Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2022-Q2

[Arne Møgster, executive]

Well, it's a great pleasure for me to welcome you to Austevoll second quarter financial presentation. My name is Arne Mogster, and I'm the CEO of the company.

I would first start by taking you through the highlights in the quarter. Thereafter, we will give you some insight in how we have done it in the different segments we are operating within. Britt Kathrine Drivenes, as the CFO, will take you more in detail through the numbers, and we will end this session by giving the final highlights of the markets in the segments we are operating with.

And summing up, second quarter is, as always, a quite active quarter, I would say, throughout the whole value chain of our group. We have had very good seasons in both Chile and in Peru on the pelagic side, also a good raw material intake on the North Atlantic activity in particular to the fishmeal and fish oil segments and also had a good performance in the salmon company with fantastic prices, which we have never seen before during the second quarter.

Saying that, it's also worthwhile to mention that in our case, just below 50% of our prices has been fixed in long-term contracts, which were initiated in the end of last year, meaning that we don't have had the full effect of the spot prices that we have seen in the quarter, which is taking our result a bit down. Saying that, it's the best quarterly result we have delivered ever in the group and the same situation as for the first half year.

Looking at our figures, we had a revenue of just below NOK 8 billion, and EBITDA of just north of NOK 1.7 billion and an EBIT of approximately NOK 1.350 billion, which is compared with same quarter last year, approximately NOK 500 million better performance.

We've also had a good contribution for our -- from our associated company, Pelagia Norskott Havbruk, which is contributing to our pretax profit in addition to EBIT, and you can see that we are delivering more or less the same pretax profit as EBIT in the quarter.

If we take into account the 50% share we have of Pelagia, you can see that our EBITDA for the quarter is just sort of NOK 1.9 billion, whereof approximately NOK 1.250 billion is coming from the Lerøy segment and the rest is coming from the Pelagic segment. And if you look at the Pelagic segments, we are giving EBITDA of NOK 650 million in the quarter, which is up approximately NOK 250 million from the same period last year, which was also a good quarter for us. And it's mainly driven by a better performance from Pelagia. And also, we had a fantastic margins on our salmon activity to the company, Br. Birkeland Farming, which Britt will take you through later on.

Looking at half year numbers. Again, it's the best half year numbers we have delivered ever and a revenue of NOK 14.5 billion, EBITDA of NOK 3.2 billion, and our EBIT and pretax profit on more or less NOK 2.350 billion, which again is a -- we will define as a good performance. You can see also that our total assets has been growing during the first half year and total asset is now NOK 47.7 billion. Net interest-bearing debt is up with approximately NOK 1 billion to NOK 5.9 billion, and the equity ratio is 56%.

Same exercise with 50% share of Pelagia's EBITDA give the group a total EBITDA of NOK 3.5 billion, whereas NOK 2.4 billion is coming from Lerøy and NOK 1 billion is coming from the additional pelagic activity.

Then most of all, summing up is all about volume. We are aiming to catch this year just north of 400,000 tonnes of -- on pelagic fish on our own pelagic fishing vessels during 2022. We're going to produce in a factory similar volume that the total European salmon production this year is going to be approximately 1.8 -- just north of 1.8 million tonnes of pelagic fish. This year, we will catch just south of 70,000 tonnes of whitefish in our fishing vessels and produce additional 30,000 tonnes on our processing plants. So altogether, approximately 100,000 tonnes. And we are aiming to slaughter this year, all in all, 211,000 tonnes.

Then going to the different segment, I'll start off with the pelagic business and Austevoll Group. And we have had, as I mentioned in the beginning, a good season where the quota was at the 4th of May, 14 days after same period or the quota was set in 2021, and the quota was approximately 2.8 million tonnes versus 2.5 million tonnes same period last year.

As you can see on the graph, biomass were more or less equal to last year, but the quota was -- sat on a bit higher level. And if you look at the performance, the approximately 84% of the total quota was caught in the first season. And I would say that, that consists of approximately 2.4 million tonnes, which is marginally below the figures that was caught same period last year.

