Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2018-Q2

[Arne Møgster, CEO & President]

It's a pleasure for me to welcome you to the Second Quarter Financial Presentation for Austevoll Seafood. I would first take you through the financial highlights. I will then continue by going through the different segments more in detail and the quarter. Thereafter, the CFO, Britt Kathrine Drivenes, will take you through more in details the financial numbers. And I would end this session by giving our view on the different markets we are operating within.Starting off with the highlights. I would say we have had the best financial performance ever in our history since the listing in 2006 for the quarter and also for the first half year. So it's been a good period for the group.What I can say is that we have been -- had good operations. Catches has been recovering. And also, we have had tailwind when it comes to the markets in our different segments.Starting off looking at the second quarter numbers, we had a revenue of NOK 6 billion in the quarter and EBITDA of just below NOK 1.7 billion, an EBIT of just about NOK 1.3 billion and a pretax profit of NOK 1.3 billion in the quarter. Earnings per share, NOK 2.86, and the performance is well above the last year performance.Moving on to first half year. We have a revenue of NOK 11,700,000,000 in first half year, an EBITDA of NOK 3 billion and an EBIT of NOK 2.5 billion. Pretax profit of NOK 2.6 billion and earnings per share of approximately NOK 5.44.The group has a strong balance and we are focusing of having a strong balance sheet, mainly to be in position to do acquisition if the opportunities occurs, but also enabling us to go through, let's say, difficult periods in down cycles in the different segments we are operating within.Total assets of NOK 37.5 billion. Net interest-bearing debt of NOK 4.6 billion, down from NOK 5.1 billion same period last year. And the equity ratio is 57%.If you go -- also includes our pelagic production company, the 50% share we have in Pelagia, in the EBITDA. You see that the total EBITDA in the quarter for the group is 1 point -- just about NOK 1.6 billion whereas NOK 1.5 billion is coming from salmon and the whitefish operation and just below NOK 500 million is coming from the pelagic operations. Also, if you look at our first half year, you see that the total EBITDA is up from last first half year, NOK 3.2 billion in total. EBITDA from salmon is NOK 2.2 billion and we are just below NOK 1 billion first half year in the contribution on EBITDA from the pelagic business. And for us, it's been a milestone to surpass the NOK 1 billion on the pelagic segments and we are aiming to achieve that this year.Looking at the operational overview. You can see that we are doing operation both in the west side of South America and mainly in the North Atlantic. We are doing pelagic fisheries both in Peru and Chile and also pelagic fishing and processing in the North Atlantic. And our salmon activity is mainly -- and whitefish activity is mainly related to the North Atlantic Basin.If you look at the right-hand side, you see that this year, we are aiming to pass approximately 500,000 tonnes of pelagic fish on our own fishing vessels during 2018. If you include what we are running through our factories, we are aiming to have a volume around 2 million tonnes during 2018. We will produce an approximately 100,000 tonnes of whitefish if you include what we are doing on our trawlers and what we are doing onshore. And we are aiming to slaughter between 180,000 and 190,000 tonnes of salmon during the year.Taking you through the different subsidiaries, I will start off with Austral. Start -- first start out by showing our biomass and quota evolution for the latest 15 years. There is 2 fishing seasons in Peru. And I would say last fishing season, which started off 7th of April, was one of the best measurements in terms of biomass on these 15 years. And also the quota, you have to go back to the same period in 2011 before we have had a similar quota as we are having or higher quota than we're having first season in Peru.The execution of the fishery has been good. The size of the fish has also been good. Mainly, all the fishery has occurred from Lima on the North. And the conditions for catching now, I would say, is normalized and we also expect a good season also second half of the year. So in 2018, we are guiding for a quota between 5.3 million to 6 million tonnes, meaning that we are guiding on a quota between 2 million tonnes and 2.7 million tonnes. And of course, this is subject to the IMARPE cruise, which is done before every season. But hopefully, this year, it will be the first year since 2011 that we will have 2 very good seasons and that's quite pleasant.If you go in details, looking at the operation in the quarter, as I said, season started off in the 7th of April. Quota was set at 3.3 million tonnes, giving us a quota of 231,000 tonnes, which were executed before the end of the quarter. If you look at the similar volume last year, the quota was 2.8 million tonnes, but at that time, the