Salmar Asa

Good morning, everyone, and welcome to the presentation of... Good morning, everyone, and welcome to the presentation of Salmar's results for the second quarter of 2024. My name is Frode Arntzen, and I am the CEO of Salmar. And with me today, we have our CFO, Ulrik Stenvik. Before we dive into the results for the second quarter, I would like to highlight the recognition that Salmar received this June. Salmeir was ranked as one of the world's 500 most sustainable companies in 2024 by Time Magazine, Statista and GRI. We know that we produce one of the most sustainable proteins you can put on your plate, and as long as we manage this responsibility, we are an industry with eternal potential. As you and I both know, we have fantastic potential ahead. Less than 5% of the energy we consume comes from the ocean. And according to the UN and others, further sustainable growth in aquaculture is one of the keys to feeding the world's population with even more sustainable proteins. So the future for us as a company and for the entire aquaculture industry are very positive. This motivates me and gives me drive to do the work ahead, ensuring that in the years to come, we continue to be ranked as one of the world's most sustainable companies. Now let's move on to the review. The presentation will follow the same order as before. I will walk you through some highlights and the operational results for the various segments. Then CFO Ulrik will take you through the financial update. Finally, I will focus on how we are strengthening the value chain in Norway and Iceland and provide you with an update on the Salmon Living Lab. I will wrap up with an overview of the outlook. Total for Norway, we harvested 44,100 tons to a margin of 33.2 NOK per kilo and operational EBIT of 1,466 million. Including Icelandic salmon and Salmair Aker Ocean, we harvested 44,800 tons with an operational EBIT of 1,393 million to a margin of 31.1 NOK per kilo. The results for Norway in the second quarter continue to be impacted by low price realisation due to challenges that began at the end of 2023 with jellyfish and continued through the winter and spring with issues related to winter source. There has been an improvement in biological conditions throughout the quarter with good operational management at our harvest and processing facilities. and a reduction in cost levels. Salmairaker Ocean had no harvesting, but we have transferred new fish in Ocean Farm 1 during the period, marking the fourth production cycle for this unit. In Iceland, they received good news in June when they were granted 10,000 tonnes in new licences, but the result for Q2 is unfortunately weak due to low volume and biological challenges. It is good to see the results from Scottish seafarms, which have significantly improved from last year. At the same time, we participated in the traffic light round, distributed dividends for last year and made moves on the financing side that provides us with even more flexible and sustainable financing. The guidance for 2024 remains unchanged for Norway, Salmirocker Ocean and Scotland. Iceland will decrease to 13,000 tonnes. In summary, we are only moderately satisfied with the results for the quarter. To give you a bit more details, I would like to go through the operational review, starting with Farming Central Norway. In Central Norway, We harvested 27,100 tonnes in a quarter, with an operational EBIT of 1,110 million NOx, resulting in an EBIT per kilo of 41 NOx per kilo. This is a satisfactory result, despite the challenges we have faced, which have led to somewhat lower price realisation, particularly at the beginning of the quarter. During this period, we completed the harvesting from the autumn 22 generation and continued harvesting from the 2023 generation. It is encouraging to see that the cost level has further decreased, both compared to the previous quarter and the same period last year. Looking ahead, we will continue harvesting from our spring 23 generation in the third quarter, and will begin harvesting from the autumn 2023 generation. While there are still some challenges at sea overall, the biological status of the fish we have in central Norway is now satisfactory, although we have experienced high lice pressure recently due to high sea temperatures. Going into the third quarter, we expect a similar cost level as in the second quarter, and we anticipate a lower volume compared to the same quarter last year. The volume guidance for 24 remains unchanged at 146,000 tons. In northern Norway, we harvested 17,000 tons in a quarter with an operational EBIT of 508 million NOx and an EBIT per kilo of 29.9. Northern Norway delivered a weak result due to the challenges we faced with string jellyfish and winter soar issues. With the high spot prices experienced at the beginning of the second quarter, the effects of downgraded fish were significant, exceeding the traditional five to six knock impact. During this period, we completed the harvesting of our spring 22 generation, and continued harvesting from the autumn 22 generation. Looking ahead, we will continue harvesting from the autumn 22 and