Lerøy Seafood Group ASA is now a fully integrated company in control of the entire value chain, from roe or catches to finished product delivered to the consumer. With time, our vertical integration will become a necessary premise for maintaining and developing a global, competitive value chain and product categories in collaboration with strategic customers worldwide. The Group's values – open, honest, responsible and creative – shall form the foundations for our daily operations, but also for the perpetual, strategic business development required to achieve the Group's vision.
We succeed when our customers succeed
Lerøy has a strong focus on its customers. This implies a focus on flexible solutions, finance, climate and environmental competitiveness, food safety and product development. Everything we do is ultimately to benefit our customers. If we are to achieve our vision, we must continue to develop to achieve a position as a preferred supplier of seafood on a global scale. Our vision requires a value chain based on competitive processes allowing our customers to succeed.
Customers, knowledge and capital have been and remain decisively important elements in Lerøy’s development. Lerøy shall therefore continue to target the development of the organisations in the different parts of the Group’s value chain. The knowledge held by the Group’s employees and in the business clusters of which the Group is a part along the Norwegian coast make up a valuable knowledge-based network that is highly beneficial for our customers. Within this network, competencies and knowledge sharing have been and remain instrumental if we are to achieve our goals. Lerøy’s employees and highly skilled partners represent and ensure access to the competencies and knowledge required for the future of our value chain. It is not the case – as apparently claimed from time to time by sections of Norway's bureaucracy and publicly engaged professors – that value creation in aquaculture is “arbitrary” in that Norway has a long coast. Such attitudes to the aquaculture industry are worrying and could potentially impair the industry's opportunities for development.
The seafood business has a long history and has developed into a global industry, but remains very fragmented with complex value chains, which at times are not compatible with the requirements made by the end consumer, such as food safety, quality and efficiency.
Lerøy has therefore focused on achieving growth by means of securing access to and control of raw materials that are fully traceable and governable. Lerøy's value chain comprises a large product range and allows for development of activities and products to increase customer satisfaction and willingness to pay.
Fulfilment of Lerøy’s vision requires growth. Lerøy works hard to ensure that growth for the Group has been and shall remain sustainable. Sustainable growth places stringent requirements on the Group within finance, the climate and environment and social issues. Sustainability is essential for gaining access to capital, and is of decisive importance for the Group's survival. Climate-related and environmental sustainability are the foundations of the Group's development, and we are therefore very happy to report that the Group's food production activities are globally competitive when assessed according to the UN’s sustainability criteria. Without social sustainability, we will not have the support of society at large and will not have access to the Group's most important resource, people.
Lerøy has a history of and future goals for organic growth via acquisitions, development of alliances and partnerships and shall play an active role in the consolidation of the seafood industry. The Group’s long-term goal for earnings is to generate an annual return on the Group’s average capital employed of 18% before tax.
In relation to acquisitions, we must evaluate developments on the seafood markets, including the customers’ requirements and expectations in terms of future developments. The Group shall be able to withstand the cyclical fluctuations caused by numerous factors within all operating segments. The Group strives to achieve the best possible decision-making grounds, based on knowledge of different types of framework conditions. For more information on this, please also refer to the chapter on the various risk factors for the Group. Development of the value chain and business systems requires advanced knowledge of own operations, but also the best possible insight into and understanding of development trends within external factors. The cyclical nature of the industry has been and remains challenging, but has and will continue to provide major opportunities in the years to come. In our opinion, ensuring that the Group's financial strength and financing structure is adapted to Group operations and framework conditions has been and will continue to be of decisive importance.
An efficient and creative value chain
Customer satisfaction determines whether Lerøy can remain a leading supplier and, in turn, whether the Group can move towards fulfilling its vision. During the process of developing our own customised customer relationships, we have come to the understanding that our customers will choose their preferred partner based on the ability to provide the most efficient, innovative and customer- oriented value chain. Lerøy therefore maintains a continuous focus on developing more cost- efficient and flexible solutions. The Group's ambitious working targets are perfect flow of goods and zero errors. An efficient and creative value chain requires capital, but ultimately is the result of the work performed by the Group’s employees together with the Group's partners.
Lerøy's history is a demonstration of the Group's strategy in practice
Lerøy has remained consistently loyal to its strategy. Over the past 20 years, Lerøy has grown from a family-run Norwegian wholesaler/exporter to a fully integrated international seafood supplier. This growth would not have been possible without professionalisation, organisational development and access to venture capital once the company was listed on the stock exchange in June 2002.
