Icelandic Salmon AS (ISLAX) Earnings Call Transcript

So welcome, everyone, and thank you for taking time to watch this quarter 3 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. As most of you probably know, the company is listed at the Euronext Growth market in Oslo and the first North market in the Reykjavik. The company is the sole owner and parent company of Arnarlax ehf, which perform all operational activities in the group. We are present throughout the value chain. We have 4 smolt facilities with a current capacity to produce 25,000 to 30,000 tonnes of harvest volume in sea. We have 8 farming sites in the southern Westfjords of Iceland with a total maximum allowed biomass of 23,700 tonnes, and all our production in sea is ASC certified. And we have our own harvesting plant in Bíldudalur with a capacity per year of 30,000 tonnes and has a BRCGS certification, which is a food standard certification for the harvesting. And then we have our own sales team that sells all our fish out in the global market and also the domestic market. Now let's take a look at the highlights from the quarter. The financial result of the quarter was strongly affected by high cost of production on our '23 generation and an extraordinary item related to adjustment of biomass value on 1 of the sites of the '24 generation. And the EBIT for the quarter ended at minus EUR 9.4 million. The '23 generation was harvested out in the first week of quarter 4 and will therefore not affect the quarter 4 numbers material. We see that we, in the quarter, had a very positive development on several other items of the value chain, for example, cost of harvesting and a good job done by the team in the harvest plant. We also saw a strong price achievement compared to an, in general, rather low market price in the quarter, especially low early in the quarter and also a positive effect of having bigger sizes of the fish than the market in general. High temperatures contributed to high production in our seawater operation, and at the end of the quarter, we saw 1.5 degree higher temperature than what is normal in average. This supports the indicated increase in harvest volume for next year. This leads us to a close to 100% utilization of the maximum allowed biomass in our Patreks and Tálknafjörður license at the end of the quarter. And this is for the first time for the company and driven by the fact that we could start to use the new site, Vatneyri, for our 2024 generation last year. The smolt output in '25 was all-time high and is finalized. We put out 5.3 million smolt with an average weight of 230 grams, ranging from 100 to 700 grams. This is approximately 0.5 million more smolts than previous year. We see a satisfying performance on the 2025 generation so far, and the smolt output is adapted to good utilization of the maximum allowed biomass going forward. In the quarter, we harvested 3,800 tonnes compared to 1,800 tonnes in quarter 3 last year. This quarter, we also reached an agreement with our banks to extend and adjust our loan terms, ensuring that we remain compliant with the loan agreement at the end of quarter 3. We also see a significant increase in production tax for year-to-date in '25 compared year-to-date in 2024, increasing from EUR 1.4 million in '24 to EUR 2.8 million this year. This increase is partly because of higher tax level but also due to higher volume. So summarized, a challenging quarter for Icelandic Salmon but also many positive developments in the whole value chain. I will then give the word to our CFO, Edvin Aspli.

Thank you, Bjorn. I can continue on the bank financing first, and as Bjorn mentioned, we reached an agreement with our banks to amend and extend the loan agreement. And as of the reporting date, we are in full compliance with the new terms. The most important changes are found in the covenants regarding interest ratio and leverage with their waivers extended through fourth quarter next year. There's also a new covenant on minimum liquidity of EUR 10 million, including cash, the revolvers and the overdraft facility. And the covenant on equity ratio remains unchanged at 35%. And finally, the facilities are extended 1 year to November 2028. So overall, these new terms and extension take the pressure off the short-term covenant situation we have had and gives us room to stabilize operation and bring back -- bring leverage back down. And when it comes to the balance numbers, the total assets were up EUR 4 million to EUR 268 million in the third quarter. It is driven by EUR 11 million increase in liabilities but offset by a reduction in equity where the equity ratio came down from 47% to 44%. We had a positive fair value adjustment of EUR 2.7 million, offsetting some of the net loss in the quarter, driven by higher price expectation and low remaining biomass from the high-cost '23 generation. And the net interest-bearing debt, including leasing ended at EUR 123 million. And finally, the total available liquidity for the company was EUR 52 million at the end of the quarter. And on the next slide, we have the development of the debt. And as we can see, it increased by EUR 9.7 million, and it's mainly due to the operational losses. We also have this production tax bill from the first half as well as high interest costs in the quarter development. And the same, the leasing came down EUR 1.1 million. Investments look almost flat in the quarter, but that is mainly because of a large portion is refunded CapEx from July related to a canceled work boat contract. And that concludes the group financials, and I'll give the word back to you, Bjorn.

Thank you, Edvin. If you look at the sales and market update, the market in quarter 3 was strongly affected by high volumes in the global supply of salmon, especially early in the quarter. For quarter 3 '25 compared to quarter 3 '24, the sea salmon prices were EUR 0.87 per kilo lower. Our contract share was very low. It was at 1%. In the quarter, we sold 21% of our volume to the North American market and 23% to the Asian market. This relative high share to the North American market shows that we so far see limited consequences of the 15% tariffs to the United States. This can, of course, also be related to that the effect is limited due to, in general, low market prices. So the long-term effect of the 15% tariff is still worrying us. The sales to Asia and North America have a positive contribution to our general price achievement, but we also saw a positive trend towards price achievement for the European market in quarter 3, which still is our biggest market. And in quarter 3, it represented over 55% of the total volume. If we look at our outlook, we see a good biology going into the winter and are well positioned for a financial recovery in 2026. We expect a decrease in cost level in quarter 4, '25 and going forward into 2026 due to increasing volumes and lower cost of the stock from our seawater operation on the 2024 generation that we started harvesting on in beginning of October. Cost of biomass in sea decreased due to better biology and over some time, decreasing feed prices. That's the 2 main drivers there. And for 2026, we expect to see a good cost effect of better capacity utilization with increasing volumes on, for example, harvesting and well boat capacity. The volume guidance for 2025 is -- remained at 13,000 tonnes. We will continue to build biomass to optimize the MAB utilization and expect a significant increase in biomass during 2025. This is the fundament for increased volumes for 2026, and the volume guidance for '26 is 21,000 tonnes. We expect a continue -- to continue with a low contract share for quarter 4 at approximately 1% and 2% for the full year. The outlook for the salmon market has become more positive lately, but we still see a strong global supply pressure. And we are uncertain on the tariff implications to the U.S. We do, by the way, expect year-over-year supply growth to decrease in quarter 4, and this should lead to a more normalized price level as we have seen lately. We expect a stronger market in 2026 than we have seen in '25, supported with good price achievements from our sales team compared to market price. Icelandic Salmon aim to reach 26,000 tonnes on the existing licenses still, and most of the CapEx is made to prepare for this. Over the quarter, there has been no changes in the company's license portfolio, and there is still applications for 14,500 tonnes of MAB in the process within the authorities in addition to extension of sites for better MAB utilization. The Ministry of Industries have given signal that a new aquaculture law will be proposed in Allþingi in February '26. The company has an active role in giving input into this process in good dialogue with the authorities and industry colleagues. It is given signal from the sitting government that there is an aim to encourage sustainable growth within salmon farming in Iceland. And we, as an industry, are clear in the communication that the growth in the industry need to see competitive terms also when it comes to tax, for example. So I will then end the presentation. Thank you for listening to the presentation, and we will move directly into the Q&A session. [Operator Instructions] and Edvin will guide you with the questions.

[Operator Instructions] And the first one so far is from [ Ora Trovaten ] with the first question being do you expect an average cost inbox full for year '26 above EUR 6.1.

Of course, we don't guide on cost but somewhere around that.