Aker Biomarine ASA

OSE:AKBM

Good morning and welcome to the presentation of Aker BioMarine's results for the first quarter 2025, where myself, Matts Johansen, the CEO; and the CFO, Katrine Klaveness, will take you through the financials and the highlights of the quarter.

Another good quarter for Aker BioMarine, delivering close to $51 million of revenue, up 5% from the same quarter last year and a significant improvement on the EBITDA, up 59% from the same quarter last year. Human Health Ingredients continued a positive development, 16% growth on the top line and 36% growth on the EBITDA. And it's good to see Consumer Health Products also back into growth territory. Human Health Ingredients continued its focus on getting closer to breakeven and deliver $0.4 million negative EBITDA with stable revenue, one step closer to that breakeven point. Key milestone for the quarter is that we have kicked off the first human clinical trial for our new Lysoveta products that will eventually, if successful, generate the first health claims for the new brain ingredient that we have developed over the last couple of years. So good development.

This is now the ninth quarter in a row where we deliver year-over-year growth. You see a significant improvement on the EBITDA on the right side, both driven by stronger performance on Human Health Ingredients but also a better cost position across the company. Some more details in the different segments, starting with Human Health Ingredients. As mentioned in the beginning, we are growing 16% year-over-year with the krill oil sales growing 15% year-over-year. That growth is coming in several region but China continues to deliver good growth. Europe as well, strong growth and also the new emerging market of South America is showing good growth and contributing to a strong first quarter of '25. EBITDA continues to drive up, $11.3 million EBITDA for Human Health Ingredients. That's the best quarter we have had since the hey days of Korea in 2020, with a significant improvement driven by both more volumes, better prices and also lower cost of goods as a result of more volumes sold and produced.

Following the fee transaction, we have restructured the Human Health Ingredients segment by moving many resources from our Norway Oslo office to our Houston site, creating both product and manufacturing hub around our Houston technology and the team over there. So that is implemented during the first quarter, meaning that we have give severance packages to those impacted here in Norway and started the hiring process in Houston. A new leader is also in place in Houston that will deliver that kind of new plan for Houston and products and manufacturing going forward. When it comes to tariffs, which is a big topic these days, so far, we have not a significant impact from that. We are importing krill raw material to our plant in the U.S. That is a Norwegian product coming from our old Norwegian vessels with 10% tariffs of the value of that raw material coming into the factory.

And then our second exposure is products being sold from the U.S. to China, where China has put big tariffs on products made in the U.S. There has always been high tariffs between U.S. and China. So historically, it's already been between 20% and 25% tariffs between U.S. and China. So U.S. or Chinese dietary supplement brands, they have set up their manufacturing hubs in New Zealand. And therefore, also historically, most of our volumes sold into China, we ship through New Zealand and then it gets manufactured and processed there and then into China and through that, not getting any tariffs. That route is still also 0 tariffs. And now we're looking into how we can optimize the sales that we have currently directly into China through the same route. But this is a moving picture with tariffs but so far, we don't see a significant impact of those tariffs on our business.

I mentioned a new clinical trial for Lysoveta started. We have a lot of preclinical data indicating the strong benefit this ingredient will have on brain health. But now we have started the first human clinical trial where we will test what will be the direct impact on your cognitive functions after taking Lysoveta and those data will generate the first health claims. I'm also very happy to announce that we have been granted a $2 million grant from the European Union in a consortium with a couple of other companies and universities across Europe to do other clinical trials on Lysoveta in the coming 3 years. $26 million in revenue, up from $22.4 million in the same quarter last year and $11.3 million in EBITDA, showing that nice development on the EBITDA, as you can see on the bottom side.

A couple of years ago, we initiated a turnaround plan for our Human Health Ingredients business. That's been quite successful and that's what's been driving the growth we have seen in the last 9 quarters. We are now going through kind of an iterative process on a new strategy to take kind of the next growth way for Human Health Ingredients and I wanted to show a few highlights from some of that work. What you see on this slide here is some selected markets on the right side. And the different colors indicates, the red part in the bottom is the sales that we are doing. The blue part is krill oil sales from competitors. And the light blue is what we indicate as the potential in these different markets across the world into that big Omega-3 market. You can see the numbers on top on gray, the size of those Omega-3 markets.

