Bakkafrost U/Adr

Backup Frost's report for the third quarter. My name is Håkan Jakobsson, CFO of Backup Frost, joined this morning by Reine Jakobsson, our CEO. First, I'll ask you to pay attention to our disclaimer on forward-looking statements, which is included in the published presentation. This morning, we'll start by a summary of the quarter, followed by markets and sales, financials, operations, and finally, outlook. In the third quarter, Baccafrost had revenues of 1,737,000,000 and operational EBIT of 173,000,000. Both of these were lower than the same period last year. Faroese harvest increased from around 16.7 kiloton to 21,618 tons. A part of this was delayed harvest that was pushed into Q3 from Q2 due to the strike that we had in the second quarter in the Faroe Islands. In Scotland, we harvested 5,411 ton, which was around 1,300 ton up from the same period last year. In our FOF division at Hafsbrunn, feed sales increased with 16% to around 41.5 kiloton. External sales of fish oil was 8 ton compared to 8,000 ton last year. External sales of fish meal was lower, around 9%. 1,300 tonne compared to 16,000 tonne last year. And Habsburg also sourced lower volumes of marine raw materials, 40,000 tonne compared to around 110,000 tonne last year. But again, we need to have in mind that last year was an exceptional year at Habsburg, where marine sourcing was more than 50% up from what is normally considered a strong year at Habsburg. Cash flow from operations was positive with 575 million compared to 185, and all segments were positive except for the Scottish freshwater and farming segments and the Faroese farming segment. Moving on to markets and sales, beginning with the price development in the global markets. The average price for four to five kilos superior salmon in the quarter was 73.33 NOK per kilo, which is around 7% lower than the same quarter last year and 34% lower than in the second quarter. Prices have been low during the entire quarter and also the premium for large fish was weaker in the beginning of the quarter and then picked up during the quarter. The market has been affected by larger volumes of salmon coming from especially Norway, smaller fish, which has been sold into the European market and putting a pressure on that market. But Norway has also sold more volumes into China in this quarter. According to the latest update from Contali on sole quantities, global sales increased with 4.9%. in the quarter. The biggest volume increase was sale to the European market, which increased with around 25,000 ton, or 8 percent. This is more or less in line with increased production from Europe. Sales to the U.S. market was stable in the quarter. after a more or less constant growth for a long period to the U.S. market. Past seven years, since 2018, the European volumes that have been sold into the U.S. market has more or less doubled. Like in the second quarter, Chile sold lower volumes to the U.S. market in this quarter. And there was some price sensitivity also in some segments in U.S. Sale to Russia dropped by 50 percent due to reduced supply from Chile, and sale to China increased 3 percent. As mentioned, Norway has supplied more salmon to the Chinese market, but Chile has also significantly improved their logistical setups, enabling them to supply the Chinese market better than they have done before. Sale to Latin America, and especially Brazil, also increased, and to other markets as well. Global harvest in the market in the quarter increased by 5%. European harvest increased 9%, with very strong supply from the Faroes, Scotland, and also increased supply from Norway. Norway was up 7%. partly driven by accelerated harvest due to sea lice challenges. Despite this, harvest weights were stable in Norway. There was strong growth in July with 10% increase in feed sales, however, weaker later in the quarter, giving a 3% increase on feed sales in Norway in the quarter as a whole. Harvest from Scotland increased 10%. driven by improved biology, also 10% increase on field sales there, and 3% to 3.5% increase in average weights from Scotland. The Faroese harvest increased 41%, driven by strong biological performance. Harvest weights increased 13% in the Faroes, and feed sales were up by 4%. In the Americas, harvest dropped 4 percent, Chilean harvest was down by 2.4, and Canadian harvest was down by 13 percent. Moving on to the financials, revenue in this quarter decreased, as mentioned before, to $1.7 billion. 37 million. Operation EBIT reduced from 269 million last year to 173. We had negative fair value adjustments of 266 million. And the revenue tax in this quarter was minus 8 million compared to minus 57 million in the same quarter last year. And this is because of the lower Selma prices. Profit after tax was negative with 160 million. Operational EBIT year-to-date is at 1 billion 270 million and adjusted earnings year-to-date at 12.5 DKK. And on the balance sheet, since year-end 23, our property, plant, and equipment have increased with 355 million to around 6.6 billion. The value of the biological assets at the end of the quarter were 2.6 billion, a reduction of 734 million since year-end. Inventories have reduced by 427 million to 721 million. and receivables reduced by 121 million to around 729 million at the end of the quarter. Cash and cash equivalents were 839 million, an increase of 427 million, and equity ratio 62%. Cash flow from operations were positive with 575 million in the quarter. Investments negative with 245 and from financing negative with 99 million. We have decreased the net interest-bearing debt during the quarter with 256 million. At the end of the quarter, the net debt was around 2.7 billion, and also the undrawn credit facilities were at 2.7 billion at the end of the quarter. Then I will hand over to you, Rea.

