Financial information
Board of Directors' report 2017

Financial matters
Lerøy Seafood Group reported revenue in 2017 of NOK 18,624 million, up from NOK 17,269 million in 2016. This is the highest revenue ever reported by the Group. The growth in Group revenue is mainly attributed to an increased level of activity within whitefish, the increase in harvest volume from Farming, good market conditions for salmon and a positive development in the Group’s downstream activities.

As a result of the acquisitions within whitefish, concluded in the second half of 2016, the Group is now a fully and vertically integrated corporation within both redfish and whitefish. Lerøy Seafood Group is the leading seafood group in Norway and thereby one of the leading seafood companies in the world. The Group has a clear ambition to further develop this position in the years to come.

The Group's operating profit before fair value adjustment related to biological assets was NOK 3,717 million in 2017 compared with NOK 2,843 million in 2016. Profit before tax and fair value adjustment related to biological assets was NOK 3,805 million in 2017 compared with NOK 2,926 million in 2016. Earnings per share before fair value adjustment related to biological assets and minority interests totalled NOK 4.90 compared with NOK 3.84 per share in 2016.

In October 2016, Lerøy Seafood Group obtained 100% ownership of both Havfisk ASA (Havfisk) and Norway Seafoods Group AS. As a result of this transaction, both companies were consolidated into Lerøy Seafood Group as of 1 September 2016. These companies comprise the Wild Catch and Whitefish segment. Norway Seafoods Group AS subsequently changed its name to Lerøy Norway Seafoods AS (LNWS).

Havfisk's primary business is wild catches of whitefish. Havfisk has licence rights to harvest just above 10% of the total Norwegian cod quotas in the zone north of 62 degrees latitude, corresponding to more than 30% of the total quota allocated to the trawler fleet. After taking over the trawler Nordtind from the shipyard in January 2018, Havfisk has ten trawlers in operation. Havfisk owns several processing plants, which are mainly leased out to LNWS on long-term contracts. Havfisk’s trawler licences stipulate an operational obligation for these processing plants.

For 2017 as a whole, Havfisk’s total catch volume was 66,729 tonnes, up 5% from 2016. The company reported stable and good operations throughout the year.

LNWS’s primary business is processing wild-caught whitefish. The company has use of eight processing plants in Norway, five of which are leased from Havfisk. LNWS is the largest purchaser of cod from the coastal fishing fleet in Norway. LNWS previously owned two facilities in Denmark, but these were sold at the start of 2017 to Seafood International A/S – a Danish seafood corporation in which Lerøy Seafood Group ASA owns 33 % of the shares.

The Farming segment reported a record-high operating profit before fair value adjustment related to biological assets of NOK 2,942 million in 2017. This represents an increase of NOK 523 million when compared with the operating profit of NOK 2,419 million in 2016.

In 2017, the Group harvested 158,000 tonnes of salmon and trout, up from 150,000 tonnes in 2016. The prices for Atlantic salmon and trout remained strong in 2017, but with a high level of volatility throughout the year. Biological production in Norway saw a considerable improvement in 2017 when compared with the year before, resulting in increased supply and some pressure on prices towards the end of the year. For the year as a whole, the Group’s prices realised on salmon and trout were up 9% from 2016 to 2017. Import restrictions in Russia and neighbouring countries since 7 August 2014 have had a negative impact on prices realised for trout. Trout prices were on the increase in 2016 and were on a level with salmon prices at the start of 2017, but unfortunately fell against salmon prices throughout 2017. Prices realised for trout by the Group in 2017 were approx. NOK 4 lower per kg than the corresponding prices for salmon.

Release from stock costs for the Norwegian fish farming industry and Lerøy saw a negative development after 2013 due to adaptations to new political regulations. Throughout 2017, there have been indications that this negative development may have turned around. The Group's biological production was better in 2017 than in recent years. A reduction in production costs has also been demonstrated throughout the year. At the time of writing, there are clear indications that the trend for lower production costs will continue in 2018. We will have access to more specific figures once the biomass in the sea has been harvested.

