Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Transcript 2023-Q1

[Unknown Executive]

So hello, everyone, and welcome to the first quarter presentation by Nordic Aqua Partners. With us today, we have CEO, Ragnar Joensen; CFO, Hjalti Hvitklett; and Chairman of Nordic Aqua Ningbo, Ove Nodland, who will take us through the presentation.

Should you have any questions, you may write them in the Q&A section here in the go-to webinar tool, and I will read them out to the team after the presentation is over.

So with that, I leave the word to you, Ragnar.

[Ragnar Joensen, executive]

Thank you. Thank you, [ Lita ]. And welcome, everyone, for the presentation of Q1 2023, Nordic Aqua Partners.

The agenda. We will go through brief highlights, project review, market assumptions, some KPIs, some financials and with the outlook and summary.

So we starting with the highlights. So the project is developing. Fish now, the biggest fish is -- the biggest group of fish is around 400 grams now.

And during the first quarter, we had a capital increase, approximately NOK 300 million. And this will take us to -- from our level today at 4,000 tonnes up to 8,000 tonnes. But in addition to the NOK 300 million, there is some operational results from 2024 and 2025.

We have also signed now an agreement with AKVA for Stage 2, to 8,000 tonnes. Also the Chinese authorities, so they will be with us taking care of infrastructure-building for Stage 2.

We have strengthened the Board, so that's interesting. And we also have some new hirings. We will assure you that the market is very strong in China on salmon prices.

And we have -- we will go through financials about latest CapEx and available liquidity. Just starting by putting Nordic [ on the map also ]. We are located south of Shanghai. And we are financed to hit 8,000 tons that I mentioned this quarter, when we included also income -- planned incomes in 2024 and [ '25 ].

We also have built expansion plans, first, up to 20,000 tonnes. That is the land we already have secured. And on the neighboring land, we can grow up to 50,000 tonnes when we decide to do so.

Shanghai, the greater Shanghai area, 100 million consumers at only 5 hours driving away from our plant.

We have a very good team, we will come back to that, both on [ ground ] and also operating in China. And very strong partners. Government, as we mentioned, again, they were contributing into infrastructure investments. But also, we have with us this industry support of players, both AKVA Group and Nutreco.

And now Ove will take us through project review. So please, Ove.

[Ove Nodland, executive]

Thank you, Ragnar, and good morning to all from Ningbo.

I'll start by repeating the most important thing. We continue to be on budget and on plan. We have previously referred to small building and large buildings. So before I go through the status, maybe I should just recap and say the small building comprises of hatchery, administration and RAS 1, 2, 3 in the very far upper part of the building. And then the large building, RAS 4 to 9.

We completed the installation of RAS 5 in May, and we have now moved fish from RAS 4 to 5. Installation of RAS 6 is on schedule for fish transfer in August 2023. And the construction of RAS 7 to RAS 9 is progressing as scheduled. And finally, we moved into a new administration facility. So all our employees has very good working environment, and it's also designed for growth.

Next one, please. We used to show these 2 pictures to illustrate the progress. And as we said in last report, it's quite interesting now because everything is happening above ground. To the left, you see the situation as of November, where we had clearly started on the tanks for 7. And in the area where RAS 8 is, it's empty. The picture to the right shows early April, but you can see that today, most of the [indiscernible]

[Ragnar Joensen, executive]

I cannot hear you anymore, Ove. I don't know if it's on live...

[Unknown Executive]

Ove? I think...

[Ragnar Joensen, executive]

I can just continue. So we have -- yes. We have -- what Ove was saying is that we have developed on this part of the facility now in April. And if we will have the -- I thought you were away. Please.

[Ove Nodland, executive]

Yes, I don't know for how long I've been out, but if you have updated -- did I -- did you hear the presentation of the slides?

[Ragnar Joensen, executive]

We heard had most of it.

[Ove Nodland, executive]

Okay. Then the final thing is that the orange part to the right is the next 4,000 tonnes.

The next one, please. I think you have to take over because I think I've lost connection. I don't know what's happening.

[Ragnar Joensen, executive]

Okay, excellent. So we said that we are planning on Stage 2. And you can see in this map that, to this part that we can see here, this is Stage 1. And Stage 2 is the part that is above, this part here. And this is what we're going to construct now. And then finally, we are able to build on the same land that we have, the 20,000 tonnes facility.

During the first quarter, we have secured the financing through a capital increase. And we also signed with AKVA, so the AKVA supply of this part is also in place. And also, the government's goal of constructing the actual building is also signed now. And then we will continue to plan for the 20,000 tonnes.

