Leroy Seafood Grp Ord

Welcome to Leroy CFO Group's second quarter presentation 2024. My name is Henning Belstad, CEO in Leroy CFO Group, and with me today I have Sjur Malm, CFO. First of all, I will take you through the highlights in a quarter, then Sjur Malm will take you to the key financial highlights, and then I will come back again and talk about the outlook for the company and also the industry. First of all, we start as always with our main goal is to create the world's most efficient and sustainable value chain for seafood. We have invested through the last 20 years, you know, going from sales and export company to be a fully integrated company on redfish and on whitefish all the way to our own brands in shops and products in Horeca and distributions segment. And we are proud of what we have done, but also we see a huge potential of improvements in the whole value chain. The quarter, we had an operational EBIT of 970. Welcome to Leroy CFO Group's second quarter presentation 2024. My name is Henning Belstad, CEO in Leroy CFO Group, and with me today I have Sjur Malm, CFO. First of all, I will take you through the highlights in a quarter, then Sjur Malm will take you to the key financial highlights, and then I will come back again and talk about the outlook for the company and also the industry. First of all, we start as always with our main goal is to create the world's most efficient and sustainable value chain for seafood. We have invested through the last 20 years, you know, going from a sales and export company to be a fully integrated company on redfish and on whitefish all the way to our own brands in shops and products in Horeca and distributions segment. And we are proud of what we have done, but also we see a huge potential of improvements in the whole value chain. The quarter, we had an operational EBIT of 906 million NOK. It's been a quarter with strong biological development from farming in Norway. And also we see a strong improvement in biology and earnings in Scottish sea farms. Really good to see after some challenging years behind us. Continued positive development for WAP sales and distribution segment. Significant year-on-year reduction in Wildcatch earnings due to lower quotas and we see that we are affected especially in this quarter. Guidance and targets is maintained and in second quarter we paid a dividend of NOC 2.5 per share. Lerøy Sifo Group reports in three segments, farming, wildcatch, WAP sales and distribution. We start with the farming highlights. As I said, a strong biological development in the first half of 2024. We have increased the harvest weights to 4.7 kg in the second quarter compared to 3.9 kg in the second quarter of 2022. Chile technology remaining promising. Quarterly harvest volume increased by 24%. And there has been a quarter where we see substantial spot price decline second half of the quarter. So this quarter is promising. Timing has never been more important. Costs increase year on year, but adjusted for inflation, costs are down. Lerøy Rora in the north of Norway. Very strong biological performance with high survival rate. Price achievement positively impacted by high share of harvest early in the quarter. Low harvest volume driving, as expected, quarter-on-quarter increase in cost. And we see a large increase in the harvest volume in third quarter 2024 at significantly lower cost. Estimated harvest volume is 47,000 tonnes for 2024. And if we look at EBIT performance, it's a strong performance, 37 NOK per kilo through the value shift. Also a strong quarter, continuous strong biological development, increased harvest volume going from 10,000 tons to close to 16,000 tons. Increased harvest weights also here from 3.9 kilos to 4.6 kilos. reduce cost, and we keep our harvest guidance of 70,000 ton. For third quarter, we see somewhat higher harvest level at about same cost level. And successfully first harvest of submerged salmon at Fygglöja in August 2024 was harvested last week with good results. Leroy Kjøtroll continued in improvement in key biological KPIs, increased harvest volume, increased harvest weights, significantly an increase in survival rate. But some issues with ISA, accelerated harvest and high harvest volume in June at low prices end of the quarter. And we will start first harvest of submerged and shielded production in third quarter 2024. Harvest guidance unchanged at 58,000 ton. And we had an operational EBIT per kilo value chain of 13.5 NOC in this quarter. Norskot Harbruk, 50% owned by Lerøy and 50% owned by Salma. Really good to see the improvements that is done in Scotland. Strong biological development in the quarter and the next generation of fish is performing well. Significant year-on-year increase in harvest volume, harvest weights and growth while reducing mortality. And if we look at the harvest weight, it's going from 3.5 kg to 5.3 kg in the second quarter of 2024. So that's really good to see. And we see a significant potential for growth beyond 2024. So good performance by Norskott Harbruk and we are really happy to see this development. Farming volumes, the guiding, we keep the guiding at 175,000 ton in Norway, 47,000 ton in Lerøy Rora, 70,000 ton in Lerøy Midt and 58,000 ton in Lerøy Kjøtroll. And our 50% share in Scottish Seafarm is 18,500, so a total of 193,500 tonnes. And we keep our target for 2035 at 200,000 tonnes in Norway. So that means an increase of 25,000 tonnes going into next year. Wildcatch highlights this quarter a significant quota reduction. Catch volumes down 25% year-on-year and reduced profitability. Positive price development. I think it's the highest quote prices I've ever seen as long as I... been involved in Lerøy Haarfisk. Reduced cost, significant decline in catch value, but challenging outlook for remainder of 2024 and 2025. Quarter advice for 2025 indicates lower quarters. and new regulations will all will allocate quota from the trawling fleet to the coastal fleet so yeah it will be ups and downs in in this segment going going forward and and but we keep improving especially on the industry side and also on the fishing side catching other species that can can Keep the volumes and the income as high as possible. Wild fish quota for second quarter, now the catch volumes, is 17,800 tonnes in second quarter 24 compared to 23,700 tonnes. And the remaining quota in total is 12,600 tonnes compared to 28,000 tonnes. So... Which will be challenging, especially for the industry, to have enough raw material at a fair price level. sales and processing operation in 14 countries. We have a good base now in developing in all the major markets, especially in Europe, but also good branch offices in Japan, China and North America, which gives us a good spread in more than 80 countries. We really believe that Being fully integrated also on the market side is the way to go in the future. Highlights of this quarter, continued positive development in the segment, higher profit compared to second quarter 23, driven by operational improvements, high utilization and processing capacity in Norway, production prices better reflecting raw material prices. And the expectations for continued positive profitability trend in second half, based on a belief on higher volume development in the key markets out there. And we see that we lift the 12-month rolling EBIT step by step and believe that we will continue this development going into 2025. So then I give the word to Kyrg.

