Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Good morning, everyone. My name is Roy-Tore Rikardsen and I'm the CEO of Kaldvik. Welcome to the presentation of Kaldvik's results for the fourth quarter of 2024. Alongside, our CFO, Robert Robertsson and we will guide you through this morning's presentation. Following the presentation, we will have a Q&A session, and you can submit your question directly via e-mail to [email protected]. Disclaimer, you all know this. Please take a moment and read through. And then we go to the agenda. And we'll start with some highlights in Q4 and then go to the operational and financial and some strategical update before we close it with the outlook and summary and end the presentation with a Q&A. Q4 highlights. Biological incidents in Q4, we have a biomass write-down of EUR 23.1 million, and I will dedicate 1 slide first thing to go a bit into this incident. Our operational EBIT for Q4 after adjustment is EUR 5 million, and we harvested 6,668 tonnes in Q4, and the group EBIT adjusted for the biomass write-down of EUR 0.75 per kilogram. Our harvest volume guidance for 2025 is 21,500 tonnes and the harvest volume in Q1 '25 will be approximately 5,500 tonnes. Our smolt input in 2025 will be approximately 7.5 million. Our strategic initiatives includes the acquisition of the Box factory and 1/3 of Harvesting Station in Djupivogur, and Robert will go further into the details. And 10,000 tonne license in Seyðisfjörður is pending approval. And we have initiated a refinancing process, and Robert will also go a little bit more into the details later. The biological incident. If you first look at the graphics on the left side, we'll try to explain a little bit about that in -- this is the 12 months average mortality rate at all our sea sites and generation together. In the beginning of last year, we were on 10% and successful early release took it down to 6%. And then in the end of the quarter, we faced biological challenges, which also consequences into Q1. And we went back to the mortality level in 2022 and over the average mortality for Norway in '23 sourced from Veterinary Institute. We faced some challenges with the smolt release in Q4, which led to financial and operational consequences. After releasing a lot of smolt and also losing a lot, we decided in collaboration with food safety authorities to stop our release. We experienced a shortfall in our smolt release with 1.2 million smolt less than planned at sea from the Q4 release. Our late release strategy after had a few successful release in Q4 earlier unfortunately failed. This was a combination of several things. But this year, it has been a lot colder than normal the last month of the year, and that's one of the reasons. We saw high mortality rates on the '22 and '23 generation, which has -- which was a major setback. High mortality and downgrades were absorbed due to winter wounds under '22/'23 generation, which was released without new winter wound vaccine contributed to the problems. Due to adverse weather conditions and the lack of well-boat capacity, we missed also our harvest targets in Q4. The financial loss for the biological incident in Q4 '24 and the expected loss of Q1 '25 are reflected in our Q4 financial report, with a total biomass write-down of EUR 23.1 million. This incident will also affect our harvest volumes for '25 and '26. And in conclusion, we are taking steps to address these issues and prevent future occurrence. In this section, I will outline the actions we are taking to reduce biological risk and improve our operation. Improvements down in '23 and '24 for smolt release in '25 and beyond. We have allocated EUR 28 million to improve capacity with housing -- new housing and tanks as well as improving the quality of our water supply and control systems. Our new grow-out facility in Land North, Rifós, and you can see in the picture on the left side, is operational in Q1 2025. This facility has increased our quality and capacity with 12 tanks and with a total capacity of 2,400 cubic meters and also for start feeding units on this facility. We are implementing extensive improvement programs within our facility to reduce operational risk and increase security. For the '24 and '25 generation, all fish will be vaccinated with a new winter wound vaccine, especially designed for the conditions on the East Coast of Iceland and additionally, all fish will be vaccinated against ISA. We have secured increased well-boat capacity for the smolt release in 2025 and beyond, allowing us to release smolt earlier, and we have established smolt sourcing agreements to ensure releases exceeding 7.5 million going forward. We are increasing well-boat capacity to enhance our harvesting capabilities. And these improvements will increase our flexibility, reduce mortality and mitigate the consequences of winter wounds. Outlook biology. In 2024, we achieved a harvest volume of approximately 15,000 tonnes, an increase from our 2023 harvest volume. Looking ahead to the first quarter of 2025, we are guiding for a harvest volume of 5,500 tonnes. Our harvest volume guidance for 2025 is 21,500 tonnes, and in 2025, we aim to put out 7.5 million smolt. So that concludes my operational update. Now I'll hand it over to our CFO, Robert, for the financial update.

