Aker Biomarine ASA

OSE:AKBM

Earnings Call Transcript 2021-Q1

[Matts Johansen, executive]

Hello, and welcome to the Q1 presentation for Aker BioMarine. Today's presenter is Katrine Klaveness, the CFO; and myself, Matts Johansen, I'm the CEO.

[Operator Instructions]

So before I dig into the presentation, I would like to share my helicopter view on the business for the quarter. So first of all, it is a weak quarter that we're reporting today. And I would not -- I did not expect to report numbers like this when we plan the IPO a little bit more than a year ago. But there's 3 kind of very distinct things that is impacting our business this quarter. Number one is the weak harvesting season of last year. As you might remember, we left $50 million worth of product in the sea due to the technical issues and the struggles that we had with harvesting last year. But that makes less product available for sale in the beginning of this year, and it also drives up the production costs and reduces the margins of the products that we sell in the beginning of this year.

Number two is that 1 year ago, the first quarter of last year, our Korean market for krill oil was at its peak. And even though Korea today is one of the biggest markets that we have for krill oil, it is still not at the level it was at the peak. And we don't expect it to come back to those peak levels either, which means that all the growth that we're seeing for krill oil all around the world is just filling that hole that we now have from Korea.

And number three, is that in the U.S. retail market, it has been quite volatile through COVID. So normally, the first quarter of every year is the weakest quarter for our retail business, especially on the private label side. But last year, it was a record quarter. Consumers were stocking up products and retailers were running campaigns prior to the closure of COVID. And then through the year, it's been quite choppy and volatile, impacting the comparison first quarter this year over first quarter last year.

But however, even if we're reporting a weak first quarter today, we are still expecting good growth for the company as a whole for the whole year of 2021. And the main and most important driver for that is that we now have a harvesting fleet that is functioning well.

All the 3 vessels came early to the fishing field, no technical issues. Everybody is producing well, and we have set new harvesting record through the quarter, which means we will have significant more product to sell it in the aquaculture market in 2021, and we will have significantly improved margins across our products.

At Aker BioMarine, we are well positioned with clear differentiation, clear value proposition in big markets with good growth projections, meaning that we are staying put to our long-term growth projections for our company.

So let me then take you through some more details. Starting with the highlights. As mentioned on the operations side, things have been working very well for the quarter. So offshore production are really good. And also, we have taken now delivery of our Antarctic Provider, the new service vessel, and that is now in operation in Antarctica.

Also in Houston, things are continuing to surprise us positively. We have to do a controlled shutdown for 2 weeks during the winter storms in Houston. But despite that, we are seeing growth in output out of the Houston factory compared to last year, and we are seeing good progress both in output and in costs in the Houston facility.

Then the big topic of this quarter is the lower sales. The aquaculture sales is low due to a lack of product, as I talked about, but also because of slow start-up of or delayed start-up of new contracts, will lower sales on SUPERBA year-over-year. That's driven all by the Korean markets, but we see positive developments in important markets for the SUPERBA Krill Oil. Like the mass market in the U.S., we're starting to see an impact of what Korean has been doing, and we see growth now in the mass market in the U.S. We see quite significant growth in e-commerce throughout the COVID period, and we see growth in some of the emerging markets in Asia.

Korea continued to grow both with sales out of stores, but also with new retailers coming on board. On the innovation side, we are progressing well. We launched INVI protein earlier this year and have gotten good feedback after the launch, and also our LYSOVETA project is developing positively, and we will tell -- give you more details about it a little bit later.

So revenues for the quarter was $50 million, down from $70 million last year. And EBITDA was $7 million, down from $13 million last year. A little bit more detailed look on the financials. So as you can see, I mean, compared to last year, there's a $20 million gap on the revenue side. That's about 60-40 split between the Ingredients and the Branded business. On the Branded business, this is all about the private label business, where basically the main difference is that we have a really strong first quarter due to COVID and then had a challenging from a year following after that with closure and less activity in retail in the U.S.

On the Ingredient side, the main contributor is on the Aqua side as we have less product for sale but also as mentioned, the difference of sales to Korea. On the EBITDA side, we have less impact. And the reasons for that is that -- or the key drivers for the gap in the EBITDA is that we have now basically 0 margin on what we sell in the aquaculture industry. We have lower margin from the Branded business since we have lower sales there. And I think it is also worth mentioning that we're no longer adjusting out the marketing costs of Kori that's now included in our costs and impacting the EBITDA, as of last year. We actually adjusted those costs out.

