Strong profitability for Lerøy Seafood Group

Key figures:

* Operating profit before fair value adjustment of biomass NOK 370 million (Q3 2012: 74) * Operating profit per kg (before fair value adjustment of biomass) NOK 10.1 (Q3 2012: 2.0) * 36.6 thousand tons gutted weight of salmon and salmon trout harvested (Q3 2012: 37.3) * Turnover of NOK 2,690 million (Q3 2012: 2,223) * The industry spot price for whole superior salmon increased by 51% when compared with the third quarter of 2012 * Profit before tax and fair value adjustment of biomass NOK 363 million (Q3 2012: 53) * Net interest-bearing debt was NOK 2,204 million (30.09.2012: 2,241) * Equity ratio of 52% (30.09.2012: 50%)

For the third quarter of 2013, Lerøy Seafood Group reported its highest turnover in the company's history - a total of NOK 2,690 million, up from NOK 2,223 million in the same period last year. In Q3 2013, the Group also achieved one of its highest ever figures for operating profit before value adjustment: NOK 370 million compared with NOK 74 million in Q3 2012. The increase in operating profit compared with Q3 2012 is mainly attributed to higher prices for salmon and trout. Group harvest volumes when compared with Q3 2012 are 2% lower.

The prices achieved by the Group for Atlantic salmon and trout in Q3 2013 are significantly higher than in Q3 2012, although the increase is lower than the increase in spot prices for the same period. For Q3 2013, the Group had a contract share of 33%. The share of contracts is at a level considered normal by the Group. As previously communicated, the release from stock costs for  salmon and trout in Q3 2013 have been impacted by higher feed costs and lower average harvest weights. The release from stock costs in Q3 2013 is among the highest in the company's history, and significantly higher than in both Q3 2012 and Q2 2013. High feed costs and lower than normal harvest weights will also impact release from stock costs in the next quarters. However, the Group anticipates that cost to stock will decrease during 2014.

Income from associated companies before fair value adjustment of biomass has increased from NOK 3.4 million in Q3 2012 to NOK 22.8 million in Q3 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 third quarter of 2013 when compared with the same period last year. Lerøy Seafood Group acquired 47.8% of the shares in Villa Organic AS in Q2 2013, so that the company is reported as an associated company in the third  quarter. The company's contribution to result (Lerøy's share) was negative, reporting a loss before fair value adjustment of biomass of NOK 3.7 million in Q3 2013. The loss is attributed to low harvest volumes and high costs.

The Group's net financial items in Q3 2013 were negative at NOK 29 million compared with a negative figure of NOK 24 million in Q3 2012. The Group's pre-tax profit figure before value adjustment of biomass in Q3 2013 was NOK 363 million compared with NOK 53 million in Q3 2012. Estimated tax cost in the quarter is NOK 6 million compared with NOK 1 million in the same period last year. Earnings per share before value adjustment of biomass were NOK 4.16 in Q3 2013 compared with NOK 0.70 in Q3 2012. Annualised return on capital employed (ROCE) before biomass value adjustment was 18.9% in Q3 2013 compared with 3.9% in Q3 2012.

The Sales and Distribution segment reported an operating profit of NOK 52 million in Q3 2013, compared with a corresponding figure of NOK 41 million in Q3 2012. This constitutes an operating margin of 2.1% for the third quarter of 2013, compared with 1.9% in the same period last year. The Production segment reported an increase in operating profit before biomass value adjustment - from NOK 42 million in Q3 2012 to NOK 326 million in Q3 2013.

Financial information as per Q3 2013

As per Q3 2013, Lerøy Seafood Group reported total turnover of NOK 7,535 million, up from NOK 6,692 million in the same period last year. The expected price increase for Atlantic salmon and trout experienced in the period has been substantial and has generated an increase in total sales income despite the 8% fall in harvested volume when compared with the same period last year. Income from associated companies as per Q3 2013 totalled NOK 84 million, compared with NOK 18 million in the same period of 2012. Corresponding figures before fair value adjustment of biomass were NOK 62 million and NOK 20 million respectively. The Group's net financial items as per Q3 2013 were negative at NOK 83 million compared with minus NOK 68 million as per Q3 2012.

The Group's profit before tax and before fair value adjustment of biomass was NOK 1,181 million as per Q3 2013, compared with a corresponding figure of NOK 266 million in the same period of 2012. Estimated tax cost as per Q3 2013 is NOK 312 million compared with NOK 56 million for the same period last year. This corresponds to a profit per share before value adjustment of biomass of NOK 14.30 compared with NOK 3.56 per share as per Q3 2012. The Group's annualised return on capital employed (ROCE) before fair value adjustment of biomass was 20.6% as per Q3 2013, against 5.8% as per Q3 the previous year. Net cash flow from operating activities as per Q3 2013 was NOK 1,105 million compared with NOK 268 million as per Q3 2012. Net investments including acquisitions amounted to NOK 594 million as per Q3 2013 compared with NOK 461 million in the corresponding period last year.

The Group is financially sound with a book equity of NOK 6,512 million, which corresponds to an equity ratio of 52%. The Group's net interest-bearing debt at the end of Q3 2013 was NOK 2,204 million compared with NOK 2,241 million at the end of Q3 2012. During this 12-month period, the Group has generated an operational cash flow of NOK 1,280 million. In addition to the NOK 195 million investment in Villa Organic AS, the Group has paid NOK 394 million in dividends, invested NOK 571 million in fixed assets and paid NOK 76 million in taxes. Sales and Distribution reported operating profit of NOK 139 million as per Q3 2013, compared with a corresponding figure of NOK 126 million in the corresponding period last year. This constitutes an operating margin of 1.9% as per Q3 2013, in line with the margin reported for Q3 2012. The Production segment reported an increase in operating profit before biomass value adjustment from NOK 212 million as per Q3 2012 to NOK 1,086 million as per Q3 2013. Of this figure, NOK 54 million comprises a gain on the sale of the Group's licences in Chile. The remaining increase in profit is primarily attributed to the price increase for Atlantic salmon and trout.

The market situation and outlook

The strong growth in the global supply of Atlantic salmon experienced over the last couple of years has declined in 2013. This has paved the way for a significant increase in prices for Atlantic salmon and trout, and allows for an optimistic outlook. At the same time, the Board of Directors believes that the prices for the Group's main products will remain volatile and that the recent price increase serves to highlight the need for framework conditions which facilitate continued growth within the seafood industry in Norway. The Management and the Board of Directors are positive towards change in framework conditions which would allow full exploitation of the industry's substantial growth potential and facilitate a more stable harvest volume 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.

Towards the end of the third quarter, AGD (amoeba gill disease) was confirmed at some of the Group's sites in Hordaland. The sites have been treated with hydrogen peroxide with satisfactory results. Sea temperatures along the Norwegian coastline in the first three quarters of 2013 were lower than expected, resulting in less biomass growth in the sea. At the time of writing, the Group estimates a harvest volume in 2013 of 147 thousand tons gutted weight of salmon and salmon trout, lower than the previous estimate of 150 thousand tons. In April 2013, Lerøy Seafood Group acquired a significant  hareholding in Villa Organic. As of today, the Group holds 47.8% of the shares in Villa Organic, and the other main owner is SalMar ASA with a 50.4% ownership. Together, the two main owners control 98.2% of the shares in Villa Organic AS. Lerøy Seafood Group ASA and SalMar ASA have agreed upon a process where the objective is to buy the remaining shares in the company, and to split the business into two separate entities during 2014, where after Lerøy Seafood Group ASA and SalMar ASA take control of one part each. As of today, the Board of Directors anticipates a considerably stronger result (before biomass adjustment) in the fourth quarter of 2013 when compared to the fourth quarter of 2012, but in line with the third quarter of 2013.