Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2020-Q2

[Arne Møgster, CEO & President]

It's a great pleasure for me to invite you to Austevoll Seafood second quarter presentation. I would first start by giving you some inputs of the highlights of the quarter and first half year. Thereafter, I will take you through the different subsidiaries and their performance in the quarter. Britt will take you through more in details around the numbers, and then we will end the presentation by giving our view on the different markets we are operating.Starting off with the highlights talking about the quarter, I -- we have to admit that it's been an extremely special quarter in terms of the COVID-19 situation, I would say, also in terms of how it affect our [ operating ] subsidiaries but also how it affect the market for our different products. So I will, through this presentation, try to give you some insights in the different segments of our group.But before I start, I would say that we have had a very active quarter [ where demand shifts evolved ] in Peru, and we had a very good season in Chile. And also, we have had, I would say, a better raw material season to the fishmeal and fish oil activity in the North Atlantic compared with what we have experienced previously. Also, we have slaughtered more or less the same volume we did same quarter last year when it comes to salmon, however, the price achievement has been far below the level we achieved last year. And also I would say that the cost, in particular on farming, has been a bit up compared with same quarter last year.Saying that, looking at second quarter numbers, you see the revenue was NOK 5.3 billion; EBITDA, NOK 827 million; and EBIT on NOK 450 million; and pretax profit on NOK 433 million. If you include 50% share we hold in Pelagia, you can see that the total EBITDA in the group is around NOK 926 million. It's down approximately NOK 400 million compared with same quarter last year, and it's mainly related to the fact I mentioned on salmon farming. And we'll come back to that later.And looking at first half figures, revenue is more or less on the same level as it was in the first half 2019, north of NOK 11 billion, EBITDA on NOK 2 billion and EBIT on just south of NOK 1.3 billion. We have a strong balance sheet. We are, I would say, well prepared to meet cyclical times. And we are, as I said, extremely focused on keeping our value chain operating in all our subsidiaries and also having a balance sheet that also can survive periods like we are having now. In terms of the EBITDA on first half year, including 50% share from Pelagia, it's approximately NOK 2.2 billion; whereas salmon holds NOK 1.7 billion; and pelagic is NOK 463 million.Then I will take you through the operational overview. I will focus on the right side. This year, we are aiming to produce approximately 400,000 tonnes of pelagic fish on our own vessels. And we are aiming to process approximately 1.850 million tonnes of fish in our pelagic factories. We're aiming to catch more or less the same level on our whitefish quotas. However, it will be a different mix since cod quotas and haddock quotas is a bit different from the year before. And we are also aiming to slaughter 190,000 to 200,000 tonnes as it looks today, which is also up from same period, I'll say, in -- from 2019.Starting up on the pelagic business, focusing on Austral. And I would say that it has been a special season for us. The quota was set at 2.4 million tonnes, 300,000 tonnes up from same fishing season last year. In Austral, it was not surprising since we came from a quite lousy season in the second -- end of 2019. However, it has been a challenging situation. Because of the COVID-19 situation, there's been a lot of restriction in order to keep the value chain open, keep the vessels running, keep the factories running. And it was, quite early, clear that we would run into [ Olympic ] season as we have before. I mean the focus needed to be to try to catch the quotas as fast as possible.I would say biomass is healthy and gives us expectation also for the next fishing season starting off in November. And of course, we have to wait for the IMARPE filing a new cruise, but at least the conditions, both in the ocean and weather conditions, seem favorable for a normal season in 2020 end year.And going back to the first season, I would say that the quota was higher for our vessels, it was a total catch of 168,000 tonnes. By the end of the quarter, we had caught approximately 67% of the quota. And we were finishing with the quota the 22 of July. I would say we also purchased a higher volume than we did last year.But I would say the special thing this year was that we sold a much higher volume to third-party factories than we had done before. And that -- a main reason for that was, again, we started the season off late. It was restriction of the number of vessels we had. And I would say most of the fish was located in the north, so north of our factories. So the sailing distance was a bit longer than normal. And with the number of fleet we have, we started to deliver closer to the fishing source.Restrictions started to smoothen up, I would say, by -- in terms of on the fleet in the beginning of June. So started off outside the North Factory, and I would say that the fishes are moving during the season up north. Otherwise, quality-wise, yield-wise and performance-wise, it was a good season for us, but it has been a challenging season to have during the quarter for sure.I'll tell you also there has been a higher number of COVID-19 result. And I would say that despite that it was a high presence of COVID-19, it's been -- done a very good job keeping the value chain open, avoiding to have COVID-19 in our factories and in our boats. And they have performed a very good fishing season, production season. And also, they've sold a lot of products. So I would say the value chain has been working, and you