Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2018-Q3

[Arne Møgster, CEO & President]

Okay, That is a great pleasure for me to welcome you to this third quarter financial presentation. I will first start by giving you a short insight to the highlights of figures for third quarter and year-to-date. Thereafter, I will take you through each segments in the group. Britt will take you more in detail through the numbers. And I will end this session by giving you a short introduction to how we are viewing the market within fishmeal and fish or salmon and the other segments we are working within.Starting off with the highlights, we have had a good quarter, good financial performance. I would say third quarter, for us, is a seasonable low production quarter when it comes to the fishing activity. And also if you look at the result from the salmon segment, this quarter you also see it's going -- it's giving us a lower numbers. And that's mainly due to we have been harvesting 9,000 tonne lower this quarter compared with the same quarter last year. So looking at revenue for the third quarter, we have NOK 5.3 billion and EBITDA just north of NOK 1 billion and EBIT of NOK 707 million (sic) [ NOK 771 million ] and pretax profit just below NOK 760 million. If you also consider the 50% share we have in Pelagia, our total EBITDA for the quarter is NOK 1.035 million. And as you can see, the contribution, the EBITDA from Lerøy is NOK 820 million, approximately NOK 190 million lower than last year, and is mainly due to lower harvest volumes. But if you look at the contribution from the pelagic segment, you will see also we are delivering approximately NOK 110 million more. And this is basically due to a good sales quarter, in particular coming from Peru due to the very good season we had in second quarter.If you look at the year-to-date figures, you see the revenue is NOK 17 billion; EBITDA just above last year's performance, NOK 4 billion; EBIT NOK 3.3 billion; and pretax profit on NOK 3.4 billion.You can also see that the total balance (sic) [ assets ] has increased during the -- this period, up from NOK 35 billion up to NOK 37.5 billion. And the main drivers for that is mainly due to a CapEx program we have had, in particular here in Norway consisting of NOK 1.3 billion, but also the total biomass has increased with approximately NOK 1.3 billion as well.Net interest bearing debt more or less in line with same quarter last year, NOK 4.4 billion. And the equity ratio has increased from 54% to 58%.Looking at the contribution from the pelagic business and salmon business, including 50% share in Pelagia year-to-date, you'll also see that the total EBITDA for the first 3 quarters, NOK 4.2 billion, whereas NOK 3 billion is coming from the salmon activity. And we also passed NOK 1 billion limit on the rest -- or the pelagic activity, showing a number in the 3 first quarter on NOK 1.1 billion.I normally show this graph. It gives us a short introduction to the company. Looking at the right-hand side, you are seeing we are catching between 400,000 and 500,000 tonnes of volumes from our own fishing vessels in both Chile, Peru and in the North Atlantic. We are processing this year close to 1.9 million tonnes in our factories, meaning that we are also purchasing a lot of fish from third party fishermen as well. Among the largest whitefish producer in the world through our ownership in Havfisk and Lerøy Aurora Seafood. And next year, we are also guiding on a volume very close to 200,000 tonnes of salmon.As I said when I started, the pelagic activity has had a seasonable low production quarter in third quarter, so I'd rather focus this quarter based on history and what we also expect in the future when I'm talking about both Austral, Foodcorp, Pelagia and Br. Birkeland.So starting off by focusing on the past, as you can see from this graph, both the biomass and the quota set for the last 4 years has been quite volatile. And in addition to that, there has been some years that the industry has not been able to catch the quota as well. It turned, I would say, the last season, in the second quarter, where we had a very high biomass. You have to go back to 2012 to have a similar biomass, and you have to go back to 2011 to have a similar growth that we had first half year. So it was a very good quarter and also the fishing performance was very good. So we caught and produced mainly everything in second quarter.We have this year guided on our total volume from Peru somewhere between 5.3 million and 6 million tonnes, meaning that we are expecting that the quota for second season will be between 2 million tonnes and 2.5 million tonnes. But of course, this is yet to be seen. And I think in some of the next day, we will know the result from the IMARPE cruise and the quota will be set on a seasonable start-up.But just to start off, giving you a short teaser. So you can here see the result of the egg and larva