Thank you and good morning. When we look at the performance per region in this quarter, the performance can be breaking down in Faroe Islands to a margin of DKK 14.35 and in Scotland at minus 25.45. In the Faroe Islands, the value creation comes from the FOF segment, where we had 6.8 DKK per kilo, the sales and other at 4.45, and fresh water at 3.9 per kilo. Services at 1.03. In both regions, we had negative contribution from the farming itself. This shows that when the farming operation is weak, the whole value chain actually plays a significant role. In Scotland, we also see that the value chain contributes with 9.6% from sales and other. But let's look into the segments. In the third quarter, the FOF segment this year sourced 40,000 ton versus 110 last year. So a 70,000 ton reduction in raw materials. The feed sales increased 16% in the quarter to 42,000 ton versus 36,000 last year. The external sales of fish meal and oil are, of course, also down, 42% of fish meal to 9,000 ton versus 16 last year, and fish oil was close to zero. The operational EBIT from the FOS segment decreased 52%. to 147 million versus 309 last year, which was exceptional good. The market price on fish oil has dropped significantly during the last couple of weeks, more or less halved. but fish meal prices have been somewhat stable. The outlook with significantly lower fish oil cost will have a positive impact on feed prices, of course, going forward, as it will reduce the prices for sourced raw materials. When you look into the freshwater segment, the hatcheries, in Faroe Islands, we are continuing ramping up the operations since we expanded the capacity 50% last year with Glibadal and Nordhofter. However, it will also be a ramping up period during next year. Ramping up has been actually good this year, a bit better than we had expected. So that's why we are also increasing capacity the number of stocking now in the fourth quarter. In the third quarter, the total transfer to marine was 48% up to 4.9 million compared with 3.3 last year. The size of fish was 4% up to 423 gram versus 405 last year. And the EBIT from this segment, the operational EBIT increased 79% to 84 million from 47 last year. And we have also seen a good cost development in this segment with low cost price on this malt. And we see a robust and strong biology in this malt, which is crucial for a healthy farming operation. The operational EBIT was 21% up to 64.11 per kilo versus 53 last year. The biomass in the freshwater segment, so in the hatcheries in the Faroe Islands, is 75% up, which is, of course, driven by the ramping up of this operation. Number of fish is also increasing. The monthly feeding has doubled compared with last year and that will of course drive the further increase of the operation in this segment in the coming quarters. As a result from this good development, we now increase back to 17.7 million for the full year stocking this year. So there will be a bit higher stocking in the fourth quarter than we expected a while ago. In Scotland, we have, as you know, struggled this year with the wrapping up of the operation of Applecross. which took a bit longer time because of the issues that we saw last winter. So we have continued in this quarter to stock small fish. 1.9 million versus 2.5 last year, 24% down. And the average weight is also only 86 grams. The operational EBIT was minus 6 million last year. versus 17 last year. The volume in the operation does not reflect the capacity that we have built, but we are now starting to transition to larger smalt, which we also indicate on this graph to the bottom on the right side on this page. And therefore, we are now in the fourth quarter stopping small fish. holding back. That's also why we take the number of stocked fish this year a bit down. And then we wait, keep the fish in the hatchery and grow them bigger, now as AP5 is in operation. So we will, in the end of the fourth quarter, we will start to stock larger fish. And as I said, keep some of the fish in the hatchery for stocking in the first quarter instead. Looking at the farming operation in the Faroe Islands, the volume harvested increased 29%. As we saw, Agne mentioned, harvest in Faroes in general was 41% up. So there's been a lot of harvest in the Faroe Islands. And just as Huckney mentioned, biology in general is good, but it's also driven by the strike which we had in end of the second quarter, where we had four weeks of no harvest. So that also moved some fish, unfortunately, from a period with high prices into a period with lower prices. So in this quarter, we harvested 21,618 tons, up from 16,700 tons last year, 29% up. The average weight is also good, 5.3 kilo, up from 4.8. Despite that we harvested this fish that relates to the ISA incident in two pens, which were taken out in the second quarter. We had to empty all that site, about 3,800 ton, at low average weight, and of course also high costs. But there were no ice in this fish, but they had to be taken out. So that contributed to a situation in the quarter where we had to harvest big volumes in a soft market. which contributed to a lower price achievement, weaker premium, which is negative. But we are pleased that the development with this issue at A19 where the ISA was detected in the second quarter, that our procedures kept the virus away and there were no infection to any other cages or any other farms and that the challenge is behind us. And in general, the biological performance, I said, in the quarter was good, with good feed conversion rate, good growth rates, etc. When we look at the average weights, I said, from A19, the average weight of this harvest in this quarter was only 3.4 kg, not 3.8, it was 3.4 kg, and it was 23% of all harvest in the period. Other harvest was in west, average weight was 5.5. In the north, the average weight was 6 kilo, gutted. So that contributed, of course, that we could have an average weight of all harvest at 5.3. Looking at the temperature profile in Faroes, we see that it's more or less aligned with average for the last 20 years, around 0.2 degrees above the average. Looking into farming in Scotland, the volume was 32% up to 5,400 ton compared with 4,100. The average weight was good, 4.2 kilo compared with 3.1 last year. The EBIT was also 37% up, but still a negative number, 179 million in minus versus 282. and the operational EBIT improved 50%, but still it was negative. So this is, of course, very much on the back of a de-risking operation where the strategy was to take the risk down before we came into the third quarter. We have focused very much on survivability, keeping the fish alive, And we successfully reduced the mortality with around 80% in the quarter compared with last year, which is, of course, significant. By the end of the second quarter, we had harvested 75% of the fish that we expected to harvest this year. And if we calculate on what value the de-risking strategy contributed, we find a