(Figures in parenthesis refer to the same period last year unless otherwise specified)
Commenting on the result, CEO Regin Jacobsen said:
“Overall, we are satisfied with the results in this quarter but especially with the improved results in Scotland. We saw early signs of improvements in Q4, where the application of best practices significantly improved the operations. Through this quarter and so far this year, we have maintained strong operations in Scotland. Premium high-quality salmon with our One Company strategy has materialized in our sales and branding and created extra value. Our customers recognize the high quality of our fish, whether it is farmed in Faroese or Scottish origin.
As expected, we have had low harvest volumes in the Faroe Islands this quarter, which impacted the financial results. The biological performance has been good and exceptionally strong when it comes to growth rates and feed conversion. We have had lower average harvest weights in the quarter due to our strong effort to push mortality levels down, as we also have done with sea lice levels. This led to earlier harvest at a lower weight. With the new capabilities gained with our new FSV, Bakkafossur, we expect to increase harvest weights while we continue to secure good fish welfare and low sea lice levels.
The VAP segment performed well in this quarter with positive margins despite high salmon prices. For many years Bakkafrost has had the strategy to use around 40% of the harvest volume for value-added production in the VAP segment. This strategy will be revised depending on the outcome of the Faroese Government’s proposal to adjust the revenue tax. This also applies to the previously announced 5-year investment plan. On our Capital Market Day in Scotland on 6 June 2023, we will present our new 2024-2028 investment plan.
Salmon prices have been unusually high this quarter, and the supply lower than in the first quarter of 2022. We expect higher supply growth in the second half of 2023 and lower salmon prices.”
Total harvested volumes for Q1 2023 were 19,100 tonnes gutted weight (21,400 tgw)
In total, 3.8 million (4.2 million) smolts were transferred during Q1 2023
The combined FO farming and VAP segments made an operational EBIT of DKK 321 million (DKK 442 million) in Q1 2023. The operational EBIT per kg in Q1 2023 was DKK 29.14 (DKK 25.32), corresponding to NOK 42.98 (NOK 33.79). The FO Farming segment achieved higher prices in Q1 2023 than in Q1 2022 but had a lower harvest volume compared to Q1 2022.
The SCT farming segment made an operational EBIT of DKK 155 million (DKK -53 million). The SCT Farming segment achieved higher prices and had a higher harvest volume in Q1 2023 compared to Q1 2022. In Q1 2023, the SCT farming segment had incident-based costs of DKK 2 million (DKK 24 million).
During Q1 2023, the FOF segment sourcing of raw material was 156,000 tonnes (78,000 tonnes),
the EBITDA margin was 17.6% (19.6%) EBITDA, and fish feed sales amounted to 22,300 tonnes (26,200 tonnes).
The net interest-bearing debt amounted to DKK 2,357 million at the end of Q1 2023, compared to DKK 2,664 million at year-end 2022. Undrawn credit facilities amounted to DKK 2,857 million at the end of Q1 2023.
The long-term goal of the Board of Directors is that 30-50% of earnings per share shall be paid out as a dividend. The financial position of Bakkafrost is strong, with a solid balance sheet, a competitive operation and available credit facilities. The Annual General Meeting convened on April 28th 2023, decided to pay out a dividend of DKK 10.00, corresponding to NOK 15.63 per share. The total dividend of DKK 591 million (NOK 924 million) will be paid out on or around May 22th 2023.
The equity ratio was 64% on March 31 2023, compared to 62% at the end of 2023.
Supply decreased in Q1 2023
The supply of salmon decreased by 4.9% in Q1 2023 compared to Q1 2022, incl. inventory movements. Without inventory movements, the supply decrease was 4.1%, according to the latest estimate from Kontali Analyse.
31% higher salmon prices
Salmon spot prices were 31% higher this quarter compared to Q1 2022. Strong demand for salmon, low supply increase and general inflation have contributed to high salmon prices this quarter.
Low growth in 2023
In H1 2023, the global supply is expected to be around 1-2% lower than in H1 2022. In H2 2023, the global supply is expected to grow around 4-5%. For the full year 2023, the global supply growth is expected to be around 2%, excluding inventory movements.
