Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2020-Q4

[Arne Møgster, CEO & President]

Now I would like to invite you to the fourth quarter financial presentation for Austevoll Seafood.I will start by giving you a short presentation of the numbers. We will then go forward in detail through the different segments in the group and how we had performed in the fourth quarter. Britt will take you more in detail through the numbers. And I will end this session by giving our view on the market for the different segments we are operating within.So starting off, I would say fourth quarter is an important quarter for the group. I would say, it's, in particular, 3 areas, which are contributing to our result in the quarter. That's in Peru, where one of the main season is executed. We also have the main season for our human consumption products in Pelagia in the North Atlantic. And of course, similar to the other quarter, Lerøy, it's just also an important quarter for Lerøy.I would say the performance in the quarter is -- we are pleased with the performance in the quarter and have a revenue of just above NOK 5.7 billion. It's marginally down from same quarter last year. An EBITDA of NOK 860 million, down NOK 140 million from last year; and an EBIT of NOK 460 million, which is down NOK 190 million from same quarter last year. And I would say the reduced result is mainly explained by a lower price achievement for salmon during the quarter. If you take into account the 50% shares we have in Pelagia, you see that our EBITDA for fourth quarter is close to NOK 1 billion, whereas NOK 750 million that is coming from the salmon segment, it's down by approximately NOK 280 million. And NOK 244 million is coming from the pelagic segment, which is up with approximately NOK 150 million, and it's mainly related to the good execution we have of the season in Peru.Looking at the full year, a revenue of NOK 22.5 billion, an EBITDA of NOK 3.7 billion and EBIT of NOK 2.2 billion. We have a strong balance sheet, just below NOK 40 billion in total assets; net interest-bearing debt of NOK 4.6 billion and an equity ratio of approximately 58%. Looking at -- taking into account the 50% shares we have in Pelagia, you see that we are just exceeding NOK 4 billion in EBITDA, whereof NOK 3.1 billion is coming from the salmon segment and the NOK 900 million is coming from the pelagic segment. And if you look at the pelagic segment, you can see that if you're taking away the gain sales we had of factoring in 2019, it's more or less delivering on the same level as we did in 2019 and 2020. The Board will recommend a dividend of NOK 3.50 per share, which is up from NOK 2.50 per share in 2020.Then looking at the volume, volume is important for our group. And if you look at our pelagic fishing quota caught by our fishing vessels, we did -- we had our total catch last year of 400,000 tonnes of pelagic fish. And we are expecting this year to have increased it to 50,000 tonnes up to 450,000 tonnes. We are estimating to process our pelagic factories approximately 1.9 million tonnes, which is more or less in line with what we did last year. And on whitefish, we are aiming to increase from approximately 100,000 to 110,000 tonnes with whitefish in 2021. And we are also estimating an increase of 190,000 to 250,000 tonnes of salmon during -- from 2020 to 2021.Then starting on looking at the different segments of the group. I will start off by giving our thoughts about Peru. Looking at the quota development and the season which started in November in 2020, you see that the quota were more or less in line with the quota in the same period in 2019. However, the main difference was that this time, we caught 2.5 million tonnes of the quota versus last year, we caught just below 1 million tonne. So it's considerably higher volume caught in 2020 versus 2019, although the quota was more or less in line with 2019.Looking into the first season in 2021, I would say that the research has just started, and we are aiming to -- they are aiming to end the research during April, and then we will know the outcome of the first season quota. But I would say that -- I would say the oceanographic conditions is favorable for the fish as it looks today.Diving in to our own performance during the season, we caught 166,000 tonnes, 125,000 tonnes before the year-end and approximately 40,000 tonnes in January, before the season was ended. I would say that we had a very good season. The vessel and the factory were ready to start when the season opened, which normally we should expect. But due to the pandemic, it's not necessary that we should expect that. But a very good execution. And what's still special this year is that the fishmeal yield has been extremely good. And the combined fishmeal and fish oil yield are close to 30%, which is far better than we saw also the last year -- season. Another thing is that we have a higher percentage of Super/prime, which is far better [indiscernible] the standard fishing.I would say coming into the new year, we have higher stock and also executed good sales into the new year. We are seeing also that the quota for mackerel and horse mackerel is more or less on the same level as last year, and this season has also started up in a very acceptable way. So we also have an acceptable start of 2021, as it looks today.And Chile, I would say, it's -- we are doing [indiscernible] in Chile in the first 7 months of the year and that we did this year as well. So for our progress, it's more or less a