Operational EBIT of DKK 248 Million for the First Quarter of 2020
The Bakkafrost Group delivered a total operating EBIT of DKK 248.1 million in Q1 2020. Harvested volumes for the Group were 17.9 thousand tonnes gutted weight, whereof 10.7 thousand tonnes were harvested in the Faroe Islands (FO) and 7.3 thousand tonnes in Scotland (SCT). The combined Farming FO and VAP segments made an operational EBIT of DKK 192.1 million. The farming segment made an operational EBIT of DKK 202.9 million in the Faroe Islands (FO) and DKK 29.7 million in Scotland (SCT). Lower harvest volumes in the quarter had a negative effect on the operational EBIT. The VAP segment made an operational EBIT of DKK -10.8 million. The EBITDA for the FOF segment was DKK 40.2 million.
(Figures in parenthesis refer to the same period last year unless otherwise specified)
On the 8th of October 2019, Bakkafrost acquired majority of the Scottish Salmon Company (SSC). From this date, SSC is a part of the Bakkafrost Group and is consolidated into Bakkafrost’s accounts. Unless otherwise stated, all figures presented in this press release include SSC from this date on. SSC’s figures prior to this date are not included in the figures for the Group for the full year 2019 or in other comparative figures prior to this date.
The Group made a profit for Q1 2020 of DKK -148.0 million (DKK 212.8 million). The total volumes harvested in Q1 2020 were 17,935 tonnes gutted weight, whereof 10,667 tonnes were harvested in the Faroe Islands (13,707 tgw) and 7,268 tonnes in Scotland. In total, 3.3 million smolts were transferred during Q1 2020, whereof 2.3 million (1.7 million) were transferred in FO and 1.0 million were transferred in SCT.
Commenting on the result, CEO Regin Jacobsen said:
“Overall we are satisfied with the results from this challenging quarter. In times like these, we see the strength in our integrated value chain and in particular having significant production capacity and flexibility in our VAP segment. Swiftly, we have been able to shift volumes from the spot-oriented market towards the VAP segment for the retail market and hereby maintaining a high production.
We are pleased that the integration of SSC into Bakkafrost is on track and of already seeing a positive development in the operation in Scotland; the tangible results, however, are not expected to materialize until late this year. Our staff in Scotland and the Faroe Islands are highly motivated and their cooperation is very good.
The biological development is also good with strong growth in both the Faroe Islands and Scotland.
The challenges this quarter have been: An unusually stormy January, which reduced the fishery of species, used as raw material by Havsbrún, hence reducing production – a severe storm in the end of February, causing a loss of around 1.2 million fish – and then the outbreak of the Covid-19 pandemic.
Since February, Covid-19 has disrupted the salmon market resulting in a drastic drop in the salmon spot price and imposing logistical problems with air transport. Over a few weeks, the demand for salmon has changed in favour of products for the retail segment, but at great harm to the fresh-oriented HORECA segment.
It will be interesting to see if the huge number of new consumers, buying salmon from the supermarkets, will be a part of an increased demand for salmon, when the HORECA segment re-opens during the next coming weeks and months.”
The combined FO farming and VAP segments made an operational EBIT of DKK 192.1 million (DKK 231.1 million) in Q1 2020. The operational EBIT per kg in Q1 2020 was DKK 18.01 (DKK 16.86), which corresponds to NOK 25.10 (NOK 21.99) for the combined FO farming and VAP segments.
The FO farming segment made an operational EBIT of DKK 202.9 million (DKK 229.7 million) in Q1 2020. The harvested volumes were lower, and the achieved prices were higher in Q1 2020, compared to Q1 2019. A severe storm that hit the Faroe Islands in late February, caused a loss due to mortality amounting to DKK 23.4 million.
The SCT farming segment made an operational EBIT of DKK 29.7 million in Q1 2020.
The VAP segment made an operational EBIT of DKK -10.8 million (DKK 1.3 million) for Q1 2020.
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 40.2 million (DKK 65.3 million) for Q1 2020, and the EBITDA margin was 13.0% (23.0%). During Q1 2020, Havsbrún sourced 64,807 tonnes (115,530 tonnes) of raw material.
The Group was impacted by the significant market disruption from Covid-19 especially towards the end of the quarter.
The net interest-bearing debt amounted to DKK 988.5 million at the end of Q1 2020 (DKK 522.0 million). Undrawn credit facilities amounted to DKK 2,465.3 million at the end of Q1 2020. The equity ratio was 66% at 31 March 2020, compared to 65% at the end of 2019.
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. Bakkafrost’s financial position is strong with a solid balance sheet, a competitive operation and available credit facilities. Due to the uncertainty imposed by the Covid-19 pandemic, the Board of Directors have decided by postpone the decision on dividend payment for 2019 until Bakkafrost's H1 presentation on 25 August 2020, at which time the Board of Directors expect the level of uncertainty to have reduced.