We never like not catching our quota. We are not happy with that. But saying that, I would say it was an extremely demanding fishery where it was a lot of juveniles under 12 centimeters, meaning that it was a lot of fishing zones which were closed. And I would say, all in all, the performance from Austevoll was very good. And I would say we were optimizing the situation, and we are happy with both the percentage of the quota we took and also with our production. So I would say, I will give credit to our team in Peru for handling the quota during first season.

We caught 165,000 tonnes, purchased a higher volume than last year and sold to third-party industry, a lower volume than last year and also had a better quality on our fishmeal than we did last year. And I would say, what we saw this season versus last season also was that the oil yield was lower this season and has definitely also impacted the prices, which I'll show later on, which were good. I will say, we are very happy with the performance. And it's important also to mention that the location of our plant this season has also been favorable for us versus previous years.

And other aspects in Peru to take into account during this quarter and the first half year is that the good fishing we had down in the South last year has continued also into this year, and we had a record high volume last year and have even beat that volume so far this year. And the fish oil yield has been also a bit better. So I would say, all in all, we are very happy with the performance in Peru.

Then the season started up a bit later. And I will say that most of our stock will be sold during third quarter, and we are also expecting a very strong quarter from Austevoll in third quarter. The new season, we hope will start up in the beginning of November. They're going to go out on the research up along the coast of Peru in September and will probably finish by the end of October. And at least on the weather forecast in terms of temperature, it looks like we're going to have a normal season. But of course, that will depend on what they are seeing during the research outside the Peruvian coast.

Chile, again, I would say Chile has been performing quite well the last 2 to 3 years based on the raw material they have available, our own quota and has been able also to secure purchasing of third-party quota, which we are catching with our own vessels and have continued, I would say, this year in the same pace as they did last year. It's been a challenging season also in Chile, where we have had logistical issues in terms of lack of containers. And also, there has been some delays in cachet due to offloading problems on the short side shipping out our inventory. But all in all, I would say, has been -- done a very good job. And we are finished with our associated growth on the quota we have bought from a third party, which more or less have set the result for Foodcorp during 2022.

The North Atlantic pelagic quota, which gives the basis for Pelagia and their activity in the North Atlantic, is a bit up, I would say. It's mainly driven by the North Sea herring. We have this year been able to source fish from the Barents Sea in terms of capelin, and the Icelandic capelin quota has been much higher than it was the previous years.

I will say, in this quarter, on the fishmeal and fish oil segments, I would say that volume intake is more or less in line with how it was last year. It's been mainly based on blue whiting, sand eel and North Sea herring trimmings. And if you compare, our result this year with our result same period last year, we have also got the result of -- or got the hold of those numbers consolidated in the first half year, which we didn't have last year, which was done from June off. But more on less, I would say, this segment has been contributed quite well into our value chains and is also driven by increasing prices during the quarter.

When it comes to the pelagic human consumption production, I would say that it's been a low quarter, it's a seasonal low quarter. And the main season now for this segment starts up in August when mackerel fishing starts and the herring fishing starts. And it's approximately 600,000 tonnes all in all from Norwegian vessel, which is supposed to be landed during August and until the end of the year, and this consists the main season for this activity.

So we are also hoping for a good contribution from this segment going forward from August off.

Again, looking at the numbers, doing far better this quarter than last year, and it's driven by a better contribution from the fishmeal segments, but also that we have now consolidated the hold of all numbers and synergies from the meal activity from Austevoll and also from the existing Pelagia plant.

Revenue of NOK 2.2 billion and EBITDA of NOK 262 million and EBIT of NOK 176 million.

Then going to the salmon and whitefish segments. We are delivering this quarter a far better result in Lerøy versus last year and is contributed from both the whitefish segment, but mainly driven by the higher salmon prices and EBIT this quarter of NOK 923 million versus NOK 583 million last year.

