Earnings Transcript for LSG.OL - Q4 Fiscal Year 2023

Henning Beltestad: Welcome to Lerøy Seafood Group's Fourth Quarter Presentation of 2023. My name is Henning Beltestad, I'm the CEO in Lerøy Seafood Group. And with me today, I have Sjur Malm, which is CFO. First of all, like always, I start with our fantastic and unique value chain. Our goal is to create the world's most efficient and sustainable value chain for seafood. We control everything from roe and all the way to consumer products in the shops and all the way from all our own trawlers all the way to shops. And we believe that this is a unique position for us as a seafood company to control the seafood value chain that we have built and invested for in the last 20 years. Then fourth quarter, it's been a pretty good quarter, EBIT of NOK 765 million. For the first time in the history, we exceeded NOK 30 billion. It's been a year where we have made progress towards 2025 in strategic targets. We see a good biological development into 2024. So a good, good start of the year. And we have seen last year and especially in fourth quarter, a significant improvement in earnings from VAP, Sales & Distribution. And the board proposes a dividend of NOK 2.50 per share. Let us see for group reports in 3 segments

Sjur Malm: Yes. Thank you, Henning. Henning has already touched upon the key developments. Summing up, this shows the aggregated financial results in the fourth quarter. If you look at the value drivers, we can see that the margin per kilo is marginally up in the redfish value chain this year compared to last year. This is driven by better performance in our downstream operation. Within Farming, we know prices are up, but we also know costs are up. And the key driver in this is the fact that the Norwegian kroner has weakened significantly compared to other currencies, meaning that the price realization is up, but also we have significant share of our cost base in euro and also U.S. dollar. Looking at whitefish, we see profitability is basically on par on margin with last year. And then looking at the operational EBIT, it is down 7%, and the key driver for that is then, and the fact that we are harvesting lower volumes in redfish. On revenue, we have good activity, but we're also helped by a weak Norwegian krone. Looking then at our balance sheet. Our view is that we have a strong and flexible balance sheet. I will return to investments and then development in tangible fixed asset. The other key point there is that the higher price trend, inflationary trend impacts the working capital items, including the value of inventory, the value of receivables, et cetera. So in 2023, in total, we have more working capital than we had the year before. This one shows the development in net interest-bearing debt. The EBITDA is reducing debt. We see that in Q4, and we have reduced working capital. We've made investments and you see the effect from payable tax and net finance effect in some net interest-bearing debt of NOK 5.2 billion going out of 2023. Some comments on CapEx. We have a long value chain. We are investing through the value chain in the different segments with inflationary trends. A good estimate of our maintenance CapEx and smaller project is around NOK 1 billion. In 2023, you will see that we have invested quite significantly in new farming technology, as highlighted before, and which Henning will touch more up on later. And also then in 2024, we are expecting, as of today, to invest another NOK 500 million into new farming technology and also NOK 200 million in better smolt quality. And best estimate of CapEx as of today is NOK 1.8 billion for 2024. A lot could be said about resource tax, and it was improved by Storting in Norway in mid-2023, with effect from 1st of January 2023. This is a tax, which is in the sea phase, not the full value chain of Farming, and that is highlighted here by the red box. So basically, the new tax is increased tax of 25% in the red box, while the tax in the black box is 22%. So in the red box, the tax level is 47%. In rest of Farming, it's 25%. To be aligned with this, we have implemented a new internal pricing policies where we previously to hide the reused cost as measurement of value, when we moved goods and services through the value chain, we are now using what is the correct and close as we can to a market price. With these effects implemented, our best estimate today is that the total resource tax in the red box is NOK 2 billion, of which NOK 1.7 billion is implementation effect. When it comes to making estimates going forward, this is a very complex system. It is challenging, and the actual effective tax level in the Farming segments will be dependent on profitability level. It will be dependent on the amount of investments, shown here in the red box, and it will be dependent on development and the cost of biomass. Yes. And with that, I'll give the word back to you, Henning.

Henning Beltestad: Okay. Then we're going to look at what's happening going forward and the initiatives that we are doing to improve our business in general. First of all, I will start with strategic targets that was communicated in the Capital Market Day in September 2022 as 1.5 years ago. So it's a long way back. And where are we? If we look at the target for NOK 50 billion within 2030, I think we are on track for that. I think we are close to NOK 31 billion in 2023. When it comes to reduction in total emission by 2030, with a baseline of 2019, we are on track. I think we all have a yearly cut now of around 7%, 8%. And we believe that it's -- the focus that we have in operational, in the operational work that we do for this reduction is crucial, and we really believe that we are in the right direction to achieve this goal within 2030. When it comes to the whitefish, the Wild Catch, we had a goal of NOK 500 million that is not within reach like it looks today. The main reason for that is the quarter situation which is year-by-year now going down. When it comes to #1 position as a Farming company, we still have a way to go. We see that in some regions, we are very close. And in some region, we have a longer way to go. But we believe that this also with all the strategic initiatives that we have going forward, and that's been -- that we have been working with the last couple of years will drive us in the right direction for this target also even though it requires focus and a very hard work going forward. When it comes to VAP, Sales & Distribution of an EBIT of NOK 1.250 billion -- NOK 1.2 billion, it's a stretch goal. We are at NOK 643 million in 2023. And -- but we really believe with the setup that we have, the way that we work today that this is also reachable within 2025. And when it comes to the harvest volumes of 205,000 tonnes, it seems like really hairy goal, yes, it's a hairy goal and especially when we look at our performance in 2023, we are on 160,000 tonnes. But we believe that with the plan that we have, with the changes that we've done and we'll do going forward, this is also achievable with the capacity in licenses and the facilities that we have. Well, I think, first of all, we touched upon VAP, sales & Distribution, substantial earnings growth through targeted initiatives, both short terms and long terms. For the short terms, improvement of VAP factories in certain European markets to -- markets too will substantially improve earnings for 2024, which is amending unprofitable business lines, products and factories, tight follow-up of low-performing units, precise product profitability calculations and gross margin expansion, and ongoing Lerøy Way implementation, which is our method of how we drive continuously improvements. Further improvements from volume growth, resulting in higher utilization of our VAP factories and also higher volumes from the Farming segment will give us better results in the short terms. In the long terms, strong focus on consequence products in our own value chain, increased flexibility and price achievement, implementing Lerøy Way with improvements downstream, and we have a target of being fully implemented within 2025 in this segment. And we focus a lot on sustainable logistics, both on looking at the transport on sea, and but also reducing the emissions on logistics for the overseas market by buyer. And this is some of the projects from strategic portfolio. And we have a planned, strategic projects, further increasing value creation towards 2040. This is the 4 different areas

Henning Beltestad: Contracts share of 20% for total of 2024, expect to see significant improvement, roe and smolt quality, new farming technology, and process improvements, implementing Lerøy Way. The Wild Catch, challenging a quota situation into 2024. Quotas for '24, cod down 30%, haddock down 20%, and improvements in land-based industry expected. VAP, Sales & Distribution increased demand for integrated, sustainable, value chain, improved market share in some key markets, utilizing the potential of our value chain and large variation in profitability in different unit, and clear potential growth in profitability in 2024. And that was all. And thank you very much.

End of Q&A: