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

Welcome to Leroy Seafood Group's Second Quarter Presentation 2026. My name is Henning Beltestad, I'm CEO in Leroy Seafood Group. And with me today, I have Sjur Malm, CFO. First of all, I will take you through some highlights in the quarter, then give a short target -- a strategy and target update then Sjur Malm will take you through the key financial highlights, and then I will come back and take a short outlook of what we expect going forward. First of all, Leroy is a leading global provider of high-quality seafood. We have a history reaching back to 1899. Fully integrated value chain, diversified portfolio of healthy products and strong brands served across 80 countries listed in Euronext Oslo Bor since 2002 and have the values open on as responsible and creative. In total, we have 6,000 employees, a turnover last year of NOK 34 billion and operational EBIT of NOK 2.5 billion and a total processed volume of 340,000 tonnes and a harvest volume of 195,600 and a wild catch volume of 57,675. So we are a seafood company. Our goal is to create the world's most efficient and sustainable value chain for seafood and have a global presence in all major markets around the world. Also at the same time, we -- of course, our sources is mainly coming from the Norwegian coast. We are a fully integrated company and our value chain is our unique position in the seafood market. There is not many companies like Leroy globally today, supplying salmon and controlling the value chain from row to branded product in the shop and from fishing boats all the way out to our branded products in shops and restaurants. Highlights of the quarter. Strong biological development with positive cost trend in farming. Harvest guidance reiterated at 195,000 tonnes, increased expectation for profitability in the wild catch. Lower margin in market operations compared to last year, tightening market for salmon and trout and the Board has proposed a dividend of NOK 2.5 per share for 2025 paid out during the quarter. The operational EBIT in the quarter is NOK 574 million compared to NOK 680 million same quarter last year. A short strategy outlook. We had a Capital Market Day in February 2026. We will, every quarter, give an update on where we are towards these targets. We have the 220,000 tonnes target for 2030 in farming, the run rate is around 193,000 tonnes today. NOK 50 billion target 2030, we are around NOK 34 billion. The most important in the short-term is the NOK 1 billion reduction in cost. The run rate for the NOK 2 billion EBIT in market operation 2030, we have a 12-month rolling at NOK 1.2 billion. But in the short-term, the most important is the cost reduction process. As of Q2, we see that we are going in the right direction. We have realized end of the quarter, NOK 402 million and identified and under execution is NOK 521 million. We have a gap to target of NOK 77 million. We are really working structured and motivated to achieve this hairy goal. Then I will go in and look at the highlights for the different segments. We have 3 segments: Farming, Wild Catch, Market Operation, and we start with the Farming. It's been a quarter with continued strong biology, low mortality, high harvest weights of 4.8 kilo compared to 4.7 kilo last year, high quality, but some maturation on trout, which has affected the price achievement. The price is in line year-on-year. The SSI price second quarter '26 of -- yes, close to NOK 72 is about the same level as same quarter last year. There has been a quarter with high supply growth. We see in this segment, we have had a significant cost -- quarter-on-quarter cost improvement in Farming, and we have -- we keep the harvest guidance on 195,000 tonnes. If we go into the different regions, we start with Leroy Aurora. It's a continued strong biology development, strong growth rates, high survival rates, high superior share, high harvest rates. The cost is lower compared to second quarter last year and first quarter in 2026. It's been a good development, even though we expect a little bit higher cost going forward in the next quarter. The estimated harvest volume is increased to 55,000 tonnes. The earlier guiding was 49,000 tonnes. The operational EBIT value chain is of close to NOK 20 and a little bit higher than what we achieved second quarter last year. Leroy Midt continued strong biological development, high survival rates, high superior share, high harvest weights, cost lower compared to second quarter '25 and also first quarter '26. Expect a little bit higher cost in third quarter, but the cost '26 is lower than -- is expected lower than '25. Estimated harvest volume unchanged at 73,000 tonnes. Leroy Sjotroll, a very good development in this area in this region, good biological development also here in the second quarter, strong improvement in survival rates, low sea temperatures held back growth. Trout of 58% in the second quarter. The Farming cost is per kilo significantly down from first quarter '26. We expect a lower cost in third quarter and also for the whole year '26 compared to '25. In this quarter, price achievement on trout has been influenced by some maturation. The estimated harvest volume is reduced to [ 7,000 ] tonnes, and the main reason for that is the extremely low sea temperature that we have seen through the summer. Scottish Sea Farm. Been a difficult situation in Scottish Sea Farm the last couple of years, but we are really coming back low harvest volumes in second quarter and first half, but have a high volume in second half of the year. The next generation of fish is performing well, expect significantly higher volumes and a lower cost in coming quarters. The estimated harvest volume is unchanged at 43,000 tonnes. If we look at the year-to-date '26, we have harvested 13,500 tonnes compared to 20,000 tonnes last year. We have for second half of the year, a volume of close to 30,000 tonnes. There is a huge potential of improvements in Scottish Sea Farms going forward. That's really good to see. So there, we've done a tremendous job turning this situation around from the last couple of years. Farming volumes, the guiding, 52,000 tonnes in Leroy Midt, 73,000 tonnes on -- 