AKVA group ASA (AKVA) Earnings Call Transcript

Welcome to this Second Quarter Financial Presentation for AKVA Group. My name is Knut Nesse and I'm the CEO of the company. So I will do the introduction. Normally, I will focus on the financial for the quarter and what happened, but since we are now presenting at Aqua Nor, I will take the bigger picture and leave the financials aside and talk about the long-term salmon story. But just 30 seconds about the numbers for the second quarter. They are good. So we are very pleased. We had a record high quarterly revenue and EBIT revenue of NOK 1.167 billion and EBIT of NOK 89 million. So very, very pleased with that. So thanks to our customers for trusting us and own employees for being part of the contribution, very much appreciated. Acceptable order intake of a bit more than NOK 1 billion, NOK 1.052 billion, supported by the award of the EUR 20 million Laxey contract -- Land-Based contract from Laxey. Also, we got another one from Laxey in July, which is not part of the order intake for the second quarter and that was EUR 8.5 million. And overall, we have a full focus, sharp focus on driving the implementation and development of deep farming. Okay. So I'd like to spend my time on the long-term salmon opportunities since we have people from the industry here today. So first, a few words about AKVA Group. The recent statement of AKVA Group is pioneering a better future. We have been driving innovation for more than 50 years. If you look at the picture there to the left, you see Hans-Petter Meland in Bodø, 1973, that was with the model and the pilot of the very first plastic cage. Before that, they try different type of technologies, including wooden cages. But I decided to try plastic and work together with Helgeland Plast, which is part of AKVA Group today. And in the picture to the middle from 1974, you see there Steinar Olaisen being part of mounting the first plastic cage at the Island Lovund. So that was the very beginning of the plastic age, which seems a bit basic to say today, but it was one of the more important innovations to modernize and industrialize the salmon farming industry. All the way to 50 years later, we are now busy with Deep Farming, which is a bit of a more advanced solution in all fairness. So we have been a technology innovator over the years in different areas like automated feeding from 1980s, feeding is in the DNA of AKVA Group. Deep Farming, as I already mentioned, over the last 5, 10 years, and we have been also one of the partners within Smolt and RAS solutions, starting with flow through and all the way to a full Land-Based solution today for ongoing. That's the next one. And also Digital, we have been really part of being pioneers there all the way back since 1980. Okay. So if you take the high-level picture, the big picture of our industry, salmon farming industry over the last 50 years, it took 30 years to come to the first 1 million tonnes of salmon produced globally. So that was in 2001. So 30 years. Then it took another 11 years until 2012 to add another 1 million tonnes. And then another 10 years or so, 9 to be exact to 2021 to get to the 3 million tonnes. And then prior to this year, we have seen some sort of stagnation and there have been some sort of industry barriers, we call it, like fish health challenges, there have been issues with regards to regulation. And now I'm talking about Norway and Chile, not at least Canada and basically all the salmon farming regions. And the industry, we have had some issues with the social license. And at the end of the day, you need to accept from society in large, including the political community in order to be allowed to grow your industry. So there have been some issues. A little side remark, we are utilizing some of the biological potential better this year because of lower mortality, better production and higher level of superior. So that is good for this year. But if we continue to look at the big picture, I think growth is still fundamental. And it took, as mentioned, 50 years to get to 3 million tonnes. But there is still appetite for salmon. And at least, we believe that it should be possible to do 5% annual growth on a sustainable way with sustainable pricing from consumers. On the back of salmon still being a mega trend. So the question is how to double salmon production by 2040? How can we add another 3 million tonnes in just 15 years? We think that, that is possible, but that needs to happen on the back of new technology like deep farming, post-smolt and grow-out, and that's to overcome the industry barriers. Just diving a little bit more into that the way we see the world. So the base is that as of last year, we had 3 million tonnes of production from a traditional fish farming. We believe that deep farming holds the potential globally to add another 15% capacity, then by reducing the lice and lowering mortality. Post-smolt, we have many big proof of concepts there. Post-smolt comes with the potential to grow your capacity with 30% to 35% volumes. So that is adding in principal 1 million tonnes on the base of 3 million tonnes. And then also Land-Based has the potential with maybe roughly 0.5 million tonne until 2040. That's at least what we believe. And then there are some other emerging technologies like new vaccines and others, which will add some as well. So those -- and there are other emerging technologies, of course, it's all -- it's not easy today to know what is working in 2030 and '35. But fundamentally, we think those are the key building blocks, the way we see it today. Then moving a little bit more into deep framing. As mentioned, potential to unlock 