Nordic Aqua Partners A/S ($NOAP)

Good morning, everyone. Welcome to Nordic Aqua's presentation of Q1. With us today, we have myself; Ragnar Joensen, CEO; and Tom Austrheim, CFO; and from China is our Managing Director, Andreas Thorud. So the agenda for today, I will start with giving some highlights. Andreas will come and give us an update on the market. I'll come back with operations and projects. And then finally, CFO will take us through financials and I will end with summary outlook. So if we look at highlights this quarter, we can see that we have had an excellent production. Supply is running very well, over 2,000 tonnes in production. And we can say that Phase 1 is running as it should fully and almost also full run in Phase 2. So very good even though we started without having some of the capacity in this quarter. It was finalized during this quarter. Harvest, just under 800 tonnes. So we are building up biomass, not harvesting a as much filling up these new production facilities. And if we look at price, we can see that price achievements for the bigger fish is also very strong. We can go for the cost. The cost is coming down as the production is going up. Operational EBIT was EUR 0.5 million minus in the quarter. But for March, we had a positive EBIT. So we are moving in the right direction, definitely. We can also say that we have started to design for the next stage, Stage 3 as planned, and we will come back to exactly when production side could commence. And then the market, as Andreas also will take us through is extremely strong in China, growing very fast. So with this, I will just hand over to Andreas and please take us through the market part.

