Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Good morning, everyone. I'm Roy-Tore Rikardsen, and I serve as the CEO of Kaldvik. It's a pleasure to welcome you to this presentation of Kaldvik's results for the fourth quarter of 2024. With me is our CFO, Robert Robertsson, and together we'll walk you through this morning's presentation. After the presentation, there will be a Q&A session, and you can send your question directly by e-mail to robert@kaldvik.is. The disclaimer — you all know this. Please take a moment and read through it. Then we move on to the agenda. We'll begin with some highlights from Q4, then move to the operational and financial update and some strategical update, before we close with the outlook and summary and finish the presentation with a Q&A. Q4 highlights. On biological incidents in Q4, we have a biomass write-down of EUR 23.1 million, and I will dedicate 1 slide right at the start 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.

The strategic initiatives we're pursuing include buying the Box factory and one-third of Harvesting Station in Djupivogur, and Robert will walk you through the specifics. Also, a 10,000 tonne license in Seyðisfjörður is awaiting approval. We've also kicked off a refinancing process, and Robert will get into that in a bit more detail later as well. On the biological incident — if you look first at the graphics on the left-hand side, we'll try to give a bit of an explanation of that in — this shows the 12 months average mortality rate across all our sea sites, all generations combined. At the start of last year, we sat at 10%, and successful early release brought that down to 6%. Then, at the end of the quarter, we ran into biological challenges, which carried over into Q1 as well. And we returned to the mortality level seen in 2022 and above the average mortality for Norway in '23, sourced from the Veterinary Institute. We hit some difficulties with smolt release in Q4, and those had financial and operational consequences. After releasing a great deal of smolt and losing a great deal too, we made the decision, together with the food safety authorities, to halt our release. We saw a shortfall in smolt release, with 1.2 million smolt fewer than planned going to sea from the Q4 release.

Our strategy of releasing late, after we’d had a few successful releases in Q4 earlier, unfortunately did not work out. Several factors combined to cause this. But this year, the last month of the year has been much colder than usual, and that is one of the reasons. We observed high mortality rates on the '22 and '23 generation, which was a major setback. High mortality and downgrades were absorbed because of winter wounds under the '22/'23 generation, which was released without the new winter wound vaccine and contributed to the problems. Because of adverse weather conditions and a lack of well-boat capacity, we also missed our harvest targets in Q4. The financial loss from the biological incident in Q4 '24 and the expected loss in 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 made in '23 and '24 for smolt release in '25 and beyond.

We've put EUR 28 million toward boosting capacity through housing — both new housing and tanks — plus upgrades to the quality of our water supply and control systems. Our new grow-out facility at Land North, Rifós — which you can see in the picture on the left side — becomes operational in Q1 2025. That facility has raised both our quality and our capacity, with 12 tanks and a total capacity of 2,400 cubic meters, and it also serves start feeding units. Across our facility, we're running extensive improvement programs aimed at lowering operational risk and strengthening security. For the '24 and '25 generation, every fish will get a new winter wound vaccine, specifically designed for conditions on the East Coast of Iceland, and on top of that, all fish will be vaccinated against ISA. We've locked in greater well-boat capacity for smolt release in 2025 and beyond, which lets us release smolt earlier, and we've set up smolt sourcing agreements so that releases will exceed 7.5 million going forward. We're expanding well-boat capacity to strengthen our harvesting capabilities. These improvements will give us more flexibility, cut mortality and soften the consequences of winter wounds. Outlook biology. In 2024, we reached a harvest volume of roughly 15,000 tonnes, up from our 2023 harvest volume.

Turning to what we expect in the first quarter of 2025, our guidance is for a harvest volume of 5,500 tonnes. For all of 2025, the harvest volume we're guiding to is 21,500 tonnes, and during 2025 our target is to put out 7.5 million smolt. That wraps up my operational update. I'll now pass things to Robert, our CFO, for the financial update.

Thanks, Roy. Good morning. On this slide, you'll find the highlights for the fourth quarter of 2024. The operational EBIT and EBIT per kilo shown for the quarter and the full year in the tables have been adjusted for the one-off biomass write-down that Roy mentioned earlier. So, for instance, looking at the group EBIT, if the biomass write-down were included, that figure would be negative in the fourth quarter, at EUR 18 million. Total revenue came to EUR 47 million, a significant increase from the same quarter last year. Cost levels stayed stable versus the corresponding quarter last year, but they rose from the previous quarter, mainly because of the additional harvesting cost from the extra well-boat and the extra shift at our harvesting station. Average price achievement went up from last quarter, as expected. Average price achievement was around EUR 6.9 per kilo, versus EUR 6.2 per kilo in the last quarter. And the operational EBIT, adjusted for the biomass write-down, came in at EUR 5 million, while EBIT per kilo was EUR 0.80. Moving on to the financial summary. Total assets fell by EUR 27 million in the quarter, which is mainly attributable to the biomass write-down.

