Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2018-Q1

[Arne Møgster, CEO & President]

Okay. Then it's a great pleasure for me to welcome you to Austevoll first quarter presentation. I will start by giving you a short introduction to the highlights of the quarter. Then I will continue by going through segment by segment in our group. Britt Kathrine Drivenes, our CFO, will take you more in detail through the performance during the quarter, and then I will end by giving you our view on how we are seeing the different markets and the different segments we are operating within. Starting off with the highlights. We have had a quite good quarter, one of the company's best quarters ever. It's been a bit lower contribution from the salmon segment due to lower price achievement, lower spot prices and also a lower -- lower slaughtering volumes. And a bit better performance from the pelagic business, mainly due to a gain of a sale linked to one of our fishing vessels, some NOK 157 million. However, if you disregard that, we are also delivering better results from the pelagic segments. Looking at the revenue from first quarter, we have a revenue of NOK 5.7 billion, which is down from NOK 6 billion same quarter last year. EBITDA of NOK 1,450,000,000 (sic) [ NOK 1,450,000,000 ], which is also approximately NOK 120 million (sic) [ NOK 110 million ] down from last year. And on an EBIT side, we are delivering an EBIT of NOK 1.2 million (sic) [ NOK 1.2 billion ]. Pretax profit, NOK 1.3 million -- NOK 1.3 billion and a total assets of NOK 37.5 billion, net interest-bearing debt of NOK 3.7 billion and equity ratio of 56%. We have a very strong balance sheet, and that's important in the base of business we are operating within, I would say in all segments. If you also take into account the 50% share we hold in Pelagia, you would see that the contribution from salmon and whitefish is down NOK 300 million from last quarter. And if you disregard the gains of sale we have on our fishing vessels, we are delivering approximately NOK 60 million [ better ] on the pelagic side, which is quite good considering also that Peru has a troublesome second fishing season in 2017. This is our slide we are showing every time we are here. Gives a view on where we are operating and what kind of assets we are having. If you look at the right hand side, you're seeing see that we are catching, on an annual basis between 400 and 500 -- 500,000 tonnes of pelagic fish. This year we are aiming to be closer to 500,000 tonnes, not 400,000 tonnes. We're also aiming to produce in our factories approximately just [ short ] of 2 million tonnes of pelagic fish process and catch in total approximately 100,000 to 120,000 tonnes of fish. And then we are [ guiding ] on slaughtering volume 186,000 tonnes of salmon during 2018. Going through the different pelagic segments, I would start off with Austral and our Peru operation. This is a good slide, showing the development both in the biomass and also the quota we have had for the last 15 years. And as you can see in terms of the biomass in front of this season, it's rated quite highly compared with the historical average. And also you can see that the quota, you have to go back to 2001 in order to get the similar quotas we are seeing today. So it's quite, both biomass and quota has been good for this season. And of course, this is needed after some troublesome years in Peru. Summarizing the quarter, I will not spend a long time doing that, but what you can say is that the -- there were no catches from the second season during 2017. So it started off in January and also ended in January. And we caught more or less a similar volume first quarter this year as we did last quarter. But the main difference is -- has been that we came in last year with more meal and oil on stock compared with this year which we didn't have any meal and oil. So the sales have been considerably lower than it was last year. Then we have had a quite good season in the South. In first quarter, we were processing approximately 31,000 tonnes and the fish has been quite close to our factory here down in Ilo. So volume-wise, we have been producing a bit more than last year. However, we came in with much less volume into the season. Then focusing on the first season quota in 2018, as I said, quota was -- biomass was estimated around -- just around, below 11 million tonnes, which is 19% above average of the last 10 summer cruises. Quota was put at 3.3 million tonnes, which is up from 2.8 million tonnes last year, considering that we only caught 2.4 million tonnes last year. You see that it's approximately just below 1 million tonnes more if you're catching the quota for first season this year compared with same season last year. Then we are also estimating that the annual quota for or the total catches for 2018 will be close to 5 million tonnes. And of course, this is subject to the IMARPE cruise which will take place in front of the next season. But it will bring us up with fishery, which is approximately double of 2017 volume on our own quota. Then going to Chile, we have a start off the catching season good in Chile. We caught approximately 21,000 tonnes in first quarter, up from 8,000 tonnes of horse mackerel in first quarter, which is quite good achievement, I would say. The fishing has been good, production has also been good. We have been able to turn most of the fish in for human consumption and sales has also been quite good into Africa. In terms of the sardine and anchovy season, a bit lower than last year and the giant squid market has been more or less in line with the same quarter we had last year. Then there has also been an auction of 15% of the industrial quota in Chile. And we are aiming to keep our percentage and maybe to increase a bit the percentage post the auction, meaning that we will have a higher quota for Foodcorp going forward comparing to what we had previously. We have also been able to purchase 15,000 tonnes of quota from [ factory tours ] outside 200 miles, meaning that they can catch that with their own vessel, giving us a better utilization of both our fleet and our plants. I would say, in Foodcorp has