number of 31 million pounds sterling, which is a large number and, of course, is important. But I think the real value in Scotland will be when we have healthy and robust smolt, which we unfortunately have not seen yet. But we are, as we saw on the other page, on a journey where we will see now a transition to larger smolt. In Scotland, I can also say that we are now harvesting only ASC certified fish. All our sites that we harvest from are ASC certified now. In Faroes, we already are at 100%. We also focus on cost management, so we have reduced costs to balance the costs with the actual production. So as mentioned on the last presentation, we have closed the processing facility at Marybank, which resulted in 81 redundancies. So, all over the line we are focusing on balancing costs with the actual production. The biomass in the sea is 600 gram larger than the same time last year. Some biomass is being carried forward where possible because of good operation. But there will probably be a bit more harvest in the fourth quarter than we expected earlier. So we are taking the volume a bit up compared with what we have communicated earlier. but from the hatchery as we are now ramping up the operation in the hatchery at Applecross AP5 is now in operation therefore we are now stopping transferring the small smalt and going to larger smalt the temperature on the profile here is also as we have seen over the last 20 years except from June, July where we saw a tick down which you can see on the red line, which is below the average. But in August and September, it was more or less on average. The service segments includes different things. It includes harvest, biogas, but also very important, the farming service vessels. This is the treatment, the dual freshwater treatment. This segment in this quarter contributed with a bit of 19 million compared with 21 last year. But the most important information is probably that we keep a very healthy fish, both in Faroes and in Scotland. We see the sea lice numbers, which are very good. below 0.2 on average, and we are quite happy with this operation, which are proven to keep a good health on our fish, both on gills, but also to keep sea lice away from our fish. Looking into the sales segment, sales and other, we had less contribution from WAP, But this quarter was good in WAP. In this quarter, we transferred 36% less volume to WAP compared with last year, 4,495 ton versus around 7,000 last year. The operational EBIT in this segment increased 90% to 148 million versus 78 last year. And the margin was 8.6 NOC versus 5.7 NOC. In this quarter, the VAP share was 21% versus 42% last year, so a much lower share, which reflects the changed strategy where we took contracts down due to the revenue tax situation. And going forward, we will also keep this number lower than we have done in previous years. The European market was relatively strong for Baccafrost in the third quarter with 54% of the sales from Faroes and 75% from Scotland. So it's the most important market. But the U.S. market has taken a big volume but has been weaker with 23% of relative market share from Faroes and 8% from Scotland. Especially we see that Faroes dropped from 30% to 23% as the market in general had a weaker trend in this quarter. We don't expect and we don't see this to continue. So if you look at the outlook for the summer market in general, it seems to be a diminished growth in Europe, 5% growth expected in the fourth quarter. But especially from Europe, there was a high growth in the third quarter. with around 9% from Europe growth. We see this coming down in the fourth quarter. Through 2025, we see low-digit growth coming. From America, there has been a very weak supply growth or a drop. It looks like... It will still be weak, but there seems to be some change of farming from Coho to Atlantic, which will contribute to some growth in the second half of next year, second half of 2025, where 6% growth is expected. So the global supply of Atlantic salmon seems to be muted in coming years with low digit numbers, one digit numbers. And in the fourth quarter coming somewhat down compared with the third quarter. And in 25 first half, I guess the biggest trigger will be about the As we have seen, the market has been divided more or less in two parts because of this issue, especially where retail has been focusing very much on these volumes. If you look at our operation and the outlook, We expect now 89,600 ton in 24 coming from Faroes, 63.5 in Faroes, so 89.5 for the group, 63.5 in Faroes, and 26.1 in Scotland. In Faroes, we could take the number up, but we see the good biology and we think that the first quarter will contribute with higher prices. So we maintain this volume. Next year, we hope to get the volume in Faroes up to 77%. which is a good growth from this year. And in Scotland, we take the number this year up to 26.1, but next year down to 23. So that means that for the group this year, the number at the moment looks to be 89.6, and next year, 100. Also in Scotland, next year, we will continue the de-risking strategy, As we saw on the earlier graph, a lot of the fish in the water is still from the old regime with 100 gram fish. But during next year will be a transition period where eventually we will go to a larger share of the biomass to be from healthy, larger smolt. So that means that in Scotland we expect around 70% or so to be harvested in the first half of the year. And then the second half of the year we hopefully can build up with healthier volumes. If you look at the smalt transfer, as I said, we take up the smalt transfer in Faroes up to 17.7 this year, and next year up to 18.5. This year we expect the average weight to be around 410 gram of the smalt, and next year hopefully a bit bigger, maybe 420-430 gram. The most important thing is the robustness of the fish. In Scotland, we now stop transferring smaller fish, and we go to the strategy of larger, healthier smalt, and the message is about 200 grams. So, therefore, in Scotland, we hope to achieve a number of 10 million smalt next year at around 200 grams. On contracts, we plan to do around 15% of the expected total harvest on contracts. And that's for the group. The fourth segment, we expect more or less a stable development, no big changes. The big thing there is probably that it looks like at the moment that fish oil prices have come significantly down, which will be, of course, positive for costs. On the strategy, we maintain the development as communicated from our capital market day in 23, except that we have delayed the fairly expansion until we see how development goes in Scotland. So we took down the investments this year and next year by around 800 million, and that's still the case. But we... We are following our track to reach 165 by 28. And next year, the focus is still on de-risking in Scotland. Thank you very much. Now we can open up for questions if there are any. And we have the mic, so...

