Leroy Seafood Group reports robust Q1 2024 results By Investing.com

Leroy Seafood Group, a leading seafood producer, has announced its first-quarter earnings for 2024. The company reported an operational EBIT of NOK842 million, indicating improvements across several segments of its business.

Despite facing challenges such as reduced quotas in its Wild Catch segment and low sea temperatures affecting Leroy Aurora, the company has shown a strong biological performance and is making strides towards its ambitious 2030 sustainability and financial targets.

Key Takeaways

• Leroy Seafood Group posted an operational EBIT of NOK842 million for Q1 2024.
• Biological performance has improved, particularly with Scottish Sea Farm and Leroy Aurora, despite some challenges.
• Maintenance CapEx increased in 2023 due to a weaker Norwegian kroner, with a similar level expected for 2024.
• Investments in Whitefish processing capacity and new farming technology were made last year, with plans to invest in shielding technology and smolt quality in 2024.
• The company has a significant footprint in Norway, contributing to local economies and the national tax base.
• Leroy Seafood is on track to meet its 2025 harvest targets and aims to double its EBIT within two years.
• The company is implementing sustainability measures such as sustainable fish feed, emission reductions, and full utilization of fish for value-added products.
• Challenges include reduced quotas for cod and haddock in the Wild Catch segment, with further reductions anticipated in 2025.

Company Outlook

• Leroy Seafood aims for over NOK50 billion in revenue by 2030 with a 46% reduction in emissions.
• The company is focused on creating the world’s most efficient and sustainable seafood value chain.
• There are plans to enhance investments in technology to improve operational efficiency and product quality.
• Leroy Seafood is confident in achieving its target to double its EBIT in two years.

Bearish Highlights

• Reduced quotas for cod and haddock have impacted the Wild Catch segment.
• Low sea temperatures have affected the performance of Leroy Aurora.
• Further quota reductions are expected in 2025, posing ongoing challenges for the Wild Catch segment.

Bullish Highlights

• Strong biological performance has been reported across several farming segments.
• The company has seen a positive turnaround for Scottish Sea Farm due to improved biological status and fish health.
• Leroy Seafood’s investments in technology are expected to yield operational improvements and better harvest results.

Misses

• The reduction in license capacity in production areas three and four for Leroy Sjotroll.

Q&A highlights

• Leroy Seafood discussed their commitment to sustainable logistics by 2025 and the use of the entire fish to create value-added products.
• The company is focused on operational improvements to meet their 2024 harvest targets through advancements in genetics, technology, and production methods.
• They anticipate significant improvements in farming through the implementation of new technology and process enhancements.

Full transcript – None (LYSFF) Q1 2024:

