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Good morning, everyone, and welcome to this presentation of Salmon Evolution's results for the first quarter. My name is Trond Schaug-Pettersen. I'm the CEO of Salmon Evolution. With me here today, I also have our new CFO, Trond Vadset Veibust. It's clearly been a couple of eventful last week for Salmon Evolution, but looking ahead, I'm quite confident that the situation we've had now over the last couple of weeks have given us invaluable experience and it's something that going forward only will make us stronger in the long run.
So I will start this presentation by going through the highlights for the quarter, then I will give a brief introduction to our company. I will then also go through the operations, both in Norway and internationally and then Trond will go through the financials for the quarter. And finally, we will end the presentation with some comments on outlook. And then after that also open up for questions. For those of you who are attending virtually, you can submit questions via the webcast.
So during the first quarter, we continued to ramp up production following the harvesting of Batch 1 in the fourth quarter, and we saw all-time high biomass production, both for the quarter and for March stand-alone. We also stocked our fifth batch in February, and we continued on building our international pipeline, while at the same time preparing for Phase 2 at Indre Haroy. And as part of those preparations, we also announced a new debt financing package end of March, which we are very satisfied with. And together with the private placement of NOK 525 million. This puts us in a very strong financial position.
In April, we also took over the last 2 remaining tanks at Phase 1 at Indre Haroy and as such, Phase 1 is now fully completed. And finally, ultimo April, we reported that we were seeing increasing mortality in selected fish groups at Indre Haroy. This is something we obviously took very seriously, and we swiftly implemented a number of actions to mitigate and control the situation. I will come more back to both what we have done and the current status, but I will say that we are very satisfied to see that the actions taken have had a positive effect and that the situation now seems to be stabilizing with daily mortality at normal levels over the last days. And this finally enabling us to go back to production modus.
So a few words about our company. To start with, we were founded in 2017. So we spent 6 years to get to where we are today. It says a lot about this -- the lead times in this industry. During this period, we've also built a strong organization, now totaling 65 people across the group. And the basis for establishing Salmon Evolution has all along 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 decades of experience from the land-based smolt industry. And we do this through what we call a hybrid flow-through system, where we at all times use quite a lot of seawater to provide the salmon with optimal living conditions, while at the same time, also reusing quite a lot of water because this makes sense both from an operational and financial perspective.
So our flagship facility at Indre Haroy, we started building in May 2020. Phase 1, which is 8,000 tonnes, is now fully completed, and we are ready to start with Phase 2, which will add another 8,000 tonnes. What we see is that this concept really has the potential for global scaling in attractive overseas markets. And obviously, with our technology approach, we are dependent upon finding locations with access to good quality seawater, also with a certain temperatures. And this means that there are places where we cannot be located, but at the same time, a lot of places very well suited for this approach. And that's why we've entered into a joint venture in Korea and also why we are planning to expand into the North American market, but as we grow internationally, as we've said many times, we'll do so on the back of having a large and successful operation in Norway in the heart of the aquaculture cluster, where we have access to both people and suppliers and infrastructure.
So I have included this slide to just illustrate a recap on the hybrid flow-through system. And as shown in the left chart here, we are neither a pure flow-through or a pure RAS facility, but something in between where we seek to capture the benefits from both the systems, while at the same time, being able to operate with as low as possible risk by then avoiding the most complex water treatment processes. And I think today, I can really say that with what we've been through now over the last couple of weeks, we definitely see the value of the hybrid flow-through system and also the built-in robustness and flexibility of the system, having access to significant amounts of seawater, that provides you with an operational flexibility. But at the same time, also having the ability to reuse water and thereby also controlling the water quality parameters. That also provides you with much needed flexibility when you have to deal with an unexpected event like we have to do.
So before going into the details about the current status, a short recap on operations during the first quarter. We continued to ramp up production and saw all-time high biomass production in March with about 320 tonnes in net biomass gain for that month alone. At the end of the quarter, we had about 1,500 tonnes of standing biomass, which is more than a doubling from what we have had 3 months earlier.
