Salmon Evolution ASA
OSE:SALME
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Salmon Evolution ASA
Earnings Call Analysis
Summary
Q2-2024
Salmon Evolution reported a solid Q2 with revenues of NOK 170 million driven by record-high harvest volumes and strong price realizations. The company achieved an EBITDA of NOK 45 million and an EBIT of NOK 26.4 million. Phase 2 construction has commenced, boosting future production capacity to 18,000 tonnes. The company is now fully financed for this expansion. Despite a reduction in biomass production, Salmon Evolution remains optimistic, projecting Q3 harvest volumes of 1,200-1,300 tonnes, with similar volumes for Q4. The company's strong financial position, with nearly NOK 1 billion in available liquidity, underpins its ambitious growth plans.
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Okay. Good morning, everyone, and welcome to this presentation of our results for the second quarter. My name is Trond HĂĄkon Schaug-Pettersen. I'm the CEO of the company. With me here today, I also have our CFO, Trond Vadset Veibust and also our Chairman, Tore Tonseth. We had a major milestone in the first quarter were for the first time, showed good profitability. And we are very pleased also to report another quarter with strong profitability.
And I would also like to use this opportunity to thank all of our employees who work day and night to make all of this happen. It's been a very eventful first half and now also with Phase 2 starting construction. I'm sure we're going to have a very active second half as H1.
So we will start this presentation by going through the highlights for the quarter before moving over to the operations and our growth initiatives. Then our CFO, will take us through the financial and -- financials. And finally, end the presentation with some outlook and we will open up for questions at the -- and for those of you who are attending virtually, [Operator Instructions]
So as to the highlights, we have again demonstrated that we have a solid operational platform capable of delivering strong financial results. We had an operating cash flow in the quarter of NOK 38 million, and we also had a group EBITDA of NOK 45 million.
Looking at our farming operation alone, EBITA came in at NOK 58 million or NOK 37 per kilo, which is actually slightly better than in Q1 when we adjust for nonrecurring items. So for the first half as a whole, our farming operation generated almost NOK 100 million in EBITDA, which I think really gives a glimpse of the underlying potential in our business. As we're going forward, we'll continue to improve both on harvest weights, volumes and production cost.
On the top line, we had NOK 170 million in revenues in Q2, and this was driven by record-high harvest volumes and also a strong price realization following another quarter with a very high superior grade share.
In terms of biomass production, this was down during the quarter driven by a very high harvesting activity, and also certain one-off items so that I will come more back to. Obviously, we are very satisfied now to get started with Phase 2 and have made final investment decision after completing a financing in June, both of new equity and also a very strong debt financing package.
And this means that we are now fully financed for 18,000 tonnes gutted of production, and this is will obviously going forward when that comes on stream gives us a substantial organic investment capacity in the years ahead.
So as communicated, we had record high harvest volumes of almost 1,600 tonnes in the quarter. This means that we harvested a total of 2,500 tonnes in the first half. The salmon price was very strong in Q2 as well. We saw a drop in June.
But similar to the first quarter, we had an exceptionally high superior grade share of 96%, which we strongly benefited from master price gap downgraded fish was at elevated levels. And this enabled us to achieve an all-in price realization of NOK 106 per kilo, which we are very satisfied with, especially given that we had pretty low harvest weights at 3.6 kilo live weight, which was mainly due to low stocking weights during spring/summer last year.
As you can see from the chart here, we have had a consistent, very high product quality over time, which is obviously key when you are talking about price realization. But also the feedback from our customers on our salmon is very good, and we are experiencing more and more interest for our salmon, both for the product itself, but also the story that we represent. So I think going forward, we see a lot of interesting commercial opportunities as well.
Looking at -- into Q3, we have revised our harvest expectation to 1,200 to 1,300 tonnes as we are utilizing access tank capacity to move some of the volume into Q4 to increase harvest weight. Given that Q3 typically also represents a seasonal low in terms of salmon price, we think this makes quite a lot of sense.
