Salmar Asa

Good morning, everyone, and welcome to the presentation of Salmar's results for the first quarter of 2024. My name is Frode Arntsen, and I am the CEO of Salmar. And together with me today, we have our CFO, Ulrik Stenvik. It has been a demanding winter period that we will summarize today. Cold winter temperatures, extreme weather, and several attacks from string jellyfish have left their mark on the result. I can already now say that we are not completely satisfied with the result we are presenting today. This is not where we want to be. We have good control over the underlying operations, but when we have greater challenges as a result of nature incidents that affects us, the biological cost becomes high and impacts the result negatively. And these experiences, it does something to us. Our desire to improve becomes even stronger. And as I've said before, in Salmar, we care. We care about the fish, the people, the customers, the environment, and the local community that we are a part of. Therefore, we do not want it to be like this. It's not just me as a CEO who feels that way. Everyone who works at Salmar feels this because we know that there is a great potential for improvement and we will work hard to take that out at every step of the value chain, always on the terms of the Salman. But let's go to the review. It will follow the same order as before. I will take you through some highlights and the operational results for different segments. Before our CFO will take you through the financial update. At the end, I would like to focus on how we strengthen the value chain. As mentioned, the first quarter was a demanding quarter for us at Salmøy, where challenges we have had at sea have had a negative impact on the results we present. In total, we harvested 45,400 tons for Norway at a margin of NOK 34.1 per kilo. Overall, for the Norwegian operations, we delivered an operational EBIT of NOK 1,546 million. Including Icelandic salmon and Salmar Aker Ocean, we harvested 52,900 tons, in a quarter with a total operational EBIT of NOK 1,512 million to a margin of NOK 28.6 per kilo. The farming segments in Norway, and especially northern Norway, are affected by challenges related to jellyfish and winter wounds. which has affected the result in that quarter. This also affects the sales and industry segment, which, through its structure, helps to handle the challenges we have experienced. Salmairake erosion has harvested from both its units in operation. Biological challenges affected the result in Iceland. And it is good that we are seeing a significant improvement in the results from Scottish seafarms. We continue to have a solid and robust financial position, and we maintain our volume guidance for 2024 unchanged in all regions. In short, we are no more than reasonably satisfied with the results in the quarter, but I am incredibly impressed with the effort that has been put in from all our staff in every single day. In addition, new steps are constantly being taken to make us even better in the future, something I will return to. But first, I want to go through the operational review, where I will start with Farming Central Norway. In central Norway, we harvested 27,800 tons in a quarter with an operational EBIT of NOK 1,186 million, which gives EBIT per kilo of 42.6, a satisfactory result despite the challenges we have experienced. During the period, we have harvested from the autumn 22 generation and started harvesting from the 2023 generation. And at the beginning of the year, we experienced several extreme weather events, which meant that we had some one-off incidents related to this, which in total amounts to approximately 1.5 NOK per kilo in the quarter. Looking ahead, we will continue and end harvesting from the autumn 22 generation in the second quarter, and we will continue harvesting our 23 generation. There are still some challenges at sea, but overall there is a good biological status of the fish we have in the sea in central Norway. Going into the first quarter, we expect a somewhat lower cost level than we had in the first quarter, and we expect the volume to be lower compared to the same quarter last year. The volume guidance for 24 is unchanged at 146,000 tons. In Northern Norway, we harvested 7,500 tons in a quarter with an operational EBIT of NOK 476 million and EBIT per kilo of 27.1. Northern Norway delivers a weak result as a result of the string jellyfish and winter wounds. During the period, we have continued to harvest our spring 22 generation and have also harvested from the autumn 22 generation. In good dialogue with the Norwegian food safety authorities, we have been forced to cull fish at several locations due to attacks from string jellyfish. In total, non-recurring effects on such events amount to knock three per kilo in the quarter. And during the period, we have also had to take out fish with a low average weight and a lower proportion of superior share than before, which affects both cost and price achievement. Together, this means that Northern Norway delivers weekly. and weaker than what we envisioned when we presented the results last time. Looking ahead, we will continue to harvest from the same generations as in the first quarter, and unfortunately the challenges are not over, even though the biological situation