Aker Biomarine ASA

OSE:AKBM

Earnings Call Transcript 2023-Q2

[Matts Johansen, executive]

Good morning, and welcome to presentation of the second quarter results for Aker BioMarine, where myself and CFO, Katrine Klaveness, will take you through the highlights and the financials from the quarter followed by a Q&A session. And you can already now start to send in your questions to [e-mail].

First of all, I'm really glad to be standing here now for the fourth quarter in a row where we report growth year-over-year for Aker BioMarine, delivering $89 million of revenue for the second quarter and $21.5 million of EBITDA. The harvesting in the quarter was good, and we are on track for a normal harvesting year.

Given the jump that we see in top line, you would expect a higher EBITDA than what we report now in the second quarter, but that is driven by 3 things. Number one is that we onboard a large customer in the second quarter with a one-off investment to get them onboard. Number two, the fuel prices in South America is extraordinary high compared to pricing in Europe, driving cost of goods for our aquaculture segment up. And number three, as we're building down inventory in -- of krill oil in Houston, we have limited production, and therefore, driving cost of goods for SUPERBA also up.

It has been an eventful quarter, starting with getting finally the approval for Korea in the beginning of the second quarter. And now our customers and partners are preparing for going live towards consumers in the Korean market, and we expect the first TV campaigns and the first home shopping programs to start in August.

We also took delivery of our autonomous drone that we will use in our harvesting operation to optimize where we are at different times in Antarctica with our fishing vessels. And we have also now finalized our protein factory here outside Oslo on time and on budget and are now ready to move into commercial phase for our protein products.

We have also announced that we're doing a change in segment reporting for Aker BioMarine and a legal restructuring, and we will get back to the details of that later in the presentation today.

As mentioned, we delivered $89 million of revenue for the quarter, up from $73 million in the same quarter last year. And delivering an EBITDA of $21.5 million, on par with the same quarter last year, driven by those 3 things that I mentioned: One-off investment to onboard one large customer; extraordinary high fuel prices in South America compared to Europe, driving cost of goods for aquaculture up; and limited production in Houston driving cost of goods for SUPERBA up.

On the harvesting side, we have started well for the year. Second quarter, we delivered close to 18,000 tonnes of production, 9% better than the same quarter last year. Also, the third quarter has started well. And year-to-date, as of yesterday, we have almost produced 40,000 tonnes of product, slightly ahead of the same period last year. There is more limited competition in Antarctica this year compared to last year. Eight other vessels in addition to our 3 are competing for the raw materials down there, down from 9 the previous year. And following a trend, we see the recent years of fewer and fewer vessels involved in krill harvesting.

As mentioned, we have taken delivery on our unmanned surface vehicle, the drone that we will use together with our big data model to guide our captains to where to take our vessels to optimize our fishing activity. It is now delivered. It will go into operation later in the season. And it will help our fleet to make sure that we are at the right spot at the right time, both avoiding using the big fishing boats to search for krill, but also making decisions when fishing are okay where we are, but maybe it's better somewhere else.

We are on good track to deliver on what we call a normal harvesting year for 2023.

In the Animal Health and Nutrition segment or the QRILL segment, we continue our strong development. We see 30% year-over-year revenue growth for the QRILL Aqua segment. We have about 9% underlying price growth in our customer base, but we have this one-off investment to onboard one large customer in the second quarter that is impacting pricing.

I mentioned in the last quarter, 2 new large customers coming onboard, 5,000 tonnes each for 2023. And this quarter, we are announcing a third large new customer coming onboard, also representing 5,000 tonnes of demand for the second half of 2023.

There are some market dynamics around us connected to fish meal and fish oil, which are important substitutes for QRILL products, that are positively impacting market dynamics. This may have an impact both on demand and pricing going forward of positive nature. I will dig a little bit deeper to that later.

We expect the Agriculture segment or the Animal Health and Nutrition segment to continue its strong development and are guiding revenues for the QRILL portfolio to be higher in the third quarter compared to the same quarter last year.

