Overall success, but challenges in the form of biological problems, inflation and the new Norwegian tax regime: that was the message from Norwegian salmon and whitefish producer Lerøy Seafood Group, reporting its Q2 results this week.
Lerøy reported a revenue surge for the second quarter of 2023, with a 17% year-on-year increase in revenue compared with Q2 last year. The company's Q2 Operating EBIT stood at NOK 950 million, marking a marginal increase from NOK 927 million recorded in the same period in 2022.
Furthermore, the Operating EBIT/kg across Leroy's entire value chain exhibited a substantial rise from NOK 25.2 in the previous year to NOK 28.7 during Q2 of 2023.
The quarter, however, was not without its challenges. Lerøy navigated through the headwinds of seafood price inflation and complications in its farming segment during the latter half of 2022.
Biological problems beset both its Lerøy Sjøtroll location and Lerøy-SalMar joint venture Scottish Sea Farms, in which it owns a 50% stake. These factors, in turn, led to a dip in harvest volume in the first half of 2023. This year's Q2 volume stood at 29,659 tonnes, a 10% drop in comparison to the same quarter last year.
Despite these hurdles, the company's downstream activities displayed improvement compared to the previous year. Notably, even with reduced quotas, Leroy's Wild Catch segment managed to deliver satisfactory results during Q2, catching 27% more whitefish (23,709 HOG) compared with the same period last year.
In response to the biological problems, Lerøy is adopting cutting-edge technology designed to shield its salmon from sea lice infestations, CEO Henning Beltestad said.
The company aims to protect approximately 20% of its salmon using this technology by the first quarter of 2024.
However, Lerøy's biggest challenge this year, in common with the other major Norwegian salmon producers, is the undoubtedly the resource rent tax, or so-called "salmon tax".
According to Lerøy CFO Sjur Malm, the implementation of the new tax regime, effective from May 2023, has translated to a NOK 1.7 billion increase in tax expenditure for the Group.
Beltestad said that Lerøy shared in the wider industry's concerns regarding the new tax regime, arguing that the administrative burden it places on the industry was greatly underestimated when it was proposed to the Storting.
Looking ahead, Beltestad said aquaculture stock release costs in the latter half of the year are expected to be lower than those recorded in Q2. The full-year 2023 forecast estimates a harvest volume of 181,500 GWT, including from joint ventures.
Biological problems at Lerøy Sjøtroll, which had positive tests for ILA at two sites in July and August 2023, means that all fish at these sites need to be harvested earlier than planned, before 15 October 2023. A negative P&L-effect of approximately NOK 200m is expected as consequence of the premature harvest and a negative operational EBIT for Lerøy Sjøtroll is expected in Q3 2023.
Despite its fishing division facing reduced quotas, Lerøy predicts a "good basis of operations for the remainder of the year", and expects its downstream activities to continue to improve, Beltestad said.
Lerøy Seafood Group (LSG) is a global seafood corporation and has its head office in Bergen. The Group's almost 6,000 employees process between 350,000 and 400,000 tonnes of seafood every year via its value chain, corresponding to around 5 million meals every day. The Group has a vertically integrated value chain for red fish and whitefish, as well as significant activities using third-party products. The Group has set a number of ambitious targets within sustainability, including cutting greenhouse gas emissions by 46% by 2030.