Financial information
Board of Directors Report
Lerøy Seafood Group’s (Lerøy’s) values and vision form the framework for Lerøy’s strategy
“Lerøy’s vision is to be the leading and most profitable global supplier of sustainable, quality seafood”

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.

Sustainable growth

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.

"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 shall be an attractive workplace that attracts talented employees and provides them with the opportunity to develop. Interaction between Lerøy's employees and partners helps create the most efficient and innovative value chain.
In order to ensure good interaction throughout the value chain, it is important to create and develop an organisation that is willing both to learn and change. Lerøy shall be an organisation comprising independent, responsible, flexible to change and talented employees who locally and throughout the value chain carry out gradual improvements to production, and who also have the skills to solve unforeseen problems and challenges that occur from day to day. Lerøy has a governance model with substantial local decision-making authority. Decentralised governance requires an organisation that constantly seeks new knowledge so as to achieve lasting competitive strengths.
The fundamental principles in the methods used to develop the organisation require an understanding of the overall picture, but also knowledge of and interest in the details of our current status and goals. This in turn requires good access to data via efficient governance systems. The Group's organisation shall, by means of methodical efforts, ensure an operation that realises value and fulfils the Group's various KPIs. Every single process along the interface between customers and suppliers shall be standardised and optimised to ensure flow of goods to the customer and information back to the value chain from the customer.
Access to various input factors is of decisive importance for Lerøy. Lerøy shall secure access to the best raw materials by means of development, acquisitions, good customer/supplier relationships and alliances. Lerøy shall have in-depth insight into technological developments, in addition to knowledge of and the ability to exploit the technological potential available. Lerøy shall develop methods and governance tools to ensure competitive processes and thereby results that comply with the Group's targets.
Our success will be made evident by an efficient value chain that engenders innovation: An efficient value chain that engenders innovation will be visible in the form of.

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

Lerøy works continuously on the development of its own value chain, from raw material to end product. Lerøy reports within three segments.
Whitefish – focus on improving value chain efficiency
The Group's Whitefish operations comprise fisheries and onshore facilities that work closely together. For a more detailed description, please refer to the business overview at
The Group's fisheries are currently very efficient. Historically, the Group's fleet has suffered at times from low profitability, but the Group has been able to invest in renewing and developing its fleet in recent years. The new vessels, such as Nordtind, delivered in 2018, are effective within traditional fisheries and have increased efficiency for shrimp catches with the use of triple trawls.
In 2018, Lerøy Havfisk signed a contract for a new vessel for delivery in 2020. The vessel, Kongsfjord, was delivered in February 2020 and is based on the design of the combination trawler, Nordtind. Developments have been made in several areas for Kongsfjord, and the vessel has uniquely modern equipment installed for handling catches that will provide optimal quality and utilisation of the whole fish. The new vessel will provide further improvements to the quality of catches, and includes innovations that take Lerøy one step further in improving customer satisfaction. Investments in new vessels provide improvements to operating systems, which in turn produce reductions in CO2 and NOx emissions.
For many years now, the Norwegian onshore industry for Whitefish has struggled with low profitability. Framework conditions for the onshore industry are challenging, partly driven by the seasonal fluctuations in raw material supply and partly the political, regulatory framework conditions that make it difficult to aggregate large volumes for industrial units, obstruct specialisation and investments in automation. A comprehensive effort is required to improve profitability in this industry, and the Group's strategy centres around three lines of action.
A. What to produce where?
How can we pave the way for new activity, preferably all year round, or initially target reduced seasonal fluctuations in relation to our historic operating model? Several factors may be instrumental here, but increased specialisation will allow for investments and higher profitability. Examples of completed investments are a new production line for boiling and packing king crab in Kjøllefjord and the start- up of salted fish production in Rypefjord. In 2019, the new processed fish and fillet factory was completed and had start-up in Stamsund. Substantial improvements have been made to the facility in Melbu prior to season start in 2020. The investments made in these two facilities provide an overall boost to industry in the region. A new building for landing fish and a quay have been erected in Berlevåg, with several minor investments made in other facilities.
In summary, the overall objective for the onshore industry for Whitefish is to ensure that production is less reliant on seasons, to introduce more standardised fillet production based on fresh,
seasonal raw materials and to freeze raw materials outside of the catch seasons. A more stable supply of raw materials to the industrial facilities will help boost productivity and provide an improved flow of goods to the factories close to the markets.
B. Stabilisation, continuous and gradual improvements
The second line of action is the systematic work to improve operations via continuous and gradual adjustments at each facility, in addition to improved flow of goods between different facilities in the value chain. To move this process and other similar work in other parts of the value chain forward, the Group has developed a new production system, the Lerøy Way. This is an important part of the Group's toolbox to ensure that we develop production methods that afford the best possible interaction between production employees, increased exploitation of machinery and better raw material utilisation. In 2018, a major project was introduced for the development of the facilities in Melbu and Stamsund. This project is expected to contribute towards improved profitability. The method is also applied to the Group's red fish and downstream operations.
C. A more efficient value chain for Whitefish
The Group works continuously on forming closer links between the different Whitefish businesses, together with Lerøy's growing downstream operations. Investments are also being made in replacing machinery and auxiliary systems with new, more modern production technology along with gradual upgrades to buildings to make the Group an even more competitive purchaser of Whitefish from the coastal fleet. Last, but not least, investments are being made in improving expertise and product development.

