Nordic Aqua Partners A/S

OSE:NOAP

Earnings Call Analysis

Nordic Aqua Partners' Q4 2023 Projections and Progress

Nordic Aqua Partners experienced strong operational performance in Q4 2023 with 500 tonnes produced, ending the year at a biomass of 1,079 tonnes valued at EUR 9 million. Mortality rates remained low across batches, with no signs of maturation, indicating robust fish welfare. The company is expanding production with Phase 1 completed, targeting 3,400 tonnes by year-end 2024, escalating to 20,000 tonnes in future stages. CapEx costs per kilo for the completed first phase are EUR 13.3, alongside farming costs of EUR 5.4. Full EBIT costs are expected to be EUR 7.5 in 2024, decreasing to EUR 5.5 as full production capacity is reached. Nordic Aqua's market readiness is marked by a new brand launch in China, anticipating first harvests at the end of March, with 350 tonnes monthly from May, and a target average of 5.3 kg live weight by June.

Welcome to Nordic Aqua's Q4 2023 Presentation

Nordic Aqua Partners presented their Q4 2023 earnings with CEO, Ragnar Joensen, and CFO, Hjalti Hvitklett discussing company highlights, new recruitments, biological progress, project updates, market conditions, financials, and an outlook for future operations.

Biology and Project Progress

The company achieved a year-end biomass of 1,079 tonnes with promising production figures. The largest fish in the batch reached 4.6 kilos, reflecting a healthy biological system. They announced key hires including the Managing Director in China who brings extensive Chinese business experience, and a new CFO set to begin in the first half of the year. They're also on schedule with the development of the RAS (Recirculating Aquaculture Systems) units for both start feeding and smolt, in alignment with the company's projected growth and expansion strategies.

Facilities and Capacity

The processing plant installations are to be completed in March, starting with an initial annual capacity to harvest 8,000 tonnes and ultimately gearing towards 20,000 tonnes with slight adjustments. Construction for Stage 2 is already in progress, which when completed, will boost production to 80,000 tonnes. The company provided visuals of facility plans and outlined expected milestones for the successive stages of development.

Market Performance and Branding

The market reception is strong, indicated by an increase in Chinese imports of salmon to an all-time high of over 90,000 tonnes last year. Prices have fluctuated but Nordic Aqua has introduced their new brand 'Nordic Pure Atlantic' to the Chinese market. They project an increase in monthly harvest volumes to 350 tonnes by May, and the first harvest of the 'Batch 1' fish in June with an estimated average weight of 5.3 kg.

Financial Overview

Financially, the company reported CapEx and farming costs, anticipating a production cost decrease with the scale-up of operations. The expected yield for 2024 stands at 3,400 tonnes, with costs projected to lower as they ramp up to 20,000 tonnes. Financial performance met the outlined plans and budgets, with a stable end-of-year liquidity amounting to EUR 38 million, which includes a successful EUR 8.4 million equity raise.

Summing Up with Confidence

To conclude, Stage 1 completion signals a promising future with the first commercial harvest expected in late March. The health and quality of harvested fish are reported to be excellent, showing no major issues. Prices for the harvest will be NASDAQ-related, though the exact contract details are still pending. The company is optimistic and gearing up for the next stages, looking forward to a final decision on Stage 3 in Q3 of this year and inviting stakeholders to the Capital Market Day on May 28th.

Earnings Call Transcript 2023-Q4

[Ragnar Joensen, executive]

Hello, and welcome to Nordic Aqua Partners presentation of Q4 2023. To present today, we have myself, CEO, Ragnar Joensen; and CFO, Hjalti Hvitklett.

If we start with the agenda for today, we will say some highlights and also inform about some new recruitments. We will go through the biology, project, market, financials, and then we will end with the outlook and summary. .

So for the highlights, we did conduct in mid-February test harvest, where we took out Sunfish of 5-kilo, live weight, and we were very satisfied with the quality of this fish. And if we look into fish health and welfare also very good results. For the largest batch, we have accumulated mortality of 1.6% from smolt and there's still no sign of maturation. Operational and biological performance is very good for all batches.