had a good start of the season, and we also expect good fisheries going forward now in second quarter. Then in North Atlantic, pelagic quotas being the foundation of what we're doing in the North Atlantic, both on the factory side and also on the fishing vessel side, the guidance on volume is more or less equal to the situation we had in last quarter presentation. The only difference is that we're guided down a bit on the sand eel quota, compared with last year, because the quota in Denmark and EU is approximately down with 200,000 tonnes. And still we don't know if the quota in Norway will remain at 70,000 tonnes or it will be increasing, that will be set down on the 15th of May. In terms of raw material -- raw material volume in first quarter in 2018, a bit higher than the same quarter last year. It's blue whiting, and it's also based on more trimmings from the Barents Sea Capelin. Market is, as normal, quite low in first quarter. Core temperature means that the feed production is low, and also affect sales for our fishmeal activity during first quarter. And we also have to say that the low quota second season has also helped on the -- second season in Peru has also helped on the price achievement we have received in first quarter, but we also expect that these prices has to come down as a consequence of the high quota put in Peru for the first season in 2018. Also for direct human consumption, raw material intake has been better than it was last year, mainly driven by the herring and also about -- from the Barents Sea Capelin. And it's also given good contribution to both our plants in the North and also been able to produce quite good quality products based on the Capelin. So overall, I would say it is positive both for the fishing vessels and also for the industry that this fishery has been started up again. And as you can see, also this reflects the numbers, we have a revenue just short of NOK 1.5 billion, EBITDA of NOK 200 million, which is up from NOK 163 million last year and EBIT of NOK 153 million. Then on Br. Birkeland Group, has harvested higher volume this year than compared with last year, which is also reflecting the result of the contribution from this company. 2,800 tonnes in first quarter versus 1.1 million (sic) [ 1,117 ] tonnes in first quarter 2017. The EBIT per kilo is a bit down and has to do with the spot prices have come down with approximately NOK 6 per kilo, this quarter compared with next quarter. Fishing has been okay in the first quarter. Started a bit slow in pelagic, but has recovered. We have been catching herring, capelin and blue whiting in the quarter. We have sold one pelagic vessels, and there is still challenging, I would say, situation for the snow crab vessels, which is operating under quite the challenging conditions in the Barents Sea. Then going to salmon Lerøy Seafood Group, and I would say if you want to have more detailed information of this company, I suggest that you take a look at the webcast of Lerøy Seafood Group for Henning and Sjur's presenting their numbers in more detail. However, summarized, Lerøy is delivering, I would say, another good quarter. There's NOK 300 million down from last year, however, this is mainly based on a lower slaughtering this quarter compared with last quarter and also spot prices is down with approximately NOK 6 per kilo. But an EBIT on NOK 960 million. Havfisk and Lerøy Norway Seafoods is delivering an EBIT of NOK 178 million, which is up with NOK 20 million compared with same quarter last year. And EBIT per kilo, if you disregard Havfisk and Lerøy Norway Seafoods is just short of NOK 21 per kilo, which is down from NOK 25.8 per kilo same quarter last year. Net interest bearing debt, NOK 2.3 million -- NOK 2.3 billion by the end of first quarter 2018, more or less on the same level as it was last year.Looking at the volume guidance compared with the last guidance we gave on the fourth quarter presentation, minor changes, we're down 1,000 tonnes in Lerøy Aurora, up 1,000 tonnes in Lerøy Midt and Lerøy Sjøtroll is guiding down approximately 3,000 tonnes, mainly based on lower -- or colder seawater temperatures. But all in all, including the 50% share we have in Norskott Havbruk, the company is guiding 179,000 tonnes of salmon slaughtering during 2018.Down to the wild catch, we've also had a good catch during the quarter, 22,000 tonnes, which is up 8% compared with same quarter last year. And prices has also been quite good during the quarter. Cod prices up with 12%, haddock price is up at 20% while saithe is down by 1%. Also been catching shrimp in the period, which is also contributing to the 22,000 tonnes. And also profitability on Lerøy Norway Seafoods has been challenging or challenged during the first quarter due to higher raw material prices. Now I give the words to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne. This table sums up the activity in -- within the companies in the quarter. As you can see, we have a little higher raw material intake this quarter compared to same quarter last year. And we have also changed the guiding for the full year 2018 a little bit, and that is because the quota set for first season in Peru was a little bit higher than we expected in our last guiding. We've had another good quarter, that's been good activities within all the companies in the group, and we have also seen a positive price development for our products within whitefish and salmon in the quarter. The revenue in first quarter was a little bit over NOK 5.7 billion. And if we include our share of Pelagia, 50%, the revenue in the quarter was almost NOK 6.5 billion. The EBITDA in the quarter is NOK 1.4 billion, and including 50% of the Pelagia, a little bit over NOK 1.5 billion. The decline in revenue and EBITDA is mainly attributed to the lower harvested volume of salmon in the quarter and also some lower price achievement for salmon in first quarter this year compared to same quarter last year. The EBIT in the quarter is NOK 1.2 billion, including 50% of Pelagia, the EBIT is NOK 1.3 billion. Income from associated companies is NOK 159 million in the quarter and we have a good operation and the largest associated