Lerøy Seafood Group ASA (LSG) Earnings Call Transcript & Summary

Welcome to Lerøy Seafood Group's Second Quarter Presentation 2025. My name is Henning Beltestad, I'm CEO in the company. And with me today, I have Sjur Malm, CFO. First of all, I will take you through the highlights in the quarter, and then Sjur will take you through the key financial highlights, and then I will come back and talk a little bit about the outlook going forward. Our goal is to create the world's most efficient and sustainable value chain for seafood. And we are very proud of the value chain that we have developed, and this gives us great opportunities going forward. Our fully integrated value chain is our competitive advantage. We mean that we deliver value for our customers, which are seeking sustainability, health, quality, traceability, stability, availability and convenience. And our value position is speed and cost efficiency, reliability and trust, product and category innovation and traceability and quality assurance and clear ESG commitments. Highlights of the quarter. Strong biological performance, spot prices for salmon and trout well below last year. Group contract share of 30% supporting both Farming and VAP, Sales & Distribution. A record high earnings in VAP, Sales & Distribution segment, low quotas in Wild Catch offset by significant price increase and positive cost development in Farming. And in the quarter, we have paid out a dividend of NOK 2.5 per share paid in the quarter. And we have had an operational EBIT of NOK 680 million compared to NOK 906 million same quarter last year. We are reporting in three segments: Farming, Wild Catch, VAP, Sales & Distribution. And we will go into some details of the quarter in the different segments. And we start with the Farming highlights. And the spot prices for salmon is about NOK 30 lower compared to same quarter last year, which, of course, has affected us in this quarter. But we still have managed to keep a good profit in this segment with -- especially in with some contract shares. Improvement in biology showing results, the highest net production in sea in a second quarter, high survival rates, higher superior share, higher average harvest weights, and declining costs. So that's on a positive side. The biological development in start of Q3 is a little bit more challenging following high sea water temperatures. And we keep our guidance of 195,000 tonnes. Shielding technology continue to show good results. And in this quarter, we harvested about 49,000 tonnes compared to 36,000 tonnes last year. So a good increase in volume. If we go into the different regions or companies, we start with Lerøy Aurora, North, a very strong biological development, both in growth, survival rates, superior share and continued high license utilization. We see a significant cost decrease compared to the quarter before and expect a slight decrease going forward into -- versus expectation of a slight decrease. And the cost expected for third quarter is at the same level as second quarter. Also here, we see high seawater temperatures in especially beginning of third quarter. But so far, the measures against sea lice appear to improve situation versus last year. And the estimated harvest volume is 50,000 tonnes. The volume harvested in second quarter is 11,000 tonnes 2025 compared to 5,000 tonnes in '24. And operational EBIT is NOK 18.9 million compared to NOK 37 million in second quarter '24. Lerøy Midt, also a strong biological performance in this quarter, record net growth, high survival rates, continued high license utilization and also, we see improvement in superior share compared to same quarter in '24. As expected, a quarter increase in cost. Also here, high seawater temperatures and a challenge at the start of Q3, expect cost at the same level in quarter-on-quarter in third quarter. Estimated harvest volume is 75,000 tonnes. If we look at the harvest volumes, it's close to 17,000 tonnes compared to about 16,000 tonnes last year. EBIT per kilo of NOK 11.5 compared to NOK 37.5 last year. Lerøy Sjøtroll, also here a strong biological improvement, record net growth, high survival rate, high superior share and continued high license utilization. In this quarter, 47% of the volume is trout, where we had a realized trout price for group of less NOK 2 lower than salmon in the quarter. It's been a decrease in cost compared to first quarter and we expect the cost at the same level. So that's a good thing. And then, we will see going forward, we expect a cost increase compared to second quarter. And also here, we had some risk in, when it comes to temperatures, the increase in July and August. Estimated harvest volume of 70,000 tonnes 2025. Harvested volume 21,000 tonnes compared to about 16,000 tonnes in second quarter last year. And EBIT value chain of NOK 9.7 compared to NOK 13.5 last year. So it's a strong development in Lerøy Sjøtroll. And if we also look at the numbers in second quarter last year, we see there is also always only a small decrease, and we also -- and when it comes to the price reduction, this is a good improvement in performance compared to last year. Scottish Seafarms, strong biologic development with next generation of fish performing very well. Lower price return impact result in the quarter. The volume in 2025 is impacted by reorganizing site structure, long-term potential is significantly higher. And the smolt input to sea in H1 '25 of 6.5 million compared to 3.5 million in first half '24. So great expectation for especially next year in Scottish Seafarm. Estimated harvest this year is 32,000 tonnes. The harvested volume in Q2 is 11,600 tonnes compared to 12,000 tonnes last year. And unfortunately, this second quarter is a negative EBIT of minus NOK 2.4 compared to NOK 19.1 same quarter 2024. When it comes to Farming and Guiding, we keep our 195,000 tonnes guiding in Norway, 50,000 tonnes in Lerøy Aurora, 75,000 tonnes in Lerøy Midt, and 70,000 tonnes in Lerøy Sjøtroll. And our share of Scottish Seafarm is 16,000 tonnes, so a total of 211,000 tonnes. Wild Catch, I will say a good quarter and a good first half. The cod quota is down 32% impacting catch volumes for the trawling fleet and of course, also the raw material price and volume in the land industry. I will say that it's done a great performance on both sides, handling the quota situation in a good way. So a very good performance H1 and with the EBIT NOK 114 million higher than first half '24. And we see the key species, the prices, it's extremely high cod prices, close to NOK 80. The Haddock prices is still very high and the Saithe prices is up to NOK 30. So yes. If we look at the Wild Catch quotas and catch volumes, we have the same volumes as second quarter last year, about close to 18,000 tonnes. But on a positive side, we see that the remaining quarter for 2025 is 3,000 tonnes higher. 17,000 tonnes this year compared to 14,000 tonnes last year, same period. Sales and Processing. We have operation in 17 countries and sales to more than 80 markets. It's been here a record quarter, really good performance. Structural improvement continue to yield results. It's a strong half with the first half with a record 12-month rolling operation EBIT, effects of -- and this is an effect of a structural improvement work, strong demand in end markets, positive development in emerging markets and strong positioning with strategic customers globally. And also new branch offices in Asia is starting to show results, the expectation for continued positive profitability trend in 2025. So we are on a good trend in this segment, and we are really satisfied with the development and are positive for the future. Thank you. Sjur will take you through the key financial highlights.

Yes. Thank you, Henning. So this quarter has seen excellent development in a lot of the factors we control ourselves. And then, we are obviously impacted by a significant fall in spot prices for salmon and trout. Starting then with our profit and loss sheet. We can see the result this year compared to last year. Key drivers on the latter lines. And so, spot prices are down NOK 30 a kilo. So a full impact of that on the close to 50 million kilos of salmon and trout we harvested, would mean a result drop of NOK 1.5 billion. We are seeing a significantly lower fall in our operational EBIT, and that's also then highlighting the balanced business model we have. So looking at the profitability on the salmon and trout, we are seeing good cost development. We are seeing good development in superior shares and excellent biological development. We are -- and this also includes the profitability downstream, where we see high and increased activity, better capacity utilization and an increased profitability. Still with the significant fall in spot price, we see that the overall EBIT per kilo in that value chain is down from NOK 27 a kilo to NOK 12.5. But we are satisfied with the development in key operational KPIs in the quarter. Looking at the Wild Catch segment, we know quarters are down. We can see that the catch volumes are relatively equal to last year. There are some timing effects when comparing this quarter to last year. But the core impact if looking at numbers year-to-date this year compared to last year is that price achievement is higher, because price development has developed more positively than the quota reduction. And year-to-date quota is down NOK 114 million -- our operational EBIT year-to-date is up NOK 114 million, and we see that this quarter, the operational EBIT per kilo is up from basically 0 last year to NOK 8 per kilo. In sum, with these value drivers, we see operational EBIT is NOK 680 million compared to NOK 906 million last year. And we see that we have a healthy revenue development, much helped by volumes, both upstream and downstream and of weight somewhat by lower prices on salmon and trout. Turning to our balance sheet. The long-term non-current asset, we see is up close to NOK 2 billion. This is a reflection of CapEx, which I will return to in the next slide, but includes, among others, new farming technology. And there's also some leasing agreements on right-of-use assets, which predominantly relates to new agreements on well boats. If you look on the current asset, our standing biomass fish is up from around basically 100,000 tonnes last year to 110,000 tonnes this year, and that is the driver for the increase in biological asset at cost. I would say we have good control on working capital and a healthy development on key working capital items. And we have a healthy and strong balance sheet, and we are investment grade rated and equity ratio of 49%. Net interest-bearing debt rose from -- comparing with -- from NOK 7 billion to NOK 8.5 billion in this quarter. And the key driver for that is the payment of dividend. Looking beyond that, we saw that working capital was developing relatively healthy with small changes. We have an EBITDA of NOK 1 billion, and we see that CapEx has increased NOK 600 million. It's fair to say that this debt level -- net interest-bearing debt level is a bit higher than what we expected it to be at this point of the year, and that is due to lower profitability in the Farming side and a lower salmon price than expected. But we believe we have a healthy balance sheet and a strong balance sheet. On CapEx, we have not made any changes to this slide compared to previous quarter, and we expect to invest NOK 2 billion. You can see the split. It's maintenance in CapEx, smaller growth CapEx, which is in the area of NOK 1 billion. And then the core of our investment strategy and where we allocate capital is new technology in Farming and in particular, then in submerge farming, but also on smolts, also on lasers. And then in addition, we are investing in smolts. And Henning will highlight in a later slide when we expect to see the impact of these investments in operation, but we believe we already are seeing the impact of them in our numbers this first half of '25. There is a discussion, particularly in Norway on what are the ripple effects of our activity. So this slide is included to highlight those. So what we see here is in the light blue lines where we and Lerøy operate and the dark blue dots is where Lerøy has bought from suppliers, and this is for 2024. And what we can see is that, there's vast ripple effects in all of Norway, in particular in the coastline in addition to our 6,000 employees, which is a global number and 4,000 employees in Norway. We have significant effects when it comes to creating jobs all along the coastline. And all of these, we are proud to be part of producing the most sustainable food protein that's available out there today. Value creation estimated to NOK 15 billion and a substantial tax contribution. So with that, Henning, I give the word back to you.

