BAKKAFROST: Operational EBIT of DKK 168 Million for the Third Quarter of 2018
The Bakkafrost Group delivered a total EBIT of DKK 434.2 million in Q3 2018. Harvested volumes were 7.2 thousand tonnes gutted weight. The combined farming and VAP segments made an operational EBIT of DKK 142.4 million. The farming segment made an operational EBIT of DKK 139.6 million. The salmon spot prices decreased in Q3 2018, compared to the previous quarter. The price decrease had a negative effect on the operational EBIT in the farming segment. The VAP segment made an operational EBIT of DKK 2.8 million. The EBITDA for the FOF segment was DKK 41.4 million.
(Figures in parenthesis refer to the same period last year unless otherwise specified)
The Group made a profit for Q3 2018 of DKK 355.9 million (DKK 56.2 million). For the first nine months of 2018, the profit was DKK 966.9 million (DKK 533.3 million).
Commenting on the result, CEO Regin Jacobsen said:
“The activity in the third quarter this year has been somewhat lower, compared to the same quarter last year. The quarter has also been affected by the elevated mortality level at farming site A-81 Kolbanagjógv in September, which resulted in higher costs and a negative effect on next year’s harvest volumes. Despite challenges and a decreasing salmon price in the quarter, the operational result for the Group was DKK 168 million for the quarter.
The new harvest factory in Vágur, Suðuroy, was delayed in start-up, compared to the timetable, but we now look forward to see how the increased activity in Suðuroy will be, after the harvest factory started operation in October.”
The total volumes harvested in Q3 2018 were 7,217 tonnes gutted weight (11,585 tgw). Total harvested volumes in the first nine months of 2018 were 32,356 tonnes gutted weight (43,145 tgw). The guidance for harvest in 2018 is reduced by 3,000 tonnes gutted weight, from 49,000 to 46,000 tonnes gutted weight.
3.3 million (3.2 million) smolts were transferred during Q3 2018. During the first nine months of 2018, 9.2 million (6.5 million) smolts were transferred. One million smolts – out of the 13.9 million smolts, which were expected to be released in 2018 – will be postponed for release in 2019. Thus, the new expected smolt release for 2018 is 12.9 million smolts.
The combined farming and VAP segments made an operational EBIT of DKK 142.4 million (DKK 212.2 million) in Q3 2018. The operational EBIT per kg in Q3 2018 was DKK 19.73 (DKK 18.32), which corresponds to NOK 25.34 (NOK 23.02) for the combined farming and VAP segments. For the first nine months of 2018, the combined farming and VAP segments made an operational EBIT of DKK 735.5 million (DKK 967.4 million).
The farming segment made an operational EBIT of DKK 139.6 million (DKK 216.7 million) in Q3 2018. The harvested volumes were lower, and the average spot price was higher in Q3 2018, compared to Q3 2017. For the first nine months of 2018, the operational EBIT was DKK 761.3 million (DKK 1,079.4 million).
On 20 September 2018, Bakkafrost recorded elevated mortality level at farming site A-81 Kolbanagjógv. Poisonous species of algae were registered in the sea at the farming site A-81 Kolbanagjógv when the incident occurred. Approximately 700 thousand fish with an average weight of 500 gramme live weight died within a couple of hours. The fish at farming site A-81 Kolbanagjógv was released into the sea in June - August 2018. The Farming segment had a net expense of DKK 7.2 million in Q3 2018 due to the incident.
Farming activity has been at the farming site A-81 Kolbanagjógv for the past 30 years. Bakkafrost has not observed any similar situations, neither at farming site A-81 Kolbanagjógv, nor at any other farming sites before or after the incident. The remaining fish at farming site A-81 Kolbanagjógv has not been affected by the incident and is performing well.
The VAP segment made an operational EBIT of DKK 2.8 million (DKK -4.5 million) for Q3 2018. For the first nine months of 2018, the operational EBIT was DKK -25.8 million (DKK -112.0 million).
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 41.4 million (DKK 79.5 million) for Q3 2018, and the EBITDA margin was 11.7% (23.2%). The EBITDA was DKK 193.9 million for the first nine months of 2018 (DKK 172.5 million), corresponding to an EBITDA margin of 19.8% (18.4%).
During Q3 2018, Havsbrún sourced 7,496 tonnes (21,937 tonnes) of raw material, and for the first 9 months of 2018, Havsbrún sourced 255,987 tonnes (291,604 tonnes) of raw material.
Bakkafrost has, through its recently established subsidiary Bakkafrost US, signed an agreement in Q2 2018 to acquire the business and assets in North Landing, which is a US salmon importer focusing on the East Coast and has a sales office, handling and processing facilities in Clifton, New Jersey, USA. Through the acquisition, Bakkafrost will have a better market access and better abilities to serve Bakkafrost’s customers in the US market. The acquisition of North Landing was closed in Q3 2018.
