Okay, good morning, everyone, and welcome to this presentation of Salmon Evolution's results for the Q4 . Seems like we have a pretty packed room here today, that's good. My name is Trond Håkon Schaug-Pettersen. I'm the CEO of the company, I have to say that it's a real pleasure being here today, especially given the eventful Q4 that we had with the number one milestone obviously being the successful harvest of our 1st batch. For those of you who are joining us online, I can also share that the audience here today have had the opportunity to taste our salmon, and at least judging from the comments here, I think it was well-received. I have to emphasize, as expected.
I will start this presentation by going through the highlights for the quarter, then I will give a very short introduction to the company. I will then go through the operations both in Norway and for international projects before we have a look at the financials for the quarter. Finally, we will end the presentation by with some comments on outlook before we open up for questions. For those of you who are attending virtually, you can submit the questions via the webcast.
Obviously the main takeaway from the Q4 is the harvest of batch one, which really demonstrated that it is possible to produce salmon on land in a very short period of time on an industrial scale, and also with a very strong biological performance. Not only up to a certain weight, but all the way up to harvest weight. In total, we harvested 340 tons hog, with an average weight of 3.75 kg, so around 4.5 kg in live weight. We are also very happy with both the quality of our salmon, which had what I think we can call an industry-leading Superior share of 96%. We're also very happy with the reception of our salmon in the market.
Customers are already asking for more volume. We very much look forward to the Q2 where we will harvest our batch two. What's also very comforting is that we see that the good biological performance is continuing. Based on what we have seen so far, we are comfortable that we are on track for profitable farming operations already in the Q2 this year. Also that we will reach steady state production from late in the Q3 . We are also continuing our production ramp up, increasing the production every month.
In the Q4 , we stocked both batch number three and batch number four and batch number five is also set for stocking in just a couple of weeks. During the quarter, we also continued our work on building our international pipeline both in Korea and North America. For Korea, we are now soon approaching the construction phase. We are also continuing the preparations for phase II in Norway. I hope that we will be able to share more on this in not so very long. The company also continues to enjoy a strong financial position. We had an available liquidity of NOK 400 million at the end of the quarter, including committed and drawn credit facilities.
Finally, we are also very happy to have found a permanent solution as to our composition of the executive management team, with myself taking on the position as CEO and also Trond Vadset Veibust taking on the position as CFO. He comes from Aker NES and will be starting in the Q2 . We are confident that he, with his long experience from a large industrial company with also global operation, will add significant value from day one. Before we go into the operations, just a few words on the company. Most of you probably know it, but Salmon Evolution was founded in 2017 by a group of people deeply embedded in the salmon farming industry.
It has taken us six years to get to where we are today. I think that says something about the lead times required in this industry to develop projects like this. We are now about 60 people in our group, covering all the important areas. What has been important for us when establishing Salmon Evolution has been that we want to build a concept that combines the best of what the ocean has to offer, while at the same time building on the experiences from the land-based smolt industry.
We do this through what we call a hybrid flow-through system, where we use quite a bit of fresh seawater at all times to provide the salmon with the best conditions, while we at the same time also reuse quite a lot of water because this makes sense both from an operational and financial perspective. We basically want to, as we said many times, create an environment for the fish where it not only can survive, but also thrive. This will give better biology, better growth and better quality, and in the end, also better profitability. Our flagship operation is, as you know, Indre Harøy. We started building that in May 2020 and phase I will be completed now very shortly.
What we really see is that our approach to land-based farming has the potential for global scaling in our attractive overseas market. With our technology, we have some limitations. We have to find locations with good access to high quality seawater and also water with a certain temperature. There are some places in the world where we cannot be, but at the same time, there are a lot of places very well suited for our approach. That's why we have entered into a joint venture with Dongwon Industries in Korea, where we will build a similar facility. Also last year, we announced that we are launching a project in North America.
Very important for us to stress that as we grow internationally, we will do so on the basis of having a large and successful operation at Indre Harøy in Norway, in the heart of the aquaculture cluster, where you have unique access to infrastructure, people, suppliers and competence. Moving over to the operations. As I mentioned in the highlights, so obviously the batch one harvest was a major milestone for us. 340 tons, average weight of 3.75 kg gutted. This is a very short production cycle, only seven to eight months. A production cycle that short can obviously also cause challenges and obviously in terms of quality, that is something you have to be aware.
We have done a lot of testing during the production to verify the quality, and it has looked good all the time. Finally, we can now confirm that the quality was very good. This is also evidenced by the Superior share of 96% for the batch as a whole. This is something we are very proud of. The harvest was spread over three harvesting rounds from early November to early December. Another thing that we are very happy about is the weight spread in the population. It's very tight. As you can see from the chart here, on the 1st harvesting round, we had a high concentration of 3-4 kg. This is gutted weight.
For the last harvesting round, the concentration is at the 4-5 kg range. In fact, we had over 50% in the 4-5 kg range and also well over 20% in the five plus range. In fact, for the last round, we had around 80% at 4 kg plus and less than 2% below 3 kg. If you compare that to a typical Nasdaq distribution, we will see that that is this is significantly better. I think long term, this is only something that will support our ability of realizing strong prices in the market.
Another important factor when it comes to the weight distribution is that batch one was not graded on size like we have done with batch two and we'll also do with batch three and four and the next batches to come. We think that to have already now this tight spread is a very good demonstration that we have good feed distribution in the tanks. Now when introducing also grading during the production, the spread should only become tighter and tighter going forward, which will obviously also help both from a price realization perspective, but also from a cost of production perspective. As we have said, the salmon has been very well received in the market.
We would have loved to have salmon available for sale now in Q2. Customers are asking for more. That will have to wait until the Q2 . The volume that we sold in Q4 was sold to more than 20 larger accounts worldwide. That include the tier one international processors, distributors, and also importers. What we see is that our product today you have tasted the smoked salmon. It's very well suited for smoke production. It's also very well suited for raw consumption, but also conventional cooking. This gives a lot of flexibility as to our commercial operation.
Also the high Superior share obviously also contributed positively in terms of our price realization, which came in at 78 NOK per kilo for Superior 3+, and slightly below at 75 NOK per kilo if you include all the volume that was harvested. When we compare to the Nasdaq prices for the relevant periods and weight classes, we see that we outperformed the index with around 3 NOK per kilo, which is something we are very happy about this being the 1st harvest and more of a test for what's to come later. Our customers are reporting that the product has an excellent taste.
They say that the product has a nice and consistent red meat color, a firm texture. We also see that the product has a higher filleting yield than conventional salmon, which is something obviously that will help us and be very beneficial long term as we seek to optimize our price realization. Also in January, we received a GLOBALG.A.P. certification. From the Q2 , we can market our product as GLOBALG.A.P. certified. We are also working on ASC certification and expect to have that later in the year. Our production ramp-up is proceeding according to plan, and we now have about 1,000 tons of biomass in our systems.
In December, we had the all-time high biomass production at Indre Harøy. This despite that we harvested out the batch one, so very limited contribution from that then in December. The good trend has continued in January with a new all-time high production of around 225 tons. In terms of the figures in January, it's worth mentioning that we only had, following the harvest of batch one, we only had fish in four out of 12 tanks. If you adjust the growth in January for sort of the spare capacity and annualize the figures, you will see that you are more or less in line with the volume in our production plan of 7,900 tons per annum.
A little bit on mortality. We had this in our operational update. This is updated with one more month. We are obviously very pleased to see that we continue to have low or very low mortality levels, which is a strong indication of good fish welfare. Batch 1 ended at 5.8% in total, and as you can see, a big part of it occurred early and after that it has been very stable. For Batch 2, the figures are, I would say, very impressive. After 7 months, we are now at 1.2%, and actually trending towards, say, a mortality sort of well in line with our target or initial target, I would say, of 3%.
Batch 3 and 4 is looking even better than batch 2. I think that this really shows the benefit of producing in a controlled system where you don't have to worry about sea lice treatments or low temperatures during the winter, but instead can have the fish thrive under optimal conditions. As I mentioned, we keep growing the biomass about 1,000 tons end of January. Batch 2 has now reached a weight of 2.4 kilo. This batch is now consisting of 2 groups, with the largest group at around 2.6 kilo and the smaller group at 2.2 kilo.
