Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2017-Q4

[Arne Møgster, CEO & President]

And it's a great pleasure for me to welcome you to Austevoll Seafood fourth quarter financial presentation. I would just briefly start take you through the main numbers during the quarter and for the end of the year. Thereafter, I'll give a short view on what has been happening in our different subsidiaries during the quarter. Then Britt Kathrine Drivenes will take you in more detail through the fourth quarter numbers, and I will be ending the presentation by giving our view on the different markets we are operating within.So starting off, we have had a fantastic year in Austevoll Seafood in 2017, is by far the best year ever. However, looking at the fourth quarter number in 2017, it's been a bit more challenging, I would say. We have a very good performance from the salmon activity, also based on the spot prices we are seeing now, comparing with the spot prices, which was by the end of 2016. We have also had a very good operational performance in our activity in the North Atlantic, however, looking at our activity in South America, it has been contributing negative on the EBITDA level due to there has been no fishing activity in particular in Peru during fourth quarter. So it has been disappointing, I would say, quarter in Peru, which I will come back to in our presentation.Revenue, fourth quarter, NOK 4.8 billion; EBITDA, NOK 818 million; EBIT, NOK 584 million; and pretax profit before biomass adjustment of NOK 650 million in the quarter. If you also consider the 50% contribution in Pelagia to our EBITDA, we are having an EBITDA in fourth quarter of just below south of NOK 1 billion whereof NOK 921 million is coming from the salmon segment and barely positive from the Pelagic segment. Then looking at 2017 as a whole, you can see our revenue is just south of NOK 21 billion; EBITDA of NOK 4.7 billion; and EBIT of NOK 3.8 billion which is almost NOK 900 billion better than 2016, which until last year was the best performance we have had operationally ever. So 2017 has been a good year for us. If you also consider the 50% ownership in Pelagia, our EBITDA is turning NOK 5 billion level, whereas salmon segment is contributing with NOK 4.3 billion, and the Pelagic segment is contributing with NOK 750 million which is a bit less than 2016. And we were hoping based on our better season in Peru that we would have surpassed the 2016 level also for the pelagic activity but we didn't do it.Looking at our balance sheet. If you're looking at Austevoll Seafood, we are extremely focused in having a strong balance sheet, having -- being positioned to do acquisition, but also being in position also to hold our position and we are going through a challenging period and that's the reason why we are having such a strong balance sheet as we are having. NOK 35 billion in total assets, net interest bearing debt is down by approximately NOK 1 billion to NOK 4 billion, and then we have an equity ratio of 54%. And the board is recommending to the Annual General Meeting, a dividend of NOK 2.80, which is up from NOK 2.50 per share in 2016.This table I'm showing every quarter, we have done some small changes compared with previous quarter, we have sold one of our pelagic fishing vessels in Norway. This we have done in January. And we are also taking delivery of one new build in Havfisk, increasing the total fleet now until 10 fishing vessels. If you look at the right hand side, you see that we are catching between 400,000 tonnes and 500,000 tonnes of pelagic fish on our own quota on an annual basis. This year, we have been processing approximately [ 1 million 850 tonnes ] of pelagic fish on our factories in all region we are operating, and we are aiming to surpass 2 billion tonnes next year. We are slaughtering and harvesting between 180,000 tonnes and 190,000 tonnes on an annual basis of salmon and also the acquisition of Havfisk and Norway Seafood have also given Lerøy a quite interesting position as a complete seafood provider for the large retailers in particular in Europe.Then going through the Pelagic segment, and we will start up with their stall, and I would say 2017 turn out to be once again a challenging year for the Peruvian fishing industry. And it's again following up 3 years from, I would say, unstable fisheries, so this is the fourth year in a row which we have had a challenging year. Going to the end of the season, the quarter was set at 1.5 million tonnes, which was a bit under our expectation. Fishing started in -- by the end of November, however, they closed it quite frequently after the opening mainly due to the impact of small fishes and a high presence of juveniles in the fishing zones. What has been extremely -- what has been different this year has been that there has been a permanent zone closed along the coast in Peru during all fishing season. If you look from Lima on south, it has been closed due to the high presence of juveniles, and this year we have not been able to catch inside up to the 5 mile zone, we have been pushed out of the 15 mile zone of the coast. And the fish has been abundance, and where it has been strong fishy fields, there has also been a high incidence of juveniles, meaning also that has been temporary closed zones during the seasons as well. So by the first -- fourth quarter, there has been no fishing, and fishing started up again in the beginning of January, and it's stopped by the end of January, mainly due to -- [ as it start responding gain ]. So in the beginning of January, it established a zone in the north of our factory