The net interest-bearing debt amounted to DKK 286.4 million at the end of Q3 2018 (DKK 258.1 million at year-end 2017). Undrawn credit facilities amounted to DKK 1,204.9 million at the end of Q3 2018.
The equity ratio was 70% at 30 September 2018, compared to 70% at the end of 2017.
OUTLOOK
Market
The latest estimate from Kontali Analyse of global supply of Atlantic salmon in Q3 2018 is an increase of around 5%, compared to Q3 2017. The global harvest of Atlantic salmon in Q4 2018 is expected to increase 1.4%, compared to Q4 2017. The estimated global supply of Atlantic salmon for 2018 is an increase of around 7%, compared to 2017.
The supply of Atlantic salmon will be tight in 2019, as global supply in 2019 is estimated to increase around 4%, compared to estimated supply in 2018.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. Variation in sales distribution between the different markets is driven by the change in demand from quarter to quarter in the different regions. Bakkafrost, however, aims to have a balanced market diversification to reduce market risk.
Farming
The outlook for the farming segment is good. The estimates for harvest volumes and smolt releases are dependent on the biological development.
Bakkafrost focuses on reducing biological risk continuously and has made several new investments and procedures to diminish this risk. Bakkafrost focuses on using non-medical methods in treatments against sea lice and has invested in new technology to follow this strategy.
Bakkafrost’s guidance for harvest in 2018 is reduced by 3,000 tonnes gutted weight, from 49,000 to 46,000 tonnes gutted weight. In 2019, Bakkafrost expects to harvest 53,000 tonnes gutted weight.
As Bakkafrost has postponed 1 million smolts from expected smolt release in Q4 2018 to Q1 2019, Bakkafrost expects to release 12.9 million smolts in 2018, compared to 9.9 million smolts in 2017 and 11.7 million smolts released in 2016. In 2019, Bakkafrost expect to release 13.5 million smolts. The number of smolts released is a key element of predicting Bakkafrost’s future production.
VAP (Value Added Products)
Bakkafrost has signed contracts covering around 12% of the expected harvested volumes for the rest of 2018. Bakkafrost is presently negotiating new contracts for 2019. Bakkafrost’s long-term strategy is to sell around 40-50% of the harvested volumes of salmon as VAP products at fixed price contracts.
The VAP contracts are at fixed prices, based on the salmon forward prices at the time they are agreed and the expectations for the salmon spot price for the contract period. The contracts last for 6 to 12 months.
FOF (Fishmeal, Oil and Feed)
The outlook for the production of fishmeal and fish oil is dependent on the availability of raw material. The ICES 2018 recommendation for blue whiting is 1,388 thousand tonnes, compared with 1,342 thousand tonnes in 2017. The ICES recommendation for blue whiting in 2019 is 1,143 thousand tonnes, which corresponds to a decrease of 18%, compared to ICES’s recommendation for 2018.
The production of fishmeal and fish oil in 2018 will not reach the same level as in 2017. Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2019, compared to 2018.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost’s internal use of fish feed.
Havsbrún’s sales of fish feed in 2018 are expected to be at 80,000 tonnes, depending on external sales. Sales of fish feed in 2019 are expected to be around 85,000 tonnes.
The new salmon meal and salmon oil plant started operation in Q3 2018 and production is still at an early stage. This operation will increase the value of offcuts from salmon harvested and processed in the harvest/VAP factory at Glyvrar.
Investments
Bakkafrost’s investment program for the period from 2018 to 2022 will amount to DKK 3 billion, including maintenance capex, and will reinforce Bakkafrost’s integrated business model. The aim of the investment program is to minimize the biological risk, increase efficiency and create sustainable organic growth.
Bakkafrost’s strategy and investment program will be presented at Bakkafrost’s Capital Markets Day on 12 June 2019 in the Faroe Islands.
Financial
Favourable market balances in the world market for salmon products and cost-conscious production will likely maintain the financial flexibility going forward.
A high equity ratio together with Bakkafrost’s bank financing, which was renewed for five years in Q1 2018, 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 to fulfil its dividend policy in the future, which is unchanged although a new investment program is announced.
Please find the Company’s Q3 2018 report and the Q3 2018 presentation enclosed.
Contacts:
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.
About Bakkafrost:
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 has primary processing in Glyvrar and Vágur, and secondary processing (VAP) in Glyvrar. The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and Suðuroy. The headquarters are located in Glyvrar, and the company has 960 fulltime employees.
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