Then giving you a little bit more details on the Kori business. So on the offshore side, we produced close to 20,000 tonnes in the first quarter, 12% growth versus the same quarter last year and a significant growth versus Q4. As mentioned, the fleet is now functioning very well. On Antarctic Endurance, the new vessel. It's really coming to its benefit. And as you know, we have set new harvesting record both for Antarctic Endurance but also for the other vessels. We are catching 70 -- or so far this year, we catch 73% of all the catch of krill globally with our 3 vessels, and that's a new all-time high when it comes to Aker BioMarine share of catch.

Antarctic Provider, service vessel is in operation. No issues related to that and we have now dismissed the service vessel that we have rented and then La Manche, our own service vessel will be dismissed later in the year. On a full year basis, Provider will provide us with about $5 million to $6 million in OpEx savings as well as doing the offshore -- offload more efficient and getting them through that more fishing days for all the fishing vessels.

Onshore side, we continue to see great performance. They're tuning the process, getting costs down and increasing the output. There was winter storms in Houston. So we had a controlled shutdown as it was not safe for our employees to travel back and forth to the factory. But nevertheless, even if you had closed 2 weeks, it produced more in first quarter compared to the same quarter last year, and we expect to also catch up all that lost production from those 2 weeks later in the year. We're making good progress on what we call our project 2022, meaning that we should have 2,000 tonnes capacity in Houston by the end of next year here.

On the SUPERBA side, it's a 32% drop year-over-year, mainly a result of South Korea shortfall. I think what is important is that first half for Korea was very strong. And then second half after the regulatory change become weaker. So it's a tough comparison year-over-year for us on the SUPERBA first half this year. But then in the second half, it will be quite different. As mentioned, I mean, we are starting to see an effect of what we have done with Kori and increased consumer awareness around krill oil, and we see now increased sales in the mass market in the U.S. compared to the same quarter last year. The same, I mean, not surprisingly, e-commerce is seeing really strong growth throughout the COVID, and krill oil is a product category that are doing especially well on e-commerce in the U.S. these days. And then we have good momentum in some key emerging markets, such as China and Japan, which are large omega-3 markets where we have a good position and ready for growth.

On the Qrill with Q side, 17% lower year-over-year. We have both challenges with little product available for sale due to COVID or last year, we sold everything that we produced. But also, we have a slower start-up of some of our new contracts for 2021.

Pet side, we continue to grow, I would say, modest growth in the first quarter, but we have good and strong demand, both from existing customers and new customers on the Pet side. Especially in the Asian markets and the shrimp market, we see really strong growth for Qrill with Q, and India has now come up as a new market for us. And in the first quarter, it was the third largest market for -- third largest market for Aker BioMarine.

Then on the Branded business. The results that we present for our private label business is according to plan. Normally, the first quarter is a weak quarter because it's in the second quarter where all the retailers reset their shelves and you get your new products in there. And Lang has done good innovation sales towards the retail this year and have 30 new products that's going to come into the shelves in the second quarter. Some discontinuations as well for products that did not performed well and did not [indiscernible] deserve the place on the shelf.

As you can imagine, Lang is selling mainly through physical retail and the COVID situation the last year has impacted their sales as a lot of consumers are have been doing more of their shopping on e-commerce. But we start now to see a normalization of the retail behavior and a good development of the Lang portfolio.

On the Epion side, I think I'm just going to skip to the next slide where I have some more details on Epion or the Kori development, here you can see sales out of store quarter-by-quarter, and the red dots, it's how much marketing we're spending. As you can see, in the first quarter, we spent significantly less on marketing than the previous quarters. And the reason for that is that we are optimizing now the marketing channels, the messaging and using all the data and experience we got last year to get more and better return on investment on that marketing spend. And through that work now in Q1, we have increased efficiency of that marketing 4x, meaning that we get 4x more lift in sales immediately in retail for every dollar that we spend on marketing compared to how it was last year.