cruise from September last year compared with September this year. And as you can see on the right hand picture, there is much higher concentration of fish this year in the IMARPE cruise than it was same period last year. However, we still don't know the sizes of the fish, but this map is showing that at least the biomass is there. So we are waiting for the results. And of course, if you have a good season, second season as well, we also expect that the volume will be not double, but not far away from double compared with 2017.Another pleasant thing is that there's been a quite good fishery in the south of Peru. So our factories -- factory in Ilo has also had a lot of raw material during 2018.Chile, also a quiet quarter. We have caught 10,000 tonnes, still remain approximately 5,000 tonnes of the quota left to be caught in December. If we look at the total volumes, we have been running through the plant, this year is a bit lower than last year. However, we have been able to -- had a quite good activity level also in 2018. Our total quota in '18 for our own vessel was 29,000, just below 30,000 tonnes. And we've also been able to acquire operators 23,000 tonnes of third-party quota, which we have caught with our own vessels to have economy of scales, both on our factory and on our vessel. In addition to that, we have also purchased some fish in -- from other fishing vessels, which we have been frozen in -- freezing in our factories. So this year, we have a record volume through our frozen plant. And this is a year with, I would say, a lower quota than it was in the high days from 2006, when we started the frozen plant and up to 2010. So there is some positive signs in Chile. But again next year quota of 2019 is expected to be 3% up versus 16% up this year. So it's a slower recovery next year than this year.If we look at the North Atlantic pelagic quota, you could also see that our estimates is a bit down compared with 2018. It's mainly driven by -- that there will be no capelin fishing in -- next year. Mackerel quota and North Sea herring quota and blue whiting quota is down, still yet to be set, but recommendation from ICES is it's down in 2019 compared with 2018. It will be less volume for our fishing vessel and higher competition to buy raw material for our factories, both in fishmeal and oil and with human consumption.Starting off with the Pelagia business, the performance in the quarter is a bit better than last quarter in terms of volume into the plants, 100,000 tonne versus 79,000 tonnes. If you look at the total volumes for 2018, it's just sort of what we did in 2017. So I would say it's also going to be a very good raw material year for our fishmeal plants in 2018. We are seeing that prices has been increasing. We have sold less volume in third quarter compared with the same quarter last year. And also the margins has been a bit lower due to higher competition on the raw material. But we also see that prices has been increasing during fourth quarter with the cost of fishmeal and it's, of course, yet to be seen how prices will be after the new quota in Peru will be announced.For human consumption, we are now entering the fourth quarter, which is the main activity quarter for this segment. Approximately 40% of the production, we're going to do in fourth quarter. So -- and its main driver behind that is the winter herring and the mackerel season. So it's a full activity on the plant now all along the coast. And it's going to be interesting to see how we will come out of this season in fourth quarter. We also expect lower volumes in 2019 compared with 2018.Then again looking at the result from Pelagia, lower EBITDA this year compared with last year, mainly due to sale of volumes for fishmeal and fish oil. And also the margin has been more pressured this quarter compared with last quarter. But if you look at year-to-date figures, we are surpassing year-to-date 2017 with approximately NOK 40 million.When it comes to the Br. Birkeland activity, we have been harvesting 1,200 tonne. We have been harvesting on the spring '17 smolt, which has been a challenging generation. And the EBIT is, of course, reflected -- reflecting the biological challenge. And you can also see the numbers, compare it with same quarter 2017. Fishing vessels has been mainly laid off waiting for season to start in fourth quarter.Then looking at the result from Lerøy. Had an EBIT of NOK 660 million, down from NOK 868 million (sic) [ NOK 861 million ] same quarter last year, again 9,000 tonne less volume. The whitefish activity is also contributing less in the quarter. However, we have been entering the fourth quarter with a higher stock situation than we had in the same quarter last year. So the result is mainly lower because the sale has been pushed out to fourth quarter. Harvest volume, 37,000 tonnes. It's approximately 6,500 tonnes in North, 18,500 tonnes in the Mid and 11,000 tonnes in the South. EBIT per