Austevoll Seafood ASA

OSE:AUSS

Earnings Call Analysis

Company Performance in Different Fisheries and Impact of El Nino

The company's operations across various fisheries resulted in a mixed performance. The North Atlantic and Pelagic fisheries exhibited strong results, while the Peruvian entity, Austral, faced challenges due to an El Nino period that significantly impacted year-over-year figures. The West Coast of Norway also presented biological challenges for salmon farming, including a higher than expected mortality rate due to jellyfish.

Financial Summary and Influence of Resource Tax Implementation

The company achieved an annual revenue nearing NOK 34 billion, an increase from NOK 31 billion in the previous year, while operational EBITDA decreased to approximately NOK 800 million, primarily attributed to the impacts in Peru. Operational EBIT was reported at NOK 3.6 billion, with a total asset value of NOK 53 billion. Notably, the equity ratio declined from 59% to 51%, largely due to the newly implemented resource tax.

Performance of Salmon and Whitefish Segments

The performance in the salmon and whitefish sectors fell short of expectations, especially on the West Coast due to biological issues. Despite an increase in spot prices and minor improvements in earnings by segment, fish farming measures are being taken to reach a production target of approximately 175,000 tonnes in Norway for 2024. The wild catch volumes remained fairly stable, albeit with a decrease in cod, which affected profitability.

Joint Ventures and Associates' Contribution to Earnings

Income from joint ventures and associates experienced variations, with some like Norskott Havbruk facing challenges throughout the year, while Pelagia maintained a good performance but with a slight decrease in the fourth quarter compared to the previous year.

Capital Investments and Financial Position Amid Inflation

The company invested almost NOK 2 billion in tangible fixed assets, leading to an increase in total assets to close to NOK 53 billion. Despite inflation raising the cost of products and raw materials, resulting in higher biological asset costs and receivables, the company managed to increase its cash position, ending the year with almost NOK 5.5 billion. The net interest bearing debt rose to NOK 6.7 billion, mainly due to the build-up of working capital and a difficult year for Austral Group in Peru.

Market Outlook and Future Expectations

Looking ahead, there is a slight expected increase in the production of salmon in 2024, and while whitefish quotas have decreased, the company hopes for compensation through higher prices. South America presents optimism for a return to normal temperatures and improved quota prospects. Notably, the Chilean quota is expected to increase by 15%, continuing a five-year trend of growth. The company has initiated several measures to improve salmon production, aiming for approximately 205,000 tonnes in 2025.

Dividend Proposal Despite a Challenging Year

In light of the challenges and reduced net results, the Board plans to recommend a dividend of NOK 4.5 per share at the Annual Shareholders Meeting in 2024, symbolizing a commitment to shareholder returns despite the company navigating through a difficult period.

Earnings Call Transcript 2023-Q4

[Arne Møgster, executive]

It's a pleasure for me to welcome you to Austevoll Seafood's fourth quarter presentation. I would first start by giving you the highlights of the quarter. Thereafter, I will take you through the different segments in the group, telling you about the performance, and a bit about the status so far this year and from fourth quarter. And Britt Kathrine Drivenes will take you through more in detail the numbers. And then I will end this setting by giving our view on the different markets we are operating within.

So starting up, I would say that we have had a year marked by, obviously, quite good performance of the companies in the North Atlantic and particularly on Pelagic. Chile has been performing well. I would say that Austral, our Peruvian entity, has been marked by an El Nino period, which has made the figures this year tremendously different from last year. I will come back to that later. And we have also had various biological challenges, particularly in the West Coast of Norway, with the salmon farming, come back to that as well.

But all in all, this quarter, we are delivering a revenue of NOK 8.7 billion, an operational EBITDA more or less on the same level as last year on NOK 1.2 billion, and an operational EBIT of NOK 804 million, including 50% of the EBITDA from Pelagia. You can see that all in all, the numbers is more or less similar from last quarter -- fourth quarter last year. Total EBITDA of NOK 1.4 billion, whereof NOK 1.2 billion is coming from Lerøy and approximately NOK 230 million is coming from our Pelagic operation. I will come back to that later.

