Earnings Call: Q1 2018

May 8, 2018

Okay. Then it's a great pleasure for me to welcome you to Austevoll first quarter presentation. I would start by giving you a short introduction to the highlights of the quarter. I will continue by going through segment by segment in our group. Britt Kathrine Drivenes, our CFO, will take you more in detail through the performance during the quarter. I will end by giving you a view on how we are seeing the different markets in the different segments we are operating within. Starting off with the highlights, we have had a quite good quarter, one of the company's best quarters ever. It's been a bit lower contribution from the salmon segment due to lower price achievement, lower spot prices, and also lower slaughtering volumes, and a bit better performance from the pelagic business. Mainly due to our gain of a sale linked to one of our fishing vessels on NOK 157 million. However, if you disregard that, we are also delivering better results from the pelagic segments. Looking at the revenue for first quarter, we have a revenue of NOK 5.7 billion, which is down from NOK 6 billion same quarter last year. EBITDA of NOK 1,450,000,000 which is also approximately NOK 120 million down from last year. On the EBIT side, we are delivering an EBIT of NOK 1.2 million. Pretax profit, NOK 1.3 billion and total assets of NOK 37.5. Net interest-bearing debt of NOK 3.7 billion and an equity ratio of 56%. We have a very strong balance sheet, and that's important in the base of business we are operating within, I would say, in all segments. If you also take into account the 50% share we hold in Pelagia, you would see that the contribution from salmon and whitefish is down NOK 300 million from last quarter. If you disregard the gain of sale we have on our fishing vessels, we are delivering approximately NOK 60 million better on the pelagic side, which is quite good considering also that Peru has a troublesome second fishing season in 2017. This is a slide we are showing every time we are here. It gives a view on where we are operating and what kind of assets we are having. If you look at the right-hand side, you are seeing that we are catching, on an annual basis, between 400,000 and 500,000 tons of pelagic fish. This year, we are aiming to be closer to 500,000 tons than 400,000 tons. We are also aiming to produce in our factories approximately just short of 2 million tons of pelagic fish. Process and catch in total approximately 100,000 to 120,000 tons of fish. Then we are guiding on a slaughtering volume 186,000 tons of salmon during 2018. Going through the different pelagic segments, I would start off with Austevoll and our Peruvian operation. This is a good slide showing the development both in the biomass and also the quota we have had for the last 15 years. As you can see in terms of the biomass in front of this season, it's rated quite highly compared with the historical average. Also you can see that the quota, you have to go back to 2001 in order to get a similar quota as we are seeing today. Both biomass and quota has been good for this season. And of course, this is needed after some troublesome years in Peru. Summarizing the quarter, I will not spend a long time doing that, but what you could say is that there were no catches from the second season during 2017. It started off in January and also ended in January. We caught more or less a similar volume first quarter this year as we did last quarter. But the main differences has been that we came in last year with more meal and oil on stock compared with this year, which we didn't have any meal and oil. So the sales has been considerably lower than it was last year. We have had a quite good season in the south. In first quarter, we were processing approximately 31,000 tons, and the fish has been quite close to our factory here down in Ilo. So volume-wise, we have been producing a bit more than last year. However, we came in with much less volume into the season. Then focusing on the first season quota in 2018. As I said, biomass was estimated just around or below 11 million tons, which is 19% above the average of the last 10 summer cruises. Quota was put at 3.3 million tons, which is up from 2.8 million tons last year. Considering that we only caught 2.4 million tons last year, you see that it's approximately just below 1 million ton more if we are catching the quota for first season this year compared with same season last year. We are also estimating that the annual quota or the total catches for 2018 will be close to 5 million tons. And of course, this is subject to the IMARPE cruise, which will take place in front of the next season. But it will bring us up with a fishery which is approximately double of 2017 volume on our own quota. Then going to Chile. We have a good start of the catching season in Chile. We caught approximately 21,000 tons in first quarter, up from 8,000 tons of horse mackerel in first quarter, which is quite a good achievement, I would say. The fishing has been good. Production also has been good. We have been able to turn most of the fish in for human consumption and sales has also been quite good into Africa. In terms of the sardine anchovy season, a bit lower than last year, and the giant squid market has been more or less in line with the same quarter we had last year. Then there has been also an auction of 15% of the industrial quota in Chile, and we are aiming to keep our percentage and maybe to increase a bit the percentage post the auction, meaning that we will have a higher quota