Okay, then I think, the time is there. Welcome everyone to this, quarter presentation, from Andfjord Salmon. My name is, Martin Rasmussen, and I am the CEO of, the company. The presentation today will be given in, English, and it's a combination of a physical presentation combined with a webcast solution. We will, end this presentation with a Q&A, so you can submit questions to us through the webcast solution. Together with me here today, we have our CFO, Bjarne Martinsen, and our project director, Jostein Nilssen. We will, start the presentation by, giving you and showing you a video from Andøya. Okay, we will...
The first topic on the agenda is the highlights from the Q3 , and after that, we will go through the operational numbers from the first production cycle and try to explain and illustrate the economic effect high survival rate and low feed conversion rate has on the economy. Jostein will give you an update on the build-out process on Kvalnes, and Bjarne will cover the financial details. But first, for the benefit of new shareholders, I will start by giving a very brief introduction to Andfjord Salmon. Our mission is to serve salmon with a clear conscience, or fish farming with clear conscience. The concept is the best from traditional salmon farming in the sea, combined with the benefits of being land-based.
We are located at Andøya, where we have natural advantages, which means that we have access for seawater that holds the perfect temperature for the Arctic species, salmon. It's oxygen-rich, and it holds the stable salinity level, which allow us to have a very energy-efficient production method. We don't have problems with salmon lice because we are sourcing the water below the water depths where the salmon lice is living. The fish can't escape, and we are in control of the organic waste. We have built all our pools below sea level, and the reason for that is to avoid working against gravity, because if you're lifting something up, you're using more muscles and more energy to move the water.
We are just simply pushing the water through the pools, and the first pool, we use 5 tons of water every second, so it's an enormous amount of water consumption. But we have proven with the first production cycle that we can have a very energy-efficient production. And we have proven that we can produce 1 kilo of salmon within 1 kWh. And convert to economy, it's around NOK 0.5 per kilo of produced salmon. It's not a coincidence that we are located at Andøya, because Andøya is the land area in Norway that is definitely closest to the Gulf Stream. And the reason why we have the Gulf Stream here is because of the deep sea and the continental shelf.
The Gulf Stream is following the continental shelf, where you have over 1,000 meters depth, and as you see on the screen, Andøya is definitely closest to the Gulf Stream. This gives us access to temperate water during the coldest time of the year. For example, in our first production cycle, we had 1-3, 1-3 degrees above the sea temperature that other salmon farmers in the area had because of the Gulf Stream. That gave us better growth. Higher temperatures increase your growth and also reduce the biological risk by having, for example, a lower risk of impact of winter ulcer, which can be a problem in coldest time of the year.
So to summarize and the highlights from the Q3 , we completed our first production cycle with very strong operational performance results. And, for example, we have a survival rate on 2.5%, which is extremely good, and a feed conversion rate on 1.05. So we are extremely proud of these numbers. At the end, we are, we are making food, we are producing a product, and the feedback from the market is also part of our proof of concept. So we are extremely proud by the fantastic feedback we have had on, our, our salmon in the market so far. And with us today, we have, samples from the first production cycle. It's, some frozen products, so, if you're nice, you can, take home your own box with you after the presentation.
Since we slaughtered the fish in June and July, this allow us to have very efficient startup of the construction of the next pools. This is the reason why we now are ahead of schedule of the pool pits excavation at Kvalnes. We have also started the construction of the harbor area and the waterways, which is infrastructure for the entire Kvalnes area, where we have identified a production plan to produce 40,000 tons of salmon every year. Now, we'll look deeper into the details of how low mortality and low feed conversion rate impact the economy. We did release approximately 200,000 smolt in June 2022, and after one year of production, the survival rate was 97.5%, or a mortality rate of 2.5%.
So it's needless to say that we are very proud of this number. This prove that the concept is working very well on behalf of the biology. There is even room to improve these numbers. But good biology, in combination with low feed conversion rate, is the key to profitability. You don't get paid for a dead fish. A good reputation is extremely important in the market, and a high Superior share equal a high average price on your salmon. The feed is the largest input factor for a salmon producer, so this is why we want to highlight the importance of good biology and a low feed conversion rate. I will now illustrate the importance and the impact a good survival rate have on the revenue.
