Earnings call transcript: Andfjord Salmon’s Q1 2025 updates on expansion

Andfjord Salmon AS, a pioneer in land-based aquaculture, reported its Q1 2025 earnings, highlighting significant progress in its construction and expansion plans. The company, still in its construction phase, reported no revenues but detailed its financial strategies and operational milestones. The stock showed a slight increase of 0.27%, closing at 36.8 NOK. According to InvestingPro analysis, the company’s overall financial health score is rated as WEAK, with particularly concerning metrics in profitability and cash flow management.

Key Takeaways

• Andfjord Salmon is in the construction phase, with no current revenue.
• Operating costs are approximately NOK 13 million per quarter.
• The company raised NOK 600 million in equity during Q1.
• Andfjord Salmon plans to release its first smolt in September 2024.
• Production capacity is expected to increase by 20% with optimized construction.

Company Performance

Andfjord Salmon is focused on developing its innovative land-based aquaculture facility at Kvaalnes. The company is not generating revenue yet as it is still in the construction phase. However, it has made significant strides in its operational plans, including completing an outlet waterway and progressing on its technical infrastructure. The company aims to release its first smolt in Q3 2024, with a target of 1 million smolt initially.

Financial Highlights

• Operating costs: NOK 13 million per quarter
• Cash balance: NOK 179 million at the end of Q1
• Equity ratio: 58%
• Equity raised: NOK 600 million in Q1
• Total borrowings: NOK 831 million
• Additional equity raise announced: NOK 400 million

Outlook & Guidance

Andfjord Salmon is targeting a gradual increase in biomass following the initial smolt release in Q3 2024. The company is exploring post-smolt production collaborations with regional fish farmers and considering a bond issue for working capital. The five-step build-out plan is designed to reach full production capacity, with an increased target of 48,000 tonnes.

Executive Commentary

CEO Martin Rasmussen stated, "Our objective is to build the world’s most fish and environmentally friendly facility for Atlantic salmon." He also highlighted the innovative fish movement system, saying, "We simply initiate that move by increasing and decreasing the water level in adjacent pools so that the fish swim from one pool to another."

Risks and Challenges

• CapEx overrun: The company disclosed a cost overrun of NOK 500 million, which may impact financial stability.
• Market competition: As a new player in the aquaculture sector, Andfjord faces competition from traditional ocean farming methods.
• Regulatory challenges: Navigating environmental regulations could pose challenges as the company scales its operations.

Q&A

During the earnings call, analysts inquired about the CapEx overrun and the company’s unique UHPC concrete technology for pool walls. The management clarified the logistics of their fish movement system, emphasizing its efficiency and environmental benefits.

Overall, Andfjord Salmon’s Q1 2025 earnings call emphasized its strategic focus on completing its aquaculture facility and outlined the financial measures being taken to support its ambitious growth plans. For a comprehensive understanding of Andfjord Salmon’s financial position and growth potential, investors can access detailed analysis, including Fair Value estimates and growth scores, through InvestingPro’s extensive research reports, available for over 1,400 stocks.

Full transcript - Andfjord Salmon AS (ANDF) Q1 2025:

Martin Rasmussen, CEO, Arnfjord Salmon: Good morning, and welcome to this Q1 and business update from Arnfjord Salmon. My name is Martin Rasmussen, and I am the CEO of Arnfjord Salmon. And together with me here today is our CFO, Bjarne Martinson and our Project Director, Jostein Nielsen. And we will have a Q and A session after the presentation. And please note that you can submit your question through the webcast solution.

Here’s today’s agenda. And for the benefit of a new listener, we will start with the introduction of amfetelmen, and we’ll then briefly look at the most recent highlights. Josten and I will give a status of the Qualenes build out and the coming smart release, and Bjarne will go to the financial. We will end the presentation with a summary, outlook and Q and A. Our objective is to build the world’s most fish and environmentally friendly facility for Atlantic salmon with a mission to serve salmon with a clear conscience.

And the result demonstrated in the first production cycle confirm that this is possible. Our concept is based on taking the best of ocean based netpen farming and combining this with the benefits of being on land, and this combination give a fish friendly environment and sustainable aquaculture production. We have 4.4 kilometers of tunnel underground at Kvaarnas and with a water intake at 50 meters, which is well below the sea level where the salmon lice, alga and jellyfish lives. The tunnels are dimensioned like rail roadway tunnels to ensure sufficient water capacity for nearly 50,000 tonnes of annual production. In the pool, we recreate the salmon’s natural habitat with enough space so they can exhibit natural behavior.

