Bakkafrost P/f

Earnings Release • Nov 5, 2024

Strong biological performance in the Faroe Islands and successful de-risking in Scotland

Strong biological performance in the Faroe Islands and successful de-risking in Scotland

The Bakkafrost Group delivered a total operational EBIT of DKK 173 million (DKK

269 million) in Q3 2024.

(Figures in parenthesis refer to the same period last year unless otherwise

specified)

The performance in Q3 2024 per region was as follows:

· Faroe Islands             Revenues of DKK 1,420 million (1,628 million)

Operational EBIT of DKK 310 million (542

million)

· Scotland                    Revenues of DKK 317 million (232 million)

Operational EBIT of DKK -138 million (-263

million)

Commenting on the result, CEO Regin Jacobsen said:

"We are not satisfied with our financial results this quarter, primarily

impacted by low salmon prices.  The strike in May combined with unplanned

harvest of A-19 impacted negatively our ability to adapt to market needs to

optimize market value for our products. The early harvest of remaining fish from

farming site A-19, where the ISA virus was detected in two pens back in May had

a negative financial impact. We are, however, very pleased with the effective

response and our strong procedures, which successfully contained the virus. This

challenge is now behind us, allowing us to focus forward.

In the Faroe Islands, we have seen very good biological performance. This is

evident in the strong growth, low mortality, and increased harvest weights. Our

hatcheries have also delivered excellent operational results, enabling us to

increase our smolt transfer expectations for this year, with further increases

planned for next year.

In Scotland, we conclude that our de-risking strategy has worked. Exceptional

mortalities have reduced by more than 80% compared to last year, harvest weights

have increased, and sea lice levels are all-time low - just like in the Faroes.

We are making steady progress in ramping up production at the Applecross

hatchery to produce large high-quality smolt and expect start transfer of 200g

smolt in Q4. Hereafter, we expect to only transfer high-quality smolt above

200g.

To maintain a strong competitive position, we are prioritizing cost management

and aligning our capacity with operational needs. In line with this, we have

implemented several cost-saving measures and capacity adjustments in Scotland,

including the closure of the processing facility at Marybank in July 2024. The

full effects of these measures were not visible in Q3.

The salmon market has been weaker in this quarter with low salmon prices

throughout the quarter, but we look forward to a more favorable price

environment - especially in H1 2025, where the supply will be weaker of high

-quality salmon. Our expected harvest next year is 100,000 tonnes, of which we

plan to allocate around 15% for VAP contracts"

During Q3 2024, the FOF segment sourced 40,134 tonnes (109,685 tonnes) of raw

material. The Operational EBIT margin was 20% (30%), and fish feed sales

amounted to 41,513 tonnes (35,903 tonnes).

For the first nine months of 2024, the FOF segment's operational EBIT margin was

20% (22%). During the first nine months of 2024, Havsbrún sourced 267,583 tonnes

(413,485 tonnes) of raw material.

In Q3 2024, the Freshwater segments in the Faroe Islands and Scotland

transferred a total of 6.8 million (5.8 million) smolts combined:

· Freshwater FO:   4.9 million (3.3 million),

· Freshwater SCT: 1.9 million (2.5 million).

For the first nine months of 2024, the freshwater segments have transferred a

total of 16.0 (16.3) million smolts:

· Freshwater FO: 11.0 million (9.0 million),

· Freshwater SCT: 5.0 million (7.3 million).

In Q3 the Freshwater FO segment made an operational EBIT per kg transferred

smolt of DKK 40.67 (DKK 34.67), corresponding to NOK 64.11 (NOK 53.04). The

Freshwater SCT segment made an operational EBIT per kg transferred smolt of DKK

-34.82 (DKK 59.79), corresponding to NOK  54.89 (NOK 91.46). In Q3 2024, the

Freshwater SCT segment had incident-based cost of DKK 0 million (DKK 6 million).

The Farming segments achieved lower prices in Q3 2024 than in Q3 2023. The

Farming segments had higher volumes in Q3 2024 compared to Q3 2023. In Q3 2024,

the Farming SCT segment had incident-based costs of DKK 34 million (DKK 178

million).

The total combined harvest in Q3 2024 of the farming segments in the Faroe

Islands and Scotland was 27,029 tonnes gutted weight (20,840 tgw):

· Farming FO:            21,618 tgw (16,740 tgw),

· Farming SCT:             5,411 tgw (4,100 tgw).

For the first nine months of 2024, the farming segments have harvested a total

of 70,178 tonnes gutted weight (55,939):

· Farming FO:   46,138 tgw (36,403 tgw),

· Farming SCT: 24,040 tgw (19,536 tgw).

In Q3 2024, the Farming FO segment made an operational EBIT per kg of DKK -1.31

(DKK 6.47), corresponding to NOK -2.07 (NOK 9.90). The Farming SCT segment made

an operational EBIT per kg of DKK -33.14 (DKK -68.70), corresponding to NOK

-52.25 (NOK -105.09).