kilo, NOK 16.6, a bit down from third quarter last year, NOK 17.4. Prices -- achieved prices is down, but also cost is down. So it's more or less in line with the same quarter last year.Then looking at the volume guidance, we are aiming to produce over 166,000 tonnes during 2018, meaning that we're going to have a volume over 50,000 tonnes in fourth quarter coming from quite even 37,000 tonnes the last 3 quarters. So it's an exciting period for us and it's a lot of activity.If we look at 2019 volume, Lerøy Aurora and Lerøy Midt is more or less delivering the same volumes. But we are expecting that Lerøy Sjøtroll will recover their biological performance and produce higher volume in 2019. And I would say all in all in Norway, 174,000 tonnes. And if you include our shares in Norskott, it's additionally 16,000 tonne, and we're going to deliver 190,000 tonne all in all.Slow quarter also for the wild catch, 14,000 tonnes compared with 17,000 tonnes the year before. If you look at the full year volumes and the full year performance, you can also see that the reduction in quota before -- or in 2018 for cod, 12%; haddock, 13%, has been compensated by increased prices. You see average prices for cod is up 23% and haddock up 38%, while saithe is down 5%. Reduced volume has also increased the possibility of catching shrimp, and we have had a season with 6,000 tonnes -- 6,000, 7,000 tonnes more shrimp than we did in 2017.If you look at the activity on land, the processing activity is still challenging, high competition of buying raw material. But we have invested, I would say, in a lot of processing facility. And we are aiming to do it much better in the coming years than we have had in the previous 2 years.Then I would give the floor to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you. As Arne has already mentioned, there has been low activity in the third quarter within the pelagic segment, both here -- both in South America and here in the North Atlantic. As you can see there, raw material intake for wild catch has been 252,000 tonnes, a little bit down from the 266,000 tonnes in the same quarter last year. And there has also been harvested a lower volume salmon and trout in the quarter compared with the same quarter last year.Arne has been through the key financial figures, so I will give some comments and go down to the line from income from associated. We've had a good quarter in the salmon segment. But as we have announced and expected, there has been a lower volume harvested compared with the same quarter last year. But in the pelagic segment, there has been a low production. But we had a very good first season in second quarter, so we have had quite high sales volumes, so fishmeal and oil in the third quarter this year compared with the same quarter last year.Going down to the income from associated company, that was NOK 74 million in the quarter, down from NOK 122 million in the same quarter last year. And within Norskott Havbruk, we have harvested a lower volume salmon compared with last year, and of course that gave a lower result. And for Pelagia, there has been some lower production. And there has been approximately 20% lower sales volume in second -- in third quarter compared with the same quarter last year.Pretax profit before biomass adjustment is NOK 758 million in the quarter, down from NOK 873 million in the same quarter last year. And that gives an earnings per share ex biomass adjustment of NOK 1.44.Looking at the figures year-to-date, we've had revenue of NOK 17 billion, and that is up from NOK 16 billion in the same period last year. And if we include as well 50% share of Pelagia, revenue is NOK 19.1 billion. EBITDA is NOK 4 billion, up from NOK 3.9 billion, and including Pelagia, NOK 4.2 billion. EBIT year-to-date is NOK 3.3 billion, up from NOK 3.2 billion, and including Pelagia, our share of Pelagia, almost NOK 3.5 billion.Income from associated, you can see it's the same level as last year, NOK 344 million year-to-date. Pretax year-to-date is NOK 3.4 billion. And that gives an earnings per share ex biomass adjustment of NOK 6.88.I will recommend that you go into Lerøy's webpage and look at their full presentation. They have had a good earnings in the quarter. But as you can see, they have harvested substantially lower volume in third quarter this year compared to last year, 37,000 tonnes, down from 46,000 tonnes.The prices has been volatile also in third quarter, but a little bit less volatile than the second quarter this year. The spot prices are down by 2%. The price achievement for Lerøy is also influenced by the trout prices. And the trout prices in the quarter has been NOK 7 lower than the salmon prices. The contract share in the quarter has been 25%, and contract prices have been above the spot prices. Cost is down, both compared to second quarter this year and also third quarter last year. There has been a very good production in third quarter and