Okay. Then we're going to go for outlook. And yes, we have set some ambition targets going back 3 years back. And I will say that we can start with the targets for volume, 200,000 tonnes. We have a guiding at 195,000 now. We were last year at 171,000 tonnes, and we believe that it's achievable to get to 200,000 tonnes. So -- and we believe that it will be possible, and we keep the direction towards the 200,000 tonnes, even though we had a guidance of 195,000 tonnes. The target for VAP Sales & Distribution, it's -- of course, it's a high target, but we see on a 12 months rolling, we are at close to the target end of second quarter. And we believe that we will also have a strong performance going forward. So this is within reach. And I think the whole segment are working extremely hard to achieve this goal. For the EBIT for Farming to be #1. It's a hard competition. It's still 5 months left of the year, and we will see end of the year where we end. But we strongly believe that we are in the right direction to achieve this also. And the 2030 target is NOK 50 billion. And we also have that -- we believe that this is within reach going forward the next 5 years. But okay, VAP Sales & Distribution, yet another quarter of earnings record, reaching for ambitious targets, as I mentioned. And -- we see a strong improvement from -- in the 12 months rolling from second quarter '24 to '25. And we will have an 18% increase in EBIT up to NOK 1.250 billion. And this is done through short-term actions and long-term actions. And we really believe that we see structural improvement initiatives in all units in Europe. We see continued improvement in VAP factories and expect through 2025 based on higher capacity utilization and increased operational efficiency. And we work hard with also the long-term actions. So -- but I have to say, I'm really impressed by the job that is done in this segment and to see all the improvement and that we are going in the direction to achieve our goal. For the Farming, as I said, we have a target of 200,000 tonnes. We were at 171,000 tonnes last year, and we will increase by close to 30,000 tonnes. And how are we going to do this? It's through a long-term improvement program, focusing on roe, smolt production, and new technology. And this is showing where we are. This improvement program started 4, 5 years ago, focusing on improving genetics, roe, smolt, shielding technology, and the Lerøy way implementation. And we see that, step-by-step we see that this will give effect on harvested volume. And we see now for second half of the year, we see that we take out benefits from this program at a higher level than first half '25. So -- and I will come back to some improvements afterwards. Yes. And yes, like I said, we see the improvement in second quarter, it's -- we see a strong biological performance in Farming. If we look at the growth rate, we see that we increased 16% in second quarter compared to the last 5 years. For superior share, we see a 9% improvement. For mortality, a 50% reduction, and biomass at sea is 9% higher end of second quarter compared to the average of the last 5 years. So yes, this strategy is showing results and the improvements that has been done. And if we dive into the new technology and submerged technology, we see great results. When it comes to lice treatment, traditional cages compared to submerged, it's a reduction of 71%, superior share plus 3% and mortality is down 24%. So that's good to see. And shielding technology, we are increasing share of harvest volume from shielding technology. Plan for '25 is that 35% share of total harvest volume from shielding technology in end of '25. And it's three different technology: submerged farming, semi-contained farming, and laser delousing. And then, we need to look at why have we seen a decrease in prices, especially second quarter of the year. And we see that the main reason for that is the supply increase. And we see in July also, we had a 21% increase in supply. But expectations for the rest of the year is that it will be 0 increase in supply compared to last year. And we believe that we will see a positive price development going forward and also into 2026. And let's hope that the low price level that we've seen in the last couple of months, it's been the bottom on the price level, that we've had. So to summarize. Farming, positive biological development in H2 '25, while higher temperatures are challenging at start of Q3. Contracts share for value chain in second quarter of 30% and for 2025 at around 25%, which will have a positive impact on both Farming and VAP, Sales & Distribution. Structural improvement initiatives expected to continue gradually show in results. Spot prices and price realization quota to date in Q3 is below production cost and of course, will impact profitability, but we need that -- we believe that there will be a positive price trend going forward. Wild Catch, if we look into 2026, there will be a further reduction of 21%, Haddock plus 18%, and Saithe down 15%, and Saithe South 24%. And VAP, Sales & Distribution progressing towards profitability target in '25, also supported by contract positions, lower salmon and trout prices are building markets, increased demand for integrated sustainable value chain and improved market share in some key markets, utilizing the potential of our value chain. And then please, we want to show you this fantastic product, the trout and the presentation with this fantastic product and which we really believe has a great future and Lerøy produce about 40,000 tonnes of trout from Norway. Thank you very much.