Good morning and welcome to this Q1 and business update from Andfjord Salmon. My name is Martin Rasmussen, and I am the CEO of Andfjord Salmon. Together with me here today is our CFO, Bjarne Martinsen, and our Project Director, Jostein Nilsen. We will have a Q&A session after the presentation. Please note that you can submit your question through the webcast solution. Here is today's agenda. For the benefit of a new listener, we will start with the introduction of Andfjord Salmon. We will then briefly look at the most recent highlights. Jostein and I will give a status of the Kvalnes build-out and the coming smolt release. Bjarne will go to the financial. We will end the presentation with a summary, outlook, and Q&A.
Our objective is to build the world's most fish and environmentally friendly facility for Atlantic salmon, with a mission to serve salmon with a clear conscience. The results demonstrated in the first production cycle confirm that this is possible. Our concept is based on taking the best of ocean-based net pen farming and combining this with the benefits of being on land. This combination gives a fish-friendly environment and sustainable aquaculture production. We have 4.4 kilometers of tunnel underground at Kvalnes, and with a water intake at 50 meters, which is well below the sea level where the salmon lice, alga, and jellyfish live. The tunnels are dimensioned like roadway tunnels to ensure sufficient water capacity for nearly 50,000 tons of annual production. In the pool, we recreate the salmon's natural habitat with enough space so they can exhibit natural behavior.
With this closed system but full seawater flow-through, we protect the fish from external factors such as salmon lice, and we also protect the environment from having such a large biomass concentrated in one place. The organic waste is collected at the bottom of the pool, and the water can then return to the sea, allowing us to coexist with the ecosystems on Andøya. Why are we located at Andøya? Because Andøya is the land area in Norway that is closest to the Gulf Stream. 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 conditions, including lower risk of winter ulcer. We have, during the first production cycle, experienced the positive effect the Gulf Stream had on our temperature profile.
The key figures from our first production cycle prove that our land-based aquaculture concept delivers superior results. High growth, survival rates, and superior share, coupled with low energy consumption and feed conversion rate, provide the building blocks for attractive financial results. Over to the highlights from the first quarter. During Q1, we announced an optimized build-out plan that increased production capacity at Kvalnes site by approximately 20%. We will cover the details later in the presentation. We kickstarted phase 2A construction at Kvalnes, thereby reaping construction synergies from phase 1 of the build-out. Financially, we secured a NOK 1.4 billion package consisting of bank loan, sale and lease back, and private placement. The phase 1 build-out, which consists of four pools, water, and harbor, is on track for smolt release in Q3 this year.
Last week, we successfully completed the outlet waterway to the final breakthrough to Andfjord. Now, let's provide status updates from Kvalnes, and over to you, Jostein.
Thank you for that, Martin. As the illustration shows, in front, phase I being the first four pools, in addition to the tunneling system, the harbor, and the technical infrastructure. In the background, you can see the next build-out stage, phase 2A, with four pools, and 2B with four pools. In addition, technical infrastructure for phase 2A on the sea side and the salt side of the pools are more than 80% complete. I will come back to that. Last week was an important milestone for the project. We completed the outlet waterway, thereby establishing a direct connection between the outlet tunnel and Andfjord. Or more simple, we blasted the last section of tunnel into Andfjord and filled that one-kilometer part of the tunneling system with seawater. The tunnel outlet is located 70 meters below the sea level.
The breakthrough was safely achieved through a controlled blasting of the remaining 6 meters bedrock separating the outlet tunnel from the fjord. As you can see from the slide, the water from the breakthrough evacuates and stops outside the temporary access tunnel. This breakthrough represents a significant milestone in our efforts to advance the Kvalnes facility towards operational readiness. The inlet waterway, which will deliver seawater to all pools at the facility, is also completed. The final breakthrough to Andfjord is scheduled for June-July. Now, let's have a look at the film from the successful breakthrough into sea.
God kveld, alle.
I dag har vi sett gjennomslag på utløpssonder, hvor vi har sprengt oss ut i sjø. Og vi har nå vannfylt den første kilometeren av tunnelsystemet inn mot bassengområdet.
Der har vi et vanninntak på 70 meters dybde.
Helt klart en kjempestor milepæl for Andfjord dette. Det at vi har demonstrert at måten vi har planlagt hele tiden å gjøre dette på, faktisk fungerer.
Alt har gått etter planen, og vi har tatt første steget inn mot driften vår her på Kvalnes.