When it comes to the fourth quarter, we expect similar harvest volumes as for Q3. So that means that we will have a total harvest of between 2,400 to 2,600 tonnes gutted during the second half of the year.
Harvest for Q4 is naturally impacted by the culling of batch 11 that we did in Q2, which was planned taken out in the fourth quarter. And secondly, we are also prioritizing to grow the biomass as much as possible towards the end of the year so that we can enter the 2025 winter season with an expected solid biomass volume.
When it comes to production during the quarter, we had a biomass growth of 1,260 tonnes and a standing biomass of little over 2,000 tonnes. This is down from Q1 following high harvesting activity. Additionally, production in the quarter is impacted by the culling of Batch 11, which we ultimately decided to take out in May due to poor performance and problems with ulcers. We have identified the root course for this, and it's linked to poor small quality.
Also, we stocked our 12th batch in mid-May. The group performed well initially. But we have seen increased mortality levels over the summer for this group and are taking appropriate actions to normalize the situation, and that includes also actively sorting out weak individuals.
It's very important to note that the situation for this group is very much different from the group we took out. So we hope to soon be out of the woods on this one, and the fish is also eating well, which is always a good sign. So focus now is all about incorporating the learning effects from these groups and restocking the facility to full capacity.
We stocked Batch 13 in June and also another batch in July. And I'm very glad to see that both of these groups are performing very well, very strong growth and minimal mortality. We're also stocking one additional group this week, and one additional group next week. And then we are fully stocked and actually quite good position for strong growth towards the end of the year.
And also very important to note that and stress that the overall performance in the farm is very stable. We have had a very consistent high superior grade share. And we also see a very low mortality levels overall, exemplified by the groups that we took out in -- for harvest in Q2 where we had an accumulated mortality of 3% to 4.6%, which is in line with our target.
So obviously, small quality is very important for us given the challenges we've had on a couple of group, and we have devoted a lot of resources into this and also implement a series of actions. And the salmon is at a very fragile point in life during the time of transfer from freshwater into seawater and good small quality and good modification is essential when it comes to performance in the seawater phase.
So one of the things we have done is that we have revised our smartification procedure. Furthermore, we are also adding additional vaccination for ulcers, which in some makes us confident that the issues we faced with these groups was one-off. As mentioned, the last 2 groups that we stocked have been performing, I would say, extremely well. And as we've try to illustrate on this chart, a strong performance from the get-go has a very big impact on the final harvest rate.
So here, we have put up on the performance the first 40 days after stocking up in era for all of our groups. And as you can see, the third quartile has a daily growth rate of 2%, while the first quartile is at 1.3%. And then obviously, all else equal, this has a big impact on the final harvest rate.
So for us, it's all about moving as many as possible into this third quartile. And obviously, one of -- another benefit of strong performing smolt is that, that's likely a more robust smolt, less likely to incur biological challenges. So we're definitely seeing that what we are doing here is bearing fruits and also seeing a substantial year-on-year improvement in performance at a small facility and I also expect stable stocking rates going forward.
So that means that for 2024, we expect to harvest a total of 5,000 tonnes gutted. This is somewhat below the targeted volume for Phase 1 in full operation at 7,900 tonnes. But if you look into the details, most of this difference can be explained by one-off items.
Firstly, we had a reduced stocking volume for Batch 10. And secondly, we had this group that we took out in May. Both of these groups were scheduled for harvest in the second half of this year and with a yield of around 1,500 tonnes.
Secondly, we also had a low stocking rates during 2023 for 3 groups and the effect of that because when the fish reach as a certain time, you need to take it out because you have other fish coming. So the fact of that is about 500 tonnes. And adjusting for that, you are at 7,000 tonnes, which is fairly close to the target. So going forward, obviously, important to avoid one-off events and obviously also to further improve every day to close the final gap.