industry were only catching approximately 85%, meaning that the total catch in first -- the second quarter of 2017 was 2.4 million tonnes. We also saw -- we also purchased 56,000 tonnes from third party fishermen. And also, the yield and the quality has also been very good during the quarter.In addition to the catches in the Central/North, the activity has also been quite good in our plant down in the South. And so far, through the end of June, we have been purchasing approximately 54,000 tonnes, which is considerably up from same quarter last year.I will also use the occasion to give credit to our employees and management in Peru, which has done, I would say, a fantastic job in meeting this high volume coming from 5 years with a tough period. And I would say the human capital in the company in Peru can never be underestimated for us.Moving to Chile. It has also done a fantastic job in second quarter having -- catching 21,000 tonnes, up from same quarter last year. And also, if you look at the first half year, the operation has been very good compared with the first half year 2017. But when it comes to fishing off their own quota, they -- also they were able to get more fish into our fishing fleet into our plants by buying it from third parties catching outside the 200 miles, which has been given a quite good utilization of our asset in Peru based on the low quota, which has been there.Again, looking at the situation in the North Atlantic and the pelagic quotas, we also see that, in total for 2018, the quota is a bit down compared with 2017. It's mainly driven by a 33% drop in the NVG herring, 20% drop in mackerel quota and also approximately just above 40% drop in the sand eel quota. It's a bit compensated by capelin quota, which was introduced now by first half year in the Barents Sea, and the blue whiting quota is also marginally up compared with last year. But overall, I would say that the raw material intake is marginally down for our factories in 2018 compared with 2017.Saying that, I would say we have committed a quite good quarter for our fishmeal and fish oil operation. And also, the first 2 quarter of the year has also been quite good with a volume more or less in line with the last year volume.Saying that, volume a bit down on sand eel, which impacted the volume for the quarter. But overall, I would say it's a good commitment for the 2 first quarter.The remaining of the year, I would say that the raw material intake for Pelagia, the fishmeal and fish oil operation is going to be trimmings from the human consumption industry.Moving to the direct human consumption, raw material intake, marginally down in the quarter, a bit above first half year. And we are also estimating by the end of the year that the raw material intake in 2018 will be a bit lower in 2017. Main important season for this industry is in the fourth quarter when the main efforts on the mackerel and the NVG herring fishery is occurring.Overall, a good performance in Pelagia. Revenue in the quarter of 1.2 million tonnes (sic) [ NOK 1.2 million ], EBITDA of NOK 172 million and EBIT of NOK 122 million. It's up from last quarter in 2017 -- or the similar quarter 2017. Looking at first half year numbers, the revenue is NOK 2.7 billion, EBITDA of NOK 377 million and EBIT of NOK 275 million.And then moving to Br. Birkeland, which are having 7 salmon licenses and 4 fishing vessels here in the North Atlantic, just summarizing by saying that in terms of salmon, there has been no harvesting volume in the quarter, so marginal impact on the numbers. And for the fishing activity, the North Sea herring season has been [ ended ] in the quarter and also the blue whiting fishery has also been occurring in the quarter. When it comes to snow crab fishery, that's still been challenging during first half year and there's also been implemented a new regulation that is stop on the fishery between the 15th of June to 15th of September due to molting seasons of the crab.Now moving to salmon/whitefish. And I suggest that if you want to have a more detailed overview of the salmon activity, you go in and look at the webcast Henning [indiscernible] is doing on the web page of Lerøy Seafood. But to summarize, it's been another good quarter in Lerøy. All in all, EBIT up from last year, approximately NOK 1 billion, whereas the whitefish segment is delivering better than last year, but it's mainly driven by the increase of harvesting volume, up from 37,000 tonnes from 26,000 tonnes similar quarter last year.And we are operating in 3 regions when it comes to salmon activity. Lerøy Aurora is doing fantastic with high EBIT margin per kilo. Now Lerøy Midt is recovering from biological challenges back in 2015 and 2016 and are delivering both on volumes and margins in this quarter. What's worth mentioning as well is that main volume slaughter from Lerøy Midt in second quarter occurs in June where the prices has been lower than the previous months in the quarter as well.EBIT per kilo, a bit down from NOK 23 per kilo, down from NOK 27 per kilo. Main reason for that is, I would say, it's price achievement