Thank you all for taking your time to see this Quarter One presentation 2024 for Icelandic Salmon. Icelandic Salmon AS is a listed company on the Euronext Growth list in Oslo and the First North list in Reykjavík. The company is the sole owner and the parent company of Arnarlax ehf. All operational activities of the group are performed by Arnarlax ehf on Iceland.
Arnarlax Sustainable Icelandic Salmon is the common brand for all our operation and our products out in the market. The company has today four smolt facilities with a capacity of 7-8 million smolts, depending on the size of the smolt. We have seven farming sites in three fjords in the southern part of the Westfjords of Iceland with a maximum allowed biomass of 23,700 tons, and all our production is ASC certified.
We have our own harvesting facility in Bíldudalur and have a capacity there of 30,000 tons a year, and the harvesting plant is BRC certified. Then we sell all the products out in the market by our own sales team, both in the domestic and of course the global market. Quarter One 2024 was a challenging quarter for Icelandic Salmon. The harvest volume was 2,769 tons compared to 6,572 tons in Quarter One 2023.
We continued to harvest on the Spring 2022 generation in Quarter One, and the operating income for the quarter was EUR 27.5 million. Operational EBIT for the quarter was negative of EUR 0.5 million. This includes a one-off cost in the quarter of EUR 3.6 million. With low harvest volume, we experienced a high capacity cost when it came to harvesting and wellboat. And as mentioned, Quarter One was quite challenging.
We had a normal high mortality rate on our 2023 generation in sea and at one of our smolt facilities. Together, this resulted in one-off costs of mentioned EUR 3.6 million, and both incidents were related to infectious diseases. Mitigating measures have been taken to prevent this from happening again. EBIT per kilo for the quarter was at -0.2 EUR. Adjusted for the one-offs, EBIT per kilo was 1.1 EUR.
Now an update on our license situation. As mentioned, the company has 23,700 tons of maximum allowed biomass, and Icelandic Salmon is in a position to receive a license of 10,000 tons in Ísafjörður. We expect this license to be for sterile salmon. The license has been advertised by the authorities for a hearing, and the hearing period is over.
We expect the license to be given out in the near future, and the license should then include three new sites in Ísafjörður for operations there. We also have an application for 4,500 tons in Arnarfjörður that is still with the authorities, and if the new law proposal goes through, we expect that to be auctioned out by the government. We are also currently in process to establish bigger sites for better MAB utilization and have two new sites in application process in Arnarfjörður. We expect these applications to be finalized within 2024. In Quarter One, we got a new license for our smolt plant Gileyri that was increased from 200 tons MAB to 1,000 tons MAB.
This gives opportunities for a slight increase in production with the investments already done there, but the main purpose with this application and this extension was to be prepared for future investments and future growth in smolt production. If we look at the sales and marketing update, so we do still see a strong interest for Icelandic Salmon in the market.
The product is known for its high quality and the sustainability features, and quite a few of our customers claim that the salmon from us is the best tasting salmon they can get. Icelandic Salmon has for some time been focusing on the North American market, especially since our shipment route by boat to that market is very beneficial when it comes to CO2 footprint and also for cost on logistics. The reduction in CO2 footprint compared to air freight is 95%.
In the past three quarters, we have, however, seen a decrease in the demand in the American market. For Q1, that resulted in that 7% of our products were sold to that market compared to 18% for full year 2023. But we are strong believers that we have a good product that is well adapted for the American market, and we have a good solution for logistics to the market and will continue the work in the American market.
The volumes to the US in Quarter One were mainly contracts. The sales into the American markets are also affected by relatively higher prices in Europe and Asia. The US and Asia are our main markets for 6 kilo plus fish, and in Quarter One, 36% of our 6 kilo plus fish was sold to Asia. In Q1, we saw a double positive effect on our price achievement.
Firstly, we had, in average, a bigger fish than the market in general, and we also saw a good price achievement for the downgraded fish. This is due to that we have the possibility to export the downgraded fish and reach a bigger market. This fish is allocated to industry customers, mainly in Europe, which use the downgraded fish as a raw material for high-quality end products to be offered for sale to the end consumers.
The superior share of the harvest in the quarter was 82.5%. In Asia, we have a free trade agreement with China. Initially, that means a 10% tax benefit into the market compared to our competitors. In competition with other European nations in the Chinese market, we see that this benefit is covering our extra logistic costs related to transfer flights into Europe.