We will have a wide series of initiatives ongoing. One example is the -- our new RO plant that we take -- that we used to produce seawater from -- freshwater from seawater at the site. We take delivery of that new one in Q4. And that has a capacity 3 times -- more than 3 times the one we have today.
So that obviously is going to give us an increase in effective feeding days, maybe up 3%. And outside of that, we are also working on a number of other things, and are very much confident that this production target is well within reach. And we're also seeing a strong potential to both meet and also exceed that target. And that's what's really for us making this really interesting to work with.
Another major focus area for us is use of data to improve fish performance, and we call this program Salmolytics. Every day, we collect more than 40 million data points covering process, fish halt and biological data. Obviously, it's a huge job in systemizing this data so that we can analyze performance, and sort of what factors are contributing to both the optimal and suboptimal growth.
And today, we are focusing a lot of growth factors and identifying the growth factors and pinpointing key elements that affect both the short term, medium and long-term growth. Also, this is very important in terms of ensuring environment stability in the system because we see that every time you have a change in the environment, that also has an impact on the fish.
And finally, this is also a tool for where we can focus on preventing stress for the salmon. And here it's all about doing proactively detect and mitigate stress-inducing events. So long term, this is definitely something that we think will give us a huge advantage, both at Indre Harøy but equally important as we expand to other sites.
Cost to growth. Indre Harøy is obviously our first priority and in terms of growth, and we are extremely pleased now with having made this final investment decision in the second quarter on back of our successful financing round.
Phase 1 is obviously a large operation. But in the grand scheme of things, it's too small. In Phase 2, we are also adding additional tank capacity that will increase the production to 18,000 tonnes gutted. And for us, that's really what you need to reach critical mass, which again puts us in a totally different position in terms of cash flow generation and also our ability to drive organic growth.
I'm also very pleased to report that mobilization and construction at the -- on the grow-out facility has already begun. And we target to stock the first multi Q1 2026 with the first harvest and full completion in Q4 the same year.
In parallel, we are also working on the additional tank capacity or the pre-growth tanks on engineering and planning. And the plan here is to start construction of that module mid-2025 and completion aligned with the rest of the growth facility.
So as a company, I think for us, we are very much looking forward now to get back into construction mode. And now we have been operating for well over 2 years. We've gained a lot of operational experience. That is very important as we now move into our Phase 2 expansion.
We have, for some time, been looking at optimization of our production plan, and that's something that we are addressing in Phase 2. And the way we do that is that we add some additional tank capacity that enabled us to increase the stocking weights and thus having higher throughput in the farm.
And by doing that, we increase the combined production capacity from Phase 1 and 2 from 15,800 tonnes to 18,000 tonnes. And obviously, in terms of production costs, this will also have a positive effect.
We have a lot of infrastructure already in place, so we can do this upsizing in a very cost-efficient manner. And then as we go on to Phase 3, the plan is to do the same. So as you can see from the picture here, Phase 2 is more or less identical to Phase 1. They grow out part of it.
What is new is that we add this additional tanks or pre-grow out modules, where we have 4 smaller tanks. And those 4 tanks are serving Phase 1 and 2. So it will be 1 module for Phase 1 and 2 and 1 module for eventually Phase 3. And it's located next to the index station. And so you can just tap into the existing infrastructure and access the water there.
Just a little bit on the production plan and what we are doing there. Today, we have a production plan where we stock to fish at 130-gram and then target a harvest rate of 5.7 kilo live, which should take approximately 11 months. This enables us to do 6 batches per year.
The one drawback with that is that we have fairly low density during the start of our production cycle. And therefore, by adding a new prio grow-out tanks, we can increase the stocking weights in the growth department from 130 grams to 400 grams. And then we significantly increase also the throughput in the farm.
At the same time, we reduced the targeted harvest rate somewhat down to 5.2 kilo live weight, which still is a very good weight. And by doing this, we are able to reduce the production cycle to 8 to 9 months. And also instead of doing 6 batches per year, we can do 8. And that means that you get [ 11 and 100 ] tonnes out more out of each phase. But outside that sort of increase in production volume.
