P/F Bakkafrost (BAKKA) Earnings Call Transcript

Good morning, and welcome to the presentation of Bakkafrost's results for the second quarter 2026. My name is Hogni Jakobsen I'm here today with our CEO, Regin Jacobsen. First, disclaimer, which I will leave for self study. We will follow our usual agenda today beginning with an overview of the second quarter before we move into markets and sales and then on to finance, operations and finally, outlook. So in the second quarter, operational performance improved for Bakkafrost, with revenues increasing 16% year-on-year to DKK 1.8 billion and operational EBIT of DKK 273 million compared to DKK 65 million last year. In the ferrous, we harvested more fish than we have ever done before in the quarter, 26,700 tonne. And in Scotland, it was the opposite. It was less than half, 55% reduction, 3,100 tonnes harvested. This is a result of the derisking strategy that we have been following while we await the new capacity to be fully utilized with local in Scotland. At our fish meal Oil & Feed division, Feed sales were relatively -- relatively stable at 37,000 tonne. Meal sales were 0 as we are preserving inventories to ensure that we are self-sufficient with fish meal for our own feed production. Currently, our stocks will enable us to produce into Q2 next year. sourcing of marine raw material was lower this quarter, 32% reduction. We sourced 109,000 tonnes. Cash flow from operations were DKK 273 million compared to minus DKK 204 million last year. And finally, in May, we also paid dividends of DKK 3.45 per share. Group, all inclusive margins improved from DKK 2.82 per kilo to DKK 9.12 supported by the stronger Ferris operation. That took place in the market context with high supply, muted sale prices and reduced large fish premium. The ferrous delivered 15.38, up from 13.15 . Scotland, on the other hand, had a negative margin of minus DKK 44.12, which was impacted significantly by reduced harvest volumes negatively affecting the dilution of fixed costs. Moving on to market. According to the latest updates from Kontali, global supply increased 7% in the quarter, ahead of the harvest growth, which was 3%. A significant volume of inventories were released in the quarter, primarily from Chile European harvest grew 5% and Norway by 3% with lower volumes in April and May, but a very strong growth in June with 15% volume growth, which also continued into July. -- with 10% increase. Some of that volume growth is linked to Biobase management within maximum allowed biomass limits. Biology in Norway was good, lower mortality, 2% higher harvest weights and 4% increase on feeding. The Ferro had a very strong quarter with volume growth of 29%, weights were up by 5% and feeding also increased by 2%. Americas reduced their harvest around 1%. Chile dropped 4%, there is some increased competition between Coho and Atlantic salmon. So Coho is limiting production capacity for Atlantic salmon. In Canada, there was a strong development, especially on the West Coast, but also some accelerated harvest due to biological issues. Feeding in Chile and Canada were both down with 7% in this quarter. If we look at where the volumes were sold, sold volumes increased 7%. Demand is solid across Europe, U.S. and Greater China with sold volumes increasing 11%, 4% and 17%, respectively. If we look at the U.S. market, the local supply increased in this quarter with around to around -- or corresponding to around 8,000 tonnes of whole fish equivalents, mainly supplied from Canada and North America. European exports to the U.S. declined almost 10% in this quarter, while Chilean export increased by 5%. Latin America had also strong growth with vessel growing with 10%. The spot price in this quarter for Superior 4 to 5-kilo was 74.15, broadly stable year-on-year but 16% lower compared to the first quarter. Prices have increased now from the beginning of the third quarter, which is a bit usual earlier than usual. And this also has continued into August, supported by strong European demand. The large fish premium has been more or less absent for the past 3 quarters, but we see that, that is also starting to pick up again. With a tight supply ahead of us and the strong demand, we think that the market outlook in general looks constructive. If we then went to the P&L, we had stronger revenues and operational EBIT, as mentioned before. Revenues in this quarter, DKK 1.8 billion and DKK 3.5 billion for the first half of this year. Operational EBIT year-on-year increased from DKK 65 million to DKK 273 million and fair value adjustments were minus DKK 406 million versus minus DKK 187 million last year, affecting the profit for the period, which was negative with DKK 161 million. Operational EBIT, year-to-date, DKK 816 million, close to the full year of last year. And earnings per share came out at 2.31 in this quarter and 7.46 for the full year or year-to-date. On the balance sheet, we have a strong balance sheet, unchanged equity ratio of 58%. Property, plant and equipment has increased in this quarter by DKK 123 million, amounting to DKK 7.3 billion at the end of the quarter. Inventories have increased by DKK 448 million and account to DKK 1.2 billion at the end of the quarter, reflecting increased feed and raw material stocks. Especially fish meal inventories are high. As I mentioned before, we have security of self-sufficiency into the second quarter of next year. Biological assets were lower in this quarter due to harvest timing, salmon prices and overall biomass management. Cash flow from operations was DKK 273 million and DKK 727 million for the first half of this year. Operating cash flow covered investments and dividends during the first half of this year. Investments remain focused on capacity, biological resilience and efficiency at a similar cash flow level as in the second quarter last year. And cash at the end of the period was around DKK 327 million. Our net debt has increased during the quarter from DKK 3.8 billion to DKK 4 billion. The increase reflects investments, working capital and dividend payments. Liquidity remains strong, supported by DKK 1.3 billion in undrawn bank facilities. And also, we have undrawn according option. And then I will hand over to our CEO, Regin Jacobsen, to go through the operations and outlook.