Yes, thank you, Henning. Then I'm going to go through a financial statement, which basically is summing up what Henning has just presented. So starting with a profit loss statement, you can see the key value drivers on the latter lines. On harvest volumes, our harvest volume is up 24% compared to last year. That is driven by improved biological performance, which is positive. It's also partially driven by some ISA-related accelerated harvest in the end of the quarter in Lerøy-Kjøtroll. But good biological development overall and a high volume. Looking at the margin of that volume, we see that it's down around 4 kroner a kilo compared to last year. Those 4 kroners can be divided in price realisation and cost, and it's roughly equally divided. So price realisation is 2 kroner lower in this quarter, despite the significant weakening of the Norwegian kroner. So that is a reflection of Firstly, the fact that salmon prices fell quite substantially during the quarter, and secondly also that we harvested a bit more towards the end of the quarter in Lagerkjøtroll due to this ISA accelerated harvest. On cost, our costs are up basically on inflation, driven by feed cost, which is up below 3 kroner a kilo. So adjusting for feed cost alone as inflation factor, our cost is down. And compared to overall inflation, our cost position is down. I would say overall a healthy quarter in the redfish value chain. Looking into whitefish, as highlighted, quotas are significantly reduced. That is the basis for operation, both on the trawling fleet and also on the land-based industry. A lower quota means a lower catch volume, means a different, less cod and more lower value species. It does lower cost, but as you see, there's a substantial fall in profitability. And this year in the whitefish value chain is down 100 million compared to last year. And looking then on our operational EBIT, which is down from 9.50 to 9.06, knowing that whitefish well catch is down 100 million, we know the other constituents, value-added processing and farming, they are both up. If you look beyond this operation, as Henning highlighted, it's very positive. The development in the UK and our Scottish operation, the joint venture with Salma, substantial improvement compared to last year, and that is impacting obviously both our EPS and it's also impacting the return on capital employed, which we see is up to close to 16% this quarter compared to 14% the same quarter last year. So looking at the balance sheet, there's quite a lot of data point. I think the core highlights is obviously the fact that it's a strong balance sheet. It's 50% equity share. We are an investment-grade company and it's also a quite big balance. This is a capital-intensive industry. So we've done a lot of investments, which I will return to on the next slide, where investments more recently is towards more fish welfare, particularly on the smolt side and on shielding technology. And if you look on working capital, it's quite a working capital-intensive industry, and a balance sheet has a substantial positive working capital item in sum. And that is due to the fact that it takes the time it takes to grow a salmon. But a strong balance sheet, no big changes compared to last year. Looking at development in net interest bearing debt, we had had positive profitability, which reduces net debt. We have increased working capital, which is basically driven by cost of biomass, which again is driven by feed cost. CapEx and also changing working capital, it's also related slightly to the fact that we have a higher share of the biomass in Lerøy-Kjøtroll than what we've had recently. On CapEx, I'll return to that on the next slide, we have paid a dividend, 2,50 kroner per share. Net finance is up slightly from last year due to higher interest cost. And net debt at the end of the quarter is 6.8 billion kroner. Looking at the capex, we would say that we have a maintenance capex around 900 to 1 billion. With today's weak Norwegian kronor, perhaps 1 billion is the better estimate. On top of that, we are investing in particularly the factors Henning has highlighted and will return to, which relates to small quality, raw quality shielding technology. And this year, we are investing significantly into particularly small quality and shielding technology. If you compare this slide to the similar slide previous quarter, the investment estimated in shielding technology was then 500 million. Now it's 350. And that is related to the fact that one of the suppliers of the semi... The closed system is not able to supply four out of five units. We still believe we will be able to reach the overall target of on-shielding, which Henning will return to. Estimated capex stand around 1.6 billion. In addition to this, we have bought MTB, estimated close to 1,000 tons at around 150 million. Then there is a lot of discussions in Norway relating to what is the footprint of this industry. This obviously relates to resource tax and a lot of the political discussions. And there are some claimants saying that this industry does not make a footprint. and we have taken this slide to answer that, and the best answer is basically just showing the facts. So this slide is showing some of the footprint of Leo's operation. As you can see, it's a footprint along the complete overall of Norway, and we are buying goods from 60 different municipalities, Now, we have employees in 60, and we buy goods from 250 municipalities. We have close to 4,000 employees, and including indirect jobs, it's around 10,000 persons in jobs related to our operation. Last year, we paid 2.1 billion in taxes in total. So, yeah, we believe we have a substantial footprint, which is positive for also Norway