There are also several other benefits with this set up. First of all, this is an even more conservative production plan with lower average harvest weight and also lower peak densities, which means more upside potential.
By having more batches, we also increased regularity in terms of harvest, which is good from a commercial perspective. This is also very capital efficient. And by having more batches in the facility, you also reduced the operational risk, while at the same time adding more operational freedom.
And finally, this also gives us a better utilization of our small facility where we can increase the number of -- in the videos that we have produced by lowering the weight somewhat.
Now Trond will talk a little bit about the financials for Phase 2.
Thank you, Trond HĂĄkon. First of all, good to see you all again. I hope you've had a good summer holiday. As you all know, we were quite busy before the summer holiday, and we are very pleased to finally moving ahead with the Phase 2 expansion.
After landing the target price and securing a solid financing package in June, consisting of both an increase in bank facilities and new equity. All in all, the Phase 2 project has a project cost of about NOK 240 to NOK 250 per kilo, including contingencies and buffers. I think in all respect, that's a highly competitive growth cost in the salmon space. The project cost estimate is a result of a long and thorough process with our contractors.
In Phase 2, we also reaped the benefits of having built a facility like this before. And the level of detail in the Phase 2 project is at a much higher level than at a similar stage in Phase 1.
On top of this, we also have a contract model with our contractors that really stimulate delivery on time and budgets. And in sum, all of these factors, they greatly reduce the overall execution risk of the project and also take down the risk in the cost estimates.
Moving ahead with Phase 2 at Indre Harøy, we are now fully financed for 18,000 tonnes, which again will give us a substantial organic investment capacity in the years to come. And to illustrate the strength of the platform, we have prepared this example. Estimating cash flow and theoretical investment capacity in different salmon price scenarios when Phase 2 is fully operational.
Although Phase 1 is a potent platform in itself, when looking at Phase 1 and 2 combined, Salmon Evolution established strong cash-generating platform, which can serve substantial organic growth in the years to come. As the illustration highlights, we have the potential to fully fund our expansion plans based on our own cash flow.
This puts us in a quite unique position where we basically control our own destiny and further scaling more becomes a question of how quickly we want to do it instead of how we are going to fund it.
Based on this illustration at the salmon price of NOK 90 per kilo, we estimate an annual investment capacity of around 6,000 tonnes in -- with Phase 1 and 2 in full run rate. And this equals 9,000 tonnes Indre Harøy facility every 18 months. And of course, as we continue to grow, we further increase the strength and the cash generating capabilities of our platform.
Thank you.
Yes. So a few words on the other expansion projects that we have ongoing. In North America, we have identified a very interesting site that we classify as a high potential location. I would have liked to share more details on this now, but we are still working on some clarifications that we want to have sorted out before we go out public. So more to come on this.
In Korea, there is not much new to report since our last update. We as communicated, we have had a lot of focus on cost optimization. And together with our partner, we are working with the authorities on financial support, which we expect will take some time.
It's important for us also to stress that for Salmon Evolution, we have a special joint venture structure where our main contribution is assumed capital, and we are also very much focused on capital discipline and making sure that all projects that we are involved and have a strong financial return profile.
I also want to add that we see additional opportunities in Norway as well. I think in the same way as for conventional farming, we strongly believe that Norway will be the cost leader also when it comes to land based. And this is simply due to all the infrastructure, the very efficient value chain that we have. So we are looking also at a couple of opportunities here, which we think can be interesting in a more long-term perspective.
So with that, I think our CFO will take us through the -- more details on the financial during the quarter.
Perfect. All right. So in the first half of 2024, we achieved a significant milestone by becoming a profitable salmon farmer.
Over the last few quarters, as our harvest volumes has picked up, we have capitalized on a record strong salmon market. I think a few salmon farmers, if none, has had as strong all-in price realization as Salmon Evolution has had in the first half of 2024. And of course, the main differentiator for us has been biology reaping the benefits of an industry-leading superior grade share of above 95%.
