Austevoll Seafood ASA

OSE:AUSS

Earnings Call Transcript 2022-Q4

[Arne Møgster, executive]

Good morning. It's a pleasure for me to welcome you to fourth quarter presentation for Austevoll Seafood and the preliminary full year numbers for 2022. I will first start by giving you a short introduction to the highlights of this quarter and also for the year. Then I will go through segment by segment. Britt Kathrine Drivenes, our CFO, will take you through more in detail through the numbers, and we will end this presentation by giving our view on the different market we are operating within.

So starting up. We have had a quarter where the revenue were exceeding last year's numbers for the same quarter, NOK 7.6 billion. Our earnings is lower versus the same quarter last year and has mainly to do with the weaker performance particularly from the Peruvian companies, which holds approximately $180 million of the $250 million we are lower than the same quarter last year. So an EBITDA of just north of NOK 1 billion and an EBIT of NOK 630 million. Pretax profit, NOK 727 million and is mainly due to a very good performance from the associated company, Pelagia.

And if you take into account the EBITDA from a 50% share of Pelagia, we have an EBITDA of NOK 1.4 billion, whereas NOK 1.1 billion is coming from Leroy, and the remaining NOK 258 million is coming from our rest pelagic activity, which is more or less in line with the same quarter last year. Looking at full year figures, you can see that revenue is NOK 31 billion. EBITDA is NOK 6 billion, EBIT NOK 4.2 billion, and pretax profit is NOK 4.4 billion. Strong balance sheet, total assets of NOK 48 billion. Net interest-bearing debt increased mainly due to a higher level of working capital, NOK 5.1 billion, and we have an equity ratio of 59%.

Doing the same exercise, taking into account the result before depreciation from our 50% share in Pelagia, you can see that the EBITDA for the full year is NOK 6.8 billion, whereas NOK 4.7 billion is coming from our salmon activity. And for the first time, we are passing the NOK 2 billion when it comes to EBITDA from the pelagic activity in Austral, so exceeding NOK 2.1 billion.

Summing up, as I mentioned, I would say the result was weaker from our Peruvian activity and our -- the season has been challenging and also, in fact, influenced the total volume going through our own system. So in 2022, we caught approximately 350,000 tonnes of pelagic raw material with our own vessels. We were receiving in our factories a volume of NOK 1.850 million on our pelagic factories. We were catching on our whitefish strollers, the similar volume as we did in '21, 72,000 tonnes, and we're also purchasing an additional 25,000 tonnes for our whitefish activity and just passing the 200,000 tonnes salmon slaughter volumes for 2022.

Then going to the different companies, and I will start up talking about our Peruvian activity, Austral. And we have been through our season -- the second season, catching season during the quarter. The quarter was set for 2.3 million tonnes, up from 2 million tonnes in 2021. Started up in 23 of November. So it was quite late. And the season seems to be quite challenging compared with the same season last year. The total fleet in Peru didn't catch the final quota and out of the 2.3 million tonnes, the Peruvian fleet caught 1.9 million tonnes. And the challenge was mainly that it was a high percentage of juveniles and it was a lot of fishing zones closed. And the main fishery were mainly occurring up north in Peru, where we have a low presence of factory, meaning that it was a lot of sailing for our fleet, and we didn't have the daily unloading as we wanted.

So if you look at the table, you can see that all in all, during the season, we caught 109,000 tonnes, whereas 37,000 tonnes were caught in January, so not into this quarter and versus the 143,000 tonnes, which were caught in November, December in 2021. We purchased more or less a similar volume. And we have also seen that the quality of the raw material we have been producing on has been on a lower grade and we have not been able to have the same percentage of high-quality fishmeal as we did in '21. And also the combined fishmeal and fish oil yield, in particular the fish oil yield were lower this season versus same season last year.

Also, if you look at the fourth quarter in 2021, we were purchasing over 30,000 tonnes in our factory in Ilo during fourth season. This year, it was -- or this quarter, it was no catch at all. And we also entered into the season with lower volumes for fishmeal and fish oil on stock and the sales has been considerably lower compared with the same season last year.

When it comes to Chile, they are doing their year, mainly first half, where they are mostly catching all their volumes. And it's been another good year in Chile in 2022. And the 20 -- the fourth quarter is as normal, a seasonable weak quarter where we are doing maintenance and only having fixed costs and very limited income. What to say about Chile is that I would say the biomass for horse mackerel has been developing quite positive during the last 3 or 4 years with total increase of quota of 15% annually. And we are also expecting at least 15% increase of the quota also in 2023. Last year, we were catching approximately 80,000 tonnes between our own quota and also the quota we purchased from third parties and caught with our own vessels. And next year or in 2023, we are expecting this volume to increase to 90,000 tons.