I think what's also important to stress here is that we are now producing at higher densities. We are now already above 60 kg/m³ for the largest group here in batch two. We are starting to sort of get into what I would say higher densities, and that's sort of obviously very good to see that the system is sort of handling that in a good way. We plan to grade batch one more time before harvest. Then we should be in a very good position to get a lot out of this batch in the Q2 when it's due for harvesting.
We are now, we have now had four batches and, very soon we will stock our 5th batch, which will be another full size smolt release, as we call it. This batch will, similar to both batch three and four, have an average weight of, well above, 200 g, which only means that harvesting volumes are coming a little bit earlier. Hence, we also expect to reach steady-state production by late Q3. We should then have a good chunk of harvest volumes this year. I think, call it the beauty of our hybrid flow-through system is that it gives us an opportunity to continuously improve our operations. This is something we are very focused on.
Obviously, given the limited marginal cost for every additional volume that you're able to produce, this have a large impact on the profitability. Obviously now, 1st, our main goal is to reach the 7,900 tons. What we have seen so far in terms of biological performance, this is something that we are very comfortable with. Longer term, we see several ways to increase the production volume, either through optimizing the production, or working on items such as feed, genetics, AI. For example, our production plan is based on stocking fish six times per year. We have some built-in flexibility on that.
If we're, for example, able to increase that to 6.5 or maybe even seven times per year, obviously that will have a big impact on the profitability and also the, then the volume. I think another very interesting thing that we are also looking at is the opportunity to also produce some post-smolt by utilizing the spare tank capacity that we have. In our production plan, we have a fairly good utilization of the tanks, except for the tanks in the 1st department. There we have a starting density of only 7-8 kg/m³ .
In theory, we could stock a higher number of smolt and then, say, for example, after two months, we could take out the excess volume and sell it as post-smolt. This is something we, in theory, could do six times per year, maybe for a volume of up to 1 million smolt. Obviously then, the interesting part of that is that the only marginal cost we would have in such a scenario is the smolt cost itself. It's the feed and the oxygen. All other cost is already covered by the existing production. This is something that could have quite a big impact on, depending on how you look at it, the cost or the profitability.
This is not something we will do tomorrow. It's more to sort of illustrate the sort of built-in potential of this system. Here is a picture of Indre Harøy in December. As you can see, all the tanks and structural facilities are completed. We have now taken over the 1st eight tanks here, and these two here will be taken over now in February, and then the last two ones will be taken over in March.
The activity level at the site is has come significantly down over the last month, as the remaining construction work now is mostly focused on commissioning and testing and preparing for the handover of the last tanks and also the technical rooms. Over to our projects overseas. As you know, our project in Korea comprise both a smolt facility in the inland and also a full grow-out facility on the coastline, coast. We have continued our focus on design and engineering, and in March, we will have a 90% design review on the smolt facility and also a 30% design review for the grow-out site.
As you can see from the picture here, this is in many ways very similar to what we are doing in Norway. It's the same production concept with 12 tanks. We are also working very actively on the permitting process. We continue as earlier to experience strong support for the project, both on a national, regional and local level. We hope to have some important clarifications over the coming months. The permitting process is mostly relating to the grow-out site, where we have to regulate the area for industrial use. For the smolt site, the permitting process is more or less okay as there has been a fish farming operation there earlier.
But these things takes a little bit of time and I think it's what you see in overseas markets. This is a new industry and you don't have the same regulatory framework as you have in Norway with very predefined processes. Hopefully we are not too far away and then we'd be in a position to soon start. Moving over to North America, I think as a company, we are very confident that once we demonstrate that we at Indre Harøy can produce our targeted volume at the targeted cost and with a very good quality, we will have a lot of opportunities to scale our business. That's sort of the rationale behind launching our project in North America.
That will give us eventually a salmon production on all the three main salmon-consuming continents. Also in the with a local production on the continents with the highest growth potential. There are long lead times in this industry. That's why if we want to be in a position to start building in a couple of years, we have to start working on this now. That's why we have a team in place working on this. We are doing a lot of work on the site selection and site mapping process, where we scan basically all parcels on certain predefined areas of the coast and matching those against the given criteria, either water quality, access to infrastructure, topography, et cetera.
