Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Transcript

[Ragnar Joensen, executive]

Good morning, everyone. Now we're going to present Nordic Aqua Q4. To present today, we have from China, myself, Ragnar, CEO; and Andreas, MD in China; and also from Oslo, Tom, CFO.

The main news today is that after combating good geosmin for 2 quarters in Q3 and Q4, we're finally back now with harvest in February, this first quarter with excellent 7 kilo fish of premium quality. So that's very good news. Then we'll go through some highlights. I will take you through operations and projects. Then Andreas will come in and let you know about the sales and market. Tom will present the financials, and then I'll just come back briefly with a summary.

So if we look at the top headline for highlights, it's that we are back with commercial harvest in mid-February. The biology for the quarter has again been very good in all batches, excellent fish health. Geosmin has been handled through Q3 and Q4. The harvest that we are at now is a premium 7-kilo fish at scale with no signs of maturations. Going forward, as you can see in the picture also, we are progressing with Phase 2 construction. So what you can see here is -- on the -- with the roof, you can see that that's the facility Stage 1 and where we can see the steel bars. And going forward, up to the right is the new facility, which will match the existing facility of another 4,000 tonnes annual production. Production. The construction is going on schedule. And in Q4, we completed the Private Placement of just around EUR 30 million.

Just going briefly through operations. We resumed harvest. As I mentioned, we had geosmin to start with in July and had issues through Q3 and Q4, and now we're back. We did implement a series of measures. As you can see also in some of the pictures here, we have added technology, protein skimmers, vacuum UV, ozonation, adjusted how we ran our biofilters, added additional water capacity. Recently, we have active carbon to combat adjustment and also we have done some modification on the largest RAS systems that we have in RAS 7 and RAS 8. The CapEx of geosmin for both Phase 1 and 2 encounters EUR 19 million, mostly in Stage 2, as you will have Tom to present later.

So we are finally dead. I can see we have combated the geosmin, and we are back with geosmin-free fish in the harvest now in February. Look at the biology, -- we had no harvest in Q4, but then we started now in Q1. Mortality has been very low throughout all of our production batches. -- from smolt up to harvest, accumulated mortality of less than 3% in all batches, that's percentages of numbers fish. We had -- we have been up in Q1 to Q3 of last year of around 1,000 tonnes in production. In Q4, production was less since we were not harvesting fish. So we, on purpose, took down the production. But now we're back and producing fully again. As I mentioned initially, we have harvested 7 kilo fish, excellent quality, no maturation. So that's what we consider ourselves a very good achievement. The expectations for the full year of 2025 is between 3,500, 3,700 tonnes harvest.

Just briefly also mentioned the Stage 2 project, the project to take us from 4,000 tonnes to 8,000 tonnes in harvest. It's going as planned. And the first eggs we put in Q3 last year, September. And then we expect the first harvest to be 2 years later, so Q3 2026. So that's when we can see the full effect from the 8,000 tonnes production. Technical installations in the building that you can see below started in January. Estimated CapEx for Stage 2 is EUR 77 million, including the EUR 14 million that I mentioned just before also with improvement CapEx for just new water additions.

Then to sum up the time line of the buildup that we had here at Gaotang in China. We started with the Stage 1 facility to construct Q3 2021, first harvest, Q2 last year. We can say a very successful project in many ways. Production or construction went as planned and also production went as planned, 2 years, as we said, from harvest to first -- from eggs to first harvest. So everything went according to schedule with the Stage 1, at least until we got the adjustment in July last year, which we see that we have -- we are out of now in Q1 this year. For Stage 2, we started construction last -- or in Q3 2023, and we had the first egg input in Q3 last year. For the Stage 3, taking us from 8,000 up to 20,000 tonnes, we still have that within our project, but the exact start of the construction is not decided yet. It will be decided during 2025.

Now I'll continue to give the word to our Managing Director in China, Andreas, please.

[Andreas Thorud, executive]

Thank you, Ragnar. As Ragnar mentioned, we are very excited about resuming commercial harvest and sales now in this quarter. We have a highly motivated sales team. We are operating in a fast-growing Chinese market. We are also receiving very good customer feedback on the fish we are supplying. In addition, we are also in China for China, we are operating, producing here, selling here, and that is in a place we feel comfortable at, given the global setting of uncertainty with regards to tariffs and trade. I will give some highlights and also some information about the market in my part of the presentation.

First of all, I want to emphasize that in Q4, although we were handling geosmin topics, we were still very much active in the market. We participated at China Fisheries & Seafood Expo in Qingdao, one of the biggest one in China with an own booth connecting with customers. We participated at the China International Import Expo in Shanghai in November, where we had a chance to interact with further customers and prospects. We had a way of increasing our corporate image. We also signed some agreement in addition to also showing more to the Chinese market and stakeholders, the uniqueness of our pioneering project of being the Atlantic scaled-up salmon producer with RAS systems in China.

