Leroy Seafood Group ASA

OSE:LSG

Q3-2025 Earnings Call

[Henning Beltestad, executive]

Welcome to Lerøy Seafood Group's Third Quarter Presentation of 2025. My name is Henning Beltestad. I'm the CEO, Lerøy Seafood Group. And with me today, I have Sjur Malm, CFO.

First of all, I will take you through the highlights of the quarter, and then Sjur Malm will take you through the key financial highlights, and then I will come back and talk about the outlook.

First of all, we -- I want to share this slide and which I always do on my quarterly presentation or is our fantastic value chain. Our goal is to create the world's most efficient and sustainable value chain for seafood. We believe that our value chain is providing what our customers are seeking. And we really see that our development in markets together with strategic customer is developing the right direction.

Highlights of the quarter. It's been a quarter with low profitability on low spot prices for salmon and trout. It's been a challenging quarter in farming, but year-to-date development remains strong. Record earnings in the VAP sales and Distribution segments, low quotas in wild catch offset by significant price increase. The harvest guidance for Norway in 2025 is rated at 195,000 tonnes. We see a positive working capital development and net interest-bearing debt reduced from NOK 8.5 billion to NOK 8.1 billion.

Then I will go through the different segments, where we report. So we start performing then wild catch and then at the end, VAP sales and distribution. We start with the farming. The spot price is NOK 8 lower in third quarter compared to same quarter last year, which, of course, have had a negative effect on our operational EBIT.

As guided in Q2, costs are up quarter-on-quarter in third quarter following 4 consecutive quarters with cost reduction. It's a challenging biological development in this quarter, but biological performance year-to-date, remains strong. And we -- as I said, we keep our guiding for 2025 at 195,000 tonnes.

But if we look historically on the development, we see that the 12 months rolling down at the right is developed from 159,000 tonnes fourth quarter '23 and till up to 203,000 tonnes end of this quarter. So that's a significant improvement in the volumes the last couple of years.

Then we will go into the different regions. We start with Lerøy Aurora, a strong biological development in the third quarter, a record net growth, high survival rate, high superior share and continued high license utilization. As expected, cost third quarter, in line with the second quarter. It's been high sea water temperatures, which also continued into Q4, which has been a little bit more challenging than earlier year.

And then we had one incident with ISA at site that will impact timing of harvest volume in the fourth quarter with a higher share of volume in October. The estimated harvest volume is increased to 54,000 tonnes for 2025, and the guidance for 2026 is at 49,000 tonnes. The harvested volume in the quarter is 20,000 tonnes compared to 17,600 tonnes in third quarter 2024, and the average size of 4.4 compared to 4.8 kilos. The operational EBIT in the quarter is NOK 9.5.

Then we go to Lerøy Midt, the mid-region. It's been a more challenging quarter with high sea lice pressure. The harvesting weight is below planned. And also the timing of the harvest has been negative due to the price is higher in September than earlier in the quarter where we took out most of -- a high share of the volume. But year-to-date development in line with the recent year, costs in third quarter increased quarter-on-quarter, and we expect for flat cost quarter-on-quarter into fourth quarter.

The estimated harvest volume reduced to 71,000 tonnes in 2025. And for 2026, we're estimating 73,000 tonnes. If we look at the volume in the quarter, we have about 21,450 tonnes in third quarter '25 compared to 16,931 tonnes in 2024. And the average weight is 4.1 compared to 4.0 in '24. And if we look at third quarter '25, we have a negative operational EBIT per kilo value chain of 3.1.

Then we take the South region, the West region, Lerøy Sjøtroll. It's been a significant year-on-year improvement. Biomass production slightly up year-on-year, high survival rate, high superior share, continued high license utilization and the year-to-date harvest volume is up 14,000 tonnes. And trout stands for 59% of the harvest in the quarter.

