Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Transcript 2021-Q4

[Operator]

Hello, everyone, and welcome to the second half year presentation by Nordic Aqua Partners. With us from the company, we have Chairman Ragnar Joensen; CEO, Ole Jorgensen; and CFO, Hjalti Hvitklett, who will take us through the report shortly. My name is [Charlotte Malind] from SpareBank 1 Markets and I will moderate the session today [Operator Instructions]

With that, I think I will leave the word now to Nordic Aqua Partners and the team. So Ragnar, the screen is yours.

[Ragnar Joensen, executive]

Thank you so much [Charlotte] and welcome, everyone, to the presentation of the second half year of 2021. Today, we will start with some highlights, and we will go through a project review. We will just have a brief look at the market situation in China. We will say some words about assumptions and KPIs. The CFO will take us through the financials, and then we will end with outlook and summary.

But first to the highlights. And the good news is still that the project is on time and budget and that the hatchery now is completed. And the main highlight, you could say, for this presentation is that we have now laid in the first eggs in our hatchery that was completed during these last weeks. And Aqua Group started their installations in December 2021, and they are progressing just as planned. We will show you in a few slides that there's a very strong summer price in the Chinese market. And when we go through the financials, you'll see that we have spent DKK 94 million in the second half year, and that totals DKK 112 million for 2021 out of the total CapEx of DKK 370 million. And on available cash, we had just under DKK 500 million at the end of the year. That is cash and undrawn credit facilities.

When we look at us as a company, we can just reiterate that we have -- we are fully funded to reach the first 4,000 tonnes that we are building and constructing now. And we also have the equity in place for the first 8,000 tonnes. On the land area that we have in site at Gaotang Island, we can produce 20,000 tonnes per year. And with neighboring land, we have an ambition also to grow further up to 50,000 tonnes at a later stage. We are located near the greater Shanghai area, so we do have access to 100 million consumers within only a 5-hour drive. We do have with us a very good RAS team with extensive experience and also people in management in China that have long experienced operating, doing business in China. And we also have a dedicated support from local authorities and leading industry players like AKVA Group and Nutreco. And I will now give the word to Ole Jorgensen, who will take us through the project review.

[Ole Jorgensen, executive]

Thank you, Ragnar, and good morning to all from Ningbo, China. It is very good to be able to report different things than figures and numbers and pictures because now things are really starting to happen. We repeat a good bullet point up first. We are on time, and we are on budget. The construction of both the hatchery and the large buildings are in full swing. It's done by government and the contractor under the lease agreement. We did complete the hatchery, and we have now done the first inlay of eggs, which is, of course, a very, very important milestone for us. Aqua Group have been preparing for quite a long time. And in December last year, they started full swing to install the RAS equipment, hatchery and RAS 1,2, 3, developing as schedule all the equipment already on place, ready to be installed.

A small building with the hatchery, the one you can see in the very end, small building. It's some 3,500 square meter footprint to store will accommodate hatchery and RAS 1, 2, 3 plus administration facilities and also accommodation for the workers to be on shift. It is completed to -- scheduled to be fully completed in Q2 2022. And as you can see on the blue frame, that is the so-called large building, 240 by 150 meters, so that is large. This picture is taken in March. If you see to the bottom left, that is RAS 7 and 8, and it has now nearly been completed with the groundwork. The one to the very bottom left is the facility for the transformers and the mega electricity. The next one, please?

We have in previous reports, always highlighted the strong support we have from the local government and the contractor. And this just illustrates there is less than 3 months between these two pictures. If you start at the very bottom, you can see the development of the so-called small building. And again, the significant development on the final work for the large building. The orange frame to the right is the Phase 2 part of the project.

Next one, please. Again, it is a very good feeling to be able to confirm that the first inlay of eggs took place in -- on March 9, that is the first of our 4 scheduled for 2022. First, feeding will -- the eggs or the durlines will be moved to the feeding tanks in Q2 2022. Benchmark Genetics delivered the eggs. We're also pleased to sort of have experience that the licenses and import quotas we have been granted, direct input, worked. For those who noticed the date of March 9, with the eggs were actually on its way, but then a very unfortunate situation happened in Ukraine, and we had to reschedule and re-flight it, but the good thing is that they did arrive and the eggs are developing fine. We have a 24 months projected production time. So in 24 months, we will be ready to deliver the 4,000 tonnes.

