Earnings Transcript for BAKKA.OL - Q1 Fiscal Year 2023

Høgni Dahl Jakobsen: [Starts Abruptly] of the financial results for Bakkafrost in the first quarter of 2023. My name is Høgni Jakobsen, CFO of Bakkafrost and I will be presenting this morning together with Regin Jacobsen, our CEO. We have prepared a short agenda as usual, starting with a short summary of the quarter, following up by a glimpse at the market and sales in the quarter. And then we take a closer look at the financials for the group. And then Regin will take over and give us a deeper look into the segment performance before closing off with a glimpse of the outlook. So, some highlights. This quarter we have had all-time high revenues of DKK 2 billion, more than DKK 2 billion and it is our second highest quarter in terms of operational EBIT, we made an EBIT of DKK 565 million in this quarter. In the Faroes, we had quite low volumes, harvest volumes, 11,000 tonne compared to [7500] [ph] tonne in the first quarter last year. So, that of course has affected the results in the Faroes. In Scotland, on the other hand, we have doubled the harvest volumes to more than 8000 tonne in the quarter. Feed sales have been slightly lower, 22,287 tonne compared to more than 26,000 tonne in the same quarter last year. Raw material intake has more than doubled. So, we have had more than 156,000 tonne of marine raw material intake in this quarter All our segments have had positive margins. And we had positive cash flow from operations of DKK 573 million. On the AGM that was on the 28th of February, it was decided to pay out a dividend of DKK 10.00 per share and that will be paid out around the 22nd of May. So and market have been good in terms of price. In this quarter we have had all-time high prices, especially in the second half of the quarter. The first half was significantly weaker, but on average 104.83 NOK/KG, which is an increase of 31% year-on-year and 42% compared to the fourth quarter. The weak Norwegian kroner has helped on the salmon price, to increase the salmon price, but even measured in euro, we have a price increase of around 16%. Last year, at this time of the other year, the contract share was very high in the industry, which in combination with shortage of supply increased prices significantly. In this quarter we have not had the same level of contract share, for the industry it has been much, much lower. If we look at the market, the flows to the different markets according to the latest data from Kontali, global sales to all markets were down by 4.9% in this quarter, EU was down 11% and the retail market in EU has been softer than done previously. Russia is down 5% due to sanctions. Russia is primarily supplied from Chile, but also from own production. China has come back after COVID and are now at levels close to or around the peak levels in 2019, had a 25% increase in this quarter. Volumes to the US have been stable, especially strong in the beginning of the quarter, January and February, and weaker in March and helped by relatively strong US dollar. Sales to Japan dropped 21%, the problem there is high air freight costs. If you look at global harvest, it dropped by 4.1% in the quarter. Taking into account inventory movements, the drop was 4.9%. European harvest is down 6%, 7% reduction in Norway where we also saw a 5% reduction in our average harvest weights. In the Faroes, harvest dropped 18%, 22% drop in Iceland. And in these areas, Faroes and Iceland, we also had slightly lower harvest weights than in the same quarter last year. In UK, harvest increased by 15.5%. In the Americas as a whole, harvest was down a 1%, 28% reduction in Canada, especially on the West Coast and the phasing out of the Discovery Island is playing a role in this regards. Chile had good biological performance in this quarter, harvest was up 3.3%, 1% higher average weights on harvests averaging out around 4.37%. However, a drop in March to 4.2%, where the volumes also increased in Chile. If we look across the regions, Norway, Chile, Faroes and Iceland, there were strong feed sales in the quarter. Feed sales were up around 8% to 11% in these regions, whereas in Scotland, we had a reduction in feed sales. If we then move into the group profit and loss, our revenue had an increase of 25% to just an excess of DKK 2 billion and operational EBIT increased by 35% to DKK 565 million. Revenue tax was down in the Faroes from DKK 58 million in the first quarter last year to DKK 38 million in this quarter and that is linked to the lower harvest volumes in the Faroes. Fair value adjustments, down from DKK 177 million to DKK 54 million, due to a change in the profile of the biomass, production cost, and forward prices, and profit after tax was DKK 467 million in this quarter. As mentioned, all our segments have positive margins. We had an increase in the Faroes from NOK 36.03 to NOK 42.14. Scotland had a significantly higher increase by almost NOK 46.0 and came out positive with a margin of NOK 28.23 in the quarter, which is the best ever in Scotland. Our VAP Segment was also positive, had positive margins despite of having relatively high raw material prices in the quarter and came out with an EBIT margin of NOK 1.95. The EBITDA margin in the FOF Segment dropped from 19.6% to 17.6%. As mentioned second best operational EBIT in the quarter, it was only surpassed or beaten by the results that we had in the second quarter last year. But if we look at adjusted earnings per share, this is our highest ever at DKK 7.19 per share. Looking at the balance sheet, there are smaller changes to the balance sheet this quarter. Cash and cash equivalents reduced DKK 150 million to DKK 570 million. Equity increased by DKK 488 million to DKK 10.9 billion and our equity ratio increased by 2% from 62% to 64 % in the quarter. Cash flow from operations improved by DKK 421 million amounted to DKK 573 million in the quarter. And then as we usually have a lot have ongoing investments, of course that's also the case in this quarter, cash flow from investments was minus DKK 203 million. And we had capital commitments of DKK 812 million by the end of the first quarter, primarily the expansion of our feed capacity at Havsbrun, but also the ongoing expansions of our hatcheries in Scotland at Applecross and a cargo plane is also on our commitments this quarter. Cash flow from financing was minus DKK 519 million, and cash at the end of the period was DKK 570 million. Our net interest bearing debt has decreased by DKK 307 million in the quarter and was DKK 2.4 billion at the end of the quarter. Our bank facilities are unchanged. We have still have €700 million and €150 million accordion option available. Undrawn credit facilities amounted to just short of DKK 2.9 billion. And then a short ESG update. We have recently released our 6th Healthy Living Sustainability Report and also introduced an ESG Index to make it easier for everyone to find all the facts and numbers. And alongside for those who don't want to read the thick volume we also have a shorter summary report which is available on our website. And then in regards to TCFD, we have also made some progress in this quarter. We have been working for a number of years now to align and get consistency with the TCFD reporting recommendations. And one of the last steps was to perform the climate-related scenario analysis and that has been done and is also documented now in our Sustainability Report. And then finally, on SBTI, we submitted our targets last June and in this quarter the validation process has started with SBTI. So hopefully we can conclude that process shortly. And then I will hand it over to Regin Jacobsen who will go through the segments.

