Proximar Seafood AS (PROXI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this presentation of the second half of 2021 as well as full year of 2021 of Proximar Seafood. My name is Pal Grimsrud, I'm the CFO of the company, and I will together with Joachim Nielsen run through this presentation. Joachim, has this week been relocated to Japan with his family, giving us a few technical challenges, but we will, however, take your questions in the end of this presentation. In this presentation, we will take you through the highlights of the last 6 months, but also take this into the context of the full year and how this contributes to our long-term plans. We are now well into the construction of our 5,300 tonnes land-based salmon farming facility being erected just outside Tokyo by the iconic Mt. Fuji. This prime location is just 1.5 hour away from close to 40 million people. We will touch more into the details of this shortly, but I would emphasize that the world, as we see today, makes locally produced fish a very attractive business model. I'll also give you some key financial figures. The equity is strong as we had a successful equity raise first quarter last year and with debt obtained in fourth quarter, we still have an equity ratio of 80%. The year-end cash balance was NOK 77 million and the net result for the last 6 months was negative by NOK 5.6 million. And with this introduction, I would like to introduce the CEO of Proximar, Joachim Nielsen.

Thank you, and good morning. 2021 has been an exciting year with many milestones achieved in terms of positioning Proximar for the future. These are some of the topics I want to touch upon today to give some more details on the present status and why we remain very confident in our business model going forward. Overall, I would like to say that the outlook has never been more promising in all aspects. We're also experiencing a strong interest for Proximar and our future product in Japan, and this is also very encouraging. In the last couple of years, we believe the value of local production of food has been clearly demonstrated and acknowledged. Not only for the environmental challenges we are witnessing, but also for reasons of pandemics and lately by the geopolitical situation. These disruptions are also impacting the market for seafood in Japan, contributing to driving up prices. From previously, being a self-sufficient nation, Japan is now depending more and more on imports from abroad. We believe this is also a major reason why Proximar is receiving strong interest and support in Japan, and we're really addressing a main concern. In terms of our choice of location, we believe we are already seeing the effects of this. The image of our facility at foot of Mt. Fuji has already become recognized by many. And we're looking forward to starting the work for marketing and sales, planning as we now move into the future. We are therefore also looking forward with great excitement to supplying the Japanese consumers with the freshest Atlantic Salmon available in the market from 2024. When it comes to the ongoing construction, I'm very pleased to see how this is developing and the schedule shown here remains unchanged from early last year. Despite the pandemic and lasting travel restrictions, we have managed to proceed according to our plans after starting construction on 19th of March last year following the signing of the construction contract with Daiwa House. At present, we are at approximately 37% completion of civil works, which is more or less spot on compared to the schedule. The Hatchery & Nursery building is the first building of the 2 to be completed and is scheduled to be completed in the third quarter this year. This is also the same time when we will introduce the first eggs and start our operations. The start of steel erection for the larger grow-out building is planned in April and the completion of all construction works expected in the third quarter of 2023. I want to take the opportunity also to express my gratitude to our team and partners for doing significant efforts to avoid impact following the COVID-19 challenges. The good cooperation between the involved parties is encouraging, and we believe the many years of patience for detailed preparations and planning before initiating construction works is now paying off. When it comes to CapEx, we are also proceeding according to our budget, maintaining our CapEx estimate of approximately NOK 193 per kilogram, including land. With more than 95% of our CapEx on fixed contracts, we have a good visibility and limited exposure to material cost changes. As shown on these recent pictures from site, you can see the ongoing concrete works of the grow out building and denitrification unit. Steel erection is starting in April. So in the coming months, we will have a better visual overview of this PSG building as well. As for the Hatchery & Nursery building, the roof and walls have now mounted and interior works are ongoing. We are also now preparing for the installation of the fish production tanks. And here, you can see from the outside of HN building. 2021 started out at a high pace with an equity raise of NOK 400 million and a subsequent listing on the Euronext growth. These funds enabled us to sign the construction contract with Daiwa House early March. And since 2019, we had had close discussions with JA Mitsui leasing, a Japanese financial institution, which has a diversified toolbox of financing. As a great start of local Japanese financing, we were pleased to be granted alone of JPY 2.5 billion. This was backed by a guarantee from Grieg Kapital, which is a significant shareholder in Proximar. Besides the funds, this financing has got great attention in Japan and from other financial institutions as well. JA Mitsui leasing is a significant player in Japan, and their involvement in this case has been as a confirmation of credibility. We do have a remaining funding requirement where we are working on different structures. This includes long-term debt financing, construction loan and new equity. All of these tracks consider an offtake agreement for the sales of fish of high importance, and this is what we have focus on now. We remain with our target of 50% debt ratio. Through 2021 and up until now, we have focused on building our organization in all relevant aspects. We have strengthened our administration and our local presence in Japan, and we have also strengthened our project management to secure a smooth construction process. As we're now approaching operational startup, we have also built our operational team with experienced colleagues from farming of Atlantic Salmon in RAS. We're very encouraged to see the strong candidates we are attracting, which makes us confident in securing the smooth start of operations in third quarter of this year. Our COO, Dharma Rajeswaran, joined us in January, and we have lately also filled the positions of hatchery and nursery manager and grow-out manager. This team now brings in significant and relevant [ expert ] experience, both from Norwegian smolt production and grow-out of Atlantic Salmon in RAS. With these resources in place, we've not only secured a very competent and experienced people from the industry, but also a unique combination of smolt and grow-out experience from Atlantic Salmon and RAS. We will also proceed with local recruitment, but I want to emphasize that with the current team in place, we have sufficient staffing for 2022 and start of operations. And I also want to say that I'm very pleased to see that the travel restrictions for Japan are now finally being relaxed after 2 years of strict regulations. It's been a very frustrating and challenging period following the construction and daily activities remotely. It has impacted efficiency and, as said before, required significant extra efforts for the teams involved. This is now finally changing and we're currently admitted into Japan and able to relocate the required personnel as has been the plan for a long time. When it comes to the market for Atlantic Salmon in Japan, we continue to see a robustness in terms of both demand and pricing. The demand is growing and during the pandemic, the demand growth from households has more than outpaced the shortfall for the HORECA market. And as you see here, the demand from 2020 to 2021 showed a growth of approximately 20%. Long term, we believe the consumption growth for Atlantic Salmon will continue amongst the Japanese consumers, driven by the relatively stronger demand from the younger generation. Despite being a seafood nation, the consumption of salmon per capita is still very low compared to other markets, and we believe this represents a good upside in itself. In terms of price achievement, we see that prices remained stable at very attractive levels. Transportation accounts for a large portion of the input cost and consequently, influencing market prices in Japan. Recently, we have seen a spike with prices closer to JPY 2,000 per kilogram, which is equivalent to approximately NOK 150 per kilogram. And despite, driven by the combination of higher export prices from Norway, as we've seen, and higher transportation costs following the geopolitical situation and the pandemics. Although we expect prices to normalize, we believe we see the true benefit of local production and the large cost advantage this implies. Combined with the strong market demand growth, we are very optimistic in terms of the future and believe our business model is well positioned. As I have previously stated, Proximar has not the battle high prices for Atlantic Salmon, but on a sustainable cost advantage by local production in the remote market associated with high transportation costs. As announced in May, we are in negotiations with Marubeni Corporation for an offtake agreement, and these discussions are developing positively. We share the same view in terms of the market and potential for our product in the Japanese market. In terms of production plan and technology, which is crucial part for succeeding and attaining our goals, we are again encouraged by the performance seen in the AquaMaof facility in Poland. We believe the low complexity is a key to maintain stable operations and gives the production staff time to take care of the fish rather than spending time on the system and maintenance of equipment. The performance from the facility in Poland is in line with our expectations, also in terms of densities and growth, and we see the system's ability to maintain adequate water quality for growth of Atlantic Salmon. The facility was built in 2011 and has been operating since 2012, however, producing Tilapia. It was rebuilt for cold water species in 2016 and has now been producing salmon since early 2017 and harvesting since mid-2019. During this period, performance has been rather consistent with low mortality and growth curves according to expectations. Being refrained to visit the facility for some time due to the travel restrictions, we are very pleased to now have been able to visit several times in the end of 2021 and also into 2022. And as for the taste, beside tasting ourselves when visiting, we've recently made some shipments to Japan from this facility. And the feedback on taste and texture has been very positive, also taking into account the consideration -- also taking into consideration the picky-eyed quality-oriented Japanese tongue. We strongly believe that the ESG focus is becoming more and more important. During 2021, we received a Dark Green shading by Cicero both for the debt financing, but even for the company in general. We have, during the year, taken a more systematic approach to the ESG field, and we'll work hard to stay Dark Green. In our discussions with Japanese stakeholders, including financial institutions, we realized that the increased focus on ESG now has sustainable local production, increase in popularity. I would like to refer to our newly released annual report. It was released this morning for full details, but I would like to draw the attention to the most significant figures of the results. First of all, Proximar is a company with one major activity, which is we erect and later operate a production facility. The construction is running according to plan, both related to time and cost, meaning that we are still following the financial schedule. We do not have much costs not being directly involved in the core business. So in the second half of '21, we had negative results of NOK 5.6 million and we will not have any income until the first fish is being sold in 2024, meaning we will run with negative figures for still some time. As presented in August, the negative financial cost, mainly from first half of the year is related to the currency effect of intercompany positions. By the end of the year, we had a strong equity of NOK 390 million in the first part of the JA Mitsui leasing debt of NOK 94 million is reflected in the figures. The cash balance, as mentioned briefly in the start was at the end of the year at NOK 77 million. 2021 has been an exciting year. We are well into the construction, which is running according to plan, and we have now approximately 95% of the CapEx on fixed contracts. The Japanese market is very strong, both regarding to increased volumes of Atlantic Salmon and the prices achieved. AquaMaof has produced steadily for another year in Poland with production figures supporting our operational plans. We have also been able to attract highly skilled employees, and we are now secured -- we have now secured the key employees for the operational start-up. And during 2021, we have demonstrated the ability to raise funds, both equity and debt, and we are working on a number of alternatives for further financing. And we're also pleased to see that focusing on ESG in all activities is being highly appreciated. So with this summary, we would like to open for questions.

Okay. We have had one question already. And this is a question for the split of the remaining CapEx in 2022 and 2023. And will the CapEx be distributed through 2022 and on your current schedule? So the CapEx is more or less evenly distributed. That's the simple question. It's slightly lower in 2023, but not significantly. Another question, what is the expected timeline with negotiations with Marubeni? Should we expect this to be a fixed price contract? Joachim, if you will answer the Marubeni question?

Yes. I don't think we can go into the details here, but we are making good progress and very pleased about the positive and constructive dialogue with Marubeni and we will get back once this is more firm.

Of course, we are more than willing to take questions directly at a later stage if necessary as well. Thank you for listening. Bye-bye.