Henning Beltestad: Welcome to Leroy Seafood Group’s First Quarter Presentation of 2024. My name is Henning Beltestad, I’m the CEO in Leroy Seafood Group. And with me today, I have Sjur Malm, CFO. First of all, I will take you through some of the key highlights in the quarter, then Sjur Malm will take you through the key financial highlights, and then I will come back and talk a little bit about the outlook for the different segments in the area. First of all, our goal is creating the world’s most efficient and sustainable value chain for seafood. We are step-by-step improving the value chain and working continuously with that work. And we see in this quarter some improvements in, yes, a lot of improvements in different parts of our value chain, and I will come back to that. When we look at the highlights of the quarter, we had an operational EBIT of NOK842 million. We had a quarter with good biological development and but we had low temperatures that has impacted the growth somewhat. Biological earnings in Scottish Sea Farm is improving a lot, also the underlying improvements in biology is really good. So, we’re really satisfied seeing that development. Come back to that afterwards. Significant improvements in earnings from VAP’s Sales and Distribution, healthy earnings in Wild Catch. Harvest targets for 2025 is reduced by 5,000 ton as license capacity is reduced following a traffic light system. The board has proposed a dividend of NOK2.5 per share. And then, I will come back to the different segments. We are reporting in three segments: Farming, Wild Catch and VAP Sales and Distribution. For the Farming, we, like I said, a strong biological development in start of 2024, low sea temperature can be positive and can be negative, some negative for lower growth, but also some positive things by having lower temperatures. We see shielding technology remain promising, minimal need for life treatments. We had a quarter with a seasonally low harvest, and that has impacted the cost per kilo harvested. It has been a quarter with high spot prices, but price achievement is impacted by contracts and some quality downgrades. And then if we go into the different regions. First of all, we have Leroy Aurora, a very strong biological performance, and biomass growth is affected by very low sea temperatures. We see a quarter with substantial increase in harvest weights versus same quarter last year, which is lifting the price realization. And if we look at the harvest rates in first quarter, it’s 4.6 kilo compared to 3.7 kilo same quarter last year, so a good improvement. And we are also expecting a good harvest weight going forward. The cost level for 2024 expected slightly higher than for 2023 and operational EBIT per kilo of NOK44, which is at the very high-level, and we see compared to last year, where we had NOK27. Then let me admit, higher biomass growth in first quarter compared to same quarter last year. We also had a higher biomass going into the quarter. Significant increase in harvest volumes in first quarter compared to first quarter 2023, 13,700 ton compared to 8,600 ton. The harvest weights in line with last year, 4.1 kilo compared to 4.2 kilo, and we expect higher harvest weights going forward. So, we have a good biomass with good weights in DC at the moment. Cost level for 2023 is expected slightly higher than 2024, and we achieved operational EBIT of NOK31. Then Leroy Sjotroll, and this is the region where we really see strong biological development, some affected by string jellyfish from fourth quarter, which affected early harvest in January and some lower price realization. But it’s been underlying performance, it’s been a very positive start of 2024 with expectation of clear improvements from small quality new farming technology and increased production of trout also going forward. Cost level for 2024 expected at the same level as ’23, but with significant year-on-year reduction second half of 2034. And then on a negative side, the production area three and four is color red in traffic light, with 6% license capacity reduction as a consequence. Harvest target for 2025 reduced by 5,000 ton because of that. Low volume in the quarter, 6,700 ton compared to 14,000 ton in 2023. And the main reason for that is that we are building biomass as we have a strong biological situation. And we will have a much higher volume going forward the next quarter of the next quarters of 2024. Norskott Havbruk, we are really satisfied to see the performance and the improved biological status in all regions. We also see that the EBIT is going from negative to plus NOK19 per kilo. And we also expect that we will see improvements going forward with higher average weights, better quality and much better fish health situation. So, it’s really been a turnaround case for the organization in Scottish, and we and we are really satisfied and happy to see the positive development and that Scottish Sea Farm is back on track. 45% of the volumes sold on contracts with a negative impact on price realization, lower cost level expected in Q2 2024, and harvest guidance for 2024 remains at 37,000 ton. Then the guidance for the different regions, we keep our guidance of 2024 for almost 175,000 tons. I will say where we have some downside risk is in Leroy Aurora, where we have had extremely low temperatures so far, but we expect that we will manage to be at 47,000 tons end of the year, 70,000 ton in Leroy Midt and 58,000 ton in Leroy Sjotroll. And we adjusted the target for 2024 to 200,000 ton. For 2024, we, our share of Scottish Sea Farm is 18,500 tons, so a total of 193,000 tons. Then we have Wild Catch. It’s been a good quarter, NOK187 million in EBIT. It’s been good catch volumes, but of course, we are impacted by lower quarters. And we have seen historical higher Cod prices in first quarter ’24, close to NOK60. As we said, the Cod quota is down 34% on Cod and for haddock, 43%, compared to 2023. And of course, that will impact the profitability in the rest of the year in 2024. And the volumes in Wild Catch is we catch the 6,700 tons cod, 7,000 tons saithe, 5,000 tons haddock and 1400 tons shrimps. And now, we are into the second quarter, we start with the main fishery for shrimps and other 4,000 tons. So, a total of 24,000 ton compared to 25,000 tons in 2023. Sales and processing, we have 14 — we have operation in 14 countries, invested strongly into the different main markets in Europe to be close to our customers and be, what should I say, a partner into category development of especially fresh seafood, but also smoke products and frozen products. We see strong improvements in this segment, and if we look at the trend on 12 months rolling. EBIT, it’s going up and a very positive trend after some challenging year with COVID and also some start up problems in some of the markets, but it’s very good to see the operational improvements in a lot of these downstream facilities that we have, and we still have a huge potential of improving that going forward also. So, then I will give the word to Sjur Malm, and he will take us through the key financial highlights. Thank you very much.

