Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2020-Q3

[Arne Møgster, CEO & President]

Okay. And it's a pleasure for me to welcome you all for the third quarter financial presentation for Austevoll Seafood. We are doing this presentation from our main office here in Austevoll.I will start my presentation by taking you through the highlights in the quarter. Thereafter, we go more in detail through the performance in the different segments in the quarter, and Britt will take you more in detail through the different numbers. And I will end the presentation by giving our view on the markets in the segments we are operating within.Starting up, talking about the third quarter performance. It's always important for us to mention that third quarter is always a seasonable low fishing quarter, and I would say, all over the different regions. So the operation is quite quiet, both when it comes to the pelagic activity and when it comes to the whitefish activity during this quarter.When it comes to the salmon performance, I would say, we are in a good track. The biological performance has been improving during third quarter and also into the fourth quarter when it comes to Lerøy's performance. And it also gives us a good foundation going into 2021.Looking at the quarter, we have a revenue of NOK 5.5 billion, an EBITDA of just below NOK 800 million and an EBIT of NOK 415 million. Pretax profit of NOK 393 million, which is down approximately NOK 80 million compared with last quarter in 2019 -- similar quarter in 2019.If you go down on the page and include our 50% share in Pelagia, you see we are delivering an EBITDA of NOK 842 million. It's approximately NOK 140 million lower than the similar quarter last year, and it's divided between NOK 100 million less from Lerøy, mainly due to weaker performance from the whitefish segments and approximately NOK 35 million to NOK 40 million less from the pelagic activity in the group. I will come back to that when I'm going through the different company in detail.Looking at full year so far. Year-to-date third quarter, you see we had our revenue below last year around NOK 16.7 billion, an EBITDA of NOK 2.8 billion, EBIT of just below NOK 1.7 billion and a pretax profit of just below NOK 1.5 billion.Have a strong balance sheet, total assets just short of NOK 40 billion and an equity share of just below 60%, net interest-bearing debt of NOK 4.6 billion. Including the 50% share of Pelagia, you see that EBITDA in the first 9 months is around NOK 3 billion. It's approximately NOK 560 million less than last year, where NOK 350 million is coming from the Lerøy activity and approximately NOK 200 million less compared with the first 9 months of 2019 is coming from the pelagic activity.Two drivers behind the result in the pelagic activity is there has been pressure on the fishing markets -- margins in Pelagia, which has cost, I would say, NOK 100 million in less contribution and also due to the weaker catches in first quarter and the last quarter of 2018, there has been lower sales in Peru, which also explain approximately NOK 100 million of the NOK 200 million difference from this year compared with last year.Then going through the operational overview of the group, and summing up, I would say that we are aiming to catch around 400,000 tonne of pelagic fish on our own quota with our own vessels during 2020. We will process approximately 1.8 million tonnes of pelagic fish on our factories. We will catch with our vessels and produce on our whitefish plants approximately 100,000 tonnes of whitefish. And we are aiming to end up with just about 190,000 tonnes of salmon harvested in 2020.Now starting up, going through the pelagic segments. And again, I would focus less on our performance in third quarter and more on the view for the next quarter to come. Looking at the quota, which was set on last Sunday, you can see it's on a similar level at both the quota size and also the biomass -- total biomass identified [indiscernible] this season compared with the same season last year.Quota was just below 2.8 million tonnes, which gives a total of 5.2 million tonnes in -- was the Peruvian quota during 2020, which is on a higher level, if you compare the last 5 years. Second season will start-up midnight today. And I would say we have all the vessels ready. It's a bit late to start-up this season compared with last season.Quota is the same, but if you look at the last season, it was just above 900,000 tonnes, which were caught of the 2.8 million tonne, which was set at that time. At that time, it was a higher percentage of tunas and the fish was also more spread. And we have no reason to believe that this will be the same this year. But of course, it's going to be exciting to see how the fishing pattern may develop, I would say, in the first 3 weeks of the season.Again, the COVID-19 situation is severe, and it is a quite heavy logistics in order to be prepared for the season, and -- but I would say we are well prepared and better prepared now than it was first season last year. There's been some human consumption catches during third quarter and also into the fourth quarter, bringing the total volume up to just below 19,000 tonnes of horse mackerel and mackerel during the year compared with the same year last year. And when it comes to the catches in Peru, on this side of the year, we are aiming to capture 140,000 tonnes by the year end.At Chile, again, I would emphasize and say that they have been performing very well