And we also saw the opportunity to be part of Norway's commitment toward China and working more on the green shift where we are also a good example. We generated more than almost 600 news reports, which also underlines a general interest in the market for what we are doing here. As mentioned already, we have market acceptance confirmed by resuming commercial sales. We are now pursuing the customer relationships that we have built up to strengthen them even further. We are also developing into new areas into the market. And overall, we feel very comfortable where we are, given the quality and also the unique opportunities when it comes to the Chinese market. In addition, how are we going to do this?

Well, for some of you, this is a known material, but we feel we have a compelling market, should we call a value proposition to the market. We have an unparalleled freshness that is documented with being able to supply to the biggest salmon market in China, in Shanghai for around 5 hours. We also have a very strong food safety profile of our production. This is a testament to the technology and the management of how we run our farm. We have a 99% superior grade. We have had in general, less than 2% mortality, which are very strong numbers in addition to no antibiotics.

This is something that is also highly valued in the local market. In addition, we focus on sustainability, being here gives us close proximity to the market. We are not reliant on air transport. In addition to being agile, being able to seize upon opportunities in the market, building those strong customer relationships, seeing new opportunities and also being able to adapt ourselves to how the dynamics of the Chinese market work in terms of supply and demand. And we will use this to develop further into the food service, which we know is the dominant sector in China with a focus on big fish as well as the dynamic growing retail section, both with e-commerce and also traditional retail.

If we take just a broader view on the market, we see that China had another record year last year in terms of import volume, almost 93,000 metric tons of fresh Atlantic salmon hog. This is a 15.6% increase year-on-year. Every month saw a record import volume, except for April. This is also showing that the trajectory of the market is picking up since 2019, whereas here, the corona years had quite a big impact. In addition, we also see that the focus from the market is also to develop those pockets where we can see growth happening. And it's very encouraging to also see that the volumes of the Chinese market is quite consistent throughout the years -- throughout the year.

We have a top of 9,200 tonnes and the lowest month was 6,700. I would like to add that we see the trend now moving into 2025. We have -- if you look at the Norwegian export numbers from the first 8 weeks, they're up 65% year-on-year. So there is really a big demand now in the Chinese market, and that's something we are very excited about by being here and being able to produce and offer the product we have. Quick view at the breakdown of the different origins here, and we can see that in China, it has a little bit of uniqueness in the sense that all the salmon producing countries are trying to -- or are exporting to this market. Norway is a market leader, steady around 46% in 2024, a little bit down for 2023. It was a strong year for Faroe and Scottish salmon last year. But it is a market where you have all the -- basically China salmon producing countries competing in.

Finally, if you look at the imports of Atlantic salmon to China throughout the years here, and we are trying to look at, okay, what are the import prices and we divided into the European side, which is basically Norwegian Faroe, Scottish compared to the Chilean and Australian ones. There is a premium, if you will. There's a high price import price for the European side. They are able to provide bigger salmon. In addition, we also see that when it comes to the food service sector, there's also a preference for some of these European, Norwegian sizes in there and also origin. And that is also a testament to Norway's strong performance that they are not only the biggest country when it comes to market share, but also command some of the higher prices into this China, should we call a traditional big fish market.

So with that, I'm summing up the sales and market part to say again, we are back in business here in China. We have an excited and motivated team. We see great opportunities in taking part of this growth that is happening in the market. And we are also very much looking forward to the rest of the year and beyond by providing our premium quality Nordic PureAtlantic salmon into the exciting Chinese market.

And with that, I will hand over to CFO, Tom Austrheim.

[Tom Austrheim, executive]

Thank you, Andreas, and good morning all. I would say that 2024 was a very active year and fourth quarter was no exception. We had one transaction in the equity capital market. We had a transaction and milestones in the debt capital markets, both in short-term facility and long-term facility, which I will comment later. And the CapEx budgets that we established for the capital raise remains valid and intact today. And OpEx has been managed to reflect our activity level and for a cost-efficient production going forward. And not forgetting that we signed a cooperation agreement with Bank of China in China in November, and we signed a rental agreement enabling a further expansion in Stage 3 up to 20,000 tonnes.

The full financial statements are, of course, in a separate report and also extracts attached here to this presentation, but some key takeaways. The revenue of EUR 1.6 million reflects sale of downgraded fish during the quarter. And in the operating expenses, we have included EUR 2.3 million, which has been expensed as costs related to unutilized production capacity, costs that would otherwise be capitalized. Ragnar commented earlier that we had planned and voluntarily reduced our production in the fourth quarter. So that is why. Hence, our EBITDA was minus EUR 4.4 million, operating EBIT minus EUR 5.1 million and the loss for the period, EUR 1.8 million.

On the balance sheet and cash flows, you will see the investments of EUR 1.2 million in the quarter and cash from financing, EUR 23.8 million. You'll also see an increase in the right-of-use assets and the debt -- leasing debt, which reflects the extended leasing period of Stage 1 up to 30-plus years. The biomass for the end of the year was EUR 16.7 million, including the fair value adjustments of EUR 2.7 million. And equity ratio of 55%.

