Okay, good morning everyone, and welcome to this presentation of Salmon Evolution's results for the second quarter. My name is Trond Håkon Schaug-Pettersen. I'm the CEO of the company. With me here today, also our CFO, Trond Veibust. As you can see from the picture here, we've had a busy first half of the year in Salmon Evolution with our Phase II construction project now really starting to take shape. We are very excited in putting this facility into operation in just about seven months from now. We will start this presentation by going through the highlights for the quarter. I will take you to the operations and our ongoing growth initiatives before our CFO will go through the financials. We will end the presentation with some comments on outlook before we open up for a Q&A.
For those of you who are attending virtually, you can submit questions via the webcast. As to the highlights for the quarter, we are pleased to report that Phase II is progressing according to plan, on time and on budget, and with the first smolt being targeted for release late Q1 next year. We are also very satisfied in continuing to see stable operations across the farm with very low mortality rates and also a consistent high superior grade share. When it comes to production, the positive trend from the previous quarters continued when taking into account that we had a precautionary pause in feeding in the second quarter relating to Phase II construction activities. We also ended the quarter with an all-time high biomass and also a fully normalized biomass composition, which is very important in terms of taking out the full production potential at the farm.
Harvest volumes ended at 1,232 tons gutted. Clearly, the salmon price has been very weak both during the quarter and year- to- date, and this has impacted the financial results where we in the second quarter saw a farming EBITDA of - NOK 13 million and a group EBITDA of - NOK 25.6 million. The figures are also impacted by a temporary high farming cost in the second quarter due to certain non-recurring factors related to harvest of underperforming groups that were affected by last year's smolt quality issues. We will come more back to this later in the presentation. Finally, and especially given the soft salmon market, we are very pleased to have increased our financial flexibility with the new bank facilities totaling NOK 300 million.
Moving over to the operations, as I mentioned, we continue to see stable operations across the farm with very low mortality rates, and I believe this is a strong testament to both the facility and the concept as well as our operational staff. Reported biomass production was more or less flat compared to Q1 and ended at 1,600 tons, but underlying production was higher since we during the quarter had a precautionary pause in feeding in connection with blasting activities for the Phase II water intake pipes, and this reduced the biomass growth by approximately 100 tons. When you adjust for that, we were at 1,700+ tons , which actually is a nice uptick from the first quarter. In Q2, we also harvested out the groups that were affected by last year's smolt quality issues, which also represented a significant share of the biomass in the quarter.
With these groups now out, we expect that to have a positive contribution to growth going forward. We also stocked two smolt groups in Q2, both of them above target weight. Over the last year, we have put a lot of effort into our smolt operation, and I think we are now really starting to see the positive effects from this with the right quality smolt delivered at the right time and also with the right size. Similar to the first quarter, we had a fully stocked farm now with more than 3,000 tons of standing biomass, which is a prerequisite for continued production growth.
One of the core focus areas this year has been to improve the biomass composition, and we are now very pleased to see that as per end of Q2, this composition finally was fully normalized following the smolt quality issues we had in the first half of 2024. The mix we have end of Q2 is close to ideal, both in terms of volume, individuals, and also weight distribution. As you can see from the chart here, end of Q2, 57% of the biomass was above 3 kg versus 0% going into the year. This obviously explains the fairly low harvest weight seen year- to- date. Going forward, this normalization will clearly have a positive impact on both harvest weights and also production costs. Hopefully it will take a very long time until we have to harvest small fish like we've done in the first half again.
Now it's all about maintaining this type of composition going forward, and that's something we are now very well- positioned to do. As communicated, we harvested 1,232 tons gutted during the quarter, and we continue to see a consistent high superior grade share of around 95%. Harvest weights ended at 2.9 kg in Q2, up from 2.3 kg in Q1 as we completed the normalization of the biomass composition. Thus, now with a fully stocked farm and a normalized composition, both harvest weights and volumes will increase from the third quarter. When it comes to the salmon price, we had an all-in price realization of NOK 72 per kilo. The salmon price fluctuated a lot during the quarter, and our harvest was not spread out evenly, but we consistently see that we outperform the reference price.
I think it's also worth mentioning that we are seeing more and more interest in the market for the story that we represent, although obviously lack of harvest regularity is a key issue for many customers. With now Phase II soon up and running, that's something we very much look forward to as that will open up many new commercial opportunities as well. As to harvest guidance, we are now expecting around 5,000 tons gutted in harvest volume this year. When it comes to the underlying production, there are no major changes from the last update, but what we've done is that we have optimized the production plan and are prioritizing going into 2026 with as much biomass as possible, especially given the prevailing salmon market conditions and also expectations of a stronger salmon price next year. About 500 tons, which was originally intended for 2025, is pushed into 2026.
