Kaldvik AS (KLDVK) Earnings Call Transcript & Summary

Hello, everyone. I'm Vidar Austebø, the CEO of Kaldvik, and it's a pleasure to welcome all of you to the presentation of our first quarter results for 2026, coming to you from our offices here in Reykjavik. Our CFO, Hjalti Hvítklett, is with me today, and the two of us will take you through the key highlights and the developments of the past quarter. Once the presentation is done, we'll open the floor for questions, and as usual, you're welcome to send them by email to <<email_hidden>>. This disclaimer — we don't need to pause for long on that — so we'll carry on. Today's agenda starts with some key highlights from the last quarter, then we'll move on to operational updates, financial results, and strategic updates. After that, we'll look ahead with a brief outlook and summary before finishing up with the Q&A session. As I mentioned, if you have questions, please send them to <<email_hidden>>. We'll kick off with the key highlights from this quarter, and throughout the presentation we've placed the respective '25 figures in brackets after the '26 figures so you have some reference points. During the first quarter we harvested 6,441 tonnes, with a group operational EBIT of negative €26.5 million. The negative results mainly come from completing the early harvest of the '24 generation, which was initiated because of winter wounds, leading to lower average weight and a superior share of 30%, together with a challenging market situation.

I'll have more to say on that later. Looking forward to '26, we're set to harvest 1,900 tonnes in Q2 this year, all of it coming from the '25 generation, and our full harvest guidance of 17,000 tonnes stays unchanged. As we told the market, the company is facing a difficult financial situation, and during Q1 '26 we flagged a risk of breaching financial covenants, so we secured a waiver from our banking partners along with a subordinated shareholder loan of €20 million from Eidsvaag, our main shareholder. On the strategic side, the new aquaculture bill went to parliament in March, and I'll give some more detail on that later in the presentation. The license we've been waiting on approval for in Seyðisfjörður remains pending. I'll also return with an update on the strategic review during this presentation. Beginning with our farming operations, as we laid out in our Q4 report last year, our '24 generation ran into severe challenges with winter wounds, and we chose to start harvesting that generation early. We had high hopes for the '24 generation, since it was the first to get the tailor-made vaccine against winter ulcers, but that proved insufficient to resolve our wound problems.

As we said before, a portion of the '24 generation had a tough release last fall because of delays along with a sharp, early decline in sea temperature. On top of that, winter '24/'25 proved extreme, with winter temperatures arriving unusually early and readings much colder than usual across the whole of Q4 '24 and Q1 '25. You can see this in the figure on the right, which compares temperatures during the final quarter of '24 against the average for that same period going back to 2010, which appears in blue. Given that, we chose to harvest the '24 generation, with the goal of taking the entire generation as quickly as we could. When Q1 of this year came to a close, we had completed harvesting the full '24 generation, roughly 6 months ahead of what we had originally scheduled. What this means is that the '24 generation produced about 5,500 tonnes of harvest volume below what we expected, largely because average weight came in lower. In addition, the superior share came out at 27% across the total generation, and at 30% during Q1, which weighed on price achievement. Those weak results from the '24 generation have greatly affected Kaldvik's financial position and account for pretty much the primary cause of the financial difficulties we face at present.

So we're glad to have that generation behind us now, and we're looking forward with a promising '25 generation and a new production strategy that aims to keep similar situations from arising down the road. On the '25 generation, the picture is improving. It was a milestone output for Kaldvik, hitting 8.25 million smolts, which came in above our 7.5 million target, and the transfer went well with mortality at an acceptable level. Although the '25 generation received the same vaccine as the '24 generation, winter temperatures this year have been far more favorable, closer to normal for the Eastfjords of Iceland. The blue line in the figure on the right illustrates this, showing temperatures that were normal to above average during the period, and because of that, growth has been relatively good all winter long. The '25 generation is also spread over three sites in Reyðarfjörður, our warmest fjord, which gives good biological performance and operational flexibility. Right now, performance in the '25 generation looks better than what we saw at the same point for the '24 generation, and aside from some issues involving the autumn fish during the period, fish health has stayed good, and at the close of Q1 cumulative mortality in the '25 generation stood at 13.2%, versus 27.8% for the '24 generation at the same time last year.

Over the past two years, our land operations have undergone a number of upgrades, and with a production capacity milestone of 7.5 million smolts now reached, our attention has shifted to optimizing that production. For '26, the goal is to release 7.5 million smolts, and the initial outputs have already been carried out with solid results. Under our new production strategy, which I'll discuss in more detail later in the presentation, 80% of our outputs are now being completed before the end of July, versus 60% last year. In addition, we're taking in smolt from a number of external parties this year as part of our strategy to draw on synergies with partners, which gives us more flexibility, helps optimize our production plan, and lowers overall risk. As examples of improvement work underway on land, our southern land station is hitting its production targets and has successfully trialled enhancements to its smoltification routines with new light regimes. Meanwhile, our northern land site is on track, the new water treatment system at Kópasker is performing as we expected, and the new freshwater ongrowing facility in Rifós — the large building in the picture — is running at full speed.

Moving on to a few details about harvesting and sales during Q1 '26. We brought in 6,441 tonnes, and every tonne of that came out of the problematic '24 generation. Even though we achieved a premium share of just 30%, the total price realized for the quarter came to €5.59 per kilo. As everyone knows, conditions in the salmon price market have been volatile and remain so. Looking at the second half of 2026, roughly 35% of our volume is now covered by a fixed-price contract, which gives us revenue visibility and protection on the downstream side. As part of the update to our production and sales strategy, and following a thorough review of what certification costs and how complex it is compared with the commercial upside, we've made the decision to wind down gradually and then discontinue our Whole Foods Market certification. That wraps up the operational updates. I'll now hand things over to Hjalti, who will take you through the financial updates.

Thank you, Vidar. To start, here are the quarter's highlights, a period defined by elevated costs and a weak superior share out of the '24 generation. As Vidar noted, it was a difficult year: operational EBIT for the group came in at negative €26.4 million, while EBIT per kilo was negative 4.1. Several factors drove this, chiefly the final harvest of the '24 generation, with its high cost price, softer market prices, and reduced superior rates. Revenue came to roughly €36.5 million. Even with a superior share of just 30% and the wrap-up harvest of the '24 generation, overall price achievement landed at €5.6 per kilo. Total assets fell by €44 million over this quarter, mainly because of harvesting and the resulting reduction in biological assets. Total liabilities were down €10 million in the quarter, driven mostly by lower trade and other payables. Equity ratio stands at 53% at quarter-end, as you can see, a modest decline from the prior quarter. During Q1, we flagged a possible risk of breaching the financial covenants tied to our senior bank debt facility, and we opened a constructive dialogue with our lenders. Those discussions led to a waiver secured from the financial parties.

That covered a waiver on the EBITDA covenants for '26, plus a cut in the minimum liquidity requirement from €10 million down to €5 million. On top of that, we received more availability under the revolving facility for the year, which lifts headroom by roughly €5 million. As part of the overall solution, our largest shareholder also came in and supplied a subordinated loan of €20 million. Net interest-bearing debt went down by €11 million in the quarter. EBITDA came in negative at 23. Working capital moved by €32 million, mainly because biomass was lower at quarter-end. CapEx investment totaled €2.9 million, and financial items came to €4.5 million. We have pushed back the release of the '24 '25 annual report to June 12th. That decision was taken so there would be extra time to finish the remaining audits and review procedures. The audit process has taken longer than we expected. Several factors are behind this. As we said in our Q4 update, '25 has been a challenging year, especially with respect to the '24 generation, which also weighed on the Q1 '26 performance. These complexities have called for additional audit work and validation. Beyond that, there was also a CFO change during the reporting period, which affects the timing as well.

So, the delay really comes down to process — it isn't tied to any one particular problem. It's more the result of a complicated operating year combined with a rigorous audit. On the financial calendar, as we've said previously, quarterly company updates will be provided, and financial reports come out twice a year — a half-year report plus an annual report. The upcoming company update covers the first half, and it's set for August 27th. In the appendix you'll also find more detail on the first-quarter financials, including the income statement, the balance sheet, the cash flow statement, and alternative performance measures as well. With that, I'll hand things back to you, Vidar.

Thanks, Hjalti. Now a brief update on where things stand with our strategic initiatives. We haven't fully wrapped up the strategic review of our production model, though several of the key findings are already finding their way into the production plan we'll follow moving forward. The aim of the review has been to examine the whole Kaldvik value chain and pinpoint ways to optimize production, make use of license capacity, and get effective use out of our assets under the particular conditions we face in Iceland. A central goal is to reach the lowest achievable production cost while keeping biological and operational risk at an acceptable level. As a first step, we carried out a project that analyzed all of our production data, paired with a review of scientific data and discussions with other producers and suppliers, to clarify the assumptions behind a new production model tailored to the environmental conditions of the Eastfjords of Iceland. Beyond that, a number of scenarios have been simulated as possible production models, among them scenarios involving reduced, stable, and increased smolt outputs. While the output plan for '26 has now been finalized, the full plan for the years ahead has not yet been finally settled. That said, this work means we are now adjusting our output plan going forward to raise the share of fish grown with just one winter at sea.