year where you also fixed cost. But what's been very good in Chile this year is they had a very good performance, both in terms of fishing, operation and sales. And I would say we have had one of the best years for the last 10 years in Chile in terms of financial contribution. Also, a positive development in the quota, increasing with 15% for the main important species we are having, and that amounts to approximately 40,000 tonnes. And we have been able to acquire 24,000 tonnes to be caught by our own vessels for 2021. So we also say that it's also a good start going into 2021 for our operation in Chile.The North Atlantic pelagic quotas, we are just done -- or unchanged in the estimates from -- that we did in last quarter. We have been -- it's been set, quota for Icelandic capelin on 127,000 tonnes. It's the first time for -- in 3 years that we are having this quote down. And of course, it's given also a contribution for our fishing vessels but also for productivity in the North Atlantic. Otherwise, we have improved ourselves in the North. The herring quota in North Sea is down, and mackerel is down and also blue whiting is down. So there is still not settled the final quota for sand eel. But it seems like the stock is in a very good condition, and the quota will be set in beginning of May.Summing up the fishmeal and oil activity, I would say that it's been a special year for the fishmeal and oil activity in the North Atlantic. You know that they're doing most of the purchases of raw material in the first half of the year, and then they are selling the raw material in the second half of -- not the raw material but the fishmeal and oil in the second half of the year. And the market prices have been reducing during the year, and also, currency has been not that favorable for sales during the year. So the [ margins ] have been under pressure, I would say, so the contribution from the fishmeal and oil segment in Pelagia has not been as strong this year as has been on the previous years.I would say, all over, Peru has been having a successful fishing season. I would say, the consumption in China has been more compensated than that. And we have seen increasing prices, which is also favorable for the stock level also on fishmeal and fish oil. And some uncertainties related to Brexit, mainly related to access to fishing zones and also distribution agreement between participating nations, meaning that it's not settled what the final distribution between the -- in particular, say, cod and blue whiting will be, as it can have an impact on the volume we are expecting in Pelagia.For Human Consumption segment, I would say that it's been a very good fourth quarter. You can see on the volume that more than 50% of the volume is being processed in fourth quarter, and it's been both in terms of the mackerel and winter herring season been a good production and also good sales. And I would say the positive development has been transferred also into first quarter with -- on mackerel, herring production and also the Icelandic capelin production. Strong sales and limited stock going into the new year.Then looking at their performance in the quarter. EBITDA, marginally up from same quarter last year; and EBIT, also marginally up or more or less in the same level. And looking at the full year, you can see that EBITDA in 2020 is lower than in 2019. But if you take away the gain on sales, we are delivering approximately NOK 120 million lower than last year, and it's mainly related to lower margins on fishmeal and fish oil -- from the fishmeal and fish oil segment in 2020.Then coming to Lerøy. I would say that Lerøy has been developing in the right direction from the start to the end of the year. And it's -- I would say, it's pleasant to see, in particular, development down in the West Coast of Norway where we are delivering margins on a difficult market conditions now. An EBIT of NOK 441 million, it's down from same quarter last year's NOK 769 million, and it's mainly explained by lower prices. Spot prices is down by 23%, approximately NOK 13 per kilo. And of course, that also hits the margin. Saying that, if you look at the EBIT per kilo, we are only down by approximately NOK 8. So the underlying operation is far better than it was in the start of the year, obviously. Looking at the volumes, 48,000 tonnes. Approximately, 15,000 tonnes in the north; 16,000 tonnes in Midt, Norway and 18,000 tonnes in Lerøy Sjøtroll.Then we have done some investments started back in particularly smolt, actually down in 2016. And now we are starting to see effect of the investments we have done and are expecting to continue the positive development and growth of volume we had from 2019 to 2020 and also into 2021. So you see the volume from Norway is expected to be up at approximately 22,000 tonnes in 2021 versus 2020. If you take into account the growth we have in Scotland as well, we will expect the increase from Lerøy on 28,000 tonnes in volume for 2021 versus 2020.And then going to the wild catch segment in Lerøy. I would say that similar to the third quarter, fourth quarter has also been extremely challenging in terms of price achievement on the most important products we are having. Cod prices is down by 18% and haddock prices is down by 17%, if you compare with where we started in the beginning of the year. And then, as consequently, also impacted the EBIT we have achieved 2020, where we are delivering an EBIT of NOK 205 million versus NOK 293 million in 2019.Okay, then I'll turn it to Britt.