in Coishco, 120 nautical miles, meaning also that our factories has not been ideally located in terms of where the fish has been located for this season, meaning also that we are not that happy with our fish performance as well. Saying that, they have stopped this season, they have closed the zones to preserve fishing zones, and preserve the small fish, meaning they are thinking for the future in terms of they are monitoring of the biomass. And we are expecting that the fish recovered already in the first season, and we are estimating that 2018 will have a quota between 4 million and 5 million tonnes. And of course, this is subject to the [ much precautions ], which is done in advance of every season.Again, I'm not focused that much on fourth quarter since nothing has happened, but again, it's been a quite challenging quarter for us, because we have been maintaining our fleet, we have been 100% ready in order to meet the season to start up. In fourth quarter we have done some fishing effort without catching any fish because of the size. So we have been having a lot of cost without income during that quarter. If you look at the summary of the fishing season, you're seeing that we are -- we have caught approximately 40% of our quota, and it's a far lower volume than it was done last season, similar season in 2016. We have purchased a higher percentage, but a lower volume. The percentage of the yields has been a bit lower this year compared with same period last year. We are more or less in line with the quality we have been producing. The majority of the volume we have been producing our fishmeal is being sold in the first quarter. However, at lower cost and now at lower prices than we are experiencing now, since we have been selling forward a lot of our volumes before the season start in November.Has also been set a quota for fishing in south, 535,000 tonnes, so far has been caught approximately 80,000 tonnes, and we have got a fair share of that in our factory in Ilo. As you can see for the 2018 estimates, we are expecting that we will have a far better fishery, I mean, we will have a higher share of purchasing compared with -- in volumes compared with 2017. And we hope that 2018 will be the year where fishing normalized in Peru.Going to Chile, again seasonable low activity in the quarter, it's the same every quarters, every 4 quarters. We are more or less finished with the seasons. And I would say Chile has done a fantastic job this year in terms of turning and adapting to the raw material basis they have available. I have been able to purchase a similar volume as the quota, which has been caught by our own vessels and surpassed 100,000 tonnes of raw materials to our factories during 2017. Aiming to do the same in 2018, in terms of the jack mackerel, quota will be more or less the same, although it has increased with 16%, we have also been 15% that's been auctioned, and the final outcome of that auction is not yet ready. But we are aiming to have some part of that auction as well.And if you look at 2018 estimates, in terms of the horse mackerel catch, we're hoping to be on the same level in '18 as in 2017. North Atlantic pelagic quotas, a bit less than 2017, which has been the best year ever. I would say raw material for fishmeal, we think it will be a bit higher this year compared with last year. Blue whiting is a bit up, some of the capelin, were going for fishmeal. We are also expecting sand eel to be a very good season in 2018.Now we have a decreasing quota for direct human consumption. NVG herring is down by 33%, and mackerel is down by 20%, compensated a bit of capelin in the Barents Sea, and also an increase in the North Sea herring quota.Had a good quarter in Pelagia for fishmeal and fish oil. Also gaining from the fact that Peru has been down in volume in terms of increasing prices during the quarter for fishmeal and oil in the North Atlantic. This we're also expecting coming into first quarter 2018 as well. Raw material 150,000 tonnes is mainly trimming from the herring season, it's up from last year and you can see 2017 in terms of volume is approximately [ 100,000 ] up compared with 2017, and we are also expecting that we remain more or less the same level to our [ factories ] in 2018 as it was in 2017.Looking at direct human consumption, fourth quarter extremely important quarter for Pelagia, approximately 50% of the raw material basis is coming in fourth quarter, and this year has been particularly high due to high concentrate of NVG fisheries happening during the end of the year. Going into the new year, stock situation on the high side, but I would say, stock level and raw material cost is more aligned with the market prices this year when we turning into 2018, and how it was when we were turning to date until 2017. Also interesting to notice that the capelin season just started up now. And it will compensate in our [ North-liest ] factories for some of the reduction in the NVG herring quota for -- in 2018.Pelagia, another good quarter, another good year. We are more or less in line on an annual basis with last year's performance, helped a bit on the increase in fishmeal prices by the -- fish oil prices by the end of the year, but I would say in general -- has ended very well in [ fourth ] quarter. Revenue of NOK 2.2 billion, EBITDA of NOK 231 million, and an EBIT of NOK 183 million, which is up from same quarter last year. More volume sold into -- for the frozen products [ highlight ] a bit lower margin than it was at the same period last year, but volume compensated for the drop in margins. [indiscernible] Br. Birkeland has also had a good year in terms of I would say performance on salmon, but not as good as it was in 2017. I would say in the end of the year, we have had some biological challenges and the spot prices has been far lower than it was by the end in 2016, and is also reflecting in the numbers coming from Br. Birkeland during the quarter.We have had on our fishing vessels -- on pelagic fishing vessels, we have had more growth during 2017 comparing with 2016. However, the prices and in particular, in the fourth quarter, price achievement has been 40% plus on the NVG herring, and also 20% less on the mackerel landings, which is also effecting the profitability comparing with same period in 2016. Then coming to Lerøy Seafood. Lerøy is delivering once again a very good quarter, if you want to have more detailed information, I suggest you go and just look at the webcast of Lerøy Seafood Group -- in terms of their fourth quarter presentation. Short summarize, EBIT just below NOK 800 million, is down from the same quarter last year, however, at far lower salmon than the market prices. Havfisk and Lerøy Norway Seafood is delivering more or less on the same level as they did in fourth quarter last year. Harvest volume is a bit up 42,000 tonnes, 12,000 tonnes from the north, 12,000 tonnes from the south, and then approximately 20,000 -- 18,000 tonnes in Mid-Norway.EBIT per kilo, all-inclusive is NOK 16.5 per kilo is huge variances from region to region, and I would say is Lerøy was delivering EBIT per kilo of NOK 24 in fourth quarter, which is a fantastic achievement. Lerøy Midt is recovering, delivering NOK 13 per kilo, and we have had some biological challenges in third and fourth quarter in Lerøy Sjøtroll. And they are delivering just below NOK 5 EBIT per kilo in fourth quarter and we are expecting that to improve -- during 2018. The EBIT per kilo, all-inclusive by the end of the full year for Lerøy is approximately NOK 21, and it's a very good achievement from Lerøy and a good performance if you disregard what has been happening by the end of the year in Lerøy Sjøtroll.Contract share, 30%, contract prices is higher than spot prices during the quarter, net interest bearing debt is down NOK 2.2 billion, and we are increasing our harvest as guiding to approximately 182,000 tonnes, up 2,000 tonnes from our last guidance for 2018. 38,000 tonne will come from Lerøy Aurora, 68,000 tonnes is coming from Lerøy Midt, and we are expecting 63,000 tonnes from Lerøy Sjøtroll. And a bit down from our activity in Scotland, mainly due to the change [ as I said ] biological challenges by the end of 2017 Scotland as we had in the west coast of Norway.Catches has been on the same level as last year, 8% down, but I would say the percentage of cod catches has been a bit higher this quarter compared with 2016 fourth quarter. Prices is up 7% up for cod, 17% up from haddock, but Saithe prices is down in the quarter. Still a lot to do in our onshore operation in Lerøy Norway Seafood. It's not a quick fix to turn the operation there, however, we believe in a while that we are able to utilize the operational strength of both Havfisk, Lerøy Norway Seafood and match it with the market organization and innovative operations of Lerøy in terms of [ breaking up ] values on the wild catch of white fish segments as well. And it's making Lerøy a quite interesting company for our major customers, we believe.Now I'll give the rest to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne. We start by showing in the total raw material intake in the quarter and also for 2017 as a whole. And as you can see when we include the salmon volumes, we have had a raw material intake of well above 2 million tonnes into our companies in the group in 2017. To sum up fourth quarter, it has been a good quarter for the segments within salmon and white fish, but lack of raw material in Peru has given a negative contribution from that company and as such a negative contribution into the Pelagic segment.The revenue in fourth quarter is NOK 4.8 billion, and if we include our share of Pelagia, the revenue in the quarter is NOK 5.9 billion. There has been an EBITDA of NOK 819 million, including Pelagia, NOK 934 million. Of course, as you can see there is a decrease in both the revenue and EBITDA compared with the same quarter in 2016, and the main reason for that is lower price on salmon. As you can saw from our earlier slides in the presentation, the spot prices are down by 25% and of course the lack of raw material in Peru has impacted. The EBIT in the quarter is NOK 584 million and including Pelagia NOK 695 million. The associated companies have had a good quarter and income from associated companies is NOK 153 million in the quarter. That gives us a pretax result of NOK 651 million and the pretax result is also before this fair value adjustment of the biological assets. And that gives an earnings per share and also before the fair value adjustment of biological assets of NOK 1.62. The group has had a very good year in 2017, and it's our best year actually, excluding this adjustment on biological assets. And despite the disappointing second season in Peru and also that we had some challenges within salmon in the west coast of Norway in third quarter. Total revenue for 2017 is NOK 20.8 billion. If we include Pelagia, our share of Pelagia and revenue is NOK 23.9 billion. The EBITDA in 2017 is NOK 4.7 billion and including Pelagia approximately NOK 5.1 billion. We have had -- the reason for the better EBITDA is higher volume of salmon sold during 2017 and also in average higher price achievement for salmon in '17 as a whole compared to 2016. The EBIT in 2017 is NOK 3.8 billion, including Pelagia it's NOK 4.1 billion. As I said, the associated companies have had, also had a very good year for 2017 as a whole, and the income from associated company in 2017 is NOK 495 million. This gives us pretax in 2017, and this is before the fair value of biological assets of a little bit above NOK 4 billion and earnings per share of NOK 8.62.Lerøy has had their best year ever in 2017, and they have also had quite a good fourth quarter, despite the lower prices for salmon. They have slaughtered around 42,000 tonnes of salmon, a little bit or 8% more than the same quarter in 2016, and the revenue has been NOK 4.5 billion, and EBITDA of NOK 921 million and an EBIT of NOK 777 million. And for the total year, revenue of NOK 18.6 billion, and EBITDA of NOK 4.3 billion and an EBIT of NOK 3.7 billion. And as I said, they have slaughtered a higher volumes of salmon in 2017, compared to 2016, and also you can see that the earnings -- the EBIT per kilo, ex. Havfisk is higher than 2016.The EBIT from Havfisk is NOK 386 million in 2017. And they have had a full year in the Lerøy group in 2017. In 2016, Havfisk was included only for the 4 last months of 2016. The net interest bearing debt by the end of the year is NOK 2.3 billion, and that is down from NOK 3.4 billion by the end of 2016. Arne have told you about the fourth quarter and the second season in Peru. So it's not much more to say, it's been of course, due to that closed to 0 activity in the quarter. And we didn't have any -- we didn't have much inventory when we went into fourth quarter. So also low sales of Fishmeal and oil in the quarter. We have, of course, prepared our vessels and factories for the second season. So the cost related to that and also the fixed costs are reflected in our result for fourth quarter. So we have an EBITDA, a negative EBITDA of NOK 122 million, and a negative EBIT of NOK 173 million. For the total year, Peru or Austral had a quite a good first season, and also they went into 2017 with inventory from the second season in 2016. So for the total year, they have had a revenue of NOK 1.2 billion, and EBITDA of NOK 137 million, but a negative EBIT of NOK 51 million. The company has a net interest bearing debt by the end of the year of NOK 805 million. What I can mention as well is that Austral still have contracts from 2017, which they have to fulfill now in 2018 with a production in 2018, and those contracts are also priced in 2017.Foodcorp, as normal, low activity in fourth quarter, but we were able to buy additional 3,500 tonnes of jack mackerel from third-party in fourth quarter, and we caught that with our own vessels. As we have mentioned before, we do most of our result actually in first half year in Chile. And you can see that we have had a raw material intake in 2017 as a whole of 102,000 tonnes, and that is up 56% compared to 2016, and that gives us a revenue in 2017 of NOK 508 million, and EBITDA of NOK 79 million, and an EBIT of NOK 46 million. You saw in 2016, we had quite a negative EBITDA of NOK 187 million, but that included also impairment of NOK 149 million related to fixed asset, which we don't -- which we will not use in the coming years.The net interest bearing debt by the end of 2017 is NOK 20 million. Br. Birkeland, that's both salmon and also pelagic fishing. And we have sold a lower salmon volume in fourth quarter this 2017, compared to 2016, 1,200 tonnes versus [ 2,500 ] tonne in fourth quarter 2016. And we have moved some of the volumes into 2018. The pelagic vessels, they have been -- they have finalized the quotas within mackerel and herring. There have been low activity for the snow crab vessels. So the revenue in fourth quarter is NOK 146 million, and the EBITDA is NOK 50 million, and there is an EBIT of NOK 21 million. For the total year, the revenue is NOK 656 million, EBITDA of NOK 220 million, and an EBIT of NOK 124 million. Net interest bearing debt by the end of 2017 NOK 325 million.The group has a strong balance sheet, and the total assets are a little bit over NOK 35 billion, that is approximately the same as by the end of 2016. But if we look into the details, we can see there are some movements within the total assets. Our financial non-current assets are increased, and that is because we have had a good result from our associated companies. You can see the biological assets at cost, they are, that's more or less similar, but the volume by the end of 2017 is approximately 4% higher than the volumes by the end of 2016. There's quite a big change in the fair value adjustment of biomass. And you can see there is also a very good cash position by the end of the year, NOK 5.1 billion, up from NOK 3.7 billion by the end of 2016.The equity ratio is 54%, and we have a net interest bearing debt by the end of 2017 of NOK 4.1 billion, that's down from NOK 5.5 billion in 2016. Very good year in 2017 has also given good cash performance. And cash from operating activities is approximately NOK 4.2 billion in 2017. Net investment in CapEx is NOK 1.8 billion, and we have a program investing in industry and in small facilities going on. We received dividend from our associated companies, so the net cash from investing activities are approximately minus NOK 1.6 billion in 2017. Cash from financing activities is minus NOK 1.3 million, an addition to our ordinary installments and changes in short-term facilities, we have also paid dividend out of the group with NOK 950 million. And we end the year with a cash position of NOK 5.1 billion, up from NOK 3.7 billion in 2016.