Looking at the full year, revenue close to NOK 34 billion, up from NOK 31 billion. And operational EBITDA down at approximately NOK 800 million, and it's more or less explained by the different performance from our company in Peru erstwhile from '22 to '23. Operational EBIT, NOK 3.6 billion. Total assets of NOK 53 billion. Net interest bearing debt of NOK 6.7 billion. And equity ratio down from 59% to 51%, explained a lot by the implementation of the resource taxed.

Looking into the result, you can see -- and including 50% share of Pelagia, you can see that the EBITDA from salmon/whitefish more or less on the same level as last year. And the difference is again from Austral, explaining the reduction from '22 to '23 of NOK 800 million. Total EBITDA from the Pelagic activity on NOK 1.3 billion in total.

Looking into our operational overview. Our company's art and our activity is dependent on volume. And last year, in '23, we had a lower volume through our group, mainly explained again by Peru. We caught on our own vessel, on our own quota, approximately 250,000 tonnes. Next year, we are expecting an increase of 170,000 tonnes, being close to 430,000 tonnes of own fish.

Last year, we were processing in our Pelagic factories approximately 1.7 million tonnes in Chile, Peru, and in the North Atlantic. Next year, we hope to increase that with 200,000 tonnes. We also had a record year in terms of catch on our 10 trollers, 76,000 tonnes less caught, compensated by redfish and also saithe, where in addition to our own catch producing approximately 20,000 tonnes in our whitefish factories. Salmon volume in 2023 was 180,000 tonnes, aiming to increase that to 200,000 tonnes in 2024.

Then looking into the different segments, starting up with Peru, and looking at the biomass and also the quotas going forward, and looking into the past. As I told you at the start, it's been a challenging, I would say, fishing situation in Peru due to the El Nino period we have had, I would say, throughout the whole year. Normally, in Peru, there is 2 seasons a year. The first season in 2023 failed due to warm waters.

Second season in 2023, they estimated a biomass of 7.1 million tonnes, which is in line with the historical average the last 3 years. So the fish is not disappearing. The distribution of the fish consists of smaller fish and it's more spread than normal. So the quota was set at 1.68 million tonnes, which was 23% of the total biomass, which normally is a low volume, but it's explained with the El Nino period we had, and also that it was a lot of juveniles in the schools of anchovy, which make it very challenging.

So of the quota of just below 1.7 million tonnes, 76% were caught. And it's been a challenging, I would say, fishing season. There were a lot of closures due to the inclusion of juveniles in the fishing zones. We caught 86,000 tonnes, approximately 72% of our quota, and it's down from 110,000 tonnes in '22. Purchase more or less the same level at 36,000 tonnes, and our content of high-quality fishmeal was 64% versus 61% the season before. Combined fishmeal and oil yield more or less on the same level as same period last year, 24.1%. And it's fair to say that fish oil yield was extremely low during, I would say, both seasons in '23.

In terms of the expectation for next year, we are increasing our volume expectation, mainly due to the weather forecast is improving. And we are estimating, in our papers, approximately 2 million tonnes first quota and maybe 2 million tonne second quota. And of course, it depends on the research IMARPE is doing now starting up the 18th of February, and we are expecting that the quota will be set at the beginning of April. Positive news in terms of the El Nino is that it's expected to be coming out to neutral down in April, when the catches is supposed to start. So we are expecting better conditions to catch in Peru going forward compared with what we saw last year.

Operation in Chile. We had -- by the last 15 days in December, we were catching 18,000 tonnes. This was a volume we were purchasing from third-party fishermen and caught it with their own vessels by the end of the year. And all in all, we more or less caught the same volume in '23 as we did in 2022. I would say, looking at the graph on the right-hand side, you can see that we have had a steady increase since the bottom in 2011, and are surpassing 800,000 tonnes of total quota in Chile now as an industry. And if you include what we are expecting to purchase and catch with our own vessel for next year, we are aiming to catch and produce over 100,000 tonnes during 2024. So I would say it's a quite good development in Chile the last few years in terms of both the biomass and also our operation.

