Leroy Seafood Group — Earnings Release 2018

May 8, 2018

Lerøy Seafood Group ASA : Q1 2018 Results

Lerøy Seafood Group ASA : Q1 2018 Results

STRONG DEMAND FOR SEAFOOD

In Q1 2018, Lerøy Seafood Group (LSG) reported revenue of NOK 5,000 million,

compared with NOK 5,459 million in the same period in 2017. Operating profit

before fair value adjustment related to biological assets was NOK 960 million in

Q1 2018, compared with NOK 1,277 million in Q1 2017. The decline in profit in Q1

2018 when compared with the same quarter in 2017 is mainly attributed to a lower

harvest volume and lower prices realised for salmon and trout. Exclusive of

earnings from the Wild Catch segment, this corresponds to an EBIT per kilo

before value adjustment related to biological asset in Q1 2018 of NOK 20.8

compared to NOK 25.8 for the same period in 2017.

"I am satisfied with the result we have achieved in the first quarter of 2018,"

confirms CEO Henning Beltestad. He continues: "There is a strong demand for

seafood and this has produced a positive development in prices in the first

quarter of 2018."

"The process of developing Lerøy into a fully integrated company with both

whitefish and redfish in our value chain continues at full pace," explains CEO

Henning Beltestad. "I am proud of the Group's highly skilled employees who work

towards targets in every part of the value chain and who constantly have to

adapt to developments in line with customer requirements," confirms CEO Henning

Beltestad.

The Group's associates play an important role and have successful operations.

Income, before fair value adjustment related to biological assets, from

associates were NOK 84 million in Q1 2018, compared with NOK 63 million in Q1

The Group's profit before tax and fair value adjustment related to biological

assets was NOK 1,018 million in Q1 2018, compared with NOK 1,294 million in Q1

At 31 March 2018, net interest-bearing debt was NOK 2,293 million and the equity

ratio was 57.5%.

THE WILD CATCH SEGMENT

Havfisk's primary business is wild catches of whitefish. Havfisk's total catch

volume in Q1 2018 was 22,268 tonnes, compared with 20,586 tonnes in Q1 2017.

Catch rates in the first quarter have been good. Catch volumes for the main

species in Q1 2018 were 9,275 tonnes of cod, 3,686 tonnes of saithe and 6,545

tonnes of haddock. The catch distribution in Q1 2017 was 9,425 tonnes of cod,

2,841 tonnes of saithe and 7,380 tonnes of haddock. In comparison with Q1 2017,

the average price for all species increased by 11% in Q1 2018. The prices for

cod and haddock increased by 12% and 20% respectively in the quarter, while

prices for saithe fell by 1%.

LNWS's primary business is processing wild caught whitefish. The company has use

of eight processing plants in Norway, five of which are leased from Havfisk. The

processing of whitefish in Norway has been extremely challenging for many years.

As a result of high demand for seafood, the raw material prices increased

throughout the first quarter of 2018, representing a challenge for processing

operations.

In total, the segment reported operating profit of NOK 178 million in Q1 2018,

compared with NOK 158 million in the same period of 2017.

"Havfisk's new trawler, Nortind, was delivered from the shipyard in January

2018 and has had very successful operations so far," confirms CEO Henning

Beltestad. He continues: "The new trawler and the increase in catch volumes and

higher average prices have all resulted in a good quarter for Havfisk."

"The processing of whitefish in Norway is a challenging business. The Group has

implemented a number of measures within both production and marketing to improve

earnings, but these are long-term initiatives and it will take time before

significant improvements are evident," explains Henning Beltestad.

THE FARMING SEGMENT - strong development in prices throughout the quarter

The Farming segment reported operating profit fair value adjustment related to

biological assets of NOK 740 million in Q1 2018, down from NOK 1,047 million in

Q1 2017. The Farming segment harvested a total of 38,000 tonnes gutted weight of

salmon and trout in Q1 2018, down 13% from the same period in 2017. EBIT/kg fell

from NOK 24.2 per kg in Q1 2017 to NOK 19.7 per kg in Q1 2018, mainly

attributable to the fall in prices realised.

In Q1 2018, Lerøy Aurora achieved operational EBIT per kg of NOK 28.4. Lerøy

Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 21.8 and NOK 13.2

respectively for the same period.

