Earnings Call: Q3 2019

Nov 15, 2019

It's a pleasure for me to invite you to Austevoll Seafood's third quarter presentation. I will first start you off taking you through the highlights of third quarter and year-to-date numbers. I will take you through the different regions we are operating within. Britt will take you more in detail through the financial numbers, and I will end this session by giving you a short view on the markets we are operating within. Starting up talking about third quarter result, I would say we have had off seasons in the fisheries, both within pelagic and whitefish. The operation has been a low operational season as a result of that. This is normal for our third quarter, and I would say main activity has been on the selling side of products compared with catching sides. Salmon result also has been, I would say, disappointing and weaker than we expected since last quarter. I will come into details on that later on in the presentation. Starting up on the revenue side, you can see we are having a revenue of NOK 5.7 billion and EBITDA of NOK 900 million, which is down from NOK 1 billion same quarter last year. EBIT NOK 560 million, and pre-tax profit of NOK 470 million. Going to year-to-date third quarter, you can see that the revenue is marginally higher on NOK 17.4 billion, EBITDA on NOK 3.2 billion, and EBIT of NOK 2.2 billion, and pre-tax profit on NOK 2.3 billion. We are having a strong balance sheet, total assets of just below NOK 40 billion, net interest-bearing debt of NOK 4.2 billion and an equity ratio of 57% by the end of this quarter. If you look at the group EBITDA and taking into account the 50% share we are having in Pelagia, you see that we are delivering just below last year on EBITDA level. Marginally more or less the same on the pelagic side. Pelagia's activity in the North Atlantic has contributed better during the quarter, and we have sold some less volumes in Austral, which has resulted in a weaker result from Austral in the quarter. We are also entering into the fourth quarter with a higher stock compared with last year. If you look at the year-to-date third quarter, same exercise. You are seeing that we are delivering approximately NOK 660 million lower on EBITDA. Approximately NOK 380 million is coming from salmon and NOK 290 million is coming from the pelagic side. We also had a gain of sale in 2018 of 158. If you disregard that, you can see that we are delivering on the pelagic activity approximately NOK 130 million lower than last year, and that's mainly because of the lower quota first half in Peru. Going to the operational overview. If we look at the right-hand side, this year we will catch approximately 400,000 tons of pelagic fish in our own quotas. We will process approximately 1.7 million tons on our factories. We will approximately produce and catch more or less the same level of whitefish this year compared with last year. We will slaughter just below 190,000 tons in our salmon company. Starting up, taking you through the different companies in our group and their performance in the segments. As I told initially, the operation during the quarter has been quite low. I will try to focus more in the coming months than the history when I am going through the different companies. Starting up, looking at the biomass and quota evolution. We just received the new quota for second half year in Peru. Started up with an exploration fishery the 6th of November, and the quota will start up in the 16th of November. What I can say is that both biomass and quota is quite high. Compare with the second half years previously in Peru. You need to go back to 2003 before you had a higher second half quota than we are seeing now. In total, in 2019, the quota will be around 4.9 million tons, which is down on 5.4 million tons. I would say the quota which is put now is compensating a bit of the lower volume put in the first half. Also looking at the sea condition and in particular, the sea surface temperature, which is, of course, important for us in terms of catching the fish. We are seeing that if you compare the picture on the left side, you see it is warmer water. This was taken during April this year. What you can see now at the current water temperatures, you see that has been a change from warmer waters to a cold water period, which has also contributed to, I would say, the good quota we have seen now. Looking into Peru, as I told you, low activity during this quarter. Quota was put at 2.8 million tons. It is up with approximately 33% compared with same period last year, and we are estimating that we will catch approximately 120,000 tons of our quota during this side of the year, and the remaining of our 190,000 tons quota in the January window. In Chile also, I would say that most of our year is done by first half. We have been catching our quota ourself, and we have also caught most of the quota we have purchased from third-party fishermen. 4,000 tons left. Positive side in Chile is that it seems like the recommendation for the next year quota is up with 15% of jack mackerel. I would say if you evaluate the year, it has been quite good fishery and the fish has been close to the coast. On a negative side, the giant squid fishery has been very low compared with the last three, four years, and has also made it a bit more challenging with earnings during this quarter. On the North Atlantic pelagic quota, you can also see that it is a marginally increase of raw material access for the North Atlantic players. Main driver behind that is that the mackerel quota is up with 20%. North Sea herring quota is up with 12%. This is species going in for the human consumption factories. Blue whiting quota is up with 2% and Norway pout quota is up with 15%, meaning also that the raw material in for fish meal will be more or less on the same level as it was last year. When it comes to the Icelandic capelin quota and