Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Hello. Welcome to our Q2 presentation of Kaldvik 2024. My name is Guomundur Gislason, the CEO of the company; and with me is our CFO, Robert Robertsson. Start with, we harvested only 514 tonnes in the quarter and that is low volume to distribute fixed harvest and well-boat costs. EBIT had, therefore, a small negative in the quarter. We, on the other hand, increased our biomass in sea to 17,000 tonnes at the end of the quarter. And standing biomass now is well over 22,000 tonnes. Can also state that our fish, both on land and sea, had never in the history of the company been in better shape. We did the listing of the company in the quarter on the Capital Markets Day on the East Coast this spring. That was a good step for the company to open the doors for investors in Iceland and other markets. We now aim to harvest this year around 17,500 tonnes. That gives us an opportunity to move more volume to first half of '25 and even out the harvesting volume better. We, therefore, can achieve more growth and better prices. This is possible due to our big MAB licenses and confidence in our farming capacity. Smolt output this year will be increased both in number and size. Robert?

Good morning. Here, you have highlights from the quarter. As expected and guided in last quarter, Kaldvik harvested limited volumes in the second quarter of roughly 500 tonnes. This explains the negative group EBIT as we have fixed costs related to our harvesting sectors. The good news is that this is the last quarter, hopefully, for a long time that we are harvesting limited volumes. And I can say that the farming sector of the company had positive EBIT. Here, you can see a financial summary. The graph here on the left demonstrate development of total assets. Total assets increased by NOK 220 million during the quarter. Investments in working capital and CapEx make up the majority of the asset increase. The book value of biological assets increased as well and ended at around NOK 1.5 billion. Total liabilities increased by NOK 380 million during the quarter, mainly due to financing of CapEx from previous quarters and financing of biological investments. And our financial health remains robust with 61% equity ratio. And here you can see high-level analysis of the net interest-bearing debt, which increased by NOK 192 million during the quarter. EBITDA reached NOK 14 million. Net investments in working capital, particularly in biological assets, amounted to NOK 126 million. CapEx investments amounted to NOK 81 million, and we keep CapEx guidance of NOK 290 million for 2024. Financial items amounted to NOK 41 million, where finance cost of NOK 35 million is the main contributor. And finally, the currency fluctuation during the quarter impacted our interest-bearing debt and decreased the net interest-bearing debt by NOK 42 million. Kaldvik activated incremental borrowing of EUR 23.5 million during the quarter. This borrowing is split into EUR 12 million financing of -- or revolving facility or financing of our biological assets and EUR 11.5 million in CapEx facility. So Kaldvik is fully financed through 2025 with bank facility of EUR 180 million, and net loans from the bank syndicate amounted to NOK 138 million -- sorry, EUR 138 million at the end of the quarter. And like Guomundur mentioned, Kaldvik carried out a listing of the company, company shares on NASDAQ First North Iceland in May. And this was done in addition to our previous listing on Euro Growth Oslo. The dual listing was approved at 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 offering of shares was carried out in the dual listing and the dual listing did not have any impact of numbers of outstanding shares in the company.

