Icelandic Salmon AS (ISLAX) Earnings Call Transcript

You see the presentation already.

Yes.

Very good. So after the presentation, we will have a Q&A session. [Operator Instructions]. First, a brief overview of Icelandic Salmon. As you -- most of you probably know, we are a company that are listed on the Euronext growth market in Oslo and on the NASDAQ First North market in Reykjavik. The company is the sole owner and the parent company of Arnarlax ehf in Iceland and all operational activities of the group are performed by Arnarlax ehf. We are present throughout the value chain. We have our own smolt production with capacity to produce between 25,000 and 30,000 tonnes in sea. We have our own seawater operations in the southern part of the Westfjords with a maximum allowed biomass of 23,700 tonnes. All our production in sea is ASC certified, and we are operating on 8 sites in 3 fjords in that area. We have our own harvesting plant in Bíldudalur in the Westfjords with a capacity of 30,000 tonnes on a yearly basis. The production there are BRC certified, which is a food safety certification. And then we have our own sales team that sells everything out in the global markets and also in the domestic market on Iceland. If we look at the quarter 2 -- so then we take a closer look at the highlights of the quarter. And quarter 2 was strongly affected by an accelerated harvest due to a BKD outbreak, which is a bacterial disease on our 2023 generation. This led to higher volumes than anticipated, and we ended at 4,000 tonnes harvest volume in the quarter. The cost base of the 2023 generation is high due to biological challenges in quarter 2, but also earlier in the production. The market price in the quarter was significantly lower than for same period previous years. The combination of these parameters led us to an operational EBIT of EUR 8.3 million, which gives an EBIT per kilo of negative EUR 2.1. We expect to harvest out the 2023 generation in quarter 3 this year. We, on the other hand, see a good development on our 2024 generation and expect to start harvest from that early in Q4. That will be the first time we reached the maximum allowed biomass on our license of 12,200 tonnes in Patreksfjörður and Tálknafjörður. This is an important step toward increased harvest volumes going forward for the company. The smolt output that is done so far this year looks promising, and we see a good biological performance on the 2025 generation. During the quarter, we did some organizational changes in key management and have implemented a financial transformation program with measures to improve financial flexibility. Both CapEx and OpEx have been strongly reviewed and a plan made to reduce both. So in total, they reduce -- so in total, reduced the cost base for the company going forward. We also see a significant increase in production tax for first half '25 compared to first half 2024. The increase is partly because of higher tax level, but also due to higher volume, even though we see that revenues for first half '24 was EUR 2 million higher due to higher prices and even though we had lower volume. I will then give the word over to you, Edvin, and take the next slide.

Thank you, and good morning, everyone. Just some brief comments on the group balance and the most important numbers there. The total assets increased by EUR 5 million to EUR 264 million in the quarter. And at the same time, the equity ratio went down from 55% to 47%. The biggest contributing factors there are the operating loss in the quarter, but also we had a fair value adjustment on the negative side of EUR 9.5 million. In addition to that we withdraw EUR 13 million from our credit facilities. The net interest-bearing debt, excluding leasing, was around EUR 98 million in the quarter. And available liquidity was EUR 63 million where the majority of that is related to our revolver facilities. And if you look at the next slide, we have the changes in net interest-bearing debt. Also here, the big contribution is from the operational loss overall over the quarter, it increased by EUR 15.6 million. And another big factor was related to new lease agreements where the majority comes from our new Stingray lasers, which we put into operation in April. And also for the CapEx in the quarter, we invested around EUR 1.2 million into the seawater operations and also a big portion was related to our post-smolt facility at Laxabraut, which will be in operation this second half. Over to you, Bjorn.