I'm also really glad now to show a continued positive development for SUPERBA. Now 6 quarters in a row in a positive trend for SUPERBA, delivering 42% growth year-over-year, $20.4 million of revenue, driven by especially healthy development in Australia, in Europe and in Asia. And in Asia, we have now both sales in Korea, and China is continuing to develop very positively. I was myself traveling in China for a week earlier this month. I could see the increased activity level and the interest in krill oil products as it's starting to be more mainstream in the nutraceutical market in China.

As mentioned, we got the approval for Korea beginning of the quarter, and our customers are preparing both finished products and marketing campaigns and are expecting to go live towards consumers in Korea in August. We have already starting to ship volumes to Korea. And based on the forecast that we're seeing from our customers in the market, we can see that our customers are anticipating a success when they go live.

We are taking a little bit different strategy to Korea compared to what we did last time. We continue to work with our long-time partner, the same partner we had the last round. But in addition to that, we're working with our partner and now also a broader network of large dietary supplement brands in Korea to go deeper in distribution and consumer education around krill oil in the Korean market.

Also, we got a similar regulatory approval in China during the quarter. We got the government approved health claim for immune health, meaning that the government has assessed that krill oil will improve your immune strength in China. It's a bit more lengthy process. It's going to take about 6 to 12 months from when that was qualified this quarter until it can be used. It's also structured in a different way with these type of approvals are given brand by brand connected to our ingredients. So this approval is given to a combination of us and one customer or one prospect for us.

We expect a positive development for SUPERBA to continue and are guiding third quarter to be higher than the third quarter last year.

I mentioned during the QRILL section that there are certain market dynamics around us that may impact both demand and pricing for our products positively. And that has to do with the markets for marine proteins and marine Omega 3s, meaning fishmeal and fish oil. It started already in 2022, where the fisheries in Peru had much lower yield than what they normally have.

And Peru, they stand for about 20% of all the fish meal production in the world and between 30% and 40% of all the fish oil production in the world. So last year, we were getting much less Omega 3 out of the fish that was catched in Peru. And as a result, the supply of Omega-3 went down. And as a result, prices starting to rise.

On top of that, the agriculture industry, which is the biggest consumer of Omega 3 in the world, they've been keeping the demand in check as they've been growing by optimizing down the use of Omega 3 in the diet, but have now optimized it down to a level where they can take it any lower, which means that the demand from agriculture industry on Omega 3 is starting to increase. So we have the combination of less supply and more demand.

On top of that, the Peruvian government canceled their fishing season for the first half of 2023 and is expected that they will also cancel the second half of 2023, which will put even further constrained on the supply of both fish meal and fish oil to the global markets. As a result, we have seen fish oil prices triple over the last 12 to 18 months, and fish meal prices going up 30%. Less sensitivity on price there as there are many alternatives for proteins the aquaculture industry can use. While for fish oil, there are very few alternatives, but krill oil is one of them.

So how will this impact Aker BioMarine's business? So starting with the supply and pricing for fish oil. So in our QRILL product that we sell into the agriculture industry, we have a fair good amount of Omega 3s. And typically, when a farmer will take in our product to the diet of the fish, they will reduce the amount of fish oil, meaning that when fish oil prices goes up, their willingness to pay for our product also goes up.

If you look at the impact the fish oil market has on the SUPERBA market, the situation is that we have a high price premium for krill oil compared to fish oil. And on the shelf in retailers for consumers, the price premium between krill oil and fish oil is between 4 and 6x. So when prices for fish oil goes up, that price premium for -- between krill oil and fish oil will shrink and the competitiveness of krill oil will improve.

On the fish meal side, on the agriculture with our QRILL products, the impact is similar like with Omega 3 fish oil, meaning that, typically, when the farmer add in our product to the diet, they will take out fish meal. And therefore, when fish meal price goes up, the willingness to pay for our product also goes up. The fish meal market dynamics has no impact on the SUPERBA business.