The Services segment made an operational EBIT per kg of DKK 0.70 (DKK 0.99),

corresponding to NOK 1.11 (NOK 1.52). The operational EBIT margin for the

segment was 8% (10%).

The Sales & Other segment had a revenue of DKK 2,488 million (2,188 million) and

an operational EBIT margin of -6% (4%). The operational EBIT per kg was DKK 5.48

(DKK 3.73), corresponding to NOK 8.64 (NOK 5.70).

The performance related to the Faroe Islands and Scotland as a region can be

found in the Appendix.

The long-term goal of the Board of Directors is that 30-50% of earnings per

share shall be paid out as a dividend. Bakkafrost's financial position is

strong, with a solid balance sheet, a competitive operation, and available

credit facilities.

OUTLOOK AND OPERATIONAL PERFORMANCE

Market

Supply increased in Q3 2024

The supply of salmon increased 4.9% in Q3 2024 compared to Q3 2023, incl.

inventory movements. Without inventory movements, the supply increase was 4.7%,

according to the latest estimate from Kontali Analyse.

Lower salmon prices in Q3 2024

Salmon reference prices (Sisalmoni/Nasdaq Norway, EUR) were 12% lower this

quarter compared to Q3 2023. The price reduction was largely driven by increased

supply, especially from Europe where supply increased by around 9%. A high share

of European supply was small sized fish supporting the price premium for large

fish.

1% growth in 2024

The global supply is expected to increase around 3% in Q4 2024, compared to Q4

2023. In H2 2024, the global supply is expected to grow around 4%, compared to

Q3 2023. For the full year 2024, the global supply is expected grow around 1%,

excluding inventory movements, and in H1 2025 the global supply growth is

expected to be around 3%.

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.

Farming

The biological performance in Q3 2024 in the Faroese farming operation was

strong with good growth, continued high harvest weights and continued strong

control of sea lice. However, in August Bakkafrost harvested out the remaining

fish from the farming site A-19, where ISA virus had been detected in Q2 2024 in

two pens. This was done to comply with the Faroese ISA regulation and marked the

end of the ISA incident, which was effectively contained and did not spread

outside the two pens. As 2.9 thousand tonnes were harvested from the site with

an average weight of only 3.3 kg (HOG), this had a significant negative impact

on the Q3 results for the Faroese farming segment.

Having a strong biological performance with a lot of healthy large fish in the

water, Bakkafrost will seek to maximise the market value of the fish. Hence, the

harvest target for 2024 of 63,500 tonnes in the Faroe Islands is maintained, in

favour of expected stronger salmon prices in Q1 2025.

In the Faroese freshwater operation, the main focus for Bakkafrost is to

continue to increase the production volume of high-quality large smolt,

utilising the >50% increased hatchery capacity obtained in 2023 (Glyvradalur and

Norðtoftir). The current hatchery capacity in the Faroes allows for an annual

smolt production of 18 million smolt of 500g and in Q1 2024, Bakkafrost started

the construction of the new hatchery in Skálavík, Faroe IsIands, which will

further increase the production capacity by around 7 million smolt at 500g. Late

2026, when the Skálavík hatchery is complete, the annual smolt production

capacity in the Faroe Islands will be 24 million smolts of 500g, as targeted in

the 2024-2028 investment programme. In Q3 2024 5.2 million (3.3 million) smolt

were transferred to marine in Faroe Islands with an average weight of 425g

(405g).

The farming operation in Scotland has performed considerably better in Q3 2024,

than during the same period past years. Mortality levels have reduced, sea lice

levels were all-time low and average harvest weights have increased. Though some

challenges have been faced, the de-risking strategy Bakkafrost developed one

year ago, has significantly contributed to improved biological performance and

reduced overall risk exposure. Consequently, the exceptional mortality costs

have reduced around 80% in Q3 2024, compared to Q3 2023. Looking ahead into Q4

2024, Bakkafrost will focus on building up the biomass and increase the size of

fish in the water for harvest in H1 2025.

In 2025, Bakkafrost will apply a similar de-risking strategy as followed in

2024. In the meantime, in 2025, the farming operation will undergo the

transition into using large high-quality smolt, which is paramount to turnaround

the performance in the Scottish farming operation.

In the Scottish freshwater operation, the main focus lies on ramping up the

production of large high-quality smolt in the Applecross hatchery. In Q4 2024,

the first large batch of 200g smolt is planned to be transferred, and all smolt

in 2025 are planned to be larger than 200g. The operation of the new Applecross

phase 5 module will commence in Q4 2024 which increases the hatchery capacity

with around 50%. This enables Applecross to produce around 3,500 tonnes of

smolt. As announced in Bakkafrost's Q2 2024, this capacity will be utilised to

make Bakkafrost self-sufficient with around 14 million high-quality smolt of

250g.

With the completion of the Applecross phase 6 and 7 in 2025, the biosecurity in

the smolt production will be further improved.

In Q3 2024, the average weight of transferred smolt in Scotland was 86g, which

is 23% lower than in Q3 2023. The reduced average weight was a result of the

previously announced startup issues at Applecross, experienced in Q1 2024.

