Good morning, and welcome to another update from Andfjord Salmon. My name is Martin Rasmussen, and I am the CEO of Andfjord Salmon. Today's webcast presentation will be held in English only, and together with me here today is our CFO, Bjarne Martinsen. We will have a Q&A session after the presentation, and please note that you can submit questions through our webcast solution.
Today's agenda is first a brief introduction to Andfjord Salmon. We will then look at the highlights from the second quarter before we provide a status from our current build-out at Kvalnes. We will briefly touch upon the private placement completed in the quarter and go through the latest news regarding the regulatory framework for land-based salmon farming and Bjarne will then go through the financials before we will end up with a summary and a Q&A.
Our objective is to build the world's most fish-friendly and sustainable salmon farming facility of its kind, with the mission to serve a salmon with a clear conscience a nd the result demonstrated in the second production cycle confirmed that this is possible. Our concept is based on taking the best from ocean-based net pen farming, combined with the benefits of being on land, and this combination give us a fish-friendly environment and sustainable aquaculture production.
This is a cross-section of our flow-through solution a nd we source seawater at approximately 40 meters water depth below the area where salmon lice live. We then push the seawater into the pool, and we use our own technology to create a laminar water flow.
A laminar water flow is a parallel water current from one side of the pool to the other without creating turbulence in the water, and the oxygen-rich seawater is then distributed evenly throughout the pool. Organic waste sinks to the bottom of the pool, which is then cleaned by cleaning robots. Other metabolic products, such as CO2, will be returned to the ocean without harming the local environment.
The first production cycle, which was concluded in 2023, has demonstrated that a solution is technically robust and delivers supreme biological results. We are located at Andøya, because Andøya is the land area in Norway that is located closest to the Gulf Stream, and this allows us to source warmer water during the winter compared to the seawater available for traditional ocean-based fish farmers.
Warmer water provides improved growth and better biological condition, including lower risk of, for example, winter ulcer. We have, during the first production cycle, experienced the positive effect the Gulf Stream have on our temperature profile. The key figures from our first production cycle prove that our land-based aquaculture concept deliver superior results.
High growth, survival rate, and Superior share, coupled with low energy consumption and feed conversion rate, provides the building block for attractive financial results. So over to the highlights from the second quarter. Our build-out is progressing as planned, and this applies to all work streams. As announced in the beginning of July, the process on the waterways was very good in June, and this has continued in August.
We initiated production of pool components prior to the summer, and we successfully completed a NOK 350 million private placement, with support from strong industrial investors, and now over to the build-out at Kvalnes.
We are working on three locations at Andøya, and the first step to 8,000 tons HOG consists of four new pools, bringing the total to five pools, and these new pools include a shared infrastructure, will be ready for production in the middle of 2025.
After this step, the area infrastructure will be ready, and we'll then be able to build four new pools each year and reach capacity of 19,000 tons HOG, and secure full utilization of our salmon farming license during 2027.
Production at Kvalnes will then increase gradually, and we aim to reach the full potential of 40,000 tons in 2030. This drawing illustrates the current build-out phase at Kvalnes and also show the next expansions at expansion phases. We have excavated the pool pits for 12 new pools that you can see in the center of the picture.
We are on track with a plan to have the next 4 pools ready for operation in 2025. In parallel, we are developing inlet and outlet waterways and the harbor area, which will facilitate a future production capacity of 40,000 tons. As previously mentioned, preparation for pool construction was conducted during the second quarter.
The pool walls and foundations will be built in concrete, which is the cost efficient and the material that give us the best quality product. We are producing all concrete elements through an on-site concrete factory at Kvalnes, and this reduce the need for transport of large modules with associated cost savings.
The status today is that the foundation work for pools K 1 and K 3, meaning the two pools furthest to the south or closest to our pilot pool, is at the final stage. Production of pool walls is in progress, and we expect to significantly increase the production rate from September onward. In short, the pool production work stream is on track.
Cost efficiency has been at the forefront when we have planned the build-out. As mentioned on the previous slide, we produce all concrete elements on site. A large crane ensures efficient installation of concrete modules. First, we produce elements for the wall, and after that, we will install the walls and then cast the floors.
A very important detail on the concrete walls is the use of ultra-high performance concrete as a top layer on the surface. The strengths to the material is similar to steel and give us a strong surface that is easy to clean. T his is examples of improvements and developments we have achieved together with our entrepreneurs.