Thank you, Edvin. I will give you an update on our license portfolio. We got a 10,000 tonne license for sterile salmon in Ísafjarðardjúp last year, and that was revoked by the Environmental and Natural Resources Board of Appeal. The main reasons for the revocation was due to 2 things. The first, that the Icelandic Food and Veterinary Authorities did not provide a comprehensive weighted assessment of the potential increased risk of spread of fish diseases and parasites. And the second thing was that the maritime safety for sailing in the fjord. We have reacted towards those reasons by reducing the sites so that we have a distance of 5 kilometers to other unrelated parties that have farming in the area and are continuously working with the authorities to look into mitigating measures for the maritime safety in the area to get a new approval for this license. Other applications in process is, we have been in quite a long time had an application for bigger sites in Arnarfjörður that will give us more flexibility and better MAB utilization. And this is still in process with the authorities. It's a bit unclear when this will be finalized. It's basically the same with our application for 4,500 tonnes more biomass in Arnarfjörður, which we have put through the environmental assessment and it's under review by the authorities. There is a risk that this biomass, this 4,500 tonnes might be auctioned out, but we are in a good position to take part in that with a finalized environmental assessment of that biomass. Then the government expressed earlier this year that they had an intention to propose a new law for Alþingi in September this year. That seemed to be delayed. We don't have a clear picture. We are hoping for second half this year or it might be the first half next year according to the signals we have heard from the ministry. It is, by the way, positive that the signals from the sitting government is that they want growth in salmon farming in sea, and they want to strengthen the value creation in Iceland. So overall, the signals are positive and that they want growth in the industry, but of course, within a sustainable framework. Until the new law is in place, we and other companies, of course, operate according to the current legislation. And salmon farming has become a significant contribution to the Icelandic economy and represented 6% of the value of all goods exported from Iceland in 2024. So the new law proposal will be crucial to ensure continued sustainable growth for our industry. If we look at sales and marketing, the market in quarter 2 was strongly affected by high volumes in the global supply for salmon. For the first half of '25, the sea salmon prices for 3 to 6 kilo fish was EUR 2.55 lower than for same period in 2024. Our contract share was very low, 1%. This is due to that we were not planning to harvest for the period and haven't made any contracts. And as I said earlier, the harvest was initiated with the biological challenges we faced. In the quarter, we sold 12% of our salmon to the U.S. market. It's a bit early to conclude that this relative low share of volume was due to tax increase since we also partly had a low average weight of our fish during the quarter. And the U.S. market mainly take fish that is more than 6 kilo in weight. Our average weight for the quarter was in total 4.4 kilo head-on gutted. But we are very concerned for the tax increase we got from the 7th of August when the tax is raised from 10% to 15%. We haven't harvested. We have had -- or we are in a 3-week break in the harvest plant at the moment and have not sold fish with 15% tax to U.S. yet. We sold 9% of our volume to Asia and both the U.S. and the Asian market have been very positive contributors to the price achievement in the last quarter. If we look a bit into the future and the outlook, we expect a decrease in our cost level from quarter 4 this year and going forward. This is due to increasing volumes and lower cost out of stock from seawater on the 2024 generation that we start harvesting in October. So this also means that we expect still a high cost level in quarter 3 while harvesting out '23 generation. We will continue to build biomass to optimize the MAB utilization and expect a significant increase in biomass during 2025 compared to last year. So the increase in biomass from end of '24 to '25 -- end of '25 will be significant. And this is the fundamental for increased volumes in 2026. Volume guiding for '26 will be given in the quarter 3 presentation in November. For this year, we lowered the volume guidance from 15,000 tonnes to 13,000 tonnes, and that is mainly due to the situation we faced in quarter 2 with the BKD outbreak on our '23 generation. We expect a low contract share for quarter 3, approximately like quarter 2 of 1% and for full year, 5% contract share. The salmon market remains uncertain on a short- to medium-term level with increased global supply pressure and from tariff implications from the U.S. We do, by the way, expect year-over-year supply growth to decrease second half of the year, and this should lead to a more normalized price level. I will then thank you all for listening to our presentation. I will now leave the presentation, and then we move directly into the Q&A session. So please raise your hand if you have a question, and we will try to answer as good as we can. So please come with your questions. Can you follow the questions that comes into the chat, Edvin?

Yes. I can read them up. There's a question here from Ola Trovatn. The first one is, does the revised investment plan mean you won't be able to reach 26,000 tonnes of harvest?

I can answer to that. We still aim to reach the 26,000 tonnes of harvest in the coming years. So that is still the plan and that's not affected by the revised investments.

And his second question is, is your plan to release 7 million smolts or more for 2026?

We will not release 7 million smolts in 2026. It will be at a lower level, yes.

And his third question, can you comment on the difference in mortality experienced on the '23 generation versus the '24 generation so far?