In the same period, we have also seen a steady improvement in our cost metrics as illustrated by our farming EBITDA cost per kilo decreasing from around NOK 76 per kilo at the end of 2023 to NOK 64 this quarter. This is in line with what we guided in our Q1 presentation.
We expect the farming EBITDA cost to remain around this level for over the next few quarters. But as we have highlighted earlier in the presentation, we expect the growth momentum to pick up at the second half of this year. And this will have a positive effect on the cost base from the batches set for harvest towards the end of this year and at the start of 2025.
All in all, the EBITDA for the farming segment ended at NOK 58.6 million or about NOK 37 per kilo, which actually is slightly better than Q1, if adjusted for the effect of the write-down of about NOK 6 million we took in connection with culling of a smolt group. In the first half of 2024, we had revenues of approximately NOK 270 million and an EBITDA of close to NOK 100 million.
In the other segment, all the resources related to projects and technology are employed as well as general corporate functions. A significant portion of the cost base is related to future expansion. This is basically the cost of scaling and internationalizing Salmon Evolution. And for the sake of simplicity, let's just call this the expansion cost.
The revenues in this segment derives from sale of services to other group companies or basically the farming segment. The expansion cost after allocation of G&A to the farming segment ended at around NOK 13 million in the second quarter, which is more or less in line with the first quarter. As harvest volumes grow, we expect the expansion cost to have a gradually lesser impact on the overall group results as also illustrated by the development in expansion cost per kilo between Q1 and Q2.
Looking at the Salmon Evolution Group overall, we delivered another profitable quarter, highlighting that we have established strong profitability even with harvest volumes and production not having reached its full potential yet. EBITDA in the group ended at NOK 45.4 million and EBIT at NOK 26.4 million.
Adjusted for the effect of writing down biomass related to culling of the mentioned smolt group and depreciations on nonrecurring CapEx, we had an underlying EBIT of approximately NOK 40 million. The fair value adjustment in the quarter ended up negative NOK 12 million and net financials, primarily driven by interest rate expenses and partly offset by interest rate income on the cash balance at negative NOK 7.8 million. And profit and loss for the quarter ended up positive NOK 6.3 million.
Looking at the balance sheet and cash flow. Our already strong financial position has further improved during the quarter. For the first time, we have a solid positive cash contribution from operations with an operational cash flow of NOK 37 million in the quarter. This is yet another financial milestone highlighting the strong growth platform Salmon Evolution has established.
Investments in the quarter was primarily driven by the Indre Harøy Phase 2 pre project, which was concluded in June. And as Trond Håkon also mentioned, mobilization and construction for Indre Harøy has actually already commenced. So you can expect that the investment level will increase in the quarters to come. And of course, we also had a significant positive cash infusion from the private placement that took place in June.
At the end of the quarter, we have a strong financial position with available liquidity of almost NOK 1 billion including available committed undrawn credit facilities, but excluding the dedicated construction financing.
And looking at our long-term cost targets, they have been revised slightly given the upsized Phase 2 project, which yields additional scaling benefits. This illustration represents the expected long-term cost targets in full run rate. It is based on the current cost of input factors and currency rates. Except for feed, where we have applied a slight reduction compared to the current feed prices.
In Phase 1, we have established most of the operational platform needed for subsequent phases at Indre Harøy. By upsizing the Phase 2 project, adding an additional 2,200 tonnes of annual harvest capacity and increasing planned output to 18,000 tonnes, we, of course, reap -- expect to reap additional positive scaling effects as illustrated by a slight decrease in the target and farming EBITDA cost per kilo compared to our previous target.
All in all, we estimate that the farming costs will be reduced by around 6% to 7% with Phase 1 and 2 in full run rate resulting in a farming cost of approximately NOK 50 per kilo.
Thank you. Over to you, Trond HĂĄkon for the summary and outlook.