52,000 tonnes in Leroy Aurora, 73,000 tonnes in Leroy Midt and 70,000 tonnes in Leroy Sjotroll which is 195,000 tonnes. Our 50% share of Scottish Sea Farm gives us around 22,000 tonnes and a total of 217,000 tonnes. Market Operations. We have Market Operations in 18 countries developed the last 20, 25 years. We have sales to more than 80 markets and is the end part of our value chain. Market Operations has been impacted by lower harvest volume and strengthening NOK, less favorable contract positions than in '25. The operational EBIT is down to NOK 269 million versus NOK 351 million in second quarter '25. But a strong EBIT margin of 3.5% compared to 2.5% EBIT margin in first quarter '26 and we expect second half -- a good second half of 2026. Wild Catch highlights, a strong performance in second quarter '26 considering quota. Catch volumes up 6% year-on-year, down 10% year-to-date. Prices significantly up year-on-year, clear operational and financial improvements in land-based industry and a significant inventory build in the quarter. We have increased profit expectation for '26 from NOK 350 million to NOK 400 million and NOK 400 million to NOK 450 million. So a very good performance in the Wild Catch segment and a positive outlook going forward. The Wild Catch quotas and catch volumes, second quarter, 1,500 tonnes cod, 1,300 tonnes saithe, 3,000 tonnes haddock, 2,100 tonnes shrimps and 11,000 tonnes others, which is a total of close to 19,000 tonnes compared to 18,000 tonnes in second quarter last year. We have remaining quotas of 16,000 tonnes compared to 17,000 tonnes last year. Then Sjur will take you through the key financial highlights.

Yes. Thank you, Henning. Then I will sum up what Henning said into our numbers. Looking at our P&L, we see the key value drivers on the latter line. On harvesting volume of salmon and trout, as explained, we've seen low water temperatures in Leroy Sjotroll impacting growth, and that is one factor behind the lower harvest volume. Still, as you know, there is no changes to guidance -- total guidance for the year. On margin in this part of our business, which is the sum of Farming and Market Operation, we can see that the margin is slightly down compared to last year. Trying to decompose this, starting with Farming. We are pleased to see a significant cost reduction from first quarter to second quarter, around NOK 5 a kilo, and that is very positive. We are seeing the biggest positive contribution and cost reduction in Leroy Sjotroll and this quarter, the smallest in Leroy Midt. But also then when we guide costs in Q3 flattish to slightly up, it's also a reflection of the fact that cost level in Q2 was lower than what we expected going into the quarter. Looking at price, we have an impact this quarter of the maturation on trout, which was around 10 million kilos of trout in the quarter. We said that the price impact in our report was around NOK 5 a kilo compared to salmon. Also on the margin side, which is off weighing then the cost reduction in Farming is the fact that we have slightly lower margins in value-added or Market Operation this year compared to last year. That was that part of the business decomposed. Looking in the Wild Catch business, I think the key takeaway is the fact that we have a quota on the year. It will vary a bit, with time it is actually sold and recorded in our books. This quarter, we are increasing our guidance from NOK 350 million to NOK 400 million to NOK 400 million to NOK 450 million, which is then an indication that the business is going better than what we expected a quarter ago. Looking at what was booked this quarter, it is a margin not too far from last year. But as written in our report, we have built significantly inventory, which poses well for profitability in this segment in Q3 and Q4. In sum then, operational revenue is down. Key driver there is the lower harvest volume in salmon and trout. We see our operational EBIT is slightly down, and I will then talk through the key drivers behind that. At our Capital Markets Day in March this year, we talked a lot about capital efficiency and that focus we have with us every day. In that light, it is positive to see that our total asset has actually reduced a bit this quarter, together with activity being at least at the same level as last year and no big changes. Worth mentioning is on inventory and also some comments going into second half. As Henning have commented and will comment on outlook, we are seeing a tightening market that could increase together with higher volumes, will increase working capital in the Market Operation part. Higher feed cost will potentially increase working capital built in Farming. But off weighing this is also the fact that we have a very high inventory of whitefish at the end of Q2, which will be sold in second half. That will limit the working capital effect of those factors. This quarter, we would like to say we have a strong cash flow, released NOK 400 million in working capital. Despite paying out NOK 1.5 billion in dividends, the increase in debt is still at NOK 8.4 billion. CapEx, there are basically no changes to this slide compared to last quarter. This is developing according to plan. Key investment areas continues to be new technology in Farming and investment program for 2026, the Aquatas, and Henning will comment on that shortly. We also like to include this slide to support the discussion in Norway, showing the ripple effects of our operations in Norway. This highlights that the ripple effects of Leroy is impacting the full country. We buy goods and services for 2025 of NOK 20 billion. We operate ourselves in 50 municipalities. We have employees which live in 190 municipalities and the impact, direct and indirect on taxes is close to NOK 2 billion in 2025. So this is important. This industry is very, very important for Norway. Then on our Capital Markets Day, we shed some light on key drivers within Market Operation. Primary processing, which is the slaughtering and filleting, first step of processing of salmon and trout. Sales and distribution, which is basically where Leroy came from in Hallvard Leroy, which is sales and distribution of seafood globally, both then operations