The film gives a good indication of the dimension and size of the Kvalnes build-out. Now, let's move on to the technical infrastructure workstream. This is basically everything that is below ground. However, as you see from our 3D model, the area on the sea side and salt side of the pool is a complex and extensive network of piping, valves, electrical cabling, and wiring, containing all support functions required to handle an efficient operation of aquaculture on land. We want to show this illustration in order to give you a better understanding of what's in the ground at Kvalnes. I'm really pleased to announce that all of this work is more than 80% complete and on track for smolt release in Q3. Now to the pool workstream. We're currently working on completing four pools.
We have completed all the columns, supports, and preparation for wall elements for two of these pools, K1 and K3. We have also produced all UHPC wall elements for pool K1. Optimizing production of concrete and UHPC has taken longer time than expected. In order to maintain progress for the pool construction, we have had to mobilize extra development resources, manpower, and equipment to increase production both for the UHPC wall elements and for the concrete cross-sections between the pools. Mobilizing additional manpower and equipment comes with a cost. It has incurred extra costs in the short term, but will drive efficiency gains for the forthcoming pools. The result of mobilizing these additional resources is that the workstream is still scheduled with regards to progress. The plan for the coming period is to test the first pool and technical infrastructure during July, August, and September before smolt release.
Over to the harbor workstream. Dredging of the harbor to make it deeper will be completed in June. The construction of the quay facility is ongoing. We have had good production of armor stones that will protect the harbor from wave erosions. However, during this autumn, winter, and spring, we have experienced significantly worse weather at Andøya than normal. The adverse weather conditions have impacted the operating window for barges that transport and install the armor stone. This has consequently eroded the financial buffer for the harbor workstream. Bjarne will cover the financial details of this. It is important to underline, however, that the workstream is on schedule and the harbor is scheduled for the receival of smolt in Q3. To summarize, the excavation of pool spits was completed last year ahead of time. Waterways are almost complete, only breakthrough of the inlet tunnel remaining.
The harbor is on track for enabling receival of smolt in Q3. Completing pool K1 and pilot pool for receiving of smolt in Q3 is on track, with pool K2, K3, and K4 allowing for splitting of fish when required. Technical infrastructure outside of pool area is more than 80% complete, which includes a significant part of phase 2A. Technical infrastructure around pools is ongoing and on track. With that, I will leave the word back to Martin.
Thank you, Jostein. Now, we will move on to what the company is actually supposed to be doing: salmon farming. Following two years of intense construction work, we are really looking forward to once again seeing fish in our pool. Our plan is to start the smolt release from September and thereafter some batches in October. We are targeting a release of one million smolt as a start, and then gradually increase the biomass. The plan is to start by releasing smolt in the first pool, K0, which is the pool that we produced the salmon in two years ago, and the new pool, K1. As biomass density increases, we will transfer the salmon to pools K3, K2, and K4. Construction of these pools will be completed in that order.
The release of smolt from the third quarter represents a significant scale-up of commercial operations for Andfjord Salmon. The production volume capacity is obviously bigger than this. We will start with a volume suited for a startup at the same time as we optimize the operation. Finally, we are also in dialogue with fish farmers in the region regarding utilizing pool capacity for post-smolt production. This will be a key part of future production plans. During the first quarter, we presented an updated plan for Kvalnes build-out phase II. We will briefly summarize this plan here. In short, we have identified a plan to optimize construction, reduce regulatory risk, and utilize the pool capacity, resulting in higher production volumes and lower operational risk. Good progress and momentum for phase 1 allow us to have a very convenient transition to the next phase.
Infrastructure, machinery, and expertise can now move directly to the next phase, ensuring no interruption in the construction. We have continuously worked to optimize the construction. Even though we divide the project into phases, it is clearly the most optimal to view the entire Kvalnes development as one project. This means that while phase 1 is being completed, we will start the next phase, which includes a total of nine pools and fish logistic systems for the entire Kvalnes area. Two years of developing the concept together with our suppliers have resulted in finding better solutions, both operationally and technologically. What we now have developed is a system for moving the fish between the pools in a very fish-friendly manner. Good utilization of capacity largely depends on logistics without compromising quality and fish health.
Instead of moving the fish over the pool walls, we will move the fish by using a network of underground piping. We simply initiate the move by increasing and decreasing the water level in adjacent pools so that the fish swim from one pool to another. This new system gives us flexibility for more splitting of the fish and reduction in operational risk. The total effect of this system, including the post-smolt, is 20% higher production volume. At the 10,000 tons MIB, we target a production of almost 24,000 tons of salmon. The volume is in HOG and post-smolt. With a higher MIB, we target an annual production of almost 29,000 tons in 12 + one pool. In sum, all of this enables a 20% increased production potential at Kvalnes, including our own fish and the fish we sell to traditional fish farmers as post-smolt.