During the first quarter, both Batch 2, 3 and 4 was sorted and transferred into new tanks. This is a process we did for the first time in the fourth quarter, and we see that this process is just getting more and more effective. And we also see that the mortality in connection with the fish transfer is very low. We have also been producing at the targeted densities. And as an example, Batch 2 was split into new groups at around 65-kilo per cubic, which is in line with our production plan. And finally, we also stocked our fifth batch, which was another full size batch.
So as reported, we saw a sudden increase in mortality ultimo April in selected fish groups. It is important for us to stress that this is not a sudden mass morality event, but rather a situation with a higher-than-normal daily mortality level.
We have determined that the increased mortality was triggered by AGD, which causes problems with gill health and outside of this, the facility has throughout the period, been operating under stable conditions and also with relevant water quality parameters at the normal levels. So when becoming aware of this issue, we immediately took decisive actions to mitigate and control situation. We lowered the temperature. We reduced the feeding as well as substantially increasing the dosage on the UV on the intake water. Also harvest of Batch 2 was planned to start regardless of the situation, but then throughout the second quarter, and as a precautionary step, we fully harvested out Batch 2 in early May with, what I would say, was very good results in a historically strong market.
As to AGD, this is a common challenge for the conventional industry, and there are well-proven treatment methods, namely by using fresh water. I think it's fair to say this was not on top of our list of risks, but we quickly put together a plan to facilitate freshwater treatment of not only the groups where we were seeing increased mortality, but all the remaining groups in the facility as a precautionary step. We then managed to secure well-boat capacity with fresh water production capabilities and finished the treatment on the 19th of May. I would say the whole operation went according to plan. And we have seen a sharp reduction in mortality shortly after treatment. So we are very pleased to see that the situation now seems to be stabilizing and daily mortality has been at normal levels post treatment.
This has again enabled us to recommend feeding across the farm and also shift our mindset back to production modus. But we are, of course, monitoring the situation closely and are ready to take action on short notice if needed. I think as a company, we have obviously learned a lot from this experience. And going forward, it's very important for us to both minimize the risk of this taking place in the first place, while at the same time, making sure that we have the relevant capacities and capabilities ready on short notice if needed.
So going forward, we will therefore continue with a very high UV dosage on the intake water, hopefully, that will avoid this being a problem, but equally important, we have also secured a mobile on-site freshwater production plant, which will be installed over the next couple of weeks. This will reduce response time to a minimum and also enable us to do precautionary freshwater treatments, for example, in connection with fish transfers. So with this, I think we should be in a very good position to tackle this going forward if it becomes a repeating issue.
So a little bit about the status on the biomass. As mentioned, we fully harvested out Batch 2 in early May. We would -- of course, I would prefer to grow it a little bigger. But given the situation, this was the only prudent thing to do. As communicated earlier, one of the subgroups in Batch 3 and Batch 4 have been affected by increased mortality. For Batch 3, both groups have approximately the same weight around 1.6 kilo. For Batch 4, this is split into 2 groups with the biggest being around 1.8 kilo and the smallest being around 900 grams. And here in Batch 4, it's the smallest group, where we have seen increased mortality. And here, we also culled some of the presumed weakest and smallest fish to alleviate the situation.
For Batch 5, mortality has remained low throughout the period. So I think both in terms of volume and value, this is a fairly moderate event and for all batches, we have the same or a higher biomass volume now compared to the status as per end of the first quarter. And even after harvesting out Batch 2, we have a standing biomass of around 800 tonnes, which compares to the around 730 tonnes we had as per year-end.
So now we are preparing for stocking of new fish groups and biomass growth over the coming months and quarter, and we will have 2 new batches stocked during the second quarter and another 3 batches stocked during the second half of 2023. And this means that by the end of the year, we will be on our tenth generation at Indre Haroy. Both Batch 3 and 4 are planned harvested during Q3 and Q4 but we will obviously monitor the performance closely. And if needed, we always have the option to take it out early on plan, even though this is obviously not the preferred option.
