Norcod AS (NCOD) Earnings Call Transcript & Summary

Good morning, and welcome to Norcod's Q2 2026 Webcast. My name is Christian Riber, and I'm CEO of Norcod. And together with me today, I have Stian Hansen, our CFO, who will present the numbers together with me. Also at the end of this session, we'll have a Q&A. So please put your questions in the Q&A part of the Teams. Q2 was characterized by a quarter with a very good biological performance with strong growth and stable production. During the quarter, we've increased our biomass with 1,267 tonnes, which is a 31% increase of our biomass. And during the first six months of 2026, we've increased our biomass with 2,330 tonnes, which is a 75% increase of biomass. Value-wise, it's an even bigger increase. Stian will come back to that later. Due to the great production and growth we've had during the quarter, we've tried to limit our harvesting as much as possible. And in total for the quarter, we harvested 791 tonnes with a revenue of NOK 57 million. Despite the low volumes, we've kept our operating losses to NOK 20 million, which is an over 30% year-on-year EBIT margin improvement. Also during the quarter, we have decreased our production cost at sea with about 10%, and we're expecting to see significantly further reductions during the coming quarters due to higher volumes of harvest and also larger size fish coming to harvest. At the same time, we've kept our superior quality of our fish at over 96%, which is a very important part for us. In order to achieve our high sales prices and keep our quality on the fish, this is a very important factor. Also during the quarter, we continue to see a very strong market development with more and more demand for Snow Cod, specifically for existing but also new markets and clients. And we are seeing a well above average sales price result for Norcod. Also during the quarter, we have strengthened our financial platform with a completed equity raise and increased debt facility, putting us in a position to execute the growth plan in place. Post quarter highlights, we are now moving from phase focused on biomass buildup and new sites into a phase focused on increasing harvesting volumes and sales, and therefore, we would see significant improvement of our financial results. On ASC, we decided early in the -- regarding ASC, we decided early in the fall -- in the spring to focus on the new ASC Farm Standard instead of the existing farm standard. To be certified with this new standard is a bit more time consuming and takes a bit longer time, but we're looking forward to getting the certification in place by the end of the year. Last but not least, we are also progressing with the installation of our fish oil facility at our harvesting facility, Kråkøy, which will put us in a position to utilize even more of each fish harvested. As mentioned, the first half of 2026 and also Q2 was characterized by a very, very good production, well above budget and stable operations. We've continued the good biological results in increasing our biomass with over 1,260 tonnes, now totaling a biomass of 5,390 tonnes by the end of the quarter. Despite us harvesting larger volumes during the next six months, we will still see a biomass increase till the end of the year. During the quarter, we harvested 790 tonnes of fish, all processed at our own facility, Kråkøy and as I said, with a very high superiority share of the quality. During the quarter, we've also stocked two of our sites, both Labukta and Jamnungen with a total number of juveniles of 2.5 million. This is again a significant increase of our juvenile stocking, which will result in larger volumes in '28 and '29. Also, we received our first juvenile fish from our new juvenile facility Namdal Rensefisk, which was successfully transferred to the seaphase during the quarter. We're also continuing to standardize and strengthen our infrastructure. We've now received our first concrete feed barge from ScaleAQ, which was deployed in May at Labukta, giving us now access to much more robust power supply systems. And now our locations are also connected to land power, making it much more stable. Status on our growth plan. We are continuing to progress according to plan with new sites being developed driven our capacity increase and also our financial platform in line with the growth plan. We have now -- we're well underway with our new site Snyen, close to Frosvika, where we will deploy fish during the second half of this year. And together with our next site Selsøy, we will now have six large farming sites in operation together with two minor sites, so in total, eight sites. This will put us in a place where we continuously can produce an annual production of 20,000 tonnes. In addition to that, we also have several new applications for new sites and expansions into new areas. So we're well underway, but now we've built this foundation of continuously producing 20,000 tonnes annually. As earlier reported, we also now have standardized our equipment selection. We have tested out over the years a lot of different types of equipment, feeding systems and so on. But now we are very confident that we know what equipment is optimal for cod farming, and we are deploying this at new sites as well. Also very importantly, in June, we entered into a new 5-year agreement with Havlandet, our long-term supplier of fry. Now they will also be a significant supplier of juveniles for us in the coming years, where they are building a capacity to up to 7.5 million juveniles annually. Together with our existing agreements for both fry and juveniles with -- at our other locations, we are now -- we have now secured sufficient fry and juvenile to complete our growth plan. Also, these new facilities for juvenile put us in a position where we will have much more flexibility in staffing strategies and size selections. As mentioned, we've also strengthened our financial platform through the quarter. We have done this by an equity raise and increased our debt facilities, and this puts us in a position to execute our growth ambitions.