Yes. Thank you so much for that, Ragnar. And I think it's very exciting to be able to present this market part and also the sales part because we see kind of 2 things are happening now in the Chinese market. First of all, the market is happening. We will get back to that. But I think it's also very exciting to see that Nordic Aqua commercially is starting to happen, and we worked very hard for that. We saw for the Q1 this year. that we had a very good increase in both sales and harvest. And we also had a good hog size on the 771 tonnes that we harvested. This is our -- actually our best quarter in terms of harvest volume so far. And as we get back in the outlook, we will also continue to have strong harvest 4.4 kilo hog, we are now closing in on what is the Norwegian average, as you can see from the graph on the left-hand lower corner day and as we have said before, our goal is to even increase that further because then we are meeting the demands of the Chinese market when it comes to size. And speaking about size, if we look at our pricing then benchmark to [indiscernible] Sitagri in the same period and bated. We are 13% on 5 plus, which gives us a healthy premium. Obviously, we hope to have that even further but it just is a testament to the strategy of having big fish and also the realities of the Chinese market with that preference of bigger size. So the average sales price we achieved in the quarter was EUR 7.79 and obviously, we had some parts of our harvest during the quarter was a little bit of a lower size. That means that the prices came down a bit. But overall, we are slightly above the quarter in terms of the average Sitagri price when we take all sizes into consideration. And for the -- just to repeat something we have talked about before, but the Chinese market likes large salmon fish. They think it's better taste. There's a better texture to it. They have better yield than they manually cut it, and there's also a lot of -- consumption here, which they are drawn to the biggest size -- so that's why we see some price sensitivity when it comes to the weight variation, which we don't necessarily see in other markets. And I think the graph on the right-hand side illustrates there. And that -- when we look at the average Sitagri Index and also our sales in the market. We are 1% above. But once we go above 5 kilo, -- it really shows that the Chinese market has a premium to that, which was 13%. So this is just something to be taken into consideration and look at China because it's not a fully developed salmon market in the sense that you may see in Europe, but there's also a demand for the whole range of sizes from the harvest, which you tend to see there. And moving forward, we are also working hard to establish our brand, our position -- we work in different channels. We have a strong sales and commercial team that is working on that. We had some events in the quarter, which we think were relevant to talk very briefly about we had in Shanghai and event with a famous restaurant, which really put our Nordic PureAtlantic to shine in terms of talking about the origin of our product. the quality of our product and also adapting it to a local flavor. And we see that this preference for what is a China, the price of buying a high-quality product in China is something we are now seeing in this Atlantic family market as well, and we think that is very good for further future positioning by building a premium brand of our Nordic or Atlantic. We were also part of a Ningbo City promotion event in Shanghai, which showcased the product to many embassies, consulates and also business stakeholders. And it seems like a few months already, and that's what is actually what it was. There was a Chinese New Year in February, and we had a special addition we made this year, which we celebrated the uses of the whole fish, and that was also something else we have received where we had a small scale into addition that we provide to certain stakeholders in the market. Now if you look at value proposition we bring here with our Nordic Atlantic. We talk about our fresh net, which is unique. What is the top of mind of Chinese consumers when they buy seafood, it's freshness. We have an unparalleled story when it comes to talking about freshness given our localized production Atlantic salmon, the very high safety profile of our products. We're not using any antibiotics. We have a very controlled environment and we are free from other medicines and parasite is also highly valued in the local market where food safety is also a key concern when people are buying food. And we also have a sustainability factor to take into consideration. We don't have any very little CO2 emissions when it comes to the transport side. We are localized here in this market which is growing and booming, and it makes a lot of sense to produce an Atlantic salmon on land to cater to what we see as a continuous demand for Atlantic salmon and that also shows us the agility we have by being here locally and building those strategic partnerships that we are aiming through this year. which our sales are working hard on, and that's also based on how we are now getting into a very good rhythm of stable harvesting, and we can be in close contact with our customers and just building the brand equity and also providing a special product to the local market. And then we seek to do that in foodservice and also in retail. And this is also size dependent. And then has talked about this many times, but we are in China. We are in Ningbo, south on Ningbo. For those of you who are not that familiar with China, we are in the Eastern Seaboard in China, very strategically localized. We have a close proximity to Shanghai. It takes 5 hours with the truck to get products there. In this wider Yonge River Delta area around Shanghai, there is a high-income area. There's a focus on health -- we also have a good availability to reach other high-end markets, such as Beijing, which we have developed in Guangzhou and also in land -- so we think this is a very good starting point to cater to market, we are very close to the biggest market, which is the greater Shanghai region. And then we are also an area with super water quality, and we have energy at stable prices and also the modern infrastructure that China is so good for that can facilitate an efficient logistics also within cold chain to our customers. And there's a lot to talk about the Chinese market these days. And then there's no wonder because there is an explosive growth that has been going on here. It started last year, particularly but we see that it's continuing into this year with a very impressive 55% year-on-year growth for Q1 in terms of import of fresh Atlantic Salmon, which reached around 46,550 tonnes. If you just use that number as an example, you have a run rate of between 180,000 and 190,000 tonnes potentially for the year. We have earlier talked about an estimate which was from 2023 for 2030 by Alibaba, who said it should be around 210,000 tonnes in the Atlantic salmon market in China. We think that is going to be surpassed way before 2030, and we have now looked at another estimate, which is showing a 300,000 tonnes market in China in 2030 by Pareto Securities, also including Hong Kong, but that's usually around 10,000, 12,000 tonnes for the Hong Kong market. So it just shows that where we are now, we feel very much we are at the -- in the right market at the right time with the right product because there is a very nice growth opportunity here. And what we are doing now with getting the sizes there, building that sales organization, we feel very comfortable where we are. If you look at just quickly the nature of the Chinese market, there are many competitive origins here. They all want to have a piece of this market. Norway had a strong market share here and during the COVID years as it was able to deliver. Last year and this year has been growing their market share further from after pre-COVID. That's obviously because the prices have been a bit lower. There's a strong preference on the [indiscernible] origin. Obviously, the are here based on Norwegian heritage of Atlantic salmon, we are Norwegian technology. So we are also obviously have an association to this Norwegian salmon story by doing it localized here. But also here, again, the Q1 numbers are fantastic, if you look at compared to last year and the years before. So it's really really a booming market in China, and we are very excited to be a part of that. And then finally, in terms of pricing, we hope to see that the pricing will return to what has been the average price in China, which has been above EUR 10. If you follow the graph here, we see there was a bottom point last year and during the summer, it has been a slight improvement in prices as we differentiate between the European origin and Chile and Australia. So we hope to see this as a more return to the normal return to the average, and that puts us in a very good position to leverage our prices and our products. Thank you.

Thank you, Andreas. I will just continue with the operations. I mentioned briefly in the start that production has been going very well. So production over 2,000 tonnes, nearly 2,200 tonnes for for the first quarter of this year, we started with full capacity in mid-February, so of Phase 2. So we have nearly have a full run rate of Stage 2 without having all the capacity available. So we expect this also to continue into Q2. And instead of harvesting much, we can see over the past quarters. We have built up biomass into the new facility. So nearly 2,000 tonnes more or just about 2,000 tonnes more in stock which we can generate more harvest from. So we have said that we will have a slightly more in Q2, but especially from Q3, we will start having a full run rate on the Stage 2. If we just have a look at how we have the KPIs been since we started operations in 2024. We have produced just over 12,000 tonnes. All batches have shown low mortality. And we have harvested now just over 4,000, and this will continue into this year, we have set the estimates for this year is between 5,000 and 6,000 tonnes. Average rate was high. And then we had a little bit last year, but it's coming up again now and also continuing into Q2. So very high superior rates also. Just going to have a brief look at Stage 2. We have Stage 2 with full operations now, which can bring us our capacity up to 8,000 tonnes of harvesting. And if we look at the cost, we have said that previously that we took the cost down. We had an estimate of EUR 77 million for Stage 2, we took it down to EUR 65 million. Of the EUR 65 million we have paid so far out just around EUR 50 million. So we still have some to pay. But most of all systems are fully in operations now. It jumps from slight accelerates that still needs to be completed. And of course, we are also looking at our Stage 3 now, which we are starting to design on already. And then I will give the word to Tom, our CFO, to the financials, please.

Yes. Thank you, Andreas. So looking at the first quarter, the financials, the revenue, as we have touched upon was EUR 6 million, which is on 771 tonne that on euro something sense which. Another release cost from stock was EUR 4.8 million just shy of EUR 6.3 per kilo. And that is significantly below our Q4 figures at EUR 2.7 reduction and also below what we guided on for the quarter. So that gives an EBIT of operating EBITDA of EUR 920 million and operating EBIT of minus EUR 529 million. We had a net cash flow for the period of minus EUR 6.8 million, and that is that negative primarily driven by a reduction in working capital. So payment of trade payables and also investment in biomass. We spent EUR 1.2 million in investments in the PP for Stage 2 and ended the quarter with biomass of EUR 35.4 million, including EUR 8.6 million in fair value adjustments. The equity ratio was 59%. Then in Q4, we entered into this transform of capitalization and financing transactions. On the financing side by refinancing existing debt with the syndicate of Chinese banks, onboarding and group of Chinese banks, not only for stage but also for the working capital purposes that we'll come back to and also for future Stage 3. And then we had an equity injection directly into the Chinese subsidiary. This creates -- this offers strategic and operational synergies and accelerates the strategy execution towards 28,000 tonnes, obviously. And the debt is now financed with Chinese banks in local currency. We have EUR 385 million in the syndicated project finance facility, where of EUR 272 million was drawn at the end of Q1. So the undrawn portion roughly corresponds to the remaining CapEx for stage 2. Then we have the working capital facility where we have an active dialogue with the same group of banks and some others. So we expect that to come in to around 200 million or EUR 24 million and to be completed within 2026. And last but not least, the same group of banks are, in principle, looking at Stage 3 when we get to a final investment decision on that one. And together, these credit facilities have refinanced our short-term credits and some of that was repaid during Q1.

Thank you, Tom. I will just continue to the last part of the presentation. That's the outlook and summary. If we look at the outlook for Q2 this year, I mean, as Andreas was touching upon market is growing extremely well. Harvest, we expect to harvest between 1,000 and 1,200 tonne for Q2 and average rate is going to be slightly higher than Q1. Estimates for the year, still the same, 5,000 to 6,000 tonnes. Prices seem to be strengthened also. And if you look at the costs, we expect to have slightly decrease also from the current level into Q2. The production is going well still. And as Andreas, as Tom was touching upon, working capital is going to be fully subscribed during the year. And the project finished with Stage 2 and starting to design and moving towards a final decision when to start on constructing Stage 2 throughout this year. So all in all, I mean, we think that this quarter has been very good for us, good growth. Market is growing. Financing are well in place. And yes, looking into the future by expanding into Stage 3. So with this, I would just like to thank you for listening. And then you have had the chance also to put us some questions. If you're interested during the presentation, you have to write them down. And I will just look to come here to see if we have received any questions so far.

Now we have received only 1 question, which is regarding the Sitagri index. There was a question here. It does not -- Sitagri index does not include the transportation cost. How should we think about this component going forward?

Yes, please, Andreas.

Yes. And I think the transportation cost is obviously somewhat of a fluctuating cost driver in this. We have to pick something that we can benchmark ourselves against. And we see that by looking at Sitagri assets, that's 1 way of solving what we are getting paid for here in the Chinese market compared to act if it was exported from Norway. But then 1 could do on some calculations in terms of estimating a freight cost and doing a type of import duty type of estimation. But that's what we chose to have a benchmark just to show that this type of -- the premium for the bigger size is something that China has shown to have, although in Q1, we saw sometimes that the prices from Norway in terms of the larger size phase, 5 to 6, 6 to 7 , 7 to 8 was the same as the smaller size fish. So there's also a little bit of a peculiar market in that respect. And Q1 last year, when we had the same type of comparison. At that time, we had a 20% premium. So we hope to increase our premium further as the market comes back to perhaps a more normal rhythm when it comes to the demand for the big fish and also, obviously, the supply of the big fish, it was have been a lot in the quarter that was just happening.

Thank you. And we can see that there are no other questions in the box in the inbox for us. Maybe we can just wait a few seconds and see if something should come up. Okay. We know that there is sometimes a delay in the system also. So that's why we just have to wait a little bit to see. If not, then we can just say also that if somebody raises questions, after we have seen them before we end now, then we can come back to you on e-mail perhaps. Okay. So with this, I'll just say thank you very much for listening. And yes, thank you from all 3 of us.