Saying that, and as I started with the salmon prices in second quarter has been, I would say far better and has been much stronger than anybody could imagine, and it's been over NOK 100 per kilo in average. And -- but for Lerøy's case, approximately 45% were linked to fixed contract on a lower level. So we have not seen the full effect in the price achievement for Lerøy in this quarter as you've seen in the spot market.

Harvest volume is a bit down from same season last year at 33,000 tonnes versus 36,000 tonnes, and it's divided with approximately 4,000 tonnes up north, 14,000 tonnes in Midt and 14,000 tonnes in Lerøy Sjøtroll.

We have a negative contribution from the VAP sales and Distribution segment in this quarter, and it's easily explained by the increase of salmon prices, which we have not been able to transfer out directly to the end consumers.

And if you look at EBIT per kilo, including the loss from the sale and distribution segment, the EBIT per kilo is NOK 25 per kilo, as divided by approximately NOK 20 -- EBIT per kilo NOK 20 in the North, NOK 34 in Lerøy Midt and NOK 27 in Lerøy Sjøtroll.

We are also taking our volume a bit down, approximately 5,000 tonnes, and it's mainly due to a slower growth, in particular, in Midt and in the West Coast in July, August period. Norskott Havbruk volume is up from last year. And all in all, we are expecting to slaughter approximately 203,000 tonnes in the quarter.

Then looking at the wild catch segment of Lerøy. And it's fair to say also here that it's been the best first half year of Havfisk and Lerøy in over seafood ever, and it's mainly driven by, as you can see on the graph, extremely good prices. Cod prices is up approximately 67% from the same quarter last year, and haddock prices is up with 30%, and saithe prices is up with approximately 57%.

Volume quarter-on-quarter is 18,600 tonnes, and first half year number is 43,000 tonnes. And we are expecting to catch, all in all, approximately 69,000 tonnes in 2022, which is approximately 3,000 tonnes down from last year, and it's mainly related to reduced quota in 2022.

Then I give the floor to Britt.

[Britt Drivenes, executive]

Thank you, Arne. We start with this table, and this actually sums up on what Arne has been going through for each segment in the second quarter and then short to sum up the raw material intake for pelagic raw material, which is almost in line with last year. When it comes to catch volume for whitefish, it's a little bit higher than last year. And looking at the harvest volume of salmon and trout, that is below or lower than last year.

Arne has been through the main figures, and so I will not repeat. But what we can say is we have, of course, had a very strong price development for all seafood in second quarter and especially for salmon and trout. And that has, of course, given us a very good earnings from farming and from the catch operation, but it has been extremely difficult for the downstream industry within salmon and whitefish.

The EBIT in second quarter is NOK 1.3 billion, and that is up almost 56% from NOK 867 million in same quarter last year. The 2 largest associated companies on Norskott Havbruk and Pelagia, and both of them have had better earnings in second quarter this year compared to last year. So income from associated companies are NOK 110 million in second quarter this year compared to NOK 54 million last year. Pretax in second quarter is NOK 1.3 billion, almost the same as the EBIT, and it's up 60% from NOK 829 million in same period last year. And earnings per share this quarter is NOK 2.91, up from NOK 1.66.

Looking at first half figures, we have an EBIT of NOK 2.3 billion, up almost 50% from NOK 1.6 billion. As mentioned, good earnings both in first and second quarter for Norskott Havbruk and Pelagia. So income from associated companies are NOK 169 million, up from NOK 110 million in the same period last year. Pretax first half year is almost NOK 2.4 billion, up from NOK 1.5 billion in first half last year. And earnings per share is NOK 4.77 first half this year, up from NOK 3.1 same period last year.

Then we move into the segments. Looking at the Lerøy Seafood Group. The main driver -- or value driver for Lerøy is the harvested volume of salmon and trout, and that was 33,000 tonnes in second quarter this year. Last year, it was almost 37,000 tonnes.