In Q1, 11% was sold to the Asian market compared to 4.6% in Quarter One 2023. We are working closely with premium customers in the market to promote our high-quality Icelandic Salmon, and at the moment, almost all our contract volume is related to premium customers. The contract share for Quarter One was 15%. We are also participating in seafood exhibitions to promote our product and experience great interest from old and new customers. I will then give the word to our CFO, Jónas Heiðar Birgisson. So welcome, Jonas.
Good morning, everyone, and thank you, Björn, for the introduction. It's a pleasure to share an overview of Icelandic Salmon's financial position at the end of the first quarter of 2024. Now, before I begin my presentation for the quarter, I would like to mention that the group has issued its annual statement for 2023 on its homepage, arnarlax.is. And furthermore, I would also like to mention that the group has issued a community footprint on its homepage as well.
There we show our operational impact for the Icelandic economy. Now, let's begin the presentation of our financial position. The group balance sheet felt the impact of some factors within the quarter, including reduction of biological assets, as Björn mentioned earlier.
There was a decrease in the biological assets at sea at cost level, and even with a favorable change in the fair value of the biological assets, the group still experienced a total negative change of EUR 1.2 million of its biological assets within the quarter. The group entered into a new agreement for the lease of a wellboat, which resulted in significant changes to both lease assets and lease liability.
Additionally, within the quarter, the group made the partial repayments of its interest-bearing debts as part of the group's cash management strategy. It is worth mentioning that the loan agreement is partly structured as a revolving facility, allowing the group to access funds as needed, which facilitates its cash management. As of the end of the first quarter, the group has utilized approximately 45% of its loan agreement.
Trade receivables and trade payables underwent significant changes during the quarter, reflecting the challenges posed by low harvesting during the period and the period of low growth in the sea as expected for this time of year. Now, despite the changes faced during the quarter, it's important to highlight that the company maintains a strong equity ratio and continues to be compliant with all financial covenants.
The management team has been diligent in ensuring that the operation remains within its financial guidelines, placing the company in a strong position to meet its continuing growth projects. Regarding the key changes to our net interest-bearing debt, where we include leasing, we see an increase mainly due to the addition of the new wellboat and the lease liability it generates. The group reported positive EBITDA and working capital, but fluctuation in our working capital was largely influenced by changes in our biological assets.
Investments were moderate during the first quarter, with ongoing focus on our freshwater facilities and seawater equipment. In relation to that, we are in the process of getting a new service vessel next year, but that is part of our ongoing growth strategy, along with cages, nets, and other seawater equipment that we require for further growth. By the end of the quarter, the total net interest-bearing debts, including leasing, ended at EUR 54 million. I will now hand the presentation back over to Björn Hembre for operational updates, and thank you for listening.
Thank you, Jonas. Let me give you an operational update. During the first quarter, we experienced outbreak of infectious diseases. In our freshwater operation, we experienced outbreak of Pox virus and have implemented a program to avoid this from happening in the future. In our seawater operation on the 2023 generation in sea, we experienced HSMI, heart and skeletal muscle inflammation, and we have seen this before, but not with such high consequences as this quarter. To further mitigate risk in our operation, we have implemented a new vaccine program where we, in addition to the vaccine we have always used, also vaccinate against ISA, and we also have an extra vaccine against winter wounds.
To reduce the risk related to lice infection, we have on site in the Westfjords now a delicing wellboat with Optimar and Optiflush that can give us the opportunity to do non-medical treatment on the fish. In addition to this, we still have the opportunity to use medical lice treatment. The routines for approval of medical treatment against lice have been reevaluated by the authorities to get an improvement for delicing sooner than experienced in the previous years. For 2024, we expect to increase the number of smolts put into sea with approximately 10% compared to 2023. The smolts will have an average weight of 230 grams, and the biggest smolts groups we put into sea will be approximately 700 grams.
Our Spring 2022 generation on our site Hringsdalur, that we now have partly harvested out, shows significant improvements in growth, feed conversion ratio, and mortality levels compared to the previous generation. This shows the potential for strong biological performance in the fjords we are operating.