We have also secured some options for some site. Over the coming quarters, we will continue with this site selection process and the due diligence. I think obviously long term, this is a project that we have a very strong belief in. I think once we are able to mature the project a little bit more and structure it, we will have a lot of interesting opportunities to structure potentially very attractive partnership structures as well. Moving over to the financials. New for the quarter is that we have introduced a segment reporting, and this is done to better visualize the financial performance relating to our farming operations in Norway.
With the projects now running both in Korea and in North America, and also having built a organization to handle the growth we foresee over the coming years, we believe that this segment reporting will give everybody a better picture of the underlying profitability for the Norwegian farming operations. For the Q4 , we recorded farming revenues of NOK 27 million, which gave an EBITDA of -9.4 or -27.7 NOK per kg. Please note that this also includes G&A expenses allocated to farming. Maybe more interesting is to look at the figures for December on a standalone basis. December was the month where we had most of the harvesting volume.
Here we saw NOK 20 million in revenues and a slightly negative EBITDA of minus NOK 2.9 million or minus NOK 11.8 per kg. Given the limited both biomass and harvesting volume that we had in the Q4 , these figures makes us confident that we from the Q2 will, for the 1st time, have profitable farming operations. This is also supported by the production costs that we have seen so far. Batch one had a production cost of NOK 79 per kg, excluding allocated G&A. For batch two, the same figure was NOK 56 per kilo as per end of December this year. Please also note that that is for a 1.9 kg fish.
Obviously we would then expect this figure to decline further, towards harvest. Finally also, as we continue to ramp up production, we will have more and more biomass to allocate our production costs to. Which, again, makes us confident that once we reach steady state, we will have a production cost on par with conventional farming. And actually in terms of EBITDA, cost a lower production cost, given the high level of depreciation associated with the land-based. When it comes to our full P&L for the group for 2022, we had NOK 46 million in customer revenues.
Includes both the external smoked sales in the H1 and also the sale of salmon from Indre Harøy. In the Q4 , we had an operational EBITDA for the group in the Q4 of NOK -22 million, which is similar to what we saw in the Q3 . Please also note that this includes NOK 5.5 million in charges related to unutilized production capacity that we expense directly in the P&L. From the Q2 , when we have taken the full facility into operation, we expect that all production costs will be allocated to the biomass.
We had a fair value adjustment for the year of NOK 11.7 million and also a quite large positive net financial of NOK 30 million for the year. The main contributor here is that the mark-to-market adjustments on interest rate swaps that we have to hedge our interest rate exposure, but also on our a change in the value of our power contract. As to our power contract or contract for electricity, we are more or less fully covered for 2023. We are currently looking at securing volumes from 2024 onwards.
Given that electricity is an important factor here, we want to have a conservative approach and have long-term and also stable prices. Also, the Norwegian government has introduced a new system for three-to-seven-year contracts where we are now seeing prices in our region at levels that are starting to make quite sense. When it comes to phase I at Indre Harøy, total e-investments are now in the midpoint of the previous full phase I guiding of NOK 1.56 billion-NOK 1.59 billion. With the work at the site now mostly focused on testing and commissioning, we expect a moderate remaining CapEx.
The exact amount will be dependent on the outcome of the final contract settlements with the suppliers. How we choose to structure the demobilization and remobilization between phase I and phase II, and also obviously the productivity during the remaining period. Looking at phase II, we are continuing with the initial design and engineering activities. It's all about implementing the learning effects from phase I and try to identify cost savings. We also in the Q4 , we blasted out the area here for the next intake stations. This is for both phase II and but actually also phase III. We have also completed some blasting, heavy blasting work, and excavation work closer to the fish tanks.
This was done to monitor any potential stress impact on the fish from construction work, and I'm pleased to see that has not been an issue at all. We are also seeing, I would say, clear signs of normalization in the construction market. Our plans to phase II remains unchanged, and our ambition is to eventually move into the phase II after completing phase I. I want to emphasize that we have not taken on any financial commitments, and we are maintaining full flexibility, both as to timing and spending. The company continues to enjoy a strong financial position, and we are fully funded for committed projects.