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.

Inger Elise Karlsen checks the quality of the fish cakes to make sure the core temperature is correct after frying. The fish cakes have been developed by our product development team and are made from Norwegian fish; cod, haddock and saithe.

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.

The world’s most efficient and sustainable value chain for seafood.




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., 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.

The map shows where we have downstream activities /seafood distribution centers (in central seafood markets).

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.

Financial information

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.

The Group’s results are closely linked to developments in the markets for seafood – particularly the price for Atlantic salmon and trout – but also to an increasing degree the price for whitefish, particularly cod, after the investments within whitefish in 2016. The development in prices for whitefish, 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 must also be assessed within the context of the lack of growth in the supply of these products from Norway and other producer nations.
At the end of Q4 2019, the Group had live fish on its statement of financial position worth approximately NOK 5.5 billion. Biological risk has been and will remain a substantial risk factor for Group operations. Assessing and managing biological risk must therefore be an integral part of the Group’s expertise. The seafood industry is international, and Norway is an important seafood-exporting nation. Trade barriers have and will continue to represent a considerable risk factor for the industry. The political trade barriers imposed on Norwegian salmon and trout regarding exports to Russia provide an illustration of political risk in practice. At the start of 2020, we have also observed how pandemics and the fear of pandemics can negatively affect demand and value chains. However, the market for high-quality seafood is global and is experiencing strong growth. Over time, this growth has largely compensated for both political trade barriers and other temporary challenges, providing grounds for an optimistic outlook and our belief that the Group is well positioned to continue its positive long-term development.
The Group’s operations will always be exposed to currency fluctuations.
Examples of other risk areas include credit risk, changes in the prices of input factors and market risk.

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.
Through 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 Seafood 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.
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. The symbiosis between the onshore industry and the coastal fleet is strong and represents a high level of mutual dependency. Appropriate framework conditions, including predictability, are absolutely decisive to allow us to successfully 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. 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 are extremely interested in dialogue and assume that any future adjustments to framework conditions will be based on knowledge and insight, preventing impairment of the industrial foundations for operations for our industry. We have previously pointed out that the White Paper entitled “A quota system for increased value creation”, submitted by the government in the second quarter of 2019, contains proposals that will be counter-productive and will impair the premises for development of Norwegian industry. The company and its employees are therefore working on the assumption that Norway’s political leaders will listen to our arguments and implement the necessary adjustments to the White Paper, prior to reaching a final decision.
In recent years, the Group has made major investments in facilities for smolt production, in order to ensure the Group’s global competitiveness from a long- term perspective. These investments not only provide an illustration of capital requirement, but also the level of knowledge needed for our advanced food production. To succeed, Lerøy and the organisation’s employees need knowledge, capital, market- related and globally competitive framework conditions. The proposal for economic rent taxation is based on erroneous grounds and is incomprehensible. Such proposals are an unnecessary disturbance and undermine the industry’s potential to sustain, not to mention further develop, the vast ripple effects generated by the industry for local communities. We trust that our national political leaders quickly dismiss this type of scholarly, political “wild goose chase”.

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.

Shareholder information

As of 31 December 2019, the company had 10,520 shareholders against a comparison figure of 7,027 shareholders at the end of December 2018. Austevoll Seafood ASA is the company’s main shareholder and owns 313,942,810 shares. This corresponds to a shareholding of 52.7 %. In total, the company’s 20 largest shareholders own 73.7 % of the shares in the company at 31/12/2019. LSG owns 297,760 (0.05%) treasury shares in the Group. The share price for Lerøy Seafood Group ASA has fluctuated between NOK 53.82 and NOK 70.24 in 2019. The share price at the start of 2019 was NOK 65.94 and NOK 58.30 by the end of the year.
The company plans to hold its annual general meeting on 27 May 2020. The Board of Directors intends to recommend a dividend payment of NOK 1.50 per share for 2019. 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 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

On 27 January 2019, a fire started in the smolt facility in Laksefjord, Finnmark, resulting in a fatality. An employee of a company carrying out maintenance work died in the fire. Our thoughts are with his close family and colleagues. After the incident, Lerøy Seafood Group has assisted and will continue to assist the police and other public agencies in attempting to identify how this tragic accident occurred.
The Group maintains a strong focus on procedures and compliance with these, and on measures to protect all employees. This is a perpetual process moving us forwards to our vision of zero injuries.
Total sick leave registered in the Group in 2019 was 5.2%. This is up from 4.96% in 2018. Sick leave comprises 2.98% long-term sick leave and 2.22% short-term sick leave. The Board is pleased to observe that the Group, together with the employee representatives, works actively and systematically 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 and climate

The process of developing a value chain for seafood that reaches all the way to the end customer has afforded Lerøy close interaction with end customers. This interaction has always been important, but an increased focus on various forms of sustainability has taught us that climate and environmental sustainability are of increasing importance when the consumer is deciding what products to buy. The increased focus by the consumer combined with the Group’s perpetuality perspective supports Lerøy’s decision to maintain a focus on climate and environmental sustainability. We take great pride in the fact that Lerøy and the aquaculture industry as a whole have developed food production on a global scale that is competitive, according to the UN’s sustainability criteria.
For most markets, 2019 represented a clear shift with general requirements on sustainability becoming increasingly important for what products the consumer decides to buy. This represents a continuation of a trend recognised by the Group some time ago and in relation to which the Group achieved a strong position early on. Lerøy’s vertically integrated value chain affords a unique potential to highlight climate and environmental sustainability as a competitive strength. Ensuring the consumer receives correct information on our products is essential. For Lerøy, the consumer’s focus on climate and environmental sustainability represents a significant opportunity for Lerøy, the seafood industry and Norway as a whole. Food production from Norwegian aquaculture plays an important role in finding ways to feed the worldwide population in the future. In this context, both businesses and political authorities bear a huge responsibility to exploit such opportunities. This requires an emphasis on common sense and knowledge moving forwards.
The Group’s operations are based on resources produced in freshwater and in the sea. Any considerable impact on the production/catches of fish along the Norwegian coastline and in the North Atlantic caused by climate change, irrespective of origin, could potentially affect the Group’s operations and earnings. The Group’s marine fish farms are located in areas where temperatures and currents could change. However, as long as the Gulf Stream remains the same, it is most likely that the Norwegian coast will remain highly suitable for seafood production in the next decades. In relation to the Group’s whitefish catches, a change in sea temperatures could result in changes in catch volumes for the species on which Lerøy Havfisk has based operations.
It is also probable that we will experience increased taxation of CO2 emissions. Increased CO2 taxation will have an impact on all types of food production in the years to come. The Group has installed battery and hybrid propulsion on the most recent newbuilding, but the technology required for zero fossil fuel propulsion systems for large vessels has not yet reached a sufficient stage of development, and is therefore not an alternative to date. The Group is monitoring developments in this area.
With its production of Atlantic salmon and trout, the Group is, as previously mentioned, a Norwegian, globally competitive food producer measured in terms of both costs, climate and environmental parameters – something very rare. The Group was therefore delighted to note that this is not only measured according to the UN’s sustainability criteria but was substantiated last year, once again, in an international survey of sustainability conducted by Coller FAIRR. The Group does not plan to rest on the laurels of the industry’s strong position, but aims to take active measures to reduce the “footprint” of the Group’s activities. All food production leaves a footprint, but our production is competitive in terms of the environment/ climate, and it is important that we keep this in mind in our efforts to improve. The footprint for our localities is closely monitored with continuous evaluations, known as MOM investigations. 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 management are of the opinion that operations in 2019 were climate and environmentally sustainable and were conducted with a competitive footprint. This is supported, not only by the Group’s comprehensive “Sustainability Report” – part of the consolidated financial statements, available at www.leroyseafood. com – but also in several national and international reports on fish farming and fisheries. The Group operates from a perspective of perpetuality, invests in minimising its impact on the external environment, and continuously works hard to encourage both management and employees to maintain sound attitudes towards the environment.

Result and allocations, Lerøy Seafood Group ASA

The company and the Group’s financial statements are submitted on assumption of going concern. In 2019, Lerøy Seafood Group ASA reported an annual profit after tax of NOK 1,695 million, against a comparative amount of NOK 2,289 million in 2018. The Board aims to propose the following allocation
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
The Group’s parent company has a strong financial position with a book equity ratio of 86.2 %. The parent company has access to satisfactory financing and liquidity, corresponding with the Group's strategy and operating plans.

Market and outlook

Price developments for Atlantic salmon have been very volatile once again in 2019, influenced by major variations in weekly harvest volumes. If we look past the short-term disturbances, the Group confirms that the underlying demand for red fish remains good. Price trends for whitefish in 2019 were affected by lower quotas combined with increased demand – resulting in a strong increase in prices.
The Group’s products are healthy and good, and production is financially, climate and environmentally sustainable. The Board of Directors therefore expects to see good underlying increase in demand in the years to come.
Currently, the Group’s production of red fish takes place mainly in Norway. Norwegian and global salmon and trout production are experiencing a relatively limited growth. This factor, combined with a weaker Norwegian krone, has resulted in very high prices. This represents incentives to start production of salmon in new areas using new, alternative technologies. These incentives have existed for several years now, but with long lead times in the industry, Norwegian production in marine fish farms has maintained its predominant position. However, it must be noted that the market share for Norwegian Atlantic salmon could be threatened by the introduction of salmon and trout production in new regions. We are confident that the Group’s value chain has a relatively strong position competition-wise in the years to come.
Flexibility and change are also important for global salmon production. Lerøy is developing its existing business by investing in knowledge and facilities to ensure competitive strengths. Irrespective of the above, the Group constantly seeks new knowledge and expertise within both onshore and offshore salmon production.
The Board of Directors is not satisfied with the Group’s performance within Farming in 2019, but feels increasingly confident that the initiatives taken and the investments made will provide a positive development in the form of increased volume and improved competitiveness in the years to come. Lerøy Sjøtroll’s new facility in Fitjar in Vestland, with a capacity of around 4,000 tonnes biomass production, has now been completed and will contribute to the company’s production with larger and more robust smolt from and including release in 2020. The Group is also in the final part of a three-stage development project for Lerøy Aurora’s plant in Laksefjord, Finnmark, increasing capacity at the plant to approx. 4,500 tonnes biomass production. The project is scheduled for completion in December 2020, but those parts of the plant already completed in previous development stages will already be supplying a substantial volume of large smolt earlier in the year. Work has started on development of the last stage, production of post smolt, in Belsvik. On completion, the plant will have capacity for around 5,000 tonnes biomass production. These plants already represent substantial assets for the Group, but the most recent building developments are expected to contribute to higher production and lower release from stock costs in the years to come.
With time, the new facilities will increase the average smolt size for the Group. For Lerøy Aurora and Lerøy Sjøtroll, the average size of released salmon smolt will be around 300 grams in 2020. 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 years to come. From 2020 and onwards, this increase in production will gradually result in higher harvest volumes every year over the next four to five years. Estimated harvest volume for 2020, including the share from associates, is currently 183,000-188,000 tonnes salmon and trout. The Group’s target is for the corresponding figures in 2021 to be between 200,000 and 210,000 tonnes.
The Group has made substantial investments in whitefish in recent years. One new vessel was added to the fleet in 2018 – Nordtind – and another in early 2020 – Kongsfjord. Fish quality was an important design criterion for Kongsfjord. Consumers’ expectations and quality requirements continue to increase, making high quality and competitiveness key factors for success when competing to attract consumers.
For the onshore industry, where operations are based on whitefish, 2019 has been extremely difficult. Lower quotas, along with a number of large new operations opening in an industry that already had excess capacity, have resulted in challenging framework conditions. The industry is subject to extremely strong seasonal fluctuations, and Lerøy is of the opinion that profitability for the industry will depend on innovation and opportunities for specialisation. In recent years, Lerøy has made substantial investments to start facilitating this. A new processed fish factory opened in Stamsund in 2019, and a major conversion of the filleting plant in Melbu is expected to be completed in early 2020. Considerable investments have also been made in other facilities. The Board of Directors and the Group expect these investments, together with diligent, organised improvement measures in each factory, to gradually generate results. The Board of Directors and corporate management expect to see higher earnings for the segment in 2020.
Lerøy has spent many years developing an efficient and sustainable value chain for seafood. This not only provides cost-efficient solutions, but also quality, availability, a high level of service, traceability and competitive climate-related and environmental solutions. At the start of 2020, the corporate management and Board of Directors are confident that Lerøy has a good starting point for continued profitable growth and development of Group operations.
The Board of Directors emphasises that uncertainty relating to assessment of future development is much greater than normal, as it is extremely difficult to estimate the extent and scope of the consequences of the ongoing corona pandemic. Based on the new risk incurred due to the pandemic, the Board of Directors’ expectation for the Group’s earnings in the current year differ from what was communicated in conjunction with the preliminary financial figures published on 25 February 2020. 
The Board of Directors retains its guiding for projected earnings for Q1 2020. However, due to the increase in uncertainty, the Board currently expects Group earnings for 2020 in total may be lower than those achieved in 2019.


Investigation by the competition authorities in the EU and USA

On 20 February 2019, the EU's competition authorities (“the Commission”) initiated investigations relating to the suspicion of restrictive practices involving collaboration on the salmon market. This involved an investigation of the premises owned by Scottish Sea Farms Ltd., a company in which LSG owns 50% 
of the shares. 
The US Department of Justice (DOJ) initiated investigations of the Norwegian salmon industry in November 2019. In that regard, Lerøy Seafood USA Inc., an indirectly owned subsidiary of LSG, received a writ of summons from the DOJ, with a request for information. LSG is assisting the authorities by facilitating an efficient execution of the proceedings. Case proceedings for this type of issue normally take up to several years, and it remains too early to say whether the issues may result in sanctions or other negative consequences for the companies. 
It is unclear precisely what the above-mentioned authorities believe has occurred in the way of any illegal collaboration, when this may have occurred and any negative consequences. Lerøy is of the opinion that there are no grounds for the implemented investigation. 
In the wake of the European Commission's investigations, LSG and a number of other Norwegian-owned aquaculture companies have been sued by customers in the USA and Canada. Several class actions have been issued, some of which overlap and compete with each other. The class actions are in the early stages, and it remains too early to say whether these issues may result in legally binding claims or other negative consequences for the companies.

Events after the date on the statement of financial position

A respiratory disease of unknown origin was reported by China to the WHO (World Health Organization) on 31 December 2019. On 30 January 2020, the WHO declared that this virus outbreak was a public health emergency of international concern (PHEIC). On 11 February 2020, the WHO named the virus COVID-19. The virus has spread worldwide, and the WHO classified the outbreak as a global pandemic on 11 March 2020. COVID-19 is having an impact on global value chains in that the necessary measures taken by the public authorities, illness and fear worldwide have a significant effect on how we live our lives. Lerøy is a part of the seafood industry and is also noting a substantial impact. This is in the form of changes in demand, access to workforce both in the company 
and outside, other input factors and credit risk. 
It is extremely difficult, not to say impossible, to assess all possible consequences of COVID-19 or how long it will last. However, the world population still needs to eat, and the Group is very much aware of its social mission not only as a significant food supplier and employer, but also in terms of the major ripple effect of Group operations. The Group therefore maintains a high focus on keeping the value chain operational in this difficult time. Demand for the Group's products remains good, although with some negative impact from COVID-19, which in turn has a negative effect on prices realised for important products. In the Board of Directors’ assessment, risk involving currency, credit and flow of goods is also higher, despite good management of such risk by the Group to date. The situation is challenging, but the Board of Directors has always focused on building a strong Group. Lerøy has a solid financial position, fully incorporated and tested routines for risk reduction and an organisation with plenty of practice in solving flow of goods challenges. The Board of Directors is confident that Lerøy will survive this global crisis, despite the fact that the crisis will result in lower than normal earnings for the Group.