For Batch 5, the plan is to harvest this during the fourth quarter and also in Q1 next year. And for the rest of 2024, the batches that we are stocking now throughout the year will make up the harvest volume. I think the fascinating thing about this operation is the higher growth rate. We have a production cycle of less than 12 months. And this has been obviously also significantly reducing the impact of a negative event. So with the new batches coming on stream over the coming months, the fact we see today is that the timing of when we reach steady state production may be postponed by approximately 1 quarter from late Q3 to late Q4, depending then on the performance of the existing fish groups.
So the harvest of Batch 2 yields are around 600 tonnes of gutted weight. We harvested it out in full over 9 days in early May as a precautionary step and also in light of the strong market. And this was quite then operational. I think also a real demonstration that we are capable of harvesting significant volumes in short period of time, if needed. And I have to say that I'm really impressed by the way the organization handled situation, both operationally and also commercially.
We're also very glad to see that be for Batch 2 had the similar tight weight concentration as we saw for Batch 1, although at a somewhat lower average weight. Product quality was also good. We had a superior share of 93%, which then helped us realize an average price of NOK 95 per kilo for the batch as a whole, which I think is quite good given the weight profile of the fish. So in April, we finally took over the last 2 tanks at Indre Haroy and as such, Phase 1 is now completed. We have already been preparing for Phase 2 for quite some time, both in terms of planning and design, but also in terms of preparatory groundworks. Currently, we expect a CapEx of NOK 1.6 billion to NOK 1.7 billion, which reflects both savings from infrastructure investments already taken in Phase 1 expected design and productivity improvements that we see for Phase 2 and also the estimated inflation effect.
So with Phase 1 completed, we believe that we are in a very good position with respect to execution of Phase 2. Throughout the construction of Phase 1, we have gained invaluable experience and going into Phase 2, we strongly believe that we have a much better understanding of what we are going to build, which I'm sure is something that will benefit both ourselves and the contractors. We haven't taken on any financial commitments for Phase 2 yet, but we are in advanced discussions with contractors and the plan is to continue with preparatory activities, including both design and planning and also groundworks over the summer and into the fall and then to be in a position to start construction later this year.
So before moving over to the financials, a few words on our international projects. In Korea, we have continued our focus on design and engineering. And in March, as planned, we completed 90% design review for the smolt facility. So here we have come quite far. In parallel, we have been working on the design for the grow-out facility. And here, the workforce has intensified over the last months. We have also strengthened the organization within K Smart. And during the first quarter, the JV got a dedicated CEO and CFO. As to permitting, this process is continuing. We are experiencing strong support for the project, and we also received some important clarifications with respect to key permits and will continue this work with the aim of being ready for construction start this year.
Moving over to North America, we are continuing our site selection process and initial new diligence of selected sites. We are also engaging various stakeholders, both private and public and the plan is to use the coming quarters to narrow in on a site that we deem fit our criteria. I would say we experienced quite a lot of interest for this project. And I think we will have some very interesting opportunities down the road in terms of potential partnership models. But we have to mature the project a bit more before entertaining such discussions.
We have also strengthened the organization with the appointment of Tore-Jakob Reite as new Director of Strategic Projects where he will have a particular focus on this project. He has a very strong background from the industry, and I'm sure that he will be a very good addition to the team.
So I will then give the word over to Trond, he will go through the financials for the quarter.
Thank you, Trond Schaug-Pettersen. Yes. My name is Trond Veibust. Just had my first month as CFO in Salmon Evolution. Unfortunately, the first quarter profit and loss is not nearly as eventful as the first month I have had in the company. We did not do any harvest in the first quarter. And thus, we have very limited operating revenues. The operational EBITDA for the group in the first quarter ended at a loss of NOK 22 million, which is similar to what we saw in the fourth quarter and in line with our expectations.
Please note that this includes NOK 5.5 million in charges related to unutilized production capacity expensed directly in the profit and loss. Depreciations ended at NOK 2.2 million for the quarter, as Trond Schaug-Pettersen mentioned, the facility is now fully completed, and we have taken it over in full. So full depreciations will -- related to Phase 1 will commence from the next quarter.
