Bakkafrost: Operational EBIT of DKK 231 Millionfor the Fourth Quarter of 2018
The Bakkafrost Group delivered a total operating EBIT of DKK 230.5 million in Q4 2018. Harvested volumes were 12.2 thousand tonnes gutted weight. The combined farming and VAP segments made an operational EBIT of DKK 207.7 million. The farming segment made an operational EBIT of DKK 204.4 million. The development of the salmon spot price in the quarter was nearly flat, compared to the previous quarter. Bakkafrost’s achieved prices in this quarter decreased and thus had a negative effect on the operational EBIT. The VAP segment made an operational EBIT of DKK 3.3 million. The EBITDA for the FOF segment was DKK 60.4 million.
(Figures in parenthesis refer to the same period last year unless otherwise specified)
The Group made a profit for Q4 2018 of DKK -6.6 million (DKK -21.9 million). For 2018, the profit was DKK 960.3 million (DKK 511.4 million).
Commenting on the result, CEO Regin Jacobsen said:
“Difficult market conditions and limited market access for a period resulted in a weaker than expected result in the farming segment for the fourth quarter. We are pleased, however, to experience more activity in the VAP segment, due to increased contracts for our VAP products.
2018 was an eventful year with different challenges, but all things considered we are satisfied with the operation and the results for 2018. A lot of effort has also been put on our expansion activities in 2018, and we have now started operation in our new harvesting plant in Suðuroy. In 2019, we plan to further expand our farming operation in Suðuroy.”
The total volumes harvested in Q4 2018 were 12,234 tonnes gutted weight (11,470 tgw). Total harvested volumes for 2018 were 44,591 tonnes gutted weight (54,615 tgw). 1,500 tonnes of harvest were moved to 2019, and consequently expected harvest volumes for 2019 are increased from 53,000 to 54,500 tonnes gutted weight.
3.3 million (3.4 million) smolts were transferred during Q4 2018. During 2018, 12.5 million (9.9 million) smolts were transferred.
The revenue in the farming segment for Q4 2018 was negatively affected by a combination of various circumstances. As the market strategy for sales in 2018 was primarily focused on fresh whole salmon to the high-end spot market, volumes to the VAP segment were exceptionally low throughout 2018. Consequently, Bakkafrost was temporarily vulnerable and limited in flexibility to mitigate the following disruptions: Bakkafrost’s harvesting plant in Glyvrar was banned access to the Russian market in Q4 2018 and had a disruption in delivery to other high-end markets from the new harvest plant in Suðuroy, due to delay in issuance of certificates to these markets.
The market disruptions are more or less solved as volumes to VAP contracts now have increased, the certificates to the harvest factory in Suðuroy are in place and access to the Russian market is expected shortly.
The combined farming and VAP segments made an operational EBIT of DKK 207.7 million (DKK 265.4 million) in Q4 2018. The operational EBIT per kg in Q4 2018 was DKK 16.98 (DKK 23.14), which corresponds to NOK 21.91 (NOK 29.88) for the combined farming and VAP segments. For 2018, the combined farming and VAP segments made an operational EBIT of DKK 943.2 million (DKK 1,232.8 million).
The farming segment made an operational EBIT of DKK 204.4 million (DKK 228.8 million) in Q4 2018. The harvested volumes were higher, but the achieved price was lower in Q4 2018, compared to Q4 2017. For 2018, the operational EBIT was DKK 965.7 million (DKK 1,308.2 million).
The Faroese Parliament changed the revenue tax for farming operations in the Faroe Islands from 4.5% to 5.0% in December 2018. The change will be effective from 1 January 2019.
The VAP segment made an operational EBIT of DKK 3.3 million (DKK 36.5 million) for Q4 2018. For 2018, the operational EBIT was DKK -22.4 million (DKK -75.4 million.
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 60.4 million (DKK 93.6 million) for Q4 2018, and the EBITDA margin was 21.0% (25.5%). The EBITDA was DKK 254.3 million for 2018 (DKK 266.1 million), corresponding to an EBITDA margin of 20.0% (20.4%).
During Q4 2018, Havsbrún sourced 46,478 tonnes (50,852 tonnes) of raw material, and for 2018, Havsbrún sourced 302,465 tonnes (342.456 tonnes) of raw material.
Bakkafrost aims at giving the shareholders a competitive return on their investment, both through payments of dividends and by value growth of the equity through positive operations.
The long-term goal of the Board of Directors is that 30-50% of earnings per share shall be paid out as dividend. The financial position of Bakkafrost is strong with a solid balance sheet, a competitive operation and available credit facilities. The Board of Directors proposes to the Annual General Meeting that DKK 8.25 (NOK 10.70*) per share shall be paid out as dividend. The Annual General Meeting will be convened on Friday the 5th of April 2019.
The net interest-bearing debt amounted to DKK 495.5 million at the end of Q4 2018 (DKK 258.1 million at year-end 2017). Undrawn credit facilities amounted to DKK 997.7 million at the end of Q4 2018.
The equity ratio was 70% at 31 December 2018, compared to 70% at the end of 2017.
*The dividend per share in NOK is subject to changes depending on the exchange rate between DKK and NOK, which will be announced after the Annual General Meeting.
OUTLOOK
Market
The global supply of Atlantic salmon in Q4 2018 increased around 5%, compared to Q4 2017, according to the latest estimate from Kontali Analyse. The global supply for 2018 increased by 6%, compared to 2017.
The global harvest of Atlantic salmon in Q1 2019 is expected to increase around 5%, compared to Q1 2018. The estimated global harvest of Atlantic salmon for 2019 is an increase of around 4-6%, compared to 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 2019 is 54,500 tonnes gutted weight.
Bakkafrost expects to release 13.5 million smolts in 2019, compared with 12.5 million smolts in 2018 and 9.9 million smolts in 2017. 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 33% of the expected harvested volumes 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 2019 recommendation for blue whiting is 1,143 thousand tonnes, which corresponds to a decrease of 18%, compared to ICES’s recommendation for 2018.
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 2019 are expected to be at 85,000 tonnes, depending on external sales.
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, 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 Q4 2018 report and the Q4 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 824 fulltime employees.
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