Leroy Seafood Group — Earnings Release 2020

Feb 19, 2021

Lerøy Seafood Group ASA: Preliminary financial figures 2020

Lerøy Seafood Group ASA: Preliminary financial figures 2020

PROFIT/LOSS FOURTH QUARTER AND 2020 IN TOTAL

In Q4 2020, Lerøy Seafood Group (LSG) reported revenue of NOK 5,170 million,

compared with NOK 5,239 million in the same period of 2019. Operating profit

before fair value adjustment related to biological assets was NOK 441 million in

Q4 2020, compared with NOK 769 million in Q4 2019. The global COVID-19 pandemic

has a negative impact on demand and has resulted in lower prices for both

redfish and whitefish. The main factor behind the fall in earnings from Q4 2019

to Q4 2020 is the reduction in prices realised.

The Group reported annual revenue of NOK 19,960 million for 2020, compared with

NOK 20,427 million in 2019. Annual operating profit before fair value adjustment

related to biological assets in 2020 was NOK 1,950 million compared with NOK

2,734 million in 2019. Profit before tax and fair value adjustment related to

biological assets for 2020 as a whole was NOK 1,869 million compared with NOK

2,718 million in 2019.

* "Lerøy's focus is developing an efficient and sustainable value chain for

seafood that meets the customers' long-term demand. This not only provides

cost-efficient solutions, but also quality, availability, a high level of

service, traceability, and competitive climate-related and environmental

solutions. Thanks to our robust and long-term focus on the customer, we feel

that we have emerged all the stronger from a difficult year," confirms CEO

Henning Beltestad.

* "We have invested heavily in our value chain in recent years, in the form of

assets, human resources and our approach to operational improvements. This

is a long-term process but, as we enter 2021, we are starting to reap the

results of our initiatives and we are confident that we have a strong

position for the years to come," confirms Henning Beltestad.

THE WILD CATCH SEGMENT

The wholly-owned subsidiary Lerøy Havfisk's primary business is wild catches of

whitefish. Lerøy Havfisk has licence rights to harvest just above 10% of the

total Norwegian cod quotas in the zone north of 62 degrees latitude,

corresponding to around 30% of the total quota allocated to the trawler fleet.

Lerøy Havfisk also owns several processing plants, which are mainly leased out

to its sister company Lerøy Norway Seafoods (LNWS) on long-term contracts. Lerøy

Havfisk's trawler licences stipulate an operational obligation for these

processing plants.

Lerøy Havfisk took delivery of the new trawler, "Kongsfjord", on schedule in

February 2020, and subsequently had 10 trawlers in operation in 2020. Experience

of operations with Kongsfjord is positive.

As described in the previous interim reports, demand for seafood has been

negatively impacted by the restrictions introduced to combat the spread of

COVID-19. It is difficult to project how long this extraordinary situation will

last. The pandemic is also having a negative effect on prices realised.

The catch volume for Q4 2020 is 12,619 tonnes, compared with 12,949 tonnes in Q4

2019. Catch rates for haddock were weak in the fourth quarter. Catches of other

species have been as expected.

When compared with Q4 2019, the prices for cod and haddock were down 13% and

17% respectively, while the prices for saithe were up 5%. Our sales of seafood

continue, but the prices realised are lower than normally experienced before the

COVID-19 restrictions were introduced. In comparison with the peak in prices in

Q1 2020, the prices for cod and haddock are down 18% and 17% respectively.

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

of 12 processing plants and purchasing stations in Norway, five of which are

leased from Lerøy Havfisk. The processing of whitefish in Norway has been

extremely challenging for many years. All else being equal, increased stability

and predictability will have a positive effect on the land-based industry. The

repercussions of COVID-19 have been negative for both the producer and the

customer. Market demand for fresh and conventional products saw a significant

decline in the quarter.

In total, the segment reported EBIT of NOK -10 million in Q4 2020, compared with

NOK 42 million in the same period of 2019. For 2020 in total, the segment

contributed EBIT of NOK 205 million, compared with NOK 293 million in 2019.

* "The winter cod season has just started, and we are facing a very high

seasonal supply volume on a difficult market. With our experience of

processing whitefish all year round in Norway, we feel we have the capacity

and strength to face this challenge," says CEO Henning Beltestad.

THE FARMING SEGMENT

The Farming segment comprises the Group's three farming regions in Norway: Lerøy

Aurora located in Troms and Finnmark, Lerøy Midt located in Nordmøre and

Trøndelag and Lerøy Sjøtroll located in Vestlandet.

Operating profit for the Farming segment before fair value adjustment related to

biological assets was NOK 296 million in Q4 2020, compared with NOK 597 million

in Q4 2019. During the quarter, the Farming segment harvested 48,000 tonnes,

compared with 43,000 tonnes in Q4 2019.