As shown in the Faroe Islands, large high-quality smolt will face lower risks in

the marine environment because of shorter production cycles in the sea and more

robust salmon.

Smolt transfer

Bakkafrost's expected smolt transfer in 2024 in the Faroe Islands is increased

to around 17.7 million smolts with average weight of 410g. In Scotland, the

smolt transfer in 2024 is expected to be around 6.2 million smolts with an

average weight of 114g. The number and average weight of smolts transferred are

key elements of predicting Bakkafrost's future production.

Million smolt transferred '25e '24e '23 '22 '21 '20

FO 18.5 17.7 14.4 14.5 14.4 14.3

SCT 10.0 6.2 10.5 10.8 11.1 10.4

Avg. weight (g)

FO 430 410 396 345 376 320

SCT 200 114 117 107 95 88

In 2024, Bakkafrost expects to harvest around 63,500 tonnes gutted weight in the

Faroe Islands and 26,100 tonnes gutted weight in Scotland, giving a total of

around 89,600 tonnes gutted weight.

In 2025, Bakkafrost expects to harvest around 77,000 tonnes gutted weight in the

Faroe Islands and 23,000 tonnes gutted weight in Scotland, giving a total of

around 100,000 tonnes gutted weight. The quarterly harvest profile is outlined

in in the table below. Biological, environmental and market conditions can

affect the expected harvest profile.

Expected harvest profile in 2025 as a % of total harvest pr. region:

Region Q1 Q2 Q3 Q4

FO 24% 21% 31% 24%

SCT 33% 36% 9% 22%

The estimates for harvest volumes and smolt transfers in both geographies are

dependent on biological development.

Sales & VAP (Value added products)

Bakkafrost's highly flexible value chain includes state-of-the-art VAP

processing capacity, which enables the company to adapt effectively to rapidly

changing market situations.

As a result of changes in the Faroese revenue tax, Bakkafrost has adjusted the

strategy for contracted VAP (Value-Added Products) to reduce contract exposure.

For 2025, Bakkafrost intends to sign contracts covering around 15% 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 2025 recommendation for blue whiting is 1,447 thousand tonnes, which

represents a 5.4% decrease from the recommendation for 2024.

In 2025 Bakkafrost expects similar production volumes of fishmeal and fish oil

as in 2024.

Bakkafrost expects the feed production at Havsbrún to be around 150,000 tonnes

in 2025. Close to all of this will be sold internally to Bakkafrost's Faroese

and Scottish Farming segments.

Investments

On the Capital Markets Day on 6 June 2023, Bakkafrost announced a 6.3bn DKK

investment plan for 2024-2028. 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. A part of this is to implement

Bakkafrost's large smolt strategy in Scotland, which is achieved through

building sufficient and energy-efficient hatchery capacity. The 2024-2028

investment plan includes projects to build hatchery capacity to produce above 15

million large smolts annually. 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 strengthen the processing

capabilities and increase flexibility in operation. Bakkafrost will also invest

in more service vessel capacity to improve the mitigation of biological risk and

improve the cost of operation. Further, Bakkafrost will make investments in

marine site development.

The investments in the Faroe Islands include increasing annual hatchery

production capacity to around 24 million smolts at 500g, cost-efficient

repurposing of old hatcheries into broodstock operation, expansion of feed

production capacity and obtaining growth through optimization of existing sites

and new technology.

With the investment plan, Bakkafrost expects to sustainably grow the total

annual harvest volumes to 165,000 tonnes in 2028. Over the same period, the

total annual production capacity in Bakkafrost's value chain will reach 200,000

tonnes gutted weight.

Update on the 2024-2028 investment plan

Since the announcement of the 2024-2028 investment plan, Bakkafrost has decided

to change the priority of some of the investment projects in Scotland, including

the second planned hatchery at Fairlie and new processing facility.

Consequently, the capex spend is expected to reduce around 300 mDKK in 2024

around 500 mDKK in 2025, compared to the investment levels announced in the 2024

-2028 investment plan.

Bakkafrost will host the next Capital Markets Day on 16-17 June 2025 in the

Faroe Islands.

Financial

The global salmon product market's long-term balance is likely to favor

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 secured a 700 mEUR sustainability-linked credit

facility (expandable by 150 mEUR) with a 5-year term and 2-year extension

options which have been executed. This facility, along with Bakkafrost's strong

equity ratio, bolsters the Group's financial strength for organic growth and

cost reduction in Scotland, while also facilitating M&A and future organic

growth opportunities, and upholding an unchanged dividend policy.

Please find the Company's Q3 2024 report and the Q3 2024 presentation enclosed.

Contacts:

· Regin Jacobsen, CEO of P/F Bakkafrost: +298 235001 (mobile)

· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: +298 235060 (mobile)

This information is subject of the disclosure requirements pursuant to section 5

-12 of the Norwegian Securities Trading Act.

About Bakkafrost:

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 1,686

employees (full-time equivalents).

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