15%, we believe. And the positive driver is that the submerged cages are improving and then by reducing the number of sea lice treatments with up to 80%, 85%. So that is proven. We have a lot of data because we have delivered more than 200 cages in the marketplace. So on top of the direct growth as such because you make improvements, we believe there is also an indirect potential there because some of the criticisms towards the industry has to do with mortality at [indiscernible]. So when you solve that problem, we think you will have a better agreement a better social license, and then you have more possibilities to grow your industry. So that's the more indirect consequence of solving some of the core issues. So that's why we believe that a number of 15% on the base and the base of 3 million is doable over the next 15 years. On Deep Farming, AKVA Group, we have -- we are the market leaders. We were the first mover when it comes to driving deep farming. We did the pioneering and the pilot together with customers in Quebec. But today, we have a more big customer portfolio, 5, 6 customers and more customers are interested in this concept. So I would say we have a strong pipeline there. And as mentioned, 200 cages are already delivered. So there is a lot of real production data out there. We believe going forward, until the year 2030, we believe it's roughly NOK 6 billion total market opportunity. And that is on the basis of roughly 600 active sites at the point in time in Norway. And we believe that based on the depth required for this technology and current and other local conditions, we believe that 50% to 60% of the sites are suitable for this technology. That means that if you do the math, then you can probably drive 50 to 70 sites a year. And that's ballpark, a NOK 1 billion market per year until 2030. So we are the market leader, and we want to drive this development and capture value down. Then moving on to post-smolt. Post-smolt is today a proven concept, producing on, for instance, up to 1 kilo and then go to the sea and by then reducing the production time in the sea down to 7 to 9 months, it depends. So the shorter production time in the sea gives more -- yes, reduced exposure in the sea. And it comes with fewer sea lice treatments, reduced mortality and not at least, better capacity utilization of your license. So we have a very good documentation from many farming regions. Faroe Island went first and then followed by the Rogaland region. [ Tysvær ] was one of the first movers there, and they have very solid production data both on how to produce the post-smolt up to 1 kilo, but not at least performance of the smolt in the sea. That is well documented by Grieg Rogaland and [indiscernible]. So we think it's a potential to unlock 30% to 35% volume growth. Mowi, they had their Capital Market Day, September last year. We have delivered the technology for Mowi Nordheim. We think -- I think that's the biggest small facility within Mowi. Anyway, Mowi reported about the advantages to go from 150 grams smolt to post-smolt of 700 gram. So they are saying that their data is that it reduces the number of days in the sea with 200. It reduces mortality with 50% and the treatments, mainly the sea lice treatments with 40% because of the fewer months in the sea. So -- and 5% faster growth. So those are amazing numbers. And you could add the fifth KPI as well, and that's the additional growth in terms of better license utilization. So it is, in my view, a very solid business case to drive post-smolt. AKVA's position within this segment, post-smolt is that we are the only true global RAS supplier. I'm talking now the salmon farming industry. So we have a footprint, big organizations, of course, in Norway, in Denmark, in Chile. We are actually the only RAS supplier with presence in Chile. And we have also now built the last few years, we have built a presence in China to serve Nordic AKVA partner. So this segment, the post-smolt segment has been true kind of development. You can see it as a step-wise evolution over the last 30 years, starting with the very basic flow through solutions and then with small recirculation units from the 2000 and then the 2010s driving technology into full recirculation, reuse and then the post-smolt. And it took some time with quite some challenges to start with. But we believe over the last years that we have more fully documented and proven technology base. And the aim for the next 5 years is to have a fully automated and intelligent fish farming. So that's the next level of development. So we think we are now ready to capitalize in what we consider to be a growth phase. I said it came with some challenges. So we had to spend -- over the last 5 years, we have not been earning money in Land-Based. We earned some money last year, and we are doing fine this year. But before that, we actually spent NOK 300 million in different type of action, NOK 300 million, which was more about improving the technology platform, having R&D in place having documentation and data behind. So it was a big effort, big investment, but now it seems that it will be rewarded. Last year, we had a turnover of roughly NOK 600 million. And this year, we will be closer to NOK 1 billion. We have 250 skilled employees and a pretty solid order backlog. Okay. On top of post-smolt, we also are participating in the development related to full cycle on land. And that's the Land-Based grow-out. So that has been -- it has been a tough birth in that segment as well over the last 5, 8 years. But last year, more companies started to handle this in a better way. So it was produced 25,000 tonnes of salmon, large salmon on