Icelandic Salmon AS (ISLAX) Earnings Call Transcript & Summary

I'm very happy to welcome you to the quarter 4 2021 presentation for Icelandic Salmon. It has been a exciting quarter, very much affected by COVID, so we are very happy to present a quarter with stability both in production and sales performance. I will first go through the performance of the company and the outlook, then Jonas Heidar Birgisson will go through the financial situation in the company, and we will end this with a Q&A session. You see the e-mail address on the screen that you have to send an e-mail for your question, and we will try to answer as many as possible. Icelandic Salmon is a company listed on Euronext Growth in Oslo and it's the sole owner of Arnarlax on Iceland, which is the operational company, and Arnarlax is also the brand that we promote in the market towards our companies for the sustainable Icelandic Salmon. Arnarlax have 4 small facilities with a capacity of 5 million smolts. We operate our sea operations in 3 fjord in the Westfjords of Iceland with a total maximum allowed biomass of 25,200 tonnes, and all our production is ASC certified. We have a harvest plant in Bildudalur, which was BRC certified last year and has a capacity of approximately 30,000 tonnes. We sell all our fish ourselves via our sales team of 5 persons throughout the global market and the domestic markets. If we look at the performance for quarter 4, we used the [ Salmon ] from their presentation earlier today to have comparable numbers for quarter 4 2020. Icelandic Salmon don't have IFRS adjusted numbers for that period. We harvested, in the quarter, 4,300 tonnes and had an EBIT per kilo of 872. We see that we have still improved the biological performance, especially by reduced mortality, which is down 65% since 2020, and also when it comes to life handling. So for 2021, we had 3 declicings on 3 separate sites, so that situation is under good control. There was no big incidents in '21, and -- that we feel shows that the communicated strategy to keep control on -- on the winter is working, where we go into the winter with low density and low biomass in the cages and also avoid using the most exposed sites during winter. We see that the market is strong and that we have a quite good price achievement, but -- is especially for the U.S. market where we also have introduced [indiscernible], but we also see that we have a stronger price achievement in the European market if we compare with the NASDAQ prices. We communicated that we have acquired a new smolt plants, and that is our work in progress according to plan. So smolt plant Fjallalax is now in operation. We put in egg there in January, and have an operational license there for 100 tonnes of maximum allowed biomass. When it comes to the operation in Laxabraut 5, we are expecting a license there of 900 tonnes maximum allowed biomass in quarter 1 '22. That is in process with the authorities and is going well. The 2 expansions here will give us approximately 1.5 million smolts, and about half of that will be big smolts between 400 and 500 grams. This will give us the opportunity to utilize our licenses better and a growth in harvest volume at about 7,000 tonnes in the years to come. It also gives us a potential for expansion for production in new areas in the sea. The sales and marketing update is very much affected by the U.S. sales. As we see on the graph to the left, that volume has increased a lot and was, for quarter 4, about 22% of our sales, and we see that most of it is going to U.S. by boat. The good thing about this is, of course, we reduced the logistic cost and the CO2 footprint, and we also see that the quality of our product is very well accepted in the U.S. market, and we haven't had any quality claims for the fish even though the transport is 7 days across the Atlantic. This is mainly because of course, due to the handling, we do and also that we are able to keep minus 1 degree in the fish when it goes into the box. Me and the sales team went to the U.S. with the first commercial flight that was opened in 8 of November to meet our U.S. customers and see our fish in the market. And when we measure the temperature in our salmon in the Fulton Fish Market in New York, it was still minus 0.5 degree and the quality was excellent. We also launched our brand last year, and we see that has a good effect for the price achievement, and we are promoting them the sustainable production we have, the origin, Icelandic origin of the salmon and the good quality of the fish. When it comes to the license situation, we are a bit affected that we are operating in a new salmon farming region. This gives some unpredictability in the processes for approving licenses, but we see very strong signs that things goes in the right direction. We will, in the coming 1 to 2 years, have 3 new sites within the existing licenses, which will give us the opportunity to utilize the maximum allowed biomass in the licenses better. The first one there is expected to be approved in '22 and put into production in '23 or '24. When it comes to the license in Ísafjarðardjúp, that is a work in progress. We expect that to be decided in 2022, and we also are pretty confident that we will get a 10,000 tonne license for salmon, but the proportion of fertile salmon is still uncertain. When it comes to Arnarfjörður and our application there of 4,500 tonnes, that is a bit more uncertain. We don't know when that application will be processed further, and we also see that there is 3,000 tonnes left of the calculated carrying capacity for the fjord, so that is a bit more down the line. I will then like to give the word to our CFO, Jonas Heidar Birgisson, to go over our financial position. Thank you.