So with this closed system, but full seawater flow through, we protect the fish from external factors such as salmon less, and we also protect the environment from having such a large biomass concentrated in one place. The organic waste is collected at the bottom of the pool and the water can then return to the sea, allowing us to coexist with the ecosystems on Aneha. So why are we located at Anea? Because Anea is the land area in Norway that is closest to the Gulf Stream, and this allow us to source warmer water during the winter compared to the seawater available for traditional ocean based fish farmers. And warmer water provides improved growth and better biological conditions, including lower risk of winter ulcer.

And we have, during the first production cycle, experienced the positive effect the Gulf Stream have on our temperature profile. The key figures from our first production cycle prove that our land based aquaculture concept delivered superior results. High growth, survival rates and superior share, coupled with low energy consumption and feed conversion rate, provides the building blocks for attractive financial results. So over to the highlights from the first quarter. During Q1, we announced an optimized build out plan that increased production capacity at Kvaalnes site by approximately 20%.

We will cover the details later in the presentation. We kick started Phase 2a construction at Klarnes, thereby reaping construction synergies from Phase one of the build out. And financially, we secured a NOK1.4 billion package consisting of bank loan, sale and leaseback and private placement. And this the Phase one build out, which consists of four pools, Watashi and Harbour, is on track for smelter lease in Q3 this year. And last week, we successfully completed the outlet waterway to the final breakthrough to unfuel.

Now let’s provide our status updates from Kvaalnes, and over to you, Osten.

Jostein Nielsen, Project Director, Arnfjord Salmon: Thank you for that, Martin. As the illustration shows, in front, Phase one being the first four pools in addition to the tunneling system, the harbor and the technical infrastructure. In the background, you can see the next build out stage, Phase 2A with four pools and 2B with four pools. In addition, technical infrastructure for Phase 2A on the sea side and the salt side of the pools are more than 80% complete. I will come back to that.

Last week was an important milestone for the project. We completed the outlet waterway, thereby establishing a direct connection between the outlet tunnel and unfueled. Or more simple, we blasted the last section of tunnel into Amfjord and filled that one kilometer part of the tunneling system with seawater. The tunnel outlet is located 70 meters below the sea level. The breakthrough was safely achieved through a controlled blasting of the remaining six meters bedrock separating the outlet tunnel from the fjord.

As you can see from the slide, the water from the breakthrough evacuates and stops outside the temporary access tunnel. This breakthrough represents a significant milestone in our efforts to advance the Kvaannes facility towards operational readiness. The inlet waterway, which will deliver seawater to all pools at the facility, is also completed. And the final breakthrough to Amfjord is scheduled for JuneJuly. Now let’s have a look at the film from the successful breakthrough Into Sea.

The film gives a good indication of the dimension and size of the Kvaalnes build out. Now let’s move on to the technical infrastructure work stream. This is basically everything that is below ground. However, as you see from our three d model, the area on the seaside and south side of the pool is a complex and extensive network of piping, valves, electrical cabling and wiring, containing all support functions required to handle an efficient operation of aquaculture on land. We want to show this illustration in order to give you a better understanding of what’s in the ground at Valnes.

I’m really pleased to announce that all of this work is more than 80% complete and on track for smelter release in Q3. Then to the pool workstream. We are currently working on completing four pools. We have completed all the columns, supports and preparation for wall elements for two of these pools, K1 and K3. We have also produced all UHPC wall elements for Pool K1.

But optimizing production of concrete and UHPC has taken longer time than expected. In order to maintain progress for the pool construction, we have had to mobilize extra development resources, manpower and equipment to increase production both for the UHBC wall elements and for the concrete cross sections between the pools. Mobilizing additional manpower and equipment comes with a cost. So it has incurred extra cost in the short term but will drive efficiency gains for the forthcoming pools. The result of mobilizing these additional resources is that the work stream is still scheduled with regards to progress.

The plan for the coming period is to test the first pool and technical infrastructure during July, August and September before smolt release. Then over to the harbor work stream. Dredging of the harbor to make it deeper will be completed in June. The construction of the key facility is ongoing. We have had good production of armor stones that will protect the harbor from wave erosions.