start also harvesting from the spring 23 generation. It is encouraging to see the biological improvements throughout the quarter, including lower mortality, increased average weight, and an improvement in the proportion of superior quality fish. We expect a higher cost level in third quarter compared to the second quarter. This is due to a projected lower volume as we prioritise building biomass while also harvesting from sites affected by ISA. The volume guidance for 2024 remains unchanged at 91,000 tonnes. The sales and industry segment reported an operational EBIT of minus 90 million NOX. It is typical for the first half of the year. We experienced lower capacity utilization across our facilities in the value chain, particularly in the harvesting facilities. We clearly see the strengths of our flexible structure at Salmeir, with a focus on high local processing capacity near the farming areas. This truly shines in a quarter like this. The challenge is at the beginning of the quarter, similar to Q1, where the peak capacity in WAP was not large enough. Unfortunately, this means we couldn't optimally utilise all the fish arriving at our facilities. This is something we will strengthen, and as mentioned in the last quarterly presentation, we are increasing WAP capacity through both investments and hiring more staff to process even more volume locally in Norway. The contract share was, as expected, 46% in the second quarter. Given the high spot price, the contracts overall had a negative impact. However, the same contract portfolio has contributed positively in the third quarter so far. Despite a product mix with large weekly variations, spot sales have been handled well. resulting in good price achievement. In the third quarter, we expect higher volumes through our facilities. As a result, we anticipate that the contract share will be around 35% in the third quarter. For the full year 2024, the contract share is also around 35%. Over the summer, we signed some new contracts, and the price levels clearly show us that our customers need even more salmon for consumers worldwide. Moving to the West Fjords in Iceland. In Iceland, only 700 tons were harvested in the quarter, with an operational EBIT of minus 43 million oaks and an EBIT per kilo of minus 61.6. Sadly, this is a weak result. influenced by the low harvest volume and the biological challenges we have faced at sea, which have led to high cost base for the fish we have harvested. During the period, we encountered an issue at the seaside Steina nest due to HSMI, and there was a varietal at the site Laugardalur, which was affected by lice issues last fall. The result in one time cost of 3.9 million euro or approximately 63 NOK per kilo in the quarter. These costs significantly impacted the results during a period of low volume. Looking ahead, we expect the high cost levels to continue due to harvesting from the same site with a high cost base. We anticipate slightly lower volumes in the third quarter compared to what we harvested at the same time last year. The expected volume for 2024 will decrease from 15,000 tons to 13,000 tons due to MIB optimization. As some of you may have noticed, we were awarded new licenses in Iceland for 10,000 tons of MTB. I will provide more details about this later in the presentation. Moving to Salmar Aker Ocean, which did not have any harvest volume during the period and delivered an operational EBIT of minus 30 million NOx. The result is negative due to preparations and upgrades being carried out for new releases in our units. As mentioned previously, we experienced very good biological performance with the fish harvested from both units in the first quarter. This increases our confidence in the future potential of offshore farming. In 2024, we will release fish into both units to start new production cycles. Work on potential international expansion is also progressing according to plan. In Ocean Farm 1, new smolt was introduced in May and June, and in third quarter, fish will also be introduced into Arctic offshore farming. The fish is planned to be harvested in 2025. For 2024, we maintain our volume guidance unchanged at 7,000 tonnes, with the remaining volume to be harvested in the third quarter. Now let's move to our associate company in Scotland, Scottish Seafarms, which continues its positive performance from the first quarter. In the quarter, 12,200 tonnes were harvested with an operational EBIT of 234 million NOx and EBIT per kilo of 19.1. As mentioned in the previous quarter's presentation, we have seen a significant improvement in the biological situation in Scotland across all regions in 2024, compared to 2023. This has led to better results for harvested fish during the period, with improvements in cost levels, price achievement and average weight. Looking ahead, the outlook for the fish we plan to harvest remains positive across all regions, with good biological status. Thus, our volume guidance for 2024 remains unchanged at 37,000 tonnes. With this, I have reached the end of the operational review, and would like to hand over to Ulrik, who will take you through the financial aspects.