When you look at Scotland and then into 2025, the current low mortality levels, lower feed prices should be positive. But then you also have lower scale with lower volumes. So could we see positive margins for the full year in Scotland next year, assuming stable salmon prices? Or how do you look into 2025?

Yeah, I think that should be possible. Of course, the negative thing is the volumes, where we take the volumes slightly down compared with this year. But we have taken action to reduce costs, to reflect the volumes that we have. And as freshwater, hopefully now, are going to produce more according to the costs in the freshwater segment, If you compare, for example, at the moment, the freshwater costs in Scotland and Faroes. In Faroes, we can produce one smalt at the same price per piece of smalt as in Scotland. But in Faroes, the average weight of this malt is 410 gram, and in Scotland, 80 gram. But the price per piece is more or less the same. So in Scotland, of course, that will change dramatically, as now we are going to utilize that capacity and also produce healthier smalt. So that will contribute in the right direction. Hopefully, we can now be in a transformation where the cost in the biomass also will come down as we see lower mortalities. So that should also contribute in the right way. We have seen a really soft or a softer... market segment than we had expected this year. At the moment also, I believe that the outlooks for next year and the belief in the market is too pessimistic. So I believe that the prices that we are going to realize in Scotland next year will be more positive than what we expect at the moment or what the market expects at the moment. So that should also contribute on the positive side. So with all that in mind, I think there is a chance that we should see positive numbers, yes.

