Earnings call transcript: Kaldvik AS reports mixed Q4 2024 results

Kaldvik AS’s recent earnings call for the fourth quarter of 2024 revealed a mixed financial performance, with significant operational developments but also notable financial challenges. According to InvestingPro data, the company has achieved impressive revenue growth of 305% over the last twelve months, though it operates with a significant debt burden. The stock trades near its Fair Value, with analysts maintaining a neutral stance on the company’s prospects.

Key Takeaways

• Revenue increased significantly from the previous quarter.
• Operational updates include a new grow-out facility and ongoing acquisitions.
• Financial challenges include a negative EBITDA of €50 million.
• Market sentiment remains neutral with no stock price movement.

Company Performance

Kaldvik AS reported a significant increase in total revenue compared to the previous quarter, highlighting positive operational progress. The company maintains strong gross profit margins of 66.63% and a healthy current ratio of 3.21, according to InvestingPro data. However, the overall company performance was tempered by financial challenges, including a negative EBITDA of €50 million and an increase in net interest rate debt by €8 million. With total debt standing at $188.74 million, these factors suggest a complex financial landscape for the company despite operational advancements.

Financial Highlights

• Revenue: Increased significantly from the previous quarter.
• Operational EBIT adjusted: €5 million.
• Total (EPA:TTEF) assets: Decreased by €27 million.
• Equity ratio: Stable at 56%.
• Net interest rate debt: Increased by €8 million.
• EBITDA: Negative €50 million.
• CapEx investment in 2024: €23.5 million.

Outlook & Guidance

Kaldvik AS is targeting a production milestone of 30,000 tonnes, with a smolt output of 7.5 million in 2025. The company plans to complete its refinancing process by the second quarter of 2025, indicating a strategic focus on financial restructuring. InvestingPro subscribers have access to 11 additional key insights about Kaldvik’s financial health and future prospects, along with comprehensive analysis in the Pro Research Report, helping investors make more informed decisions about this evolving story.

Executive Commentary

CEO Roy Tore Rickardsen emphasized the company’s commitment to enhancing its value chain, stating, "We are fully invested to deal with this in our value chain." CFO Robert Robertson noted the positive cooperation with financial partners: "The cooperation with the syndicate has been good." Rickardsen also highlighted the company’s production potential: "We see potential of producing 45,000 tonnes in Kalvik."

Risks and Challenges

• Supply chain issues may arise from the increased operational scale.
• Market saturation in established regions could limit growth.
• Macroeconomic pressures, such as interest rate fluctuations, might impact financial stability.
• Biological incidents, such as increased mortality rates, pose operational risks.
• The ongoing biomass write-downs could affect future profitability.

Q&A

During the earnings call, analysts questioned the details of the biomass write-down and the challenges in smolt release. Executives clarified that biological incidents are expected to resolve by the end of the first quarter, and they provided updates on the Box Factory transaction progress.

Full transcript - Kaldvik AS (KLDVK) Q4 2024:

Roy Tore Rickardsen, CEO, Kalvik: Good morning, everyone. My name is Roy Ture Rickardson, and I’m the CEO of Kalvik. Welcome to the presentation of Kalvik’s results for the fourth quarter of twenty twenty four alongside our CFO, Robert Robertson, and we will guide you through this morning’s presentation. Following the presentation, we will have a Q and A session, and you can submit your question directly via e mail to robertkalvik. Is.

Disclaimer, you all know this. Please take a moment and read through. And then we go to the agenda. And we’ll start with some highlights in Q4 and then go to the operational and financial and some strategical update before we close it with the outlooks and summary and the presentation with the Q and A. Q4 highlights.

Biological incidents in Q4. We have a biomass write down of EUR 23,100,000.0, and I will dedicate one slide first thing to go to bit into this incident. Our operational EBIT for Q4 after adjustment is EUR 5,000,000, and we harvested 6,668 tonnes in Q4. And the group EBIT adjusted for the biomass write down of EUR 0.75 per kilogram. Our harvest volume guidance for 2025 is 21,500 tonnes, and the harvest volume in Q1 ’twenty five will be approximately 5,500 tonnes.

Our smolt input in 2025 will be approximately 7,500,000. Our strategic initiatives includes the acquisition of the Box Factory and one third of harvesting station in Dupe Wager, and Robert will go further into the details. And 10,000 tonne license in Sodus Fjordur is pending approval. And we have initiated a refinancing process, and Robert will also go a little bit more into the details later. The biological incident.