"Lerøy Sjøtroll's costs remain too high, but Lerøy Midt and Lerøy Aurora can

report a very positive development. At the time of writing, the Group expects to

see this positive development in release from stock costs continuing in 2018,

with an even higher impact in the second half of the year, confirms CEO Henning

Beltestad.

THE VAP, SALES & DISTRIBUTION SEGMENT (VAPS&D)

The VAPS&D segment reported revenue in Q1 2018 of NOK 4,690 million, down 6%

when compared with the same period last year. Operating profit in the quarter

suffered from volatile and rapidly increasing spot prices for whitefish, and

also Atlantic salmon towards the end of the quarter. Operating profit before

fair value adjustment related to biological assets was down from NOK 86 million

in Q1 2017 to NOK 65 million in Q1 2018.

"It is evident that the Group's wide product range, delivery reliability,

product development, traceability and efficient logistics are of increasing

popularity on the market," states CEO Henning Beltestad. "A high level of price

volatility has had a negative impact on earnings in Q1 2018, but the underlying

development in the segment is positive," he confirms.

MARKET AND OUTLOOK

The Group and the Norwegian fish farming industry have experienced a positive

development in the production of salmon in 2017 and the first months of 2018.

This has resulted in a slight increase in growth, putting some pressure on the

spot prices for salmon and trout. The Group has close links with the end market

for seafood, and the reports of a sustained strong, underlying demand for salmon

from Q4 2017 still apply in 2018. The market for Atlantic salmon and seafood is

strong.

The Group has identified room for operational improvements in all three regions

where the Group carries out fish farming. The Group's investments will provide

organic growth in volume in all the regions, and substantial reductions in

production costs in two of the regions. The current estimate for harvest volume

in 2018, including the share of LSG's volume from associates, is 179,000 GWT.

The harvest volume may, for numerous reasons including biology and market

evaluations, differ from estimates. This difference was not major in 2017, and

the Group does not expect this to change in 2018.

Developments within whitefish in 2018 have been positive, even though industrial

development and processing of whitefish in Norway remain difficult. This

situation is impacted by political framework conditions, but the Group has a

clear ambition to increase competitiveness and earnings for whitefish, with the

prevailing conditions and by means of improved marketing and improvements to

operational efficiency. The process of industrial development of whitefish

requires patience, a long-term perspective and considerable investments. Such

investments require framework conditions that are predictable, and the Group and

its employees fervently hope to be able to carry out such work without any

obstacles in the years to come. The Group can report a positive development in

catches to date in 2018, and its best estimate remains a catch volume of

whitefish and shrimp in 2018 of approximately 65,000 tonnes.

The Group feels that uncertainty relating to the framework conditions for the

seafood industry in Norway has increased in recent years. It is unfortunate and

difficult to understand that the various key premise setters in Norway have

generated an overall impression that the Norwegian farming and whitefish

industry does not create value or spin-off effects in local Norwegian

communities.  The reality is that direct and indirect value creation from the

seafood industries are of decisive importance for employment and settlement in

large parts of Norwegian society, not least in areas close to the coast.  The

seafood industry contributes substantial value in local communities along the

entire coastline of Norway, and the Group and its colleagues shall continue to

do their utmost to sustain this. In 2017, Lerøy had operations in around 60

municipalities in Norway, and annual investments reach the billions - along the

entire Norwegian coast. In 2017, the Group purchased goods and services in

Norway from 287 different municipalities for a total NOK 12.5 billion. For a

more detailed description of the significant spin-off effects generated by Group

operations, please refer to the annual report for 2017.

The seafood industry is the second largest export industry for Norway, employs

tens of thousands and has extremely positive spin-off effects. The industry is a

globally competitive food producer measured in terms of both costs and

environmental parameters - something very rare. Norway's seafood industry has a

strong position from which to sustain its positive development, but is entirely

reliant on an understanding among Norwegian authorities and politicians, when

laying down regulations, of what it will take for the Norwegian seafood industry

to remain globally competitive in the long term.  The Group will continue in its

efforts to contribute towards a knowledge-based dialogue that creates value for

society, regarding the need for appropriate framework conditions in the future.

The Board of Directors currently expects high earnings in Q2 2018 and 2018 as a

whole.

Questions and comments may be addressed to the company's CEO, Henning Beltestad,

or to the CFO, Sjur S. Malm.

This information is subject of the disclosure requirements pursuant to section

5-12 of the Norwegian Securities Trading Act.