Let me start with what fundamentally differentiates Bakkafrost. We believe that Bakkafrost has 1 of the most integrated value chain in the salmon industry from feed fresh water to farming, harvesting, processing and sales. This gives us in-house expertise and the ability to coordinate decisions across the business. And I think this is especially valuable now with the current feed market where prices have risen sharply and some raw materials are less available. Through [indiscernible] our sourcing formulation and production expertise supported by a strong inventory position gives us greater flexibility to adopt unsecure supply while protecting fish health and product quality. Knowledge is shared across the value chain to improve biological performance, quality and long-term costs. All our farming sites in the Faroe Islands and Scotland have obtained ASC certification. And the second quarter shows both sides, our strong performance in the Faroe Islands demonstrates the potential of this model while Scotland requires further improvements. This integrated operational model supports our resilience adaptability and long-term competitivity. If you then look to the FOF segment, we see another strong quarter. The feed sales were broadly unchanged year-on-year 37,400 tonnes. For the first half of the year, feed sales increased approximately 6% to 72,000 tonnes reflecting the strong biology growth in our operations. All feeds sold during the quarter was sold internally. And this illustrates the increased strategic importance of Hasbro and the farming operations, which continues to grow. Marine raw materials, accounted for 109,000 tonnes, 32% below the second quarter last year. And for the first half, we sourced 161,000 tonnes compared to 269 last year. Consequently, there were no external fish meal or oil sold during the quarter. Everything went to internal use and inventory build done. Despite the lower sourcing, the operational EBIT increased by DKK 30 million to DKK 119 million, and the operational EBIT margin increased from 13% to 20%. We are, however, seeing a clear increase in the price of marine feed ingredients our -- and therefore, we don't see that our operation is insulated from this inflation. It gives us our flexibility in Havsbrun in sourcing formulation in inventory management and the timing of production than most other farmers have. So our current fish with inventory from sourcing in the first half is expected to support feed production into Q2 '27. Freshwater, Scotland. The key priority at Applecross remain to control ramp up the operation. The number of small increased in this quarter from DKK 0.9 million last year to DKK 3.9 million this year. For the first half of '26, 4.9 million small to have been transferred compared with 1.5 million last year. The average for weight at all Scottish Malta was 137 gram, while small produced upgrowth was 219 gram. The difference reflects the mix between internally produced and externally sourced most. The upper gross operation is now stable. Biosecurity has improved and is strong and both the number of fish and the hatchery and the quarterly production are at their highest level so far. Capacity -- capacity utilization, however, is still not reached target, we are at around 35% at the moment, expected to reach full production and full stock around second quarter next year. The operational loss was reduced from DKK 72 million last year to DKK 30 million this quarter. The key focus is consistent production, small robustness and post transfer performance. We remain on track for total Scottish small transfer of DKK 10 million this year. Applecross is expected to produce small with between 200 and some batches up to 40-gram this year. while the average for all Scottish malts transferred this year is expected to reach 179 grams. The continued ramp up at Applecross is fundamental to reduce biological risk in Scotland. Larger and more robust malt shorten the marine production cycle and progressively improve both biology and costs. The overall biological performance in Scotland was stable during the quarter. Generally good growth and improved favorability and feed conversion year-on-year. Most sites developed well. However, a specific batch of externally supplied small caused biological challenges at skin Dundinloxdriven. Incident-based costs amounted to DKK 31 million compared with DKK 39 million last year. Although the absolute incident cost was lower, the financial impact per kilo was significant because of the lower volume harvested in this quarter. Harvest volume dropped 55% to 3.1% compared with 7,000 tonnes last year. The lower volume is a consequence of our derisking strategy while we establish sufficient production of large high-quality smolt. The average weight of harvested fish in Scotland, however, in this quarter was 5.2 kilograms. So the operational EBIT was minus DKK 139 million this year compared with minus DKK 127 million last year. If you turn to Page 30, I can demonstrate the bridge. If you look at the Scottish numbers the Operational EBIT per kilogram declined from minus 1 to minus 44%. Price and sales mix improved by [ DKK 2.6 ] but was more than offset by higher ringside cost, mortality impact, fallow costs. We have a lot of sites that are not being used. So follow-on costs are important. So with 55% lower volume means that fixed costs, vessel costs and harvesting costs are quite high compared with the volume. Although the incident-based costs were lower in absolute terms. The negative impact per kilo is very high. And then the biological challenges in this Lux-driven smolt batch also play a significant role. So going back to Page 20. Then we go to -- so the biomass in the -- as we see on this graph on the bottom of the chart is developing study with the Redcore going down. So our ability is good at the moment. So hopefully, we can see a more steady development. However, the volume will be low this year, 20,000 tonnes, next year, we will see a much better volume. And with a better small size, we expect that, that will be a change in our operation in Scotland from [indiscernible]. So going to freshwater in the Faroe Islands. The Ferris freshwater operation continued to scale and remains the foundation for the future marine growth. Which transferred 5.6 million small in the second quarter, up from last year. First half of '26, transferred increased by approximately 10% to 9.5%. The average transfer weight in the quarter was 427-gram compared with 464 last year. However, the average for the full first half increased to DKK 467 million from DKK 447 million last year. The operational EBIT was broadly stable at DKK 82 million, and the operational EBIT margin remained strong at 30%. Post transfers availability continues to track at high level and close to the upper end of the