SalMar ASA

SalMar ASA

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Agricultural Farm Products

SalMar ASA (SALRF) Q2 2020 Earnings Call Transcript

Published at 2020-08-27 17:54:06
Trine Romuld
Thank you, Gustav. As usual, I'll start with farming Central Norway. We did harvest 27,300 tons in the quarter with operational EBIT of NOK679 million and EBIT per kilo NOK24.92. This is a strong result very strong segment performance combined with solid operational focus has resulted in lower cost levels. 2018 generation was finished early in the period with stable development from previous quarter. Spring 2019 generation accounted for 80% or the harvest volume in the period. This is from locations just as high trade, which again shows biological performance which has resulted in lower cost level compared with prior simulation. After a good price achievement in quarter one, this quarter has given satisfactory price achievement in line with average NASDAQ spot price. In the third quarter, we will finish harvesting of spring 2019 and start with harvesting of 18/2018 generation. Autumn 2018, has strong a good biological performance in the last period and in total expected cost of the same level as Q2 and slightly higher volume in Q3 compared to Q2. Guiding for the year is kept unchanged 103,000 tons, but as Gustav already have mentioned with increased the maximum biomass that we recently have bought. This also gives us some flexibility to optimize the biological production. Therefore, we will continuously evaluate and adapt our harvest and periods to come. Farming Northern Norway, we did harvest 12,000 tons in the quarter with operational EBIT of 242 million and EBIT per kilo 2016. As for Central Norway, this is also a very good result, where strong biological performance combined with strong operational focus, has given lower costs level. Nevertheless, the result is somewhat negatively affected by low price achievements due to 70% of the harvest volume came in the beginning of the period until mid-May where the price were at the lowest. Autumn 2018 generation has accounted for all of the harvest volume in the period and we're finished in the period. Our last location that was affected by ISA were and still early in the period and the main part of the harvest volume comes from location was full of significant improved in poor performance and lower costs lower than previous harvest location in Northern Norway. We stopped harvesting in July and before we just started the last week in August around spring 2018 generation. Spring 2019 has shown us development, the last month and we increased maximum biomass. We will also there continually harvest plant optimized biology. We expect a low harvest volume in quarter three and slightly higher cost level compared to quarter two. As for Central Norway, we kept and change the guiding for the year. But keep in mind I was just deferred with the flexibility with the new maximum biomass allowances. Sales and processing delivers operation of EBIT of 70 million in the quarter. The quarter has been characterized by high market uncertainty due to COVID-19 with a volatile prices and high freight expenses. Despite this sales and processing delivers a good refers in the period and it's not one thing and factor that explains the figure, but I will mention three main factors. We have increased capacity utilization at the plant due to higher volume to the harvesting plant and this combined with full operation as give as satisfactory margin from harvesting and processing activities. We have then more than 33,000 tons to this plant in quarter two, which is 30% higher in last quarter. In addition, we has been succeed quite well in allocation of success in challenging period and in addition to lower foot prices have given positive contribution from the fixed price contracts. And in the quarter we had contract shared was 30%. Contract share currently is 25% for both quarter two and we expect for the full year 25%, bit price is slightly up from 11%, 2019. As mentioned by this Arnarlax the construction work on in one word our new processing, harvesting processing facility and in on Northern Norway is progressing according to plan. The startup is schedule for December 2021 and we are currently recruiting personnel to key positions, and we are happy to see that we have looked over well qualified people. When the facilities are up and running, this will give us increased flexibility and also we expect lower costs throughout the entire value chain in addition to local processing. Then Arnarlax, we delivered week results to this quarter and I will talk to this in more detail after, but first I would like to put Arnarlax in the bigger picture long-term. We in SalMar have great faith in the future for our Arnarlax and also salmon farming on Iceland. Iceland has some unique biological conditions that make it attractive for aquaculture. For example, there is a unique access to water that is important for the smolt, and the sea temperatures are in line with Finnmark, the Northern part of Norway, that