Access to venture capital is proof that Lerøy has the confidence of the different parties on the capital markets. This confidence has been and remains an essential prerequisite for Lerøy's growth and development. Via acquisitions, alliances and development of operations, the Group has played a role in and been one of the drivers behind the substantial value creation generated by Norwegian production of salmon and trout over the past decades, including the important contribution to the development of Norwegian seafood on the global market. With an ever- increasing resource base and a continuous focus on improving value chain efficiency, the Group has become an increasingly preferred partner for its customers. Lerøy is positioned for more long- term and closer cooperation with customers than before and at an increasingly strategic level.
Acquisition opportunities are evaluated consecutively, and the acquisition of Villa Organic in 2013 was the most recent major acquisition. In 2016, Lerøy executed the largest acquisition in terms of value in the Group’s history – Havfisk and Lerøy Norway Seafood. This allowed Lerøy to claim the position as the largest player within catches and processing of whitefish. Lerøy’s investments in Whitefish have also afforded the Group a position as a significant global actor within Whitefish. The increase in resource base lays the foundations for the Group's unique product range, and makes Lerøy an attractive seafood supplier. The Board of Directors and management are confident that there is considerable potential for creating a more efficient and innovative value chain for Whitefish.
In combination with increased access to raw materials, the Group has focused on developing strategic customer relationships by means of an increasingly advanced and efficient value chain, including “fishcuts” close to the end customer on several key seafood markets. In recent years, Lerøy has developed inhouse expertise to enable the construction and development of processing plants on the markets close to the consumer, a cost-efficient and flexible value chain that boosts the level of innovation together with customers.
Information on business development in 2019
Farming – focus on growth and cost reductions per produced kilogram of salmon and trout
The Group's harvested volume of salmon and trout has remained relatively stable since 2012, due to a lack of new licence capacity and challenges for Lerøy and the industry in adapting to new political regulations on lice, introduced in 2013. The Group has a major potential in increasing exploitation of its own licences.
The Board of Directors acknowledges that the lack of growth/unsatisfactory utilisation of licences and related increase in costs are the main challenges for the Group's farming operations. On this basis, major investments have been made and are partly
continuing in recent years in order to provide a significant increase in the Group's post-smolt capacity. Investments in new smolt facilities, based on RAS technology (recirculating aquaculture systems), where the smolt are kept longer in the facility than with traditional smolt plants, have resulted in the supply of larger smolt that are more robust before they are released to the sea. The Board of Directors and management believe that these investments will generate growth and provide reductions for the Group's production on the cost side.
Thanks to expert employees and new technology, the Group has implemented a forward-looking smolt strategy that will with time provide significantly better exploitation of the Group's production rights. The lead time for these investments is long, but the new facilities will steadily increase the average size of smolt for the Group. At Lerøy Aurora and Lerøy Sjøtroll, the average size of released salmon smolt will be approx. 300 grams in 2020.
The Group's farming operations are as such making the move from a substantial investment phase to a phase were we aim for optimal exploitation of the investments made. With time, the Group has developed a substantial knowledge base within RAS technology based on experience, but acknowledges that this technology is still somewhat new, requires new operating methods and implies risk. Nonetheless, both the corporate management and the Board of Directors expect the implemented and completed investments in the smolt plants to provide considerable growth in production in the sea in 2020 and the next four to five years.
The corporate management and Board of Directors expect that the Group's ambitions to achieve a considerable increase in volume will make Lerøy more cost-efficient. Moreover, continuous improvements to operations are necessary to produce lower costs.
At every part of the value chain, from roe and smolt production via farming to production and distribution of products, we make every effort to ensure our operations are as sustainable as possible.
This allows us to guarantee efficiency, quality and food safety at every part of the value chain, so that you can enjoy safe and delicious seafood.
VAP, sales and distribution – an efficient value chain as a driving force behind innovation
As described in detail in the chapter entitled “Business overview”, ref. www.leroyseafood.com, Lerøy sells most categories of seafood to an increasing number of global markets. Over the past decade, there has been a particular focus on developing a more efficient value chain for distribution of seafood by building a number of distribution centres for seafood in a higher number of central seafood markets. These centres are secured a supply of raw materials via local sourcing and raw materials in the form of fillets produced at the Group’s facilities in Norway. Having facilities close to the markets allows the Group to provide a high level of service, extensive interaction and innovation with customers on each specific market. The Group is also gradually building up capacity for sushi and so-called “ready-meals”.
