Good morning, everyone, and welcome to this presentation of Salmon Evolution's results for the third quarter. My name is Trond Håkon Schaug-Pettersen. I'm the CEO of the company. With me here today also are CFO, Trond Vadset Veibust. Also, a special welcome to Thomas Farstad, CEO of Milarex, who we have partnered with in connection with the launch of our salmon in Italian retail. For those of you who have tested the product this morning, I hope you liked our Italian breakfast. As you can see from this picture, a lot has happened at Indre Harøy lately with our Phase 2 expansion, and where we are starting commissioning and testing in less than 30 days in preparation of our first Phase 2 smolt release scheduled for Q1 next year. We will start this presentation by going through the highlights.
I will take you through 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. Towards the end, we will also open up for a Q&A session. For those of you who are attending virtually, you can submit questions via the webcast. As to the key highlights, I'm pleased to report that our Phase 2 expansion is progressing according to plan. We are on time and on budget. We are on track for the first smolt release in late Q1 2026, with, as mentioned, testing and commissioning starting in just less than 30 days. 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 previous quarters has continued. We have a fully stocked farm and also saw all-time high production in the third quarter. Harvest volumes ended at close to 1,400 tons, generating about NOK 87 million in revenues. Farming EBITDA at minus NOK 30 million and group EBITDA of minus NOK 40 million. The results are obviously a reflection of both very weak salmon prices during the quarter, as well as some temporary effects on farming costs that we will come more back to later in the presentation. Looking into 2026, we are expecting a significant increase in harvest volumes, up 50% from this year to approximately 7,000 tons gutted. On that note, we are very pleased to see that salmon price expectations for next year have come significantly up.
We believe that we are in a very good position to capitalize on this going into next year. Moving over to the operations. For us, our immediate focus is on two main priorities. It is about operational excellence in Phase 1 and then executing Phase 2 on time and on budget. In the near term, it is all about maximizing the potential of what we already have, making sure that Phase 1 is running at its best and that we are extracting the full value from our existing operations. At the same time, Phase 2 will be a game changer for us. With this expansion, we are moving towards an 18,000 tons operation, which is substantial in itself and gives us the critical scale needed for strong returns and also setting the stage for further growth.
Looking a bit further ahead, Phase 3 at Indre Harøy is the obvious next step. We have all the infrastructure in place and also the return metrics are very good. Longer term, we have naturally ambitions beyond Indre Harøy. As the global frontrunner in this industry, we see a lot of interesting opportunities for future expansion. The key enabler for all of this is disciplined growth. We're focusing on returns, overall scale, and making sure that what we're building is something that is both scalable and profitable. Our strategy is clear. It's about maximizing what we have, delivering Phase 2 flawlessly, and use this as a launchpad for further expansion. As mentioned, we harvested close to 1,400 tons in the third quarter. Most of the harvest took place early in the quarter.
We saw an 8% harvest deviation resulting from a temporary higher -than -expected feed conversion ratio, which again impacted the production cost. Essentially, we had less volume of fish than expected, and we have already reviewed and adjusted our operating procedures to address this going forward. On harvest weight, this was up 20% from the second quarter and ended at 3.5 kg gutted. Naturally, going forward, a key priority for us is continuing to increase the harvest weight. On prices, our all-in price realization ended at 61 NOK/ Kg. This is a reflection of the very low prices during the quarter and the fact that we, in all material aspects, are selling our fish in the spot market. On a positive note, we continue to see that we. That our customers receive top -quality salmon.
The main focus now is on continuing increasing production and harvest weights, as well as optimizing feeding. With the stable operating environment that we now have, we are very well positioned to also meet our targets on these two parameters. I'm also proud to say that we have completed the first stage of our operational journey, which is systematization and industrialization. We have achieved full operational de-risking with stable operations and strong biological KPIs. Our platform is now highly scalable, and also the core infrastructure is in place. Our next focus now is on operational excellence. As a first step, this includes increasing production in Phase 1 from current 6,000 tons, which were the run rate in the third quarter. I'm talking about gutted volume. We increased that to approximately 6,700 tons, which is 85% of the design capacity.
We are going to do that by continuing to focus on operational improvements. At the same time, we will be ramping up Phase 2 so that we, within the next 18 months, have an annualized production of about 14,600 tons gutted, which in itself is a very sizable operation. Following that, we will be taking the pre-growth tanks into operation, yielding another 2,200 tons. Finally, the focus will be on leveraging the operational insight gained in connection with the Phase 2 ramp-up to address the remaining bottlenecks in Phase 1 . This is how we are going to get to the 18,000 tons gutted by the end of 2027. This is also giving us an unparalleled platform in the industry. Phase 2 at Indre Harøy is a major leap forward for Salmon Evolution. We are not just expanding; we are building a better version of what already works.
