Salmar Asa

Good morning everyone and welcome to the presentation of Salmar's results for the third quarter of 2024. My name is Frode Arntsen and I am the CEO of the company and with me today I have the CFO Ulrik Stenvik. At Salmar it's about producing salmon on the salmon's terms. It involves systematic work day in and day out. The right location the right smolt, the right technology, the right feed and the right handling by people who care. This is the core and guiding principle at Salmeir and it has allowed us to take good care of the salmon throughout a challenging quarter and deliver a relatively decent financial result. However, We have been through a challenging period, particularly related to ripple effects of jellyfish, high sea temperatures and high lice levels. This naturally affects the operational choices we have to make and the biological performances we need. We need to continue and strengthen the work Salmeir has been doing since 1991, ensuring good interaction with the environment we operate in to optimize for fish, people and profit. We have a fantastic starting point in Norway with the Gulf Stream and our coastline. We live and breathe every day in the home of the North Atlantic salmon, and we have fantastic opportunities ahead of us. All these are things we will return to throughout this presentation. And the presentation will follow the same order as before. I will take you through some highlights and the operational results before CFO Ulrik will take you through the financial update. Finally, as mentioned, I will focus on how we are adapting and strengthening the value chain in Norway. This will lead us to the volume guidance for 2025 and the outlook. In total, we harvested 56,400 tons in Norway at the margin of 19.2 NOK per kilo. For the Norwegian operations, we delivered an operational EBIT of 1,082 million NOK. Including Icelandic salmon and Salma iraqi ocean, we harvested 60,300 tons in the quarter with an operational EBIT of 1,041 million NOK at a margin of 17.3 NOK per kilo. We have also taken steps to strengthen the value chain, including the purchase of a controlling stake in Knutshøg Fisk in central Norway. But as mentioned initially, the biological challenges have affected the volume for 2024, which we must reduce in Norway. However, we expect growth into 2025 and have clear growth ambitions for the coming years, which I will return to. In summary, the financial results is acceptable for the quarter, but biologically and operationally, the quarter has been challenging. To give you a bit more details, I would like to go through the operational update, starting with Farming Central Norway. where we harvested 38,200 tons with an operational EBIT of 483 million NOx, resulting in an EBIT per kilo of 12.7. The result is affected by biological challenges. When we were here on stage in August, we had just completed a record-breaking July in terms of growth. But as temperatures remained high for an extended period, we did not achieve the desired growth. At the same time, there was high lice pressure at the beginning of the period, and with the introduction of an ISA zone outside Frøya, we had to harvest some fish earlier than planned, resulting in lower average weight. During the period, we mainly harvested from spring 23 generation and started harvesting from the autumn 23. Looking ahead, we will continue harvesting from the autumn 23 in the fourth quarter. And as you may have noticed, we have had sporadic visits from jellyfish around Smøla in production area six. This will affect us somewhat in the fourth quarter. But so far, the attacks have not led to significant destruction of fish in the sea. However, we have harvested some individual pens at a lower average weight than desired to maintain the fish welfare. Despite the challenges, the biological status of the fish in the sea is for the moment satisfactory. The cost level in the fourth quarter is expected to be at the same level as in the third quarter. As a result of the challenges mentioned, We are lowering the volume guidance for 2024 to 135,000 tons. In Northern Norway, we harvested 18,300 tons in a quarter with an operational EBIT of 190 million NOx and EBIT per kilo of 10.4. Compared to previous quarters, price achievement is better due to fewer challenges related to downgrades throughout the quarter. However, like in the central region, the north is also affected by biological challenges. The beginning of the quarter was marked by the aftermath of jellyfish attacks earlier this year, and particularly in PO10, including Solbergfjorden, There were record high temperatures during the quarter. This has affected growth and in addition, it led to high lice pressure towards the end of the quarter. The lice pressure forced us to harvest fish with low average weight in September, which affected price achievement in the quarter. During the period, we completed the harvesting of the autumn 22 generation and started harvesting from the spring 23 generation. Looking ahead, we will continue harvesting from the spring 23 generation