Next one, please. This previous page has been construction RAS equipment. Of course, the most important thing is our team, who are going to turn the fish into final products in the end. We have a very strong RAS team, which are pictured down here. But maybe the most important thing is the process which we have started, and that is to recruit local talents which now are under the supervision of these experts. And therefore, we are very pleased that training of local employees is well underway. And as you can see, the two pictures to the right, we are very happy now to see things developing. Thank you, and now back to you.

[Ragnar Joensen, executive]

Thank you. Yes. So what we have been focusing on this on the second floor, we do have the hatchery. And now we are building the start feeding area, which the fish will be transferred to in Q2. And then we will continue with RAS 2 and 3 and then to the larger building also. And as the development is with -- or the progress on the construction, these -- all the departments will be finished well in time before they are needed.

If we look at the time frame for the project, we have now installed the first eggs into the hatchery, and it will take us 24 months until we will start harvesting from this fish at Gaotang. And then the plan has been always to continue into Stage 2 afterwards. And in mid of 2024, we will be ready to increase the production capacity up to 8,000 tonnes. And then again, that will take us 2 years of we can harvest on this larger projects. And on Stage 3, we do have the possibility to increase up to 20,000 tonnes. It's not fully decided when we will start on the 20,000 tonnes. But as we can let you know at the end of the presentation, we are now starting a discussion to advance getting into to 20,000 tonnes. Ole Jorgensen please say a few words on the market situation also.

[Ole Jorgensen, executive]

Thank you. Of course, as we just said, there were 24 months from now until we will sell off our salmon. But we do monitor the development, and we are very pleased to see that the recovery of the Chinese market is going as expected. We believe that in end of 2022, we will be back to pre-pandemic levels. We are also pleased to be able to confirm what we have projected that the online and home delivery market continues to grow. And with our 24/7 delivery possibility, flexibility, as I should say, for salmon. I think we are very, very well position for that growing market.

The graph, as you can see, indicates the growth in 2021, which have continued into Q1 2022. Next one, please. We also see a strong price in the Chinese market for salmon. Of course, we do experience a special situation due to the COVID-19 restrictions and other challenges. But even when those are expected to ease, we do believe that the prices will remain high. The graph here indicates, first of all, the bottom, which is our EBIT cost per kilo, NOK 51, then you have the FOB-Oslo price, then the gray one indicates the FOB-China price, let's just say FOB-Oslo to China. And then the top blue one is -- has been -- we have added freight cost and custom cleans and other costs to get the product on the right side of the custom barrier. And on the two last bullet points, you can see that, that implies a margin of NOK 83 on top of our NOK 51 price.

Again, I will end by saying that this might change, of course, 24 months from today. But in Q2 -- sorry, Q1 2022, the prices have increased even further. So, we feel very comfortable with the margins. Thank you.

[Ragnar Joensen, executive]

And yes, I'll just say a few words on assumptions and also on some KPIs that we are projecting for. The lease that we have is unchanged, even though we're in a market now where prices do increase due to different situations you can see in the world. But we have a fixed lease, so we don't see any added cost to that on top of what we have reported earlier. And the same is also with our contract on the CapEx. We do have a fixed price agreement. And with the changes that we have seen also in the salmon, say, production costs, we do still foresee the same production cost level that we have reported earlier, even though, for example, feed prices have increased considerably. And going to some key numbers. There are some numbers that you could see, of course, in this table that you could have a look at later. But the CapEx, for example, is NOK 125 per kilo in all stages.