companies on Norskott and Pelagia. Pretax profit in the quarter is NOK 1.3 billion, down from NOK 1.4 billion in same quarter last year. And this is excluding the fair value adjustment of the biomass. The net profit for the quarter is 1.9 -- a little bit less than NOK 1.9 billion and that gives an earnings per share of NOK 4.57. If we exclude the biomass adjustment, the earnings per share is NOK 2.58.I would recommend you to go into the homepage of Lerøy Seafood Group and look at their webcast for first quarter, that will give you a little bit more detail. They have had another good quarter. They have had a revenue of NOK 5 billion and EBITDA of NOK 1.1 billion and then EBIT of NOK 960 million. The decline in revenue and EBIT is, as mentioned earlier, mainly attributed to the lower harvest volume of salmon and also the lower prices realized for salmon and trout for the quarter. They have slaughtered 30% lower volume this quarter compared to same quarter last year. And when it comes to trout, the price achievement there is NOK 6 lower than for salmon in the quarter. Release from stock cost is down compared to fourth quarter 2017, but there are large variation within the 3 regions, and the release from stock cost in Hordaland is still substantially higher than the 2 other regions. Biomass at sea, by the end of the quarter is 11% higher than same quarter last year, and that must be seen because we have slaughtered some lower volumes first quarter this year compared to same period last year. And we also expect to slaughter a higher volume in second quarter this year compared to second quarter last year. A strong finish there, second season quota in January and own catch was 40,000 tonnes. In addition, there has been quite a good activity in the south of Peru. Our factory in Ilo had a raw material intake of 30,000 tonnes compared to only 6,000 tonnes same period last year. So you can see that our raw material intake is a little bit higher this quarter compared to first quarter 2017. However, we didn't have any production in fourth quarter last year, so we went into 2017 with 0 inventory of fishmeal and fish oil. So the sales volume this quarter is substantially down from the sales volume in first quarter 2017. And as you can see, we have also almost sold our total production for first quarter in first quarter this year. The revenue has been NOK 263 million, the EBITDA NOK 63 million and the EBIT in first quarter NOK 24 million. Foodcorp has had a good activity in the quarter. And you can see that their total raw material intake is a little bit higher than first quarter 2017, but there is a different mix in raw material intake compared to the same quarter last year. This year we have caught by our own vessels 17,500 tonnes of horse mackerel compared to 8,000 tonnes in the same quarter last year. There is a good demand for our frozen products, and we have sold 15,000 tonnes of frozen products in first quarter this year compared to 4,000 tonnes in same quarter last year. The company is cash positive. That means that they have a positive net interest-bearing debt of NOK 3 million compared to a net interest-bearing debt of NOK 20 million in this -- by the end of first quarter last year. The revenue in the quarter has been NOK 166 million and the EBITDA NOK 55 million and EBIT of NOK 48 million. After the auction of horse mackerel in December 2017, the fishing tax has increased. And for 2018, for Foodcorp, that will give an increased fishing tax of about $800,000 to $900,000. Br. Birkeland, within the salmon segment, they have harvested 2,800 tonnes and that is a substantial higher volume compared to same quarter last year, where they harvested 1,100 tonne. EBIT per kilo is close to NOK 19, down from 24.4 NOK in same quarter 2017. Br. Birkeland sells all of their salmon in the spot market, and the spot prices have been down 9% in first quarter this year compared to same period last year. The pelagic vessels have had a good season, one of the main seasons, they have been fishing herring, blue whiting and capelin. And I also want to mention that in first quarter, Br. Birkeland sold one of their older pelagic vessels, including licenses and gain from this transaction was NOK 157 million, which are included in figure for the quarter. The snow crab vessels, for the part of -- for most of the quarter only one vessel has been operating. And it has been a challenging winter also for -- also this winter. The company is cash positive, have a positive net interest-bearing debt of NOK 116 million versus net interest-bearing debt of NOK 296 million by the end of first quarter last year. The revenue in the quarter has been NOK 364 million, EBITDA of NOK 212 million and EBIT of NOK 189 million. But included in this figure, as mentioned, gain from the sale of vessel and licenses of NOK 157 million. The group has a total assets of NOK 37.5 billion and a net interest-bearing debt of NOK 3.8 billion. That is down from NOK 4.1 billion by the end of 2017. The increase in the total assets can be explained by the following: Total tangible fixed assets has increased, and we have taken over the new build, whitefish trawler “Nordtind” in January. In addition, you can see that the fair value adjustments are up with a NOK 1 billion. And also the cash position has increased by NOK 700 million from NOK 5.1 billion to almost NOK 5.8 billion. The equity ratio is 56%. The board has proposed a dividend per share of NOK 2.80. And if this is approved by the shareholders meeting on May 24, the dividend will be paid out by June 1. The cash from operating activity has been a little bit over NOK 1 billion in the quarter, a good cash performance. Cash from investing activities is minus NOK 500 million but as you can see, net investment in CapEx is almost NOK 900 million. And in addition to the ongoing projects within small facilities and industry, we also took over the new trawler “Nordtind” in January 2018.Also there is a positive contribution here, and that is from the sale of the pelagic vessel and licenses. We've had a net change in cash in the quarter of almost NOK 700 million, so we ended the quarter with a cash position of almost NOK 5.8 billion.