Thank you, Robert. It was certainly an enjoyable day listing the company in Iceland. And on that, we started that week actually transporting smolt. And we managed in the quarter to transport about 3.4 million smolts with an average weight around 450 gram and the biggest groups around 800 gram. The big news there is that we managed to shorten time to deliver the smolt from the tanks to the well-boat by 50%. And this has a huge impact on the stress level for the fish, so we reduced stress and lowered mortality. And we see a significant changes of the health of the fish in the sea after the transport and feeding has gone up 35% compared to Generation '23. This is a true game-changer, spring. We are so proud of our team on land and that after so many years of adjusting and finding improvements that this time we are managed to compile it all into a good success transport. We are using satellite photos, for example, now to look at algae blooms in the sea. So when the well-boat is sailing from the land stations to the sites, then they need to travel for around 24 hours. And on that way, can things happen and we managed now to use this algae bloom photos to avoid or close the wells when we see them. This has been a huge benefit in the transport and welfare of the fish. We use the weather forecast and not travel or sail in bad weather. And we have over 30 people making sure our smolt is handled gently and measurement over 50 parameters to follow up on each detail. I can say that I felt like watching Formula One, when I visited the guys at the time and they were delivering the smolt to sea. Not necessarily the speed, but the determination and technology used. On top of this, we have now new vaccine on all the fish that is transported to sea this year to increase survival on our cold seas. And this has already been recognized in the parr-smolt tanks that have saltwater and part of the vaccine was handling some of the [ morchella ] that was discovered at land-based stations. So we've already seen a big difference and the fish is robust and healthy. We are starting with our autumn smolt release in 14 days. And the team and the smolt has enjoyed good summer and ready for action. This is going to be the best transport season ever, we hope. And on land, the continuous improvements are really showing results and also progress. We have new houses in Land South on operation. And then our operation on Land North, where we are building up G house had a delay this winter due to, yes, a lot of snow. And the facility now is being built together, and we hope to have it finished by the end of the year. And looking into sea, that's where things have been happening really fast now. Sea operation have been though quite relaxed and we haven't had big issues that have come up. We are breaking records on feeding every day now. This is happening even when the temperature in the sea has been a bit below average. It even snowed in the East Coast last week. So growth has been a bit slower than our plans in the beginning of the quarter, and we needed to harvest smaller fish to keep up demand. Harvesting was done early in the quarter and then soft start to end of the quarter. Therefore, we are finishing up a site that had not expected size and quality at the end of the quarter. And we harvested smaller fish in the end of the quarter, as it was a bit too early for that fish. This is a sacrifice on firm all-in, all-out strategy and demand from customers to have a weekly delivery. We expect to see fantastic growth months ahead of us. AI camera show -- we have now AI camera 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 sea, small smolt and autumn 2022 [indiscernible] release and 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 [indiscernible] that we plan to put out this next year. Due to our big licenses, we have possibility to move fish from Q3 to Q4 and Q4 to Q1, and therefore, increase growth and make up slow start in the beginning of Q2. Then harvesting. Yes, 500 tonnes is just like a few days full harvest. So cost was high on this 500 tonnes, but like Robert said, hopefully, this is the last quarter we have such small volumes. We are in the quarter going to harvest full weeks and even on Sundays to deliver the salmon rest of the market. We are in increasing volume on contracts as we have now more volume and investigate new markets, for example, Asia, where we have not been able to supply until now as the priority market has been U.S.A. And they -- the market in Asia is preferable on 5-plus, so we are looking forward to start building customers and send big salmon to Asia. And as you can see, we have recovered quite strongly and 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 reach the 30,000 tonnes. And this means that we can move around 10,000 tonnes to the first half of '25 and 15,000 tonnes rest of '25. And this is much better spread for our customers and also utility of our equipment, both on land and sea for harvesting. And therefore, achieve higher prices and lower costs. And what does -- how do we go above the 30,000 tonnes? The company has already started looking at possibilities to built more biomass and harvest going forward. And that is obvious, we have possibility to build capacity on land with bigger smolts. And with bigger smolts, you shorten time in sea, and therefore, we could utilize the licenses up to 30% better. Sterile, we have 12,800 tonnes MAB license of sterile that we haven't started using, but we see opportunity there. We started with sterile back in '22 and with a quite good [ checks ], and that's an opportunity we are looking into going further. And then optimization of MAB licenses. That's like we are doing now, utilizing the licenses better, and that means more volume going forward. But these growth possibilities take time to learn and build up and it's a path that we are on. But looking at the successful journey that we are on now and focus on biology and all-in, all-out strategies and emphasizes on research and development and learning that we will achieve our over 17,500 tonnes this year and about 25,000 to 27,000 tonnes next year. The company is fully financed for 30,000 tonnes. We are looking at possibilities for further growth. We are the biggest salmon company in Iceland. And by that, my time as CEO is coming up to an end, and the new CEO will take over 1st of September, just in 5 days -- 3 days. And Roy-Tore will present the results of quarter 3. I will take a new role in the company and lead sales going forward. The company is in good shape, currently over 22,000 tonnes in biomass in the sea, and I'm proud and especially thankful to our employees. We started back in 2012, just few guys and now we are over 200 and hundreds of investors, thousands of customers, and they build up a new industry in Iceland and producing healthy salmon, healthy food, healthy protein for the world with low footprint and we can certainly be proud of it. And we continue, and we see possibility of success going forward to reach the milestone 1 is well within reach. And we have a great story and great future and I really want to thank to be able to take part of it. If we have questions, please go ahead, we have -- either on a chat or on the mic going forward.

