Leroy Seafood Group — Earnings Release 2017

May 11, 2017

Lerøy Seafood Group ASA: Q1 2017 Results

Lerøy Seafood Group ASA: Q1 2017 Results

RECORD PRICES GENERATE RECORD OPERATING PROFIT

In Q1 2017 Lerøy Seafood Group (LSG) reported operating profit before fair value

adjustments related to biological assets of NOK 1,277 million, compared with NOK

584 million in Q1 2016.

* CEO Henning Beltestad confirms: "For the first quarter of 2017, Lerøy

Seafood Group can report their highest revenue and best operating profit of

any quarter throughout the Group's history. The salmon and trout prices have

remained very high throughout the first quarter and are the most significant

driver behind the record result reported by the Group. However, release from

stock costs remain at a high level and we are working hard to reduce these

costs," confirms Henning Beltestad.

* "With the acquisitions of Havfisk and Norway Seafoods, LSG is now Norway's

largest corporation within whitefish and has a major position within

whitefish on a global scale. I am truly impressed by how the Group's

employees have adapted to the new organisational structure while continuing

to achieve record-high sales," continues Henning Beltestad. "2017 has gotten

off to a great start, and the outlook is very promising. We very much look

forward to further developing the market for whitefish," confirms the CEO.

Lerøy Seafood Group's revenue increased from NOK 3,815 million in Q1 2016 to NOK

5,459 million in Q1 2017. Compared with Q1 2016, the Group's slaughter volumes

of salmon and trout increased by 13%. The Group's profit before tax and before

fair value adjustments related to biological assets was NOK 1,294 million in Q1

2017, compared with NOK 592 million in Q1 2016.

At 31 March 2017, net interest-bearing debt was NOK 2,327 million and the equity

ratio was 55%.

NEW SEGMENTS

With effect from 1 January 2017, the Group has divided its reporting into three

segments. A description of the three segments - Wild Catch, Farming and VAP,

Sales & Distribution - is provided below.

WILD CATCH

In the autumn of 2016, Lerøy Seafood Group obtained 100% ownership of both

Havfisk ASA (Havfisk) and Norway Seafoods Group AS (renamed to Lerøy Norway

Seafoods AS). Both companies were consolidated into Lerøy Seafood Group as of 1

September 2016 and make up the new Wild Catch segment.

Havfisk's primary business is wild catches of whitefish. Havfisk has license

rights to harvest just above 10% of the total cod quotas in the zone north of

62 degrees latitude, corresponding to more than 30% of the total quota allocated

to the trawler fleet.

Havfisk's total catch volume in Q1 2017 was 20,586 tonnes, compared with 16,169

tonnes in Q1 2016. The total harvest volume in Q1 2017 comprised 9,425 tonnes of

cod, 7,380 tonnes of haddock and 2,841 tonnes of saithe. On comparison with Q1

2016, prices for cod were up 9%, prices for haddock were up 29% while prices for

saithe were down 24%. The remaining quotas as of Q1 2017 are approximately

43,000 tonnes, on par with the remaining quotas at the same time last year.

Lerøy Norway Seafoods' (LNWS) primary business is processing wild caught

whitefish. The company has eight processing plants, five of which are leased

from Havfisk. LNWS is the largest purchaser of cod from the coastal fishing

fleet in Norway.

The total contribution to operating profit made by these two companies in Q1

2017 was NOK 158 million.

FARMING - HIGH HARVEST VOLUME

Operating profit before fair value adjustments related to biological assets

reported by the Farming segment increased from NOK 522 million in Q1 2016 to NOK

1,047 million in Q1 2017. The Farming segment harvested a total of 43,307 GWT

salmon and trout in Q1 2017, up 13% from the same period in 2016. EBIT/kg

increased from NOK 13.7 per kg in Q1 2016 to NOK 24.2 per kg in Q1 2017.