Also, we were planning to upsize two smolt stockings this fall and partially use these for post smolt sales. As we have not been able to secure offtake commitments yet, this volume has been excluded for precautionary purposes, but we are continuing to explore opportunities for post smolt sales towards the end of the year. Finally, if you include the 50% increase in biomass we are expecting year- on- year, the underlying production that we are expecting this year is around 7,000 tons live weight, which is approximately 5,800 tons gutted, which is 20% higher than 2024. As mentioned, we expect both harvest weights and volumes to increase from Q3, and since the ambition is to only harvest the growth, the underlying biomass production is a good proxy for expected harvest volumes going forward.
I would say we have taken huge steps over the last year and also really demonstrated that we can maintain stable operations over time with consistent and good biological KPIs. As I've said many times before, with an operation like this, it's all about continuously improving in everything we do to take out the full potential, and that is the focus of the organization at the moment. As you can see from these charts, things are definitely moving in the right direction, both in terms of harvest volumes, but most importantly in terms of underlying biomass production. From a production perspective, we expect 2025 to be significantly better than 2024, in the same way as we expect 2026 to be better than 2025. Moving over to our growth initiatives, just a quick reminder of how Indre Harøy will look once the site is fully developed.
It's 36,000 tons in one location. Obviously, the scale and efficiency that we will be able to get out of this is quite unique, and I'm confident that once fully developed, we'll have a production cost here that's very hard to match. Phase II is now well underway with the first smolt release planned in Q1 next year, and with Phase II completed, we are actually halfway in our build-out. We are very much looking forward to putting Phase II into operation as what we are building in Phase II is an improved copy of Phase I, building on all the experience and learning from over three plus years of operating Phase I. We're very confident that Phase II will be even better than Phase I, in the same way as eventually Phase III will be better than Phase II. That's how it is in this business.
It's a constant pursuit of perfection. Indre Harøy is also a unique location. We have all the licenses in place for the full development of the island, and we've already made significant infrastructure investments that will benefit Phase III when we eventually move forward with that. First, Phase II, it's all about completing that according to plan, on time and on budget. Phase II will be a real game changer for the company, both in terms of establishing ourselves as a significant player, but also reaching critical mass and scaling the platform that we have. With Phase II, we more than double production, and we also dramatically increase our harvest regularity, which is very good from a commercial perspective. It also enables us to leverage the substantial investments already taken in systems, people, and facilities. Clearly a game changer for the company.
As to Phase II construction, this is moving forward at a high pace and progressing according to plan, on time and on budget. As you can see from the picture here, 10 tanks out of 12 tanks are already assembled, with the last two tanks being assembled now in August. Also, the building shells for four out of six technical rooms are assembled, with the last two soon due for assembly. A lot of focus is devoted to process installation work, and this will be further intensified over the coming months. Also, on the intake station, the building itself is now completed. We have also installed two intake pipes, one going down to 95 m and one going down to 25 m. This was a major milestone in the second quarter, a very important milestone.
In the intake station now, work is centered around the process installation work, which is well underway. As I said, we are on time and testing and commissioning of Phase II will commence in just a few months, and we are now devoting a lot of resources into the preparations for significantly scaling up our operation over the coming year. We already have a very good staff operating and managing Phase I, and we're also adding additional operational resources. We're very confident that we'll be able to scale up Phase II in an efficient manner. As to the Phase II pre-grow-out tanks, planning and engineering activities are in the end phase and subject to a final investment decision during the second half of this year. We target completion aligned with the Phase II grow-out facility.
In the near term, obviously, our two main priorities at the moment are continued operational excellence and taking out the full potential of Phase I, as well as executing Phase II according to plan. With Phase II, we already have an 18,000 tons operation, and with this, we have the critical scale needed for strong returns. This also gives us a fantastic platform for further growth. In terms of further growth, clearly Phase III at Indre Harøy is the obvious choice in the medium term. We have all the infrastructure in place, and I think you will have a very hard time finding a more attractive project than Indre Harøy. Longer-term, we naturally have ambitions beyond Indre Harøy and being the global frontrunner. We believe that this will yield a lot of opportunities.
