Andfjord Salmon AS
OSE:ANDF
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Andfjord Salmon AS
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Good morning, and welcome to this status update from Andfjord Salmon. My name is Martin Rasmussen, and I am the CEO of Andfjord Salmon. On the screen, you can see the topics we will cover today. And together with me is our CFO, Bjarne Martinsen, and he will cover the financial details later. We will have a Q&A session at the end of the presentation. So feel free to submit your questions through the webcast solution.
For the benefit of new shareholders, I will start by giving a very brief introduction to Andfjord Salmon. Andfjord Salmon's fish farming concept combines the advantages of being a closed pool on land but with the benefits of a traditional sea-based farming. We are located at Andøya, where we have a unique access to a clean seawater where the salmon has been swimming in many thousand years. We are utilizing the natural advantage of -- with the seawater that we don't have to manipulate and the water has the perfect temperature, is oxygen rich and our flow-through facility allow us to have a very energy-efficient method side-by-side with the local ecosystems. And there are some obvious benefits of being on land. We avoid problems with salmon lice and no escapes and we can collect the logical waste and utilize this as a valuable resource.
Here, you can see a cross-section of our flow-through solution. And we source seawater at approximately 40 meters water depth below the area where salmon lice live. We then push the seawater into the pool. And we use our own technology to create a laminar water flow. A laminar water flow is a parallel water current from 1 side of the pool to the other without creating turbulence in the water. And oxygen-rich seawater is then distributed evenly throughout the pool. Organic waste sink to the bottom of the pool, which is then cleaned by cleaning robots. Other metabolic products such as CO2 will be returned to the ocean without harming the local environment.
The first production cycle, which was concluded in July has demonstrated that the solution is technically robust and deliver supreme biological results. It is no coincidence that we are located at Area. In fact, Andøya is a land area in Norway that is located closest to the Gulfstream. And this allow us to source water -- warmer water during the winter compared to the seawater available for traditional ocean bed fish farmers. Warmer water provides improved growth and better logical condition, including lower risk of winter ulcer. We have, during the last year, experienced the positive effect, the Gulfstream have on our temperature profile in the pool.
Let us move to the latest highlights from Andfjord Salmon. And in June, we secured funding for the next build-out stage at ales Kvalnes, which will bring us to an annual production volume of 8,000 tonnes how. The funds raised will also be utilized to develop shared infrastructure such as water waster and harbor for the entire Kvalnes area, which, over time, we reached a production volume of 40,000 tonnes of salmon.
We are very proud of the support from our banks and our shareholders who firmly have faith in our concept and ambitions. We presented the Kvalnes buildup plan at our capital market update in June, and we will repeat the key points later in today's presentation. In July, we concluded our first production cycle at Kvalnes, and from a biological perspective, the first production cycle was a success. We sold the salmon to the -- from the first harvest to strategically selected seafood distributors in several European countries. And their feedback was very positive, particularly regarding the yield and the color of the fish.
The timing of the first harvest was chosen to ensure a flying start for the Kvalnes expansion, which has already gained full momentum and is progressing exactly as planned. We'll touch upon these details later.
Now over to some more details about the first harvest. And as mentioned before, the biological performance through that entire first production cycle was very strong. And the proof is on the chart to the right, a survival rate of 97.8% after 12 months in the pool. The harvest itself was also a successful operation and our own team together with our [indiscernible] partner and a few other suppliers plant and trend extensively to make the transfer operation as smooth as possible.
Consequently, we experienced low mortalities during these operations, too, ending up with a post-harvest valerate of 97.5%. And this is survival rate that everyone in the Andfjord Salmon team are very proud of. And it is a number that our colleagues in the aquaculture industry congratulate us for.
Another key parameter for the production potential is growth. And as you can see on the graph, the growth was approximately 40% ahead of our original estimates, which were based on expected seawater temperatures and Skretting's growth table. As planned, we started the slaughtering of the fish in the end of June to ensure good flexibility on the exact harvest date and we stopped the feeding of the fish on 20th of June. The average weight of the fish was 3.4 kilograms equaling to a total biomass of 646 tonnes. Approximately 193,000 salmon was released in the pool 1 year ago compared to the 200,000 figure provided to us by the small supplier. And this volume change obviously had impact on the accumulated feed conversion ratio, which ended up at 1.05 in the first production cycle. In our future budgets is the feed comparison rate above 1.1. So this is a very strong figure and above our initial expectation.