To develop our sustainability strategy, we are also happy to announce that we have ordered our first hybrid working boat, which will be delivered in Q1 2025. We will also have our first feed barge connected to electricity supply from land, which will then eliminate the use of fossil fuel for feeding the fish on that site. Last year, we also got 2 hybrid feed barges delivered, and that has given us a significant reduction in usage of fossil fuel. This is important steps to lower the CO2 footprint of our operation.
Now, let me share with you an update on the Icelandic politics and regulation. A new law proposal concerning aquaculture was sent to the Parliament on the 23rd of April, 13 days after we got a new Minister for Food, Agriculture, and Fisheries. This is, by the way, the third minister in that position so far in 2024. Salmon farming has become a significant contribution to the Icelandic economy and 4.6% of all goods exported from Iceland in 2023.
The new minister has given strong signals that she wants the new law to be approved in the Parliament before the summer. We see that the new law proposal gives opportunities for growth of the industry within sustainable measures. The measures are mortality, lice levels, and escape. We are positive to this and the predicted growth in the industry.
We have some main concerns about the new law, and this is related to tax level and implementation of the new implementation period of the new tax level. The short-term effect of the new tax regime will be reduced tax, but when it's fully implemented, it will mean an increase in tax level. The proposed tax is related to market price and estimated cost of production level.
The delta between these two parameters decides the tax level. Another thing that is concerning us is the level of fines related to escapes and other administrative fines, which we see that the proposal has a very high level. Another concern is implementing of one farmer in each production area. That is a proposal that it should be implemented within 2028 by agreements between the farmers.
Our concern is what happens in 2028 if the companies haven't settled an agreement about this distribution, because the new law proposal and the ministry haven't given any signal how that process will be. The fourth thing is that there will be fjords that are not closed for farming today that are proposed closed in the new law. This is done without any scientific evaluation on the effect salmon farming might have on these fjords. The fifth point is that in general, there are too many items in this law that are unclear and will be managed by regulations. These regulations are not made yet, and therefore we do not know how the outcome will be.
As a leading producer of salmon, we are concerned that the uncertainty that this process has introduced could be making it more difficult for Iceland to build further on this new pillar in the economy, where competitiveness is one of the key important things towards the global market. We remain committed, however, to work with policymakers and other stakeholders to establish a balanced, competitive, and predictable legal and fiscal framework going forward.
Now, let me conclude with our outlook for Q2 and the rest of 2024. We keep our volume guidance for 2024 unchanged on 15,000 tons. The volume in 2024 is affected by the challenging situation we were through in October-November 2023. The biological challenges we experienced in Q1 will affect the harvest volumes in 2025, but we are not at this time giving a specific number on next year's numbers.
That will be guided on the Q3 presentation in November. We expect a slight increase in the underlying cost in Q2 because we are partly harvesting the fish that had the harvest hit of lice last year that gave an increased cost level, and due to low volumes that leads to low capacity utilization. On the other hand, we are already experiencing a strong market in Q2.
The contract share for Q2 is expected to be 30% and approximately 10% for full year 2024. For the smolt output in 2024, we will start to use our new site, Vatneyri in Patreksfjörður. This will be an important step for the MAB utilization on the license we have in Patreksfjörður and Tálknafjörður, where the maximum allowed biomass utilization has been a limitation for the production.
The environmental investigation done on the site is very promising, and we have big expectations for the biological performance on the new site. We still see a potential to grow up to 26,000 tons within our existing licenses. We are positive to get there soon. Based on the result we see on the last year's smolts and also the performance we see on our Spring 2022 generation in our site, Hringsdalur.
The company has a committed staff and a strong company culture, and the value chain is well prepared to handle higher volumes. This, when it comes to smolt capacity, further growth in smolt capacity, production capacity in sea, harvest capacity, and our strong sales team. In addition, we have support functions such as finance, quality, HR, and business development well established.
I will at the end like to thank everyone that is working in Team Arnarlax for the contribution and hard work to bring the company forward. And again, I would like to thank you all for listening to this Q1 presentation from Icelandic Salmon, and we will then soon have a Q&A session, and you can send questions to questions@arnarlax.is. So so far, thank you very much.
Good morning everyone, and thank you for joining us here. My name is Hjörtur Methúsalemsson, and I'm the Business Development Manager in Arnarlax, and I will be managing the questions from you today. You can still send in questions to questions@arnarlax.is, and we will try to go over all of them as many as we can, and just feel free to send in. Björn, you mentioned that the challenges in Q1 will have an impact on the 2025 volume. What is the expected level of that impact?