Have invested in increasing tunnel capacity and are having a daily capacity now into the new year of 750 tonnes a day in order to be more efficient when it comes to production.

Looking at the North Atlantic pelagic quotas, I think it's summing up, no changes from the last quarterly presentation we did. And again, the conclusion is the same. Quota is up considerably for the blue whiting, whereas we are expecting higher volumes for our fishmeal factory and it's going down for fish going in for the human consumption and also going a bit down for trimmings from the human consumption activity and for the fishmeal activity. But all in all, I would say that the next year quota, we are expecting a higher volume in for fishmeal and a lower volume in for human consumption.

And again, if you look at the quarterly numbers, you can see that raw material intake for marine protein and oil has increased. This is mainly pelagic, but also trimmings from salmon and also from whitefish versus the same quarter last year. And also on an annual basis, we are having a -- we had a higher volume intake versus the same period last year. And we're also expecting in 2023, an increase of volume to over 900,000 tonnes of raw material in for this segment.

I would say the weaker performance in Peru has led to increasing prices, which we have also benefited in this segment, and we are doing mainly all the purchases of raw material in the first half and selling the main proportion of our products in the second half and the market has been developed positively during the year, which has been favorable for the result and also have a good drive into 2023 in terms of market prices.

When it comes to the human consumption activity, I would say that -- the fact that we don't have access to the U.K. zone, I will add that our fishing vessels do go fishing earlier than normal when it comes to mackerel and are splitting the volumes, both on third quarter and fourth quarter. And I've had a good year, I would say, and volume on more or less on the same level as last year, and we are also expecting a minor decrease in 2023.

First quarter is also an important quarter for this segment, where we are receiving mackerel, herring and capelin during this period. And I'm looking in the result of Pelagia. And it's fair to say that Pelagia has become important company within a segment among the largest fishmeal and fish oil producer, both when it comes to handling trimmings from pelagic, whole pelagic fish, also white fish and also salmon trimmings and has been benefiting, in particular, in this segment for the increasing prices. Has also an important position for production of human consumption products based on pelagic products and are also one of the largest omega-3 producers of high concentrate omega-3 oils.

And all of these segments has been developing very well during the quarter and also during the year, which is the basis of the result you are seeing. So revenue of NOK 3.8 billion, EBITDA of NOK 660 million and an EBIT of NOK 567 million. And if you look at the full year numbers, you can see that the balance sheet total assets is over NOK 9 billion now. EBIT margin of 12% and an EBITDA of NOK 1.7 billion, and the revenue is NOK 11 billion, which is a very good performance in our opinion for the year.

When it comes to Leroy, EBIT of NOK 800 million, down from NOK 900 million the year before. And you can see if you look at the result coming from the whitefish segment, it's almost down NOK 100 million and mainly explained by lower quota, a bit higher cost and also latest sales by the end of the year. I will come back to that later. The slaughter volume is 53,000 tonnes, it's 15,000 tonnes up north, 21,000 tonnes in mid-Norway and also approximately 70,000 tonnes in the West Coast of Norway. And also, if you look at -- you can see that the prices is up, but also cost and EBIT per kilo is NOK 15.2 and it's divided by NOK 19 per kilo up in the north where the performance has been, I would say back on track after 2 to 3 different -- difficult years in Leroy Aurora, are performing very well at the moment, and we are having high expectation also during 2023 of the performance in Leroy Aurora when it comes to biological and financial performance.

Leroy Midt is having an EBIT per kilo in the quarter of NOK 14 and it's been more challenging, I would say, second half there, a lot of treatments, and the growth has been morphed by that. And I would say, it's also challenging coming into 2023, but on a better level now.

Leroy Sjotroll has also had the same development as Leroy Midt, EBIT per kilo of NOK 11 and are having a cocktail of different diseases, and they have to do sea lice treatment, which is not a good combination. So based on that, we are increasing a bit the volume guidance in the North and also taking down the volume compared with same period last year in Leroy Midt or Leroy Sjotroll.

If you look at the performance from the whitefish segment, you can see that the result is down. Prices has been developing quite well during the year and recovering -- compensating, I would say, mainly for the lower quota we have on cod entered the fourth quarter with a lower volume left on the cod quota, which is more or less reflected in the numbers. Fuel prices is considerably up compared with the same period last year. And I would say also it's been more challenging for the industry when the raw material has gone up in order to move the prices. They have to pay for the raw material over for -- to the end customers, for the end products.