out of Norway, but also our sales offices in different part of the world. Then we have the consumer product part, which is higher value-added processing of products. For those who would like more input, please see our CMD. I will just highlight some of the key drivers within the Market Operation this quarter. Starting with sales and distribution, we see up to the right, volumes are slightly down compared to last year. Profitability is slightly up. We have a healthy cost control, and we are seeing slightly higher margins this quarter than what we've seen in recent quarters. That was a good quarter. In Consumer Products, as Henning has highlighted, we are not 100% pleased with the profitability this quarter, which is down from last year. This is driven by, firstly, the fact that we have less favorable contract positions this year, but also we have one unit which had a low profitability level this quarter, which will be significantly improved in coming quarter. We expect, as of today, significantly higher profitability in this part of our business in second half of 2026. Also fair to comment is the fact that you can see that the work on cost is continuing to lower the cost position, which is good. Finally, within primary processing. As I said at the Capital Markets Day, we are then moving the -- all primary processing to be reported within Market Operation in one business unit, and we believe this will strengthen the competitiveness of our business over time. This is done with effect from 1st of January, which is explaining the higher volume. We see that this is a low-margin business, but it's still then a margin running and stable and good business. In first half, the impact is around NOK 50 million, and we expect full year impact from this change to be around NOK 120 million, then moving the reported profit from Farming to Market Operation. Also, as said, within Wild Catch, we have the quota for the year. We showed this model on the Capital Markets Day. I would just like to give an update to back why are we now estimating NOK 400 million to NOK 450 million in operational EBIT this year. This is the model. This is development in key drivers and the core driver compared to previous quarter is the fact that volumes are slightly down, but also we have then reduced the fuel consumption and the fuel price. These are key factors together with continued high prices to why we now estimate profitability between NOK 400 million and NOK 450 million on operational EBIT level, which is a significant increase from sub- NOK 300 million last year. Then we have a look forward, and I give the word to you, Henning.

Thank you, Sjur. Then I will take you through a short outlook at the end. We start with the Atlantic salmon supply side. I think the first thing we should look at is 2025 numbers and the increase in supply of 12% that year. We see in 2026, we see a global increase of about 3%. But I think most of this increase and already been taken out in 2026. I think going forward, we will see lower volume globally into the market. We also expect a 2.6% increase in supply growth for 2027. The extreme increase in supply is in a way over. We also see that the major markets is demanding more Atlantic salmon and especially the overseas markets. We see running into the summer in July and in August, we also see that the demand is increasing with higher prices than last year. If you look at the different segments of -- in Leroy, as I said, we have a very strong biological performance, and we believe that this will continue. The cost reduction program is progressing as planned. This will be significantly reduced the impact of higher feed price, which is expected in 2027. We expect a harvest volume of 195,000 tonnes this year. We believe that we have with the biological improvements that we're doing in the Farming value chain, we believe that we are on a good track to -- also for our long-term goals. Wild Catch price development outweighed lower catch volumes and significantly higher fuel price, a positive operational development in land industry also starting to show in financial. It's really good to see. We believe that this improvement program that has been running in the industry of whitefish is really starting to show results. Market Operation, lower salmon and trout prices are building markets the last couple of years, increased demand for integrated sustainable value chain, strong demand in emerging markets. For second half of 2026, operational EBIT is expected to be in the same range as H2 2025. In the long term -- yes, the guidance and long-term ambitions repeat in Farming, 195,000 tonnes. In the short-term, cost per kilo lower than 2025 for the whole year '26. And we keep -- we believe that we are on a track to 220,000 tonnes in volumes in 2030 and also the #1 relatively cost position in all regions. The Wild Catch price development outweigh lower quota and higher fuel cost and indicative operational EBIT of NOK 400 million to NOK 450 million. For 2030, profitability growth with the quota growth as we see that there will be a growth for -- the expectation for quota is 10% up for cod and about 17% for haddock. Market Operations, '26 compared to 2025, continued growth at slightly lower margins. We believe that we also -- with the improvement programs in this segment, we also believe that we have a good direction towards the NOK 2 billion EBIT for this segment. Then at the end, I want to dig a little bit into new technologies that we are doing in Farming. We are doing a lot. We have the shielded technology and the submerged farming, which we have been a pioneer in the development of this. We are doing laser technology. We are doing semi-closed systems. We are doing -- yes, the technology improvements and development is really going fast. Now we -- especially for this region, which has been historically the most challenging region, we are now investing into closed cages from end of this year. We have made a small movie showing how this will look, and we have a great expectation that this technology would make great improvements and also will give us a better -- in a better position to increase the volume in the West region. Then thank you very much, and enjoy the movie.