Aker BioMarine ASA (AKBM.OL) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to Aker BioMarine's presentation of the third quarter 2025, where we will present the highlights and the financials of the quarter. Today, it's me, Matts Johansen, the CEO; and the CFO, Katrine Klaveness. Starting with the highlights. Yet another strong quarter by Aker BioMarine. We delivered revenues of $56.8 million. That is up 15% year-over-year. That is the revenue for the group, and a strong development of the group EBITDA with 50% increase up to $12.2 million for the quarter. For Human Health Ingredients, another very strong quarter, delivered $30.2 million of revenue, 23% growth year-over-year and an EBITDA of $13.5 million, up 35% from the same quarter last year. Consumer Health Products delivered revenues of $27.4 million, down 6% year-over-year, but in line with the last 2, 3 quarters. EBITDA for the quarter was $1.8 million. For Emerging Business, revenues were $2 million, stable from the previous quarters with a negative EBITDA of $0.4 million. And we also stand a stock release during the quarter of securing a new significant contract for the Superba Krill Oil, where we will start delivery in Q4 this year. A quick look at the numbers, $56.8 million. You can see the trend to left on revenues over the last quarters, a good trend throughout the quarters. And a significant increase in EBITDA for the group, driven by strong performance in the Human Health Ingredients segment. And now if we go into -- have a little deeper look into the segments, starting with Human Health Ingredients. As mentioned, 23% growth. That's accelerating growth from the previous quarters, driven by 18% growth for our krill oil products, and that growth comes both from volume growth, but also that we are getting better prices from our customers. Production in Houston was very good in the quarter that will help drive good gross margins in the quarters to come. The good growth in EBITDA, 35% comes from the combination of better gross margins and also the increased sales and operational leverage coming from that. As mentioned, we secured a big contract during the quarter. We have already delivered the first small delivery of products there, but the first main business will come in the fourth quarter of this year. I know a lot of you are wanting to know what that business is. Unfortunately, we cannot share the details of that until it's live in the market because of confidentiality with the customer. But the product goes live in December. And as soon as it is out, we are looking forward to share more details of what this customer is. Also, during the summer, we published a new important study for Superba Krill Oil. We call it the GLP-1 study, but that is a study looking at the ratio between fat and muscle loss during fasting, either from GLP-1 drugs or just from natural fasting. So we had a placebo group and a control group, 800 calories per day and then looked at the weight loss, which was the same for both groups, about 4 kilo of weight loss for both of them. But the interesting part of the study was that if you take a krill oil supplement while losing weight, more or less all of that weight that you lose will be fat, while for the placebo or the control group, about 25% of the weight loss is muscles. And this is a major concern for the GLP type of drugs out there, and this is an interesting study with an interesting set of data that will potentially open up new markets for us. We are now in the commercialization phase of Lysoveta. That means we are now getting the first customers on board and starting to market it B2B. And also this quarter, we got an award, an important industry award of the healthy aging ingredients of the year through that ceremony. So that is a good acknowledgment of the promise of that product in the future. We have very limited algae sales in the quarter. We're still optimizing our production line, ramping up sales now in the fourth quarter and expecting to start producing in Houston in the beginning of next year. It's a while since we took you through the plans and strategy for Human Health Ingredients. And given the importance of that segment in our business now, we wanted to give a short update on the strategy for that segment, starting with having a look at the market that we are addressing. So what's interesting about the Human Health Ingredient and the krill oil business is that we are part of what we call a mega category of omega-3. That is a category that is large, that is constantly growing, and there is a broad set of science and recommendations from doctors and governments that you should increase your intake of omega-3. That is a good segment to be in. It's growing 6% on average, been doing that the last 10, 20 years, expected to do that in the coming years as well. If you look at that omega-3 market, the fish oil market, as you can see on the slide to the left, it's kind of more normal growth, let's say, 2% to 5%, while it's in the, call it, premium segments of algae-based omega-3 and krill-based omega-3 where you have the steep growth. Based on analyst data, so not our own data, but third-party data, it is expected that krill oil will have a growth between 20% and 25% per year between '24 and 2030, while algae will have growth between 15% and 20%. So we are well positioned in those segments that are growing faster than the already quite attractive growth you find in the omega-3 market. And as you know, we play in both of them with krill oil that we've been for many years, and we're about to enter into the algae oil market now. We have super premium pricing for our products, and you can see that illustrated to the right side. So if you look at the market share for krill oil in volume globally, it's only 1% of the volume of omega-3s sold globally, but it's 7% of the value. So it's a significantly higher value and price of our product compared to the average omega-3 product. Same goes for algae, not as extreme, but it's the same there. We have a significant higher share of value than we have of volume. And I think that volume share also indicates the growth potential of the 99% of users out there for omega-3 that are now taking something else than krill oil. If you look at the value proposition of these products, starting with our krill oil product. Krill oil omega-3s are different from other omega-3 molecules, and it is based on the backbone of the omega-3 molecule. And a quick explanation of that is that all the cells in our body have a membrane of phospholipid. And for an omega-3 to enter into the cell and have its health effect, it needs to be in that phospholipid form. So if you take, for instance, that fish oil supplement or you eat fish, that omega-3 goes to your liver, will be repacked into phospholipid omega-3 and then sent to the cells. In that journey there, a lot of omega-3 will be burned as energy, because omega-3 is fat. In krill, it is in that phospholipid form from nature, doesn't go through the liver, directly into the cells, resulting about 3x more omega-3 entered into the cell. That is kind of #1 value proposition for consumers buying krill oil today, because it's the most