Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2024-Q1

[Arne Møgster, executive]

And it's a great pleasure for me to welcome you to Austevoll Seafood's First Quarter Presentation. I will first start by giving you the highlights of the quarter. Thereafter, I will go more in details through the different segments we are operating within. Britt Kathrine Drivenes, our CFO will take you more in detail through the numbers in the quarter. And we will end this session by giving our view on the different markets we are operating in.

So before starting up, I would say that we ended last year without taking out the full potential, at least in some of our areas and some of our segments in the group. Obviously, Peru during 2023 had a challenging year with El Nino influencing both first and the second season and had an extremely low season and lost money. And also, I would say that the biological situation in Scotland was extremely challenging during 2023.

Starting up in this year, we have started the season in Peru. And so far, it looks promising. And it's also very pleasant to see that the Scottish operation have turned the situation and are now delivering well, in particular, in biological performance. So all in all, we had a revenue of NOK 8.3 billion, and EBITDA, more or less on the same level as last year on NOK 1.6 billion, and EBIT, including income from associates of approximately NOK 1,221 million, more or less in line with the same quarter in 2023.

We have a strong balance sheet, total assets of over NOK 53 billion, equity ratio of 52% and a net interest-bearing debt of just below NOK 7 billion. If we include the 50% earnings from Pelagia, which is an associated company, we have an EBITDA in the quarter of NOK 1.8 billion more or less in the same level as last year, a bit lower from Leroy and a bit higher from the rest of the pelagic activity in the quarter.

Austevoll Seafood is all about volumes. And as I started, I would say we had a challenging year last year where we didn't utilize both our plants and fishing vessels in Peru. This year, we are expecting to be more or less back on a normal level and are aiming to catch in total, on our own vessel, around 450,000 tonnes of pelagic fish on our own fleet, processing just below 2 million tonnes of pelagic fish in our factory. And the fish and the process around 90,000 tonnes of whitefish and slaughtering 200,000 tonnes of salmon for the year.

Starting up with the pelagic business. Normally, we are comparing the first season in Peru with the first season same period last year. I will not do that because the same period last year, there was total quota of 1 million tonnes, but the season were barely open before it was closed again. So the volume were extremely low. So I would say it's more accurate to look at first season 2022, and as you can see, the biomass is more or less estimated to be on the same level. Quota set in 2024 was a bit lower, but I would say on a historical average, just below 2.5 million tonnes.

Season started up quite early, which is, of course, an advantage for us. So we have now caught over 55% of the quota. And if you compare it with 2022, season started up 12th of May, and the season this year started up approximately 16th of April. So far, I would say, a good progress on quota. It's been catching, I would say, around all our factories in Coishco, Chancay and Pisco. And the daily catch level for the first 3 weeks has been, I would say, on a record level compared with the late -- latest 8 years. Also, pleasant to see that Ilo is coming up. I would say, is a big variation between Ilo from our factory in South versus our factory in Coishco. But we are seeing also that throughout the season, that Ilo is coming up. And I think that Ilo will end on a higher level than 3.1 as we have seen the first 2.5 weeks of fishing.

I would say on a negative part, temperature didn't start to normalize before April. So the catches we normally have in the South part for our factory in Ilo has not been happening, and there's also been a lower fishing for direct human consumption. But all in all, a good start. We are estimating production -- or fishing volumes in 2024 to be almost 3x higher than it was in 2023 but of course, subject to [indiscernible].

Looking in Chile, I would say that we have had a good start on the macro fishing, a record quarter for us. And I will say it's in line with the increasing quota. It's a lot of fish. And we're also seeing a mixture of different sizes now, which is, of course, good for the recruitment and an evidence that you can see on the bottom right graph, that biomass and quota is increasing in sustainable matters. Expecting this year, maybe to pass the 100,000 tonnes level in catches and in production in our factories, and have now started to produce on quota we have, bought from third-party fishermen caught by our own vessels.

On the negative side, I would say two aspects worth to mention. The sardine and anchovy fishery from third-party fishermen has been lower this year, 30,000 tonnes so far last year. Now it's around 10,000 tonnes. And I would say also the oil is a bit lower this year compared with last year. Also, worth to mention that we have had a harbor strike in the main part of Coronel, which has also influenced shipping, and we can also see some delay [ delay-ments ] in shipping into third quarter. But all in all, also a good start in Chile.

North Atlantic quota start-up, I say that the quota in 2024, in total, in the North Atlantic, is on a historical level, as you can see from the graph for the latest 6 years. This year, blue whiting quota is up, North Sea herring quota is up and has also committed a catch in the Barents Sea for capelin. On the other hand, we have a decrease in mackerel quota and a decrease in NVG herring and also Icelandic capelin didn't start up this season. So I would say all in all, another year, we are expecting that we will have high fishmeal volumes, but I would say, higher competition for raw material in for our factories for food.

Started up first quarter into -- in the fishmeal and fish oil segments where higher volumes anticipated earlier fishery on blue whiting in first quarter. So most of the quota is already quarter -- first quarter. And as you can see, the expectation for the rest of the year is that total volume is a bit lower than it was in 2023.

The human consumption fishery and production has been marked by, I would say, two aspects. A reduction in the quota of NVG herring has led to higher competition with more pressed margins on that business, and also it's introduced landing obligation for the U.K. vessels delivering to the Scottish production units. So approximately 40% of the total catch needs to be delivered to -- back to Scotland, which has an impact on our Norwegian factories and of course, also a positive impact on our factory in [ Chatlan ]. All in all, I would say that we are delivering a bit weaker in this quarter from fishmeal and oil and also from the food segments, and a bit better from the health segments in Pelagia. But we are also leaving this quarter with higher reserve on stock compared with the same quarter last year. So I would say, it's more or less compensated with sales going forward.

Strong balance sheet, NOK 11 billion, net interest-bearing debt of NOK 5 billion. And as you can see, the sales has been approximately 20,000 tonnes less for human consumption and approximately 4,000 less for fishmeal and oil in the quarter.

Then looking into Leroy Seafood Group, and I suggest that you look at the webcast from [ Hanning and Shoe ] in Leroy in order to get an impression of -- or more detailed impression of how we have done it in the quarter. But I would say that first quarter has been marked by extremely low temperature, all along the coast of Norway. But despite that, I would say we have delivered a quite okay and biological performance, where the growth has been acceptable, I would say, in all region. The whitefish segments are delivering smaller volume -- or lower EBIT in the quarter and mainly based on lower quota available. Slaughter volume for salmon is approximately 2,500 tonnes lower, 6,000 tonnes in Leroy Aurora in the quarter, 13,000 tonnes in Leroy Midt, and approximately just below 7,000 tonnes in Leroy Sjotroll.

Spot prices is up approximately 5%. EBIT per kilo, around NOK 25 per kilo. It's the divided between NOK 44 per kilo in Leroy Aurora, which has a very good quarter. NOK 31 per kilo in Leroy Midt and approximately NOK 10 per kilo in Leroy Sjotroll.

Then we are guiding our volume. We are maintaining our volume in 2024, around 175,000 tonnes in Norway and approximately 18,500 tonnes in Scotland. So all together, 193,000 tonnes in -- for the total group. In 2025, we have reduced our volume at approximately 5,000 tonnes, and it's mainly explained by the reduction we have in MAB as a consequence of the Norwegian traffic light system has withdrawn some, and to be in the regions where Leroy Sjotroll is operating. When it comes to Wild Catch, I would say that the performance in this segment has been good compared with the reduction in quota in the quarter.

Volume for cod is around 1,300 tonnes lower. For haddock, it's approximately 2,300 tonnes lower. And it's been compensated by increase of prices for cod of approximately 11% higher, and approximately 12% higher on haddock. When it comes to Saithe, volume is a bit higher, but price is approximately 22% down. It's going to be a remaining quota in 2024 on a much lower level than it was in 2023, which, of course, will have an impact on the earnings going forward into the 3 next quarter.

And I give the words to you, Britt.

[Britt Drivenes, executive]

Thank you, Arne. We will start to sum up. There has been very good activity in the North Atlantic, both within the pelagic segments and the whitefish segment. In moving over to South America, Chile have had a very good start of the year with the horse mackerel season. And in Peru, we -- as normal, we have had a low season. Looking at the salmon and trout segment, the volumes slaughtered in the quarter is more or less in line with the same quarter last year.

[Foreign Language]

Thank you, Arne. To sum up short, we have had good activity in the North Atlantic, both within the pelagic segment and the whitefish segment. Moving over to South America, Chile has had a good start of the horse mackerel season. And as normal, Peru has had low activity in the quarter. Looking at salmon and trout, we have slaughtered approximately the same volume this quarter compared with the same quarter last year.

Revenue in first quarter, and this also include our 50% share of Pelagia, came in at NOK 9.8 billion, up from NOK 9.5 billion. And we have had increase in all segments except Pelagia, and I will touch base on that later on. EBITDA in the quarter, and this is the operational EBITDA, came in just below NOK 1.8 billion, and that is more or less in line with last year, then we had an EBITDA of a little bit over NOK 1.8 billion.

Arne has touched base on the key figures, so I will not repeat everything, but I will just comment some of the lines in the P&L, and we can look into income from associates, which came in at NOK 62 million, almost the same as last year. But there is some changes in the mix where the income comes from in the quarter. And the two largest companies -- or the two largest associates are Pelagia and Norskott Havbruk. Norskott Havbruk is the owner of Scottish Sea Farm.

And as we have reported earlier, Scottish had a very challenging year in 2023. It started actually in the autumn of 2022. And it's a pleasure for us to see that the improvement in operation now are showing in the earnings for the company. And the earnings in the first quarter is up by NOK 50 million compared with same quarter last year. Pelagia has had a very good season and large production of finished products. However, the sales volumes are a little bit lower in the first quarter this year compared to same quarter last year, and that means there will be some sales volumes that moves into the upcoming quarters. However, the reserves in the inventory is higher going out the first quarter compared with the same period last year. But lower sales volume means a little bit lower income or earnings in first quarter this year compared with same quarter last year.

I also want to touch base on this fair value related to biological assets that varies a lot between the quarter. It's NOK 62 million in first quarter this year, but as you can see, it was substantially higher first quarter last year, NOK 460 million. And of course, this impact our results -- our net results.

Then I move on to profit before tax and fair value adjustment, and that came in at just above NOK 1 billion, down NOK 100 million from NOK 1.1 billion same quarter last year. And to explain it simple, we have a higher net interest-bearing debt and some higher interest rate level. So the net interest is up by NOK 50 million in first quarter this year compared with same quarter last year. And you can also see that our depreciation is up by NOK 50 million. So that is the simple explanation.

Looking into the segments, we start with Leroy, and they have slaughtered lower volume this quarter compared with the same period last year, 26,400 tonnes, down from 28,600 tonnes. And of course, lower volumes impact the cost per kilo harvested. The price achievement is also impacted by several factors. Of course, the share of contracts, the size of the salmon slaughtered and also quality. And as you all probably are aware of, the market has been influenced by downgraded salmon in first quarter, and this is also the -- this is also for Leroy. However, the company has been able to take good care of this fish through its wholly integrated value chain.

The contract share in first quarter was 50% compared to 18% in same quarter last year. Looking into the Wild Catch segment in Leroy, the vessel -- the fishing vessels had a good catch, but of course -- and they have had also very good prices and very high prices for cod. But of course, the reduced quotas for 2024 gives less quotas for the remaining year. For the onshore activity, lower quotas and also higher prices of raw material are extremely challenging.