Regin Jacobsen : Good morning everyone. Let me go through the segments, first the Farming Segment. The volumes in the Faroes dropped 37% from 17,500 tonne to 11,000 tonne. The harvest weights dropped 7% from 4.8 kilos to 4.4 kilos in this quarter. Half of all the volumes in Faroes was actually harvested in January. The breakdown from the Faroes was

Q - Christian Nordby: Christian Nordby, Kepler Cheuvreux. And you have 12% lower biomass year-on-year, can you give some indications on the split between Faroes and Scotland and how that has for implications for harvest profile for this year?

Regin Jacobsen: Yeah, so, as correctly as you have realized that we have lower biomass, and that is also affecting the share between the first half of the year and the second half of the year. So we have higher harvest in especially in Faroe Islands in the second half of the year whereas Scotland is more even for the first and second half of the year. So that is the main take away from that. Probably 60% to 65% of the harvest this year, unfortunately, in Faroes is for second half of the year.

Martin Kaland: Martin Kaland of ABG Sundal Collier. You show that the KPIs at Faroe Island looks very good, except from that harvest weights are somewhat lower. Do you expect that to increase into the second quarter? Or do we have to wait until the second half that also will start to increase?

Regin Jacobsen: Yeah, we will be a bit soft on average weight also in the second quarter, because when you start -- we started very aggressively in January with harvesting some fish. And unfortunately, when you come out into the cold period with smaller fish, we need to harvest every week and it takes some time to get the size back, especially in this period where we were a bit lower on volumes. So we will stay at the lower average weights around 4.5 kilos also in the second quarter. But then in the third quarter numbers, we will be stronger again also with good capabilities with the new dual fresh water treatment system.

Martin Kaland: And also do you have a comment on the harvest rates for Scotland? You did comment that it will -- was expected to then stay strong into the second quarter and then it’s more a circle on the second half, right?

Regin Jacobsen: Yeah, of course we are now much better prepared in Scotland for the biology. But I guess that we should expect some more soft operation in the third quarter especially where we normally see more challenges in the environment. But we are better prepared. And we, of course, hope that we will manage good. We still have not the large smolt where we can only have them one summer in the sea. So it will take one or two years more before we are really good positioned. But the first quarter and so far in the second quarter its apparently making a big difference where we are now compared with earlier years. So we hope for the best also for the third quarter. But I think you should expect somewhat more soft operation.

Martin Kaland: Thank you.

Regin Jacobsen: Good. If nothing else, then thank you very much.