Earnings Call: Q4 2018

Feb 26, 2019

Then it is a pleasure for me to welcome you for the fourth quarter presentation for Austevoll Seafood. I am going to start by giving you the highlights from the quarter. Thereafter, I will take you through the different subsidiaries in the group and their performance. Britt Kathrine, our CFO, will take you through more in detail as the number, and I will end this presentation by giving a view on the markets we are operating within. Starting up with the highlights of the quarter. We have had a very good quarter. In particular, I would mention our activity in Peru and also our North Atlantic activity has been quite good in the quarter. Also, a very good contribution from salmon activity. However, it is a bit lower than our expectation were in the start of the quarter. I will come back to that. Our revenue of NOK 5.7 billion and EBITDA of NOK 1.2 billion and an EBIT of NOK 950 million. Pretax profit NOK 968 million, which is far better than the last year's performance. If you also consider our 50% share in Pelagia, our total EBITDA for the group in the quarter is NOK 1.3 billion, whereas NOK 1.1 billion is coming from salmon and just below NOK 200 million is coming from the pelagic segment. In short, it is NOK 200 million up from the salmon segments and approximately NOK 200 million up from the pelagic segment. Looking at the full year, its revenue of NOK 22.8 billion which is a record year, both in revenue and also in EBITDA and EBIT. EBITDA on NOK 5.2 billion and EBIT of NOK 4.2 billion. We also have a strong balance sheet, with a total balance by the end of the year just south of NOK 38 billion. Net interest-bearing debt of NOK 4 billion and an equity ratio of just below 60%. Looking into the full-year performance, taking into account the 50% share of Pelagia, the group has an EBITDA of NOK 5.5 billion, whereas NOK 4.2 billion is coming from the salmon segment and NOK 1.3 billion is coming from the pelagic segment. We had a gain of sales of approximately NOK 157 million, and if you adjust that out, you see that we are having a 55% better performance in the pelagic segment, comparing with last year. It is also a pleasure passing the NOK 1 billion contribution from the pelagic segment and during 2018, 25% of our EBITA is coming from pelagic segment, which is up considerably compared with last year. Board will recommend on dividend of NOK 3.50 per share, which is up from NOK 2.80 compared with 2018. Summing up for 2018, we have been catching with our own vessel on our own license 513,000 tonnes. We just passed 2 million tonnes on our pelagic factories, which is record volume for us, and also passed 100,000 tonnes in the whitefish segment, both on our fishing vessels and on our plants. And slaughter 182,000 tons of salmon during 2018. Looking into Peru, we have had some, I would say, challenging year before 2018 and in 2018, we have had a very good year. What you can see, challenging year has been caused by warm water El Niño during both 2014, 2015, 2016, and also into 2017. You also see by the end of the year has also been some warmer waters along the Peruvian coast, increasing the temperature. We have had during the season what we define as a weak El Niño. Fishing has been good. I will come back to that on the next slide. We are now starting the IMARPE cruise in the Center North region in order to define the next season's quota. We expect this research to be finished by the end of March, and that the new quota will be announced in April. Too premature to say anything about what the quota will be, but we are guiding that the quota in the Center North region will be between 4.5 and 5 million tons for 2019, but still too premature to say anything about that. Looking back on the last season's performance, we have had a good performance during Q4. We caught just below 90% of our quota. The remaining quota was caught in the 10th, first day in January. We have also only sold just below 10% of our production, meaning that most of our sales will come into the first quarter. Season has been very good. I would say the quota has been caught. In Austevoll, approximately 8.8% of the fish has been landed in our factory, meaning that we have been purchasing 1.8% volume from third-party fishermen. Fish meal and oil yield is up compared with last season, and it's also pleasant to see that quality on our fish meal products has been up compared with last year. I would say that 2018 has been the highest catch level since 2011, and it's been totally caught 6 million tons in Peruvian water during 2018, which is a doubling almost compared with 2017. It's been a good start of the fishing for mackerel and jack mackerel in first quarter. Also they've been landed in our factories in the south, approximately 37,000 tons of fish to the factory in January and February. In our operation in Chile, it's been a seasonably low production and catching quota. We finish our quota of 5,000 tons. I would say, a very good season. In total, we have been catching jack mackerel and mackerel around 57,000 tons. We have a new record in our freezing plants. I would say it's been done a very good job, both on the fishing vessels and in the factories, in order to produce the result during 2018, which has been done in Peru. We have also invested in a secondhand vessel from Norway, brought it to Chile, and we will now have three vessels in Chile, in order to fight to buy a higher share of the quota for sale outside 200 miles. In the North Atlantic region, you can see that the quota has fallen compared with 2018. In short, it's an increase in the herring quota in the north for approximately 35%. That's the