Looking at the North Atlantic Pelagic quotas, you can see that it's been quite stable, total quota in the North Atlantic since 2019 until 2024. It's a variation between the species, but all in all, in the North Atlantic, quota has been just above 3.5 million tonnes. And this is the basis for our activity in Pelagia.

Blue whiting season, starting of North Sea herring is up from last year. And we have also considerable volume up in the Barents Sea capelin, where we're going to catch a total quota of 200,000 tonnes this year. And then Mackerel quota is down, NVG herring is down by 24%, and the Icelandic capelin season seems not to be open this year.

And that makes the foundation for Pelagia. Pelagia now is a quite large company holding, I would say, the whole value chain in the specter of producing fishmeal, fish oil, producing human consumption products, filleted and round pack mackerel, and also sophisticated high-concentrate omega-3 product. And the aim of Pelagia is to create value out of the raw material we have available. And I would say it has had a quite good development. Looking at the intake of raw material for this quarter compared with last quarter is a lower volume, mainly explained by a higher intake in 2022 of the NVG herring.

All in all, 2023 fishing for fishmeal and fish oil has been just below 1 million tonnes, and it's been a very good year for this segment in the group.

Also, looking into the direct human consumption in the quarter. The focus has been on Atlantic mackerel and also the herring. I would say that also started good during first quarter this year, a bit higher volume in fourth quarter compared with fourth quarter '22.

And all in all, we received a volume which were partly lower than 2022. All in all, we're delivering revenue of NOK 4.2 billion in fourth quarter. The operational EBITDA is down by NOK 200 million. And we have an operational EBITDA of NOK 440 million. Lower income from fishmeal and the human consumption activity, but in terms of the health division, it's delivering a bit better than last year. Also, looking into full year. Another good year for Pelagia, 1.7 million tonnes and -- NOK 1.7 million in EBITDA and NOK 1.3 million in EBIT, more or less on the same level as 2022.

When it comes to our salmon and whitefish activity, it's fair to say that we are not 100% satisfied with the performance, in particular, in the West Coast. Have had biological challenges related to gill disease and also some ISA outbreak. And in the end of the year, we were also attacked by some jellyfish, which increased the mortality more than expected by the end of the year. But all in all, EBIT of NOK 765 million, down from NOK 822 million last year. Slaughtered volume of 47,000 tonnes, whereof 12,000 tonnes is coming from Lerøy Aurora, 20,000 tonnes from Lerøy Midt, and also approximately 50,000 tonnes from Lerøy Sjøtroll.

Spot prices up NOK 4 quarter-on-quarter and approximately NOK 9 comparing with same quarter last year. Also, cost is up -- feed cost up approximately NOK 6 from fourth quarter 2022. If you look at EBIT per kilo, it's, of course, a variation between the different regions. All in all, on the value chain, NOK 16.4, is up from last year, divided by approximately NOK 21 per kilo in Lerøy Aurora, NOK 26 per kilo in Lerøy Midt, and just below NOK 1 per kilo in Lerøy Sjøtroll.

We have done a lot of measures to improve the biological, I would say, performance in our farming activity, and it goes to the whole value chain from genetics, to the roe, to the smolt, and also, we are looking into shielded production technology, and also looking at how we are treating the sea lice. And all of this is going to hopefully bring us to the volume we are supposed to produce based on the AB we are having in the group. Not satisfied with the performance in 2023. Aiming to produce approximately 175,000 tonnes in Norway in 2024. And we're also happy to see that it seems like the challenges we have had in Scotland over the latest 5 to 6 quarters are now showing improvement into the first quarter.

When it comes to the wild catch, it's fair to say that we have more or less caught the same volume in fourth quarter. Less cod, which is the most profitable, as a consequence that the quota has gone down. We have been -- it's the third year the quota has been decreasing now. And it has been partly compensated by increase of prices. But during fourth quarter this year, I would say that price achievement was 11% down comparing with the same quarter last year. So it's been a more challenging situation for both our factories for whitefish and also our fishing vessels doing whitefish.