efficient form of omega-3. Then it has some additional benefits. One is that it's water soluble. So once it gets into the stomach, it mixes and do not float on the top like you have with most other oil-based omega-3. And with an oil-based omega-3, you will get these fishy burps and aftertaste. You do not get that with krill oil. On top of that, the phospholipid molecule, the red color of krill oil, the natural antioxidant astaxanthin has its own health benefits in addition to the omega-3 benefits. So there's a broad set of health benefits, both documented through our 50, 60 clinical trials, but also in other published studies out there. On pricing, ingredient price for krill oil is about 4x higher than for fish oil. But for a consumer that's worried about his health, walking into a store, is willing to pay a high premium to get the best product for the health. For krill, we have all the highest certification for sustainability you can get with MSC on top there with one of the highest scores that MSC has given based on the fact that the quotas for krill fishing is only 1% compared to for most sources for fish oil, up to 40%, 50% of the biomass of the species of fish that you use to make fish oil is being caught every year. For algae, the molecule of algae is the same as for fish oil. So basically, the product is exactly the same, just coming from different sources. Pricing is about twice the price for algae versus fish. And the value proposition today for an algae-based product is that it's a vegan source of omega-3. So that's a tough value proposition with 100% price premium, and that is one of the reasons why algae hasn't totally taken off yet. But we believe there is great growth potential in this in the future, which we'll get back to soon. If we look at the growth potential for krill oil first, firstly, we are the undisputed leader in the global krill oil market with 90% market share. And the reason of having that undisputed leadership position is a combination of entry barriers that you can find on the right side. First of all, we have a stable, exclusive and secured krill raw material access through our sister company, the old harvesting part of Aker BioMarine. We have an undisputed scale in our factory in Houston, Texas, where again, 90% of all the krill oil in the world goes through that one factory. And then we have also technology there, which are state-of-the-art and quite unique to us. And then we have a massive IP portfolio with a history of enforcing those patents to those that are infringing. And then we have a big head start of a huge set of regulatory approvals so we can access markets and preapproved claims by different governments in different countries. So for any new player that's going to enter into this krill oil space, they have many, many years of regulatory work, both to be able to access the market, but also to get those claims that customer needs to market the product. More than 60 clinical trials we have developed, giving the documentation our customer needs to substantiate their products. And again, we've been in the market for 15 years with deep relationships with customers with local sales force globally. So that's the reason why we are having and continue to have that strong market share in the krill oil space. And as you saw in the earlier part of the presentation, the market share for krill in the global omega-3 market is 7% in value. But if you go and have a deeper look at our most successful markets like the mass market in the U.S. or in Australia, we have between 20% and 30% market share in these countries. And what's different with these markets versus other markets is that in these markets, we have good distribution, 4, 5 big brands that are also investing some money in marketing. The combination of that distribution and some marketing investments by our customers drives that 20% to 30% market share. That means that our task is quite easy. We just need to convince more brands to launch krill oil, so we have good distribution. And then we need to convince them that there is a good return on investment and help them with the material for them to do marketing of krill oil in their local markets. So that's why we're going to continue to grow with the 6% that we saw earlier, that's the general growth for omega-3, but we're going to outpace that growth because we're eating into the market share that we know we'll get as we are evolving our sales and marketing activities with customers. So that was a little bit on the krill oil side. Then having a look on the market potential for algae and our rationale for entering into this. And this is tied into what we talked about a little bit earlier that the molecule for algae-based omega-3 is the same molecule as you find in fish oil omega-3s. We talked about earlier that now there's a price premium of 100%. So basically, algae-based omega-3 costs twice as much as fish oil-based omega-3. But we don't think it's going to be like that forever. We believe that we will reach price parity between algae-based omega-3s and fish-based omega-3s. And through that, these molecules or these kind of sources for omega-3 will be directly exchangeable. And that means that the algae market will all of a sudden -- or algae products will all of a sudden enter into the global fish oil markets. And the reason for us believing that price parity happening is driven by the supply and demand squeeze in the fish oil market, driven by demand from aquaculture. So aquaculture, they are taking about 70% of all the omega-3 that's produced globally. And as we know, aquaculture is growing 4%, 5% per year, but the access to omega-3 is flat, because it's coming from wild cod fish and there's no increase there. And then the aquaculture industry for many years has kind of kept their demand and growth in demand in check by optimizing the diets and slowly reducing the amount of omega-3 they have in the diets. So basically, the demand from aquaculture has been quite flat for many years. Until about 2020, 2021, we have taken the amount of marine ingredients so low that it started to impact the performance of the fish, and they had to kind of stabilize or even start to increase the inclusion levels a little bit more. And now starting about that time, the demand from omega-3 from aquaculture grows by 4%, 5% every year. So you have a supply and demand gap that's growing by 4%, 5% every year. And the effect you will get to that is what you see on the right side. You have fish oil prices coming up year-by-year. This illustration here, we're kind of starting today on the left side. And the bottom graph is fish oil, and you can see it coming up as this kind of supply and demand squeeze happens. And then the cost of producing algae is coming down as the market matures. So they're going to meet at one point. If it's going to be in 3 years or 4 or 5, we don't know, but we're pretty sure we're going to get there. And at that point, there will be same price for fish oil and algae, and then the algae source will go and compete in the global fish oil market as well. A side effect of this is that price premium between krill oil and fish oil will shrink in that