If you first look at the graphics on the left side, we’ll try to explain a little bit about that. And this is the twelve months average mortality rate at all our sea sites and generation together. In the beginning of last year, we were on ten percent and successful early release took it down to six percent and sorry, six percent. And then in the end of the quarter, we faced biological challenges, which also consequences into Q1. And we went back to the mortality level in 2022 and over the average mortality for Norway in ’twenty three sourced from veterinary institute.

We faced some challenges with the smalt release in Q4, which led to financial and operational consequences. After releasing a lot of smalt and also losing a lot, we decided in collaboration with the food safety authorities to stop our release. We experienced a shortfall in our smalt release with 1,200,000 smalt less than planned at sea from the Q4 release. Our late release strategy after had a few successful release in Q4 earlier, unfortunately, it failed. This was a combination of several things, but this year, it has been a lot colder than normal the last month of the year, and that’s one of the reasons.

We saw high mortality rates on the twenty two and twenty three generation, which has which was a major setback. High mortality and downgrades were observed due to winter wounds and the 20 two-twenty three generation, which was released without new winter wound vaccine, contributed to the problems. Due to adverse weather conditions and the lack of wellbought capacity, we missed also our harvest targets in Q4. The financial loss for the biological incident in Q4 ’twenty four and the expected loss of Q1 ’twenty five are reflected in our Q4 financial report with a total biomass write down of EUR 23,100,000,000.0. These incidents will also affect our harvest volumes for ’twenty five and ’twenty six.

And in conclusion, we are taking steps to address these issues and prevent future occurrence. In this section, I will outline the actions we are taking to reduce biological risk and improve our operation. Improvements done in ’twenty three and ’twenty four for smart release in ’twenty five and beyond. We have allocated EUR 28,000,000 to improve capacity with the housing new housing and tanks as well as improving the quality of our water supply and control systems. Our new grow out facility in Land North, The Rifos, and you can see in the picture on the left side, is operational in Q1 twenty twenty five.

This facility has increased our quality and capacity with 12 tanks and with a total capacity of 2,400 cubic meters and also four start feeding units on this facility. We are implementing extensive improvement programs within our facility to reduce operational risk and increase security. For the ’24 and 25 generation, all fish will be vaccinated with a new winter wound vaccine, especially designed for the conditions on the East Coast Of Iceland. And additionally, all fish will be vaccinated against ISA. We have secured increased wellbought capacity for the smolt release in 2025 and beyond, allowing us to release smolt earlier, and we have established smolt sourcing agreements to ensure releases exceeding 7,500,000 going forward.

We are increasing well bought capacity to enhance our harvesting capabilities, and these improvements will increase our flexibility, reduce mortality and mitigate the consequences of winter rules. Outlook biology. In 2024, we achieved the harvest volume of approximately 15,000 tonnes, an increase from over 2023 harvest volume. Looking ahead to the first quarter of twenty twenty five, we are guiding for a harvest volume of 5,500 tonnes. Our harvest volume guidance for 2025 is 21,500 tonnes.

And in 2025, we aim to put out 7,500,000 smolt. So that concludes my operational update. Now I’ll hand it over to our CFO, Robert, for the financial update.

Robert Robertson, CFO, Kalvik: Thank you, Roy. Good morning. Here we have the highlights for fourth quarter of twenty twenty four. Operational EBIT and EBIT per kilo for the quarter and full year in the tables on this slide have been adjusted for the one off PMS write down that Roy mentioned earlier. For example, if we would take a look at the group EBIT, if we would include the PMS write down, this number would be negative in fourth quarter of million.

So the total revenue amounted to million, which is significant increase from the corresponding quarter last year. Cost levels remained stable compared to corresponding quarter last year, but increased from last quarter mainly due to the additional harvesting cost with the extra wellbought and extra shift in our harvesting station. The average price achievement increased from last quarter as expected. The average price achievement amounted to around per kilo compared to per kilo in last quarter. And the operational EBIT adjusted for the BMS write down reached €5,000,000 and EBIT per kilo amounted to And over to the financial summary.

Total assets decreased in the quarter by EUR 27,000,000, which is mainly due to the BMS write down. The book value of biological assets decreased by roughly EUR 25,000,000 during the quarter, and that’s including roughly EUR 23,000,000 in BMS write down. Total liabilities decreased by EUR 6,300,000.0 during the quarter, mainly due to decreased deferred tax liability and lower payables balance and installments of term loans. Equity ratio remains around 56%, yes, stable from last quarter when it was 57%. So our financial health remains robust.