the sandeel quota is not yet set. It will probably be set during February and during May. Still, we do not have a clear outlook what the final quota for fish meal will be. Negative side is the Atlanto-Scandian herring which is down with 11%. Looking into our fish meal activity in Pelagia in the North Atlantic, you can see that the raw material volume has been more or less on the same level as last year. Main raw material has been North Sea herring and mainly trimmings from the North Sea herring production during the quarter. On the sales side, I would say it is the most important quarter in the year. It is the quarter where the salmon consumption or salmon feed consumption is at its highest, and it has been a quite good sale also during the quarter. Looking into the human consumption business, you can see that it is a bit less raw material intake in third quarter compared with third quarter last year. We are now, I would say, into the main season for the human consumption activity in Pelagia. It has been quite good production of both herring and both mackerel during the season. We also welcome for the human consumption plants in the West Coast the increase of quota of mackerel in 2020. Delivering better on the third quarter result. Revenue up to NOK 1.4 billion. EBITDA approximately NOK 100 million higher this quarter compared with same quarter last year, and EBIT of NOK 100 million during the quarter. Also, if you look at the year-to-date figures, you can see we are also delivering better in this segment compared with the same period last year, EBT of 606 and an EBIT of 444. Saying that, it has also been a gain of sale of approximately NOK 105 million in that period. Then entering into salmon and whitefish on the Lerøy Seafood operation. I would say if you want to have a detailed presentation of the quarter Lerøy has been through, I suggest you to go in to see the webcast of Henning Beltestad and Sjur Malm on the Lerøy Seafood webpage. Third quarter numbers, we are delivering an EBIT of NOK 500 million, down from NOK 660 million, which we are not satisfied with. I would say main reason for that is mainly related to the operation in mid Norway. The growth has been a bit limited due to a lot of sea lice treatments. I would say the growth has been reduced by approximately 6,000 to 7,000 tons in the period, which has also affected the cost. Also, I would say the achieved prices has been far below our own expectation and also the drop of prices has been higher than we expected, in particular during the September period. Harvest volume higher than last year, 46,000 tons, approximately 9,500 tons from the north region, approximately 20,000 tons from mid region and 17,000 tons from Lerøy Sjøtroll. EBIT per kilo, just below NOK 10. It is split between approximately NOK 16 per kilo in the north, NOK 8.5 per kilo in mid Norway and approximately NOK 2.5 per kilo in the west. Net interest-bearing debt is a bit lower than same period last year, NOK 2.8 million. Then looking at the volume development and our expectation for the year and also for next year. I would say we have had approximately three years now where we in practical have not had any growth. We are not satisfied with this performance, and are expecting that 2020 will be better compared with the three previous years. The main reason for the increase is in the region north and also doing a better performance in the west region of Norway. We are aiming to increase our production in Norway from 160,000 to 172,000 tons during 2020. Looking at the wild catch side. As you can see, harvest volumes during third quarter has been 13,000 tons, a bit down compared with same period last year. Higher share of shrimps, and that's the reason why the average prices of the 13,000 tons is less compared with last year. But if you break it up, you can see that both prices for cod, haddock and saithe has been increasing during the period. I would say we are more or less online on what we were expected during 2019 and are now catching cod and haddock on volumes which is a bit higher than last year. I will give the floor to Britt. Thank you, Arne. We start by actually a summarize of the raw material intake in the quarter and also by the end of September and our expectation for the full year of 2019. To summarize, there has been as normal a low season within the pelagic segments, and you can see that the raw material intake is more or less on the same level as same quarter last year. Within farming, we have slaughter a higher volume. But as I will come back to later, the margin has been lower compared to same quarter last year. From 1st of January, we have implemented the IFRS 16, and that is regarding leases. That mean that the figures are not directly comparable to the corresponding figures for 2018. I would recommend you to look into note one in our financial report for more information. We have had an increase in our revenues of 8.5%, and there has been good activity, especially within Lerøy. Some lower activities within the pelagic segments, and that is mainly due to lower sales volumes. The EBITDA in the period is down from NOK 1 billion in third quarter last year to NOK 902 million this year. If we include our share of Pelagia, the EBITDA is NOK 979 million, down from NOK 1 billion and 35. The depreciation in the quarter is NOK 342 million, and that is up from NOK 237 million in same period last year. Depreciation are affected by the implementation of IFRS 16. In addition, we have had quite large investment programs going on late this year, and that also influenced the depreciations going forward. EBIT in third quarter is NOK 559 million, down from NOK 771 million, including our share of Pelagia, the EBIT in third quarter this year is NOK 610 million, down from NOK 772 million in same quarter last year. Some lower income from associated company this quarter, NOK 45 million, down from NOK 74 million. We've