So what was Aker BioMarine's strategies look like on top of this situation? So the pricing strategy that we've been following since the beginning for our QRILL products has always been to gradually grow prices as customers and farmers get experience and see the value our products provide to their farm, meaning that we don't want to become a commodity that fluctuates up and down. But that being said, we would like to utilize and we have always utilized the positive momentum that we see in the global raw material markets around us. Therefore, now we are only committing pricing to our customers for 6 months at a time to make sure that we always can use the latest data in price negotiations with customers.

As a result of this supply and price crunch that we see for fish oil and fish meal, we're already seeing the demand for our products increasing significantly, and we have already reserved all the planned production for 2023 to customers.

For SUPERBA on the human side, it's a little bit different strategy. We already have a high price premium, a high price, and our strategy is not to increase that price as fish oil prices increases but rather increase the competitiveness of krill oil versus fish oil. As mentioned, the price premium today is between 4 and 6x for krill oil compared to fish oil. And we know that about 20% of the dollar price you see on the price tag in a retailer is driven by the crude fish price that is now spiking up, which means that now when fish oil price goes up, the prices on those products on the shelf will also go up quite significantly, making krill oil alternatives more competitive.

We also believe that there will be a limit both for brands and for retailers for how much fish oil brands can increase their prices before they will take the product out and replace it with something else. And there, Aker BioMarine will be ready with our product portfolio as alternatives to replace those products with.

Also, we haven't talked much about our protein progress in the latest quarter, and that is because we are now mainly focused on our core business of Aker BioMarine. But today, it's worth mentioning it as we have now completed our factory that we've been building over the last period of time, on time and on budget. We have now run the first production of krill raw material through the whole process and getting a human-grade protein out at the other end. We will continue to run tests throughout the summer, and we will move into commercial production in September.

We already have regulatory approval for the U.S., for Australia and New Zealand and certain Asian countries, and we are in dialogue with protein brands globally to engage in commercial agreements with these companies. We're also now engaged in formulation trials, meaning working on how we will take our protein ingredients and format it into energy bars, different sport drinks or protein powders.

On the branded side, our private label business continued to develop strongly, 11% growth year-over-year for our private label business, Lang, driven both by increased demand, more products sold and also the fact that we increased pricing at the end of last year. We have also now gone live with a new category that we've been working heavily on, on the last period of time, meaning this Gummy Bear delivery where we can deliver vitamins in something else than the pill. And the first customer out is Sam's Club, which is coming out in the quarter with a multivitamin in this new Gummy technology that we have exclusive access to. The plan is to use this technology to deliver other types of vitamins and roll it out to other retailers as well.

Epion's sales for Kori from us to retailers were down 6%, impacted just by the buying patterns and the planned -- promotion plan for retailers. But the POS sales, meaning sales of Kori from retail to consumers, were up 28% compared to the same quarter last year.

Given also the situation in the fish oil market, it's worth mentioning that on the private label side of our business, fish oil is a large -- a relatively large segment, representing 24% of the revenue for Lang in 2022. It has a significantly lower margin than the rest of the business, but still it is a significant business for us. We are sourcing fish oil with 6 months coming ahead of time, making sure that we have inventory, and we're rolling out the price increases to the retailers as they happen. We're also ready with alternative products for the retailers if they should come to the point where they feel the pricing for fish oil is getting too high, and our krill oil product portfolio is part of that plan.

Okay. Moving into the new financial reporting and legal restructuring of Aker BioMarine. So historically, Aker BioMarine has been segmented in 2 segments. It's the Ingredient segment, where we have kind of bundling all our ingredient related businesses. So our harvesting vessels in Antarctica, all our logistical operation, protein factory in Norway, Houston and Chi in U.S. and all the different sales teams. Everything bundled into one segment. And the same on the branded side, where we bundle together, become of a steady state cash flow generating private label business with our kind of high investment business of Epion or Kori. It has been necessary to be segmented like that as we have build Aker BioMarine so we could optimize supply chains, we can tune in products and build scale so that the businesses could stand more independently on their own legs.

But now the time is right to do a different type of segmentation, and we're going to divide Aker BioMarine into 4 different segments or business units. The first segment is what we call the feed ingredient segment, which is basically our krill meal business. It's going to be our harvesting fleet in Antarctica, our logistical vessel, our logistical hub in Uruguay as well as all our commercial activity related to QRILL products for the pet food and aquaculture industry.

