Bakkafrost U/Adr

Good morning and welcome to the presentation of Baccafrost's results for the first quarter of 2024. Today we are webcasting here from our headquarters in the Faroes. My name is Hagrid Jakobsen and I'm joined by our CEO, Rein Jakobsen. And together we will go through this agenda this morning. First a summary of the first quarter and then we look at market and sales, finance, financials and ESG and then an update on operations and the outlook for the time to come before we open off for Q&A. A summary of the quarter. First, our revenues in this quarter increased to 2.2 billion, around 8% up from last year. Group operational EBIT in this quarter was 710 million, which is up from 565 million in the same quarter last year. In the Faroes, we increased our harvest volumes with 3,300 tonnes to around 14,300 tonnes. In Scotland, we had lower harvest in this quarter, 800 ton lower, and harvested around 7,300 ton. Feed sales increased by 21% to 27,000 ton. Our fish oil sales reduced by 1,500 ton to around 4,000 ton in this quarter. Marine raw material sourcing also was lower than the same quarter last year, 37,000 ton in this quarter compared to 156,000 ton last quarter or last year. However, we have to remember that last year we had exceptionally high volumes of marine raw material for our fish meal oil and feed production. Cash flow from operations was positive in this quarter with 676 million and all segments had positive EBIT except for the Scottish freshwater segment and sales and other segments. On the AGM that was last week, the proposed dividend of 8,70 kroner was approved, and that will be paid out around the 21st of May. Moving on to market and sales. The average price for 4 to 5 kilo superior salmon in the quarter was 108.97 NOK per kilo, which is an increase of 4% compared to the same quarter last year. Quarter on quarter, it was an increase of 31%. In euros, year-on-year prices were almost unchanged, a slight increase of 0.5%. NOC prices increased through the quarter followed the same path as last year. The market was in general affected by a shortage of large superior fish. Hence, we also saw the price difference between small fish and large fish increasing through the quarter. According to the latest update from Contali on sold quantities to the market, sales to the European market increased by 4% in this quarter, in despite of lower European harvest. Demand in Europe has been good, and the biological challenges in Norway has increased the availability of fillets to the European market. Global sales to the US reduced with 2%, showed signs of increased price sensitivity, and also there was good availability of substitutes. Sales to Greater China continued the upwards trends that we have seen for many quarters, however, at a slower pace of 3%. Latin America had also similar development as China in this quarter, showing a growth of 3%. Sales to Japan and the ASEAN market were affected negatively by continued high air freight costs and also increased consumer price sensitivity. Global harvest in this quarter dropped by 5%, but this was more than offset by considerable inventory movements in the quarter, resulting in a small net supply increase of 0.6%. European harvest dropped 3%, and there was a 10% drop in harvest from the Americas. Norwegian harvest was impacted by the biological challenges such as string jellyfish and wounds, increased mortality and also we saw an increased share of downgrades in Norway. Chilean harvest was affected by some issues with algae, but also a lower incoming biomass in the beginning of the year due to low smalt release in previous years. The only region that showed increased harvest weights in the quarter was the Faroes, where harvest weights for the industry increased 12% to 5.27 kilos. Feed sales reduced 9% in Norway and 10% in Chile. And in the Faroes, we had increased feed sales of 13% and 5% to 6% increase in feed sales in Scotland. Canada and Iceland also had increased feed sales in this quarter. If we move on to financials, As mentioned in the summary, revenues in the quarter increased from around 2 billion to 2.2 billion. Revenue operation EBIT was 710 million. Fair value adjustments were negative in this quarter with 70 million. And revenue tax amounted to minus 112 million compared to minus 38 million in the same quarter last year. Profit after tax was 401 million compared to 467 million last year. Measured in operational EBIT, this quarter is the best quarter ever for Baccafrost. And adjusted earnings per share was 7.66 DKK. On the balance sheet, we see that our property, plant and equipment amounted to 6.3 billion at the end of this quarter and biological