Aker Biomarine ASA

OSE:AKBM

Earnings Call Transcript 2021-Q4

[Matts Johansen, executive]

So welcome to Aker BioMarine's fourth quarter presentation, where me and CFO, Katrine, will take you through the highlights of the quarter and the financial numbers from the quarter. We will have a Q&A session at the end, and you can send questions through [e-mail] or post a question in the chat here at Teams. And you can post those questions or e-mail those questions during the presentation or at the end.

So let me start by talking about the full 2021 year. So happy to report that revenue ended on $262 million, in line with the outlook that we gave this autumn and EBITDA ended at $48 million, also in line with the outlook we gave in autumn, made a little bit on the higher side. The reduction in EBITDA versus 2020 is driven by 3 things. Number one is that in 2020, we adjusted out the marketing investments that we did in Kori, our own consumer brands. We no longer do that. And you can see that marked on the slide what that represents. Also, we had the fallout of sales in Korea, which was a significant market for us in 2020 where we have more or less no revenues from that market in 2021. And last but not least, we have a weak harvesting season impacting both product availability for sale in the Qrill Aqua segment as well as the margins of all the products that we sold. But for 2022, we target between 20% and 25% growth with an EBITDA margin of also between 20% and 25%.

Also for the fourth quarter, we see some very clear signals of improvement for Aker Biomarine. First of all, we see a strong comeback for Superba. We have about 80% growth for Superba compared to the third quarter and majority of that growth is coming from our most important market, which is U.S. Also on the branded side, we had very positive development in the quarter, 22% growth year-over-year and also from the last quarter. And I think the good news related to that is that majority of that growth is coming from Kori, our own consumer brand, which means that, that now is starting to be a significant business that both going to help us drive the overall consumer education and consumer awareness in the U.S., but also have some significant financial impact for our company.

Harvesting ended up about 44,000 tonnes on the upper side of the range that we gave in guiding this autumn, concluding a quite weak season on the harvesting side. Houston continued to perform well, has done that every single quarter, and also in the fourth quarter, driving unit cost down, helping us improve margin on the Superba side. And we have also now enough safety stock so we can do a longer shutdown in 2022 to do some improvements for both cost reduction and also some new products that we plan to launch in the market.

There are also some important studies coming on the Superba side, documenting the health benefits of the products. 4 studies on the way. One of them is already published and maybe the most significant one, and I will take you through some more details on that a little bit later in the presentation.

Looking at the financial on the fourth quarter. Ingredient sales were more or less in part with the fourth quarter last year, while brands as mentioned, were up about 22%. And as you look at the total revenues, combined with [indiscernible], you see it's about flat. And the reason why you don't see an increase there is that there is an elimination from the sales that we sell from ingredients to our branded business, and Katrine will take you through more details of that a little bit later.

As mentioned earlier also, the EBITDA in the fourth quarter is impacted by that we are no longer adjusting out the Kori investments on top of the weak harvesting that's driving us to write down the value of the inventory in the Qrill Aqua segment. Digging a little bit deeper into the harvesting side, which is an area we know many of you investors are very interested in. I want to start by highlighting a news we came out with earlier this year that Aker BioMarine has for the seventh year in the row, been rated the most sustainable fishery in the world. It is an organization called Sustainable Fishery Partnership that give grades to all the fisheries in the world, A,B,C,D,E and so on. And Aker BioMarine's fishery is the own reduction fishery that has an A grade, which means that the fishery is in a very good condition and is operated in a very sustainable way. That is important part of our value proposition, an important part also to drive value and price for our products in the future.

As mentioned, we landed on 44,000 tonnes of production on our vessels in 2021, which is a weak season. And if you look at the graph in the middle of this slide, you can actually see quite clearly illustrated how weak both 2020 and 2021 has been. The dark blue area at the bottom of the graph, that's our 2 old vessels. And you can see the levels we've harvested in '16, '17, '18, '19, and you see the big drop down in '20 and '21. And then Endurance, as you can see, it's ramping up, harvesting more and more comes on top of that. And on the basis of that, we expect a normal season to be between 55,000 and 60,000 tonnes based on those historical data.