We're exploring new channels like streaming platforms where you can actually target the advertising directly to the consumer that you're looking for. And now through half year of experience, we know what the Kori consumer looks like. Two new retailers coming on board, Swanson and Wakefern. Wakefern is the biggest corp., grocery chain in the U.S., so an important channel.

Also just want to highlight our new ESG platform or sustainability platform that we launched in the first quarter. It has some of kind of 2 main aspects. One thing is the transparent reporting, adopting the some of standards for ESG reporting, both with GRI, but also climate risk like TCFD. We have also now implemented full CO2 mapping and measurement throughout our value chain and going to report that on a yearly basis transparently. We have also set new ambitious goals for sustainability across our business, both on the positive side in terms of how our products are improving society and the challenges that we face in society, and how we are kind of operating responsible by reducing our footprint.

And we have 10 KPIs altogether. The most important ones on the positive side is that we by 2030, in the next 10 years, we will have 1 billion annual servings of Health & Nutrition that will improve the health of people and combat lifestyle diseases. And we -- sorry, 5 billion doses of those health nutrients. And then through our ingredients in the aquaculture industry, we will contribute to efficiency gains equal to 1 billion servings of seafood, meaning that our ingredients is responsible for producing 1 billion extra servings of it.

On the responsible side, the 2 most important KPIs is CO2 reduction. We're going to reduce our CO2 50% over the next 10 years. On top of the 50%, we have already reduced it in the last 10 years. And then we're going to have an ambition to have a net-zero by 2050, meaning that we will have to phase out diesel as a fuel on our vessels. And the second key one is that we, for full circularity for all our primary waste stream, which was also the reason why we established AION which we'll talk more about a little bit later.

Quick update on the innovation side. On LYSOVETA. As you know, we signed the first pharmaceutical deal recently with our partner there, MD3. They are now in the end of their kind of investment roadshows and discussions. We're getting close to -- closer there. Good interest from investors have now increased the aim of capital to $50 million, and we hope to have that closed or they hope to have that closed within the next months. And then going out and targeting those brain and eye health diseases.

We are now ramping up production for the LYSOVETA product in Houston, and we now have product available for R&D purposes. And as you know, we have already launched 2 R&D partnerships with universities to continue to explore the benefits of LYSOVETA.

On the supplement market, we are now preparing to file the regulatory filed to FDA, the U.S. regulatory body and are planning for an approval end of next year, and that's when we can start to commercialize in the settlement side.

INVI Protein launched in January, moving fast pace. We have already submitted the regulatory funds both for Europe and U.S. After the launch in January, we have quite extensive customer dialogues, lots of interest coming in, both from specialist protein companies, but also from the largest fast-moving consumer goods companies, interested in our new novel protein that is easy for them to formulate into food type of products.

We are now focused on making prototypes for how you can use our protein in different type of food products to kind of demonstrate how it actually works. Ramping up the commercial teams related to that and preparing for the [ Sheehy ] factory that we're going to build on.

And then just a quick summary. As you know, all those innovations that we are focusing on, both the ones that we have launched, INVI and LYSOVETA, but also what we have in the pipeline are focusing on developing new products where the customers are willing to pay more and we can get better value for the role of QRILL.

Then before I hand over to Katrine, I'm going to give you a little update on AION. As you know, AION is aiming to be the global leader for circularity solutions for plastic. It's a mobile setup where we control the entire value chain, meaning that we help those that have plastic waste to handle that in a responsible and transparent way. And then we manage the value chain and then offer plastic products to companies that want to have circular recycled plastic product with the same traceability and documentation. This is managed through a software solution that makes this automated and easy to scale.

We offer this was in what we call Circularity-as-a-Service model compared to Software-as-a-Service, we're basically providing both the leasing services for the plastic products our customers buy, but also with those value-added services coming from that software, including all reporting all the tools they can use in their marketing to their customers and the full traceability of where their plastic is coming from.

We have now done some more work on building a plan for AION. And you can see the highlights of it here now. We are in this year, focusing to build the organization and gain commercial traction. We want to approve the business model with 3 to 6 new customers and build capabilities in to handle the Nordic markets because that's what we are focusing now. And then using Aker BioMarine in plastic and plastic from the Norwegian aquaculture sector.

We have already utilized all of Aker BioMarine's plastic and are now working with the aquaculture sector. As you can see, we're aiming for $4 million in revenue this year despite some significant CO2 impacts of all that plastic that we're capturing through this system.

