Earnings Call: Q1 2021

May 20, 2021

Then it's a pleasure for me to welcome you to Austevoll Seafood first quarter financial presentation. I will briefly take you through the highlights in the quarter. Thereafter, I will go through segment by segment, and Britt will take you more in detail through the financial figures. We will end the presentation by giving our view on the different market for the different segments we are operating within. Starting off, I would say that the underlying operations and activity in first quarter has been quite high, both when it comes to salmon farming. Our slaughter level has been 42,000 tonnes in Lerøy. We have a record high fishery in the whitefish segments. However, if you look at the price achievement, both for salmon and whitefish, has been harmed by the COVID-19 effect. Moving on to the pelagic activity. It's also pleasant for us to also deliver quite good result from this segment this year, and I would say is marked by a good operation, a good start of the season, and also increasing prices throughout the quarter for our pelagic products. All in all, a good quarter for us. Revenue of just below NOK 6 billion and EBITDA of just below NOK 1.1 billion, and an EBIT of just above NOK 700 million, and a pre-tax profit marginally higher than same quarter last year, mainly driven by a better performance of our associated company. We also had some negatively agio effects in the first quarter 2020, which we have not had in the first quarter 2021. A strong balance sheet, just below NOK 40 billion. Net interest-bearing debt down to just below NOK 4 billion and equity ratio of 58%. If you also include the EBITDA from our associated company, Pelagia, we have an EBITDA on this quarter of NOK 1,162 million, and about NOK 750 million of portion is coming from salmon and whitefish, and NOK 400 million from the pelagic activity. Its main driver behind these figures is South American, in particularly Peru, which has had a very good quarter. We'll come back to that later. Looking at our operational map. We normally give this map and give our indication when it comes to volume in the group. The latest guidance we have is that we will catch, this year, approximately 450,000 tonnes from our own pelagic fishing vessels. We are aiming to process around 1.850 million tonnes in our pelagic processing plants. We are aiming to catch 72,000 tonnes of whitefish in wholefish and process approximately 30,000 tonnes on our land-based product on our whitefish factories. The last guidance on volume gives us an estimate between 215,000 to 220,000 tonnes of slaughter salmon volumes. Starting up, going through segment by segment. What I can say in a way is that we are entering into, I would say, the third good season we have seen from Peru. The quota which was put up in April was 2.5 million tonnes, more or less in line with the same quota which was in 2020. What's worth to mention is that the start of the season is earlier, so we have better time to catch the quota this year compared with the same season last year. That also means that we are aiming to process a higher percentage of our own volumes and also maybe be able to buy a higher percentage of third-party fish during this season compared with last season. We have had a good activity also when it comes to both fishing and processing in the quarter. We finalized our second quarter quota in 2020 in January, and we caught approximately 41,000 tonnes in January. We have also gone through a very good season in the south, where we have had been purchasing approximately 30,000 tonnes, more or less in line with the same volume that we caught. For the human consumption products, a bit less, but this is compensated with higher prices in Peru. I would say all in all, a very good start, which is also reflected in our figures. We have had a start so far, for the season, and we have caught approximately 75,000 tonnes and purchased approximately 30,000 tonnes of the first season in 2021. Chile continued to develop positive. We had a very good quarter in 2020 first quarter, and we are beating this with marginally higher fishing numbers and better performance in this quarter. Quota is up by 15%, and we are now having around quota of 40,000 tonnes. In addition to that, we are purchasing, and have purchased so far 24,000 tonnes, to be caught on our own vessels. So far we have been catching approximately 45,000 tonnes and have 20,000 tonnes to go of the quota we have already purchased. Also worth to mention that fishing for sardine and anchovy, where we are buying fish from third parties, coastal fishermen, has had a better start this year and this season, compared with the same season last year. This graph we showed in first quarter as well. The only difference is that the sandeel quota is down by approximately 50% versus 2020, down from 500,000 tonnes to 250,000 tonnes. This is a quota normally going in for fish meal and fish oil. Together with the reduction of the blue whiting quota, we see that, I would say the raw material for fish meal and fish oil will be down in North Atlantic versus same period last year. We can also see effect of that if you look at the fish meal and fish oil raw material intake in the quarter, where we are processing approximately 60,000, 70,000 tonne less in first quarter. I think this is volume that will be difficult to recover during the year. Another effect as well is that, normally we are exchanging some blue whiting