Earnings Call: Q2 2021

Aug 19, 2021

I will welcome you all to Austevoll second quarter presentation. My name is Arne Møgster. I am the CEO of the company. I would first start taking you through the highlights of the quarter. Thereafter, I will take you to the different segments in the group with Kathrine, our CFO. She will take you more in detail through the numbers, and then I will end the presentation by giving our view on the different markets we are operating within. Starting up, it is fair to say that we have had a quite active quarter and performing better this quarter compared with the same quarter last year. Revenue of NOK 6.2 billion, an EBITDA of NOK 1.2 billion, and an EBIT just below NOK 900 million, which is approximately the double of what we had in the same quarter last year. Pre-tax profit on NOK 829 million and an earnings per share on 1.66. Moving down to first half year, you could also see that we have had a quite good first half year with an earnings of NOK 12.2 billion, an EBITDA of NOK 2.4 billion and an EBIT just below NOK 1.6 billion. Pre-tax profit on NOK 1.5 billion and earnings per share on 3.10. A strong balance sheet, approximately NOK 41 billion and a net interest bearing debt of just below NOK 5 billion and equity ratio of 57%. I would say that this quarter we have performed better mostly in all segments, mainly driven by a higher price achievement for salmon in the quarter. The white fish segment performed better, and also we have had a quite active quarter in South America. If you also take into the account the EBITDA from our 50% share in Pelagia, you can see that in the quarter we just passed NOK 1.3 billion in EBITDA, whereas approximately NOK 900 million is coming from Lerøy and NOK 400 million from the pelagic activity. Having the same number for first half year, we just deliver under NOK 2.5 billion in EBITDA and approximately NOK 1.6 billion is coming from the salmon activity and approximately NOK 800 million from the pelagic activity in the group, which is just below our full year numbers in 2020 when it comes to the EBITDA. Looking at the operational overview and our expectation of volumes in the group for 2021, we expect to harvest with our own pelagic fishing vessel a volume of 450,000 tonnes, process on our pelagic plant a volume of approximately 1,850,000 tonnes. When it comes to white fish, we are aiming to catch 72,000 tonnes on our white fish vessels and increase the volume with what we are going to process onshore to surpass the 100,000 tonnes of white fish products in the group. We are aiming this year to produce and slaughter somewhere between 215,000 to 220,000 tonnes of salmon products. Now starting up giving our view and giving a brief update on the performance in the different subsidiaries, starting up with the pelagic and starting up with the fishery in Peru. The positive thing in Peru is that this is the third fishing season, which has been, I would say, a good fishing season for Peru as a nation, but also for us as a company. The quota has been quite stable the last three fishing seasons and were not different. The last one where the quota was around 2.5 million tonnes. Started up the catches the 23rd of April, almost a month before the first fishing season in 2020 and that has given us, of course, a better time to catch the quota. For us, the quota was 175,000 tonnes and that was caught by the end of July. By the end of second quarter, we have caught approximately 143,000 tonnes. I would say that we are happy with the execution of the season, both when it comes to fishing production and also the parameters we have had on our fish meal and fish oil products. Sold less of our own fishing quota to third-party fish meal plants. Super and prime quality has been, I would say, on the same level as last year, and also the combined fish meal and oil yield has been high during the period. I would say the other thing which has been very positive for us this year is the fishing in the south, where the first half year we have been producing approximately 70,000 tonnes in our factory down in Ilo, with both the high unload share and also with the higher yields, which also contributing to our margins during this year, which we didn't have during last year. Chile, again, another strong quarter. We finished our quota in the beginning of August. By first half year, we have caught 60,000 tonnes, whereas almost half got caught in second quarter. I would say, another good year in Peru. Peru and Chile, where they have had focus on both fishing production and sales. I would say that the season is already done in Chile, and by the end of third quarter, I would say we are also sold out of all the products as well. A good execution also in Chile, which also shown in our financial figures. The North Atlantic pelagic fishing quotas are the same as we showed in the last quarterly presentation. To sum up, I would say it's going to be less fishing for our fish meal factories and more fish in for the human consumption factory during 2021. As you can see here on the volumes this quarter, you see that we are receiving approximately 100,000 tonnes raw material, less in for fish meal and fish oil in the quarter. It's mainly due to the reduction in the sandeel quota, which is down 42% in Norway and 32% down for the blue whiting quota in 2020. The sales has been okay in the quarter. I'm also glad to announce that we have acquired the last 50% of the shares in Hordafôr, which is now 100% owned of Pelagia. Hordafôr is one of the main players producing protein concentrate and fish oil based on salmon products and salmon offals, and have a very strong position in the world in this field. When it comes to fishing for human consumption in the quarter, has mainly been catching of North Sea herring. The