Then next year and '23, we're going to scale this up, both on the supplier side to make sure that we have local suppliers through the local markets in Europe and then follow our accounts and network throughout Europe and North America. And then after that, from '23 and to '25, we're going to scale this fast in Europe and in North America and both get become a large amount of customers and a good control over the whole supply chain network.

And then in the longer horizon, $2.3 billion in revenue represents 1% market share in PE and PP, which is the plastic types that we are focusing on. But as you can see, a quite steep development on the revenues, $4 million in 2021, $20 million in '22, '23 and $60 million in revenue in '23 to '25 per year we're talking about there.

So what have we been doing the last quarter and since launch of AION? First of all, we have now successfully scaled the McDonald's business internationally, and now starting to deliver already in the first quarter to Sweden as well. We plan to continue to scale that internationally to other countries. We have new customer KAOS which is a fast-growing children's clothing and furniture brand where we are providing all the plastic products. We have built now a large pipeline of both use cases, different type of plastic products that we offer and a large prospect list that we are now systematically following up.

And then we're recruiting quite heavily these days to get the competence and hence needed to scale quickly. Focus area now in the short-term is that we are continue the recruitment process. We're going to be in AION 15 to 20 people by the end of the year. So we're growing quite fast on that side. And then we are now in the next phase of software development and plan to launch that and make that available for demonstrations in third quarter this year.

We're going to get several new customers and are in close dialogues with many now, and we plan to have that also closed in the near future. And then also very important, we have started now exploring the different options for how to spin AION out of Aker BioMarine to Aker BioMarine's shareholders with new ownership structure. And as soon as we come to get clarity on the direction for that, we will update the market.

With that, I'll give the word to Katrine, who will take us a little bit more detail through financials.

[Katrine Klaveness, executive]

Thank you, Matts. I will take you through the financial figures for the quarter. First quarter 2021 has been a challenging quarter. We knew already in Q4 due to the shortfall in harvesting that we would struggle with unit cost translating into lower gross margins as well as limited product availability for the QRILL Aqua. On top of that, South Korea has not bounced back to earlier levels as we had expected, affecting the SUPERBA sales negatively. Looking at the revenue, the effect of the above materializes into a top line that is almost 30% down from same quarter last year and also down compared to our expectations for the quarter.

Lang performed according to plan, but with a record high Q1 last year, the shortfall is still significant when comparing year-over-year. Adjusted EBITDA is 46% lower than Q1 last year. The majority of the reduction stems from the Brands segment with a decline in sales significantly affecting the EBITDA due to a high fixed cost base as well as Kori marketing no longer being an adjustment item.

EBITDA margin is down from 18% to 14%, driven by the Brands' negative development. The Ingredients EBITDA margin is up in the same period. On a more positive note, the net interest-bearing debt has come down from -- with 27% from $406 million to $293 million as a result of the capital increase last summer of $224 million. The company now has a robust liquidity with more than $100 million available in cash and unused capacity under our debt facilities.

The Ingredients revenue is down 28% year-over-year for the quarter, with SUPERBA being the main driver, accounting for 2/3 of the decline due to the loss of sales from South Korea. The sales from South Korea was at peak levels in Q1 last year. QRILL Aqua sales was hampered by low harvesting volumes in Q4, translating into low inventory beginning of the year, limiting product availability.

Throughout the year, the seasonality of the aquaculture industry is clearly visible with Aqua increasing sales every quarter and ending last year with a record high December month. We also see some Aqua volumes now being pushed over to the next quarter due to setup of new customers with great logistics and import regulations taking longer than anticipated.

Moving over to the adjusted EBITDA. We are more or less on par with last year's EBITDA despite a large drop in sales, clearly indicating the effect of our operational scale as well as a strong cost discipline, where we have been able to reduce fixed overhead costs with 9% compared to the same period last year, driving the EBITDA margin up from 19% to 24% for the quarter on track for delivery on the year as planned. For this quarter in isolation, lower-than-planned sales of Aqua has limited impact on EBITDA as the Aqua product carries almost 0 margin in the first quarter as a result of low harvesting and high unit costs coming in from last year.

