Hey, good morning, everyone, and welcome to this presentation of Salmon Evolution's results for the Q2 . My name is Trond Håkon Schaug-Pettersen . I'm the CEO of the company, and with me here today, I also have our CFO, Trond Vadset Veibust. It's now almost three months since our Q1 presentation in May, where we communicated that the situation was under control, and we had recommenced feeding across the farm, following the challenges we, we had in the quarter. As published in our operational update, in early July, we had very good operations going into the summer. Today, I'm very pleased to share that this has continued throughout the summer.
It's been an uneventful summer at Indre Harøy with, I would say, very strong biological performance across all fish groups. That's something we are very satisfied with. Can you change slides? Yeah. I will start this presentation by going through the highlights for the quarter. We will move over to the operations, both in, in Norway and internationally, before our CFO takes you through the financials. Finally, I will end the presentation with some comments on outlook and a summary before we open up for questions. For those of you who are attending virtually, you can submit the questions via the webcast.
As I said, it's been an eventful summer. We have seen a strong biological performance with a good appetite and normal mortality levels across all fish groups. The Q3 is already well underway for an all-time high biomass production, and we have a standing biomass of well over 1,600 tons as per 15th of August, with the largest group also very soon exceeding 4 kilos.
As communicated earlier, we harvested out our second batch during the quarter, and I think given the challenges we had, we are quite happy about the result from this, which showed both a, both very good prices, good quality, and also a tight weight concentration, which is something we are very focused on. We are also continuing to ramp up production. We stocked two additional batches during the quarter, so we are now on our seventh generation, and more to come during the second half. Furthermore, we're also starting to get now meaningful data as to our production cost development, which shows that we are on track.
Our CFO will go more into detail on this, but I think that both our results for the Q2 , as well as the batch-specific costs, show that this for sure is moving in the right direction. During the quarter, we also completed the Phase One, which was a major milestone, and we entered into contracts with Artec Aqua and HENT for Phase Two. The preparation here is well underway. Finally, we continue to enjoy a strong financial position following our equity issue in April and the completed refinancing of our bank facilities. Moving over to the operations in Norway. For natural reasons, obviously, the net biomass production in the Q2 was low.
Following a strong development throughout June, we ended the quarter with a quarterly run rate of around 1,000 tons in net biomass production. Halfway into the Q3 , we are already at 580 tons or 58%, which means that we are very comfortable that we will have all-time high biomass production during the Q3 . We have also installed a mobile freshwater production plant at the site, which we have taken into operation. I think the operating procedure that we have implemented here is quite unique, as we now have freshwater as an integrated part of the fish logistic and fish grading process that we do regardless every three and a half month.
This is a very gentle procedure from a fish welfare perspective and effectively gives us a free freshwater treatment without any extra starving days. It's also important to stress that this is a precautionary step that we are taking, and together with the other procedures that we have implemented. This should put us in a very good position to handle AGD if it is to be, if it is a problem later. I think also, very important, the fact that we now have these capacities on site, ready on short notice at all times. We are in a position to act swiftly, if a urgent situation should come up.
I think for us now, we don't expect AGD to be a major problem going forward. It's more of a risk that we need to be aware of and tackle if needed. Looking at our biomass situation, as you can see, we are now on the seventh generation. We have an all-time high biomass, and as you can see from the table here, we have had strong growth over the summer. Both batch three and four has gained around one kilo over the last 45 days. Strong growth. Both of these batches are split in two groups, the largest group here is.
Yeah, we expect that to, to exceed 4 kilo by the end of this week. We also have, have seen good momentum on, on our fifth batch, which is now around 1.7 kilo and, and with the largest group here, around 2 kilo. I think this, what this also show is the, the value of having the ability to grade the fish during the production process. You will always, within a batch, have varying growth and, and by grading the fish, we can tighten the, the weight spread and also making sure that we maximize the, the, the output.
At the end of the day, that we're confident that that will have a significant impact on both the production cost as well as our ability to achieve good prices. Batch 6 and 7 have also had a very strong growth over the summer, I would say above expectation. For those two batches, the stocking weights were slightly lower than what we ideally wanted. This is due to somewhat lower temperatures during the winter at the smolt facility. We are installing some more heating capacity at that site so that we can produce as evenly sized smolt as possible. Given the growth we are seeing, this should have a very marginal impact on the total.
I think, if we scroll back a few months, the harvesting profile we are now looking at is better than we could have dared to hope for. Back then, it was a real possibility that we had to harvest some fish early, but with the way things have developed now, we expect to have normal harvest operations for basically all fish groups. We plan on starting now with harvest in September. We will take out the largest groups in both our third and fourth batch.
With the fish being now almost 4 kilo and also with some more weeks remaining until harvest, we expect a decent harvest weights. The majority of our harvest volume will come in the Q4 where we will harvest out the rest of batch 3 and 4, as well as parts of batch 5. The last part of batch 5 will be taken out in the Q1 . I think what we're also seeing now is that we expect the increasing harvest weights throughout the second half, and we will obviously do whatever we can to try to maximize output. Part of what's determining the actual time of harvest is tank availability.
We are stocking new groups. We are transferring fish. Actually, our 8th batch is coming already next week. Right now, we are utilizing 9 out of 12 tanks, but very soon, all tanks at the site will be fully in operation. Hence, we should see a continued good development as to growth and feeding over the coming months. As communicated, the harvest of batch two yielded around 600 tons of gutted weight. We harvested out the batch in full in May, over 9 days. That was as a precautionary step, and also in light of a very strong market at that time.
I think this was a real stress test for our harvesting logistics, which also show that we can handle quite a sizable volume over a very short period of time, and, and, and also a really useful experience for our, both our operating staff and, and sales organization.
I think what we are very satisfied with to see is that the like similar to batch one, we saw a very tight weight concentration for batch two, and also the quality was very good, with a superior share of 93%, which helped us have a average price for all the volume of 96 NOK per kilo, which I think is quite good given the weight profile of the fish. As to the building project, Phase One was completed in mid April, when we took over the last two tanks.
We have been preparing for Phase Two for quite some time, both on the planning and design, but also on sort of initial groundworks and excavation works. We signed the contracts for Phase Two with Artec Aqua as the supplier of the process part of the facility, and HENT as the civil contractor. I think what we are trying to do here is combine the industry-leading experts within their respective fields, and we have really high hopes for this model, and expect this to yield benefits both in terms of cost, timeline, and also efficiency during the construction process.
Right now, we expect CapEx of around NOK 1.6 billion-NOK 1.7 billion. This reflect the savings on infrastructure investments already taken in Phase One, productivity and efficiency gains in Phase Two, and also the expected inflation effect. We are working very closely now with the contractors on the cost estimate. We are also working actively on the design and engineering and preparations. The ambition here is to be in a position to make a final investment decision by the end of the year. Before we go over to the financials, I will say a few words on what we are doing in our overseas projects.
In Korea, we continue to have focus on design and engineering, the smolt facility now is more or less completed. During the quarter, we also saw good progress on the growth facility. This obviously gives us a better understanding of the total scope of the project. We are working very actively with respect to cost optimization of the project. We are seeing some, we call it, site-specific circumstances that is impacting the cost, in particular, the intake and discharge water solution for the growth facility, in which we are currently evaluating different alternatives to reduce cost.
Obviously, in overseas projects, there, there is always also an element of farming infrastructure that you take for granted in Norway, which also have an impact on, on the cost. I think on, on the positive side, comparing apples to apples, with the Indre Hareid in Norway, the costs are comparable. Also, salmon prices in Korea have remained very strong, and I think stronger than most have expected. This is obviously something that has a positive impact on earnings and, and, and margins. We are now also glad to report that we have had good progress on the permitting side.
This has taken a long time, we are now starting to see the results of the work undertaken here. We, for the smolt facility, we have received the initial construction permit, and the zoning permit is already in place. So here we expect the permitting process to be completed fairly shortly. When it comes to the growth facility, we have received the zoning permit during the quarter. This was something that took a long time and quite a big hurdle. We are now working on the construction permit and also what is called a sea permit, and we hope to have come a long way by the end of the year on those two.
When it comes to North America, we are continuing with our site selection process and initial due diligence, and we are also actively engaging various stakeholders, both the private and public. We are, I would say, very focused on finding the best possible site. Obviously, Indre Hareid for us is the gold standard, and it's something that is hard to find elsewhere. For us, it's important to find a site that ticks the boxes we want, and this is something we don't compromise on. Therefore, we are taking the time needed to make sure that we find a site that is meeting our criteria. We are progressing here, and I hope to have something more to share on this project in connection with our Q3 results.
I think also what's interesting with North America, is that there are in many places are an existing farming operation. This means that you have you have farming infrastructure already in place. You have people and so on, and this is obviously something that we see a lot of value in. I think with that, I will leave the word over to Trond to go over the financials for the quarter.
Thank you, Trond Håkon. Nice to see you all again. Financials. As expected and communicated earlier, production costs are decreasing as the biomass production gears up and the volumes at Indre Hareid increase. Looking at batch 5, at a live weight of around 1.1 kilo at the end of the quarter, the farming EBITDA cost is about NOK 71 per kilo. We expect scaling effects towards harvest of about NOK 16, primarily as an effect of decreasing smolt cost. That gives an expected farming cost at harvest of NOK 55 per kilo, excluding G&A. This scaling effect is continued, is expected to continue to improve when steady state production volumes are reached towards the end of the year, with an additional positive effect from Phase Two and Three, primarily linked to personnel and other OpEx.
In May, we harvested out batch 2 in a historically strong salmon market, generating revenues of NOK 56.3 million. Additionally, we had some income related to sale of services and expected insurance settlement following the mortality incident. The operational EBITDA ended at NOK -20.8 billion. This includes NOK 17.9 million in incident-based mortality costs and extraordinary costs following the mortality incident in the quarter. This was partly offset by an expected insurance settlement of roughly NOK 3 million. Additionally, it includes a capacity adjustment that has been expensed directly in the profit and loss. Depreciation for the quarter ended at NOK 11.3 million. As Indre Hareid is now complete and handed over to us, depreciation has commenced from May this quarter.
That means it's about 2 months of depreciation included in that number. The fair value adjustment of the biomass ended at NOK 7.4 million. It reflects that we have stocked 2 new batches, but also that the forward price of salmon is very high. Finally, we had negative net financials of NOK 1.2 million. Again, as Indre Hareid is now complete, interest cost that has been previously capitalized is now expensed in the Profit and Loss. The net loss for the quarter ended at NOK 26 million. As shown in the quarterly report, in the note 2 segments, the Farming Norway segment reported an operational EBITDA of roughly negative NOK 6 million.
As explained earlier, this figure includes a relatively high amount of non-recurring costs linked to the mortality incident, thus it does not really reflect the underlying performance in the segment. Firstly, we had NOK 12.9 million in incident-based mortality cost, which is where the deceased part of the biomass has been written down and expensed. We had NOK 5 million in extraordinary costs related to handling of the incident, as stated, this was partly offset by the expected insurance settlement of NOK 3.9 million. Adjusted for these non-recurring costs, the operational EBITDA in the segment ended at roughly NOK 9 million, that's excluding capacity adjustments. As highlighted by Trond Håkon, Salmon Evolution is in a strong financial position. We have available liquidity of NOK 853 million, including committed undrawn credit facilities.
Following the completion of Phase One, there is naturally a significant reduction in investments, and although we have initiated Phase Two, the first six to nine months is relatively capital light. We are doing some upgrades at our smolt facility in Dale, but yeah, this is relatively minor compared to the investment level we have had in previous quarters. Last but not least, we had a successful private placement in April, raising gross proceeds of NOK 525 million. Thank you. Trond Håkon?
Thank you, Trond. As we have communicated, we have a production target of 100,000 tons over the next decade, and this plan remains unchanged. We also really feel that we have a very tangible pipeline of project. Also now with Phase One fully operational, we have a unique platform to build on. We are now focusing a lot of attention on Phase Two and very much look forward to get started with the construction here. I think for Norway, we are also seeing some interesting opportunities in especially in terms of projects that might have received licenses, but struggle with financing also.
Going forward, we also obviously look forward to continue developing our project internationally. As we've always said, the backbone of, of sort of our, our strategy is to do this on, on the back of having a successful operation in Norway, which, which we think is absolutely critical to succeed overseas. To sum up, biomass production is as we have stated here, back on track. We have had now very strong biological performance over the summer, and hence, we are very comfortable that we will see all-time high biomass production during the Q3 .
We have a also all-time high standing biomass which is up 55% over the last 45 days, so, so, so strong growth. Also with new batches coming on stream over the, the next months, we should see a, a good trend in in both daily growth and, and feeding levels going forward. I think also we, we very much look forward to start harvesting again and also to be able to have more regularity as to harvest volumes. We've had very good feedback from our customers. Their only complaint has been that we don't have enough fish, so, so we're looking forward to start addressing that.
Finally, I'm also very happy to see that our production costs are trending the right way on back of increasing production volumes. Obviously, long term, this is very important. At least based on what we are seeing, we remain very confident that we will have a production cost that is fully compatible with conventional farming when we get to steady state. We believe that we have a strong and unique platform, both operationally and financially, to continue to lead and shape the development of this, I would say, very exciting industry. I think with that, we will open up for questions.
We will start here in the audience, and then we will take the questions submitted via the webcast later. Yes?
Simon Brun, ABG. Could you elaborate on, in terms of your efforts on sales and marketing and, and maximizing the revenues per kilo on, on the fish? Can you say something about your strategies going forward? You're obviously small volumes now, but this will come up significantly in the coming quarters. Could you say a bit more on, on that topic?
Yeah. I, I think if you look at our sales prices, and we obviously benchmark now our... Every time we, we sell fish, we benchmark against the Nasdaq Salmon Index and so forth. What we have seen, we have delivered good results benchmarking against that. Obviously, the challenge has been if you are to sort of do real things on the commercial side, you need to have regularity on volumes. Obviously, the beauty with this market here is that it's a very attractive commodity market, so you can just sort of tap into that when you, when you have fish. But I think long-term, we see a lot of opportunities here, but it's all about timing as well.
Now we harvested in November and December last year, then we had a pause, and we harvested nine days in May. But now, from September and into the Q4 , we'll start to have more regularity. So, we have a ongoing process on. We obviously see with land-based, we have a unique opportunity to do something extra. But I think you need to sort of time it alongside the sort of development in production, but this is for sure something we are working on. We, as you probably saw, like here in Norway, it was more like a gimmick that we sold to many supermarkets in Oslo and also some other parts.
This is for sure something that we would like to do more of. As of now, the bulk of the volumes have sort of gone into the commodity market. We have been able to get good prices and, and, and, and, and, and sort of sell it as a unique product and get peoples to pay, pay for it. For sure, as volumes come up now, this is a very big focus area for us.
In terms of cost on batch 3 and 4, is it fair to say that it's more tilted towards the performance of batch 2, or is it somewhere in between, so like your targets for batch 5?
The, the cost of, of batch 3 and 4 has, of course, been somewhat impacted by the mortality incident and the fact that these batches have been standing slightly longer at Indre Hareid than, for instance, batch 5. Your assumption is pretty accurate. I think also now we have good growth, and it's all about sort of get the kilos on it quickly. And so.
Yeah.
we, we should have a okay development now over the, the next months.
Finally, on the, on the smolt that's being stocked in, in the second half of the year, will that also be impacted by the colder waters at Dale and, and be stocked at lower weights, or will that come up to your, your targets around 120, 130?
Yeah, I think what you will see is that, the one we are stocking next week, is slightly, slightly lower, but then, the next, the two next ones will be. It will be increasing weights, throughout the, throughout the fall. It's a, it's a fairly small impact because, because like you, like you saw, on, on both batch, six and seven, it's sort of, doubled several times in, in just one and a half months. We, we sort of are able to, to sort of catch up fairly quickly. Obviously, in an ideal, world, you would like to have exactly the same weight every time, and, and, and that's sort of what we're working on to, to achieve.
A part of that is to have somewhat more heating capacity, and that's sort of especially during the winter. To be in a good position for the next winter, that's sort of what we're making sure of, now.
Thank you.
Yeah. could you give some color on the, the mortality rates in, in different batches since the operational update in July?
Yeah. I think what we can say is that it's sort of normalized. It's, it's been sort of normal mortality levels, both batch 3, 4, and 5, I, I would say. As to batch 6 and 7, it's been exceptionally low, so with almost, yeah, nothing. Sort of overall, it's, it's sort of, yeah, normal mortality levels as, as seen from, from the tables. I, I think we have a target of 3%-5% on a, on a full cycle. We are absolutely confident that that is within reach as long as we're able to maintain good biosecurity and, and, and avoid the disease. That's what we are striving to, to get to.
Thanks. Anyone else? I think we can move on to the question we have received online. It reads like this: "Can you elaborate on the difference between water intake in South Korea versus Indre Hareid?
Yeah. So, so at Indre Hareid, it's fairly deep right outside the facility, so you have immediate access to deep water. In South Korea, it's more shallow, so you need to go longer out to, to, to access the deep water. That's sort of the, the, the main difference, and, and that also has some implications as to sort of how you lay down the pipes and, and sort of the, the, the method behind that. That's sort of what we are assessing how to do in a, in a most, on a, sort of, in the most cost, cost-effective way.
Okay. That concludes the questions submitted via the webcast. There seems to be no more questions here, so I guess that concludes this session.
Yes.
Thank you for your attendance, and see you again in November.