Proximar Seafood AS (PROXI) Earnings Call Transcript & Summary

Good morning, and thank you for listening to our second quarter and first half 2026 update and financial results. Together with me today from our office in Yokohama, I also have our CFO, Kobayash-san, and we will first go through the updates before we end the session with a Q&A. Overall, the business model remains strong with a sustainable cost advantage by our local production close to the end consumer in a remote and very costly market for imported Atlantic salmon. The cost advantage is a key aspect, but we also have the advantage of supplying the freshest salmon in a market with a high preference for freshness. And this appreciation is also reflected in the feedback from customers and consumers. After several years now of operations and with various start-up related issues and necessary improvements and adjustments, we see a stable system with good capacity and in full operations. As the one and only supplier of Atlantic salmon in Japan, well ahead of competitors, we are uniquely positioned going forward, serving the domestic market consisting of 122 million people. We are past CapEx and now our focus is to increase system utilization and provide stable supply going forward. Our emphasis is also to continue building our brand, targeting the premium markets, and we see this translating to demand, not only from the high-end customers in Japan, but also from other Asian markets and even from the U.S. Our Fuji Atlantic brand is receiving strong interest, and we truly see the value of our location from the foot of the iconic Mount Fuji. Now moving on to the second quarter and updates. Second quarter harvest volumes has been impacted by the deliberate harvesting of smaller fish, as previously communicated. This in an effort to hold back the bigger fish lifting up harvest sizes to above 3-kilogram. The harvest of a significant portion of smaller fish is therefore reflected in the average harvest sizes for the quarter of 2.6 kilogram HOG. The price achievement continued to be low at NOK 64 per kilogram, impacted by our high exposure to weak spot market and harvest sizes below the market size fish. The weak spot market also gave us a low price achievement for the 3-plus, averaging only NOK 75 per kilogram. But going forward, we expect the price achievement and harvest sizes to improve which should make meaningful financial improvements and bring us to positive operational EBITDA in the first round. On the financing, we received a waiver for our sales covenants in second quarter and July and secured additional NOK 27 million in new bank financing. In August, we issued a new convertible bond and just now secured an extension of our syndicated bank loan. When it comes to the biological results, we find this very encouraging. The upper left graph here showing the monthly harvest sizes where May to July has been colored by the deliberate harvest of smaller fish and specifically, June and July pulling down the average. For August, average harvest size achieved is 2.95 kilograms HOG and our expectations for September around 3 kilograms. We continue to see very limited mortality in the grow out, translating to consistent high survival of around 99%, well above expectations. And the same goes for the superior share, which is outstanding at around 98% to 99%. The demonstrated consistent low mortality and high superior share is a proof of good system functionality and growth conditions, which is the key. And with the average harvest sizes now gradually coming up and aligning with our production plan, we expect harvest volumes to increase going forward. We are on track in terms of number of fish to be harvested and lifting in the harvest weights will, therefore, bring us gradually back on track. As mentioned, our price achievement has been well below expectations and impacted by a combination of several factors. First of all, we had a lot of fish below the market size, meaning under 3 kilograms, which in itself has given a lower price achievement. On top of that, due to unstable supply of 3 plus, we have not been able to get the contracted sales for 3 plus sizes, meaning that our fish has mostly been sold in the spot market. And during the first half, the spot market in Japan has been very weak, and we have experienced an abnormal situation and an irregular high import of salmon from Chile and Canada following a drop of consumption in the U.S. market has put price pressure to the prices here in Japan with a sudden large supply and aggressively selling at discounts. However, we now see the market stabilizing, and we're gradually increasing our contract share going forward. We see improvements in July and August and expect this development to continue and gradually bring us back to our benchmark prices. There's no change to our expectations in achieving the benchmark price. This graph shows the cost of imported Atlantic salmon from Norway to Japan, including duties, implied transportation costs and local handling cost and are largely based on official statistics. As seen here, the landed cost in Japan remains high, well above NOK 100 per kilogram and on average, NOK 123 per