Icelandic Salmon AS (ISLAX) Earnings Call Transcript & Summary

Welcome, everyone, to this quarter 1 '22 presentation for Icelandic Salmon. For the future, we plan to have a quarterly presentation to update the market. We start from this quarter since we have IFRS-adjusted number to comparison for previous years. After the presentation, there will be a Q&A session, and you can send questions to questions@arnarlax.is. The presentation today is from the [indiscernible] [ SalMar ASA ] in Arnarfjörður. [ SalMar ASA ] was one of the first sites that was used for salmon farming in the Westfjords of Iceland. We had very good biological results here on the 19 generation, and we have big expectation for the 21 generation that is in the caters behind me. [ SalMar ASA ] and Arnarfjörður have an important role in the Icelandic history. On land here, not far from [ SalMar ASA ] on a spot called Hrafnseyri, the famous freedom fighter, Jón Sigurðsson, was born. His birthday is the 17th of June and became the National Day on Iceland for that reason. Behind me, you see a mountain, white mountain. On this mountain, the Viking, Flóki Vilgerðarson, back in the year of 868, gave Iceland its name. When he looked out over the fjord, probably one Sunday spring day. Arnarlax, by the way, means eagle. Icelandic Salmon is a listed company on Euronext Growth market in Oslo. The company is the sole owner of Arnarlax Ehf. All operational activities are performed in Arnarlax Ehf on Iceland. Arnarlax sustainable salmon is the common brand for all operational activities from Icelandic Salmon. Currently, we have 4 smolt facilities with a capacity of 5 million smolt. We have farming in 7 sites in 3 fjords. All the sites are ASC-certified, and we have a total allowed biomass of 25,200 tonnes. We harvest our salmon in Bíldudalur in our harvest plant, which has a capacity of 30,000 tonnes per year, and it's BRC-certified. We are also exploring future opportunities for increased harvest volume. We have a sales team that sell all our fish both on the domestic and the global market. We also do some trade sales through our sales team. We feel that we have had a strong operational performance in quarter 1 '22. We had an income of EUR 37.1 million compared to EUR 17.4 million in quarter 1 '21. The operational EBIT was EUR 9.5 million compared to EUR 0.4 million in quarter 1 '21. We had an operational EBIT per kilo that was 2.82 million compared to Q1 '21, which it was 0.15. There are several reasons for these achieved results. There has been high prices, and we have had good relative price achievement. Stable cost, good biological performance, we also see that prices are rising on our input factors. But that is -- as we see for the rest of the industry, so we are more or less in line of that. But so far, we have had a stable cost development. We have succeeded with mitigating measures to prevent high mortality during winter, even though we see some increased mortality on some sites. We expect to see similar volumes in quarter 1, but we will have some reduced harvest activity at the end of quarter 2. And we keep up the guidance of 16,000 tonnes for 2022. Smolt expansion is more or less on track. We have operation on our new site, Fjallalax, which has a maximum allowed biomass of 100 tonnes. We are start filling the first group there at the moment. And we expect to deliver smolts to Laxabraut for post-smolt production there in the autumn this year. The development plans on Laxabraut is also on track, and we have got a license there for 900 tonnes for maximum allowed biomass. These 2 projects gives us approximately increased harvest volume of 7,000 tonnes. This will support better utilization of current licenses and prepare for new areas and licenses. Bigger smolt is an important part of this strategy. First output from Laxabraut 5 will be in the spring '23. Sales and marketing update. We had a very strong market in quarter 1 '22. We had good price achievement, and we still have focus on the U.S. market and transport by boat to that market. Approximately 23% of our volume went there. And all the 23% we sold there, about 29% was fillets if we calculate that to head-on-gutted equivalents. So -- and this route with boat to the U.S. market is probably the lowest carbon footprint you could get for imported salmon to the U.S. We also see good interest for our brand and our products in the market. And we see an increasing interest from high-end customers. Contract was in quarter 1 '22 about 15% over volume, and we expect around 19% in quarter 2 '22. Europe is, even though the biggest market we have and around 66% of our volume in quarter 1 went into Europe. And also there, we see an increasing interest from high-end customers who want quality. They want a sustainable product and with an exclusive origin. I will give you a brief update on the license status. Arnarlax holds licenses for 25,200 tonnes, so maximum allowed biomass. And we are in process on 2 applications for extended biomass. We also have an application for 3 new sites within the licenses we have. And we expect the first site to be issued later this quarter or in quarter 2 '22. When it comes to the license applications, we have the one in Ísafjarðardjúp for 10,000 tonnes. We still expect that to be issued in 2022. But the share of fertile salmon is not sure. So it will be either sterile or fertile, but we expect 10,000 tonnes. And then we have application in Arnarfjörður, the fjord we are today, for 4,500 tonnes. That process is delayed. We had to update the application. That is a work in progress, and the time line is a bit unsure when that could be issued. Then I would like to give the word to our CFO, Jonas Heidar Birgisson.