this year, both when it comes to catches, production, higher intake into frozen, which has brought better margins. And it's reflected in the number Britt will provide for you later on during the financial figures.But again, I would say that they've done a very good job in Chile in -- so far in 2020 compared also with the previous year we have been -- years we have been comparing with. Fourth quarter is normally a maintenance quarter. So we are expecting, I would say, a negative impact on earnings, as always, during fourth quarter in Chile.Quota situation is good. We are expecting 15% increase for 2021, but have still not yet implemented. But that will also bring our own quota up to just below 40,000 tonnes for 2021.Looking into the North Atlantic quotas, which is, I would say, the foundation for raw material intake, both for pelagic vessels and also for Pelagia with the fishmeal and fish oil activity and also the human consumption activity. Summing up for the most important species, I would say that winter herring is up by 21%, which the Norwegian vessels has a high percentage of. North Sea herring is down by 5%. Mackerel is down by 9%. And blue whiting is down by approximately 20%, which is the most important species for the fishmeal factories.Summing up, I would say, more volume in for human consumption and maybe less for fishmeal during 2021 compared with 2020. I would say a seasonable low quarter for fishmeal activity, mainly be producing based on trimmings and we're also expecting that trimmings will be the main raw material source for our activity in fourth quarter.Volume-wise, there's going to be a high intake of fishmeal and -- raw material for fishmeal and fish oil during 2020. And I would say, market-wise, it has a negative price trend into third quarter. Prices are dropping due to a good performance from Peru and also a disadvantage in the development of the currency exchange rate.I would also say that we have sold less volume in this quarter compared with what we did last quarter or the third quarter in 2019. So there's less frame contracts and more spot trade during the quarter. When it comes to human consumption activity, I would say, we've not spent a lot of time talking about third quarter, more into fourth quarter, I would say, which is the most important quarter for this segment, about 50% of the total volumes is -- 50% of the total volumes is caught during fourth quarter. And main species is mackerel and winter herring, and so far, it's been an okay succession of the -- or execution of the season.Looking at the numbers in the quarter, you can see that the earnings is a bit down. NOK 106 million in EBITDA and NOK 44 million in EBIT in the quarter, mainly driven by lower margin on fishmeal and also less volume on sales for our fishmeal and oil during the quarter.Looking at year-to-date third quarter, you also see that it's considerably lower in the third quarter earnings. However, we had a gain of sales of NOK 105 million in second quarter in 2019. So adjusting that out, it's, I would say, approximately NOK 130 million, NOK 140 million weaker performance in earnings in Pelagia, mainly due to the effect from the fishmeal industry.Then jumping to Lerøy and Lerøy's performance. Again, I would say that when it comes to the biological performance of Lerøy, it's a positive development, also as expected and also as indicated in second quarter last year. We are delivering EBIT of NOK 370 million, which is down from NOK 501 million in same quarter in 2019, and it's mainly driven by approximately NOK 90 million weaker performance from the whitefish segment. I will come back to that later.Looking at harvest volume, it's more or less in line of what we did last year, approximately 1,700 tonnes less. We have been slaughtering in the quarter approximately 8,000 tonnes in the north of Norway, approximately 12,000 tonnes in mid-Norway and 14,000 tonnes in the west coast of Norway. EBIT per kilo is marginally less than it was at same period last year and an EBIT per kilo of NOK 9.2 in -- all over the regions. But again, big difference between different regions. EBIT per kilo of NOK 13 in Lerøy Aurora and NOK 11 in Lerøy Midt and is negative by NOK 3 in Lerøy Sjøtroll.Saying that, I would say that Lerøy Sjøtroll has been harvesting on a very challenging generation during this quarter. And going forward, we are expecting a better performance for -- and slaughtering on the next-generation in the fourth quarter.So I would say, all in all, biological performance better this quarter in all regions and gives us also a good foundation going into fourth quarter and into 2021. And as you can see on the expectation of 2021, you are seeing that we are increasing our slaughtering volume with approximately 22,000 tonnes in Norway and approximately 5,000 tonnes in our shares in Scotland. So all-in-all, we will have an increase of approximately 27,000 tonnes in 2021 versus 2020.Now some comments on the whitefish segment in Lerøy. And as you can see, in the quarter, it's -- on the EBIT side, it's considerably lower performance. There is some explanation for that but I would first enhance the COVID-19 effect in the market. We are seeing that prices has been significantly dropped from the top in first quarter. Cod prices and saithe prices are down with 22% and haddock prices is down by 42%. Another effect is that we had a much higher percentage of cod and haddock in the first quarter, leaving less fish in for the third quarter. So there's been also