that trout prices is lower. The slaughtering profile is a bit negative compared with the development in prices.And also, it's been a challenging period for the VAP and the sales and distribution units of Lerøy due to the extremely volatile prices during second quarter. We have had changes of NOK 30 in prices for salmon during the quarter. And from one week to another, it's been as high as NOK 50 difference. So it's been, I would say, extremely challenging for the industry to cope with the volatile prices during the quarter. Now that we explained that, NOK 3 billion and it's down from NOK 3.2 billion same quarter last year.Looking at the volumes. We are maintaining slaughtering and the harvesting volume in the group. A bit changes between the regions, a bit down in Lerøy Aurora, a bit up in Lerøy Midt and also a bit down in Lerøy Sjøtroll. But all in all, 166,000 tonnes of slaughtering in Norway and our 50% share in Scotland gives us, in total, 179,000 tonnes for the group to slaughter and harvest in 2018.It's also been a quite interesting period for the whitefish operation or the catches operation in Havfisk. Second quarter harvest volume, approximately 18,000 tonnes, a bit up from same quarter last year, but the distribution between the species has been a bit different. We are more or less in line on the cod, a bit down on haddock, but it's mainly compensated by a better fishery on shrimp. Shrimp, both the fishery and the market, has also been quite good during the quarter.By end of the year, we are remaining approximately 23,000 tonnes of quota and we are aiming by the end of the year to produce approximately a harvest to catch approximately 65,000 tonnes, down from 68,000 tonnes in 2017.Then, I'll give the words to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne.We start with this table and that -- the table sums up the raw material intake in the quarter. And the most important change in second quarter this year compared to second quarter last year is the substantially higher volumes in Peru, of course, because of the large quota in the first seasons in -- down there.Looking into the first quarter. We have yet again a good quarter with important improvement in the pelagic segment. Total revenue in the quarter was NOK 6 billion and the EBITDA was NOK 1.6 billion. And this is the highest quarter EBITDA ever achieved by the group. The EBIT, and that is before the biomass adjustment, was NOK 1.3 billion, up from NOK 1.1 billion in same quarter last year.If we include Pelagia, our 50% of Pelagia, in the figures, the revenue in the quarter was NOK 6.6 billion; the EBITDA, NOK 1.65 billion; and the EBIT, NOK 1.4 billion. The increase in revenue and result was generated by an increase in the sales volume, both for Atlantic salmon, but also for fishmeal and fish oil and for the frozen pelagic products.Income from associated company in the quarter is NOK 111 million and the largest associates are Norskott Havbruk and Pelagia. The group's associates are generating positive results and they represent substantial value for the group.The pretax result, and that is excluding biomass adjustment, is NOK 1.3 billion in the quarter, up from NOK 1.1 billion. And earnings per share, excluding biomass adjustment, is NOK 2.86, up from NOK 2.09 in the same period in 2017.And looking into first half year, the total revenue is a little bit less than NOK 11.8 billion. If we include 50% of Pelagia, the revenue is NOK 13.1 billion. The EBITDA in the first half of the year is NOK 3 billion. Including 50% of Pelagia, the EBITDA is NOK 3.2 billion. And EBIT in first half is NOK 2.55 billion. Including 50% of Pelagia, it's NOK 2.7 billion, up from NOK 2.5 billion in same -- in the first half year 2017.Income from associated companies are NOK 270 million in the quarter and the pretax result before the biomass adjustment is 2 point -- almost NOK 2.7 billion, up from NOK 2.5 million -- NOK 2.5 billion in first half of 2017. Earnings per share, and that is excluding the biomass adjustment, is NOK 5.44, up from NOK 5.03 in the first half of 2017.I would like to start to say that you should go into the Lerøy Seafood Group's homepage and look at their VAP cost for first -- for second quarter and first half year. And in addition, Arne has also talked a lot about the quarter already, but they have had a good quarter. They have had a revenue of NOK 5.1 billion and an EBITDA of 1 point -- almost NOK 1.2 billion. And EBIT is NOK 1 billion in the quarter, up from NOK 800 million in same quarter last year. The increase in EBIT in the quarter, that is mainly attributed to the higher harvest volume. As Arne mentioned, the spot prices in the quarter has been really volatile. And of course, that is challenging for the VAP sales and distribution segment, which -- and has impacted negatively their results.When we look into Havfisk, they have had yet another good quarter. They have caught over 18,000 tonnes of fish and they have -- an increased portion of that is shrimp in the second quarter this year compared to last year. Havfisk sold their fishing vessel, Kongsfjord, and