Thank you, Frode, and good morning to all of you. During the last quarterly presentation, we communicated our expectation of somewhat lower volumes in this quarter and that the biological consequences of throwing early fish and low temperatures throughout the winter will continue into the second quarter and negatively impact the price achievement, thereby affecting the group's revenues in the second quarter. In today's review of the group's financial results and position, we will see that this has happened. These biological challenges have also led to a higher relative cost level than we in some more expect of ourselves. However, It is worth mentioning that it is reassuring to see that the underlying cost level is lower and remains subject to further reduction. What we do today, we do better than yesterday. The entire group is working to find solutions and implement relevant measures to reduce the risk and consequences of similar situations in the future, in combination with a continuous focus on cost control and value creation. My review today will follow the usual procedure, focusing on the group's result, balance sheet, and debt development during the quarter we've just gone through. Toward the end, we will also provide an update on our sustainable and secured financing frameworks that we have in place in Zalmar. Let's first take a closer look at the profit and loss statement. Operational EBIT decreased by 119 million NOK compared to the first quarter, from 1,512 million NOK to 1,393 million NOK. Lower volumes reduced operational EBIT by 75 million NOK. Despite that the NASDAQ price remaining relatively stable during the quarter, the achieved prices reduced operational EBIT by 106 million NOK. The main reason for this reduction is a higher contract share. In addition, quality downgrades of harvested volumes due to source caused by swing jellyfish and low temperatures had persisted from the first quarter. Furthermore, as shown in the graph, the reduction in operational EBIT was partially offset by reduced cost in a quarter. The decrease of 101 million NOC due to lower cost per kilo released from stock. Iceland and Salmar Aker Ocean contributed to a negative change of 39 million NOK in total. This change is mainly explained by lower harvest volumes. Unfortunately, the activity in Iceland was also affected this quarter by one of the incidents. At nearly the same level as in the first quarter, approximately 40 million NOK. Moving on to the profit and loss statement on the right, I will comment on the main points for the second quarter of 2024. EBITDA amounted to 1,803 million NOC and operational EBIT, as previously mentioned, was 1,393 million NOC. As you can see, we paid 44 million NOK in production fees in Norway and resource tax in Iceland. This is a reduction from Q1 2024, influenced by lower volumes. Due to higher biomass, net fair value adjustments are positive, with the value adjustment increasing the result by 307 million NOK. Income from associated companies amounted to 37 million NOK, where Scottish sea farms experienced a significant improvement from last year. Other significant associated companies, Hellesen Fiskeoperat and Vilsgård Fiskeoperat, contributed negatively due to negative fair value adjustments of biomass and low harvest volumes. Net financial costs amounted to NOK 213 million, slightly lower than the previous quarter due to other financial income during the quarter. Net interest costs remain at the same level as in the first quarter. Overall, this results in a profit before tax of NOK 1,480 million. Ordinary corporate tax and accrued resource and tax for the second quarter of 2024 amount to a total tax expense of 580 million NOK. For further details, you can refer to the notes in the report, which provide a more detailed breakdown. As a result, the profit after tax is 900 million NOK for the second quarter of 2024. Now, let's move on to the balance sheet, where the financial key figures remain robust and solid. Total assets have increased by 850 million NOK from the previous quarter to 52.9 billion NOK. Fixed assets have been influenced by investments in increased MAB through the fixed price in the traffic light system, as well as planned investments in fixed assets across the entire value chain. Investments, as previously guided, are at a lower level compared to previous periods, with a focus on investments related to fish welfare and processing capacity. Current assets have increased mainly due to higher biomass compared to the end of the previous quarter, with a significant increase in numbers