We are using over three years of operational experience as the foundation. The upgrades in Phase 2 are significant. They are mainly centered around water quality, which is key to strong biological results. Some of the key upgrades include up to 20% more seawater intake capacity, improved de-gassing systems, improved tank hydraulics, also improvements across multiple technical systems that will increase operational stability and reduce downtime, as well as implementing particle filtration on the water reuse circuit. We are also upgrading the UV disinfection for even better biosecurity, together with improving the fish logistics system for even more streamlined operations. In sum, this will set a new standard for land-based salmon farming facilities. We really look forward to taking this facility into operation in just a couple of months.
In parallel, obviously, we will use the insights gained from Phase 2 to further improve on Phase 1, which may include some technical upgrade with expected non-significant investments. We are also planning to end the year with a fully stocked farm. We are prioritizing full biomass as we head into 2026. This positions us perfectly to take advantage of what we believe will be a tight salmon market, especially in the first half of next year. The harvest deviation on certain groups impacting 2025 volumes and also the prioritization of Q1 harvest gives an updated guidance this year of 4,600 tons. However, our current run rate in the third quarter supports an annual harvest of about 6,000 tons, as we through 2025 have been building biomass, and the biomass is approximately 50% higher than it was going into this year.
As we ramp up Phase 2 throughout 2026, we will be adding significant production capacity. While the impact on harvest volumes next year is limited, we are guiding for approximately 7,000 tons in harvest next year, which is up 50% from 2025. Our target is to reach a run rate production of 14,600 tons within the next 18 months. With full utilization, we are aiming for 18,000 tons run rate by the end of 2027. Obviously, this acceleration of harvest volumes is a true game -changer for Salmon Evolution. It enables us to deliver regularly to our partners, broaden our market reach, and fully capitalize on the strong market outlook for 2026 and beyond. As we double harvest volumes, we are unlocking tremendous opportunities across Europe and beyond.
This growth allows us to provide regularity in supply and to build strong long-term partnerships with leading retailers, processors, and food service customers. The market is clearly moving towards sustainable seafood, and land-based salmon is, I would say, increasingly recognized as an environmentally friendly and responsible choice. We see that retailers are adopting sustainable seafood policies, and consumers are demanding more transparency and quality. I am proud to highlight our recent partnership with Milarex, bringing Italy's first land-based smoked salmon to market through Esselunga, which is one of the country's top retailers. This is a great example of how innovation and commitment to sustainability are opening new doors. Also, our cooperation with premium brands like Lofoten in Norway, Korshags in Sweden, further demonstrates our ability to combine tradition, quality, and innovation to meet the evolving needs of consumers.
With Phase 2, enabling weekly harvests, we are in a unique position to offer both consistency, reliability, and premium quality, all of which are qualities that set us apart in the market. Moving over to our growth initiatives, Indre Harøy is truly a flagship facility both for Salmon Evolution and the industry, I would say. When fully developed, this single location will produce 36,000 tons gutted of salmon annually, enough for 200 million meals, and that is just from 25 acres of land. We have all permits in place. Phase 1 is fully operational. Phase 2 is soon operational, and Phase 3 is permitted and ready to go. The scale we are achieving here is remarkable. Phase 2, adding 10,000 tons of capacity. Phase 3 will add another 18,000 tons.
This obviously unlocks significant economies of scale and positions ourselves as a true cost leader in the industry, which has always been the goal. As to Phase 2, I'm pleased to report that this is progressing as planned, on time and on budget. The pace of construction has been impressive this year, and we are now entering the testing and commissioning phase for the first handovers. All fish tanks and building shells for the technical buildings are completed. Process installation is now ongoing and moving forward according to schedule. As you can see from these latest site photos, the scale of this operation is, I would say, truly unbelievable. I want to highlight the dedication and the expertise of our team and our construction partners who are ensuring that every milestone is met safely and efficiently.
In sum, we are right where we want to be. We are on track and ready for the next phase of the Salmon Evolution journey. I think I wanted to show these two pictures because I think these are probably the best way of illustrating that Phase 2 is on track. For Phase 1, we had our first smolt release in late March 2022, and we are now planning to release the first smolt in Phase 2 in late March 2026. Both of these pictures are taken in October. For Phase 2, we are now clearly well ahead of where we were at the same time back in 2021. For us, this is very satisfying to see as it demonstrates that we've been able to incorporate the learning effects from Phase 1 into yielding actual and tangible results.