The second business unit or segment will be the human health ingredient business, which is the krill oil-based business we have. So SUPERBA, it's going to be LYSOVETA, it's going to be PL+ and the manufacturing related to that in Houston, Texas.

The third one will be consumer health product. So the steady growing cash-generating business of private label in one clear segment. And then we create a fourth business unit or segment that we call emerging business, which is a portfolio of those companies that are in early stage in the investment phase and underdevelopment. And this business unit, we're going to work with different type of strategies, including M&A activities, spinning out organic plans in order to get those businesses into positive territory as soon as possible.

There's 3 reasons why we do this restructuring and change in financial reporting. So first of all is that we've been getting feedback from the investor market for quite a while that the transparency of Aker BioMarine is low and it's difficult to understand the P&Ls and the business drivers for the company. By this segmentation, with clear P&Ls for each of these business units, we will provide more transparency and a clear P&L that will be easier to understand for the investor community.

Secondly is that we have gotten feedback that it's really hard to do valuation of Aker BioMarine because you really can't find any peers that looks exactly like Aker BioMarine. By also dividing into these 4 business units, we will get now clear P&Ls for each of them with revenues with EBITDA and many peers with each of them that you can compare and help in valuation. So that's reason number one.

Reason number 2 is that by dividing into these clear, distinct business units and segments, it will allow Aker BioMarine to be laser-focused with our strategy and our priorities in each of those 4 business units. I will also get kind of full P&L accountability with the team for each of those 4 business units, making sure that we always make the right priorities for the P&L for each of them.

And the third reason is that the legal restructuring that's going to follow this segmentation into business units will allow us to do flexibility for transactions related to each of these business units to drive shareholder value further.

We will start reporting on this new structure starting first quarter 2024, but we wanted today to give a little sneak peek of what these businesses look like also from a number perspective. So what we have done here is to look at our 2022 numbers and divide it into those 4 business units. So if we start with the feed ingredient segment, which will be a business which will be the world-leading harvester of krill, will control the biggest biomass on the planet, will have a premium ingredient with well-documented health benefits with healthy margins and all the key players in the industry on the customer list, addressing a fast-growing aquaculture and pet food segment. That business in 2022 represented $124 million of revenue.

Krill meal from that segment will be sold into the Human Health Ingredient segment at market pricing. And Human Health Ingredient business will then be the world-leading manufacturer and distributor of krill oil in the B2B market for nutraceuticals globally. It will be one of the most attractive Omega 3 companies out there with a differentiated position, with a high-margin, IP-protected product portfolio and a strong portfolio of science documenting the health benefits and broadening claims approved by governments. We will have a strong innovation pipeline with LYSOVETA and PL+, and we'll also address underlying strong growth market in the global dietary supplement and Omega 3 markets. That business in 2022 was $66 million.

The Human Health Ingredient business will then sell krill oil to the Consumer Health Product business unit, which then consists of Lang and our private label business. And that will be -- and our Consumer Health Product business will consist of our exclusive, innovative dietary supplement offering for the largest retail chains in the U.S. It has one-of-a-kind innovation machine, providing and evaluating more than 100 new ID product of these every year, presenting about 50 of them to retailers and getting about 20 new products on the shelf every year. It has flexible manufacturing. It doesn't own its own manufacturing facilities, but then go with whoever has the best price, the best technology at any given time, ensuring high service level for customers and low costs for us, also addressing a large and fast-growing dietary supplement market for private label in the U.S. That business in 2022 represented $108 million of revenue.

Those 3 business units are a kind of healthy, clear cash-generating businesses that will just continue executing on its kind of step-by-step drumbeat strategy to get its growth plan in place. Combined, they generated in 2022 $82 million in EBITDA.