after the small release began in full force in the second quarter. As we have mentioned earlier, we are significantly increasing small releases in 2024. This is both to realize the potential we see in our value chain and to compensate for events that occurred during the last winter. During the period, we paid out a dividend of 35 NOK per share, equivalent to approximately 4.6 billion NOK. This impacts the equity ratio and naturally increases our interest-bearing debt in a period. The equity ratio is now at 38%, which is well above our financial covenants of 30%. Net interest-bearing debt, including leasing, has increased to 18.6 billion NOK with a debt ratio Nibbed including leasing to EBITDA rising to 2.1. Excluding leasing, the debt ratio is at 1.9. This is in line with our long-term goal of maintaining a debt ratio below 2.0. This means that at the end of Q2 2024, we have 7.4 billion NOK in available liquidity within the group, of which 6.8 billion NOK is tied to our financing in Salmar, Norway. Overall, the balance sheet, the financial key figures, and available capital demonstrate that we still maintain a robust financial position, enabling us to seize growth and value creation opportunities as they arise. I will briefly explain the change in net interest-bearing debt, including leasing, during the quarter. We started with a need including leasing of 14,445 million NOK. During the period, we generated a cash flow from operations with an EBITDA of 1.8 billion NOK. Tax payments amounted to 14 million NOK in a quarter, and the change in working capital was 379 million NOK, driven by an increase in working capital as we build up biomass. Total investments amounted to 624 million NOK in a quarter. During the period, we purchased and paid for our fixed price allocation in the traffic light round, totaling 117 million NOK. We also purchased 2,274 tons for a total consideration of 633 million NOK at the auction held at the end of June, which was delivered and paid in early July. As mentioned in the previous presentation, our other investments are lower in 2024, following the completion of our major expansion projects on the small side. You can see that investments in both maintenance and fish welfare related investments within farming represent the largest contribution now in the second quarter. As noted, a dividend of 4.6 billion NOK was paid out. When considering the amounts used for interest and leasing installments during the period, we end up with a NIBD including leasing of 18,646 million NOK at the end of the second quarter of 2024. This represents an increase of 4,202 million NOK during the quarter. For Salmar, it is crucial to maintain financial flexibility. The financing must facilitate continued growth and support an optimal capital structure. At the same time, the financing should align with our goal of making both ourselves and the industry more sustainable, as Frode mentioned earlier. When we secured the revolving credit facility and the term loan last year, our intention was to make them sustainability linked. In the second quarter, the KPIs for this financing were established. We have chosen to include four highly relevant KPIs that cover important areas of our strategy and how we operate daily. We will ensure a high survival rate for our fish. We will maintain a low feed conversion ratio when feeding the fish. We will utilize local processing here in Norway, and we will reduce our total greenhouse gas emissions across the value chain. All these four are central KPIs that steer us in an even more sustainable direction, which will also influence our interest margin. Additionally, today we can announce that we have established an updated and renewed green framework for our bonds. The framework has received a medium green rating from S&P, indicating that it supports activities that represent significant steps toward a low carbon climate resilient future. Both the framework and S&P's assessment are available on our website. In the second quarter, for the first time and as the first aquaculture company, we also issued a commercial paper as part of our financing. This is intended as a good supplement to our other frameworks and has a short maturity that can be well suited to the seasonal variations we see in the company's cash flow. Overall, this provides us with a sustainable and flexible financing structure that is tailored to our company, our plans, and our capital structure. And with that, I've reached the end of my part, and I would like to hand the floor back to Frode.

Thank you for the overview, Ulrik.