Okay, good, thank you. And on feed prices, how much has the feed price come down from the peak levels and with the potential now price drop on marine ingredients, what is your expected drop in feed prices?

Yeah, so until now, the feed prices have only come down very marginally. But now as oil prices now, into the end of the third quarter and the beginning or more beginning of the fourth quarter are really dropping, that will contribute significantly. So if you say that the price comes down, let's say 15 Danish kroner or something like that, and the content in the feed recipe is... let's say 15%, that will contribute at least to around 2-3 kroner per kilo, which is significant.

And then the positive impact on the farming segment will then be gradual throughout?

That will be gradual during 2025, but mainly in the latter part of 2025 and into 2026 years.

Christian Nordberg, Arctic Securities. When I look at your cost per kilogram, the EBIT cost per kilogram in the faro farming segment, that's been now quite flat around 51, 52 Danish kroner for quite many quarters. What's the reason why that doesn't drop when you have so much more volume in this quarter? Is it due to the ISA fish or is it something else?

that's a good question just from the top of my head you are quite right that the volumes should give some drop in this quarter there is a negative you can say it's a bad cocktail to have this situation where we by the end of the second quarter and into the third quarter, had the strike and then we had the ISA. So we had to push 3,500 tons of small fish and push good fish back. So that gave really bad flexibility for our sales and marketing. First half of the quarter, we sold small fish. Only small fish. So we couldn't serve our customers properly. We had to push small fish to the market. And then suddenly we came with huge quantities of exceptionally large fish. So our ability to utilize our market position as a premium brand was not ideal to understate. So I think that's probably the biggest impact for VacaFrost in this quarter. On the cost side, feed costs have not been reflected yet, the drop of feed costs. So we are more or less on peak on the cost side. There are obviously some benefits of larger volumes, but I think they are hidden because of the issues that I mentioned earlier.

And so when we then look into Q4, how do you view that in terms of cost base based on that you now don't have ISA fish and you have a more stable market and quite good volume still?

Yeah, we should see a gradual drop in cost price.

Okay, thank you.

Okay, I don't see any other further questions, so thank you very much for coming.