Good morning and welcome to this quarter presentation from Andfjord Salmon. My name is Martin Rasmussen, and I am the CEO of the company. With me here today is our CFO, Bjarne Martinsen, and we will have a Q&A session after the presentation, and please note that you can submit questions through the webcast solution. Here's today's agenda, and we will start with an introduction of Andfjord Salmon before moving on to the operational updates and financial details, and we will end the presentation with a summary, outlook, and a Q&A. As some of you already know, our objective is to build the world's most fish and environmentally friendly salmon farming facility of its kind, with the mission to serve a salmon with a clear conscience, and the result from our first production cycle confirmed that this is possible.
Our concept is based on taking the best from ocean-based net pen farming and combining this with the benefits of being on land. This combination gives a lice-free environment and sustainable aquaculture production. We have 4.4 km of tunnels underground at Kvalnes, with the water intake at 50 meters, which is well below sea level where the salmon lice, poisonous algae, and jellyfish live. The tunnels are dimensioned like road tunnels to ensure sufficient water capacity for nearly 50,000 tons of annual salmon 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. 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 pools, and the water can then return to the sea, allowing us to coexist with the ecosystems at Andøya. Why are we located at Andøya? It's because Andøya is the land area in Norway that is closest to the Gulf Stream. This allows us to source water warmer 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 has on our temperature profile. The key figures from our first production cycle prove that a land-based aquaculture concept delivers superior results. High growth, survival rate, 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 second quarter and the following months. During the second quarter, Andfjord Salmon presented a revised build-out budget that was designed to maintain maximum progress and achieve efficiency gains for the current and future build-out phases at Kvalnes. To support our developments, funds of approximately NOK 1.15 billion were raised in the quarter, including a NOK 400 million private placement of new shares, a NOK 750 million bond issue for investments and working capital for the Kvalnes expansion, and completion of the NOK 400 million sale leaseback agreement related to the Kvalnes harbor property. I'm also pleased to share that the waterways work stream at Kvalnes is now complete. Pool K0, our former pilot pool, has this week been filled with water and is undergoing preparation for this year's biggest and most important highlight, the smolt release.
Pool K1 is also more or less completed, and we're starting the testing phase these days. I will come back to the smolt release later. Over to a regulatory update. On July 1st, the Norwegian authorities announced their revised regulation for land-based aquaculture and reopened for new license application for land-based fish farming facilities. The new regulation was more or less as expected for Andfjord Salmon. It was positive that the regulation clearly stated that our facility, which is developed on solid ground, is defined as on land. It is also positive that the regulation clarified that the existing facilities that have been already granted permission for land-based aquaculture, such as our Kvalnes facility, will not be subject to the disinfection requirements. Regarding the proposed disinfection requirements, Andfjord Salmon has always taken flexibility into account in our design to adapt any change in the future functional requirements.
Over to the status of the Kvalnes build-out. This is an illustration of how our Kvalnes facility will look in the future. Currently, our main focus is the four pools closest to the camera, marked as phase I. As mentioned earlier, I'm pleased that we have completed the important waterways. In May, we completed the outlet tunnel, and this summer, we blasted the final section of the inner tunnel, which is the main artery that will provide fresh Arctic seawater to our pools. We have also completed the tunnel that connects our pilot pool, K0, to the underground waterways at Kvalnes. This means that everything now is connected to one flow-through system at Kvalnes. We have now tested and commissioned our tunnel system, and we're very pleased to have completed this workflow. The water is now running through the system according to plan.
On to the pool work stream. We have this week started the water filling and testing underway in connection with the smolt release. In the current build-out phase, we are working on completion of four new pools, but we don't need to finish them all at the same time. Pool K1 is nearly complete, which is the most important pool for this year's smolt release. We will start filling this pool with seawater soon and start the testing of the pool and the technical infrastructure. This is a very exciting time for us at Andfjord Salmon, and so far, everything is looking good. Regarding technical installations that are to be placed on the ground and the design for the entire Kvalnes developments, these are nearly completed. We are currently testing our system to ensure safe and efficient operations.
This includes the logistic system for moving fish in and out of the pools, the feeding system, sludge handling, oxygenation, as well as several other technical installations. If we look at the harbor work stream, Kvalnes is a very weather-exposed area. I f you're able to ensure safe fish transport along with cost-efficient logistics for feed and sludge, a harbor is absolutely essential. A weather-exposed area means more demanding construction, but the biological conditions with excellent water exchange and water quality are optimal. The harbor is now operationally functional, which is an important part of the preparation for the start of the operations. So to summarize, the waterways are complete. The harbor is operationally ready to receive smolt, while the work on the quay facility with more securing with armor stone continues.
