Business overview
With the acquisitions completed in 2016, Lerøy is now definitively the largest corporation in Norway for catches and processing of whitefish. One of the world’s largest seafood exporters of salmon and trout has therefore now acquired a significant international position within whitefish.

Lerøy Seafood Group has experienced significant growth both organic and through acquisitions over the past 15 years. Today, the Group is one of the world's largest producers of Atlantic salmon and trout. Subsequent to acquisitions completed in 2016, the Group is also now easily the largest corporation in Norway in terms of catches and processing of whitefish, with a significant position internationally. Lerøy Seafood Group is one of the largest seafood exporters in the world. The seafood industry is still a young industry with substantial potential for future development and growth.

The Board of Directors and management are in no doubt that previous acquisitions have created substantial value for the company and its shareholders. Future investments must also lay the foundations for sound operations and profitability. This criterion includes a special focus on management expertise and, of equal importance, the expertise within the organisation as a whole. 

The Group’s core activities demand various forms of expertise and a high degree of adaptability. For this reason, our organisation is made up of people with a wide range of formal backgrounds and practical experience from different sectors of trade and industry. As the Group is involved in a global industry which experiences continuous fluctuations in framework conditions, it is paramount that our employees remain up to date and expand their knowledge and areas of expertise. The Group comprises a young yet highly experienced organisation. Changes in framework conditions for the Group require employees who are dynamic, willing to learn and flexible. The Group’s employees meet these requirements. Our employees’ focus on competitive strengths and results is reflected in their commitment towards ensuring that the individual companies are also able to fulfil future requirements and thereby achieve the Group’s strategic goals and performance requirements.  

The Group's rapid development in recent years has been made possible by capable people who have found the Group to be an attractive employer. One of several important prerequisites for the Group’s continued positive development is its ability to offer attractive jobs to as many talented employees as possible. The Group must maintain a strong focus on leading the competition for result-oriented and skilled personnel with a high capacity for work and change. 

The growth of Lerøy Seafood Group generates ever increasing demands for business systems, risk management and capital. The Group maintains a continuous focus on developing business systems that can grow with the company and that provide a competitive advantage on the market. Risk management is key and covers all parts of the Group’s operations. The Group’s production companies face a substantial biological risk, and there is also substantial risk associated with the Sales & Distribution activities. The Group has a very strong focus on risk management in its daily operations, as well as by ensuring that potential acquisitions and alliances match its risk profile. 

Fish farming is very capital intensive. The industry has historically been undercapitalised, with an ensuing high level of financial risk. This is not compatible with the cyclical nature of the industry. Having a healthy, flexible and sustainable source of financing has always been, and will remain, a key focus in Lerøy’s strategy. Corporate management and the Board of Directors are actively involved in securing financial and structural relationships which allow the Group to achieve its long-term financial goals. The company’s financial contingency planning, both present and future, will allow the Group to take part in the value-generating structural reorganisation under way in the industry. 

In order to comply with the seafood market's increasingly strict requirements in terms of traceability, food safety, product quality, cost efficiency, sustainability and continuity of supply within the Group’s main areas of Atlantic salmon and trout, the Group considers it vital to be a fully integrated supplier. Control throughout the entire value chain is a key and extremely important element of the company's strategy. One of our main aims is to ensure coordinated growth in central parts of the production chain. Measures implemented to achieve this goal comprise major investments in new smolt production, including production based on recirculation technology.

The Group has completed several major developments: a new facility completed in 2013 in Central Norway and a new facility in North Norway completed in 2015. In 2017 and 2018, the Group is building two smolt facilities, one for salmon and one for trout, in West Norway. Since 2002, the Group's production of Atlantic salmon and trout has enjoyed a good development and now comprises units that in total harvested 158,000 tonnes in 2017.

Production takes place in three regions in Norway: Lerøy Aurora located in Troms and Finnmark, Lerøy Midt located in Nordmøre and Trøndelag, and Lerøy Sjøtroll located in Hordaland. The Group also produces salmon in Scotland through the associate Norskott Havbruk AS. The Group owns 50% of this company, which reported a harvest volume of 31,000 tonnes of salmon in 2017. As such, the Group is one of the world's largest producers of Atlantic salmon and trout. In 2017, Lerøy expects to harvest 182,000 tonnes of salmon and trout, including Lerøy's share of the volume from Norskott Havbruk.