positive side. On the capelin side, it seems like there's not going to be any fishing in the Barents Sea and on the Icelandic sea has also not been announced or agreed any quota yet. We have also put in zero tons for capelin, which is down 500,000 tons compared with last year. Mackerel is down by 20%, North Sea herring is down by 35%, and blue whiting quota is down by 40-50%. This means that there is going to be less raw material for our factories, both for fish meal and for human consumption, and the competition to get access to the raw material will be higher in 2019 compared with 2018. Q4 2018 for the fish meal activity, a bit lower raw material intake, mainly based on trimmings from herring and from mackerel. What we have seen is that the sales has been higher compared with same quarter last year, and also prices has also increased during Q4 as well. But we are expecting approximately 120,000 tons raw material less in 2019 compared with 2018. When it comes to the human consumption activity or factories, we committed a very good quarter. It has been high mackerel prices and good herring fishery. Volume has been more or less on the same level as last year, and it is extremely important quarter for the volume, whereas approximately half of the fish produced in the factory is coming from this quarter. Strong sales, a bit less than last year, but we have been able to commit sales on high level and we bought the fish, so result has been okay in the quarter. Looking at the quarter, we are delivering more or less the same quarter as we did in Q4 2017. Revenue of NOK 2.4 billion, EBITDA of just north of NOK 200 million and an EBIT of just north of NOK 150 million, which is marginally down from last year. If you look at the full year, a revenue of NOK 6.3 billion and an EBITDA of NOK 645 million and an EBIT of NOK 436 million, which is more or less on the same line as 2017. Shortly, when it comes to Brødrene Birkeland, we have been harvesting our salmon activity, 1,600 tons. EBIT per kilo is six, so I would say a lower performance this quarter compared with last quarter and also a far lower performance on the full year, both in terms of slaughtering volumes and also in terms of EBIT per kilo. Both price-wise and cost-wise, it has been a more challenging year for our salmon activity compared with 2017. Good activity for our pelagic fishing vessels. We had one accident on one of our crab vessel, shrimp vessel, which went on shore and it was a total loss after this accident. But all the crew was safe, and the vessel was insured. Then about the salmon and whitefish through our Lerøy Seafood Group, I would suggest you to go into Lerøy Seafood Group's web presentation in order to get a more detailed presentation of their performance. But shortly, EBIT is up from last year, NOK 948 million compared with NOK 777 million same quarter last year. Main reason is higher price, lower cost, and a higher slaughtering volume in the quarter compared with last year. I would say it is a bit lower than our expectation. Main reason for that is that volume is a bit less in mid Norway than we expected. Also we had some biological problems with our trout in the southwest production, lowering the sales price of the trout. Shortly, we have slaughtered 49,000 tons. It is approximately 16,000 tons in Lerøy West and Lerøy Sjøtroll. It's approximately 18,000 tons in Lerøy Midt and just about 14,000 tons in the north of Norway. EBIT per kilo is NOK 18, up from NOK 16 last year. Big deviation between the south and the north. EBIT per kilo in the southwest is NOK 8 per kilo. In the mid sector is NOK 16 per kilo, and in the north is NOK 24 per kilo for the quarter. Contract share of 23% and net interest-bearing debt of 2.5 million tons. Looking ahead, we are expecting an increase of volume in 2019 compared with 2018, so up from 175,000 tons to 189,000 tons in 2019. A bit on the whitefish catch situation. I would say I will comment on the full year basis. I would say the earnings in 2018 is more or less on the same level as 2017. What we are seeing is that it's a reduction of the most valuable species, cod and haddock, in terms of quota in 2018 versus 2017. That has been partly compensated by higher prices. Also I would say that the shrimp fishery has been much better in 2018 compared with 2017, with acceptable prices as well, giving more or less the same earnings in 2018 versus 2017. Saying that, it's also challenging with the whitefish processing industry in the north of Norway when quota is going down and the competition to get access to the raw material is harder. So we have done some investments in our factories in order to, I would say, have a more sustainable production going forward on the industry side for whitefish. Then Britt will take you through the financials. Thank you, Arne. We start with this table, and that actually sums up what Arne has been through when he has been presenting our segments. As you can see, there has been quite good activities within all the segments in the group in fourth quarter. Especially, Peru has a much higher volume at a fourth quarter 2018, compared with the same quarter last year. To the right, we have included a table showing our best estimates for 2019. Of course, we will update this information quarterly, and that is based on the quotas set, especially in Peru for the first season and second season. Arne has been through the key figures, so I will give some comments. We have had an increase in our revenue by 20%, and we have also had an increase year-end EBIT of almost 49% from Q4 last year to Q4 2018. The EBIT is NOK 955 million, up from NOK 584 million in the same quarter in 