Lerøy Seafood Group ASA (LYSFF) Q4 2022 Earnings Call Transcript

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Lerøy Seafood Group ASA (OTCPK:LYSFF) Q4 2022 Results Conference Call February 21, 2023 2:00 AM ET

Company Participants

Henning Beltestad - CEO

Sjur Malm - CFO

Henning Beltestad

Welcome to Lerøy Seafood Group's Fourth Quarter Presentation of 2022. My sanction is Henning Beltestad. I'm CEO successful Lerøy Seafood Group.

And pinch maine today, I person Sjur Malm. First of all, I will commencement showing our awesome worth concatenation of redfish and whitefish. Our extremity is to create nan world's astir businesslike and sustainable worth concatenation for seafood. The past 20 years, we person done immense investments going from being 1 company, 1 exporter retired of Norway pinch seafood, to beryllium a afloat integrated institution from earthy each nan measurement retired to user packs, retired successful nan shops successful Lerøy marque and besides nan aforesaid from nan sportfishing boats, sportfishing vessels each nan measurement retired to nan consumers. Last fall, we group immoderate targets for 2025 and beyond. We group nan target of NOK50 cardinal successful gross by 2030. We person a extremity of simplification successful full emanation by 2030 of 46%. We person targeted to beryllium number 1 farming institution each including VAP, Sales and Distribution. And we person a target of NOK500 cardinal for chaotic drawback successful 2025 and NOK125 cardinal EBIT for VAP, Sales and Distribution conception and nan measurement successful farming for Norway of 205,000 ton. But past quarter, we sewage immoderate situation pinch nan assets taxation proposal. And I will opportunity that this is simply a melodramatic alteration for our institution and besides nan full industry, nan farming manufacture successful Norway. Lerøy has invested importantly besides successful quality superior to build an integrated worth concatenation for seafood, worth concatenation that meet customer request and thrust request for salmon. The connection is challenging for integrated business models and has a important consequence of little request for Norwegian salmon. So we are concerned that this connection will hold nan improvement of Norwegian salmon successful the world industry.

Okay. Then I will spell done nan highlights of 4th quarter. It's been a grounds gross for nan year. We achieved EBIT each inclusive of NOK15.2 per kilo. We person seen affirmative improvement successful VAP, Sales and Distribution and further betterment is expected for 2023. It's been challenging biologic business for immoderate of nan farming assets. I expect that harvest measurement included nan associated task of 193,500 tons. We spot immoderate signs and little request successful immoderate marketplace segments, but wide a very beardown request for seafood. The projected dividend by nan Board is NOK2.5 per share. And we spot nan EBIT successful nan 4th is of NOK800 cardinal compared to NOK902 cardinal aforesaid 4th past year. Lerøy study successful these 3 segments farming, chaotic drawback and VAP, Sales and Distribution. I will past spell done nan highlights for each segments. We commencement pinch nan farming. It's been a reasonably okay 4th pinch EBIT of NOK14.5 per kilo compared to NOK13.7 aforesaid 4th past year. It's been a patient capacity successful Lerøy Aurora but much challenging biology successful Lerøy Sjøtroll and successful Lerøy Midt. The statement stock successful nan 4th is of 36% and nan statement prices successful nan 4th is good beneath spot prices. We've seen inflationary inclination brings higher value realization but besides important year-on-year costs increase. Overall, nan costs successful container is up NOK6 from 31 to 22 and astatine existent provender value and NOK5 assistance is expected successful 2023.

If we look astatine Lerøy Aurora first, it's been a bully biologic capacity successful nan quarter. Still we spot immoderate costs summation year-over-year pinch provender costs and arsenic a cardinal driver. As successful 2022, location will beryllium a important seasonality successful harvest volume, truthful debased measurement first half and precocious measurement 2nd half pinch nan 1 business is overmuch improved, but not wholly eliminated, but overmuch amended than nan past mates of years. The expected harvest measurement is of 47,000 ton deadweight successful 2023, up from 40,000 ton successful 2022. So a bully outlook for Lerøy Aurora and they are really connected nan measurement backmost to apical capacity successful nan industry. When it comes to Lerøy Midt, immoderate much challenging business successful 2nd half and this has effect of maturation and value of harvest. We spot a important year-on-year expanding costs wherever higher provender costs is nan astir ascendant factor, expected harvest measurement for 2023 of 64,000 ton compared to 68,000 ton this year. So 4,000 ton down and EBIT per kilo of NOK14.3. Lerøy Sjøtroll challenging biologic quarter, precocious number of curen impacts maturation and we’ve seen a trout that is outperforming salmon successful EBIT per kilo, truthful bully biologic business for nan trout and a bully capacity connected value and besides connected value achievement. Costs accrued year-on-year again pinch provender arsenic nan cardinal driver expected harvest measurement of 64,000 ton for 2023 compared to -- adjacent to 66,000 ton successful 2022. And past we person Norskott Havbruk, our Scottish Sea Farms, it's been highly challenging business successful Scotland, successful general, and besides for Scottish Sea Farms, consequence is negatively impacted pinch nan rumor pinch micro jellyfish and AGD and very precocious mortality costs successful 4th fourth 2022.

And location has been debased mean harvest weight of food and a statement level person been arsenic precocious arsenic 59%. This besides will impact nan harvest measurement for this twelvemonth and particularly for nan first half of nan year. The full measurement expected is 37,000 ton compared to 36,000 ton successful 2022. But nan business is improving, nan biomass and oversea now is of bully value and bully maturation and we judge that we will travel retired of this business successful a bully way. When we look astatine nan farming volumes, successful total, I repetition nan volumes for nan different regions; Lerøy Aurora 48,000 ton -- for adjacent year, 47,000 ton, Lerøy Midt 64,000 ton, Lerøy Sjøtroll 64,000 and a full of 175,000 ton and including Scottish Sea Farms 50% stock is 185,000 ton arsenic a full of 193,000 ton. If we look astatine nan chaotic catch, it's been a challenging quarter. The remainder of quarters is down compared to aforesaid 4th past year, truthful which gives antagonistic effect connected profitability. It's been nan full twelvemonth -- for 2022 has been connected nan affirmative side, bully value realization for nan trawling fleets, but much challenging for nan onshore based successful nan industry.

The measurement successful nan 4th quarter, we fished 5,700 ton cod, 2,700 ton saithe, 4,900 connected haddock and 3,300 other. And we spot particularly nan measurement of cod is down by 3,000 ton compared to 4th fourth 2021. In total, we support nan aforesaid measurement successful 2022 arsenic for 2021. For VAP, Sales and Distribution, it's been a challenging twelvemonth but it's been a twelvemonth pinch each clip precocious gross for nan full year. The first half has been challenging but nan 2nd half and particularly nan 4th quarter, we spot we are backmost connected way pinch an improved profitability. And we dream and we judge that we are going into 2023 pinch a normal capacity successful this segment. Our income and processing cognition now span 14 countries. We person developed these segments complete nan 20 past years. And our strategy is to build accommodation adjacent to customers and to create nan categories together pinch customers to turn their request for seafood successful general. Sjur?

Sjur Malm

Thank you, Henning. So beyond nan assets taxation cardinal taxable successful 2022 has been inflation, and ostentation evidently impacts our value realization. It's besides much and much impacting our cost. It is besides impacting our equilibrium expanse arsenic we will see. So if you look connected our profit nonaccomplishment statement, we spot that we person higher revenue, 9% higher this 4th compared to past year. This is chiefly value driven. Looking astatine nan drivers for nan operating consequence aliases EBIT, successful nan redfish worth chain, wherever we tin spot that nan farming EBIT is up this 4th compared to past year, meaning that nan value realization is up much than nan costs is up. But still, we spot a important costs summation Q4 this twelvemonth compared to past year, and our value realization is importantly impacted by 36% contracts. Further, nan operating profitability downstream, arsenic Henning has pointed out, is little than past year. So successful summary, EBIT each inclusive is simply a small spot down compared to past year. If you look connected whitefish, this is wherever we spot nan biggest deviation. And this is overmuch driven fundamentally by little catches, arsenic Henning has highlighted. We had a little 3rd 4th that gives little drawback measurement this quarter. And it was besides beryllium mention that worth of inventory is higher successful 2022. So if we had nan aforesaid level of inventory successful 2022 and 2021 of whitefish, our EBIT would person been NOK23 cardinal higher wrong nan whitefish conception and successful total. But successful sum then, patient profitability successful redfish, weaker profitability successful chaotic datch gives you EBIT of NOK800 million.

Income from associates, it's been a very, very challenging 4th for Norskott Havbruk, and successful immoderate of these factors -- EPS down 26% from past year. There is simply a batch of talk successful peculiar successful Norwegian newspaper astir ace profitability successful this industry. And I deliberation this figure, which is not a awesome quarterly consequence but it's not a bad quarterly consequence successful historical position either, shows EBIT margin, which is little than galore industries and nary clear denotation of ace profitability. And we besides spot a return level showed america a return connected superior employed of conscionable supra 12%, which is nary evident ace profitability. And we deliberation that , among different things, what is not thoroughly understood among policymakers successful Norway are nan important investments needed to tally nan worth concatenation for illustration Lerøy. We tin spot that successful 2022 we had a full assets of NOK37 billion, which is simply a precocious number. So obviously, if you comparison our quarterly EBIT to that number, it's not very precocious and it's nary clear ace profitability. And this is what we effort to pass to policymakers, because successful this equilibrium expanse we intelligibly spot nan superior need, some successful tangible assets but besides successful moving superior items. And we spot inventories importantly up, we spot besides receivable is importantly up and there's a immense moving superior built successful 2022 compared to 2021, which besides highlights that this manufacture needs entree to superior to beryllium capable to run arsenic we would for illustration to operate.

Our equilibrium expanse is strong, we person finance people in installments standing and nett liking base indebtedness to NOK4.3 billion. The descent besides past connected changes successful nett liking base indebtedness this quarter. It's fundamentally nan factors already commented upon, we spot nan EBITDA, we spot nan moving superior build, we spot CapEx, which is not overmuch much than normal, there's finance cost, nett finance, including IFRS 16 effects and we spot that successful some, our nett liking base indebtedness is not changed this quarter. Then different cardinal constituent discussed successful nan Norwegian policymakers and Norwegian media is whether aliases not this manufacture contributes to their society. And this slide, and present we will besides put into our proceeding consequence to nan crushed aliases assets tax, which has overmuch much detail. But immoderate cardinal points is evidently here, nan reddish dots is wherever we operate, nan achromatic dots is wherever we person suppliers. So we have, successful our ain company, 3,500 labor successful 16 municipalities. And these companies wherever they activity they bargain equipment for NOK13 cardinal from 4,500 suppliers successful 300 municipalities, and that generates astir 13,000 jobs successful Norway. On apical of that we person paid much than NOK1.5 cardinal successful taxes and fees. And to immoderate extent, this representation besides shows a small spot connected nan discussions, because if you put this representation adjacent to organization representation of Norway that organization representation wouldn't show that astir group successful Norway unrecorded adjacent to nan capital. And we tin spot that astir of our investments are on nan coastline.

So to nan large extent, what this chat is astir is should we return superior from nan coastline to cardinal neighborhoods aliases should we support it arsenic investments on nan coastline. And that is, I would say, a beautiful harsh statement these days successful Norway. Because nan investments is evidently important for maturation and finance comes besides pinch knowledge. So if you spot successful our institution and if you spot successful this manufacture caller years there's been important investments that has driven important knowledge, and Norway coming is we're starring erstwhile it comes to knowledge successful this industry, that had not been imaginable if we hadn't done nan investments and if we hadn't seen each nan learning. And present we tin spot that we person attraction CapEx request astatine existent ostentation pinch ostentation is astir apt nether NOK900 cardinal range. And pinch nan assets tax, it will beryllium challenging to do investments beyond that, going forward. And if you don't spot those kinds of maturation investments, we will not spot nan aforesaid benignant of knowledge request aliases knowledge built. And complete clip that will build retired this industry. It will not return 1 aliases 2 years, but successful 5 to 10 years, it will make each nan quality successful nan world for wherever this manufacture is positioned. And today, it's NOK40 cardinal of investments that are stopped station assets taxation proposal, which is simply a large number. And benignant of for illustration nan -- what will beryllium highly absorbing to spot erstwhile we spot nan last proposal person to summertime is if nan policymakers are capable to make model conditions, which makes those NOK40 cardinal finance return, because those are imperative to spot continued maturation and position of this manufacture successful Norway.

For our company, we had already earlier nan assets taxation connection decided to allocate for 1 harvesting tract successful Lerøy Sjøtroll that will little our costs and springiness immoderate investments astir NOK400 cardinal successful 2023 and that was already decided and nan billing process was travel truthful far, it was nary imaginable to stop. And we will build a caller mill successful Båtsfjord, which is simply a headdress guidelines astir NOK200 cardinal and that is successful whitefish. We had besides planned to build a worth added processing installation successful Skjervøy successful Lerøy Aurora that was stopped owed to nan assets taxation proposal. Those investments, erstwhile it comes to processing facilities, are important for ratio gains, they're besides important erstwhile it comes to nan expertise to efficiently utilize each earthy worldly of each value and they little our GHG emanation footprint erstwhile it comes to transportation. So we are successful a move pinch that and we had to extremity this finance successful Skjervøy.

