Lower prices hit Lerøy’s year-start earnings as pandemic continues to take its toll

Lerøy Seafood Group ASA (LSG) saw its first-quarter 2021 revenues fall 7 percent year-on-year to NOK 4.9 billion (USD 587.7 million, EUR 482.2 million) and its operating profit before fair value adjustments drop by 44 percent to NOK 455 million (USD 54.6 million, EUR 44.8 million).

Explaining the drop in revenues, the Bergen, Norway-based seafood corporation said the global COVID-19 pandemic is having a negative impact on demand and has resulted in lower prices for both salmon and whitefish. Lerøy Seafood CEO Henning Beltestad said the trend seen in 2020, with a higher share of seafood sold through the retail channel, has continued in 2021. Also, while the price realization in the quarter is below the corresponding period of last year, Lerøy’s view is that the underlying demand for seafood is strong, he said.

“We continue to strengthen our efficient and sustainable value chain for seafood. A value chain which not only provides cost-efficient solutions, but also quality, availability, a high level of service, traceability, and competitive climate-related and environmental solutions,” Beltestad said. “Recent years’ investments in the end-markets will contribute to our growth in the years to come. We have a strong position.”

LSG’s farming segment – comprising its three Norwegian farming regions of Lerøy Aurora in Troms and Finnmark, Lerøy Midt in Nordmøre and Trøndelag, and Lerøy Sjøtroll located in Vestlandet – reported operating profit before fair value adjustment related to biological assets of NOK 251 million (USD 30.1 million, EUR 24.7 million) in Q1 2021, compared with NOK 562 million (USD 67.4 million, EUR 55.3 million) a year previously.

Its Q1 slaughter volumes of salmon and trout increased by 10 percent year-on-year to 42,150 gutted weight tonnage (GWT), while the earnings before interest and taxes (EBIT) fell from NOK 14.30 (USD 1.71, EUR 1.41) per kilogram in Q1 2020 to NOK 6 (USD 0.72, EUR 0.59).

“We have had challenges with winter wounds in Lerøy Aurora in the first quarter and the start of second quarter. This has negative implications for price realization in this quarter, and will also impact price realization in second quarter,” Beltestad said. “For 2021, our expectation is that recent years’ efforts and investments within Farming creates the basis for significant growth in harvest volume, and with scaling of the cost base, lower costs per kilogram produced.”

According to the Q1 report, the average price for salmon in the three-month period was NOK 52.10 (USD 6.25, EUR 5.12) per kilogram compared with NOK 68.50 (USD 8.21, EUR 6.74) per kilogram in Q1 2020 and NOK 43.40 (USD 5.20, EUR 4.27) in Q4 2020. This constitutes a fall in price of NOK 16.00 (USD 1.92, EUR 1.57) per kilogram from Q1 2020, but an increase of NOK 9.00 (USD 1.08, EUR 0.89) per kilogram from Q4 2020.

Within LSG’s wild-catch segment, Havfisk's total catch volume in the last quarter was 25,721 metric tons (MT), compared with 20,009 MT in Q1 2020. The main species caught were cod (11,113 MT), haddock (5,998 MT), and saithe (4,030 MT). Compared with Q1 2020, the average price for cod decreased by 27 percent, haddock was 14 percent lower, and saithe was down 9 percent.

Lerøy Havfisk had 10 trawlers in operation in the quarter.

Along with its LNWS whitefish processing operations, the segment reported an EBIT of NOK 185 million (USD 22.2 million, EUR 18.2 million) for the opening three months, compared with NOK 270 million (USD 32.4 million, EUR 26.6 million) in the same period of 2020. 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. 

“Earnings in [the wild-catch segment] are lower than corresponding quarter last year, driven mainly by lower price realization. However, operations in the land-based industry are developing positively, which gradually is yielding improvement in profitability,” Beltestad said.

Also in the last quarter, LSG’s VAP, sales, and distribution division (VAPS&D) posted 6 percent lower revenues of NOK 4.6 billion (USD 551.5 million, EUR 452.6 million). However, “substantial improvement initiatives” made in several of the segment’s units led to a NOK 47 million (USD 5.6 million, EUR 4.6 million) lift in its operating profit before fair value adjustment related to biological assets to NOK 101 million (USD 12.1 million, EUR 9.9 million).

“The continued trend of increased sales through retail is validating the group's long-term investments in downstream markets. We have an excellent position to continue to build on in the years to come,” Beltestad said.

He also highlighted that in the second quarter, the group's increased ownership in Seafood Danmark from 33 percent to 78 percent was approved by competition authorities. The company reported operating profit of approximately DKK 70 million (USD 8.4 million, EUR 6.9 million) in 2020.

“Seafood Danmark is a well-run company, and we are looking forward to continue to develop the operations together with the local management,” he said.

LSG’s income from its associated operations amounted to NOK 56 million (USD 6.7 million, EUR 5.5 million), reversing a loss of NOK 17 million (USD 2 million, EUR 1.7 million) in Q1 2020. 

For the full-year 2021, LSG estimates a 2020 total salmonid harvest between 205,000 and 210,000 GWT, including its volume from associates, and also a whitefish catch of approximately 73,000 MT.

Photo courtesy of Lerøy Seafood