Bakkafrost has a strong focus on ensuring a well-balanced flow to the different markets to increase diversification and mitigate market risk. Bakkafrost operates in the main salmon markets, Europe, the USA, and the Far East. Since the beginning of the war in Ukraine, Bakkafrost has stopped all trading with Russia.
The biological performance in the Faroese farming operation has been good, and sea lice levels continue to be low. Mortality levels have also been low for several quarters in a row, and Bakkafrost has continued to focus strongly on driving the mortality levels even lower. In this quarter, this has in part been achieved by, in some cases advancing harvest rather than treating large fish close to their intended harvest weight as the latter can increase mortality. This strategy, combined with a backend-loaded harvest profile for 2023, has led to reduced harvest weights in this quarter. Bakkafrost expects to increase harvest weights in the Faroe Islands in the coming quarters. One important tool for this is Bakkafrost's new 10,000m3 Live Fish Carrier, Bakkafossur, which arrived in the Faroe Islands at the beginning of January 2023. During Q1 2023, the operation of Bakkafossur has been tuned in and ramped up. Going forward, the new capabilities gained with this vessel enable Bakkafrost to pursue low mortality, low sea lice levels as well increased harvest weight. Also, the vessel is designed to support future off-shore farming in the Faroe Islands.
The expansions of the Norðtoftir and Glyvradal hatcheries in the Faroe Islands are now in operation. Combined, these capacity expansions increase the smolt production capacity in the Faroe Islands with around 6.5 million smolts of 500g. These are important milestones to fulfil Bakkafrost's goal to build an annual smolt production capacity in the Faroe Islands of over 23 million smolts of 500g in 2026.
In Scotland, the farming operation improved considerably in Q1 2023 as the biological development has been more under control. The first signs of improved control emerged in Q4 2022. In Q1 2023 and so far in Q2, this development has continued. Hence, Bakkafrost has been able to harvest large fish in Scotland and maintain lower mortality, which also has impacted positively on the harvest volume and price achievement.
The turn-around operation in Scotland prioritises the mitigation of biological risk. However, Bakkafrost Scotland is still subject to higher biological risk than in the Faroe Islands. It needs to be demonstrated if the positive development of biology in the past two quarters can be maintained during the traditionally more challenging periods in the fall. The risk picture is expected to be gradually transformed as Bakkafrost's large-smolt strategy materialises in Scotland. As demonstrated in the Faroe Islands, large high-quality smolt will have a lower risk exposure in the marine environment due to shorter production cycles in the sea and the robustness of the smolt. Therefore, it is Bakkafrost's topmost priority in Scotland to build new modern hatcheries. The ongoing expansion of the Applecross hatchery is progressing but slightly delayed, and the Applecross-4 expansion is expected to be operational with fish in the tanks in May 2023 – 2 months behind schedule. The first batch of large smolt delivered from Applecross-4 is planned for Q3 2023 – one quarter later than planned and will contribute to increasing the mean weights and quality of the smolt stocked in Scotland in 2023.
The full capacity of the Applecross hatchery, including the next expansions, will be in operation in mid-2024, bringing the overall annual production capacity from Applecross to around 10 million high-quality smolts of around 500g.
In Q1 2023, the average weight of released smolt in Scotland was 111g, which is 9% higher than in Q1 2022.
Bakkafrost plans to build 3 large hatcheries in Scotland, which will increase the total annual production capacity to around 18 million smolts of around 500g in 2026.
Bakkafrost expects to release around 16 million large smolts in 2023 in the Faroe Islands and around 9.6 million smolts in Scotland. The number and the average weight of smolts released are key elements of predicting Bakkafrost's future production.
Million smolt released
The average weight of the smolt released in Scotland in 2023 is expected to increase to around 150-175g. In 2023, the number of released smolt will be lower than in previous years as the focus is on stabilising the operation before increasing the volume. In this respect, smolt quality is more important than the released volume.
In 2023, Bakkafrost expects to harvest around 68,000 tonnes gutted weight in the Faroe Islands and 30,000 tonnes gutted weight in Scotland, giving a total of around 98,000 tonnes gutted weight.
The estimates for harvest volumes and smolt releases in both geographies are dependent on biological development.
VAP (Value added products)
Bakkafrost's highly flexible value chain includes a state-of-the-art VAP factory with high capacity. This enables Bakkafrost to adapt well to the rapidly changing market situations.