The two pools for smolt release are ready, as the other is completed in parallel with the test phase and after the smolt release. This means that we are on track to initiate smolt release in September as planned, and finally, after a bit of waiting, we are about to start the most important part of the company. Salmon farming. We will release 1.1 million smolt this autumn, and first, we will release approximately 350,000 smolt in the Pool K0 in late September. That will be followed by the release of approximately 750,000 smolt in Pool K1 in late October, and as biomass density increases, we will transfer the salmon to the other pools, and construction of these pools will be completed in that order.
The technical and the practical capacity is significantly higher than this, but we will start with a volume suited for a strategic build-up of the biomass, and the coming smolt release represents a significant scale-up of commercial operations for Andfjord Salmon. Some of you remember that we achieved a very good feed conversion ratio of 1.05 in our first production cycle, and this means that we use 1.05 kilos of feed to grow one kilo of salmon. The industry average the same year was 1.27. While 1.05 is very good, we aim to further improve on this, and we have therefore worked on many optimizations based on the experience from our first production cycle, and to do so, we have a new feeding solution that transports the feed with water.
This solution releases feed below the pool's surface, which enables higher accuracy for the feed sinking rate and generally enables higher feeding accuracy in total. It gives higher feeding capacity, reduced feed waste, and lower energy consumption, and we have also invested in an OptoScale system that constantly monitors the feeding process as well as fish development and fish welfare. Finally, we are making some ingredients improvements on our specially designed salmon feed, Calanus Plus by Andfjord Salmon, which makes the feed even more accurately designed for our flow-through system. These are some examples of improvements we are constantly chasing to improve on, for example, pool conditions, fish welfare, and growth. Right now, our main focus is in the coming smolt release, and as mentioned, Pool K0 is filled with seawater this week.
The tunnel infrastructure below the pools is also filled with seawater to initiate circulation as part of the preparation for the smolt release. In the coming weeks, we will perform extensive testing of all systems we use to support fish farming operations, developing Plan As, Bs, and Cs, etc. We will also do a dry run on the reception of smolt from the wellboat. We will also run a pipeline from Kvalnes's water inlet to refill the wellboat. The purpose is to avoid unnecessary biological risk by sourcing seawater from close to the harbor. These are just some examples of many, many measures we take in order to secure a successful smolt release. Now over to Bjarne, who will cover the financials.
Thank you, Martin. I will give an overview of the financial reporting. We have also published an interim financial statement this morning with a half-year report that gives some more details than I will go into in this presentation. This is the five-step plan for the complete build-out of Kvalnes to reach a production capacity of 48,100 tons HOG of end-of-production. Steps 1 and 2A are financed, and construction is ongoing. We have also completed preparations for Step 4 internal infrastructure, with an investment of NOK 80 million that is included in the budget for Step 4.
Step 1 is getting closer to completion, with operations starting up again this month. This includes waterways to support full build-out of Kvalnes and adding of new pools in line with our plan to ramp up production and biomass. We have also completed a large share of technical infrastructure included in Step 2A of the construction plan for Kvalnes.
The plan is to complete 2A during 2026, and we plan to have Step 2B ready in 2027, increasing production capacity to 23,700 tons HOG annual production with the current license. The investments in further capacity will be relatively lower from now on, as the infrastructure to support the entire Kvalnes site now is in place. The financing for Step 2A included sale of the harbor property to Asset Buyout Partners for NOK 400 million . This transaction is now complete, and the 80-year lease agreement will come into effect when the quay facility is ready for use. In the second quarter, we also completed a bond issue of NOK 750 million . With this in place, we also have solid financing for the ramp-up of biomass in the coming years, in combination with overdraft facility from the banks.
As in previous quarters, the financial reporting for second quarter this year reflects that Andfjord Salmon still is in a construction phase. But this will be the last quarterly presentation without fish in the pools, and I think we all look forward to presenting the biological performance and not only a construction project. The income statement is similar to previous quarters. Those of you who analyze the details will, however, notice an increase in other operating expenses. This is related to the sale of the harbor property. The sale and lease back is treated as two separate transactions in the accounts, as the sale is completed and the lease will start up later this autumn when the quay is ready for use.