assets to 3.3 billion. Inventories reduced slightly during the quarter to 1 billion, 115 million. Whereas receivables increased by 231 million and amounted to 1.2 billion. Cash and cash equivalents also increased to 572 million from 412 million at the end of previous quarter. And equity ratio increased to 62%. Moving on to cash flow from operation, as mentioned earlier, positive with 676 million. Cash flow from investments was minus 238 and from financing minus 278 million. In this quarter, we decreased our net interest-bearing debt with 353 million. And at the end of the quarter, our net interest-bearing debt was 3,180,000,000. We had under-owned credit facilities of 2.2 billion at the end of the quarter. And then a short ESG update. In March, we published our first integrated annual report, where we merged together our annual report with our sustainability report. And this is an important step for us to align with the CSRD reporting requirements, which will become mandatory from next year and onwards. It's a very extensive report, so we have also published a shorter report, a summary report, if you just want to have a short overview of the year that passed. As always, the reports are available on our website. There's a lot of information that can be read in our integrated report. One important information is how we progress on our targets to reduce our greenhouse gas emissions. We have set ambitious reduction targets for Scope 1, 2 and 3, which we had SBTI approved last year. And if we look at the greenhouse gas emissions per net revenue, we are trending downwards. However, last year we had a slight tick upwards, which is due to the massively increase in production of fish meal and oil that we had last year, which is not counterweighted by an equal proportion of increased revenue. All in all, our scope one and two emissions last year was 36% higher than our 2020 baseline, measured in absolute numbers. However, if we take into account the increased production volume, the intensity is more or less unchanged. In our Q4 presentations, we disclosed our plans to reduce Scope 1 and 2, primarily by electrifying our fish meal oil and feed production at Hapsburg, which accounts for the majority of our Scope 1 and 2. And more details will be shared on this in coming quarters. It's much more challenging to reduce our Scope 3 emission. This accounts for 73% of our total emission and therefore it's also a much more important challenge to succeed on. Our target is a reduction of 52% on intensity and we are very pleased to see that already by now we have managed to reduce by 20% on our Scope 3 emission intensity. And with those words, I will leave it over to Regan to go through the operations and outlook.

Thank you. Good morning. If you look at the performance per region for the first quarter 2024, we see a strong performance for the group with a combined operational EBIT of DKK 32.92 for the first quarter 2024 versus 29.60 in the same quarter last year. The operational EBIT for Scotland was 5.39 DKK per kilo versus 19.14 in the same quarter last year. Faroe Islands had an operational EBIT per kilo of DKK 46.91 versus DKK 37.29 in the same quarter last year. Overall, we can say that Faroe Islands delivered a strong result and Scotland a weak result in this quarter. The FOF segment had a good quarter. The marine raw material sort was 12% down to 137,000 ton versus 156,000 in the first quarter last year. Feed sales increased 21% to 27,000 tonne from 22 last year. External sales of fish meal decreased 5% and external sales of fish oil decreased 28%. The operational EBIT increased 45% to DKK 177 million from DKK 122 million. The EBIT margin increased 7% to 24% from 17%. Global markets for fish meal and oil have been all time high and have declined slightly in the first quarter 24 versus the fourth quarter last year. The freshwater segment in the Faroe Islands transferred smalt to marine farms in the first quarter, flat number from last year, 2.1 million. The average weight dropped to 410 gram from 424 last year. The operational EBIT dropped 6% to 1%. NOC 38.36 per kilo in the first quarter versus NOC 40.75 in the first quarter last year. The operational margin dropped 4% to 24% in the first quarter, 24% from 26% last year. The total capacity of our freshwater segment in Faroes has increased 50%. last year, up to 9000 ton from 6000 ton last year. The production is now being ramped up to deliver robust and larger smalt going forward. This will especially be seen next year, but also slight ramp up this year. During this ramp up operation, there's a high focus on consistent high quality and robustness of the smalt. Construction of the new