Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2022-Q3

[Arne Møgster, executive]

It's a great pleasure for me to welcome you to Austevoll Seafood Third Quarter Presentation. I will start off by giving the highlights of our operations. I will take you through the different segments we are operating within. Thereafter, our CFO, Britt Drivenes, will take you more in details through the numbers. And I will end this presentation by giving our view on the different markets we are operating within.

Starting up, I have to say that we have had a very good quarter and it's been marked by a good price achievement for most of our products. If you look in our South American activity, there has been a seasonable low activity during 3 quarters. However, we have committed a lot of sales to good prices during the quarter.

We have had good activity in the Pelagic segment in the North Atlantic and it's been particularly marked by the early start of the mackerel season and also herring season in the end of the quarter. If you look to Leroy also, it's been a high volume slaughter during the quarter and with the variable performance depending on the regions we are operating. I will come back to that.

So summing up, if you look at the numbers, you could see that the revenue for the quarter is NOK 9 billion. EBITDA is up with NOK 600 million to NOK 1.7 billion compared with the same quarter last year and EBIT of just below NOK 1.3 billion and pretax profit of approximately NOK 1.340 billion. And I would say it's 3 segments, which has performed much better this quarter than last quarter, which is, in particular, our activity in Peru, the salmon activity and also a better performance from Pelagia in the North Atlantic.

If you take into account the 50% share of Pelagia, our EBITDA is surpassing NOK 2 billion, whereas NOK 1.2 billion is coming from salmon and approximately NOK 850 million is coming from the pelagic business.

Looking at year-end figures for the first 9 months, you can see that our revenue is approximately NOK 23.5 billion. We have an EBITDA at just short of NOK 5 billion, EBIT of NOK 3.6 billion and a pretax profit of NOK 3.7 billion. Doing the same exercise in terms of including 50% of the EBITDA of Pelagia, you can see that the total EBITDA for the first 9 months is NOK 5.5 billion, whereof NOK 3.6 billion is coming from the salmon segment and approximately NOK 1.850 billion is coming from the Pelagic segment.

And compared with the first 9 months, you can see that we are delivering NOK 1 billion better in EBITDA from Leroy and NOK 570 million better from the Pelagic segment. It's mainly driven by Peru, our Pelagia and also our salmon company, [indiscernible].

You can also see that the balance sheet has increased. We have had an inflation in cost and also net interest-bearing debt is going up. It's working capital-demanding industry. And when we have inflation and cost has also an impact on our working capital, but remains with a strong equity share of 58%.

Summing up, if you look at the operational overview, you can see on the right-hand side that this year, we're going to catch approximately 400,000 tonnes of pelagic fish on our own license with our own fishing vessels. We are aiming to produce 1.9 million tonnes of pelagic fish in our processing plants, handling whitefish both on our trawlers and on our factories in Norway, approximately a volume of 100,000 tonnes and aiming to slaughter 200,000 tonnes of salmon in 2022.

Then starting off having a look on the different subsidiary within the Pelagic business. What you can say here in -- when it comes to Peru is that we have had a seasonable low activity. It's been offseason and there's been a maintenance period both for our fleet and also for our factories. Saying that, we came into the quarter with a high stock of both fishmeal and fish oil, which we have sold for better achieved prices than we did same time last year. And that also has an impact on the result, which Britt will take you through more in detail later on.

We have acquired our secondhand fishing vessel in Norway, replaced it by 2 existing vessels in Peru and are hoping to get this vessel ready for the new seasons, which we believe will start up by the second half of November. It's fair to notice also that we believe it's going to be a bit later season -- the startup of the season than previously. And the sales, we are committed need to be produced -- committing in fourth quarter need to be produced before the 6th of December. So I think mainly most of our sales is going to be sold during first quarter and less is going to be sold in the fourth quarter.

We don't know the result of the research yet. And hopefully, within second half of [indiscernible] is going to be announced and what we have put in here as a guidance is a quota of 2 million tonnes. And of course, that's subject to the result from IMARPE.

Looking into Chile, we have had -- this is the fourth year we have increased quotas with approximately 15% and the biomass has recovering from the collapse in -- back in 2010. This year, our own quota was 46,000 tonnes and we have been able to purchase from third-party players approximately 35,000 tonnes in addition. This we also aim to do during next season and aiming for a volume in 2023 of just north of 90,000 tonnes of mackerel and horse mackerel.

Our side, the operation has gone smoothly this year and all the credit to the management in terms of handling, I would say, difficult logistical challenges to get transport the fish out in the main market. We also see that we have increased our percentage in for frozen products, which is also giving a better margin than canned and fishmeal and fish oil products. Looking forward to start up the new season again and have also increased capacity for freezing from 600 tonnes a day to 750 tonnes a day.