If you have a production of salmon and you slaughter it at 5 kilo, and you have a salmon price at NOK 80 per kilo, we have made 2 scenarios, one with 5 pool, one with 13 pools, to illustrate the economy benefit with a low mortality rate. In the scenario to the left, we have with our numbers from the first production cycle, where we have a survival rate of 97.5%, we have an increased sales revenue for over NOK 200 million in this scenario. So this illustrates the importance of having a fish alive instead of dead when you slaughter it. As I said, the feed is the largest input factor in salmon farming.
The reason why we can have a very low feed conversion rate is because that we have a closed system where we have extremely good control. We can then use a specially designed feed, where we have a low sinking rate on the feed. It's almost floating in the surface. If you do this in a traditional net pen, the feed will go out of the pen. So we used to say that this is a social democratic way of feeding salmon, because there's always feed available for the salmon, it doesn't go away. But we can then have a very precisely production. We don't overfeed, and we don't have feed waste. This is the reason why we can have 1.05.
It means that you have 1.05 kilo of feed for each kilo of production you produce, compared to the average in the industry, where you have 1.27 kilo per kilo of salmon. To simulate and to demonstrate the meaning and the impact, if you're using the numbers from the first production cycle, this equal a cost benefit of around 5 NOK per kilo of produced salmon. Let us now look at the impact low mortality and the feed conversion rate has on the EBIT. As I said many times now, you don't get paid for a dead fish... and you are using cost on a dead fish. You have paid for the smolt, you're using feed for on the fish before it dies.
So, if you have a price on the feed of NOK 20 per kilo, you pay 20 NOK per salmon, or smolt, and the price is NOK 80. With the numbers that we have achieved in the first production cycle, compared to the industrial average, the EBIT impact is NOK 213 million in this scenario, with 13 pools. The reason why we're showing this is to demonstrate how important low feed conversion rate and good biology have on the economy. We will now give a status update on our construction and build out on Kvalnes. But before I leave the word to Jostein, I will just short give you an introduction of the ramp up of production capacity. First, we have a license for 10,000 tons MIB.
This is what we are now in the construction phase of. Included, infrastructure for the entire Kvalnes area. What I, which I said, the tunnels, waterways, a large proportion of the, of the land area, and the harbor is, is infrastructure that will give synergy effect for, for the entire area. But we are now in the first step with 5 pools in total, 4 new pools. We have a production capacity of 8,000 tons. In total, 13 pools, we have a production capacity of 19,000 tons HOG salmon per year with the existing license. And then you have a bottleneck with the license. So it means that without any additional investments, you can increase the capacity up to 23,000 tons.
And we are, of course, working to increase the license of Kvalnes, but we also have. Then we have the Kvalnes expansion, which is additional pools, included the 13 pools that we are now in the pool pits excavation of. Okay, then I leave the word over to you, Jostein.
Thank you for that, Martin. I will first of all just show you the Kvalnes area as we plan to have it, when Phase II is completed. As you see, we have the pools very closely together, to minimize the impact we have on the land. We build the pools in concrete and putting them back to back, ensuring that the, the footprint, at the facility, when it comes to the pools, are as small as possible. The technical areas, we have put them into hubs, making sure that all the technical support functions are... You don't have to put technical equipment against each of the 12 pools. So you rather put, all the technical parts into hubs, making sure that that's where you put your redundancy.
Those hubs handling the biowaste, the feed, the oxygen, and the dead fish handling. We don't know, though, doesn't have any dead fish. But dead fish handling is also a part of what you need to handle. Putting them together is a good part to optimize the synergies, having all these pools so close together. The harbor area, as you see, two main reasons for the harbor. We need a safe haven to optimize our logistics, bringing fish in and out of Kvalnes, receiving feed, and getting rid of the biowaste. But in addition, the harbor is important to have a mass balance for the project.
So all the rocks that we take out from the pool pits and from the tunnels is put into the harbor, making sure we have that mass balance. In addition, the rocks on Kvalnes is very suitable to be used in concrete production, so we will also use the masses that we have on Kvalnes to produce concrete. We will set up a concrete factory at site and producing all the concrete we need for our production during the build-out. All this infrastructure, so the harbor, the waterways, and the technical hubs, are now dimensions to handle everything we would like to do at Kvalnes. So including these 12 pools and whatever additional pools we would like to build in Kvalnes, we have taken height for that all the infrastructure can cover that. This picture is maybe...
