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Lerøy Seafood Group Sees Drop in Profit

15 May 2015

NORWAY - Norwegian seafood company Lerøy Seafood Group saw a drop in operating profit before fair value adjustment of biomass to NOK 404 million in the first quarter of 2015, compared to NOK 550 million in the first quarter of last year.

The company said the result represents an operating profit before biomass value adjustment of NOK 11.5 per kg, compared to NOK 16.5 in 2014.

The decline in operating profit from the first quarter of 2014 to the first quarter of 2015 is attributed to lower prices realised and higher release from stock costs.

In the first quarter 2015, Lerøy Seafood Group reported revenue of NOK 3,268 million, compared with NOK 3,180 million in the same period in 2014.

When compared to the first quarter of 2014, the Group increased its volume of harvested salmon and trout by five per cent.

Net interest-bearing debt at 31 March 2015 was NOK 1,892 million and the equity ratio was 55.5 per cent.

Farming - Weak Quarter for Trout

Lerøy Vest was awarded two R&D licences in the first quarter of 2015. The company has also been nominated for the acquisition of one new licence during the governmental green licence allocation rounds. LSG has a total of 142 licences in Norway.

Operating profit before biomass adjustment reported by the Farming segment amounted to NOK 322 million in the first quarter of 2015, down from NOK 506 million in the first quarter of 2014.

The Farming segment harvested a total 35,023 GWT of salmon and trout in the first quarter, up by five per cent from the same period in 2014. EBIT/kg fell from NOK 15.2 per kg in the first quarter of 2014 to NOK 9.2 per kg in the first quarter of 2015.

Lerøy Aurora reported an operational EBIT per kg of NOK 14.9 in the first quarter of 2015. The EBIT/kg figures reported by Lerøy Midt and Lerøy Sjøtroll for the same quarter are NOK 11.0 and NOK 3.5 respectively.

"The ban on imports of Norwegian salmon and trout into Russia, introduced on 7
August 2014, continues to have an impact on the markets. The volume of fish formerly sold to Russia is now mainly channelled to Europe. As a result, the growth in import on European main markets is much higher than the growth in volume produced. This dynamic has had a particularly negative impact on trout prices, although there was an improvement in prices by the end of the quarter," said CEO Henning Beltestad.

"The Group has introduced a number of measures in 2014 and 2015 to reduce production costs," he added, with a special mention of the investments made
to increase supply of cleaner fish.

"The Group can already report positive results from individual facilities, and expects to see a positive development in this area in 2015."

Value-Added Processing

In recent years, Lerøy Seafood Group has invested significantly in increasing its capacity for high value processed salmon and trout, as the investments in
Lerøy Fossen and Lerøy Smøgen where the capacity is doubled.

The Group's work on marketing, both with national and international customers, has resulted in improvements to utilisation of total capacity.

This, along with a satisfactory development in prices, is the main factor behind the increase in revenue.

Revenue for this segment is up 16 per cent from NOK 367 million in the first quarter of 2014 to NOK 425 million in the first quarter of 2015.

The operating margin is up from 4.1 per cent in the first quarter of 2014 to 4.3 per cent in the first quarter of 2015.

"The Group is satisfied with the segment's underlying development," said CEO
Henning Beltestad in a comment, going on to add: "We expect to achieve a continued increase in earnings from this segment by making even more extensive use of capacity and improvements to operations."

Sales and Distribution

The Sales & Distribution segment reported revenue of NOK 3,076 million in the first quarter of 2015, on a par with the figure reported for the first quarter of 2014.

At the same time, the segment reported a positive development in margin, with operating margin up from 1.3 per cent in the first quarter of 2014 to 2.0 per cent in the first quarter of 2015.

"Sales & Distribution continuously target a position whereby they drive demand for seafood, by launching new products and pioneering new markets. The segment not only sells and distributes its own production of salmon and trout, but also has a high level of sales activity in cooperation with third parties, ensuring a wide product range for the Group within seafood," said CEO Henning Beltestad.

He added: "We aim to drive a 'revolution' in the distribution of fresh seafood. We have made significant investments in industrial capacity in recent years within processing units in several central parts of Europe, allowing us to ensure fresh products, a high level of service and proximity to our customers.

“We still have considerable potential to increase our level of activity and earnings within our fish-cut facilities," concluded CEO Henning Beltestad.

Market and Outlook

The company said that the ban on imports into Russia represents a significant, short-term challenge for the Norwegian seafood industry, as it does for the industry in Russia and some of its neighbouring states.

It said the Group is working hard to increase sales to alternative markets, but there was little it could do to prevent the import ban from continuing to have a negative impact on the prices that the group received in the first quarter of 2015, and particularly for trout.

Demand for high-quality seafood is high, and clear trends can be identified that substantiate increased demand for fresh products.

The Group currently estimates a total harvest volume of 181,500 GWT for 2015, including the share of LSG's volume from associates.

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