Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Hello, and welcome to Kaldvik's Q2 2024 presentation. I'm Guomundur Gislason, the company's CEO, and our CFO, Robert Robertsson, is here with me. To begin with, during the quarter we harvested just 514 tonnes, which is a low volume for spreading out fixed harvest and well-boat costs. EBIT was consequently slightly negative in the quarter. We did, however, raise our biomass in the sea to 17,000 tonnes by the end of the quarter. And the standing biomass is now well above 22,000 tonnes. I can also say that our fish, both on land and at sea, have never been in better shape in the company's history. We carried out the company's listing during the quarter on the Capital Markets Day on the East Coast this spring. That was a good step for the company in opening doors for investors in Iceland and other markets. Our aim now is to harvest around 17,500 tonnes this year. That gives us an opportunity to shift more volume into the first half of '25 and to even out harvesting volume better. We can therefore achieve more growth and better prices. This is possible thanks to our big MAB licenses and our confidence in our farming capacity.

This year's smolt output is going to be up, both in terms of number and size. Robert?

Good morning. What you have here are the quarter's highlights. As we expected and as we guided last quarter, Kaldvik's volumes harvested in Q2 were limited — roughly 500 tonnes. That accounts for the negative group EBIT, since we carry fixed costs tied to our harvesting operations. The good news: hopefully this is the final quarter for quite some time in which our harvested volumes are limited. I can also report that the company's farming sector delivered positive EBIT. Here is a financial summary. The graph on the left shows how total assets have developed. During the quarter, total assets rose by NOK 220 million. Working capital investments and CapEx account for most of that asset growth. The book value of biological assets also went up, finishing at around NOK 1.5 billion. Total liabilities grew by NOK 380 million in the quarter, chiefly because of CapEx financing carried over from earlier quarters and financing of biological investments. Our financial health is still robust, with an equity ratio of 61%. Here you can see a high-level analysis of net interest-bearing debt, which rose by NOK 192 million during the quarter. EBITDA came in at NOK 14 million. Net investments in working capital, especially biological assets, totaled NOK 126 million.

CapEx came in at NOK 81 million, and for 2024 we're maintaining our guidance of NOK 290 million. On financial items, we had NOK 41 million, with finance costs of NOK 35 million making up the biggest part. Lastly, currency movements over the quarter affected our interest-bearing debt, bringing net interest-bearing debt down by NOK 42 million. During the quarter, Kaldvik drew incremental borrowing of EUR 23.5 million. That borrowing breaks down into EUR 12 million for financing — that is, the revolving facility, or financing of our biological assets — and EUR 11.5 million under the CapEx facility. So Kaldvik is fully financed through 2025 with a bank facility of EUR 180 million, and net loans from the bank syndicate stood at NOK 138 million — sorry, EUR 138 million at quarter-end. And as Guomundur mentioned, Kaldvik carried out a listing of the company, company shares on NASDAQ First North Iceland in May. That was done in addition to our earlier listing on Euro Growth Oslo. The dual listing was approved on the same date as we — as the company's Capital Market Day, 28th of May, and the first day of trading was the day after, 29th of May.

So no share offering took place as part of the dual listing, and the dual listing had no effect on the number of outstanding shares in the company.

Thanks, Robert. Listing the company in Iceland made for a genuinely enjoyable day. On that note, we actually began moving smolt that same week. During the quarter we succeeded in transporting roughly 3.4 million smolts, with an average weight of about 450 grams and the largest groups near 800 grams. The major development is that we cut the time needed to get smolt from the tanks onto the well-boat by 50%. That makes a huge difference to stress levels in the fish, so we brought stress down and mortality lower. We're also seeing a notable shift in the health of the fish at sea once transport and feeding are done — up 35% versus Generation '23. This really is a game-changer, spring. Our land-based team makes us incredibly proud, and after all those years of tweaking and hunting for improvements, this time we pulled everything together into a successful transport. These days we use satellite photos, for instance, to check for algae blooms in the sea. So as the well-boat travels from the land stations out to the sites, it has to sail for approximately 24 hours.

So in that way, things can occur, and we’ve now succeeded in using these algae bloom photos to prevent or shut down the wells when we spot them. That’s been an enormous advantage for transporting and safeguarding the fish. We rely on the weather forecast and won’t travel or sail when conditions are bad. And we have more than 30 people ensuring our smolt is treated gently and measuring over 50 parameters to track every detail. I can say it felt like I was watching Formula One when I visited the guys at the time and they were delivering the smolt to sea. Not the speed necessarily, but the dedication and the technology in use. Beyond that, we now have a new vaccine on all the fish transported to sea this year to boost survival in our cold seas. And that has already been noticed in the parr-smolt tanks that contain saltwater, and part of the vaccine was addressing some of the morchella that was found at land-based stations. So we’ve already observed a big difference, and the fish is robust and healthy. We begin our autumn smolt release in 14 days. And the team and the smolt have had a good summer and are ready for action.