Coming into the 2022 season, we have done quite some improvement. That should have a positive impact of our harvesting numbers for 2022. First of all, Antarctic Provider, which is our service vessel is now fully operational, which means that the offload operation goes much faster and smoother giving us more fishing days. Number 2 is that we have invested in a new autonomous drone vessel that will be searching for krill for us. It will be delivered to our company in April and be in the fishing field in May. That will be a very important tool for us to reduce the amount of days we're searching for krill and also to optimize the areas the vessels are at any given time. So that will also be an important driver for increased production in 2022.

Number 3 is that on our second largest vessel Antarctic Sea, we have done some significant upgrades during this year's or last year's shipyard. We have both increased the size of our buffer tanks where we can hold krill to handle the kind of variability that we see during a day, so we can have max capacity output in our factory throughout the whole day. And also, we have done some investments in our factory to improve the yields so that we get more raw material or more product out of the raw material that's coming through the factory.

Also, the last initiative that we have done as part of our commitment to sustainability, we give our vessel about 10 days every year to scientists so they can come to Antarctica and study the ecosystem down there and get more data to understand more the impact of green fishery and generally ecosystem in Antarctica. Historically, we used Saga Sea for that purpose. But now we have equipped provider with all the necessary equipment, so they can take care of those research days, which means we get about 10 days of extra fishing on Saga Sea compared to previous years.

Also very glad to say that the start of 2022 has been very good. You can see that on the right side, the daily production, more than 230 tonnes per day on average so far this year, 11,000 tonnes, the first 6 weeks, which is higher than what has been in the previous years. And all the vessels are working like it should, and there is krill in the area where we are harvesting. So that's good to see that we have a good start.

On onshore on Houston, not much more detail than what I said before. We continue to do very well. We see unit cost with a line on the graph there coming down as we were able to utilize the capacity much better. And as you can imagine now, we have quite good safety stock, the safety stock we need, which can allow us to shut down the factory during 2022 and do some very important upgrades both to get new products to the market and to reduce the overall cost in that factory.

Now digging a little bit into the sales side, starting with ingredients and starting with the Animal Health & Nutrition segment, the Qrill with Q segment. In 2021, it was impacted by the product availability due to a weak harvesting season. But generally, there is very good demand for those products, and we see coming into 2022 that prices are increasing quite significantly, both on the back of kind of good demand for our products, but also a general kind of favorable position when it comes to raw materials these days in the market.

When it comes to Superba, I'm going to give some more details since that's also an area that we know investors are especially interested in. As I said in the highlights, Q4 been a really strong quarter for us, one of the strongest quarters we have historically for Aker Biomarine. And if you can eliminate sales in Korea, it is by far the strongest quarter we had historically. I think it's important for you to point out we had 80% growth over last quarter, and you can see it very clearly how high it is in the fourth quarter, but our expectations and our targets for 2022 is 15% growth, which means that Q4 was especially high.

It was higher than we expected. We got some orders we were expecting to get in first quarter into fourth quarter instead and some kind of other one-off situation in fourth quarter. So I just want to reiterate that the growth target for Superba in 2022 is 15%. But it's nevertheless great to see the effects of the turnaround plan we have and see that there's starting to be some positive momentum on the Superba side.

Also, we talked a lot about Korea in the past. We haven't planned in our growth targets for any significant volumes to Korea, continue to work hard to reopen that market, but we haven't planned for that in our outlook.

A little then status on the turnaround plan or the sales acceleration plan for Superba. So first of all, as mentioned earlier, we have many initiatives that we're running. One of them is a focus on prospecting initiative, where we now have more than 80 active prospects, representing more than 800 tonnes of business. And those 800 tonnes of business, that's more than what we're currently selling in the base. So that prospect represents a significant upside. Over the last couple of months, we've been able to convert 10 of those prospects into new customers, and we continue to do good progress to convert these prospects into real business.

The other important part of the sales acceleration plan is what we do with the sales force. Four weeks ago, Simon Seward started in my leadership group as the new Executive Vice President for the Human Health & Nutrition segment, the Superba segment. And he's bringing in tonnes of experience, both from sales and also from the nutraceutical space. I also mentioned earlier that we have a new leader for our Asian region with Thong Luu, an experienced executive from Cargill that will help us drive growth in the overall Asian region, but with a special focus on China. And also next week, we're getting a new leader for our U.S. business.