In Q4, we did produce just under 500 tonnes, so the biomass in year-end was 1,079 tonnes. And production so far this year has also been very good, just under 600 tonnes for the first 1.5 months. If we look at the largest fish now in the largest batch that is 4.6 kilo and these fish are -- the fish that we are going to start harvest from in -- by the end of March. The project in Phase 1 is -- Stage 1 is completed now. And as you see, we have strengthened the team with -- as we formed also a few months ago, MD, Managing Director in China; and also just recently a new CFO that will start in a few months. Available liquidity is also good for going on.

So Andreas Thorud, as we announced, will start in April 1, as Managing Director in China, very experienced from Chinese business life. And also Tom Johan Austrheim will start as CFO during the first half of this year. So we're pleased to have these 2 coming on board. So if we go to the biology, just remind people that we are having several batches in at the same time. So of course, we took the first batch of eggs in March 2022. And since then, we have taken in new batches every 3 months. So when we will have another batch in March that will be batch #9 that we take in. And then in the small building, we have what we call RAS 1, 2 and 3, that is start feeding up to smolt. And we have transferred the first 7 batches down to start feeding into the smolt unit, and now in March, we will transfer bact #8 down to start feeding. And then in the large building, where we have the on-growing. We have a lot of batches also now, and we will introduce the first batch in March into what is called RAS 9, which we also called the purging unit, the unit just before harvest so-called waiting cage with VMC production.

We can now look at some of these batches. If we start with batch #1, the growth curves that you can see is blue is actual and the gray is batches. So the average weight of the largest batch is 3.3 kilo now. While, as I said before, the biggest batch is 4.6 kilos. So accumulated mortality from 150 grams is very low, 1.6%. So it's going very well with the fish health situation. If we go to batch 2, it's, you could say, on budget, on the growth and accumulative mortality is 1%, so also a very strong performance, even though the fish, of course, is a bit smaller.

Page 3, now you can see that we are moving a little bit ahead of budget and mortality is also very low 0.6. We have not seen any signs of maturation in the largest batch yet and everything is scheduled for first harvest in March on 5.3 kilogram is the estimation of the fish, the biggest fish batch in late March. And if we continue to batch 4 and 5, they are also well ahead of expectations and mortality is also very low. If we had put in also numbers for 6, 7, they would also show similar trends ahead of budget.

If we go to the project. In this picture, you can see how the site looks at the moment. We have added some pavements since last pictures. So it looks nicer now, the facility. And what is left to do now is the greenery, so we will have grass and trees and we will work with that from now on until April is over, then that should also be completed.

Just a brief look also at the processing. The final installations or commissionings of processing plant will be made in -- during March. And with this processing plant, we will have the capacity to harvest 8,000 tonnes. And once we take in stage 3, we can also have 20,000 tonnes harvested at this same processing plant with some minor adjustments.

Going to the next phase of construction, we have started with Stage 2, so that will take the production up to 80,000 tonnes. We have started, as you can see on the top picture on the right, with installation of the start feeding. You just see the RAS unit there. And on the lower picture, you can also see that we have started preparations for the big building in stage 2 so that we should be ready to put in the first inlay of eggs in Q3 of this year. Start feeding a batch 3 will be completed in April this year.

Just to remind people about what we are building. So you can see a picture now of how the facility will look when it is 20,000 tonnes in production. The blue is stage 1. And then the dark gray that is what we are constructing at the moment. So you might see that in this small building, there are 3 start feeding, [indiscernible] and smolts and then 4 larger units. Once these are completed, then we will have 8,000 tonnes in production per year.

And then we will go further to the right most part of the picture, where we'll take the production up to 20,000 tonnes. The timeline -- the top line is Stage 1, and we start construction in 2021. And now we are going to be ready for the first harvest during last part of this current quarter.

And then to Stage 2. We started with the construction in Q3 last year. We expect to put the next Q3 this year and then harvest -- first harvest from dispatch Q3 2026. When we go to Stage 3, we expect to be in position to start the construction in Q2 next year, and then we could put in the eggs in Q4 and then have the first harvest Q4 2027. But the final decision and timing needs to be taken during we expect Q3 this year. So that is when we put the final timeline up for the Phase 3 project.

So if we go to the market, say a few words about the market. But first, just show some pictures from the test harvest that we had in February this month. So we took out some fish with average weight of 5 kilo live weight. And we were very satisfied with the quality. And you can see the pictures also here, this is all from our own fish. We were very satisfied with color, fat content, taste and also the shape of the fish, very strong fish. We expect to have the first harvest during the end of next month. And then we'll gradually increase the harvest of up to 350 tonnes per month from May. And then what we call batch 1. We expect that to be harvested out in June, and we should at least have an average rate of 5.3 kilo live weight, and then we will continue from June and onwards with batch 2 and onwards with batch 3 later.

So we also wanted to show our new brand logo that we are going to introduce to the Chinese market. Nordic Pure Atlantic. And then, of course, most significant for the Chinese market is the Chinese part of the logo, nuo di zhen gui, my Chinese is not the best, but that's how we will introduce the brand name in China. And you can see some examples of how we will apply the logo. If we look also at how has the import of salmon into the Chinese markets from all countries of origin, we can start from 2015. It was down at around 50,000 tonnes. And then it was gradually built up before COVID-19 to nearly 90,000 tonnes. And then, of course, restrictions and COVID-19 took the import down to again just over 50,000 tonnes, but especially during last year, it was increased significantly again to all-time high, just over 90,000 tonnes.

If we look at prices in the Chinese market, this is again all countries of origin. You can see that it has been flat at around EUR 9, and then it was lifted up during COVID-19 and then it has come somewhat back down again to a lower level. But of course, this is following the NASDAQ prices in Norway also. So mainly strong in the first part of the year and then a little bit weaker during the end of the year. Then CFO, Hjalti, will come in and say a few words about the financials this year.

[Hjalti Hvitklett, executive]

Thank you First, we have CapEx and production cost breakdown. We see the annual production for '24. We will start harvested in March. So at the end production, we'll be 3,400 tonnes. And then we have the stages to the right, including Stage 2, take it up to 8,000 tonne, and when Stage 3 is into production, 20,000 tonnes. And the key figures are down. If we take next year, plus CapEx per kilo, and that's for the whole Phase 1, 4,000 tonnes, 13.3, the lease finance CapEx is just below EUR 5, EUR 4.8. Then the cost -- the farming cost for '24. The direct farming cost is EUR 5.4. Then we add harvest takes up to EUR 5.8 cost in box. G&A, EUR 0.9 and an EBIT cost on EUR 6.7. Then we are preparing the company for expansion to 20,000 tonnes. This adds expansion costs to the company, preparing for 10,000 tonnes. So we have taken that out as a separate line on EUR 0.8, taking a full EBIT cost of EUR 7.5 next year. And this then gradually come down to EUR 6.7 in -- with 8,000 tonnes and down to EUR 5.5 when the 20,000 tonnes are in full production with current prices.

Financial highlights. The performance is as expected with -- according to our plans and budget. The biomass has now reached at the end of the year, 1,079 tonnes with a value of EUR 9 million, and that's including the fair value adjustment. The estimate for CapEx are unchanged for -- since last presentation. Farming technology, EUR 53 million, then leads sold improvements, EUR 3.5 million and the processing plant estimated to be EUR 4.5 million. And then in November last year, we enhanced our liquidity by -- to a prior placement securing us EUR 8.4 million to increase the financial buffer and to add flexibility.

Profit and loss. Of course, if we compare, we see added costs from operational expenses as the production increases. We have net financial expenses, EUR 2.2 billion in the fourth quarter. And that is some -- a part of it is EUR 0.9 million is from noncash deviation from inter company loan between the Norwegian entity and the Chinese entity.

Financial position, '23 compared to '22. Total assets almost apple from EUR 52 million to EUR 102 million. And this is mainly from investment in the CapEx, proper, plant and equipment and also assets under construction. And of course, biological assets, the biomass assets increased from below EUR 1 million to EUR 9 million, including the fair value adjustment. And of course, we have recognized leased assets as the facility was partially handed over in end of last year. And these assets will then continue to increase as the facility will be handed over and as we are constructing Phase 2.

Cash flow same liquidity is according to our expectation. We had a net cash flow in the fourth quarter of EUR 1.9 million, and cash end of year '23 and a total available liquidity of EUR 38 million. And then we, of course, strengthen the liquidity to the EUR 8.4 million equity raise in the end of last year. And we still have one draw down after loan from xenon EUR 10 million. Thank you. And back to you, Ragnar.