The fair value adjustment on the biomass amounted to NOK 0.5 million and finally, we had negative net financials of NOK 8.3 million in the quarter, which is primarily reflecting changes in the value on the contract related to power supply. On the same contract in the fourth quarter, we had a quite substantial gain. Our facility is located at the West Coast of Norway in price -- power price area NO3. This is an area with low cost and stable energy supply. And the prices for energy in this area has been considerably lower than comparable areas over the last few years.
Currently, we have a favorable green power purchase agreement in place with Statkraft until the end of 2023. We are evaluating our hedging strategy for 2024 and beyond. We have received price indications on 3- to 7-year contracts under the new system introduced by the Norwegian government, the so-called Vestre model. The intention of this scheme is to provide reasonably priced electricity to Norwegian companies. and the quotes we have received for our price area NO3 are at acceptable levels.
Late in the quarter, we also announced a green financing package with DNB and Nordea. This package increased debt on Phase 1 with NOK 250 million and secures NOK 775 million for Phase 2 CapEx. The new debt level corresponds to our loan-to-value of about, combined, of about 48%. and an incremental loan-to-value of about 60% to 65% based on the estimated Phase 2 CapEx of NOK 1.6 billion to NOK 1.7 billion and the new RCF and Phase 2 construction facility, representing a total financing of slightly above NOK 1 billion. The new debt financing package is the result of a thorough process with several leading banks and had strong interest. And it will have several positive effects for the company through improved cash flow from the refinancing of the existing construction loan into a non-amortizing term loan, significantly lower margin and significant financial flexibility to finance early Phase 2 CapEx at Indre Harøy.
All facilities have a 3-year term with 2-year extension options. And furthermore, the package allows for an increase in our existing overdraft facility related to working capital financing from NOK 100 million up to NOK 300 million. The RCF is fully available whilst utilization of the construction facility is subject to customary conditions, including demonstrating that Phase 2 is fully financed. Thank you. Trond Schaug-Pettersen some closing remarks.
Thank you, Trond. As we have been communicated, we have a long-term production target of 100,000 tonnes over the next decade, and this plan remains unchanged. And we really feel that we already have a very tangible pipeline of projects. And with Phase 1 at Indre Harøy now completed, I think we have a unique platform to build on. And we very much look forward to get started with Phase 2. And I'm also very sure that also having a fully operational facility at Indre Harøy is something that will benefit us greatly when expanding into the overseas markets, both in Korea and in North America.
So to sum up, our long-term plans remain unchanged. We are very pleased to see that the situation we've had over the last weeks at Indre Harøy now seems to be stabilizing with daily mortality back to normal levels, also enabling us to recommence feeding. I have to say that I am really proud of our organization and how everything has been handled. We have taken decisive actions, which seems to have had a good effect. We are, of course, monitoring the situation closely and remain prepared to take action on short notice if required.
Also, I think that what we have been through really demonstrates the robustness of the hybrid flow-through system and also the built-in flexibility. We have to tackle challenges in a controlled manner. To my knowledge, a large-scale freshwater treatment has like this carried out in salt water tanks on land has never been done before. And clearly, our entire organization has learned a lot from this experience.
As touched upon earlier, we have also implemented a number of actions to avoid this happening again. And clearly, having secured on-site fresh water production capabilities. This gives us a very good tool going forward, with a minimal response time if needed. So now we are very much looking forward shortly welcome new fish groups into our facility at Indre Harøy and also to get back into production modus and ramp up production over the coming months and quarters, and we really believe that we have a strong platform, both operationally and financially to continue to lead and shape the development of this industry. So that was the last slide of this presentation. Then we can open up for questions. We'll take the questions from the audience here first, and then we will move over to questions submitted via the webcast.
Could you please comment on the extraordinary costs related to this mortality events and also the CapEx cost of installing the fresh water capabilities.
Yes. I think I can start. In terms of the freshwater, what we've done is that we have rented a mobile freshwater plant. So we have rented it now for initially 6 months and that is a fairly moderate sort of rent fee. So it's not -- it's a few million NOK, but it's fairly moderate. And then I think long term, we will sort of evaluate how we're going to structure it if we were going to have our own on site. So -- but as of now, we have sort of secured a sort of rented option.