One important premise for the further development of profitable, conceptual trading is having stable access to raw materials with the right quality.
The development of this segment in the Group's value chain shall ensure increased competitiveness. Investments in recent years have been substantial, including investments in the world's most modern fillet factory for salmon in Hitra, with the subsidiary Lerøy Midt. The objective with this new factory is to process the salmon without it being touched by human hands and with a flow of goods without any unnecessary buffers. The factory has a unique flow of goods, where efficiency, food safety and quality are the top priorities. Other developments worth mentioning are the new automated plant, Seafood Centre, in Urk and a number of sushi facilities in Spain and France. In 2020, the Group aims to sell its first products from the factory in Italy, based on high-quality fillets from the plant in Hitra.
At the start of 2020, Lerøy has a unique raw material supply via their farming activities, catches and purchases from third parties. This supply, in combination with the processing plants in Norway and factories close to markets worldwide, represents in our view a strong platform for further business development with strategic customers. The Group’s investments in this part of the value chain are expected to produce an increase in activities, a more robust business model and improved earnings.
Lerøy has carried out major investments over several years, and these will also have an impact on the current operating year. The investments are made in line with the Group's long-term strategy for continued financially and environmentally sustainable growth. The investments have been instrumental in producing increased earnings in 2019, but the Board of Directors and management are confident that the growth in earnings will continue within the different segments in the years to come. These projects are challenging, but they substantiate the Group’s vision to be the leading and most profitable global supplier of sustainable quality seafood.
Lerøy Seafood Group currently has a full, vertically integrated value chain within both red fish and Whitefish, and is the leading Norwegian seafood company, and thereby one of the world’s leading seafood corporations. The Group has a clear ambition to further develop this position in the years to come.
The Group’s earnings in 2019 were slightly lower than in 2018. This is principally due to poorer earnings in the Farming segment and, in part, the Wild Catch and Whitefish segment, while developments for the VAP, Sales & Distribution segment have been positive. The Board of Directors is of the opinion that the Group's earnings potential with the current business model is higher than the figures achieved in 2019.
Lerøy Seafood Group reported revenue in 2019 of NOK 20,427 million, up from NOK 19,838 million in 2018. This is the first time in the history of the Group that revenue has exceeded NOK 20 billion. The Board of Directors is satisfied with the Group's level of activity.
Operating profit before fair value adjustment related to biological assets was NOK 2,734 million in 2019 compared with NOK 3,569 million in 2018. The Group implemented accounting standard IFRS 16 regarding leases with effect from 1 January 2019. Some of the profit/loss figures are therefore not directly comparable to the corresponding figures from previous periods. Please refer to note 1 for a more detailed description and note 27 for an overview of the most important impact on the accounts.
Associates represent significant value for the Group, demonstrated by the profit figure before value adjustment related to biological assets of NOK 198 million. The corresponding figure in 2018 was NOK 290 million. The Group's net financial items for 2019 were negative at NOK 215 million compared with a negative figure of NOK 161 million in 2018.
Profit before tax and fair value adjustment related to biological assets was NOK 2,718 million in 2019 compared with NOK 3,697 million in 2018. Earnings per share before fair value adjustment related to biological assets and minority shareholdings totalled NOK 3.48 per share in 2019, compared with NOK 4.90 per share in 2018.
The spread of the COVID-19 virus has caused increased uncertainty and reduced predictability in the global economy. On this basis, the Board of Directors has adjusted its reported proposal for allocation of the annual profit figure for 2019. The Board of Directors now proposes that the Annual General Meeting adopts a dividend payment of NOK 1.50 per share. The Board of Directors will also request authorisation from the Annual General Meeting to pay up to NOK 0.80 per share as dividend before the end of the present year. The dividend payment for financial year 2018 was NOK 2.00 per share.