land. So this is now starting to work. We are very pleased to work together with the Nordic Aqua partner in China, and they were able -- they are able now. They have 4,000 tonne installed capacity based on Aqua technology. And they are able to produce a large salmon of 7-kilo with extremely low mortality, less than 2%, healthy FCR and good superior and also no maturation or extremely low maturation. So we think we are getting very close and have in principle proof in concept in place there as well. Then moving on to the third business platform, I'm talking about Sea-Based, Land-Based and now Digital. So also, we believe very much in the Digital business, I will explain in a few minutes what it is about. But also there, we have made considerable investments in the last years. Actually, we have invested as much as NOK 500 million, which is a lot of money for AKVA Group, in building the Digital platform. Majority of the money was to acquire the AI company, automated feeding company, so I'll come back to that. So today, we have 4 different solutions there, and I will explain them in a few seconds. And we are present in all the major salmon farming markets. So we consider ourselves to have a complete platform there. To the left, you have Fishtalk, which is the leading ERP system. It's about biological control, planning and control, 6 out of 10 salmon in the world will be on our system. And to the right, you have the control system, which is about bringing the barges, pen cameras and connected to the steering software control system. And then in the middle, you have Submerge, which is an intelligent or smart camera together with Observe, that's about short-term decision-making, smart data, online data which has been developing a lot over the last few years, 5 years, I will say. Then focusing on Observe. Observe is U.K.-based AI company, artificial intelligence, and it's about automated feeding. So we acquired 100% of the shares mid last year. We have been invested in the company for several years. But now we are -- we have 100% of the shares, which was an important decision for us. They have today more than 100 sites -- salmon sites in the world on their system, which is about moving towards automated feeding. So we have done the investments. So it's a very scalable solution there. All investments are done. Overhead in place. So in financial terms, it's very beneficial when we scale this business, and we see a major growth opportunity also in Norway here. Then coming to an end, we see the position and the profile as AKCA as a global leader and a trusted partner. We have the 3 platforms. I mentioned Sea-Based which is roughly close to 80%, 77% of our turnover last year, to be exact. Land-based 17 last year, but that's the fast-growing business this year. It represents the majority of the step-up from NOK 3.5 billion turnover last year to NOK 4 billion. A lot is coming from Land-Base together with Deep Farming. And then Digital, which is lower in volume, but the strategic importance is very, very high. So this is just a graph showing the investments done by the salmon farmers in the last 8 years, from '15 to '23. And it shows -- and those are official public data from Fiskeridirektoratet, the Norwegian data. And it shows that the annual growth and the CAGR in investments, in technology from the side of the salmon farmer is 12% year-on-year. So it's important to note that, that is very much higher than the growth in the number of heads in the production volume because that's more like approx 3% in the same period. So there is a kind of overinvestment in technology versus growth in volume. And the other graph here is then showing the growth of AKVA Group over the same 8 years. And that happened to also be 12%. So we are kind of growing in line with the industry. So we are growing -- the technology space is growing faster than the growth in production volume. That's the key message. And that's basically what we expect to continue now. And we have been through a few years of turnaround. Until last year, we were pleased with the performance of last year, not the previous years, but now we turn the page. And this year, we will see a pretty good step up from last year on the top line from NOK 3.5 billion to NOK 4 billion. And also, our EBIT will also improve from roughly NOK 180 million last year, a bit more and then to a minimum 6% out of the NOK 4 billion this year. So we are pleased with that development. We expect the 12% ballpark to continue. So the target for our 2027 is NOK 5 billion turnover. And a lot of our business, like in particular, the Land-Based and Digital but also to some extent, Sea-Based. That is a very scalable business. So we have done the investments. We have the people we need in principle, and that's why we expect to see a pretty much higher EBIT on the back of a higher term or into '27. So concluding with the key investment highlights, we are -- as already mentioned, we are fully invested. We have fully invested business platforms. I already mentioned, we invested NOK 300 million in upgrading the Land-Based and 500 million, Digital. Also, we make considerable investments in new innovation in Sea-Based. So the way I see it, it's a kind of harvest time, we are positioned for growing and see profitable growth across the trade business model. So we have an attractive business model and also financially, we are strong, and we have stability in our management team. So it should be some good years ahead. That's our expectation. So okay, I'll leave it here and then Ronny, the CFO, he will talk you through the financials for the second quarter. So, so far, thank you very much for your attention.