When you look at, it's quite a distance, so from this picture to look at the dimensions here at Kvalnes. I think it's a bit unfair because the dimensions are quite much more larger. As you saw on the films in the early stage of this presentation, the sizes we have at Kvalnes is rather enormous. This is the 1 pool pit that is supposed to cover 6 pools, and you see that second one next to it, quite a massive volume that you have available to push the fish in. This is a 40-ton dumper and a 70-ton excavator. So the dimensions of what we are doing at Kvalnes is rather enormous.
As you will see in the progress plan that I will show you, we are very pleased with the progress on taking out these pool pits. And also we have started now with the blasting in our production of our tunnels at Kvalnes. As you can see as well, this is the access tunnel for the inlet tunnel in Kvalnes. And with this size of the pools, of course, you need to have enormous volumes of water flowing through them. And then concluding in, this is the reason why we need to build tunnels and the size of the ways that we need to be able to change out the water every hour in our pools. The same with the harbor area.
When you look at the picture on the right-hand side, that is actually this small part that you see up in the picture on the left-hand side. So the dimension of the harbor area is quite massive as well. The rock mountain that you see next to the harbor is there to be used as an add-on to the concrete production. And the reason for that is that the rocks that you have in the pits are more suitable for concrete production than rocks taking out from the tunnel production. This is due. We have the expertise, I would say, the best in Norway to handle whatever we do at Kvalnes. They are very good on all the parts of the production and the construction that we are planning now.
And again, the harbor area, or everything that we take out from the pulpits and from the tunnels, will go out in the harbor. This is the basis for what we know are planning at Kvalnes. This is the pilot pool. We know that the laminar flow through the pool is functioning very good for us, and we will not change anything in the pool. That will be exactly the same because of what Martin just earlier mentioned now, low mortality, the feed factor, and all of that. So no changes to that. When it comes to all the technical support functions, we will for sure continue to use them and further optimize how we would like that to be.
The scale from 1 pool to 12 pools now is sort of the reason why we put the technical hubs, localizing them, centralizing them, instead of having everything at each pool. Okay, the conclusion then, just to point out, you see the inlet tunnel at the bottom part of the picture, because that is also part of the how to do this construction. You need to have those tunnels available together with everything else that you do. So these are the access point, inlet tunnel, and up in the south, you have the access point for the outfall tunnel. And from there on, we have approximately 4 kilometers of tunnel that we will build and take out from Kvalnes.
As you can see, the pulpits are ongoing as well, and the harbor area is, yeah, continuously increasing as we take out the masses. Progress-wise, the plan was to have all the pulpits done during Q2 in 2024. We now see that we will be able to have that done during the Q1 in 2024. We have started the waterways, and also with the harbor, we are pleased with where we are at there. For sure, the next important part for us will be to plan and prepare the concrete production. That will be sort of the next big milestone for us, and you need to plan for success.
Making sure when you are ahead in one part of your production, you need to make sure that you cover that in the second part. That will be concrete production. That is ongoing, and as we are moving on now, I'm very pleased with where we are at, for sure. This is just indicating also how we are doing production-wise, overall, and from August until November as well. With that, I will give the word to our CFO, Bjarne.
Thank you. I will give a brief summary of the financial results and the financial status. We do not have a formal financial report on the half, on the Q3 . We have a half-year report and an annual report, so on Q1 and Q3 , we give an overview like today. So first, a look at profit and loss statement. We have had our first revenues from sale of salmon this year. We started the harvest in June, so when we reported the Q2 figures, we reported a revenue of just below NOK 10 million, and the harvest was completed in July, and we have NOK 27.7 million in revenues in Q3 , and in total for the year, NOK 37.3 million.
