Aker BioMarine ASA (AKBM) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of the fourth quarter for Aker BioMarine, where me, Matts Johansen, the CEO; and the CFO, Katrine Klaveness, will take you through the financials and the highlights from the quarter. For the fourth quarter '24, we delivered a decent result. We delivered $52 million of revenue, up 7% from the same quarter last year, and we delivered an EBITDA of $7.4 million, almost tripled from the same quarter last year. This was mainly driven by strong growth in the Human Health Ingredients segment, where we delivered 25% revenue growth and about 31% growth in the EBITDA. For Consumer Health Products, we are still lagging a little bit behind last year, but we are on the way back into growth territory. For Emerging Business, we are continuing slight growth, continue to improve our cost base and getting closer to that breakeven point on cash. Following the Feed Ingredients transaction, we have initiated an improvement and restructuring project to make sure that the organization is right-sized, that we have the right setup and that we have optimized our cost base for continuing growth and development of the existing businesses that we now have in Aker BioMarine. As mentioned, $52 million of revenue for the quarter, up about 7% from the same quarter last year, and a significant improvement on the EBITDA, as you can see on the right side, mainly driven by stronger performance in Human Health Ingredients segment. When we look at the year as a whole, the negative development in Consumer Health Products are balancing out the positive effect from Human Health Ingredients. And we also need to remember that we are eliminating all revenues from Human Health Ingredients into Consumer Health Products from this chart. But you can see a strong development of the EBITDA, up 37% compared to the same year -- compared to 2023. Now, moving into each of the segments, starting with the main segment, Human Health Ingredients. So we delivered 25% revenue growth for the segment as a whole. For the core krill oil products, we delivered 15% growth. We had an okay margin, a gross margin of 57% for our krill oil products, and we had good production in the fourth quarter of '24, which will improve our cost of goods coming into 2025. We have had lower sales of Algae than what we had anticipated. We still have strong demand. We have a demand of about 100 tonnes, but only delivered about 30 tonnes of that for 2024. The reason for that is that we are still in development, some unforeseen challenges in production that we had to fix and develop processes to organize. And as a result, we're not able to fulfill full demand that we have out there. We have good dialogue with all the customers, and we have good solutions in our Houston plant to fix those initial challenges for this new product. On PL+, which is another important part of our innovation portfolio, we signed a large agreement with a European pharmaceutical company. They will launch a PL+ variant in the Central and Eastern Europe markets in the dietary supplement market. So, even if there's a pharmaceutical player, it is their dietary supplement arm, which is launching this product in multiple markets. It will start to pop up on shelves around Europe at the end of '25. So we won't see a lot of revenues from this, this year or in '25. But in '26 and beyond, this should be a significant contribution to the sales in Europe. We have great development in the innovation portfolio, but I think it's also very important to say that our core product, the Superba krill oil product, are still very relevant. And at the end of 2024, we were awarded the best supplier of industry by something called Nutritional Outlook, which is one of the leading medias for our industry, highlighting our krill oil and Superba products being one of the best ingredients and being one of the best suppliers in the industry in America. Also in the fourth quarter, we were awarded the World's Most Innovative Company. That was given out by an organization called GIMI. That is a network of about 17,000 innovation professionals and about 750 universities globally that every year highlights the most innovative company in the world. You can maybe think it's strange that a krill company becomes the world's most innovative company. But at the same time, we have developed new raw materials, new ingredients, something no one has done before in a very tough environment, and it's the sum of everything we have done that has given us that recognition. I want to go a little deeper on the development in the Human Health Ingredients and specifically on the core krill oil business. As you can see on the graph on the left side, you can see the development in the last couple of years, and the different colors represent the different markets. And if you look at our growth in 2024, you can see strong growth across the board. So the U.S. market was growing 13%; Europe and Latin America, 40%; China, 61%; and Asia Pac, 21%. The odd one out is Korea, which is that gray bottom part in 2023, where, as we got kicked out of the Korean market at the end of 2020, we worked hard to get all the necessary studies, all the regulatory approvals in place to relaunch into the Korean market in '23. And all the customers and partners, they were loading up inventory for kind of a really successful launch, and that has gone slower than anticipated. Hence, all the parties in Korea have been having enough inventory from what we sold in '23 into '24. And that's why we had 0 sales in '24 and quite a big chunk of sales in '23. So if you look at the CAGR across this period, you'll see that we're growing 25% per year, which is a very strong development here. In Korea, we have now fulfilled or there's no more inventory left, and we will slowly start to see sales coming in the Korean market in '25. Still uncertain how fast it will go and what's going to happen. As you probably see in media, there's a lot of turmoil in Korea now. And as a result, there's not a lot of campaigns running on home shopping or other channels in general. So we're waiting to see how that evolves before our customers will come up with the full push again. But generally, very good development across all our markets, both the