So on the CapEx and funding, as we mentioned, Stage 2, as previously announced during Q4, EUR 77 million, including the EUR 14 million in improvement CapEx. And on the funding, we repaid the short-term facility of EUR 5.8 million in October. We successfully completed the private placement of close to EUR 30 million, which will, together with the planned debt financing, complete the finance of Stage 2. And then we signed, last but not least, the cooperation agreement with Bank of China, as you can see in the picture to the right there. This agreement comprise refinancing of Stage 1 and financing of Stage 2. Both of these elements are expected to have credit approval during Q2. And then at a later stage, we'll address Stage 3, which is also included in the agreement. Yes, so that's all for me. Handing back to Ragnar.

[Ragnar Joensen, executive]

Thank you, Tom. Just before we go to the summary, I would just remind everyone that if you have any comments or questions, you're welcome to write them into the box where you can do this on Teams.

And then just to sum up, we can say that biology has been good, continuously good throughout the project. We have handled the Q4 -- in Q4, we handled the geosmin issue in Q3 and Q4, but it led also to no commercial harvest in the second half of last year. We have now resumed harvest in February, big and good quality fish. Stage 2 is going as planned. We completed in Q4 the Private Placement EUR 30 million, and we expect the harvest this year to be between 3,500 and 3,700 tonnes.

So with this, we complete our presentation. And as I mentioned, you're welcome to raise any comments or questions that you should have. Thank you.

[Tom Austrheim, executive]

And I have the questions here. So I will read them so you can participate in answering. We have 1 question. The first one is, could you give a guidance on the Q1 harvest? What harvest profile should we expect in 2025?

[Ragnar Joensen, executive]

Yes. For the first quarter in -- there will be limited harvest. We start with lower volumes. And then you should expect that we are going closer to normal harvest volumes in Q2. The exact numbers, we don't have to see exactly what they will be, but they will be considerably lower than the plan going forward. I would say some 100 tonnes maybe around that.

[Tom Austrheim, executive]

And then do you have any remaining geosmin issue in the 2,232 tonnes standing biomass?

[Ragnar Joensen, executive]

Yes, of course. As long as we are producing on land in the RAS system, there will always be. Every RAS system in the world has geosmin, but it is under detectable levels when we have purchased the fish and sold it to the market. So there's absolutely no taste of geosmin in our fish that we're sending out. We have tested it now during 2 weeks before we started commercial harvesting, and there has been absolutely no comment on any taste issues. On the contrary, very good quality.

[Tom Austrheim, executive]

And then one, I think, I can answer myself. And that is, how much debt is currently committed for remaining Phase 2 CapEx?

And on that, I will say that we -- as I said, we have signed an agreement with Bank of China. It is subject to credit approval for Stage 1 and Stage 2 expected to be in -- during Q2. We have -- of course, we are in quite detailed discussions with them, and I believe we have a good overview. We haven't published any figures yet, but the gearing is north of 60%, so more than 60% gearing in various tranches.

Yes. And then, the same. And can you comment on your harvest profile 2025?

I guess that is perhaps answered, I don't know if you would like to add anything?

[Ragnar Joensen, executive]

We can say that the harvest profile is that during first quarter, there will be somewhat limited harvesting. And then from Q2 and going forward, there will be at least harvest as steady state would indicate with the 4,000 tonnes production.

[Tom Austrheim, executive]

And then we have a question on sales. Can you comment on your price achievement for the first weeks after resuming sales? Should we compare to European or Chilean, Australian imports?

[Andreas Thorud, executive]

I think, as Ragnar mentioned, we did a very good preparatory work when we now reenter the market in February. We had tasting panels with dozens of consumers. We also had small trials into wholesale market, which all came back with the green light, and that gave us a lot of confidence when we reentered and reengaged with prior customers and also attracting new -- some new customers along that process. And I think what is important for us to highlight is that we are selling high-quality premium Atlantic salmon into the market.

And in terms of how we are doing in price achievements, obviously, in details, that will come back when we do the Q1 report. But we are satisfied with the reentry being a high-quality premium product, and we will continue to work hard to even strengthen our position and continue building the brand of Nordic PureAtlantic in the market. But so far, so good.

[Ragnar Joensen, executive]

Does that complete the list of questions or comments that you have had, Tom?

[Tom Austrheim, executive]

So far, yes. So I think there's been some time now to -- even with the delay, there's been some time to submit the questions. So perhaps we are approaching a close.

[Ragnar Joensen, executive]

Sometimes we have seen the delay. So maybe we can just wait for a few seconds more and then we can close.

Okay. It doesn't seem like there are any more comments. So I'd just like to thank everyone for joining. Thank you from us all. Thank you.

[Tom Austrheim, executive]

Thank you.