It's just a fact that the number of fish is down due to these challenges, and we will, of course, do whatever we can to mitigate the effect, for example, by increasing the harvest weight. The exact number will be when we guide the volume for 2025 in the Q3 presentation in November. Until that, we keep that open, but we are working on mitigating the effect, and then we will communicate on that in November.
Okay, okay. We have a question here from Christian Olsen Nordby. How many smolts did you stock in 2023, and how many will you stock in 2024?
We disclosed that in our yearly annual report that we stocked 5 million last year, and we said in the presentation today that we expect an increase of 10% this year.
We have questions here from Knut-Ivar Bakken. What is your latest expectations for taxation of the Icelandic salmon farmers?
Yeah, that's a good question. So there is a proposal in the new law that is presented to Alþingi in April, and as it is known, that is a tax level on the income that is related to both the market price and an expected cost level of the production. So it's basically the delta between the market price and the expected cost level that will be taxed. But if we reach very high prices, the proposal states up to 11% tax, and in the lower end, the tax level, the bottom is 1% tax on the top line. So it's a wide range, and there are several intervals in between there. So that's how it is proposed today.
We have some questions here from Ola Trovatn. Do you have enough smolt capacity for the new 10,000-ton license in Ísafjörður, and when do you expect to stock it?
So that is an evaluation we are doing now towards sterile fish. There are today basically one method for making sterile fish available in the market. That's by making the fish triploid. Then we know that there are new methods for making the fish sterile coming up in the coming years. That's still under development, but with very promising results.
So it's a process that we are in to evaluate if or when we do that sterile production. But of course, another important thing with the license that we expect in Ísafjörður is that we get access to three new sites as well, which will be a huge asset in that fjord. So it is a bit too early to say when it comes to smolt capacity that will be a part of a CapEx project if we're going to fill up the whole 10,000 tons.
Then we need more smolts.
Okay. And he also asked, do you expect a cost in box below EUR 6 per kilo for the first half of 2024?
For the first half of 2024, I would say no.
No. Okay. And he also wonders, do you expect approval for sea lice treatments now to be handled with sufficient speed versus previously?
Yes. So the Fish Disease Committee and the food authorities have made a time frame there, so it should not take more than three working days to get an approval on a delicing application. So that is the most extreme. So of course, if we apply before a weekend, then it's up to five days. But it's a huge improvement from earlier years.
Christian Olsen Nordby wonders as well, when it comes to cost per kilo for Q2, do you see extraordinary cost as we saw in Q1 of EUR 3.6 million, or should we assume no extraordinary cost but a high biological cost due to previous issues seen?
I think that was well summarized by him, that we, of course, do whatever we can to avoid incidents that we have had the last quarter, and we don't expect that in the second half of this year.
Okay. Christian Olsen Nordby has a smolt follow-up question. Is it the virus disease on the smolt facility that has resulted in that you cannot stock 7 million smolt in 2024?
I'm not sure that we ever have guided on 7 million smolts in 2024, but the virus outbreak in the smolt facility has, of course, an effect on the number of smolts. Yes.
Okay. Question to you, Jonas. Does the company have any possibilities of using a strong balance sheet to reduce cost?
The short answer is yes. We also have. We went through a refinancing process now late last year where we utilized our strong balance sheet and got some benefits out of our loan agreements on that. Today, we are also looking into or evaluating value chain financing, for example, in order to reduce cost both operational and financial. So yes.
Okay. And can you provide some colors on the CapEx level going forward?
Well, for 2024, we issued that our CapEx is approximately EUR 15 million. This is all in the name of the growth projects. We are utilizing our licenses, and we are seeing towards the end of that process, so we expect the CapEx to go down later on. But that also depends on the licensing process, how we want to utilize our licenses as best as we can.
Okay. Question to you, Björn. When do you think the company could realistically achieve the goal of 26,000 tons production communicated during the Capital Market Day?
Yeah. I think we said 2026 on the Capital Market Day. Yeah, 2026, 2027, I would say should be realistic.
Okay. And yeah, I don't have any more questions here. So I think we've covered all of the questions. If not, you can just email them to us again, and then I will try to answer you in an email. But just thank you very much for being here with us, and until next time, see you.