emerging markets and also the more mature markets. The customer -- the number of customers you can see on the top line, that is those boxes. And you can see also that this growth here is coming from a combination of existing customers selling more, but also new customers entering into the space. And let's dig a little bit deeper into that because what you see here now on the left side, it's data from a database in the U.S., where actually every single dietary supplement in the U.S. is organized in a database, and you can analyze that data. And if you run an analysis of all the Omega-3 products that's sold in the U.S. and see how many of them have krill on the label, meaning that there's either a krill product or a blend of krill and something else, how many of all Omega-3 products for sale in the U.S. is krill? And as you can see, for 2024, it was 24%; in '23, it was 22%; and in 2022, it was 14%. So a significant step-up here, driven by that turnaround plan that we talked about many times that we launched in that low year of '22. So this means that over the last 2 years, there's been many new products coming into the krill oil market in the U.S. And I would say, this is a leading indicator of the business to come in the coming years because typically, the way it works, once a new product is launched on the market, it will typically take 3 years until you start to get to kind of the potential or kind of the steady run rate of what a brand will deliver in sales, as the brand owner will increase its distribution, start to educate consumers, run campaigns, and so on. So these data points are leading indicators for good revenues in the years to come. This is from the U.S. market. You can imagine that this is kind of one of the more mature markets we have, but it just shows that there is still a lot of potential for growth even in the mature markets like the U.S. To the right, we're looking at this more from a global perspective. And then, the 9% you can see in the cake over there, that is North America, so basically U.S. and Canada. So of all the product launches within krill globally in 2024, 9% was in the U.S., represented by that slide we just looked at, which means that there are also even higher activity levels on new launches globally that should foster strong growth for our business and companies in the years to come. That being said, in sales and marketing, our focus is still 100% on driving increased distribution, getting more customers on board and more launches also in the years to come. Moving over to Consumer Health Products, this is where we sell our own products to the largest retail chains in the U.S. So, a fairly good quarter. You can see on the right side, how we're kind of bouncing back from our low in Q2 '24 and also how our gross margin is picking up. And you can see that reflected even more clearer on the EBITDA below, where you have the combination of both, let's call it, operational leverage here and the fact that we have gross margin coming up. There's a couple of reasons why '24 was a weak year for Consumer Health Products. One of them is that we discontinued our fish oil business in Walmart coming into 2024. And the reasons for that was that the raw material prices were coming up and Walmart did not accept the price increases we needed to have to have an acceptable margin. And as a result, we pulled the product off the market. So we lost quite significant revenue coming out of that, but we're on the way back in the market now with new concepts with acceptable margins and acceptable pricing for the retailers. So that's the reason number one. Reason number 2 is that we had quite large sales in '23 related to the launch of our Gummy products. We talked about that many times. And we didn't have a similar launch in '24, which makes the comparison much tougher. And last but not least, the inventory levels of retailers have been considerably built down from typical of being at 10 weeks to 5 weeks. But we see now it has stabilized at that level, and that kind of transition is finished, but that has, of course, hurt our sales quite significantly. So then, if you look at kind of our numbers and performance on the bottom-left corner, you will see that our revenues in Consumer Health Products are down 10%. That's the revenues, the stuff we sell to the retailers, down 10% for the reasons that I just went through, while sales out of retail to consumers is down only 2%. So, that is the effect of the inventory adjustments that retailer has done. And then, if you adjust for the fish oil product that's no longer in our portfolio, you'll see that all other products have growth out of the retail, what we call POS sales. So, that was Consumer Health Products. Moving over to Emerging Business, continuing here on the path, slow growth, growing 5% of our revenue, but the same here, sales out of retail is 15% higher year-over-year. And we see especially strong growth in Amazon, in Walgreens, and in Sam's Club. We talked about our new model to go international with Kori. That has happened in Japan earlier in '24. And in fourth quarter, the brand and the product was launched in China during the International Expo in November, and the first sales are now starting to come in. The model we have both in Japan and in China in general for internationalization of Kori is that [ via dual-licensing ] deals. That means we have a Chinese partner that licenses the use of the Kori brand and pays a royalty to Kori. And then, our Chinese partner will buy krill oil locally from Human Health Ingredients and do all manufacturing, all packaging, all marketing and distribution themselves. We also got an award for Kori. I think this is the third year in a row where we are voted by all the buyers, all the major retailers in the U.S., as one of the best suppliers to those retailers within the dietary supplement category. With that, I'm going to give the floor over to the CFO, Katrine Klaveness, that will take you through the financials. Last but not least, Understory, our protein business. Last quarter, we announced that we are running -- or starting a strategic review. That is now ongoing, and we are now in dialogue with multiple interesting parties, and that will kind of go its course in the coming weeks and months.