So if you look at all the way to the left on this slide, you can see that we have about 5% market share in the global Omega-3 space. So 5% of any Omega-3 sold anywhere in the world is sold by us. Then about 0.5% is sold by a competitor of us and then the rest is fish oil. We believe that it should be possible for us to reach 15% to 20% market share because we have seen that in other markets where we are successful. Like the mass market in the U.S., we know and we have seen that we can get 20% market share when you have good distribution, meaning several brands on the shelf. So it's easy for consumers to find the product and some of those brands spend some money on marketing to educate consumers. If you have those 2 things, then we know we are able to get towards 20% market share. So that is our growth story. It's all about how we go from that 5% market share today up to the 15%, 20% market share that we should have on a global level.

And the work around that is hard but still very simple. You need to get better distribution, meaning convince brands to launch new krill products on the shelf. And then we need to convince the brands that already have a product on the shelf to invest in marketing to educate consumers. If we are successful with these 2 things, we will grow our market share from that 5% up to 15% to 20%. On top, the global Omega-3 market is growing about 6% per year that we will piggyback on. So what we have done now is that we have gone market by market, channel by channel, looking at what our market share is, looking at what the potential in that market or that channel is and then creating a strategy for how to close that gap. So as you can see, in the U.S., we have 6% market share with a high potential to grow. In China, we have 7%, indicating some of the successes we have that lately. And as another example, you can see Korea there with that spike. In 2020, krill oil was between 50% and 60% of the overall Omega-3 sales in Korea. So we know it's possible to get there. But right now, the sales is very limited.

You can look at the blue bars and you can see, which is competitors on the right side. In China, there is 4% market share with competitors and that is more or less the only place we have competition today, local Chinese manufacturers selling to local Chinese companies. So taking this a little bit further, when we talk about how to drive that market share up, more distribution, more consumer awareness, we have also done consumer research across these markets to understand what is the consumer awareness today and how well is our value proposition recognized in those markets. I'm just taking out example -- 2 examples here now. First, on the right side is China, where you can basically see in this survey we run, 29% of those that we survey, they are aware of krill. And out of those 29% that are aware of krill oil supplements, 48% of them have tried it once or more. So that doesn't mean that 48% here buys it every day or every month but they have tried it once.

And then out of those that have tried it once, when you ask them what is the value proposition for krill or what is the best source of Omega-3, you can see here 76% of them know that Omega-3 from krill is the best source. So basically, what this tells us is that the value proposition is quite clear. People get it and we need to work on 2 things, get that awareness up towards the 100% and then work with those 48% that have tried it once to make sure they tried it many, many times. And you do that by having the product available. So driving awareness through marketing, through our partners and having increased distribution by convincing more brands to drive it.

And then you can have a look at Korea, which is a market many, including us, are very interested in. This is a survey just did last month, the same thing there. So even if it's now what is it, 4 years, even 5 years since we stopped selling krill in Korea, the awareness is still very high, 47%. Quite low part of the population, at least remember that they've been taking the product. But again, out of those that have been taking the product, they know the value proposition. So this tells us that the Korean market is intact. The awareness is still very, very high and it's all about getting that -- those campaigns going successfully and getting that distribution up. And then talking about Korea, it's been political turmoil in Korea now for a while. It hasn't been the right moment to launch campaigns as the kind of anchor of those campaigns is home shopping. And for home shopping to work, people need to be bored at home, watching home shopping channels. But a lot of things is going on in Korea, people watch the news, not home shopping.

But things are normalizing in Korea now. The economic outlook for Korea is looking more promising. So we believe that in not-too-distant future, we will be going live with our partners with new campaigns in Korea. Moving over to Consumer Health Products, back into growth mode, 4% growth year-over-year. First quarter is generally a low quarter seasonality-wise. But again, we are growing quarter-over-quarter. Last year, we struggled with those inventory impacts by retailers building down inventory levels. So we were selling less into retailers than they were selling out. Now that's kind of balanced out and we're following the general development of the market.

In the first quarter, the overall dietary supplement market in the mass market in the U.S. grew 3%. So we are doing slightly better but that also shows that despite kind of challenging times in the U.S. during the first quarter, supplement industry is still growing quite healthy. EBITDA is improving, $1.9 million, up from $1.7 million, driven by good cost control in the company. Consumer Health Products is focused on the biggest retailers in the U.S. Currently, we have 10 retailers that we serve. But during the quarter, we have added on 2 new large retailers in the kind of customer or retailer portfolio of our business. One of them is Whole Foods. I'm sure you all heard about Whole Foods. We will now start this autumn to make the Whole Food-branded dietary supplements or at least some of them in those stores. And the same with BJ's. BJ's may be less known here in Europe but it's the third biggest club chain in the U.S. after Costco and Sam's Club, which already are a customer with us. So Lang is also seeing some quite interesting developments underlying.