[Ragnar Joensen, executive]

Yes, Thank you, Hjalti. So just to sum up with outlooks and summaries. So as we conclude, I mean, we said that Stage 1 is completed and fish farming facilities is on time and in line with the budget that we set back in the days. The biology is good, strong performance, very, very good health of the fish. As we mentioned, and we saw some pictures, we had the test harvest in February of 5 kilo fish good quality, and we expect the first commercial harvest to be in late March.

We distracted the team with the Managing Director in China, starting 1st of April, and then the CFO will start the first half of 2024. We have started with Stage 2, and we are good in the planning phase of Stage 3. And as I mentioned, we will take a final decision in Q3 this year on more specifics on timing. And then we'd also like to mention that we are going to arrange a Capital Market Day, and that will be held on site, Gaotang Island, in Jinchuan province in China, and that will be on 28th of May this year. So please, everyone, feel welcome to join us.

So by this, we will conclude the presentation.

[Ragnar Joensen, executive]

And we can see also that there are already some questions. And maybe we should have a look at them and come back to some answers right away. I can maybe read up the first question that's mainly for you, Hjalti, and then the question is when could we expect news on the financing of Stage 3? What are the chances of getting bank financing for this? Or maybe a combination of both?

[Hjalti Hvitklett, executive]

We are currently working on financing Stage 3. But of course, it's quite early compared to when we are starting Stage 3. So we will come back with this by the end of this year. But we are in communication with Chinese banks.

[Ragnar Joensen, executive]

Okay. We can continue to some of the other questions. The first one, can you elaborate a little more on quality of the fish you harvested in the beginning of the year, any issues with fillet quality, cutting in the fish, color, taste plus?

So I can just say a few words about this. I mean, I think you maybe saw also from the picture that we have -- the color was good. It was around 28% in the salmon. So that is considered very good color. Fat level is also we have been measuring fat levels all the time. And they are in line or a little bit better maybe than the trend lines from similar testing from sea-based farms. So that is good also.

Taste. Taste has been fine. No issues with taste. I mean we have -- we are producing in RAS units, of course, we need purging. But then we -- after having the fish purge, then the taste is very good. So I think also the shape, I mean, they look well the robo starfish. So we are very pleased with that also. So, so far, very good. And if we look at, for example, during these months, sea-based farms in Norway, for example, they have quite many wound, wound issues, and we have not seen any wounds in our fish there. Of course, we have a more stable temperature also and these wound issue mainly come when you have colder temperatures. So hopefully, we will be able to avoid that also in our farms. So it should be less degrading at least of quality due to wounds.

We can continue to the second question from the same person, how long will you have to purge the fish? How much weight do you lose during purging? We expect to have a steady-state situation, we expect to have around 4 to 7 days of purging and that is a little bit more than when you started the fish for commercial harvest in the sea. So it's not significant. If we say that together with harvest loss, we should be at between 80% and 82% of yield from live weight fish in the production.

And then the third question, can you comment on expected prices when you start harvesting the fish? Have you sold? Or will you sell volumes on contracts? Do you expect your prices to follow the NASDAQ price? Or will prices be more stable through the year?

We can just say that, I mean, since we have not sold the test harvest was a relatively small volume. So it's been for internal consumption mainly but prices will be locked once on the week that we sell. So it will be somehow related to NASDAQ. And the decision on exact volumes to be sold on contracts is not fixed yet. But of course, I mean, we also look forward for the start-up of Andreas Thorud, who has been responsible for the Norwegian Seafood Council in China. So he has a very strong relationships also in the Chinese markets that we are looking forward to him bringing into our company also. So we will build up a good relationship with the consumers. We are already in contact and we have had visitors from any customers so far, but we have not locked any prices. So please wait until we start selling fish in maybe end of March, early April, then we can, for the next presentation, be more communicative on the price issues. So -- and we'll go to see if there are any more questions. Yes. There's one more question, can you comment on expected net sales price when you start harvesting? I think you already covered that one. And the third part is also on the same. So I guess we have looked through some of the questions and comments that we have had in. And by this, I think we just say that we conclude the presentation. Thank you.

[Hjalti Hvitklett, executive]

Thank you.