provides good biological conditions for farming. If you look at the period since SalMar invested in Arnarlax in 2016 and today, the harvest volume has increased significantly. And looking into both existing licenses but also application that is ongoing, there is a fantastic growth potential and we are now taking steps to equip ourselves for this growth. Arnarlax is present in the entire value chain, smolt, farming, harvesting, sales, and therefore we are full control of the value chain. It's therefore a matter of exploiting this to equip ourselves for further growth. We have made investments to strengthen ourselves, especially on the smolt side at the same time as we invest in modern equipment with other part of the value chain, but we must not forget that Iceland is a young farming nation and Arnarlax is a young company. Our focus is therefore not only to invest in equipment, but also to build culture and competence and bring some of what Gustav I mentioned earlier the strong culture in SalMar. Among other things, Arnarlax Academy has been started. This is based on an important meeting place we have developed in SalMar over time, which is referred to SalMar school. Culture competence is something that takes time to build, but we at SalMar contribute with competence and experience in all parts of the value chain and with this facilitate that we help the fantastic people, who work in Iceland to utilize this potential. In sum, we are sure this will improve performance from Iceland over time and make it attractive place for us to be present. Some comments to that, to the figures. In the quarter, we harvested the 1,700 ton in the period and operational EBIT was NOK13 million. As we signaled in the previous quarter presentation, Iceland delivered a very weak result in the second quarter where the result impacted by both the high costs, but also weak price achievement. Some comments to the cost first. The allocation earlier this year experienced increased mortality due to winter once was finished harvest in the period. This has given high cost where among around EUR1.1 million is related to increased mortality cost and is expense in the quarter and that amounts to NOK7 per kilo. The freight cost also increased in the period due to more challenging logistic out from Iceland. In addition, lower volume to the harvesting plant has given lower capacity utilization and thereby higher cost. Together, all of this has given the high cost in the period. Price achievements, around 90% of the volume was sold in April and May, the period, with a lowest price during the quarter. And also in this period, the price difference on larger size fish was lower than usual and Arnarlax has not gotten the effect of higher average rate on the harvested fish. In addition, I will have mentioned that Arnarlax also accounts in euro and haven't had that posted impacts of the exchange rate. Looking forward, short-term, location will increase mortality is finished, harvested out. And in quarter three, we will harvest from 2018 generation location which has been not affected by high mortality. We will also start harvesting on the 2019 generation in quarter three with a strong improved performance and lower cost level compared to with previous generations. But the period, we are currently with lower spot price and also effective first from Arnarlax in quarter three. Combined, with just a slightly higher harvest volume in quarter three, we expect the week results also in quarter three. We expect the slightly higher volume in the quarter and somewhat lower costing quarter three compared to this quarter. We keep unchanged the guidance for the year 12,000 tons. And then, Scottish Sea Farm, the Scottish Sea Farm harvested 6,500 ton in the quarter and delivered the operational EBIT of NOK89 million, which gives EBIT per kilo of NOK13.69. Harvest volumes increased by 30% compared with the same quarter last year, and we have harvested from with good results in the quarter. The positive development is continuing with lower cost compared to quarter one. The Company reported good performance with good growth and low mortality in all regions. The guiding for the year is unchanged 26,000 tons. Then, we move to the financial update. Starting with the EBIT bridge comparing to last quarter, we have reduced EBIT per kilo NOK598 compared to quarter one, and this is related to lower sales price, but somewhat offset with the lower costs in the value chain. For the group, this also includes the Arnarlax. This is a smaller reductions EBIT look comparing to last quarter. This is a result of Arnarlax consists of a relatively smaller share than it did for the quarter. P&L, some comments to the P&L in the quarter, where we compare with the same period last year. We have stable revenue despite the lower spot price. This is a result of higher contract price combined also that same customer has been really to cover some of the increase the freight costs in the period. As you can see, we also have higher operational costs due to these freight costs. Both EBITDA and operational EBIT