for FoodCorp going forward compared with what we had previously. We have also been able to purchase 15,000 tons of quota from factory trawlers outside 200 miles, meaning that we can catch that with our own vessel, giving us a better utilization of both our fleet and our plant. So I would say FoodCorp has had a good start of the season, and we also expect good fisheries going forward now in second quarter. Then the North Atlantic pelagic quotas being the foundation of what we are doing in the North Atlantic, both on the factory side and also on the fishing vessel side. The guidance on volume is more or less equal to the situation we had in last quarter presentation. The only difference is that we are guided down a bit on the sand eel quota compared with last year because the quota in Denmark and E.U. is approximately down with 200,000 tons. Still we don't know if the quota in Norway will remain at 70,000 tons or it will be increasing. That will be sat down on the 15th of May. In terms of raw material volume in first quarter 2018, a bit higher than the same quarter last year. It's blue whiting, and it's also based on more trimmings from the Barents Sea capelin. Market is as normal, quite low in first quarter. Cold temperature means that feed production is low, also affect sales for our fish meal activity during first quarter. We also have to say that the low quota second season in Peru has also helped on the price achievement we have received in first quarter. We also expect that these prices has to come down as a consequence of the high quota put in Peru for the first season 2018. Also for direct human consumption, raw material intake has been better than it was last year, mainly driven by the herring and also from the Barents Sea capelin, and this also gave a good contribution to both our plants in the north and also being able to produce quite good quality products based on the capelin. So overall, I would say it's positive both for the fishing vessels and also for the industry that this fishery has been started up again. As you can see also, this reflect the numbers. We have a revenue just out of NOK 1.5 billion, EBIT of NOK 200 million, which is up from NOK 163 million last year, and an EBIT of NOK 153 million. The Brødrene Birkeland Group has harvested a higher volume this year compared with last year, which was also reflecting the result of the contribution from this company, 2,800 tons in first quarter versus 1.1 million ton first quarter in 2017. The EBIT per kilo is a bit down, and has to do with the spot prices has come down with approximately NOK 6 per kilo this quarter compared with next quarter. Fishing has been okay in the first quarter. Started a bit slow in pelagic, but has recovered. We have been catching herring, capelin, and blue whiting in the quarter. We have sold one pelagic vessels. There is still challenging, I would say, situation for the snow crab vessels, which is operating under quite challenging conditions in the Barents Sea. Going to Salmon Lerøy Seafood Group. I would say if you want to have more detailed information of this company, I suggest that you take a look at the webcast of Lerøy Seafood Group where Henning and Sjur presenting their numbers more in detail. However, summarized, Lerøy is delivering, I would say, another good quarter. It's NOK 300 million down from last year. However, this is mainly based on a lower slaughtering this quarter compared with last quarter, and also spot prices is down with approximately NOK 6 per kilo. But an EBIT on NOK 960 million. Havfisk and Lerøy Norway Seafoods is delivering an EBIT of NOK 178 million, which is up with NOK 20 million compared with the same quarter last year. EBIT per kilo, if you disregard Havfisk and Lerøy Norway Seafoods, is just 21 NOK per kilo, which is down from 25.8 per kilo same quarter last year. Net interest-bearing debt, NOK 2.3 billion by the end of first quarter 2018, more or less on the same level as it was last year. Looking at the volume guidance compared with the last guidance we gave on the fourth quarter presentation, minor changes. We are down 1,000 tons in Lerøy Aurora, up 1,000 tons in Lerøy Midt, and Lerøy Sjøtroll is guiding down approximately 3,000 tons, mainly based on lower or colder seawater temperatures. All in all, including the 50% share we have in Norskott Havbruk, company is guiding on 179,000 tons of salmon slaughtering during 2018. To the wild catch. We have also had a good catch during the quarter, 22,000 tons, which is up 8% compared with same quarter last year. Prices has also been quite good during the quarter. Cod price is up with 12%, haddock price is up with 20%, while saithe is down by 1%. Also been catching shrimp in the period, which also contributing to the 22,000 tons. Also profitability on Lerøy Norway Seafoods has been a challenge during the first quarter due to high raw material prices. I give the words to Britt. Thank you, Arne. This table sums up the activity within the companies in the quarter. As you can see, we have a little higher raw material intake this quarter compared to same quarter last year. We have also changed the guiding for the full year 2018 a little bit, and that is because the quota set for first season in Peru was a little bit higher than we expected in our last guiding. We had another good quarter. It's been good activities within all the companies in the group. We have also seen a positive price development for our products within whitefish and salmon in the quarter. The revenue in first quarter was a little bit over NOK 5.7 