AKVA group ASA (AKVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and very much welcome to the AKVA Second Quarter Presentation. The program for this morning is that I will do the introduction and the highlights. Ronny Meinkoehn, the CFO, will do financial performance, and please post any questions during the presentation. It goes straight to the highlights of the second quarter. We had a high quarterly revenue of NOK 1.189 billion and record high quarterly EBIT of NOK 111 million. We had a strong order intake of NOK 1.345 billion and order backlog of approx. NOK 3 billion at the end of the second quarter. A small contract of approx. EUR 28 million was awarded from Laxey in April, subject to financing, which was secured in June. A dividend of NOK 1 per share will be distributed during the second half of 2026. Strategic review was announced start of April to maximize shareholder value. We'll give a comment on that later. Then to the figures of the second quarter. It is -- in the first place, it's in line with the trading update we published on July 20. It's a record high activity level of NOK 1.189 billion, EBITDA of NOK 179 million, where the segments came in Sea Based at NOK 143 million, Land Based at NOK 21 million and Digital at NOK 15 million. Actually, we are pleased with the activity and the performance in all the segments. EBIT for the group at NOK 111 million which is representing a record quarter. Then looking into the figures for the first half. Revenue there at NOK 2.329 billion, which is ballpark 7% higher than the first half a year ago. EBITDA of NOK 332 million segment share, Sea Based at NOK 242 million, Land Based at NOK 62 million and Digital at NOK 67 million. And EBIT at NOK 202 million, which is also representing a record. Overall order intake of NOK 1.345 billion, which is about NOK 300 million higher than a year ago. And as you can see here, Land Based at roughly NOK 400 million, and that's driven by the Laxey contract. And we are also pleased with the order intake for the Sea Based segment at NOK 913 million, which is significantly higher than a year ago, and it's also a bit fueled by the high order intake of the boats to the defense industry. Order backlog at NOK 3 billion, stepping up four quarters in a row in terms of building order backlog, so we're pleased with that as well. Update on the strategic review announcement originally made on April 8, and the process is supported by the largest shareholders given the right market conditions. In the Q1 presentation on May 8 and following the initial phase of this review, AKVA informed the market about high-quality interest around the potential sale for the entire company and as a complete platform. The update for now is that the strategic review is in a progressed phase, still with an expected conclusion during the fall in line with previous communication, so no final decision have been taken at this stage. And AKVA will, of course, provide an update to the market when conclusion is there. Then looking on the long-term salmon opportunity. The challenge is at large scale, how to double salmon production by 2040. And here, you see an illustration on the graph about what the demand increase of 5% year-on-year will do, so that's basically a double into 2040. And we think and the industry believe that the 5% growth is possible, at least from the demand perspective. However, the current business model is kind of running out of capacity and new investment is required to support the demand potential. And upper right here, we believe that in terms of examples of new technology, that will be about deep farming, post-smolt and grow-out, and that is to overcome the industry barriers, bottom right. And unlocking growth through technology, some numbers, what we believe is possible here. On the base of 3 million tons of farmed Atlantic salmon today, we think that deep farming hold the potential to add 15% capacity, post-smolt ballpark 30% to 35%, and Land Based over some years, but still within the 2040 framework, potential of roughly 0.5 million tons. So that's the big picture, the way we see it. Deep farming, first, potential to unlock 15% higher harvesting volumes from existing licenses. And what we see from farming today, commercial farming, where deep farming is deployed is that you can reduce the sea lice treatments by ballpark 80% and reduce mortality significantly. One example there is Sinkaberg, which for 2025 reported that they produced 38,000 tons of salmon, all with so-called shield technology and a clear, clear, clear majority being Nautilus delivered by AKVA, and they achieved only 4% mortality and 92% superior. The way we see it, this is by far a best-in-class performance in farming. Just a little commercial update on deep farming. We see -- outside salmon, we see quite some good commercial traction within cod farming. We are delivering now significantly volumes to cod farming. And also this summer, we are producing -- or one of our customers in Turkey is producing trout in the Black Sea on commercial scale based on deep farming or Nautilus technology. Also during the first half, we have sold a solid number of new Nautilus concepts, and this is well ahead of our own plan, so we are pleased with that. The fish thrives in the depths. It's a new technology, and it's a new way to improve fish health. So far, over 400 Nautilus units deployed to the sea, and what we see as results is that it is a significant reduction in lice pressure and need for lice treatments. It's a higher share of superior quality, and it provides more stable environmental parameters. And this is -- this data here is representing reproduction data from 19 harvested sites based on AKVA Nautilus. And the conclusion from all the data is that we have seen 78% reduction and then compare benchmark with neighboring sites without deep farming or 83% reduction with previous generation without deep farming. So those are very solid numbers. Then post-smolt. Post-smolt is established as an industry growth strategy, shorter production cycle with reduced exposure in the sea, and also fewer sea lice treatments, lower mortality and increased biomass yield. Commercial