it was delivered in second quarter this year and there is a gain from that sale of NOK 35 million, which is included in the EBIT, NOK 116 million.Looking into Austral Group in Peru, they have had a very good quarter. And of course, there was a high quota in the first season this year. The season started early, 7th of April. So Austral had a quota of almost 232,000 tonnes and they caught everything in second quarter this year. And of course, because of the early start of the season, they were also able to sell around 56% of the fishmeal production from the first season quota in second quarter. As you can see, they have also -- they have a raw material intake of 313,000 tonnes, up almost 100,000 tonnes compared to same quarter last year. And they have also had purchased a good volume in the region in the South and, of course, purchase volumes from the season in the Central/North. Their revenue in the quarter is NOK 635 million and they have an EBITDA of NOK 322 million and an EBIT of NOK 283 million, which is up from the NOK 135 million in second quarter last year. As they took the quota in second quarter, they will have a low activity now in third quarter, just to mention that.Foodcorp Chile. The main season for horse mackerel fishing is first half year of the -- in the first half year. And you can see we have had a good result also in second quarter and in first half in total. The revenue in the second quarter was NOK 212 million and the EBITDA was NOK 53 million and the EBIT, NOK 46 million, down from NOK 61 million in same quarter last year. And the explanation for the increase in revenue is higher sales volumes in the quarter and the decrease in EBIT margin has 2 factors. The -- we have had to pay a higher price for the quota we have purchased in 2018 and we have also -- there has also been an increase in the fishing tax on our own quota in 2018 compared with 2017. As the season is now ending, there will be low activity in third quarter and second quarter for Foodcorp.We have demerged Br. Birkeland. So the fishing part of the company and the salmon part of the company will be reported as separated segments going forward.Within fishing, we had revenue of NOK 73 million and an EBITDA of NOK 29 million and an EBIT of NOK 11 million, up from a negative EBIT of NOK 8 million in same quarter last year. And the pelagic vessels has been -- have been fishing blue whiting and North Sea herring. The blue whiting fishery was also taking part in second quarter this year because we had a quota of capelin in first quarter. And the increase in revenue and result comes from a higher fishing volume in second quarter this year compared to the same quarter last year.We have the 2 vessel fishing snow crab. One of the vessels started fishing shrimps in second quarter. And as Arne mentioned, snow crab fishing was stopped between the 15th of June and until the 15th of September because of the molting of the snow crab.Within farming, it's not much to say this quarter. As we announced when we presented our first quarter results, we didn't expect any harvesting in second quarter and we have started harvesting again now in third quarter.The group has a total assets of NOK 37.5 billion and that is up from NOK 35.1 billion in -- by the end of June in 2017. And I would like to mention some of the changes.As you can see, the tangible fixed asset has increased from the same period last year. And we are having a quite a large investment program, both in smolts and also within industry and also within the fleet. We received the new trawler, Nordtind, in January this year.And you can also see that the other inventory are higher than the same period last year and that is because we are now, in fact, in the middle of a season in Chile and also we had the season in Peru. So we have a higher working capital than we had in the same period last year.And in addition to this, the cash has increased by NOK 800 million compared to June 2017. Net interest-bearing debt is NOK 4.7 billion and we have an equity ratio of 57%.Cash from operating activities are NOK 312 million in the quarter. And as mentioned, the working capital are higher. We are, as mentioned, in a season in Chile and also we had quite a heavy fishery and large volumes in Peru. We have also paid NOK 625 million in tax in the period. And as you can see for the first half year, we've already paid NOK 888 million in taxes. For the Norwegian's entity, we are more or less finished with the tax payment. It's a little bit different with the entities abroad.The cash from investing activities are minus NOK 96 million in the quarter. You can see we have an investment in CapEx, NOK 511 million, and we have received NOK 312 million in dividend from the associated companies.Cash from financing activity are minus NOK 1.1 billion and the largest part of that is dividend payment, almost NOK 1.1 billion in the quarter. Austevoll Seafood paid a dividend of NOK 2.80 per share, in total, NOK 568 million. We started the quarter with NOK 5.7 billion in cash and we ended the quarter with cash of NOK 4.8 billion.Then, Arne, it's your turn.