is now better than it was in the first quarter. we expect a similar cost level in the second quarter compared to what we have now in the first quarter and we expect somewhat higher volumes in the second quarter compared to volumes in the same quarter last year the volume guidance for 24 is unchanged at 91 000 tons The sales and industry segment delivers an operational EBIT of NOK minus 37 million. As a result of natural seasonal variations in volume, We have had a lower capacity utilization of our facilities in the value chain during the period, especially from harvesting. And we can clearly see the strengths of the flexible structure we have in Salmar with a focus on high local processing capacity close to the areas where we farm in quarters like this. The challenge in the quarter has been that the peak capacity on WAP, Value Added Processing, has not been large enough so that we unfortunately do not get an optimal disposal of the fish that come into our facilities. This is something we want to strengthen. I will come back to this. As expected, the contract share was 39% in the quarter, and as a result of the high spot prices we have experienced, the contracts made a negative contribution overall. Spot sales have still been handled in a good way, so we have had a good price achievement on this. In the first quarter, we expect continued low volume through our facilities as a result of normal seasonal variations. And as a result, we expect the contract share to be around 48% in the second quarter. For the full year 2024, the contract share is approximately 30%. And now to Icelandic salmon in the West Fjords in Iceland. where we harvested 2,800 tons in a quarter with an operational EBIT of NOK minus 6 million and EBIT per kilo of minus 2.3. A weak result that is affected by the biological challenges related to lice at the start of the fourth quarter, where the site that we have harvested had a big cost base. The result is also reduced by one-off costs related to incidents at sea and at a small facility of euro 3.6 million or approximately 15 NOK per kilo in the quarter. Looking ahead, we expect a continued high cost level as a result of the fact that we will be harvesting from the same location with a high cost base. We expect higher volumes in the second quarter compared to what we have harvested at the same time last year. The expected volume for 2024 is unchanged at 15,000 tons. As probably several of you have seen, we are still waiting for the final clarification on the award of new licenses in Iceland of 10,000 tons MIB. We will come back with more details related to this when it's ready. Salmar Aker Ocean has now harvested both of its semi-offshore units. In the first quarter, 4,800 tonnes were harvested with an operational EBIT of minus 28 million NOx, an EBIT per kilo of minus 5.9. In addition, approximately 2,000 tonnes will come from joint operations with Salmar a little later this year. It is worth noting that EBIT per kilo is lower for our offshore projects as they have higher depreciation than traditional farming. EBITDA per kilo for harvest results in the period was 19.3. In January, the last cage at Arctic Offshore Farming was emptied, and this received a low price achievement as a result of cage being attacked by string jellyfish at the very end of the production cycle. In addition, Ocean Farm 1 was harvested in March, and as a result of low capacity utilization of the unit, cost per kilo is affected. But once again, we have experienced very good biological performances on the fish that were harvested from both units. And as you can see in the table at the bottom of the page, we have experienced low mortality, low lice levels and very good growth. This gives us increased confidence in the further potential offshore, and in 2024, we will release fish in both units for the start of new production cycles that are planned for harvest in 2025. At the same time, the work on possible establishment internationally is also proceeding according to plan. For the year 2024, we keep the volume guidance unchanged at 7,000 tons, with the remaining volume being harvested towards the summer. Then we move on to our joint venture in Scotland, Scottish Seafarms, where it is good to see that they are back on profit again and delivering a better result. In the first quarter, 7,300 tonnes were harvested with an operational EBIT of NOK 138 million and EBIT per kilo of 18.9. As we mentioned at the previous quarterly presentation, we saw a significant improvement in the biological situation in Scotland in all regions through Q4, and this has continued in 2024. This has led to better results on harvested fish during the period, with improvements in both cost levels, price achievement and average weight. As usual, there is somewhat high contract share in Scotland at 45%, and this had a negative contribution as a result of the high spot prices. Looking ahead, it looks good for the fish we plan to harvest in the future in all regions, and there is a good biological status of the fish, where the average weight has increased and the cost is lower than previous quarters. We keep the volume guidance for 24 unchanged at 37,000 tons. With this, I have come to the end of the operational update, and I now want to give the floor to Ulrik, who will take you through the financials.