so far in fourth quarter. And biomass at sea is by the end of September, 4% higher than by the end of September last year. Wild catch, some lower volumes this quarter but higher prices. The revenue in the quarter is almost NOK 4.5 billion, and the EBITDA is NOK 820 million, and EBIT is NOK 660 million.As Arne has mentioned, low activity in Peru in the quarter, but we had a very good first season. And we have sold 42,000 tonnes of fishmeal and oil in the quarter, up from 27,000 tonnes in same quarter last year. You've had higher prices, 15% for fish oil and 40% higher for fishmeal compared to same quarter last year. We have very low volumes in -- at stock by the end of September. The revenue in the quarter has been NOK 578 million; the EBITDA, NOK 157 million; and the EBIT, NOK 115 million.Looking into the year-to-date figures, you can see that we've had a very good production and a very good development this year. And of course, a good first season has given us high raw material volumes and also good production. So revenue year-to-date is almost NOK 1.5 billion and EBITDA, NOK 542 million and an EBIT of NOK 421 million.The main season for horse mackerel in Chile ended in the third quarter. So we have caught 90% of our quota of almost 53,000 tonnes. The remaining volume is expected to be taken in December. The demand for the product has been good, and also there has been stable prices. And we've had a little bit higher prices this quarter compared to same quarter last year. The revenue in the quarter is NOK 152 million, and the EBITDA is NOK 13 million, and EBIT is NOK 5 million. As we also announced in our last presentation is that we have some higher raw material cost this year compared to last year. The fee for our own quota has increased. And also there has been some competition of the raw material that we buy. So our margin is lower this year compared to last year.Br. Birkeland Farming. They have harvested 1,300 tonnes, almost 1,300 tonnes in the quarter. Of course not high volume, but substantially higher than last year when they harvested 543 tonnes. The revenue in the quarter, NOK 67 million, the EBITDA is NOK 12 million, and the EBIT is NOK 7 million. The lower earnings in the quarter, the spot prices has been below last year. But the weak profitability is also on the back of the final harvesting of the spring '17 generation, which have had high cost.Br. Birkeland, as also mentioned earlier, there has been as normal low season for the 2 vessel in the pelagic fishing. They have been fishing North Sea herring in the quarter, and the mackerel season started off late September. There has been stop in the fishing for snow crab in the quarter. So the vessel within this segment has been -- they have had quite a challenging year, I would say. And they have contributed negatively to the result in the quarter and also in the result year-to-date. And we don't expect any positive results from them in fourth quarter either. The revenue in the quarter has been NOK 63 million, the EBITDA of NOK 16 million, and the EBIT, minus NOK 2 million.The total asset by the end of September is NOK 37.6 billion, up from almost NOK 35 billion in the same quarter last year. There are especially 2 lines in the balance sheet that we should look into, and that is tangible fixed assets. As we have communicated earlier, we have quite a large CapEx program going on in our core business that we have taken over a new fishing vessel for the whitefish segment this year. And we are also building new small facilities and also production facilities, both in Norway, the Netherlands and in Spain.Biomass at sea are 4% higher when it comes to volume compared to last year, but the cost for biological assets at sea are -- have increased more than 4%. And the reason for that is we have more numbers of fish in the sea, but they have a lower average weight.The equity share by the end of September is 58%. And the net interest-bearing debt is NOK 4.4 billion and is on the same level as by the end of September last year.Cash flow from operating activities are almost NOK 700 million in the quarter. The good production in third quarter of salmon gives us increased working capital. But in the pelagic segment, we are decreasing the working capital. But the high biomass at sea gives a negative impact on the cash from operating activities in the quarter.And the cash from investing activities are minus NOK 394 million. We have received dividend from associated companies of NOK 80 million. And as mentioned, we have a CapEx program going on and also, of course, the normal maintenance CapEx.The cash from financing activities are minus NOK 685 million. We have changed a long-term loan into a long-term credit facility and that impacts the cash from financing activities in the period.We have cash by the end of the period of almost NOK 4.5 billion, a little bit lower than last year. Then the cash was almost NOK 4.6 billion.Thank you.