Sjur Malm: Yes. Thank you, Henning. So, summing up some of the key trends in this quarter, we’ve had good growth in the quarter. That good growth has been a key highlight. And following, we’ve been able to we’ve seen some downgrades of our fish, but we’ve been able to value crate on that fish in our downstream segment. How has this affected the first quarter results? It has affected us in terms of harvest volume in redfish. We’ve harvested and there’s still this low volume impact cost, but the value creation in downstream has been visible. Looking at our financial figures and key drivers. We see the key value drivers on the latter lines. Harvest volume is down 8%. This quarter, we built a significant amount of biomass, understanding biomass, and Q1 is about 5% higher, 5,000 tons higher than it was the same quarter last year. The margin in farming is down, but the margin in value added processing is up. And in sum, the margin through the value chain is marginally down. In whitefish, we have catch volumes, which are 5% lower, slightly lower margin. And in sum, this sums up to operational EBIT of NOK842 million which is 15% below last year. That’s a good performance in Scottish Sea Farms, but still EPS is down 22%. Looking then at our balance sheet. If we start with tangible fixed asset, I will show a slide soon showing key investments. Key investments include investments in new technology and farming and also opening a new factory in Båtsfjord in whitefish segment. And that’s those are key drivers for the higher tangibly fixed asset. I think the other key point is the biological asset cost, which is basically the efficiency. We see that is up above NOK800 million. Key drivers for that is the fact that it is about 5,000 tons more biomass in the sea this year compared to last year and also that the average size of that biomass is around 15% higher than the same payout last year. So, it’s a better biomass. It’s more costly, but it’s also larger and better than last year. And that promises well for the remainder of the year. Other working capital items, there’s no big changes, and I return to that on the coming slide. We believe we have a strong balance sheet, net interest-bearing debt of NOK5.5 billion and equity ratio of 50%. Here is indication of cash flow development showing us change in that interest-bearing debt, we recognize the EBITDA. The change in working capital is driven by biomass development as the key driver. CapEx, I will return to on coming slide. Finance cost is up following the fact that interest rates are higher and we are paying tax. But net interest-bearing debt end quarter of NOK5.5 billion. Looking at CapEx, this shows the historical development. Maintenance CapEx, we see was up in 2023. A key driver here is the weakening Norwegian kroner. We expect about the same level in 2024. Last year, we invested in Whitefish processing capacity and new technology in farming. Looking into this year, we will enhance investments in shielding technology in farming. Results so far are good, and Henning will comment upon more upon them later. And we are investing in improving smolt quality to get the more robust fish that we put into the sea. Best estimate today is a CapEx of around NOK1.8 billion. Then particularly in Norwegian Media, there is a discussion on value creation from this industry, and we can only show the facts. So, what this slide shows is the footprint of Leroy’s operations in Norway and also from the suppliers we acquire from. And as we see, it’s a significant footprint all over the country and particularly along the coastline. We bought, we made purchases last year for around NOK20 billion. We bought from close to 5,500 suppliers in 250 municipalities in Norway. And our employees we have employees in 60 municipalities. That activity leads to substantial value creation in Norway. Here shown us number of employees, both our own and indirect summing to 10,000. Also, estimate of value creation, which is substantial, including indirect value creation, close to NOK15 billion, and there’s a significant tax contribution of around NOK2 billion in sum. So, we create significant values in Norway. Yes, Henning, then I give the word back to you.