However, during this autumn, winter and spring, we have experienced significantly worse weather at Andea than normal. The adverse weather conditions have impacted the operating window for barges that transport and install the armor stone. This had consequently eroded the financial buffer for the harbor workstream. Bjarne will cover the financial details of this. It is important to underline, however, that the work stream is on schedule and the harbor is scheduled for the receivable of smolt in Q3.

So to summarize, the excavation of Pouls Pits were completed last year ahead of time. Waterways are almost complete, only breakthrough of the inlet tunnel remaining. The harbor is on track for enabling receivable of smolt in Q3. Completing Pool K1 and pilot pool for receiving of smolt in Q3 is on track, with Pool K2, K3 and K4 following allowing for splitting of fish when required. Technical infrastructure outside of pool area is more than 80% complete, which include a significant part of Phase 2A.

Technical infrastructure around pools are ongoing and on track. With that, I will leave the word back to Martin.

Martin Rasmussen, CEO, Arnfjord Salmon: Thank you, Osten. Now we will move on to what the company is actually supposed to be doing, salmon farming. Following two years of intense construction work, we are really looking forward to once again seeing fish in our pool. And our plan is to start the smolt release from September and thereafter some batches in October. And we are targeting a release of 1,000,000,000 smalt as a start and then gradually increase the biomass.

The plan is to start by releasing smalt in the first pool, K0, which is the pool that we produced the salmon in two years ago and the new pool K1. As biomass density increase, we will transfer the salmon to pools K3, K2 and K4, and construction of these pools will be completed in that order. The release of smoth from the third quarter represent a significant scale up of commercial operations for unfit salmon, and the production volume capacity is obviously bigger than this, but we will start with a volume suited for a start up at the same time as we optimize the operation. Finally, we are also in dialogue with fish farmers in the region regarding utilizing pool capacity for postmort production, and this will be a key part of future production plans. During the first quarter, we presented an updated plan for Kvaalnes build out Phase two, and we will briefly summarize this plan here.

In short, we have identified a plan to optimize construction, reduce regulatory risk and utilize the pool capacity, resulting in higher production volumes and lower operational risk. Good progress and momentum for Phase one allow us to have a very convenient transition to the next phase. Infrastructure, machinery and expertise can now move directly to the next phase, ensuring no interruption in the construction. And we have continuously worked to optimize the construction. And even though we divide the project into phases, it’s clearly the most optimal to view the entire Kvaalnes development as one project.

This means that while Phase one is being completed, we will start the next phase, which includes a total of nine pools and fish logistics systems for the entire Kvaalnes area. Two years of developing the concept together with our suppliers have resulted in finding better solution, both operationally and technologically. What we now have developed is a system for moving the fish between the pools in a very fish friendly manner. So good utilization of capacity largely depends on logistics without compromising quality and fish health. Instead of moving the fish over the pool walls, we will move the fish by using a network of underground piping.

We simply initiate that move by increasing and decreasing the water level in adjacent pools so that the fish swim from one pool to another. This new system give us flexibility for more splitting of the fish and reduction in operational risk. The total effect of this system, including the post malt, is 20% higher production volume. And at the 10,000 tonnes MIB, we target a production of almost 24,000 tonnes of salmon, and the volume is in hog and post malt. With a higher MIB, we target an annual production of almost 29,000 tonnes in 12 plus one pool.

In sum, all of this enables a 20% increased production potential at Kvaarnas, including our own fish and the fish we sell to traditional fish farmer as postmod. In specific numbers, this means that the total production potential at Kvaalnes is increased from 40,000 tonnes to around 48,000 tonnes. And you can see the breakdown on the various build out phases on this slide. The Cavalnes business case has definitely become even more attractive with these improvements. So over to Bjorne and the financial details.

Bjarne Martinson, CFO, Arnfjord Salmon: Thank you, Martin. First, a recap of the financing package that we presented in February. For construction step 2A, we will have a new construction loan of NOK 400,000,000. This is a new loan from the same bank syndicate that we have for the first construction step. In addition, we will have lease financing for operational equipment for step 2A of the construction of 175,000,000.

When operation starts and we release smart in the third quarter, we will have an overdraft facility available of up to 60% of biomass and trade receivables for working capital financing. As we also presented in February, the Harbour property will be sold to AssetBioPartners with total transaction price of NOK 400,000,000. This sale will be carried out as soon as a demerger of the property into a separate company is registered with the enterprise register, and we expect this shortly. When the sale is completed, the harbor will be leased back contract. As the construction of the harbor is financed 50% by the bank syndicate, 200,000,000 will be used to repay bank loan for the first construction step.