Revenue in the quarter came in at NOK 7.1 billion, and the EBIT came in at NOK 842 million. And the EBIT per kilo, ex the Wild Catch segment, was NOK 24.9, down from NOK 26.6 and the EBIT from the Wild Catch segment came in at NOK 187 million, down from NOK 229 million in same quarter last year. As mentioned, we have had low activity in Peru and the company has used this period to do maintenance on the factories and fleet, waiting for first season 2024 to start, and that started up April 16. Luckily, we had a second season in 2023 and the production from -- our finished products from this season was sold in first quarter.

The sales volume, as you can see, is more or less in line with the same quarter last year. However, the prices for fishmeal was up with 13% and the fish oil price is up with 172%. However, of course, very low volumes sold of fish oil. Revenue in the quarter was NOK 570 million, and we also got the insurance for one of the fishing vessels that we lost in November 2023 in this quarter, and that is NOK 46 million. The EBITDA came in at NOK 115 million, and the EBIT at NOK 57 million.

In FoodCorp, we have had a good start of the horse mackerel season and also a good production of frozen products. However, the coastal fleet have had a challenging start on their catch for sardine/anchoveta, and there has been several stop in the season. And that means that we have purchased a lower volume of anchoveta and sardine in first quarter compared with same quarter last year. The sales volumes of frozen fish is almost 25,000 tonnes, up from 21,000 tonnes, and the price achievement is up by 8%. Revenue in the quarter, NOK 325 million, EBITDA of NOK 122 million and an EBIT of NOK 108 million. So -- and that is in line with the same quarter last year.

There is a strike going on in the harbor of Coronel, and that means that there are some delays in our shipments of frozen products now in the second quarter. So there will be more sales going into third quarter. Br. Birkeland Farming has slaughtered 3,200 tonnes, up from 2,400 tonnes. They sell all the fish in spot market. The spot prices are up. However, the price achievement for the company has been impacted by downgraded fish due to winter [ bolts ].

The revenue in the quarter was NOK 314 million and the EBIT is NOK 106 million, and that is more in line with same quarter last year. However, we can see that EBIT per kilo is down. It's NOK 33 this quarter, down from NOK 44 in the same quarter last year. And this is a combination of a little bit lower price achievement, but mainly due to higher costs.

The four fishing vessels have been -- have all had a good activity in the quarter. The two pelagic vessels have got blue whiting and capeline. And the blue whiting fishing started early and it was a very good fishery going on in February. And both of the vessels have their quota within first quarter. Last year, the blue whiting fishing also took place in April. The two vessel fishing snow crab have got a little bit over 800 tonnes, up from 665 tonnes last year. And the snow crab fishery is still [ Olympic ]. And in the middle of March, the total quota was finalized for the snow crab fleet. And the fishery were stopped. Last year, this quota was caught by -- yes, in the beginning of April.

Revenue in the quarter, NOK 155 million, EBITDA of NOK 70 million and an EBIT of NOK 54 million. Br. Birkeland has entered an agreement to sell the two pelagic vessels, where the company is owning the two pelagic vessels. And subject to completion of the share sales, this will give a cash effect to Br. Birkeland AS of a little bit less than NOK 2 billion. And Austevoll Seafood owns close to 43% of Br. Birkeland AS.

Moving over to our financial position. We have a strong balance sheet. The total assets is NOK 53.6 billion. And as we have talked about earlier, we have inflation, and also increased activity has given us some working capital. And in first quarter, we have an increase in our biomass related to salmon and trout. And we have a higher volume, and we also have higher weight on the biomass in sea. So you can see that the biological asset that cost is NOK 6.5 billion. It's up from NOK 5.5 billion same quarter last year and NOK 6 billion by the end of 2023.

The booked equity is NOK 28 billion, and the equity ratio is 52%. That is known from same quarter last year. However, this resource rent tax was implemented in second quarter 2023 in our tax cost and the implementation effect alone was NOK 1.8 billion, and that has impacted the equity ratio, as you can see. So -- and this was not implemented in first quarter, so it's not comparable.