2017. The increase in both turnover and profit comes from increase in harvest volumes. It's higher prices realized and it's lower release from stock cost from salmon and trout, and that are the most important factors behind the improvement within the salmon segment. Of course, we have also had a very good quarter in Peru, with a good second season, and that also has improved the results in fourth quarter this year. The income from associates are NOK 131 million, a little bit down from same quarter in 2017. The net finance is -NOK 118 million, up from -NOK 86 million. But the increase is actually caused by this unrealized currency adjustment because the net interest is down. It's -NOK 56 in fourth quarter 2018, down from -NOK 67 in the same quarter 2017. Pre-tax profit, before the biomass adjustments, is NOK 968 million, up from NOK 651 million in fourth quarter 2017. That gives earnings per share of NOK 2.49, up from NOK 1.62. Looking into the full year of 2018, the revenue is NOK 22.8 billion, up from NOK 20.8 billion in 2017. If we include our share of Pelagia, the turnover is NOK 26 billion. EBITDA for the full year is NOK 5.2 billion, up with 10% from NOK 4.7 billion in 2017. EBIT is NOK 4.3 billion, up by almost 12% from NOK 3.8 billion in 2017. Income from associated companies are NOK 475 million, down 4% from 2017. The largest associated companies are Norskott Havbruk and Pelagia, and they have a very good profit, and they represent large values for Austevoll Seafood. The net finance is -NOK 356 million, up from -NOK 293 million. As for the fourth quarter, it's unrealized currency effects that makes the increase, because the net interests are down. It's -NOK 277 million, down from NOK 283 million in 2017. The pre-tax profit, ex biomass adjustments, are NOK 4.4 billion, up from NOK 4 billion in 2017. That gives an earnings per share ex biomass adjustment of NOK 9.79, up from NOK 8.62. Lerøy Seafood Group, they have had revenue of NOK 5.3 billion in the quarter, an EBITDA of NOK 1.1 billion and an EBIT of NOK 948 million. That is an increase in result from the same quarter in 2017. The main reason for the increase is higher harvest volumes. It's better prices realized. Of course, it's also because of the release from stock cost is lower than same quarter last year and also lower than the same third quarter in 2018. When it comes to the whitefish operation, they have a little bit lower volume. There is a little bit change in the mix because of lower quotas in 2018. It's less cod and haddock, but more skate and shrimps. The contract share for the salmon has been 33% in the fourth quarter, and the contract prices have been above spot prices. Austral Group has had a good fourth quarter. They have also had a good year in 2018. They have 600,000 tons of raw material in 2018, and that's the double volume compared to 2017. Second season started up in the middle of November, and they caught 87% of their quota before year-end. The sales volumes are not too high. We went into the fourth quarter with low inventory, and we have sold a limited volume from the new production in the fourth quarter. They are having quite a large inventory going into 2019. The revenue in the quarter is NOK 164 million, and the EBITDA is NOK 77 million, and the EBIT is NOK 32 million. That's an increase in the EBIT of NOK 205 million compared to fourth quarter 2017, where the EBIT was negative NOK 173 million. FoodCorp has had a seasonal low quarter. Their main season is in the first half of the year, so they had caught 90% of their quota by the end of the third quarter, and the remaining volume was caught in December. The sales volumes are approximately at the same level for frozen products, approximately at the same level as the same quarter in 2017. However, if you see for the full year 2018, the increase in sales volumes of frozen products is quite substantial. They have increased their frozen yields in 2018 compared to 2017, and that shows also in the total revenue and the result for the company. The revenue in the fourth quarter is NOK 73 million, and the EBITDA is -NOK 31 million, approximately the same as the fourth quarter in 2017, and the EBIT is -NOK 20 million. The EBIT is impacted by a reversal of an impairment of asset, which is going to be sold now in first quarter 2019. Looking into the farming segment of Brødrene Birkeland, they have had revenue of NOK 87 million, EBITDA of NOK 15 million, and EBIT of NOK 10 million. The harvest volumes are up to above 1,600 tons from 1,200 tons in the same quarter in 2017. But the earnings are down. The EBIT per kilo is NOK 5.9, down from NOK 9.4 in the same quarter in 2017. The costs are up. There is a weak profitability on back of final harvesting of the spring 2017 generation, which had high cost. They have also started to slaughter on a harvest from a new site, and we have taken out fish with low weight, which of course impact price and also impact cost. Looking into the fishing segment of Brødrene Birkeland, the pelagic vessels have had a good quarter. They have finalized their quotas within mackerel and herring, and what we have seen in 2018 is higher prices on mackerel compared to 2017. Arne mentioned the loss we had of the vessel Northguider. The effect here is that we have written down the vessel to zero, and we have also taken in the insurance cover for the vessel. But the net effect in this quarter is -NOK 14 million, and that is on the EBIT level. The revenue in the quarter is NOK 73 million. The EBITDA is NOK 15 million, and the EBIT is -NOK 17 million, and of course impacted by the loss of Northguider. The total assets are NOK 38 billion, and the equity is