When we look into the North Atlantic pelagic quotas for next year, it's still some quotas which is not finalized yet, but we have put in some estimates. But how it looks is that the ICES recommendation will increase the blue whiting quota with 81%, which is the main species going in for our fishmeal and fish oil activity. And we're also seeing that all North Sea herring, NVG herring, capelin and mackerel is reducing the quota this year, which is the main species going in for our human consumption activity.

Looking into Pelagia and when it comes to fishmeal and fish oil, I would say, it's been a normal production quarter. And both when it comes to production of pelagic trimmings, but also from salmon -- salmon-based raw material has been normal. The volume is more or less same level as same quarter last year. What I can say here on the fishmeal segment is that we have had increasing fishmeal and fish oil prices during the year and has also impacted in good result from Pelagia also in third quarter where they are committing most of their sales.

Human consumption activity mainly marked by mackerel season, early start and also start producing from North Sea herring and also from spring spawning herring. This continues into the fourth quarter and will probably end in end of November. And also, I would say, a good walkthrough this season as well. You can see on the numbers, we have had revenue in the third quarter of just below NOK 3 billion and EBITDA of just short of NOK 600 million and an EBIT of NOK 500 million. Looking at the year-end, our revenue is NOK 7.5 billion, EBITDA of just north of NOK 1 billion and an EBIT of NOK 780 million.

Then having a look into the salmon and whitefish segment, we have increased our EBIT from this quarter compared with same quarter last year and it's mainly related to increase of prices. The volume has more or less been the same this quarter than it was same quarter last year and approximately 15,000 tonnes of 56,000 tonnes is coming from Leroy Aurora; 22,000 tonnes from Leroy Midt; and approximately 19,000 tonnes is coming from Leroy Sjotroll. The prices has a steep drop compared with same quarter -- now compared with last quarter, but an increase compared with same quarter last year.

EBIT is up NOK 40 per kilo, where the highest EBIT per kilo is in the mid-Norway than in Leroy Aurora and we have biological challenges in particular in Leroy Sjotroll due to high sea lice treatment and also some biological issue on our biomass there. We are not 100% happy with the performance in Leroy Midt either and the growth has not been as good as we hoped it will be. And if you look into Leroy Aurora, I think we are on the right track in order to -- with good biological performances in this region.

Volume-wise, we are aiming to produce 175,000 tonnes in Norway this year and approximately 20,000 tonnes in Scotland, leaving us a volume of 193,000 tonnes in total and aiming to increase this volume for next year, up to 180,000 tonnes in Norway and total just passing 200,000 tonnes.

Then we got presented a new tax proposal by -- from the Norwegian government, the 28th of September, where they want to implement a new resource tax with additional 40% tax on profit generated from the sea phase of farming. And again, I would say the process, the level and the model has been extremely challenges for us, both in short term and also in -- when it comes to long-term development of our company. We are present in 60 different monopoly cities in Norway, up along the coast with good activity in forming in Leroy. And this tax proposal will have an impact on how we are actually able to develop our company going forward if it's being implemented.

Some of the chaos which has been -- which this proposal has led to is that we are actually not at present date, not 100% aware of what kind of taxes we're going to have starting from the first of first 2023. We're going to deliver our hearings to this new tax proposal by the 4th of January. And also the government is going to discuss it with the Congress in the summer period. So it's an extreme unpredictability when it comes to this suggestion and also the level to triple the taxes in Norway is dramatic.

And the third aspect up in this is that we are not actually sure if it's the achieved prices which is going to be the basis for the taxes. So a lot of uncertainties and a lot of discussions and time being, this suggestion is challenging our activity up along the coast of Norway.

Then looking at our whitefish segment. And it is fair to say that the achievement has been good. Normally, third quarter is a seasonable low fishing quarter, but it's been better this quarter than it was same quarter last year. Prices are extremely good, up over 50% on cod, approximately 20% up on haddock and 40% up on saithe. So a very good price achievement for our fishing vessels, but they also make it more challenging for our factories onshore when raw material prices is increasing. But all in all, a better performance this quarter and so far this year compared with same period last year.

And I will give the floor to Britt.

[Britt Drivenes, executive]

[Foreign Language] Thank you, Arne. This table sums up the activity in the different operational companies in the quarter and short to sum up, a seasonable low activity in the south in South America within the Pelagic segment and a very good activity within the Pelagic segment in the North Atlantic.

Looking at the salmon business, the slaughtered volumes are almost at the same level as same quarter last year, but substantially up from second quarter this year. Arne has already taken you through the highlights and the key figures. So what we can say is that we have a higher revenue. And this comes as a consequence of a higher price achievement for the finished products that the company sells.