Thank you. Now, let's take a look at the financial position at the year end of 2021 as compared to year-end of 2020. Icelandic Salmon continues to have a focus on the company growth projects and has continued its investments to increase production volume. The main focus has been on smolt facilities, seawater equipment and securing Harvest plant operation with investments of EUR 14 million, setting the year 2021 as the highest investment period for Icelandic Salmon since the start of the company. Icelandic Salmon is, as well, increasing its biological assets, with 30% higher biomass in sea and increased biological assets at cost value by EUR 16 million from the end of year 2020. Net cash flow from operational activities was negative of EUR 200,000 compared with EUR 1 million in the year before. That's including increased of biological assets. Increased debt due to investing and growth activities has increased net interest-bearing debt by EUR 19 million. Icelandic Salmon signed a new 3-year loan agreement at the end of second quarter of the year, securing Icelandic Salmon financing for its growth projects. Following the license issued in Fjallalax, a new long-term rental contract [indiscernible], increasing the company's lease assets by EUR 1.9 million that takes place in January this year. At the end of year 2021, the balance sheet assets totaled up to EUR 171 million, which is an increase of EUR 27 million from the year-end of 2020. Icelandic Salmon equity remained strong at EUR 109 million or 64% equity ratio. The company will issue a full annual statement, including a sustainability report, on April 22. I want to thank you all for joining us on this webcast, and I hope you will join us in the Q&A session here after a few minutes. Thank you.

So welcome to the Q&A session. Feel free to send your questions on the Arnarlax e-mail questions at arnarlax.is. I will do my best to convey the questions to Bjorn and Jonas. Thank you for your presentation. We have already a question here from [indiscernible], one of our long-term shareholders. And I guess this is for you, Bjorn, it's about the cost profile and the competitive disadvantage. So how much cost disadvantage do Iceland have as a region compared to Norway?

Yes, that is a good question. I think there are both advantages and disadvantages. We obviously have a higher logistic cost to the European market, but we, of course, also have a good advantage of the cost with -- to the U.S. market, so that is good both ways. We see that we, at the moment, with low volumes and have higher cost for harvesting, but then we again see that we have a lower cost for delicing. We probably spend less money for cleaning the nets in sea, and -- so there are quite some advantages as well. So I think when we get a bit more mature industry on Iceland, that we should be -- probably be at a lower cost level maybe than Norway, hopefully. Yes. And in total, I think we will be there.

Very good. Let's hope so. Axel Jacobsen from Arctic Securities has a few questions. One of them is related to the harvesting profile. How do you foresee the year -- the harvesting profit for the year? Back-end loaded, yes.

Our production profile is, of course, very second half of the year loaded. That's when we have the temperature, that's when we have the most of the growth, and that also means that we get a harvest profile that is -- this most harvesting in the third and fourth quarter. And then it's always our evaluation about optimizing also price and if you should utilize good prices to -- yes, to harvest earlier. That's always our evaluation depending on how the prices turns out, but it's definitely our second half-loaded harvest profile. That is the nature of it, where we operate.

Very good. Axel also asks about the smolt transfer 2021, and the budget for 2022.

We haven't commented on the numbers there, but it's at least according to plan.

According to plan, very good. So [indiscernible] from Pareto asks -- wants to know more about the U.S. market. How big is the difference on price achievements sold to U.S. versus Europe? And they all want to know about cost levels and -- [indiscernible].

Yes. To comment on the cost level, that is expected to be stable. From our side, when it comes to the delta in price achievement, Europe towards U.S., I think we could say that it's significant. Yes. It's -- yes, it's a significant difference there, and of course, the sea transport helps a lot there. We might not get the same price to the customer as with the airborne fish but we definitely get a profit out of that, yes.