As I said in the Q3 presentation, we have been experiencing very strong interest from banks for financing of phase II on the back of the strong operational development we have had during 2022. We are now in advanced discussions with banks for a new debt financing package at what we could say is significantly improved terms compared to our existing phase I financing. We expect this financing to include a refinancing of phase I at a higher loan-to-value, allowing for financial flexibility to fund early phase II CapEx. We also expect a significantly higher overall leverage for phase II compared to phase I, and we also see a lower cost and also more flexibility compared to what we have today.
As to the specific terms of this debt financing package, we'll have to come back with that once we have everything finalized. Soon approaching the end of the presentation here. As we have communicated, we have a production target of 100,000 tons. It's a very ambitious goal. But, at the same time, we feel that we have a very tangible pipeline of very good projects. Our project in Norway, we will continue to develop in three phases. This year, we expect that we will start to finally see some physical progress in our project in Korea. Towards the end of the decade, obviously the ambition is to be up and running with a substantial operation in the North American market.
To sum up, we are very excited about having completed our 1st harvest and the full harvest of batch one with very strong re-results. We, I think, really see that as a proof of concept as to our approach to land-based salmon farming. Going forward, our focus is all on continuing the strong biological performance, while at the same time continue to ramp up production over the coming months and quarters. We really look forward to the Q2 , where we will have quite a bit of volume available for sale in a potentially very strong market, which also makes us confident that we will have profitable farming operations for the 1st time.
Having now produced for almost one year, we have had a strong biological performance. We have had minimum mortality. We haven't had any incidents. We are now more than ever convinced that the hybrid flow-through system, it offers a very attractive approach to land-based farming and we see a big potential in continuing to develop our facility both in Norway, but also not least the projects we have in Korea and North America. This was the last slide of the presentation, and I think we then can give the opportunity for the audience here to ask questions. We will start with the audience and then we can take the questions submitted online afterwards. Harmon?
Just on the densities and. Thank you. Just on the densities and water quality, just what kind of differences have you seen between batch one, which was produced at a significantly lower density than batch two with regards to water quality and have you had any challenges with regards to that?
I think what we can say, batch one was also. At peak, it had a fairly high density, not as much as we were as like in the mid-50s range for batch one at peak. Now we are sort of exceeding 60. I think what's important to say in terms of density is sort of one thing is the maximum density, but you start very low and you go. We have a stocking density of seven to eight. You go maybe up to like 50. You cut it in two and then. It's only like for a few days you will have the very high density.
We'll call it the average density would be more or less like in the 45 to 50 for sort of the facility as a whole. I think what we can say, it's still obviously early, but sort of the fish is eating well, and we have sort of control over the environment in the tanks and yeah.
Thanks. Just on the mortality, what has been the key drivers between the mortalities you've had on batch one?
I think for. It can be several things, but one factor is obviously also the biological material or sort of the smolt that come in. For phase for the 1st batch, we had a lot of smolt at the smolt site, just because we were sort of completing a contract with an external customer. We had a high biomass level at the smolt site, so it should probably have been delivered to Indre Harøy a little bit earlier. I think the initial mortality was sort of linked to that. Probably also some. Hopefully we are getting better and better. I think it's a combination of several factors.
Obviously when you take over a facility like this, there's a lot of tuning and adjustments in the beginning. We are very happy to see that batch one at 5.8% is a fairly, I would say, very good figure. Then we see batch two performing significantly better and also the next batch is sort of even below that. That is something we're satisfied with.
Thanks.
John Binde, Fearnley. You say you have a production cycle of eight months. Can you say something about the average smolt weight you release and also the average temperature you're running through the cycle?
In our production plan, which we have said is 11-11.5 month, that assumes a smolt weight of 130 g. For batch two, we were more or less sort of at that level, but the other batches we've had a little bit higher smolt weight. That's sort of very okay now 'cause it sort of just means that we will get into steady state and also have harvest volumes earlier. We've been stocking at the batch one was 275 g. Batch three and four were sort of in the 200 g plus range, and that will also be the case for batch five. Eventually, I think we will move to around 130 g.
The last part of your question was?
The temperature.