Net interest-bearing debt by the end of March was close to NOK 7 billion, up from NOK 6.7 billion by the end of 2023. Looking at cash from operating activities, that was close to NOK 600 million, and we have touched base on increased working capital. And you can also see that we have paid taxes, NOK 443 million in first quarter this year, up from NOK 103 million in the same quarter last year. Cash from investing activities are a little bit less than same quarter last year. And in addition to maintenance CapEx, we also invest in shielding technology within farming. We also do some improvement in the smolt facilities and also some investment within whitefish.

Not much to say about the cash from financing activity, it's NOK 214 million, more or less in line with the same quarter last year. And we have a net change in cash of NOK 337 million in the quarter and gives us a cash position by the end of March of NOK 5.8 billion. And last, the Board has recommended to the Annual Shareholder Meeting in 2024 to be held on May 29, a dividend of NOK 4.5 per share. And if this is approved by the shareholders' meeting, we plan to pay the dividend around 12th of June.

[Arne Møgster, executive]

Then I will end this session by giving our small view on the market, starting up with the fishmeal production. And so far this year, the volumes are down compared with same period last year, but I expect this to recover during the next quarterly presentation when we have the outcome of the fishmeal production in particularly from Peru.

When the quota was announced during the start of the fishing period, we have seen also a drop in fishmeal prices. Low quality is around $1,600 per tonne and high-quality fishmeal is around $1,845 per tonne. So the gap between high quality and low quality has decreased. And I would say that has been, I would say, a normal development looking at prices.

China, the major market, looking at the stock level in China, you can see that the stock is up 9% compared with same period last year. And also the offtake now is a bit higher than it was on a weekly basis now compared with same period last year. You can also see that current prices trading in China is higher than the Peruvian prices, and this just stimulates to, I would say, an increased trade as well.

Looking at fish oil, volume down by 26.3% is, as I mentioned, pleasant to see that it's -- to see the oil yields are recovering in Peru. And we also are expecting that it will continue increasing volumes from Peru this season compared with the same season last year. So I would say, all in all, lower yields in Chile, better yields in Peru. So -- and volume, I think, is going to be a higher production this year compared with same in 2023.

Prices, feed grade now, around 7,000 tonnes. And I would say it's a weighting position looking at the omega-3 grade. I think it could be a downside in these prices, as mentioned here.

Looking at the Atlantic salmon supply. Zero growth in 2024. The underlying fundamentals to -- on the supply side, I would say, looking good to have a strong market also going in for the rest of the year also, I would say, into 2025.

Spot prices in Norway, in first quarter, you can see it's up NOK 1, but I would say, is unchanged in euros. So the increase you see on this table is more or less based on the weakening of NOK versus euro. And the main market for Atlantic salmon, still EU for us is the main market, is an increase of 5%. Other markets is down by 1%, and U.S. market is down by 2%.

So all in all, I would say that it's a positive start in 2024 when it comes to biological performance. We have done some significant improvements in the whole value chain. So I would say, from Roe to smolt quality, new farming technology and also we are improving our processes as well. So I would say, all in all, hopefully, we are better preferred to meet the summer this year than we were last year where we were not happy with our performance. So guiding on 193,000 tonnes this year, which is substantially up from last year.

Whitefish, it's going to be challenging this year. It continue to be challenging next year, lower quota and also a new quota has been implemented, moving quota -- from -- to other fleets to the coastal vessels are challenging our operation. So we are expecting, I would say, the next 3 quarters to be challenging and also 2025 to be challenging.

Good to see in South America, let's start in Peru, has been okay. And the progress has been on a very good level. I would say that we are expecting probably to sell most of our production into third quarter, and hopefully, this is a picture of the recovery of our operation in Peru.

Chile as well, very good quarters in first quarter. And as I said, we are expecting that it will be probably so move -- moving from second to third quarter of sales, particularly on frozen products, mainly due to a port strike in Coronel where we're having our factories.

North Atlantic is still a good quarter from Pelagia. We are seeing a pressed margins in the food segment -- feed segments, are having good volumes. And obviously, also the health segment is delivering well into first quarter, and we are leaving the quarter now with higher reserve on our stock versus the same period last year.

So that was all. Thank you for watching.