If we just give a reminder of the team. We have a very strong team with a long experience in running and constructing RAS facilities. Myself, I've been part of many, many projects before. And the same with our 3 operating managers. And then we also have a fish health inside our organization.

And during first quarter, or as you say, April also mentioned. Then we have now hired a processing manager, and we have signed processing equipment. So soon, we will also be starting to setting up the processing facility so that we will be ready for the first harvest in Q1 next year, so March next year.

If we look at the farming activities. So we started in March last year with the first batch. So this batch has now put in the hatchery, and then we went in to start feeding and on to smolt and on to post-smolt. And now we have moved the fish into RAS 5. So they need to have 2 more movements to the final growth, and that is 6 and 7. But they have been transferred many -- between many facilities so far. And then we head back to be 2, 3, 4, and 5 in different stages of the production.

If we look at how are the fish performing. You will see here growth of the first batch that we are in. So it's approximately 400 grams now. It started out very well. And then we could see that the fish were actually ahead of growing out of their system before the next system was ready, so we needed to cool down. So we started cooling in November, and then we started to have normal temperatures again in March. And then we are developing according to plan.

If we look at the bigger picture, when the fish should be harvested, the first fish will be harvested around March. There is still a way to go from our 400 gram up till the 5kg that we would like to have the fishes. But they are performing as planned.

If you can see on time, however. We had the fish in March, so that have been more than half of the time in that facility, and they are not half of time as yet. It is of course, exponential.

If we look at the batch 2 and 3, they're developing very well also, well ahead of the plan.

So Ove, please take over again and tell us about the market.

[Ove Nodland, executive]

Yes. I hope the connection is okay now. Can you hear me?

[Ragnar Joensen, executive]

Yes.

[Ove Nodland, executive]

Okay. The Atlantic salmon, the price continued to be on high levels, and we expect it to remain on this level as well.

The illustration is -- should be quite known to all of you. And just repeat it. The dark blue on the bottom is the FOB - Oslo price. Then the orange is the FOB - Oslo (China) price. And as you can see in the illustration, that's because China, they price special packaging and other measures before it's ready to be shipped or airfreighted. And then the blue indicates the freight cost. And on top, we have estimated the additional cost to get the airborne salmon on the right side of the customs barrier. And for the quarter, we are reporting right now, the price has been plus/minus NOK 200.

Then I think we can go to the next one. Before I take you through this, I would also just give a little update on our sales and marketing activities. As we have reported towards 2022 and into 2023, we have been only conducting general marketing of the concept and project, not entering into specific discussion. That has now changed.

So leaving Q1 and into Q2, we have had specific meetings with potential customers that we have targeted. And we can say that we are now holding concrete talks with 3 of the 4 major importers and distributor of salmon. And with our 4,000 tonnes schedule for 2024, we are discussing with potential consumer which is way, way, way above that quantity. We are expecting to enter into closing negotiations with these potential customers so that we can hopefully sign a long-term check of agreement in Q4 this year.

Then back to the graph. We continue to see a very interesting margins and expect that to continue into 2024 when we are first year of full harvest. The blue dotted line indicates the same as on previous page, the -- what we have defined as wholesale prices. And then in the red one is the projected EBIT cost. Ragnar will take you through how that is broken down to different elements. But as you can see, there is a very interesting margin of NOK 127-plus.

I think I would end by saying that, between this NOK 200 and what we see from reports in China, the actual wholesale prices is most likely a little bit higher than the NOK 200. But we will continue to report to this graph and to those elements behind this so that you can follow the developments.

I think that was it, Ragnar. Then back to you.

[Ragnar Joensen, executive]

Thank you. Yes, going into some of the assumptions and then KPIs we have of course modeled. We don't have a fully production yet, so we need to model still the costs.

And if we look at the cost development, we would say that for the first quarter 4,000 tonnes, as Ove said before, it's NOK 57 per kg that we have set our production cost will be. Very much is dependent on the feed price, and we still need to purchase most of the feed. So we don't know which prices will be, it's closing. So let's see.

So you just assume now that this NOK 24 is up quite a bit since the IPO. But most of the other prices are quite good, secured. They're actually secured, of course, in local currency. So when Norwegian krone is varying, it also will reevaluate that, of course, But at least it's fixed at local currency.

And when we go to 20,000 tonnes, we can see some scale leverage taking the price/cost down. We can just illustrate it also in this graph, where we say that, "Okay, how much do we expect to produce out of 1 cubic meter of tank volume?" Our assumptions are 127-kg live weight per cubic. This is lower than some of the others that have assumptions, but also are planning to produce on hand, and also lower than some of the coastal facilities.

If we said that we would be able to reach -- not 127, 150, then our construction in the Stage 2 would be closer to 10,000 than to 8,000 tonnes. But this is -- this still remains to be shown, that we actually can produce more than we have planned for. If we did that, then we would be able to reduce the cost by approximately NOK 4 per kg.

So now we will go through the financials. And our CFO, Hjalti, will take us through that. So please, Hjalti.

[Hjalti Hvitklett, executive]

Thank you, Ragnar. First, looking at the time line for the build-out. On the top line, we see the current stage, the 4,000 tonnes, where we started construction in third quarter '21 and production started in third quarter 22. And we will then harvest the first fish in first quarter '24.

And to the capital increase and with additional funding from the harvest for '24 and '25, we are financed to take production up to 8,000 tonnes head-on-gutted. We has made the construction to start in the third quarter, and the first inlay will be fourth quarter this year, and then the first harvest will be in fourth quarter of '25. Taking us up to the 8,000 tonnes head-on-gutted.

To take us up to the 20,000 tonnes, we would need additional fundings. We are still looking into that, and it's optional constructions that could be in the third quarter in '24. And then the harvest will then be 24 months after that.

Even though we have seen inflation, our figures on the RAS CapEx are still very good. We had [ NOK 225 ] per head-on-gutted kilos, and taking us down now to NOK 134 for both stages. And this is still a very good key figure for the CapEx.

And as we have been saying, we have very attractive lease agreement with the local government. Usually, you could say that CapEx in technology stands for 60% of total investment, and facilities around 40%. The local government is taking investment in the facilities and the lease agreement back to us. And the lease cost corresponds to around NOK 40 to NOK 45 per kg, which takes investment CapEx and RAS equipment to around NOK 175 per kg.

Profit and loss first. Quarter this year, we are performing as planned, on budget. We see some increasing expenses. This is of course to bigger -- more production and also hiring of the administration staff. Financial expenses is still the commitment fee to Eksfin of the EUR 25 million loan. And then we have some negative exchange deviation in the company loan between the mother company and the Chinese entity. Ending with the result of a loss of almost DKK 11 million.

The financial position. Assets. Biomass is growing and increasing, and it will continue as we are producing. We have cash on DKK 218 million. And total available liquidity is DKK 439 million. That includes the Eksfin loan which is done at the end of third quarter. We have loaned EUR 10 million on it in April. And also the additionally we have a working in the [ Central Bank, the Bank of Lundgold ] locally, which is around [ DKK 35 million ].

CapEx still remains on budget. Total assets have increased to DKK 583 million, but this is mainly from the capital increase we had in third quarter. We are still mainly financed by equity. Equity ratio is 93% at the end of the first quarter.

Cash flow, that's also according to plan. We had our capital increase, NOK 300 million by region, and we spent DKK 3 million on payment fixed assets in the first quarter. And as I said, we will draw on -- we have drawn EUR 10 million on the loan from Eksfin for the first time in the loans within April this year.

Thank you, and back to you, Ragnar.

[Ragnar Joensen, executive]

Thank you, Hjalti. So just a summary. Before, we'll just go through some of the ESG issues.

Of course, I mean, the base of the business concept that we have is that we are producing locally. So we don't fly fish from production areas far away from China into China. So that is the main concept and we don't have any air transportation. That takes the CO2 level on the production down and, of course, also the cost that we -- at the market. So this is our main, main point.

But we also worked with other points on the ESG profile. We produce our own fresh water, so we don't take up resource in China. We produce as much energy as we can on the roof, and the rest is taken from a local agreed use energy in the neighborhood. We collect all the sludge that is we let out of the pond, and we use that as agriculture into the local farms. And we keep very close contact with neighbors and government also around the site.

And just to sum up at the end. So the development in the first quarter has been according to plan. Also, fish are developing as planned and project progressing as planned. Biology is good. And we have -- we showed in a graph that the mortality is very low. So we have much more fish now than we had anticipated than when we started in each batch.

We continue to improve the organization. And we see that price is pretty good, very strong in China. And 8,000 tonnes has been initiated now. We are planning, and we will start construction in Q3. And of course, we also look further into the option of developing this area over here, taking the production up to [indiscernible].

So with that, we'll just complete the presentation and give the word back to you, [ Shula ], to see if there should be any questions or comments to our presentation. So thank you.

[Unknown Executive]

Thank you very much. So we have some questions already, and I just want to remind everyone else on the call that you can write your questions in writing in the Q&A section, and I will read them out to the team.

So I'll start out with the first question here. Can you please give some indications of the prices you expect to sell your fish for?

Any issues that you will not produce more than 6 kg of salmon? Which is the preferred size in the Chinese market today.

[Ove Nodland, executive]

Should I go first, or Ragnar? Sorry?

[Ragnar Joensen, executive]

Yes, please. Go on.

[Ove Nodland, executive]

Yes, I'll just comment on the first part of the question, the price. And as with all the projects, we do not confirm anything before this is confirmed. So what I'm giving you now is based upon the research that I just mentioned and the sort of moving from general talk to specific talks.

On our graph, you have seen what we -- what we know the prices are on the right side of the custom border. So obviously, that's a minimum. And then we need to continue discussion to see how much of the premium prices because of the freshness. We gain some 5 days minimum, maybe 6 days, along the shelf time. And we also have a flexibility on delivery, which we have been told, it's highly appreciated.

So we are quite optimistic that we will be pleased with the prices of our salmon. Again, subject to what we deliver, the quality that's in our plan. That was that part of the question. Ragnar?

[Ragnar Joensen, executive]

Yes, I can just add also, if you add numbers to it, I mean, we can see that the market price has been NOK 150 plus up to NOK 200. And when we go into market, the data, you can see that it's higher than that, it's also in NOK 200, NOK 220.

But of course, we don't have any fish to sell right now. So what will be the price in 0.5 years or a year? We don't know. But it's reasonable to assume that prices of NOK 150 plus is expected.

But of course, some of the costs that other exporters from Europe and importers into China have today, they are declining a little bit. So the freight cost is going a little bit down, and maybe the extra costs related to COV19 can be a little bit less. So maybe from NOK 150, a little bit down from that, but in that region, I would expect.

[Unknown Executive]

Thank you. And the other question was, are there any issues that you will not produce more than 6kg of salmon? Which is the preferred size in the Chinese market today.

[Ragnar Joensen, executive]

Yes. We have been in dialogue, as Ove said, with the customer, with our customers. And they are also very pleased to be able to get the smaller fish from our facility. So that is not an issue in the discussions that we have had so far now.

And if we look at the reasons, why is it that the big fish were sent to Asia and some other markets as well. It was mainly because all the ideal sizes were taken in Europe. Before, our industries tried to find markets also for the bigger fish. So no, there's nothing wrong with 4- to 5kg fish. It's perfect.

[Unknown Executive]

Thank you. The next question is, at what average weights are you planning to harvest the fish? Will batch 1 reach your targeted harvest weights?

[Ragnar Joensen, executive]

Yes. I mean, of course, we saw the growth curve that we had, and we plan that they should come up and reach harvest size. So we have -- we were aiming for around 5 and a little bit more than 5kg live weight, so that is 4.2, 4.5kg gutted weight.

And that is the plan, to produce that kind of risk. But I mean, if the market is paying as well money for 4 kilo or even smaller than, we produce that. So we will see. But yes, the plan is to produce fish at 5kg or a little bit above 5kg live weight, yes.

[Unknown Executive]

Right. Thank you. What's the temperature in the facility at current?

[Ragnar Joensen, executive]

It varies. In the [ lake ], of course, we have low temperatures. So their temperatures are 6 degrees. And in the production units, we are from 10 to 13 degrees. So...

[Unknown Executive]

Good. And then the last question so far here is, how confident are you that Phase 1 CapEx will not exceed DKK 370 million?

[Ragnar Joensen, executive]

Yes. I mean, there are some currency issues. So when you say in Danish kroner, we are quite confident. But we have -- we are -- I mean, all the budgets have been okay, and we have been within those so far. Now we are expanding in Phase 2 as well. And in Phase 2, we have still a little bit of uncertainty. But in Phase 1, I would say that we are very okay with the DKK 370 million we have communicated there.

[Unknown Executive]

Okay. Thank you very much. So there have not come any more questions in. But I'm sure if anyone would -- anyone on the line has any questions, they are welcome to reach out to Ragnar, Hjalti and Ove.

So with that, I want to thank everyone for listening in and also for Nordic Aqua Partners for this presentation today. And I hope everyone has a great day further. Thank you.

[Hjalti Hvitklett, executive]

Thank you.

[Ragnar Joensen, executive]

Thank you.

[Ove Nodland, executive]

Thank you very much.