Thank you, Frode, and good morning to all of you. As Frode has communicated, weather and nature have affected the biology and thus also the financial results for the first quarter. In Salmar, we have a clear focus on operational risk and with a postulate focus on the solution and a strong ability to execute. Relevant measures will be implemented on an ongoing basis to reduce the risk and consequences of any similar situations later on. Despite the impact on financial results, Solmar's strong focus on cost and continuous improvement efforts has contributed to a reduction in the underlying costs in the quarter, which paves the way for improved results going forward. I will come back to how we work with this in some more at the end of my part today. Otherwise, my review today will follow the usual procedures with a focus on the group's profit and loss balance sheet and debt development in a quarter where we will see that the financial position has improved further in this quarter as well. I would like to start by making some comments related to the profit and loss statement. At the top right, we see that operational EBIT fell by 646 million NOK compared to the fourth quarter, from 2,158 million NOK to 1,512 million NOK. Seasonally lower volumes are the main reason for the reduction in operational EBIT. Furthermore, we see from the graph that the volume reduction is partly offset by the fact that the price achieved in the quarter is significantly higher in the first quarter than achieved in the fourth quarter as a result of higher market and contract prices. Higher costs contributed to reduced operational EBIT compared to the fourth quarter. I would like to clarify that this is not a result of a higher cost base, but an implicit calculation as a result of increased cost per kilo. Increased cost per kilo is due to harvest of fish with a low average weight in North, as well as one of effects related to events with extreme weather and culling of fish due to fish welfare totalling to 86 million NOK. In sum, this means that costs compared to the previous quarter are increasing. Icelandic salmon and Salmaj Arca Ocean contribute with a negative change in operational EBIT of a total of 71 million NOK. This is due to lower volume overall, but also due to lower contributions as a result of one-off cost of 41 million nok in Icelandic salmon and the impact of string jellyfish on the Arctic offshore farming unit. The share of volume from the offshore operation is higher in the first quarter, and as also commented by Frode, EBITDA is a more relevant measure for offshore operations, which affects the assessment of the overall operational EBIT figures for the group. For those of you who compare research with other players in the industry and those of you who are going to enter the figures into your spreadsheet models, I would like to highlight that all costs, including restructuring costs and special costs, are part of Sunmar's reported operational EBIT. Moving on to the profit and loss statement to the right. I would like to comment on the main points for the first quarter of 2024. EBITDA was 1,919 million NOK and operational EBIT was, as previously mentioned, 1,512 million NOK. As you can see, we have paid 55 million NOK in production tax in Norway and resource tax in Iceland. An increase from Q1 2023 affected by the fact that the production tax has increased to 93.5 Øre per kilo in 2024 for Norway compared to 56 Øre in the same period last year. As a result of seasonal lower biomass and measures to safeguard fish welfare, net fair value adjustments are negative. The change in fair value reduces the result by 320 million NOC. was 67 million NOC. It is good to see better results from Scottish sea farms that contributed with 33 million NOC in a quarter. The other significant associated companies, Hellesund Fiskeoperat and Vilsgård Fiskeoperat, make a positive contribution as a result of good results on their harvest volume, but which is offset somewhat by negative fair value adjustments of biomass. The net financial cost amounts to 232 million NOK, somewhat lower than at the same time last year, despite higher interest rates through last year, but as a result of the debt being significantly reduced since the same time last year. In total, this gives a profit before tax of 971 million NOK. Ordinary corporate tax and accrued resource in tax for the first quarter of 2024 amount to a total of 76 million NOK in tax expense. The low tax cost is affected by changes in the deferred resource in tax calculated on the fair value adjustment. For further details, please see the notes to the report for a more detailed presentation and explanation. Profit for the period is consequently 195 million NOC for the first quarter of 2024. And now to the balance sheet, where financial key figures are still robust and solid. There are no significant changes in the balance sheet in the quarter, but we see that total assets are somewhat down compared to the status at the year end. Fixed assets are affected by profit in associated companies and capex projects. as previously guided capex are at a lower level compared to previous periods and where the focus is on capex related to fish welfare and processing