As I said, now it's all about taking out the full potential of Phase I and executing Phase II according to plan. Those are the most important enablers in terms of taking Salmon Evolution to the next level. I would also like to say a few words on the new regulation for land-based that was announced by the Norwegian government this summer and that has now come into effect. Clearly, we find it positive that we have now gotten clarification around the future regulatory framework for land-based salmon farming. The main takeaway is that filtering and disinfection of intake water becomes mandatory. From our side, we generally believe that the regulation is reasonable, and we also note that we with our hybrid flow-through system already are fully compliant both for Phase I and Phase II.
From our perspective, this is a good thing as it reduces regulatory risk going forward and potentially also strengthens Norway's position as the driving force for the development of the land-based salmon farming industry. Okay, Trond.
Thank you. All right, the financials. To state the obvious, although we are pleased to report continued improvement in key metrics and stable operations at Indre Harøy, financially the second quarter is not something we are satisfied with. Firstly, we are fully exposed to the spot market. Last year, this strongly worked to our advantage. In fact, we likely had the best price realization amongst the listed farmers in the first half of 2024. This year, however, the salmon price has been significantly weaker, reflecting high supply growth. As a result, even with harvest volumes broadly in line with Q2 last year, revenues are down significantly, and this represents the primary negative impact on EBITDA year- on- year. Second, farming costs in Q2 were elevated, driven by non-recurring factors. This was primarily due to harvesting underperforming groups linked to last year's smolt quality issues.
These groups delivered lower weights, reducing smolt yield, and incurred higher feed costs due to less growth and higher FCR than anticipated. What is positive with all of this is they were harvested in full during the quarter, so they are behind us. Taken together, the combination of weaker salmon prices and temporary cost effects in Q2 had a notable effect on our reported results. However, we expect a strong price recovery in 2026, and on cost, the drivers behind this are non-recurring in nature. The smolt quality issues from last year impacting performance in the first half of 2025 have been resolved, and underlying costs are lower than what is reflected in the reported figures. With stable operations at Indre Harøy, minimal mortality, and a scalable cost structure, we have significant operating leverage as volumes grow.
We did not hit the mark in the first half of 2025, but looking back one year to the first half of 2024 highlights what is possible even at an early stage at Indre Harøy. I think overall the heading summarizes it well: better times ahead. At Indre Harøy, it is all about cost competitiveness; it's all about good biology, capacity utilization, and scale. After several years of operating the facility, we have deep insights into the underlying cost structure. In a fully operational farm, roughly half of the total costs are essentially fixed. Smolt stockings follow our production plan with limited variations; it is all about smolt yield. Personnel levels are stable, and technical operations, maintenance, other running expenses, and G&A are largely independent of production volumes. In other words, with all 12 tanks in use, incremental output adds minimal additional cost, creating significant operating leverage as volumes grow.
The more we produce, the lower cost per kilo we have. Pretty obvious. For Salmon Evolution , driving down farming costs is all about making continuous improvements that steadily increase production and harvest volumes. When Phase II is online and volumes double, we also unlock significant economies of scale by leveraging the operation we already have. The same factors impacting the farming segment: weak salmon prices and temporary higher farming costs also flowed through to overall group results. Outside farming, the group includes the other segment, which are essentially headquarter and expansion costs. Operating expenses in this segment were slightly higher than preceding periods. I would like to emphasize that cash burn on growth projects, both domestic and international, remains very limited as our core focus is on maximizing the performance of existing operations and delivering Phase II on time and budget.
Results in the second quarter and the first half of 2025 are not something we are satisfied with, but as the salmon price recovers and volumes grow, so will profitability. A quick look at the balance sheet and cash flow. As Trond Håkon Schaug-Pettersen highlighted, the Phase II expansion is on plan and budget. Investments through Q2 were funded with own cash, and the first drawdown on the construction facilities was completed early July as planned. In the quarter, we also strengthened our financial flexibility with new loan facilities totaling NOK 250 million, of which NOK 150 million is earmarked for the planned pre-grow-out department at Indre Harøy. None of these were drawn at the end of the quarter. Cash flow from operations in the quarter were impacted by the combination of weaker market prices and temporary higher than normal farming costs, as mentioned earlier.