Given the major differences in biological framework conditions, there are major variations in release from stock costs between the regions. Lerøy Aurora still reports one of the lowest cost levels in the industry, and Lerøy Midt has achieved considerable improvements in costs, while Lerøy Sjøtroll experienced significant challenges in the autumn of 2017 and a cost level that is not satisfactory. Lerøy Sjøtroll has implemented the construction of a new RAS/ post-smolt facility in Kjærelva in Fitjar municipality, Hordaland. The plan is to introduce eggs to the facility in the second quarter of 2018 and to have the first delivery/release from the facility in 2019. The Group has high expectations for the yield from this investment, based on e.g. knowledge of similar facilities in the Group.

The VAPS&D segment was formerly two separate segments: Value-added Processing (VAP) and Sales & Distribution (S&D), but both were merged to one segment in 2017 as their activities had an increasing number of overlaps.

Lerøy Seafood Group has major downstream activities and a clearly defined goal to drive demand for seafood in the form of new products and market development. The Group sells, processes and distributes own-produced salmon and trout along with whitefish from its own fleet of trawlers, but also has substantial activities in cooperation with third parties. As a result, the Group now supplies a wide range of seafood products. The Group has identified positive synergy effects in its marketing work as a result of the acquisition within whitefish.

The segment reported a positive development in 2017, and operating profit before fair value adjustment related to biological assets is up from NOK 399 million in 2016 to NOK 435 million in 2017. The Group expects the segment to sustain this positive development both in the level of activities and earnings in 2018.

Prior to fair value adjustment related to biological assets, the Group's income from associates totalled NOK 298 million in 2017, up NOK 84 million compared with an income of NOK 214 million in 2016. The most important contribution to this figure comes from Norskott Havbruk, Scotland's second largest fish farming company, which is 50% owned by the Group.

The Group's net financial items for 2017 were negative at NOK 210 million compared with a negative figure of NOK 131 million in 2016. The Group has increased financial expenses due to a slight increase in debt caused by major acquisitions. The profit achieved in 2017 corresponds to a profit before fair value adjustment related to biological assets of NOK 4.90 per share, compared with NOK 3.84 per share in 2016. The Board of Directors intends to recommend a dividend payment for 2017 of NOK 1.50 per share to the company's annual general meeting in 2018. This recommendation is in line with the company's dividend policy and reflects the Group's financial adequacy, strong financial position and projections for increased profit. The Board of Directors also underlines the importance of continuity and predictability for the company's shareholders.

The return on the Group’s capital employed before adjustment related to biological assets in 2017 was 25.8% compared with 23.9% in 2016. The Group is financially sound with book equity of NOK 14,482 million, equivalent to an equity ratio of 56%. The Group's strong cash flows in 2017 led to a reduction in net interest-bearing debt of NOK 1,171 million, leaving a figure of NOK 2,262 million at the end of 2017, compared with NOK 3,433 million at year-end 2016.

In connection with the acquisition of Havfisk AS and Norway Seafoods Group AS, Lerøy Seafood Group carried out a private placement on 2 June 2016, issuing 5,000,000 new shares and selling 300,000 treasury shares at a price of NOK 415 per share. After the share issue, there were 59,577,368 outstanding shares in the company. LSG’s annual general meeting on 23 May 2017 decided to carry out a 1:10 share split by converting 59,577,368 shares each with a nominal value of NOK 1 to 595,773,680 shares each with a nominal value of NOK 0.1. The company owns 297,760 treasury shares.

Cash flow from operating activities in 2017 was strong at NOK 3,688 million. A total of NOK 834 million has been paid in dividends, in addition to tax payments totalling NOK 494 million. The Group has made net investment in fixed assets totaling NOK 1,464 million in 2017. The Group has a balance sheet total of NOK 25,658 million as of 31 December 2017 compared with NOK 25,079 million as of year-end 2016. The Group’s financial position is strong and shall continue to be utilised to ensure increased value creation through organic growth, new alliances and acquisitions. The Group compiles its financial reports in accordance with the international accounting standards, IFRS.