After the sale, total bank loan will therefore be SEK 1,100,000,000.0. We also raised equity of NOK 600,000,000 in February, strongly supported by large industrial shareholders, including Jerome Martin’s, High Liner Foods and Aster Scheffheim. And total funding for Step 2A of the construction was 1,400,000,000.0. Looking at the financial results for first quarter. The income statement still reflects the current phase, where the activity is focused on construction, and the group currently has no revenues.

Operating cost is at the same level as the previous quarter, around NOK 13,000,000 if we exclude depreciation costs, And we can expect second quarter to be similar before we start operations again in the third quarter. Financial costs related to financing of construction project is capitalized as property, plant and equipment in the balance sheet and is not included in the income statement. And we also see that we have some financial income, which is related to bank deposits. The balance sheet still reflects high investment activity. In the current phase, property, plant and equipment is probably the most interesting assets in addition to cash and cash equivalents.

I will get back to investment levels later in the presentation, but this is the most intense period in the construction phase as we had ongoing activities related to all major work streams in first quarter: waterways, concrete, infrastructure, harbor and technical disciplines. Cash balance at the end of first quarter was 179,000,000. And please also note that other current assets are related to VAT settlements and can be equated with cash. And these figures do not include undrawn construction loans of $440,000,000 and unused credit facility of NOK 20,000,000. I will get back to the financial status in the next slides, but we can note that based on the balance sheet at the end of first quarter, the equity ratio was 58%, and the share issue of NOK 600,000,000 gives increased equity during first quarter compared to end of last year.

Total borrowings, $831,000,000 at the end of first quarter. The cash flow statement shows stable cash flow from operating activities as was also reflected in the income statement. Net cash flow from investing activities was $447,000,000 in first quarter. And we can also see cash flow from financing activities of NOK $585,000,000, reflecting the share issue of NOK 600,000,000 carried out in the first quarter. As previously shown, we have a five step plan for the complete build out of Kvaalnes to reach a production capacity of 48,100 tons hog of annual production.

Step one includes four new pools ready for production in third quarter. This step also includes infrastructure for the entire site, such as waterways and harbor. Step 2A includes an additional four new pools ready for production in 2026 and technical infrastructure for 12 pools, including for Step 2B. In the first quarter this year, we presented the financing plan for Step 2A, which means that we have CapEx financing in place for Step one and 2A with a total production capacity of 17,000 tons. We have been informed by our main contractor, Hara Kontoor, that the final construction cost will be higher than the original budget, and we therefore now do some changes to the CapEx budget.

The change in total budget for the entire build out will be NOK 500,000,000, of which NOK 400,000,000 is related to construction work that is ongoing. The remaining NOK 100,000,000 is related to Step 2B that we plan to finance and start up during first half of twenty twenty six. ’3 ’20 million is related to steps one and 2A, where we also have change of NOK 80,000,000 related to expansion step four. This is work that is being carried out now related to waterways, infrastructure and preparations to be able to connect further pools to the existing waterways at a later stage. A majority of the changes is related to concrete work, where we have some one off changes to design and development of the pools and also some changes to the calculations of costs related to pool construction, which will affect construction steps one, 2A and 2B.

As a result of the changes, CapEx per kilo will move from 105 per kilo to NOK 115 per kilo. Out of the upwards revision, NOK 400,000,000 will be taken out in relation to ongoing construction. And in order to finance this, the Board has this morning approved a directed equity issue of 400,000,000 at the closing share price yesterday. The two largest shareholders, Jeronimo Martins and High Liner Foods, takes a large share of the equity issue, while two other existing shareholders, Restora and Lucerne Capital Management, also takes part in this equity issue. With this, the funding requirements triggered by the upwards CapEx revision is immediately resolved at terms which are very important in order for the company to keep momentum in the final steps of some major work streams, and we also believe the terms are supportive from a capital markets point of view given the negative backdrop.

These changes are, of course, not something we have planned for as we presented the financing plan for Step 2A just some months ago. We are pleased that two of the largest shareholders have been willing to provide the company with $370,000,000 to solve the situation and also that Restora and Lucerne contributes with NOK 30,000,000 in total. Jeronimo Martins is a Portugal based international industry group that operates in food distribution, retail and agribusiness. Consolidated group revenues was above €33,000,000,000 in 2024, and they are the largest shareholder in the company. Since their first investment in Anfur Salmon in 2022, they have made a strong contribution to the development of Anfur Salmon.