difference this year is that the mackerel season will start earlier as a consequence that we don't have access to U.K. water, and the fishing vessels will go further north in order to catch the quota in Norwegian Sea, compared with what they have done earlier. It's going to be a busy season for Pelagia from August to the end of the year, versus normally, this main season has only been in the fourth quarter. In terms of revenue, NOK 1.7 billion, EBITDA of 80 and EBIT of 90. We are delivering a lower margin in this quarter versus same quarter last year. Last year, we had a reversal of a currency loss from first quarter, which inflated the numbers. It's also fair to say that the lower volume for fish meal and fish oil has some consequences for the performance and margins in Pelagia for this quarter in particular. When it comes to Lerøy achievement, I would say that the EBIT this quarter versus last quarter is by far better. However, due to some winter wounds announced also in our first quarter presentation, the price achievement has not been as high as we have wanted due to quality downgrades, and are not where we were hoping to be, of course, without the winter wounds. Winter wounds is gone, and we definitely expect better performance in second half year this year, where the majority of the volume is supposed to be taken. Positive side is that the white fish segment, both on fishing and production onshore, are performing far better than they did last year. The volume is 2,000 tons less than it was same quarter last year. It's approximately 5,000 tons in Lerøy Aurora, 15,000 tons in Lerøy Midt, and 17,000 tons in Lerøy Sjøtroll. Looking at EBIT per kilo. The EBIT per kilo in the north has been just below NOK 9 per kilo. In Midt, just below NOK 40. In the west, Lerøy Sjøtroll, it's just about NOK 8 per kilo. If you add the result from the VAP sales and distribution, it's EBIT per kilo all inclusive of just below NOK 40, which is a quite okay achievement. Volume guidance. We remain our volume guidance. It's a lot of volume at sea. First half this year is more or less on the level as it was first half last year, so the increase in the volume is coming second half. If you can see, the increase from 2019 on the expectation we have in Norway in 2021, you can see it's a quite interesting journey in terms of volume, and we remain the guidance. Taking account the 50% share of Norskott Havbruk, we expect to slaughter 210,000 tons in Lerøy this year. Back to the white fish segments. Again, we made a decision in the beginning of the year to move the fishery for cod for last half year due to an expectation of better prices in that period. As you can see, in terms of the remaining quota in 2021, we have a much higher portion of cod and haddock quota left, which we think is a good decision because we are seeing also prices is moving in the right direction now from the COVID-19 effect on the market. But anyway, looking at this quarter, we can see that we are performing better on the wild catch and has mainly to do that we have been focusing on catching a higher portion of the cod, a higher portion of haddock, and the fishery for shrimp has been executed in a good way. And prices has also been good for the shrimp in the period. Also, happy to announce that the land-based industry is also showing effect of improving margins. There has been different measure taken in that area, and I would say that the organization in the land-based industry really have done a good job in terms of moving the company in a better direction than it was before. Then I will give the floor to Britt. Thank you. As normal, we start with this table, which sums up the volume going into the group in the quarter and also sums up the operation Arne has been through in the beginning. As you can see, there is quite a substantial higher volume going into Peru in second quarter this year compared with same quarter last year. And the early start of the fishing season in the center north and also a good season in the south zone of Peru are the main factors behind this. In the North Atlantic, we see a reduction in the volume going in for fish meal and fish oil. The main factor behind this is the reduction in the quotas both for blue whiting and sandeel. Arne has gone through the key figures when he started the presentation. So we start at the line EBIT before biomass adjustment. And second quarter this year, the EBIT is 867 million, and that's near double from the same quarter last year where the EBIT was 446 million. The better price realized for salmon and trout and also the good volumes and sales volumes in South America are the main factors behind the increase in EBIT this quarter compared to same quarter last year. Income from associated are 54 million, down from 108 million. And as Arne mentioned, there was a lot of currency fluctuations in 2020. Pelagia had a loss due to that in first quarter in 2020, and that was reversed in the second quarter. So that is the main reason behind the differences in income from associated this quarter compared to same quarter last year. We have a pre-tax profit, and that is also before the biomass adjustment of 829 million, and that is up from 433 million in the same quarter in 2020. And this gives an earnings per share, and that is ex this biomass adjustment of NOK 1.66, up from NOK 1.23. In the first half of 2021, the EBIT before biomass adjustment was close to NOK 1.6 billion, up from NOK 1.3 billion in first half of 2020. You see the increase here is close to 23%, and the effect of a very good first quarter in 2020 made a difference less when you see first half of 2021 compared to first half of 2020. Looking into income from associated, it's 110 million in first half of the year, up from 87 million in first half of 2021, and a better