In specific numbers, this means that the total production potential at Kvalnes is increased from 40,000 tons to around 48,000 tons. You can see the breakdown on the various build-out phases on this slide. The Kvalnes business case has definitely become even more attractive with these improvements. Over to Bjarne and the financial details.
Thank you, Martin. First, a recap of the financing package that we presented in February. For construction step 2A, we will have a new construction loan of NOK 400 million. This is a new loan from the same bank syndicate that we have for the first construction step. In addition, we will have lease financing for operational equipment for step 2A of the construction of NOK 175 million. When operation starts and we release smolt in the third quarter, we will have an overdraft facility available of up to 60% of biomass and trade receivables for working capital financing. As we also presented in February, the harbor property will be sold to Asset Bio Partners with a total transaction price of NOK 400 million.
This sale will be carried out as soon as a demerger of the property into a separate company is registered with the Enterprise Register, and we expect this shortly. When the sale is completed, the harbor will be leased back to Andfjord Salmon on an 80-year contract. As the construction of the harbor is financed 50% by the bank syndicate, NOK 200 million will be used to repay bank loan for the first construction step. After the sale, total bank loan will therefore be NOK 1.1 billion. We also raised equity of NOK 600 million in February, strongly supported by large industrial shareholders, including Jerónimo Martins, High Liner Foods, and Eidsfjord Sjøfarm. Total funding for step 2A of the construction was NOK 1.4 billion.
Looking at the financial results for the first quarter, the income statement still reflects the current phase, where the activity is focused on construction, and the group currently has no revenues. Operating cost is at the same level as the previous quarter, around NOK 13 million, if we exclude depreciation costs. We can expect the second quarter to be similar before we start operations again in the third quarter. Financial costs related to financing of construction projects are capitalized as property, plant and equipment in the balance sheet and are not included in the income statement. We also see that we have some financial income, which is related to bank deposits. The balance sheet still reflects high investment activity. In the current phase, property, plant and equipment is probably the most interesting assets, in addition to cash and cash equivalents.
I will get back to investment levels later in the presentation, but this is the most intense period in the construction phase, as we had ongoing activities related to all major workstreams in the first quarter: waterways, concrete, infrastructure, harbor, and technical disciplines. Cash balance at the end of the first quarter was NOK 179 million. Please also note that other current assets are related to VAT settlements and can be equated with cash. These figures do not include unwritten construction loans of NOK 440 million and an unused credit facility of NOK 20 million.
I will get back to financial status in the next slides, but we can note that based on the balance sheet at the end of the first quarter, the equity ratio was 58%, and the share issue of NOK 600 million gives increased equity during the first quarter compared to the end of last year. Total borrowings: NOK 831 million at the end of the first quarter. The cash flow statement shows stable cash flow from operating activities, as was also reflected in the income statement. Net cash flow from investing activities was NOK 447 million in the first quarter. We can also see cash flow from financing activities of NOK 585 million, reflecting the share issue of NOK 600 million carried out in the first quarter.
As previously shown, we have a five-step plan for the complete build-out of Kvalnes to reach a production capacity of 48,100 tons HOG of annual production. Step 1 includes four new pools ready for production in the third quarter. This step also includes infrastructure for the entire site, such as waterways and harbor. Step 2A includes an additional four new pools ready for production in 2026 and technical infrastructure for 12 pools, including for step 2B. In the first quarter this year, we presented the financing plan for step 2A, which means that we have CapEx financing in place for step 1 and 2A, with a total production capacity of 17,000 tons. We have been informed by our main contractor, Hæhre, that the final construction cost will be higher than the original budget, and we therefore now do some changes to the CapEx budget.
The change in total budget for the entire build-out will be NOK 500 million, of which NOK 400 million is related to construction work that is ongoing. The remaining NOK 100 million is related to step 2B that we plan to finance and start up during the first half of 2026. NOK 320 million is related to steps 1 and 2A, while we also have a change of NOK 80 million related to expansion step 4. This is work that is being carried out now, related to waterways, infrastructure, and preparations to be able to connect further pools to the existing waterways at a later stage.
A majority of the changes is related to concrete work, where we have some one-off changes to design and development of the pools, and also some changes to the calculations of cost related to pool construction, which will affect construction steps 1, 2A, and 2B. As a result of the changes, CapEx per kilo will move from NOK 105 per kilo to NOK 115 per kilo. Out of the upwards revision, NOK 400 million will be taken now in relation to ongoing construction. In order to finance this, the board has this morning approved a directed equity issue of NOK 400 million at the closing share price yesterday. The two largest shareholders, Jerónimo Martins and High Liner Foods, take a large share of the equity issue, while two other existing shareholders, Ristora and Lucerne Capital Management, also take part in this equity issue.