period. As fish oil becomes more expensive, we will go from being 4x more expensive to maybe 3x or maybe even 2x more expensive, or it will open up a possibility to also increase prices for krill oil in the future. So this is the rationale for why we're entering into algae, to position ourselves for the time when we get price parity between fish oil and algae oil and that market becomes huge. And by then, we would like to be a leading player in this space. If we look at our pillars for growth, we can divide that in 3. So the first pillar of growth is our core Superba Krill Oil products. Today, we have $100 million, $120 million of revenue, and we expect the potential in that market to be $300 million in the coming years, meaning that we can triple that business over the next years. Then we have our organic innovations. These are the innovations that we've been working on for many, many years, developing from scratch ourselves. And as you know, all of these are now in the commercial phase, both the Lysoveta, the new brain ingredient that delivers omega-3 directly through the blood-brain barrier; our PL+ technology where we combine that phospholipid effect I talked about earlier with other ingredients to help them being better absorbed; and Revervia, which is our algae-based omega-3. And the market potential for all of these individual innovations is about the same size as the market potential for our core business, $200 million to $400 million for each of those segments. And then the third growth path is what we call our platform expansions. And that is to the next slide, you'll see the background of that, because krill oil is probably one of a handful, 2, 3 ingredients over the last 20 years that have been scaled from 0 to more than $100 million and still deliver 15% to 20% growth year-over-year. That is quite unique. And that means that we have a recipe in Aker BioMarine and Human Health Ingredients segment for how to scale these premium ingredients in those mega categories that I talked about earlier like omega-3. There are many or several mega categories like omega-3 out there, could be magnesium, could be collagen, could be different type of these kind of mega categories that are large, that have been growing the last 10 years, expecting to continue to grow the next 10 years, where you can find a differentiated super premium play in there. We know exactly how to do that from the regulatory and scientific point of view. We know how to do it from a commercial point of view. We have our sales force on the ground. We have the relationships with all the customers. And maybe most important, we have a brand and a reputation in the dietary supplement ingredient market that we are someone that can make an ingredient successful. So when we, for instance, entered into the algae side of the business, we immediately get a lot of interest because now we are going to do something exciting with algae. So we believe that this platform here provides a kind of third leg for growth by making acquisitions of these kind of new differentiated plays in those mega categories or those companies that have certain size, I mean, they haven't really succeeded, but they're on the way up, and we can plug that into our system and scale it. The timing of this is medium to long term, meaning we don't expect any acquisition to be done now, but it's a strategy in place that we're working on, both in terms of defining the playbook, but also looking for what is the best ways to execute on this strategy going forward. And then if you look at a variant of a slide we have showed earlier in terms of the expected EBITDA growth going forward, it can be illustrated by this slide here. We have now for Q3 $54 million EBITDA the last -- or run rate for this quarter. And as you know, and we presented before, for every 10% of growth we get in the core business, we add $8 million EBITDA. We expect a slight price increase for our products going forward, both with the product mix, but also through inflation adjustments on our products, which we have started doing that will offset the general cost increase in the company to kind of make sure we are stable from that point of view. And then we have those 2 growth pillars. You can see those graphs are cut now. It's just illustrations, but it's our kind of organic innovations, those 3 products we talked about, and we're in the market now with all of them. And then it's that big potential long term for that platform play that we just talked about. So that was the end of that kind of short walk-through of the strategy and the plans for HHI going forward. Now a quick look at Consumer Health Products. Yes, quite weak quarter, I would say, for Consumer Health Products. It's in line with the last 2 quarters, but 6% down from a quite strong Q3 2024. I don't see this as a kind of structural change. We have integrated our Kori Oil EPION business into the Consumer Health Products organization now. And as a result, we are optimizing the product stock and working capital. So basically, we have produced less Kori products unrelated to how much Kori is selling out in the market. That's impacting the Consumer Health Products business. And then also, we see some weaknesses in the drug chains in the U.S. On a general note, they are struggling generally these days, also impacting us a bit. But again, the outlook and the way we look at this business is that it's anyway back to that we call modest growth going forward. EBITDA in line, better EBITDA margin or stable EBITDA margin by a little bit higher SG&A. For Emerging Business, quite stable revenues, you can see the last 5 quarters. And then the negative EBITDA is getting closer and closer to breakeven. And we are now in the third quarter of '25. We integrated the Kori business, which is the main cost component in Emerging Business, with Consumer Health Products, that we just looked at, to optimize cost and headcounts. So with that change, we expect a significant improvement further towards that breakeven point for Emerging Business. We are also now accelerating our e-commerce focus for Kori, which has been historically mainly a retail play. But we have signed a deal with a company called Pattern and Pattern is the biggest reseller on Amazon. It's a 100% AI-driven platform where the AI engine basically optimizes all your marketing, all your text, all the positioning several times a day to maximize the performance of your product on the Amazon platform. Very exciting. It's quite high threshold to get into kind of their system, but we have now signed the deal. And in February, we will get going live on their platform. For Understory, our protein factory, we're still working on the sale of the assets. It's a little bit slow, as we talked about in the previous quarters, as both the larger industrial companies and the start-ups are hesitant to invest in manufacturing sites in these days of uncertain tariffs. But as a result of that uncertainty, we have closed down the factory and cut down the cost to a bare minimum to make sure it doesn't bleed cash anymore for our business. And with that, I give the word over to Katrine that will take us through our financials.

