Our 'BBB' issuer and 'BBB-' senior unsecured issue ratings on Lerøy Seafood Group ASA are unchanged following the publication of its first-quarter 2022 results.
Strong prices boost quarterly earnings
Lerøy reported 12% year-on-year growth in revenue and 54% growth in EBITDA in the first quarter of 2022, despite a 24% fall in harvested volumes and 2% decline in wild catch. Revenues were driven by historically high salmon prices, which rose 54% year on year. Farming costs were up by NOK 2 per kg in the quarter and the company expects a NOK 4-5 per kg increase in costs for the full year, mainly driven by higher feed raw material costs. We expect this to be partly offset by improved biological performance.
High salmon prices created challenging conditions for the Value-Added Processing, Sales and Distribution division, which had an EBIT margin of 0.5% in the quarter (2.2% previously). This was in line with our expectations as the division effectively acts as a hedge against price-driven volatility in the Farming operations. The Wildcatch division maintained a strong performance in the quarter, with an EBITDA margin of 28% (27%).
Current salmon prices not sustainable
Lerøy's harvesting guidance for full-year 2022 is unchanged, implying higher volumes in the second half. We expect global supply to increase in the second half, driving moderate supply growth of 3-4% against a projected fall of about 4% in the first. Accordingly, we expect seasonally lower prices in the second half (compared with NOK 80 per kg in the first quarter and more than NOK 100 per kg in the second).
Strong cash position has positive impact on net debt
Lerøy's net interest-bearing debt rose in the first quarter, but no more than we expected; the company still has a strong cash position of NOK 3.8bn. Free operating cash flow (FOCF) was negatively impacted by increased working capital as a result of higher raw material and product prices.
Figure 1. Lerøy key credit metrics, 2018–Q1 2022
| NOKm | 2018 | 2019 | 2020 | 2021 | LTM to 31 Mar. 2022 |
|---|---|---|---|---|---|
| Total revenue | 19,838 | 20,427 | 19,960 | 23,136 | 23,733 |
| NCR-adj. EBITDA | 4,455 | 3,997 | 3,123 | 3,791 | 4,190 |
| NCR-adj. net debt | 2,667 | 4,015 | 4,740 | 4,764 | 5,045 |
| Total assets | 28,373 | 30,189 | 30,163 | 34,194 | 35,137 |
| NCR-adj. net debt/EBITDA (x) | 0.6 | 1.0 | 1.5 | 1.3 | 1.2 |
| NCR-adj. EBITDA/net interest (x) | 27.2 | 19.9 | 14.9 | 17.6 | 21.0 |
| NCR-adjusted FFO/net debt (%) | 134.5 | 83.1 | 54.0 | 63.4 | 63.2 |
| NCR-adjusted FOCF/net debt (%) | 43.9 | 43.2 | 19.2 | 50.7 | 35.9 |
This commentary does not constitute a rating action.
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com