In Q4 2020, the EBIT/kg figure for Lerøy Aurora was NOK 11.10, NOK 3.40 for

Lerøy Midt and NOK 4.50 for Lerøy Sjøtroll. In total, EBIT/kg for the segment

was down from NOK 14.00 in Q4 2019 to NOK 6.10 in Q4 2020. In comparison with

the same quarter in 2019, costs per kilo are slightly lower, but the reduction

in prices realised in the same period is significantly larger.

* "We have seen a positive development in our costs per kilogram of harvested

fish in 2020, and this has been confirmed in the fourth quarter," explains

CEO Henning Beltestad.

* "As we enter 2021, we expect that the initiatives and investments made in

recent years will provide a substantial growth in volume, and that this will

help us scale down our cost base and achieve lower costs," he continues.

VAP, SALES & DISTRIBUTION (VAPS&D) SEGMENT

With its fully integrated, efficient value chain for salmon, trout, whitefish

and shellfish, Lerøy Seafood Group shall be able to supply products that are

best suited to the consumers' preferences. Proximity to key markets and

knowledge of the customer's needs are therefore of decisive importance if the

Group is to develop demand for its main products. Lerøy distributes more than

70 different seafood products from Norway to more than 80 different markets in

the space of one calendar year. In addition, the Group processes and distributes

a number of market-specific seafood products to their respective local markets

where Lerøy has operations. Lerøy Seafood Group's value chain shall be developed

further in order to satisfy and increase the consumers' total demand for

seafood.

In 2020, the seafood markets have been negatively impacted by the COVID-19

pandemic. The impact was seen first in markets in Asia, spreading globally

throughout Q1 2020 and into Q2 2020. The COVID-19 pandemic has had an effect on

demand trends. The grocery market now represents a larger volume of consumption,

while the hospitality and catering segment on many core markets has practically

been closed down for long periods of time. The pandemic has also had an impact

on logistics, particularly for overseas markets, with a reduction in cargo

capacity resulting in increased costs during the period.

The main focus for the VAPS&D segment has been to keep the value chain open.

Throughout the second quarter, key markets showed a considerable level of

improvement as the supply chain adapted to the change in consumer trends, with a

much higher focus on groceries, but also as some parts of the hospitality and

catering segment have gradually reopened. At the start of the third quarter,

demand had improved considerably in comparison with the status in the middle of

the second quarter. At the start of the fourth quarter, we once again

experienced an increase in restrictions on key markets, with a significant

impact on demand. At the same time, we are pleased to note that demand continues

to be as strong as it is, and that the value chain has proved to be very

adaptable. This gives grounds for an optimistic outlook once the pandemic is

over and the restrictions are lifted.

Despite significantly lower prices realised for key species, the segment

reported revenue in Q4 2020 that was only 1% lower than in the same period in

2019. This is a clear indication of a high level of underlying activities. In

recent years, the Group has implemented substantial initiatives for improvement

of several of the units in the segment, including facilitating better

interaction along the Group's value chain. These initiatives are now producing

results, and the operating profit before fair value adjustment related to

biological assets in Q4 2020 is NOK 176 million, up from NOK 162 million in Q4

* "2020 has been a difficult year during which it has been important to focus

on keeping our value chain open and ensuring supplies of seafood to the end

consumer. It is our experience that we have clearly demonstrated the value

of the Group's long-term investments in downstream operations, and we

believe that we are in a strong position to develop upon this in the years

to come," says Henning Beltestad.

* "The Group's products are healthy and good. Production is financially,

climate-related and environmentally sustainable. We continue to expect a

positive underlying growth in demand in the years to come," he continues.

MARKET AND OUTLOOK

Price developments for Atlantic salmon have been highly volatile in 2020 also,

substantially influenced by the ripple effects of COVID-19. This situation

remains at the start of 2021, with demand suffering significantly from the

COVID-19 restrictions. It is not possible for the management and Board of

Directors to form any precise opinion on the duration or consequences of the

pandemic, but the growth in volume on the grocery market does provide grounds

for optimism. There are indications that seafood is gaining in popularity with

consumers, and we are therefore optimistic with a view to the underlying future

developments for seafood.

Currently, the Group's production of redfish takes place mainly in Norway.

Norwegian and global salmon and trout production are experiencing relatively

modest growth, which - combined with a weaker Norwegian krone - has resulted in

very high prices. This provides an incentive to start production of salmon in

new areas using alternative technologies. These incentives have existed for

several years now, but with long lead times in the industry, Norwegian

production in marine fish farms has maintained its predominant position. The

harvest volume from salmon produced on land remains insignificant on the end

markets. The market share for Norwegian Atlantic salmon may, in the long term,

be affected by production of salmon and trout in new regions and locations.