Transaction costs related to creation and division of the property, demerger, contracts, and the sale itself are accounted for as other operating expenses with an amount of NOK 9.4 million. Apart from this, operating expenses are in line with previous quarters. The balance sheet reflects the high investment activity throughout the first half of the year. The budget changes that we reported in May affect the investments in second quarter. We have been through the most intense period of the construction, with ongoing activities in second quarter on waterways, harbor, technical disciplines, and concrete. As the waterways are now complete, we are starting to reduce the overall activity at the site. If you look at the assets at the end of June, you should be aware that other current assets include VAT receivables and should be basically regarded as cash.
The balance sheet also reflects a significant amount of cash and cash equivalents. Total equity has increased in second quarter due to the share issue of NOK 400 million that was carried out in May. The balance sheet also reflects increased borrowings, which is related to the bond issue in June. In addition, we had undrawn construction loans of NOK 440 million and an unused credit facility of NOK 20 million at the end of June. Cash flows during the reporting period are in line with the results and activities related to investments and financing. The financing activities in second quarter led to the strong increase in cash and cash equivalents. Over to you, Martin, for summary and outlook.
Thank you, Bjarne. To summarize, we have successfully raised funds to support the Kvalnes expansion and secured working capital for the coming production phase. The waterways have been completed, and Pool K0 is ready, and K1 is near complete. We're working hard to identify operational improvements in the coming production cycle. We will release approximately 1.1 million smolt in September and October.
My team and I are currently both thrilled, motivated, and happy that we are rapidly closing in on fish farming operations again. And I cannot wait to share more about this in the future updates from Andfjord Salmon. So before we go over to the Q&A, we will show you a video from Andøya. And then are we ready for the Q&A? And you can submit your questions through the webcast solution. So Bjarne, we can start with reading up some of the questions.
Yes, we've received some questions already. First one, which company is providing wellboat services?
Yeah, we have now signed a contract with Frøy on the wellboats. For us, it's important to have a long-term partnership together with the wellboat to get the best long-term operation because we also see synergies in how we are designing and constructing the solutions for the transporting of the fish in and out of the pools. That is in order both for this year and for the next years.
Yes. Can you give an indication of your planned smolt release in 2026?
Yeah, as we said today, we will release the smolt in September and October. And we will come back on the specific details related to how much volume of smolt we will release in 2026 and 2027.
But it's important to keep in mind that only one pool gives a significant high production capacity on the pool, which means that you can already six to eight months before you reach a certain weight have a certain number of smolt release. So this year, we aim to have in total five pools ready. And next year, we also have additional four new pools, which allow us to have a very, very strong ramp-up of the biomass. But the exact numbers, we will come back to that regarding the smolt release in the spring of 2026, and the summer of 2026, and the autumn of 2026. So yeah.
Yeah, I think we can continue with another question related to the production plans. Can you please describe in a little more detail the production plan through the next couple of years? As I read the production slide, it does not appear that a specific release for post-smolt is planned. Yeah, we start with that. It's several questions in the same, but we start with that question.
Okay, I think I answered part of that on the last question. But if you say that 1.1 million smolt is a fundament for the human-grade production, and post-smolt would come as a supplement to this. We are now looking into possibilities on post-smolt both for the spring, for the autumn, for the summer, and the autumn. But as I said also, we have a very large production capacity, but we have to work on the different possibilities before we can be specific on the numbers. And 1.1 millions of smolt release this year allow to have a very good production volume in the fourth quarter of 2026.
And then we will have, in addition, the post-smolt production on top of that, which we'll come back to later.
Yeah. Another question here. When will pools K2 and K4 be operational?
Yeah. As we said in the presentation, it's very important for us now to have K0, K1, and K3 ready for operation this year because this suits the operational needs. And we will start the operations in K2 and K4 during next spring and next summer because at this time, this is when we need the production capacity for both the splitting and for new releases of smolt.
Yeah, another question about smolt release. I think we have answered that now. Another question here related to the CapEx. How does your recent financing fit with the production and CapEx plans?