Looking at Onshore and Offshore production volumes, on a 12-month rolling basis, we see the significant shift in performance for the Houston plant in the top graph, more than a doubling of production levels on an LTM basis last year shows continuously robust and steady operations. The plant had to shut down in February for 2 weeks, but we expect that the lost 40 tonnes will be fully recovered throughout the year. In addition, the ongoing capacity program with the ambition of lifting total used an output to 2,000 tonnes by 2022 is already showing good progress.

The production improvements in the offshore segment came off to a slower start as Antarctic Endurance took almost 2 years before it was fully ramped up. With a good Q1 harvest, 12% up from same period last year and a well-functioning fleet, we expect to further reduce the unit cost throughout the year, which will yield higher margins for our products. Current market share is 73%, which is up from last year's estimated 68%. We have now subletted the least support vessel Trinitas, and is also currently reviewing options to take out La Manche from our fleet as Provider has now commenced operations as intended.

The Brands segment declined with 30% from Q1 2020 to Q1 2021. For first quarter last year, there were no Kori sales, but Lang had a record quarter with the combination of an early COVID boost in physical stores as well as several promotional campaigns from the large clubs, Sam's Club and Costco. However, we do see signs of mass market recovery in the U.S. Kori was launched during Q2 last year, contributing positively, but still marginally to sales in the Brands segment. For adjusted EBITDA, the gross margin percentage for Lang remains unchanged between the quarters. However, the EBITDA margin is significantly affected by lower sales, combined with a mostly fixed cost base, reducing operational leverage.

In addition, as Kori is no longer in a launch phase, we will not adjust for Kori marketing spend that will continue through 2021. And Kori marketing spend for this quarter was $1.6 million.

I will now take you through a few key items from the P&L. Looking at the SG&A line item, it is slightly up, mainly driven by brands where Epion is now included in the cost base. Costs related to the Oslo Bors process is also included. If removing all volume-related costs, and the innovation department, overhead costs are down 9% between the 2 quarters.

Net financial items. By the end of last year, we had booked our mark-to-market value for the fuel options on this line item. By end of last -- however, as we have now moved over to hedge accounting, this is now reflected in other comprehensive income and is removed from this slide.

Realized gain or loss on the [ krill ] options will be recognized as an operational item netted against fuel costs. The company had a net realized gain of $200,000 for Q1. Tax expenses are still limited with the company only paying state tax to the U.S. up until now. However, we expect to start paying federal tax by the end of this year or early next year as our tax loss carryforwards will be fully utilized by them. For Norway, we don't expect paying tax for another 3 to 4 years.

Depreciation and amortization from production assets shows a slight increase as a result of the new service vessel Antarctic Provider coming into the books. Finally, this leads to a negative net profit or loss of $9.8 million for the quarter, significantly down from Q1 last year.

The balance sheet is up from $681 million last year first quarter to $749 million this quarter, and also slightly up from year-end 2020 with $700 million. The main changes include significant buildup of inventory after a good harvesting quarter, first quarter, combined with lower-than-expected QRILL Aqua sales. The fuel hedge, as mentioned on the previous page is recognized as a derivative asset on a mark-to-market valuation basis, currently being in the money with a positive value of $9.8 million. Antarctic Provider is moved from prepaid expenses to property, plant and equipment, adding $72 million on the balance sheet.

Q1 2020 included the Juvel vessel, which was sold May last year. Interest-bearing debt is significantly down from Q1 last year as a result of the capital increase and subsequent repayment of the Aker ASA debt. but up from year-end due to the addition of the Antarctic Provider debt facility of $60 million.

With cash on hand of $13.9 million and undrawn capacity under our revolving credit facilities, the company currently has more than $100 million in available liquidity. And with an equity ratio of 49%, the company has a robust financial position.

Finally, on the cash flow. The net cash flow for the period shows a positive change in cash of $3.2 million as a result of the Antarctic Provider debt facility funding the takeouts, but with the company having prepaid $16 million to the yard. Cash flow from operations was negative by $3.5 million as a result of inventory buildup leading to a negative change in working capital. And the cash flow from investing activities, payments for property, plant and equipment was affected by the takeout of Antarctic Provider, and this is mirrored on the cash flow from financing activities with the addition of the new debt facility and net change in external interest-bearing debt. We have also drawn $10 million under the RCF, which is a net item in proceeds from debt issue and change in overdraft facility.