and will also harvest some individual groups from autumn 2023. Despite the challenges, the biological status of the fish in the north is good compared to earlier this year. And given that we do not experience significant jellyfish pressure so far this year, the status looks much better heading into the winter season. In the fourth quarter, we expect a slightly lower cost level than in the third quarter. We have locations that are performing very well. But at the beginning of Q4, we harvested some fish earlier than planned due to the mentioned sea lice challenges, which means that the cost reduction will not be as significant as we had anticipated. However, 2024 has been a very challenging year for the North with jellyfish, high temperatures, high life pressure and weak growth, which in some means that we are lowering the volume guidance for 2024 to 82,000 tons. The sales and industry segment delivers an operational EBIT of 464 million NOX. This is a historically good result where we have achieved good capacity utilization of our facilities. I have said it before and to repeat, the structure we have with high capacity on harvesting and local processing capacity near where we operate farming clearly shows a strength in our value chain. The facilities assist farming in handling challenges by managing large volumes in a short time, while secondary processing ensures we utilise the fish in the best possible way. Spot prices were expected to be lower in the third quarter and with a high contract share of 37%. This gave us a positive contribution on the contracts during the period. At the same time, the sales team managed to handle spot sales well, so the price we achieved for our fish in the market was good. In the fourth quarter, we expect higher volumes through our facilities, and the contract share will consequently decrease somewhat to around 28%. We still see a strong market for salmon. Forward prices also indicate this, and the dialogue we have with customers shows that they want even more fish for 2025. Let's move on to Salmar Aker Ocean, which harvested 2,100 tons during the period, with an operational EBIT of minus 7 million NOx, an EBIT per kilo of minus 3.2. The remaining harvest volume for 24 was harvested in the third quarter, with the volume coming from a site operated by the central Norway segment. This fish was harvested towards the end of the period, the period with the lowest spot price, which means that the result was not as good as expected. The segment now has two semi-offshore units in operation, Arctic Offshore Farming stocked fish in August, and Ocean Farm 1, as previously mentioned, stocked fish in May, June this year. Both units have had good development so far in their cycles, and it is expected to harvest from these units in the first half of 2025. We have experienced good biological performance on the fish that have been harvested from our semi-offshore units. Low mortality, high growth and few lice treatments. This gives us increased confidence in the further potential of offshore farming. At the same time, the work on possible international establishment is also progressing according to plan. Let's move to the Westfjords in Iceland, where we harvested 1,800 tons in a quarter with an operational EBIT of minus 35 million NOx and EBIT per kilo of minus 20. As expected, a weak result influenced by the low harvest volume and biological challenges we have had at sea, resulting in a high cost base for the fish we have harvested. Production at sea has been more stable in the quarter compared to previous quarters, and the smolt that has been released has performed well. Looking ahead, we expect a somewhat lower cost level in the fourth quarter, where we will harvest a higher volume, which will improve capacity utilization in the value chain. The expected volume for 24 remains unchanged at 13,000 tons. As many of you have probably seen, the sterile licenses for 10,000 tons MAB were withdrawn in the fourth quarter due to an appeal related to the decision from the Food and Veterinary Authority on Iceland. We have good dialogue with the authorities and are working to have the licenses approved. Our joint venture in Scotland, Scottish Sea Farms, continues its good development. In the quarter, we harvested 11,900 tonnes with an operational EBIT of 90 million NOx and EBIT per kilo of 7.6. The trend of good results on harvested fish continues in the third quarter. High harvest volume in the period with a very good average weight of the fish, over 5 kilos gutted weight, has yielded good results both in terms of cost level and price achievement. The company also reports continued good biological status in the sea, where the next generation of fish to be harvested are doing well in all regions. As a result of the good performance, the volume guidance for 24 is increased by 3,000 tons, up to 40,000 tons. With this, I have come to the end of the operational update, and I now want to give the word to Ulrik, who will take you through the financials.

Thank you, Frode, and good morning to all of you.