The Group believes it has the potential to achieve further growth in volume with its existing licences. Release from stock costs for salmon and trout have increased in recent years. More expensive feed, mainly attributed to the weaker Norwegian currency, and increased expenses for fighting salmon lice have been the most important factors in this. In 2017, biological production in the Group has seen an improvement. However, this will not be immediately evident in the release from stock costs due to the long lead time for production of salmon and trout. The lead time for production of salmon and trout is very long, so release from stock costs are up in 2017 compared to 2016, though they started to fall during the year.

At the time of writing, release from stock costs are expected to be lower in 2018 than in 2017. Improvements in biological production in Norway have resulted in an increase in the supply of salmon from Norway in the second half of 2017. This resulted in pressure on the spot prices during the second half of the year, from a very high level in the first half. Prices realised by the Group for salmon and trout combined were up 9% compared with 2016.

The combination of these factors – volume, price and costs – gave an increase in revenue for the Farming segment, from NOK 8,338 million in 2016 to NOK 9,385 million in 2017. During the same period, operating profit increased from NOK 2,419 million in 2016 to NOK 2,942 million in 2017. The operating profit per kilo produced was up from NOK 16.1 in 2016 to NOK 18.7 in 2017.

North Norway
Lerøy Aurora AS represents the backbone of production in North Norway, and the company is a fully integrated producer of Atlantic salmon. The company harvested 39,200 tonnes of Atlantic salmon in 2017, up from 30,000 tonnes in 2016. In 2016,

Lerøy Aurora had its first release of large smolt weighing over 200 grams, which would not have been possible without the major investments in the Laksefjord smolt facility. The new facility has provided Lerøy Aurora with access to more and larger high-quality smolt, thereby increasing production volumes and minimising production time at sea. Based on positive experience, the Group decided in 2017 to expand the smolt facility in Laksefjord to further increase capacity for large smolt in Lerøy Aurora.

Lerøy Aurora also has one of Norway's most modern salmon processing facilities, located on the island of Skjervøy. Not only does this facility have slaughtering capacity for its own fish, it is also a major provider of slaughtering services to other suppliers. In 2015, an investment was made in a fully automatic filleting line on Skjervøy, significantly increasing the plant’s filleting capacity. Lerøy Aurora reported a marginal increase in release from stock costs in 2017 when compared with 2016, though the company remains at an industry-leading level.

At the time of writing, release from stock costs are expected to be stable in 2018. In total, the North Norway region reported an operating margin per kilo produced of NOK 26.1 in 2017, up from NOK 24.2 in 2016. The Group is satisfied with the development in Lerøy Aurora in 2017, and investment being made in increased post-smolt capacity will allow Lerøy Aurora to continue to grow within its region in the years to come. The current estimate for harvest volume in 2018 for Lerøy Aurora is 38,000 GWT.

Central Norway
Lerøy Midt is a major producer of salmon in Central Norway and has significant processing capacity. While 2015 and 2016 were difficult years for Lerøy Midt, with a high volume of fish harvested at a lower average weight than planned, developments in 2017 have been very positive.

In 2017, the company harvested 64,500 tonnes of Atlantic salmon, a significant increase from 52,200 tonnes in 2016. The Group is very satisfied with developments throughout the year and expects to see continued growth in harvest volume in 2018. The current estimate for harvest volume in 2018 is 68,000 GWT. Release from stock costs for

Lerøy Midt were marginally higher in 2017 than in 2016, but showed a substantial downwards trend towards the end of the year. At the time of writing, the Group expects significantly lower release from stock costs in 2018 when compared with 2017. For 2017, Lerøy Midt reported an operating margin per kilo produced of NOK 17.7, up from NOK 14.3 in 2016. Construction of the Group’s new processing facility for salmon on Hitra island has continued at full pace in 2017.

The facility is due to be completed in the second quarter of 2018 and will be the world’s most modern and efficient slaughtering and processing unit for salmon.

West Norway
Lerøy Seafood Group is mainly represented in West Norway by Lerøy Vest AS, a wholly owned subsidiary of Lerøy Seafood Group, and Sjøtroll Havbruk AS, in which Lerøy Seafood Group ASA owns 50.71% of the shares.

The companies operate as one unit with joint management. In 2017, Lerøy Sjøtroll reported a production volume of 54,000 tonnes of salmon and trout, down from 68,000 GWT in 2016. Around 23,000 GWT of total production volume in 2017 was trout. The Group is not satisfied with developments in Lerøy Sjøtroll in 2017. Moreover, the company reported an urgent situation at individual sites in the autumn of 2017 involving the Autumn 16 generation of salmon.

This situation had a negative effect on the harvest volume and release from stock costs, the latter being substantially higher in 2017 than in 2016. In total, the operating margin per kilo for 2017 was NOK 14.4, up from NOK 14.0 in 2016. The Group is not satisfied with the release from stock costs and production volume reported by Lerøy Sjøtroll, and a number of measures have been implemented recently. Of these, the Group’s highest expectations are for the construction of one of the world's largest RAS post-smolt facilities on the island of Fitjar.

The plan is to introduce eggs to the facility in the second quarter of 2018, with the first release of smolt in 2019. Based on in-house experience, the Group expects a high yield from this investment, including the potential for considerable reductions to release from stock costs and an increased production volume for the region. Projected harvest volume for Lerøy Sjøtroll in 2018 is 63,000 GWT, of which approx. 25,000 GWT trout. The Group also currently expects to see lower release from stock costs.

Wild Catch and Whitefish
On 2 June 2016, Lerøy Seafood Group signed agreements which, when implemented, would give the Group majority ownership of both Havfisk ASA and Norway Seafoods AS. The acquisitions were implemented on 31 August 2016, giving Lerøy 67% of the shares in Havfisk and 74% of the shares in Norway Seafoods ASA. On 16 September 2016, Lerøy issued a mandatory offer for all shares in Havfisk ASA and a voluntary offer for all the shares in Norway Seafoods AS. On 20 October of the same year, the Group reported acceptance of this offer within the expiry of the mandatory offer for Havfisk, providing Lerøy with a total shareholding in Havfisk of 96%. On 27 October 2016, Lerøy took the decision to make use of the option for compulsory acquisition of minority shareholdings, laid down in the Public Limited Companies Act (Norway), and thereby gained ownership of 100% of the shares in Havfisk ASA and Norway Seafoods AS.

In total, this represents the largest acquisition in the Group’s history. As a result of the transactions, Havfisk ASA and Norway Seafoods AS were consolidated in the Group's financial statements as of 1 September 2016. In 2017, the two companies contributed NOK 386 million.

Havfisk ASA’s primary business segment is the wild catch of whitefish. At the end of the financial year, Havfisk owned 100% of the shares in Nordland Havfiske AS, 60% of the shares in Hammerfest Industrifiske AS and 97.62% of the shares in Finnmark Havfiske AS. Havfisk has had nine trawlers in operation in 2017 with 29.6 quota units for cod/haddock.

In February 2016, Havfisk signed an agreement with Vard for the construction of a new vessel to replace the Stamsund. The value of this contract is NOK 325 million. The newbuild is a combination trawler (fresh and frozen fish) with dimensions 80.4 metres x 16.7 metres. The vessel was delivered in January 2018, and the Group now has ten trawlers in operation. Havfisk has licence rights to harvest more than 10% of the total Norwegian cod quota in the zone north of 62 degrees latitude.

This represents more than 30% of the quotas allocated to the trawler fleet. Havfisk also owns several processing plants, which are mainly leased out to Norway Seafoods Group on long-term contracts. Havfisk’s trawler licences stipulate an operational obligation for these plants. Norway Seafoods comprises a total of eight processing plants in North Norway. Five of these are leased from Havfisk AS. In Norway, the company mainly produces fresh and frozen fillets, loins, portions and tail pieces of cod, saithe and haddock. It also produces some salted fish as well as king crab and snow crab products.

Norway Seafoods is the largest purchaser of cod from the coastal fishing fleet in Norway. With effect from 1 January 2017, Lerøy Seafood AS signed an agreement for the business transfer of sales, marketing, logistics and credit functions in Norway Seafoods. Further to this agreement, around 20 employees at the company’s offices in Oslo and Ålesund have been offered positions at Lerøy Seafood AS in Bergen. In addition, Norway Seafoods’ inventory of finished products has been taken over by Lerøy Seafood. An agreement has also been signed for the sale of Norway Seafoods’ business in Denmark to Seafood International A/S, a Danish seafood group. The business was sold on 9 January. Seafood International A/S subsequently changed its name to Seafood Danmark A/S, and the Group owns one third of the shares in the Danish company.

In Q1 2017, a business combination was conducted between Norway Seafoods Group AS and Norway Seafoods AS, with Norway Seafoods AS as the recipient party. Norway Seafoods AS changed its name to Lerøy Norway Seafoods. Significant changes were made in 2017 to management structure, and the CEO of Havfisk is now also the CEO of Lerøy Norway Seafoods.

The Group has achieved substantial reductions in costs and has initiated the process of exploiting synergy effects in Lerøy Norway Seafoods. This process is in its initial stages, and much remains to be done. Industrial processing of whitefish in Norway is challenging, but the Group is confident that such operations are possible and that the challenges can be solved by means of improved marketing and more efficient operations. This process will take time, but the Group is confident there are gains to be made.

Value-added Processing, Sales and Distribution (VAPS&D)
One central aspect of Lerøy Seafood Group's strategy for growth is offering new products to new markets. This requires knowledge of and proximity to both customer and market.

Lerøy Seafood Group has a long, proud history within the sale, distribution and processing of seafood. Today, the Group sells its products to more than 70 markets worldwide and has a vast network of customers in the majority of these markets. Not only does this afford the Group unique knowledge of market trends, it also allows for significant diversification of risk. At the same time, there is a clear trend among consumers, moving from preference for whole fish towards products with a higher degree of processing. In recent years, the Group has made significant investments in so-called "fish-cuts".

These are factories/facilities on the end market with relatively simple processing but large volumes, and where proximity to the end customer is key. In many ways, these “fish-cuts” represent a revolution in the distribution of fresh fish. New and simple consumer-oriented packaging and short and efficient logistics chains make it possible for many more retailers to sell fresh fish.

Moreover, the Group has achieved substantial development within the “ready meals” segment in 2016 and 2017 and has identified very interesting potential in this market. The investments made have eradicated the dividing lines that existed previously between processing operations and sales and distribution. Activities within sales and distribution now increasingly comprise processing. As a result, the Group has merged the two reporting units Value-added Processing (VAP) and Sales and Distribution (S&D) into one segment from 1 January 2017. In 2017, the segment reported revenue of NOK 17.6 billion, up from NOK 16.0 billion in 2016. The operating margin in 2017 was 2.5%, on a par with the figure reported in 2016. Operating profit for the segment was up from NOK 399 million in 2016 to NOK 435 million in 2017.

Lerøy Fossen AS is currently a dedicated salmon and trout processing company and has the largest fish-smoking facility in Norway, on the island of Osterøy outside Bergen. The company has strong local roots and a focus on quality. The company’s products are sold all over the world and fit exceptionally well into Lerøy Seafood Group’s marketing strategy, which calls for increasing levels of processing.

Lerøy Smøgen Seafood AB is a Swedish seafood company involved in the production of various types of smoked seafood products. It also produces and distributes seafood salads and products based on shellfish in brine. Its products are marketed in a number of countries. Lerøy Smøgen Seafood AB is an important incubator for new products in Lerøy Seafood Group ASA.

Rode Beheer B.V. Rode from the Netherlands is a leading producer of processed seafood and has a wide product range comprising smoked, marinated, freshly packaged and frozen products. Rode is extremely well positioned for supplying high-quality seafood to customers in markets such as the Benelux countries, Germany and France. In 2016, Lerøy Seafood Group gained ownership of 100% of the shares in Rode. In 2017, the company completed a state-of-the-art sales, distribution and processing unit in the Netherlands.This is expected to make significant contributions in the years to come.

Bulandet Fiskeindustri AS is a modern Norwegian company processing whitefish for the Norwegian grocery market. The facility is located in Bulandet in the region of Sogn og Fjordane. The most important raw materials are saithe, cod, cusk and ling, and the company’s products play an important role in complementing the Group’s product range.

Lerøy Seafood AS has the highest revenue of all the Group companies, and represents the very core of the Group's sales and logistics operations.The company changed its name from Hallvard Lerøy AS to Lerøy Seafood AS at the start of 2017. In view of Lerøy Seafood AS' central position in the value chain, developing and maintaining its interaction with partners is a priority area. The Group’s global sales network comprises Lerøy Seafood AS' sales offices in a number of countries, as well as established associates in Sweden, Finland, France, the Netherlands, Spain, Portugal and Turkey. Lerøy Seafood AS has sales offices in China, Japan, France and the USA. The sales offices and the associates therefore cover different parts of the Group’s international markets.

The Group’s presence in central markets allows for closer follow-up of key customers and development of new customer relationships. The Group will work to establish a presence in even more markets in the years ahead. In addition to international sales and marketing, the Group is also engaged in nationwide distribution of fresh fish to the Norwegian market via Lerøy Sjømatgruppen AS, in which the Group's Norwegian wholesalers participating along with other external enterprises. This business is based upon establishing regional foundations and expertise in the region in which the customer operates.

At the same time, the Group's network offers economies of scale from nationwide marketing and distribution of seafood. Lerøy Sverige AB is the holding company for the three Swedish companies Lerøy Allt i Fisk AB, Lerøy Stockholm AB and Lerøy Nordhav AB. Lerøy Allt i Fisk AB in Gothenburg is a full-range seafood company with a particularly strong position on the Swedish catering and institutional households market. Lerøy Stockholm AB is located in Stockholm and is one of the city’s largest distributors of seafood, with a particularly high level of expertise in the grocery trade.