With that, I will give the word back to Matts to conclude the presentation.

[Matts Johansen, executive]

Thank you, Katrine. So I just want to take you through the outlook. I touched it on a little bit earlier. But first of all, we plan and expect normal and good harvesting for the 2021 season, 60,000 to 70,000 tonnes of production for the year. As mentioned, all vessels are functioning perfectly technically. We also expect Houston to continue its performance and improved performance with higher output and lower unit costs. And then as a result of those 2 things, we're going to realize the scale effects as our fixed cost base is more or less the same. So as we produce and sell more the unit cost drops and margins improved, and that's an important EBITDA driver for 2021.

We expect sales to improve significantly, especially in second half when they get more products for aquaculture and our new contract starts. And as mentioned, we don't expect Korea to fully recover, but we see good growth in other markets that will compensate for that. We see less cost now related to COVID compared to what we saw last year, and that is now impacting us on a lesser extent compared to how it's been earlier.

So with that, we still are expecting growth as a whole for the full year 2021 compared to 2020, not as high as 17% that we had last year, but still growth. We're going to have higher revenues in the second half in the first half for the reason that I have already mentioned. And we expect the EBITDA margins or adjusted EBITDA margins for the year to be improved versus last year. And we still retain our long-term ambition of $200 million in 2024.

And then I just want to end with a slide to just illustrate the importance and the impact of good production both in Houston and in -- on the Offshore side. So what you see on this slide here, to the left, it's the harvesting in tonnage and how much we produce each year, and then you see the unit cost as the line on top. So on the left side, you can see the significant drop in unit cost that we are now expecting in '21 over 2020, which means that the margins that we that we make for all our products, not only aquaculture, but this is also the Ingredient going into our oil production. The margins will improve significantly in 2021 versus 2020.

And then on the right side, you see on the Houston side, you see that continued improvement that we have seen over a longer period of time, but we also see them a continued improvement in margin cost or unit cost and margins in '21 compared to 2020. And I mentioned it before, and I just want to repeat it again that the performance of Houston financially is actually having a bigger impact on our company than on Offshore as we have larger revenues on the oil side than we have on the aquaculture side.

So with that, that concludes our presentation. We will now go through the questions that you have put in. So I'm just going to move this over here. And then I'm going to start with the questions.

[Matts Johansen, executive]

Okay. So First question here, why do you not expect Korea to come back to peak levels?

So we have seen that it's starting to slow down its growth. I mean it's been building up since [indiscernible], and it's starting kind of to flatten out. And because of that, we don't expect it to come back to the peak levels. We're still working on that, looking at innovations and new claims for the Korean market to kind of boost it back to the old level. So we haven't given up. But right now, we're planning for the sales to stay around the levels that they are right now.

Next question, which is, I think related, in February, you said that South Korean market in SUPERBA reopened in November and that you had recorded 50% of peak sales. What is this proportion today? Furthermore, if the U.S. market is the largest market and was up year-over-year, any other markets that are seeing negative sales growth?

So we are a little bit higher, but around 50% still of the levels at peak for Korea. So -- and then the question was what other markets are seeing negative growth? I don't think we -- I mean, there's kind of a pocket of negative growth driven by COVID. A little bit in Australia, where we sell a lot through retail. A little bit in the health and vitamin specialist stores in U.S. and Europe, but basically, the negative drive is coming from Korea.

Yes, your chart on Kori shows quarter-over-quarter growth in numbers of units. Is the sales price unit unchanged so that the sales value is showing the same growth? Yes, it does. So there's no change in prices for Kori throughout the quarter. The price has been the same.

Okay. Next question. You said that you know how the Kori consumer look like. How does he look? How does it compare to your expectations?

So actually, it's a she. So the typical Bio Kori is female, a little bit younger profile than what we expected. And I think that is one of the reasons why we are changing the marketing because our typical buyer sits in a higher age range than what compared to those that actually are buying Kori today. So that's one of the things that we're tuning in to target a little bit more older consumers. I think we are now in the kind of group 40 to 50, the typical buyer of Kori. The high education, high income, which is what we expected and what we are targeting and kind of focused on health and getting the maximum out of their life. So it's kind of -- I would say it's only the age, which is a little bit different than what we have planned, and that's one of the things that we are adjusting now.