The value of the salmon that we have created during the production cycle was actually reflected in the Q2 figures as we value biomass assets as at market value. So what happened in Q3 is basically only the sale itself. And for those of you who are especially interested, you can see this in cost of materials, which includes biomass assets from the previous period plus some costs incurred in Q3 , such as harvest, transportation, and slaughter. You also see that we have a cost to salary, depreciation, and other operational costs at a stable level and a relatively approximately same level as previous periods. The company and the organization is set up to handle higher volumes than we can produce in one pool. So we are not profitable when we produce only in one pool.
This will change when we have four new pools in operation in 2025, and then we have five pools in operation, and we will have a position to become profitable. But even if we are not, don't, don't, don't have profit on one pool itself, we have some really important answers that Martin talked about with the feed conversion rate, 1.05, survival rate, and also energy consumption, which is an important factor to become profitable. So what we need going forward is volume, and we will have that from mid-2025. When you look at asset side, I guess the most interesting is to see the cash deposits of NOK 526 million. This is due to the capital increase that we completed during the summer.
At this point, at the end of September, investment level weren't that high. So this is also reflected in the balance sheet. You can see property, plants, and equipment is increased by around 45 million NOK since end of last year, so this will increase going forward. What you also see from the assets here, we don't have any biological assets at the end of September, but we have a small inventory of 2 million NOK, and that is the frozen salmon, like the one you can get today when you leave here. Equity and liabilities. We now have equity above 1 billion NOK.
And at this point, when we haven't opened the construction loan yet, the equity share is very high, and this will of course change when we start drawing on the construction loan. Otherwise, you see here we have some minor liabilities related to leasing agreements, and we also have bank loans from SpareBank 1 Nord-Norge and Innovation Norway, which was done before the new construction loan that we will start drawing on later. The cash flow reflects the sales that we did in the Q3 . We have a positive cash flow from operating activities with NOK 15 million in the Q3 . You can also see here that what I said about the investment level, it was still quite low, relatively low until end of September, and this will increase from October and forward.
And you also see the effect of the second tranche of the capital increase here on cash flow from financing activities. And I have to say, this also includes a repayment of the shareholder loan that we had on NOK 50 million. So this is reflected in the figures, and the cash flow from the period in total is of course positive with NOK 431 million. So our ambition is to develop Kvalnes to a capacity of 40,000-ton production volume per year. We have identified five steps to get there, and we are now in the first step. So what Jostein now showed is the first step of this plan, and this will bring us to a capacity of 8,000 tons yearly by building four new pools.
But more important, this first step also includes investment in infrastructure that will support the entire site. So this first step includes port area for 40,000 tons, waterways for 40,000 tons, rock pits for 23,000 tons, and four new concrete pools with technical infrastructure for a capacity of 8,000 tons. And with this infrastructure in place, the investment in the next steps will be relatively lower because we, we take infrastructure investment in this first step. And for example, in this second step, we just build new pools. Infrastructure will be built before. We're also really happy that we have strong partners in this build-out. We have had a contractor for the port area, rock pits, concrete pools, and on the waterways, they also have with them LNS. I'm really pleased that LNS has entered the project.
Local company from Andøya, with really strong competence with internal production. That brings a value to the project, and together with also Seaflow and the technical infrastructure, we have really strong partners. And at the end of September, the total investment in this step was at NOK 71 million up to date. And as I said, this will increase from October and forward. And the total budget, the budget for the build-out is NOK 1.3 billion, and we have also included a buffer of NOK 350 million. And this is how the top 10 shareholder list looks. After this changed a little bit after the capital increase that we did during the summer. We have strong and supportive shareholders.
A lot of this took part in the, in the capital increase, including Jerónimo Martins, one of the biggest companies on the stock exchange in Lisbon. They are now the largest shareholder with 25%. Also, Asker Sjøfarm, owned by the Holmøy Group from Vestfold.
... they both took significantly increased their ownership share during the capital increase that we did during summer and showed their intention, and we're really pleased to have such strong and supportive owners, and also industrial owners. So with that, I give the word back to Martin for a summary.
Okay, then we will just have a short summary before we go over to the Q&A. We have completed our first production cycle with very strong operational performance. We are ahead of schedule in the excavation of the pool pits, and we can then start the concrete work early in 2024. We have started the work and have a very good momentum on the construction and production of the harbor area and the work on the waterways for the entire Kvalnes development. So with that, we will go over to the Q&A session. We have... It's possible to ask question here from the audience, and we also, you can also submit questions through the webcast solution.