billion. If we include our share of Pelagia, 50%, the revenue in the quarter was almost NOK 6.5 billion. The EBITDA in the quarter is NOK 1.4 billion, and including 50% of Pelagia, a little bit over NOK 1.5 billion. The decline in revenue and EBITDA is mainly attributed to the lower harvested volume of salmon in the quarter and also some lower price achievement for salmon in first quarter this year compared to same quarter last year. The EBIT in the quarter is NOK 1.2 billion, including 50% of Pelagia, the EBIT is NOK 1.3 billion. Income from associated companies is NOK 159 million in the quarter, and we have a good operation in the largest associated companies on Norskott and Pelagia. Pretax profit in the quarter is NOK 1.3 billion, down from NOK 1.4 billion in the same quarter last year. This is excluding the fair value adjustment of the biomass. The net profit for the quarter is a little bit less than NOK 1.9 billion, and that gives an earnings per share of NOK 4.57. If we exclude the biomass adjustment, the earnings per share is NOK 2.58. I would recommend you to go into the homepage of Austevoll Seafood Group and look at their webcast for first quarter. That will give you a little bit more detail. They have had another good quarter. They have had a revenue of NOK 5 billion, an EBITDA of NOK 1.1 billion, and an EBIT of NOK 960 million. The decline in revenue and EBIT is, as mentioned earlier, mainly attributed to the lower harvest volume of salmon and also the lower prices realized for salmon and trout in the quarter. They have slaughtered a 13% lower volume this quarter compared to same quarter last year. When it comes to the trout, the price achievement there is NOK 6 lower than for salmon in the quarter. Release from stock cost is down compared to fourth quarter 2017, but there are large variation within the three regions, and the release from stock cost in Hordaland is still substantially higher than the two other regions. Biomass at sea by the end of the quarter is 11% higher than same quarter last year. That must been seen because we have slaughtered some lower volumes first quarter this year compared to same period last year, and we also expect to slaughter a higher volume in second quarter this year compared to second quarter last year. Austral finished their second season quota in January, and owned catch was 40,000 tons. In addition, there has been quite a good activity in the south of Peru. Our factory in Ilo had a raw material intake of 30,000 tons compared to only 6,000 tons same period last year. So you can see that our raw material intake is a little bit higher this quarter compared to first quarter 2017. However, we didn't have any production in fourth quarter last year, so we went into 2017 with zero inventory of fish meal and fish oil. So the sales volume this quarter is substantially down from the sales volume in first quarter 2017. As you can see, we have also almost sold our total production for first quarter in first quarter this year. The revenue has been NOK 263 million, the EBITDA NOK 63 million, and the EBIT in first quarter NOK 24 million. FoodCorp has had a good activity in the quarter, and you can see that their total raw material intake is a little bit higher than first quarter 2017, but there is a different mix in raw material intake compared to the same quarter last year. This year we have caught by our own vessel 17,500 tons of horse mackerel compared to 8,000 tons in the same quarter last year. There is a good demand for our frozen products, and we have sold 15,000 tons of frozen products in first quarter this year compared to 4,000 tons in same quarter last year. The company is cash positive. That means that they have a positive net interest-bearing debt of NOK 3 million compared to a net interest-bearing debt of NOK 20 million by the end of first quarter last year. The revenue in the quarter has been NOK 166 million and the EBITDA NOK 55 million and an EBIT of NOK 48 million. After the auction of horse mackerel in December 2017, the fishing tax has increased. For 2018, for FoodCorp, that will give an increased fishing tax of about $800,000-$900,000. Brødrene Birkeland, within the salmon segment, they have harvested 2,800 tons, and that is a substantial higher volume compared to same quarter last year where they harvested 1,100 tons. EBIT per kilo is close to NOK 19, down from NOK 24.4 in same quarter 2017. Brødrene Birkeland sells all their salmon in the spot market, and the spot prices have been down 9% in first quarter this year compared to same period last year. The pelagic vessels have had a good season, one of their main seasons. They have been fishing herring, blue whiting and capelin. I also want to mention that in first quarter, Brødrene Birkeland sold one of their older pelagic vessels, including licenses. Gain from this transaction was NOK 157 million, which are included in the figure for the quarter. The snow crab vessels, for most of the quarter, only one vessel has been operating, and it has been a challenging winter also this winter. The company is cash positive, have a positive net interest-bearing debt of NOK 116 million versus net interest-bearing debt of NOK 296 million by the end of first quarter last year. The revenue in the quarter has been NOK 364 million, EBIT of NOK 212 million, and EBITA NOK 189 million. But included in this figure, as mentioned, gain from sale of vessel and licenses of NOK 157 million. The group have total assets of NOK 37.5 billion and a net interest-bearing debt of NOK 3.8 billion. That is down from NOK 4.1 