High Liner Foods is a North American processor and supplier of seafood. They did their first investment in Amphio Salmon last year. And after the share issue in the first quarter this year, they held 18.1% of the shares in the company. And together, we are exploring the opportunity for distribution of Angkor Salmon’s products to the North American market. Once again, this demonstrates the importance of having the right composition of shareholders and the important roles of these two industrial owners for the development of Amphoter Salmon.

We highly appreciate their support even in a challenging situation. We plan for start of operations and release of SMART in third quarter this year and will gradually increase biomass and ramp up production to utilize the production capacity as new pools becomes ready. To secure sufficient financing of working capital and liquidity, Anfur Salmon is contemplating further financing for the purpose of production ramp up. Arctic Securities, Nordea and Sberbank end markets has been mandated to arrange a series of fixed income meetings commencing on May 30. And subject to market conditions, a bond issue with three year tenure may follow.

In combination with the previous announced CapEx financing, this will provide sufficient financing for the coming periods with biomass buildup and the liquidity needs related to this. So over to Martin for summary and outlook.

Martin Rasmussen, CEO, Arnfjord Salmon: Thank you, Bjorn. To summarize, during the first quarter, we identified a plan to increase production capacity at Karnes by 20% through increased water flow capacity and optimized fish logistic. We have already initiated construction of Phase 2a as a direct continuation of Phase one. We raised funds of total NOK 1,400,000,000.0 in Q1, and we have today announced a NOK 400,000,000 direct equity issue to cover revised CapEx plan. Construction is progressing well, and we are on track for a small release in September.

And we reached an important milestone last week where we filled the outlet tunnel with seawater, and the breakthrough for the inlet tunnel is scheduled for June, July. So before we go move on to the Q and A, we will show you a video from Anja. And then are we ready for a Q and A? Please note that you can submit questions through the webcast solution. Piane, have you received any questions?

Bjarne Martinson, CFO, Arnfjord Salmon: Yes. We have received already one question. Is the CapEx overrun split sixty-forty with Hare and the $500,000,000 is only your part of the overrun? The $500,000,000 is our part of the Anfur’s effect of the CapEx change, yes. So also note that of this $100,000,000 is related to later stages, step 2B, which is not started and not financed.

So $400,000,000 is related to the ongoing construction, as I said in But the figures here is the effect for Anfur.

Martin Rasmussen, CEO, Arnfjord Salmon: Yes. And also, we have the effect on the expansion also.

Bjarne Martinson, CFO, Arnfjord Salmon: Yes, that is included in the 400,000,000. That is related to ongoing construction. So SEK $320,000,000 is step one and step 2A. And we also have SEK 80,000,000 related to step four, which is the expansion. And this is related to infrastructure work related to waterways and the ability to connect to waterways with future pools.

Martin Rasmussen, CEO, Arnfjord Salmon: Process, it’s very important to have the necessary preparations also for expansion in parallel as we see had the Phase one and Phase 2A. Yes.

Bjarne Martinson, CFO, Arnfjord Salmon: New question. Can you say something about the functionality of the UHPC concretes?

Jostein Nielsen, Project Director, Arnfjord Salmon: Yes. The UHPC, that is ultra high performing concrete. That is the layer that you put on all the walls that will be against the fish. The layer is very hard. You can compare that to steel.

And in addition, it’s very smooth as well so that the fish health is taken very well care of. Traditional coating is more challenging based on what you need. After a while, you have to go in and do some repairs on the coating part. So UHPC is a very smooth surface coating layer that you put on the wall elements.

Martin Rasmussen, CEO, Arnfjord Salmon: Yes. And from an operational perspective, this allow us to have much higher capacity utilization over time because we don’t have downtime on the pools related to maintain. So it’s extremely efficient. It’s all about now getting and we’ve seen we have now seen the effect that this material and this concept have in all of the pool developments at Khoaanen is extremely satisfying, encouraging to see the quality of the material. So yes, more questions?

Bjarne Martinson, CFO, Arnfjord Salmon: Seems like those are the questions we have received yet.

Martin Rasmussen, CEO, Arnfjord Salmon: Okay. You can take direct contact with the administration in the company if you have some more questions or you need some more of the details that we have been through today or explain that, we’ll, of course, be available for that. But with that, I think we will thank everyone for the attention today, and thank you for us.

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