Andfjord Salmon Group AS ($ANDF)

Good morning, as we say in Oslo, and welcome to this quarter presentation from Andfjord Salmon. My name is Martin Rasmussen, and I am the CEO of the company. Today's presentation will be given by myself and our CFO, Bjarne Martinsen. And -- we will, after the presentation, end it with a Q&A, and you can submit questions through our webcast solution or ask them as a participant in the audience. First, a brief introduction to Andfjord Salmon. And the key behind the concept is location with access for a natural seawater from the Gulfstream perfect for salmon farming with a noncomplex technology. So the concept is taking the best from traditional salmon farming in the sea with temporary and rich oxygen rig seawater from the Gulfstream that allow us to have a very energy-efficient collection method. And with water in that at 50 meters depth, we avoid the salmon lice, algae and jellyfish in our closed system. We have a very large pool designed to recreate Salmon's natural habitat on that. So this is the Gulfstream brought on land. And this gives the fish plenty of space to exercise its natural behavior. So with our closed system, we are protecting the fish from the external factors such as salmon lice, jellyfish and algae at the same time as we're protecting the environment for having such a large concentrated biomass in one place. So over to today's agenda. First, we will look at the highlights from the quarter and subsequent events. We will thereafter dive into the details from the fish farming operation, look more into the strategic possible partnership with Eidsfjord Sjofarm, give a status on the Kvalnes build-out. Bjarne will cover the financial and end the presentation with a summary outlook and Q&A. The key highlights from the first quarter and subsequent period. The eight 1st months of production demonstrate very strong operational metrics ahead of schedule. In the long term, strategic partnership has been entered into with Eidsfjord Sjofarm, with the first sale scheduled for June this year. We have strengthened our financials with a private placement of NOK 385 million alongside an increase in bank facility of NOK 200 million. We will, during the next days, really smolt into K3 and the construction of K2 and K4 is progressing as planned with smolt release this autumn. And based on the experience and the production so far, several improvement measures has been identified to support strong operational performance going forward. So let's look at the fish farming operation. And as we can see, the survival rating to be very high. And the yellow dotted line indicates a survival rate of 5% in a 15-month production cycle. This does not mean that we will have a 15-month production cycle, but just to put our numbers into perspective and show how we perform compared to a 5% mortality rate. The yellow line is the first production cycle from 2022 to 2023. And red or the pink line is K1 and the blue line is K0. So far, the survival rate is 99.17% in K0 and 99.24% in K1. And overall, the fish health condition is also very good, demonstrated by both our internal and external examinations. The growth has also been very strong with both pools performing above our expectations. The fish in K0 was released with an average weight of 180 grams in September and has now reached 2.1 kilo. And the fish in K1 has -- was released in November at an average rate of 160 grams and is now 1,150 grams. So both groups has delivered very strong production throughout the winter season, which is the current lowest temperatures and thereby the slowest growth conditions. In the recent week, we have entered a transition phase from winter to spring and where the temperatures is gradually increasing and this is now reflecting an increased higher daily production levels. We expect to start the harvest in K0 in the third quarter and complete the harvest in the fourth quarter. And in K1, we expect to start to harvest in the fourth quarter. So -- and the final timing will, of course, depend on the growth and development for the coming weeks and month. After 8 months of production, we have identified several learning points, but also learning points from the first production cycle in 2022 and 2023. And we see the results implementing these learning points. And it's clear that they have the intended effect. So we can see that the results and the quality on the performance in the first -- the new pool, K1 is giving us the results that we wanted to achieve. So we have a higher biomass in K1 and also very strong performance. So we are very satisfied with the results and optimization that we have carried out now in the construction phase and also after we have started the production. So in summary, we consider the first 8 months of production to have been very, very strong. Total standing biomass is 1,584 tonnes and K0 have currently 727 tonnes and 857 tonnes in K1. The feed conversion ratio, FCR remains low at 1.03 in K0 and 0.93 in K1. And it's very encouraging to see that a solid biomass has been built with only 2 production units during the call this time of the year. And with K3 expected to be stocked with fish in the coming days. This will support a strong and efficient increase in the biomass going forward. The third pool is now ready for smolt release and the smolt is on its way to Kvalnes during the next couple of days. And we have conducted through our testing and training in K3 since it was filled with water around Easter. So approximately 550,000 smolts will be stocked with an average rate of around 110 to 120 grams and it's planned to utilize the smolt from K3 for a separate dedicated post-smolt sales program in the autumn. So over to the strategic post-smolt partnership. And as we have communicated since several occasions, the post-smolt strategy is a supplement to our human grade production of salmon. And that said, it is somewhat misleading to refer and this is a post-smolt as this is a very, very large post-smolt. It's a mega smolt or what we call a small salmon. But however we use a chosen to use the post-smolt definition to ensure that the strategic message is clearly understood. Eidsfjord Sjofarm is regional salmon farmer with very strong track record with a good biological performance. They have been a shareholder for many years to salmon. They have also contributed in developing the company for many years, and we have had a very strong cooperation so far. So they have also now increased the ownership with NOK 100 million in the last private placement. So the post-smolt partnership helps to secure the value chain for both parties. So it improves the production on land, in the sea and have also a very good environmental impact on the aquaculture industry in the region. So the strategic partnership provides the foundation for improvement -- improved production, both for from salmon and for the salmon farmer, Eidsfjord Sjofarm, including better MAB utilization and capacity optimization. We. Are planning to produce approximately 1 million post-smolt from the facility in 2026. And in addition, we continue our planning for the coming years to ensure an optimal ramp-up of the biomass at Kvalnes combined with the post-smolt production. As a part of the collaboration, we have -- also an agreement has been secured with [indiscernible] new modern processing facility for the harvesting ensuring long-term productibility for both parties. And this is representing an important step in securing the value chain. So now in the middle of June, we will carry out our first post-smolt sale of 450,000 fish with an average weight from a size range from 1.3 to 1.4 kilo. And this is providing a revenue stream approximately 6 months after stocking and represent a profitable model, both for Andfjord Salmon and for Eidsfjord Sjofarm. The remaining biomass will continue to grow in the pool. It's harvest distributed across multiple periods as illustrated in the diagram to the left. So we will look at the status on the Kvalnes. And this is an illustration of how the facility will look in the future. As mentioned earlier, K1 is in operation, K3 will be released -- we will re-smolt in K3 during the next couple of days. K2 and K4 is progressing as planned, and we will release smolt in the autumn. We have signed contracts for K5 and K7 and we expect that this unit will be operational in the first half of 2027. And we have signed a contract with the contractor, Harald Nielsen AS, who also took over the work to complete K2 and K4. A very more important key element of our tactical approach to further expansion and the construction of each of the pools is to have focus on operational and cost efficiencies. So we will continue to refine and improve the upcoming construction based on experience that we have from the operations -- so we get the synergy that we need in the construction and also in the operation going forward. Here is an image of the construction site, 2 pools in operation and K2 has more or less installed the wall elements and there's some small part remaining on the mid sections. And all volumes is on site, and K4 has started the installation of this prefabricated elements. The well inlet for K5 is also completed. And we expect that all of these production units is in operation during 2026, with more than 3 million released. Yes, I will now leave the word over to Bjarne, who will cover the financials.

