Icelandic Salmon AS (ISLAX) Earnings Call Transcript

Okay. Then I think we'll stop here.

Thank you, Edwin, and thank you all for taking time to watch this quarter 4 presentation for Icelandic Salmon. My name is Bjorn Hembre. And with me today, I have our CFO, Edvin Aspli. After the presentation, there will be a Q&A session. [Operator Instructions] First, a brief overview of Icelandic Salmon. We are a company that is listed on the Euronext Growth market in Oslo and then Nasdaq First North in Reykjavik. The company is the sole owner and parent company of Arnarlax ehf and all operational activities in the group are performed in Alnarax ehf. We are present throughout the value chain from smolt to sales, and we have 4 smolt facilities with a capacity to supply us with up to 25,000 to 30,000 tonnes of harvested volume. We have our farming operations in the Westfjords of Iceland with a total maximum allowed biomass of 23,700 tonnes. All our production is ASC certified. We have our harvesting facility in Bildudalur in the Westjords with a capacity of 30,000 tonnes per year. And the harvesting facility itself is BRCGS certified, which is a food safety standard. And then we have our own sales team located in Reykjavik that sells all our products out into the markets. Now let's take a look at the highlights from quarter 4 '24. It was a positive biological and financial development at the end of 2025. This was driven by several things. First of all, that we started harvesting on the spring '24 generation, which have had a good biological development and a significant lower cost level than the 2023 generation. Secondly, the temperature in sea have been above normal and given a good growth on the biomass, which at the end of the quarter was all-time high. This means the utilization of the MAB is increasing, and that gives positive scale effects on general cost levels. The biomass at the end of quarter 4 was at 18,000 tonnes, which is 40% higher than year-end 2024. The temperature in Q4 '25 was 1.3 degrees above Q4 in 2024. Harvest volume in the quarter ended at 3,800 tonnes and 12,700 tonnes for the full year. For the full year, that's 300 tonnes below guiding, and that is due to movement of volumes into quarter 1. The harvest volume was from finalizing the '23 generation, but mainly from the spring 2024 generation. The operational EBIT for the quarter ended at EUR 2.6 million and minus EUR 18.1 million for the full year. Operational EBIT per kilo ended for the quarter at EUR 0.70 per kilo. There was a positive effect of nonoperational character in the quarter. First of all, there was a ruling in the National Tax Committee, where we had claimed a refund of paid tax of EUR 2.5 million plus interest and the committee supported our claim. Secondly, a write-down on biomass from quarter 3 was partly reversed based on new data points with a positive effect of EUR 600,000. I will then give the word to our CFO, Edwin Aspli.

Thank you, Bjorn, and good morning, everyone. When it comes to the group's balance, the total assets increased by EUR 10 million to EUR 278 million in the fourth quarter. This was mainly driven by a stronger equity position with the equity ratio increasing to 45%. A key contributor there was the fair value adjustment of EUR 7.5 million, but more importantly, a long-awaited positive net result for the quarter. The net interest-bearing debt, including leasing, ended at EUR 129 million. And finally, the available liquidity amounted to EUR 43 million at the end of the fourth quarter. And as mentioned in our last presentation, under the updated loan agreement, both the interest coverage ratio and the leverage covenants are waived throughout the fourth quarter of 2026. In addition, a new minimum liquidity covenant was introduced set at EUR 10 million, including cash revolving facilities and overdraft. And the equity ratio covenant remained unchanged at 35%. Overall, the positive end to the year with a strengthened equity position reduced the short-term pressure related to the covenant compliance into 2026. And on the next slide, we have the development in the net interest-bearing debt during the quarter, and it increased by EUR 5.9 million, while the isolated increase in net debt was EUR 7.5 million. This was mainly driven by a considerable increase in working capital following a very strong production due to the high temperatures that Bjorn mentioned, combined with a record high biomass level. The positive operational result of EUR 7 million in the quarter partly offset this increase. And in addition, we recognized this positive effect from the favorable court ruling related to the earlier tax case following the Fjaroalax merger that also Bjorn mentioned in the introduction. The case concerned whether Arnarlax could utilize the tax losses from the Fjaroalax merger. And as a result of the ruling, the group received a refund of EUR 2.5 million in previously paid taxes in December plus interest. And for other cash movements, investments were in line with expectations at EUR 0.7 million and leasing assets continue to decline with a reduction of EUR 1.6 million. And we also recognized some additional financing costs in the quarter related to the updated loan agreements. And with that, I think we conclude the group's financials, and I will hand over back to Bjorn.