Sustainability is also the core of the build-out. As mentioned many times before, we use excavated masses from pool pits and tunnels to create the harbor area. We also use excavated masses from the pool pits as ingredients in the concrete. Both these measures significantly reduce the cost and environmental footprint on the build-out.
As an example, by using excavated masses as ingredient in the concrete, we save over 23,000 tons of masses transported to Kvalnes. This equals 780 truckloads. The waterway work stream is also on schedule, and please remember that this is infrastructure for the entire Kvalnes area, with a capacity of 40,000 tons HOG salmon per year.
The progress has been really good in June and August, with a summer break between, and the quality of the bedrock is in line with our expectation, which is important, as this reduces project risk. We are in the construction of approximately 4,400 m of tunnel with the dimensions of 70 m² , and the current length is about 3,200 m.
I am really proud of the work we have done so far, and the completion rate that you see on this slide confirms that all work streams are moving on or ahead of schedule. The pool pits was completed in January, one quarter ahead of schedule. The concrete pools have reached 80% completion.
The waterways has 73% completion, the technical infrastructure has 5% completion, and the harbor is 48% completed. Summarized, the progress is going very well. Now, over to the private placement completed 22nd of May. The result from the first production cycle, the alternative revenue stream with the postsmolt and the Kvalnes build-out on time and budget, has generated a lot of investor interest in Andfjord Salmon.
We decided to capitalize on this interest in the second quarter, when we raised NOK 350 million in a private placement. Our largest shareholder, Jerónimo Martins, contributed pro rata.
We also gained a new, very interesting industrial shareholder in High Liner Foods, which is a North American processor and supplier of seafood, who we will explore other opportunities with. Eidsfjord Sjøfarm or Holmøy Havbruk also continues to support us. This equity raise provide us with added financial flexibility for our Kvalnes build-out, as you can see on the graph to the left.
N ow over to the latest news regarding a new regulatory framework from the authorities. After the authorities have had a halt in processing land-based aquaculture permits for human-grade salmon for almost two years, we are now seeing progress in the process of establishing a revised framework for land-based aquaculture facilities. It is important to emphasize that this is a proposal that will be sent out for public hearing, with a deadline of November 2024.
However, we note the following two points that are important for Andfjord Salmon. First, the proposal letter state that the proposal will not affect facilities that have already been granted permission for land-based aquaculture. Andfjord Salmon already has a license at Kvalnes, and development under this license will be our main focus until 2027 .
The new proposed regulatory change confirmed that Andfjord Salmon has accepted. Our aquaculture facility is undoubtedly on land. Regarding the proposed disinfection requirements, Andfjord Salmon has always taken flexibility into account in our design to adapt and change in the future functional requirements.
Geographical distance to other aquaculture facilities has a significant impact on which technology overall provides the most sustainable results. We believe it is important to view this in light of the actual result we can demonstrate in terms of fish health and welfare with the flow-through technology, with minimal energy consumption and environmental footprint.
In the coming weeks, we will take a closer look at the proposal from the authorities, and we will then take the opportunity to submit a response to the authorities as a part of the public hearing process. Then I will give the word to our CFO, Bjarne Martinsen.
Thank you, Martin. I will, as usual, give a brief summary of financial results in the second quarter and the financial status at the end of June. We have also today published a half-year report that includes more detailed information. The figures we report, both here today and in the half-year report, are based on consolidated financial statements for the group. The financial reporting, of course, reflects the phase Andfjord Salmon currently is in.
The construction project is our main focus at the moment, and the investment in four new pools and infrastructure at the Kvalnes site and the financing of this are the topics that affect the financial reporting the most in second quarter. The income statement is quite similar in the second quarter to the previous quarter, with operating expenses of NOK 19 million in total, including depreciation of NOK 6 million .
During the construction phase, the income statement will mainly consist of stable operating expenses. Financial costs related to financing of the construction project is capitalized as part of the investment in the facility and not visible in the income statement, and financial income consists of interest income from bank deposits.
The balance sheet reflects the high investment activity throughout the first half of the year. Property, plant, and equipment has increased by NOK 567 million since the end of last year, and we will continue to see high activity in the coming months. The first drawdown of the construction loan was carried out in June, and all investments in step one of the build-out will now be covered by the construction loan until the loan is fully utilized, with NOK 825 million.
It is also worth mentioning that other current assets includes VAT receivables of NOK 70 million that was paid in after the end of the second quarter. Total equity is increased in second quarter due to the share issue of NOK 350 million that was carried out in May. The balance sheet also reflects increased borrowings as a result of the first drawdown of the construction loan, and this will continue to increase in line with the investment in the coming periods, until the investment in step one of the build-out is complete.