Then I give the floor to Britt.

[Britt Drivenes, executive]

Thank you. Yes. We start with summing up. Actually, I'll give you a total picture of the raw material intake in the quarter. And as Arne has mentioned, we have had a challenging season in Peru. So lower raw material intake there in fourth quarter 2022 compared with same quarter in 2021. In North Atlantic, we have had higher raw material intake compared with same quarter in '21 and also a good volume of slaughtered with salmon and trout in the fourth quarter.

Arne has already given you or taken you through the key figures, so I will not repeat all of them, but we have had a 9% increase in revenue, and the increase comes from Leroy. We have also had a decrease in earnings in EBIT. The EBIT was NOK 630 million in the quarter compared with NOK 903 million same quarter in 2021. And it's especially the Austral Group in Peru, which have had a challenging season, as mentioned. And this, of course, impact the earnings in fourth quarter.

However, if we look at this -- the companies within Wildcatch, and they will always have some volatility in their earnings for the -- in the quarters because of the seasonality of their operation. But if you look at the year in total for 2022, Austral Group has had a very good year, and their earnings are in the same level as 2021.

Looking at the income from associated company, that is NOK 140 million in fourth quarter compared to -- or up from NOK 83 million in same quarter in 2021. And especially -- and this is coming from Pelagia, which has had a very good fourth quarter. They have had a high raw material intake, high sales volumes and in addition, higher price achievement for their marine protein and oil. And all of these factors has contributed to increase in earnings.

The earnings from Norskott was substantially weaker than the same quarter in 2021, and they have had a very challenging biological situation in Scotland. Net finance is a little bit lower in fourth quarter 2022 compared to same quarter in '21. And the reduction is caused by positive currency effects. The net interest is higher in fourth quarter 2022 compared to same quarter in '21, and that is because we have had an increase in interest rates, but we also have higher working capital.

The pretax in fourth quarter was NOK 727 million, and that is before biomass adjustments, down from NOK 905 million. And this gives an earnings per share of NOK 1.84, down from NOK 2.14.

Looking at the full year 2022, there is an increase in revenue of 17% and the increase comes from all the companies in the group. The EBITDA, and that is before biomass adjustment and settlement cost is close to NOK 6 billion, up from NOK 4.8 billion, and the EBIT is NOK 4.3 billion, up from NOK 3.2 billion. Income from associated is also increased in 2022, NOK 483 million, up from NOK 387 million. And again, it's Pelagia, which has had a very good year in 2022.

Net finance is minus NOK 307 million, down from NOK 350 million. But again, this is impacted by positive currency effects. So the net interest rate is up compared with 2021. 2022 in total, a pretax profit before biomass adjustment and settlement costs of NOK 4.4 billion, up from NOK 3.2 billion, and this gives an earnings per share of a little bit over NOK 10, up from NOK 7.53 in 2021.

As mentioned, we have had a higher revenue in the group in total, and most of it comes from Leroy. They have had a higher revenue both in fourth quarter and in 2022, full year 2022. Looking into fourth quarter 2022, they have slaughtered volume of 53,000 tonnes up from 51,000 tonnes. We have been talking about the inflationary trends. And this gives also a higher price for our finished products, but it also gives a higher cost. You can see that the spot prices are up 21% in fourth quarter 2022 compared with the same period in 2021. But of course, the total price achievement for Leroy is heavily impacted by the contract share, which was 36% in the quarter, and the price realizations on contracts are below the spot prices.

Looking into the Whitefish segment, they have caught a lower volume in the fourth quarter in '22 compared to the same quarter in '21. And that, of course, impact the earnings. So the EBIT in -- from the Wildcatch segment is minus NOK 9 million, and it was positive at NOK 73 million in same quarter in '21. We have seen higher prices for the raw material, and that is, of course, very positive for the fishing fleet, but it's quite challenging for the land-based industry, which has not been able to move the raw material prices to their end customer in the same -- at the same level as the raw material has increased in price. So to sum up, an EBIT in the fourth quarter of NOK 800 million, down from NOK 902 million in same quarter 2021.

Looking at the total or full year of 2022, the company has an EBIT of a little bit less than NOK 3.2 billion, which gives an EBIT margin of 10% and that is up from NOK 2.5 billion in 2021, and the EBIT margin in '21 was 11%.

