Earnings call transcript: Norcod Q4 2024 sees revenue surge, reduced losses

Norcod reported a strong fourth quarter for 2024, with revenue increasing significantly and operating losses narrowing. The company’s new "Snow Cod" product and operational efficiencies contributed to these results. Despite the positive financial performance, Norcod’s stock saw a slight decline in early trading, continuing a challenging period that has seen the share price fall 47.8% over the past six months. According to InvestingPro analysis, the company’s overall financial health score is rated as "WEAK," with particularly concerning metrics around profitability and cash flow.

Key Takeaways

• Revenue rose 47% year-over-year to NOK 124 million.
• Operating loss reduced by 66% to NOK 35 million.
• Harvest volume reached 2,390 tons for the quarter.
• Production costs decreased to NOK 46 per kilo.
• Stock price fell by 1.89% in early trading.

Company Performance

Norcod’s fourth quarter demonstrated solid financial growth, driven by increased sales and operational improvements. While revenue growth is strong at 50.3% over the last twelve months, InvestingPro data reveals concerning fundamentals, including negative gross profit margins of -12.3% and significant cash burn. The company harvested 60% of Norway’s total farmed cod in the quarter, underscoring its market leadership. The launch of the "Snow Cod" product, which boasts extreme freshness, has differentiated Norcod from competitors and expanded its reach to over 20 markets.

Financial Highlights

• Revenue: NOK 124 million, up 47% from Q4 2023.
• Operating loss: NOK 35 million, a 66% reduction from the previous year.
• Harvest volume: 2,390 tons in Q4, totaling 8,336 tons for the year.
• Production cost: NOK 46 per kilo whole fish equivalent.

Outlook & Guidance

Norcod has revised its growth strategy, aiming to reach a harvest volume of 25,000 tons by 2029. The company secured NOK 150 million in bank financing from DNB and plans a private placement of the same amount in Q1 2025. With a debt-to-equity ratio of 1.5 and an Altman Z-Score of -3.54, InvestingPro analysis suggests potential challenges in meeting debt obligations. Norcod targets 80-90% of sales through contracts, ensuring revenue stability amid fluctuating market conditions.

Executive Commentary

Christian Reber, CEO of Norcod, emphasized the company’s strategic growth approach, stating, "We will grow step by step. We won’t do major increase in the short term." He also highlighted the favorable market conditions for farmed cod, noting, "The conditions for farm cod market-wise have never been better."

Risks and Challenges

• Supply Chain: Potential disruptions could affect production and delivery schedules.
• Market Saturation: Increasing production capacity must align with demand to avoid oversupply.
• Economic Conditions: Fluctuations in currency and economic instability could impact profitability.
• Regulatory Changes: New environmental or fishing regulations could affect operations.
• Competition: Rising competition from other seafood producers could pressure pricing and market share.

Q&A

Analysts inquired about Norcod’s pricing strategy and contract sales, which account for 70-85% of total sales. The company expects breakeven to remain elusive in Q1-Q2 2025 but remains confident in its long-term growth trajectory. Reber reiterated the company’s focus on maintaining a stable fish population and enhancing operational efficiencies.

Norcod’s performance in Q4 2024 reflects its strategic initiatives and market positioning, setting a positive tone for the upcoming year. With a market capitalization of $51.5 million and current trading levels suggesting potential undervaluation according to InvestingPro Fair Value analysis, investors seeking deeper insights can access comprehensive financial health metrics and additional ProTips through the InvestingPro platform.

Full transcript - Norcod As (NCOD) Q4 2024:

Christian Reber, CEO, Norcott: Good morning, everybody, and welcome to Norcott’s q four webcast. My name is Christian Reber. I’m CEO of Norcott, and I’m here today to present the numbers. Along the side with me, we have our CFO, Stian Wallen Hansen, who will take care of the financial part of this presentation. Also, I would like to start saying that in the end of the presentation, there will be a q and a.

Already now, you can put in your questions in the chat, and we will then address them at the end of the presentation. So what we’ll go through today is, the highlights, which you see on this slide. After the highlights, we will give you an operational update on our production. After that, Steen will come in and give you a run through of the financials through Q4 and, and of course, also the yearly numbers. So Stephen will take care of that part.

And then in the end, we’ll go through the outlook and the Q and A. So the highlights of Q4. First of all, we’ve had a significant increase in our revenue through the quarter, totaling at NOK124 million, which is up with 47% since Q4 in 2023. Also, we have significantly lowered our operating losses, down 66% to 35,000,000 NOK. Globally, we harvested 2,390 tons in Q4, which is a significant increase for the from the previous year.