[Arne Møgster, CEO & President]

Then I will end by giving an overview in the different markets we are operating within, starting off with fishmeal market. And if you look at the table on the left-hand side, you can see that along -- among the largest producer, the fishmeal production has increased of 34% year-to-date versus the same period in 2017. It's mainly due to a deep increase or earlier start in Peru, so it's a bit misguiding since the season in Peru started up on the 7th of April this year. And last year, it started up the 21st of April, so it's a bit misguiding. However, the expectation fishery has been quite good. And we have seen prices also as the consequences of the high quota has been coming down from -- before the quota was announced with $200 per tonne down to $1,540 for Super Prime, which is the current price we're seeing now. Main market is China, and it's approximately just short of 500,000 tonnes, already committed from Peru of this year production. So very close to 60% of the expected fishery is -- or the production is already sold. And main market China, coming into the new season with a lower stock level than they had last year, off takes bit down from same period last year, 1,700 tonnes a day. What we're also seeing that the domestic production remains limited, Chinese government continues with the strict environmental controls, which also affect the producers. We also see that the prices on fishmeal sold in China is a bit higher than prices sold from Peru, meaning also that it is stimulates for higher trade among the Chinese -- Chinese players. Same situation with fish oil among the largest producers, this is up at 42%. Yield has been very good, both in Chile and Peru, of what's been produced. Then we came in with the prices for Peru, in front of the season of $2,000 per tonne and for feed grade we are expecting these prices will come down. Omega-3 prices to -- give a premium of up to $500 more, it's not ideal profile of omega-3 being produced in Peru, nor in terms of supplying the omega-3 market. And we are expecting also that prices on omega-3 grade will be quite good also going forward. Estimating of this year production in Peru or this season production in Peru, a volume of approximately 132,000 tonnes to be sold during the next quarters.Looking at the salmon volumes, we're also seeing that we are reducing the global supply from last quarter. Now the global supply is down to 3.7% and also the volume from Norway is also coming a bit down to just short of 6%. I would say, in the South, the supply for first half year is more or less in line with a bit above same period last year. And we're also expecting that more volume will come into the market and to again to July, August period. Spot prices has been very good during 2018. Started a bit down in the first 1.5 month and recovered during second period of quarter and also continue into second quarter as well. First quarter average spot prices of NOK 60 per kilo, down from NOK 66 per kilo. And we're also seeing now that so far, this quarter, we are above the last year prices we are seeing. We're also seeing that the market has also been strong, also on this good prices, and in particular the market we're operating in both the EU and U.S. is up. And other markets mainly buying on spot prices has also a strong consumption during the first quarter. So what we can say to conclude is to, we still have a strong or positive outlook for salmon going forward. Have experienced lower prices during first quarter this year, positive cost improvement versus last quarter. And we are giving harvest guiding of approximately 179,000 tonnes in Lerøy, including a 50% share in Scottish. Whitefish good catches in the quarter. We expected catch volume this year on 65,000 tonnes. It's down from 67,000 tonnes last year. However, we are expecting a lower reduction on cod volume and also on haddock volume based on drop in the quota during 2018. It's a quite good outlook for the South American activity. Hopefully, we will be passing the 5 million tonnes catches during the 2018 in terms of Peru and we're also seeing that we have a recovery of the horse mackerel biomass in Chile. In pelagic, we are expecting a lower activity in the 2 next quarter for the pelagic business recovering in the fourth quarter. So all in all, we are also expecting a good quarter coming into the next quarter and also looking forward for the rest of the year. Thank you.