quota with cod quota with U.K., but due to there is no agreement with U.K. post-Brexit, the actual reduction of the Norwegian blue whiting quota is 32% down instead of 20% down compared with 2020. We are also seeing that prices are increasing slowly. Also, it is more or less driven by purchase from China. Good execution of the season in first quarter, more or less in line with same quarter last year as both to do with production and sales. When it comes to second quarter, we are expecting which normally is a low season quota. We are expecting production of North Sea herring. Due to no agreement with U.K., we also believe that the summer mackerel will be a higher percentage than normally, and there will be more vessels going up north trying to catch blue whiting. Oh, sorry, mackerel. Looking at the result, first quarter from Pelagia, revenue of NOK 2.3 billion, EBITDA NOK 50 million more than last year, NOK 133 million, and an EBIT of NOK 73 million. Going into the salmon and whitefish segment, as indicated in the start, I would say that the slaughtering level has been good. The price achievement has been far lower than it was, I would say both for whitefish and for salmon, compared with same quarter last year. We have also had some biological issues up in Lerøy Aurora, which has reduced our EBIT substantially in this region. EBIT of NOK 455 million down from NOK 816 million. The EBIT from Lerøy Havfisk and Lerøy Norway Seafoods is down by NOK 85 million. I will come back to that later, but it's mainly caused by, I would say, a lower price achievement for haddock and cod. The performance from the land-based activity is moderately better than it was the same period last year. Spot prices down by 24% from first quarter this year versus first quarter last year, and that accounts for NOK 16, which is substantially. Volume 42,000 tons, 9,000 tons from Aurora, 16,000 tons from Midt, and 17,000 tons from Lerøy Sjøtroll. EBIT from Lerøy Aurora a kilo is NOK 2 per kilo. Lerøy Midt just about NOK 8 per kilo. Then we have a positive development, I would say, in Lerøy Sjøtroll of approximately NOK 6 per kilo. Net interest-bearing debt is approximately NOK 3 billion by the end of first quarter 2021. Volume-wise, we maintained the volume we guided on last year, 192,000 tons from Norway and 18,000 tons from Norskott Havbruk, all in all 210,000 tons in Lerøy Norway Seafoods. Again, although we have had record high fishing volumes, our margins has been reduced by falling prices versus same quarter last year. Cod prices is down by NOK 10 and haddock prices is down by NOK 4, versus same quarter last year. What we can say is that prices now seems a bit higher, and we also have a higher portion to be caught by the remaining nine months, compared with 2020. Then I will give the floor to Britt. Thank you, Arne. We start as usual with summing up the intake of raw material in the quarter, and you can see that we have had a small increase in intake of raw material from the pelagic segments compared to last year. The increase are from the South American operation. We have had a small reduction in the volumes in the North Atlantic operation. All in all, an increase of approximately 27,000 tons compared to same quarter last year. Arne has already taken you through the key figures, so I will start at the EBIT level. The EBIT in first quarter this year is NOK 706 million, down from NOK 834 million. The global pandemic has had a negative impact on the demand and has resulted in lower prices both for red fish and whitefish. This is the main factor behind the fall in earnings from the farming and white catch, whitefish, from Q1 2020 to Q1 2021. At the same time, the group can report a very good underlying demand for seafood. When we look at the pelagic operation, we have seen an increase in both revenue and earnings in first quarter when compared to the same quarter last year. The main reason for that is that the Austral Group in Peru have had a very successful second fishing season, which started in November and ended in January 2021. Good access to raw material, combined with high sales volumes of finished goods, have produced a significantly higher earnings in Q1 this year compared to same period last year. When we look at the earnings from associated company, that is NOK 56 million in the quarter, and that is up from a negative income from associated of minus NOK 21 million in the same quarter last year. That can be explained by a higher harvested volume of salmon in Norskott Havbruk. Pelagia, they had a significantly negative impact from exchange effects disagio in the first quarter in 2020. Net finance in the quarter is minus NOK 80 million. Net interest is minus NOK 74 million. That is the same level as it was in first quarter last year. But in first quarter last year, we had substantial effects from exchange rates, and this disagio, and that contributed for minus NOK 80 million of the NOK 155 million in first quarter in 2020. Pre-tax profit is NOK 682 million in the quarter, and that is excluding tax and excluding the biomass adjustment, and that is up from NOK 659 million in same quarter last year. Reason for the increase in that result is due to the increased earnings from income from associated and also substantially less exchange rate effects disagio in the first quarter this year, compared to same quarter last year. The net profit, and that is included the biomass adjustment, is NOK 852 million, and that is