Proximar Seafood AS (PROXI) Earnings Call Transcript

Hello, and good morning, everyone, and welcome to the presentation of the Third Quarter 2025 for Proximar Seafood. The presentation will be given by our CEO, Joachim Nielsen in Japan; and myself, Ole Christian Willumsen, CFO, here in Norway. We will, as usual, start by addressing the main highlights of the quarter before updating you on the operational development. We will then assess the market and pricing, followed by going through the financial summary, including the implications of the executed refinancing plan. Finally, we will go through the outlook before summing up. And without further ado, I'd like to hand you over to Joachim in Japan.

Thank you, Ole Christian, and good morning. To summarize the third quarter, despite disappointing harvest weights, we continue to harvest on a weekly basis. Through the quarter, we harvested 356 tonnes, HOG, of which 99.2% was superior grade. Unfortunately, the average harvest size continues to be low, reaching 2.3 kilograms HOG average for the quarter. We also continue to see a wider distribution in sizes as has been described in previous updates, and our efforts are now to increase harvest size and optimize the production going forward. The average price achievement is impacted as in previous quarters by a large number of fish being below market size fish, which means below 3 kilograms HOG. However, for market size fish, the price achievement was NOK 97 per kilogram, demonstrating the price robustness in the Japanese market compared to NOK 69 per kilogram average export price from Norway for the same period. On average, our price achievement was NOK 67 per kilogram net to Proximar, which is in line with the export prices seen from the Norwegian market. The demand for our fish is strong, and we are making all efforts to supply steady volumes from 2026. We continue to see demand from other Asian markets as well. So it's really a matter of now for us to provide stable supply. Looking at the biology, the survival continues to be high, above 99% on the total level for the grow-out and fish health remains good across all batches. We had no material incidents in the quarter, and most of the mortality is related to fish transfers. Towards the end of the quarter, we could also finally see that growth is back to our production plan, which has continued through October and into November. It is very encouraging to see that we continue to produce high-quality fish, demonstrating the functionality of the facility. We have now produced and delivered more than 1,200 tonnes HOG to the market compared to our initial expectations, the volumes are much lower than expected primarily due to incidents and consequently reduced feeding over a longer time. However, 1,200 tonnes HOG is still a significant volume and a confirmation that the facility can produce high-quality Atlantic Salmon. It is, therefore, very promising to see that the growth rates are now finally picking up and performance has improved significantly in that regard. On the financing side, we completed the rights issue and conversion of a large part of the outstanding convertible bond to equity, strengthening our balance sheet and lowering financing costs going forward. We also extended the syndicated bank loan with 12 months, and in parallel, we've also made good progress to secure adequate working capital going forward. And Ole Christian will explain a bit more the details later in the presentation today. Our top priority now is to build biomass to reach our standing biomass target of around 2,000 tonnes. As mentioned, we now see good growth performance and we are therefore aiming to reach our target by the end of this year. Now it's all about feeding and growth to regain the prolonged period of reduced feeding, which is still impacting our average wage achievement. And by the end of the third quarter, the standing biomass stood at just below 1,400 tonnes divided into 21 batches. This means that in terms of number of fish, we are on plan, we continue to insert eggs on a monthly basis and continue to do so with an overage to have adequate buffer going forward. In addition, we started culling this year as planned to optimize production and expect to see results of this as we now move into 2026. During the quarter, we harvested 356 tonnes, HOG, a record so far, but still behind our previous plan. And through the quarter, we have also held fish back reducing harvesting volumes as much as possible to prioritize growth. Our plan is to continue doing so in the coming months as well. But from January and onwards, we will be harvesting steady volumes. The capacity will then also be the constraint in terms of flexibility for the future. During the quarter, we had several issues impacting feeding volumes, which in turn did not enable us to achieve the planned growth and all efforts have been spent to improve this. We started the quarter with all modules back in operation, but unfortunately, due to a combination of different issues, we could not reach our targeted feeding volumes. In July, we had extensive fish transfer as we moved fish into the last model, which was finally repaid and operational in the end of June. And all transfer requires duration of some days prior to transfer, and this impacts growth in the first weeks of July. We also had some issues related to the feeding system and feed distribution, resulting in unstable feeding and feed spill. On top of that, we had a heat wave in Japan, experiencing the highest temperatures since starting measurements in 1898. And usually, the summer months are rainy. However, this summer, in addition to high temperatures, we experienced sunshine hours substantially about normal, which, in combination, impacted our cooling capacity. We therefore made comprehensive efforts continuously to improve farmer conditions, both short term and long term and addressing the issues with necessary solutions. And I'm pleased to say that the feeding system and distribution is now working according to expectations, the feed spill has been significantly reduced. And we've also secured a long-term lease of extra chillers, which will remain on site and be connected as backup through next summer and potentially longer. In addition to this, we made several other adjustments on the technical side and in operations with clear positive results. And, we have, since end of September through October and into November, seen good biomass development and growth, and we're now feeding according to plan. As shown in this graph, October illustrates the positive results in terms of biomass growth with a gross biomass growth of around 380 tonnes. Our standing biomass is shown in the red columns. And at the end of October, we were close to 1,600 tonnes and showing a significant uptick since September. The blue columns show harvested volumes in live fish weights. And entering into November, we continued to see good growth performance, and we're aiming to reach our standing biomass target within the end of this year of around 2,000 tonnes. And this is important for us to reach the standing biomass target to get steady and stable production and harvesting, which is also reason why we in November and December, plan to reduce harvest as much as possible. This means that we will push more fish into 2026, but this again will contribute to getting above 3 kilograms HOG in harvest size and also contribute to higher volumes and better price achievement. When it comes to the market conditions in Japan, we remain optimistic. The way we see it and perhaps also confirmed in the recent months following the low price environment for Atlantic Salmon in the global markets, the price levels in Japan remain attractive. Prices have stayed above NOK 100 per kilogram with the exception of August, which was also a month where we saw the lowest export price for Norway at NOK 64 per kilogram. The Japanese price levels, also during a depressed pricing environment, illustrates clearly the strong advantage of Proximar as a local producer in Japan. We believe this demonstrates our competitive advantage and proves the strength in our business model. The implied import cost on the graph on the lower right shows the rather stable cost level related to import -- cost of import of Atlantic Salmon from Norway. Lately, we've also seen the prices picking up, and we expect this trend to continue, also supported by the forward prices and market fundamentals. When it comes to consumption of Atlantic Salmon here in Japan, we continue to see the market recovering from last year and following a sharp increase and very high prices in 2023 and 2024, we saw a softening in the demand. However, as prices have reverted to more normalized levels, demand has equally increased. And in the long term, we see positive fundamentals when it comes to future consumption growth of Atlantic Salmon in Japan as the product continues to gain popularity and certainly amongst the younger generations. As I mentioned in the beginning, the demand for Fuji Atlantic Salmon is high and the interest for Proximar remains. We also see land-based becoming a focus on the national level, and we're proud to take the lead as the largest land-based farmer in Japan and the only farmer producing a Atlantic Salmon. We're well ahead of competitors, which translated to a strong interest for what we're doing. And we continue to see strong interest from customers, industrial players, authorities, et cetera, not only in Japan, but also from abroad. And we continue to receive inquiries on Stage 2 opportunities in Japan, but also from other markets in Asia. But as we have said before, our main priority now is to get Stage 1 up and running smoothly, but we do see attractive opportunities looking into the future. I will now hand it over to Ole Christian to go through the financials.