The investments and the financing of this are, of course, also the most important topics when we look at the cash flow statement. Net cash flow from investment activities reflects what the balance sheet shows, with the only difference related to timing of payments to the contractors.
Financing activities in the second quarter includes both the capital increase from May and the first drawdown of the construction loan. As the investments in the coming periods will be covered by the construction loan, we will see a connection between cash flow from investing activities and cash flow from financing activities going forward.
We are currently in the process with the first step of the build-out plan at Kvalnes. This first step includes four new pools ready for operation in mid-2025 and infrastructure such as waterways and harbor that will supply the entire Kvalnes site with a production capacity of 40,000 tons HOG yearly. In addition, step one also includes rock pits for 12 pools in total, up to a yearly production capacity of 23,000 tons HOG.
The five steps in the build-out plan for Kvalnes are shown in the table on the left in this slide. The investments are front-loaded as the infrastructure for all steps are included in step one. A s the table shows, CapEx for steps two to five are relatively lower.
When the first four pools and the infrastructure for the site in step one are complete in mid 2025, we will continue to build four new pools each year, and step two will be complete by mid 2027, with a yearly production capacity of 19,000 tons HOG. The project is on budget and on time, and we plan for release of smolt in mid 2025. By the end of second quarter, total investment in step one amounted to NOK 968 million , of a total budget for this stage of NOK 1.65 billion , including risk buffers. So with that, I will give the word back to Martin.
Thank you, Bjarne. Now over to a quick summary of today's presentation. Build-out progressing as planned. It is on time and budget. The waterways work stream, which is one of the most challenging work stream, has now shown very strong progress in the recent month a nd we are now preparing to ramp up concrete element production for the pool.
So to summarize, Andfjord Salmon is in a very good position. Before we go to the Q&A, we will show a video from Kvalnes. P lease note that you can submit questions through our webcast solution. But first, here's a video from Andøya.
[Foreign language]
Welcome back, and I hope you did enjoy the movie from Andøya. We will now go over to the Q&A, and you can submit question through our webcast solution. So Bjarne, do we have any questions today?
We have received some questions already, yes. First question: Do you have a rough estimate on what it will cost to disinfect seawater at water inlets?
Yeah. As we mentioned in the presentation, this does not apply to existing license, but is a proposal from the authorities that will now go for public hearing a nd we have also incorporated the flexibility in the design to be able to install disinfection at the water inlet and outlet if it becomes necessary.
However, we do not find it appropriate to install this, and we're working on the assumption we always have made, which is a concept based on 100% flow through, with no accumulation of pathogens. It's 20 kilometers geographical distance to other facilities, combined with a water intake at 40 m, and this is a very good prevention against infection and the spread of pathogens from our facility.
If disinfection becomes a requirement, then, we will typically address the potential costs related to the treatment of the inlet water, when we present future build-out phase, under new salmon license at Kvalnes or other location, if any case, and we consider this to be relatively low proportion of the total investment.
Okay, okay, "What's the situation regarding archaeological excavation by University of Tromsø? Possible delays, unforeseen and economic consequences.
Yeah, I'll try to answer this question without using 10 minutes, but of course, when we are working with a large project, it's a lot of formalities that we are solve this on the ways, a nd during the zoning plan for a more optimal route for the water inlet, we had a zoning plan was approved in June, and we get an advice from Tromsø Museum regarding some uncertainties in the cultural memory in the surface.
But it's, t his is typical issues that we are solving always, all the time, and we are very confident that it will not impact the timeline for the tunnels. So we are in good process on all of these matters.
Yeah. It's another question here regarding the same issue, in origin, but in addition, it also asks, "What are the biggest risks, related to the time schedule of the construction?"
Yeah, I think we have to emphasize the meaning by now reaching above 70% of the tunnels, because the largest risk in the construction is actually unforeseen quality on the bedrock in the tunnel b ecause you cannot always predict what will be below surface.
But since we have come so far, and the quality of the bedrock is in line with expectation, we have significantly reduced the timeline, and we are also now, as we said in the presentation, on or ahead of schedule on the work streams.
Yes, we have another question regarding the regulations. I think we answered that, and that's actually the last question, so I have no more questions here now.
Okay.
Yes, we are approaching the finish line.
If you want to ask questions to us directly, please take contact with Bjarne or me, and we'll do our best to supply you with the information that you need, b ut in the meantime, we will thank everybody for your attention today, and we are extremely satisfied where we are today. Thank you for listening.