kilogram for the last 3 years. From the previous slide, we saw in 2025 that the price achievement to Proximar reflected just this, and we expect to gradually get aligned with the benchmark going forward. Applying the forward prices and adding the implied transportation and import cost, the outlook is, therefore, very encouraging, and we're still aiming for a price premium on top of this for our Fuji Atlantic Salmon farmed here in Japan. As briefly touched upon, our biological performance is very encouraging, and we see consistent strong results on several key parameters. Our facility has now supplied the market with more than 3,200 tonnes HOG of Atlantic salmon since our first harvest in September 2024. This is milestone achievement in itself, although behind the initial expectations on the volume following the start-up related issues is still a meaningful amount. And more impressive the average superior share for this harvested volume has been outstanding 98.2%, which is incredible. And we continue to see high superior share at 99% for the second quarter. Mortality is also low. And excluding incidents in 2025 and 2024, the survival rate in the grow out has been 97.5%, and 98.5% for this year. This showing that the facility provides good growth conditions and fish health, but we're now also seeing growth curves picking up as expected. Taking into account the startup-related issues we've experienced in the last couple of years. I believe these results are even more impressive. We do not see any capacity constraints and are continuing to build our biomass to reach our targets going forward and are well on track on taking into account the stable performance seen over the last year. In July and August, we ordered a technical and operational review by a third party and the conclusion from this supporting our outlook and expectations as well as our assessment of the capacity in the current system. Still, we are making efforts to advance and this will be a continuous activity to further improve and optimize our production. The highest priority now is to further improve feed distribution and better monitor feed spill. This way, we can improve FCR and growth but also pushed the feeding more aggressively, without compromising water quality, which is a key in the RAS facility. Our main challenge has been the average size when it comes to harvest wights being too low. As a result of our need to harvest out, fish due to full utilization of all production tanks and monthly insets of eggs. To make space for coming batches, we're also required to remove fish to free up tank capacity. And until May, we were continuously harvesting the largest fish, although this fish was not yet at the harvest target size. To break this trend, we initiated a strategic harvest of smaller fish in May through July, leaving the bigger fish, more time to grow. This to lift harvest sizes going forward and adjust our standing biomass to the average sizes needed to align with steady production and harvest volumes. This has shown the anticipated results and we're therefore expecting around 3 kilograms and above from September and onwards. The main reason for this historical trend of lower harvest sizes is a consequence of the feeding restrictions we had in 2024 and 2025, which has impacted the historic growth performance and not the biological limit to grow fish above 3 kilograms. Our biomass monitoring continues by AI and camera tracking, giving us a much better control, not only of the standing on biomass, but also for harvest planning and feeding, which in turn will give better performance. The camera samplings continue to show good results and high precision, not only for the average sizes of our fish, but also gives us precise insights to the size distribution in our tanks, which is shown here on the graph. Our size distribution was a major challenge in 2025, even despite extensive manual samplings, it did not give us a representative result. And we, therefore, experienced larger deviations compared to our expectations. The situation now is that we see our samplings are well aligned with the harvest results and also gives us better insights to monitor and calibrate actual growth performance and predictability. Going forward, we're also working on better surveillance on feeding and feed spill, and this is the most relevant measure to improve performance further. Our camera surveillance also verifies growth. And again, our harvest results align well with the camera samplings. We continue to see improved growth curves batch by batch. The only exception being batch 21 here, which is the purple line, which is a group of fish that was exposed for a prolonged period of time to very high densities at around 1 kilogram. The rest of the batches are shown consistent and expected improvements that show that fish with lesser time of reduced feeding regimes in 2025 and 2024, are increasingly performing better. Since stabilizing the system in September 2025, we have seen this trend clearly demonstrated. And from October, November this year, all our batches in the grow out have been transferred after September last year. I will now hand over to Kobayashi-san for the financials.

