Nordic Aqua Partners A/S (NOAP.OL) Q2 FY2025 Earnings Call Transcript & Summary

Hello and good morning, everyone. Nordic Aqua presenting Q2. With us today, we have, from China, myself; and our Managing Director here in China, Andreas Thorud; And from Oslo is our CFO, Tom. So if we go to our highlights of this quarter, of course, we have had a postponement of presenting this quarter, and we can now announce also that we have a financing package that we can share with you. And of course, Tom will come back to this, our CFO. But we are happy to announce also that we have with us now 2 big Chinese investors, which we see can give us some extra strategic strength in China with our further plans. So that was excellent to be able to let you know. And also that we now have a financing package that we are ready to present. But we will come back to the details. If we look at the production and the harvest during the year, this has been announced for a while now since our project update right after Q2, but production somewhat lower than we have had before, 756 tonnes, still good harvest, superior share and size quite okay, but somewhat smaller than in Q1. And if we go to the sales price, Andreas will come back to this one on market. But most -- since most of the harvest was in end of the quarter, somewhat affected by that. Biology is going well. Biomass production 730 tonnes. And if we look at Stage 2, I think we have maybe a historic moment since a land-based farming is going out to announce that we have a lower CapEx than we have believed earlier and also as much lower as 16% from EUR 77 million down to EUR 65 million. So we're very pleased also to be able to announce that. And of course, we will come back with the finance package also. But first of all, I would like to give the word to Andreas and take us through sales and market during the quarter. So please, Andreas.

Yes. Thank you, Ragnar. So we had a continuous commercial progress in Q2. We received very good feedback from the market when it comes to our quality that is from our established customers, repeating customers as well as we were building new customer relationships. We continue with a very strong superior share of 99%. And as Ragnar mentioned, our average weight in HOG was down from Q1. So we had 4.6 kilo in the quarter. And that also had an effect somewhat on our achievement price of EUR 6.74 per kilo. In addition to that the majority or a lot of our harvest in the Q2 quarter came towards the end of the quarter, and that was also an impact by the global prices at that point. So that had an impact on the price achievement for that quarter. Moving forward, doing various activities and we had engagement in order to build our long-term strategic position. We were honored to have Norwegian Ambassador, Mr. Vebjørn Dysvik at our [indiscernible]. We were participating at trade shows. We were also doing local events, both here in Ningbo as well as in Shanghai with regards to chefing on the menu from restaurants in Shanghai with our premium super fresh Atlantic salmon. So all in all, these activities contribute to build our long-term position as a premium supplier of fresh Atlantic salmon locally. And we very much believe in our compelling value proposition to the market. It stands for unparalleled freshness, which is highly valued both by the value chain, but also by end consumers. In addition, we had just recently now received the no antibiotic certificate by NSF in China. So we are certified the first Atlantic salmon producer in China that has this certificate. So from a food safety perspective, that has been a strong sales argument, especially when you know the consumers or end users concerned about this aspect. We are also continuing our goals and also our engagement in terms of achieving sustainability, especially with regards to being locally present and can supply the market. As you know, imported fresh salmon to China is sent through air shipments. And then lastly, being locally present, we are agile. We are looking forward to build more stronger strategic customer and consumer engagement relationships by being here locally. And then we are targeting our food service sector with our larger fish and also for some of the smaller fish, we are also working very closely to get more traction into the retail, both offline and online because we know by being in the [ Nordic ] just south of Shanghai, around 300 kilometers south of Shanghai, we're in a very affluent area in 5 hours radius. There is an attractive market just around us. We know that our consumers focusing on health, they're focusing on getting high-quality proteins, and they also are more and more [Technical Difficulty] using salmon, as you will see in a moment for the overall Chinese market. But we are also beyond our new region, we are also developing in Beijing in North in Gaotang, in South and also in Chengdu, more in Western China. The Chinese market this year has been a very strong year. If you look at the volume. Here, we have the latest numbers showing that we have an annual import growth of 57% year-on-year. That was for the Q2 numbers. We also see that the potential in the Chinese market is now starting to reveal itself. We talked about perhaps before that the Chinese market has not really started. Perhaps now it is starting, but there's a lot of room for growth. We see estimates showing in 2030, the market should double from last year. That is also combined with the low average consumption rate of Atlantic Salmon in China, about 100 gram per capita. However, the high awareness and the demand that is picking up is obviously very strong drivers when we have such a large population pool. And we also have accumulated here on the 12-month rolling basis quarter by -- on Q2 on a 12-month rolling basis, we see that there's been a very steady growth these last years, especially since the corona period. So that looks very promising. We also saw for the Q2 that the Norwegian market share was very strong, up to 70%, and it kind of squeezed out other players, and that is also due to the lower global prices that were -- or lower global prices that were experienced in the quarter, and we see that Norwegian origin then becomes a very strong player in that regard, especially Chile had a strong decrease in the market. So it's a market with many players, but it's also a market where we see the growth is -- has been exceptionally strong this year in import volumes. However, it's been a market year with lower prices, especially in the Q2. And that is also shown here, where we see that on the last -- in 2025 that the volumes have shot up. However, the average prices landed into the market have come down. But it's important to look at the average prices over time and then the historic one has been import price just above EUR 10 per kilo. So although this year, we have seen a decline, we also think that there will be a more normalization towards the average and also above that especially with what we want to archive here locally in Nordic Aqua.

Thank you, Andreas. We'll go to some numbers in the operations. So if we look at the performance, we can see that there has been a little bit less production in biomass in Q2, compared to some of the other quarters. And it's mainly, I think, because we needed to go into each tank and do some rectifications and move a lot of big fish around. And we underestimated the effect that it would have on the growth to do this operation. And all these transportation decreased the growth significantly, but we could see it was from late April until mid-June that this took effect. And since then, the growth has been normalized. The health on [ fish shelters ] has been strong as always, I would say. And the other parameters are also quite strong. So now that the production has come up again, I can say that the biology is very good in Stage 1. If you look at the project -- project parameters, of course, it's mainly Stage 2 project that we are focusing on how development goes. You can see from the bottom picture now that of Stage 2 is completed on the outside. We are working still on the inside. And from the upper picture, you can see in one of the systems that we are soon ready to put in the first fish into the first of the facilities -- first of four facilities. So everything is going according to plan. And we stocked the first fish for Stage 2 in September last year. And therefore, at that time around in the next year those fish will be ready for harvest 24 months after introduction. The tank size we have built now has gone up to 2,500 cubic and all of the systems, they have been standardized. And that is also helping us to reduce the CapEx, as I mentioned initially, taking the total CapEx for Stage 2 from EUR 77 million down to EUR 65 million. And of course, if we look at why can we take it down, it's really -- we think that we have a very good collaboration with AKVA group and also other suppliers. And also this standardization of unit is helping us a lot. And of course, we believe also that our very good and strong project management is assisting us with this. So far, we paid down EUR 30 million of the EUR 65 million. The plan is still to increase further. If we look at the colors here, Stage 1, Stage 2 and Stage 3. Stage 1 completed last year. Stage 2 will complete February, March next year. And we have said that we'll come back with -- on the plans for Stage 3 during the second half of this year. If we go in and just look a little bit closer at how do we see ourselves as a constructor of RAS sites, we believe that our model is very strong. I mean, we have -- firstly, we have Chinese government that are funding infrastructure and the building itself. And then when we look at the CapEx that we're responsible for, we have been able now to get it down from our expectations. And we have, as we believe, also a very good corporation agreement with AKVA and both parties are satisfied with this contract-wise form that we have. And I think when we look at the model that we are working with the cost-plus model, it has been extremely good for us during this stage 2 project. And we can -- I can just add also that the scope has not changed, it's just price that has come down. So very, very strong achievement. And if we look into Stage 3, we believe also that the cost of that will be taken in from the experience that we have with decreasing the prices for Stage 2. So we don't have a new updated cost guide on Stage 3, but we can just see that we are building at a more efficient way now than we expected earlier. So all in all, we believe that this is industry leading, the way that we are building the facilities at the moment. If we look at how Stage 2, of course, I mentioned already that next year, Q3, that is when the first group of fish that we planned for Stage 2 will come to the harvest. And if we look at how can a Stage 3 look like, at least next year, we need to do engineering. And then the first starting point that we can have will be in the beginning of 2027 to construct and then the first harvest would come close to 2 years later than that. So somewhere in 2029 is the first harvest that we see from this. But as I mentioned also earlier, we have not taken the final investment decision yet, and we will come back to our plan on Stage 3. So with this, I will hand over to our CFO, please, Tom.

Thank you, Ragnar. If you first start to look at some of the figures for second quarter. The next page, please. Yes. So the 756 tonnes at EUR 6.74 per kilo gave a revenue of close to EUR 5.1 million. The operating EBIT after the cost for released from stock and other added costs took us down to EUR 2.58 million and considering the fair value adjustments, an EBIT of minus EUR 4.7 million. Profit and loss for the period after financial items and tax, minus EUR 10.1 million approximately, and this includes EUR 5.4 million in unrealized currency due to the conversion or consolidation of the Chinese entity into euro. The net cash flow for the period was positive EUR 5.1 million, mainly comprising the additional debt of EUR 13 million and payment of CapEx of EUR 8.3 million. That took us to an ending capital for the quarter of EUR 13.2 million and an equity of EUR 69 million, corresponding to 45%. And the biomass at the end of the quarter was EUR 16.3 million. Then we are very happy to be able to present the capitalization, which we truly believe we can be transformational. It comprised 2 elements. We have the long-term financing of -- by a syndicate of Chinese banks. And then we have an equity injection by 2 reputable major Chinese investors. We believe that together, this will mark a strategic, long-term local ownership, will accelerate our ability to execute the strategy towards 20,000 tonnes. But not only that, it will offer synergies in commercial and also in the field of competence with academic institutions. This funding will refinance our existing debt -- our long-term and short-term existing debt, and we will have a local financial base in local currency RMB from Chinese banks going forward. We will, in the future, consider the potential for IPO-ing of Nordic Aqua Ningbo in China or Hong Kong to see if that can give some shareholder value. If we first look at the debt financing, we're talking and finally, we are at a stage where we have the right to present this to you now. It is a syndicate of Chinese banks led by Bank of China as arranger and also as a lender. It comprised the long-term financing of the facility in Gaotang and it comprised a working capital facility of up to RMB 200 million. We are in documentation phase currently. We expect to close the documentation and the transaction during October. We can already say now that the terms and conditions of the new financing compares favorably with what is available in euro and the European markets. In addition, the preliminary agreement comprises financing for Stage 3, subject to certain milestones and conditions, obviously. To ensure that we have sufficient liquidity up until the closing, Nordic Aqua Partners intends to enter into a short-term facility with Kontrari for up to EUR 10 million. And equity portion of this transaction, there will be 2 new investors into the Chinese entity. They will inject RMB 300 million corresponding to approximately EUR 36 million for a 20% stake. And this will unlock our potential for accelerated growth and to scale up to 20,000 tonnes of annual capacity. Nordic Aqua Partners, NOAP will retain operational and strategic control. We will, of course, have a governance structure on par with local and international standards. And this part of the transaction is subject to EGM in NOAP, which will be called shortly and also corresponding for the new investors as well as, of course, documentation. I will close my section here before I give the word back to you, Ragnar, by saying that we -- these transactions represent a strategic milestone for Nordic Aqua Partners. It [ secures ] equity. It unlocks local debt at attractive terms. It enhances the company's ability to grow and scale strategically, operationally and commercially by supporting the expansion to 20,000 tonnes. So with that, I give the word back to you, Ragnar.

Thank you, Tom. The final slide is just a summary where we go through what we have presented. So like Tom ended, the financing that we have got in place gets us much closer now towards the 20,000 tonnes. I mean, a bank indication on financing and also equity injection. If we look at the harvest, it's 750 tonnes, getting closer to where we are aiming for. And if we look at the underlying biology, it is good. Stage 2, very good to announce that we have been able to do down the CapEx. And as a guiding for harvest this year, we say that we are around 2,300 tons now. of course, depending a little bit on the lower production that we had in Q2, but also on prices that are in the market now compared to what the prices can be early next year. And Stage 2, as we have seen on schedule, and we will be ready to go fish within October. So with this summary, we will end the presentation, and we will open for questions. So please go in and write any questions that you wanted and then we will follow up on that.

Okay. So I have a couple of -- I think the first one might be for you, Ragnar. Do you expect lower CapEx for Stage 3 that initially estimated extrapolating the guidance to cut Stage 2 CapEx?

Okay. Yes. We don't have guidance on Stage 3, mainly we want to make the design complete and come out with a package on that one. But looking at how [Technical Difficulty] Stage 2, we believe that it will be lower than we have said earlier. But you should also remember maybe from previously that we have built up the CapEx of 2, we call them packages. One package is the standard basic RAS unit that we have. And then we had some initiatives towards the adjustment levels that we have reached in last summer. And those we needed some extra initiatives for. They're all included in Stage 2. And you just bear in mind that we have had some all in all, yes, lower CapEx than we have before with Stage 3, including adjustment initiatives, but not a concrete number, unfortunately, at the moment.

And then, I think, perhaps the second question might be answered by -- already answered by you Ragnar. So I will read it. Does the EUR 36 million equity investment into the subsidiary include all required equity for Stage 3? And of course, that has the same caveats or subjects, as you mentioned selling a lot of fish between now and the final investment decision. But you might have other things to add on, Ragnar.

No. I mean, we have -- we don't want to announce this as that there will not be required anymore into Stage 3. So -- and also here, we don't have numbers since we don't really have a final CapEx that we want to present yet. So yes, these 2 are, of course, interlinked.

A question on volume. Have you gone down for 4,000 tonnes of harvest targeted from 4,400 due to the reduced growth following the transfer of Big Fish.

No. I mean the low production that we saw in -- the lower production we saw in Stage 2 is not something that we expect will continue. And of course, when we look at the production, the production -- the feeding has been very good throughout Q3. We will come out with some update very soon as we are close to ending the Q3 now. So [Technical Difficulty] level. But I think all of us land-based farmers, we don't have that much yet of experience or I could say, with data to be accurate when we guide on project production volumes. But it might well be 4,400 tonnes that we have for each of the stages still as a goal, but we don't want to come up with any precise guiding now for next year. We would like to keep the guidance maybe a little bit closer to completion before we bring them out. So that is the main reason. But we see that the biology is going well. There's nothing -- I mean, Q3 has been a very high feeding fish and production. But I will not come out with new guiding on the future on this one.

All right.

I can just mention that we are at some level that indicate at least that we are between these numbers that we are talking about 4,000 and 4,400. Okay. Do you see any more questions, Tom?

Not yet.

Then I think we just say thank you very much for listening, and I thank from all of us.