With this, the funding requirements triggered by the upwards CapEx revision are immediately resolved at terms which are very important in order for the company to keep momentum in the final steps of some major workstreams. We also believe the terms are supportive from a capital markets point of view, given the negative backdrop. These changes are, of course, not something we have planned for, as we presented the financing plan for step 2A just some months ago. We are pleased that two of the largest shareholders have been willing to provide the company with NOK 370 million to solve the situation, and also that Ristora and Lucerne contribute with NOK 30 million in total. Jerónimo Martins is a Portugal-based international industry group that operates in food distribution, retail, and agribusiness.
Consolidated group revenues were above EUR 33 billion in 2024, and they are the largest shareholder in the company. Since their first investment in Andfjord Salmon in 2022, they have made a strong contribution to the development of Andfjord Salmon. High Liner Foods is a North American processor and supplier of seafood. They did their first investment in Andfjord Salmon last year, and after the share issue in the first quarter this year, they held 8.1% of the shares in the company. Together, we are exploring the opportunity for distribution of Andfjord Salmon's products to the North American market. Once again, this demonstrates the importance of having the right composition of shareholders and the important roles of these two industrial owners for the development of Andfjord Salmon. We highly appreciate their support, even in a challenging situation.
We plan for the start of operations and release of smolt in the third quarter this year and will gradually increase biomass and ramp up production to utilize the production capacity as new pools become ready. To secure sufficient financing of working capital and liquidity, Andfjord Salmon is contemplating further financing for the purpose of production ramp-up. Arctic Securities, Nordea, and SpareBank 1 Markets have been mandated to arrange a series of fixed income meetings commencing on the 30th of May. Subject to market conditions, a bond issue with a three-year tenor may follow. In combination with the previously announced CapEx financing, this will provide sufficient financing for the coming periods with biomass build-up and the liquidity needs related to this. Over to Martin for a summary and outlook.
Thank you, Bjarne. To summarize, during the first quarter, we identified a plan to increase production capacity at Kvalnes by 20% through increased water flow capacity and optimized fish logistics. We have already initiated construction of phase 2A, as a direct continuation of phase 1. We raised funds of a total NOK 1.4 billion in Q1, and we have today announced a NOK 400 million direct equity issue to cover the revised CapEx plan. Construction is progressing well, and we are on track for smolt release in September. We reached an important milestone last week where we filled the outlet tunnel with seawater, and the breakthrough for the inlet tunnel is scheduled for June-July. Before we move on to the Q&A, we will show you a video from Anja.
Are we ready for a Q&A?
Please note that you can submit questions through the webcast solution. Bjarne, have you received any questions?
Yes, we have received already one question. Is the CapEx overrun split 60-40 with Hæhre and the NOK 500 million is only your part of the overrun? The NOK 500 million is our part of Andfjord Salmon's effect of the CapEx change, yes. Also note that of this, NOK 100 million is related to later stages, step 2B, which is not started and not financed. NOK 400 million is related to the ongoing construction, as I said in the presentation. The figures here are the effect for Andfjord Salmon.
Yeah, and also we have the effect on the expansion also.
Yeah, that is included in the NOK 400 million that is related to ongoing construction. So, NOK 320 million is step one and step two A. And we also have NOK 80 million related to step four, which is the expansion. And this is related to infrastructure work related to waterways and the ability to connect to waterways with future pools.
For us, it's very important to have the necessary preparations also for expansion in parallel, as we had the phase one and phase two-A. So, yeah.
New question. Can you say something about the functionality of the UHPC concrete?
Yeah, the UHPC, that is ultra-high performance concrete. That is the layer that you put on all the walls that will be against the fish. The layer is very hard. You can't compare that to steel. In addition, it's very smooth as well, so that the fish health is taken very well care of. Traditional coating is more challenging based on that you need. After a while, you have to go in and do some repairs on the coating part. UHPC is a very smooth surface coating layer that you put on the wall elements. Yeah. From an operational perspective, this allows us to have much higher capacity utilization over time because we don't have downtime on the pools related to maintaining the surface. It's extremely efficient.
It's all about now getting, and we have now seen the effect that this material and this concept have in all of the pool developments at Kvalnes. Extremely satisfying and encouraging to see the quality of the material. Yeah.
More questions?
Seems like those are the questions we have received so far.
Okay. You can take direct contact with the administration in the company if you have some more questions or you need some more of the details that we have been through today or explain that. We will, of course, be available for that. With that, I think we will thank everyone for the attention today. Thank you for us.