So pinch that, Henning, I springiness nan connection backmost to you for immoderate outlook.

Henning Beltestad

Thank you. We commencement pinch nan proviso broadside and we spot that for 2022, location was a world antagonistic proviso of 1%. And if we look into 2023, we spot Europe up 2.8% and Americas is up by 1.2% and world maturation of 2.3%, and that is updated quarterly numbers from 13th of February. If we look astatine nan depletion side. In 4th quarter, we spot that really nan only increasing marketplace that's nan US and we spot a beardown maturation each twelvemonth now from US, and besides it looks very promising going forward. And truthful we judge that this improvement will proceed successful nan US. market. In EU, we spot a much challenging -- location is simply a zero maturation business wherever nan unit is very beardown successful this market. And location is denotation successful 4th fourth that nan unit volumes are stepping up and not expanding immoderate more. So that is simply a cardinal situation going guardant we believe. If we look astatine nan prices, we spot past twelvemonth we had prices, NSI prices of nan apical week of much than NOK120 and past falling down during nan past 2 quarters, and past we spot into first 4th that nan prices are expanding again. And truthful acold this year, we spot prices of NOK91 successful average. And we besides spot that nan past mates of weeks, we look a precocious summation successful prices again. So it seems for illustration we person to unrecorded pinch these benignant of fluctuations going guardant also. But of course, it's much challenging now to grip these fluctuations erstwhile nan contracts levels are overmuch little than normal.

If we look astatine outlook for nan different segments. For nan farming, of course, location is simply a batch of uncertainty erstwhile it comes to assets tax. We attraction operationally to grip nan business arsenic bully arsenic imaginable together pinch our customers and our partners successful nan worth chain, and to support nan stableness arsenic bully arsenic imaginable to beryllium capable to turn nan category, moreover though nan circumstances are really difficult. We expect harvest measurement for this twelvemonth of 193,500 ton, and we besides spot that -- we spot higher costs besides going into 2023. But we person a beardown attraction connected costs cutting and besides operational improvements successful each parts of nan worth concatenation to header pinch nan accrued cost. When it comes to chaotic catch, it's been a healthier profitability successful 2022. We besides expect precocious prices and bully profitability connected nan fishery broadside for this year. If we look astatine nan quotas, we spot that nan cod is down by 20%, haddock down by 5%, Saithe North up by 15% and Saithe South up by 19%. And if we look astatine nan VAP, Sales and Distribution, we expect improved net this twelvemonth compared to 2022, which were a very challenging year, particularly nan first 2 quarters. Also successful this segment, nan uncertainty astir nan assets tax, it’s not optimal and it's difficult to grip and we’re trying our champion to header pinch this together pinch our customers successful a bully way. And we spot request effect from deficiency of statement is difficult to measure truthful far. But we judge that it will beryllium a challenging business going forward, but we request to header pinch that.

When it comes to operational efficiency, and we person a target to create nan astir businesslike and sustainable worth concatenation for seafood. We spot that we are moving very good successful a structural measurement pinch strategical initiatives to summation operational ratio and profitability successful nan farming segment. We person a batch of initiatives that is ongoing and besides a batch of initiatives that were effective realization faces, it is connected track. And we will person continuously activity to amended each parts of nan worth concatenation successful nan farming conception going forward, and we judge that this will make america capable to scope our extremity successful 2025. But you cognize to make nan world's astir businesslike and sustainable worth chain, sustainable path, it's important to besides person connected apical of mind successful nan regular operations. We are moving connected reducing our biology effect and regular cognition crossed each our worth chain. This describes our worth concatenation and besides wherever we tin do nan astir impact. And it's highly important that each group moving successful Lerøy is moving successful a system measurement pinch continuously betterment besides for nan sustainability portion and we are connected a bully measurement successful this. So we will proceed to attraction a batch connected that going forward. So our extremity is to create nan world's astir businesslike and sustainable worth concatenation for seafood. And we're not location yet but we are underway and we judge that we will beryllium location successful 2025. Thank you very much.

Question-and-Answer Session

End of Q&A

Editor: Naga

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