up from minus NOK 4 million in the same quarter last year. Earnings per share, and that is earnings ex biomass adjustment, is NOK 1.47, up from NOK 1.15. Looking at the segments, we start with Lerøy. The main driver behind Lerøy's earnings are the harvested volume of salmon and trout. They have harvested a little bit above 42,000 tons in first quarter this year, up from 39,000 tons in same quarter last year. EBIT per kilo ex white catch is NOK 7.4, and that has included a new production tax of NOK 0.40 per harvested kilo, and this production tax was implemented from 1st of January this year. EBIT per kilo for the same quarter last year was NOK 14.80. The spot prices are substantially lower compared to same quarter last year and down with NOK 16 and down 24%. In addition, Lerøy Aurora had some winter wound and that has also impacted the price achievement in the quarter. On the positive side, the contract prices have been higher than the spot prices and the contract share in first quarter this year was 25%. Looking at the release from stock cost, that has increased a little bit from fourth quarter in 2020 but are in line with first quarter in 2020. Wild catch, we have had a very good harvest in the first quarter and is a little bit up from the same quarter last year. As I said in the start, the price achievement has been lower compared to same period and the prices for cod and haddock are reduced by 27% for cod and 14% for haddock compared to the first quarter last year. There is a good demand for the products but on lower prices. The EBITDA in first quarter for Lerøy is NOK 759 million and that is down from almost NOK 1.1 billion in first quarter last year and the EBIT is NOK 455 million and down from NOK 816 million. The net interest-bearing debt by the end of first quarter 2021 is almost NOK 3.1 billion, a little bit up from NOK 3 billion last year. Austral Group have had a very good quarter and they have caught 41,000 tonnes of their remaining quota for second season 2020. In addition, they have also been catching mackerel. The season in the south started also up in first quarter and the company has bought the raw material from the coastal fleet and this is going in for production of fish meal and fish oil in the factory in Ilo. The combination of a good raw material intake and high sales volume of finished products have again given a substantially higher turnover and earnings in first quarter this year compared with same quarter last year. The revenue are NOK 700 million up from NOK 264 million and the EBITDA is NOK 225 million up from NOK 23 million and there is a EBIT of NOK 182 million and the EBIT in first quarter last year was negative with minus NOK 39 million. Net interest-bearing debt by the end of the quarter is NOK 543 million down from almost NOK 1.2 billion in same period last year. Also FoodCorp has had a very good start of the year and the raw material intake have been 53,000 up from 34,000 tonnes in the same period last year. The sales volume of finished goods are almost at the same level as last year but the price achievement for frozen products are up by almost 25% compared with the same period in 2020. The revenue in the quarter was NOK 157 million up from NOK 138 million and the EBITDA was NOK 66 million up from NOK 40 million and the EBIT is NOK 58 million up from NOK 33 million. The company has a net cash position of NOK 145 million and that is up from a net cash position of NOK 65 million in same quarter last year. Looking at the farming part of the Br. Birkeland, the harvest volumes are up 27%. They have harvested over 1,800 tonnes in first quarter. The EBIT per kilo is minus NOK 1. In same quarter last year, the EBIT per kilo was NOK 12.3. The company is selling all their fish in the spot market and the spot prices are substantially down compared to same quarter last year, down by 24%, NOK 16 kroner. The company has harvested their autumn 2019 generation in first quarter and that was a generation with a high release from stock cost. The company has a net interest-bearing debt by the end of the year of NOK 248 million and by the end of last first quarter it was NOK 110 million. This reflects that they had a very tough year in 2020. The pelagic vessels in the Br. Birkeland has finalized their blue whiting quota in first quarter. Last year this quota was caught partially in first quarter and partially in second quarter and they have also had some capelin catch in first quarter this year. The EBITDA in first quarter was NOK 28 million up from NOK 10 million same quarter last year and the EBIT was NOK 18 million. Last year the EBIT in first quarter was zero. The company has a net cash position of NOK 253 million and that is up from a net cash position of NOK 184 million by the end of March 2020. The group has total assets of a little bit less than NOK 41 billion, and that is approximately the same as last year. The equity is NOK 23.8 billion, and that gives an equity share of 58%. Net interest and debt by the end of the quarter was a little bit less than NOK 4 billion, and that is down from NOK 4.6 billion at the same time last year. The group and the parent company's financial position is very strong, and the group has and shall continue to have a significant financial flexibility to allow it to finance further organic growth, and also to carry out the strategic acquisition and sustain the company's dividend policy. Looking at the cash flow, the cash from operating