Henning Beltestad: Thank you, Sjur. Okay. Then we want to look a little bit what’s happening going forward and our forward targets and to give you some short update on that. We see we have a target on 2030 of more than NOK50 billion. We had NOK30 billion in 2023, and we see that we are on track to achieve this goal. When it comes to reduction in total emissions, we also are on track here for on reducing the emission by 46% within 2030. On the targets for tons harvested in 2025, we are on track with all the initiatives that we are doing step-by-step. And we, so it’s up 40,000 ton from the level that we had in 2023, but also 2023, we had, I will say, not the best performance that is not where we should be. Also, for up sales and distribution, it’s a hairy goal to double in EBIT in two years, but we see a very good development in this quarter. We also expect a good development quarter by quarter going forward, especially second half of this year and into 2025, and we strongly believe that the organization has the right motivation to take us towards this goal. And then, it’s being number one farming companies in EBIT per kilo in shipment in 2025. We see that we are on track in North region, in Leroy Aurora. We also believe that with the initiatives that we’re doing in new technologies and also on the smolt de row and the genetic side will give us a good development towards also this goal. And it’s getting close, so we really feel on that, but the organization in all regions believe that this is achievable. When we, we can start with our emissions. We reduced that from 2019 by 15.5% until 2023. Our ambition, as I said, is reducing it 46%. Our main focus areas to achieve this goal is sustainable fish feed. We work on ingredient side together with strategic partner on feed. We work a lot with airborne transport and also working a lot with alternative fuel to our fishing fleets, but that’s more a long-term focus. But then we believe that it’s possible to achieve this goal, and we have implemented this into daily operation in the whole value chain. When it comes to Wild Catch, of course, the reduced quotas make it difficult for us going forward. And also, we believe there might be some downsides on the quarter also for 2025. For VAP sales and distribution, as I said, it’s a promising outlook. We invested in all major markets in Europe to get close to the customer, to give a high service level, to give us stability and to be in a leader within category development within seafood in all main markets. And we have huge capacities, which still there is and there’s still a huge potential of improvements in all the markets. And we see step-by-step that these improvements have been taking out the potential of. For the short-term actions, of course, higher utilization of our VAP factories through volume growth achieving economy of scale, improving VAP factories in certain European markets with expected substantial uplift in 2024. We see like in one key market, there can be up to NOK100 million improvements to be done going forward and that we also see that we are on track on these improvements. And then also, Leroy Aurora principles is implemented with clear targets, roles and responsibility, action plans, market plans and culture for continuous improvement. For the long-term actions, it’s to focus a lot on the consequence products in our own value chain, use 100% of the fish, increase flexibility and price achievement, implementing layaway and sustainable logistics. So, a lot of areas where we can improve both in short-terms and in long-term to achieve the goal of 2025. And one example of using the fish, the 100% of the fish, Leroy is the first farming company to take out the salmon blood and to make products out of the blood. And earlier this quarter, we launched salmon, which is iron tablets, which with a good quality, and this is a way how to take care of all the parts of the fish. And 2% of the fish is blood, so if we produce 200,000 ton, it will be 4,000 ton with potential blood to make a higher value out of. Reaching 2024 harvest targets through operational improvements. We focus a lot on the road, small production and new technologies. And to give an update on where we are and when will this give effect, we first the genetics, we see it will give some effects on first half of 2024. Ro also giving effect on first half, and we see some improvement from that and also from the smalt. And then we will see step-by-step, we will take out the effects on harvested fish going forward. And if we look at the first quarter, we see strong biological performance, first quarter compared to the average of last five years. We see improved net growth rate of 9%. We see a reduction in mortality of 24%, and we see a reduction in life treatments of 56%. So exceptional improvements in these key drivers for improving better fish health going forward. And we are on track with our implementation of shielding technology, and results so far has been really good. We see that there is in submerged cases, there is serialized treatment, and we had the first location put in sea in July last year. And it will be exciting to see, how this will go when we go into the main season with higher seat temperatures and see the performance of the new technology. The current situation is that we are on target, like I said, close to 20% of salmon in number of fish shielded as of April ’24 and targeting 30% to 35% by end of 2024. And so far, everything is going well, and we really believe in the implementation of the new technology for the Farming segment to achieve our goals for 2025. And like I said, we see huge reduction in life treatments for the different technology. Like I said, for the deep sea farming, it’s there’s been no treatments. We have had some treatments on the other technologies, but compared to same generation going back, we see that there is huge improvements in all what we do in new technology and with a reduction of 82%. So, we at the time, it looks promising. Then the last outlook farming, positive start of 2024, contract share. 2024, currently around 25%. Expect to see significant improvements from raw and small quality, new farming technology, and process improvements through implementation of layaway. For Wild Catch, challenging quota situation, cod down 34%, haddock down 43% and the outlook for quarter 2025 is also seems like we will get a further reduction. For VAP Sales and Distribution, increased demand for integrated sustainable value chain, and we see improved market share in some key markets, utilizing the potential of our value chain. And we have a huge potential of improvement in some key markets, which will take us to the goals in 2024. So that’s what we have, and thank you very much.

End of Q&A:

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