Thank you, Martin. I will present an overview of the financial reporting for the first quarter and also an update on financing. I also like to mention that we have -- for more details, you can see the interim financial report that is published earlier today and is also available on our website. First, an overview of the construction phases. So if you look in the slide in the middle here, we have now 3 pools operational, as Martin presented and this gives an annual production volume of 6,000 tonnes HOG and post smolt with these 3 pools. And with the next 2 pools, which is being ready quite shortly, the overall production capacity will increase to 11,000 tonnes annual production. We have now financed Phase I and Phase IIa of the build-out. And when the pools in this 2 phases are complete. The production capacity will be 17,000 tonnes HOG and post-smolt. So this is a significant production volume at Kvalnes and it's quite -- it's not far away in time. So now it's about utilizing the investments in the infrastructure and continue to add on increased production volumes. As we disclosed in connection with the share issue that we did a month ago, we can now present an improved balancing package. We have received signed emcee from the existing bank syndicates, which is an increased bank financing from NOK 1.3 billion to NOK 1.5 billion in total. So this is an offer on highly competitive interest margins, and the company has accepted these terms. So of the total bank financing of NOK 1.5 billion, currently SEK 600 million is undrawn. So this is a construction loan that will be converted into a term loan when the construction is complete. And then there is a 24-month amortization holiday before we have a repayment profile of 12 years. And in addition to the CapEx financing, we also have the financing of working capital. So the bank finances 60% of the value of biomass, trade receivables and also other inventories. So an overview of the financial reporting. We had operating expenses of NOK 25 million in the first quarter. Inventories, including biomass, increased with NOK 23 million in addition to the fair value adjustment of NOK 12 million. So the biomass is valued at fair value in the accounts and the fair value is currently a little bit below the cost value of salmon, but this will change as we get later into the production cycle. So for second quarter, we expect fair value to be above production costs. And for the second quarter, next reporting, the income statement will be more interesting because then we will start to report sales income. So for the planned sale of post-smolt [indiscernible] in second quarter. Looking at the assets in the balance sheet. The overall investment activity is reduced now as we have several work streams that are complete. You can see here the biomass valued at NOK 97 million at the end of first quarter and other inventories at NOK 3 million. Also be aware that in addition to cash and cash equivalents visible here. We also have undrawn credit facility of NOK 119 million at the end of the quarter. And undrawn construction number was NOK 400 million at the end of first quarter, and this is now increased to NOK 600 million with the most recent improvement of the bank package. There are no major changes to equity and liabilities during the first quarter. Borrowings here includes a bank loan of NOK 900 million and bond loan of [indiscernible], value that amortized cost in the accounts. And the cash flow statement reflects the phase that we're in, reduced investment activity. We see that operational activity, including biomass buildup resulting NOK 67 million in outgoing cash flows during the quarter. So this is the last quarter where we report no sales income. So I must say I really look forward to next reporting financial results with sales. So with that, I'll leave the word back to Martin.

