Earnings Transcript for LSG.OL - Q1 Fiscal Year 2024

Henning Beltestad: Welcome to Leroy Seafood Group's First Quarter Presentation of 2024. My name is Henning Beltestad, I'm the CEO in Leroy Seafood Group. And with me today, I have Sjur Malm, CFO. First of all, I will take you through some of the key highlights in the quarter, then Sjur Malm will take you through the key financial highlights, and then I will come back and talk a little bit about the outlook for the different segments in the area. First of all, our goal is creating the world's most efficient and sustainable value chain for seafood. We are step-by-step improving the value chain and working continuously with that work. And we see in this quarter some improvements in, yes, a lot of improvements in different parts of our value chain, and I will come back to that. When we look at the highlights of the quarter, we had an operational EBIT of NOK842 million. We had a quarter with good biological development and but we had low temperatures that has impacted the growth somewhat. Biological earnings in Scottish Sea Farm is improving a lot, also the underlying improvements in biology is really good. So, we're really satisfied seeing that development. Come back to that afterwards. Significant improvements in earnings from VAP's Sales and Distribution, healthy earnings in Wild Catch. Harvest targets for 2025 is reduced by 5,000 ton as license capacity is reduced following a traffic light system. The board has proposed a dividend of NOK2.5 per share. And then, I will come back to the different segments. We are reporting in three segments

Sjur Malm: Yes. Thank you, Henning. So, summing up some of the key trends in this quarter, we've had good growth in the quarter. That good growth has been a key highlight. And following, we've been able to we've seen some downgrades of our fish, but we've been able to value crate on that fish in our downstream segment. How has this affected the first quarter results? It has affected us in terms of harvest volume in redfish. We've harvested and there's still this low volume impact cost, but the value creation in downstream has been visible. Looking at our financial figures and key drivers. We see the key value drivers on the latter lines. Harvest volume is down 8%. This quarter, we built a significant amount of biomass, understanding biomass, and Q1 is about 5% higher, 5,000 tons higher than it was the same quarter last year. The margin in farming is down, but the margin in value added processing is up. And in sum, the margin through the value chain is marginally down. In whitefish, we have catch volumes, which are 5% lower, slightly lower margin. And in sum, this sums up to operational EBIT of NOK842 million which is 15% below last year. That's a good performance in Scottish Sea Farms, but still EPS is down 22%. Looking then at our balance sheet. If we start with tangible fixed asset, I will show a slide soon showing key investments. Key investments include investments in new technology and farming and also opening a new factory in Båtsfjord in whitefish segment. And that's those are key drivers for the higher tangibly fixed asset. I think the other key point is the biological asset cost, which is basically the efficiency. We see that is up above NOK800 million. Key drivers for that is the fact that it is about 5,000 tons more biomass in the sea this year compared to last year and also that the average size of that biomass is around 15% higher than the same payout last year. So, it's a better biomass. It's more costly, but it's also larger and better than last year. And that promises well for the remainder of the year. Other working capital items, there's no big changes, and I return to that on the coming slide. We believe we have a strong balance sheet, net interest-bearing debt of NOK5.5 billion and equity ratio of 50%. Here is indication of cash flow development showing us change in that interest-bearing debt, we recognize the EBITDA. The change in working capital is driven by biomass development as the key driver. CapEx, I will return to on coming slide. Finance cost is up following the fact that interest rates are higher and we are paying tax. But net interest-bearing debt end quarter of NOK5.5 billion. Looking at CapEx, this shows the historical development. Maintenance CapEx, we see was up in 2023. A key driver here is the weakening Norwegian kroner. We expect about the same level in 2024. Last year, we invested in Whitefish processing capacity and new technology in farming. Looking into this year, we will enhance investments in shielding technology in farming. Results so far are good, and Henning will comment upon more upon them later. And we are investing in improving smolt quality to get the more robust fish that we put into the sea. Best estimate today is a CapEx of around NOK1.8 billion. Then particularly in Norwegian Media, there is a discussion on value creation from this industry, and we can only show the facts. So, what this slide shows is the footprint of Leroy's operations in Norway and also from the suppliers we acquire from. And as we see, it's a significant footprint all over the country and particularly along the coastline. We bought, we made purchases last year for around NOK20 billion. We bought from close to 5,500 suppliers in 250 municipalities in Norway. And our employees we have employees in 60 municipalities. That activity leads to substantial value creation in Norway. Here shown us number of employees, both our own and indirect summing to 10,000. Also, estimate of value creation, which is substantial, including indirect value creation, close to NOK15 billion, and there's a significant tax contribution of around NOK2 billion in sum. So, we create significant values in Norway. Yes, Henning, then I give the word back to you.