[Britt Kathrine Drivenes, Chief Financial Officer]

Thank you, Arne. I'll start with a table summing up the material intake in the quarter and from [indiscernible] inventory operation. And as you can see, we had a very good activity within the pelagic segment in Peru and also in the North Atlantic. And we also saw higher [indiscernible] volumes of salmon and trout in the quarter compared with the same quarter last year.You can see we have a [indiscernible] for year 2021. This is, of course, based on -- in relations with quotas. And I would like to mention that, of course, the quotas in Peru were not set for 2021, and they are somehow subject to [indiscernible] in front of each season. And starting in the presentation, Arne had commented on the key figures, the fall in earnings can be summed up by the lower price achievement for salmon and for whitefish in the quarter. And the spot prices for salmon were down 23% in the fourth quarter 2020 compared to same quarter in 2019. If you look at the turnover, though, it's NOK 5.7 billion, so it's only down 3% from NOK 5.9 billion fourth quarter 2019. And that is a sign that we have a very good activity in the downstream segments. In addition, we now have also had a very good salmon season in the fourth quarter 2019.Earnings from associated companies are up. It's NOK 148 million compared with NOK 130 million in the same quarter in 2019. And the 2 largest associated companies are Norskott and Pelagia, and they represent 72% of the income from associated companies in the quarter.And net finance is minus NOK 60 million, approximately at the same level as the same period in 2019. And this gives a pretax profit before the IFRS biomass adjustment of NOK 552 million, down from NOK 715 million. And earnings per share, ex biomass adjustment, of NOK 1.30, a little bit down from NOK 1.36 in fourth quarter in 2019.Looking at the full year 2020, the revenue was NOK 22.4 billion, down 3.8% from NOK 23.3 billion in 2019. 2020 has been a challenging year, and the market for seafood has been significantly negatively impacted by the ongoing pandemic COVID-19. And [ volatile ] prices for salmon by fish has, of course, impacted our earnings in 2020. And the EBIT for the full year is a little bit less than NOK 2.2 billion, down from NOK 2.9 billion in 2019. Income from associated companies are NOK 306 million and again, Norskott and Pelagia, and represent 75% of the earnings from associated companies. In 2019, the earnings from associated companies was NOK 469 million, and we had some gain from sale of assets included in that figure in 2019. And on the net finance -- the net interest represents NOK 295 million, and that's a little bit down from NOK 298 million in net interest in 2019. The pretax profit, and that is before the IFRS biomass adjustment, is NOK 2 billion, and that is down from NOK 3.1 billion in 2019. And this gives earnings per share, ex IFRS biomass adjustment, of NOK 4.55, down from NOK 6.89.Looking into Lerøy Seafood Group. The main [ numbers ] are the volume or the stronger volume of salmon and trout and also the catch for whitefish. Harvested volume of salmon and trout are a little bit more than 48,000 tonnes, up from 43,000 tonnes in the same quarter in 2019. And if we look at the EBIT per kilo, ex the wild catch segment, that's NOK 9.3, down from NOK 17. And I must say, it's a very good contribution if you look into the substantial or increase in salmon prices in the fourth quarter 2020 compared to same quarter in 2019. The price is down NOK 13 in the fourth quarter of 2020 compared with '19. And also, the cost is down from the third quarter in 2020 and also down from fourth quarter in 2019.If we look into the volumes of the wild catch, it's almost at the same level as same quarter in 2019. However, there is a little bit less haddock imported in fourth quarter 2020 compared with 2019. And the prices for cod and haddock are down 13% and 17% in fourth quarter 2020 compared with 2019. In total, the EBIT for Lerøy in the fourth quarter was NOK 441 million, down from NOK 769 million in the same quarter 2019.In [ Peru ], they have had a very good fishing season in fourth quarter, and the raw material intake in the quarter was almost 168,000 tonnes. However, the sales volume of finished products, fishmeal and fish oil, are substantially lower than the same quarter in 2019, and there are two reasons for that. We went into fourth quarter with very low inventory of fishmeal and fish oil and the fishing season started up a little bit late, so not much of