Yeah. We have up to 1 kg, we have 14 °C. That's sort of what's in the production plan. From 1 kilo and out, we will sort of target to have 12 °C . The whole point in our system is that we want to basically have August or September every month. You're producing the same amount of fish regardless of season. Yeah.
Okay.
Martin Kaland, ABG. Now that you have finalized one production cycle, the strong operational metrics speaks for themselves, have you had any issues at all, smaller issues that you have overcome and made you either more comfortable about your facility or, yeah, that you have potentially improved now for the next months?
We have had a lot of issues.
Okay.
I think that's very important to understand that this is not plug and play. We've had power breakdowns, oxygen systems started sort of breaking out, been experiencing everything. That's sort of why you would have focus on redundancy in how you design facilities. You need to have both of direct redundancy, but actually triple redundancy on sort of critical functions. Obviously also with. I think what the benefit that we have is that we have a water source outside our facility with a temperature that sort of the salmon is very happy about.
When something happens, because things will happen, that's just how it is, then you have the opportunity to maybe add on a little bit more water, and that solves a lot of the problems that or it solves most problems. That's why we are very happy to see that we have had many cases where things could have gone wrong, but due to the sort of built-in redundancy, the flexibility and sort of the team also getting more and more operational know-how in how to operate this, you are able to sort of tackle the challenges early and prevent sort of a situation from escalating.
I think that's a flexibility that we have, but obviously we don't have that in the same way in a sort of more high recirculation system and potentially in a system where you don't have we have a very sort of a temperature deviating a lot from sort of your desired temperature.
Secondly, on the production plan now for the rest of the year, batch two, is that fully harvested in the Q2 ? How does it look for Q3 and Q4 in the ramp up towards, steady state?
Yeah. I think sort of base case is that the batch two will be harvested out in Q2. Maybe some will sort of spill over to Q3. Obviously, batch three and four, it's also the H2 of this year. When we are stocking batch five now in just a few weeks, and that will have a weight of over well over 200 g. We should have, I think, volumes, quite a lot of volumes from that batch also for this year, due for harvest this year.
Assumed harvest weight's slightly higher than 1st batch?
Yeah. We will try to. I think that the last harvesting round, it was close to ideal, and so gradually increase that going forward. I think for batch two, we target obviously, compared to the average weight for batch one, want to be a little bit higher and then we take it step by step going forward.
Thank you.
Okay. We have one question here that has come in via the webcast. Any concerns about if there could be taxes in the future also for land-based salmon? It's a very good question. I think we are not overly concerned about that. I think it will. First of all, you need to demonstrate that you have sort of a foundation for charging a resource tax. Secondly, there's a lot of differences compared to a conventional farming operation. Obviously also with land-based, the whole idea of this being sort of specifically linked to Norway, it's sort of not the same 'cause this is something you clearly can do other places in the world.
We're not very concerned about that, at least in the foreseeable future. We also have a question here from Nils Thommesen at Fearnley's. Can you share the FCR for batch one and how this was versus your budgets? I think what we can say is that batch one is slightly higher than the budget, and that sort of has to do with sort of the tuning and testing of the systems to get everything working properly. We also have this automatic pellet detection system where you have cameras that are scanning the wastewater stream for pellets.
We really think that over time, when this is sort of fine-tuned, we should have a very tight FCR. Also, a FCR is also very important in terms of one thing is the biological FCR, but the other is the economic FCR. With the low mortality, obviously that helps a lot. Slightly higher than our than our budget for batch 1. We are seeing it looks very good on the next batches. Again, FCR, you only know that figure once you have fully harvested out the batch. Until you have done that, it's all estimates. One more question here.
Do you expect any negative impact on the fish performance in phase I during construction work for phase II? As I said, we have done, we have blasted out the area for the intake station. That's quite a distance from the fish tanks where we are producing now. That went okay. We have also now recently also done quite heavy blasting and excavation work quite close to the fish tanks, and we didn't see any issues with that. We don't expect that to be an issue for phase II construction. Okay. We have one question here, about comments on share price performance.
I don't think it's up to us as a company to comment on that. I leave that to the all the very competent analysts here in this room. With that, I think we are done for today. I'll thank you all for attending, and we very much look forward to see you next time in May in connection with our Q1 report. Thank you.