In Q1 2017, Lerøy Aurora achieved operational EBIT per kg of NOK 29.8. Lerøy

Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 24.1 and NOK 22.1

respectively for the same period.

* "It is good to finally confirm that trout prices, after almost three very

difficult years, have seen a substantial improvement. At the time of

writing, the spot price for trout is higher than for salmon, although the

prices realised for trout in Q1 2017 are marginally lower than for salmon

due to contracts," explains CEO Henning Beltestad in a comment. "During the

first quarter, the Group increased its volume of salmon and trout by 13%

when compared to the same period last year. The contract share in the first

quarter was 32%," he continues.

"From an historical perspective, the release from stock costs for salmon and

trout are extremely high, and there is in particular a considerable potential to

reduce costs related to compliance with statutory limits for salmon lice. The

Group has implemented a number of measures and investments to realise this

potential, and developments to date in 2017 are positive," confirms CEO Henning

Beltestad in a comment.

VAP, SALES AND DISTRIBUTION (VAPS&D)

The VAPS&D segment reported revenue in Q1 2017 of NOK 4,992 million, up 34% when

compared with the same period last year. The operating profit before fair value

adjustments related to biological assets was up from NOK 71 million in Q1 2016

to NOK 86 million in Q1 2017. This constitutes an operating margin before fair

value adjustments related to biological assets of 1.7% in Q1 2017.

* "The downstream segment has reported a historically high level of activity

in Q1 2017," confirms CEO Henning Beltestad. "The Group is already able to

identify the positive results of the acquisition of whitefish operations on

its marketing activities.

* Lerøy Seafood Group has a clearly defined ambition to drive a continuous

process of market and product development. The Group has in-depth knowledge

of the end market, and we believe that the strong growth in demand for

seafood in general, and fresh seafood in a consumer-friendly format in

particular, gives grounds for optimism for operations in the future,"

concludes Henning Beltestad.

MARKET AND OUTLOOK

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

extraordinarily high direct and indirect treatment costs, combined with

increasing costs for prevention. Prevention costs are expected to increase in

2017, while costs related to treatment are expected to fall.

There is significant potential for reductions in treatment costs, and the Group

has a clearly defined strategy and goal to realise this potential, while

acknowledging that it remains difficult to specify a time line for such a

development.

For a number of years now, the Board of Directors and management have clearly

stated their views on the need for changes to regulations in Norway. The Board

of Directors is of the opinion that a growth in demand over time is perhaps the

most important driver for global competitiveness and increased value generation.

From a long-term market perspective, the Norwegian fish farming industry is in a

challenging situation at the start of 2017, as lack of growth in volume has

resulted in very high prices. The Norwegian fish farming industry will only be

able to retain its global competitiveness over a time frame of the next five to

ten years if framework conditions facilitate growth in production in Norway.

Framework conditions of this nature must be based on an understanding of

environmental sustainability and value generation.

The White Paper on the "cod trawler fleet land-lock obligation system" has

recommended substantial changes to the Group's framework conditions within

whitefish. The Board of Directors and management are relieved to see that the

Norwegian government has understood the need to modernise the framework

conditions for the whitefish industry in Norway, but are not happy with the

recommendation to reduce the Group's basic quota by 20%. It is essential for the

Group to sustain its raw material basis in order to substantiate the Group's

long-term industrial investments both at sea and on land. The Norwegian

Parliament is expected to reach a decision on the White Paper during the second

quarter of 2017.

The Group currently estimates a total harvest volume of 180,000 GWT salmon and

trout for 2017, including LSG's volume from associates and a wild catch volume

in excess of 60,000 tonnes.

The Group's harvested volume of salmon and trout will be significantly lower in

Q2 2017 when compared with both Q1 2017 and Q2 2016. The Board of Directors

therefore expects results before fair value adjustments in Q2 2017 to be

substantially lower than in Q1 2017, but at the same time that the results

before fair value adjustments for 2017 to be higher than in 2016.

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.