At the last quarterly presentation, we communicated that the biggest uncertainty we saw for the third quarter was the uncertainty regarding the sea life situation. This was especially due to the high sea temperature we had experienced so far at that time in the quarter. This financial update will show that both temperature and the CLI situation have affected the numbers. But at the same time, the solid and efficient setup in Solmar demonstrates an ability to reduce the financial consequences of challenging situations. However, the impact on biology is present, which results in both increased cost per kilo and a reduction of volume for the rest of 2024. The financial position is still robust and is a solid base to further develop the business in the coming period so that we can both increase volumes and strengthening the value chain. As communicated in a quarterly presentation earlier this year, we started with a new improvement and strategy program this year. I will return at the end of my presentation today with an update on the results from this process. Let's first take a closer look at the profit and loss statement. At the top right, we see that the operational EBIT is reduced by 337 million NOK compared to the second quarter, from 1,378 million NOK to 1,041 million NOK. Higher volume increases operational EBIT by 510 million NOK. As expected, the price level is seasonally lower in Q3, but it is worth noting that the drop in San Mar's price achievement is not as significant as the drop in the spot price during the period. This is due to the high contract share as well as less downgraded volume. However, lower average weight due to some earlier harvesting because of the CLI situation reduces the price achievement. Furthermore, we see from the graph that the reduction in operational EBIT is also affected by somewhat higher costs in the quarter amounting to 218 million NOK. The lower average weight also leads to increased cost per kilo. Additionally, costs are affected by increased feed costs due to the harvested generation having the full effect of higher feed prices in recent years, as well as somewhat higher costs related to zeolite treatment. Arsalan and Salma dark ocean contribute a positive change of a total of 51 million NOC. The change is mainly explained by higher volume. Unfortunately, activity on Iceland is also weak this quarter, but we see signs of some improvement in the fourth quarter. Moving to the profit and loss statement. To the right, I will comment on the main points for the third quarter 2024. EBITDA was 1,462 million NOK and operational EBIT was 1,041 million NOK. Production tax in Norway and resource tax on Iceland amount to 60 million NOK. An increase from the second quarter due to increased volume. From third quarter, we have chosen to change the presentation of the profit and loss statement in line with other industry players. This means that non-recurring items related to lawsuits, restructuring and decommissioning are presented on a separate line. This affects the result by minus 76 million NOK. In a period, it is mainly cost related to the decommissioning of the cleaner fish activity that caused this. Due to higher biomass, net fair value adjustments are positive and increase the result by 273 million NOC. The higher biomass is positively influenced by higher number of fish in sea. Result from associated companies was minus 20 million NOK. This is explained by negative fair value adjustment of the biomass as the underlying operations in the Scottish sea farms were good. The other material associated companies, Hellesund and Vilskoi Fiskebrad, also contribute negatively due to negative fair value adjustments of biomass. Net financial items were minus 319 million NOK, higher than the previous quarter due to increased interest costs as a result of a higher debt level. In total, this gives a profit before tax of 839 million NOK. Ordinary corporate tax and resource rent tax for the third quarter amount to a total cost of 579 million NOK. And for further details, you can see the notes to the report, which provide a more detailed breakdown. The profit after tax is therefore 260 million NOK for the third quarter of 2024. Now let's move on to the balance sheet, where financial key figures remain robust. Total capital has increased with 2.1 billion NOK from the previous quarter to 54.9 billion NOK. Fixed assets have increased with 567 million NOK and current assets increased with 1,527 million NOK. Fixed assets have increased due to investments in MAB through the traffic light system auction and planned investments in fixed assets across the value chain in the group. Investments are, as previously guided, at a lower level compared to previous periods and focused on selected investments related to fish welfare and processing capacity. Current assets have increased mainly due to our focus on building biomass. The biomass is higher than at the end of the previous quarter, but lower than at the same time last year due to not achieving the planned and desired growth affected by the previously mentioned CLI situation and the high temperatures. However, it is worth noting that the number of fish in the sea has increased significantly from the previous quarter and also increased from the same time last year. This gives us a good basis for further growth and thus increased volume in 2025. During the period, we acquired the rest of the outstanding shares in the reference locks. Accounting rules for such transactions resulted in equity now being 35%, a level that is still well above our financial covenants of 30%. Net interest-bearing debt, including leasing, has increased to 19.7 billion NOK, where the key figure for leverage need, including leasing on EBITDA, has increased to 2.5. Without leasing, the leverage is 2.3. At the end of Q3 2024, we have 6.2 billion NOK in available liquidity in the group. Overall, the balance sheet, the financial key figures and the available liquidity show that we still have a financial position that makes it possible to seize the growth and value creation opportunities that arise. Opportunities we have always been able to seize in Salmar. I will also comment