Thank you, Bjarne. And we will now look at the summary and outlook. And to summarize today's presentation. Very strong operational performance, continued low mortality with good growth, a low feed conversion ratio. Our long-term strategic partnership has been established with Eidsfjord Sjofarm for postpone production and processing capacity. We have strengthened financing with NOK 385 million in equity and increased bank facility of NOK 200 million. New smolt Smart is currently on their way to Kvalnes in K3. K2 and K4 are progressing according to the communicated and contracts for K5 and K7 are been signed. So despite strong operational results, we have identified several improvements and optimization, measured to be implemented in ongoing and upcoming construction phase including efficient feeding systems and the cleaning robots. So we will now show a video from Kvalnes before we are moving over to the Q&A. [Presentation]

Yes, many videos of jumping salmons. So -- with that, we will move over to the Q&A. And you can ask questions here in the audience or you can submit it through the webcast solution. And -- and I can read up.

We'll start with a couple of questions from the webcast. For everyone here in the audience, there are microphones in the ceiling, so you don't need a handheld microphone, but make sure you raise your hand and of course, speak clearly and loudly when answering your questions -- asking your questions. Let's start with a couple of questions from the webcast. Question about sales, have you entered into any sales agreement regarding the batches of future full-grown salmon and have they been entered into -- if yes, have they been entered into on a fixed price or what type of price levels?

Yes. Now we have we have entered into what we call the partnership with some strategic position as exporters in combination with strategic customers, as you probably know, we have some large shareholders representing the markets, and we have ongoing process on utilizing these possibilities. When it comes to the prices, we are not into any fixed price discussion that we are just discussing how we can create our fundament for the sales program now for the start of the sale.

Another question about the post-smolt, where you will mid-June have your first sale. Can you give some indication about the price you will achieve when you sell the smolt, so the kilo price.

We can't be specific on the price that we have with buyer. But as I said in the presentation, it's a profitable model, both for salmon and for the buyer. So it's -- yes.

Can you give any indications of cost per kilo salmon as you exit the sort of projects engineering phase?

Yes. Without specific comment in the exact cost. I say that if you look at all the cost parameters, for example, the biology, we are better results compared to our calculations. If you look at the feed conversion ratio, we are having a better performance compared to our initial production cost profile. [indiscernible] It's almost nothing. It's a very small amount what we have communicated around 1 kilowatt hour per kilo of salmon. And the production profiles resources seen so far is giving us a very promising and demonstrate that we will be capable of producing with low operational costs. Bjarne, if you want to elaborate on that.

But you have the foundation for having really competitive cost levels with the fee conversion rate and then [indiscernible]

It is now all about increasing the volume. So that's why we're increasing the volume. We see that fix that elements in the cost model is -- will be reduced a same as we will keep the level on the variable costs.

You mentioned 1 kilowatt hour to produce 1 kilo of salmon and we have a question here about electricity. Do you have fixed price cost on electricity?

What Yes. We have -- up until now, the total energy consumption hasn't been that high. So it hasn't been real, but that is something we're looking into now, especially with strong increase in production volumes going forward. So we are actually in quite advanced processes with that. So that is something we will get back to. So that is about securing the at least part of the volumes going forward.

Any questions from the audience?

Yes. Yes. [indiscernible]. What will be the total smolt release in 2026. I heard NOK 3 million, but is that the total output number.

The total number is expected to be around NOK 3.5 million smolt.

And any comments on total harvest volume for...

As we said, we -- depending on how much volume we will slaughter in the fourth quarter and the first quarter. So all the volumes will be slaughtered in K0. And we target that we will have an average size on both of the pools above 4 kilos tock. But the final volume will depend on how much volume we will slaughter in Q4 and Q1.

And last one, maybe -- you said that in terms of the profitability on post-smolt that it's profitable partnership. But can I say anything more, if it's more profitable than selling food-grade fish on a like-for-like basis? Or is it the same? Or what -- how should we think about it?

If you look at the specific transaction, it's all models saying that you should move towards only post-smolt. But the beauty with the concept is the flexibility in case that you have a 1 kilo or 2-kilo fish, you had [indiscernible] also take it to human grade in case that fish is not suitable, for example, for post smolt. So flexibility we have to utilize this position together with the Southern farmer. At the same time also, if the southern farmer has some issues in the sea, we can support with volumes from our facility to contribute on their MAB utilization. So excel sheets say that say that you should produce post smolt.

If you have endless access to the market, it will be a very profitable utilization of the facility.

Christian Nordby, Arctic Securities. Can you elaborate a bit on which pools you will stock and how much in each for the NOK 3.5 million because now it's 550,000 in K3. But is it going to be roughly those figures in the 2 new pools as well? And then will you stock in K0, K1 again in '26? Or how will it be?

Yes. We will stock -- we will empty K3 in in the third quarter and have a total new smolt release. So it means that you can have 1 production cycle of post-smolt and then new smolt in K2 and K4. We will have 2 new post smolt release and also in K0. And the numbers of individuals that we released in K1 in the fourth quarter, 35% is very representative for the volumes and how we will distribute them between the pools. And the final specific numbers on how much volumes industry will be in each bus is depending on how we prioritize the groups as we see how the smart is not performing until at our facility. And also how the growth is performing and developing on the site. Yes.

And can you explain then why you stock 200,000 fewer fish in K3 versus K1, when it's all possible?

Depending on if you want to have a post-smolt program or you want to have a splitting. So when it comes to our production method, it's like a puzzle. It's like pieces that you have to -- so you have to time the numbers of smolt depending on when do you want to take out batches to the sea or to a new tank when you're doing a thing. For example, if you have a large smolt late early in the autumn, this required that you will have a splitting in the spring. So it's -- as I said, it's how we manage to put all the puzzle together in a total program for optimizing the capacity in 2027. So there are -- we are always looking one step ahead when we're doing destocking.

And in terms of the -- I know you answered about post-smolt profitability, but is it a fixed price contract? Or is there some sort of variable element there?

Yes, we have an agreed price levels on different ways with which is something we do as we [indiscernible] partner. So in the contract between us, we agree on a price metrics so dependent on the weight of the salmon.

And have you made estimates on at what cement price it makes sense to grow full grown salmon? And what sort of price level is that?

It's -- of course, that is always. But you also have to take into contention what is your production capacity. If you have end-less of access with new pools, then, of course, [indiscernible] this approach. If you look at the production now in K1 from November to today, we have either have to -- because now we are in what we see as a reasonable threshold for the density. So we are now soon be up on 45,50 kilos per cubic meters. And then we want to have either splitting or a post smolt due to the capacity. So there are many factors that we are evaluating. So of course, but when the prices on the salmon is increasing, that's affect how we increase the volume of human grade. So with the prices that we see now, it's post smolt, but in the future, if this HOG prices is increasing, then we will have a different approach.

And when will you be able now to deliver the application for license expansion as you're now starting to be operational?