Now I give the floor to Britt.

[Britt Drivenes, executive]

Thank you, Arne. As usual, we start with this table summing up the raw material intake in the quarter compared with same quarter in 2022, and also the raw material intake for the full year 2023. And to the right, you can also see our estimates for raw material volumes in 2024. However, in Peru, this is, of course, subject to the quotas for each season and subject to IMARPE's cruises and recommendation to the Peruvian government.

Arne has gone through the key figures, so I will not repeat too much. What I can say is that the operational EBIT in fourth quarter came in at NOK 804 million, more or less in line with NOK 794 million in Q4 2022.

I will comment on the income from joint venture and associated on the next slide. So to sum up fourth quarter, the net profit was NOK 767 million, up from NOK 405 million. You can see on the box below that the biomass adjustment had quite a big impact on the net result. In Q4 2023, it was positive at NOK 250 million. In Q4 '22, it was negative with NOK 210 million.

Earnings per share in the quarter was NOK 2.1, up from NOK 1.3. However, if we adjust for the biomass adjustment, the earnings per share was NOK 1.6, down from NOK 1.8.

Norskott Havbruk and Pelagia are the 2 largest joint venture in the group, and they are reported separately. We are glad to see that there is a substantial increase in earnings in Norskott Havbruk in fourth quarter 2023 compared with fourth quarter 2022. The company has had a really challenging, well, I would say, from the autumn of '22, and the whole 2023, and you can see that also in the full year result from the company.

Pelagia have had a very good year also in 2023, more or less in line with 2022, a little bit down in fourth quarter compared with fourth quarter in '22, but for the full year more or less in line.

So income from joint venture and associates in the fourth quarter was NOK 111 million, down from NOK 140 million for the full year, substantially down, total NOK 279 million. And as you can see, impacted by the challenging year in Norskott Havbruk. 2022, the income was NOK 483 million.

We also now released our preliminary 2023 figures. And I would like to highlight the turnover and operational EBITDA. And in these figures, we have included our 50% share of Pelagia group. And you can see, we have increased our revenue from a little bit less than NOK 37 billion up to over NOK 40 billion.

And the increase are coming from Lerøy Seafood Group, most from Lerøy Seafood Group, and also some from Pelagia. And here you can actually see the big impact of that we didn't have a first fishing season in Peru in 2023, and also that El Nino impacted the catch in the south zone of Peru.

So we had a decrease in revenue from Austral Group of almost NOK 1.6 billion in 2023 compared with 2022. Looking at the operational EBITDA, that was NOK 6.9 billion in 2022, and decreased to NOK 6.1 billion in 2023. And again, you can see this is explained by the reduction in the earnings in Austral, which totaled almost up to NOK 850 million in 2023 compared with '22.

Operational EBIT for the full year came in at NOK 3.6 billion, down from NOK 4.8 billion, and again, explained by the challenging year in Peru. We have had an increased interest rate level in 2023 compared with higher net interest bearing debt that has given us higher net finance cost. In 2023, that was minus NOK 592 million, up from minus NOK 307 million in 2022. Profit before tax and fair value adjustment came in at NOK 2.7 billion or almost NOK 2.8 billion, down from NOK 4.2 billion.

And then we come to the tax cost, which we usually don't talk too much about. But in 2023, we have actually talked about tax almost the full year because the Norwegian government implemented resource rent tax in May in 2023, with the effect from 1st of January 2023. And as you can see, of our total tax cost, NOK 1.9 billion is this estimated resource rent tax on aquaculture. This, of course, impacts our net results. So the net result in 2023 came in at NOK 344 million, substantially down from NOK 4.3 billion in 2022.