billion by the end of 2017. The increase in the total assets can be explained by the following total tangible fixed assets has increased, and we have taken over the new built whitefish trawler Nordtind in January. In addition, you can see that the fair value adjustments are up with NOK 1 billion. Also the cash position has increased by NOK 700 million from NOK 5.1 billion to almost NOK 5.8 billion. The equity ratio is 56%. The board has proposed a dividend per share of NOK 2.80. If this is approved by the shareholders meeting on May 24th, the dividend will be paid out by June 1st. The cash from operating activities has been a little bit over NOK 1 billion in the quarter, a good cash performance. Cash from investing activities is minus NOK 500 million, but as you can see, net investment in CapEx is almost NOK 900 million. In addition to the ongoing projects within smolt facilities and industry, we also took over the new trawler Nordtind in January 2018. Also, there is a positive contribution here, and that is from the sale of the pelagic vessel and licenses. We have had a net change in cash in the quarter of almost NOK 700 million. So we ended the quarter with a cash position of almost NOK 5.8 billion. Then I will end by giving our view in the different markets we are operating within, starting off with the fish meal market. If you look at the table on the left-hand side, you can see that among the largest producer, the fish meal production has increased of 34% year to date versus the same period in 2017. It's mainly due to a deep increase or earlier start in Peru, so it's a bit misguiding since the season in Peru started up 7th of April this year and last year it started up 21st of April. So it's a bit misguiding. However, the expectation fishery has been quite good. We have seen prices also as a consequences of the high quota has been coming down from before the quota was announced from USD 200 per ton down to USD 1,540 for super prime, which is the current price we are seeing now. Main market is China, and it's approximately just sort of 500,000 tons already committed from Peru of this year production. So very close to 60% of the expected fishery or the production is already sold. Our main market, China, coming into the new season with a lower stock level than they had last year. Offtakes a bit down from same period last year, 1,700 tons a day. What we're also seeing that the domestic production remains limited. Chinese government continues with strict environmental controls, which also affect the producers. We also see that the prices on fish meal sold in China is a bit higher than prices sold from Peru, meaning also that it stimulates for higher trade among the Chinese players. Same situation with fish oil among the largest producers is up with 42%. Yield has been very good both in Chile and Peru of what's been produced. We came in with prices for Peru in front of the season of USD 2,000 per ton. For feed grade, we are expecting that these prices will come down. Omega-3 prices to give a premium of up to USD 500 more. It's not ideal profiles of the omega-3 being produced in Peru now in terms of supplying the omega-3 market. We are expecting also that prices on omega-3 grade will be quite good also going forward. Estimating of this year production in Peru or this season production in Peru, a volume of approximately 132,000 tons to be sold during the next quarters. Looking at the salmon volumes, we are also seeing that we are reducing the global supply from last quarter. Now the global supply is down to 3.7%, and also the volume from Norway is also coming a bit down to just sort of 6%. I would say in the south, the supply for first half year is more or less in line with a bit above same period last year. We are also expecting that more volume will come into the market entering into July, August period. Spot prices has been very good during 2018. Started a bit down in the first one and a half month and recovered during second period of the quarter, and also continue into second quarter as well. First quarter average spot prices on 60 NOK per kilo, down from 66 per kilo. We are also seeing now that so far this quarter we are above the last year prices we are seeing. We are also seeing that the market has also been strong, also on these good prices, in particular the market we are operating both in E.U. and U.S. is up. Other market mainly buying on spot prices also has a strong consumption during the first quarter. What we can say to conclude is we still have a strong or positive outlook for salmon going forward. We have experienced lower prices during first quarter this year. Positive cost improvement versus last quarter. We are giving a harvest guiding of approximately 179,000 tonnes in Lerøy, including a 50% share in Scottish Sea Farms. Whitefish, good catches in the quarter. We expected catch volume this year on 65,000 tonnes. It is down from 67,000 tonnes last year. However, we are expecting a lower reduction on cod volume and also on haddock volume based on a drop in the quota during 2018. It is a quite good outlook for the South American activity. Hopefully, we will be passing the 5 million tonnes catches during 2018 in terms of Peru. We are also seeing that we have a recovery of the horse mackerel biomass in Chile. In pelagic, we are expecting a lower activity in the two next quarter for the pelagic business, recovering in the fourth quarter. All in all, we are also expecting a good quarter coming into the next quarter and also looking forward for the rest of the year. Thank you.