Then the fourth bucket, the emerging business portfolio. We gather Kori, which is still in the investment and development phase, our own consumer brand on the retail sales in the U.S. It will consist of understory, which is a new brand name for our protein ingredient with a factory just finalized in [indiscernible] outside Oslo. It will have our human portfolio, our plastic circularity company that we spun out last year. And also, QPaws, which is a small app that was developed as part of the marketing activities for our pet food segment, but has turned into become one of the dog activity apps in the world.

So those 4 businesses here, we will have come out a workout plan that both includes transactions and organic plans for how to get them from this kind of early-stage negative cash train situation to a positive territory. In 2022, those 4 businesses represented $14 million in revenue and about $13 million negative EBITDA. So as mentioned, starting first quarter 2024, we will get back -- we will start reporting P&Ls according to these 4 segments.

With that, I will give the word over to Katrine that will take you through the financials.

[Katrine Klaveness, executive]

Good morning. I will take you through the financial section for the second quarter 2023. We have seen good top line development this quarter compared to previous quarters. $89 million in revenue is an increase of 21% from second quarter last year, and growth is driven from both QRILL Aqua meal, SUPERBA Krill Oil and our private label, Lang Pharma. However, despite strong growth in revenue, EBITDA margins don't fully mirror the sales development. There are several reasons for this. Matts have already explained a few, and I will add some -- a few more.

The first one is the unit cost that remains high for SUPERBA Krill Oil as long as the Houston plant runs on low to no capacity. This increases the COGS and reduces gross margin for krill oil.

Second, the unit cost has also increased for QRILL Aqua due to higher regional fuel spreads, I will come back to this, increasing the Aqua COGS and also reducing the gross margin. A large bulk sale that Matts also mentioned to a new account in the quarter has diluted Aqua prices. Part of Lang's growth is also coming from sales to a lower-margin customer this quarter.

And finally, on the EBITDA margin, we sold some of our fuel contracts last year in the second quarter to balance our portfolio with our fuel requirements, leading to a positive EBITDA effect. As a result, EBITDA is on par with last year at $21.5 million and with an EBITDA margin of 24% versus last year's 29%.

Net debt is at $399 million, up from last quarter. This is mainly driven by 4 things. We have completed the protein launch plant with corresponding payments. We have high fuel costs in the quarter as we did 2 large bunkerings. We have increased interest rates and lowered cash balance at Lang due to inventory buildup that should normalize throughout second half of the year.

Moving over to the Ingredients segment. The Ingredients segment showed strong growth of 21% from $49 million second quarter last year to $62 million this quarter. Both QRILL Aqua and SUPERBA were up compared to same quarter last year. QRILL Aqua increased by 30% and SUPERBA increased by 42%. Both categories also increased sales from last quarter. And while this follows the annual seasonality for Aqua meal, we are very satisfied also to report a 13% growth quarter-over-quarter for SUPERBA Krill Oil that includes orders from South Korea to prepare for the market launch later in this quarter.

Gross margin was 36% in the quarter, down from 47% in the same period last year. The reason being the before mentioned unit cost development for both SUPERBA and QRILL Aqua, leading to lower gross margins. Fuel cost is expected to be close to $10 million higher in 2023 versus 2022, driving unit cost for Aqua up. For SUPERBA, once Houston is back producing at normal capacity, the SUPERBA margins will be restored to previous levels.

Adjusted EBITDA is at $21 million, on par with same quarter last year and at a 33% margin compared to 45% last year. SG&A is lower than same period as a result of the ongoing improvement program despite both higher freight volumes and more sales activities this second quarter. A rebalancing sale of the fuel contracts in the second quarter last year had a positive EBITDA effect of $3 million.

Adjustments in the quarter was $2.5 million, and they all belong to the Ingredients segment, including costs related to both the ongoing improvement programs and the restructuring projects.

Some additional detail on the fuel spread situation. As stated earlier, the company has a hedging program in place to the end of 2024 with downside protection against the Rotterdam MGO fuel price. The call options are in the money. And for first half 2023, we have saved approximately $3 million in fuel costs.

