Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Q3 presentation. I'm Guðmundur Gíslason, the company's CEO, and joining me is Róbert Róbertsson, our CFO. Our sea biomass grew nicely, with excellent conditions for production. We succeeded in adding roughly 6,600 tons of biomass — 76% for the quarter — and by the close of Q3 we had surpassed 50,000 tons in the sea. Smolt transfer improved markedly over the course of 2023, with mortality 50% lower than in 2022. Further gains remain possible, and our plan is aimed at capturing them as we move ahead. Harvesting of Generation 22 began in September, and thanks to our large smolts it required just 14 months of feeding. Getting Generation 22 safely through harvest is a milestone the company takes pride in, and it reflects the reorganization and the measures implemented to safeguard biological security. We are shifting 1,500 tons of anticipated harvest volume into Q4, and lifting the 2024 figure by that same amount, to 21,500 tons. The rationale is to optimize production and capture the higher prices anticipated in Q1. Contract coverage currently stands at 30%, and price achievement for the quarter came in at 86.8 NOK per kilo. Operational EBIT was NOK 3.5 million, with EBIT per kilo at 18.2.

Good morning. The group balance’s financial highlights are visible here. The balance sheet remains solid, with an equity ratio above 66%. The principal movement on the balance sheet concerns the ongoing build-up of biological assets. Our biomass build-up has progressed well, and biological assets came to approximately NOK 1.2 billion by the close of the quarter. That biomass build-up is likewise the chief cause of the higher liability between quarters. Borrowing proceeds reached NOK 155 million in the third quarter, primarily biomass financing. Trade and other receivables also rose by NOK 71 million, reflecting greater feeding during the quarter. Net interest-bearing debt went up by NOK 285 million in the quarter. An investment of about NOK 300 million in biological assets is the leading factor behind the quarter’s higher working capital, and therefore the rise in net interest-bearing debt. Besides working capital investment, both CapEx investments and financial items are the principal drivers of the higher net interest-bearing debt. CapEx investment for the quarter totaled NOK 51 million, which puts total investment across the first nine months of this year at roughly NOK 135 million. The full CapEx budget stands at NOK 200 million for 2023 and NOK 210 million for 2024.

With our revised CapEx forecast, we now expect investment this year to come in below NOK 200 million. The reason is that some investment projects have been delayed and shifted from 2023 into 2024. Even so, the combined projected CapEx for 2023 and 2024 is still NOK 410 million, and that money is mostly aimed at boosting operational performance and getting us to a steady output of 30,000 tons. We expect investments to return to normal levels after 2024. Ice Fish Farm has full financing in place through 2025. The syndicate loan facility totals approximately EUR 156 billion. At the close of the third quarter, net loans from the bank syndicate stood at about EUR 100 million.

Yes, I'm considering our management team. Since this company was founded in 2012, I have served as its CEO — more than 11 years now. The journey has been exciting, with highs and lows along the way, but at this point the company is in excellent position to reach the operational goals, fully financed, improved biosecurity, and highly dedicated and talented team, I have decided to step down as CEO. That said, I won't be going far, since I will put my focus on sales and marketing strategy with the goal of achieving premium prices on our quality salmon. We are working on hiring a new CEO, but in the meantime, I will continue to lead the company. The current executive management team is experienced and highly skilled in their field, so I have nothing to worry about in this part. Mowi also supports the company. It has over 50 years' history in agriculture industry. We have also good support from our Icelandic owners, who have vast experience in the fish industry and are now on the board of Ice Fish Farm to support strategy going forward. The company has been in operation since 2012 with over 150 dedicated employees. We have gained experience in Icelandic conditions, both on land and sea.

Every one of our operations is certified sustainable. ESG matters to our strategy. Using thermal water and power cuts CO2. No chemicals are used, and our feed contains only natural coloring, with full traceability. Being a responsible farmer is a cornerstone of our success. We cooperate with major stakeholders, including government, investors, and financing partners. On operational performance on land: we have been carrying out improvements in biosecurity and water quality at our land stations, and positive effects are already visible. Enhancements in water treatment have substantially bettered the quality of our smolt and its growth. Smolt transfer in 2023 hit 5.4 million, at an average size of 300-gram. The biggest groups reached up to 1 kilo. Transfer from the smolt station improved as expected, with roughly 50% higher survival rate after 60 days in sea, and we see room for further improvements ahead. With upgrades and investment in the smolt station, we aim to produce around seven-eight million smolt of 400-gram average size in spring and autumn. This will raise utilization of sites in the sea and cut time in the sea, and therefore lower operational risk. On Land North, on the right side you can see pictures from the building of a new house there, and that house is being constructed for our fresh water station up north to boost capacity and maintain high biological standards.

We're also planning to construct two new 550-cubic tanks at the Kopasker post-smolt station, which will let us grow smolt to a larger size and raise the smolt count from Land North. There's good news out of Land South as well: we intend to put up a new station beside our post-smolt facility. It'll sit right next to that post-smolt station, where we hold 27,000 cubics of post-smolt capacity. Once that's finished, we anticipate producing roughly 3 to 4 million smolts of high quality — about 600 grams in May and 400 grams in August. That will boost how well we use the sites and cut risk at sea. With a new facility built there, everything comes together under a single roof: a hatchery for eggs, start feeding, on-growing, vaccination and, at the end, an office for employees plus staff facilities. We're designing this now — it's in the design phase — and we'll have top-of-the-line technology along with a production plan aimed at optimizing fish growth and welfare. And look — best quarter ever. Records in biomass production. At the close of Q3 2023 we had around 10.2 million fish and more than 15,000 tons at sea. We added 6,500 tons of biomass.

For the largest groups, we began harvesting at roughly 5.5 to 6 kg after just 15 months at sea and 14 months of feeding. The average sea temperature came in at about 7.5 degrees Celsius. That is roughly normal for our farming areas. Losses were minimal thanks to favorable sea conditions. We did have a few incidents, however. Jellyfish, for instance, were part of this season, and we were able to bring that incident under control. We halted feeding, checked the status, and adjusted feeding along with the maneuvers and tasks around the cages, and we succeeded in stopping the incident, with the fish recovering in roughly one and a half weeks. This is an area where I take real pride in our team — we spot challenges and find solutions with a highly skilled team to handle the situations that arise. And when we look at the equipment we have, by merging the companies back in 2022, we see even greater utilization of that equipment. So at the moment we don't see much investment required for 2024 and 2025. But on the harvest outlook, as I said, we are shifting 1,500 tons from Q4-Q1 2024, and that is, yes, grounded in good biological conditions. The fish are growing well, and we also see potentially higher prices in Q1 than at present.

So because of that, we've been pushing harvest back a little. What's behind this, or why are we in this favorable position? It's because within the entire farming region on the East Coast, we're the sole farmer. In 2022 we put coast zone management in place, aimed at lowering risk and boosting biological outcomes. Every zone has its own gear and its own land base — and by land base I mean the boat and the crew have distinct areas they travel from, the boat and back again. As a result, there's zero interaction across sites. And in Reyðarfjörður as well, we've set up a new land-based station. So we've got one in Reyðarfjörður and another in Eskifjörður, which keeps the production zones apart. The generations are divided between spring and autumn, and all in separate production zones. Fish in, fish out. We've been farming this on the East Coast since 2012. Before that, other pioneers were here, so altogether farming has taken place on the East Coast for more than 30 years. Throughout this stretch, we've never once had to deal with any sea lice problems. Even so, we monitor using the newest equipment, AI cameras, which are able to capture more than 20,000 pictures each day for every cage, and they can assess what condition the fish are in.