Also, bringing our total for the year up to 8,336 tons, which were, which were above our targeted 8,000 tons. So we are we’re very pleased with that Also, what we saw in Q4 was that we had an increase of our MAB on our foyer site Yamnengen So now, we have a site gone from 3,600 tons to 5,200 tons This is an important step, which we’ll come back to later Also, we’ve started stocking our new site Bjornviken up close to Nesna which is very close to our other site, Larbokta So those two sites will be we run-in combination. So we’ve stocked the first five pens and had a very good start at that site. And we will finalize the stocking in the spring of twenty twenty five. Also, we’ve seen very strong market conditions throughout the quarter, which we’ve also seen during most of the year.

So a consistent increase in our prices. And we see this trend continue through Q1 and Q4 Q1 and Q2 in 2025. So the conditions for farm cut market wise have never been better. Also, we’re very happy to share some post highlights. As we informed in Q3, we were looking and working on a revised growth strategy to meet the demand from the market.

So we’ve been through both market conditions and the forecast of our production, which both look very favorable. And therefore, we have built a revised growth plan where we’ll take our volumes up to 25,000 tons in 2029. It’ll be a step by step increase plan over the next five years. And already now, we have funding in place both from our bank DNB in a debt commitment to increase our debt with them. But also, we have contemplated private placements which will take place in Q1 twenty twenty five.

We already have strong commitment and backup from our long term existing shareholders of NOK 150,000,000. So that will be the basis of our growth plan. We will come back with more details later. So to the operational. So in Q4, we harvested almost 2,400 tonnes from three different sites.

So 900 tonnes came from Larbokta up by Nesna. First harvest we had from that site, so that was positive. Also, we harvested 900 tons from Mauson On Foyer, which is the second cycle we’ve harvested at that site. And then we’ve also harvested almost 600 tons from Forsvika up by Bodily. All the fish was brought to our own harvesting facility Kokoi and harvested and sent to the market from there.

The biological performance we have at the moment at Janhun looks very good. It exceeds our budget and expectations. We have very good growth on the fish and we still see very favorable sea temperatures through Q4 and also into Q1 twenty five, which gives us even better growth than expected. Also, we’ve seen a good biological start to our Bjornviken stocking through the quarter. Mentioned earlier in highlights, Yamneng has been granted an increase in biomass up to 5,200 tons.

This is another very important step for us and part of our strategy that we want to grow our existing sites, Because it will give us significantly more cost efficient production. So instead of being able to produce 4,500 tonnes with the overheads we have today. We can now produce approximately 7,000 tonnes of fish at this site. With same overheads and the only variable will be feed To some other news, as we have informed earlier Back in November, we had a fish escape at our Larbukta site Doing one of our regular inspections, we found an opening between two net plates. This opening was quickly closed again by the divers.

And this escape has been more or less finalized as we have emptied the pen and counted all the fish and have counted up the escape numbers. Of course, we always have a zero escape policy. This is not favorable for our operations. And we’ve already now looking at improving our procedures and equipment, where we’re looking to have even more often our rejects. Instead of every other week We’ll increase it to potentially every week to have even more surveillance of the nets And also, we are considering changing from generational nets where we have nets in the same nets in the water through the whole generation to switching nets during the cycle.

Also, we are very much focused on our fish and maturation. This is a very tight collaboration with the Directory of Fisheries where we manage our maturation. We’ve seen a little bit of increase in a few pens on our phosphicker side. Therefore, we decided to harvest part of that fish out a bit quicker than planned. But besides that, we have very, very good control over our maturation.

We have a strong lightning machine that we, of course, on a regular basis develop and look through But it has very good effect in delaying the maturation of the fish until it’s harvested As earlier in Fond, we harvested almost 2,400 tonnes of fish in the quarter, which is 60% of the total volume of farm cod harvested in Norway in the quarter. And that’s very much aligned with the volume for the total year. Stian, over to

Stian Wallen Hansen, CFO, Norcott: you. Alright. Then we are here at the financial update and we’ll have a look at some of the highlights. We have a significant increase in financial performance in Q4 compared to both Q3 ’twenty four and also Q4 ’twenty three. As you can see, we have a standing biomass at sea now, which is a little bit, I’m sorry.

The harvest volume in Q4 now are 2,400 tonnes, and we have decreased our production cost at sea significantly down to 46 NOK per kilo whole fish equivalent, which is something we are very satisfied with. Our revenue is 49% up compared to Q4 twenty three, which is aligned with our growth strategy. We have a significant increase of revenues as well and we are satisfied that we’re now making more money per fish we are selling. If we continue to the next slide. Biological assets at sea are now worth more than ever before.

