expect the Group's

earnings in the second half of 2016 to be considerably better than in the

equivalent period last year.

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 of the Norwegian Securities Trading Act.

[HUG#2035774]