update here is that first quarter, we sold for our new order intake around NOK 400 million, the same for the second quarter, and we expect about the same number for the third quarter, so relatively good commercial momentum within post-smolt. We are now pleased with the development. Yes, to summarize on the post-smolt side, we are the only true global post-smolt supplier. Also in the recent years, for those which have been following AKVA, we have been investing significantly to build our new RAS platform. We talk about NOK 300 million in the transformation since 2020. We have now 250 employees, specialists for us. And we -- today, we have scale there and we have profitability, so we are pleased with the development and the investment done. We deliver proven and documented technology, end-to-end project execution and advisory and services. With regards to Land Based growth, this is now happening, in particular for us in China with our key customer and partner there, Nordic Aqua Partners. And we have now commissioned and completed Phase 2, which was adding another 4,000 tons of capacity. And now we are awaiting NAP's decision, which likely will come late this year, about Phase 3, which is another 12,000 tons of capacity. In addition to that, we are rather advanced with one other new ongoing customers in China, and we expect to close a contract before end of the year. That's the expectation. Then moving on to Digital. We have a complete digital platform within AKVA culture. Also there, we have invested significantly in the recent year as much as NOK 500 million. Majority of that was linked to the acquisition of Observe in two steps. We have four kind of solutions, and they are Fishtalk to the right, which is the biological ERP system, 6 out of 10 farm salmons in the world will be on our system. Then you have the control system to the right here, and that's bringing together hardware and software. And then in the middle, it's about short-term decision-making supported by AI. There, we talk about Submerged, which is a smart camera, and Observe, which is about automated feeding, which is delivered now on more than 170 sites. Actually, we added some recently. And what I can say about this commercially is that we see pretty good traction now, finally, I have to say, in the Norwegian market, so we expect to see good development there in the coming time. Also, we are very pleased with the development of our strategic expansion into the defense industry. This is actually the same information as I gave in the last presentation. The only update here is that we have in the second quarter, mainly, we have secured an order intake of NOK 230 million for the both segments. And that is a very solid number, which will absolutely propel the activity probably 3x into next year and significantly improve the profitability, so also very pleased with that development. To summarize, AKVA Group, we see ourselves as a global leader and trusted partner within our space. We have three platforms there, Sea Based with a turnover of NOK 3.1 billion, Land Based with NOK 1.2 billion and Digital sits at NOK 138 million. So in combination, we see ourselves as part of the solution. Our solutions in totality can provide growth, better fish health, lower mortality and more precise feeding with less waste. Also a quick update on our growth agenda -- organic growth agenda for 2026. Those are the initiatives we are doing throughout this year in order to build a more robust basis for further growth into 2027. And there, I'm also pleased to update -- to give an update that we are making good progress. Nautilus Next, that's on track, on plan and will be launched later this fall. Internationalization of the net business to acquire HDPE, the HDPE quality. There, I can tell you that we signed a joint venture with our Indian party in July, extending the portfolio of pen products, that's the 560 plastic, there we also on the plan will be launched to the market later this fall. And also partnering with the concrete barge producer, that's already executed and developed both supply to the defense industry, that's also executed and ongoing, so a very, very positive development. And to conclude, on the basis of a strong financial performance for the first half and also a strong order backlog, we like to reiterate our 2026 target. And also, we are on track for the 2027 target. So that brings me very much to the end, and I'd like to hand over to Ronny. Please, Ronny.

Thank you, Knut, and good morning. We are, of course, very pleased to report another quarter with high activity level and also record high quarterly profit. So revenue was strong in the quarter, NOK 22 million above Q2 last year, and the growth was driven by higher revenue in the Land Based segment. For the first half year, revenue is just above NOK 2.3 billion, which is approx.imately NOK 150 million or 7% higher than in 2025. So profitability is strong, both in Q2 and for the first half year on the back of significant economies of scale, a solid product mix within Sea Based and also continued strong project execution in Land Based. EBITDA in Q2 amounted to record high NOK 179 million, which is NOK 34 million higher than last year, and EBIT of NOK 111 million, that's NOK 22 million higher than the same period in 2025 and represents a record for AKVA. For the first half year, EBITDA is strong of NOK 332 million, that's NOK 74 million higher than last year, and EBIT of NOK 202 million, that's NOK 56 million or 35% higher than in 2025, and provides a really strong support to our guiding for the year of delivering a minimum 20% increase on the full year EBIT compared to last year. So we see a very positive trend, both when it comes to revenue and order intake. The book-to-bill ratio of the last 12 months was 107% with an order intake of NOK 4.9 billion and revenue of NOK 4.6 billion. And also in Q2 isolated, the book-to-bill ratio was strong of 113% with an order intake of more than NOK 1.3 billion. Compared to last year, revenue increased by 83% in Europe and 75% increase in Americas, while there is a decline in revenue of 10% in the Nordic market. Sea Based represented 69% of the total revenue