historical range. This is an important indication of high-quality, smolt and good focus with our teams. We remain on track with our guidance of DKK 20 million to be transferred this year. Operation in the new hatchery in Scalar has been started. We started in June with the first X. And we expect released the first smolt by end of next year. And this increased our small capacity in the from 18 to 24.4 million smolt of 500 gram. So we -- the focus is large, smolt to robust, smolt, shorter production cycles at sea, which lowered the biological exposure and more efficient utilization of farming sites, which we also now see start to evolve in the Faroes. So turning to farming fires. The Faroes Farming operation delivered a strong operational quarter Volume increased by 67% to 26,700 tonnes compared with 16,000 tonnes last year. The average weight increased 11% to 5.5 kilos. The operational EBIT increased from DKK 4 million last year to DKK 109 million this quarter. The operational EBIT per kilo was [ NOK 596 ] compared with NOK 0.37 last year. Ring site costs were reduced by approximately 4% from 31.10 to 29.96 per kilo. The EBIT bridge on Page 30 shows lower ringside cost of 266 and price impact of 115 strong biology, higher harvest weights and 67% higher volume provided a better throughput and more efficient cost absorption. So that is the bridge from 024 to 406 in the Faroes. The biomass in the Faroes is around steady at 51.5%. But quarterly feeding is increased by 5%. Sea lives are well controlled. Mortality remains low and improved planning of stocking and following periods is contributing to shorter cycles and more efficient. Farming operation. So in the first half, we have harvested 51.9000 tone, which is 54% of the full year guidance of 97,000. The services in the Faroes had a high activity and delivered a strong financial result, increasing to DKK 35 million from 17 last year and a 15% margin, up from 8% last year. The segment includes fish transport fresh water treatment, farming support, harvesting, packaging waste to biogas production. These activities are not only stand-alone services. They are essential enablers for the biological operational performance of our farming operation. Our deal freshwater treatment vessels continue to provide efficient treatment of slice and Gil related challenges. As biomass activity increase, utilization of these vessels are also improved. So going to the sales and other segment. But we had a strong quarter revenues increased 30% or the volumes increased 30% to 29,900 tonne. Whole fish are 21% while volumes to VAP in Paris increased by 71% to 6,600 tonnes. The VAP share of the pairwise volumes increased slightly to 25% compared with 24% last year. Revenues increased 34% to almost DKK 3 billion and operational EBIT increased DKK 17 million to DKK 114 million. Operational EBIT per kilo declined from 655 to 560. This reflects the higher global availability of superior quality and large salmon which continue to put pressure on prices and premiums. Our geographical diversification continued for a the share of sales to the North American market increased to 31% share, which is probably the highest. And this year to Asia increased to 15%. The share in Western Europe declined from 52 to 47. The Scottish sales mix was more concentrated in Europe during this quarter. This reflects also the drop in volume in Scotland in this quarter. So going to outlook. We see limited supply growth going forward. Global harvest volumes increased this quarter approximately 3%, while the volumes supplied to the marketing is by 7%. The difference was mainly related to inventory movements. The supply growth comes on top of the 18% last year. So this is a quarter with a high volume, especially because of the 18% last year. The supply outlook is now more balanced with only 1% growth in global harvest volumes in the second half of '26 versus last year. Especially the Americas harvest volumes are expected to decline by around 10% in the second half of the year, mainly reflecting the development in Chile. Global supply is expected to remain limited in '27, constrained biological regulation capacity limitations. Smolt transfer in Norway seems to be going slightly down next year -- or this year compared with last year. Together with continued demand growth, this should gradually tighten the market balance and quite stronger support for summer prices. Demand remains strong and broad-based across markets, particularly in Asia and Europe, but we also see a strong demand in the U.S. Lower salmon prices are stimulating consumption while underlying structural demand continues to grow. Combined with moderate supply growth, this source a progressive tighter market balance. So with supply growth normalizing and demand remaining strong, the market balance is expected to tighten progressively and support more price -- stronger prices going forward. Our guidance for this year remains on 117,000 tonnes. 97 from Faros and 20 from Scotland. We have, in the first half delivered 61.2, corresponding to 52% of this volume. So 48% remains. The Faroes operation at 61.9%. The remaining Faroes harvest is relatively evenly distributed in the third and fourth quarter with more in the fourth. Scotland has a 9.3% in the first half and therefore, a bit more in the second half. At the moment, 6.8 are planned for fourth quarter. We also maintained a small guidance of 20 in Faroes and 10 in Scotland. For '26, we intend to have contracts covering approximately 15% to 25% expected combined harvest volume. This provides some revenue visibility while retaining meaningful exposure to the spot market. We expect lower production volumes for fish meal and fish oil compared with last year primarily due to lower availability of raw materials. Feed production is expected around 175, which is up from last year. The guidance remains tendered on biological environment and market developments. Based on the -- the strong various performance, the Applecross ramp up on the biomass development in Scotland. We currently maintain in the volume guidance. Our DKK 5 million investment program remains unchanged. There are some delays in some of the plants. Also because of the market development in '26 and '25, which has been a bit weaker than expected. But our target remains at 145,000 tonnes in '28 and 162,000 by 2030. The program includes DKK 2.2 billion investment in Faroes, DKK 1.3 billion in Scotland and DKK 1.6 billion of shared farming services. And the Faroes the main components remaining are the Scholar caters and the feed capacity. In Scotland, the investments are covering investments in increased capacity of processing and general farming assets. So for the full period, we remain our guidance on investment. Thank you. That's all. And then we are open for questions.

