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Edited Transcript of AUSS.OL earnings conference call or presentation 25-Feb-20 11:00am GMT

Q4 2019 Austevoll Seafood ASA Earnings Presentation

Oslo Mar 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Austevoll Seafood ASA earnings conference call or presentation Tuesday, February 25, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arne Møgster

Austevoll Seafood ASA - CEO & President

* Britt Kathrine Drivenes

Austevoll Seafood ASA - CFO

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Presentation

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Arne Møgster, Austevoll Seafood ASA - CEO & President [1]

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And I would like to welcome you to the fourth quarter financial presentation for Austevoll Seafood. I will briefly take you through the highlights of the quarter and the year. Thereafter, we'll go through segment by segment. Britt, our CFO, will take you through the numbers in more details. And then I will end by having a view on how we are looking at the different markets of the different segments we are operating within.

Starting off with the quarter, I would say, we are decently happy with the numbers. The salmon operation has been improving since the third quarter. I would say that the main season for Pelagia has been -- during fourth quarter when it comes to the human consumption business, and they performed quite well. And I would say, on the disappointing side, the performance on fishing in Peru has been lower than what we expected when we entered into the main season. I will come back to that.

But looking at the numbers, on the fourth quarter, we are delivering a revenue of just sort of NOK 6 billion and EBITDA of just below NOK 1 billion and an EBIT of NOK 650 million. Pretax profit of NOK 714 million. And if you also include the 50% share we have in Pelagia, in our EBITDA numbers, you can see the following distribution between salmon activity and the remaining of Austevoll Seafood's activity outside Lerøy operation. Total EBITDA from Lerøy of just over NOK 1 billion. And on the Pelagic side, it's NOK 100 million. We are delivering approximately NOK 90 million less in fourth quarter 2019 versus '18. And it has mainly to do with the slow performance or weak performance in Peru.

Looking at the full year numbers, we have a revenue of NOK 23.3 billion, EBITDA of NOK 4.2 billion, EBIT of just sort of NOK 3 billion and pretax profit of NOK 3 billion. We have a strong balance. Total assets of just sort of NOK 40 billion, a net interest-bearing debt of NOK 4 billion.

Doing the same exercise on a full year basis, with 50% shares of Pelagia, you see that the total revenue is just sort of 4.7 -- no, the total EBITDA is just sort of NOK 4.7 billion whereas NOK 3.7 billion is coming from the salmon activity and just short of NOK 1 billion from pelagic. On the pelagic side, I would say the difference from this year versus 2018, you can find in the results from Peru. We have 250,000 tonne less raw material. And that is more or less NOK 300 million less in EBITDA.

On the salmon side, we are slaughtering 4,000 tonnes less than we did last year. The EBIT per kilo is approximately NOK 4, less than it was in 2018. And that if you also include a bit weaker performance on the whitefish segments on the land-based operation, it more or less explain the difference from 2019 to 2018.

The Board will recommend to the Annual General Meeting in 2020 a dividend of NOK 4.50 per share, which is up NOK 1 compared with 2019. Then looking at our overview, if you look on the right-hand side there, we are aiming to catch between -- or just north of 400,000 tonnes on our own quotas for next year, aiming to process between 8 -- 1.8 million and 1.9 million tonnes of pelagic fish, 100,000 tonnes of whitefish, including what we are catching and what we're going to produce onshore. And we are also raising our slaughtering volume with 15,000 tonnes in 2020 versus 2019.

Going back to the pelagic side, starting with the Austral Group, our Peruvian operation, and it's fair to say that we are a bit disappointed of, I would say, the development of the fishing after the high quota, which was issued in -- by the end of 2019. When they stopped the season, it was only 36% of the total quota, which records and that's around 1 million tonnes, which is half of the volume was caught same period last year. So if you look at the full year quotas for 2009 (sic) [2019], we're approximately 500,000 tonnes less than it was in 2018. But the total fishery were just about 3 million tonnes. So I would say, 2.5 million tonnes less the fishery in '19 versus '18.