Emerging business, the most important here is to look at the right bottom side, which is the EBITDA getting closer to that breakeven point. What we have done in the first quarter is that we have pulled back on cost and marketing less quite significantly. And it's good to see that we are able to upheld sales at a stable level during that, taking us one step closer to that breakeven point. So [ core ] itself, $0.3 million negative EBITDA, significant improvement from the previous quarters and then 0.4 million in totality for the all emerging businesses and the portfolios we have there. I reported also last quarter, we have a process ongoing with Understory, our protein business that's still undergoing and with several interested parties and we are pursuing that towards conclusion in the not-too-distant future.

So with that, I will give the word to Katrine Klaveness, the CFO, that will take us through the financials.

Good morning. I will take you through the financials for the first quarter 2025. First quarter '25 marks a good start of the year for the group with 5% growth from Q1 last year, totaling revenues of $50.8 million, up from $48.5 million last year. We had growth in both key segments. The Human Health segment is up 16%, driven by increased Superba krill oil sales, both higher volume and higher prices and a broader product portfolio, including QHP, algae and PL+. The Consumer Health segment is up 4% with the multivitamin gummy showing growth after the launch last year.

Emerging Business segment is down 32% compared to the same quarter last year due to higher recognition of Amazon revenues in Q1 last year. Gross margin for the group was at 40%, slightly up from 39% same period last year. SG&A shows steady improvement across all segments as a result of cost focus and continuous implementations of new initiatives in both human, consumer products and emerging businesses. Both Understory Protein and AION are booked as discontinued businesses as there are ongoing sales processes. Hence, net results for these items is shown on this slide. For comparable figures, the Feed Ingredients segment was included in the full year 2024 of $195.8 million.

Adjustments for the quarter amounts to $3.5 million and includes costs related to the feed ingredient transaction and the restructuring with severance packages accrued for in Q1. Adjusted EBITDA was $9 million, up from $5.7 million same period last year, indicating an EBITDA margin of 18% in the quarter. The nonoperational segment called Elim/Other consists of all the corporate costs and includes the majority of the nonrecurring costs related to the aftermath of the feed ingredient transaction, including the restructuring and the IT migration process. $3.1 million of the $3.5 million in totality in adjustments are booked in this segment in the quarter. If removing all the nonrecurring cost, the underlying annual SG&A run rate for corporate is between $10 million and $12 million, down from $19 million to $20 million before the feed transaction.

The bridge between SG&A cost and the adjusted EBITDA includes a negative internal profit elimination of $0.8 million and a positive income from transitional service agreement with Aker ASA of $1.5 million in the quarter. Most of the TSA work is now completed and with the exception of the IT migration project continuing into Q3 this year. Adjusted EBITDA from this segment is negative $6.8 million with the underlying figure being on par with Q1 last year. Positive change in working capital for the quarter includes an increase in inventory for Consumer Health Products in addition to settlement of a few larger supplier payments related to the feed ingredient transaction. Additional feed transaction costs will be settled throughout this year, further reducing payables.

Investments of $2.4 million in the quarter included mostly maintenance and upgrade investments related to the Houston plant but also some development CapEx mainly for the algae project. We expect the full year CapEx to be in the range of $6 million to $8 million with the main development work being related to algae and some Lysoveta development costs. Cash flow from operations was negative at $11.1 million, mainly as a result of a change in working capital, paying down feed ingredient transaction cost of about $7 million as well as buildup of inventory in the consumer health segment. Cash flow from investment was negative $2.4 million from maintenance and upgrades of the Houston plant as well as the algae development project.

Cash flow from financing was positive $14 million as a result of additional draw under the bank facility. Net cash flow in the quarter was $1 million, ending the quarter at $16 million in cash and available liquidity of $25 million, including the bank facility. Going forward, cash could be affected by the new tariff regime as Aker BioMarine will be subject to duties both on import of the Nutra meal into the U.S. as well as retaliatory tariffs when exporting krill oil to other countries, for example, China. However, mitigating initiatives have been identified, including a duty drawback program as we export most of what we process from the Nutra meal. And we're also looking into alternatives for krill oil supply to China, as Matts had already alluded to. Based on current estimates, we don't expect the negative effects to be significant.