Good morning. I will take you through the financial figures for the quarter. The fourth quarter marked the end of a complex year with large carve-outs and restructuring efforts. And the second half of the year has been spent on setting and defining a new cost structure and consolidate the financial figures without the Feed Ingredients segment. Significant cost has been spent on all of the above, but we now have a solid financial platform to build on once the full restructuring is implemented. So, over to the numbers, starting with the P&L. Sales were $52 million in the quarter, up 7% compared to Q4 last year, with both Human and Epion showing growth. Especially, Human Health Ingredients had healthy growth with an increase of 25% from last year due to higher sales of Superba oil, but also increase of QHP due to higher Houston production, as well as new products such as Algae and PL+. For the full year, sales ended at $199 million, 1% up from 2023, with Human growing -- with Human growth offset by reduced sales in Consumer Health Products being Lang. Q4 was Lang's best quarter during 2024, but still 4% down from Q4 last year, and ended up 10% below on a full-year basis. Cost of goods sold are up due to higher sales, and gross margins are on par with the last year for the full group. Gross margins for Human is 45%, down from 50% last year due to new products with lower margins. And gross margin for Superba is 57% due to higher Houston production and better prices. Through the procurement project, exit of Feed Ingredients and good cost control across all segments, SG&A is down from Q4 last year and will continue down as a result of ongoing implementation of the restructuring efforts. Depreciation on protein stopped after Q3 2024 as the asset was classified as held for sale. Discontinued operations include net results from Understory, our protein business, while AION is booked under financial items despite also being held for sale. Included in discontinued operations is also the net gain from sales of the Feed Ingredients of $210.2 million. The 2023 figures include net results from Feed Ingredients. Adjustments in the quarter include the restructuring program, in addition to certain costs related to the Feed Ingredients transaction and some abnormal production costs for Algae. Adjusted EBITDA for the quarter was $7.4 million, up from $2.4 million in Q4 last year, mainly driven by increased sales of Superba oil, and improvements in Epion gross margins and reduced marketing costs. In the non-operational segment, called Elimination/Other, the following items are discussed. SG&A costs for the company with the exception of Lang: these costs also include all project and program costs per quarter, including the Feed Ingredients transaction, cost improvement programs and restructuring processes, and totals $2.8 million for Q4. Going forward, once the restructuring process is implemented during the second half of 2025, annual estimated SG&A cost will be around $10 million to $11 million, slightly better than what was previously communicated. Revenues from the transaction agreement service provided to Aker QRILL Company is also logged in this segment as a corporate revenue, totaling $1.1 million for Q4 and $1.5 million -- $1.4 million for the full year. The TSA will continue with reduced scope into 2025. All eliminations from internal sales between Human Ingredients, Lang and Epion are also included in this segment. For Q4, group eliminations were $0.3 million, on par with Q4 last year. This leads to an adjusted EBITDA for the Corporate segment of negative $4.3 million for the quarter, an improvement from minus $5.6 million Q4 last year, as a result of the cost improvements and some effects from the Feed transaction. There will be non-recurring project costs also in 2025, including the IT migration work for Aker QRILL Company, severance packages and transition cost from the restructuring program. Adding a bit more detail to the restructuring and improvement program, this program was initiated immediately after the close of the Feed Ingredients transaction with the aim to create a sustainable and cost-efficient