hatchery in Skalavik started in the first quarter. This hatchery will add another 40% capacity on the existing capacity, bringing our capacity in the Faroes up to 12,000 tonnes by 2027. In Scotland, we transferred 1.6 million smalt in our freshwater segment versus 1.7 million last year. The average weight was 121 gram versus 111 gram last year. There has unfortunately been some more issues in the first quarter of 24 at Applecross, which has delayed delivery of the larger sized fish around six months. These issues are related to construction issues, which has delayed the use of AP4 more than expected. This means that only from the third quarter, 24, we will see the largest malt, 200 gram plus, being transferred from Apple Cross. Therefore, we have updated the expectations of size on transferred fish down to 111 gram in the second quarter, 168 gram in the third quarter, and 200 gram in the fourth quarter this year. The start of AP5 is, however, still expected in the fourth quarter, which will increase the capacity significantly. The development is negatively impacting the financial result and causes loss related to calling of fish, which impacted the financial result negatively by DKK 14 million in the first quarter, 2014. Farming in the Faroe Islands, the total harvested volume in the third quarter, 24, was 14,294 ton versus 11,005 ton in the same quarter last year. The average weight of harvested fish in the first quarter was 30% up, to 5.4 kilo gutted versus 4.4 in the first quarter 23. This size of harvested fish in the first quarter is all-time high for a first quarter and is really positive and a very important driver to create higher values. The operational output per kilo in the first quarter 24 increased 65%. to NOC 50.56 from NOC 30.56 in the first quarter last year. The operational EBIT margin increased 12% to 40% in the first quarter of 24 from 28% last year. Sales revenue in the first quarter increased 10%. The increase is NOK 11 per kilo for the Faroese farming segment. Cost of farming operation in the first quarter was flattish, around 1% up, corresponding to NOK 63 euro. The temperature in Faroese farming fields were unchanged in 24 versus the last 20 years. The breakdown of the Faroese harvested volume in the first quarter was 52% from west of the total volume, average weight of 5.8 kilo gutted weight. From the north, 32% of the total volume, average weight of 5.3 kilo gutted weight. And from the south, 15% of the total volume, average weight of 4.8 kilo. There was a strong development in KPIs in the first quarter of harvested fish, referring to growth weight, feed conversion ratio, and KPI in general. Moving to Scotland, the total harvested volume was 10% down to 7,263 ton versus 8,093 ton last year. The average weight in the first quarter, 24, was 13% down to 4.7 kilo gutted versus 5.3 kilo gutted last year, which was exceptionally high. The lowest size fish was from one of our sites in the north division with average weight of 3.8 kilos. As this volume was 30% of the total harvest in the first quarter for Scotland, it impacted the total average weight and the operations significantly. The operational EBIT was 77% down to knock 5.13 per kilo versus 22.33 last year. The drop was 17.20 per kilo. The operational margin dropped 14% to 5% in the first quarter, 24, versus 19% last year. If you look at the breakdown behind the numbers, we see that the sales revenue per kilo in Scotland dropped 4%, which corresponds to NOC 4.81 per kilo. If you look at the cost of our farming operations in Scotland, we see an increase of the cost to farm salmon and of the harvested fish in the first quarter and this increase was five percent corresponding to knock 4.17 per kilo hog in the first quarter 24. comparing first quarter 24 to first quarter 23 the margin is 16 knock negatively impacted where of five knock is reduced value per kilo caused by smaller sizes and reduced achieved average selling price knock four is because of increased farming cost and knock four is because of exceptional mortality which was dkk 18 million primarily attributed from jellyfish related incident on the one farming location in the north, which resulted in compromised fish health and elevated mortality rates. NOC 3 per kilo relates to additional provision of DKK 13 million, which have been accounted for in the quarter for other expenses. Our de-risking plans in Scotland will in the second quarter, so coming quarter, focus to reduce the risk into the third quarter. In April, average weight in Scotland of harvested fish was 4.5 kilo hog versus 4.8 kilo in April 23. In April, we harvested 3,909 ton, whereof 264 ton were harvested from one farm