Icelandic Salmon AS (ISLAX) Earnings Call Transcript & Summary

Everyone, and welcome to this quarter 1 presentation for Icelandic Salmon. We appreciate that you took your time to join us on this presentation. With me today, I have our CFO, Jonas Heidar Birgisson, who will present our financial update and Jón Garðar Jörundsson that will manage the Q&A session after the presentation. You can send questions for the Q&A session to questions@arnalax.is. Behind me today, you see our site Reykjavik , where we put out spring fish in 2022, and that is in our new 200-meter cages that we also started to use last year and that have given very promising results so far. Icelandic Salmon AS is a listed company on the Euronext growth market in Oslo. The company is the sole owner and parent company of Arnarlax ehf. All operational activities of the group are performed in Arnarlax ehf and Arnarlax is sustainable Icelandic Salmon is the common brand for all operational activities and products from Icelandic salmon. The company have today 4 smolt facilities with a current capacity of 7 million to 8 million smolts, depending on the size of the smolt. We have farming in sea in -- on 7 sites in 3 fjords in the Westfjords of Iceland. All our production is ASC-certified, and we have a total maximum allowed biomass of 23,700 tonnes. We have our harvesting plant in Bíldudalur that is BRC-certified and have a capacity of 30,000 tonnes per year. wholesales are done by our internal sales team, both to the domestic and into the global markets. Quarter 4 gave an all-time high harvest volume for Icelandic Salmon. The quarterly harvest volume was 6,572 tonnes compared to quarter 1 '22, where it was at 3,369 tonnes. We saw an increased harvest due to a combination of wounds on the fish as we reported in the quarter 4 presentation and a strong market situation. This together gave a lower harvest rate, which we are now compensating by delaying harvest to produce more biomass in quarter 2. We kept on harvesting on the 2021 generation in Q1. The EBIT for the quarter ended at EUR 18.37 million and an EBIT per kilo at EUR 2.79. Our guidance for volumes for 2023 is 16,000 tonnes, and we will still expect a significant increase in 2024. We will continue to harvest on the 2021 generation in quarter 3 and the quarter 2 volumes for this year will be very low due to the high harvest in quarter 1. We see an increased cost compared to quarter 4, '22 with the harvesting on the 2021 generation. This cost increase is affected by a price increase on our input factor, especially FEED that have been allocated to our biomass during their production, and we expect a stable cost development in 2023. Biological challenges on autumn fish in the 2022 generation gave a one-off effect on our EBIT approximately EUR 1.8 million. There is, by the way, a very good performance on the spring fish on the 2022 generation, and the 200-meter cages has been a success on exposed site. In 2023, we will implement changes in our output strategy for smolts. Two important things that we are changing is that we narrowed down the output window and will not put smolts into sea after 15th of September every year. And we also, this year, expect an increase in smolt plate of 33% from 150 to 200 grams in average. The market prices have been strong, and we see a strong price achievement compared to market price, even though it's hard to reach [ Nota ] prices, on average, well they are so high as they were in the first quarter. But we did see a negative price effect due to quality downgrades. But the fact that we are able to export our production fish gives us a better price achievement on the production fish than we see for comparable fish in Norway for the same period. But high second share due to wounds have a total negative effect of the price achievement and the percentage of downgrades in the quarter was 21%. Due to that, we did increased harvest in quarter 1, the size of the harvested fish was relatively low compared to our normal harvest, which gave a reduced sale to the American market, which is mainly a market for fish about 6 kilos. For sales and marketing update, we still see a strong interest for Icelandic Salmon. We have been working closely with more companies across North America and Europe to promote our high-quality sustainable Icelandic salmon. One fun factor related to this is that Arnarlax salmon will be served during the U.S. Open tennis tournament for the participants of the tournament. They, of course, want only the best quality food, and we will supply them with the best quality salmon. It's not a big volume, but it's a good confirmation about the quality of our product. So last month, we shaked hands with a chef for the tournament in our main office in Bíldudalur that this will happen. We have also had an active focus on participation in seafood exhibitions, and we see big interest for salmon, both from new and existing customers at the shores. High market price has also been a part of the reduced volume to the North American market. But total in the quarter, we sold 18% over volume to the North American market. And those 18% represented 21% of our revenues. Volumes to United States is then slightly down compared to quarter 4 '22, and it's slightly up compared to quarter 1 '22. our contract share in quarter 1 was 8%, and we expect it to be approximately 10% for full year 2023. A brief update on our license status in seawater. Arnarlax now holds licenses of 23,700 tonnes of maximum allowed biomass in the Icelandic Westfjords , Arnarfjörður, Patreksfjörður, and Tálknafjörður. -- we are currently in a process to establish bigger sites in Arnarfjörður, for better maximum allowed biomass utilization. Bigger sites gives room for more cases on each side. And by that, the opportunity to utilize the best sites better and also the utilization of the maximum allowed biomass -- the application we have in Arnarfjörður, for 4,500 tonnes more maximum allowed biomass is in process and has been delayed. This is biomass that will probably be auctioned out, but the framework around the auction system in Iceland is at the moment, not in place. So an environmental assessment is being worked on related to the expansion of the 4,500 tonnes of biomass alongside an assessment for the expansion of our current sites in Arnarfjörður, . The exact time line for this process is still undetermined. Our application for farming in ÍSAFJÖRÐUR is still in process. We expect a license there for 10,000 tonnes despite there is an uncertainty, the share of fertile Salmon. There is a risk assessment for sailing route that is now being carried out by the authorities and is affecting all license applications for seawater operations. That includes our applications as well. So this is a process that will go on throughout the autumn of this year. Then we are expecting a new risk assessment in 2023, the Marine Research Institute will according to law, revaluate the risk assessment this year, and that is a process that will be going on every third year going forward. So we are very excited to see the outcome of this assessment. I will then give the word to our CFO, Jonas Heidar Birgisson for the financial update. Thank you so much.