We are now preparing for new applications and more license on the cranes. If we will deliver the application this year or early next year. That is a decision that we will take now in -- during the autumn as we see more of the results from the production going forward. So far, we -- all the numbers, both on the biology and environmental impact is leading to a very good direction on how we will increase our license capacity.

A couple of more questions from the webcast. And you touched upon it, but just to reiterate. If prices are strong for human-grade salmon, does this also imply higher prices for your post smolt?

And what's important when you have a partnership as we have with Eidsfjord Sjofarm is that we always evaluate and have an open discussion on the pricing model. Of course, everything will impact how we will price the fish. So for the next couple of years, we are very confident that the model that we have now, it's a profitable for both parties.

From operations, is the current survival rates ahead of your budget or in line? It seems very strong.

Yes, we are -- the performance on the mortality rate is better than our budget. So in our budget, in our models, I say we are targeting it to be below 5% mortality and over time, I think this is also -- we see that it's achievable, but the key is to succeed low mortality risk at the same time as you're scaling up.

Question to Bjarne. How much is interest cost reduced within new attractive interest rate from the bank that you mentioned, not considering the increase in bank debt size.

Yes. What I said that this is a highly competitive interest margins. I don't think I will go into the specific figures as these banks are competing to each other, but I would emphasize that it's highly competitive. So let's get back to the actual interest cost when this is visible.

Two more questions about build out. Are the new entrepreneurs successfully producing concrete locally? And how is concrete production going?

Yes. As I said, if we look at [indiscernible] entrepreneur, we are [indiscernible] with the result that they have demonstrated so far. They have done significant cost reduction on the site and improvements. And this is the reason why we have signed a contract with them for the next pools. So I think that is answering the question.

And you probably know your answer on this, Martin, but just to touch upon it. Can you provide an update on the ongoing legal dispute with the previous contractor?

Yes. As we said in the last 2 quarter reports, so we are not in a position to comment on the matter as we have an ongoing legal disputes.

Okay. Any more questions from the audience?

One follow-up on the legal dispute. It increased from Q4 to Q1 now. Should we expect that it remains now at this disputed level on the balance sheet? Or can it increase further ahead. Now this is the final claims. So this is visible, of course, we need to have it in the account. So we have made it visible on a separate line, but this is the final claim, so it will not increase.

Yes. I think that is probably the -- 1 question. What can you say about the pool density so far and going forward?

Yes. As I said, in K1, we are now over 41 kilos per cubic, and we are targeting to be from 45 to 50 kilos per cubic when we will take out the post smolt. And we had a capacity to increase the density in post, but a clear correction between and densities peak at 50, 60 kilos per cubic and strong growth. So to have a model where we can be on this maximum, then is the peak. We see that as a very good part of our concept. So we are now really testing the capacity with the density. And we all see the performance. It's very strong on even though we are now on almost what we see as an operational density peak.

Thank you -- that covers all the questions from the webcast. Any more questions from the audience?

Can you give some more insight on the fixed price contract or construction of K5 and K7.

Yes. Well, we clearly see that we can -- we have done a lot of work to have the synergies with the new entrepreneurs, and they have identified several improvements on the pools that will give us a very favorable fixed price contracts, both on the price, but also on the construction phase for -- according to what they delivered so far, it's -- we are very fit to capability of deliver what they have on the price of the new pools. And also we have also to work on how we can optimize the next phase. This is the reason why we have only signed for 2 pools because we see that we can reduce and optimize the scope for K6 and K8. So we use the time now to work more on that.

And our 4 pools in Phase Ia will be operational during next year.

What's the time line for K6 and K8.

We will -- we target to have signed contracts early autumn. So because we are now also in the process, as I said, it's engineering to engineer to allow us to utilize improvements. It takes some time before you identify an improvement until manage to to put it into a contract. So time is on our side to see them getting a lower price on 6 and 8. And we know what we will do, we just need the engineering to go forward.

And then all 4 [indiscernible] in Phase 2a will be operational during next year?

So it's first K5 and K6 operational first half and K6 and K8 operational in the second half so that you can synergy on the start-up cost that we will have on the 2 first pools. It's mobilization, for example, on equipment. And Okay. With that, we will thank everyone for listening to us today. And thank you, and for all listening on the webcast. We wish you all a nice day.