BAKKAFROST: Operational EBIT of DKK 268 Million for the First Quarter of 2018
The Bakkafrost Group delivered a total operating EBIT of DKK 268.2 million in Q1 2018. Harvested volumes were 12.2 thousand tonnes gutted weight. The combined farming and VAP segments made an operational EBIT of DKK 216.8 million. The farming segment made an operational EBIT of DKK 228.4 million. The salmon spot prices increased in Q1 2018, compared to the previous quarter. The price increase had a positive effect on the operational EBIT in the farming segment. The VAP segment made an operational EBIT of DKK -11.6 million. The EBITDA for the FOF segment was DKK 86.4 million.
The total volumes harvested in Q1 2018 were 12.2 thousand tonnes gutted weight. Bakkafrost transferred 3.1 million smolts, and Havsbrún sourced 130.1 thousand tonnes of raw material in Q1 2018.
The farming segment made an operational EBIT of DKK 228.4 million for Q1 2018, which corresponds to NOK 24.15 per kg. The VAP segment made an operational EBIT of DKK -11.6 million for Q1 2018. The VAP production was 2.1 thousand tonnes in Q1 2018, compared to 3.6 thousand tons in Q1 2017. The lower activity level together with increased salmon spot prices had a negative effect on the VAP segment’s performance in this quarter. The combined farming and VAP segments made an operational EBIT of DKK 216.8 million for Q1 2018, which corresponds to NOK 22.92 per kg. The FOF segment (fishmeal, oil and feed) made a strong operational EBITDA of DKK 86.4 million for Q1 2018.
Commenting on the result, CEO Regin Jacobsen said:
“In the previous quarter, Bakkafrost had very good performance in all three segments. In comparison, Bakkafrost harvested fish from farming sites with weaker performance in the first quarter of 2018, affecting the production costs negatively in the quarter. On the other hand, the salmon prices have been strong, and we have seen a sharp increase of the salmon price during a relatively short period. Havsbrún had good raw material sourcing again and had a strong performance.”
Bakkafrost aims at giving the shareholders a competitive return on their investment, both through payments of dividends and by securing an increase in the value 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 Annual General Meeting, convened on 13 April 2018, decided to pay out a dividend of DKK 10.50, corresponding to NOK 13.66 per share. The total dividend of DKK 513.0 million (NOK 667.0 million) was paid out on 30 April 2018.
The net interest-bearing debt amounted to DKK 102.0 million at the end of Q1 2018. Undrawn credit facilities amounted to DKK 1,379.9 million at the end of Q1 2018.
In January 2018, Bakkafrost made an agreement with its existing lender, Nordea, to refinance its existing DKK 850 million bank facility and its outstanding NOK 500 million bond loan, which had a maturity and was paid on 14 February 2018, with a senior secured five-year EUR 200 million credit facility. The facility includes an accordion increase option, which provides flexibility for the parties to agree an increased size of the facility by further up to EUR 200 million during the term of the facility.
The equity ratio was 69% at 31 March 2018, compared to 70% at the end of 2017.
OUTLOOK
Market
The average salmon spot price dropped around NOK 6.00 in Q1 2018, compared with Q1 2017, although the price increased during Q1 2018 and decreased during Q1 2017. In late 2017, the salmon spot price dropped heavily, and demand had a positive response, which has driven the good price development in Q1 2018, supported by limited supply.
The latest update from Kontali Analyse estimates that the global supply of Atlantic salmon increased around 10% in Q1 2018, compared to Q1 2017. Going forward, both Norway and Chile will regain similar harvest volumes in 2018 as in 2017, and the global harvest growth is expected to be around 4% in 2018. Rest of the year the harvest growth is expected to be around 2%.
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 comply with this strategy.
Bakkafrost expects to harvest 51,000 tonnes gutted weight in 2018.
Bakkafrost expects to release 13.9 million smolts in 2018, compared with 9.9 million smolts in 2017 and 11.7 million smolts released in 2016. The number of smolts released is a key element of predicting Bakkafrost’s future production.
Bakkafrost aims at being self-supplied with 500 grams smolts in 2020. The benefits are a shorter production time at sea as well as reduced biological risk. The new hatchery under construction at Strond, Klaksvík is an important part of this plan. The hatchery is expected to start operation during 2018 and to be in full operation from 2020. The capacity growth from this investment program will gradually appear in harvested volumes from 2020.
Bakkafrost now has the full responsibility of the Faroese brood stock program and will continue to develop the program. Bakkafrost will use the next three years to examine the feasibility of the brood stock program and whether investments will be needed in a new brood stock facility. Bakkafrost has the option to get the genome rights in 2021.
VAP (Value added products)
Bakkafrost has signed contracts covering around 13% of the expected harvested volumes for the rest of 2018. The contract coverage is reduced, compared to previous year. The contract share has not changed significantly in Q1 2018. 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 production of fishmeal and fish oil in 2017 was record high because of good availability of raw material. Bakkafrost expects relatively high production volumes of fishmeal and fish oil in 2018.
The new salmon meal and salmon oil plant is expected to start operation in Q2 2018 with full production in the second half of 2018. This operation will increase the value of offcuts from salmon harvested and processed in the new harvest-/VAP factory at Glyvrar.
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 85,000 tonnes, depending on external sales.
Investments
In June 2016, Bakkafrost announced a five-year investment plan from 2016 to 2020. The total investments for the period are DKK 2.2 billion, including maintenance CAPEX.
Investments of around DKK 130 million in the two service vessels, M/S Martin and M/S Róland during 2016 and 2017, and the upgrading cost of around DKK 40 million during 2017 and 2018 of the harvest operation in Vágur, Suðuroy, are not included in the DKK 2.2 billion from the investment plan from 2016.
The purpose of the investment plan is to continue to have one of the most cost-conscious value chains in the farming industry, to carry out organic growth, increase flexibility and reduce the biological risk to meet the future consumers’ trends and to be more end-customer orientated.
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.
Please find the Company’s Q1 2018 report and the Q1 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, Kollafjørður and Vágur, and secondary processing (VAP) in Glyvrar. The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and Suðuroy. The headquarter is located in Glyvrar, and the company has 960 fulltime employees.
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