We’re hoping this will be the strongest transport season we’ve ever had. And on land, the ongoing enhancements are clearly delivering results as well as progress. We’ve got new houses in Land South now in operation. Then there’s our Land North operation, where we’re building up G house, and that was delayed this winter because, yes, there was a lot of snow. The facility is now being constructed as one, and we’re hoping to have it completed by the end of the year. And when we look at sea, that’s where things have been moving really quickly now. Sea operation has been fairly calm, and we haven’t run into any major problems. We’re setting records for feeding every day now. That’s happening even though the sea temperature has been slightly below average. It even snowed on the East Coast last week. So growth has been somewhat slower than our plans at the start of the quarter, and we had to harvest smaller fish to meet demand. Harvesting took place early in the quarter, followed by a soft start through to the end of the quarter. As a result, we’re finishing up a site that did not have the expected size and quality at the end of the quarter.

And at the end of the quarter we harvested smaller fish, since it was a little too early for that fish. That's a sacrifice on a firm all-in, all-out strategy and on customer demand for weekly delivery. We expect to see fantastic growth in the months ahead. The AI camera shows — we now have AI cameras in most of the cases where we have the bigger fish, and they show no sea lice. It's healthy fish with up to 96% superior. The company has never had such fantastic biology on land and sea. Generation '22 is the best-performing Gen up to now. It has already been 22 months in the sea, small smolt and autumn 2022 <<inaudible>> release, and it is now growing over 300 grams per week. And again, no sea lice on the fish and 96% superior. Biomass is increasing, and we see that our team is handling the increased work. We have now started hiring and training people <<inaudible>> that we plan to put out this next year. Thanks to our big licenses, we have the possibility to move fish from Q3 to Q4 and Q4 to Q1, and therefore increase growth and make up for the slow start at the beginning of Q2.

So then harvesting. Yeah, 500 tonnes is basically only a few days of full harvesting. So the cost was high for those 500 tonnes, but as Robert said, hopefully this is the last quarter where we have such small volumes. During this quarter we're going to harvest full weeks and even on Sundays to get salmon out to the rest of the market. We're increasing volume on contracts since we now have more volume, and we're investigating new markets, for example, Asia, where we haven't been able to supply until now because the priority market has been U.S.A. And they -- the market in Asia prefers 5-plus, so we're looking forward to starting to build customers and sending big salmon to Asia. And as you can see, we've recovered quite strongly and we're on track and in full production. Our aim is to reach milestone 1 of 30,000 tonnes. Looking into 17,500 tonnes this year and 25,000 tonnes to 27,000 tonnes next year, and then gradually reaching the 30,000 tonnes. And this means we can move around 10,000 tonnes to the first half of '25 and 15,000 tonnes rest of '25. And this is a much better spread for our customers and also for the utility of our equipment, both on land and sea for harvesting.

So that's how you get better pricing and reduced costs. Now, how do we push past 30,000 tonnes? The company has already begun exploring ways to build additional biomass and increase harvesting down the road. Obviously, we have the option to add capacity on land using larger smolts. Larger smolts mean less time spent at sea, which lets us use the licenses up to 30% more effectively. On sterile, we hold a 12,800-tonne MAB license for sterile fish that we haven't begun utilizing yet, though we see an opportunity there. We began with sterile in '22, and results have been quite good checks, and that's an opportunity we're examining for further development. Then there's optimization of MAB licenses. That's what we're doing right now — utilizing the licenses more effectively, which translates into additional volume going forward. But these growth possibilities require time to learn and build up, and it's a path we're on. Yet given the successful journey we're currently on, with focus on biology and all-in, all-out strategies and emphasis on research and development and learning, we will reach our over 17,500 tonnes this year and roughly 25,000 to 27,000 tonnes next year.

We're fully funded for 30,000 tonnes. We're exploring options for additional expansion. We hold the position of Iceland's largest salmon company. And with that, my tenure as CEO is nearing its conclusion, and the incoming CEO takes over on 1st of September, only 5 days away -- 3 days. Roy-Tore will be presenting the quarter 3 results. I'll be moving into a new position within the company, leading sales from here on. The company is in solid shape, with currently more than 22,000 tonnes of biomass at sea, and I feel proud and particularly grateful to our staff. We began back in 2012 with just a handful of people, and today we number over 200 plus hundreds of investors and thousands of customers, and they've built up a new industry in Iceland, producing healthy salmon, healthy food, healthy protein for the world with a low footprint, and we can definitely take pride in that. And we keep going, and we see the potential for success ahead in reaching the milestone 1, which is well within reach. And we have a strong story and a strong future, and I truly want to express my thanks for being able to be part of it. If there are questions, please go ahead, we have -- either via the chat or on the mic from here on.

All right, we’ve got a few questions here. To start with, Martin wants to know: what contract share should we expect in the third quarter?