Thank you, Roy. Morning. Here, we have the highlights for fourth quarter of 2024. Operational EBIT and EBIT per kilo for the quarter and full year in the tables on this slide have been adjusted for the one-off biomass write-down that Roy mentioned earlier. For example, if we take a look at the group EBIT, if we would include the biomass write-down, this number would be negative in fourth quarter of EUR 18 million. So the total revenue amounted to EUR 47 million, which is a significant increase from the corresponding quarter last year. Cost levels remained stable compared to corresponding quarter last year, but increased from last quarter mainly due to the additional harvesting cost with the extra well-boat and extra shift in our harvesting station. The average price achievement increased from last quarter as expected. The average price achievement amounted to around EUR 6.9 per kilo compared to EUR 6.2 per kilo in last quarter. And the operational EBIT adjusted for the biomass write-down reached EUR 5 million and EBIT per kilo amounted to EUR 0.80. And over to the financial summary. Total assets decreased in the quarter by EUR 27 million, which is mainly due to the biomass write-down. The book value of biological assets decreased by roughly EUR 25 million during the quarter, and that's including roughly EUR 23 million in biomass write-down. Total liabilities decreased by EUR 6.3 million during the quarter, mainly due to decreased deferred tax liability and lower payables balance and installments of term loans. Equity ratio remains around 56%, stable from last quarter when it was 57%. So our financial health remains robust. And here, you can see high-level analysis of net interest-bearing debt, which increased by EUR 8 million during the quarter. The biomass write-down is evident when you look at the EBITDA and working capital investments during the quarter. EBITDA was negative of roughly EUR 15 million, and net investments in working capital was negative of EUR 17 million. CapEx investment in the quarter amounted to EUR 5.6 million, making the total CapEx investment during 2024, reaching EUR 23.5 million, which is slightly lower than the EUR 25 million guidance for the year. And financial items amounted to EUR 4.8 million, where financial cost is the main contributor. The syndicate loan, the balance to the syndicate loan amounted to around EUR 163 million of total facility of EUR 180 million at the end of the quarter. We were in breach of certain loan covenants in Q4 for which we obtained waiver from our financing partners. And Roy mentioned earlier that we have initiated the refinancing process. As it stands now, the current syndicate facility expires in April next year. So we, here at Kaldvik, have initiated the refinancing talks with our financing partners. The cooperation with the syndicate has been good, and we are in good communication and cooperation with our partners, our financing partners, and we expect to finalize the refinancing before end of second quarter this year. So this was the financial update. Now we take the strategic update. And we announced just before Christmas that the company had entered into a nonbinding term sheet for potential acquisition of certain strategic assets in our value chain. The term sheet comprises of acquisition of Box factory that is located in Djupivogur close to our harvesting station. The Box factory is split into 2 companies. Mossi, which owns the building that is hosting the box producer. Djúpskel, which is, like I said, the producer of the boxes. The term sheet comprises of all shares in both Mossi and Djúpskel along with 33% shares in our harvesting station, which would secure 100% ownership to Kaldvik as we own 2/3 as it stands now. The purchase price for the Box factory and the remaining shares in Búlandstindur amounts to NOK 190 million, that is indicative purchase price amounts to NOK 190 million. The benefit for Kaldvik is clear in this transaction as we expect packaging cost to reduce by approximately EUR 3 million annually based on 20,000 tonne harvest. So the benefit will then increase with increased harvest volume in Kaldvik. The process is ongoing and expected to be completed in the first quarter of this year. Now I hand it over back to our CEO, Roy-Tore Rikardsen. Thank you.