We have a microphone for those of you who want to ask a question here in this audience.
If you have questions, raise your hand, please, and speak into your mic, into the microphone, please, so the people on the webcast can hear you.
Do you hear me okay?
Yeah. Yeah.
I can see that. All right. It's okay. I have, like, four questions, so if it's too much just let me know. The first one is, why don't you continue scaling up at Kvalnes? Why do you go to other locations, as this deal with rights? I mean, from the point of economy of scale, you should just keep on adding pools at the same place. Why will you spread out?
We are doing both. So we are doing the work at Kvalnes as fast as possible, but at the same time, we also have the momentum to develop the other sites, Fiskenes and Breivika. I think it's important to keep in mind that when you're working with developing the property and the approvals from the authorities, this is a process that takes several years. For example, on both Fiskenes and Breivika, we used five years just to get the zoning plan approved. In Breivika, we have the improvements, and on Fiskenes, we are now in the process together with the municipality to get the necessary permits. And thereafter, you can start a license process.
This is supposed to be, we will have continuous at this parallel with the construction of Kvalnes. I agree with your question. We are doing it. Yeah.
Thank you. The second question will be for the operational thing. Is there any risk when you're moving over from the test pool to the bigger pools? I mean, I guess they're, like, four times bigger or something like that. Is there a risk that it will not give the same results as we saw in the test pool because the sizes are bigger?
No, actually, the sizes of the pools are not bigger. They are-
Yeah
... they are the same size, and actually, and a bit more shallow than the original one, and that is really based on our experience from the first pool. We, for sure, we make the future pools now more robust. Going from composite, as they were in the pilot pool, now building them into concrete is a big step to make them more robust. So I would rather say the opposite, that... We are very focused on making sure that how the water flows through the pools are exactly the same.
Okay. I may risk getting to salmon with me now-
Yeah.
But one thing I did not understand from your presentation, Martin, was that, for 2024, you had 1,000 ton expected, and I don't understand that because the test pool is currently empty. Is it not? So I don't see-
Yeah
... how you can book revenue in 2024.
This demonstrates, yeah, the existing production capacity.
Uh.
It's not a guidance on the production volume. We're just illustrating the production capacity.
Yeah, I understand. So you're not gonna... Yeah, you will have nothing to sell next year?
No.
No, understand. My last question is, your setup is amazingly cool, I think. I mean, the fact that it's working. So the last question is kind of double. How much of this is patented, if patented, and in conjunction with that, are you looking into selling this solution elsewhere on the planet where you can get, like, licensing fees or whatever? Because your results are very strong, and I'm sure you've thought about this, but I've not seen any updates on this in any of your financial information.
Mm.
That was my last question. Thank you.
Should I start? First, what's patented is the laminar flow, and the laminar flow is a parallel water current where actually it's a copy of the traditional net pen, but on land. So this is what we have patented, and the technology behind it. It's simple, it's non-complex, but the technology behind it, it's years of development to get actual current that we wanted. Of course, it's tempting to go over the world, different part of the world where you have the same temperature profile and you have... But I think it's a combination of many factors that makes it very important for us to focus on A at the moment.
For the first, we are in a cluster of seafood producers. We have the knowledge, we have the competence, we have an operator with 30 years of experience. You have the supplier, you have the feed factors, everything is in place. So, and I think it's not a week without any, I would say we get extremely many questions from different players that want to use our technology other places in the world. So but we have focus now, and it's not that we're not looking into a global expansion. Let's say my main focus is develop what we already have started at Kvalnes and at Andøya.
Any further questions from the audience? If not, we'll take a couple of from the webcast. Knut Ivar Bakken asked, "Can you comment on the expected next smolt release?" And I guess that's to you, Martin.
Yeah. I would say the most important for us now is the construction and to have a significant increase in the production capacity in 2025. And as we said all the time, we will not, we won't do anything that will compromise on the terms of the good biology. We have the possibility and have the flexibility to release fish in 2024, but we see it more beneficial to have access for all the pools in the second half of 2025, because we can then have a much better ramp-up of the production volumes. Yeah.