Thank you, Trond. So to sum up, what we are doing now is creating the foundation for substantial profitable growth in the years to come. As I said, we have been operating the farm for well over 2 years. And I think we have really demonstrated the viability of doing this on land.
We've had -- and also not only doing it on land but also doing it at scale and with good biological results. This first half of 2024, we have also proven that it's possible to do it with strong financial results.
At the same time, there is still a lot of upside potential here, which we are planning to capture going forward as we continue to improve every day. It's all about striving for operational excellence in everything we do across all aspects in our business, and that's what we are highly committed to do.
Obviously, for us as a company now, we are very much looking forward to Phase 2 and get back into construction. This will really give us critical mass and a very potent platform for growth in the years to come.
We're also very happy with the strong relationship we have with our banks and the financing package that we concluded in the second quarter, which together with the equity issue, ensures that we now are fully financed for Phase 2 and have a very strong financial platform.
So we definitely believe that we are in a very good spot at the moment and also that we are uniquely positioned to lead and develop this industry in the years to have.
So I think that concludes this presentation. We will now open up for questions. We'll start here in the audience and then we'll take questions from the -- submitted via the webcast after that. We're a little bit short staffed today. So it's our esteemed Chairman, that's the moderator.
Christian Nordby, Arctic Securities. Can you comment on how much mortality you're assuming for the remaining batch studies ulcers impacted in the second half?
As we said, we have -- the total loss is 19%, but a huge part of that is actually us actively taking out fish because -- just to take out the weak in individuals. So it's us doing that. We are, as I said, we hope to soon be out of the book. We are seeing that at least over the last week, now day it's coming very much down. So we hope that and we believe that, that situation will normalize.
So I think we have at least a hope that we are so over the worst and that the situation will normalize soon. So it's not uncommon that you have like a -- just have to like ride it out some time. But it's the fish is eating well, and that's always a good sign. So it's hard to make any prediction.
Any vaccination, the only solution? Or are there other solutions as well to prevent it?
So we are adding this -- you heard a lot about this new vaccine this year. So we are implementing that on all batches going forward. So the fish we are stocking now. We'll have that vaccinid. So I think that is sort of one good thing.
And then secondly, it's -- this has not been an issue we have -- it's been a very isolated event because all the fish in the other tanks have 0 ulcers with a 96% superior grade share. So I think it's a little bit about -- when you are at the point in time where you are going from freshwater to seawater, that's a very fragile in life for the salmon and obviously making sure you have a strong small. So it's I think a combination of many things that you need to do to ensure that you have the best possible starting points -- point.
We also -- have also done some changes to the multiplication process, which I think is also very important and especially now with the last 2 groups that we have stocked with -- yes, the performance has been extremely good then. And actually, better than anything we've seen before. So we are very hopeful that all these things are going to have a very positive impact going forward.
It's also important to highlight that for these 2 groups, we are now past the point where we've had the challenges with the previous groups so.
And have you been able to sort of estimate when you got the ulcers? When did they come into the system? Is it month ago? Or is it in the winter or when?
No. It's like for -- this is only like for 1 group. And for -- as I said, on this group stocked in May. It started performed well initially and then eventually a little bit more and more and -- but now it's sort of on the way down. So obviously, we don't want it at all, but we are -- it could potentially be that you have with the sort of the situation you've had in the conventional industry, there's a lot of sort of bacterias in the ocean.
But hopefully, and we strongly believe that with the inclusion of this vaccine and combined with is of making sure that you have a very good starting point then we are very much in a good position to tackle this. And I think the best indication here is also that if you look at all the other fish that we have in our farm, we have 0 problems where at the same time, the salmon in the ocean has a lot of problems.
So it's probably just like in the beginning, you are more fragile, and that is something you obviously then small quality becomes very important.
Any other questions? I think I have to highlight, I think we consider this to be related to smolt. It's not about the facility. I think that's a very important point from the Chairman on site.
Just a question on the Q3 guidance. Can you give us a bit more color on what happened in the last 4 or 5 weeks since trading update that made you reduce the guidance?
