Good morning, everyone, and welcome to this presentation of the first quarter 2023 of Proximar Seafood. Today, we will present the figures of the first quarter, and it will be presented by the CEO, Joachim Nielsen, who is located in Japan, and myself, Pål Grimsrud, and I'm the CFO of the company. Please, Joachim, you can start.
Good morning. As stated in the second half report in February, Proximar's outlook remains strong, and the fundamentals are very encouraging. The cost advantage of local production is a key in Proximar's strategy and selection of our location in Japan and Oyama. The transportation cost has increased over the last years, and we expect it will remain high going forward. For Japan, the effect is even larger, impacted by the longer distance around Russia due to the geopolitical situation. This resulting in a significant long route and consequently cost in terms of air freight from Norway to Japan, which is the relevant comparison when looking at the fresh Atlantic salmon market in Japan. The market prices remain high, and our expectations of the price levels to remain at attractive levels are intact.
In terms of consumer preferences, we continue to see strong interest for our upcoming products and the combination of freshness made in Japan and branding potential of our Mount Fuji location we believe are important drivers. Based on the experience, interest, and our products characteristics, we remain confident in the potential to attain a price premium compared to imported salmon. Following the increased geopolitical tensions, both in Europe and Asia, we've also witnessed increased focus on local food supply. This is now a top priority and a big concern for Japan, just a few days ago, there was an article in The Japan Times again addressing this concern. According to the article, Japan's food self-sufficiency rate was at 38% in 2021 and remains the lowest amongst the G7 nations. As a comparison, Italy is the second lowest at 58%.
The article also addresses concerns related to starvation, tens of millions could be at risk of dying if the sea lanes to Japan were disrupted. When it comes to the Japanese market for Atlantic salmon, consumption is growing steadily, and we expect this trend to continue going forward. A main fundamental driver is the younger generation and their preference for the product. Consumption per capita of Atlantic salmon is still at a very low level compared to other markets, and we expect this to rise in the years ahead, as seen in other markets around. In addition to the interest for Proximar's products in Japan, we are also receiving interest from other Asian markets. This supporting our view on the products' attractivity also outside of Japan in the Asian region.
It's very encouraging, and certainly when taking into account that Proximar is still a young company without any products in the market yet. We're now getting close to completion of the construction works of our stage one, 5,300 tons facility, which will be a major milestone in Proximar's history. Located in proximity to the market, just 1.5 hours from Tokyo and within six hours drive from most of the major cities in Japan, we are very well-positioned to supply our products efficiently on a daily basis all year round. Following the start of production in October 2022, we are on track in terms of our target to harvest our first fish in third quarter 2024. We have built a strong team and also established a strong platform with a broad range of highly relevant expert experience through our stakeholders and partners.
This we also see very beneficial as we're now entering production and also the sales and marketing preparations. We will continue building our platform going forward and are continuously working on this. Finding good long-term partners who can contribute in different aspects is a key for success as we see it and will remain an important part of our strategy going forward. Our business model remains strong, and we see strong margin and earnings potential once we get our production up and running and start selling the fish in little more than a year from now. Proximar is not dependent on high market prices, and we expect to generate good profitability in either a lower pricing environment or if production volumes are for some reasons not achieved. We have shown this graph before, but believe this illustrates very well the robustness and potential in our business model.
The graphs here try to show the sensitivities in terms of attained production volumes and EBIT margin per kilogram. As you see, we have a significant leeway even in lower pricing environments or in lower utilization of our facility in terms of achieved production volumes. From the graphs, you will see that for the different scenarios, Proximar still expects to see positive margins. In the graph on the left, we show the attained volumes, assuming different densities ranging from 30 kilograms per cubic meter up to 100 kilograms per cubic meter. The implied production volume shown on the line above. Our target is 80 kilograms per cubic meter, which is equivalent to 5,300 tons head-on-gutted weight per year, but starting at 64 kilograms per cubic meter, which is equivalent to 4,200 tons.
We will gradually increase from the 64 kilograms per cubic meter up to 80 during a 3-year period. The 80 kilograms is also in line with what we've seen at the facility in Poland. This translates into the graph on the right, where you see the dark blue columns illustrating the EBIT cost per kilogram on the different densities. The price line on the top shows the current forward price, export, Oslo, 2024 forward price, adding transportation cost to Japan, local handling costs here, taxes, and some premium. Even at low densities, we will still expect to see the EBIT margin being positive.
Taking into consideration our target density at 80 kilograms per cubic meter, this translates to an EBIT margin using these assumptions of approximately NOK 63 per kilogram on a 5,300 tons HOG volume . We're on track and have already the largest part of the construction behind us. At the end of Q1 , we were above 90% completed in terms of civil works. In our grow-out building, which is to be completed during summer, we are now doing installation work of production tanks and backfilling around these, which is expected to be completed within some weeks from now. Following the completion of this building, we will transfer the first batch to our grow-out, scheduling first harvest Q3 , 2024.
Here you see the grow-out building on the left, and on the upper left, one of the larger 18-meter diameter production tanks from the inside. On the upper right, the hatchery and nursery building, where the production is ongoing, and the picture on the bottom right showing the nursery department, which was taken into use in March. In terms of CapEx, slightly up to NOK 1.15 billion, up from NOK 1.115 billion, of which approximately half of this is currency related and remaining being smaller changes and some extra works. When it comes to the production, we are still very encouraged about the performance of the technology and the solutions from AKVA group. We see the system delivering stable and good water quality, and we are training our production team to handle the fish and operate the system.