And again, the biomass adjustment, that was quite limited in '23, only NOK 77 million. But of course, the net result in '22 was impacted by the positive biomass adjustment of almost NOK 1.2 billion. The main driver for Lerøy is, of course, slaughtered volume of salmon and trout and also the catch volume of whitefish. There has been a decrease of 11% of the slaughtered volume in fourth quarter '23 compared with the same quarter in '22.

The EBIT per kilo ex wild catch came in at NOK 16.4, up from NOK 15.6 in Q4 '22. The contract share was 22%. Cost level in second half of '23 is significantly below the first half of 2023. However, this, on inflation, brings year-on-year cost increase and only the feed cost has increased by NOK 6 alone.

Whitefish volumes are a little bit below same quarter in '22, 12,500 tonnes, down from 13,100 tonnes, and this is subject to the reduction in the cod quota. Prices decreased by the end of the year, and in total, down 11% compared to Q4 '22. Revenue in fourth quarter of NOK 8.2 billion, operational EBITDA just below NOK 1.2 billion, and operational EBIT of NOK 765 million.

We were, of course, very glad that there was opened a second season in Peru in October. And the raw material intake in fourth quarter came in at 95,000 tonnes, a little bit below the 103,000 tonnes in same quarter '22. The sales volumes are more or less in line with Q4 '22. However, the fishmeal prices are up 18%. The production from second season in '23 will mostly be sold in 2024. The revenue in the quarter was NOK 161 million, operational EBITDA at 0 and an operational EBIT of minus NOK 44 million. And the company goes into 2024 with an inventory of fishmeal and fish oil of 16,400 tonnes.

FoodCorp, they have their main season in first half of the year. However, as mentioned in our last quarterly presentation, they went into an agreement to buy additional 19,500 tonnes of horse mackerel quota from third party. The company started catching this quota in December and caught 18,000 tonnes before the year-end. And most of the raw material went in for production of fishmeal and fish oil and the products will be sold in 2024.

So as normal, the fourth quarter is not giving positive results. There is a revenue of NOK 88 million and operational EBITDA of minus NOK 69 million and operational EBIT of minus NOK 82 million. However, looking at the full year 2023, FoodCorp has had yet another good year with good earnings. And operational EBIT came in at NOK 176 million, a little bit up from NOK 162 million in 2022.

Br. Birkeland Farming is located on the West Coast of Norway. They have slaughtered 2,200 tonnes of salmon in the fourth quarter, and that is down 30% compared to Q4 2022. The EBIT per kilo came in at NOK 20.3, down from NOK 25.8 in same quarter '22.

The revenue in the quarter is impacted by an attack of jellyfish and that caused some mortality in the quarter. The company has had a very good 2023. They have slaughtered a lower volume, 7,400 tonnes, but the EBIT came in at NOK 36 compared to NOK 35 in 2022.

The 2 Pelagic fishing vessels have been in operation in fourth quarter. They have caught their remaining quotas of mackerel and herring, and the price achievement has been good and up from 2022.

Looking at the snow crab operation, that fishery was stopped 1st of April, because the total Norwegian quota of snow crab was caught at that time. So those vessels have not been in operation since April. The price achievement for snow crab started to decrease in 2022. This continued into 2023. So this operation has been really challenging over time and given negative results. The revenue in Q4 for the company was NOK 113 million, the operational EBITDA was NOK 39 million, and the operational EBIT came in at NOK 24 million.

Looking at our statement of financial position. The total assets are close to NOK 53 billion, up from NOK 48 billion by the end of 2022. We have done investment in tangible fixed assets, among others, for almost NOK 2 billion in 2023. So of course, tangible fixed assets has increased. We have been touching into this inflation trend. That has given us higher prices for our products. But of course, it has also given higher cost on all our input factors in the production. So that means the biologic asset in sea have a higher cost and also we have higher receivables.

And also, our cash position has increased compared to end of 2022. The net interest bearing debt by the end of the year is NOK 6.7 billion, up from NOK 5.1 billion in 2022, and the increase comes from Lerøy Seafood Group, which has built up working capital and also a substantial increase in Austral Group in Peru because of a very difficult year for that operation. The equity came in at NOK 27 billion with an equity ratio of 51%. Looking at the cash flow, we take the full year. The cash from operating activities came in at NOK 3.2 billion. And as I mentioned, we have built working capital also by the end of 2023 -- or in 2023.