NOK 22.5 billion, which gives an equity ratio of 59%. Net interest-bearing debt by the end of the year is a little bit less than NOK 4 billion. I will give some comments to some of the lines in the balance sheet. You can see the tangible fixed assets has increased since December 2017, and we are into quite a CapEx program within renewal of fleets, the industry part of the group, and also within small facilities. You can also see that the biological assets are increased, and especially this fair value adjustment of biomass, which have increased NOK 840 million compared to the end of 2017. As we have mentioned, we have quite a good high inventory in Peru and also within Whitefish in Norway, so other inventory has also increased compared to the end of 2017. Austevoll Seafood paid down a bond loan in October of NOK 500 million, and that has affected the cash position in the group. We have a strong balance sheet, and we can support the organic growth and also looking for opportunities for other investments and also to keep our dividend policy going forward. Looking at the cash flow, I think we will look into the full year. There has been a good cash performance. However, by the end of the year, we have a substantially higher working capital tied up compared to by the end of 2017, and that is, of course, because we have had a very good season in Peru. Also we have some higher inventory in the whitefish here in Norway. You can see under the investment activities, we have a quite large investment program, which I mentioned when we looked into the balance sheet. Total net investment in CapEx in 2018 was NOK 2.5 billion. However, the cash from investing activities are minus NOK 1.6 billion, positively impacted by the sale of a vessel and licenses in January 2018, and also received dividend from associated companies. Cash from financing activities is minus NOK 2.2. We have paid out dividend of almost NOK 1.1 billion, up from NOK 950 million in 2017. As mentioned, Austevoll Seafood paid down the bond loan of NOK 500 million in October in 2018. So we end 2018 with a cash position of NOK 4.4 billion. The board will recommend to the annual general meeting in May a dividend of NOK 3.5 per share. That is up from NOK 2.8 per share in 2018. I will end this presentation by giving a short view on the market on the different segments we are operating within. Starting off with the fish meal market, showing here on the table on the left-hand side, the major producer of fish meal, and as you can see in the bottom right, you see that it's been increased in 2018 of 41% of fish meal produced, compared with 2017. Major driver behind that is definitely Peru, 92% up, and you see the raw material intake is doubling compared with 2017. It's been a good season performed and prices, I would say, after the quota was announced, has been stabling on just below $1,500 per ton on high-quality meal and $200 discount on low-quality premium meal. This has also continued into first quarter. It limits the stock available from second season, and I would say we are waiting now for new quota to be announced. Looking at the main market, China, it's been an extreme high consumption during 2018. Stock level is currently high, 169,000 ton versus 83,000 ton same period last year. Offtakes is a bit down now in February. It has to do with low activity in connection with the Chinese New Year, and we are expecting also that the consumption in 2019 will be good in China. Prices a bit above the prices in Peru, and we can say that the market is in balance, and I would say the development now on the fish meal market will depend on what quota which put forward in Peru first season. Looking at fish oil, same development, 42% up in total among the largest producers. Not only is the volume up in raw material in Peru, but we also see it's a better yield compared with 2017, and the production is up 120% compared with last year. Prices has been, I would say, stabilizing on $1,600-$1,700 per ton after the first season in 2018 and is a premium of $400-$500 per ton on omega-3 grade oil. Looking at the Atlantic salmon supply, globally, I would say the two last years and the expectation for the next year, you're seeing that it's an increase of between 5% and 6%. I would say this is the minimum increase we need in order to develop the different markets we are operating within. What we can see also on prices, although it's been extremely variable from the end of 2017 to during 2018, you can also see that in average, prices has been stable the last two years on a 5% to 6% increase of the market. Consumption is up both in Europe, being our most important market, and other markets in the U.S. So to sum up, strong salmon prices also in Q4. We are seeing the cost compared with last quarter and the last quarter last year is coming down. Demand is still strong, and we are increasing our volume guidance in 2019 compared with our performance in 2018. We are seeing prices coming up on whitefish, on haddock, and also in the last quarter, prices has been up on saithe. It's a lot of potential in the whitefish sectors, and we have to utilize our setups and our experience in order to also try to increase prices going forward. The quota is down 6.5% for cod and 15% of haddock, which we hope to compensate with other type of fisheries and expect to deliver 2,000 tons less in 2019 compared with 2016. No, 2017, 2018. Pelagic side, very happy of the performance in Peru. Finally, we have had a good year, good performance, a good result, and also expecting that 2019 will be good as well. Lower quota in the North Atlantic, and it will be a higher competition buying the volume. Thank you.