At Salmeir, growth is the core of our strategy. We are not pursuing growth for its own sake, but because the world needs more sustainable food, and we see a significant unrealised potential in our value chain and in the Salmeir market. This is why we participated in a traffic light auction held in the second quarter. We purchased both at fixed price and in the auction held at the end of June. In total, we acquired 3,027 tons of increased MAB in the green zones in Northern Norway production areas 10 to 13, representing a growth of approximately 2% in our total MAB capacity. Additionally, after the end of the quarter, we increased our ownership stake in two subsidiaries. We initially became a co-owner of Raffsnes Locks, which operates in production area 6 in central Norway in 2021. This summer, we acquired the remaining shares in the company. After several years of successful collaboration with the other owners, we see significant potential in the company, and we will integrate it more closely with our operations in central Norway. At the same time, in August, we completed a smaller transaction, increasing our ownership stake in Ailox, which operates in production area 5 in mid-Norway, to 51%. The actions we have taken this quarter demonstrate our confidence in the industry. strengthen our position in some of the best regions in the world for farming, and provide us even with better foundation for efficient operations, allowing us to offer more salmon to our customers worldwide. In June, we were granted 10,000 tons in new sterile licenses in Iceland and three new farming sites. This is in a new fjord system for us, Isafjordur, a little bit north of where we operate today. It is clearly positive for us to gain access to new farming areas, and we will gain more knowledge about sterile technology in the development of these licenses. In the short term, we focus on fully utilising the fertile licences we have, bringing the harvest volume up to 26,000 tonnes in a few years. In the longer term, we have gained a stronger foundation for our Icelandic operations, bringing us strategic and operational opportunities, both in short and long term. As always, new development in Salmar is done on the terms of the Salman. This is also the case here. In March, we launched Salman Living Lab, a groundbreaking new research and development center where, together with partners, we will delve into all the various stages of the value chain to gain a deeper understanding of our most crucial impact factor, namely the salmon. The response we received at the launch was very positive. We have had more than 100 stakeholders from 11 different countries around the world contacting us, expressing interest in learning more about our participating in this groundbreaking project. This includes both large and small aquaculture companies, research and educational institutions, suppliers to the industry and many others. We view this as highly encouraging. Additionally, our collaboration with Cargill is working very well. Together, we can find solutions to the challenges we face because we cannot do this alone. But by working with others, we can achieve our goals. And today, we can announce that Kristine Hartmann has been recruited as the head of Salmon Living Lab. Kristine joins us from her previous role as Development Director at Salmar Aker Ocean, bringing with her strong experience from previous roles, including work on other research projects. There are three tasks she will focus on from the beginning. reach out to all relevant stakeholders who have shown interest in Salomon Living Lab, gather their input on knowledge gaps that need to be addressed, understand their expectations for the center, identify the projects they wish to include, and importantly, determine what they can contribute. Next, she will prioritize the projects, and last but not least, initiate the construction process of the center, the heart of Salomon Living Lab. We look forward to this and are excited to present the result of the project in the years ahead. Then, let's move towards the end and the outlook. For 2024, global supply growth is expected to be very limited. As usual, higher volumes are anticipated in the second half of the year compared to the first half. We continue to see strong demand for our products in markets around the world. In this situation, Salmar has significant untapped potential within our existing licenses in all regions, which we plan to leverage in the coming years. Our job is to ensure that both our people and fish thrive, and that we make the most of the strong platform we have at Salmar. We have a great company and dedicated employees who work hard every day. As I have said before, we must work with both heart and mind to achieve this, and we will continue to do so going forward. The guidance for the third quarter and volume expectations for 2024 have been covered, and you can see them summarized on the right side of the slide. In June, many of you may have seen the FAO, Food and Agriculture Organization, report highlighting that for the first time, more food is now produced through aquaculture than through wild capture. The FAO also indicates that global demand for seafood continues to rise. Additionally, last Thursday, the Norwegian Directorate of Health updated its dietary guidelines, again emphasising that fish and seafood should be eaten at least two to three times a week. This is positive reports like this, and they highlight the importance of salmon in feeding the world's growing population in the years ahead. This is an inspiration for us, and it is our responsibility to continue delivering the most sustainable protein to tables around the world. With this, we have come to the end of the presentation. Thank you very much for your attention. Our next presentation will be in November. I hope everybody enjoys the late summer and fall, and that you have plenty of delicious salmon on the menu. Thank you very much.