Tough times despite record revenue

Revenue was NOK 3,324 million, compared with NOK 3,177 million in the same period in 2014. However, the company posted an operating profit before fair value adjustment of biomass of NOK 370 million, compared with NOK 500 million in Q2 2014. This is equivalent to operating profit before biomass adjustment of NOK 9.2 per kg compared with NOK 12.2 in the same period last year.

"This is the highest quarterly revenue in the Group's history and a reflection of our increased activity downstream," says CEO Henning Beltestad. The main reason for the reduction in operating profit from Q2 2014 to Q2 2015 was higher production costs of salmon and trout.

Farming segment

Operating profit before fair value adjustment of biomass reported by the farming segment amounted to NOK 266 million, down from NOK 421 million in the same period in 2014. The Farming segment harvested a total of 40,295 GWT salmon and trout in Q2 2015, a reduction of 2% on the same period in 2014. EBIT/kg fell from NOK 10.3 in Q2 2014 to NOK 6.6 in Q2 2015.

In Q2 2015, Lerøy Aurora achieved operational EBIT per kg of NOK 11.4. Lerøy Midt and Lerøy Sjøtroll are reporting EBIT per kg of NOK 8.6 and NOK 2.3 respectively for the same period.

"Russia's import ban on Norwegian salmon and trout that came into force on 7 August 2014 remains in place and continues to affect the market, particularly for trout," says Beltestad. "The main trend indicates that volume previously sold to Russia is now being sold to Europe, which is putting enormous pressures on prices, particularly for trout. Major efforts are under way to boost sales to alternative markets and are slowly bearing fruit. However, the prices realised for trout in Q2 2015 were again below the prices realised for salmon. As the world's largest producer of trout, this means the Group has suffered a significant negative impact on its realised prices in Q2 2015."

"Release from stock costs, especially for trout, remain at an extraordinarily high level historically," says Henning Beltestad. "However, we expect measures implemented by the Group in 2014 and 2015, especially those involving cleaner fish, to reduce production costs throughout 2015 and into 2016," he adds.

VAP

The VAP segment comprises four units where Lerøy Seafood Group has invested significantly to increase its capacity for high-value processed salmon and trout in recent years. Revenue in the segment is up 18%, from NOK 395 million in Q2 2014 to NOK 468 million in Q2 2015. The operating margin is down from 5.3% in Q2 2014 to 3.8% in Q2 2015.

"We can see that the Group's marketing work, coupled with good domestic and  international customers, has improved capacity utilisation in the segment," says Beltestad, who goes on to explain that additional improvements in capacity utilisation and continued good growth are expected in this segment.

Outlook

The Group has invested heavily in using cleaner fish in 2014 and into 2015, and is seeing positive effects from this in the form of a significant reduction in the number of treatments. However, the Group is still in a transitional phase with extraordinarily high treatment costs. The focus on cleaner fish is being scaled up this year and will not be fully implemented until 2016. The Norwegian krone has weakened further against key currencies. This dynamic is positive for prices realised for salmon but also means higher feed prices. As at today's date, the Board expects release from stock costs in the coming quarter to remain at a level above what the Board and management consider normal, but with the potential for significant reductions during 2016.

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

The Board has previously been clear in its views on the need for changes in regulation of the fish-farming industry in Norway in favour of using so-called rolling MABs, in order to reduce seasonal variation in the supply of salmon from Norway. In the absence of such change, the Board again expects to see seasonal price falls in parts of the second half of the year, but expects good earnings in the Group in the coming quarter, too, thanks to good contract coverage.