Cost as expected, up quarter-on-quarter for fourth quarter and basis of new generation of trout expectation up slightly quarter-on-quarter cost increase into fourth quarter. Estimated harvest volume is about 70,000 tonnes for '25 and increased to 73,000 tonnes in 2026. And the harvest volume in the quarter is 17,500 tonnes compared to 16,800 tonnes last year and the average -- the harvest weight is 4.3 compared to 4.0 last year. And the operational EBIT per kilo value chain is minus 1.5 same as we had the same quarter in 2024, but a great improvement when it comes -- when we look at a negative price trend of NOK 8 in the same quarter compared to last year. So good perform -- direction on the performance in Lerøy Sjøtroll.

Then Scottish Seafarm, strong biological development with the next generation of fish performing well. Lower price return impact result in the quarter. The volume in '25 impacted by reorganizing site structure, long-term potential is significantly higher. And we also see that with the guiding. The estimate for this year, 33,500 tonnes. And for next year, we increased the guiding to 45,000 tonnes. So a great improvement going forward in Scottish Seafarm. I'm very happy to see this development and the way we build the biomass going forward.

When it comes to the volumes in the third quarter, it's 7,200 tonnes compared to close to 12,000 tonnes same quarter last year and operational EBIT of NOK 1.2. And yes -- so -- which is improvement compared to second quarter in 2025.

Then the Farming -- the Guiding summarized. We -- for 2025, we start with Lerøy Aurora 54,000 tonnes, Lerøy Midt 71,000 tonnes, Lerøy Sjøtroll 70,000 tonnes and a total of 195,000 tonnes in Norway and 16,800 tonnes in Scottish Seafarm is a total of 212,000 tonnes.

When it comes to 2026, we guide Lerøy Aurora a little bit down to 49,000 tonnes but still at a higher level than '22 and '23 and '24. So -- and for Lerøy Midt, we increased the guiding to 73,000 tonnes, Lerøy Sjøtroll, 73,000 tonnes and a total of 195,000 and total per share of Scottish Seafarm, 22,500 tonnes, a total of close to 218,000 tonnes.

Now Wild Catch highlights. It's been a seasonally low quarter. It's been an okay performance, catch volume, the quota in -- the quota in 2025 is down 32% year-on-year, impacting cash volumes for the trawling fleet and a higher raw material price and volume in the land industry. Challenging operation conditions for 2025, but positive to see that the price increase more than offset the impact from lower quota. Further quota reduction expected in 2026, but potentially increasing again from 2027.

And if we look at the price for the key species, we see there it's been an extremely positive development in the price increase quarter by quarter the last couple of years. For the catch volumes in the quarter, a total of 13,500 tonnes this quarter compared to -- and the same level as we had the third quarter last year, and the remaining quota for 2025 is 2,900 tonnes for cod, 9,200 tonnes for saithe and -- yes, taken most of the haddock quota. So around 13,000 tonnes remaining quota compared to 9,600 tonnes 2024.

Then the sales processing, the VAP Sales and Distribution segment. We will go look at the -- the key performance in the quarter, it's been a record quarter. Structural improvement continued to yield results in almost all units that we have out in the market. It's a record 12 months rolling operational EBIT, effects of structural improvement and the reason for that is effects of structural improvements work, strong demand in the end markets, positive development in emerging markets and a strong positioning with strategic customer globally.

And we also see that the new branch offices in Asia are starting to show results and we expect continued positive profitability trend in 2022 and also into 2024. We see the EBIT margin in third quarter is of close to 5%, which is at a very good level. And we see that the 12-month rolling now are up at where we set the target some years ago, and we are going towards NOK 1,250 million in EBIT in this segment. So a fantastic job. What they do in this segment, and we believe that we will see further improvement going forward, and I'll come back to that afterwards.

So then Sjur will take you through the key financial highlights.