Interest-bearing debt amounts to $157 million, up from $145 million last quarter as a result of additional draw under the bank facility. The debt includes a bond of $151 million swapped to U.S. dollars through a cross-currency swap and a bank overdraft of $30 million. Our net interest-bearing debt over adjusted EBITDA of [ 4.8 ], we are in compliance with the leverage covenant under the bank facility and we are also in compliance with a cash covenant of $7.5 million under the bond agreement. Ending this section with a look at the balance sheet. Q1 2024 includes Feed Ingredients, so comparison with Q4 2024 is recommended. Limited change in assets.

All assets, both PPE and intangible are depreciated and amortized according to plan. Inventory is down in the Human Health Ingredients segment but this is offset by an increase in the consumer health segment. Cash is at $16 million, up from $15 million last quarter. Assets held for sale includes the group's investments in AION and Understory Protein of $35.5 million. On the liability side, current liabilities including the bank facility is up $14 million and accounts payable is down $7 million as a result of supplier payments mentioned earlier. Equity ratio is 44% for the quarter.

That concludes the financial section and I'll leave the word to Matts to close off the presentation.

Thank you, Katrine. We'll now take you through the outlook for the business, starting with Human Health Ingredients, where we expect to continue to grow that business on the back of that strategy and those market slides I showed earlier in the presentation. We see a great potential for growth and we see a good pipeline of business opportunities for us there. And then we expect the profitability to increase on the back of that as we are able to utilize our operational leverage as you will see our bottom line and EBITDA growing faster than the top line.

For Consumer Health Products, we expect to be back in modest growth territory after a challenging 2024, now following the expected development on our point of sales performance of our products. For emerging business, it's all about getting that into breakeven territory. We do that by both optimizing costs and grow the business but maybe more importantly, seeking transactions, selling those assets to companies that can utilize those assets in a better way than we can currently at Aker BioMarine. And for corporate, Katrine talked about we have taken our cost base from $19 million when we were 1 company together with Feed Ingredients. Now we have established a new cost level in the corporate segment of between $10 million and $12 million and we expect to stay at that level going forward.

So that concludes the presentation. We will now open for questions and you can send in your questions to ir@akerbiomarine.com and then we will answer them. So we are now ready to answer the questions that has been sent in and you can also to send in questions on ir@akerbiomarine.com.

All right. So Christopher Vinter here on the Q&A side. Let's see if there's any questions coming in. Okay. So first question here. Have you noticed any demand impact due to softer consumer confidence in the U.S. post Liberation Day?

No, no impact seen so far. Generally, dietary supplements are very strong in negative cycles. We've seen that in the previous kind of recessions that have been globally. And with our Consumer Health Products, we follow point of sales data on a weekly basis. So, so far, we don't see any impact from that.

And then over to algae. So what's the status in algae now? And how much did you sell during Q1?

So quite limited sales. We had a few hundred thousand dollars in sales, so quite limited. As we talked about in the previous quarter, we had some production challenges in our Houston factory with quality. We have now identified all those problems, designed solutions to it, tested it and got it confirmed on small scale and now implementing it in a larger scale and waiting to also get it confirmed on larger scale. So we expect that the algae business will pick up in the second half of '25.

And then to Lysoveta, how much annual spend will go into the clinical trial?

Yes. So there's 2 clinical trials or 2 clinical programs. We got a European Union grant of $2 million. Our contribution to that program is only $150,000 over the next 3 years. And that is a consortium of several universities across Europe and a couple of ingredient companies that are testing their products in a battery of test schemes related to longevity and brain health. Then for the clinical trial that we're running ourself, it's going to be about $1 million in costs related to that.

Okay. And should we expect a similar level to marketing spend in the emerging business as in Q1 going forward? Or was this a temporary effect?

No, we are cutting back on marketing. It will go a little bit up and down from quarter-to-quarter. But generally, we're holding back on the marketing spend and driving towards that breakeven point, which is the most important kind of KPI for that business now.

Okay. And so are there any large new krill clients you are targeting now?

Yes, we have several targets in our portfolio. Last year, we got about 40 new brands or customers on board. We expect to get about the same amount this year. Some of them are large brands, some of them are smaller. But sometimes it's kind of hard to identify kind of beforehand who will have success and who will be big customers. Sometimes it's the small brands that kind of really hits it and become very large and sometimes the big brands are not successful and not able to drive big volumes. But we have several large opportunities in our pipeline.

Okay. So what's the strategy for South Korea? Are you launching any sales starts?