And here you can see high level analysis of net interest rate debt, which increased by EUR 8,000,000 during the quarter. The PMS write down is evident when you look at the EBITDA and working capital investments during the quarter. EBITDA was negative of roughly EUR 50,000,000 and net investments in working capital was negative of EUR 70,000,000. CapEx investment in the quarter amounted to EUR 5,600,000.0, making the total CapEx investment during 2024 reaching 23,500,000.0, which is slightly lower than the €25,000,000 guidance for the year. And financial items amounted to €4,800,000 where financial cost is the main contributor.

The syndicate loan, the balance to the syndicate loan amounted to around EUR163 million of total facility of EUR180 million at the end of the quarter. We were in breach of certain loan covenants in Q4, for which we obtained waiver from our financing partners. And Roy mentioned earlier that we have initiated the refinancing process. As it stands now, the current syndicate facility expires in April year. So we here at Caldvik have initiated the refinancing talks with our financing partners.

The cooperation with the syndicate has been good and we are in good communication and cooperation with our partners, our financing partners. And we expect to finalize the refinancing before end of second quarter this year. So this was a financial update. Now we take the strategic update. And we announced just before Christmas that the company had entered into a non binding term sheet for potential acquisition of certain strategic assets in our value chain.

The term sheet comprises of acquisition of Box Factory that is located in Jupur, close to our harvesting station. The Box Factory is split into two companies, Morcer, which owns the building that is hosting the box producer, Jubescale, which is the, like I say, the producer of the boxes. The term sheet comprises of all shares in both MOSI and Jubescale along with 33% shares in our harvesting station, which would secure 100 percent ownership to Celtic as we own two thirds as it stands now. The purchase price for the box factory and the remaining shares in Boula Stindur amounts to NOK190 million. That is indicative purchase price amounts to NOK 190,000,000.

The benefit for Kaltvik is clear in this transaction as we expect packaging costs to reduce by approximately NOK 3,000,000 annually based on 20,000 tonne harvest. So the benefit will then increase with increased harvest volume in Celtic. The process is ongoing and expected to be completed in the first quarter of this year. Now I hand it over back to our CEO, Ruud Tore Rickardsen. Thank you.

Roy Tore Rickardsen, CEO, Kalvik: So thank you, Robert. So a little bit update on our new license in Saedesfuhrde. The new license in Saedesfuhrde includes a total capacity of 10,000 tonnes maximum allowed biomass, And this is divided into 6,400 tonnes Mab for fertile production and 3,500 tonnes Mab for steriod. So we started the application process in 2016, and now currently, Maast is reviewing the hearing process. And we expect the final issuing of the licenses in Q2 this year.

The new production area presents significant strategic opportunity for us, increasing our overall capacity, allowing us to meet growing demand and provide us with increased flexibility in our operation. Importantly, this is a new area, and it will help us reduce biological risk at sea, contributing to sustainability and health of our operation. In conclusion, the new license in Salesforce (NYSE:CRM) is a major step forward for our company, enhancing our capacity, flexibility and reducing biological risk, and we are excited about the opportunity this will bring. Milestone (WA:MMD) one, thirty thousand tonne. Our first milestone is 30,000 tonne, and we have been striving to reach this since we reestablished after the ISA outbreak in ’twenty one, ’twenty two.

And to have a run rate production of 30,000 tonne, you have to release between 7,000,000 to 8,000,000 smolt yearly, and we have not been succeeding in that yet. So we still have the focus on the target and done a lot of action to reach it. And we are fully invested to deal with this in our value chain. And with all this capacity, we also have a fixed cost base for 30,000 tonne. And last year, we harvest 15,000 tonne.

And this year, we will harvest 21,500 tonne. And you can see that the fixed cost on the chart to the right is coming down with increased volume. Calvek’s potential. Here you see some of the initiatives we are looking into to go beyond milestone number one. The Kaldvik team will continue working to produce bigger smalt, what gives us shorter production cycle in sea and therefore also reducing our risk.

To come down to a two year cycle all over, Now we have three year cycle in production. And going down to the two year cycle, that will become more CapEx demanding also in the future. So we will start using utilizing the sterile licenses in 2027, which is MAB of 12,800 tonnes and give an annual production of 3,000 to 4,000 tonnes. We will come back when we have more on this topic. We are also one step closer to get 10,000 tonne license in Salus Fjordur, and we hope to have the licenses in place, as we have said earlier, in the first half of twenty twenty five.