We're putting concrete measures in place to lower disease risk, and we're taking the chance to pair external smolt supply with our own in-house smolt capacity. Additional work is still underway to look into ways of optimizing harvest capacity and flexibility, and our aim is to bring mortality down below 10% and lift the superior share above 90%. We think we're now in the middle of rolling out measures that will move us a long way in the right direction. One core principle behind our production strategy will be keeping most of the fish at sea for just one winter while still making use of the growth season. Sites can still span two winters, but only those that experience shows to be good two-winter production sites. Kaldvik has also taken part in ongoing research aimed at better understanding how the parasite Parvicapsula pseudobranchicola infects fish — a parasite that has been driving higher mortality and a lower superior share in our production. Having analyzed our production data and compared it with Norwegian experience, we now know that steering clear of smolt transfers to sea in August and the start of September lets us cut the risk from this disease significantly.

So we're aiming to eliminate transfers entirely during this period going forward, and the bulk of our smolt transfers will be finished by the end of July going forward. As I've already said, 80% of our transfers will be done by the end of July this year, versus 60% last year. That also underpins our one-winter-main strategy, and as mentioned, we're now in land concentrating on optimizing production at our land sites, and we've put an improvement program in place in which several ongoing projects will help further enhance the quality of our smolt to strengthen biological performance at sea. Moving to a one-winter-mainly strategy means we'll be transferring larger smolts, leaving out the groups we've struggled with most previously, namely the smallest fish late in autumn. Having finished the construction projects that have been ongoing at our land sites for several years, we're now shifting focus toward optimizing operations and are optimistic that we'll see better smolt quality and reduced biological risk going forward. Also, as already mentioned, we'll have a hybrid smolt sourcing strategy, partnering with some of the excellent new smolt and land-based producers in Iceland to fully leverage the combined strength of our internal smolt capacity and post-smolt production capacity alongside external capacity to optimize timing, sizing, and performance in line with our new production model at sea.

While we aren't presenting a finalized production plan in this presentation, we're already putting the key takeaways from the strategic review of our production model into practice within ongoing production, moving toward the new production strategy. So 80% of our smolt will be in the sea prior to the end of July, we'll steer clear of the high-risk output window in August and early September, and we'll steer clear of releasing small smolt in autumn, reinforcing our overall smolt output through a hybrid smolt sourcing strategy. Our focus will be on completing the new production plan over the coming weeks, and we'll share further details of the new production strategy at our half-year report in August. Iceland's parliament received the new aquaculture bill in March '26. Since then, during the parliamentary process, the industry has filed a formal response covering both the operational and tax framework set out in the bill, with emphasis on amendments concerning taxation, operational flexibility, and regulatory predictability. Throughout Q2 '26, dialogue with the government and parliament has carried on, and the industry is engaging constructively with the legislative process to back a balanced framework that supports sustainable growth, investment, and competitiveness. Additional discussions and possible amendments are anticipated prior to the bill being finalized.

Next, the new licenses in Seyðisfjörður remain pending. Then, a little on what to expect as we move ahead. As previously noted and as you know, the salmon market is volatile and difficult to forecast, and given the overall market picture, we've decided to sign fixed-price agreements covering roughly 30% 35% of our production for the coming two quarters, at prices we consider favorable, with the aim of giving revenue predictability and protection on the downside. For Q2, our harvest expectation is 1,900 tonnes, and the full-year guidance for '26 stays at 17,000 tonnes. Every harvest for the remainder of this year will come from the '25 generation. To sum up, I'll wrap up by walking through the outlook and the key points ahead. During Q1, we finished harvesting the problematic '24 generation, and it's good to see the first harvest results out of the '25 generation, which appear promising, and starting in Q2, all harvesting will be from that generation. We harvested and sold 6,441 tonnes in the last quarter, and since that was the '24 generation, we still had a low superior rate of 30%, which added to the company's difficult financial position. After identifying a risk of breaching the company's financial covenants, the company secured a waiver from the financial parties in Q1, together with a subordinated shareholder loan of €20 million from our main shareholder.

Regarding strategy, steps stemming from the strategic review are already being put into action; in our view, these will help steady output, bring mortality lower, and lift our superior share. At the half-year presentation in August, a final production strategy will be shared. Approval of the licenses in Seyðisfjörður is still pending. Market volatility persists, yet for the second half of the year we have locked in a contract share of roughly 35% of our remaining volume, at prices we consider very favorable. Revenue predictability and downside protection are what this delivers. Our guidance stays at 17,000 tonnes for '26, with a harvest volume of 1,900 tonnes for Q2. That brings our presentation to a close; we will now take questions, and as noted at the start, please direct questions to <<email_hidden>>, and after a short break we will return with the questions. Thank you. We

We have a few questions. Your fresh strategy doesn't appear to tackle head-on what you've described as your biggest issue over the past few years — wounds, which drive early harvest and down rates. What's your plan for fixing those problems?