will also see that when you're looking at the number Britt is presenting later on.The North Atlantic pelagic quotas is more or less the same as we presented last quarter. However, it's changed, and that is at the sand eel quota, which is an important specie for -- [ and omega ] oil activity has been increased. And currently, it's almost 100% of last year quota. And that has led into a higher volume intake for Pelagia, 261,000 tonnes versus 188,000 tonnes of fish going directly for fishmeal and fish oil. And we're also seeing on a yearly basis that the raw material intake first half has been, I would say, substantially higher than it was first half last year. Sales volume has been more or less in line with the -- how it was the last quarter. However, we have to say that the volatile currency and fulfillment of quota in Peru has impact on that process and also put pressure on margins for Pelagia going forward.There's not much to report on the direct human consumption of the frozen activity and filleting activity on -- in Pelagia. What I can say is that the main season here is late third quarter beginning of fourth quarter where Pelagia is more or less handling 50% to 60% of their raw material during that period. But I would say that in terms of product-wise, it's been so far less affected on the COVID-19 situation.In terms of price -- in terms of the figures, you can see that the, I would say, underlying operation is better this quarter compared with last quarter. Although if you take out the gain on sales we had on our factory result during second quarter last year, so EBITDA just south of NOK 200 million and EBIT on NOK 138 million.Then going to salmon, whitefish and the Lerøy's second quarter result. I would say, if you want to have a detailed look at Lerøy's presentation, I suggest you go and look at the webcast of Lerøy, but the highlights was that the EBIT for the quarter was down from NOK 774 million, down to NOK 322 million. We also see that the fishing activity, also the whitefish processing activity, is contributing negative on an EBIT level this year. And I will come back to that also later in the presentation. In terms of harvesting, I would say that 50% of the volume we harvested was from the West Coast of Norway Lerøy Sjøtroll and it had a negative EBIT per kilo on NOK 1.6. We are happy with the performance in Mid-Norway, slaughter approximately 60,000 tonnes and EBIT per kilo of NOK 14.1 per kilo. And I would say, in the north, we have not been where we should be and are aiming to do a far better second half year in Lerøy Aurora compared with the first half year, both in terms of cost and volume. And hopefully, by the end of the year, Lerøy Aurora is where it should be when it comes to their cost level.In terms of volumes, I would say we are maintaining our guidance in volume, 172,000 tonnes in Norway. It's considerably up from 2019. And we should, I would say, by the end of this year, start seeing the -- start harvesting of the investments we have done in terms of the smolt capacity and aiming to increase our volume, both in 2021, '22, '23 when the different smolt facilities, post-smolt facilities are starting operating.When it comes to the wild catch, I would say we had a fantastic first quarter. We caught a lot of cod during that quarter. And that was also the main reason why the result was as it is. What we have experienced now is that we have a higher inclusion of low-paid species such as saithe, shrimps and also some wild redfish where the margins are lower than, I would say, the main species. Saithe prices is a bit down. It has been challenging both finding the shrimp and also market-wise, but we are into a shrimp season now, which looks better than it was during second quarter. Also, it's been challenging on the processing side, mainly due to market prices on fresh products, and it has been also challenging due to COVID-19 situation. So that's, I would say, the main reason why we are also delivering a bit lower margins from the wild catch during second quarter.And now I will give the floor to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne. So as usual, to sum up the raw material intake in the quarter, and this also sums up Arne's presentation of each company in the group. As you can see, the total raw material intake of pelagic and whitefish oil material is 576,000 tonnes in the quarter, up from 508,000 tonnes in same quarter last year. And the reason for that is increasing quotas in the North Atlantic. And the harvested volumes of salmon and trout is approximately at the same levels as last year.This quarter has been significantly impacted by the restrictions related to COVID-19 and has also affected the demand and the pattern of demand for our products. The most significant factors behind the fall in earnings in second quarter compared to second quarter last year is lower margin per kilo harvested salmon and trout caused by significantly lower prices but also higher costs per harvested kilo. And the earnings from pelagic operations have increased compared to same quarter in 2019, and the increase is mainly attributed to the operation in Chile where the company have had a very good raw material access and good production activity and also higher sales volumes.The revenue in second quarter this year is NOK 5.3 billion. It's down a bit, 13%, from NOK 6.1 billion in the same quarter last year. And the EBITDA is NOK 827 million, down with 31.5% from NOK 1.2 billion. EBIT in the quarter is NOK 446 million and down from NOK 874 million same quarter last year. Pretax profit in the quarter is NOK 433 million, it's down from NOK 955 million same quarter last year. And this gives earnings per share of NOK 1.23, down from NOK 2.20 same quarter last year.Looking into first half year, we had a revenue of almost NOK 11.2 billion. It's a little bit lower than last -- the first half year last -- in 2019 where the revenue was NOK 11.6 billion. If we include our 