a different product mix. And we have been catching on lower-priced species such as shrimp and redfish. But if you look year-to-date 2020, you can see that the performance is marginally lower so far this year. And still, I would say that COVID-19 is having effect on prices, but we are expecting that this effect will improve a bit -- or the prices will improve a bit into fourth quarter and also into the new year.Now I will give the word to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne. As usual, we start with this table and that summarizes our raw material intake in the quarter and year-to-date and also our expectations for the full year of 2020. And as you can see, for wild catch, there is a raw material intake of 267,000 tonnes, that is up from 247,000 tonnes, and the increase comes from Peru and they finalized their first fishing season in July.And for the total year, we expect around 1.9 million tonnes from the wild catch operation, up from 1.7 million tonnes in 2019. However, this is, of course, subject to the development of the upcoming fishing season in Peru now in fourth quarter and January.And Arne has already gone through the key figures, so I will start at the EBIT level. The EBIT in the third quarter is NOK 415 million, down from NOK 559 million in the same quarter last year. And the fall in earnings can be explained by lower earnings from the whitefish segment. As Arne has already mentioned, there is a -- that's been a very difficult market. There has also been a different catch composition and lower harvesting rates.In addition, we have harvested from the spring '19 generation with salmon in Br. Birkeland and we have harvested on very low rates and had a high cost on that generation, which has also negatively impacted the earnings in the quarter. If we look at income from associated company, that is NOK 71 million in the third quarter this year, and that's up from NOK 45 million same quarter last year. And the increase is mainly coming from Norskott Havbruk, which has a result of NOK 39 million in third quarter this year, and that is up NOK 30 billion from the same quarter last year.And looking at the net finance. On the net finance, minus NOK 72 million is the net interest and that is exactly at the same level as it was in the same quarter last year. Pre-tax profit, ex reported biomass adjustment, in the quarter was NOK 393 million, down with almost 17% from NOK 472 million in same quarter last year. And that gives earnings per share, that is ex the biomass adjustment, of NOK 0.86, down from NOK 1.13 last year. As we've also been talking or presenting during our previous presentation, the market for seafood has been significantly negatively impacted by COVID-19. This first started in the Asian market in the beginning of the year and during first quarter and second quarter, it turned out to be a global pandemic. And this had negatively impacted, of course, the prices on the group's products and the demand from the market and have negatively impacted our revenues and earnings for the full -- for the year-to-date figures in 2020.The revenue by end September is NOK 16.7 billion, down from NOK 17.4 billion, and the EBITDA is NOK 2.8 billion, down from NOK 3.3 billion in 2019. The depreciation in the period, 9-month period through September is NOK 1.1 billion, and that is up from NOK 993 million in same period of 2019. And we have an investment program goal still going on within post-smolt and we also took over the new fishing trawler Kongsfjord in 2020. We have not seen -- we have not still seen the full potential of all these investments, but that will come in the coming years.The EBIT by the end of September is NOK 1.7 billion, down from NOK 2.3 billion in 2019. And income from associated companies is NOK 158 million, down from NOK 340 million in 2019. And I have to add here that in 2019, we had a gain from sale of 1 well boat and 1 factory which impacted the earnings in 2019.The pre-tax profits by the end of September is NOK 1.5 billion, down from NOK 2.4 billion in 2019. And we have an earnings per share, ex-biomass adjustment, of NOK 3.25, down from NOK 5.53.Lerøy has harvested a little bit over 44,000 tonnes of salmon and trout, and that is down by 4% compared to the same period in 2019. And the spot prices is down substantially actually from second quarter this year, down NOK 10, but compared to third quarter of 2019, it's down by 2%.The contract share for the company in the period is 31%, and the price realization from contracts are higher than spot prices. We are especially glad to announce that we see that our release-from-stock cost is significantly down from the second quarter 2020, but also down from the same quarter in 2019.So despite the challenging market situation caused by the COVID-19, we see that the EBIT per kilo, ex-wild catch, is NOK 9.2, down from NOK 9.8 in the same period last year. In the wild catch segment, whitefish has had a challenging market, as we have already mentioned. And in this quarter, we had a different hedge composition compared to same quarter last year and lower catch rates.And the EBIT in the quarter is minus NOK 50 million, down from NOK 40 million positive in the same quarter of 2019. However, if we look into year-to-date figures, we can see that the EBIT is not that different from 2019. And we had a very good catch volumes of cod in first quarter and haddock as well. And the prices in first quarter pre-COVID was substantially higher than what we see now, actually, 