RemainCo. The following key principles were decided: strengthen the Human Health Ingredients innovation and product development to enhance competitiveness; manufacturing consolidation and optimization, centering operations around the Houston facility; global marketing and sales integration to improve market reach and efficiency; scaling corporate resources to align with the new business structure and size; and lowering OpEx base through strategic cost initiatives. As a result of this, about 30 employees globally have been affected, either from a redundant or a relocated position. Net reduction is a total of 15 employees compared to 2024, mostly from corporate functions. Certain critical roles have transition periods, but implementation will be finalized during 2025. Positive change in working capital from previous quarter due to lower inventory as Nutra meal purchased in Q3 has been consumed for production of krill oil, and lower receivables as the seller's credit towards Aker QRILL Company has been settled. This is partly offset by a reduction in payables due to payment of Nutra to Aker QRILL Company and expenses related to the Feed Ingredients transaction. Q1 2025 will have further settlements from the Feed Ingredients transaction, including purchase price adjustments that will further reduce payables. CapEx for Q4 ended at $3.2 million, leaving the full year at $10.8 million for maintenance and development CapEx, slightly up from what has been previously communicated, the reason being that certain costs related to the Algae production process booked as OpEx in Q1 to Q3 has been shifted to development CapEx after a year-end review. There have been more than expected cost and work required to optimize yield and scale the Algae production process in Houston. And hence, this has been adjusted for Q1 to Q3 to reflect correct development CapEx, slightly increasing the CapEx numbers for those quarters compared to what has previously been reported. No cash generation in the quarter due to large settlements of transaction costs of around $6 million, indicating underlying operational cash flow of positive $5 million as opposed to the negative $1.7 million showed in the quarter. Cash flow from investment activities includes the $3.2 million in maintenance and development CapEx presented on the previous page. Cash flow from financing activities includes draw of $5.7 million under the bank overdraft. This -- [ hence ] this change in net cash flow of 0 for the quarter with $15 million in cash end of Q4 and availability under the bank overdraft of $24 million. Gross interest-bearing debt for the quarter was $159 million, including the NOK bond, the cross-currency swap elements, the overdraft and leasing commitments. Net interest-bearing debt is $145 million, slight increase from last quarter due to draw under the bank overdrafts. Previous quarters include Feed Ingredients, and hence, not comparable. Leverage was 5x net debt over adjusted EBITDA. But for reporting purposes to the bank on leverage covenant, the company reported 5.6x net debt over adjusted EBITDA due to certain bank adjustments, still well within the threshold. The company was also compliant with the cash covenant of $7.5 million under the bond loan. Finally, a look at the balance sheet. Comparable figures include Feed Ingredients, and hence, not very comparable. But main changes to the balance sheet items are: property, plant and equipment increased with Houston investments in production-related equipment and improvement projects, certain additions to intangible assets as well, both from the Human Health Ingredients, Lang and Epion related to SKU and product development. Nutra purchase during 2024 increased the Human Health Ingredients inventory compared to Q4 2023. Assets held for sale include the protein business, Understory, and AION. The NOK bond of NOK 1.6 million (sic) [ NOK 1,600 million ] has been swapped to dollars. The cross-currency effect is booked under derivative liability with $11.8 million. And finally, equity ratio of 45%. That concludes the financial section, and I will hand the word back to Matts to conclude.