Yes. So I mean we are also selling B2B in Korea, meaning that we sell to other brand holders in the Korean market. I mentioned on the call earlier today that we are expecting to start campaigns probably around the summertime. It hasn't been the right environment for running campaigns in Korea during those political turmoil that's been now because people are not paying attention to home shopping channels, which is the main channel for driving consumer awareness in Korea. But things are normalizing now and the economic outlook for Korea is also pretty positive. So we know that our partners now are working with new campaigns. We'll see about the timing when they hit. It's all about kind of hitting that campaign right, the timing right. So you get that positive ROI and can get that positive spiral going. So our partners are also very careful to make sure that once we launch, we will be successful.

And then so what was the South America's total krill sale in '24? And what was it in this quarter?

Yes. I need to follow up on detail on that question. I don't have the numbers on top of my head but we have a very good growth in Mexico. Mexico is now bigger than Canada, just as an example and are growing very strongly. And we're putting focus now on some of the other emerging South American market like Brazil that has a big potential for our business.

So we can go on. Yes, you kind of touched upon this but when do we expect to see the reentry of South Korea materialize for the krill oil business? What are the key hurdles encountered? I don't know if you want to elaborate a bit more or...

Yes. So I mean, it depends on our partners when they launch and how things will develop kind of in the market and the kind of political landscape in Korea in the coming months. But let's say, we can hope for a relaunch now this summer. And again, the hurdle has been to make sure that when they launch, they are able to kind of get the consumers' attention and quickly get success because that's what's going to drive that positive spiral like we've seen in the previous years.

And then a question on margins here. So could you provide an indication on the gross margin for Superba, QHP and algae oil in the quarter?

So what we said earlier is that Superba is the high-margin product. So we carry a gross margin of above 50%, while QHP, PL+ and algae is lower-margin products. So that will be -- that will be diluting the human segment overall in this quarter and also going forward. And you can also see that when you compare with previous quarters when we didn't have that broad product portfolio.

Yes. And maybe just add that there was quite a little algae oil sale in the quarter. So in terms of margin, then we are left with Superba and QHP [indiscernible].

Yes. So what do you think about mid- long-term sales potential of a product such as Lysoveta?

I think the potential for Lysoveta is very high. I mean it's a unique product. No one else has it. It has a unique mechanism, published in Nature, kind of the most kind of impactful scientific publications. So we have big beliefs in that product. I think we said when we launched it some years ago that this is kind of the biggest and most promising launch we have had in the history of the company, meaning that it has a potential bigger than Superba. But it's starting from scratch in comparison to algae, where there is a market and we can go in and take market share. [ LTC ] products doesn't exist in the market. So we have to build awareness of the kind of categories as long as -- alongside selling it. So it's going to be kind of step by step, a little bit the way that the Superba business has been built up from scratch but definitely very promising in terms of what it can become in the future.

And you have then previously talked about limitation related to cross-border export, especially to China. So what's the status on that now?

Yes. So we talked about that in the previous quarters that there's some change of paperwork between China and the different countries in terms of what documents need to be following the products when they do this cross-border e-commerce. So all the countries need to go through the process to update the documents. In some countries that goes fast, in some countries it goes slow. But as of now, I think all countries that used to take that route into China is approved except the U.S. Given the current relationship with U.S. and China, we will see when that kind of gets working but all the other routes works and we see that some of the U.S. customers, they are starting to use the other routes through [indiscernible], for instance, which is approved quite recently. So I think as of Q2, things should be normalizing in our business in China. We should not have an impact from this kind of challenge anymore.

And then on some growth rates in sales. So what was your Superba annual revenue growth rates in key countries such as U.S., China during Q1? Maybe answer generic or...

I think we can answer in the generics. I mean we -- if you just look at kind of last 12 months kind of looking at a little bit bigger chunk than just a quarter because that can be very impacted by if you get the PO at the end or the beginning of a quarter. But generally, we saw 17% growth in the U.S. over the last year, 40% in South America and Europe, which is one region for us, 60% in China. So we see generally good growth rates. We delivered 16% now in the quarter. And I think we have a good outlook for the rest of the year and the coming years to when it comes to growth in these markets.

So will you use your existing clients when pushing Lysoveta into the market, meaning easier access to market versus krill oil when you needed to build the entire supply chain and clients?

Yes. So that's one of the strengths of using, call it, the Superba platform, if you like. One part is the manufacturing side of things but the other part is then the market reach. We already have a big chunk of the most prominent dietary supplement brands already in our customer portfolio, which means the doors are open and we don't have to kind of go through that kind of first hurdle of getting them interesting and getting that meeting. So we will definitely use that when rolling it out.

There's no more question at this point, so maybe give it 10 more seconds and see.

Yes.

Yes. So I guess that concludes the Q&A.

Okay. Thank you for joining and see you next quarter.