activity was NOK 1.1 billion in first quarter this year, and we have released some working capital and also paid NOK 100 million less in taxes in first quarter this year compared to same quarter last year. When we look at the cash from investing activity, that is minus NOK 258 million. Last year, that was minus NOK 629 million. Last year, we took over the new fishing trawler. Cash from financing activities is minus NOK 566 million, and we have paid down quite a lot on the short-term credit lines in first quarter this year. Last year, it was a positive cash from financing of NOK 188 million, and we draw on the short-term credit facilities. We started the period with a cash position of almost NOK 4.5 billion, and we ended the quarter with a cash position of almost NOK 4.8 billion. The board has recommended to the annual general meeting that will be held on May 27th, a dividend of NOK 3.50 per share. If this is accepted by the shareholder meeting, the payment will be done on June the 9th. I will end this presentation by giving a view on the different markets we are operating within. Starting off with the fish meal market. What I can say here, if you look at the table on the left-hand side, you can see that the increase of the volume from the largest fish meal producers in the world is mainly driven by the volume from, I would say, the end second season caught in January in Peru. We also had a moderately better fishery in the south compared with last year. You see volumes from Peru is by far higher than the same period last year. This is also compensated by a bit reduction, particularly from the blue whiting and sandeel quota in Norway and the rest of the North Atlantic. Interesting part is that although the quota has been on a normal level, we have seen an increase in prices from the put of the quota until today. Prices now for Peru is just below $1,700 per ton for high-quality meal and $200 discount on low-quality meal. A main driver behind the demand is China. They have been building up their stock from last season and also been the main market requiring fish meal also from this season. They have a stock now which is 55% higher than the same period last year. We also see that the offtakes and the consumption is higher now than we've seen last year. I would say also other protein has been increasing during the period, and the soya bean ratio is still favorable for fish meal consumption. Fish oil, same development in terms of increase in volume, mainly driven by volumes from Peru. Also, I would say the yield from last season was also better than we have seen historically. What you can say here is that prices has been more or less stable since the beginning of the year. For feed-grade, just below or just ahead of $1,800 and with a premium of approximately $200-$300 for fish oil and for human-grade omega-3. The Atlantic salmon volume global growth in 2021 is estimated to be around 2%. For 2022, 6%. In 2021, we will see a higher growth from Europe, but this is also offset by a lower growth from Americas. 6% in 2022 is also on an acceptable level in terms of supply. If you look at the first quarter prices, and also into second quarter prices, you see that it's still a lot of volatility in prices. I would say that the predictability is lower than it is post-COVID. Spot prices is approximately 16 NOK down in the first quarter this year versus first quarter last year. But it also pleasant to see that prices as now, what we are seeing in second quarter is coming up. So I would say we are seeing now that the HORECA segment is giving their entrance in the market, coming back. Main, I would say, consumption is driven from E.U. and from U.S. and other markets. I would say that retail has been, I would say, the end market for the salmon products now in the last nine months. But a very strong market, in particular in E.U. To sum up, I would say the end of the COVID-19 restriction are unpredictable. Still is challenging to do operation, in particular in South America. Still we don't see the full effect of, I would say, the market prices, in particular on salmon and whitefish products. But all in all, we are seeing improvements, and we are also looking quite positive for the remaining of the year. If you go to the salmon market, you see that we are estimating a production of 205,000 to 210,000 tons, a bit lower slaughtering volume expected in second quarter versus second quarter last year. Still, I would say that we have a high quota left for the whitefish segments now in the last 9 months versus the same 9 months in 2020. We also see that prices are slowly recovering from first quarter. South America, in the middle of the production now. So far, fishing and operation has been on acceptable level. Again, it's the third season in Peru now, which is executed in a good way, and are expecting a good development also throughout the year in Peru. Chile is also delivering a good quarter as they did same quarter last year. As normal, Chile is doing their year in first half of the year, and the second half is mainly all the quota is been caught. It's going to be interesting season in the North Atlantic. Again, we don't have any agreements with U.K. and the fishing patterns, and particularly for North Sea herring and mackerel, will be changed compared with last year. It's going to be interesting to see how that will be developing now during, in particular, this last 3 months. That's all. Thank you for following us.