A few words about the outlook for Aker BioMarine going forward. Starting with the Human Health Ingredients segment, where we expect to continue the good growth trajectory that we have seen in the last 2 years. You should expect a slowly step-by-step development as we move into quarter-by-quarter into 2025. For Consumer Health Products, you should expect us to come back into growth mode after having a difficult 2024, as we have described in the presentation today. And for Emerging Business, it's all about getting Kori into that breakeven territory, driven both by continuing the growth efforts and continuing to optimize the cost base. And also mentioned, we have a strategic review undergoing for Understory, and we will update the market as soon as we have news related to that process. And last but not least, Katrine has talked about the restructuring and improvement program that we have implemented and we will continue to implement into 2025. That will yield both improvement on the cost side, but also prepare the company for the next phase of growth and development. So with that, we will move into the Q&A session. You can send in any questions you have to [email protected].

Okay. We'll now go through the questions that have come in.

Thank you, Matts. Okay. So first question here, so it says, your revenue grew on a pro forma basis by 1% from '23 to '24. Do you feel comfortable that revenue growth will pick up for '25? And if so, what will be the driver of the growth?

Yes. So the reason why we have so low growth on a consolidated level is that we have a 10% decline in the Consumer Health segment. That kind of eats up most of the growth that's coming from Human Health Ingredients, which means, as soon as you will have Consumer Health back into growth trajectory, you will see a totality on growth, which is significantly better than what we have seen in 2024. I just also want to remind you all that we are eliminating out all the revenues between the different segments. So when we sell volumes from Human Health Ingredients to Consumer Health Products, those revenues are removed when we are consolidating the numbers. So that's also impacting the percentage you see there and providing that 1%.

Okay. So some question -- or a question here related to our assets held for sale. So how far along are you in terms of the sale of the protein factory and AION? Have you had concrete potential buyers?

Yes. So in -- when it comes to Understory, or the protein assets, we are running a structured process where we have mandated an adviser that helps us there, and that process is ongoing. We have multiple interests and are kind of going through the normal steps in a process like that. I just want to comment also, even if it's a small asset, I would say that the time it takes and the steps you have to go through is similar to what we saw in the Feed transaction. So it's not like it's going to go much faster just because it's small. When it comes to AION, that's more bilateral discussions, and then there's a little bit more uncertainty on exactly when it's going to happen, but it's something that we are working on.

Okay. So a question on Lang and SG&A. Do you expect SG&A in Lang to be -- or Consumer Health Products to be sustainable at the level in Q3, Q4 '24 of around $3.4 million to $3.8 million?

So Lang has done significant work on their cost base. So through 2023 and 2024, they have reduced costs, both on salary levels, analysis and logistics. So we expect that to be kind of a recurring cost level going forward.

Okay. And then, there's a question on Korea. So there was a lot of sales in Korea obviously in '23 and nothing in '24, a big disappointment for us. Could you maybe say something about what you expect and why that is, and what you see in the future?

Yes. So, as I said there, we saw a significant amount of volume in '23 as we got the approvals in Korea back, customers and partners kind of stocking up for kind of a quick ramp-up in the market. As we talked about in previous quarters, that didn't happen. It's been slower than we've seen in the previous years. And as a result, all the customers and partners, they had enough inventory from the '23 sales into '24. Now there's 0 inventory left in Korea. So we expect to get some volumes back in '25. But what is important to say is that we've been -- or our partner has been working on kind of new campaigns as we got the third claim this autumn and preparing new campaigns related to that, but that has not gone live yet. That was supposed to go live before Christmas. But because of the turmoil that's in Korea, and I'm sure you've seen that in the news, when home shopping is the main channel, when there's a lot of activities on the political side like it is in Korea right now, people are watching news and not home shopping, and it's not the right time to launch new campaigns. So that's why that hasn't been launched yet, and they're just waiting for things to normalize there before they go live with that.

And then, on the China market, so we have understood that there has been some import troubles in China in the past. Is that resolved? And how do you see that now?

Yes. So China, maybe it's half a year ago now, a little bit more, they changed their kind of requirements of what documentation you need to import krill oil products into China from various countries, which means that all the different countries need to go through a new process to update all their documents. Some countries are fast, some countries are slow in that process, and that has impacted our sales in '24. I would say it's not fully back. Maybe it's back to 60% of kind of all the markets that we used to have. And we expect, let's say, by end of Q2, everything to be back the way it used to be. Nevertheless, we delivered 61% growth in China in '24.