Tax. Payable taxes are more or less in line with 2022, NOK 739 million in '23, a little bit down from NOK 775 million in 2022. Cash from investing activities came in at NOK 1.5 billion. As I mentioned, we have invested in CapEx, close to NOK 2 billion. And we have also received some dividends, and most of that is coming from Pelagia. Cash from financing activities is minus NOK 551 million, and both Lerøy Seafood Group and Austral Seafood has issued new bond loans in the first half of 2023. Lerøy Seafood has issued a bond of NOK 1.5 billion and Austral Seafood issued new bonds of NOK 850 million.

We started the year with a cash position of NOK 4.3 billion, and we ended the year with a cash position of almost NOK 5.5 billion. And as mentioned to the right here, the Board will recommend to the Annual Shareholders Meeting in 2024, a dividend of NOK 4.5 per share.

[Arne Møgster, executive]

Then I will end this session by giving our view on the different markets we are operating within, and starting off with the fishmeal market. Normally, Peru is by far the dominant producer, and you can see here, it's a reduction of more than 51% in '23 versus 2022.

I would say, although quota was a bit lower in Peru last season, I would say, we are satisfied that we were able to catch 76% of the quota, if you look at the parameters of the fish and the temperatures. What's quite interesting to see also is that prices has been -- gap between high-quality and low-quality meal has been increasing and, of course, pushing us to produce more super prime and prime going forward. More or less, all the meal is sold and waiting for the next season.

Then looking at the main market, China. I would say, China is more or less at the same stock level this year than it was last year, 176,000 tonnes. You can also see that prices are higher than what they are selling in Peru, also stimulating to more trade, and ending up with some mackerel pictures on the Chinese import, approximately 1.6 million tonnes in 2023, a 10% decrease compared with 2022. And you can see that the participation of Peru is lower now than it was in 2022. Same development in fish oil. All in all, down 20%. Peru is down 85%. So 14,000 tonnes in Peru produced in whole 2023 versus just below 100,000 tonnes in 2022. And 2022 was also not a high production year. Prices very high in Peru based on the fish oil in Peru, and it's more driven by the lack of supply than the demand.

Looking into salmon. The expectation for '24 is an increase of 2.3%. Europe is up at 4.8%. Yet, of course, to be seen if this will be happening. And at least I would say that this expected growth will stimulate good prices also for '24. Looking at the price development, you can see that the first 2 quarters of the year, prices remain very high. And you can see the 2 last quarter, it stabilized also on a lower level. And it seems like this has been stabilized in the last 2 to 3 years, where you are having variation in price from first half to second half. And also, again, looking at the demand. When production is coming down, I would say that the overseas market has been taking their shares of the production on behalf of EU customers.

So all in all, I would say we are not satisfied with the performance we have delivered in the salmon company during 2024, but have done a lot of measures to improve, and it's coming from the genetic selection or improving our procedures on our hatchery, lower temperature in our smolt facilities, new farming technology, and also changing how we are de-licing the lice in open ocean. So I think some of our measurements should bring us a closer to our targets, which we initiated 1.5 years ago, to approximately 205,000 tonnes in 2025.

Challenging for the whitefish with cod down 30%, haddock down 20%. I think it's going to be difficult that it's going to be compensated by higher prices, and it's going to be a higher competition to process and purchase this fish in the whitefish factories.

When it comes to South America, hopefully, we're aiming to put back the El Nino, starting off the new season with normal temperature, and we are, of course, excited what the quota will be and also what the final catches will be from the first season. But it seems like we will have neutral conditions now after, I would say, 2 seasons now with very challenging conditions.

In Chile, increase of quota of 15%, which is, again, following the same path that has been doing the last 5 years. Also expecting a good raw material here for Pelagia more or less on the same level as we had in 2023.

So that was all. Thank you for following.