Bakkafrost, the Faroe Islands-based salmon farming giant, recently released its Q1 2024 results. While the headline numbers were strong – operational EBIT up significantly, a record-breaking quarter for the group – a closer look at the Scottish operations reveals a tantalizing possibility: is Bakkafrost on the cusp of unlocking a sleeping giant in Scotland?

The Scottish segment has been a thorn in Bakkafrost's side since its acquisition in 2019. Biological challenges, operational setbacks, and a struggling freshwater segment have dragged down overall performance. Q1 2024 was no exception, with Scotland posting a weak operational EBIT of NOK 5.39 per kilo compared to NOK 19.14 the previous year.

However, buried within CEO Regin Jacobsen's remarks in the Q1 2024 earnings call lies a strategic shift that may fundamentally alter the Scottish landscape. Faced with persistent biological issues, Bakkafrost is aggressively implementing a "derisking" plan. This involves a deliberate reduction of biomass at risk in Q3 2024 by accelerating harvests in Q2, even if it means bringing smaller fish to market.

This is a bold gamble. Accepting lower average weights and potentially sacrificing some short-term revenue implies immense confidence in the future. What exactly is fueling this optimism? The answer lies in two interconnected factors: the delayed arrival of larger smolts and a global market primed for premium-sized salmon.

Applecross, Bakkafrost's flagship Scottish hatchery, has experienced construction delays, pushing back the availability of larger, more robust smolts by approximately six months. While this initially appears detrimental, it aligns perfectly with Bakkafrost's strategic harvest adjustments. By proactively reducing biomass in Q2, they create the ideal window for introducing these superior smolts in Q3, setting the stage for a dramatic improvement in biological performance and larger harvest sizes in future quarters.

This meticulously timed maneuver coincides with a global salmon market grappling with dwindling supply and an insatiable appetite for larger fish. European producers, particularly in Norway, are facing a barrage of biological challenges, leading to lower harvest volumes and smaller fish sizes. This creates a unique opportunity for Bakkafrost to capitalize on its impending Scottish turnaround.

The implications are profound. Let's consider a hypothetical scenario: assuming Bakkafrost's derisking strategy succeeds and larger smolts drastically improve biological performance, their Scottish harvest could see a significant increase in average weights in 2025.

A conservative estimate suggests a potential 10% increase in average weight, bringing the average harvest size closer to 5.2 kilos. Considering the current price premium for larger fish and Bakkafrost's own brand premium, this could translate to a significant revenue boost.

Furthermore, improved biology would lead to lower farming costs. Reduced mortality, better feed conversion ratios, and fewer treatment interventions could further enhance profitability. While quantifying this impact remains challenging without access to Bakkafrost's internal data, the potential for margin expansion is undeniable.

Hypothetical Impact of Increased Average Weight on Scottish Harvest Revenue (2025)

This chart illustrates the potential revenue increase from a 10% increase in average harvest weight, assuming a conservative price premium.

This hypothesis hinges on Bakkafrost's ability to successfully navigate the current challenges in Scotland. The gamble on accelerated harvests and the reliance on delayed smolts are not without risk. However, the potential rewards are substantial, and the company's strategic maneuvers suggest a well-calculated and potentially transformative move.

While other analysts may be focused on the short-term impact of lower average weights in Q2, Bakkafrost's long-term vision and meticulous execution could be setting the stage for a Scottish explosion in the coming years. This hidden gem, overlooked by many, could be the catalyst that propels Bakkafrost to new heights of profitability and market leadership.

"Fun Fact: Did you know that the Faroe Islands, where Bakkafrost originated, are a self-governing archipelago within the Kingdom of Denmark? Nestled between the Norwegian Sea and the North Atlantic Ocean, these islands boast dramatic landscapes, abundant birdlife, and a rich maritime heritage."