Further on Phase 2, the water intake infrastructure is nearing completion, and we are now preparing to fill the first tanks with water, which will be a major milestone. We've also completed the planning and engineering pre-project for the pre-growth tanks that we're planning in Phase 2. We're actively assessing our contracting strategy and potential partners to ensure that we are ready for the next phase here. Our targeted completion for the pre-growth tanks is Q2 2027 , with full effect on harvest from the second half of that year, pending a final investment decision in the first half of next year. I will leave the word over to our CFO, who will take us through the financials.
Thank you, Trond Håkon. Good to see you all. All right. Although we are continuing to report improvement on key operational metrics, we are obviously not satisfied with the financial performance in the third quarter. This has its reasons. Let us review the farming segment first. Harvest volumes doubled compared to Q3 last year, driving a 70% increase in revenues to approximately NOK 87 million. However, we are fully exposed to the spot markets, and all-in price realization was down 15%, or about 10 NOK /Kg, compared to the same quarter last year. Safe to say, full exposure to the spot market worked strongly to our advantage last year, with the opposite effect this year. Through 2025, the weak salmon prices have been the primary impact on the negative EBITDA development year-over-year. Farming costs in the quarter were elevated due to harvest deviations, which inflated the feed costs and fixed cost allocation on the fish harvested.
More on the specific cost effects in a minute. Based on the capacity utilization in the period where we produced these groups, the farming EBITDA cost should have been approximately 76 NOK/Kg . Summarized, Q3 was a weak quarter, where weak salmon prices, paired with temporary higher farming costs, led to an operating loss. We expect significant improvement in Q4 on the back of higher prices and lower costs. Outside farming, the group includes the other segments, which are essentially headquarter and expansion costs. Operating expenses in this segment were slightly lower than preceding periods. The same factors impacting the farming segment also flowed through to the overall group results. Again, we are not satisfied with the results this quarter. However, a significant price recovery during the quarter, continued volume growth, and normalization of farming costs reinforces our positive outlook for the periods ahead.
As mentioned, our farming costs in the quarter were elevated due to harvest deviation, inflating feed costs, and fixed cost allocation on the fish we harvested. The feed conversion ratio on this group was a little north of 10% higher than what we consider a normal level, resulting in a 3 NOK/ Kg negative effect. We consider the elevated feed conversion ratio temporary, and as Trond Håkon mentioned, we have already taken appropriate actions to address this. The deviation also led to the fixed cost allocation being inflated. We allocate costs following standard accounting practices, and negative harvest deviations mean that, simply put, more costs should have been allocated to fish we have already harvested in previous quarters.
As a result, the costs recognized in Q3 were higher than what we would expect under normal circumstances, and we consider the underlying farming EBITDA cost to be around 76 NOK/Kg. We expect a meaningful improvement in farming costs in the coming quarters. Looking at production costs based on the record Q3 biomass growth, adding on harvest costs and GNA creating an equivalent to the farming EBITDA cost, we consider a normalized farming EBITDA cost per kilo of approximately NOK 71 on the biomass we produced in the third quarter. To dwell further on how costs will develop with increased volumes, we have prepared this illustration. In a fully operational farm, we have a fairly predictable cost structure with about NOK 200 million in fixed operating costs in Phase 1.
For example, electricity is defined as a fixed cost because we use approximately the same amount of energy, producing at 80% compared to 100% utilization. We have a hedging strategy to secure a long-term stable price. The same goes for personnel. Higher biomass growth will not mean we hire more people. In other words, these costs are fairly fixed, and the per-kilo cost depends on how much biomass we produce. As highlighted earlier in the presentation, we are at a run rate of approximately 6,000 tons gutted. This gives a normalized farming EBITDA cost per-kilo of about NOK 70, assuming a feed conversion ratio of 1.1 and annualized mortality around 3%. Therefore, decreasing farming costs and meeting our cost targets is all about continuing to increase biomass growth, reaching targeted levels on feed conversion ratio, and maintaining current performance on mortality and superior grade share.
With Phase 2 operational, we have further scaling effects on the cost base. Even though volumes are doubling, you do not need one additional CFO. The point being that the required operational platform for the company has already been established with Phase 1. As an illustration, full run rate personnel in Phase 1 and Phase 2 combined is only about 30% higher than Phase 1 standalone, with double the volumes. There are multiple such cost efficiency gains with Phase 2 operational, and we have calculated these effects to approximately 5%-6%, but that is probably a conservative estimate. Another important point when it comes to the earnings potential is the benefits our production methods give us on price realization. We have a clear superior grade advantage to the industry. Our superior grade share significantly outperforms conventional farmers. With much less downgraded fish, we simply get better paid per kilo.