I would say, it was a challenging fishery, starting up quite well. Fishery was located in the north. And then during the season, I would say, it was too high percentage of juveniles in the catch. So what we experienced was that there were closing different areas along the coast. And I think it was up to 63 areas, which were closed during the period. And I would say, by the beginning of January, they decided to close the fishing season because it was too high percentage of juveniles in the catch. So only 36% of the quota was caught. We were catching 50,000 tonnes purchasing, 30,000 tonnes.

Combined fishmeal and oil yield was 27% and 76% was high-quality fishmeal. So again, a disappointing season. Too high percentage of juveniles should make also a foundation for a better first season in 2020. But again, it's, of course, subject to the IMARPE cruise, which started up last week.

Looking at, I would say, the total expectation for next year, we are aiming to or hoping to process 140,000, 150,000 tonnes more raw material versus 2018 -- '19 in Austral. There has also been catches for human consumption, mackerel and horse mackerel fisheries located in the south. And up to now, we have been catching up to 14,000 tonnes versus 10,000 tonnes same period last year.

Then going to Chile, I would say the first 2 quarters is the main important quarters in Chile. That's where we are making the year. So it's been limited operation in fourth quarter. And of course, that has also impact on the number. But this is a seasonable normal. I would say, if you look at the full year basis, the difference from last year performance and 2018 was the absence of giant squid in our operation, which more or less explained the difference in our profits.

Looking at the North Atlantic pelagic quota, more or less on the same level as it was last year. I will say, raw material for fishmeal and fish oil activity remains the same, and it's a bit up when it comes to raw material for frozen and filleting operation along the Norwegian coast. Pelagia had a very good fourth quarter also when it comes to the fishmeal activity, total volume of 180,000 tonnes, a bit higher than same quarter last year. And if you look at volumes in 2019 versus 2018, it's approximately 50,000 tonnes less. But saying that, Pelagia has performed well also in this segment.

I would say, sale is a bit down this quarter compared with the same quarter last year. And we are also seeing that prices are increasing as a consequence of the lower volume coming from Peru.

When it comes to the direct human consumption activity of Pelagia, I would say, fourth quarter is the main important quarter. And approximately 50% of the annual volume of the year is harvested and produced in fourth quarter. I would say they had a good performance in the quarter. Mackerel and winter herring has been the most important raw material.

And I will say that although the prices has been very high on raw material for mackerel, they have been able to achieve margins when they have sold the frozen products. Have also started up well in 2020 with mackerel and winter herring production.

Looking at the results, you're seeing that the EBITDA is, NOK 265 million, up from NOK 214 million same period last year. EBIT, NOK 206 million up from NOK 163 million. On a full year basis, you also see that it's a good year. It's the best year ever for Pelagia since the establish -- since we established the company in 2014. Revenue of NOK 7 billion, EBITDA of NOK 871 million and EBIT of NOK 650 million. It's also a gain of sales included in this number of NOK 105 million. But also, despite or not, the result is the best ever.

Coming to the salmon activity. I would suggest all of you, if you want a more detailed presentation on the salmon activity, you should go into the Lerøy web page and look at the presentation of 4 quarters that Henning and Sjur were doing earlier today. Summing up, I would say that we have done investments now both on the salmon side, on the sales and distribution side, and also on the whitefish side, rigging the company to grow for the next year. And it's quite an interesting foundation going forward.

Looking at the fourth quarter, the EBIT is approximately NOK 180 million lower than it was last year. I would say, the performance is far better than it was from third quarter. The NOK 180 million from last year, you could explain by slower growth. And also, I would say, a lower slaughtering volume of 6,000 tonnes and also a bit more challenging market situation for the land-based operation on the whitefish operation.

The harvested volume, 43,000 tonnes, 13,000 tonnes up North, 15,000 tonnes in the mid, and on the West Coast, 15,000 tonnes. Spot price, more or less, on the same level it was same quarter last year. And you can see the EBIT per kilo of Lerøy is NOK 17, down from NOK 18 same quarter last year. Big variation between the regions, NOK 25 EBIT in Lerøy Aurora, NOK 11 in Lerøy Midt and approximately NOK 7 in Lerøy Sjøtroll.

Maintaining our volume guidance of 172,000 tonnes in Norway. I would say, it's fair to say that we are not happy with our performance in 2019 in terms of volumes. And we are expecting now that the investments in -- particularly in -- and the post smolt plants will increase our volume going forward.

On the wild catch side, it's been a good journey also in terms of volumes, prices and also development of the quota in the quarter. I would say, it's been positive, everything for the fishing activity remaining at, of course, also more challenging when raw material prices going up from the land-based activity.

Total volume for 2019, a bit less than 2018, 60,000 to 63,000 tonnes. And we are expecting that on cod, haddock and saithe is going to be a small increase compared with last year. Then I give the words to -- the floor to Brit.

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Britt Kathrine Drivenes, Austevoll Seafood ASA - CFO [2]

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We start with this table, and that table sums up the raw material intake in the quarter and in 2019 as a whole and also our expectations for 2020. As you can see, there is a reduction in raw material -- Pelagic raw material of 100,000 tonnes in fourth quarter 2019 compared with same quarter in 2018. And that is related to Peru as Arne has mentioned earlier.

Arne has also taken you through the key figures, so I will start with the EBIT line. The EBIT in fourth quarter 2019 is NOK 652 million. That is down from NOK 955 million in Q4 2018. If we include our 50% share of Pelagia, the EBIT in fourth quarter 2019 is NOK 756 million. Income from associated companies is more or less at the same level as same quarter in 2018, NOK 130 million.

And net finance in the quarter is minus NOK 68 million, down from NOK 118 million in same quarter 2018. Pretax profit, and that is also ex the biomass adjustment, is NOK 715 million in the quarter, down from NOK 968 million in the same quarter in 2018. And that gives an earnings per share in the quarter of NOK 1.36 million, down from NOK 2.49.

If we look at the total 2019, the revenue is NOK 23.3 billion, and that is down -- up from NOK 22.8 billion in 2018. If we include 50% of Pelagia, our share, then the turnover in 2019 is almost NOK 27 billion. EBITDA in 2019 is NOK 4.3 million, down from NOK 5.2 billion. Including 50% of Pelagia, the EBITDA is NOK 4.7 billion.

Depreciation is NOK 1.3 billion, up from NOK 960 million. And then I have to inform you that from 1st of January 2019, we implemented the IFRS 16. And that means that all leases should be taken into the balance sheet. And the operational lease cost, which was in 2018 and before that an operational cost is now a part of the depreciation and the net interest.

So part of the increase in depreciation is related to the effect of IFRS 16, around NOK 213 million. So the lines and the result is not comparable or directly comparable with 2018.

EBIT in 2019 is NOK 2.9 billion, down from NOK 4.3 billion. If we include our 50% share of Pelagia, the EBIT is NOK 3.2 billion. Income from associated is also for the full year, more or less in line with 2018, NOK 469 million. And the 2 largest associated companies are Pelagia and Norskott. And you can find additional information of those 2 companies as appendix to this presentation.

Net finance in 2019 was minus NOK 312 million, down from minus NOK 356 million. But as mentioned, there is an IFRS effect included in the net finance in 2019, which was not included in 2018.

Net interest is minus NOK 298 million compared to minus NOK 277 million in 2018. The pretax result, and that is ex biomass adjustment, is NOK 3.1 billion down from NOK 4.4 billion in 2018. And that gives an earnings per share of NOK 6.89 down from NOK 9.79.

Arne has taken you through the key figures for the quarter in Lerøy. So I will give some comments to the quarter. Lerøy has slaughtered a little bit less than 43,000 tonnes, and that is down from 49,000 tonnes in same quarter in 2018. And the EBIT per kilo is NOK 17, down NOK 1 from same quarter in 2018. The spot prices in the second half of 2019 has been very volatile. And the lowest has been down to NOK 40 and the highest up to NOK 80. So of course, timing of your sales in the period or in the quarter has a big impact on your total price achievement in the quarter.

When you see the average spot price in fourth quarter, that is NOK 56 and that is up 1% compared to the same quarter in 2018. Lerøy has a contract share of 38%, and the contract prices has been higher than the spot prices.

When it comes to release from stock cost, the cost is down from Q3 2019, but it's higher compared with Q4 2018. Wild catch has an EBITDA of NOK 42 million in the quarter, down from NOK 54 million in same quarter 2018. And looking into the biomass at sea, you see that, that is up 1% compared with the end of 2018.

Looking at the quarter, but also full year 2019, you can see that there is a substantial reduction in raw material intake, 100,000 tonnes down in raw material intake in Q4 2019 compared with 2018 and 250,000 tonnes down for the full year 2019 compared to 2018. And of course, that has a negative impact on the earnings in the company.

We have -- also had lower prices for fishmeal around 6% in 2019 compared with 2018. And we have had a higher price for fish oil, but that is also a lower volume, of course.

Looking at the inventory by end 2019, we have approximately 15,000 tonnes of fishmeal on stock compared to over 37,000 tonnes by the end of 2018. So going into 2020 with quite low inventory. I have to mention that we also have a contract of 13,000 tonnes of fishmeal, which is not produced yet, which is contracted and priced at the Q4 price level. So that is worth taking into consideration looking into Q1 and Q2 in 2020.

The company has a net interest-bearing debt of NOK 944 million by the end of the year. And in 2019, the company paid out the dividend equivalent to NOK 215 million. Fourth quarter has been as normal, a low season quarter for Foodcorp. They have the main season in first half of the year. They have caught the remaining quota of 3,600 tonnes. And they have also -- it will be a maintenance quarter when you have low activity, of course.

If we look into the total year 2019, you can see they have approximately 10,000 tonnes of lower raw material intake compared to 2018. And the earnings is also down, and that can be allocated to the reduction in giant squid volumes that is down 7,000 tonnes in 2019 compared to 2018 and explains almost a whole reduction in earnings in 2019.

Also, there has been some lower price achievement, and that is due to a little difference in the mix. The giant squid was smaller size in 2019 and compared to 2018 and gave a lower sales price. Low inventory by the end of the year for frozen, 300 tonnes compared to 4,600 tonnes by the end of 2018. The company is net cash positive, have a cash of NOK 40 million by the end of 2019.

Br. Birkeland Farming, they have harvested almost 2,500 tonnes, up from 1,600 tonnes in same quarter in 2018. As I mentioned, very volatile prices in the quarter, lowest prices in the beginning of the quarter and highest in December. And they slaughtered most of their volume in October and November with lower prices. Release from stock cost is also up year-on-year. And in the quarter, they have an EBIT per kilo of NOK 2.4, down from NOK 5.9 in the same quarter in 2018.

Br. Birkeland, they have 2 Pelagic vessels and 1 snow crab vessel, and the Pelagic vessels, they have caught their remaining quotas of mackerel and herring. It has been very good prices on mackerel in 2019, and prices are up almost 13% compared to 2018.

The vessel catching snow crab, there was a ban, which was lifted on September 15. But the season was closed again on the end of October, so a very limited operation for that vessel in the quarter and only 28,000 kilos caught in that period.

The company also -- this company is also cash positive and have NOK 200 million in cash by the end of 2019. The total assets in the group is close to NOK 40 billion, NOK 39.8 billion, and that is up from NOK 38 billion by the end of 2018. And the main reason for the increase in the balance sheet is the implementation of IFRS 16, which I've mentioned and that all operational leases are now taken into the balance sheet.

The net interest-bearing debt by the end of 2019 is NOK 4.1 billion. And if we include the right-of-use assets, liabilities, the net interest-bearing debt is NOK 5.3 billion. Strong balance sheet with an equity ratio of 59%.

As we have ended 2019, I will look at the 2019 in total figures. Looking into the cash flow, and we started the year with a cash position of NOK 4.4 billion. Cash from operation was almost NOK 3.2 billion in 2019. And we have paid taxes totaled NOK 882 million in 2019.

Cash from investing activities is minus NOK 1 billion. And the net investment in CapEx is NOK 1.5 billion, but we have also received dividend from the associated companies with almost NOK 400 million. And the largest contributor there are Pelagia and Norskott Havbruk.

Cash from financing activities is minus NOK 2.2 billion. And as you can see, we have paid dividend out of the group with NOK 1.4 billion. So the net change in cash in 2019 is minus NOK 142 million, and we end 2019 with a cash position of NOK 4.2 billion.