[Sjur Malm, executive]

Yes, Henning. Thank you. So if you look at farming last 4 quarters, we've seen production higher than expected and costs lower than expected this quarter. We said at Q2 that we saw increased risk due to a very warm summer in Norway. And we have seen production in Q3, which was basically in line with recent years, but not showing the same improvements that we've seen in recent years. As Henning as highlighted, the improvements in downstream segment has continued.

And in sum, this translate to this P&L. We can see the key value drivers on the latter lines. First of all, we see that harvest volume is up 15% compared to last year, that is then a reflection of the significant improvement in production year-to-date in farming. And we're happy with the volume. But obviously, we are not happy with the profitability on that volume where we see that profits through value chain is down from NOK 10 last year to NOK 2 this year.

Looking at the drivers for that reduction in profitability, the spot prices for salmon and trout was down NOK 8 a kilo. Our price realization for farming is down NOK 10 a kilo this compared to last year, which is a reflection of timing of harvest volume.

Secondly, we can say then looking at the development and EBIT kilo in farming that our cost is NOK 1 a kilo higher this year compared to last year. The cost in this quarter in farming is higher than in Q2.

If you look at the Wild Catch segment, volumes are in line with last year. It's positive to see price development, which is helping profitability. And it's also positive to see that the land industry is performing well in a very, very challenging conditions.

In sum, this translates to operational EBIT at NOK 15 million, which we obviously are not pleased with. But there are positive signs, and we see that in revenue, we see the impact from the increase in production in farming as well as the increase in volumes in value-added sales and processing.

Looking at our balance sheet. The bigger change is related to right-of-use assets, which is basically well boats, and we have more well boats on contracts this year than last year. Secondly, it's related to CapEx and fixed asset, which is -- I'll come back to on the next slide. Other than that, I think the key development and balance sheet items is the quarter-on-quarter development in working capital, where we're through high focus are able to reduce working capital in our downstream segment.

And a reflection of that is, as shown here, a significant reduction in working capital. So in a challenging quarter when it comes to earnings, we are pleased to see that cash flow generation is healthy in the quarter with high CapEx and we're able to reduce our net interest-bearing debt.

This shows our CapEx for 2025. There are no changes to this. We will get back to CapEx for 2026 at the later stage. But as these highlights, we have invested through the value chain, in particular, in new shielding technology in farming.

This slide is important in Norway with the current discussion on to which degree this industry is impacting and making ripple effects, and we just want to highlight that our activity in Norway, which is [ vast ] has massive ripple effects in Norway. We have done purchases from 5,000 suppliers of NOK 18 billion in 2024. We have our own employees around 4,000. And the impact in total in Norway is around 10,000 jobs, and we contribute significantly, both through value creation and through taxes.

With that, Henning, I give the words back to you.

[Henning Beltestad, executive]

Okay. Thank you, Sjur. Then I will take you through the outlook. And yes, regarding targets, this is showing lights on where we are. We use these targets internally in the organization and it's very important for us to have this and also to show these targets external. But we will come back and evaluate on the targets in the end of -- yes, in the beginning of -- our next quarter presentation, and then we will have a summarize of where we ended in 2025.

If we look at the VAP sales and distribution, we are trending in line with the EBIT target of NOK 1.25 billion following another record quarter and it's fantastic to see this development and how the whole segments and the units out in the market are working structured in the direction of achieving these targets through short-term actions and also long-term actions. So a fantastic performance the last couple of years in this development.

When it comes to farming, also the same long-term strategic direction, and we see improvements in row and smolt expected yield results from harvest in 2025. This showed -- when we will take out the result from the earlier changes that we have done in genetics, row, smolt shielding technology and also the implementation of Lerøy Way. And we see the second half of this year, we expect and we are taking out improvements, even though we also see that we have external factors that can affect our production like higher temperatures or a higher pressure of sea lice.

But on the quality of the fish that we have in the sea, we see that we have improved in the directions or the steps that we see in this map. So that's really good to see. And we have a strong, robust fish going into 2026.