As mentioned, a stable year-round supply gives enhanced price realization compared to conventional peers, as we have much more volumes in the first half of the year when industry supply is tighter and prices are higher. All in all, this constitutes a built-in price premium of 5- 7 NOK/Kg based on reasonable assumptions before we factor in any benefits from our strong brand story. The brand story adds further uplift on price realization. We have best-in-class fish welfare, and our farming method is more sustainable and ocean-friendly. In sum, we deliver delicious salmon with a good feeling, which will pave the way for many interesting retail partnerships. A quick review of the balance sheet and cash flow. Phase 2 is on schedule and budget. Building activity has reached its peak, and looking ahead, investments will gradually start to decrease.
The increase in net interest-bearing debt reflects first drawdown on the construction financing in July as planned, with subsequent drawdowns in August and September. The Phase 2 project is now financed through the available construction facilities. Operating cash flow in the quarter reflects the temporary weak salmon prices. We expect this to significantly improve in Q4 and heading into 2026. There was a slight increase in working capital compared to last quarter. Indre Harøy is at run rate targets in terms of biomass size, and the biomass level at the end of the quarter was almost identical to the second quarter, with value of inventories net of fair value down approximately 5%. The increase in working capital was primarily a timing effect on receivables and payables. At the end of the quarter, we held cash and cash equivalents of NOK 156 million, excluding amounts available under the existing bank facilities.
During the quarter, we also initiated refinancing of the loan facilities linked to Indre Harøy to ensure a flexible and robust capital structure as we move forward. Our banking partners continue to show strong support, as illustrated with the new NOK 250 million credit facility secured in June and the fact that we have been able to refinance at increasingly better terms over time. Indre Harøy has been built with good timing and good execution, and the replacement cost is estimated to be at least NOK 1 billion higher than its historic cost, demonstrating substantial excess value and the strength of our asset base, as well as indicating additional leverage capacity. With Phase 2's first smolt release only months away, we are on track to double annual harvest to 18,000 tons gutted weight. This expansion is a game-changer and transforms our financial platform, unlocking significant cash flow potential.
On top of this, we are heading into a market with expectations of limited supply growth and strong demand, which, from our point of view, underline the strong long-term price prospects for salmon. In summary, Salmon Evolution is entering its next phase from a position of strength, financially, operationally, and strategically. I'm confident that our disciplined approach and scalable platform will continue to create substantial value in the years to come. Trond Håkon.
Thank you, Trond. As we look ahead, the salmon market is entering a pivotal phase. Supply is expected to tighten significantly in 2026, mainly driven by a significant drop in global supply growth. This year, we saw record -high volumes out of Norway, which put pressure on prices. However, history shows that it shows a strong correlation between supply and price. When supply eventually comes down, prices tend to rebound quickly.
Here, we borrowed some data from DNB Carnegie, and as you can see from the chart, they expect supply out of Norway to drop 6% next year with zero global supply growth. This is a dramatic shift from what we have seen in 2025. We are positioning Salmon Evolution to capitalize on this recovery, with Phase 2 also coming online and our operational scale increasing. We are in an excellent position to benefit from this expected recovery. As we close this presentation, I want to emphasize that Salmon Evolution stands on a proven platform. Our operational model is working, and we have consistently maintained stable operations. With Phase 2 soon coming online, the heavy lifting is behind us.
We are well on our way to reaching 18,000 tons of annual production, which will also give us the scale needed to unlock truly attractive economics and also a robust cash flow. As mentioned, the global supply market salmon market is poised for recovery, and we are uniquely positioned to benefit from that upswing. Our combination of operational excellence, disciplined growth, and also a scalable platform truly sets us apart in the industry. We are not just keeping pace; we are shaping the future. Our team, our technology, and our strategy put us in a position of strength as we move into 2026 and beyond. I would say, in summary, the foundation is set. We believe that we have a strong momentum, and the opportunities ahead are also significant.
We are more confident than ever that Salmon Evolution will deliver strong value for our stakeholders and continue to lead the industry going forward. Thank you all for your attention and your continued support. We are confident that the best is yet to come. Thank you. We will open up for Q&A. We will start here in the audience, and then we will take questions submitted via the webcast after that.
Hi, Alex Aukner from DNB Carnegie. What kind of debt levels are you comfortable running? You have been talking about 65% loan -to -value, etc. If you look at traditional farmers, which typically governs by net interest-bearing debt per kilo, it is a high level. What is the capacity? What are you happy with?