and the increase in the total revenue compared to Q2 last year is within Land Based, which had 23% higher revenue this year compared to 2025. EBITDA margin is strong in Q2 of 15% compared to 12.4% last year. In Sea Based, we delivered a strong EBITDA margin of 17.4%, supported by a favorable product mix. Land Based continued with strong project execution and an EBITDA margin of 6.5%. And last, Digital, a high EBITDA margin of 35.7% in the quarter. So available cash, including unused credit facilities amounted to NOK 337 million at the end of the quarter, which is a reduction of NOK 105 million compared to Q1. And the reason for this reduction is related to the net working capital, which increased by NOK 150 million during the quarter and ended at 11.2%. So the net working capital is above our normal operating levels and is partly related to seasonal factors as well as a very high activity level at the end of the quarter in Q2. So we expect these timing effects to reverse in Q3 and be back on more normalized net working capital levels at the end of Q3. The leverage ratio was increased from 2.32x in the first quarter to 2.51x now in the second quarter, which is still reassuring and provides comfortable headroom relative to the covenant threshold of 4.5x. Net interest-bearing debt increased by NOK 187 million during the quarter related to the NOK 150 million increase in net working capital and additional NOK 56 million in CapEx. We also had a new IFRS liability of NOK 96 million. And last, we also paid dividends of NOK 36 million in April. So CapEx in the second quarter of NOK 56 million were NOK 25 million, that's related to our three innovation agendas, another NOK 7 million to the ongoing global ERP project. And last, we had NOK 10 million related to rental equipment, which returns attractive profit margins to AKVA. The return on capital employed continued to improve on the back of strong underlying operations and the ROIC improved from 10.1% in Q2 last year to 13.4% now in Q2 this year. And we are targeting to be around 15% at the end of 2026. We paid NOK 1 in dividend on April 21 for the first half year, and the company has also decided to pay another NOK 1 per share in dividend for the second half year, resulting in a total dividend of NOK 2 for 2026. We'll continue with some more details on the financial performance in our three business segments, and I will start with the Sea Based technology. So overall, revenue of NOK 822 million, that is 5% lower than Q2 last year. However, the order intake was really strong, close to 40% higher this year compared to last year. EBITDA margin was strong of 17.4% compared to 14.3% last year. And as mentioned, this improvement is driven by a very strong and solid product mix. Looking at the regions, we see Nordic region with decreased revenue of 17%. However, a very strong increase in order intake of 57% quarter-on-quarter. In Americas, revenue increased by 28%, while there was a decrease in order intake of 33%. And last, Europe, with the increase in both revenue and order intake of 49% and 29%, respectively. Looking at the 12 months order intake trend for Sea Based, we see that the development is very positive, and we also expect the revenue trend to turn positive in Q3 on the back of a very solid order intake during the first half of 2026. The order backlog for Sea Based of NOK 1.4 billion is record high and close to 60% higher than in Q2 last year, which is very comforting for the activity levels in the coming quarters. The OpEx-based revenue in Sea Based was NOK 271 million in the second quarter, which is NOK 29 million higher than last year. And the OpEx-based revenue represented 33% of the total Sea Based revenue in the quarter and is obviously a very important part of our Sea Based business. For Land Based, the order intake of close to NOK 400 million in the quarter is primarily related to this new contract with Laxey on Iceland, and the revenue was very high in the quarter, 23% higher than in Q2 last year. EBITDA improved by NOK 8 million compared to last year, and EBITDA margin ended at 6.5%. And the improved profitability is related to this higher revenue, which generates economies of scale. So we see that both the 12 months revenue trend and order intake trend for Land Based is positive or the backlog is solid of NOK 1.4 billion at the end of the quarter. And Digital had an order intake of NOK 35 million in the quarter, which is NOK 46 million lower than the high order intake in Q2 last year. The revenue was strong, 18% higher this year compared to last year. And we also see a significant improvement in the EBITDA margin from 21.9% in '25 to 35.7% this year. We see a very positive revenue trend for Digital, and we also see a very positive momentum in the market for our Digital products, and we expect the order intake trend to turn positive during Q3. Order backlog of NOK 220 million at the end of the quarter is NOK 32 million higher than 1 year ago. So that was my financial update. I will give it back to Knut now to close off the session with the outlook and the Q&A.

Thank you very much, Ronny. Let's go to the outlook. We are saying we see foreseeing continued strong momentum for deep farming concepts. Also, this is supported by the new development into cod farming and also into trout in the Black Sea on top of the salmon farming segment, of course. And also the new version of Nautilus Next will also fuel further commercial traction, we expect. We continue to invest and improve our solutions across Sea Based, Land Based and Digital, that's our three times innovation agenda. And we are aiming for a revenue above NOK 5 billion and EBIT of minimum 9% in 2027. This is backed by a solid order backlog and also the organic growth initiatives we are conducting. Strategic review is expected to be completed during the fall of 2026. And that brings me to the end of the presentation, so we are now ready for the Q&A session. So please continue to post any questions you might have and our moderator will read the question.

Yes, indeed. We have one question from Ola Trovatn. Can you comment on what's driving this very strong order intake in Sea Based in Q2?