Key risk factors
The Group’s results are closely linked to developments in the markets for seafood. The price for Atlantic salmon and trout is of particular importance, but also to an increasing degree the price for whitefish and particularly cod. The development in prices for salmon and trout in recent years has been very positive. As a result of its significant marketing activities, the Group has in-depth knowledge of the end market and believes that the strong growth in demand for seafood in general, and fresh seafood in a consumer-friendly format in particular, gives grounds for optimism for operations in the future. The strong prices for salmon and trout reflect high demand but must also be assessed within the context of the lack of growth in production of these products.

After the acquisitions of Havfisk AS and Norway Seafoods Group AS (now renamed Lerøy Norway Seafoods or LNWS), Lerøy Seafood Group has substantial exposure in relation to catches of different species of wild fish according to Norwegian quotas. The Group faces political risk linked to decisions by the authorities, including framework conditions for fish farming and licence terms related to fisheries legislation.

Industrial developments and employment in capital-intensive activities exposed to global competition such as fish farming, fisheries and processing represent challenges and require a long-term perspective by businesses and politicians at a national level. Short-term perspectives are contradictory to the requirements for successful industrial development, employment and value creation. The Group’s strategy centres on a long-term perspective, irrespective of framework conditions, to ensure a globally competitive organisation, which will be able to continue to ensure industrial development in the numerous local communities where the Group has operations.

At the end of 2017, the Group had live fish worth around NOK 4 billion on its balance sheet. Biological risk has been and will continue to be a substantial risk for Group operations. Assessing and managing biological risk must therefore be a part of the Group's core expertise.

The industry also faces other financial and operational risks, including the development in prices for input factors. The Norwegian seafood industry and the fish-processing industry in Norway and the EU have a history of exposure to the risk represented by the constant threat of long-term political trade barriers imposed by the European Commission. The political trade barriers currently blocking exports of Norwegian salmon and trout to Russia, and the complexity of trading with China provide an illustration of political risk in practice. This situation represents a short-term obstacle to the Group’s marketing goals and value creation. However, the market for high-quality seafood is global and is experiencing strong growth. Over time, this growth has largely compensated for political trade barriers, providing grounds for an optimistic outlook and our belief that the Group is well positioned to continue its positive long-term development.

The Board of Directors maintains a strong focus on purposeful and systematic management of risk in all parts of the organisation. This policy is seen as essential in securing long-term value creation for shareholders, employees and society in general. The Group’s overall financial strategy ensures balance and financing, suitable financial covenants, liquidity, customer credit, currency and market risk. Considerable importance is also attached to having efficient and sustainable solutions in all parts of the Group’s value chain.

Structural conditions
The Group aims to create lasting value through its activities. For this reason, stringent requirements are imposed on risk management and the ability to plan for the long term in the development of sustainable strategic business processes. As a consequence of organic growth and a series of acquisitions carried out since the Group was listed on the Stock Exchange in the summer of 2002, the Group is now one of the world’s largest producers of Atlantic salmon and trout. With the acquisitions of Havfisk ASA and Norway Seafoods Group AS, the Group is now the largest supplier of whitefish in Norway, and a major supplier worldwide. In recent years, the Group has also developed and consolidated its position as a central actor in the distribution of seafood in Norway and abroad. The Group plays an active role in developing the value chain for seafood, with an increasingly large global reach.

The acquisitions of Havfisk ASA and Norway Seafoods Group AS (now renamed Lerøy Seafoods Group AS) were completed in Q4 2016. Lerøy Seafood Group's investments in the Norwegian whitefish sector are based on an industrial, eternal perspective. The industrial facilities receive raw materials from the Group’s own trawlers and from suppliers in the coastal fleet. Appropriate framework conditions, including predictability, are absolutely decisive to allow us to assume our responsibilities as an industrial organisation. The whitefish sector fluctuates according to seasons and requires vast amounts of capital. We firmly believe that we will only be able to build a sustainable industry and create attractive jobs if we have appropriate framework conditions, investment capacity, product development and access to the global market. The Board of Directors regrets and finds it sad that the tabloid debate on regulatory factors in the whitefish sector is predominately based on lack of knowledge and innumerable attempts to mislead political management, including input from professors. We hope and believe that it is possible to create an understanding among national political management of what is required to create jobs and value in the decades to come. We now assume that any future adjustments to framework conditions will irrespectively be based on knowledge and insight, preventing impairment of the companies’ industrial foundations for operations.