As to the extraordinary cost, it's still a little bit early days to sort of determine that, but I think what we can say is that this -- it's not both in terms of volume and value. It's not huge numbers. We have some extra costs. We have had to get in -- we have 2 well-boats for a week at the site. So that's obviously cost some money. You have some overtime on people and so forth. But I think sort of -- we will come back to sort of the exact details here, but it's not like huge numbers.
[indiscernible] Have you seen any correlation between the AGD and the density in the tanks. And maybe also if you during the last -- past few weeks in the process seen any risk of other pathogens entering into your facility?
I think we have not seen any correlation between that, but obviously, part of what we will be doing now is of a thorough analysis of what has happened. So -- but we have no evidence for that. I think there's always a risk that pathogen will -- and pathogens are in the ocean, and there's always a risk that you could have those, but we have. That's why we have UV treatment, so on the intake water. So like I've said, we -- that is supposed to sort of tackle it. We have now substantially increased the dosage and sort of that should be sufficient to avoid this being a problem.
Okay. Should we cover the questions submitted online?
Yes. I think we have one question here in terms of the cost related to the event. I think we touched upon that with a question from Alex. Now we have also 1 question here. What in your opinion, are the key obstacles on the road to profitability, what challenges are still ahead? And how are you prepared to face said challenges?
I think in terms of profitability, it's all about production. The salmon market is strong, and we do think it will remain strong. So then in our operation like we have, it's all about getting the volume you are supposed to get that out of the facility, and that will bring unit cost down to the targeted levels. And I think -- so that is our main focus now to get back into production modus, ramp up production, increase the biomass and that sort of is what will take us to profitability.
Then we have a question on what we pay in electricity currently and what we consider acceptable prices.
We currently pay approximately NOK 0.32 a kilowatt today on the current contract. And the [ ports ] we have seen for long-term contracts are about NOK 0.10 above that.
Yes. Then we have another question here. Are there welfare issues relating to the fresh water treatment. If so, what?
I think the normal way, if you take the conventional industry, the normal way of conducting this treatment is that you pump the fish from the ponds into a well-boat and then have it in freshwater there for some time before you pump it out back again into the net. There's obviously a stressful event for the fish. What we actually were able to do is that we complete the treatment within the tanks. So we didn't have to move the fish. So we had 2 well-boats producing freshwater pumping net water into the facility into an empty tank, and then we move the water into the tank where the fish was and gradually lower the salinity, and we saw that it was sort of from a fish welfare perspective. I think this was a very, very good way of doing it.
Yes. And then we have a question on whether there are any side effects of increasing the UV dosage and how could AGD avoid those [indiscernible]?
Now, I think in terms of -- we -- it's important to stress that we have been self operating with the dosage that we were -- we were supposed to and what we thought would be sufficient. So now we have increased it substantially as a precautionary step. So obviously, if you're running at too high utilization over time, you will have problems with downtime and maintenance costs, so we are running at approximately 90%, which is -- we should be okay. And also in terms of cost, it has not been any meaningful impact. So -- and I think this -- this should be sufficient so to tackle AGD and pathogens, and that is sort of the base case. But what we have said is that we want to -- and we're very focused also on having the readiness and capabilities in place so that we can have minimal response time if a situation occurs.
He added, the question on the UV was more related to fish health, not cost.
Yes. And I think we don't see any issues on that.
We have another question here. When are your ambitions to start paying out dividends.
I think what we can say there is that we have a large project, and we have Phase 2 ongoing. So I think over next year's focus will be on growing the business and the operation rather than dividends.
And then we have a question here. What about the results in the second quarter.
Yes. That's a little bit early to say. It is still 6 weeks left of the quarter, and the situation at Indre Harøy has just stabilized, and we are fully focused on returning to normal operations. So we will come back to this in the second quarter.
All right. That was the end of the list.
Yes. Thank you all for attending this presentation. Very much look forward to see you again in August in connection with our second quarter results. Have a good day.
Thank you.