had a very challenging quarter in Norskott Havbruk, and their result in this quarter is substantially lower compared to same quarter last year. We have had a better result from Pelagia this quarter compared to last year. All in all, lower income from associated third quarter this year. Net finance is minus NOK 133 million, up from NOK 87 million, and also net finance is affected by the implementation of IFRS 16. The pre-tax profit, and that is before this biomass adjustment, in the quarter is NOK 472 million, and that is down from NOK 758 million in same quarter last year. The biomass adjustment has been negative with NOK 584 million in this quarter. Same quarter last year it was positive with NOK 72 million. When you look at the net profit in the quarter, that is of course substantially affected by this negative biomass adjustment. Looking at the net profit for third quarter is minus NOK 133 million, compared to a positive NOK 608 million in same period last year. Looking at the earnings per share, and that is excluding biomass adjustment, that is NOK 1.13, down from NOK 1.44 same quarter last year. Year-to-date, the revenue for the group is NOK 17.4 billion, up from NOK 17.1 billion same period last year. If we include our share of Pelagia, the turnover is NOK 19.7 billion, up from NOK 19.1 billion same period in 2018. The EBITDA year-to-date, Q3 is NOK 3.3 billion, down from NOK 4.4 billion. The explanation is, as mentioned for third quarter, we have a lower margin within the farming segment. Also the pelagic segment has had lower earnings, and that is due to the season in Peru and the first fishing season in Peru that was 1.2 million tonnes lower now in 2019 compared to 2018. Depreciation year-to-date is NOK 993 million. That has increased from the NOK 700 million in the same period last year. Again, IFRS 16 has impacted this figure. Of course, our CapEx over the last years. The EBIT year-to-date is NOK 2.3 billion, down from NOK 3.3 billion last year, including our share of Pelagia, and the EBIT is NOK 2.5 billion, down from NOK 3.5 billion. Income from associate is more or less at the same level as last year, is NOK 340 million, compared to NOK 344 million in the same period in 2018. Net finance, minus NOK 244 million, and again, impacted by the implementation of IFRS 16. Pre-tax profit is, by the end of September, NOK 2.4 billion, down from NOK 3.4 billion. Looking into this biomass adjustment for this period, it's negative with NOK 552 million. If you look into the biomass adjustment same period last year, it was positive at NOK 1.5 billion, so quite a large difference there. The net profit year-to-date 2019 is NOK 1.4 billion, and the corresponding figures in 2018 was NOK 3.4 billion. The net profit year-to-date 2018 is NOK 1.4 billion, and that is down from NOK 3.9 billion in the same period last year. Earnings per share, NOK 5.53, down from NOK 6.88, and that is excluding the biomass adjustments. Lerøy, you can see the main driver there is, of course, the farming segment. They have slaughtered 24% more salmon and trout this quarter compared with the same quarter last year. But the margin is lower, and that is because we have seen a decrease in the spot prices, 11%, compared to the same quarter last year. We have also a higher cost compared with the same quarter last year. The cost is down from the second quarter this year, but is higher than the same quarter last year. The EBIT per kilo is a little bit less than NOK 10, down from NOK 16.6 in the same period last year. The contract share this quarter has been 32%, and the prices on the contracts are higher than the spot prices in the quarter. Looking at the wild catch, the EBIT are more or less at the same level as last year, NOK 40 million, compared to NOK 41 million in the same period last year. The company has a net interest-bearing debt by the end of the quarter of NOK 2.8 billion, and that is down from NOK 3.1 billion in the same quarter last year. It hasn't been a large operation in the third quarter in Peru. The company caught 94% of their quota by the end of the second quarter. The remaining 10,000 tons was caught in the first days of July. What we can see is that they have sold quite a substantial lower volume of fish meal and fish oil in this quarter compared to last quarter, the same quarter last year, 24,000 tons, down from 42,000 tons in 2018. The revenue in the quarter was NOK 380 million, and the EBITDA was NOK 104 million, and the EBIT was NOK 54 million. Net interest-bearing debt by the end of September was NOK 1.1 billion, up from NOK 665 million the same period last year. This year, the company has paid out dividends of NOK 250 million, and in 2018, that was zero. The main season or the main operation for FoodCorp takes place in the first half of the year. The activity in the third quarter has been low. They have also sold lower volumes of finished products, and the price achievement for the frozen products are lower this year compared with last year, and that is due to change in product mix, but also that the price for horse mackerel in the main market has been lower this year compared with last year. The revenue in the quarter is NOK 103 million, and the EBITDA is NOK 3 million, and the EBIT is minus NOK 6 million. The net interest-bearing debt, they have a net cash position. By the end of September, the net cash position was NOK 60 million, and that is more or less at the same level as they had last year. There will be low activity also in the fourth quarter, so we cannot expect any positive results from FoodCorp in the fourth quarter. The farming part of Brødrene Birkeland, they have slaughtered 1,700 tons of salmon, up from a little bit less than 1,300 tons in the same quarter last year. The company sells all its salmon in the spot market, and the spot prices have been down 11% this quarter compared with last quarter. Also they have a higher cost year