Yes, good question, Alex. I think if we start at the beginning, we have a little bit different production model than a conventional farmer. We have a more stable operation. We have more stable volumes year-round, and we also have a different type of asset at the core. Looking at debt levels, currently we have a loan-to-cost of approximately 50%, a level we are comfortable with. Looking ahead, I think there is room for a little bit more leverage on the assets we have.
I think it's also connected to how we sort of structure or hedge our cash flow. Today, we are solely spot-based, but now with Phase 2, we are getting into weekly harvests, and then it is much easier to hedge the salmon prices and the revenue in the same way as we can hedge the electricity prices and so forth, and then creating a vehicle with a much more stable cash flow throughout the year, which also sort of opens up for somewhat higher debt levels. I think, as Trond said, we have been able to gradually lift the debt levels since we started, and I think there is probably room for a little bit more.
Christian Nordby, Arctic Securities. Based on what you see today in terms of smolt stocking into Phase 2, how much Phase 2 harvest will you have in 2027? In 2027?
Yeah, then we are basically, so we are now ramping up. In 2026, we are gradually sort of taking more and more tanks into operation, and then we will have a gradual ramp-up throughout 2026 and somewhat into the first half of 2027. When you get to sort of the summer out of the first half of 2027, then we are at full run rate. Thank you.
Hello, my name is Lars. I'm a student here in Oslo and just super interested in your company. I'm just wondering about discussing Phase 3. How are you planning on raising the equity and financing for that phase?
I think as to Phase 3, now the primary focus is sort of delivering Phase 2 and get that up and running. Clearly, Phase 3, so the financing in Phase 3 also depends on sort of the pace we want to have.
Clearly, with Phase 2 now, we are building a strong platform that will have a significant cash flow -generating capacity. Also, there are opportunities on sort of other capital sources. That is something that we will sort of eventually evaluate how to do that in a best possible way. Clearly now, Phase 2 will be completed by the end of next year, and then it will be sort of a ramp-up somewhat into 2027 before we are at full capacity. Clearly, to get going with Phase 3 as soon as possible is a core priority. I think we will have a lot of options to do that in terms of financing.
Anyone else? No? Okay. We have gotten some questions via the webcast. I will just start at the top. Okay. How do you view your expansion strategy, and what does that entail? Yeah.
No, I think as we clearly stated, the core focus in our company today is sort of maximizing the potential of Phase 1 and delivering Phase 2 according to plan and get that up and running. We have a fantastic starting point with Phase 3 fully permitted. It's a huge project in itself. That is the main priority. There are a lot of other opportunities out there, both in Norway, and we also have these projects overseas that we have been working on. I think the opportunities are there. Core to sort of be able to follow through on those opportunities is that you have a platform that is both scalable and profitable. That is the core priority at the moment.
Okay. How are sales going in Italy?
I think that we have just launched the product, so it's a little bit early to tell, but I'm sure that Thomas will happily elaborate on how well it's going. Okay. What are you expecting from the salmon price? I think we've also covered that quite well during the presentation. During the quarter, you've seen a significant price recovery. And the outlook for 2026 is looking strong when it comes to the salmon price from our point of view. All right. Okay. How much CapEx, maintenance CapEx do you expect for Phase 1 in 2026? I think that everybody that has visited Indre Harøy has noted the high quality on which the facility is built. So it's still a fairly new facility, and I think we can safely say that the maintenance CapEx on Indre Harøy Phase 1 will be limited also in 2026.
Which it has been this year as well. Yeah.
And then the final question. What is the reason for the 2% drop in superior grade share? I'll leave that to you, Trond Håkon.
Yeah, I think we say ± 95%. So we will have obviously some natural fluctuations from quarter to quarter. I don't think there's, I wouldn't read too much into that. Yeah, we've harvested out 15 groups, and we see that we consistently have had a very high superior grade share, but there will be some smaller fluctuations from quarter to quarter.
Actually, we got one additional question. I will read that as well. You are at the forefront in relation to fish welfare and sustainable production. How is your assessment of your edge in the market going forward with this backdrop?
Yeah, I think being at the forefront on fish health, fish welfare is essential, and that's sort of part of our sort of reason for being here. We want to produce salmon in a sustainable way and take the industry going forward. I think going forward, it will probably be more and more important just in terms of the sort of license to operate. Clearly, this is a clear strength that I think will really benefit us in the years to come.
All right. That concludes the Q&A session. Please also remember to grab a piece of smoked salmon on your way out if there are any left. You seldom get anything free from people from the West Coast, so feel free. All right. See you again in February. Thank you.