22% higher for cod and saithe and 42% higher for haddock compared to the prices that we see in third quarter.There is low activity within the pelagic companies in third quarter in Austral Group in Peru and they finalized their first season quota in July. They have sold substantially high volume of fishmeal in third quarter this year compared to last year. However, the fishmeal prices were approximately 7% lower than what we achieved in same quarter in 2019. The prices for fish oil is approximately 11% lower, but as you can see, it's lower volume of fishmeal sold in third quarter this year. The inventory by the end of third quarter is 2,000 tonnes of fishmeal and 4,500 tonnes of fish oil. And the company had a revenue of NOK 530 million, an EBITDA of NOK 139 million and EBIT of NOK 90 million, which is up from NOK 54 million in same quarter last year.In Foodcorp, they have their main season in the first half of the year and then low activity in the third quarter and also fourth -- will have low activity in fourth quarter. They had a remaining quota of 6,000 tonnes, which they started to catch in August and they finalized that -- their quota by the end of the quarter. They have sold a little bit above 11,000 tonnes of frozen products, up from 8,800 tonnes in same quarter last year, and they also had a higher price achievement of frozen products this year compared to same period last year.And it is good to see or it's comforting to see that with a higher raw material intake and also with higher production of frozen products, that shows in the earnings for the company. So if we look into the 9 months ending in September 2020, you can see that the EBIT is NOK 150 million, up from NOK 61 million for the same period in 2019.However, that said, it will be low activity in fourth quarter. We will purchase raw material from the coastal fleet for production for fishmeal and fish oil but we expect negative earnings for Foodcorp in fourth quarter.And as I mentioned earlier, Br. Birkeland, the salmon operation, and they harvested from the spring '19 generation, which has been a very, very challenging generation. And harvesting rates in third quarter were low, and of course, very low price achievement. But also the release-from-stock cost is very good. We will finalize harvesting from the spring '19 generation now in fourth quarter, but with a high release-from-stock order cost of this generation, that will negatively impact our earnings also in fourth quarter.And as you can see, the EBIT/kilo here is -- it's negative, it's minus NOK 26.7. In the third quarter in 2019, it was minus NOK 0.6. The pelagic vessels in Br. Birkeland has caught around 2,000 tonnes of North Sea herring in third quarter. The mackerel season started up by end September and the 2 vessels will finalize their mackerel quota and Norwegian spring-spawning herring in the fourth quarter. And the vessel catching snow crab, there was a fishing ban, as it has been in the previous years, in third quarter. So the vessel has been dry-docked in third quarter and started up fishing again normally in fourth quarter.So this has given, of course, low earnings in third quarter for all the vessels, a revenue of NOK 39 million and EBITDA of NOK 7 million and a negative EBIT of NOK 4 million.The total assets in the group is close to NOK 40 billion, and the equity ratio is 59%. You can see that we have increased a little bit our intangible assets, and we have put this on more salmon licenses in 2020. Also the tangible fixed assets has increased. And that is, as I mentioned, a new trawler Kongsfjord, which was delivered now in 2020 and also the ongoing post-smolt investment in the group.The group's financial position is very strong and it remains important to have financial flexibility to support further organic growth, but also carrying out strategic investments and sustain the company's dividend policy. The net interest-bearing debt by the end of September is NOK 4.6 billion and that is up from NOK 4.3 billion in the same quarter last -- in the same period last year. And cash flow, I will comment shortly on the third quarter and then for the full 9 months up to September. In third quarter, we have cash from operating activities of NOK 867 million. We built up biomass in third quarter. And of course, we had some working capital as well but within the pelagic companies, we use nothing in the working capital during the third quarter. So that is a good hedge, actually.And looking at the period, the 9-month period up to September, the cash from operating activities is NOK 2.2 billion, a little bit down from NOK 2.3 billion same period last year. The cash from investing activities is minus NOK 1.1 million, increase from minus NOK 600,000 in 2019. And as I mentioned, we are still having ongoing investments in post-smolt and we took over the new trawler. Cash from financing activities is minus NOK 1.2 billion and down from NOK 1.6 billion in 2016 -- 2019, sorry. And you can see that the paid out dividends are lower in 2020 compared to 2019. Austevoll Seafood paid out in June NOK 2.5 per share in dividend. And the Board had a mandate to pay additional dividends in 2020, but the Board has decided to not exercise the mandate. But based on the company's strong financial position, this decision will be reflected in the ordinary dividend payments for the financial year of 2020.To sum up, we have a cash position by the end of September of NOK 4.2 billion, down from NOK 4.6 billion in the same period 2020.