Thank you. Let me now take you through the financial results for the second quarter. Revenue for the second quarter was NOK 45.9 million comparing to -- with NOK 23.8 million in the same quarter last year. However, revenue was still impacted by 2 main factors, lower harvest rates and challenging market conditions, particularly our relatively high exposure to the Japanese spot market and the inability to supply steady and predictable volumes. Operating expenses remained well controlled and broadly in line with our expectations. Reported EBITDA was negative NOK 38.3 million, which includes a negative fair value adjustment of biological assets of NOK 24.9 million, mainly reflecting lower harvest weights and market price assumptions, including dry harvest. Excluding fair value adjustments and other nonoperational items, operational EBITDA was negative NOK 12.8 million compared with negative NOK 27.7 million in the second quarter last year. Net financial expenses were NOK 45.1 million, including NOK 21.6 million realized currency-related loss following the conversion of intercompany loan into equity in primary Proximar Limited. So while the reported results remain negative the underwriting operational results shows that we are moving in the right direction. And as production is improving, bringing up harvest volumes and price achievement. Move on to the balance sheet. At the end of June, total assets were approximately NOK 1.35 billion. Noncurrent assets amounted to NOK 1.18 billion represented around 87% of total assets, reflecting the significant investment already made in our production facility in Japan. Inventory and biological assets amount to approximately NOK 156 million, providing an important biomass base for future harvesting. This number is also impacted by the fair value adjustment of NOK 25 million shown in the P&L. Equity was NOK 294 million, corresponding to an equity ratio of approximately 22%. Cash at year quarter end was low at NOK 2.4 million and the current liabilities remained high due to debt maturities in the coming 12 months. However, it's important to emphasize that several significant financing measures have been completed after the reporting date, which I will explain on the next slide. During and after the quarter, we have taken several important steps to strengthen liquidity and addressing the near-term refinancing. First, we drew approximately NOK 27 million of additional reserve bank financing during the second quarter. Second, we successfully completed NOK 100 million convertible bond financing in August. This includes a lower from the outstanding convertible bond of NOK 25 million. At the same time, the maturity of the existing convertible bonds was extended to August 2029 from January 2027. We have also secured the extension of our syndicated bank loan of a minimum 6 months extension and up to further 6 months subject to additional NOK 30 million financing in place by the end of November or certain progress regarding the strategic review initiated in July. In conjunction with the extension, the sales covenant has also been removed. I would also like to add that we are experiencing strong support from our banks also for long term. The plan is refinancing to a corporate loan from the current project financing structure. As soon as we can show more steady operation, which will also be more long-term loan structure, and we will continue the discussion with bank syndicate on this going forward. Our regional bank loan of NOK 80 million has also been extended to December and we refinanced short-term shareholders' loan as well. The strategic review together with Nomura is progressing according to plan and is part of our efforts to address the longer-term capital structure and refinancing requirements. This process is evaluating a broad range of alternatives, including the potential introduction of a long-term industrial investors and is planned to be completed before the major loan maturities in December. As for important production cost analysis, I'll hand over to Joachim-san.