[Arne Møgster, CEO & President]

Then I will end this session by giving our view on the different markets we are operating within. Starting off with the fishmeal market, looking at the supply side, the main driver for fishmeal prices on the supply side is the volume coming from Peru. However, if you look at the 6 largest producers in the world of fishmeal, you can see that it's an increase of 18%, whereas Peru has an increase out week 42 of approximately 32%.I would say prices came down, but then quota was announced before second quarter. Harvest has been been quite stable, I would say, and increasing during the fishing season. And I would say we have experienced quite strong prices during second and third quarter considering the volume coming in from Peru. Approximately 140,000 to 150,000 tonnes is already committed for next year -- or next season's production, which is approximately 30% to 32% if the quota will be 2 million tonnes. And of course, this percentage is lower if the quota is higher.Looking at the market, have to look to China. Stock level is more or less on the same level as it was same period last year. Offtake is a bit lower, time being compared with last year. However, the consumption and the demand has been extremely good in China during 2018. And I think they have been acquiring over 80% of the Peruvian production. Saying that, I think it has also something to do with that the Chinese government has been imposed quite strict environmental regulation, which has also limited the domestic production. And I think we should expect that next year that the Chinese producers will be more in line with the regulation than it was this year.Fish oil. Fishmeal was up 18%, Fish oil is up 30% mainly due to higher volume in Peru, but also a better yield than the previous years in Peru as well. Prices has been coming down. Currently feed grade prices is $1,400, and that is a premium for the omega-3 industry of $300 to $400 per tonne. I would say the market is balanced, limited stock available for new offers. And of course, we're awaiting the quota on the fisheries on production for next season in Peru.Now looking at the salmon supply. Seems like we're going to have a growth of 5% in 2018. We also had similar growth in 2017. And we're also expecting a similar growth for 2019, mainly driven this year by increase in Chile, but also in Norway and other main region has been down in volumes, mainly due to biological challenges. But I would say for the 2 last year, 5% increase. The market is coping quite well with this increase.Looking at the prices quarter for quarter, you can see that we have had volatile prices between NOK 80 down to just below NOK 50 per kilo during the period in 2018. Saying that, if you also look at the stable increase we have had the 2 last year, you see that the average prices is also quite stable on NOK 60 per kilo, which is also an interesting observation.The consumption in the quarter has been good. If you look at the numbers, you see there's a small increase in EU. U.S. is driving also the consumption. And you have the other markets coming up, consuming a lot in third quarter. If we look at the year-to-date numbers, you will also see that oil market has been up during 2018, which is also quite good when you had an increase of 5% to 6%.So to sum up, strong salmon prices also in third quarter, a bit lower than it was the same quarter last year. Cost is down from third quarter, and also cost is down from -- no, from second quarter. We are maintaining our harvest guidance on 179,000 tonnes and increasing for 2019 of 190,000 tonnes. I would say lower catch in the quarter. If you look at the year-to-date numbers, volume is more or less in line, compensated the reduction in quota for cod and haddock by catching more shrimp. And we have also seen that prices has been increasing a lot during the year as a result of reducing quotas. We are expecting for next year that the cod quota will continue down with 6.5%, haddock quota down to 15%. And the saithe will be down in the north of 62 degrees and it will be up in the North Sea.Interesting to show -- to follow what quota will be in Peru. Biomass next year will be 3% up in 2019. It seems like condition is normalizing in Peru. And if you look at the North Atlantic, we are expecting that the competition of buying more raw material will be higher in 2019 compared with 2018 as a result of probably lower quota available.It's going to be interesting and also challenging quarter, fourth quarter, hopefully with good fishing activity in Peru, we know that is the main season in the North Atlantic. And also we are having a quite good ambition of having a quite high volume in salmon for fourth quarter.So that's it. Thank you.