This is also done in collaboration with operation support and resources from AKVA group, also on-site. As for most new facilities, we do expect some startup issues. This has also been taken into our production planning. To compensate for expected higher mortality during startup period, we are inserting a higher number of eggs, and we'll be doing so for the first 12 months of operation or so until we reach stable production levels. We have a new team, new technology, and still some fine-tuning is being done. We have experienced some issues, but still within our expectations, and I would like to emphasize that all issues have been identified and remedied.
We have started up three new departments, hatchery, first feeding, and nursery, in a short time period. All have now been operating for some time, with the nursery being the latest one up and running since March. The next department to be taken into use is the grow-out building in Q3 this year. Our team is already planning for the transfer to make this as seamless as possible for the first batch.
We have left behind us a quarter with highlights both on the operational side and the financing side, as well as strengthen the team and the business case. The batches have been moved according to growth, and in March, the first batch was moved to the nursery department. We do have a great operational team handling the production, meaning that we have been able to spend time on other important tasks. By the end of the quarter, we could present the Japanese bank debt. We have had ambitious targets for our debt, and finding this solution locally was fantastic. Both the debt size, the terms, and of course, the three quality banks involved were spot on and what we were targeting. We keep building the company for the future and attract both candidates and potential salmon buyers.
I would like to draw the attention to the bars on the right-hand side and especially the lower three. These graphs show that in the Q1 , the market is stable, the forward price on the salmon has increased, and the transportation costs have risen. All of these are important to our business case, which looks very strong these days. Things have happened even after the quarter. When we secured the Japanese bank debt, it was also time to become fully funded. End of April, we secured this by a combination of new equity and loan from the major shareholders, totaling 180 million NOK. We have also held the annual general meeting where we could welcome Anders Ombustvedt as a new board member, replacing Fridtjof Falck, who served in the board for two years.
We should also have a quick look at the numbers for the first quarter, and there are not many surprises in these figures. For the profit and loss, we are increasing the costs in the operation where the activity is increasing, and this will continue going forward. In general, I would say that we are very careful with costs, but we have a very high focus on getting the right people employed to take care of the biology. For the balance sheet, we see the effect of having a construction facility closer to completion. We do also have increased values on the biological assets, as when these figures have even batch number four in the tanks. To sum this all up, before we open for questions, the key takeaways are that we are at the final stage of the construction.
The production has commenced, and we are pleased with the facility and the technology so far. We have secured a bank facility and later got fully funded. When we look forward, we have a significant first-mover advantage. We get a lot of attention locally, and we also get hold of very good qualified candidates. Prices for the end product remains high, and the cost of alternative products keep increasing. In other words, the business case is very strong. With this, we open for questions.
Okay. We'll start this Q&A session with a question for you, Joachim. Proximar has mentioned Asian interest. Could you please elaborate on this?
Yeah. We are seeing interest for the products, obviously in Japan, but we're also receiving interest from abroad, Asian markets, including China, typical from supermarket chains and larger distributors. We think this is also a very good sign, taking into account that we are getting serious interest, and we've also had visitors on site from abroad.
Okay, moving on to the next question. What is Proximar thoughts regarding brand building?
This is something we take very seriously, and we believe there's a great potential here. The location at the foot of Mount Fuji, and also being the first producer of Atlantic salmon in Japan makes this very unique opportunity for us to take advantage of our position. We are working with this together with Marubeni, and are emphasizing the importance of this when we are now preparing for the sales and marketing strategy.
Okay. How does Proximar consider the competition and the first-mover advantage in the Japanese market?
Yeah, we believe this is very beneficial. We have approximately three years' time advantage. We expect production capacity to come in Japan. With this time advantage, we can work towards the market, also with the branding, and the Mount Fuji location that we believe has a strong potential also going forward to the market in Japan but also to the Asian market.
Yeah. How is the Japanese consumers responding to the high prices, and could Marubeni also sell some of the salmon into the Chinese market to take advantage of any higher willingness to pay there?
We see at the very elevated prices experienced lately that there is a softening demand. It has an impact, but it's important to bear in mind that these are very high prices compared to what has been seen over the recent years, with the freight cost on top of the salmon prices. There has been some softening, but the fundamental growth is there, and the demand we expect to continue going forward. It's also important to say that the market prices we see today are also well above our own assumptions. When it comes to the Chinese market, this is something we have to continue working together with Marubeni, how to address the export markets.
our plan is to target niche markets with the willingness to pay for this product from Mount Fuji.
When do you expect to have the first signed sales agreements in place?
It's still a bit too early to determine, but we should be able to have this well ahead of the first harvest.
Okay. Thank you. Moving on to operations. Could you please remind us on how Proximar concept ensures safe biological conditions in the facility, and then especially related to key factors such as water treatment, redundancy and modularization?
Yeah. First of all, the building is a strict biosecurity zone with overpressure, that is the starting point, taking into account that the air should go out of the building and not in. There are strict barriers and of disinfection of all equipment and personnel moving into the production halls. The system is modular from the hatching to the grow-out. We have separate modules. Each module has its own water treatment and is, in that way, individually aligned. When it comes to the redundancy, all critical equipment has 100% redundancy.
This also means that there's a significant overcapacity in terms of being able to maintain the adequate water parameters, but also backup in case of emergency. We have emergency generators for oxygen and for electricity. The contingencies are well planned and taken into the design. Thank you. Moving forward to the financial figures, and a question for you, Pål. Is the OpEx of around NOK 10 million a fair estimate of the quarterly run rate during 2023?
What to say? I think, yeah, NOK 10 million could be a fair expectation. But it might increase somewhat because this depends on if we get hold of the right candidates and of course, we are still building. But NOK 10 million could be a fair estimate, but most likely on the high side, at least.
Are there any plans to enter the Japanese stock exchange going forward with the Proximar stock?
We haven't discussed this at all yet.
Okay. This wraps up the Q&A session of today's presentation.
Great. Thank you.
Thank you.
Thank you for listening.