Thank you, Bjørn, for your presentation. I will go shortly through our financial position. Here at Icelandic Salmon, we are continuing to focus on our growth projects, and as Bjørn has gone through, continuing our investments in our smolt facilities along with projects within the sea water. In the quarter, we invested a total of EUR 4 million that increased our assets, along with a lease asset for the smolt facility in the South Coast. Those investments, including the lease assets and changes in payable and receivables, had the most effect on our increase of net interest-bearing debt and lease liability of EUR 5.5 million from year-end. Our biological assets at cost value decreased by EUR 5.8 million, and we harvested out 3,400 tonnes mostly at the end of the period. With a good result for the first quarter, we ended up with a net cash flow from operational activities with a positive of EUR 1.8 million compared with negative EUR 200,000 in the same period of last year. Total assets at the end of first quarter was EUR 183 million, and our equity was EUR 117.6 million that shows a continued strong equity ratio of 64%. This is the end of the presentation. Within a few moments, we will move on to the Q&A session. Thank you.

Very good. Thank you, Bjørn and Jonas. We're now to the Q&A session, where you're welcome to send us questions, and I'll do my very best to get to Jonas and Bjørn. You can send simply through e-mail questions at arnarlax.is. We are here today at [ SalMar ASA ] , and I'm proud to be able to show you our blue acres at [ SalMar ASA ] where one of the first settlers in Iceland picked as a location because of sheltered area and certainly position.

We have some questions already coming in. And for you, Bjørn, first question from [indiscernible], wondering about the cost so -- make sure this comes in the right order. So it looks like the company tackled the winter season very well this year. Is it pure luck? Or are you well prepared? And what are the initiatives if -- for later?

I would not say it's luck. Luck always helped, but we made a strategy 2.5 years ago, where we decided to decrease the density in the caters throughout the winter. We also decided to have a more intensive harvest in late autumn, early winter to reduce the risk of our biomass throughout the winter. And we also decided to not use the most exposed sites for the fish that we have for a second winter in sea. And another important part of this is to keep control on the sea lice before we go into the winter. So we have low lice levels, which could -- high lice levels could be a start of a winter wound problem. So these 4 things seems to been working quite good this winter as it did last winter as well.

Very good. We have a question here from Axel Jacobsen of Arctic. It's about the contract share for 2022. Obviously, in your prices, people are wondering about contracts. Do you want to comment on that?

Yes. We have a strategy to have some contract share. Of course, in a period that we have been through in quarter 1, contracts is maybe not the most beneficial. But over time, it takes on the risk in the -- in our operation to have some stability there. So -- but of course, we go into contracts at this time. For me, it's a question of price. And that is something we always consider. But it's been many contracts agreed on lately. But we have, as it looks now, then for quarter 2, a contract share around 19%.

Yes. Very good. Jonas, a question from -- for you on cash flow. Seems to be back-end loaded from your cash flow statement.

Yes. A big part of our harvesting was done at the end of the quarter. And we have built up a pretty good customer platform and a strong relationship with our customers. So most of them have a 30-day payment term. We don't see any significant increase in claims. But because of the payment terms and harvesting at the end of the period, we see an increase in our accounts receivables at the end of the quarter. So that will affect our cash flow in the second quarter.

Very good. And there are -- what are your latest -- I guess this is for you, Bjørn. What are your latest observation regarding long-term price premium [indiscernible], wondering about the outlook?