We have a very high survival rate with the fact that the weakest group survive. And the weakest individuals is often smaller and can have deformations. In our situation, the fish ended up for human consumption instead of mortality caused by poor environments or stressful operation. Statistically, will this affect average weight and the superior share after slaughter.
The fact that also smaller fish survives in the pool obviously impact the average weight and superior share. However, high survival rate is clearly the most valuable from a financial perspective as we are getting paid for every fish that cost slaughter.
So to summarize the key figures from the first production cycle, an industry-leading survival rate of 97.5% as a per share of 91.1%. And average weight per fish of 3.4 kilograms, 530 tonnes of fish head-on gutted. And this is a result that we are very proud of.
The harvested fish display a diverse range of weights from 1 to 2-kilo up to 5 to 6 kilos with the majority between 2 and 4 kilograms. And you can see the price achieved per kilo per salmon in the circles in the graph. I have received some questions from shareholders about why didn't we wait until the fish was bigger than the average of 3.4 kilograms. And the reason is that the time of first harvest was just to mitigate project excavation risk for Kvalnes expansion. And in a long perspective, getting quickly up to production volume of 8,000 tonnes is much more financially attractive time putting unnecessary pressure on a build-out process for the sake of producing another 100 tonne or 2 in the first production cycle.
Following a successful slaughter, we sold our fish to strategically selected processors that produce salmon fillet product, small products and other types of same products. On the map, you can see where these processors are located. Our main goal for the first batch of fish was not to reach the highest average price but to reach the right buyers. And even so, we have seen buyers that is coming back after the first shipment wanting to pay extra for a next delivery. And this made us even more confident that we will be able to achieve a premium price on our product in the future.
It has been very exciting to receive such positive feedback from our customers, and a very good red orange color of the fish has been highlighted by many. Many have also mentioned the yield of the fish, meaning a high fillet utilization. We firmly believe that the very positive response from customers in Norway and international markets, underlie the conceptual advantage of Andfjord Salmon's farming method.
Now over to Bjarne for the financial details.
Thank you, Martin. First, I will quickly run through the income statement, balance sheet and cash flow statement for the second quarter. Please note that most of the sales revenue and the large majority of proceeds from the private placement won't be visible in our accounts until the third quarter. The new bank loan will also not be visible in the financial statements until we start drawing on it.
The income statement shows that the company has its first sales revenue from the sales of salmon in second quarter, a major milestone for Andfjord Salmon. Most of the salmon from our first production cycle was sold in July. So the full income will appear in the accounts in third quarter.
Total sales income from the first production cycle were NOK 37.1 million, of which NOK 9.6 million is accounted for in second quarter.
The investments in the next stage of the development of Kvalnes have been underway since the end of last year when the first interaction phase with possible partners in the construction was initiated. Up until the end of the second quarter, more than NOK 40 million has been invested in the next stage in addition to investments made during first stage of construction. At the end of June, most of the salmon were still in the pool, the balance sheet, therefore, shows biological assets of close to NOK 30 million.
Cash deposits of NOK 94.7 million includes NOK 90 million of the capital increase of NOK 615 million that was carried out during June and July. The new loan of NOK 825 million from SpareBank 1 Nord-Norge with their alliance partners is as mentioned and [ draw ].
Total equity is affected by first tranche of the capital increase, which amounted to NOK 228 million of the total capital increase of NOK 615 million before transaction costs. Of this NOK 228 million, NOK 90 million was paid in June with the remaining in July. The majority of the effect on cash deposits will therefore not be visible until Q3 figures.
There are only minor changes in liabilities since the beginning of the year. increased trade payables is related to the construction that is started up and also transaction costs related to the capital increase. As a result of the first payment in connection with the capital increase, net cash flow is positive in the first half year. Cash flow from operations and investing activities is expected based on the current activity level. We will see an increased outgoing cash flow from investing activities from third quarter and forward.
Our full financial statements with more details and disclosures can be read in the half year report that has been published earlier today. We are really satisfied to have financing in place for the next step of the expansion. It is important that we now have 3 banks who are committed to this project, together with Eksfin who guarantees for 50% of the bank loan. The 3 banks, SpareBank 1 Nord-Norge, SpareBank 1 SR-bank, SpareBank 1 SMN are all important banks within the seafood industry in Norway. The financing that is secured includes a new bank loan of NOK 825 million and NOK 650 million private placement. The bank loan commitment also includes a refinancing of the current debt so that the total bank loan will be at approximately NOK 900 million. The new loan of NOK 825 million will be a construction loan that will be converted to a term loan when the first 4 periods are in operation, which will be in the mid-2025. After that, we will have a 24-month amortization holiday and the loan is generally at attractive terms. The banks have also signaled an overrate facility that will be adapted to our production capacity. Currently, this is on NOK 20 million, and it can be increased to NOK 120 million when new capacity is added.
We are also very happy that Andfjord Salmon has strong owners that are really committed to the project. The largest shareholder in Andfjord Salmon is now Jerónimo Martins, 1 of the largest companies on the stock exchange in Lisbon. They showed strong commitment to Andfjord Salmon by taking NOK 380 million of the private placement and now holds above 25% of the shares in the company.
Eidsfjord Sjøfarm, owned by the Holmøy Group also contributed with a large share of the capital increase with NOK 80 million and is now fourth biggest shareholder in Andfjord Salmon with 4.5% of the shares. Several of the other main shareholders also took part in the private placements.
We plan to increase total production capacity at Kvalnes to 40,000 tonnes hog. We have identified 5 steps for the expansion, where the 2 1st steps will be to utilize our current license with a yearly production of 19,000 tonnes hog. The first step will be to increase production capacity to 8,000 tonnes hog yearly by building 4 new pools. But even more important is that this first step will include infrastructure to support the entire Kvalnes area. The first step includes waterways for 40,000 tonnes, port area for 40,000 tonnes, rock pits for 23,000 tonnes and 4 new concrete pools with technical infrastructure that are ready for production. And with the infrastructure in place in step 1, the marginal cost of increasing production capacity in step 2 and forward will decrease. Total CapEx for 40,000 tonnes will be NOK 114 per kilo. When we have established production capacity of 8,000 tonnes, we will be able to finance the further steps with a combination of cash flow from operations and bank financing.
We have strong construction partners for the expansion. Cflow will be responsible for technical infrastructure. They have 20 years of experience from technical infrastructure in well boats which is similar to the infrastructure we will build. Hæhre-Contur is a major player in the Nordic market with strong expertise within the relevant categories of competence and will be responsible for waterways, port area, rock pits and concrete pools. We have chosen these partners in strong competition with other major players in the Nordic market, and there has been very strong interest to be a part of this project.
We have a target price of NOK 1.3 billion and buffers of NOK 350 million. So the total budget for the first step is NOK 1.65 billion. The construction partners are committed to the target price and will take 60% of the risk of cost overruns and also 60% of the upside if the project turns out to have lower costs than the target price.
The graph in the center is the same 1 as you saw on the previous slide and shows the investment in the first step that includes investment in infrastructure for the entire Kvalnes area and the production capacity of 8,000 tonnes yearly. As of end of June, we had invested just above NOK 40 million in the first step of the expansion of the total budget of NOK 1.65 billion.
In the graph to the right, you can see project's progress versus point of completion. Note that this is status at end of August 2023. We have concluded 35% of the rock pits and also started on the waterways. The port area will be developed in line with rock pits and waterways using masters to fill out the port.
We have had a good start now, and we expect strong progress during the next months. First step to 8,000 tonnes hog consists of 4 new pools. These pools, including the infrastructure will be ready for production in 2025. After this first step, the infrastructure will be ready, and then we will be able to build 4 new pools each year and reach capacity of 19,000 tonnes and utilize our current license during 2027. Production at Kvalnes will then increase gradually, and we will reach the full potential of 40,000 tonnes in 2030.
As this graph also shows, we expect production from Breivika or Fiskenes in 2028 and full production on all sides in 2032.
Over to Martin.
Thank you, Bjarne. Now let us look closer at how we will develop Kvalnes, which you can see in this illustration. Further north, you can see our Breivika and Fiskenes sites, which are part of our long-term development plan towards 90,000 tonnes production volume. Having 3 locations, so close to each other, allow us to extract significant operational synergies between the sites. However, Kvalnes is our main focus in the coming years. The target production volume at full capacity is 40,000 tonnes hog at Kvalnes. And as Bjarne has showed, the new production capacity will gradually be added between 2025 and 2030. Our ambition is that the first 8,000 tonnes of production capacity are added in 2025.