Good morning, everyone. I would like to begin by thanking Bill for this presentation. I'm pleased to provide you with an overview of Icelandic Salmon financial position for the first quarter of 2023. In the first quarter, Icelandic salmon net cash flow from operational activities was EUR 29.8 million, mainly driven by a favorable market condition, a high harvesting volume in both fourth quarter last year and first quarter of 2023. We are fortunate to have a good return rate from our customers, and we remain committed to maintaining low risk in sales but purchasing credit insurance for all our customers and following strict procedures and selling our high-quality product. During the first quarter, Icelandic Salmon harvesting volume remained high, and we ended the cost with an even higher accounts receivable balance than at the end of last year of EUR 23.9 million, which will benefit our cash flow in the second quarter. While we continue to invest in growth projects, our current focus is on sea water equipment, such as net, porches and cages with net cash flow from investing activities totaling up to EUR 8.8 million in the quarter. We expect to continue our investments throughout the year with the main emphasis on seawater equipment and continuing growth plans. Due to group's all-time high costly harvest volume and low production. We saw a decrease in our biological assets at fair value in the quarter. The biological asset at cost value in sea decreased by 34%, but that includes the one-offs that [ Bert ] mentioned earlier, where we wrote off value of EUR 1.8 million Q2 mortality. We also had a change in our fair value adjustment [ sunup ] to negative EUR 3.7 million within the costs. We anticipate the low harvesting volume in second quarter and a good growth to build up the biomass in sea, which will have an impact on our operational cash flow in the second quarter, but at the same time, our biological assets value will increase. The net cash flow from financial activities in the quarter was negative of EUR 13.4 million with loan repayment totaling EUR 12.5 million. As of the end of the first quarter, our group's net interest-bearing debt amounted to EUR 36 million, representing a decrease of EUR 20 million within the quarter. Our balance sheet reveals that the group's total asset decreased between the quarters, and that's mainly due to decreased value of biological assets. Meanwhile, the balance of accounts receivables and cash and cash equivalents increased by EUR 60 million from end of last year. We are proud of our operational performance in the quarter, where we are seeing our best quarterly results ever. We are still a small company operating from a small community Western coast to Iceland. This great achievement would not be possible without our hard-working employees and support from our local community. Icelandic Salmon quit operational performance in the first quarter has led to a decrease in debt levels and increase in equity ratio with a total equity of EUR 155 million and equity ratio of 68%, further enhancing our already strong financial position. Moreover, the group's net interest-bearing debt towards 12-month rolling EBITDA ratio stood at 0.7 at the end of the first quarter, indicating even a further stronger position. The success will support our ongoing refinancing process, which we plan to complete by end of June 2023, beside the current loan agreement being valid until June 2024. Furthermore, this robust financial position enables the group to pursue our investments and support our growth project plans. Now before we conclude, I would like to remind everyone that our group's annual statement for 2022 is available on our website at Arnarlax.is. We will ensure time proceed with the Q&A session, and we hope you join us for that as well. Thank you for attending and giving us your time.

Hello, everyone, and welcome to the Q&A session of our presentation. My name is Jo Hjörtur Methusalemsson, and I will be directing the questions to my colleagues here. I want to remind you that you can still send in questions to questions at Arnarlax.is, and we will do our best to address the questions that come in. I noticed that [ Jon ] was talking about the all-time harvest summary. He mentioned -- he said Q4, but that was, of course, right at that time. But he, of course, meant to say Q1 because that surpassed Q4 now in the last quarter. So just to make that case. So we can start with questions coming in here. And if we start with Begun, how is the smart push put starters for 2023 and how many smolts are going into sea..

So the starters of this groups that are going into this year is good. We actually don't guide on the number of slots, but we see an increase from last year of about somewhere between 20% and 25%. So that looks good. And we also see that we are increasing the average rate with 33% from 150 grams last year to 200 grams this year and the biggest groups will be somewhere around 700 grams. So we are on good track with the smart strategy.

Excellent, excellent. We have questions coming in. So we have one question here from Ola Trovatn. Can you comment on expected harvest volume and cost level for Q2?

So the harvest volume will be very low. So it's -- so we are using quarter 2 more or less to produce more biomass in sea, try to utilize or that might be as good as possible. So it's we did quite intensive harvest in quarter 1. So it will be very low, and a low volume is, of course, for the harvested volume, the cost will be a bit higher, some fixed cost there as well. So yes, but...

Yes. Okay. We have a question here from Axel Jacobsen. He is wondering about can you comment on the harvest size that was in Q1? And how was this compared to Q4?

So the harvest average harvest rate for quarter 1 was approximately 4.3 kilo. I don't have the exact number for quarter 4, but that was significantly higher than that...

Yes. Okay. We have a question here from [ Parkside] . He is wondering is there any news on dual listing on the Icelandic stock exchange.

There is no other news that we -- of course, we said that, that was something we were working on in an earlier presentation, and it's still something we are working on, but we have no like news at the moment, but it's a work in progress.

We have another question from Ola Trovatn. What should we think of fixed cost for Q2...

Yes, what should you think -- that's -- so we don't, of course, guide on exact numbers, but of course, there will be some fixed cost in quarter 2...