And across all these areas, we are now investing in more sales people to be more out there to take out the opportunities that we know is out there. And we've also established 2 new offices, one in Beijing in China alongside the office we already have in Shanghai and also now an office in Tokyo in Japan to go after the opportunities that we see very clearly in Japan. When it comes to Korea, which is an important part of the sales acceleration plan, we have now submitted our second application for what we call an HFF. So basically health claims that we need to get pre-approved by the government. The second application has now been filed. So we have 2 applications in play, but it's still difficult to predict when those applications will be concluded.

And also, as mentioned in the highlights, there are some important new studies coming for Superba with some strong data that will help substantiate the product and give us a new claims. We know about the results from these studies, but we can only publish it and talk about it once it's published in the scientific papers.

But the first one was already published now in January. And I will just take a second to give you some more details about that study because that is a very important study, and it's probably the most important study published to date when it comes to the health benefits of krill oil. And in its study that focuses on triglyceride levels in your blood, which is a very known kind of risk factor when it comes to cardiovascular disease.

If you go to your doctor for your normal checkup, your doctor will always check your triglyceride levels. And if it's elevated, the doctor will most likely give you some advice on your lifestyle and potentially also put you on a drug. And cardiovascular disease is the biggest killer in the world. 80 million people die every year of cardiovascular disease. It's something that's preventable by lifestyle changes. And just to put it in comparison, there's 5 million deaths related to COVID the last 2 years. So it's a kind of significant health topic.

This study that we're talking about here today is actually the biggest study ever done in the Omega-3 area when it comes to reducing triglyceride levels in the blood. We looked at more than 500 patients, followed them for half a year. All these patients have elevated triglyceride levels in the blood and half of the group got placebo and half of the group got krill oil product. And after 26 weeks, as you can see on the graph to the right, those triglyceride levels got reduced by 33.5%. That's a significant reduction. Many of these people in the study already are taking drugs to keep the triglyceride levels down, and then they take a statin, which I'm sure many of you are familiar with. And for that group that were already taking a statin, the effect was even higher, 37% reduction in those triglyceride levels for those people that were already taking a drug. So that's like an additional effect on top of what the drug is providing.

In studies like this, you very often have a quite strong placebo effect because when people roll into programs like this, these type of research programs, people kind of change their lifestyle because they know that the doctor is watching them. And also in this study, it was quite strong placebo effect. But even when you take that placebo effect into account, there is a statistical significant difference in the krill oil group versus placebo. So what does this study mean for the sales of Superba krill oil?

So first of all, this is going to be important for the doctor community out there. Especially in the U.S. market, doctors are important kind of stakeholder when it comes to giving advice to consumers on what to do about their health. So it will be important in terms of getting doctors to be more positive about krill generally.

It will help us give credibility when we discuss with new prospects, why they should have krill in the portfolio and why it's an important product to have on the shelf in retail stores. And I don't expect any immediate effects on sales. But long term, this will for sure have a big impact on the overall krill oil category.

On the branded side, as mentioned, good growth, 22% versus last year, about the same growth versus last quarter. And again, the good news here is that majority of that growth in the overall branded segment, which is quite large, is coming from Kori. And you can see it on the graph illustrated to the right. You can see the revenues from Kori, the revenues out to retail stores in the fourth quarter compared to the previous quarters. You see a significant jump up, and that's coming on the back of that increased distribution that we got with Costco and Sam's Club and that we talked about in the autumn. These retailers, I mean, even if they only have like 500, 600 stores each is one of the most important retailers when it comes to supplement sales. And the reason for that is that they have quite a few products on the shelf. So those few products are not going to make stick to the shelf sell quite significantly. So very glad to see that Kori is starting to reach some of scale starting to be significant. And I would also like to report that looking into the beginning of this year is looking quite strong for Kori. So with that, I give the word to Katrine that will take you through some more details of our financials.