I will not repeat. But of course, the quarterly earnings are impacted by the second season. And if we compare second season 2022 with 2021, in 2021, we had a total quota of 143,000 tonnes and everything was caught in fourth quarter of 2021. So a quite efficient season. And second season now in 2022, we got our total quota of 159,000 tonnes, record 109,000 tonnes and 2/3 of that was caught in fourth quarter, and the remaining 37,000 tonnes was caught in January now in 2023. The concentration of the fishing was up north, which was not favorable for our plant structure. So all of these factors have, of course, impacted the result in Q4.

We went into Q4 with low volumes of finished products. And of course, with the late start of the season, we have only sold a little bit less than 6,700 tonnes of fishmeal, and that is substantially lower than the 15,600 tonnes we sold in Q4 in 2021. Fishmeal prices are, yes, approximately on the same level as same quarter last year. We are entering into 2023 with finished products of fishmeal of 20,200 tonnes, and that is substantially lower than in -- when we entered into 2022, then we had finished products of fishmeal of 43,400 tonnes.

But if we look into the full year 2022, you see we have had another good year, revenue of NOK 2.5 billion and EBITDA of NOK 663 million, approximately same level as 2021 and EBIT of NOK 468 million, a little bit down from NOK 506 million. It's not much to report from Foodcorp in fourth quarter. As normal, it's a seasonable low quarter. They have caught 4,000 tonnes of horse-mackerel. They have sold 2,500 tonnes of frozen products, a little bit down from 3,300 in fourth quarter in 2021. And as normal, they are not able to make positive earnings in fourth quarter.

Looking into the full year of 2022, I would say that also in Chile, we've had another good year. The total revenue of NOK 821 million and EBITDA of NOK 200 million and an EBIT of NOK 128 million and approximately at the same levels as 2021. We see that the EBIT margin is down by 16% in 2022, down from 21% in '21. And if we look at the frozen prices, they have been approximately 10% lower for the full year '22 compared to '21. But the increased production of frozen products have somewhat eliminated the negative effect of the price reduction.

Br. Birkeland Farming, they have 7 licenses on the West Coast of Norway, and they sell all their fish in the spot market. They've had 2 very challenging years in 2020 and 2021. So it's very positive, and we are happy to see that we have had a very good performance in 2022. But this also shows that there is substantial biological risk for this operation, and there is volatility in the earnings between the years. In the fourth quarter, they slaughtered 3,100 tonnes up from 1,800 tonnes in same quarter in 2021. And the EBIT per kilo is above NOK 25. And you saw in fourth quarter in 2021, the EBIT per kilo was negative with minus NOK 4.5.

Looking at the full year, they have slaughtered 8,600 tonnes, up from 8,100 tonnes in 2021. And the total EBIT per kilo is almost NOK 35. And in 2021, they had a negative EBIT per kilo of NOK 1.5. Going into 2023, they have a little bit higher biomass in sea compared to going into 2022. But also cost inflation are impacting the cost on the salmon going forward or the release from stock cost going forward.

Br. Birkeland has had limited operation in fourth quarter. Only one pelagic vessel has been in operation, and they have caught the remaining quotas of mackerel and herring. As we also mentioned in our presentation in November, we have been doing large maintenance work on the vessels fishing snow crab. And this is the main impact on the negative result in Q4, and it also impacts the full year result or earnings for Br. Birkeland.

Looking at 2022, the revenue were NOK 333 million, and the EBIT was negative, minus NOK 18 million. The fishing for snow crab stopped in June, then the total allowable Norwegian quota was caught. We have also achieved substantially lower prices for our snow crab in 2022 compared with 2021.

The group has a total assets of NOK 48 billion, and that is up from the almost NOK 44 billion by the end of 2021. Some of the group companies have another functional currency than NOK. And of course, exchange rate will also impact the size of the financial positions. But what we can see is that the inflationary trends have also given us a substantially higher value on our inventory. We see that the value of the fish in sea are up, even though we have lower volumes in sea. And we also see that finished products on inventory are up and also our receivables.

The net interest-bearing debt by the end of 2022 is NOK 5.1 billion, and the equity ratio is 59%.

I will take you through the cash flow, but we look at the full year. And you can see that cash flow from operation is almost NOK 3.2 billion and heavily impacted in -- that we tie up a lot more working capital in 2022 compared with 2021. Then we actually released some working capital.

Looking at the investing activities, we have invested in CapEx, NOK 1.8 billion. We have received the dividend from associated companies of NOK 131 million, and the net cash from investing activity is a little bit less than minus NOK 1.7 billion.