further on this later in the presentation. I will briefly explain the change in net interest-bearing debt, including leasing, in a quarter. We started with a net interest-bearing debt, including leasing, of 18,646 million NOK. During the period, we had a cash flow from operations where EBITDA was 1.5 billion NOK. Payment of taxes amounted to 12 million NOK in a quarter, and the change in working capital was 247 million NOK, where working capital has increased as a result of building biomass and increasing inventory. Total investments amounted to 1,785 million NOK in a quarter. The majority of the investments of 1,785 million NOC in the quarter are 1,362 million NOC in investments related to growth and value creation. This consists of increased MIB, acquisition of non-controlling interests in reference locks, and changes related to solvency. Investments in fixed assets amounted to a total of 423 million NOC. As mentioned in previous presentations, our other investments are lower in 2024 after that other expansions on the small side have been completed. We have always had and will continue to have strict CAPEX discipline in Salmar. At the same time, we are able to focus on and facilitate investments related to increased efficiency in production or investments that contribute to growth. The 423 million NOC in CAPES in the quarter therefore consists of both maintenance investments across the group's value chain, as well as investments related to increased efficiency and investments aimed to improve fish welfare. When we take into account the amount spent on interest and leasing payments during the period, we end up with 19,720 million NOK in net interest-bearing debt including leasing at the end of the third quarter of 2024. This is an increase of 1,073 million NOK in the quarter. Salmar is a growth company and we are always looking for good opportunities for profitable growth in the areas we operate in. We recently entered into an agreement with the owners of Knutstorg Fisk, securing us controlling interest in the company. The settlement is 80% in shares and 20% in cash. Knusse Fisk currently has 3,464 tons of MAB in licenses and four farming sites in production area 6 in central Norway. The transaction provides opportunities for further growth close to existing farming areas in central Norway, ensuring synergies and further development of existing activities. As mentioned, we will gain a controlling ownership interest, which means that the result will be consolidated into other results from January 2025, provided that the necessary regulatory approvals are obtained. We are pleased to see that several good farmers find it attractive and value adding to switch to shares in Salmar. We have also recently entered into an agreement to sell of a 66% stake in Osan Satterfisk. Through the expansion we have made on the small side in recent years, we are self-sufficient with small and thus have significant overcapacity. Optimization of structure and capital is a continuous focus, and we concluded on the sale of our stake in Osan NAV in the fourth quarter. The sale will have a positive a nibbed effect of 660 million NOK. As a part of the transaction, Flatanger Satterfisk will be an associated company in Salmar. As mentioned earlier, we have also increased ownership in both reference locks, heat remote farming and oil locks. This provides a better basis for further optimizing operations and thus increasing value creation. Overall, this shows that we have a clear approach to how we structure our business with a purpose to create the best results. At the same time, we demonstrate the ability to carry out acquisitions that give us opportunities for profitable growth in the value chain. Integration and synergy realization have been important and prioritized work in Salmar throughout 2023. This work was completed early 2024 and it started the work to further optimize and develop the new Salmar at all levels throughout the value chain. Through this work, we aim to create shareholder value by being best in operations, achieving profitable growth and maintaining appropriate financial capacity. We have done such work earlier, both in the last strategy period and when realizing synergies after the NTS-NRS transaction, with results we believe are not coincidental. We are therefore confident that this process will further strengthen an already strong improvement culture and that it will contribute to achieve measurable results. Through this year's work, we have identified a potential of 1.2 billion NOC in yearly cost reductions in the value chain. As you can see from the graph on the right, 77% is related to the operational structure. One concrete example is the decommissioning of the cleaner fish activity. After using this for several years, we clearly saw that we did not achieve the desired effects in terms of both fish welfare or cost. Therefore, we decided to phase it out. Over time, we will phase in other forms of preventive sealized measures that will give us better results in terms of both fish welfare and reduced costs. Additionally, we challenge ourselves to find more efficient ways to solve tasks than we do today. This includes strengthening robotics and automation in the future to relieve manual tasks in the value chain. This work started in 2024 and we expect to realize this effect by 2029. In addition to the identified potential for cost reductions, further value creation will occur through scale effects from both organic and strategic growth, better price achievement through optimization of the distribution of the fish, changes in raw material use and impact on the raw material price, and biological effects from investments and measures throughout the value chain from genetics to feed and production in sea. Over time, both salmon prices and raw material prices will vary. Our focus is therefore on the things we can control. We aim to be the most cost-effective farmer providing the highest total return to shareholders through profitable growth, operational efficiency, a robust balance sheet and a strong corporate culture. And with these words, I have come to the end of my part and would like to hand the floor back to Frode.