The Board, they will recommend to the annual meeting in 2020, a dividend of NOK 4.5 per share, and that is within the company's dividend policy, that is between 20% and 40% of net result ex the biomass adjustment. And this dividend is equivalent to 37% of the net result ex biomass adjustment. Okay. Thank you.

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Arne Møgster, Austevoll Seafood ASA - CEO & President [3]

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Then summing up the different markets, how we are viewing that on the different segments we are operating within, starting up with the fishmeal market. Looking at the table on the left-hand side, you can see that the volumes in 2019 versus 2018, among the 6, 7 largest producers of fishmeal is down by approximately 30%. It's mainly driven by the low fisheries' second season in Peru and also driven by lack of volume on capelin and also on a reduction in quota in blue whiting in the North Atlantic.

As you can see, when the fisheries were failing in mid-December in Peru, you can also see that prices has been climbing and is now on a level of $1,500 per tonnes on standard fishmeal and for high-quality fishmeal, it's $200 more in premium.

When it comes to the stock situation on the consumption in China, I would say, also, it's been a pleasant development, the last 6 months of the year in terms of offtake of the stock. If you look at the stock in China, now it's approximately 22% less than it was in the same period last year. In August, when we did the presentation, we were worried about a failing aquaculture production in China due to heavy weather. And we were also fearing the African swine flu impact on pig production or the swine production in China.

What has happened is that the aquaculture production was recovering by the end of the year. And we have also seen that it's been a higher inclusion rate of fishmeal in that piglet feed due to better prices on the end products of pigs in China. Prices on the meal at the moment in China is about the prices we are seeing in Peru, which is also stimulating a bit the trading of fishmeal.

The coronavirus has also slowed down the logistics is lower offtakes on a short-term basis. And I would say, the 2 last weeks after the Chinese New Year has been slower than it has been before in terms of activity in China. So it's also going to be interesting to see the impact going forward.

When it comes to fish oil, same development of fishmeal, 24% down in production. And we have also seen the impact on prices increasing after the lack of fishing in Peru. I would say the feed grade oil now is on a very high level due to, I would say, low supply in Peru, $2,300 per tonnes and a premium of $300 per tonnes into the omega-3 industry.

Going over, looking at salmon supply, I would say that 2019 it's total growth of 9% in Europe, Americas, 4.4% and all in total, 7.4%, which is on a historical high level for the last 3 years. Saying that looking into 2020, we are expecting a lower growth total of 4%, Norway up by 3%. So I would say, the supply fundamentals seems favorable also going into 2020, also comparing with 2019.

If you look at the graph here, you can see that in the last 3, 4 months of last year, the prices has been extremely volatile from NOK 40 up to NOK 80. And of course, operating in this challenging environment is not easy. And of course, trying to tune your production to where you're having the higher prices is a challenge for, I would say, the whole industry. But looking at average prices in '16, '17, '18 and '19, you can see that quite -- the price is quite stable around NOK 60.

Good start off 2020, average prices on NOK 74. And I would say, market is on a short term. And I would say, also, long term, quite interesting.

Atlantic salmon consumption, EU is up from last year, approximately 6%, other markets up by 7%. The higher growth in percentages, the U.S. market with 8%. As I will say, it's a fine increase from year-to-year also in the main market for salmon.

So summing up, demand remains strong. We are expecting to increase our production considerably from next year. And I also have ambitions to pass the 200,000 tonnes in 2021. Whitefish, cod quarter is up, haddock quarter is up, and also the saithe quarter north is up by 15%.

We have received a new vessel in Havfisk, which is a fantastic vessel with the newest technology in terms of maintaining the highest quality in our whitefish products. When it comes to the Pelagic side, I will say, again, the activity in the North Atlantic has been very good in 2019. We are very happy with the performance. We are disappointed by the achievements in Peru in the last season, I mean, we were hoping to, of course, that fishing should be better and a higher percentage than the 36% should be caught. But again, agree on stopping the season due to the juveniles, the presence of juveniles on the fishing zones.

Positive development in quota, in horse mackerel in Chile, up 15% versus 2019. So all in all, I would say, it's going to be an interesting year and interesting years going forward for the group. Thank you.