Thank you. Question from Nils Thomassen: "Is it possible to give a split on the investment budget for 2023, 2024, and 2025? Bjarne, to you.
It is possible, of course. We haven't given those details yet, so we included the total budget. So, we might come back to that when we're at a later stage, but currently we report on this level.
Thank you. Question from Espen Johnsen: "Do you see potential for further improvement in the feed conversion ratio? And if so, what is a reasonable target?
Of course. We see improvements in both having a better and precise recipe for the feed itself, which will reduce the feed conversion rate. And we see also improvements to have a lower survival rate, which we will do on the next pools. So I would say it's minor adjustments and optimization that allow us to have a better feed conversion rates also in the next pools, even if the numbers are very good on the first one. Yeah.
Question from Jørgen Vatn: "Is Andfjord Salmon mainly using external third-party fish health services today?
We have our own Fish Health and Quality Manager, Christine Thomassen, who has been working as a veterinarian for the fish in over 30 years in Vesterålen. One of the, let me say, the national leading competence within her field. So we have extremely good competence internal, but also we are using the best experts in Norway, we say, Åkerblå , also as a supervisor. So they are monitoring the biology and supporting the company in general tasks. So we have a good network also around that included to the internal resources.
Okay. Any questions from the audience?
When will you start drawing on the construction loan?
Yeah, the construction loan will cover 50% of the investment or up to 50% of the investment. And we will start with investing equity first, and then we will start drawing on the loan. So we're asked about the timing, that will be somewhere between the last part of Q3 or beginning of Q1, I'm sorry. Last part of Q1 or beginning of Q2. That's when we start drawing on the loan. The majority of the investment will be from now on and until yeah during 2024 during the year.
I have one more question from the webcast, to Martin: What is the main biological challenge you faced during the first production cycle?
The main challenge, 50% of the mortality was caused by fish jumping in the walls. And then we installed like some airbag solution, where it's got a soft landing, and after that installation, we reduced the mortality almost overnight. So this is, I mean, this is a small part of... The numbers are small, but this is the largest improvement we see for even get a better biology on the next phase.
Okay. Then it looks like we don't have any more questions from the webcast, and it looks like the audience is happy. So, oh, one more question here.
This is so fun since you're here.
Yeah.
What would you say is the biggest uncertainty before you, but then for new pools into operation, what is the biggest thing that you would like to see go well? I mean, I know that you like to say everything's under control.
Oh, yeah
... but I'm sure there's something that, okay, there's 4 pools going at the same time. What is the biggest kind of risk factor, the way you see it, compared to the new operation?
Maybe if I start construction-wise, as everyone dealing with massive projects, interfaces between the different actors. So making sure you cover all the interfaces between technical and concrete, technical and harbor, and so, and that is a huge focus for us continuously. And I'm very pleased seeing that we are solving everything at the table, around the table, instead of being down in the pulpit. And I must say that with all these experienced entrepreneurs that we have involved in this cooperation phase, or the phase that we choose to run the project, I'm very pleased with that. We will be able to handle that, but for sure, interfaces is my main worry, as I would assume is for all the project managers.
Yeah. And when it comes to the biology, it's like you... When you're working with biology, whether if it's fish or it's human, it's always, it's not about eliminating risk, it's taking the risk down. And if you look at what the concept of Andfjord Salmon, it's, you have good solutions on all the risk elements from traditional salmon farming. You've solved the lice, you have a lower risk for impact from other sides, so everything is, it's taken down to a minimum. So we cannot highlight one thing that's... I sleep very good at night, to say it like that.
Yeah.
We have one more question from the webcast. Could Perlesnormanet cause a problem? So this is a type of jellyfish that has caused some problems with ocean-based pens, in the latest month, but could that be a problem at Andfjord Salmon?
Again, you see, it's all about taking down the risk, and when you have a water inlet at 40 meters, in combination with the inlet point where we... It's like, it's a slope in the sea. So the water inlet itself, it's very protective against everything, all the living organisms. So I think we are very good prepared and protected to these scenarios.
Thank you. Then we don't have any more questions, so with that, it's time to say thank you for everyone who attended.
Thank you for being here, and as I said, we have a box with products. We hope that you take it home and taste it yourself. So, yeah, thank you for your time.
Thank you.