The return on the Group’s capital employed before fair value adjustment related to biological assets in 2019 was 15.5% compared with 22.3% in 2018. The Group is financially sound with book equity of NOK 17,763 million, equivalent to an equity ratio of 58.8%. Group cash flows in 2019 were strong. As previously described, the cash flows were impacted by the significant investments in core operations in 2019. Total gross investments in own assets and leased fixed assets totalled NOK 1,460 million in 2019 compared with NOK 2,066 million in 2018. The Group paid NOK 1,272 million in dividends, of which NOK 1,192 million to the shareholders of Lerøy Seafood Group ASA. Corresponding figures for 2018 were NOK 950 million and NOK 894 million respectively. Net interest-bearing debt was NOK 2,641 million at 31 December 2019, in line with the figures at 31 December 2018.
Net cash flow from operating activities in 2019 was NOK 2,859 million after tax payments of NOK 691 million. Please note that implementation of IFRS 16 also has an impact on the statement of cash flows. The most useful information is the amount spent by the Group on investments, irrespective of investment method. This information is provided as a supplementary line in the statement of cash flows.
The Group’s statement of financial position totals NOK 30,189 million as of 31 December 2019 compared with NOK 28,373 million as of 31 December 2018.
Over the past 20 years, the Group has based its growth on financial flexibility. The Board of Directors is of the opinion that such financial flexibility is an important factor for the ability to generate further profitable, organic growth, carrying out strategic acquisitions, establishing alliances and continuing the company’s dividend policy. The Group’s satisfactory financial position supports the Group’s objective to retain its position as the leading Norwegian seafood corporation, thus remaining one of the leading seafood companies worldwide in the future.
The Group compiles its financial reports in accordance with the international accounting standards, IFRS.
The Wild Catch and Whitefish segment
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) and Havfisk ASA to Lerøy Havfisk AS.
The Havfisk segment's primary business is wild catches of whitefish. Lerøy Havfisk has licence rightstoharvestjustabove10%ofthetotalNorwegian cod quotas in the zone north of 62 degrees latitude, corresponding to more than 30% of the total quota allocated to the trawler fleet. Havfisk also owns several processing plants, which are mainly leased out to their associate Lerøy Norway Seafoods (LNWS) on long-term contracts. Havfisk’s trawler licences stipulate an operational obligation for these processing plants.
Havfisk currently has a total of 10 trawlers in operation. The most recent trawler, “Kongsfjord” was delivered and started operations at the at the beginning of 2020. This is a trawler designed with several innovations to optimise catch quality. The benefits with this new vessel were immediately evident on the very first sailing, with excellent results.
Lerøy Havfisk’s catch volume in 2019 was approx. 62,000 tonnes, down from around 66,000 tonnes in 2020. The reduction is attributed to lower quotas. A reduction in the volume available together with good growth in demand resulted in higher prices for key species in 2019 and when compared with 2018. LNWS’s primary business is processing whitefish. The company has use of 12 processing and purchasing plants in Norway, five of which are leased from Havfisk. LNWS is Norway’s largest purchaser of whitefish from third parties, including from the coastal fleet. Symbiosis, or mutual dependence, is of decisive importance. The processing of whitefish in Norway has been extremely challenging for several decades. As a result of high demand for seafood and lower quotas, the raw material prices increased throughout 2018 and early 2019. In the short term, this always represents a challenge for processing operations. However, good prices have resulted in satisfactory earnings for the catch segment. The onshore industry for whitefish in Norway, however, bears the brunt of the evident catch trends resulting in significant excess capacity for large parts of the year. As a result of seasonal fluctuations in catch figures, combined with lower quotas for key species and new businesses increasing capacity in the onshore industry, 2019 was a very difficult year.
For 2019 in total, the segment contributed an EBIT of NOK 293 million, compared with NOK 388 million in 2018. Earnings in 2018 were affected positively by the sale of a vessel, generating an accounting gain of NOK 35 million. At the same time, investments have been made in both onshore and offshore operations for the whitefish segment, resulting in an increase in depreciation of approx. NOK 29 million in 2019 compared with 2018.
As described earlier in the report of the Board of Directors, the Group has initiated numerous measures within both production and marketing to improve earnings from our onshore operations. The Board of Directors expects these measures to produce positive results as early as 2020.
