Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Transcript 2023-Q3

[Ragnar Joensen, executive]

Welcome to Nordic Aqua's presentation of Q3. Presenting today will be myself, Ragnar, CEO; and our CFO, Hjalti. So we will just continue, go through the agenda.

So today, we'll go through some highlights. And then we would like to present to you some new recruitments that we have had lately. We will go through biology, project, market. Then our CFO will come in and present the financials, and we will end with the outlook and summary.

So first for the highlights. Biology is good. It's been good performance in all batches. And if we go to fish health and welfare, also looks very good and this has left less than 1% mortality in all batches accumulated from 150 grams. We will come back to this. I'll just mention that in Batch 1, mortality is 0.9%; in 2, 0.7%; and in batch 3, 0.4%. And there are no signs of maturation in the fish.

If we go through the biomass production in Q3, it's just under 400 tonnes. So the total biomass by end of Q3 is 610 tonnes. If we take from end of quarter to now, we will say that the biomass is currently at around 1,000 tonnes.

Batch 1 has by mid-November reached an average weight of 2.1 kilo, and we expect the first harvest of this batch in March next year. And then they will come full capacity of harvesting from May. When we look at the fish farming equipment that we have built for Stage 1, we are nearly finished and the total CapEx is at EUR 53 million.

I will present that we have strengthened both operational and commercial team through new hirings. We have also strengthened the financial capacity and flexibility by having a capital increase of NOK 100 million. Our CFO will come back to this also. And if we look at the available liquidity by the end of the quarter, it was EUR 36.5 million.

So for new hirings, we have recruited Andreas Thorud as Managing Director in China division. And Andreas will start some months into next year. Very happy to have him at work, very experienced from the Chinese market side, especially.

We have hired Tan Yong who has been with us for some years now as Project Manager. He's been working with the project team before. Jógvan Zachariasen as Group Accounting Manager and Denise Qiu, she's our Financial Manager in China. And then we have one more Farming Expert, Orfa Cabrera, she came in, in August. And Dan Tan, Sales Manager, he also came in end of July -- August.

So as we go through the biology, first, we can say that we have -- now have 7 batches on site. So each batch is around 300,000 fish. So it's close to 2 million fish on site. We have moved the fish through the departments. So they start in hatchery, then they go to RAS 1 and 2 and 3, and then they are smolts, and then we put them into the big building where they go from 4, 5, 6 and now just started to move fish in 7 these days as we are speaking.

If we go and have a look at how the growth has been, we can see on the left side, Batch 1. The blue line is actual and the gray line is the budget. And we are currently one week behind. If you have been following us before, you've seen that we have been a little bit more behind before.

We have caught up a little bit on the growth, so the fish has been going well. Those who have followed us for a while can also maybe remember that earlier this year, we needed to cool down the fish because they were growing too fast. That's why we can see a little break on the growth curve.

If we go to Batch 2, growth is ahead of schedule with about 3 weeks. The mortality has been low, as I mentioned, 0.9% in Batch 1 from 150 grams, so like from smolt and in Batch 2, it's 0.7%. There are no sign of maturations. And if we take the biggest tank in Batch 1 now, the average rate is 2.8 kilo.

And if we take the growth that the fish has shown now lately and just forward this growth, then we can see that early March, the fish should be the targeted size of 5.3 kilo by weight. So then we will be ready for the first harvest.

If we go to the next batches, batches 3, 4, 5, it's a very good growth compared to budget; 7, 8 weeks ahead of budget, and also low mortality. So all along the biology, things are developing very well.

Just go and say a few words about the project. Here you can see a picture of how the site looked 3 weeks ago, 2, 3 weeks ago. So we have nearly finished what we call Stage 1 of the project now. In August, we moved fish from RAS 6 to RAS 7. I'll come back to the picture to show you where this is.

And then we are currently moving fish from RAS 6 to 7, and 6 to 7, that is the final stage. So fish will be produced up to full harvest size in RAS 7 and then they will be transferred into our processing plants from RAS 7 via the purging facility.

And the purging will be finished by early -- or late December, early January. And the final stage or the final production for the next batch, that is what we call RAS 8, that will be finalized in February. And that is the end of all the construction in RAS 1.

The processing plant will be ready by February and we have changed a little bit the plans as we have communicated before. So we've decided not only to build now a processing plant for the first 2 stages, but also for Stage 3. So we have expanded on the processing plant with a little small -- more additions, we can have the processing plant to harvest 20,000 tonnes.

So here, you can see a picture of the plan of the project, how it should look when we go all the way up to 20,000. So the blue, that is what is finished now. With sharp eyes, you might be able to see that the smallest building is I call RAS 1, 2 and 3, and then we go into the big building where we have RAS 4, 5, 6, that is where we hatch the biggest batch.

But we still are going to be moved out into RAS 7 and RAS 8 is nearly finished. And then just above, also blue, is RAS 9, that's the purging. The dark gray, that is what we have initiated now and that's where we're going to start to build this as we speak.

And then the light gray, the light gray part is the 20,000 tonnes facility. And that is still under planning. It has been designed. So we are preparing everything now that we are constructing Stage 2, so that is easy and ready to go and continue into Stage 3.

If we go and have a look at the timeline, we put the first fish in RAS -- in Stage 1 in Q1 in 2022. And then we will harvest the first fish in Q1 2024. So 2 years. That is what we have communicated all the time. For stage 2, we have started on constructing some of the small units. But we expect now to put the first fish in Stage 2 in Q3 or July next year.

So that is a few months delayed compared to what we have said earlier, as we have spent more time on design so that we have designed very, very accurate everything this time before we start. So it's easier to follow the production once we put the fish in.

And if we look at Stage 3, we have said that we can start that in Q2 2025, but as soon as now. So we will come back to exactly when the start will be on this one.

Saying a few words also about the market. We can see now some columns and the different colors and the colors refer to origin. And the height of the column is the import volume to China from different countries.

So we can see that in '18 and '19, it was growing, it was getting close to 100,000 tonnes, but then COVID-19 came and then the volume into China decreased significantly. But the expectations now for 2023 is to reach the highest level ever. So there's been a good growth in the market.

And Norway is the largest exporter to China and Chile is #2. But of course, now there will be some production also inside of the country when we are entering. If we look at the market, we are preparing ourselves very much now. You can see on the picture here, our team that was up in Qingdao, the trade show in China. And we brought a live fish with us, so big live fish with us, which created some attention.

If we look at where we are located, we are located in the Greater Shanghai area. So we have 100 million consumers within reach for a very short driving distance. And what we can see also is that China is mainly a wholesale market, so hotels, restaurants and catering is the main market. But as other markets, we expect also that China will develop more into retail, and we find our products very suitable to go into the growing retail market as we grow.

And as I have mentioned, we have planned now our first harvest in March next year. And once we start, we will start a little bit slowly, and then we'll gradually increase the harvest so that we will stabilize at 330 tonnes per month from May. So once we're up and running there, it will be on an annual basis, 4,000 tonnes harvest from this first facility or first phase that we have built.

Now we'll come into the financials and our CFO will present this.

[Hjalti Hvitklett, executive]

Thank you, Ragnar. The main points from the financials is that it's in line with our plans and budget. At the end of third quarter, the biomass reached just above 600 tonnes. And this is the third quarter where we have value adjustments in the biomass with a total value of EUR 5 million, including the fair value adjustment.

Total CapEx going forward. Ragnar mentioned that Stage 1 will reach EUR 53 million when finished. We have leasehold improvements, EUR 3.5 million. These expenses will occur in fourth quarter and into first quarter next year.

And also, as he mentioned, the processing plant has been designed to produce or to process 8,000 tonnes. And with some minor adjustment, it can take us up to 20,000 tonne production. And the plan now is to use EUR 4.5 million. And then we should add EUR 1.5 million when we are going to produce 20,000 tonnes on a later stage.

As announced yesterday, the Board decided to increase liquidity with NOK 100 million. This adds buffer and flexibility to the company. We are next year entering into the global salmon market, where we see prices are fluctuating and it's important for us to have sufficient buffers. But also, this adds flexibility and the buffers for the timing of building of biomass and the timing of CapEx expenditures.

Profit and loss, in line with the expectation. When you look at external expenses and staff costs, they are higher as we are increasing production and also as we are preparing for processing and sales and the administration is growing.

We have financial income that comes from the exchange deviation between renminbi and euros. We have an intercompany loan between the mother company, Nordic Aqua Partners in Norway, and the Chinese entity. And that adds EUR 0.5 million in exchange deviation in third quarter. And then we have the fair value adjustment also just above EUR 1 million, totaling profit on EUR 400,000 in third quarter.

Financial position. Total assets have now reached EUR 91 million. Of course, we can see a big increase in noncurrent assets, building and constructing Phase 1 and then also a part of Phase 2. And the biomass, just below EUR 5 million. And we also started now to recognize the leased assets as the small building has been handed over. We will continue to increase this number as we are taking over the big building also, the leased big building.

Cash flow is also in line with our plans and budgets. We have a net cash flow in third quarter of minus EUR 13 million and the cash end of the quarter at EUR 22 million and -- but available liquidity was EUR 37 million. And then we have strengthened the liquidity through this NOK 100 million capital increase that we had yesterday.

Thank you. And now back to you, Ragnar.

[Ragnar Joensen, executive]

Yes. Thank you, Hjalti. Before we go to the last slide, let me just mention also that on the log-on that you have had, it is possible to write questions down and then we can answer these questions towards the end of the session.

But I will just comment and sum up. So when we look at Stage 1, it is nearly completed now. There is still a little bit of installation and then commissioning left in the 2 large units. And the CapEx has been in line with budget and according to time.

Biology, very good, excellent fish health. First harvest, March, we have mentioned that a couple of times now. We have strengthened the organization. Looking very much forward to having Andreas to start and all the others, they have already started. So they have been a very good addition to the team.

We have had a capital increase with NOK 100 million as we have presented. And Stage 2, we have initiated and Stage 3 is still under planning.

So by that, we say thank you, and then we can go and have a look at the questions from the audience.

[Ragnar Joensen, executive]

And I can see that there is one question. And I can just read out the question. How do you think the chances are that you will be able to finance Stage 3 by debt bank loans instead of equity?

And the answer to that is that it is too soon to say. There are 2 factors that we need to get in place before we can answer the question. One of them is that we need to come into selling of fish and see the prices and see the cash flow that it brings. So that is one of the factors.

And the other one is that we are in discussions. We have started discussions with banks on financing Stage 3, and we are not at a level yet that we could say what the gearing ratio can be on this one. So yes, so the short answer to that is it's too soon to say.

That is the only question I can see. We can wait half a minute and see if any other questions should arise. Anyways, if anyone should have any questions to us, you could just look up the contacts, either send an e-mail to Hjalti or I, and then we can answer your questions also.

So by that, I think we'll just conclude the presentation, and thank you for listening.

[Hjalti Hvitklett, executive]

Thank you.