50% share of Pelagia then revenue is NOK 13.2 billion, and that is exactly the same level as first half year in 2019. EBITDA is NOK 2 billion, down from NOK 2.4 billion, and the EBIT is NOK 1.3 billion, down from NOK 1.7 billion as in first half year of 2019. And pretax in first half year is NOK 1.1 billion down from NOK 1.9 billion. And that gives earnings per share of NOK 2.39, down from NOK 4.4.As already mentioned, the salmon has been impact -- salmon segments has been impacted by lower margins and per kilo harvested salmon and trout. And that has led to lower earnings this quarter. And it's a combination of the lower price achievement and the higher costs. You can see that spot prices are down 7%. The company has had a contract share of 30%, and the contract prices have been higher than the spot prices. However, the price has been volatile also in the second quarter. So of course, higher NOK sales had impacted total price achievement for the company, and we also had some downgrades due to winter [ storm ], especially up in the north. When it comes to the wild catch operation, they have harvested 19,700 tonnes, and that is up with 24% compared to same quarter in 2019, but we have harvested more saithes and redfish and with lower value compared to cod and haddock, so that has given lower earnings in second quarter this year compared to same quarter last year. To sum up, the revenue is NOK 4.7 billion, the EBITDA of NOK 606 million and the EBIT is NOK 322 million.As Arne has mentioned, the first season cruise started off in the mid of May. And Austral has caught 67,000 -- 67% of their first quota in -- by the end of June. In addition, they have purchased raw material from third-party. So the total raw material intake in the quarter is 152,000 tonnes, down from 188,000 tonnes in same quarter last year. By the end of June 2019, they had booked 94% of their quota for first season.Due to lower inventory going into the quarter and also in start of the season, the sales volume has been significantly lower this quarter compared to same quarter last year. Even at a lower sales volume, the prices has been [ lifted ] by fishmeal, 4%, and also higher for fish oil. Revenue in the quarter was NOK 187 million, and the EBITDA is NOK 60 million and the EBIT is NOK 3 million.As mentioned, Foodcorp has had a really good quarter, and they have had good access to raw material, a good production activity and also high sales volumes. The raw material intake has been almost 47,000 tonnes, up from 25,000 tonnes in same quarter last year. By the end of June, the company has caught over 56,000 tonnes of horse mackerel. And the main season for Foodcorp is first half of the year. So their remaining quota is around 6,000 tonnes. So there will be low activity in third and fourth quarter for the company. And as you can see from the graph here for the quarterly results, they do their year result actually in first half of the year. The revenue in second quarter has been NOK 301 million, and the EBITDA at NOK 130 million and the EBIT NOK 119 million.Looking into the salmon activity in Br. Birkeland. The harvest volume is significantly down compared to same quarter last year, a little bit above 1,200 tonnes down from 1,900 tonnes in second quarter of 2019. And the company sell all their fish in the spot market -- or the salmon in the spot market. And they have -- due to the lower prices for salmon this quarter than compared to same quarter last year and they have a negative margin, that is also impacted by higher costs. So their EBIT per kilo in the quarter is minus NOK 6.3, down from a positive NOK 16.3 in same quarter last year. Revenue in the quarter is NOK 57 million, and EBITDA is NOK 4 million and the EBIT is minus NOK 8 million.The vessels belonging to Br. Birkeland. The pelagic vessel, they have been fishing blue whiting and North Sea herring in the quarter. It's a low activity quarter-for-quarter beat. The vessel fishing snow crab increased catches compared to first quarter of 2020, but it's lower volume compared to Q2 in 2019, so still challenging conditions for the snow crab vessel. As normal, there's a fishing ban starting off from summer due to the molting season. And this year, it started 15th of July. Last year, it started 1st of July. And when this fishing ban season started this year at 15th of July, the vessel had caught in total first half year 263 tonnes, and that is down from 369 tonnes in the same period last year.The total financial positions of the group by the end of June was NOK 40.5 billion. And that is up from NOK 38.8 billion in same -- by the end of June 2019. And of course, investment in smolt facilities and in new fishing vessel has increased our balance sheet and also some currency effects from converting the U.S. dollar into Norwegian krone. We have a net interest-bearing debt by the end of June of NOK 5.1 billion, and that is at the same level as by the end of June 2019. And the balance sheet is strong, and we have a very good cash position.As you can see from the cash flow, we have been releasing some working capital in the quarter. And also we have paid a dividend in total NOK 779 million and NOK 507 million is paid to the shareholders of Austevoll, and the remaining is paid to minority shareholders in our [ brother ] companies. We have had cash flow from operation of NOK 950 million. The cash flow from investing activities is minus NOK 241 million. And the cash from financing activities is minus NOK 474 million, of course, impacted by the dividend pay-ups. So the net change in cash in the second quarter is positive NOK 223 million. And our cash position by the end of June is almost NOK 4.5 billion, up from NOK 3.3 billion in the same quarter last year.The Board of Directors has got an additional authorization from the Annual General Meeting in May 2020 to pay up to NOK 2 per share as dividend before the end of year 2020.Okay, I will give the floor to you again, Arne.