Okay. And then a question for you, Katrine. Could you explain the adjustment items that you had on the corporate cost this quarter?

Yes. I can go a bit more into detail of that. We had $2.8 million in the quarter for the corporate segment, mostly related to transaction cost. We have several transactions ongoing or had several transactions ongoing. So, close to $2 million of those are actually Feed Ingredients transaction bonus, which is accrued for the management in Aker BioMarine. And then, there is also IT migration cost, carving out the Feed Ingredients segment from Aker BioMarine, which will go also into 2025. We have -- as Matts alluded to, we have the protein sales project ongoing or process, which also drives some nonrecurring costs. So, that sums up the $2.8 million in the quarter. And then, I think it's also important to mention, going forward into 2025, there will also be non-recurring costs that will be adjusted out. The IT migration will continue, as I said. We will have the restructuring program being implemented with severance packages and transition costs. So we will expect several million dollars also of non-recurring adjustments in 2025.

And then, also a follow-up on Korea here. So are you considering any new strategy in Korea to boost sales?

No. I think we are -- I mean, we are, of course, doing adjustments to the strategy, looking at campaigns and how to do it. We have a little bit new strategy now compared to what we have had before, going broader with what we call the Superba network. We talked about that before, and also a little bit more focus on the new digital channels, not only home shopping. But that's been the same strategy that we've been following in the last 12 months. Now, it's all about just getting kind of everything aligned to be able to launch this kind of new and improved claim setup and those value propositions that we are launching out there.

And then, also a question here comparing Korea to China in terms of number of agents or number of sellers, number of clients that we have. Is it -- what's the difference there related to that strategy part?

Yes. So Korea is much more consolidated than China. In the previous round in '18, '19 and '20, we had basically one key customer that did most of the sales. Now, we're going to have more, but it will be still a handful or 2, while in China, we have many, many customers and adding new customers every quarter. So, that's a totally different dynamic when it comes to that.

And then, a question on Algae. So how should we think about this in 2025? What is the capacity? Have you increased the number of clients? And what is the price on Algae versus peers?

Yes. So, yes, we have the capacity, and we talked about that before. We did kind of investment to reach about 500 tonnes, 600 tonnes of capacity. We have [ stumbled on ] some, call it, technical issues, as you learn and process that needs to be solved, and they're about to be solved, related to some of the quality parameters of the oil that's coming out. So the capacity is not a problem. The demand is still there. So we have more demand now than we can supply right now because of those technical issues. When it comes to pricing, I would say, on a general basis, we are around 20% cheaper than the general market. And that is kind of a key part of the strategy there to go in and grab a big chunk of that market and become a market leader in record time, and we can have that cost position because of most of our costs related to the Algae business, either processing it or selling it, is already covered by the krill business.

And then, a quite broad question on Superba for '25. So do you see any new clients for Superba in '25, country-by-country?

Yes. So I think you saw the slide we had in the deck and that we presented that showed the number of customers and how that's increasing year-by-year. We expect that trend to continue into '25. That is one of the key drivers for our growth is to get more and more brands, more and more customers on board, both in the mature markets like U.S., but -- and of course, also in the more emerging markets, and then work with existing clients to help them grow faster. So yes, we would expect to get -- continue to get many new clients in '25.

I actually -- I think I misread that question, but I think it was relevant still. I think it says, any new claims for Superba in 2025, country-by-country?

Yes. We are, let's say, running, I would say, 3, 4, 5 studies every year. So, that means that every year, there's 3 to 5 kind of new pieces of data coming out that will result in claims. If we look at the U.S. market as an example, once you have run a study and you have kind of solid enough data, you have a claim, then you can market that. In other markets like Canada, for instance, you will have to submit that data and then get a claim, we are doing that, while in European Union, it's like a 7-year process, it takes much longer. But generally, we are continuing our efforts to drive new science and new claims so that we can kind of keep our product relevant and help our customers to kind of upgrade the way they can market their products on an ongoing basis.

So that's it for now. So let's give it a few seconds and see if something else come in.

Yes.

Yes. No, nothing else has come in. So I think that concludes the Q&A session.

All right. Thank you for watching, and see you next quarter.

Bye.