Good morning. I'll take you through the financials for the third quarter. Summarized, we delivered yet another strong quarter with growth for the group year-over-year with Superba Krill Oil growing the top line, while cost is in good shape. Starting with the P&L, the following line items are worth mentioning. Sales for the group is up 15% from same quarter last year, driven by increased sales, both volume and price for Superba Krill Oil. Despite higher sales, COGS are only marginally up as a result of operational leverage with solid production volumes coming from Houston year-to-date, lowering the unit costs. That leads to gross margin for the group being at 44%, up from 36% same quarter last year, with most segments showing increased gross margin with the exception of Consumer Health products, which is slightly below due to customer mix. SG&A is well under control with cost increase below inflation rates. The company lands at net profit at $0.3 million and an adjusted EBITDA of $12.2 million for the quarter, up from $8.1 million same quarter last year. Adjustments include restructuring costs and severance packages after the operating model project that was implemented earlier this year. In the Corporate segment, total SG&A is on par with same quarter last year and significantly below the previous 3 quarters as a result of lower restructuring and lower Feed Ingredients transaction costs, about $900,000 this quarter compared to between $3 million to $4 million the previous quarters in adjustments. Income from transactional service agreement with Aker Qrill Company was $0.7 million in the quarter, and this being the last quarter with the TSA arrangement as we are now 12 months post transaction close. Adjusted EBITDA for the Corporate segment was negative $2.7 million, on par with the same quarter last year. Looking at the working capital, inventory is up in the quarter as a result of purchase of the raw material for oil production, the Nutra meal, and strong production in Houston. Payables are up due to purchase of Nutra meal, but partly offset by settlement of the purchase price adjustment for the feed transaction that was paid this quarter of $7.3 million. We had limited investments in the quarter, mostly related to Houston upgrades and maintenance. Algae investments of about $0.5 million in deodorization and winterization process steps to improve the quality of the product is ongoing and will be completed during Q4. Total CapEx for the year is expected to be around $7 million to $8 million, and then that excludes the $7.3 million in purchasing amount adjustments. Looking at the cash flow, we had positive cash flow from operations of $0.4 million in the quarter. Higher working capital lowered the operational figure. Cash flow from investing is negative $8 million and includes the purchasing amount adjustment of $7.3 million, explaining the deviation from the previous page on investments. Cash flow from financing include additional draw under the overdraft facility and certain leasing-related payments. Net change in cash is negative $2.2 million, bringing the cash figure to $7.4 million (sic) [ $17.4 million ] in the quarter. Available liquidity includes available amount under the overdraft facility as well. Note that the overdraft only covers part of the cash pool, so the overdraft balance does not represent cash availability 1:1. Interest-bearing debt is at $165 million in the quarter. Net interest-bearing debt is at $165 million in the quarter, slightly up from the previous quarter. The main reason being payment of the Feed Ingredients purchase price and higher working capital. Leverage is at a comfortable level at 4x net debt/adjusted EBITDA, and the company is compliant with all its covenants. I'll end off with the balance sheet. The balance sheet is now fully comparable without the Feed Ingredients figure for all periods shown above. Looking at the asset side, we did a reclassification between PPE and intangible assets in Q3 last year to better reflect the status of our development projects. This can be seen in the increased intangible figure and the corresponding lowered PPE figure between Q3 2024 and Q3 2025. Derivative assets needs to be viewed together with the interest-bearing debt, as this is how the cross-currency swap is booked. Inventories are up, as previously explained, due to purchase of Nutra meal and high production of krill oil in Houston. Assets held for sale include the protein plant and Aion. The protein plant was written down with $15 million in Q2 this year to reflect the uncertainty in the global market that Matts alluded to earlier. Interest-bearing current liabilities include the bank overdraft. And finally, total equity of $150 million indicates an equity ratio of 38%. With that, I give the word back to Matts to conclude.