Thank you, Kobayashi-san. Turning to production costs. This slide is particularly important for understanding the earnings potential in our business. Our Q2 EBITDA production cost was approximately NOK 81 per kilogram, improving from approximately NOK 86.5 per kilogram in the first quarter and we expect this trend to continue going forward as production volumes are picking up and growth curves improving. The cost structure has significant operating leverage, and there are no bigger changes to our expectations based on the actual results seen over the last couple of years in terms of production costs. As annual production increases, we estimate EBITDA cost per kilogram to decline to approximately NOK 71 per kilogram at 3,500 tonnes production capacity down to NOK 65 per kilogram at 4,000 tonnes and ultimately to NOK 56 per kilogram at targeted full capacity of 5,300 tonnes. And as a comparison, average production cost for Norwegian Salmon farmers was approximately NOK 70 per kilogram on EBITDA level in 2024 based on official numbers from the Norwegian Director of Fisheries. Although these levels will vary between the different producers. But comparing to the historical pricing of Atlantic salmon in Japan, driven by the high import cost, this demonstrates the earnings potential as we now are increasing utilization and production volumes going forward. This slide is a very simple illustration of the sensitivities of sales price and unit cost per kilogram on EBITDA level. It also highlights the significant cost advantage when referencing to the price levels to the historic import prices to Japan. If assuming the average benchmark price over the last 12 months, this ends up at NOK 110 per kilogram at the very bottom of the matrix. With increasing production volumes, we will also see unit costs coming down. And we're already seeing this moving in the right direction and expect this to continue as we are increasing volumes going forward. As from the last slide, second quarter EBITDA cost per kilogram was NOK 81. And going forward, improved harvest weights are supporting higher price achievement and increased production volumes to reduce unit costs further, in turn, positioning us for a positive operational EBITDA. And as we move forward, we expect to gradually move to the right on the matrix with increased volumes and more stable production. I will now move on to the outlook and summary. As previously mentioned, going forward, we expect to see average sizes improving gradually from September and onwards to around 3 kilograms and above. In August, we have still harvested some smaller fish. And the harvest sizes on average per harvest being in the range of 2.8 to 3.3 kilograms HOG, ending the month at 2.95 kilograms HOG. As the biomass is gradually building, we also see improvement in harvest sizes, targeting 3.5 kilograms HOG for 2027 on average, which is a good size also in terms of market acceptance. For 2026 volumes, we expect a total harvest volume of around 3,000 tonnes and around 650 tonnes for the third quarter. Looking further ahead, we are continuing to gradually ramp up towards our long-term target of 5,300 tonnes HOG by increasing stocking densities. Our planning for 2027 is to harvest in the range of 3,500 to 4,000 tonnes HOG, then increasing to 4,000 to 4,600 tonnes HOG for 2028. And we are aligning the required monthly egg insters and culling accordingly. The capacity in the system is good, and we do not see any constraints as such. We have already on a modular basis seen densities averaging above 80 kilograms per cubic meter and still maintaining good and stable water quality, which supports our target in the longer term of 5,300 tonnes. So wrapping up this presentation, we remain optimistic going forward and expect the recent improved biological performance to translate into profitability. The challenges to lower harvest sizes and unpredictable supply have been successfully addressed, and we see robust biological performance and continuous improvement in the growth curves. No capacity constraints are identified, and our focus is now to improve and optimize. With more stable supply of market sized fish, the price achievement is also expected to recover and aligning with the benchmark. And this is also where Proximar will benefit of the significant cost advantage by local production in Japan. With better operational control using AI samplings we are also in a better position to monitor growth and expectations and plan accordingly. Our target harvest volume for 2026 is around 3,000 tonnes HOG, and we are ramping up in the coming years by gradually increasing densities. With positive development in production and sales, we also expect to be seeing financial recovery. The cost side remains stable and aligned with expectations. And we expect also the positive development to translate into facilitating further refinancing activities and our efforts to refinance the balance sheet continues. As part of this work, we have engaged Nomura Securities to conduct a strategic review, which is currently ongoing and will be planned concluded by December. So with these concluding comments, we will conclude our presentation and move on to the Q&A session.

[Operator Instructions] The first one regarding the salmon size distribution chart. So which quarter of the year is this data from? Does it represent the first half of the year or in the latest harvest?

The graph showing the size distribution is from a harvest now in July. So it's the third quarter harvest.

The second question is regarding the chart showing batch growth trend, back into the time range on the X-axis and the weight unit on the Y-axis.

Yes, we haven't included the number on the axis, but it's -- is the purpose of this graph is to show the development between the batches. We've already had, as we've explained previously, both in 2024 and 2025, long-term time of reduced feeding regime, and we see that the batches that have been harvested previously have been severely impacted by this -- the reduced feeding. The good news is that we now see that batch-by-batch, the performance is improving and the growth curves are lifting up. And we also see a clear difference between the coming batches now, which have been transferred after August last year, and we are in more stable water quality and feeding conditions. And we see that we are getting back to our predicted growth curve and a steadily improving batch-by-batch.