Cash flow related to investments primarily relates to the Phase II expansion, and cash flow from financing is related to working capital financing and interest expenses. As mentioned, Phase II is on track, and as Trond said, testing and commissioning of Phase II will commence in just a few months. During the quarter, we invested approximately NOK 280 million in the project, bringing accumulated investments up to a little bit more than NOK 900 million. As mentioned, the first drawdown on the construction facilities was completed in July. Building activity and capital expenditure are expected to peak during the second half of 2025. This project is a game changer for Salmon Evolution , and it is only seven months until we stock the first smolt and start doubling production at Indre Harøy.
As I also mentioned earlier, we took proactive steps to further strengthen our financial flexibility during the quarter in light of the softer than expected salmon market the last 12 months by entering into a new loan facility up to NOK 250 million with DNB and Nordea. Of this, as mentioned, NOK 150 million is earmarked for the planned pre-grow-out department at Indre Harøy. The facility is on customary market terms with a 12-month tenor and option to extend for an additional six months, subject to lender consent. Additionally, we also increased the overdraft facility from NOK 150 million- NOK 200 million, providing additional flexibility. Trond Håkon? Yes.
Thank you, Trond. Clearly, the salmon market has been much weaker than expected this year, and this is due to an unprecedented increase in volumes. Looking into 2026, the outlook is much better, and as we turn the page on 2025, we expect supply growth to come significantly down, which again would result in stronger prices. Here we have borrowed some material from DNB Carnegie, and as you can see, they are expecting - 7% supply growth from Norway next year and - 1% globally. I think also the positive thing with the salmon market is that volume builds markets. When supply eventually comes down again, which it will, prices could also easily surprise on the upside. We are therefore positioning ourselves for a market recovery next year. With Phase II then also up and running, we are in a very good position to capitalize on this.
To sum up, we have a proven platform, and we know that what we are doing is working, and we've been able to maintain stable operations over time. For now, it's all about maximizing utilization of Phase I, which will further improve unit economics. Also, the heavy lifting is done, as we are now soon already halfway in our project at Indre Harøy with an 18,000 tons operation well in sight, where we also get the scale needed to really see attractive economics and cash flow on back of an expected market recovery next year. This again puts us in a very good position to continue to lead the development of the land-based salmon farming industry. Thank you. I think we will then open up for questions. Maybe start here in the audience and then move over to questions submitted via the webcast.
Thanks, Herman Dahl, Nordea. Can you say something about what kind of harvest weights we should expect in Q3 and also in H2 this year?
I think what we can say is that you had 2.9 kg gutted in Q2, and we expect those to increase in Q3. I don't want to give like an exact figure, but given that we have now pushed through with the normalization of our biomass composition, and we have a substantially different composition than we had both going into 2025 and also end of Q1, you should see a material increase from Q3 and onwards.
Thanks.
Christian Nordby, Arctic Securities, can you give a range for how much cost per kilo will drop in Q3 versus Q2 now in your farming segment?
We have not issued any specific guiding on costs. What I can say is what I have already said. We are not satisfied with the second quarter and the first half of 2025. Smolt yield was too low, and the feed conversion on the groups we harvested was too high, impacting costs. I think towards the end of 2024 and the start of 2025 is kind of a good reference point going forward, but again, we have not issued any specific guiding on costs. Apart from saying the obvious, that the costs will go down, the second quarter is not representative for the cost structure of the operation we have at Indre Harøy.
Based on one of your slides where you show the biomass composition, it looks like you have quite a lot of volumes ready for harvest in July. Is that so? Will you be quite like 1,000 tons, roughly speaking, harvested in July at fairly low prices?
It was not 1,000 tons in full, we had a decent volume in July, but it's lower than 1,000 tons.
Thank you.
Alex Aukner, DNB Carnegie. So could you explain the volume split in the second half of the year? How much in Q3 and Q4, and also the volumes pushed into 2026? Is that all those 500 tons coming Q1?
I think we are, I would say in general, what we are targeting is to harvest only the growth. Assuming that you have sort of fairly stable growth or hopefully slightly increasing quarter- by- quarter, that should be a good reflection of the harvest volumes. Obviously, there are timing effects if it's sort of in this quarter and that quarter. I think we will leave it at that as to the split between Q3 and Q4. As to the volumes pushed into 2026, that will then come in Q1. The way it looks now, we have quite a lot of volumes in the beginning of the year next year. That's where raw volumes were originally intended for late 2025.
Thanks. In terms of the non-recurring costs in Q2, that was specifically because of higher feed costs due to bad economic feed conversion ratio. Was that the explanation for the non-recurring?
Two main effects: smolt yield and the one you mentioned, higher feed costs.