As mentioned, we have seen extremely high prices for salmon and trout in second quarter. However, Lerøy's price achievement on the average is impacted by the contract share. And Lerøy's contract share in second quarter was 46%, and these contracts were entered into in 2021.

We have also seen inflation on important input factors, and that, of course, impacted the release from stock cost. And also, the low harvest volume impact the release from stock cost. However, we see improved operational in all our farming areas, and that is -- and we are glad to announce that.

Looking at the whitefish part of Lerøy, there has been a strong price development for cod, up 64%; haddock up 31%; and saithe, up 57%. So we have had really good earnings from the catch operation. However, as mentioned, it has been difficult for the downstream industry. So Lerøy had an EBIT of NOK 923 million in second quarter this year, up from NOK 583 million in same quarter last year.

Austevoll have had a very good activity in second quarter. And out of the total catch first season of 165,000 tonnes, the company caught 138,000 tonnes in May and June. In addition, they bought almost 97,000 tonnes from third party going into our factories in Central North and South of Peru.

And the sales volume, we have sold a little bit more fishmeal compared to last year. The fish oil volumes sold are in line with last year. Fishmeal prices are up 4%, and the fish oil prices has almost doubled compared with same quarter last year.

We have a high inventory going out of second quarter, 48,000 tonnes combined with fishmeal and fish oil. And these volumes will be sold in third quarter and maybe some into fourth quarter as well. The revenue in the quarter was NOK 531 million; the EBITDA, NOK 169 million; and the EBIT, NOK 121 million.

The main season for Foodcorp are first half of the year. So they have also had a good activity in the second quarter. And by end of June, they had caught 82% of their total quota for 2022 and have finished their quota now in July.

The sales volume of frozen products are higher compared with last year, but the price achievement are down by 9%. The revenue in second quarter is NOK 327 million, and the EBITDA is NOK 125 million and the EBIT is NOK 116 million. And that is more or less in line with the same quarter last year.

Br. Birkeland Farming is a small farmer on the West Coast of Norway, and they sell all their salmon in the spot market and have has, of course, achieved extremely high prices for the salmon sold in second quarter this year. The harvest volume is up by 25%. They harvested a little bit less than 2,800 tonnes, and that gave a revenue in second quarter of NOK 303 million, and EBITDA of NOK 194 million, and an EBIT of NOK 177 million and EBIT per kilo of a little bit less than NOK 64.

Br. Birkeland has 4 fishing vessels, 2 pelagic vessels and 2 vessels fishing snow crab. The pelagic vessels have caught blue whiting and North Sea herring in the quarter, and the snow crab vessels has caught 436 tonnes in second quarter and, in total, 678 tonne for first half year. The snow crab fishing was stopped at June 7, and that was because the total Norwegian quota for snow crab was caught at that time. So these 2 vessels will not have any operation in the second half. The revenue in the second quarter was NOK 117 million; and the EBITDA, NOK 37 million; and the EBIT, NOK 23 million.

Total assets by the end of June was NOK 47.7 billion. What we see is a cost inflation, and that also impact our balance sheet. What you can see is that the biological assets have a higher value by the end of June. Also other inventory have a higher value and receivables. So when we look into the cash flow, you will see that we tie up more working capital compared with last year.

The net interest-bearing debt by the end of June was NOK 5.9 billion. We have a strong balance sheet. The booked equity is NOK 26.8 billion, which gives an equity ratio of 56%.

Looking at the cash flow, I will look into first half year. And cash from operating activities was NOK 974 million. And as you can see, we tie up quite a large amount in working capital. We have also paid more taxes in the first half year this year compared with last year, NOK 200 million more. Cash from investing activities are minus NOK 801 million, and cash from financing activities are minus NOK 1.2 billion.

What I can mention here is that we have paid out dividend in June 2022, NOK 908 million are paid to Austevoll Seafoods shareholders. In addition, we have also paid out dividend to the minority shareholders in other group companies. So total paid out dividend from the group is NOK 1.7 billion. We started the first -- we started the year with a cash position of NOK 5.3 billion, and we ended June with a cash position of NOK 4.3 billion.