Thank you, Joachim. Let me start by saying that there have been a lot of subsequent events this time as the thoroughly communicated refinancing process was executed into the month of October. I will come back to this after having gone through the main Q3 numbers. So let's then move over to the figures and start with the P&L. We had sales of about NOK 24 million and insurance payouts from the biofilter repairs and the mortality reported in May of a total of NOK 16.4 million, yielding NOK 40.4 million in revenue and other income in the quarter. This compares to NOK 0.1 million for the same period last year. We report an EBITDA in the quarter of minus NOK 7.3 million. Adjusting for the insurance payouts and the net fair value calculation, we had an adjusted EBITDA of minus NOK 19.1 million in the third quarter, meaning that the reported EBITDA is better than the adjusted one for this quarter. And the main reason for that is the one-off insurance payouts that I mentioned. The net financials were minus NOK 32.3 million, and we are then in total, reporting a loss of NOK 58.4 million before tax for the quarter. The result for the same quarter last year was minus NOK 23.7 million. Then moving over to the balance sheet, we held total assets of approximately NOK 1.5 billion, where 89% were noncurrent, mainly represented through the value of our land buildings, machinery and equipment. The inventory and biological assets stood at NOK 136 million at the end of September. Then moving over to the Passiva side. The equity was close to NOK 144 million, whilst the total debt was about NOK 1.35 billion. This is obviously a weak balance sheet this quarter. However, as mentioned, these figures are all before the execution of the refinancing process. So let's, therefore, move over to looking at the situation after the refinancing. We have executed what was communicated July 9, and I'd like to take you through 5 points of the comprehensive plan which has supported the liquidity situation and strengthened the just mentioned weak balance sheet. Firstly, strengthening the equity by NOK 150 million through the rights issue. Secondly, conversions in the convertible bond of approximately NOK 200 million, increasing the equity and decreasing the debt by this amount, meaning we get a double positive effect on the debt equity ratio. Thirdly, amendments to the remainder of the convertible bond, which is now approximately NOK 65 million, where the maturity date is pushed into 2027, and the interest rates are reduced from 7% to 5% per annum. Fourthly, agreements were reached for some of the company's debt with initial maturities in 2025, where the syndicated loan is extended until August 2026 and the shareholder loan until October 2027. And then finally, ongoing process to extend the JAML loan, which matures in December 2025 at approximately NOK 50 million. In sum, the relative ratio between equity and debt will be improved by approximately NOK 550 million through the refinancing process. And this will then be included in the Q4 2025 figures. I will now hand it back to Joachim for the outlook, followed by the overall summary of this presentation.

