Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the presentation of Kaldvik's results for the third quarter in 2024. My name is Roy-Tore Rikardsen, and I am the CEO of Kaldvik. Along with the CFO, Róbert Róbertsson, I'll be taking you through the presentation this morning. Here's a disclaimer you're all familiar with, so we'll just skip it. The agenda — and following the presentation, we'll hold a Q&A session, and as before, you can send in questions directly or via the chat. Our Q3 highlights. In Q3, we posted an operational EBIT of EUR 2.1 million. We harvested 3,800 tons with a superior share of 93% in the quarter, which is pretty good. Our group EBIT came in at EUR 0.55 per kilo, and we're relatively pleased with the result in a demanding quarter with low prices. Still, a strong biological status with around 22,500 tons of biomass in sea at the end of the quarter, and also, the smolt production is going well, and we also have this new reporting currency, and Róbert will include that in his presentation, and we have the guidance for 2024. It's 15,000 tons, and it's down from 17,500 tons in the second quarter, so farming operations land-based, I will start with an update on this.

In the course of the quarter, we put out 2 million smolts averaging approximately 360 grams in weight. Our expectation is to release roughly 6.2 million during 2024, versus 5.4 million in 2023. By the close of the third quarter, 4.0 million smolts had been released, with the other 2.2 million slated for release across October and November. Naturally, our ambitions for 2024 were greater, yet slower construction work up north has reduced our input thus far in 2024, so challenges have arisen for us involving winter wounds and ISA. Fortunately, every one of our smolts receives a new vaccine targeting winter wounds that was developed specifically for Icelandic conditions, along with the ISA vaccine. As everyone here knows, smolts matter, and they have mattered to Kaldvik for a great many years. Our broad initiative aimed at enhancing smolt production quality and capacity across 2023 and 2024 is nearing completion, and going forward we anticipate producing and delivering approximately 7.5 million smolts annually, with average weight of +400 grams. Output volume in the north and the south will exceed 40,000 cubic meters, and given licenses of 6,000 tons, a theoretical yearly capacity of 10 million smolts at 600 grams would be possible for us.

Even so, additional CAPEX is still required for us to complete the project, and that means we'll have a foundation in place overall for hitting our milestones as we move ahead, so let me turn to our sea farming operation. Output for the quarter hit a record, with net growth of 9,000 tons, despite average temperatures running one degree Celsius below prior years. Biomass, which I mentioned in the highlights, stands at a record high of 22,500 tons by the close of the quarter. In addition, our IE cameras continue to show zero sea lice, verified both by manual checks and at harvest. Full-capacity harvesting is what we anticipate in the fourth quarter as well as in the first quarter of 2025. The 12-month rolling mortality rate also indicates mortality of 6.1% at the close of the third quarter, which is a genuinely low figure. Turning to harvesting in the third quarter: 3,800 tons were harvested in this quarter, coming in 700 tons under guidance. In the fourth quarter we will harvest 6,700 tons, giving us very good use of our harvesting capacity. As we flagged, guidance for 2024 was reduced to 15,000 tons. The reason is reduced capacity in our value chain and harvesting, plus a delay to the additional wellboat capacity.

Looking ahead to next year, our harvest volume guidance stands at 25,000 tons. That represents 2,500 tons removed compared with the guidance we gave last quarter, yet mortality has not increased and our fish count remains the same, so this is likewise part of re-energizing production so we can reach heavier harvesting weight and have greater volume in quarters that historically carry higher prices, and possibly also for the year 2026. On price achievement, the third quarter declined from EUR 7.3 in the second quarter to EUR 6.2 in the third quarter, and we harvested the bulk of our volume in September, when prices this quarter were at their lowest. That was 2,000 tons. Capacity utilization at the harvesting station and on the wellboat across the quarter brought our harvesting cost down. We also installed a new gutting machine at the harvesting station in Djúpivogur. And in the third quarter we finally obtained the ASC certification, so we can begin capitalizing on it in the market, and there is demand for it among all the customers out there as well. That concludes the operational update from my side, and I will hand over to Róbert to take us through the financial update.

Thanks, Roy. Good morning. As Roy said before, Kaldvik has switched its reporting currency from NOK to euros. The reason is that the group's functional currency is euros now. The group is financed in euros. A large majority of our revenues and a large share of our costs are denominated in euros, and the main assets held by the Norwegian parent company are shares in the Icelandic subsidiaries, which are euro companies. This step will reduce the translation risk that existed while the Norwegian parent was using NOK. So the financial statements are presented in euros now, and every comparative figure has been translated into euros at the year-end 2023 conversion ratio. And here are the quarter's highlights. Total group revenue came to EUR 24.5 million, a significant increase both from the same quarter last year and from the previous quarter, the second quarter. As was mentioned earlier, the harvest volume was around 3,800 tons, which is also a significant increase. Cost levels came down from the previous quarter, as expected. With harvest volume rising, the cost level let the company make better use of the harvesting station and wellboats, and that brought the company's cost levels down.