on year. The EBIT per kilo for Brødrene Birkeland farming is negative this quarter by minus NOK 0.6, down from NOK 5.5. The revenue has been NOK 112 million and the EBITDA NOK 6 million, and that with a negative EBIT of minus NOK 1 million. The pelagic vessels have had a low season, and they have caught their North Sea herring quota in July. They started up fishing their mackerel quota at the end of September. The snow crab fishing has been closed almost the whole quarter. The revenue for this quarter is NOK 60 million, and the EBITDA is NOK 22 million, and the EBIT is NOK 10 million. The company has a net cash position, and that is NOK 142 million by the end of September, compared to NOK 48 million by the end of September last year. The group has total assets of NOK 39.3 billion. As mentioned earlier, the implementation of IFRS 16 is the main change for the increase in the total assets. By the end of September, the net interest-bearing debt is NOK 4.3 billion, down from NOK 4.4 billion. If you include this right of use assets liabilities, the net interest-bearing debt is NOK 5.6 billion. The equity ratio is 57%. We have had a good cash performance from operating activities in the quarter. It is almost NOK 1.3 billion. The main reason for that is a lower level of tied-up working capital. The cash from investing activities is minus NOK 195 million, and you can see that the CapEx in this quarter, compared with last quarter, is lower, and also for the year to date. As mentioned, we have had quite a substantial CapEx program going on, and we are now at the end of that program. The cash from financing activities is a positive NOK 196 million, and is a mix of paid installments, but also change in short-term loans. The cash by the end of the period is NOK 4.6 billion, and that is up from NOK 4.5 billion by the end of September last year. We will end this session by giving the view on the different markets we are operating within, starting up with the fish meal market and looking at the supply. As you can see on the table on the left-hand side there, you can see that the total volumes produced by the largest producer of fish meal is down by approximately 29% compared with the same period last year. I would say also that it is in particular Peru, as you can see, which has had a lowest drop in the production of fish meal during that period. You can see also on the graph below the table that the prices has been reducing from, I would say, summer period until it stabilized before this season. That has mainly been due to the consumption in particular in China. This is prices in Peru. Prices we saw now before the season we set was approximately $1,300 per ton for high-quality meal, with a reduction in price on lower qualities. Reason why we had the high increase, in particular in stock in China, was, I would say, several causes. The African swine fever has affected the consumption of feed for swine. The aquaculture season has been quite low. We have seen also that the currency has not been favorable for the Chinese importers. Saying that, what we experienced in October was that the consumption was recovering, and we saw offtakes of fish meal up to 38,000 tons per week, which is far better than we have seen in weeks in Octobers on previous years. You can see that stock level now is climbing down to how it was the same period last year. We are seeing also that the China's stock prices is also a bit higher than the prices which is sold for Peru, which is also stimulate the consumption and also the trades. Looking at fish meal, we have seen opposites to the fish meal prices. We have seen fish oil prices has been quite stable during the period, although the consumption has been down with 22%, or the production has been down with 22%. Prices for feed-grade is around $1,800 per ton and is a premium of $300 per ton on the omega-3 fish oil. Going to the Atlantic salmon supply, as you can see, the supply of salmon during 2019 is a bit higher than what we are expecting in the beginning of the year and also from the last quarter. You can see that the increase in Europe is expected to be up with approximately 9%, and the Americas is up with 4%. On a global basis, you see the increase is estimated to be 7.2%. Looking into 2020, you can see that the increase is expected to be around 4%, both in Europe and in the Americas, and also normally on a global basis as well. In particular, in third quarter and also in the end of third quarter, we have had a much higher volume than we are expected in Norway, and consequently, it has impacted on prices. As you can see on this graph, we have prices coming from 70 NOK in the beginning of the quarter down to 40 NOK. In particular, reason for that is that the volume was up approximately 23% in September, and it was not expected. Atlantic salmon consumption, 8% up in EU, 7% up in U.S., and also we have seen that other markets has been a big contributor of the consumption during this year. Summing up, I would say volume has come down, prices has recovered. We still find the demand for salmon strong, and we are also positive for this market also coming into 2020. Harvest volumes, a bit on low side on 2019, and we are aiming to be better during 2020 and harvest between 183,000 to 188,000 tons. Also positive that drop of the quota for cod has been stopped. Small increase there during 2020. The haddock quota is up at 25%, and also the saithe quota in the north is up compared with last year. Also a bit positive outlook, I would say, when it comes to the South American pelagic activity. We are coming into the new year with a higher quota compared with the same period last year, both for anchovy in Peru and also for horse mackerel in Chile, which is up by 15%. Looking in the North Atlantic activity, we are seeing a slight increase of raw material for the North Atlantic players during 2020 compared with 2019. Thank you for your attention.