that production has been sold in the fourth quarter. And that gives us a very good position going into 2021. And we have a fishmeal inventory of over 30,000 tonnes and fish oil inventory of 7,700 tonnes. EBIT in fourth quarter 2020 was NOK 70 million, and that is a substantial improvement from negative EBIT of minus NOK 86 million in the same quarter in 2019.As we have communicated in our last presentation that we expected a low activity in Chile in the fourth quarter and we have sold almost all the frozen production by the end of 2020, so our storage is almost empty. And there is a negative EBIT in the quarter, minus NOK 49 million, the same level as same quarter in 2019. However, I'd like to focus on the full year 2020. The company has had one of their best earnings for a very, very long time, and they had an EBIT of NOK 101 million in 2020, up from NOK 12 million in 2019. So we see that the increased [indiscernible] of horse mackerel and also the increased purchase of horse mackerel from third-party and gives a very good activity for our fishing vessels and plants and earnings.Looking into the farming segment of Br. Birkeland. We also communicated in our analyst presentation that they were harvesting from the 2 generations with very high cost, the spring '19 generation and autumn '19 generation. We finalized harvesting from the spring '19 generation in the fourth quarter 2020, and we are finalizing harvesting from the autumn '19 generation now in the first quarter 2021. The company sold all their salmon in spot market and have harvested a little bit less than 2,600 tonnes in the quarter. A combination of low price achievement and high cost has given a loss per kilo of salmon harvested of [ NOK 19 ]. And that gives us an EBIT in the quarter of minus NOK 49 million, and that's substantially down from the positive EBIT of NOK 6 million in the same quarter 2019. The pelagic fishing vessel of Br. Birkeland finalized the quotas of mackerel and NVG herring, and they have had a very good earnings in the quarter, and so EBIT of NOK 58 million, up NOK 1 million in the same quarter 2019, and fourth -- and they -- or for the full year actually, in the fourth quarter in 2020.Looking into the total asset position of the group, the total assets are NOK 39.7 billion, and that is the same level as by the end of 2019. Looking into the intangible fixed assets, that has increased from 2019 and is taken over [indiscernible] in 2020. And we will also still to have the ongoing program in [indiscernible] in post-smolt facilities. We finalized [indiscernible] by the end of 2020 and still ongoing program in [indiscernible].And also, the biological assets at costs are up. And biomass at sea are up by 7.5% by the end of 2020 compared to the same period in 2019. And as a consequence of a very good fishing season in Peru, we have also increased our [indiscernible] by the end of 2020. The group equity is almost NOK 23 billion, and we have equity ratio of 58%. And net interest-bearing debt by the end of 2020 is NOK 4.6 billion, up from NOK 4.1 billion in 2019.Looking at the cash flow position, I will comment on the full year. We have had lower earnings in 2020 [indiscernible] also in terms of cash generation in the year. And looking at the cash flow operation, it's minus -- it's NOK 2.9 billion, down from NOK 3.2 billion in 2019. And one of the large changes here is that the taxes that we have paid are only NOK 500 million in 2020 and also [ NOK 900 million ] in 2019. Did I say billion? It's million, NOK 500 million.And then cash from investing activities in 2020 is NOK 1.4 billion. And as mentioned, we have taken over a new [indiscernible], and we are still in the program about the [indiscernible] on the post-smolt facilities. Dividend received from associated companies are NOK 130 million in 2020, and that is up from NOK 391 million in 2019.Looking at cash from financing activities, that is minus NOK 1.3 billion. And income dividend from the group is NOK 983 million. And of that, dividend paid from the mother company, Austevoll Seafood ASA, is [ NOK 507 million ]. In 2019, we paid out from the group on NOK 1.4 billion in dividend, and the dividend from Austevoll Seafood to the shareholders of Austevoll Seafood was [ NOK 710 million ].To sum up, we had a cash position going into 2020 of NOK 4.2 billion, and the cash position by the end of 2020 was NOK 4.5 billion. And to sum up, the Board will recommend to the Annual General Meeting in 2021 a dividend of NOK 3.5 per share compared to NOK 2.5 per share in 2020.

[Arne Møgster, CEO & President]

Let me give our view on the market we are operating in, and then starting up with the fishmeal market. And as I briefly explained in the start, we have had a very good season in Peru, which has led into 33% increase of the volume coming from Peru in 2020 versus 2019.If you look at the largest producers, you can see that the volume is up 17%. The season was well executed. Although the volume were extremely high, we have seen increasing prices during the season, starting up from November and coming into the new year. And you can see that the prices we are seeing now is $1,660 per tonne on Super Prime and a discount of $200 for Standard Fishmeal. And it's mainly driven by feed producers and end-users building stock, mainly for aqua [indiscernible] peak season starting up in second quarter and third quarter. It's already started a bit, forward sales for the next season to start off in Peru hopefully in -- during April. And the market is quite strong at the moment. And main driver, of course, behind the consumption is China coming into the season with low stocks, and they have been quite active and aggressive buying fishmeal, in particular from Peru, during the fishing season.Summarizing, I would say that the prices we are seeing on the Chinese fishmeal now is stimulating the traders higher than what they are selling for in Peru. Currency is favorable. And also the soybean ratio versus fishmeal is also favorable for fishmeal consumption.Same development in fish oil. I would say, volume in Peru higher than what we expected and yields were higher than what we expected. And you can see, it's an increase of 36% in Peru. And from the largest producer, an increase of 17.5% versus 2019. Prices very good, although we have, by volumes, $1,740 for Feed grade and a premium of approximately $400 a tonne into the omega-3 grade. And it's limited stock available.Going into the salmon supply. You can see that, on a global basis, we had a growth in 2020 of 5%. Most of that growth came from South America. For 2021, we are expecting a growth of 2.4%. And you can see that most of the growth is coming from Europe in 2021 versus last year. And mainly -- the main volume is coming in the second half in Europe, but also, we see that the reduction of volume is coming also in the second half in South America. So I would say, the supply picture is favorable going into 2021, if you just disregard pandemic.Then looking at the prices we have achieved for the last quarter, you can see that it's quite low. And I hope we are, more or less, in the bottom of the price range during the end of 2020. If you see, there's a small increase of prices in 2021. But I would say, I think underlying market is okay. It's been quite high volume going out from -- in particular in Norway during the start of this year. And this is also in a period where the HoReCa market is non-existed. So hopefully, when the HoReCa market is back, we will also see our development on prices going forward.I would say also, the consumption has been very good in the pandemic period. You see EU , which is the main market for the Norwegian producers, up by 6%. And I would say, if you look at the other markets which is dependant on flight transport, it's only down by 3%. So I would say, all in all, consumption is good, considering HoReCa is down. Now summing up. I think I want to start by thanking our employees, which has been able to maneuver our companies during the difficult and challenging period we have in 2020 and also maybe in the 2021. I'm extremely pleased and thankful for the work that have been laid on in our company and -- in this challenging period. We are having a good drive, I would say, developing the value chains [indiscernible]. And I haven't focused on each part of the value chain. And we are also seeing that it makes [ effect ], both in terms of price achievements and also in volume, be very [indiscernible] in 2020 and what we are expecting in 2021 as well.It looks -- the quotas and the species are strong for the whitefish segment, which is a good fundament for our fleet and our onshore activity in [indiscernible] seafood. And I think it's a significant potential in the whitefish segment.When it comes to the pelagic, I would say, summing up, we have executed good season in Peru and had a good start and a good drive going into 2021. Similar situation for Chile and also a similar situation for the North Atlantic activity. So we are excited also going into the New Year and are true believers that we will continue the positive development we have seen during 2021. Thank you.