is down due to lower volumes and lower spot price that effect is slightly reduced to lower costs in the value chain. At the end of the quarter one, there was large movement in the currency rates between NOK and foreign currencies. But during the quarter two, the NOK has gradually strengthen itself, which leads to some negative changes last quarter is to a large degree diverse in this quarter. We have a fair value adjustment, which is positive due to annualize change in currency and currency contracts combined with biomass adjustment. Other financial items are positive this quarter due to realize and unrealized currency movement from loan in other currency than NOK. As from previous quarter, income from associated mainly relates to Scottish Sea Farms and its positive in quarter two due to improved results and lower negative fair value adjustments. So if you're comparing EBIT per kilo compared to same quarter last year, it has decreased due to lower spot price. The NASDAQ is reduced with 4.85 that we have compensated with two points 98 lower costs in the value chain. It's also worth noted that if you look in the first half results for SalMar operational EBIT that is actually higher than first half in 2019. Balance sheet, we compare the balance sheet to the end over period quarter. Investments are progressing according to plan and fixed asset has increased at the same time. As we also have combined that we actually have taken into use, the first battery-hybrid wellboat, which increase what we call the right use assets. The standing biomass is higher comparing it to you. We have more fish in sea, and we have a loss release of smolt so smooth in the first half of 2020, compared with previous year. This gives a higher amount in the sea with a slightly lower average weight, which again gives the good conditions for utilization or increase to their capacity. Net interest bearing debt is reduced with NOK564 million in the quarter and as the quarter two the net interesting bearing debt is NOK1.7 billion. In total, we still have a very solid financial position, the equity shares of 59.7% and we have a ratio between net interesting-bearing debt and EBITDA 0.32. As you know, we use SalMar recently on traffic light growth, NOK1.8 billion. So, therefore the net interesting-bearing debt will increase in quarter three, but it's very satisfying that after this payment that we still have significant available facilities and a robust financial position. Movement in net interesting-bearing debt is really only two items and that is the EBITDA that we'll talk about and then its investment. We have used NOK520 million in various CapEx investments and that is actually the highest CapEx figure in one quarter error for SalMar, and also demonstrates clearly that we are investing in the future. And then, I will give the word back to you, Gustav. Gustav Witzøe: Going forward, we'll have even more focus on what we do today. We do better than yesterday. SalMar is to cement over position as a technical leader in the aquaculture industry to become an even larger contributor for sustainable growth in the future. We would continue to have focus on the things we can impact and do something with. Good financial results come from good biological conditions and operations, and the SalMar always come first. The deal is in the details, and we shall continue our optimization and cost improvement project. Combined with our static focus, this will make us even more robust in the future to have these challenging videos. At the moment, we're experienced good biological status in the sea both in Central and Northern Norway and on Iceland. In total, we expect lower volume in Q3 2020, with costs at the same level, slightly higher volumes and costs at same level in central Norway, low volume and slightly higher costs in Northern Norway. And as Trine mentioned, slightly higher volume and weak margin from Iceland. Contracts share is that 35% in both in third quarter and then full year. The price is slightly up from level of 2019. Guiding in both Norway and Iceland is kept unchanged, but we'll utilize increased and maybe capacity to optimize biological production. We still accept moderate supply growth in 2020, but COVID-19 has led to increase market uncertainties. Summer is well positioned to handle as demand on a demanding market, with strong operational and financial flexibility. We have positive year and the future for SalMar, but we have to acknowledge that the effects of coronavirus are not over in a few months, but will likely last for a longer period of time. Our job is to implement the measures that strengthens us today and the same time will make us even stronger going forward. At you say in the SalMar, we are focused on solution not on the problems. We definitely have a come to the end of our presentation, and we would like to thank you all of you have been watching. Our next corporate presentation will be in November. And till then, we hope we'll of you stay safe and healthy. You have to eat a lot of salmon. Thank you for your attention. End of Q&A: