Leroy Seafood profits drop in 2022

Salmon fish farm near Bergen, Norway. Photo: Adobe Stock.
Salmon fish farm near Bergen, Norway. Photo: Adobe Stock.

Leroy Seafood Group (LSG) today announced its fourth-quarterly results, posting record revenues of NOK 26.6 billion in 2022. The company said this reflects a year of high prices, driven by strong demand for seafood. However, lower catch volumes and lower margins in processing, sales and distribution significantly impacted Leroy's operating profit, which dropped to NOK 800 million in Q4 2022, down from NOK 902 million in the same period of 2021.

"Seafood markets were strong in 2022. Like other industries, we also experienced cost pressure," says CEO Henning Beltestad. "The other defining event of the year was the resource rent tax proposal. We've already seen this have significantly negative effects on investments in coastal regions. This is extremely unfortunate for Norway as a seafood nation, for the industry and for everyone who works in it."

Good harvest earnings but lower wild catch volumes

The seasonal increase in harvest volume in Norway in the second half of 2022 meant lower prices for salmon and trout than in the first half. Despite the lower margins, however, the high harvest volume ensured continued good earnings for Leroy's farming segment. The company reported a combined salmon and trout harvest volume of 53,310 GWT (51,332 GWT), 4% up on 2021. In total, farming showed revnues of NOK 3,720 million (compared to NOK 3,061 million in 2021), and earnings of NOK 774 million (EBIT), up by almost 10% compared with 2021.

Overall, Leroy described its downstream VAP S&D results as showing a "healthy profitability level, but lower than last year". Depsite this, profits in this segment picked up in Q4. The company also reported significantly lower profitability in Wild Catch due to lower catch volumes. In total, the segment reported an operating loss of NOK 9 million in Q4 2022, compared with an operating profit of NOK 73 million in the same period in 2021. For the year as a whole, wild catch earnings totalled NOK 348 million, up 8 million from 2021.

"The earnings improvement in VAP S&D from last quarter is positive, and a trend that we expect to continue in 2023. Within Farming, we experienced challenging biology in Lerøy Midt and Lerøy Sjøtroll, affecting growth, and the harvest volume for 2023 is now estimated at 193,500 GWT. We have initiated several measures throughout the value chain, which will gradually show positive effects," says Beltestad.

Salmon tax continues to fuel uncertainty for Leroy

Overshadowing the company's results and 2023 outlook is continued uncertainty over the Norwegian government's so-called salmon tax. Leroy has already adjusted its operations in the light of the new taxation, laying off 339 employees in November 2022, and halting projects such as its development at Skjervøy in Troms, which was intended to increase processing capacity.

Leroy, which has historically sold 30-50% of its salmon on long-term contracts, says the salmon tax as originally proposed made it "impossible" for the company to enter into long-term contracts. And despite amendments made to the legislation before Christmas, the groups says uncertainty around long term contracts has if anything increased since then.

"In their rent resource proposal of 28 September 2022, the Norwegian government and Ministry of Finance reveal a lack of insight into the industry's value chain and value creation, and hence of the consequences the proposal will have. It is important that the government understands the industry's value chain, including its level of activity and key role in Norway's coastal communities," Leroy stated in its report.

Leroy says it expects harvest volumes of around 193,500 GWT in 2023. Inflationary trends will likely lead to higher costs in the twelve months ahead, but this is expected to be counterbalanced by operational improvements. The company continues to make significant investments in developing its value chain, forming the basis for its ambitious 2025 targets. It intends to continue with annual investment in maintenance and smaller improvement projects of NOK 900 million. The Board of Directors will recommend a dividend payment of NOK 2.5 per share in 2023, unchanged since last year.

About Leroy Seafood Group

Leroy 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.

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