[Arne Møgster, CEO & President]

Then I will sum up by giving the market view in the different segments we are operating within. Starting off with the fishmeal market, and if you look at the statistics from week -- up to week 31, you can see that the global production of fishmeal has an 18% increase this year compared with the similar period last year. And the main driver behind the increase is the catches, which has been -- and production, which has been in Peru, which is up 33% from last year.I would say, although the volume has been a bit higher than expected in terms of production in Peru, prices has been quite firm during the fishing seasons where we have seen prices on super/prime quality just below $1,600 per tonne and a $200 discount in low-quality fishmeal.Demand has been quite good. And I would say China, by far the most important consumer of fishmeal, has been taking approximately 80% of the production in Peru.We have also seen now that there's limited volume left in Peru and the payers have started now selling forward approximately 15,000 to 20,000 tonnes of their future production, more or less in line with the prices we are seeing now. So stable prices from what we are seeing now in the market.Looking at consumption. The demand, looking in China, you see that, at the time, the stock level is 138,000 tonnes, a bit down from same period last year. However, a bit higher than the 5 years average. Saying that, the daily consumption is very good with offtakes of just short of 5,000 tonnes a day, which is mainly driven by the aquaculture consumption. So it's been a good season.Chinese prices is also currently higher than the prices traded in Peru as well, which has also stimulated more trading.So summing up the fishmeal market, I would say it's more or less in balance if you also look at the production from the largest producer, Peru, and the consumption in China.Looking at the fish oil. You also see a similar development, an increase in production. However, this increase is higher than we have seen on fishmeal. Approximately 35 -- 34%, among the largest producer of fish oil as well and it's also driven by Peru. But in addition to our higher volume, we have also had a much better yield of fish oil yield in the production this year, meaning that volume has gone up.Prices, which we are seeing at the feed grade, $1,350 per tonne, is a premium of approximately $300 to $400 per tonne if you are delivering it for Omega-3 industry. And it's approximately 20,000 tonnes to 30,000 tonnes left from the products -- production from last season and we are expecting the sales to be executed before the new season starts up, hopefully, in beginning of November.Looking at the salmon markets. There's been a lot of speculations in Norway of how the 2018 volume will end up. Since last presentation, the volume in Norway is a bit scaled down, 7.5% growth in 2018, and the expectation for 2019 is 4.4%. If you look at the global market, we have an increase just south of 6% by the latest estimates from Kontali and just short of 5% for 2019, which is, I would say, volume, which easily should be observed out in the market for 2019 as well.We have been talking about it previously, but prices, I would say, in the quarter has been extremely volatile -- started off with very high prices. If you look at the spot prices in second quarter, the average spot price, as you see, is NOK 68 per kilo, a bit up from same quarter in 2017, but also you can see that is a huge variation from the beginning of the quarter to the end of the quarter as well. So it has made it a bit challenging for the industry in order to work with the constantly changing prices. But overall, prices has been NOK 68 in average during the quarter.The consumption of salmon in the main important market has been extremely good. 7% up in EU, 13% up in the U.S. market and also for other market, which is a combination of a new developing market, has been extremely good as well.So summing up, obviously the development in supply, the development in consumption gives us a very positive outlook also for the rest of the year during 2019.Looking at the quarter, strong salmon prices, extremely volatile cost has been developing quite well in the North and mid-Norway but still has been challenging in the region west.In terms of whitefish, it has been good catches in the quarter, higher volume of shrimp and we also have seen a positive development for cod and haddock in terms of prices, has also to do that the quota has been dropped for these 2 species during 2018. We are expecting to catch approximately 65,000 tonnes in 2018, which is down from approximately 68,000 tonnes in 2017.Looking at the pelagic business. Starting off in South America, it's been a pleasant quarter for us in Peru and I think the industry needed to have a successful fishery on a high quota. And the execution has been very good and gives us also expectation for a very good seasons in the second half year. Good recovery also of the fishery in Chile and the activity also has been more or less on a similar level in Norway in terms of volume.Third quarter is normally a seasonable low production quarter for us. No activity in Chile, very low activity in Peru and also low activity in the North Atlantic. However, we expect the catches to recover in fourth quarter with a new season in Peru and also fourth quarter as the main season for the direct human consumption production here in the North Atlantic.So that's all. Thank you for following.