capacity through they will come back to this Current assets have been reduced mainly as a result of the biomass being lower than at the end of last year and compared with the same time last year. This is due to the challenges we have experienced throughout the winter. As we mentioned at the previous quarterly presentation, we will increase the smolt release significantly in 2024. Both to take advantage of the potential we see in our value chain and to compensate somewhat for incidents we have had throughout the winter. The small release started in April and will continue in the months ahead with full force. Through the reduction in total assets and net positive results during the period, the equity ratio has increased to 46%. Net interest-bearing debt, including leasing, is now 14.4 billion NOK, with key figures for net debt ratio, including leasing on EBITDA, have been reduced to 1.6. Without leasing, the net debt ratio is 1.4, well below our long-term target of being below 2.0 in debt ratio. This means that at the end of Q1 24, we have 10.3 billion NOK in available liquidity in the group. Overall, the balance sheet, the financial key figures, and available capital show that we have a robust financial position that makes it possible to seize the growth opportunities that arise. In this connection, it can be mentioned that Salmar took advantage to grow through the traffic light system in April, which resulted in an investment of approximately 130 million NOK. I would like to briefly explain the change in net interest-bearing debt, including leasing in a quarter. We started with a NIP including leasing of 14,952 million NOK. During the period, we have had a good cash flow from operations, where EBITDA was 1.9 billion NOK. Tax payments amounted to 70 million NOK in a quarter and changes in working capital amounted to 534 million NOK. In total, investments amounted to 429 million NOK in a quarter, which is lower than previous periods. As mentioned in the previous presentation, small investments will be lower in 2024 after other CAPEX projects are now in the final phase. You can also see that maintenance and fish welfare CAPEX in farming make up the largest contribution now in the first quarter. When you take into account amounts spent on interest and leasing during the period, we end up at NOK 14,445 million in NIBD, including leasing at the end of the first quarter of 2024. This is a reduction of NOK 508 million in the quarter. As mentioned at the previous quarterly presentation, the Board of Directors of Salmar has proposed a cash dividend of NOK 35 per share for the financial year 2023. This will be subject to approval at our annual general meeting on 6th of June with payment around 20th of June. As earlier mentioned, integration and synergy realization has been important and a prioritized work in 2023. This work has been completed and we have now started the work of optimizing and further developing the business at all levels and throughout the value chain. Biological challenges as a result of weather and nature in individual quarters do not affect our continuous work on improvements or other growth ambitions. Their focus and a strong corporate culture are important catalysts. Everything we do today must be done better than yesterday. It's just an important postulate and a postulate that lives actively in Salmar and has helped to define Salmar. We have now started a new improvement program and strategy period with a structured approach to the entire value chain and with the inclusion of all levels where established truths and mindsets throughout the value chain are challenged with purpose of establishing common goals and measures for reduction cost and increased value creation. This means that we look at both negotiations and tuning of activities, possible changes in how we view on both improvement and costs, as well as possible structural changes in the business, both in terms of how we solve different challenges and how we organize ourselves and establish internal structures and guidelines that ensure the same focus. Through this work, you will create shareholder value by being best at operation, strengthen the ability to create profitable growth, and at the same time safeguard and ensure appropriate financial capacity. In the short term, we are thus maintaining the previously guided volume, and we see underlying lower cost for volumes harvested in the second half of 2024, although biological costs at some locations affect the total figures. In the longer term, we maintain the previously stated target of 300,000 tons in Norway through organic growth without any significant capacity increasing investments, as well as a reduction in cost as a result of our initiated improvement programs. Further details about this will be communicated at the end of this year. In our previous strategy period, which ran from 2018, we increased efficiency and distance to our competitors, and we still see significant potential to do even better going forward. This is work that gives motivation and something we look forward to. And Frode will also give you some details about how we are thinking about the future in the strategic update. And with that, I give the floor back to Frode again.