Okay. We have a couple of questions. First, [ Martin ] asks what is the expected contract share in third quarter?

Yes, the contract share -- the volume of contracts is going to increase as we have more fish and the contract share is not going to be as big as we have had in previous quarters, but it's growing.

And then we have questions from Ola. You cut the '24 volume guidance by 4,000 tonnes and state that you move fish from second half of '24 to first quarter '25. However, you also cut '25 volume guidance by 3,000 tonnes to 5,000 tonnes. Despite this, what is driving this underlying cut to volume? So I don't believe that we gave any guidance for '25 until now.

Yes, that has been not given out, but to explain it, as I explained in the presentation that we had a bit of a slow start, and we also harvested smaller fish than many anticipated. So that is part of it. And then also, we are using the autumn now to catch up on growth. Usually, our models are indicating better growth in spring and then underestimating the growth in autumn. So this is a cautious plan, and we really also see possibilities to exploit better prices in Q1. But in general, yes, there are reduction in volume, and that is not good, and we are looking into possibilities to recover those going forward with this quarter-to-quarter changes.

Okay. How many smolts will you release in total in '24?

We haven't released that number yet, but it's -- as we stated in the report that we have -- we'll have a more smolts than last year. We transported around 5.4 million last year. And the status on land is looking really good, and we will give up that number when they are seaborne in quarter 3.

And how will the parr-smolt group with bad smoltification impact the company?

As I stated, the transfer to sea this year has been excellent and the fish has started immediately eating. Years before, we saw that fish was -- took a long time to recover after the transport, and that was then lower feeding on those fishes at that time. This is a change this year. We see about 35% increased feeding on our transported smolts. So there are no issues with smoltifications or parr-smolts on the land as it is.

And what is the expected harvest weight in Q3?

The expected harvest weight in Q3 is going up. We haven't given out a number, but this fish will be standard size with the estimate.

Do you expect to achieve a premium price compared to the reference price in Norway in third quarter or is this difficult with the increasing sales volumes?

It's getting more difficult with the increased sales volumes, as we are starting up again with more volume and finding new markets that prefer premium salmon. We have been able to increase the fixed contracts on good prices, but the ratio is different than previously.

And then what is the fixed cost base related to harvesting per quarter? So we have been building up our harvesting capacity and invested quite significantly in the past years in our harvesting facility. On top of that, we have -- so we basically have a fully functioning harvesting facility of 30,000 tonnes annually on shift that there are fixed cost relating to our harvesting facility. On top of that, we have long-term contracts for well-boats. So when we are harvesting limited volumes, as is the case in this quarter, that results in a low group EBIT. So yes, I don't think I can be more specific than that going into the cost base. But we have fully functioning harvesting facility and looking forward to increased volumes going forward. Yes. No, no questions. I think I have covered most of it. Yes, all of it, actually.

So then thank you for listening in, and we keep on making records in feeding and building up the biomass and service our customers the best way we can. Thank you for today, and have a good afternoon.