However, there is a regional spread between European quoted prices and the South American prices. Historically, this spread has been around $200 million per tonne. And as you can see from the graph, this was the case until the end of 2022. As a result of global unrest, war and general uncertainty, this spread has increased to around $500 million per tonne -- $500, sorry, per tonne, resulting in an annual effect of approximately $10 million increased fuel cost for the company for 2023 due to the delayed effect of fuel costs being allocated to the inventory. We expect the spread to go back to normal levels as this arbitrage should not continue for too long, but we don't know when. And as a result, we are seeking alternative regions for buying fuel, including taking a provider to Europe during shipyard, filling up the vessels in South Africa before they leave shipyard and sale to Brazil as opposed to Folkland and Montevideo as the spread is lower in Brazil.

Over to the Brands segment. Sales in the Brands segment were up 9% compared to same period last year. Lang had its first shipment of the new multivitamin, Gummy, for children to Sam's Club. And another shipment of Gummy vitamins for adult will ship later this year.

In addition, fish oil, organic vitamins and the brain health category had strong growth in the quarter. Epion sales of the Kori krill oil was lower than same quarter last year as a result of lower promotional activity at the retailers this quarter. However, POS figures for Kori krill oil are up year-over-year at 29%, indicating continued growth in sales out of stores.

Gross margin was 24% in the quarter, down from 30% same period last year due to customer mix in Lang with strong growth in sales to a lower-margin customer. Adjusted EBITDA in the Brands segment was $0.2 million for the quarter with a corresponding margin of 1%. EBITDA for the segment continues to be low as a positive EBITDA from Lang is netted with a negative EBITDA from Epion as the company continues to invest in marketing to fuel further growth. Marketing spend in the quarter was $0.9 million, slightly reduced to match lower sales.

A few additional items in the P&L. The increased COGS reflects both the higher sales in the quarter compared to Q2 last year, but also the margin compression as discussed earlier. SG&A is $2.1 million lower in the quarter despite higher sales activities and more freight volume. The cost reduction is a result of the ongoing implementation of the improvement programs.

Net financial items are significantly up in the quarter, mainly driven by increased interest cost of $7.2 million, almost doubled from Q2 last year in addition to positive RGO in Q2 last year. EBITDA adjustments this quarter includes cost for the improvement program and the restructuring project, while Q2 last year had an eye on fair value adjustment that was adjusted out of the EBITDA.

I will not spend much time on the balance sheet, but I want to elaborate a bit on the inventory figure. Inventory is up both from year-end and from Q1 this year. However, Lang is driving the increase in the quarter as they are preparing for shipments of the multivitamin Gummy for adult later this year and are also keeping some safety stock on fish oil due to the scarce market.

Inventory values in the Ingredients segment are down from first quarter this year. The krill inventory has now been reduced with close to 500 tonnes from Q2 last year as a result of the use and curtailments. And we expect the plant to move back into full production next year. Equity ratio is 43%.

Finally, the cash flow. Net cash flow from operating activities was negative $14.8 million as a result of negative net profit, high interest rates and increase in working capital as a result of high sales and inventory buildup in Lang. Net cash flow from investing activities was negative $6.7 million, mainly driven by the protein launch plant and shipyard items. The net cash flow from financing was positive $6.6 million as we increased debt under the facilities with net $10 million. And net change in cash flow in the period was negative $14.9 million as a result of this.

Our outlook from the third quarter 2023 is largely unchanged as we expect growth compared to same quarter last year in both QRILL Aqua, SUPERBA Krill Oil and the Brands segment. Harvesting is on track, and Houston will continue to produce limited volumes throughout the year to adjust inventory levels further down.

That concludes the financial section, and we will move over to Q&A.

[Unknown Executive]

All right. Thank you very much. So now over to the Q&A session, and we have received quite a few questions here. Starting off, so very strong sales in the QRILL Aqua segment. Can you give some color on the demand from aquaculture companies?

[Matts Johansen, executive]

Yes. Demand is very high, I mean, both driven by the general macro picture of -- related to fish oil and fish meal like I talked about. But also, I think the way we have presented the QRILL Aqua segment earlier, it takes some time for the farmers to get experience. They want to see the experience themselves from maybe cycle through 1, 2, 3 generation of fish before they really believe in the product. So it's a combination of favorable macro conditions as well as more and more customers getting experience with a positive benefit that our product actually brings to the farms.

[Unknown Executive]

And then moving over to the SUPERBA. So Asia, Europe and Australia is developing well. Could you provide some comments on the market developments in the U.S. mass market?

[Matts Johansen, executive]

Yes. So the U.S. mass market is also developing strong. So the last market, which hasn't come off fired yet, is the non-mass market in the U.S. So everything else then, the big retail chains, so MLMs, direct-to-consumer, e-commerce and so on. So that's the last segment that hasn't fired yet in our turnaround plan, but mass market in U.S. has also developed very strongly in the first half of Aker BioMarine -- of 2023.

[Unknown Executive]

And then to Katrine, so how should we think about working capital movements in the second half of '23? And what is the working capital release potential in dollars?

[Katrine Klaveness, executive]

So we haven't commented on actual dollar release, but I think we will see a positive development in second half. As I mentioned, Lang is actually the one driving the inventory up in this quarter. We expect them as they do their planned shipments and also rebalance their inventory to come down. We will continue to see a reduction in the inventory for krill oil in Houston as we continue with low production also in the Houston facility. So those 2 kind of key drivers will drive the inventory down and release cash.

In addition, we had a very high sale in Q2. So receivables are also high, end of second quarter. And we will also expect to see cash release from this working capital in the second half. So we have a positive outlook, I would say, for the second half, but we'll not comment on particular or specific dollar amounts.

[Unknown Executive]

And then moving a bit over to South Korea. So when do we expect the first sales in South Korea? Would that be mid of the third quarter?

[Matts Johansen, executive]

Yes. So we are already selling from Aker BioMarine to Korea. And we are selling bulk, meaning in grams into Korea, and then the customers there will put it into capsules and packaging and so on. And we expect the first campaigns to go live during August. And then we will ramp up from there later in the quarter and towards the end of the year.

[Unknown Executive]

And what are your ambitions for that for sales in South Korea?

[Matts Johansen, executive]

Yes, it's hard to know. I mean we can hear what our customers and partners are saying in Korea. They believe the market is still there. They believe that the fact that we have now a government stamp that basically says the quality of this product is good. It's documented in Korea to have these health benefits that, that will be very positive. And the fact that we're broadening up distribution all kind of account for a very positive development, but we will have the answer finally when we start to see the consumer reactions when they go live.

[Unknown Executive]

And then for QRILL Aqua, the new contract of 5,000 tonnes. Is the price lower than the average price for QRILL Aqua?

[Matts Johansen, executive]

I would say it's in line with the planned price for the second half of 2023.

[Unknown Executive]

Okay. So moving on, considering the decline in EBITDA margins due to increased production and fuel cost, could you elaborate a bit on the strategic approach towards enhancing these margins and mitigating the impact of fuel price volatility?

[Katrine Klaveness, executive]

So I think I did describe some of the initiatives that we have on the fuel cost side to try to lower the cost. This is also part of the improvement program that we're currently running is to see how we can source fuel differently. And there are a variety of scenarios that we are currently exploring, one being taking provider to different regions and bunker with cheaper fuel. So this is something that we spend a lot of attention and resources on. Of course, we see the spread. It worries us a bit. But at the same time, it has come down before, and it should come down again. So we believe it's just a matter of time before it kind of stabilizes on the more normalized levels. What was the first part again, sorry?

[Unknown Executive]

No. So it was about -- I think you answered it, yes, yes.

[Katrine Klaveness, executive]

Okay. Brilliant.

[Matts Johansen, executive]

But I think it's worth mentioning, too, that it should normalize for that fuel sale or the contracts we did in the last -- same quarter last year. The gross margin percentage will be almost the same between this quarter and last year despite these kind of negative factors.

[Katrine Klaveness, executive]

Yes. And of course, on the unit costs, we are planning for and hopefully we'll get Houston back in full production during 2024, which will then stabilize or move the SUPERBA margins back to normalized levels. So I think with those 2 kind of items focusing -- or focusing on those 2 items, we hope to see restored margins early next year.