The investments made by Lerøy Seafood Group within the whitefish sector will contribute towards a forward-looking development and have significantly boosted the Group's position as a global total supplier of seafood. Lerøy Seafood Group's well-established, integrated value chain for redfish provides substantial potential for increased value creation via the development of the market for whitefish. This involves boosting the Group's position as a supplier of fresh/“refreshed” seafood with a full range of seafood products. The Board of Directors is still of the opinion that the acquisitions related to whitefish will in time strengthen the industrial development of the businesses involved, and will create value for society, employees and the Group's shareholders.

The Group’s financial position is very strong, and the Board attaches importance to the Group, through all its operations, retaining the confidence of participants in the different parts of the global capital market. The Group’s strong balance sheet in conjunction with current earnings enables the Group to continue as a leading participant in the global and national value-generating structural changes within the seafood industry. Lerøy Seafood Group will continue to selectively consider possible investment and merger opportunities, as well as alliances, that could strengthen the basis for further profitable growth and sustainable value creation. This includes investment opportunities both upstream and downstream. The Group shall continue its strategy for growth, implying continuous developments and improvements to operating segments throughout the entire value chain.

Viewed against the background of the Group’s many years of investments in sustainable production methods, developing alliances, quality products, new markets, brands and quality assurance, the Board feels that the outlook for generating increased value is good. In coming years, the Group will continue to work towards sustainable value creation by focusing on strategic commercial developments combined with improvements to the Group’s operational efficiency. Based on customer requirements, this work will ensure continuity of supply, quality and cost efficiency and, consequently, increased profitability. Improving operational efficiency at all stages is an ongoing process aimed at further developing the Group’s national and international competitiveness.

Being listed on the Stock Exchange affords the company a marketplace for its shares, improved access in the future to venture capital as well as the opportunity to use the company’s shares as a payment medium in future acquisitions or business combinations. As of 31 December 2017, the company had 5,297 shareholders against a comparison figure of 4,215 shareholders at the end of December 2016.


The parent company Lerøy Seafood Group ASA has its head office in Bergen, Norway. In addition to the Group’s CEO, the parent company has 11 employees. All personnel functions are handeled administratively via the wholly-owned subsidiary Lerøy Seafood AS. At year-end 2017, the the group employed 4,298 work years in 2017, comprising 2,880 men and 1,418 women. 825 of the group's work years are outside Norway. The proportion of women is 33.0%, representing a minor increase on the previous year.

Independently of the demand for equal opportunities for men and women, the Group has always emphasised individual skills, performance and responsibility in its recruitment policy and salary systems. Furthermore, the Group at all times ensures equal employment opportunities and rights for all employees, and works hard to prevent discrimination based on national origin, ethnicity, colour, language, religion or personal philosophy. One of the company’s goals is to provide a workplace without discrimination based on disabilities. The company will arrange for individually adapted workplaces and work tasks where possible for employees or work applicants with disabilities.

The company is a player in a global industry and the company’s working environment changes continuously. This requires flexible employees who are dynamic and willing to adapt and learn.

As in previous years, the Board of Directors would like to take this opportunity to praise the employees' efforts, their understanding of the need for a results-oriented operational focus and for their willingness to adapt to change throughout the organisation. The Board of Directors would like to thank all employees for their hard work in 2017.

Health, safety and the environment

There was an undesired incident in the subsidiary Lerøy. Midt during work on the company's silage-ma- king installation. This resulted in injury to two of our employees and it shows that we must continue to focus on routines and compliance with these, as well as on measures that preserve the safety of our employees. This work is a continuous process in our effort to achieve our vision of zero injuries.

A total sick leave was reported of 5.97% in 2017, which is an increase from 4.4% in 2016. Sick leave comprises 3.79% long-term absence and 2.18% short-term absence. The Board is pleased to observe that the Group works actively to keep sick leave low. The organisations in the individual subsidiaries are continuously being developed to ensure that they can deal with new challenges and changes in framework conditions. The working environment and cooperative atmosphere are good.