To the left, you can see our first pool in the center of the illustration, you see 12 pools and groundwork on this entire area is well underway. By 2025, we will fully develop 4 new pools, bringing capacity up to 8,000 tonnes. The pool pit for the 2 next pools have already been excavated. And further, we will, during the next 2 years also establishing major shared infrastructure such as waterways and port area, which will be used to support 40,000 tonnes of production at Kvalnes.
The build-out plan focuses on using known construction techniques in order to reduce build at risk to minimum. For a build-out to 40,000 tonnes at Kvalnes, we are targeted our blended CapEx of NOK 114 per kilo and OpEx of NOK 40 per kilo salmon produced.
The construction work at Kvalnes is rapidly advancing. And this summer months saw successful efforts and the development of personnel and equipment, setting the stage for the next phase of construction. During the summer, contractors accomplishing extensive groundwork spanning several hundred meters. This work involves injecting concrete to stabilize the section surrounding the 12 pools that constitute the upcoming construction base at Kvalnes. This work will help speed up blasting and excavation, contributing to an efficient development process. Our lead contractor AF Hæhre-Contur has, during the summer, prepared areas for machinery, equipment and tools complementing the ongoing groundwork. These areas include workshop, tunnel operations, equipment maintenance and cleaning station.
To the right of the pilot pool in the top right-hand corner of the photo, you can see that office Barracks has been established for the project administration. Outside of the area you see in this photo, as site has been prepared for concrete production.
A mass [indiscernible] approach is being adopted, whereby excavated masses from pool pits and waterways will be utilized for port and key development. And this is both an economically and environmentally friendly approach as we significantly reduce the need to transport masses long distance.
As you can see in the area to the left of the photo, a sustainable amount of excavated masses has already been transported to the port area. The work on the waterways has already begun and pre kitting of the tunnels was initiated in early September.
So far it's our experience that we see a significant efficient improvement in the construction of Kvalnes expansion because the synergy effects by the construction of the first pool. And to put this into perspective, was the excavation time of the 2 last pool, 6x more efficient and with 10% of the cost compared to the first pool.
As you can see on this plan, excavation of the first 12 pool bits plus the work to develop the waterways as well as harbor and port have already begun. We will excavate all next 12 pits during the next years. And to avoid the future production cycles are affected by noise and vibration from nearby blasting and excavation work. We will then start concrete works and installation of technical infrastructure on 4 pools, which will bring our production volumes up to 48,000 tonnes. And as Bjarne mentioned, all future expansion from 8,000 tonnes and upwards are expected to be financed by a combination of debt and cash flow.
All through, we are at an early stage at the build-out process. We are very pleased to see that everything is going after -- as planned. And a good start is important in all projects.
So let us move to the summary. As explained earlier, the support from banks and shareholders allow us to progress with the build-out to a production capacity of 8,000 tonnes and get the shared infrastructure in place to enable our future build-out to 40,000 tonnes. Our first production cycle was a success, and we are very proud of the results. The results and feedbacks from the market after the first production cycle make us very confident that we produce a high-quality product with a clear conscience. As we just have show you, the work at Kvalnes is moving full speed ahead, and we look forward to updating you on this progress.
Before we go to the Q&A, we will show you a video from the harvest and the slaughter process. So thank you for listening today.
[Presentation]
Then are we ready for the Q&A session, and you can submit a question just to the webcast solution. So Bjarne, should we start with reading up some of the questions that we have received?
Yes, we received some questions already. First of all, can you comment on the next production cycle time for smolt release, number of smolts, average smolt weights? How long will you have the fish in the pool and at what weight will you harvest the fish?
Yes. First, we are open and have flexibility for production in 2024. But our main focus is now to increase the [indiscernible] capacity from proof of concept to our commercial level. And we will not leave smolt in the first pool as long as it will affect the possibility to significantly ramp up the production from Q2 [indiscernible] '25. And in '25, we will, in the middle of the year, start with releasing new smolts in the pool and gradually increase the numbers of pool -- and the number of fish in all the pools. The size of the smolt will be similar to what we have been using in the first production cycle because this is a small size that suits the concept very well. And we will have a production cycle from 12 to 14 months, and this allows us to have very efficient utilization of the production capacity, and we will have sizes above the size that we have seen in the first version cycle. So we will always try to maximize the profitability with utilized single time available we have in each pool for the smolt -- for the salmon.
And the release in '25, will be suited for operations is 5 pool. So it will be a much higher number of smolts, so at least 800,000 smolts in the first release.
So a ramp-up plan, but we're gradually increasing.
Three months into construction of Phase 2. Have you seen any changes to the project that is digging into the buffer of NOK 350 million?
The simple answer to that is no. We have, as we said, a presentation we had at a target price of NOK 1.3 billion together with our search partners. And both Andfjord Salmon and construction partners are committed to this and have financial incentives to get lower than the target price so that will be that.
What are our expectations for the new regulations of land-based salmon farming in Norway? Do you expect and plan for treatment of the intake water?
Our expectation is that -- of salmon, yes, very good farming concept for Norwegian conditions where we really utilize the natural advantages that we have and we are similar to additional sea-based farmer, but we, of course, the benefits of being land-based. We don't have some lice, and we can collect organic risk. And this is, of course, something that we see also that the government and authorities is looking into. We have a very close dialogue together with them on how we can have the regulatory framework for the future. So the details around it, it's to be theoretical me to discuss, but we have a license today, we will build out that license. And we have also the flexibility to do different installation in the future if the regulatory regime change.
A strong superior share of 91%, but what was the cause of the share of downgraded fish? [indiscernible], maturation or other reasons?
First, square share of 91.5% is very good. And if you compare this to the additional salmon farmers in Norway at this is -- and during the winter, this is very, very good numbers. And as I said in the presentation, when you have such high survival rates as we have, also the weakest individuals survive and this [indiscernible] sometimes are smaller and have deformation, which will impact the superior share. it's also normal that you have some few percent downgrading because of the handling of the fish and also issues, the cost when sort of the slaughter process after the well [indiscernible] in the efficient process. So I'm very happy that we have no issues with the goods and other normal downgrades and typical downgrade fish programs, this is -- we haven't seen any signs of that.
Can you remind us the water temperature range in the first production cycle? Would it be economical to heat this at some of the seasons to get even faster growth?
Yes. If you look at the first production cycle, the temperature in July, August, September and almost entire October was run from [indiscernible] 12 degrees, which is a perfect temperature when it comes to growth. If the temperature is higher than this, yes, you can have a higher growth, but when the temperature is too high, you also can have issues with more diseases as a consequence. From November to March, we [indiscernible] in this -- in the temperature range from 5 to 7 degree, which is very good temperatures, and it was very -- it is a surprise. It was very, very -- we're glad to see good temperatures during this winter month. This was also the reason why we saw that we can have a very efficient production as smolt release during the coldest month of the year. And the reason why we have this temperature is because of the Gulfstream in combination with water intake at 40 meters where we get access to the Gulfstream water, which gives us higher temperature compared to [indiscernible] salmon farmers in the area.
We are using 5 tons of water per second. This is enormous amount of water, but at the same time, we have very low energy consumption. So to heat this water up is not relevant for us because we have a very good seawater temperature. And I think the combination of good growth and low risk for diseases is the reason why I'm very confident that we should not do anything with temperatures that we have during the year.
Yes. Another question related to temperatures. Will decreasing temperatures affect excavation progress at Kvalnes, for example, with the ground is frozen?
First, we are very satisfied the fact that we started the groundwork not only this year but for some -- a couple of years ago to have a very efficient ground or process -- excavation process now during the summer and autumn. The temperatures is not the issue. It's -- you can have some difficulties when it's come a lot of snow, which is not so much a problem where we are looking at it. But when we do the construction and the groundwork during the autumn now. We are down in the ground and on the most important work, which is impacted by temperatures. So the answer is no.
And your question, how will the trade price affect the expansion [indiscernible] shares?
Yes, as we said in the presentation, we have financing in place for this first step, and our aim now is to deliver on the plans that we have presented and the share price is affecting the expansion.
Is there no smolt release in 2024 in the pilot pool?
As I said in the last answers, we are open for the possibility and looking into it, and we have the flexibility to do so, but we can come in a situation where this will impact our flexibility to really increase the production from 2025.
To what extent will the new salmon tax impact possibilities of [indiscernible] for shareholders?
The salmon tax, we are not affected by the salmon tax, so it doesn't affect our operations and profitability. So we can't speculate on how this will affect the market.
Yes. And I think we have answered all the questions that we have received.
Okay. In case some of you haven't been able to get all the answers that you have -- or the questions that you have, please take contact with us, and we will support you with the necessary information or if you are more curious about what we are doing. So I would like to say thank you for your time today, and have a nice day.