As of now, is it fair to assume that CapEx through phase three is fully financed and further growth should not require further equity? Yeah, I showed the five-step plan in the presentation, and what is fully financed is Step 1 and Step 2A. So our plan, as we have communicated earlier, is to have Step 1 ready this year for production, Step 2A in 2026, and Step 2B in 2027. So the financing and startup of Step 2B is ahead of us. But of course, when we finance and start the construction for Step 2B, we will be in production. We will generate cash flow. So our ability to finance it. We will be in a different position compared to before the project started. But what is financed as of now is Step 1 and Step 2A.
So the financing Step 2B is something we get back to when we will start the construction work for that phase. Who is the main supplier of the 1.1 million smolt?
Yeah. The main supplier on the smolt that we will release now is SalMar, very close to our facilities at Andøya. And so we have agreements with them from two of their facilities. And we are also having now agreements and secured the smolt for many years coming forward. So this is one of the benefits with being in an area where you have an extremely high, many seafood players in the industry, which allows us to get flexibility on services both on the smolt, wellboats, slaughterhouses, and the logistic, for example, to the market.
Yeah. Can you comment on how much remaining CapEx you have for phase 2A and 2B?
Yeah, related to CapEx, Step 1 is now we are approaching the completion for Step 1. So it's not that much remaining for Step 1. And if you look at Step 2A and 2B, the difference between Step 2A and 2B related to CapEx is the technical infrastructure. So there's a significantly higher CapEx in Step 2A because Step 2A includes technical infrastructure for the entire site to support 12 pools. And that infrastructure is now close to completed. So that is a significant part of the CapEx for Step 2A. And of course, Step 2B, as I said, the construction there is not started yet. T he pools itself remains on Step 2A. Will some of the expected 1.1 million smolt be sold as post-smolt in 2026?
Yeah, I think we answered that earlier. And said that 1.1 is mainly for building up the foundation for human-grade production. T he post-smolt will come as a supplement to this.
How do you assess the risk to get too high temperatures inside the pools?
Yeah, that's probably one of the main positive effects with the concept of being first located at Andøya, close to the Gulf Stream, and to have water in at 50 meters. This allows us to have warmer water during the winter, but can also avoid the warmest temperatures during the summer because we have seen very high temperatures during the summertime now in this area, much higher than we expected for five years ago. So to be able to have this kind of water supply as we have, it's a significantly biological reduction risk. So this is one of the conceptual benefits with Andfjord.
How much CapEx do you expect in Q3 2025 and Q4 2025?
Yeah, we've been through a phase now with really intense activity, as I said in the presentation. If you look at Q1 and Q2, we had ongoing activities on waterways, concrete, technical disciplines, harbor. So that is the most intense period during the whole project. And towards the end of June, beginning of July, we completed the waterways. So with that finished, we will start to see a reduction in the overall activity. So the CapEx will be significantly lower in third quarter and fourth quarter than we have seen this year. I don't think I can give the specific figures now, but we will see a reduced activity. If you look at the overall activity, as some important infrastructure activities is now complete. T hat also goes for the technical infrastructure that I mentioned. We have now close to completed technical infrastructure for the 12 pools.
Is the Pool K0 connected to the tunnel, or do you use the pipes, the regional pipes for this pool?
Yeah. The Pool K0 is connected to the waterway system, which is the tunnel, because it's important for us to have one system for the inlet water and outlet water. This allows us to have control on cross-combination of the inlet and outlet water. So the Pool K0 is now connected, and we have also started to circulate the entire tunnel system. So now, in September, we are testing the entire system with the flow from the Pool K0, and also during some days, we will start the testing of K1, as we said in the presentation.
Yes, a couple of more questions. How long is the grow-out period from smolt to human-grade?
Yeah, that depends on many factors. For example, the smolt size, that depends on the timing of the release. A s we see it now, we have from 12 months- 15 months, depending on also what kind of size you want to achieve. Because you can always start to harvest on a batch with lower weights, and then you let part of the batch also grow out to really utilize your pool capacity.
Yeah, and that brings us over to the last question, I think. What is the targeted harvest weight for the upcoming production cycle?
Yeah, now, yeah, the target weight, it's very similar to what is the standardized market sizes for the traditional salmon farming industry. So we are in the size range from four to five kilos. That's our target. This is how we best can utilize the pool capacity.
Yes, that was it. We have not received any more questions now, so yeah.
If any one of you have more questions or just wants more clarification on the questions you also have sent to us, please just take directly contact with us. But then I would like to say to you all, thank you for watching us today. T his will be the last presentation without fish. So really looking forward to update you on the operational progress on the next presentation. Thank you very much for your time.