We have a value of biological assets at sea in milieu Norwegian kroners, which is higher even though we have less biomass at sea in tonnes. This is because we have harvested more of the fish in Q4 with less value, with lower average size and higher mortality, which means that the fish we have by the end of the quarter now has increased in value and we are looking at selling this fish in the future at a better price. Our balance sheet development is not subject to large changes. We are not investing in many new new assets in Q3 and Q4 mainly because we are focusing on the revised growth strategy. So the main change in balance sheet development is currently the increase of biological asset value.

Let’s have a look at the financial review. As earlier mentioned by Christian, the operating revenues in the fourth quarter are 124,000,000 based on the harvest volume of 2.4 tons, which is almost 49% up from the 83,000,000 in harvest volume of 1,600 tons we had in Q4 twenty four. And this is something we are very much satisfied with. We are continuing to increase our production harvesting volume in line with our growth strategy. And we also had the operating expenses at 177,000,000 up from 150,000,000 in Q4 ’twenty three.

And this increase is mainly explained by significantly higher harvest volume compared to the corresponding quarter last year. But since the production cost per kilo is decreasing significantly both from Q4 ’twenty two but also from the whole year ’twenty three, we are seeing an operating loss which is 67% down from Q3 twenty three where we had 104,000,000 and now we’re down at 35,000,000 NOx. So we are significantly increasing our financial performance now in Q4 twenty twenty four. As Christian also mentioned, we had some some non recurring items here in Q4 which mainly relates to the escape incident in late November. This was reported and are mainly the non current items of 7,200,000.0.

If we continue with the financial review, we have now been in touch with the profit and loss, so we’ll continue to the balance sheet. As I mentioned, there has not been large changes to the total assets in Q4. The change from last year in biological assets is the main driver of the change in total. We have reduced the biological assets a little bit in total assets. Available credit ended at 12,000,000 NOKs and the cash at hand ended at 23,000,000 NOKs.

And the total available funds reached 34,000,000 by the end of the year, which is a small increase from the end of Q4 ’twenty three. But as Christian mentioned also, our cash situation now is a bit low to in order to deliver on the revised growth strategy, hence why we are launching this capital increase. The biomass buildup and upscaling strategy is primarily why we have moved forward with the capital increase plan. The retained earnings has also reduced equity further from Q4 twenty three, and the total equity ended at 157,000,000 NOK down from 225,000,000 NOK to corresponding quarter last year. This is an equity rate right now at 24%, which we are looking to increase now during the planned capital increase.

And it’s also important to mention that Norcold has been operating in compliance with all financial covenants and there is loan agreement with DNB. Due to the challenging conditions during the summer in 2024, we had a subsequent decrease in equity ratio. But we have been given a waiver of the equity ratio requirement of 35% until the contemplated capital increase is completed. So we are pretty sure that we will manage this after the capital increase. The total non current liabilities ended at 128,000,000 NOK in Q4.

It’s a small increase down from 153 in Q4 twenty three. The current interest bearing debt is at $2.00 5,000,000 up, up from 119 and this large change is mainly due to investing in biomass, spending funds on investing in biomass along with the increased harvesting levels and of course in combination with the increased overdraft facility. Net cash flow from operating activities were minus 48,000,000 NOK in Q4 twenty four compared to 6,000,000 in minus in Q4 twenty three. Increased overdraft facility was utilized throughout the quarter to repay overdue accounts payable and therefore, net cash flows from investing activities were only 5,000,000 knocks down in Q4 ’twenty four compared to minus 9 in Q4 ’twenty three. The change relates to reduced purchases of equipment in this quarter.

Net cash flow from financing activities ended at 66,000,000 in Q4 compared to 15,000,000 in Q4 twenty three. And the reason is solely because we have a variation in the utilization of the credit line facility. Alright. I’ll leave it over to you, Christian, for the market update.

Christian Reber, CEO, Norcott: Yes. So very important part of our plan is, of course, the market. We’ve seen beneficial market conditions throughout most of 2024. We’ve had an increase in our prices quarter by quarter and from Q1 to Q4 we’ve increased our prices with 29%. This increase is expected to continue through Q1 and Q2 of twenty twenty five.

So we have a very positive mindset regarding the market. This is also one of the main drivers for our revised growth plan. Also, this whole Snowcote launch has been a great success, differentiating it even further from the Wild Cod Cod. And people are really now recognizing Farm Cod as a different species, a different product that can be utilized both as raw, as smoked and as all the traditional ways that you know from wild caught cod. So Snow Cod has been a great success.

Also now we’re shipping fish to over 20 different markets on a regular basis all being harvested at Kokoy packed within four hours from harvesting and sent out. So all with extreme freshness, which is a very important selling point from us. So looking ahead, we see the market conditions being very favorable also in the future for farm card. We have seen significant decrease in the wild card quotas for this year. It’s also expected to see a decrease in wild card quotas next year.