Cash from financing. We have paid out dividend from the mother company or from Austevoll Seafood ASA, but also from the group companies to minority interests. So dividends in 2022 was a little bit above NOK 1.7 billion. So cash from financing is minus NOK 2.5 billion in 2022. We started 2022 with a cash position of NOK 5.3 billion, and we ended the year with a cash position of NOK 4.3 billion.

[Arne Møgster, executive]

And I will end the presentation by giving our view on the different markets we are operating within. Starting up with the fishmeal market. And if you look at the total volumes produced from the 5 largest producing regions, you can see that it's a drop in the production and in particular, in Peru, which is by far the largest fishmeal producer in the world. Volume is down by 20% and has led to an increase of prices during, I would say, the last 3 months, and we have seen now prices on $1,660 per tonne for low-quality meal and $1,860 per tonne for high-quality meal.

I would say consumption has been good and the demand has been also quite good during the period. And I would say that the lower volume coming from Peru is also strengthening the price picture for meal going forward.

When it comes to main market, which is China, which are consuming more or less same volume as Peru is producing, you can see that stocks are more or less on the same level as it was last year, and we also see that the daily off takes is up approximately 50% versus the same period last year. Prices, they are receiving in China is also higher than what we are receiving in Peru, which is also leading to a higher trade and we're also seeing that the currency, the strength of the Yen, the Chinese currency is also making import of fishmeal more favorable.

Last item to highlight when it comes to China is that the domestic production has been down, which is also has been increasing the fishmeal import and also, again, leading to higher prices.

I would say if I look at fish oil, you can see that, in particular, in Peru for the high EPA and DHA volumes, it's considerably down in 2022 versus 2021. The fish oil yield during the last season were as low as 20.6% and has also led in the deep increase in prices, as you see and which is currently traded for feed grade just under $5,000 per tonne and for -- with a premium of approximately $500 for Omega-3 oil. And as a consequence of the low production, there's also limited stock available and is also the reason why you are seeing the high prices.

When it comes to salmon volumes, 1% down in Norway, 1% down on a global level in 2022, and the increase for next year is also, I would say, modest, meaning that we are also expecting a quite tight supply growth going forward into this year. If you look at the prices we have had during the different quarters in 2022, you can see that it's been extremely volatile prices, which has also made it extremely challenging for our VAP and the sales and distribution segments, in particular, with the high contract coverage. Better positioned for 2023 and better prepared, I would say, in this segment.

If you look at the consumption of salmon, you can see that EU market is more or less consuming the same volumes despite the increase in prices we have had in 2022. And if I'm going to mention one market, which has been extremely strong as the American market, which we also have expectations to increase during 2023 as well.

So summing up, I would say on the salmon/whitefish segment is a record year in terms of revenue, has been a challenging year, the first 3 quarters for the sales and distribution segments, but recovered a bit in fourth quarter. Harvest volume is more or less on the same level in 2023 as we achieved in 2022. And we are also, of course, worry about the resource tax and what kind of impact that will have for this type of industry.

Leroy is present today in 60 monopoly cities along the coast of Norway. It's 3,500 employees and have an employment effect. If you look at the associated company to the salmon industry of 13,000 tonnes, we are every year investing from Norwegian suppliers up to NOK 13 billion from 4,500 Norwegian suppliers in over 300 monopoly cities in Norway. And in 2021, we were paying NOK 1.5 billion in taxes and other duties. So I would say it's an important -- the tax regime are challenging the salmon company's position in terms of securing value going forward.

Whitefish, healthy profitability in 2022. Cod quota is continuing down with 20%, haddock quota down with 5%, and it's an increase in the saithe quota.

When it comes to pelagic, I would say we are also feeling the inflation impact in all our cost, fuel, power, all the raw materials we are having in, but I would say we have been managing to cope with that situation and are delivering the best year in terms of our pelagic activity if you look at our total business. South America, the research for next season started up yesterday, and we are expecting to have a quota in beginning of April and hopefully, more favorable conditions and what we saw during second quarter 2022.

Chile again has had a very positive journey for the last 4 years, and we are expecting this year and have secured this year more or less a volume of 90,000 tonnes which we're going to [ beat ]. Catching has started up quite well, 22,000 tonnes caught until today and expecting also a good year for Chile in 2022.

And again, summing up in the end on the Pelagia business are very good -- a very good year for Pelagia. Has been helped, of course, by favorable development in market prices. But all in all, having a good drive into 2023 and expecting higher volumes for fishmeal activity and a bit lower volume for the human consumption activity. Thank you.