The sales and distribution activities in France are of vital importance and currently consist of SAS Lerøy Seafood France, which as well as two fish-cuts, has a sales office in Boulogne.

In 2014, the Group started sales and distribution activities in Spain with the establishment of Lerøy Processing Spain. This company is enjoying a rapid pace of development. It not only runs a modern factory on the outskirts of Madrid, but also opened two new factories for ready meals in 2017. Developments in Spain are very exciting, and the Group is confident that it is well-positioned for sustained positive development.

Operations in Portugal are run by Lerøy Portugal Lda. The company enjoys a good position on the Iberian peninsula, which is a large and important market for Norwegian seafood. The company works purposefully to strengthen its position as a distributor of fresh seafood in Portugal. Lerøy Finland OY was consolidated into Lerøy Seafood Group in 2011.

Lerøy Finland OY is located in Åbo/Turku in Finland and enjoys a strong position in the sale and distribution of seafood on its domestic market. The Group's operations in Turkey are managed by Leroy Turkey. In close collaboration with Lerøy Seafood AS, the company has developed the Turkish market for Atlantic salmon. In 2015, Lerøy Seafood Group increased its ownership interest in the company from 50% to 100%.

Lerøy Seafood Group ASA has shareholdings in several associates. The largest of these are Norskott Havbruk AS, Seafood Danmark A/S and Seistar Holding AS.

Norskott Havbruk AS is 50% owned by Lerøy Seafood Group ASA and SalMar ASA respectively. Norskott Havbruk AS was set up in 2001 for the sole purpose of acquiring the company currently named Scottish Sea Farms Ltd. (SSF). SSF is the second-largest fish farming company in Scotland with a harvest volume of 31,000 tonnes of salmon in 2017. SSF produces smolt, mainly to meet its own requirements. The company runs two modern land-based plants for processing salmon on the Scottish mainland and in the Shetland Islands. The company works continually to consolidate its position as the leading and most cost-efficient producer of high-quality Atlantic salmon within the EU. The company is already well positioned in several market segments with a focus on high quality, for instance under the respected brand name Label Rouge. The company expects to harvest 26,000 tonnes of salmon in 2018. SSF has significant potential for organic growth in the years to come and aims to achieve an annual harvest volume of between 35,000 and 40,000 tonnes from existing licences.

To ensure such a high volume, the company is currently making major investments in smolt production. In 2015, the Group acquired a 50% ownership interest in Seistar Holding AS, a shipping company involved in well boats. Seistar Holding AS supplies well boat services to companies in West Norway. The company took delivery of a new, large well boat in 2016, which will play an important role in the Group's farming operations in Hordaland.

For some time now, the Group has had a working relationship with Brdr. Schlie in Denmark. In 2013, the parties entered into a joint venture and founded Lerøy Schlie A/S, with a 50% stake each. At the start of 2017, Lerøy sold its shares in Lerøy Schlie A/S and Norway Seafoods Group's operations in Denmark to Seafood International A/S. Seafood International A/S later changed its name to Seafood Danmark A/S, and the Group owns one third of the shares in the Danish company. In recent years, Norway Seafoods Group's activities in Denmark have been very challenging, but developments for the Danish companies in 2017 have been positive. 

Local roots, global perspective

Every day, over 4,000 Lerøy employees contribute to the supply of Norwegian seafood equivalent to five million meals in more than 70 different countries.

Our main office is located in Bergen, but we have fishing vessels and fish farms in operation along the entire coast of Norway. Lerøy owns ten trawlers and receives regular deliveries from more than 600 vessels fishing along the coast.

These vessels make daily deliveries of whitefish to onshore stations, where the fish is processed and packaged, while well boats transport salmon and trout from our fish farms in North Norway, Central Norway and West Norway to sites for processing.

In addition to our facilities for production and packaging in Norway, we have production and distribution in Sweden, Denmark, Finland, France, the Netherlands, Portugal, Spain and Turkey. The fisherman-farmer, Ole Mikkel Lerøen, who would row to the fish market in Bergen to sell live fish at the end of the 19th century, most probably had no concept of what he was starting – a commercial enterprise that 120 years later would be serving the entire world 1.8 billion seafood meals every year.

Today, Lerøy is a world-leading seafood corporation, supplying thousands of different products to retailers, restaurants, canteens and hotels worldwide.