Thank you, Ole Christian. Looking forward, we are now doing our utmost to get back to market size fish contributing to higher volumes and better price achievement. Following a thorough review of our production plan, we are now planning to push as much as possible on the timing of harvest as mentioned earlier in the presentation. This means that we expect to reduce the number of fish to be harvested in the fourth quarter this year, pushing the fish into 2026. The planned changes are related to timing of harvest and based on our current plan, we will also consider pushing some fish from 2026 into 2027. This taking market considerations and volumes into account. We are therefore aiming to push 350,000 fish, which was initially planned for harvest in 2025 into 2026.. Furthermore, too much fish in late 2026, we're also considering to push approximately 100,000 fish into 2027. And this is fish which is expected to be ready for harvest in December 2026. But for market and sales reasons, we consider pushing into January 2027. And the planned measures is the best and quickest way for us to get back to original plan, bringing average harvest sizes above 3 kilograms HOG, and we are expecting above 3.5 kilograms HOG average harvest size for 2026. As we now see good performance and have capacity, we believe this is the best way for us to optimize. The flexibility and the right plan is limited to available capacity in the system and working capital. And when it comes to the required working capital to do the planned adjustments, I'm pleased to say that we have made good progress and expect to secure the financial flexibility to adjust as planned. So wrapping up this quarterly presentation, we are well positioned for 2026 as we now see good performance in the system and biology. 2025 has been impacted by several challenges, mainly the biofilter incidence as major setback. Having said that, the main challenge and reason for us being behind has been feeding restriction, which has directly impacted growth. The system continues to function well, and the growth has improved significantly after comprehensive efforts in the last couple of months. The fish health remains good and survival rate is high, demonstrating good conditions. And now that feeding is back on track, we expect growth to materialize as we have seen in the recent weeks and months. With the planned optimization on harvest schedule, we are aiming for 2026 to be a year of normal operation and production, bringing up harvest sizes to above 3 kilograms HOG and consequently driving up average price achievement. Higher volume and better price achievement should also contribute to positive financial results and with the strengthened balance sheet, we will continue our efforts on refinancing for a more long-term debt structure. We're pleased to see the strong interest for Proximar remains, being a first mover and contributing to local self-sufficiency. And this is also a strong motivation for our team. Finally, our CFO, Ole Christian, has decided to leave us after the end of January. And I would like to express my gratitude for his dedication and contribution over the last years. Ole Christian is currently the only employee left in Norway as all other functions have now been transferred to Japan. Our new CFO, joining the team in Japan in December. This completes the transition of all functions and is a natural development as all our activities mainly take place here in Japan. And with those final remarks, I want to thank you for your attention today, and we will now open up for questions.

Okay. Then we are ready to move into the Q&A sessions, where we have already received some questions. So these are in Norwegian. So I will try to just translate as we go, and Joachim. Proximar Seafood has earlier signalized different cost levels per kilo, what is the cost level at this stage? And what do you expect it to be when the facility is producing its full capacity?

Yes, we have recently not given any update on these expectations. The last was done in conjunction with our fourth quarter update 2024, where we forecasted an EBIT cost of NOK 68 per kilogram at 5,300 tonnes capacity of full utilization. We've not come with any updated information after this up to that point, and this is something we'll come back to later when we have more experience and also have seen the growth progressing. But there are no dramatic changes to the operations or cost side as we see it.

Okay. Then there is a second question related to harvesting. Why are -- why is Proximar selling fish at the lower harvesting weight when this is giving a lower earnings per kilo.

Yes. So this has been a combination of several reasons. First of all, we have in planning long term, and we're expecting the growth to come up quicker than we have seen. We have also long-term agreements with supplying fish to customers. So that's part of the reason on the other hand, we have also continued to harvest fish to free up capacity so that we now can hold back fish and get growth in the coming months before we start harvesting on a regular basis again. So it's also about capacity and freeing up capacity in the system.