Bakkafrost's long-term strategy is to sell around 40% of the harvested volumes of salmon as VAP products on contracts. The contracts are at fixed prices with a duration of 6 to 12 months. Depending on the outcome of the Faroese government's proposal to adjust the Faroese revenue tax, Bakkafrost might revise this strategy.
For 2023, Bakkafrost has signed contracts covering around 23% of the expected harvest volumes in the Faroe Islands and Scotland combined.
FOF (Fishmeal, oil and feed)
The outlook of fishmeal and fish oil production is dependent on the availability of raw materials.
The ICES 2023 recommendation for blue whiting is 1,360 thousand tonnes, which is an 81% increase from the recommendation for 2022.
In 2023 Bakkafrost expects similar production volumes of fishmeal and fish oil as in 2022.
Havsbrún’s sales of fish feed in 2022 was 128,000 tonnes and is expected to increase to around 130,000 tonnes in 2023.
The major markets for Havsbrún’s fish feed are the internal Faroese and Scottish Farming segments.
On the Capital Markets Day on 14-15 September 2021, Bakkafrost announced a 6.2bn DKK investment plan for 2022-2026. The investments will enable a transformation of the operation in Scotland and provide sustainable growth in the Faroe Islands as well as Scotland.
The main purpose of the investments in Scotland is to replicate Bakkafrost’s successful operation in the Faroe Islands. Bakkafrost will build 3 large energy-efficient hatcheries in Scotland, enabling the implementation of Bakkafrost’s large smolt strategy and giving an annual production capacity above 18 million smolts at 500g. Having large smolt in Scotland will transform the performance, lower the biological risk and increase harvest volumes. In addition to building hatchery capacity, Bakkafrost plans to build a new processing plant to strengthen processing capabilities and increase flexibility in operation. Bakkafrost will also invest in more service vessel capacity to improve the mitigation of biological risk. Further, Bakkafrost will make investments in marine site development.
The investments in the Faroe Islands include increasing annual hatchery production capacity to around 23 million smolts at 500g, investments in a broodstock facility and expansion of feed production capacity.
With the investment plan, Bakkafrost expects to sustainably grow the total annual harvest volumes to 150,000 tonnes in 2026. Over the same period, the total annual production capacity in Bakkafrost’s value chain will reach 180,000 tonnes gutted weight.
The Faroese Government has proposed changes to the revenue tax in the Faroe Islands. Depending on the outcome of this, Bakkafrost will revise the investment plan accordingly.
Capital Market Day in Scotland in 2023
Bakkafrost's next Capital Markets Day will be on 6 June 2023 and will be held in Scotland.
The long-term market balance in the global market for salmon products will most likely remain favourable for Bakkafrost. Bakkafrost has a long value chain and a cost-efficient production of high-quality salmon products and will likely maintain financial flexibility going forward.
In March 2022, Bakkafrost finalised a new sustainability-linked 700 mEUR multicurrency revolving credit facility agreement with an additional accordion option of 150 mEUR. The facility has a tenor of five years plus an extension of one year. In combination with Bakkafrost's high equity ratio, the facility gives the necessary financial strength and flexibility for the Group's investment plans aimed at significant organic growth and structural cost reductions in Scotland. It will also enable M&A's and further organic growth opportunities as well as support an unchanged dividend policy in the future.
Please find the Company’s Q1 2023 report and the Q1 2023 presentation enclosed.
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
Bakkafrost is the largest salmon farmer in the Faroe Islands and the second-largest salmon farmer in Scotland. The Group is fully integrated from feed production to smolt, farming, VAP and sales. The Group has production of fishmeal, fish oil and salmon feed in the Faroe Islands and primary and secondary processing in the Faroe Islands, Scotland and Denmark. The Group operates sea farming and broodstock operations in both the Faroe Islands and Scotland. The Group has built a biogas plant in the Faroe Islands. The headquarter is located in the Faroe Islands, and the Group has sales and administration offices in Grimsby (UK), Edinburgh (Scotland), Boulogne-Sur-Mer (France), New Jersey (US) and Munkebo (DK). The Bakkafrost Group has 1,778 employees (full-time equivalents).
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