So we are looking into optimization of our production areas. That means utilizing of utilizing of our MAB. And in total, we see potential of producing 45,000 tonnes in Kalvik. Outlook and summary. I think we’ll start with the summary on the biological incident.

With increased mortality in Q4 ’twenty four and projected into Q1 twenty twenty five. Also ended with a biomass write down of €23,500,000 We have 10,000 tonnes licenses with pending approval in Sadeskorder. And as Robert mentioned, Kalvik is in discussion with financing partners regarding refinancing, and plan is to refinance in Q2 twenty twenty five. On the outlook, we see a good opportunity globally for premium salmon. And our new sales team, they are developing The U.

S. And Asia market. And when it comes to the harvest outlook, our harvest in 2024 was 15,000 tonnes. And we’re guiding for 2025 is 21,500 tonnes. And in the first quarter, we guide 5,500 tonnes.

And when it comes to the smolt output in 2025, we have planned an output of 7,500,000. And after our new facility in Land North, we have at least a smolt production capacity of 8,000,000 smolt. So we are now open for questions.

Robert Robertson, CFO, Kalvik: And you you

Roy Tore Rickardsen, CEO, Kalvik: Yes. And then we are over to the Q and A session.

Robert Robertson, CFO, Kalvik: Q and A session, yes. So we’ve had some questions about the PMS write down. And to be clear, the biological incidents in Q4 are and the consequences linked to midterms are given increased mortality in Q1 as well. And the expected mortality is included in the BMS write down made in fourth quarter and reflected in the 2024 numbers. We have had another question regarding the smalt release, Were the 1,200,000 smot released?

Or was it decided to not release them to sea due to lower sea temperature?

Roy Tore Rickardsen, CEO, Kalvik: Yes. A part of the 1,200,000 was not released. And as we have stated earlier, we had a high mortality on the site in Stig in the fourth quarter. So it’s, yes, partly not released and mortality.

Robert Robertson, CFO, Kalvik: And we’ve been asked to state the biomass tonnes in sea at the end of the year. Roy?

Roy Tore Rickardsen, CEO, Kalvik: Yes. I think it was approximately 21,000 tonne end of last year.

Robert Robertson, CFO, Kalvik: Yes. Questions? Carvebacks guidance for 2025. Like we mentioned in the presentation earlier, we are and have initiated refinancing talks or dialogue with our fencing partners. And we are waiting with the CapEx guidance for 2025 once we have some concrete results from that talks.

So we will come back with a guidance hopefully in Q1 for the 2025 financial year. Should we expect similar underlying cost levels quarter over quarter in first quarter? I would say so. We have like I mentioned earlier, we have included the BMS write down for the mortality in Q1 in the Q4 numbers. So the cost level quarter over quarter in Q1 should be stable.

The contrast here for Q1, I guess, we don’t have the numbers in front of us now. But historically, we are somewhere close to 25% of our revenues are from fixed contracts. And it is likely to be close to that, maybe 20% to 25%. Do you see the extraordinary winter wounds and smart survival problems as over now and with the planned harvest in Q1? Or do you expect challenges to continue also into the second quarter?

Roy Tore Rickardsen, CEO, Kalvik: I mean that the extraordinary winter wounds and mortality are over in the end of Q1. So we see already increase in temperature also in the sea. So yes, so it’s going in the right direction.

Robert Robertson, CFO, Kalvik: Yes. And then we had the question here regarding the transaction, the Box Factory transaction, an update on that. Regarding the process itself, this has been a pretty standard process. Both buyer and seller have been using external advisers, both on the transaction the valuation and the negotiation of the transaction. We are currently now waiting for final report from Deloitte on the due diligence.

And the our author is also reviewing the transaction. So this is expected to be concluded within first quarter this year. And more questions? Miao, we have answered this. Could you comment on the split between spring and for in smart output?

Roy Tore Rickardsen, CEO, Kalvik: This year? Yes. Yes. I think the split is spring and summer, I think it’s around 60%. So yes, and 40% in September and October.

Robert Robertson, CFO, Kalvik: Okay. I think we have covered most of the questions. I think we have caught most of the questions. If there are any questions that we failed to answer here, please contact me after this

Roy Tore Rickardsen, CEO, Kalvik: session. Yes. And thank you all for watching. So looking forward to see again when we are presenting the result for the first quarter.

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