Strong earnings for Lerøy Seafood Group

Key figures:

* Operating profit before fair value adjustment of biomass NOK 425 million (Q4 2012: 136)

* Operating profit per kg (before fair value adjustment of biomass) NOK 10.3 (Q4 2012: 3.3)

* 41.2 thousand tons gutted weight of salmon and salmon trout harvested (Q4 2012: 41.3)

* Turnover of NOK 3,230 million (Q4 2012: 2,411)

* The industry spot price for whole superior salmon increased by 56% when compared with the fourth quarter of 2012

* Profit before tax and fair value adjustment of biomass NOK 449 million (Q4 2012: 114)

* Net interest-bearing debt was NOK 2,117 million (31.12.2012: 2,232)

* Equity ratio of 54% (31.12.2012: 51%)

In Q4 2013, the Group also achieved an operating profit before value adjustment of NOK 425 million compared with NOK 136 million in Q4 2012. The increase in turnover and operating profit is mainly attributed to higher prices for salmon and trout. Group harvest volumes in Q4 2013 are in line with Q4 2012.

The prices achieved by the Group for Atlantic salmon and trout in Q4 2013 are higher than in Q4 2012, although the prices achieved have been impacted by the company's contract positions and as such the increase is significantly lower than the increase in spot prices for the same period. In line with the Group's views on the market at that time, a number of contracts were signed from the end of 2012 and throughout 2013 for delivery in the second half of 2013. In Q4 2013, the Group had a contract share of 45%. The share of contracts is in the upper range of what is considered normal by the Group.

As previously communicated, the release-from-stock costs for salmon and trout in Q4 2013 have been impacted by higher feed costs and lower average harvest weights. In addition, costs related to AGD (Amoebic Gill Disease) were higher than expected in Q4. The Group has now established the necessary level of alertness in order to to treat AGD, but must unfortunately acknowledge an unnecessarily negative impact on results generated by operations in Hordaland due to AGD in the quarter. In total, the release-from-stock costs in Q4 2013 are the highest in the company's history, and significantly higher than the level considered normal by the Group. Nonetheless, the Group anticipates a decrease in costs to stock in 2014.

Income from associated companies before fair value adjustment of biomass has increased from NOK 5.2 million in Q4 2012 to NOK 43.6 million in Q4 2013. The associated company Norskott Havbruk (owns 100% of Scotland-based Scottish Sea Farms Ltd.) has achieved good prices, resulting in a considerably higher profit figure for the fourth quarter of 2013 when compared with the same period last year. Lerøy Seafood Group acquired a significant ownership in Villa Organic AS in Q2 2013, and at end Q4 2013 owned 49.4% of the shares in the company. Villa Organic AS contributed with NOK 20.4 million in the quarter (Lerøy's share), before value adjustment of biomass. As laid out in agreements signed with the company's other major shareholder, SalMar ASA, Lerøy Seafood Group's shareholding in Villa Organic AS shall in time be reported as wholly-owned Group holdings.

The Group's net financial items in Q4 2013 were negative at NOK 19 million compared with a negative figure of NOK 27 million in Q4 2012. The Group's pre-tax profit figure before value adjustment of biomass in Q4 2013 was NOK 449 million compared with NOK 114 million in Q4 2012. Estimated tax cost in the quarter is NOK 282 million compared with NOK 127 million in the same period last year. Earnings per share before value adjustment of biomass were NOK 6.82 in Q4 2013 compared with NOK 1.55 in Q4 2012. Annualised return on capital employed (ROCE) before biomass value adjustment was 21.8% in Q4 2013 compared with 7.1% in Q4 2012.

The Sales and Distribution segment reported an operating profit of NOK 70 million in Q4 2013, compared with a corresponding figure of NOK 65 million in Q4 2012. This constitutes an operating margin of 2.2% for the fourth quarter of 2013, compared with 2.8% in the same period last year. The Production segment reported an increase in operating profit before biomass value adjustment - from NOK 76 million in Q4 2012 to NOK 360 million in Q4 2013.

Financial summary, 2013

For the first time in the Group's history, revenue surpassed NOK 10 billion. Lerøy Seafood Group reported total turnover of NOK 10,765 million in 2013, up from NOK 9,103 million in the same period last year. The price increase for Atlantic salmon and trout experienced in the period has been substantial and this, combined with increased activity downstream within the Group, has generated an increase in total sales income despite the 6% fall in harvested volume when compared with the same period last year.

The Group achieved a record-high operating profit before value adjustment of biomass in 2013 of NOK 1,626 million compared with NOK 450 million in 2012. The improvement in profit is attributed to higher price realisation, while release-from-stock costs in the same period are higher. As previously mentioned, the increase in release-from-stock costs constitutes higher feed costs, lower average harvest weight and extraordinary costs related to Hordaland (AGD).

The Group reported an operating profit after fair value adjusted biomass of NOK 2,390 million in 2013, compared with NOK 745 million in 2012. Fair value adjustment of biomass in accordance with IFRS is NOK 764 million in 2013, compared with NOK 295 million in 2012.

Income from associated companies in 2013 totalled NOK 192 million, compared with NOK 25 million in the same period of 2012. Corresponding figures before fair value adjustment of biomass were NOK 106 million and NOK 25 million respectively. The Group's net financial items in 2013 were negative at NOK 102 million compared with minus NOK 95 in 2012.