Okay. Thank you, Knut. Let's continue with the our financials -- our financial numbers. So overall, we are satisfied with the financial performance in the second quarter, both a record high quarterly revenue and also a record high quarterly profit. So the revenue of approximately NOK 1.2 billion is 15% higher than last year, and the increase in revenue is primarily related to our Land-Based business. EBITDA came in at NOK 145 million, which is NOK 35 million higher than last year, and EBIT of NOK 89 million is NOK 26 million higher than in 2024. So the improved profitability is mainly related to the higher revenue level, which provides strong economies of scale. And for the first half year, we can report revenue close to NOK 2.2 billion, which is 20% higher than in 2024. And we are on track with regards to our guidance, which is revenue of minimum NOK 4 billion in 2025. And profitability has improved significantly this year. We have an EBITDA of NOK 258 million and an EBIT of NOK 146 million. So we have guided an EBIT margin this year of 6%, the first 6 months ended at 6.7%. So it's comforting with regards to our full year guiding. And the order intake was also acceptable in the second quarter. Total order intake just about NOK 1 billion and approximately 20% higher than in 2024. We have NOK 81 million in Digital, Land-Based with NOK 316 million is supported by the new contract from Laxey of EUR 20 million. And then we have Sea-Based with NOK 655 million in order intake, which is approximately 15% lower than in Q2 last year. So we still see high interest for Deep Farming concepts. However, we also see a seasonal profile with regards to this order intake with high tender activity in Q4 and Q1, and we also expect to see the same pattern this year with high tenders in the fourth quarter of this year and also in Q1 into 2026. So we have a solid order backlog of NOK 2.7 billion, NOK 1.6 billion in Land-Based and NOK 0.9 billion in Sea-Based. So on this basis, we expect the Q3 revenue and also the financial performance in Q3 to be a repeat of the strong numbers we delivered in the second quarter. Some more details on the consolidated income statement. Strong revenue in the quarter, NOK 153 million higher than Q2 last year. For the first half year, 20% higher than in '24. Total revenue of NOK 2.2 billion. We see improved profitability. We have an EBIT margin of 7.7% in the second quarter and for the first half year, the NOK 146 million in EBIT is NOK 63 million higher than a year ago. We have net financial costs of NOK 33 million in the quarter, which is also NOK 45 million for the first half year. And we are also satisfied with the profit before tax of NOK 57 million in the second quarter and the NOK 102 million for the first 6 months of 2025. So the book-to-bill ratio for the last 12 months is good with 106%. We have an order intake of NOK 4.1 billion and a revenue of NOK 3.9 billion. And for the second quarter, we had a book-to-bill ratio of 90% positively impacted by this new contract from Laxey, the EUR 20 million contract. And we were also awarded a new contract from Laxey mid-July with an estimated contract value of EUR 8.5 million. So obviously, we have a good momentum and progress with Laxey on Iceland, and we are, of course, very pleased with this strong collaboration. We continue to see a strong market in Nordic. Revenue was 22% higher in Q2 this year compared to last year. We also see strong increase in Australasia, driven by the NOAP project in China. The revenue was reduced both in Europe and Americas by 7% and 23%, respectively. So our Sea-Based business represented 74% of the total revenue in the quarter and the increase in the overall revenue is more or less all related to Land-Based with a 92% increase in revenue in Q2 this year compared to 2024. We consider the EBITDA margin, the 12.4% in the second quarter to be respectable. It's an increase from the 10.8% in Q2 last year driven by increased revenue and also economies of scale. So we have a strong EBITDA margin in Sea-Based of 14.3%, supported by a very strong product mix and also, we see improved profitability in Land-Based, first and foremost, related to the higher revenue, but also to healthy project margins. At the end of the quarter, we had available cash, including unused credit facilities of NOK 473 million. That's a reduction of NOK 27 million compared to the first quarter. So net working capital increased a bit from 8.9% to 9.4% in the second quarter. And we are satisfied that we have managed to stabilize the net working capital below the 10% level in the last 4 quarters. And on the leverage ratio, we continue to improve in the second quarter. The NIBD EBITDA ratio was reduced from 2.47% to 2.3% in the second quarter, which, of course, is very comforting. Net interest-bearing debt is more or less unchanged during the quarter. We paid a dividend of NOK 36 million in April, and year-to-date, we see a reduction in net interest-bearing debt of approximately NOK 130 million, which is driven by the net proceeds from the sale of our shares in Abyss Group back in March in Q1. On CapEx, we had a total CapEx of NOK 34 million in the second quarter, 50% of this is related to our 3 innovation agendas, 1 for Sea-Based, 1 for Land-Based and one for Digital. And year-to-date, we have total CapEx of NOK 73 million. On dividend, we paid NOK 1 in dividend on April 15 related to the first half year, and the Board in AKVA has decided to pay another NOK 1 per share for the second half year, bringing the total dividend in 2025 up to NOK 2 per share. I'll continue with some more details on the financial performance in the 3 business segments, starting with the Sea-Based technology. So the revenue of NOK 868 million in the quarter was more or less at the same level as last year. We have a reduction in order intake