Next question, which I think is relevant as India has emerged such an important market for Aker BioMarine should the COVID situation adversely impact sales in Q2 '21?

That's a topic that we're following very closely. Right now, it seems like it has the opposite effect, meaning that there's a lot of local supply chains that are disrupted, meaning that they have more need of imports of Ingredients to their food production, which they don't need to keep going. So I haven't seen any negative effect of that, but it's something that we are watching very closely.

Next question. Could you comment on the target pre-money valuation range for LYSOVETA?

I think that's too early to comment on. So we will update the market as soon as that starting to materialize.

How is harvest so far in April? Harvesting is continuing to be good. So all vessels working well and producing and harvesting well.

What is the cash flow and so far for April 2021?

We don't report that on a monthly basis, so you'll get the updated numbers once we report Q2.

Has the offshore production continue at the same pace so far in Q2 as seen in Q1?

I would say so. But I think also one important information is that Q1 season started a bit late. So it was first come up in April, it really started to pick up with large amounts of QRILL. So -- not February, sorry, beginning of February. So that's kind of when the large amount of QRILL came into the fishing field. So -- but if you look at February and March harvesting, April is continuing at the same level.

Okay. Next question here. What are your long-term ambitions? I guess it said in South Korea given the weak catch-up?

Yes, I think we are -- I mean, we are now planning for it to stay at the current level, but we are working hard with our partners in Korea to innovate, come with new claims and different ways to kind of boost that market because we know the potential is there. But right now, we're planning for it to stay at the current level.

Sales should be skewed to hit to the second half this year. Do you expect a year-over-year growth in Q2 '21?

I think we're not guiding on Q2 specifically. So -- but typically, sales will pick up throughout the year, but with the heaviest part in the second half.

Next question. You said it took 2 years to bring Antarctic Endurance up to full capacity. Can you elaborate on why that was? Can you expand on the regulatory framework outlook for Korea?

So -- yes, so I mean Antarctic Endurance is advanced vessel, lots of technology on board. You can do just so much kind of in modus in theory at the yard. You need to get out on the fishing field to experience it and adjust all the innovations and the technology on board. And we know that from previous vessels that we have been that takes just 2 years to tune in.

I mean what happened last year is that it come we had big challenges all the way on to the end. So typically we gradually improve it. But that's the reason, and that's something we have seen earlier. You can say that maybe the alternative is to spend 2 months -- 2 years more in the Arctic model and kind of test theoretically. But for us, we get more value of getting down to the fishing field and start operating and actually getting production on it.

Can you -- and then on the regulatory framework outlook for Korea?

So that's quite stable ma'am. It's just that earlier. Krill oil was regulated asset food, which has come quite loose in terms of regulatory requirements, then a change came in and where you have to -- or it's now regulated as a health products. And that's much more stricter, more documentation needed and that's what's impacting our sales, and there was a postop while we were getting all our documents into the Korean FDA and come we're getting the green lights for our products, which we know how, and we expect that to be stable in the years to come.

Okay. Next question. As India is the third largest market for QRILL, do you see any negative FX for Q3 [ after ] COVID-19?

I already asked that.

Why weak demand in shrimp? Is another question here.

There is not weak. It's very strong demand in the shrimp market. So that all that growth that is in India, for instance, or in Asia, it's the shrimp market. So shrimp is really a common high-growth market for us now.

Could you give some color on China cost to sales of the channels?

Yes. We have been in China for quite some time, since 2011, building relationships, which you have to do over long period of time in China preparing regulatory approvals which have been taking quite some time for us. And we are staring to make good inroads now with customer that are launch in products and having good experience. So we have a large team there systematically working with both key opinion leaders and in the market to convince new brands to launch krill oil products and more important, do marketing and educate the Chinese consumers about the benefits of krill.

And then in China, in these type of markets like Korea, it's all about just one of them come of cracking the code and started to be really successful and then everybody will come follow up behind and want to do the same.

Costco sales, I'm not sure if that's related to Kori or in -- or related to China. So I'm not sure how to answer that. But yes, that was the last question.

So with that, I think we thank you for listening today, and see you next quarter.

[Katrine Klaveness, executive]

Bye.

[Matts Johansen, executive]

Bye-bye.