BAKKAFROST: Operational EBIT of DKK 307 million for the second quarter of 2016
The Bakkafrost Group delivered a total operating EBIT of DKK 307.1 million for Q2 2016. Harvested volumes were 13.0 thousand tonnes gutted weight. The combined farming and VAP segments made an operational EBIT of DKK 289.5 million. The farming segment made an operational EBIT of DKK 357.9 million and the increased salmon spot prices had a positive effect on the farming segment. The high salmon spot prices affected the VAP segment negatively, and the VAP segment made an operational EBIT of DKK -68.4 million. The EBITDA for the FOF segment was DKK 45.4 million.
The total volumes harvested in Q2 2016 were 13.0 thousand tonnes gutted weight. Bakkafrost transferred 1.9 million smolts in Q2 2016. In Q2 2016, Havsbrún sourced 84.0 thousand tonnes of raw material.
The farming segment made an operational EBIT of DKK 357.9 million for Q2 2016, which corresponds to NOK 34.47 per kg. The VAP segment made an operational EBIT of DKK -68.4 million for Q2 2016. The high spot prices in Q2 2016 had a negative effect on the operational EBIT in the VAP segment. The combined farming and VAP segments made an operational EBIT of DKK 289.5 million for Q2 2016, which corresponds to NOK 27.88 per kg. The FOF segment (fishmeal, oil and feed) made an operational EBITDA of DKK 45.4 million for Q2 2016.
Commenting on the result, CEO Regin Jacobsen said:
“We are very satisfied with the result for Q2 2016. The salmon spot price has been record high in the quarter and the biological performance has been good. The VAP segment has struggled, but we maintain our strategy to sell a share of our production as value added products. The development in our fishmeal, fish oil and fish feed segment in the quarter was also good. The five year investment plan was updated in June on our Capital Market Day, and the hatchery in Viðareiði is starting production at the moment, the new Harvest plant has started operation, and the construction of the new hatchery in Strond has commenced.”
On 14 July 2016, Bakkafrost announced suspicion of pathogenic ISA virus in the farming site A-73 Hvannasund Norður based on regular ISA test results, carried out by the Veterinary Authorities according to the Faroese veterinary system. Consequently, Bakkafrost prepared to take necessary actions, and the Veterinary Authority undertook further tests in order to confirm the suspicion of pathogenic ISA virus. After a week of extensive testing, all the results were negative and did not prove the presence of pathogenic ISA virus.
After that, the Veterinary Authority increased surveillance at the farming site A-73 Hvannasund Norður and carried out extra tests on neighbouring farming sites, which will be carried out for the next half year. This procedure is stipulated in the Faroese veterinary farming regime with the purpose of securing and maintaining good biology in the Faroese farming industry.
Bakkafrost acquired the remaining outstanding shares (51%) in P/F Faroe Farming, effective from 1 July 2016. The Faroese Registry and the Competition Authorities have approved Bakkafrost’s acquisition of P/F Faroe Farming. Simultaneously, Bakkafrost filed (relinquished) two farming licenses to the Faroese Authorities. Following these two transactions, Bakkafrost has 14 licenses for farming salmon in the Faroe Islands.
The Bakkafrost Group’s net interest bearing debt amounted to DKK 603.0 million at the end of Q2 2016. Bakkafrost had undrawn credit facilities of approximately DKK 642.8 million at the end of Q2 2016 and the equity ratio was 61% at 30 June 2016.
The global demand in the salmon market continues with strong growth rates. The market balance will be tighter in 2016, compared to 2015. Global supply of Atlantic salmon is expected to decrease by approximately 4% in volume during 2016, compared to 2015. The decrease is expected to be 8-9% in the second half of 2016. Production capacity is close to full utilization and further expansion relates to high investments.
The outlook for the farming segment is good. The estimates for harvesting volumes and smolt releases are as always dependent on the biological situation.