And Arne will take you to the outlook.

[Arne Møgster, executive]

Then I'll take you through the different markets where we're operating, starting up with the fishmeal market. And as you can see from the table on the left-hand side, the total production among the largest producers in the world is down by approximately 5% out week 30 compared with same period last year.

Peru is down by approximately 4.5% in the same period, and this is some of the reason also why I've seen a bit increase in prices. Prices now is just over $1,600 per tonne for standard fishmeal. And for Super Prime, it's approximately just north of $1,800 per tonne.

I would say, fishmeal has been well performed, as I mentioned, in Peru. And in our case, we have more or less landed all the sales going into third quarter and maybe some volumes will go into fourth quarter.

The market in China, which is the biggest consumer in the world, is very good. The daily consumption has been up 22% versus the same period in 2021. And you can see also that the stock level is a bit lower now than it was same period last year.

Saying that also, a season started up later in Peru. And I guess it's a lot of volumes now coming into China from the sea, and it will balance the situation to normal levels, I would say, in terms of stock.

Prices, we can see that the achieved prices from the traders in Peru is more or less on the same level as what we are selling on in China, and also that the China's currency is weakening as U.S. dollar has also led to a higher cost for importing the fishmeal.

Saying that, the consumption and the demand has been very good, and it's driven mainly by the agriculture industry. And you can also see that the soya bean fishmeal ratio is still favorable for fishmeal consumption.

The situation for fish oil has been -- also been extremely interesting for the producers during the season, and you can see that prices has more or less doubled from same quarter last year in terms of what we are selling to this year. It's mainly related to -- and this is the Peruvian fish oil, which is mainly related to a bit lower volume, but also a lower fish oil yield during the season in Peru.

Peru oil is the -- is full of EPA and DHA and is better priced than the other origin. And as you can see now, the price for feed grade now is just south of $4,000 per tonne and with a premium of $500 per tonne if you are delivering into the omega-3 industry.

Looking at the Atlantic salmon supply. We are expecting a negative growth worldwide of approximately 1.4% in 2022. And in Norway, it's down with 1.3%, and we might believe that this volume is even going to be a bit lower going forward to the end of the year than what we have seen now.

Looking into next year, volume is expected to be up with approximately 5.5% in Europe and 2.4% in Americas, all in all, a growth of just south of 5%.

Fishmeal prices has been extremely volatile during the period. And as I mentioned, we didn't expect prices being on the level of NOK 105 per kilo spot prices during second quarter. And during the half year, prices has been gone from NOK 60 per kilo to up to NOK 120 per kilo and down again to NOK 60 per kilo at this week. So it's extremely volatile. And again, it's a result of an extremely strong market. And you also see that the volume from Norway is down with approximately 5%.

Consumption was also down, but I would say that the market is extremely strong. Thinking on the high prices we have seen during the quarter is led by EU and United States.

Then summing up again, we have been through a good half year. We are not benefiting fully from the spot prices we have seen in the quarter, entering the next half year with huge volume for Lerøy. And now we're expecting a good second half for Lerøy with high volume and also, in particular, very good performance in the region in the North.

Whitefish, again, I would say that the main result is made first half and have done a fantastic year, both on the fleet side and been working very strongly on the industry side. But again, with increasing prices from the raw material makes it difficult to make profit on the industry side.

Looking at the pelagic situation in South America, we have -- we are satisfied with the fishing season. We have been through first season. Looking forward to the fishing, which will start up in fourth quarter. And again, I think we're also going to have a strong third quarter from Peru.

The Chilean activity is mainly done first half. And again, we could conclude that the season has been performed quite well in our case based on the raw material we have available.

North Atlantic, our activity there. It's going to mainly be related to the direct human consumption of mackerel and of herring in the season, and we have started taking in volume from August off and expect a good contribution from this segment during second half year.

So that was all. And all in all, we are expecting a better half second half year this year compared with same period last year. Thank you.