Okay. So then we will proceed with the financial update and going through all of our numbers here. The harvest volume increased somewhat from the first quarter this year and ended at 791 tonnes, generating an operating revenue of NOK 57 million. This represents an increase of 21% in operating revenues per kilo from the corresponding quarter last year, which emphasizes the continued positive development in achieved sales prices. The production cost at sea decreased by 25% from the first quarter this year as we have harvested more fish earlier in the production cycle in Q1 and closed more in on preferable sizes during the second quarter of this year as we now are proceeding towards the second half of this year. The production cost has also slightly decreased year-over-year, but we also expect a further reduction in production cost per kilo throughout this year as we are now increasing the harvesting volume and reaching a more optimal average size of the fish on the project set for harvesting. Our available funds at the end of this quarter increased from the first quarter this year after we completed the capital raise, and this is leading us to available funds of NOK 87 million at the end of this first half year. The cash proportion is, of course, low as we run all our funds through the overdraft facilities with DNB, but we have now concluded with NOK 87 million of available funds. The balance sheet is, of course, also reflected by the strong biological growth throughout this year, and this is manifested in our numbers. During the quarter, the biomass at sea increased by almost 1,300 tonnes with an increase in nominal value of NOK 110 million alone in the second quarter this year. This represents an increase in biomass value of 40% during the quarter and more than a doubling during the first half year. This is, of course, in line with our scale-up strategy, but we are also growing on the asset side due to preparations for start-up of new production cycles and locations. New and improved equipment for the ongoing productions in addition to everything we need for a successful start-up of Snyen this fall is increasing our noncurrent assets as well. The total balance grew to NOK 860 million at the end of the quarter, funded by additional equity from the capital raise and of course, the increased debt facilities from our main bank, primarily through an increase in the overdraft facilities. As we proceed to the financial review, even though the quarter and the first half year in general has been characterized by low harvest volumes, we still have significant improvements in several financial parameters. The revenues per kilo increased by 21% year-over-year. And even though we did not have sufficient harvest volume throughout the period to carry all fixed costs, we still see an improvement in EBIT before value adjustment of above 46%, which is extremely important for us as we now are progressing towards improved financial results. We are also very satisfied with no extraordinary events and no 0 nonrecurring items for the first half year. In addition to the positive value development of our biomass, this is generating an EBIT of minus NOK 20 million, which is an improvement of 57% year-over-year. And more importantly, this represents a 31% improvement in EBIT margin. So as we are commencing with increased harvesting levels further on this year, we expect this improvement to just continue now for the next upcoming quarters. This is, of course, summing up a lot from the previous page, but I would like to comment separately on the production cost per kilo. The production cost per kilo had a decrease from NOK 59.9 per kilo in the corresponding quarter last year to NOK 55.6 per kilo in Q2 '26. We expect this reduction in production cost per kilo to continue to decrease further throughout this year as we are increasing the harvesting volume and reaching a more optimal average size of the fish. And as we are commencing with increased harvesting levels further on this year, we expect continued improvement in financial performance as we are progressing according to our upscaling strategy now. The net loss for the period ended at NOK 31.5 million after net financials, which is a 40% improvement year-over-year. The balance sheet development is, as of course, I mentioned, increasing rapidly due to our growth and upscaling. The increased financial capacity was secured during the second quarter this year as a result of the completed private placement, raising net proceeds of NOK 81 million in equity and unlocking a total of NOK 120 million in new debt from DNB. Combined with the leasing financing of most new equipment, this constitutes our financial solution for the ongoing upscaling according to our strategy. The cash flows from operating activities ended at minus NOK 91 million in Q2 '26. The strong growth of biological assets during the quarter has demanded significant cash flow, of course, with a net increase in inventory of biological assets alone of NOK 106 million. Combined with low harvesting levels as we close in on more preferable average weights for second half of this year, this creates a lack of operating cash flow during the period that enables stronger future earnings. The investing activities generated net cash flows of minus NOK 28 million this quarter and is related to investments in equipment for our growth plan, combined with no sale of any property, plant or equipment during this period. Net cash flows from financing activities ended at NOK 130 million this quarter and thus as a result of the proceeds received from the issuance of shares with NOK 1 million in net in addition to the net increase in bank debt of NOK 45 million during the quarter. So net cash flow for the quarter in general concluded at minus NOK 6 million. Then we'll give the word back to Christian for the market update.

As previously mentioned, we are continuing to see a strong market for fresh cod. Of course, a limited supply supporting higher prices and strong demand. But at the same time, we see a clear trend that the clients utilizing Snow Cod on a regular basis are seeing the value of high quality, stable deliveries and fixed prices and therefore, having higher and higher demand. Also, a lot of new markets and new clients are coming on board, and we are seeing and expecting a very positive trends for the market in the coming quarters. We are continuing to see with our Snow Cod premium pricing with an average achieved price close to 8% above the market average. This really reflects the consistency of our high superior grade share together with some very strong client relationship and a good commercial platform. As I said, after a full focus on growing our biomass and strengthening our production facilities, we are now transferring into a period where we will be focusing even more on harvesting and sales. This will significantly increase our financial results in the coming quarters and forward. Regarding ASC, there's an existing ASC standard where cod has been adopted into salmon, and there's a new ASC Farm Standard coming in the new year. We decided early in the spring to focus on the new farming standards put us in a position where we don't need to be recertified in the new year. It's a bit more demanding standard, and it takes a bit longer time. But for us, it's the right move to do, and we will be the first cod farmer to be certified on this new ASC Farm Standard. We're expecting to be able to deliver ASC Snow Cod by the end of this year. On the outlook, all in all, we've had a very good quarter production-wise. We've seen great temperatures across all sites. As we say here in Norway, we actually had a great cod summer. It hasn't been the warmest summer. We have stable temperatures around our sites of around 13 degrees, which is a very good temperature for cod farming. So we've seen well above budget production at all sites. Therefore, we also limited our harvesting during the quarters to get that extra growth on all fish. So there will be a significant change in the coming quarters, harvesting-wise and sales-wise, where we'll see a significant revenue increase. The stocking at Labukta will be finalized here in September, and we look very much forward to starting up our new site Snyen close to our existing site, Frosvika, where we have already equipped the site with new farming equipment adapted to cod farming. So we look very much forward to that coming on board. Also, we are still on track with our production plan, and we're expecting to harvest between 13,000 tonnes and 15,000 tonnes in 2027, which is, of course, supported by the strong biological performance we've seen during the first six months of this year. We secured both production facilities and juvenile capacity to execute this plan. ASC, we just talked about, but also very importantly, we are now, as we speak, installing our new fish oil facility at Kråkøy, which will put us in a position where we can utilize up to 98% of each fish that we harvest. This is very important both financially, but also sustainability-wise as we will utilize almost every part of our fish for human consumption. So going into the future with higher biomass, more consistent and ongoing harvest volumes, we feel we are in a very good place and look forward to presenting some very improved financial results in the coming quarters. Now we'll start the Q&A session.

So again, please put in your questions in the Q&A if you have questions. And I guess we will start with Kim. He has asked, how do the fish react to the higher water temperatures. Well, so far, we haven't seen higher water temperatures during the Norwegian coast. As mentioned, the Norwegian summer this year has been very favorable for cod farming. So we have very stable and good temperatures for cod farming. Christopher is asking, are the new stockings sorted by gender? No. I think Christopher is referring to an ongoing gender sorting project where we are looking to sort males and females separately to limit the possibility of maturation. This is an ongoing project, and we will update when we have news about this. Also, Christopher is asking how many tonnes do we expect to harvest in the second half of 2026. It's very dependent on the continued growth and how we see production ongoing, but we are targeting between 3,000 tonnes and 4,000 tonnes of harvest in the second half of the year. [ Val ] is asking, do you see any risk in potentially in super El Nino coming this fall, increase in fish food prices, supply problems, environmental problems. Of course, we are seeing or expecting to see increasing in feed prices. A large part of our feed is marine content through fish oil and fish meal, but we are countering this by adding salmon oil to our feed. We have a clear advantage on the feed side that we can utilize salmon oil, which the salmon industry cannot. And also, we are looking into other protein resources, which is being implemented in our feed. So we have countermeasures to this increase in feed prices.