Through business development, investments and a clear operational focus on

competitiveness, the Group shall ensure that its value chain stands strong in

the face of competition in the years to come. In addition to the development of

existing farming operations, the Group is accumulating knowledge and

competencies within both land-based and offshore-based salmon production.

In recent years, Lerøy has made significant investments in several parts of the

value chain, including the construction of facilities for smolt/post-smolt

capacity in all the Group's regions. Lerøy Sjøtroll's Kjærelva facility is now

completed and has an annual biomass production of around 4,000 tonnes. Lerøy

Aurora completed the final construction stage of a new development in Q4 2020,

and the facility is expected to reach full exploitation in 2021. Lerøy Midt can

report that the developments to the Belsvik facility are going to schedule. The

plan is for completion by the start of 2022, and the facility is expected to

produce around 5,000 tonnes of biomass. The Group's investments in improved

smolt production and post-smolt production, combined with a number of other

initiatives, will support the Group's ambition for continued growth in volume

and increased competitiveness by means of a reduction in production costs.

The Group's substantial investments in post-smolt facilities have not only

increased the Group's annual harvest volume by means of improved exploitation of

existing assets, but also provided significant competencies related to RAS

technology. This is in the main the same technology applied for full-scale land-

based production of salmon. The Group is now negotiating for a further

development of a new RAS facility in the region of Vestland. The plans are

initially to develop the facility in three stages. The first and second stages

represent further increases in the Group's post-smolt production. The third and

final stage will also provide facilities for post-smolt production, but may also

be used for salmon production up to harvest size. The location of the plant,

including the links to the Group's farming operations in West Norway, could

potentially provide successful interaction between sea and land. The lessons

learned may also be exploited to realise land-based projects in other regions.

The development will take place in stages, but initial estimates indicate that

the first two stages will represent estimated costs of around NOK 1 billion. The

development is projected to provide an annual increase in production in the sea

of 8-10,000 GWT. Construction work is scheduled for completion in 2023.

The Group can report significant improvements in production in the sea in 2020.

The harvest volume is up from approx. 158,000 tonnes in 2019 to 171,000 tonnes

in 2020. Moreover, standing biomass has increased from 111,000 tonnes at year-

end 2019 to 119,000 tonnes at year-end 2020. The Group maintains its projections

of a harvest volume for 2021, including associates, of 205,000-210,000 tonnes.

Ongoing investments and additional improvement initiatives will provide further

growth in the years to come.

For the Group, the aim is clear - for this growth, combined with other

improvement measures, to provide reductions in the Group's release from stock

costs for salmon and trout in 2021 and the following years.

The Group has made substantial investments in whitefish in recent years. One new

vessel was added to the fleet in 2018 - Nordtind - and another in early 2020 -

Kongsfjord. Further improvements to fish quality were established as important

design criteria for Kongsfjord. Consumers' expectations and quality requirements

continue to increase, making high quality and competitiveness key factors for

success when competing to attract consumers.

The whitefish industry, also including land-based operations, has suffered

significantly from the impact on demand of COVID-19 in 2020. It is naturally not

possible for the Group to know how long the restrictions will last, but Lerøy's

long-term plans remain the same. The work on and investments in making the

factories less reliant on seasons continue, along with well-organised and

meticulous work on making improvements to each unit. We believe that this

process will generate results with time.

The Group expects to see an increase in quotas in 2021 as follows; 14% increase

for cod, 6% for haddock, 16% for saithe north of 62 degrees. For saithe south of

62 degrees, the Group projects a reduction in the quota of 26%. The final quota

decision is expected at the end of February 2021.

Lerøy works to develop an efficient and sustainable value chain for seafood.

This not only provides cost-efficient solutions, but also quality, availability,

a high level of service, traceability, and competitive climate-related and

environmental solutions. Investments in recent years in, e.g., a new industrial

facility for Lerøy Midt, a new factory in Stamsund and new factories in Spain

and the Netherlands, now commissioned, will represent a positive contribution in

the years to come. The management and Board of Directors are confident that

Lerøy has a good starting point for continued profitable growth and development

of Group operations.

The Group's products are healthy and good. Production is financially, climate-

related and environmentally sustainable. The management and Board of Directors

continue to expect good underlying growth in demand in the years ahead. It is

not possible for the management and Board of Directors to assess how long the

COVID-19 pandemic will last, but we are confident in assuming that demand will

with time return to historic levels and continue to develop from there.

The Board of Directors underlines that uncertainties related to assessments of

future developments are much higher than normal, but current estimates are for

earnings in the first half of 2021 to be negatively impacted by the effect on

demand of the COVID-19 restrictions. At the same time, the Board is of the

opinion that the Group's underlying development is positive, and that Lerøy has

an excellent position for improved profitability in the year to come.

The Board of Directors and corporate management would like to thank all the

Group's employees for their hard work to date during the COVID-19 pandemic.

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 the Norwegian Securities Trading Act