Alex Aukner of DNB Carnegie. So in terms of the meal inventory you have until Q2 2027 is the volume significantly higher than normal? Or is it because of the changed formulation that you now have a longer relay? And also, what's the status on the fish oil as well?

So we have enough inventories of fishmeal and oil to cover our needs until into the second quarter next year. We have, as you know, been focusing on keeping this volume for ourselves, also because of this issue or question about certification, that was also 1 of the drivers. Now we see also this price development. The volume is high. probably not higher than it has been some other years before at the same time. But at the end of the quarter, we had more or less full inventory. . And you saw also in our balance sheet that the value of our fishmeal and oil was significant. I think it was around 75% of the total number, at cost price, of course. But as I mentioned earlier, we see that we are now in a situation, which is very dramatic on the cost of raw materials. And therefore, we need to do some changes. And we are coming from a very, very high number. And with our new capacity now coming up available with our expanded new feed line, we have better ability to mix and flex between raw materials. So we are introducing new raw materials into our feed formulation. So that will give us a better balance in our cost to take costs down. So that's -- so the strategy now is that we still want to have a very, very high inclusion of marine ingredients in our salmon to cover the needs of our fish and to make sure that we have a product which is originating from Power Islands, which is special with various raw materials. But we need to balance raw materials market prices are very, very different than we ever actually have seen before. So therefore, our goal is to balance our feed cost going forward with more or less similar feed cost as before.

Does that mean that your 2027 cost is going to be in line with what we currently see. Is that how I should interpret up?

More or less.

[indiscernible] Securities. You've said this quarter and before as well that the external saw small in Scotland was the problem? Why do you then stock 1 million more external smolt in Q2 year-on-year?

Good question. So we have, as you said, had big issues with externally delivered small. However, there have been good watches in between. But we see much lower regularity. So there is a bigger variation. And apparently, as you see, we are creating losses with this externally sourced mold. We have reduced the external source small compared to Alan. We have taken out batches that we think are not good but we have maintained batches that we think are good. So we have a high focus on only sourcing good batches. And there is a combination of volume. As you see in this quarter, for example, we have a positive EBITDA contribution. So it's also about volume. We also need to come back to 40,000 tonnes or 50,000 tonnes. At the moment, we have a plane that is stalling because we are reducing speed too much. So we need to come up in speed. And as Applecross is now coming to full capacity next year. We expect that Applecross uninternally delivered small should be above 10, probably somewhere, hopefully, 12 million smolt, which will cause a good operation. So the combination of good internally large smolt robust fish and hopefully, better batches of external smolt must contribute to this development. So hopefully, we are better to select the good batches.