The EBIT in the quarter was almost NOK 1.3 billion, up from NOK 741 million in the same quarter last year. And the increase in EBIT are mainly coming from Austral Group in Peru and Leroy Seafood Group here in Norway. And again, as a consequence of higher price achievements on the finished products.

Income from associated companies are NOK 173 million, a little bit down from NOK 194 million and the decrease in income are -- comes mainly from Norskott Havbruk, and there has been some biological challenges and also they have slaughtered fish on lower average weight.

Net finance are minus NOK 113 million. And our debts, minus NOK 94 million are net interest and that is up from minus NOK 67 million in net interest same quarter last year. And we have seen increasing interest rate and also we tie up some more working capital. The result or the pretax result is NOK 1.3 billion, up from NOK 839 million and this gives an earnings per share of NOK 3.52, up from NOK 2.26.

In third quarter, the revenue was NOK 23.5 billion, up from NOK 19.6 billion in the 9 first month of 2021. EBIT ex-biomass adjustment and also settlement cost was NOK 3.6 billion, up from NOK 2.3 billion. And the income from associated companies has increased. It was NOK 342 million, up from NOK 305 million and the increase are mainly coming from Pelagia.

It looks like the net finance are down here, but that is because of positive currency effect year-to-date this year of NOK 9 million. Last year, we had a negative currency effect of minus NOK 56 million. But the net interest year-to-date are minus NOK 272 million, up from minus NOK 213 million in the same period last year. And again, increased interest level and also working capital.

Pretax in year-to-date Q3 2022 is NOK 3.7 billion, up from NOK 2.3 billion in the same period last year, which gives earnings per share of NOK 8.28, up from NOK 5.39.

The main value driver for Leroy is EBIT per kilo. And you can see that the slaughter volume in this quarter is more or less the same as same quarter last year, a little bit over 56,000 tonnes. The price achievement or the spot prices has been extremely volatile in 2022. So we can see that there has been a decrease in spot prices quarter-over-quarter of NOK 37, but there has been an increase of NOK 14 year-by-year. But of course, Leroy's total price achievements are influenced by the contract share and the contract share in third quarter was 37% and the contract prices were lower than the spot prices.

We also see inflation trend year-on-year. And the production cost, looking at third quarter this year compared with last year, has increased by NOK 3.5 just because of the feed. But also, we see an increase in cost from the slaughtery processing of NOK 1.

Wild catch, there has been some higher volume this quarter compared to last quarter. The price achievement has been increasing in average, approximately 25%, but for cod as much as 56%. But also, we see the inflation trend here and especially for fuel, and fuel costs are up NOK 49 million in third quarter this year compared with last year. And this even at the consumption has been a little bit lower than same period last year.

Higher price achievement for the raw material has been very challenging for the onshore industry and we have been into this also in the previous presentation. And we see that the prices out to the end consumer has not had the same increase in prices as we see for the raw material. So this has given a pressure on the margin on the onshore industry. Leroy's EBIT in the quarter was NOK 831 million, up from NOK 579 million in same quarter last year.

Moving over to South America and to Austral Group. There has as normal been a seasonal low activity in third quarter. The company got 27,000 tonnes of its own quota in July, the quota -- the remaining quota for the first season. They went into the quarter with high inventory of finished products and most of that has been sold in the quarter. And the price achievement has been 30% higher for fishmeal and as high as 80% up for the fish oil.

The revenue in the quarter was NOK 1.2 billion and the EBITDA of NOK 446 million and the EBIT NOK 396 million, up from NOK 145 million in same quarter last year. And what I would like to mention is that we have a one-off effect of NOK 61 million in third quarter this year.

Also in Chile, low -- as normal, low seasonal activity. Chile have their main season in the first half of the year. They finalized their horse mackerel quota, but we managed in the end of the quarter to purchase an additional 3,600 tonnes from third party, which we expect to fish in December. The company has sold a higher volume of frozen products, but the price achievements are down by 20% compared to same quarter last year.

The revenue in the quarter was NOK 230 million, the EBITDA NOK 37 million and the EBIT NOK 28 million, up from NOK 18 million in the same quarter last year.

Br. Birkeland Farming has slaughtered just below 1,200 tonnes this quarter and that is down from 2,300 tonnes in the same quarter last year. However, third quarter last year was heavily impacted by an ISA outbreak and they had to slaughter all the ISA fish in third quarter on very low average weights. The company sells all its fish in the spot market and the company has achieved a EBIT per kilo of NOK 7.2 in third quarter this year. And of course, as I said, third quarter last year was heavily impacted by this ISA outbreak.

Br. Birkeland AS have had the 2 pelagic vessels in operation in the third quarter. The vessels started a mackerel season early August and they finalized the -- almost finalized their mackerel quota by the end of third quarter. The price achievement has been good and better than last year.