And it will it is expected from the Halforsens Institute to stay at a low level for the next three to four years minimum. Therefore, we are also seeing these favorable market conditions. In the longer time we have our fish in the market the more demand and the more favorable our market terms are So right now we cannot keep up with the market demand for our fish So we are in a very positive market position So as mentioned earlier and also mentioned in Q3, we have looked at our strategy going forward. As we said earlier, we will not grow until we see favorable conditions and that we are on the right track to show profitability. And therefore, with the current market conditions, we feel that timing is right at the moment.

We know from we start a growth plan, it’ll take us twenty months by having fish on land, putting it at sea, and having it up to a four kilo fish. Therefore, we are starting this long term growth strategy now. Of course, growing biomass as we know from previous, growing biomass, establishing new sites costs money. And therefore, we’ve had a great dialogue with our bank DNB, who’s been supporting us all the way through with financing. And they have great belief in farm card as a future farming industry.

And therefore, they have committed new loans of NOK one hundred and fifty million. At the same time, we’re contemplating a private placement where our long term existing investors again show their support and their belief in our project. So they have now indicated a commitment of NOK 150,000,000. So in total, it’s NOK 300,000,000 of new equity in the company. So this contemplated private placement will be launched during Q1 of twenty twenty five.

And we are doing this together with the DNB markets who will take care of our private placement. Again, it’s been great for us to see the trust from both our banks and our long term shareholders. They can see the development we do quarter by quarter. They can see what a great product we’re producing and the favorable market conditions. And at the same time, they can see our forecast on our new productions, both from Janung and Bjornviken.

It looks very favorable. So all in all, we feel we are in a great position now to start our growth. As said earlier, we will grow step by step. We won’t do major increase in the short term, so we will have one extra release and set up in 2025. This, of course, also has an effect on our cash flow as we’ll be spending more cash on setting up a new site and feed.

So the positive cash flow throughout the year will be revised. So it will only be a positive cash flow here in Q2. But all in all, we are very excited about our long term growth strategy and the favorable market conditions. So we feel we are on the right track and look forward to the future Now, we’ll go over to a Q and A where you can put your questions in the chat and we will reply as good as possible There’s a question here from a guy called MB. He’s asking about selling prices and production prices.

Production price, I think, is Dien covered, which was NOK 46 per kilo in the fourth quarter. Selling prices is across the board, all sizes and all qualities is approximately NOK 65 per kilo. And we are expecting to see an increase through the coming quarters on that price as well. Then you hear us also asking what price are we planning to do this private placement in Q1, and that will be determined by the DNB market once they’ve been in contact with the market. So we will come back with details on that later.

Knut Ibar Barken is asking how much of the twenty twenty five volumes have you sold on contracts? How much are contracts prices up in 2025 versus 2024? Throughout the year of 2024, approximately 70% of all our fish has been sold on contracts. And I think through Q1, ’80 ’5 percent of all our fish is sold on contracts. Our target is to sell between 8090% of all our fish on contract.

The farm cut has so many advantages contract wise because we can do long term contracts with planned deliveries and volumes for the supermarket and the food service clients that we have. So in general, we see the majority of our fish should be sold on contracts. But again, we always want to have approximately 1015% of unsold fish for the open market, but also for new clients and new contracts and contracts expansions. And then Knut Ivar Bakken, this is a question for you, Stephen. How much CapEx do you expect in 2025?

Stian Wallen Hansen, CFO, Norcott: That depends on how fast we’re able to get on your location. As it is right now, we are not planning on large CapEx in 2025. That would firstly occur at the beginning of twenty twenty six if we are working in accordance with plan, but that depends on how fast we’ll be able to get the new locations.

Christian Reber, CEO, Norcott: Then Knut Eva Bakken is asking here again, how many individuals do you have in the sea at the end of twenty twenty four compared to 2023? And it’s a fairly stable number around 5,000,000 fish at sea. We haven’t increased that volume because as we informed earlier, we want to maintain our volume until we see a very close runway to profitability. So therefore, we’ve had a stable volume throughout the last two years, and we will now start taking up that volume. We have Keya asking when we expect breakeven or positive EBITDA as we wrote earlier in Q3 due to the warm summer, which we had this summer, the two sites we’re harvesting at the moment, Labogta and Forsviken, they’ve had less growth than expected and therefore higher cost per kilo.

So for Q1 and Q2, we are not expecting to see breakeven or positive EBITDA. There will be opportunities in the fall once we start harvesting Okay. I think that about concludes our Q4 webcast. If there is any further question, as you all know, you can always contact CNLI directly. Also, we have post we will post our webcast on our web page.

So So that’s also a possibility to get even more answers, but you can always contact on email and phone. So thank you very much for attending. Have a great day.

Stian Wallen Hansen, CFO, Norcott: Thank you. Have a great day, everyone.

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