Thank you, Robert. So a little bit update on our new license in Seyðisfjörður. The new license in Seyðisfjörður includes a total capacity of 10,000 tonnes maximum allowed biomass, and this is divided into 6,400 tonnes MAB for fertile production and 3,500 tonnes MAB for sterile. So we started the application process in 2016. And now currently, MAST is reviewing the hearing process and we expect the final issuing of the licenses in Q2 this year. The new production area presents a significant strategic opportunity for us increasing our overall capacity, allowing us to meet growing demand and provide us with increased flexibility in our operations. Importantly, this is a new area and this will help us reduce biological risk at sea, contributing to sustainability and health of our operation. In conclusion, the new license in Seyðisfjörður is a major step forward for our company, enhancing our capacity, flexibility and reducing biological risk, and we are excited about the opportunity this will bring. Milestone 1: 30,000 tonne. Our first milestone is 30,000 tonnes. And we have been striving to reach this since we reestablished after the ISA outbreak in '21/'22. And to have a run rate production of 30,000 tonne, you have to release between 7 million to 8 million smolt yearly, and we have not been succeeding in that yet. So we still have the focus on the target and have done a lot of action to reach it, and we are fully invested to deal with this in our value chain. And with all this capacity, we also have a fixed cost base for 30,000 tonne. And last year, we harvest 15,000 tonne. And this year, we will harvest 21,500 tonne. And you can see that the fixed cost on the chart to the right is coming down with increased volume. Kaldvik's potential. Here you see some of the initiatives we are looking into to go beyond the milestone #1. The Kaldvik team will continue working to produce bigger smolt, what gives us shorter production cycle in sea and therefore, also reducing our risk. To come down to a 2-year cycle all over, now we have 3-year cycle in production and going down to the 2-year cycle, that will become more CapEx demanding also in the future. So we will start using -- utilizing the sterile licenses in 2027, which is MAB of 12,800 tonnes and given annual production of 3,000 to 4,000 tonnes. We will come back when we have more on this topic. We are also one step closer to get 10,000 tonne license in Seyðisfjörður. And we hope to have the licenses in place, as we have said earlier, in first half of 2025. So we are looking into optimization of our production areas. That means utilizing of our MAB. And in total, we see a potential of producing 45,000 tonnes in Kaldvik. Outlook and summary. I think we start with a summary and the biological incident with increased mortality in Q4 '24 and projected into Q1 2025. We also ended with a biomass write-down of EUR 23.5 million. We have 10,000 tonnes licenses with pending approval in Seyðisfjörður. And as Robert mentioned, Kaldvik is in discussion with financing partners regarding refinancing and plan is to refinance in Q2 2025. On the outlook, we see a good opportunity globally for premium salmon and our new sales team, they are developing the U.S. and the Asia market. And when it comes to the harvest outlook, our harvest in 2024 was 15,000 tonnes, and we're guiding for 2025 is 21,500 tonnes. And in the first quarter, we guide 5,500 tonnes. And when it comes to the smolt output in 2025, we have planned an output of 7.5 million. And after our new facility in Land North, we have at least a smolt production capacity of 8 million smolt. So we are now open for questions.

So we've had some questions about the biomass write-down. And to be clear, the biological incidents in Q4 are -- and the consequences linked to wounds are given increased mortality in Q1 as well. And the expected mortality is included in the biomass write-down made in fourth quarter and reflected in the 2024 numbers. We've had another question regarding the smolt release, where the 1.2 million smolt released, or was it decided to not release them to sea due to lower sea temperature?

Yes. A part of the 1.2 million was not released and as we have stated earlier, we had a high mortality on the site Einstigi in the fourth quarter. So it's partly not released and mortality.

And we've been asked to state the biomass tonnes in sea at the end of the year. Roy?

Yes, I think it was approximately 21,000 tonne end of last year.

Yes. Questions. CapEx guidance for 2025. Like we mentioned in the presentation earlier, we are -- and have initiated refinancing talks or dialogue with our financing partners. And we are waiting with the CapEx guidance for 2025 once we have some concrete results from that talks. So we will come back with the guidance, hopefully, in Q1 for the 2025 financial year. Should we expect similar underlying cost levels quarter-over-quarter in first quarter? I would say so. We have -- like I mentioned earlier, we have included the biomass write-down for the mortality in Q1 in the Q4 numbers. So the cost level quarter-over-quarter in Q1 should be stable. The contract share for Q1? I guess, we don't have numbers in front of us now. But historically, we are somewhere close to 25% of our revenues are from fixed contracts, and it is likely to be close to that, maybe 20% to 25%. Do you see the extraordinary winter wounds and smolt survival problems as over now and with the plant harvest in Q1? Or do you expect challenges to continue also into the second quarter?

I mean that the extraordinary winter wounds and mortality are over in the end of Q1. So you see already an increase in temperature also in the sea. So it's going in the right direction.

Yes. And then we had a question here regarding the transaction, the Box factory transaction, an update on that. Regarding the process itself, this has been a pretty standard process, both buyer and seller have been using external advisers, both on the valuation and the negotiation of the transaction. We are currently now waiting for a final report from Deloitte on the due diligence and the -- our auditor is also reviewing the transaction. So this is expected to be concluded within first quarter this year. And any more questions? You answered this. Could you comment on the split between spring and for in smolt output?

This year? Yes. Yes, I think the split is spring and summer, I think it's around 60%. So -- and 40% in September and October.

Okay. I think we have covered most of the questions. I think we have covered most of the questions. If there are any questions that we failed to answer here, please contact me after this session.

Yes. And thank you all for watching. So looking forward to see you again when we are presenting the results for the first quarter.

Thank you.

Thank you.