When it comes to development in biology in farming year-to-date, we -- it shows clear improvement. We see a net growth rate compared to the last 5 years' average of a 10% increase, a superior share of 5% increase, mortality, down 15% and biomass at sea plus 5%, although third quarter was more challenging.

And in this quarter, we see a net growth down 3% compared to the last 5 years' average superior share, a little bit up, 1%, mortality up 7% and biomass at the sea at the same level. And high seawater temperature resulted in a more challenging biological situation which affect -- which have the -- which -- yes, the effect of this is a higher sea lice level, which has made it more challenging to -- and more treatment on the fish.

Improvement is still visible in growth speed, average days in sea for fish harvested in third quarter is at 383 days compared to 444 days in third quarter 2024. So that's a very good development. For the shielding technology, we see continued reduction in treatments from submersed technology. We see a reduction of 50% compared to traditional, superior share is a little bit down, mortality is a little bit up in this quarter. And we have faced some challenges, especially with higher temperatures in the surface.

Continued reduction in treatments from -- in the third quarter also, we see year-to-date, it's down 65%, superior share up 7% and mortality is down 2%. And for the shielding technology, the key focus areas in deep sea farming and where do we put the effort is on locations where there's been historically a very high number of lice treatments. And we see that we really have had a great effect of the implementation of shielding technology and deep sea farming.

The key challenging -- challenges that we have, we work in a structured way how to do problem solving. And one challenge has been the conditions in the temperature layering in summer -- in summer with different -- with water stratification. And that we see that on -- down in -- at 35 meters, it's been 12 -- around 10 degrees and at the surface between 20 to 25 degrees. And this has affected when we take up the cases, it's been some incidents with mortality. But this will be changed going forward when -- for next summer when we go into the season.

And then we also need to continue to improve how we work with planning, streamlining operations, and that work has already started. And we also need to improve the feeding with potential to reduce feed factors. And then also to evaluate and analyzing all site based on new data and all the learning that we have done for the 2.5 years that's after the first output of shielding technology. And we still have a strong belief in this concept, and we believe that this is really a part of the future of Lerøy in location where these technologies are suitable.

And we are investing heavily into shielding technology. There is mainly now 4 shielding technology in Lerøy, it's submersed farming, semi-contained farming, laser delousing and closed contained farming system, where we decided to invest in 3 units, which will be ready from first quarter 2027. So we invest in new solution also and trying to be innovative to -- yes, to have an even more sustainable production and to increase the performance in sea.

When it comes to supply, we see that this year, global supply of 10%, in Norway, around 11%. But if we look into next year, we see negative growth in Norway, minus 2% and a global at -- yes, globally at the same level as last year.

So to summarize, for farming, while third quarter was more challenging, the trends year-to-date are still positive, contract share for value chain of 24% with positive impact on both farming and VAP sales and distribution. I expect high share of fourth quarter harvest volume in October and contract share of 35%. I expect a lower cost in '26 compared to 2025. And we keep our guidance for 2025 at 195,000 tonnes -- and we, yes, keep the same guidance also into 2026. So a total, including Scottish Seafarm, 50% of Scottish Seafarm of 217,500 -- 217,000 tonnes in total.

Wild catch, challenging quota situation, but price development is positive, quota 25%, down 32% for cod, haddock 2%, saithe north unchanged, saithe south plus 40% and indications for '26 is 20 -- a reduction of 21% of cod, 18% of Haddock, 15% of saithe north and minus 24% of saithe south.

And as I said, for VAP sales and distribution progressing toward profitability target of 2025, also supported by contract position, lower salmon and trout prices are building markets, increased demand for integrated sustainable value chain and improved market share in some key market utilizing potential of our value chain. So a positive outlook for actually all the segments, even though there is a negative trend on a quota for wild catch.

And then we want to inform that we will have a Capital Market Day, 2nd and 3rd March 2026 in Bergen and Oslo. So there will be a limited number of spots available and the invitation will be sent out early next year.