It's more sort of optimizing the production plan. We see that we have some access tank capacity. So now obviously, with sort of effect from this group -- this group that was called. We see that there are some opening in the -- some access tank capacity that we want to sort of take advantage often basically get the harvest rate as high as possible, and we have some opening for that. And that is basically the reason.
And then some is moved into Q4, and then you also get a more sort of evenly harvest profile during the second half of the year. And obviously, it's all about sort of ending the year with the highest possible biomass. And that's also -- the focus now is growth, and get sort of the facility fully stocked.
It was also Harman, a relatively easy decision to make given the -- we -- as many of you expect, the prices will bottom out probably a little bit earlier this year. So when we have the opportunity to add a little bit of flexibility in our production plan, of course, pushing one group a little bit into the future is actually a very good financial decision as well.
So -- and basically, the difference between yes, 1,500 tonnes and 1,300 tonnes for Salmon Evolution. That's one group, one tank. So it's not a huge change overall.
Could you also say something about when we should expect sort of full-scale utilization of the Phase 1 facility?
I think what we can say and as we said on this, if you adjust for this one-off events, then you are at 7,000 tonnes. So we believe we are very close, and we are -- it's -- you have to work every day to get there. Obviously, avoiding this -- those kind of things is -- or this kind of one-off events is important. And -- but now we are prioritizing to grow the biomass and the air with as much as possible biomass. So we think we are in a fairly good spot stocking-wise by the end of the year.
So it's, I think, a gradual process, and we are working every day. So -- but we are not far from full capacity. And we've had periods during the first half when we had close to the biomass level that we want to have a full capacity and then we were almost sort of where we are.
So it's like small, minor tweaks and then you are there. So -- but it's a unit it's not on -- this is not like just a press a button. It's a lot of things you need to work on them. And I think also as a company, we are in a unique position here because we are at the forefront of this industry, and we're learning things every day and just to see the sort of buildup of competence within our organization, it's quite unique and we have a fantastic opportunity to really sort of push the boundaries in the India to have that.
And as I said, for one thing is to sort of meet the target, but there is a potential well beyond the target. But then you have to sort of look a little bit further down the road. And so that is yes, what really makes us get up in the morning because here it's a fantastic opportunity to really make something really unique so yes.
Okay. Then we'll take the questions submitted via the webcast. All right. First question. When do you expect to reach steady-state 18,000 tonnes annual harvest volume?
Of course, it's a little bit early to be -- to give a definite time frame for that. But construction has commenced at Indre Harøy for Phase 2. We expect to put in the first smolt in the first quarter of 2026. We expect to do the first harvest in the last quarter of 2026.
I think what we can say is that if you remember, in Phase 1, we had a much -- we had a fairly sort of slow ramp-up because we took it slow. It was the first time. But in Phase 2, it should be a much steeper ramp up. So then it's much more like we're going to stop batches just like that. And then we get much quicker sort of up to full speeds. So I would say -- yes, harvest the first fish in Q4 '26 and then it should not take very long after that.
Second question, do you add oxygen to the water? And if so, how can this impact the cost of production in case of high oxygen price?
Yes, we add oxygen, but it's a relatively minor part of the overall production cost at Indre Harøy. We also have a long-term contract on oxygen. So changes in the short-term, changes in the oxygen price do not impact our production cost in any significant way.
Then should we expect a harvest of 7,000 tonnes in 2025? Or do you expect higher volumes next year?
Yes. And I think we will come back with -- we haven't gone out with a guiding for 2025. Yes, that's something to be addressed later this year. But obviously, now we are restocking the facility. Next week, the facility is fully stocked. And obviously, then we are in a very, very good spot. And as you saw here, after adjusting for 1 ops, we were at 7,000 tonnes. We would have been at 7,000 tonnes this year. So we're very much looking forward to next year, I think. That's at least fair to say.
Definitely. All right. Thank you. See you again in November 7. Thank you.