External environment
From a national and global perspective, the Board is of the opinion that its production of Atlantic salmon and trout is one of the most sustainable and environmentally- friendly forms of food production to be found. At the same time, the Board and Group maintain a high focus on potential challenges relating to point source pollution. This type of pollution is therefore monitored by means of continuous investigations at the company’s localities. The Group’s operations are closely linked to natural conditions in Norwegian and international fresh and salt waters. The Group's operations rely on access to clean fresh and sea waters. The Board and Group are confident that operations in 2017 have been sustainable, and have compiled a comprehensive report on the environment as part of the consolidated financial statements, available at In addition, the Group documents its sustainability in several national and international reports on fish farming and fisheries. The Group invests in minimising its impact on the external environment, and continuously works hard to encourage both management and employees to maintain a proactive approach towards environmental protection.

Result and allocations in Lerøy Seafood Group ASA
The company and the Group’s financial statements are submitted on assumption of going concern. In 2017, Lerøy Seafood Group ASA reported an annual profit after tax of NOK 2,775 million, against a comparative amount of NOK 1,503 million in 2016. The Board proposes the following allocation of the 2017 annual profit (NOK 1,000): 

  • Dividend (NOK 1.50 per share): 893 661
  • Transferred to other equity: 1 881 239
  • Total allocations: 2 774 899

The Group's parent company is financially sound with a book equity ratio of 81.8% and it has satisfactory financing and liquidity compatible with the Group’s strategy and operational plans.

Market and outlook
The Group and the Norwegian fish farming industry have experienced a positive development in biological production of salmon in 2017 and the first months of 2018. This has allowed for increased growth, resulting in an increase in harvest volume of salmon in Norway towards the end of 2017. The Group has close links with the end market for seafood, including salmon, and can confirm that the trend for increased demand remains strong. The Group therefore highlights the unique opportunities that could be provided by appropriate framework conditions based on knowledge of the industry’s global, environmental competitive strength. The fish farming industry in Norway has developed over several decades into something quite unique – a Norwegian global food producer that can compete both on costs and environmental protection.

It will always be absolutely essential for the Norwegian authorities to understand, when laying down regulations, what is required to ensure the Norwegian seafood industry can remain globally competitive over time. The Group will continue in its efforts to contribute towards a knowledge-based dialogue that creates value for society, regarding the need for appropriate framework conditions in the near future.

Industries that are exposed to global competition are unable to withstand in the long term specifically Norwegian profit-based taxes and duties.

The Group has identified room for operational improvements in all three regions where the Group carries out fish farming. The Group's investments will provide organic growth in volume in all the regions, and projected substantial reductions in production costs in two of the regions. The current estimate for harvest volume in 2018, including the share of LSG's volume from associates, is 182,000 GWT. For many reasons, the harvest volume may vary, but any differences from estimates shall, under normal circumstances, not vary to any significant degree from the figures reported by the Group in recent years.

Developments within whitefish in 2017 have been positive, even though industrial development and processing of whitefish in Norway remain difficult. This situation is impacted by political framework conditions, but the Group has a clear ambition to improve competitiveness and earnings for whitefish, with the prevailing conditions by means of investments, improved marketing and improvements to operational efficiency. The process of industrial development of whitefish requires patience, a long- term perspective and considerable investments. Such investments are only possible if framework conditions are predictable, and the Group and its employees fervently hope to be able to carry out such work without any obstacles in the years to come. The Norwegian quotas for cod and haddock were reduced by 12.3% and 12.6% respectively for 2018 when compared with 2017. The quotas allocated to the Group's vessels were reduced by slightly more, partly due to a buffer quota that has not yet been allocated. The Group expects to see further allocation of quotas in 2018 and has a solid position in relation to shrimp fishing. At the time of writing, the best estimate for the catch volume of whitefish and shrimp in 2018 is approximately 65,000 tonnes. The Board of Directors currently expects to see satisfactory earnings in 2018.

Bergen, 19 April 2018