During the quarter, biological assets' book value fell by approximately EUR 25 million, which includes about EUR 23 million of biomass write-down. Total liabilities declined by EUR 6.3 million in the quarter, primarily because of a lower deferred tax liability, a reduced payables balance, and installments on term loans. The equity ratio is still near 56%, unchanged versus the prior quarter's 57%. So our financial health continues to be robust. And here you can see a high-level analysis of net interest-bearing debt, which rose by EUR 8 million in the quarter. The biomass write-down is clear when you examine EBITDA and working capital investments for the quarter. EBITDA came in at negative roughly EUR 15 million, and net investments in working capital were negative EUR 17 million. CapEx investment for the quarter was EUR 5.6 million, bringing total CapEx investment during 2024 to EUR 23.5 million, which is a bit below the EUR 25 million guidance for the year. And financial items were EUR 4.8 million, with financial cost being the main contributor. The syndicate loan — the balance on the syndicate loan — stood at around EUR 163 million out of a total facility of EUR 180 million at quarter end.

During Q4, we found ourselves in breach of specific loan covenants, and we secured a waiver from our financing partners for that. Roy said earlier that the refinancing process has been started. As things stand right now, the current syndicate facility runs out in April next year. So here at Kaldvik, we have begun refinancing discussions with our financing partners. Cooperation with the syndicate has been solid, and we remain in good communication and cooperation with our partners — our financing partners — and we anticipate wrapping up the refinancing prior to the close of the second quarter this year. That covers the financial update. Now we move to the strategic update. Just before Christmas, we announced that the company had signed a nonbinding term sheet for a possible acquisition of certain strategic assets within our value chain. The term sheet involves acquiring a Box factory situated in Djupivogur, near our harvesting station. The Box factory is divided into 2 companies. Mossi, which holds ownership of the building that houses the box producer. Djúpskel, which is, as I said, the producer of the boxes. The term sheet covers all shares in both Mossi and Djúpskel, together with 33% of the shares in our harvesting station, which would give Kaldvik 100% ownership, since we currently hold 2/3.

For the Box factory plus the outstanding shares in Búlandstindur, the price comes to NOK 190 million — that figure of NOK 190 million is an indicative purchase price. This deal offers an obvious gain for Kaldvik, since on a 20,000 tonne harvest we anticipate packaging costs dropping by roughly EUR 3 million each year. That benefit will grow as Kaldvik's harvest volume rises. Work on the process is underway, with completion targeted for the first quarter of this year. I'll now return the floor to our CEO, Roy-Tore Rikardsen. Thank you.

Thanks, Robert. So here's a bit of an update on the new license we have in Seyðisfjörður. That new Seyðisfjörður license carries a total capacity of 10,000 tonnes maximum allowed biomass, split into 6,400 tonnes MAB for fertile production and 3,500 tonnes MAB for sterile. We began the application process back in 2016. Right now, MAST is going through the hearing process, and we expect the licenses to be issued finally in Q2 this year. This new production area is a significant strategic opportunity for us — it raises our overall capacity, lets us meet growing demand, and gives us more flexibility in our operations. Importantly, it's a new area, and it will help us lower biological risk at sea, which contributes to the sustainability and health of our operation. To sum up, the new Seyðisfjörður license is a major step forward for our company, boosting capacity and flexibility while reducing biological risk, and we're excited about the opportunity it will bring. Milestone 1: 30,000 tonne. Our first milestone is 30,000 tonnes. We've been striving to reach it since we reestablished following the ISA outbreak in '21/'22. And to achieve a run rate production of 30,000 tonne, you need to release between 7 million and 8 million smolt yearly, and so far we haven't succeeded at that.

Our focus remains on that target, and we've taken plenty of action to get there; we're fully committed to addressing this throughout our value chain. With all of that capacity, we also carry a fixed cost base sized for 30,000 tonnes. Last year we harvested 15,000 tonnes. This year, we'll harvest 21,500 tonnes. You can see on the chart to the right how the fixed cost declines as volume rises. That's Kaldvik's potential. Here you can see several of the initiatives we're exploring to move past milestone #1. The Kaldvik team will keep working on producing larger smolt, which shortens the production cycle at sea and therefore also lowers our risk. Getting down to a 2-year cycle everywhere — right now production runs on a 3-year cycle — and moving to that 2-year cycle will also become more CapEx demanding going forward. So we'll begin using — utilizing — the sterile licenses in 2027, which carry a MAB of 12,800 tonnes and an expected annual production of 3,000 to 4,000 tonnes. We'll come back to you once we have more on this topic. We're also one step closer to securing the 10,000 tonne license in Seyðisfjörður.

We expect those licenses to be secured, as we mentioned before, during the first half of 2025. So we're examining how to optimize our production areas — that involves making use of our MAB. Altogether, we see potential for 45,000 tonnes of production at Kaldvik. Outlook and summary. I believe we should begin with a summary, along with the biological incident involving elevated mortality in Q4 '24 that carried over into Q1 2025. We also finished with a biomass write-down of EUR 23.5 million. We hold 10,000 tonnes of licenses awaiting approval in Seyðisfjörður. And as Robert noted, Kaldvik is talking with financing partners about refinancing, with the intention of refinancing in Q2 2025. On the outlook, we see a solid global opportunity for premium salmon, and our new sales team is building out the U.S. and Asia markets. Turning to the harvest outlook, our 2024 harvest came to 15,000 tonnes, and our guidance for 2025 is 21,500 tonnes. For the first quarter, we guide 5,500 tonnes. As for smolt output in 2025, we have 7.5 million planned. And following our new facility in Land North, we have smolt production capacity of at least 8 million smolt.

At this point, we're ready to take your questions.