Thank you. In terms of construction for Phase II, any more blasting, anything that would disrupt Phase I production?
Everything completed. Phase II, and it's worth emphasizing that this was sort of nothing with respect to the biology or anything impacting the fish. This was a precautionary pause that we had because when you are sort of laying the intake pipes, there's a lot of rocks that need to be sort of taken out. To sort of mitigate any stress for the fish, we stopped feeding for quite a few days just to be on the safe side. That was what was impacting the growth. That is all completed. There are no more blasting activities or anything like that going forward.
Thank you.
Any more questions from the audience? Yes.
Knut-Ivar Bakken at SpareBank 1 Markets. You're almost halfway through Phase II expansion now. How much of the contingencies and buffer have you used so far?
I think what we, as mentioned, we are within our budget. Obviously, now basically everything of the procurement is done, so we have good visibility on sort of the cost structure. I think as to risk, obviously the main risk here is delays, those kind of things, cooperation between different contractors and so forth. The project is going very well, and we strongly believe that we have a very good visibility on the project and see that the sort of total project cost is within what we are expecting.
Another question. The site is fully stocked. You have an optimal size distribution. Should we expect a harvest of around 6,500- 7,000 tons next year based on that?
I think what we can say, if you look at our operations in, if you look at 2025, the underlying production this year, we are expecting slightly below 6,000, but then we are also expecting more in the second half of the year. If the run rate at the end of the year will be higher than the full year production. We have not come out with a guidance for 2026, but as I mentioned, 2025 is better than 2024, and we for sure expect 2026 to be better than 2025.
Thank you.
Any more questions from the audience? No? Okay. We have received some questions via the webcast. We can start with this one. There is a lot of talk about U.S. tariffs. How is your sales structured, and do you have a lot of sales to the U.S ?
Most of our volumes are going to Europe. We are not seeing a specific effect with respect to the U.S. tariffs. I think another question is the impact of those tariffs on the salmon market as a whole, but I guess that's harder to quantify. There is no specific impact for us and very limited volumes going directly to the U.S. market.
Okay. Next question. What prevented you from using fish pull forwards to reduce price risk, and what financial hedge rate targets do you have going forward? First and foremost, using Fishpool to hedge the salmon price. Currently, for us, we have a little bit too fluctuating volumes. We need more regularity on the harvest side. I think looking into the future, this is a quite unique opportunity for Salmon Evolution.
We have a setup where we produce the same amount of fish every day. That also means that we will harvest the same amount of fish every day. This means that we can use, for instance, a financial marketplace like Fishpool to hedge the price and to lower the variations. This is definitely something we will look into for the future and something we consider quite interesting. Yes. Why are you fully exposed to the spot market? I think that has been answered quite. Yeah.
As Trond said, when you don't have regularity on harvest, it's hard to sort of hedge the volumes. When you are doing physical contracts, you need to sort of tell the customer when you are going to deliver fish, and they want fish ideally every week. In the same way, for doing hedging financially, you want to have a certain degree of regularity. As Trond said, that is coming now. Clearly, in the same way as we hedge other components in our P&L, we would definitely like to also hedge the revenue side so that we can maintain stability and to a certain degree also lock in cash flow.
All right. The two final questions. The announced partnership with Lofotprodukt and NorgesGruppen earlier in 2025. Have you gotten any feedback from the consumers so far, and what do you expect of the partnership going forward?
I think this is sort of one very good example of what is possible. The market reception has been good, and we have also not spent a lot of money on marketing and so forth. The product is listed and will continue to be listed, which I think is a good indication that the market reception has been good. Obviously, now going forward and also with more and more volume and also more regularity, I think you will see more things like this over the coming period. Definitely something we are very happy about doing.
You have previously mentioned Norway as a good location for further growth. Do you have any update on that?
Yeah, I think we definitely see Norway as very interesting, and I think what we have really seen over the last years is that what we have here with all the infrastructure, the value chain, that gives us a huge advantage. We obviously have, as I mentioned, growth ambitions well beyond Indre Harøy, but at the moment, focus is on what we have. We need to get out the full potential of Phase I, and we also have a large construction project ongoing that we need to manage in a good manner. We have actually an 18,000 tons operation and also a very good platform for further growth. At the moment, the primary focus is on what we have, but we are obviously also looking into opportunities to grow, but that will sort of be a little bit down the road.
All right, that concludes things for today. Thank you for coming, and see you again in November.
Thank you.