While Bakkafrost Group’s value-added product (VAP) segment performed strongly in the first quarter of 2023, a proposed new revenue tax on the Faroe Islands’ salmon farming industry could bring changes to the business’s long-term strategy.
Delivering Bakkafrost’s first-quarter results in Oslo, Norway, CEO Regin Jacobsen said the company’s VAP business posted operational earnings before interest and taxes (EBIT) of DKK 6 million (USD 883,400, EUR 806,000) and reversed a Q1 2022 loss of DKK 29 million (USD 4.3 million, EUR 3.9 million), delivering positive margins overall. He said the segment achieved this despite the pressure of high salmon prices throughout the period.
The company’s VAP operating revenue fell 10 percent to DKK 378 million (USD 55.7 million, EUR 50.8 million) in Q1 2023, with the decrease in revenue attributed to the lower volumes sold in the period compared with Q1 2022. Its operational EBIT for the period increased by DKK 5.55 (USD 0.82, EUR 0.75) to DKK 1.32 (USD 0.19, EUR 0.18) per kilogram gutted-weight.
Jacobsen said the segment’s first quarter had actually achieved a DKK 80 million (USD 11.8 million, EUR 10.7 million) earnings improvement compared to the corresponding period of last year, when factoring in the 4,753 metric tons (MT) gutted-weight produced in the quarter (down 31 percent year over year), as well as the increased value compared with higher raw material prices.
“That is the strongest change from one-quarter ever in this area,” he said. “Despite the difficult period, it has been possible to increase the prices this much, and the demand is still high.”
Since the mid-1990s, Bakkafrost has used around 40 percent of its harvest volume for value-added production. Mainly going to European markets and comprising skinless and boneless portions, this fish usually sells on six- to 12-month contracts, with signed agreements already in place for 23 percent of the combined 2023 harvest volume from the Farming Scotland (SCT) and Farming Faroe Islands (FO) segments.
“This has been a good strategy and good for us for all these years,” Jacobsen said. “This strategy will, however, be revised depending on the outcome of the Faroese government’s proposal to adjust the revenue tax.”
In March, Bakkafrost confirmed the recently elected Faroese government had issued a proposal to adjust the revenue tax for the salmon-farming industry, effective from 1 August, 2023, if passed in its current form by parliament.
The proposal, which the government put to the salmon industry for comment through 16 March 2023, builds on the same principles as the previous government's proposal, under which the tax is adjusted based on the difference between monthly FishPool Index salmon prices and the average production costs for the industry, assessed annually.
However, the new tax rates extend beyond the 10 percent maximum proposed by the previous, but now opposition, government. The current tabled proposal consists of nine tax rates ranging from 0.5 to 20 percent. The top rate will apply if the FishPool price exceeds the equivalent of NOK 119 (USD 11.27, EUR 10.28) per kilo, while the average production cost for 2021 of DKK 39.15 (USD 5.76, EUR 5.26) is a baseline proposal.
The government’s revision process will probably conclude in the next few weeks, Jacobsen said, adding that it will also likely lead to adjustments in the company’s previously announced five-year investment plan.
Bakkafrost will present a new 2024-2028 investment plan on its Capital Market Day, held in Scotland on 6 June 2023, he said.
Hiddenfjord, another Faroese salmon producer likely to be affected by the tax proposal, had no comment on the salmon tax when contacted by SeafoodSource.
Photo courtesy of Bakkafrost