[Unknown Executive]

Okay. And the company has an ambition to reduce CO2 emissions intensity by 50% by 2030. Could you shed light on the specific operational optimization energy efficiency measures and other initiatives you are undertaking to achieve this goal?

[Matts Johansen, executive]

Yes. So if you actually look at our reporting for 2022, you'll see that we have already achieved 1/3 of that 50% reduction goal towards 2030. So we are on a good track. We're doing multiple things related to that, especially the last, I would say, 1 to 2 years. We've been focusing on optimizing our harvesting operations, which is where most of our CO2 emissions are, and that is everything from installing heat recovery systems that reuses heat onboard our vessels from the factory to getting different type of sensors so we can optimize the temperatures and how we run the factory and the engine. So it's not like one single initiative that will bring everything into order, but a set of many initiatives that brings that forward. And again, first 2, 3 years into the cycle here, we are already 1/3 into the goal.

[Unknown Executive]

Then we have a question here about the restructuring and how this is better aligned with your market segmentation. And I think you answered that pretty well in the presentation, but maybe you can just repeat. Yes, have the different segments align with markets? And how this will enable better understanding of -- and ability to track your performance?

[Matts Johansen, executive]

So first of all, you will get more details in the numbers. So that's number one. I mean once we then report P&Ls for each of these 4 segments, you will get more data and more kind of drivers. So it will be easier to kind of build models and understand how the business works. So that's number one.

Number two is that we have created 4 different segments that can be compared at least the 3 first ones easily with other stock-listed companies that are providing ingredients to the aquaculture industry or human supplement ingredients or fast-moving consumer goods company. So I think the combination of more transparency, more data and then having clear peers that you can compare our numbers with for valuation will make that much easier. And then from our internal purposes, these are distinct kind of markets with different dynamics, and we can adopt our strategies, priorities and investments for each of those segments separately.

[Unknown Executive]

And then some final questions here on harvesting. So assuming you reach the 50,000, 60,000 tonnes of normalized harvesting, what's the limiting factor? Is it license? Or is it vessels? Or how can you grow beyond that?

[Matts Johansen, executive]

Yes. So it's -- so basically, it's -- we have -- I mean, we have a license for the 3 vessels we operate. We have a fourth license, which we're not utilizing today. So of course, long term, we don't have any plans for that, but you could expand with another vessel. We are only fishing about 60% of the quarter before the year is finished. So it's all about how we can optimize the draw in water time, meaning making sure that we have the draw in the water as much as possible. And number two, making sure that we are at the right time -- right spot at the right time to be where the krill is. By optimizing those 2 things, you could increase the harvest further. And this drone we took delivery for in the quarter is an important step in that direction.

[Katrine Klaveness, executive]

And then I think it's also important to mention the yield optimization. So there are internal processes onboard the vessels, to increase yield will also increase harvesting volumes or not harvesting but offshore production volumes.

[Unknown Executive]

And is it easy to get another license? And how do you apply for it?

[Matts Johansen, executive]

Yes, not so easy to get. So we have another one as mentioned. So basically, you can just apply for it. The Norwegian government need to put out kind of a process that you can now start to apply, which they did some years ago, and we applied back then. So it's quite complicated to get that. It's quite tough requirements of what you need to do to be able to get one of those licenses. So that is kind of one of the, what to call it, barriers for competition that once the position we have, it's really difficult to challenge.

[Unknown Executive]

And then another question came in. Regarding the new structure and the comments on the shareholder value and M&A, do you see that you should accelerate growth in Aker BioMarine by partnering up with other companies. What should we expect beside more transparency?

[Matts Johansen, executive]

So I think like I mentioned, this legal restructuring we do into those kind of 4 distinct business units will provide then necessary flexibility for us to do different type of transaction to drive shareholder value, and that's a key focus for us being a listed company that we're looking for how we can drive that shareholder value and exploring all opportunities related to that.

[Unknown Executive]

That concludes the Q&A. So thank you very much for listening in.

[Matts Johansen, executive]

Thank you.