Thank you, Ulrik. At Salmar, we are always chasing pole position. It takes continuous work to make us a little bit better every day. That is why we are now taking steps throughout the value chain to make us even more robust and flexible, but most importantly, measures that improve fish welfare. The winter wound problem has been demanding this winter, and the smolts we release in the future will have a new vaccine that has been shown to have better resistance to winter wound bacteria through trials. This will not have an effect now in 2024, but in the long term, we expect to see a significant effect from this new vaccine. As mentioned earlier, we are now self-sufficient in high quality smalt from our own facilities. Now in May, the first fish was delivered from Tjuin to the sea. With this, we have even greater flexibility and capacity to deliver the right smolt to the right location at the right time. Therefore, we have several ongoing projects on both new farming technology and more gentle lice treatment that we are currently implementing. Last but not least, we are increasing our peak WAP capacity, which gives us increased flexibility and the opportunity to optimize the value creation of our salmon. At the same time, through increased WAP capacity, we will be able to help us adapt our products according to the customer's needs to an even greater extent. because the demand for salmon out there is still very strong. I myself have been to several large seafood fairs this year, and most recently in Barcelona a few weeks ago. And the overall tone among our customers are the same. They want more sustainable proteins for their customers around the world. And all of our customers want to grow their business and they need our salmon. Because healthy, nutritious, sustainable proteins like salmon are important to the world. And that's why we're also very proud of our sustainability report that we published at the end of April. In fact, the tenth report in the series we have published. Here we go into details on many areas. We explain how we work every day to become even better. And as a picture of how we work, I like to highlight the treatment of waste water from our small facilities. In the picture to the right on the screen, you can see the wastewater at Tjuin, our newest hatchery, after it has been treated and ready to be sent out in the fjord of Trondheim. A series of articles in the Norwegian media gave the impression that it was dirty and untreated water we were sending out. But this is not the case. At Huynh and other facilities, we have modern treatment plants that purify the water and remove the sludge before it goes back into the fjords. Because it is our responsibility to ensure that we run the industry as sustainably as possible. If we do so, the industry is an eternal source of income for Norway and the world, and perhaps one of the best opportunities to feed an ever increasing world population. But we must acknowledge that there are also challenges in our industry, especially related to fish welfare and biological KPIs. Their development has gone in the wrong direction in recent years. Therefore, at the beginning of March, Solmar launched the Salmon Living Lab, a groundbreaking new research and development center where we, together with a lot of different partners, will go into detail on all the different steps of the value chain to understand more about our most important input factor, namely the salmon itself. because we have several knowledge gaps. Our industry is young, and we need more knowledge to develop it further and take further steps. And the reception we received from the launch was very good. And we have received a number of stakeholders who have contacted us and want to know more or be a part of this groundbreaking project. Everything from large and small aquaculture companies, research and educational environments, suppliers to the industry, and several others. We see this as very positive. In addition, we see that the collaboration with Cargill works very well. Together, we can find solutions to the problems we face because we cannot do this alone, but together with others, we can make it happen. The process of recruiting key personnel for the project is proceeding according to plan, where we will inform you on an ongoing basis about news related to this and other important events through the project's website. We are building on many projects that we have already initiated, but this initiative will intensify and expand our efforts. We strongly believe that over time, this will help drive the industry forward so that we can really exploit the potential that lies in the salmon and the salmon industry. And now to the outlook. For 2024, the global supply growth is expected to be very limited. We continue to see strong demand for our products in markets around the world. And in this situation, we at Salmar have a significant untapped potential within existing licenses in all regions, which we will take out in the years to come. Our job is to ensure that people and fish thrive and that we can take advantage of the strong platform we have in Salmar. We have a good company and dedicated employees who work very hard every single day. As I've said before, we must work with both heart and mind to achieve this and we will continue to do so in the future. We have gone through the guidance for the second quarter and volume expectations for 2024. You can see it summarized on the right side of the chart. With this, we have come to the end of the presentation. Thank you very much for your attention. Our next presentation is in August, and I hope that everyone will have a nice spring and summer with a lot of good salmon on your menus. Thank you very much.