of approximately 15%. Strong EBITDA margin, 14.3% driven by this high revenue, which provides strong economies of scale, and we also have this very favorable product mix. So the Nordic region experienced increase in revenue of 12%. Order intake was down by 6% compared to last year. In Americas, both revenue and order intake was reduced by 27% and 26% respectively. And last, we have Europe, Middle East. Revenue was down by 7%, but we have a decent increase in order intake of 35% compared to last year. And looking at the 12 months order intake and revenue trend for Sea-Based, we are pleased. We have seen a positive uplift in the past few quarters. The order backlog of NOK 900 million is acceptable, NOK 80 million higher than in last year, which forms a basis for a very decent revenue level in this third quarter. With regards to the OpEx-based revenue in Sea-Based which is a very important part of our Sea-Based business was at the same level as in last year, and represented 33% of the total Sea-Based revenue. And please also note that the main part of this OpEx-based revenue is not reflected in our order backlog meaning this revenue will come on top of the NOK 900 million in order backlog. For Land-Based, we talked about the order intake, the NOK 360 million, main part is the new contract with Laxey. And we have the strong increase in revenue in the quarter, 92% compared to last year, and revenue ended at NOK 264 million. So on the back of this higher revenue, improved project margins, we improved the EBITDA by NOK 14 million compared to last year, and EBITDA margin ended at 5.5%. For Land-Based, we continue to see a very positive development, both with regards to the order intake trend and revenue trend. Order backlog is solid, NOK 1.6 billion which is comforting for the revenue level in the second half of '25 and also into 2026. And last, we had Digital, which had an order intake of NOK 81 million in the quarter, which was NOK 55 million higher than last year and approximately NOK 25 million of this order intake is related to a contract awarded from an international customers regarding Observe. So this customer had already installed the recommendation module, which is the step on with Observe and has now decided to upgrade to the copilot module for automated feeding. So this contract was important milestone to AKVA, a commercial breakthrough also for the copilot module. And the rest of the order intake in Digital, approximately NOK 55 million is largely related to extension of contracts for Fishtalk and not to new sales as such. So the revenue was at the same level as last year. EBITDA margin improved from 14% to close to 22%. As we have talked about several times, the key focus in Digital is to further grow the top line. We strongly believe that top line growth will have a significant scaling effect to the bottom line. So we see this positive shift in Digital, the order intake. The revenue still remains a flat liner. We have an order backlog of NOK 188 million end of the second quarter, which is NOK 38 million higher than last year. So that was my financial update. So I will give it back to you, Knut, to do the outlook and the Q&A.

Okay. Thank you very much, Ronny. So in terms of outlook. We expect to see still a good focus and commercial momentum on Deep Farming. As Ronny mentioned, there is some certain seasonality when it comes to the order intake. So we expect during the next sales season, Q4 and Q1 to see some positive order intake from Deep Farming. Also with regards to the post-smolt market, we are rather hopeful to sign a few contracts there before the end of the year. So positive there as well. And in general, we have a full focus on innovation for -- on the 3 platforms, both for Digital, Land-Based and Sea-Based. And as already mentioned by Ronny, we are aiming for revenue above the NOK 4 billion mark for this year and with a corresponding EBIT of 6%. And we have high visibility on that and a good comfort level. So we expect to deliver in line with this guidance. So I think we leave it there and want to move to the Q&A. So we have some people in the call. So we take, of course, a question from the call, but also from you being here, the audience. So if you want to ask a question, you can raise your hand and you will be -- a mic might will be brought to you. Any questions? Please. It's more encouraging with -- okay. Any questions from the call, Stale? All the analysts are busy this morning, too many. We have one. Good.

One on the Digital. We see that there is a lot of competition, especially on this, what you call, very decision-making cameras. Can you say something about how you view the competition there and how you position yourself compared to the rest of the space?

Yes. So you're absolutely right. Smart Camera has been growing very rapidly over the last 5 years. AKVA was probably a bit late to focus on that segment, because we have been the traditional feeding company with the feeding cameras, which, by the way, is working extremely well for us this year, the feeding cameras. So we decided a year ago, we decided to acquire a start-up company submerge, which had the same kind of AI capabilities like the 2 leading ones being OptoScale and Aquabyte. So we are clearly behind those 2. But we believe from a technology standpoint because we have validated the technology of Submerged, the company we acquired a year ago. So from a technology standpoint, we think we are now at a ballpark equal level or our biomass estimation is validated at a very high level, 98, 99. And also the sea lice counting is working, and we are now busy with developing the so-called fish health KPI dashboard. So we hope and we expect to see positive momentum with our solutions. But in that very specific space, we are the up runner, but a very interesting segment. Please, one more.