Henning Beltestad: Thank you, Sjur. Okay. Then we want to look a little bit what's happening going forward and our forward targets and to give you some short update on that. We see we have a target on 2030 of more than NOK50 billion. We had NOK30 billion in 2023, and we see that we are on track to achieve this goal. When it comes to reduction in total emissions, we also are on track here for on reducing the emission by 46% within 2030. On the targets for tons harvested in 2025, we are on track with all the initiatives that we are doing step-by-step. And we, so it's up 40,000 ton from the level that we had in 2023, but also 2023, we had, I will say, not the best performance that is not where we should be. Also, for up sales and distribution, it's a hairy goal to double in EBIT in two years, but we see a very good development in this quarter. We also expect a good development quarter by quarter going forward, especially second half of this year and into 2025, and we strongly believe that the organization has the right motivation to take us towards this goal. And then, it's being number one farming companies in EBIT per kilo in shipment in 2025. We see that we are on track in North region, in Leroy Aurora. We also believe that with the initiatives that we're doing in new technologies and also on the smolt de row and the genetic side will give us a good development towards also this goal. And it's getting close, so we really feel on that, but the organization in all regions believe that this is achievable. When we, we can start with our emissions. We reduced that from 2019 by 15.5% until 2023. Our ambition, as I said, is reducing it 46%. Our main focus areas to achieve this goal is sustainable fish feed. We work on ingredient side together with strategic partner on feed. We work a lot with airborne transport and also working a lot with alternative fuel to our fishing fleets, but that's more a long-term focus. But then we believe that it's possible to achieve this goal, and we have implemented this into daily operation in the whole value chain. When it comes to Wild Catch, of course, the reduced quotas make it difficult for us going forward. And also, we believe there might be some downsides on the quarter also for 2025. For VAP sales and distribution, as I said, it's a promising outlook. We invested in all major markets in Europe to get close to the customer, to give a high service level, to give us stability and to be in a leader within category development within seafood in all main markets. And we have huge capacities, which still there is and there's still a huge potential of improvements in all the markets. And we see step-by-step that these improvements have been taking out the potential of. For the short-term actions, of course, higher utilization of our VAP factories through volume growth achieving economy of scale, improving VAP factories in certain European markets with expected substantial uplift in 2024. We see like in one key market, there can be up to NOK100 million improvements to be done going forward and that we also see that we are on track on these improvements. And then also, Leroy Aurora principles is implemented with clear targets, roles and responsibility, action plans, market plans and culture for continuous improvement. For the long-term actions, it's to focus a lot on the consequence products in our own value chain, use 100% of the fish, increase flexibility and price achievement, implementing layaway and sustainable logistics. So, a lot of areas where we can improve both in short-terms and in long-term to achieve the goal of 2025. And one example of using the fish, the 100% of the fish, Leroy is the first farming company to take out the salmon blood and to make products out of the blood. And earlier this quarter, we launched salmon, which is iron tablets, which with a good quality, and this is a way how to take care of all the parts of the fish. And 2% of the fish is blood, so if we produce 200,000 ton, it will be 4,000 ton with potential blood to make a higher value out of. Reaching 2024 harvest targets through operational improvements. We focus a lot on the road, small production and new technologies. And to give an update on where we are and when will this give effect, we first the genetics, we see it will give some effects on first half of 2024. Ro also giving effect on first half, and we see some improvement from that and also from the smalt. And then we will see step-by-step, we will take out the effects on harvested fish going forward. And if we look at the first quarter, we see strong biological performance, first quarter compared to the average of last five years. We see improved net growth rate of 9%. We see a reduction in mortality of 24%, and we see a reduction in life treatments of 56%. So exceptional improvements in these key drivers for improving better fish health going forward. And we are on track with our implementation of shielding technology, and results so far has been really good. We see that there is in submerged cases, there is serialized treatment, and we had the first location put in sea in July last year. And it will be exciting to see, how this will go when we go into the main season with higher seat temperatures and see the performance of the new technology. The current situation is that we are on target, like I said, close to 20% of salmon in number of fish shielded as of April '24 and targeting 30% to 35% by end of 2024. And so far, everything is going well, and we really believe in the implementation of the new technology for the Farming segment to achieve our goals for 2025. And like I said, we see huge reduction in life treatments for the different technology. Like I said, for the deep sea farming, it's there's been no treatments. We have had some treatments on the other technologies, but compared to same generation going back, we see that there is huge improvements in all what we do in new technology and with a reduction of 82%. So, we at the time, it looks promising. Then the last outlook farming, positive start of 2024, contract share. 2024, currently around 25%. Expect to see significant improvements from raw and small quality, new farming technology, and process improvements through implementation of layaway. For Wild Catch, challenging quota situation, cod down 34%, haddock down 43% and the outlook for quarter 2025 is also seems like we will get a further reduction. For VAP Sales and Distribution, increased demand for integrated sustainable value chain, and we see improved market share in some key markets, utilizing the potential of our value chain. And we have a huge potential of improvement in some key markets, which will take us to the goals in 2024. So that's what we have, and thank you very much.

End of Q&A: