Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Transcript 2024-Q3

[Ragnar Joensen, executive]

Good morning, everyone, and welcome to the Q3 presentation by Nordic Aqua. To present today, we have Andreas Thorud from MD in China; and Tom Austrheim, CFO; and myself. I'll just remind everyone that it is possible to raise some questions during the presentation in the written log.

The agenda for today, we will start with some highlights. Then we will go through operations and project. Andreas will come in and present sales and market. Tom will take us through the financials and then we will sum up by the end.

If we take the highlights first, the underlying operations have been going well just as they have in previous quarters. So we have been able to produce large fish, a large group of fish being 6.5 kilo and nearly no mortality and also no maturation. So many things have been going very well, but we have not had any commercial harvest in this quarter due to geosmin and we have culled 651 tonnes.

If we look at the geosmin situation, we are not completely over with that yet and therefore we expect to have no further harvest during the end of this year. We have produced 1,000 tonnes of biomass and by the end of the quarter we had just under 3,000 tonnes of biomass. By the end in September, we reduced the feeding in order to reduce production somewhat so we don't need to take even more biomass out.

If we look at Stage 2 going further with our project, things go as planned. You can see also in the picture that development is according to schedule. We put in the first eggs in Q3 so that we will be able to start harvest from this group in 2 years' time. We had the capital increase by the end of the quarter and together with indicative debt financing, we have cash on hand to be fully funded to the Stage 2.

If we go through the production, as mentioned we took out some biomass that was produced -- part of the biomass that was produced in the quarter. Otherwise the production has gone very well, low mortality still as I mentioned. And in July and August, we were up at full run rate for 4,000 tonnes biomass. So in many ways, the facility is working fantastic with the people operating it.

And the main issue that we have discussed over the past time has been geosmin and we have taken serious measures. As you can see on some of these pictures, we have installed new technology. We have introduced protein skimmers, vacuum UVs. We have increased also ozonation capacity and we have started to operate biofilters in a new way, everything just to reduce the geosmin.

If we look at the total CapEx, we have spent some but mainly for the coming stages or Stage 2. We believe that we will come up to EUR 19 million in total for the cost of these measures to prevent geosmin.

Looking at the harvest plan we have culled 650 tonnes in Q3. In October we continued to cull some fish and we believe also that we will cull further during the end of the quarter. But of course, we are always looking also at possibilities of having geosmins removed so we don't have to cull the full volume.

We see that for us that during next year 2025, that would still be a normal year for us and we believe that this geosmin situation will be over so that we will have a close to normal or very normal production in 2025.

Going to look at the project Stage 2 all the way up to smolt, those facilities are already finally built and the larger stages, you can see also in this picture, is progressing very well. So it's planned to put in fish into this system by summer next year.

The total CapEx is estimated to be just under EUR 80 million, EUR 76.6 million. This is including the geosmin improvement CapEx.

So if we look at the timeline, Stage 1 finished. Stage 2, we started construction last a year ago and production started this year, and first harvest is believed to be in 2026. For the Stage 3, taking the production up to 20,000 tonnes is still waiting for the final decision on exactly when the start will be of this stage.

So I will now give the word to Andreas. Please, Andreas.

[Andreas Thorud, executive]

Thank you so much for that, Ragnar. I will go through the sales and market part. Nordic Aqua Partners is continuing to make positive inroads and developments when it comes to building a corporate image as well as a brand image in the Chinese market for our land-based Atlantic salmon, the Nordic PureAtlantic.

During the previous quarter we participated at the World Seafood Shanghai trade show with a stand as well as a keynote speech at the China Global Salmon Industry Development Summit, which is the biggest summit in China for the Atlantic salmon industry. This all provided us with an opportunity to engage with customers and prospects as well as further educating on the benefits of our land-based Atlantic salmon locally produced here in China by a Norwegian company.

In addition, we gathered good PR attention. We were featured on China's biggest English-speaking television channel, CGTN, as well as other positive media reports.

Another highlight in this regard was that during the state visit of Norwegian Prime Minister Jonas Gahr-Store to China in September, we were invited and participated at a high-level business reception in Beijing which also provides a good opportunity to engage with the Prime Minister who acknowledged Nordic Aqua, our project and also our prospects in this market.

We also see that our company fits very well into the bilateral development relationship between Norway and China when it comes to the green transition, especially with regards to striving to provide the greener aquaculture solution.

Next if we look a quick look back, we did demonstrate very well with the harvesting and sales in Q2 that we got market exceptions and acknowledgement for our product. We established a key customer base in various distribution channels. We had a superior share of 99% with an average harvesting weight of 4.54 kilo HOG and also back then in Q2 an average price of EUR 8.94.

However looking forward we now expect sales to resume sometime in Q1 2025. And right now, during this period, we are doing intensive market preparations by our sales and marketing team when it comes to participation at trade shows, engaging with customers and prospects, and other planned activities in order to ensure that we get back to the market in the best way to further develop our premium position.

We are still targeting the key food service distribution channel as well as retail and e-commerce channels depending on the sizes we produce. Especially for retail and e-commerce, we anticipate attractive growth areas in those segments.

We see with the Nordic PureAtlantic that we have a compelling value proposition to the market with unparalleled freshness, a strong safety profile and a positive sustainability aspect given the quality and fish health we have demonstrated, and also, of course, the proximity to the market. Being a Norwegian company operating locally in China, we are also able to be flexible and adapt to market conditions and seize opportunities to which we want to develop the market and these key distribution channels, as mentioned.

If we take a bigger look moving on to the next slide, we will see that imports of Atlantic salmon to China in Q3 saw a record high. And also the overall market year-to-date, Q1 to Q3, has shown very positive development. Q3 was the biggest quarter ever in terms of import volumes of our fresh Atlantic salmon. And also the year-to-date shows a growth of almost 10%, which would give a run rate of China hitting more than 90,000 metric tonnes of fresh imported salmon at the end of the year.

This is strong numbers. And also, you may say, despite a little bit reports and data of a subdued economic situation in China, lack of consumer confidence, and so on, we see that the market -- the salmon market has been proven to be healthy and growing, and we think this bodes well also for the future.

When it comes to the composition of the origin of imported Atlantic salmon in the Chinese market, we see there is a variety of origins who are competing for customers and a key feature is obviously the food service and the 6-plus size that are much in demand.

Looking at Q3, we see that the market share of Norway has stabilized somehow and increased to 50%, followed by a range of other country origins led by Chile, Australia, Scotland, Faroe Islands and so on. Market share year-to-date also shows that Norwegian market share has dipped somewhat overall, but it continues to be the leading nation given the strong recognition of Norwegian origin year through ability to deliver and supply good quality to the market.

Moving on to the next one. We here illustrate how the imports of Atlantic salmon is with regards to pricing and also that we have a European part with Norway, Faroe and Scotland compared to Chilean and Australian salmon. And we see that there is a higher price achieved for the European, if you will, origin salmon. This can be attributed to a supply of 6-plus and also some of the customs tariffs that are put on products for European nations, especially Norway, Faroe Island and Scotland with tariffs of 7%.

The Chinese market continues to be a big fish market with a clear preference for our 6-plus given the nature of the distribution channels. However, there are developments that show a higher penetration into smaller cities and also vibrant online e-commerce market, which should have -- which do not have the same preference as 6-plus, but are looking at smaller prices. Yet traditionally, big fish in the Chinese market has achieved much more attractive pricing than smaller sizes.

And with that, I would like to hand over to our CFO, Tom Austrheim, for the financials. Thank you.

[Tom Austrheim, executive]

Thank you, Andreas. Well, looking back at our Q3 figures, the profit and loss was obviously heavily impacted by having no meaningful revenue as we have no commercial sales and the culling of more than 2,000 tonnes with an aggregate inventory value of about EUR 11 million.

Both of these elements as such were in line with previous announcements. And it's worth noting that the culling comprised both the culling that actually took place in the third quarter as well as the culling that has taken place so far in fourth quarter and is expected to take place for the rest of fourth quarter.

Our operating EBIT was minus EUR 12 million and the loss for the period EUR 13.9 million. The cash flow for the third quarter was impacted by a EUR 4.9 million investment in Stage 2 as well as a new credit facility of EUR 5.8 million raised and drawdown as a short-term credit facility.

Biomass at the end of the quarter had a book value of EUR 13.3 million, including EUR 3.3 million in fair value adjustments and equity EUR 57.9 million corresponding to 49% and this was prior to completion of the NOK 350 million equity raise, which was completed after the quarter, i.e. in October.

So looking at the CapEx and funding now that Stage 1 is completed, as mentioned by Ragnar, Stage 2 CapEx is still as previously announced at EUR 76.6 million, comprising the farming technology of EUR 63 million as well as a share of the geosmin improvement CapEx of EUR 13.6 million.

On the funding side, it's been a relatively active quarter and since also. We secured a EUR 5.8 million short-term facility during Q3 that has been repaid in October. And we completed the NOK 350 million equity raise also reflected in October. And this facility, together with our credit facility, will secure funding for Stage 2 up to 8,000 tonnes.

And last but not least, last week we were pleased to sign a cooperation agreement with Bank of China in front of our Minister of Fisheries and Ocean Policy, Marianne Sivertsen Naess, so you can see on this picture. This agreement is for the long-term financing of our facility in China up to a total capacity of 20,000 tonnes, i.e. both Stage 2 and Stage 3. And although funding is subject to final credit approval by the bank, we are, of course, pleased by this sign of confidence from Bank of China.

With that, I think I give the word back to you, Ragnar.

[Ragnar Joensen, executive]

Thank you very much. Just before the summary, I would just remind everyone that it is possible to text in some questions, comments. But if we look back on what has been presented today, we have seen that the biological performance has still been very good. We have many big fish in our facility. The production has gone well. We have produced approximately 1,000 new tonnes of fish. So we're just under 3,000 tonnes. But of course, the geosmin has prevented any commercial harvest.

Stage 2 is going as planned. Tom just took us through the financing situation with the capital increase that was completed in October and also the new signing of finance services going forward with Bank of China. And we believe very strongly in that next year will be a good year for the company when we will be back on track and harvesting the planned volume of 4,000 tonnes.

So with this, I will just complete the presentation by us. And we can wait a minute or 2 just to see if there will come any comments or questions. Thank you for us.

Last time when we shut down, we saw that they came in some questions just after we finalized. So we can just wait 10 seconds more and then see. And if you should send in a question and do not get the reply here, we will, of course, e-mail you a reply.

Okay. I think everything must have been very clear. No comments or questions. So thank you very much for joining us. Thank you.

[Ragnar Joensen, executive]

We can just see that there came a question in by the end of the presentation. Andreas, I think you are the best one to answer this question. It says, have you entered into any sales agreements for volumes in 2025?

[Andreas Thorud, executive]

Well, the answer to that is not yet, but we are continuously using this time to explore opportunities with various partners that see the benefit of working with us. We're working with the Nordic PureAtlantic brand. And this development and the feedback we see from the market gives us a lot of encouragement that we are able to also realize strategic agreements. But as of now, we don't have any.

[Ragnar Joensen, executive]

Okay. Then I think we will just say thank you for us. Thank you.