[Arne Møgster, CEO & President]

Then I will end the presentation by giving our view in the different markets we are operating in, starting off with the fishmeal market. And on the table on the right-hand side, you see an overview of the production of the largest fishmeal producers in the world and you can see that it's more or less produced the same level of fishmeal this year than it was in 2019.Looking at the price development in the graph below, you can see that after the, I would say, bad season we had by end of last year, you have seen that the prices has been on a quite high level. And the prices were good, I would say, until the market realized that Peru were able to catch their complete quota, and you see that prices has come down again, I would say, by mid- to beginning of July. You see prices now have stabilized on $1,450 per tonne for super prime; a bit lower, $200 discount on lower quality. And I would say that sales has been well committed on its limited stock available. Still China is the main market, and we are also seeing now that the industry improves, starting to commit to some volumes for the next season coming up.Looking at the stock level in China, there is, I would say, a mixed development. You see that volume-wise, China is -- the stock in China is far below what it was same period last year. But we also see that the offtakes on a weekly basis is a bit down compared with the same period last year and has to do a bit with the flooding and also reduced activity due to COVID-19. On the other hand, we are also seeing that the pig farms has increased their profitability and also increased their inclusion rate of fishmeal in the [ target ]. So I would say the downfall in volume is somehow replaced by a higher consumption from pigs in China. You see the prices they are selling for in China is far over the prices that the Peruvian players are selling their fishmeal for. So it's also stimulating to more trade.Fish oil situation, we see this year that volume is a bit more down compared to fishmeal, 5% down, and has to do with a bit lower fish oil yield in Peru compared with same season last year. However, what we have experienced this year is that the omega-3-grade fish oil is higher than it was the same period last year. So the profile is more suitable for omega-3. And the prices we have seen are giving approximately $150 to $200 premium for the omega-3 grade and there is limited stock available.Looking at the Atlantic salmon supply. I would say, on a normal year, it will be very favorable growth in terms of price expectation. You can see in 2020, we are expecting a total growth of 3.6%, 2.5% up in Norway, 5% up in Chile. And if you also look into 2021, you see that it's more or less similar growth year in total, 3.4% growth out of Norway. That's the latest estimates from Kontali. So I would say the underlying supply should support a very strong market.However, there is, of course, insecurity in terms of how COVID-19 will affect the market. And you can see it here reflected in the price development, also only during the quarter, we have seen prices going well below NOK 50 to NOK 70 in the quarter and also down again. So it's a big variation. And of course, it is more challenging now to sell at the right time than how it was before.However, looking at the consumption, we are seeing that our main market yield is still maintaining the same consumption. U.S. is up by 4% and there is a reduction in the first half year from other markets that's mainly driven by lower consumption and lower demand from China.So overall, I would say that we have been through a challenging quarter. We have been able to keep our operation up and running. We have committed a season. We have been able to slaughter the volumes we were supposed to slaughter. And we have seen the COVID-19 remains unpredictable still, in particular also when it comes to the effect it had on the market. However, I would say that long-term parameters remain sound. We have done a lot of investments when it comes to our salmon activity in the last 4 to 5 years. And we are aiming now to harvest, I would say, fruits from these investments, I would say, by the end of the year and going forward and aiming to increase our production for the next 3 to 4 years, increase our harvesting and also reduce our cost.On the whitefish side, we are seeing that the biomass situation is looking good. There is suggested from ICES an increasing quota for cod, up 20%; haddock, up 8%; and an increase in the north and a decrease in the south -- in the North Sea when it comes to saithes.First season in South America, the quota caught, which was the main target; we had a very good quarter in Chile. Aiming that the season will start off again early November in Peru and in Chile, I would say, the main season has been committed in first half year. North Atlantic also, the next big activity there is going to be when we're starting off our frozen plants, I would say, by -- during end of August and onwards.So that was what we were trying to present, and thank you for following.