As expected, average price achievement went down compared with the previous quarter. Average price achievement came in at EUR 6.2, as Roy said earlier, versus EUR 7.3 per kilo in the second quarter. Even with that lower price achievement, the group's operational EBIT for the quarter was EUR 2.1 million, and EBIT per kilo was EUR 55, so we're fairly pleased with how the quarter turned out overall. Moving to the balance sheet assets shown on the graph at the left. Total assets rose by about EUR 31 million in the quarter. Working capital investments and CapEx account for most of that asset increase. The book value of biological assets went up by approximately EUR 22 million, finishing the quarter at around EUR 155 million. Total liabilities grew by approximately EUR 31 million, which is basically nearly the same figure as the asset increase. That is, liabilities are rising because of CapEx financing and financing of our biological investments. Lastly, our financial health stays strong, with an equity ratio of around 57%. Here you can see a high-level analysis of net interest-bearing debt, which rose by EUR 17 million during the quarter. The key elements of the EBITDA appear here in the flow chart.

Apologies — the key elements of net interest-bearing debt appear in this flow chart. EBITDA came in at roughly EUR 5 million for the quarter. Working capital investments, mainly in biological assets, totaled EUR 12 million. CapEx came to EUR 5.5 million, and our 2024 CapEx guidance stays at EUR 25 million. Finance items were EUR 3.6 million, with finance cost being the biggest piece, and as mentioned earlier, Kaldvik drew incremental borrowing of EUR 23.5 million last June. That borrowing splits into a EUR 12 million euro increase under the revolving facility — the facility backing our biological investments — plus EUR 11.5 million under the CapEx facility, and Kaldvik has full financing through 2025 with a total bank facility of EUR 180 million. Net loans from the bank syndicate stood at about EUR 154 million at quarter-end. That covers my part. Thanks. Back to Roy.

Yes. That 30,000-ton milestone is within our grasp. In 2022 we hit a setback when the ISA was detected, and that affected how much we harvested in 2023 and after. Still, I'm anticipating a year with greater volumes, which shows we've built a strong base for ongoing growth toward that 30,000-ton milestone. During my first months here in Iceland, I've been getting to know the organization, both at sea and on land, along with the harvesting station and every part of the operations, and it's encouraging to see, in particular, that mortality has been low and there's been no sea lice on the east coast, so I'm thrilled to be joining a company like Kaldvik — a business with the potential to reach sustainable production of more than 30,000 tons of salmon. That, together with over 200 committed employees who put in tireless work daily to produce food for a growing global population, truly inspires me. The Kaldvik team has already pinpointed three projects aimed at moving past 30,000 tons. We'll keep advancing those three projects. The goal is producing larger smolt, particularly for fall release, which will give us a shorter production cycle — perhaps two years in the sea rather than three years — and thereby also lower our operational risk at sea.

We'd also like to begin making use of our sterile licenses. Some years back, we ran a trial. That attempt did not work out, though there has been some progress on the steriles since that time. It also amounts to 12,800 tons of MAB. We are examining how to optimize our production areas. In other words, getting more out of our MAB. At present, we are using just a bit over 50% of the MAB licenses we hold. So that's the growth ambitions, the areas, and the planning, and we'll return to this once we're ready to execute. Outlook and summary. On the market side, we see a solid opportunity worldwide for our premium salmon. We're also upbeat about prices next year. As for the harvest outlook, as both Róbert and I have said, we will harvest 15,000 tons in 2024, and in 2025 we will bring 25,000 tons of ASC salmon — ASC certified salmon — to market. And in the fourth quarter of 2024, we'll do 6,700 tons. We've also mentioned this new reporting currency. And we're likewise looking at — we have a focus on lifting quality and the performance of our operation. And we're also a step closer to securing the 10,000-ton license in Seyðisfjörður.

We have licenses for 6,500 tons of fertile material and 3,500 tons of sterile material. So our expectation is that the license will be secured during the first half of 2025. In addition, regarding investment, there's an investment program we're pursuing to get our capacity up to 30,000 tons. We're also putting money into sustainable production. With that, we're ready to take questions now, Róbert, I believe. Thank you.

Yeah, we do have questions. Ola is asking whether you could talk about the 2025 harvest profile compared with 2024 — specifically, how much falls in the first half of the year versus the second half?

So, that answer applies to 2024. I believe the split was 30%-70%, and as for 2025, it'll be 40%-45% during the first half, then roughly 50%-55% in the second half.

There have been notable gains in the way our harvesting profile looks. Within the volumes we've guided for 2025, what portion is contributed by the 2024 generation, and what portion is contributed by the 2023 generation?