in the north with average weight of 2.1. The rest of harvested fish was in good market size. May and June, average weight will come lower, probably somewhere between three and four kilos as precaution measures will lead to harvesting of smaller batches to reduce risk in the third quarter. This approach will reduce the biomass at risk in the third quarter and the result in increased harvest volume during the first half of the year. Moving to the service segment. The operational EBIT amounted to 0.87 per kilo in the first quarter up from 0.66 per kilo in the first quarter last year. The operational margin was 10% in the first quarter versus 4% last year. Low sealized numbers across both Faroes and Scottish farming sites are the result of a good operation. Baccarat has good capacity with gentle, high effective treatment capabilities. Moving to sales and other, which includes the WAP segment. where we reduced our volumes in this quarter by 35% versus last year to 3,296 ton versus 5,098 ton last year. The segment also includes all sales, marketing, logistics of salmon in general. The margin for sales and other dropped in the first quarter to minus 0.16 NOK per kilo from 1.25 in the same quarter last year. The WAP share was 23% of the volume in the first quarter, down from 46% last year. The contracts have been reduced significantly to only 9% of the whole volume for the full year. This relates mainly to the new tax regime in the Faroe Islands. Looking at the market breakdown, which we see on this page, we see that from the Faroe Islands, the EU market dropped 11% market share, to 57% of the total sales from the Faroe Islands. The US market increased their market share 9% from 17 to 26% of the total sales from the Faroe Islands. From Scotland, we see that EU and UK increased 19% market share to 76% of total value sold. and the U.S. market dropped from 17% to 10% market share. So coming to outlook for the sector or for the marketplace, there is a low supply growth to be expected. The trend continues with lower productivity than expected. especially from European harvest, but also Americas are affected where harvest is adjusted somewhat down from the first half of 24. So this development seems to continue with downwards adjustments. Main reason for lower productivity are biological challenges in most regions causing production yield to drop. The first quarter 24, showed a global drop of supply of salmon of 5%. The low single-digit growth will continue from Europe because of the uncertainty in biology, especially in Norway for the time being. The global market is therefore expected to see reduced harvest in the first half of 2024, and only one percent growth for 24 as as as a whole which will lead to continued tight markets and finally coming to the outlook our farming guidance is unchanged 91 000 ton for 24. However, there are some twists of breakdown between quarters, where the second quarter is reduced slightly in the Faroes from 16.5 to 12.5, both because of higher harvest in the first quarter and some other changes. Scotland is expected to increase slightly in the second quarter versus original plan from 11 to 12,000 ton, mainly driven by better growth. H2 reduced with the same volume, which therefore all in all brings our guidance unchanged. Looking at the freshwater, there are slightly negative revisions in both regions. Faroe Islands from 17.8 to 17.0, driven by slightly later ramping up speed on the hatcheries than expected. Similar development in Scotland with six months set back in timing. Therefore, taking small transfer guiding from 9.3 to 8.2 million. On the contracts, no change. Low contract exposure, only 9% of expected harvest volumes for the full year. And for the FOF segment, we see continued high production volumes of fish meal, but expect normalization of fish oil production to lower levels than last year. However, we expect increased feed sales on feed production this year, as biomass is expected to grow. Coming to strategy, our Capital Market Day last year, we focused on our organic growth strategy to grow capacity to 200,000 tonne and actual production to 165,000 tonne by 28, focusing on a sustainable growth. Our focus is to grow sustainably with a high focus to utilise our competitive advantage in the value chain and especially to differentiate ourselves in the marketplace, focusing on the world's best salmon. That was our presentation and we will open up for questions if there are any questions. Knud Ivar, go ahead.

Yes, thank you. On the cost side in Scotland, can you give an indication on what to expect on farming costs and then potential provisions in Scotland in Q2 compared to the first quarter?