[Arne Møgster, CEO & President]

And I will end up the session with the view on the different markets we are operating within. Starting up with fishmeal situation, as you can see on the production side, largest fishmeal producers in the world has increased their production of approximately 31% from 2016, until 2017. It was a bit less than what we were expected, and we were aiming to have at least 1 million tonnes from the Peru production, which has ended up on 730,000 tonnes. However, expecting a good season ahead. As a consequence of the failure of the fishery in Peru, we are also seeing a dramatic increase in the fishmeal prices, just sort of [ $2,000 ] per tonne for a high quality fishmeal. And you can see also big gap between high-quality and low-quality fishmeal. I would say the feed producers and end-users have been building stocks in order to have stocks until the next season start up in April in Peru. It's limited stock available, and I would say more or less 10% or above 10% of the growth in Peru, Norway is already been quote in the south. If you look at the market, main market, China has been buying, I would say the majority of the fishmeal produced in Peru during 2017. They are a bit higher on the stock level and by the beginning of the year, however, if you compare on the 5 years average, they are lower. The domestic production remains limited. And we have also see that, that prices in China has also been increasing at the same level as we have seen in Peru, and the fishmeal and soymeal price rate, is as high as just below [ 5 ], which is high compared with average. Looking at the fish oil, the same production for fish oil is 20% up, not 30% as it was in fishmeal, main reason for that is, I would say lower yields in Peru during 2017, and the volume has been more or less similar as in 2016. But we're also seeing since that catch has failed in Peru, we're also seeing a very high increase in prices on our sales relatively no difference if prices is going or fishmeal is going in for feed purpose, on omega-3 grade purpose, now on the few volumes that's been traded out of Peru. But you can see on the [ model ] down or the graph on the bottom left side, it's prices has been increasing a lot.Now looking at the Atlantic salmon supply, the newest update from Kontali, compared with last presentation we did in November, we have taken down the global production from [ 7% to 5% ] mainly due to a reduction in volumes in '18 in U.K., and also taking down a bit of volume second half from Chile. We are expecting, we are seeing a good demand at time being, a lot of prices is also stimulated to the consumption, and I would say the development now from the 2 last quarter in 2017, and also the first weeks of 2018 seeing that are now taking, I would say prices back again and increasing the consumption.I would say that the first half of 2017, we saw a big drop in the consumption from E.U., that has been recovering at lower prices during the last 2 quarters of 2017. But I would say there were main drivers from the consumption during 2017 has been what we defined as other market, which is mainly driven by China and Brazil.To sum up, we have been achieving, now the spot prices has been far lower this year, this quarter than compared with fourth quarter 2016, 25% down. We have seen a positive cost improvement comparing with third quarter, which is of course important for us, and we're also guiding up the volume expectation for 2018, and generally I would say we have a positive outlook on the salmon industry also on short and long term.White fish segment, similar catch for the quarter we had last year, we are expecting to have more or less the same catches in 2018, compared with 2017 in terms of total volume, but it will be another composition of the split between the different species. Cod quota down 12%, haddock down 13%, and Saithe quota is expected to be up during 2018.South America, again disappointing second season in Peru, however, the way they are monitoring the biomass, we are expecting it will have an effect on the first season, and we are expecting and hoping and aiming for a normal year during 2018, however, everything is of course subject to the [indiscernible], they have an advance of every season in terms of what the final quota will turn out to be.We're also seeing that the horse mackerel quota and horse mackerel biomass is in the process of being recovered in Chile, which also will have an effect on the catches also going forward.North Atlantic had another good year, another good quarter, and are expecting also based on biomass estimates that in particular for fishmeal and fish oil, there will be a good year for volume, and a bit lower volume in for human consumption segments during 2018.And that's all. Thank you.