The Group's profit before tax and before fair value adjustment of biomass was NOK 1,630 million in 2013, compared with a corresponding figure of NOK 380 million in 2012. Estimated tax cost in 2013 is NOK 594 million compared with NOK 183 million for the same period last year. This corresponds to a profit per share before value adjustment of biomass of NOK 21.12 compared with NOK 5.11 per share in 2012. The Group's annualised return on capital employed (ROCE) before fair value adjustment of biomass was 20.7% in 2013, against 6.2% in 2012.

The Board of Directors will propose a dividend payment of NOK 10 per share for the financial year of 2013, compared with NOK 7 per share in 2012. Net cash flow from operating activities in 2013 was NOK 1,259 million compared with NOK 444 million in 2012. Net investments including purchase of shares amounted to NOK 699 million in 2013 compared to NOK 599 million in 2012.

Key risk factors in the next accounting period The Group's results are closely linked with developments in the markets for seafood, particularly the prices for Atlantic salmon and trout, which account for the largest part of total revenues. The price developments in 2013 were extremely high and much higher than expected. This increase in demand gives ground for an optimistic outlook, although the Board of Directors is of the opinion that the prices for Atlantic salmon and trout will remain volatile. In view of the international nature of the Group's business, developments in the global economy will always have an impact on the Group's development, and uncertainty related to global economy remains higher than the level considered normal by the Board.

Other risk factors in the industry constitute financial, operational, and biological issues, together with the development in the cost of input factors. Norwegian fish farming and the fish processing industry in Norway and the EU have a history of exposure to the risk represented by the constant threat of long-term political trade barriers imposed by the EU Commission. It is also a fact that Russia now represents a large market for Atlantic salmon and salmon trout. Admission to this market is an important factor for the Group and for general demand for salmon and salmon trout.

The Board of Directors maintains a strong focus on purposeful and systematic management of all risk factors in all parts of the organisation. This policy is seen as essential in securing long-term value creation for the shareholders and employees, and for society in general. The Group's overall financial strategy is to balance and ensure financing, suitable financial covenants, liquidity, customer credit, currency and market risk. Considerable importance is also attached to having efficient and sustainable solutions in all parts of the Group's value chain.

Structural conditions

Through organic growth and acquisitions over the last decade, the Group has become one of the world's largest producers of Atlantic salmon and salmon trout. The Group has also consolidated its position as a major participant in seafood distribution in Norway and worldwide, and it has strengthened its position as the leading exporter of seafood from Norway. Thanks to a combination of acquisitions and alliances, the Group has been able to offer its key national customers cost-effective national distribution of fresh seafood. The Group's focus on sales, distribution and processing has been substantially heightened in 2013. The Group's strategic and financial flexibility, in conjunction with current earnings, will enable the Group to continue as a leading participant in value-generating structural changes in the seafood industry, both nationally and globally. Lerøy Seafood Group will continue to selectively consider possible investment and merger opportunities, as well as alliances, which could strengthen the basis for further profitable growth and sustainable value creation. The acquisition of a significant shareholding in Villa Organic AS in April 2013 is a clear indication of the Group's commitment and motivation towards continued growth, ref. description below. Lerøy Seafood Group shall continue to develop and grow by means of regional development in a global perspective. The Group maintains a strong focus on the decisive importance of financial flexibility for both operational and long-term strategic developments. It will therefore remain important for the Board that the Group, through its operations, retains the confidence of participants in the various capital markets. The Group's financial position is very strong.

The market situation and outlook

The Board of Directors believes that the Group's strategic business development over the past few years, together with underlying productivity improvements and market-oriented structure, ensures a robust platform for earnings in the years to come. As projected, the strong growth in the global supply of Atlantic salmon declined in 2013. This combined with the sustained strong growth in demand has resulted in a year with extremely high prices for Atlantic salmon and trout. The strong demand for seafood and the development in the Group's comprehensive seafood distribution system allow for an optimistic outlook for the Group's. At the same time, the strong seasonality in volume supplied to the market, reinforced by the current regulation regime in Norway, is increasing and in many aspects problematic. The prevailing regulation of production will keep prices for the Group's main products unnecessarily volatile and represents a significant challenge for industrial processing in Norway.

The Board of Directors believes there is a strong need for new framework conditions, which would allow full exploitation of the industry's growth potential and facilitate a sales profile which is tailored to the market throughout the year. Such changes would make the development of value added industry less demanding, create more stability in prices and make it easier to build demand in markets. Such framework conditions are essential for long-term growth in value creation for the industry.

The Board of Directors is therefore confident that the current government will fulfil its promise to develop current regulations, thereby picking up the thread from the last period when wise, long-term decisions were made on the regulation of fish farming in Norway. The former Minister of Fisheries, Svein Ludvigsen, implemented what we now know as the MAB regime in 2005. This regime has allowed the Norwegian fish farming industry to make significant investments in Norwegian coastal areas since 2005 ensuring a strong development for the Norwegian fish farming industry. The regime and its regulations are now in need of an upgrade.

As previously communicated, AGD (amoeba gill disease) was confirmed at some of the Group's sites in Hordaland towards the end of Q3 2013. The Group now believes it is well equipped to handle this challenge, partly following the model developed by our Scottish operation. The main shareholders of Villa Organic AS, SalMar ASA and Lerøy Seafood Group ASA, have agreed on a process in which the objective is to demerge Villa Organic into two parts in the current year. As a result, Lerøy Seafood Group ASA's shares in Villa Organic AS will no longer be reported as an associated company but as a Group holding. The Group expects to harvest a volume of 157,000 tons in 2014. The volume harvested by the company's holding in Villa will be additional to this volume.

As of today, the Board of Directors anticipates a stronger operating profit (before biomass adjustment) in the first quarter of 2014 when compared to the fourth quarter of 2013.