result in the Norskott is the reason behind the increase in earnings. Looking at the result from Pelagia first half of 2021, it is almost similar to the first half of 2020. Net finance is -NOK 173 million. Of this, -NOK 27 million is caused by currency fluctuations. If you look into first half of 2020, the net finance was -NOK 275, and the currency fluctuation was substantially higher and was -NOK 119 million in the first half of 2020. Looking into the net interest, that is NOK 10 million less in first half of 2021 compared to same period last year. Pre-tax profit before biomass adjustment for first half of 2021 is NOK 1.5 billion, up from NOK 1.3 billion in first half of 2020. The earnings per share ex biomass adjustment are NOK 3.10, up from NOK 2.39. Grieg Seafood group has an EBIT before biomass adjustment of NOK 583 in second quarter of 2021, up from NOK 322 million in the same quarter last year. They have harvested a little bit less than 37,000 tons. Same quarter last year, they harvested a little bit less than 39,000 tons. The price achievement has been higher this quarter compared with the same quarter last year. As we explained when we presented our first quarter result, the consequences of quality grading would influence the price achievement in second quarter. As expected, the price effects resulting from quality downgrade has hit the Lerøy and had a negative impact on the price realization in second quarter this year. The cost release from stock are a little bit up from first quarter this year, but lower than same quarter last year. For the Wild Catch segment, there has been a substantial increase in the earnings compared with the same quarter last year. The EBIT in the quarter is NOK 65 million, up from -NOK 5 million in the same quarter in 2020. As Arne mentioned, we are glad to announce that we can see that there are also increased earnings this quarter from the land-based industry within the Wild Catch compared to same quarter last year. Austevoll, they have had a high activity in the quarter and an early start of the first season in the center north and a good activity in the south zone has been the main factors behind this. In addition, we have sold quite a substantially higher volumes of fish meal, almost 22,000 tons, up from 4,000 tons in same quarter last year. The EBITDA is NOK 162 million in second quarter this year from NOK 60 million in the same quarter last year, and the EBIT is NOK 120 million, up from NOK 3 million in same quarter in 2020. Going into third quarter, they have a higher inventory compared with same period last year, and that is almost 10,000 tons higher for fish meal and 3,000 tons higher for fish oil. Also in Chile, we have had a very good activity in the quarter, a good access of raw material. In addition, the company has increased their part of horse mackerel, which goes in for frozen production compared to first half of 2020. The market for frozen mackerel has been good and the price is higher compared to same quarter last year, almost 33% higher, actually. The company has had some higher expenses compared to 2020 and related to purchase price of raw material purchase from third party amongst others. They have a good earnings in the quarter and the EBIT is NOK 119 million, and that is exactly the same as it was in the same quarter in 2020. Going into third quarter, the frozen inventory are close to 9,000 tons and in line with what they also had as inventory going into the same quarter in 2020. Looking at the farming side of Brødrene Birkeland, they have harvested a substantially higher volume in this quarter compared to the same quarter last year. 2,200 tons, up from 1,200 tons in second quarter 2020. The company sell all their fish in the spot market, and they have had a substantially higher price achievement in second quarter this year compared with the same quarter last year. Also the cost of release from stock are lower compared to same quarter in 2020. The EBIT before biomass adjustment in the quarter is NOK 27 million, up from a negative EBIT of NOK 8 million in the same quarter last year. Unfortunately, the company had an ISA outbreak in one of their sites, which was detected in June, and all the fish need to be harvested within September 5th. This fish was put in the sea in December 2020 and have a low average weight. This will give a substantially negative effect on the company's result in third quarter this year. The EBIT will be substantially influenced by this early slaughtering of this fish. We have estimated that the loss on this site will be between NOK 25 million to NOK 28 million. As I said, this will hit the EBIT result for the company in third quarter 2021. Looking at the Brødrene Birkeland pelagic and the snow crab operation, there has been low activity within the pelagic vessels. They have fished 2,100 tons of North Sea herring. However, we have had a very good performance from the snow crab vessel, and I am glad to say so after many years of very difficult performance or an operation for this vessel. The company has caught 479 tons of snow crab in the first half of the year compared to 263 tons in the first half of 2020. However, the total Norwegian quota of snow crab was taken when the fishing was stopped by July 1st. This means that there will be no operation for the vessel in the second half of the year. The vessel will do the necessary maintenance, et cetera, in this period. Looking into our financial position, the total asset of the group is NOK 41.3 billion, up from NOK 40.5 billion by the end of June 2020. The booked equity is over NOK 23.7 billion, and the equity ratio of 57%, and that is the same as it was by the end of June 2020 as well. The group's financial position is very strong. The group has and shall continue to have a significant financial stability to allow to finance further organic growth and also to be able to carry out the strategic acquisition and not at least sustain the company's dividend policy. Looking into the cash flow in the quarter, there is a cash flow from operating activities of NOK 1 billion, and that comes from good earnings in the second quarter and for the first half year as whole. Looking at the cash flow from investing activities, it is minus NOK 355 million, and this also includes an acquisitions done in the quarter. Cash from financing activities are minus NOK 1.75 billion. You can see the largest part of that is dividend going out of the group, which contribute NOK 1.3 billion. Of this, NOK 710 million are dividend to the shareholders of Austevoll Seafood ASA, and the remaining part are dividend to the minority shareholders in the other group companies. The cash position by the end of June this year is NOK 3.7 billion, down from NOK 4.5 billion. As I said, we have had a large dividend payout in the second quarter, NOK 1.3 billion. In addition to this, Austevoll Seafood ASA also paid down a loan of NOK 500 million and using part of their cash position for this down payment. Thank you. I will end the presentation by giving our view on the different markets we are operating within. Starting off with the fish meal market. Looking at the supply side, you can see that by the end of week 30, the total production among the biggest producer is up by approximately 10%. It is down in the North Atlantic due to reduced quota in both blue whiting and sandeel. It is more or less compensated by the increase of the, in particular, the increase in Peru as a consequence of a better fishery in the south. A part of the volume from second fishing season in 2020 was caught in January, and the fishing season started also up earlier this season and has led into higher production, in particular in Peru. As you can see, prices has been, I would say, quite stable since the season started up. For low-quality fish meal, it is $1,400 per ton, and it is a premium of approximately $220 per ton for high-quality fish meal. Main, of course, as always, consumer has been China, and I would say that the sales has been committed in a good way during the season. If you look at the stock level in China, you can see it is both higher than last year and also higher than the 5 years average, saying that consumption has been also on a higher level. If you compare it with the same period in 2020, you can see that the offtakes per day is 3,700 tons a day, which is approximately 25% up. Prices in China for fish meal is marginally above what we are seeing in Peru. I would say that the market is in balance in China for the time being. Currency and also prices on soya bean ratio is also favorable for fish meal consumption. Same situation in production of fish oil. As you can see, it is down in the North Atlantic. It is particularly up in Peru more often it was for the fish meal. It is mainly explained by better fish oil yields this year compared with the same period last year. Prices has been also stable, where we have seen feed-grade prices around $2,000 per ton and a premium of approximately $300 per ton for the omega-3 industry. Looking at the Atlantic salmon supply, you can see on a worldwide basis, we are expecting an increase of just below 3% for 2021. 10% increase from Europe, mainly driven by a higher volume in Norway, and approximately 10% down in North and South America, which is where you can see that Chile is reducing their supply for 2021. I would say that it's quite interesting to see the market we are experiencing now. I think from the beginning of the year up to now, we have had an increase in volumes in Norway up to 13%, and I would define the market as quite strong when you are seeing the volumes coming in. As you can see, so far in third quarter, it's considerably higher than it was 2020. Main consumption is, again, in EU. You see U.S. is also increasing their consumption, and other markets is also picking up their consumption in first half year versus first half year 2020. To sum up, I would say that we are seeing the effect of the gradual lift of restriction related to COVID-19. We can see it's positive for demand. Of course, still a lot of uncertainties, but both for, I would say, our salmon products and white fish products, we are seeing that the prices is currently increasing, and then we have to see how the development is going forward second half. We are increasing our volume in Lerøy, expecting to slaughter approximately 210,000 tons this year. It's on positive movements since 2019 to 2021, and we also believe that there is potential for a higher organic growth going forward. When it comes to white fish, this year has been an increase of quota. 70% up for cod, 22% down for haddock, and we can see that next year we are expecting a similar drop in the quota for both cod and haddock. Also building up for a higher cod price and haddock price second half compared with what we have seen first price. Still, there is a lot of potential in the downstream value chain of the white fish segment. We are seeing that this year the direction is good. South America, it's good to tick off both the quota for first season in Peru and also the quota in Chile. We are expecting now that research in front of the second season in Peru will start in September and finish up by the end of October, so the season can start in early November. North Atlantic, again, starting up on the main season for human consumption a bit earlier in August. Normally this season is starting up late September, and we expect to have a busy period in Pelagia second half, also in terms of integrating the new acquisition into the Pelagia organization. That was all, and thank you for following us.