Bakkafrost has acquired the remaining outstanding shares in P/F Faroe Farming, effective from 1 July 2016. P/F Faroe Farming is a salmon farming company and operates in the southern part of the Faroe Islands, Suðuroy. P/F Faroe Farming holds three farming licenses in Suðuroy, Faroe Islands, and the total harvested volumes for 2015 were 4,681 tonnes gutted weight, and the harvested volumes for H1 2016 were 2,054 tonnes gutted weight. P/F Faroe Farming will be consolidated into Bakkafrost Group from 1 July 2016. P/F Faroe Farming expects to harvest 1,000 tonnes gutted weight in the second half of 2016.
Together with Bakkafrost’s unchanged expected harvest (excl. Faroe Farming) of 48,000 tonnes gutted weight, the total harvest for Bakkafrost Group in 2016 will be 49,000 tonnes gutted weight.
The number of smolts released is one key element of predicting Bakkafrost’s future production. Bakkafrost forecasts a release of 10.4 million smolts in 2016, compared with 11.3 million smolts released in 2015 and 10.4 million smolts released in 2014.
The biological situation is Bakkafrost’s most important risk area. The suspicion of possible pathogenic ISA virus in on of Bakkafrost’s farming sites on 14 July 2016 draws the attention to the importance of good animal welfare and biology to reduce the biological risk. Bakkafrost is focusing on the biological risk continuously and has made several new investments and procedures to diminish this risk.
VAP (Value added products)
Bakkafrost has signed contracts covering around 79% of the VAP capacity for the rest of 2016. This corresponds to around 39% of the expected harvested volumes for the rest of 2016. The remaining 21% are expected to be committed during the period. Bakkafrost has already signed contracts covering approximately 50% of the VAP capacity for 2017. In connection with the negotiation and signing of the new contracts for 2017, Bakkafrost has renegotiated the prices for part of the remaining quantities from the end of Q3 2016 in line with the forward price picture.
FOF (Fishmeal, -oil and feed)
The outlook for the production of fishmeal and fish oil is dependent on the availability of raw material. The quotas for catching blue whiting in the North Atlantic are expected to be reduced, and therefore the production of fishmeal and fish oil are most likely to reduce in volume in 2016 from relatively high volumes in 2015.
Havsbrún’s sales of fish feed in 2016 are expected to be at 80,000 tonnes.
In June 2016, Bakkafrost announced a five-year investment plan from 2016 to 2020. The total investments for the period is DKK 2.2 billion, including maintenance CAPEX.
The purpose of the investment plan is to continue to have one of the most cost conscious value chains in the farming industry, carry out organic growth, increase flexibility and reduce the biological risk to meet the future consumers’ trends and to be more end-customer orientated.
Bakkafrost has a goal to be self-supplied with smolts at a size of 500g each. The benefits are a shorter production time at sea as well as reduced biological risk. To reach this goal, approximately half of Bakkafrost’s total investments over the next five years will be in hatcheries.
The investment of the new harvest/VAP factory will be finalised in 2016. The harvest operation has started and the VAP operation is expected to start in Q4 2016. There will be some extra costs during the start-up period, but the investment is expected to result in operational savings of DKK 70-90 million per year with gradual effect from 2017.
Bakkafrost plans to increase the value of offcuts from salmon harvested and processed in the new harvest/VAP factory. Bakkafrost will invest in a new salmon-meal and salmon-oil plant, located in Fuglafjørður and operated by Havsbrún. The FOF segment will also invest in a new feed line, which will increase the capacity of the feed production.
Improved market balances in the world market for salmon products and cost conscious production will likely improve the financial flexibility going forward. A high equity ratio together with Bakkafrost’s bank financing and the issuance of bonds makes Bakkafrost’s financial situation strong. This enables Bakkafrost to carry out its investment plans to further focus on strengthening the Group, M&A’s, organic growth opportunities and fulfil its dividend policy in the future.
Please find enclosed the Company’s Q2 2016 report and presentation.
Regin Jacobsen, CEO of P/F Bakkafrost: +298 235001 (mobile)
Gunnar Nielsen, 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.
Bakkafrost is the largest salmon farmer in the Faroe Islands. 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 Fuglafjørður. The Group operates licenses on 14 farming fjords. The Group has primary processing in Glyvrar, Kollafjørður, Vágur, and secondary processing (VAP) in Glyvrar and Fuglafjørður. The headquarter is located in Glyvrar, and the company has 765 fulltime employees.
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