Thank you, Edwin. Take a brief update on sales and market. There was a positive development in the market price from quarter 3 to quarter 4. And for the sold volume within the company, the price was up EUR 0.76 per kilo between quarters. There is still a good price achievement by our sales team compared to the market price, underbuilding the strategic move to sell all our fish ourselves. The volume sold to North America decreased from 21% in quarter 3 to 15% in quarter 4. This was partly driven by tariffs into the U.S. market, but also the fact that we had a lower share of 6-kilo plus fish in the harvested volume. It seems like the general low price in Q3 compensated for the harvest for the tariffs, but with increasing prices, we could see a more effect of the tariffs into the U.S. market. The access to 6 kilo plus fish also reduced the volumes into the Asian market, which went from 23% in quarter 3 to 16% in quarter 4. So this means that approximately 17% of our volumes go into the European market in quarter 4. For full year '25, 15% of the sold volume went to North America, which is the same as '24. And into the Asian market, we sold 14% in '25, and that is up 1% compared to 2024. The contract share for quarter 4 ended at 2%, which was also the number for the full year 2025. So if we look a bit into the future as we see it, there is still a satisfying trend when it comes to both operational and financial performance. What has been positive for the biology is, of course, I mentioned high temperatures in sea, and we see that is continuing into quarter 1. This has given a good growth on the before mentioned all-time high biomass. Other positive things to mention is that we have strong signals that the winter wound vaccine that was implemented on the 2024 generation have a good effect. Implementation of our smolt strategy also seem to have a good effect. And the main item there is to secure that we have a good weight on the fish, the first winter in sea. Historical data shows a significant correlation between size of fish going into first winter in sea and the survival ratio that winter. This means that the focus is not to have as big smolt as possible early in the season of the output, but more to secure a sufficient weight on the smolts that we put out later in the smolt season. The operational organization have worked hard to improve operational procedures that we now start to see a positive effect of both biologically and financially. This includes a cost-saving project that was implemented in quarter 3 and is a continuous work going forward with a changed cost culture. And it can be observed material effect of this cost-saving program already. The winter season is the most challenging time of the year in Iceland, but we see a satisfying biology even though we have to do some selective cage harvesting to manage performance and mitigate winter risk. This means that part of the harvested volume in quarter 1 will be relatively small fish from the autumn fish output of 2024. This will have a negative cost effect in quarter 1 but we expect a general cost decrease for 2026 compared to 2025. The CapEx of '26 is expected to be EUR 4.77 million, and this is mainly related to maintenance CapEx. It is expected that it will also be a buildup of biomass for the full year 2026 due to better MAB utilization. And expect part of 2026 for the first time to reach full MAB utilization for the first time in our operational history. The contract share for quarter 1 is expected to be 10% and also 10% for the full year '26. The harvest profile will be a bit backloaded and the contract is expected to give a positive contribution to general price achievement. There is still a strong demand for Icelandic Salmon in the market, and the market prices have been quite low in the beginning of 2026, but we expect them to strengthen in February and March and also into quarter 2. The new aquaculture law have been put out for hearing and the hearing period is over. The Ministry received over 900 comments to the law, but a big part of that is sent in as a part of campaigns against the salmon farming, where the comments have exactly the same wording. And it has been pointed out by the Minister of Industry that surprisingly many of the comments are of foreign origin. There was many positive proposals in the new law and from an industry positive proposals in the new law from an industry perspective and the companies have been able to unify on common comments on most of the content in the law. So the big picture is that there will be a potential to grow the industry within a sustainable framework and that tax levels should be at a compatible level to other salmon farming nations. The plan further on the new aquaculture law is that the ministry will send the law proposal -- revised law proposal over to Altingi this month in February 2026. I didn't mention the volume guidance for '26 specifically, but that is 21,300 tonnes with an increase of the 300 tonnes from previous guiding with the volume we moved into quarter 1. We still see a potential of harvesting 26,000 tonnes on our existing licenses as they are today and take a big step towards that with reaching 21,300 tonnes in '26, which is an increase of 67% from 2025. Most CapEx is made to reach the goal of 26,000 tonnes. I will then thank you all for listening to our presentation, and we will now move directly into the Q&A session. [Operator Instructions].

[Operator Instructions] We have already a question here from Kristoffer Haugland. And the first one is, you guide on significantly higher volumes in quarter 1, '26 versus quarter 1 '25, which was 1,100 tonnes. Does that mean 2,000 tonnes of harvest or 3,000 tonnes of harvest?

Yes, we haven't maybe guided specifically on the quarter. So -- but it means higher volume in quarter 1 this year, yes. But we haven't specified that number.

And next one, how should we think about quarter 2 harvest and the total distribution of first half versus second half? Every year has been around 40% to 60%, 40% to 60%, except 2024, which was like 30% to 70%.

Let me do a quick calculation. Also it will be quite similar between 35% and 40% in the first half and yes, the rest in the second half.

And a final question from Kristoffer. How do you see the risk of PKD in 2026 versus recent years?

I can comment very specific on that, and that is the risk mitigating measure we are doing now with our early harvest on the autumn '24 for generation so that we take out the PKD-infected fish we have as we speak.

And on to the next question, one question from [ Yngve ]. The new aquaculture law, implications for your tax expectations going forward? Will it imply effect of tax costs in 2026? I can comment on that. And it's still too early to say, but the indications is that there will be a reduction in taxes, but I don't think we should conclude anything now as it's nothing is confirmed yet.

But we could say that they have -- the ministry have stated that the taxes should be at a compatible level to other nations.