[Arne Møgster, CEO & President]

Now then, going into -- looking at the different markets we are operating in, starting off with the fishmeal market and with the help and assist on what's happening in Peru, being the largest producer of fishmeal and fish oil and thereafter looking at the bigger consumer, which is the Chinese market.Starting off, if we look at the table on the left-hand side, you can see that, I would say, so far this year, the production has been more or less in line with our gross in 2019. And prices, you can see on the lower left graph, that has been increasing during the last 4 to 6 weeks. And before the quota was announced in Peru, we achieved Super Prime prices, over $1,600 per tonne, with a discount of $200 per tonne for Standard fishmeal.I would say that China is the main destination for what's being now both pre-sold and sold of last season and for the next season and that have been the main driver behind the increase in prices. And of course, I would say that we have to wait a couple of weeks to see the impact on the fishing activity in terms of see the further development of the fishmeal market from the quota in Peru.Stock situation is, I would say, lower than last year. Also lower than the last 5 years in the period, 112,000 tonnes, 42% lower in China than it was same period last year. The off-takes of the stock is a bit less than it was last year, 23,000 tonnes. And the prices we have been seeing after the announcement of the quota was close to $1,800 per tonne, which is a substantial gap to the prices which we sold in Peru, also enhancing more trade for the fishmeal.Two reasons why we have seen that the prices has been increasing in China. Mainly, the first reason is that the Chinese currency has been appreciating against the U.S. dollar and helping to lower the China's import cost. The second, I would say, argument is that fishery along the Chinese coast has been poor, and expected also, leading into either importation of international fishmeal. And if you look at the fish oil prices, you can see that it's been quite stable prices for the last months, around $2,000 in for feed grade and a premium of $200 in for Omega-3 grade. And again, I would say that achievement of volume in Peru will be the what's determining how the price will develop in the next months.Now looking at the Atlantic salmon supply. You can see that in 2020, we are looking at an annual growth of 4.2%. It's a limited growth of Norway, 1.2%, and the main growth is coming from the Americas with approximately 10% up. And then looking into 2021, you're seeing that we are not expecting a global growth in 2021 compared to 2020, but Americas will come down again, and we are expecting a growth of -- out of Europe on approximately 4.6% led by an increase in Norway of 4.7%. So I would say the underlying supply of parameters is, I would say, healthy going into 2021.Now prices, I would say, it's been a challenging year. Also reflected in prices. I would say that by the end of first quarter and into the second quarter, prices were heavily affected by the lockdown in the main markets of salmon due to COVID-19. Situation improved, I would say, during third quarter. And I would say that the visibility now is less into fourth quarter, looking at recent development, and the increase of the COVID-19 virus happening again.What you can see that the consumption during the first 9 months has been led by an increase of -- from EU. Also the States has also been increasing their participation. In present, Japan also. And other markets has been going down in their consumption. It's mainly driven by less volume coming from consumed in China, which has been, I would say, a challenging market since -- during all 2020 when the market was -- when the COVID-19 effect came in.Short term, I would say, the full effect of COVID-19 remains unpredictable. I would say, in terms of using longer glasses, fundamentals is quite sound. We are aiming to increase our volumes, including associated company, with between 25,000 and 27,000 tonnes for next year. Whitefish quota advise, and particularly for the most valuable fish, the codfish and haddock, giving us a good foundation in 2021 for the whitefish segment.And then going to the pelagic segment, looking at this season in Peru, we are excited of the quota which is put, and we are prepared with our vessels and hopefully, we will have a good execution of the season. Of course, yet to be seen how the fishing will develop. But also I feel that we will have a better start of 2021 due to the quota situation than we had in the same period in 2020.And also Chile, still continuing with a healthy biomass and expect a higher quota in Chile compared with the same year 2021 versus 2020. I would say, most important period for the human consumption activity of Pelagia and for pelagic fishing vessels and we have been executing the system on an acceptable manner so far during Q4 and expecting a aggregate contribution there also in fourth quarter. I would say it's a mixed picture on the quote situation for next year, a bit less for blue whiting in quota. So a bit less raw material for our fishmeal activity and a higher raw material basis for our human consumption activities expected during 2021.So that's it. Thank you for listening. And have a good day.