[Katrine Klaveness, executive]

Good morning. I will take you through the financials of the fourth quarter. The fourth quarter showed good sales performance with revenue of $76 million, on par with Q4 last year, especially Superba and brands performed well, as Matts has earlier mentioned. With a strong growth in Epion sales, this is positively affecting both the Superba sales in the Ingredients segment and the line sales to Epion. All internal sales are eliminated from group revenue and hence not reflected in these consolidated figures, but is partly reflected when adding the brands and ingredients segments together. A total of $13 million has been eliminated as internal revenue in the quarter.

The adjusted EBITDA was significantly lower than Q4 last year at $7 million, with a corresponding EBITDA margin at 10%, down from 28% Q4 last year. This is mainly due to large adjustments last year in relation to the Kori brands that I will come back to in a minute. Net interest-bearing debt saw a jump in Q1 last year with the Antarctic Provider debt facility. I just wanted to spend a minute to explain this significant difference in adjustments this year versus last year. In 2020, we adjusted out the full launch costs of the Kori brand as we saw this as an initial investment in the brand, which we from an IFRS point of view, were not allowed to capitalize. This amounted to $6.7 million in Q4 and $17 million for the full year of 2020. We have continued to invest in the buildup of the Kori brand also this year in 2021 and have funded Epion with more than $10 million throughout the year, but have not adjusted this out in the financial figures. So for a one-to-one comparison, the $10 million needs to be added back to the $48 million for 2021.

Sales in the Ingredients segment showed a slight decline from Q4 last year, but good improvement from last quarter Q3. Both Qrill Aqua and Superba krill oil were up from Q3 with Superba increasing 80%, showing a strong recovery at the end of a poor year. Adjusted EBITDA ended at $5 million for the quarter with a corresponding EBITDA margin of 9%, significantly down from Q4 last year. a price adjustment of the Qrill Aqua down to sales price, which is what we call the NRV of $7 million as well as sales to certain customers at the lower price reduced both the absolute EBITDA figure and the EBITDA margin in the quarter.

Sales in the brands segment showed a 22% increase from Q4 last year, ending at $13 million. The main growth driver is, as earlier mentioned, the sales increase for Epion as a result of the full distribution of the Kori brand to both Costco and Sam's Club, large shipments in Q4 to complete pipefill and prepare for pilot promotions early Q1. This has led to both an increased sale of Superba to Lang and increased sales of Qrill capsules from Lang to Epion. Both of these sales are eliminated, as I said, in the consolidated group financial figures. Only sales from Epion to external retailers are included.

Adjusted EBITDA is up from Q4 last year due to improved profits in both Epion and Lang. Epion improved the gross margin as a result of lower COGS from Lang and higher prices per unit due to customer mix, Lang as a result of higher sales. So a better Q4 2021 despite Kori marketing costs not being adjusted out. The company has, over the past years, focused quite heavily on costs with a systematic and structured approach to cost savings and cost efficiency. The cost program has yielded good results with $10 million taken out in 2021 from the ingredient cost base, reducing costs with 3% overall despite several cost items going in the wrong direction like FX and freight rates.

Drawing your attention to a few items on the P&L. Starting with the cost of goods sold, which is up in the quarter compared to last year, as this is driven by the $7 million NRV adjustments in Qrill Aqua. The SG&A cost is down 15% Q4 this year compared to Q4 last year and is also down year-over-year as a result of the cost discipline. Net financial items was positive in Q4 2020 due to an unwinding of a tax credit facility and also a large reduction of the expected line earn-out, adding to net financial items in 2020 with a positive effect of almost $16 million before interest costs. Q4 2021 is mainly interest cost, agio and a small further reduction in the line earn-outs as we now have good visibility into the last earn-out year, which is 2022 and is not expecting further earn-out payments to Lang.

Finally, under the EBITDA reconciliation, I would just like to remind you that the depreciation on our operational assets is included in our COGS and that the depreciation line in the P&L is mainly amortization of intangibles.

Moving over to the balance sheet, property, plant and equipment includes Antarctic Provider from Q1 2021 with $75 million. Inventory is up from USD115 million to USD138 million in the quarter, and this is a result of increased Superba krill oil in Houston. Derivative assets are related to our fuel hedge. The mark-to-market value on the remaining portfolio is booked here, while the change in value since last period is booked as other comprehensive income. Total fuel cost savings for the year was $4.2 million, which is directly reflected in our COGS. Cash and available liquidity under the RCF is $106 million. The company has an off-balance sheet commitment due to the protein launch plant [indiscernible] of about $10 million; and finally, an equity ratio of about 50% at year-end.

Finally, the cash flow statements. Cash flow from operations was positive at $7.6 million in the quarter due to a positive change in working capital with release of inventory in the quarter compared to the last quarter and NRV further reducing inventory values. As part of our current receivables, the company has a buildup of an ethanol tax refund from the Houston business and to Q4 at about $10 million. However, NOK5.7 million of those 10 was received end of January this year. Cash flow from investing activities includes payment to shipyard and ongoing projects like the Lysoveta and the protein development, totaling $14 million in the quarter. For the full year, CapEx was $78.7 million, including the provider contribution of $50 million. The company has also implemented the new loan facility in the quarter and as a result, a net change in outstanding debt of minus $3.8 million has been booked. Total change in cash in the period is minus $8.5 million for Q4 and close to 0 for the full year. And that concludes the financial section, and I'll give the word back to Matts.

[Matts Johansen, executive]

Thank you, Katrine. So I'm going to sum up the presentation with our targets and outlook going forward. And I want to begin with a little recap from the capital market update that we had, yes, a couple of months ago. and reiterate some of the main strategy for Aker BioMarine, and it's quite simple. I mean it's number one, it's about getting better paid, better value, better prices for each raw material kilo that's getting up from the sea.

And we do that through 3 drivers, basically, it's to increase the sale or the price in the aquaculture segment through doing studies, through getting a positive supply and demand situation and doing good sales work around the road. Number 2 is to shift as much volume away from aquaculture and into the high-margin segments, like the Pet segment, like the Superba segment, like our own branded products and through that, get a higher average value for the raw material.

And number 3 is to innovate new krill-based products where the markets are willing to pay higher pricing with better margins than what we had in the aquaculture segment. So that's driver number one. And driver number 2 is to reduce the processing cost of those raw materials. And we do that through 2 things. Number one is to utilize the scale of the infrastructure we have. We have mainly fixed cost. We have all the infrastructure needed. So when we do improvements and are able to get more production through that infrastructure, the unit cost drops.

And number 2 is to be disciplined around cost, like Katrine just talked about, where we are quite good now at even if activity levels are increasing, we're able to drive the overall cost base down. And this is all delivered by a high-performing team, and I think that's one of the strengths of [indiscernible] that we have a highly engaged and skilled team that are able to create some quite amazing results.

Then looking at our 5-year plan going forward, we target a CAGR on average annual growth of between 14% and 18% in the coming years, and we expect our adjusted EBITDA margin to be around 30% in 2025. And if you look behind some of the drivers for this, first of all, is that we expect harvesting levels to come up to normal levels. That's about 20% to 30% improvement from what we have seen in 2021. That will give us more products for sale, and it will give us more scale and lower unit cost.

Then in the Qrill VQ or the aquaculture segment, we're going to have a yearly growth between 8% and 10%. That growth will mainly come from increased price and increased value of the product as the product availability is not increasing that much. On the Superba side, we are expecting between 15% and 20% growth per year.

And as I mentioned earlier, in 2022, we're targeting 15% growth. And in the brand business, where we had good development throughout the last couple of years, we're expecting between 15% and 20% growth on the back of kori developing positively and as well as a favorable position in the private label space with the biggest retailers in the U.S.

And then looking at 2022 more specifically, 20% to 25% growth on revenues compared to 2021, and we expect the EBITDA margin to be somewhere between 20% and 25%. When it comes to the innovation side, there is quite some interesting developments expected in 2022. First of all, we are in the process of spinning out A ION. That's our plastic circular product that we established a little bit more than a year ago. We're in the middle of that process right now, and we expect that to be concluded in the second quarter this year. When it comes to Lysoveta, we are now moving quite rapidly towards the first commercial product available on the [indiscernible] market towards the end of this year. That's progressing well, and we are both on good traction when it comes to regulatory approvals and also having Houston up and ready to produce commercial volumes. And when it comes to INVI protein, we are now producing pilot batches in 100 kilo range, have now a process that works that provides a great product. And in the second quarter, we're going to start to build the pilot or launch plant in city outside Oslo.

So that concludes our presentation today. We now open for questions. You can send your questions to [e-mail] or just pose a question on the chat here at Teams, and then we will answer them.

[Carl Bachke, executive]

Thank you very much, Matts and Katrine. There are several questions already in the pipeline, starting with some of the analysts covering the shares. Ole Martin Westergaard at DNB asks, can you comment on how much the sell in to Sam's Club and Costco impacted Kori sales in fourth quarter?

[Matts Johansen, executive]

Yes. So that's quite significantly. So those are the most important channels for selling supplements, especially krill oil in the U.S. So that's the main driver of that growth that we see in the fourth quarter.

[Carl Bachke, executive]

And just add what's the underlying sales trend adjusted for the Sam's Club and Costco impact?

[Matts Johansen, executive]

Yes, still positive. But that big hike, you can see on the graph, I present is quite extreme, and that is mainly driven by Sam's and Costco.

[Carl Bachke, executive]

Just taking another question from Ole Martin regarding harvesting. You appear very happy with harvesting so far this year. How does the 10,750... 10,750 tonnes year-to-date compare to last year's and historical levels?

[Matts Johansen, executive]

So that is quite significant up from the last years, both 2020 and 2021, which is the comparable years where we had 3 vessels. And I would say it's on track for what we would say, a normal harvesting year.

[Carl Bachke, executive]

Okay. Thank you. Moving over to Carl-Emil Kjolas Johannessen, Pareto. Do you expect Superba sales volumes to South Korea to pick up longer term EG beyond 2022?

[Matts Johansen, executive]

Yes. So we are working on that. It's an important part of the sales acceleration plan we have for Superba. So as mentioned, we are filing these new applications to get preapproved claims by the Korean government. But for 2022, we're not planning any significant volumes in Korea. But it's definitely something we are investing resources in to get that on track.

[Carl Bachke, executive]

Follow-up from Carl Emil, any progress in the potential sale of krill oil into the aquaculture/PET industry?

[Matts Johansen, executive]

Yes. So we have made the first sales already into those segments. And just to come elaborate a little bit on that, we see that Houston is developing more positively than in the market. So we have extra capacity in Houston going forward. And we want to maximize the capacity in Houston to continue to drive those unit costs down. And as part of that strategy related to that, we are building a market for the Superba krill oil in the animal health and nutrition market. So we are working now across the markets globally. And as mentioned, we have already made the first sales.

[Carl Bachke, executive]

Last question from Carl Emil. Do you see big differences in the fishing conditions so far this year compared to last year?

[Matts Johansen, executive]

Yes. And especially in January, we see a big increase this year compared to last year. February last year was the best month we had last year. So I would say February is more like a normal month for us now. But there is krill there, and vessels are working like they should. And there is quite, I would say, less competition, fewer vessels in the area compared to how it's been in the previous years.

[Carl Bachke, executive]

Fine. Let's move to Axel Jacobsen, analyst at Arctic Securities. First question from him. Impressive Superba growth quarter-on-quarter, 80% in fourth quarter. How much of this is related to Kori? And what are the main other drivers?

[Matts Johansen, executive]

So Kori is an important part of it, but there are also many other drivers of that, generally, development in some of our emerging markets, like in South America, generally in the U.S., generally with private label doing quite well, and of course, Kori and also quite good in Asia. So I think Kori is an important part, but there is positive development across the regions.

[Carl Bachke, executive]

Okay. Thank you. He continues, in light of significant price increases for soy oil and fish oil prices, are you able to price up your oil products?

[Matts Johansen, executive]

No, I wouldn't say that. We're already having a significant premium over traditional Omega-3s for Superba and one of the kind of value proposition we have for customers that we have a predictable, stable pricing, which makes us much easier for them to price it out to consumers. And we don't see any impact of those kind of general commodity price raises. But we see the impact on the aqua side from those effects.

[Carl Bachke, executive]

Last question from Axel goes to Katrine, I guess. What is the expected CapEx level for 2022?

[Katrine Klaveness, executive]

So 2022, of course, includes the protein plant in Xi. So we have communicated earlier, that's a total of about $20 million. That will run also a little bit into 2023, but the majority will be in 2022. So we will be around USD 40 million to USD 45 million altogether, including then also shipyard and some of these other development projects like the Lysoveta. And as Matts alluded to earlier, we will have the shutdown in [indiscernible] the end of 2022, where we will take the opportunity to do some upgrades and also prepare fully selected production and also or improve yield outputs in Houston. So I think the total CapEx of around $40 million is fair to assume.

[Carl Bachke, executive]

Thank you. Moving over to analyst Mari Panengstuen, SpareBank 1 Markets. She has a couple of questions as well. Starting out with ingredients. Can you elaborate on the reduced price in ingredients? What is the reason for the drop in prices and what can we expect going forward?

[Matts Johansen, executive]

Yes. So I think now we're talking about the drop in prices on Superba because that's where we see the drop in prices. There's a couple of things to that. One is just customer mix. That same time last year, we sold quite a bit of Korea, which was quite high priced. Now we have growth coming in the U.S., which is kind of the most mature market where also the prices are the lowest. So that's one driver. And also, we did one deal with a specific customer in the fourth quarter with some, let's say, lower spec material that we sold with a rebate. I wouldn't say there is any underlying kind of trend of prices going down. It's just the mix of the business that we had in this quarter. Prices are stable with customers.

[Carl Bachke, executive]

Before I take Mari's second question, a related one from [indiscernible] who congrats us with a strong ingredient sales in the quarter. However, the last 3 quarters, your Ingredients gross margin was 43% versus around 20% this quarter. It looks like you have given away the products to boost sales. Can you please elaborate?

[Katrine Klaveness, executive]

Yes. So it's basically back to the case. But just referred to. So we had kind of one significant sale this quarter with a lower spec product, which, of course, then was sold to reduce the price. So that's mainly what impacts the gross margin this quarter.

[Matts Johansen, executive]

That's 10% of the sales. So just to kind of put it in context.

[Carl Bachke, executive]

Moving on to Mari's second question. Can you elaborate on the U.S. non-mass mass market situation with regards to sales? And how do you experience the South Korea market...

[Matts Johansen, executive]

Yes. So I think part of the positive development in the quarter was in the non-mass market in the U.S. So that's developing positively. So that means basically e-commerce channels, MLM, these type of nonretail-based markets. So I think that just followed the overall kind of good development that we have in the U.S. When it comes to Korea, there is some sales. We haven't sold anything now, but our customers there have some inventory from last year that they are selling out. But there will be no kind of significant sales in Korea before we have these health claims approved because it's very difficult for our customers to market the product before that is in place.

[Carl Bachke, executive]

One question from [ Jack ]. How should we think about pricing power and future pricing for Superba as the gross margin for the quarter was significantly reduced, as you have explained.

[Matts Johansen, executive]

No, I expect stable pricing and stable margins for Superba going forward. So I don't see any changes compared to the picture is not changing, and prices are stable with [indiscernible].

[Carl Bachke, executive]

Thank you. [indiscernible] has a question. When do you expect to break even and become profitable? I guess he refers to net profit in this respect.

[Katrine Klaveness, executive]

So I think if we reach our plans in 2022, that should probably be a good year in that respect. So we are looking for positive cash flow from operations and positive net profits.

[Carl Bachke, executive]

There was one question here, whether you have started the TV shop activities in Korea, again, but I guess you have answered that. One from a unanimous here, what effect has competition? You said less competition now, but is it more enough to everybody? I'm not really sure what he refers to.

[Matts Johansen, executive]

I can comment on the competition in harvesting, which I think it refers to. So there is just fewer vessels that has joined the harvesting season this year. could be many reasons for that. I mean we are the company with the biggest scale. And from our numbers, you need that type of scale to be able to be profitable. So we know that many of the other companies are struggling. And then you put that on top of a challenging harvesting season 2 last years for everybody could look like a few of the vessels and companies have thrown in [indiscernible].

[Carl Bachke, executive]

That concludes the Q&A session.

[Matts Johansen, executive]

All right. Thank you very much for joining this presentation, and hope to see you around.

[Katrine Klaveness, executive]

Thank you.