So we do not foresee that, that later stages will have a different cost than the first one. And the cost is quite low, you could say, compared to other projects on NOK 135 per kilo, but that is due to the fact that we do not own the buildings itself. It's financed by the Chinese, local Chinese government and then leased to us. And if we look at the cost level, as Ole was saying, at Stage 1, we foresee that the cost of deduction is at NOK 51 per kilo. And as we continue to grow the company, the cost will go down, not you can say very significantly, but it will go down eventually down to NOK 46 per kilo when we come up to 20,000 tonnes.

And a new KPI that we would mention also is that, of course, with the different RAS facilities that have built now, there are different expectations on how much capacity we will get out of each cubic meter of tank volume. And we have put ourselves at a number that is 127 kilos produced per year per cubic meter. So if we do look at this number because, of course, it is very important for cost development. We have placed ourselves in our budgets at a number that is actually reached today in farms that are in operations. We have been in dialogue with some consultants and also with some of the industry players that are growing today. And so the expectations that we have are at the level where people are producing today.

If we say that we are able to get 150 kilos out of each cubic of tank volume, our Stage 2 would not be 8,000 tonnes, but closer to 10,000 tonnes. And if we were able to do so, our costs would be reduced with NOK 5 per kilo. So this is, of course, a very important number to follow, not maybe just on our project, but a lot of projects that are operating. And then I will give the word to our CFO, Hjalti Hvitklett, who will take us through the financials.

[Hjalti Hvitklett, executive]

Thank you, Ragnar. First of all, let's look at CapEx. We have spent DKK 94 million in second half this year. This was mainly used on smolt facility that's already on site and also prepayments for the grow out facility. We have the remaining CapEx of just above DKK 250 million to reach the total CapEx of DKK 370 million. The next large payment will be in second quarter this year when the major RAS components will arrive on site. And as Ragnar also mentioned, CapEx still remains on budget.

Profit and loss. The financial performance is according to plan and budget. We have some bit higher personnel expenses, and that's new hiring of RAS experts and also the administration. The financial expenses are on negative interest on cash. We have a commitment fee on the EUR 25 million loan and some exchange deviations. The result is a loss of DKK 27.5 million for the full year. Cash flow is also according to plan and budget. We have the payments for the fixed assets, as the main number on this level. And we expect that the first utilization of the loan EUR 25 million, for fourth quarter of this year. We have a net cash change in this year of DKK 130 million minus as mentioned before also we have available liquidity of just below DKK 500 million, but that includes also the undrawn loan and undrawn credit facility locally in China.

We have total assets now on DKK 406 million. And so the cash is DKK 277 million. And the equity just below DKK 400 million. The equity is in place to reach the total production of 8,000 tonnes. Thank you, and back to Ragnar.

[Ragnar Joensen, executive]

Thanks. So just to end summing up, the project is still on time and on budget. And on time, we said last time that we should put eggs in February. And as Ole explained, we were planned to put in the eggs in February, and this unfortunate situation that was in Ukraine made us postpone that a little over a week. And we are, as I mentioned, also recruiting local operators, and we will continue to do so in the coming months. We saw also a very strong development in the Chinese market for Atlantic salmon. And as I mentioned briefly, we have started to investigate all aspects of accelerating the expansion plans, so that we could reach the capacity of 20,000 tonnes already by 2026, and we will finalize on this in our discussions throughout this year. So by that, I will thank you for listening, and we are now ready for questions.

[Operator]

[Operator Instructions] We haven't got any questions so far. So I guess the presentation has been clear, but I'll give it a minute or so just to check if anything comes in. Otherwise, of course, if anyone would prefer to write their question directly to the management, their contact details is also available online and where you found the presentation. So with that, I guess we can conclude the presentation for today. And I thank everyone listening in and also the management from Nordic Aqua Partners. And do you, Ragnar have any last words you want to say?

[Ragnar Joensen, executive]

No. It's just that it will be very interesting now that we finally have received the eggs and started into operations rather just being projects. So please do follow us also on the next presentation that we will have in June.

[Operator]

Great. We look forward to that. Thank you, everyone, and have a great day.

[Ole Jorgensen, executive]

Thank you very much.

[Hjalti Hvitklett, executive]

Thank you.