The Farming segment
The Farming segment has locations in the three farming regions in Norway: Lerøy Aurora located in Troms and Finnmark, Lerøy Midt located in Nordmøre and Trøndelag, and Lerøy Sjøtroll located in Vestland. These companies harvested a total of 158,000 tonnes salmon and trout in 2019, down from 162,000 tonnes in 2018. This decline is attributed to unforeseen incidents in some of the farming regions. The Farming segment generated an operating profit before fair value adjustment related to biological assets of NOK 2,065 million in 2019, compared with NOK 2,928 million in 2018. This corresponds to earnings per kilo harvested volume for the segment of NOK 13.1 in 2019, compared with NOK 18.1 in 2018. The Board of Directors and corporate management are not satisfied with the development in earnings in 2019.
The prices for Atlantic salmon and trout remained strong in 2019, but with a high level of volatility in price developments throughout the year. The Farming segment's realised prices for trout saw a slightly larger fall than realised prices for salmon. In total, however, the reduction from prices realised in 2018 for salmon and trout was approx. NOK 2 per kilo. Prices realised for trout were NOK 8 per kg lower than for salmon. The Group's contract share for salmon in 2019 was 37%.
Release from stock costs for Farming fell slightly from 2017 to 2018, while the results of developments in 2019 unfortunately indicate slightly higher release from stock costs. In 2019, the Group's Farming operations were impacted by several unforeseen incidents. These incidents had an effect on both harvest volume and production volume throughout the year. The lower volume has a strong impact on cost levels per kilo slaughtered fish. The Group's release from stock costs have shown a downwards trend throughout the year, and release from stock costs in Q4 2019 were the lowest ever reported in any quarter in 2019, although they remain higher than in Q4 2018.
As also reported in the interim reports in 2019, several unforeseen incidents have affected Lerøy Aurora's figures in 2019, including a fire in the smolt facility in Laksefjord and the outbreak of toxic algae, obstructing production in the sea. The smolt facility has been re-established and work on extending the facility is under way. However, the smolt release in 2019 was affected in that it had to be postponed.
Growth returned to normal in the third and fourth quarters. This resulted, as expected, in significantly lower release from stock costs in Q4 2019 when compared with Q3 2019. However, the start of 2020 has unfortunately been dominated by a higher number of winter ulcers on fish than in the previous winter. This has a negative impact on production at the start of the present year. At the time of writing, release from stock costs for Q1 2020 are therefore expected to be slightly higher than in Q4 2019. We expect Lerøy Aurora to continue to play a leading role cost-wise in 2020.
Release from stock costs for Lerøy Midt in Q4 2019 were higher than in Q3 2019. Growth at the start of 2020 has been good, and release from stock costs are expected to be lower for Q1 2020 and for the year as a whole.
Costs for Lerøy Sjøtroll in Q4 2019 were lower than in Q3 2019. This is a positive development, but the costs remain at a significantly higher level than indicated by our level of ambition. We expect to see a substantial improvement in so-called “smolt yield” in the years to come. Trout costs saw a significant improvement in relation to salmon costs. In 2020, a large share of released smolt will come from the new plant in Fitjar. These will therefore be larger smolt with better quality than before. It is our experience and expectation that these factors will help improve production in the sea in 2020. Release from stock costs in Q1 2020 are expected to be in line with the figures reported in Q4 2019. Release from stock costs are expected to fall throughout 2020, partly also due to an increase in harvest volume, but the full effect of this will not be evident until 2021.
In total, the negative difference from estimated production volume for the year as a whole was approx. 15,000 LWT. Implemented measures are described earlier in the report of the Board of Directors, illustrating the Group's ambition to increase harvest volume and reduce release from stock costs in the years to come.
VAP, Sales & Distribution segment
With its fully integrated, competitive value chain and unique product range, Lerøy Seafood Group shall be able to supply products that are best suited to the consumers’ needs and wishes. Knowledge of the customer’s needs and preferences is of decisive importance if the Group is to develop demand for the Group’s main product, seafood. Lerøy distributes products based on more than 70 different fish species from Norway to more than 70 different markets in the course of a calendar year. In addition, the Group processes and distributes a number of market-specific seafood products to their respective local markets where Lerøy has operations. Examples of these are seabass and sea bream in Portugal and Spain, capelin roe in Sweden, and plaice and other flatfish in the Netherlands.
Lerøy Seafood Group’s advanced value chain shall be developed further in order to satisfy and increase the consumers’ total demand for seafood.
The Group has extensive processing operations and a wide product range within seafood. In line with Lerøy’s goal to create the most efficient and sustainable value chain for seafood, the Group has invested in a value chain where whole fish are filleted in Norway. Transporting these fillets to their markets is 40% more efficient than distributing unprocessed fish, This produces high quality, lower costs and minimised environmental footprint. Seafood centres close to the markets process, package and label products according to local requirements and by means of extensive development of product categories and products, in cooperation with customers. This results in a cost-efficient and flexible value chain, with a high level of service and continuity of supply. This value chain already allows for production of, e.g., “gyozas” using salmon and shrimp in Valencia, sold nationwide in Spain, consumer packs of “balik ekmek”(mackerel sandwiches) produced in Istanbul for grocery stores in Turkey, day-fresh sushi produced in Lyon for home delivery via Amazon in France, consumer packs of seafood salads produced in Urk for grocery stores in the Netherlands, as well as breaded Norwegian cod and saithe produced in Bulandet in Vestland for Norwegian and Nordic grocery stores.
In the Annual Report for 2018, the Board of Directors forecasted increased activities and earnings for this segment. Despite a reduction in harvest volume for red fish and reduced catch volumes, revenue for this segment was up in 2019. Revenue totalled NOK 19.4 billion, up from NOK 19.0 billion in 2018. Increased exploitation of capacity and higher focus on costs provided an increase in operating profit before biomass adjustments from NOK 334 million in 2018 to NOK 480 million in 2019. The Board of Directors is satisfied with developments, but underlines that there is still room for substantial improvement in most areas and markets. The Group therefore has ambitions and expectations that the segment will continue to report such a positive development.
Associates represent substantial values for the Group. The most important associates are Norskott Havbruk AS (50.0%), Seistar Holding AS (50.0%) and Seafood Danmark (33.3%).
Norskott Havbruk AS owns Scottish Seafarms Ltd, one of the largest fish farming businesses in the UK. In 2019, Scottish Seafarms harvested 26,000 tonnes of salmon, down from 27,000 tonnes in 2018. Earnings fell from NOK 661 million in 2018 to NOK 293 million in 2019, due to challenges relating to biological production. These problems were particularly evident in the second half of 2019. The
problems will have an impact on both earnings and harvest volume in 2020. The company’s new RAS facility for smolt production was completed in the autumn of 2019. Smolt were released from the facility in the last months of 2019. These smolt are expected to make a significant contribution to positive developments in the years to come. The company aims to achieve an annual harvest volume from 2021, via organic growth, that will vary between 35,000 and 40,000 tonnes gutted weight.
Well boat shipping company Seistar Holding AS is an important supplier of services to both Lerøy and other aquaculture businesses, primarily in the Vestland region. The Group reported operating profit of NOK 116 million in 2019, up from NOK 42 million in 2018. However, the operating profit figure in 2019 was impacted by the gain on the sale of an older vessel, part of Seistar’s fleet renewal programme. In 2019, Seistar took delivery of and started operations with a boat with slaughtering facilities, Seihaust.
Seafood Danmark is a Danish company, where the Group currently owns one third of the shares, but where agreements have been signed entitling and obliging Lerøy to purchase the remaining outstanding shares. Developments in 2019 have been positive, and there is good reason to project a sustained positive development in the near future.
Key risk factors
The Group is a significant owner of farming licences in Norway and the UK, and of Wild Catch quotas in Norway. The Group faces political risk linked to decisions by the authorities, including framework conditions for fish farming and licence terms related to fisheries legislation. Political risk, including a lack of predictability, will in the long term impair the industry’s competitiveness and capacity for development and value creation. 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, including non-profit- related taxes specific to Norway, are incompatible with the requirements for successful industrial development, employment and value creation in Norway. Neither are they compatible with the level of competitiveness required for a global industry experiencing significant development. The majority of members in the group that presented an Official Norwegian Report (NOU) – “2019:18 – Taxation of aquaculture” on 4 November 2019 are proposing the introduction of an extra tax on the aquaculture industry. Based on our knowledge of the industry, we are of the opinion that the grounds and premises on which this majority proposal is based are incorrect, and that their conclusion is therefore erroneous We therefore trust that the cross-political majority in the Storting make a sound judgement and understand that the social consequences of the proposal are extremely negative. 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 sustainable industrial development in the numerous local communities where the Group has operations.
At the start of February 2020, the Norwegian government published their report entitled “The government turns on traffic lights for the aquaculture industry”. This was the second time colour codes were implemented for the production zones. A 6% increase in MAB is to be introduced for the green zones, of which 5% would be up for auction. There is to be no change in MAB for the yellow zones and a 6% reduction for the red zones. Lerøy Aurora (PO 11 and PO 13) has production in green zones. Lerøy Midt’s production is mainly located in PO 6, a green zone, but also has some production in PO 5, a red zone. The majority of Lerøy Sjøtroll’s production is in PO 3, a yellow zone, but Lerøy Sjøtroll alsohas production in PO 4, which is now a red zone. In total, the reductions will result in the loss of around 1,000 tonnes MAB for the Group over the next two years. Please refer to the notes to the financial statements for a list of the Group’s total available MAB. The company has not yet reached a conclusion on the issue of how to act in relation to the lack of legal foundations for the so-called “traffic light system”. Legal processes are challenging but at times also of absolute necessity, unfortunately.
The ruling of Fosen court on 7 June 2019 was for full acquittal for our subsidiary, Lerøy Midt AS, in relation to the unfair and unreasonable charges of breach of the Animal Welfare Act and the Food Act. The court could find no grounds on which to find Lerøy Midt AS and the company’s employees to blame for the situation that occurred in 2016. We are saddened by the witch hunt to which the company and its skilled employees were exposed during the pre-trial process, but also thankful that the court’s ruling clearly states the injustice suffered by Lerøy Midt AS. Not only was the company cleared of all the false allegations by the Norwegian Food Safety Authority, they were also granted compensation. Unfortunately, this is proof that, at times, the legal system is our only resort. The conduct of the Food Safety Authority was fully documented in the case material and, naturally, in the court’s ruling. We all rely on trust – individuals, business parties, public supervisory authorities and political leadership. Certain parties chose to break this trust and abuse their power – this cannot be accepted, and changes are necessary. The Food Safety Authority plays an extremely important role for Norwegian society, not just in the form of controls, but also for providing guidelines and premises. We assume that the ruling of Fosen court will encourage persons in key positions of power – who, with their statements prior to the ruling, clearly showed that their purposes was to damage the company, our employees and our whole industry – will now evaluate their conduct and, not least, their exercise of power in the future.
The Board of Directors believes that the Group’s many years of investing in vertical integration, building alliances, developing high-quality products, entering new markets, quality-assuring its value chain and building its brand will enable it to continue to create value going forward. The Group will continue its work to deliver sustainable value creation by focusing on strategic business development and operational improvements. This work will generate growth and, based on customer requirements, ensure continuity of supply, quality and cost efficiency, paving the way for increased profitability. Improving operational efficiency at all stages is an ongoing process aimed at further strengthening the Group’s competitiveness nationally and internationally.
The Group’s financial position is very strong, and it is important for the Board that the Group, through its operations, retains the confidence of participants in the various capital markets. The strong statement of financial position and current earnings enable the Group to pursue its clear ambition to remain a leading participant in value-creating structural changes in the seafood industry, both nationally and globally. Lerøy Seafood Group will continue to selectively consider possible opportunities for investments, mergers and 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.
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.
The parent company Lerøy Seafood Group ASA has its head office in Bergen, Norway. In 2019, the Group had 4,361 full-time equivalents, of which 2,820 men and 1,541 women. Of this figure, 1,374 full-time equivalents work outside Norway. In 2019, the ratio of female employees was 35.0%, unchanged from 2018.
Independent of the demand for equal opportunities for men and women, the Group has always placed decisive emphasis on individual skills, performance and responsibility in its recruitment policy and salary systems. Furthermore, the Group seeks at all times to 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 because of disabilities. For employees or work applicants with disabilities, the company will arrange for individually adapted workplaces and work tasks where possible.
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 result-oriented operational focus and willingness to adapt to change throughout the organisation. The rate of change has increased dramatically over the past decade alone, and our willingness and ability to change are therefore of existential importance. The Board of Directors would like to thank all employees for their hard work in 2019.
Health, environment and safety
External environment and climate
Result and allocations, Lerøy Seafood Group ASA
of the 2019 annual profit (NOK 1,000):
> A figure of NOK 1.50 per share has been allocated for dividend payment, totalling NOK 893,660,520.
> Transferred to other equity: 801,748,480
> Total allocations: 1,695,409
Market and outlook
Investigation by the competition authorities in the EU and USA
Events after the date on the statement of financial position