The 2 snow crab vessels do not have any operation in second half of the year. The quota was finalized in the first half of the year. So they are doing maintenance and repairs. And of course, they operate in very rough waters up north in the Norway. And there are substantial repairs to be done due to damages from the ice. The revenue in the quarter was NOK 100 million. The EBITDA was NOK 31 million, and the EBIT was NOK 17 million. And we have also sold finished products of snow crab this quarter. And what we can say is that the price achievement for snow crab are substantially lower compared to 2021.

The group has a total asset of NOK 48 billion. I would like to mention that some of the group companies do have -- does have other functional currency than NOK. So of course, converting from dollars to NOK will influence the size of the -- or the size of the assets or the balance sheet. Besides that, we can see that the value of the biomass has increased from the end of the year with NOK 2.3 billion and especially driven by the IFRS biomass adjustment, which alone is more than NOK 1.5 billion. The booked equity is NOK 28 billion, which gives an equity ratio of 58%. And net interest-bearing debt by the end of third quarter is NOK 4.9 billion, up from NOK 3.9 billion by the end of September last year.

I'm going to give you a few comments on the cash flow and we look at year-to-date. The cash flow from operation are NOK 2.6 billion. And as I have mentioned earlier, we tie up substantially more working capital subject to inflation this year compared with last year. And the cash flow from operation is NOK 1.2 billion. We have received NOK 131 million in dividend from associated companies. And the cash flow from financing is NOK 2.5 billion.

And of this dividend stands for NOK 1.7 billion, and that is dividend to the shareholders of Austevoll Seafood ASA, but also dividends to the minority shareholders of the group companies. We started the year with a cash position of NOK 5.3 billion and we ended the year -- now we end the third quarter with a cash position of NOK 4.3 billion.

[Arne Møgster, executive]

Then I will continue taking you through the different markets in the different segments, starting off with fishmeal. And as you can see, it's been a great stable production of fishmeal in the largest producer countries comparing this period to the same period last year. It's more or less same level, but you can see that fishmeal production is down in particularly in Peru.

Prices has been quite good, I would say, and increasing during the quarter. As Britt said, 13% up this quarter compared with same quarter last year, and it's -- the main drivers behind the consumption is the Chinese market, which has consumed more than 75% of -- or acquired more than 75% of the premium production. We are all waiting for a new season and I would say, it's limited stock available for new offers in Peru today.

When you look at the fishmeal market, looking into China, you can see that the volume is a bit higher than it was last year in stock, but the daily off-take is also higher. We see that the prices obtained in China is marginally higher than what they are selling it in Peru. And we have also seen that it's a devaluation of the Chinese yuan, which is also making it more expensive to import fishmeal from South America. But all in all, prices has increased and is still favorable using fishmeal in the diet versus soya meal.

Then looking into the fish oil situation, you see it's an increasing production of fish oil with approximately 6%, but Peru is down by 34%. So the yield from the first season in Peru was much lower than normal and has led to the increase in prices, as you can see on the graph on the bottom left. Limited, I would say, difference between feed grade and omega-3 grade at the moment, but also a result of small volume traded from Peru.

Then looking at the volume. We are expecting this year that the production globally will be more or less the same as it was last year and we don't foresee any huge changes in volumes for next year. So the underlying fundamentals in terms of supply is favorable for good price achievements also during next year.

Saying that, if you look at prices, you can see that prices has come steeply down in third quarter versus second quarter. And you can also see the challenges here in terms of hitting the market. In our case, I would say that 40% of our volume is contract prices on fixed prices from 6 to 12 months and that's one of the challenges if they're going to calculate the new taxes based on this NOK stock prices and not achieve prices when you see the variation in prices which you are seeing on the graph here. Then again, market has been good. EU main market for us and it's been growing together with the United States and other markets.

So summing up, the proposed resource tax may impact from 1st of January. It brings significant uncertainties and the outcome and it's not set yet. So we will use the period in order to come with the hearing answer in terms of the proposed suggestions.

One of the effects you can see this quarter, we -- or fourth quarter, we're going to have 38% contract shares in first quarter next year, we have 1% contract share as a consequence that this contract market is taken away from us now when we cannot commit the fixed prices as it looks today.

Whitefish is -- I would say the performance has been good in 2022. You can see that cod quota is down by 20% for next year. And haddock is down by 5%, and saithe is up for next year.

Pelagic I would say, has been challenging the last 3 years in terms of the logistics, shipping of products out in the market. It seems like this situation is recovering and I believe that this is going to be better next year. But overall, I would say that our companies, both in Peru, Chile and in the North Atlantic are delivering good. We are looking forward now to start up the next season in Peru and we are also happy that the indication for next year is a continuous up with 15% quota. North Atlantic quotas means that it's going to be more fish for our fishmeal factories and less fish, I would say, for our human consumption activity. So that was all. Thank you for following.