Thank you, Katrine. For Human Health Ingredients, we reported another strong quarter this quarter, and we expect that continued good growth and improvement of those profits as we both grow but also get our operational leverage. So continued good growth in that segment expected. Consumer Health Products, it's been flattish the last 3 quarters now, but the underlying trend is that we are back to modest growth levels. And for Emerging Businesses, it's all about getting to that breakeven point, which we are getting very close to now, and then seek transactions for those assets that we have in the portfolio there. And then for Corporate, $12 million to $14 million in overall corporate costs. And that concludes our presentation. We will now open up for questions.

Okay. Good morning, and welcome to the Q&A session. We have received some questions. And the first to you, Matts. So will the new customer that you announced be at a normal run rate impact during Q4?

Yes. We expect that to be around normal run rate in the fourth quarter. Also worth noting that we shipped a little bit of the first order already at the end of the third quarter, but majority of the first business will come in fourth quarter.

And then over to algae. How much do you expect to sell during 2026?

So we are not guiding explicitly on algae, but we expect to be up and running with good sales in '26.

Next question. In which market is the buyer of the new significant contract for Superba Krill Oil based?

Yes. Unfortunately, I can't share details yet. It's confidentiality to the customer because of, yes, their competitors and so on. So we have to keep it totally confidential until it goes live in middle of December.

Yes, then you can tell, so next quarter. Yes. And then in which markets do you see the strongest demand for krill oil currently?

I mean the last quarters, we have had good and strong growth across the board, but I'm continuing to be very impressed by the European region, which goes from strength to strength despite being kind of quite mature and fragmented market, but also in the other markets we're seeing good growth contributing to a quite strong quarter for Human Health Ingredients.

Thank you. And then the next question. So did you sell any krill oil in South Korea during Q3? And then has sales efforts been launched again in South Korean market?

So in this year, we are selling about $1.5 million worth of sales to Korea, which is kind of the run rate of business in that market right now. And then our partners there have now started the launch. It's gradually and slowly building up. So we will -- too early to conclude how it goes, but at least now, it's live and has started.

There's no further questions at this point, but we will let there be a little bit more time and then we'll see. No further questions coming in. So I guess that concludes the Q&A. So thank you for listening in and asking questions. See you in a quarter.

Thank you.