Thank you. Then I will take you through the outlook of what we do. Start with some of our strategic targets. And we believe that these targets still are achievable. being number one farming company, including WAP sales and distribution in 2025. 1.25 billion NOC EBIT in WAP sales and distribution in 2025. reduction of 46% in total GHG emission by 2030 and achieve 200 000 ton harvest in 2025 in Norway. For WAP sales and distribution, we see continuous strong progress and a promising outlook. We see on the left the rolling 12 months, same quarter. Last year we were at 400 million NOK. In the second quarter, 24, we are up at 827 million NOK. And then we have a 55% lift for 2025, going up to 1.25 billion NOK in EBIT. And we believe with the investments that's done, all the dedicated work in improving all activity in this segment will take us to this goal. And that's through short-term actions and long-term actions. Short-term actions, higher utilization of BOP factories through volume growth, achieving an economy of scale. Improvement of upper factories in certain European markets with expected substantial uplift in 2024. And lead-away principles implemented with clear targets, roles and responsibilities, action plan, market plans and a culture for continuous improvements in the whole segment, in each company. and each department and all the way out to all our employees in the segment and the long-term actions we have a consequence products in our own value chain sustainable logistics implementing layer away and increase flexibility and price achievement and we see step by step that we we improve also on long term goals For farming, 2025 harvest, we target 200,000 tonnes, so that's a lift of 40,000 tonnes from 2023. We guided 175,000 tonnes this year, so a step up 25,000 tonnes compared to 2020 harvest. This will be done through operational efficiency, through raw small production and technology development. Where are we? picture is showing the effects on different initiatives that's done the last years and when it will give effect on gut harvested fish and if we start with their genetics the net genetics improvements that has been done the last couple of years will step by step give effect not that much only this year but we will see a large improvements in first half next year and second half next year. When it comes to improvement in row production, we already see that we have an effect on the fish that we harvest first half, same second half, and then we will see a high increase in the effect on row. First half and second half of 2025. For the smolt, it's the same. And then we added also the results on shielding technology. So we had the first harvest of shielding technology last week. And we will now start to take out some fish with this technology. And we will see the result of this harvest. end of this quarter and last quarter of the year. And then we will see a larger effect step by step going into 2025. So this plan will take us to the 200,000 ton in production through improvements on these four areas. If you look at the first half of the year, we had a strong biological performance. And if you compare it to the last five years, We see that we improved the net growth rate by 8% in the first half of 2024, a reduction in mortality of 21% and 44% less lights treatment. So it's continued positive development in key biological drivers explained by improved row, small genetics and new technology. Quality downgrades gradually less of an issue during age one, 24 due to winter wounds and string jellyfish. and less winter ones Moritella expected next winter because of shielding technology and less treatment. Vaccination against Moritella in process also for a large share of our fish put into sea and a five year low for lice treatment year to date second quarter. And if we look at the shielding technology Compare it to the traditional farming and we look at the fish put into the sea fall 23 and spring 24. We have a reduction in lice treatment of 96%, which is really promising. The new shielding technology that we started, we put the first into sea in July last year, but this has been a development of four to five years, and so it's not a quick fix to start this, but we feel that we are on the right track. Results so far, shielding technology shows results Exceptional results, rapid learning curve in the organization, low level of lice treatment, improved fish welfare with higher survival rates and also increased quality. Investment, additional capex in 2024 of 350 million okt to reach target. Current situation, we have 30% of our salmon in numbers shielded as of start of August 2024. And so we have a good speed on this development and implemented into our operation at a high speed. Shielding technology on seven sites in Lerøy Midt and five sites in Lerøy Sjøtroll. And at the end of the year we expect to have 35% of all the salmon in new technology. First harvest of chile salmon last week and we will speed up the harvest going forward and it will be really interesting to see the results that we can achieve from this. As I started with, we are creating the world's most efficient and sustainable value chain for seafood. All what we do to improve is integrated, implemented in a good structure in the whole organization. And all people are involved to take us towards this goal. And then of course it's really exciting to harvest the first fish of the deep sea farming and we will now step by step see the results and last week we made a film from the first harvest of the fish.