Bakkafrost Group recently released unfavorable financial results for Q2 2023, and the salmon-farming firm expects production woes in Scotland to continue.
The Glyvrar, Faroe Islands-based Atlantic salmon-farming group posted total operating earnings before interest and taxes (EBIT) of DKK 353 million (USD 51.7 million, EUR 47.4 million) for the second quarter of 2023, down 40 percent from DKK 587 million (USD 85.9 million, EUR 78.8 million) in the corresponding period of 2022, which remains its all-time highest-grossing quarter.
Bakkafrost’s operating revenues fell 1 percent year over year to DKK 1.67 billion (USD 244.4 million, EUR 224.1 million) in Q2 2023, and it reported a loss of DKK 123 million (USD 18 million, EUR 16.5 million) for the three-month period, a stark change from the profit of DKK 845 million (USD 123.7 million, EUR 113.4 million) it posted in Q2 2022. Low harvest volumes and fish weights in the Faroes contributed to the downturn.
Bakkafrost harvested 16,001 metric tons (MT) of gutted-weight salmon in the quarter, down 3,746 MT, or 19 percent, year over year. Its Faroe Islands farming segment accounted for 8,658 MT of that production, a steep decline from the 13,101 MT recorded in Q2 2022. Bakkafrost’s Scottish farming segment harvested 7,343 MT, an increase from the 6,646 MT harvested in Q2 2022.
Bakkafrost CEO Regin Jacobsen said the company’s Faroese production was low in the quarter due to an early January harvest in one region and a lower average weight for its harvested fish, which dropped from an average 4.7 kilograms to 4.3 kilograms.
“This was an unfortunate development, and during the second half of the year, we expect to increase the harvest weights back to the level that they used to be,” he said.
Bakkafrost’s Scottish operations, which it acquired through the purchase of a majority stake in the Scottish Salmon Company in 2019, performed well in the first five months of this year, Jacobsen said, with increased harvest volumes and higher average weights of 4.6 kilograms that led to “significantly” better prices. However, toward the end of Q2, mortality levels increased due to environmental challenges, with three sites impacted by jellyfish blooms. This has continued into the third quarter, and could lead to lower-than-anticipated harvest volumes in Scotland for 2023, a setback for operations in which the company plans to invest heavily.
“The common factor for these sites seems to be that the impacted fish have spent a second summer in the sea and should have been harvested in the fourth quarter [of 2022]. Now, we are ramping up the harvest on these fish, which will drive down the average weight. Therefore, volumes will be impacted, and costs [too],” Jacobsen said. “The blue skies from Q2 in Scotland are darker in the third quarter – costs and mortality rates will be negatively affected and can compromise the planned harvest in 2023 in Scotland by 5,000 to 6,000 MT, depending on the continued biological development.”
According to Jacobsen, while dual freshwater treatment systems introduced at Bakkafrost’s Scottish farms have helped improve biological performance, the company’s fish haven’t coped as well with the “very heavy jellyfish attacks” seen over the last few months, with mortalities in July and the first two weeks of August at a higher level than a year ago.
“We are losing more fish than we would like to. Therefore, we have to harvest early,” he said. “There are several measures we are looking at so that we don’t see the same situation next year.”
Bakkafrost’s previous forecast total for the year was 93,000 MT, but this didn’t account for the potential Scottish shortfall from Scotland.
“Therefore, the total volume could be 87,000 or 88,000 MT, with Scotland dropping to around 24,000 MT,” Jacobsen said.
In Q3, the company expects around 17,000 to 18,000 MT of production from its farms in the Faroe Islands, with improved fish sizes compared to the first half of the year.
“The opposite is the case in Scotland, where the sizes have dropped in order to harvest the fish at risk,” Jacobsen said. “We are following this situation closely and are evaluating a range of risk-mitigation measures.”
As detailed in the group’s capital markets day presentation in June 2023, Bakkafrost’s hatchery expansion strategy and the delivery of larger smolt should grow Bakkafrost’s production volume to 140,000 MT in 2026, with the eventual goal of reaching 165,000 MT of production in 2028, divided between 110,000 MT harvested in the Faroes and 55,000 MT in Scotland. However, the company was forced to cut back on its infrastructure investments due to a salmon tax imposed by the Faroese government in May 2023.
“The updated plan is to focus on site optimization and new technology,” Jacobsen said. “Cost efficiency is key, and optimizing return on investment is crucial. Therefore, we will continuously reevaluate all investment cases depending on the market conditions and the general financial environment.”
For Q2, Jacobsen said that food inflation and limited supply growth tightened financial coffers, with the resulting spike in prices for salmon causing increased challenges for end consumers.
“There is no doubt that the extreme increase in food prices has had an impact on demand. The value of purchases seems to have stayed relatively stable, but volumes have dropped per customer,” Jacobsen said. “However, more consumers are getting used to high food prices, and the new normal is driven by higher cost prices for all food producers who need to get their bills paid.”
Photo by Cliff White/SeafoodSource