The global harvest of Atlantic salmon was around 2.3% higher in Q1 2020, compared to Q1 2019, according to the latest estimate from Kontali Analyse. The market was affected negatively by the market disruption caused by Covid-19 pandemic, especially towards the end of the quarter.
Looking forward the market dynamics will still be affected by the Covid-19 situation which imposes greater uncertainty to the market development estimates. In Q2 2020, the global harvest of Atlantic salmon is expected to increase around 2-4%, compared to Q2 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 2-4%, compared to 2019.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. During 2020, variation in sales distribution between the different markets is driven by the change in demand from quarter to quarter in the different regions. In Q1 2020 and during the coming quarters, the sales distribution will most likely be affected by changing market dynamics caused by the Covid-19 pandemic. Bakkafrost, however, aims to have a balanced market diversification to reduce market risk.
The outlook for the farming segment in the Faroe Islands is good, and the overall operational performance is very good. There are many possibilities in the Scottish operation. The gradual improvements will start this year and will be revealed over the next years. The estimates for harvest volumes and smolt releases in both geographies 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, including farming supply vessels for mechanical delousing and mechanical cleaning of nets in the pens.
The quality and performance of the smolts have also increased significantly, and there are clear signs that the large smolt and non-medical delousing strategies are working successfully in the Faroe Islands. Looking ahead, Bakkafrost will extend these strategies into the Scottish farming operation.
Overall, the biological performance in the Faroese and Scottish operations have been strong during Q1 2020 with good growth and low mortality rates, except for the mortality caused by the severe storm that hit our farming sites in the Faroe Islands in late February. The loss of around 1.2 million fish has caused Bakkafrost to lower the expected harvest volume for 2020 in the Faroe Islands to 50,000 tonnes gutted weight, while the expected harvest in 2020 in Scotland is increased to 39,000 tonnes gutted weight.
Farming SCT has signed contracts for around 25% of the expected harvest volumes in Farming SCT in 2020. These contracts usually last for 12 months.
Bakkafrost expects to release 15.0 million smolts in 2020 in the Faroe Islands, compared to 12.7 million smolts in 2019 and 12.6 million smolts in 2018. The smolt release in Scotland is expected to be 10.7 million smolts in 2020, compared to 12.4 million smolts in 2019 and 8.6 million smolts in 2018. 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 47% of the expected Faroese harvest volumes in Q2 2020 and 40% of the harvest volume for 2020. Bakkafrost’s long-term strategy is to sell around 40-50% of the Faroese 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 2020 recommendation for blue whiting is 1,162 thousand tonnes, which corresponds to an increase of 2%, compared to ICES’s recommendation for 2019.
Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2020, compared to 2019. Havsbrún’s sales of fish feed in 2020 are expected to be 110,000 tonnes, depending on external sales.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost FO’s internal use of fish feed.
Bakkafrost’s investment programme for the period from 2020 to 2022, excluding investments in The Scottish Salmon Company, will amount to around DKK 1.8 billion, including maintenance capex, and will reinforce Bakkafrost’s integrated business model and ensure a capacity across the value chain to be able to produce 100,000 tonnes gutted weight of salmon in the Faroe Islands. The aim of the investment programme is to minimize the biological risk, increase efficiency and create sustainable organic growth. Bakkafrost’s focus on producing larger smolts plays a key role in achieving this goal.
Despite the uncertainties imposed by the Covid-19 pandemic, long term market balances in the world market for salmon products will most likely remain favourable for Bakkafrost. Bakkafrost has a long value chain and a cost-efficient production of high-quality salmon products and will likely maintain the financial flexibility going forward.
During Q4 2019, Bakkafrost refinanced its bank facilities amounting to 352 mEUR with a further accordion option of 150 mEUR. In addition, bank facilities amounting to 100 mGBP were ensured to refinance The Scottish Salmon Company.
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 in the Faroe Islands as well as in Scotland, hereby strengthening the Group, enabling M&A’s and organic growth opportunities as well as to fulfil its un-changed dividend policy in the future.
Bakkafrost plays an important role in ensuring healthy food for the world’s growing population, and this role is especially important in the difficult times the world is facing now.
Bakkafrost has implemented a range of measures to protect our workforce and ensure continuous production. New procedures and social distancing are implemented widely in the business, and production and office facilities have been modified where necessary to prevent infection. In the Faroe Islands all our employees are offered free Covid-19 screening by health professionals every second week until late June 2020.
Bakkafrost is taking all necessary steps to protect the business, and we are constantly adapting to the changing market conditions and shifting demands from customers.
As an extraordinary precautionary measure, in March 2020, the Board of Directors postponed the decision on dividend payments for 2019 until 25 August 2020, due to the uncertainty caused by the Covid-19 pandemic.
Please find the Company’s Q1 2020 report and the Q1 2020 presentation enclosed.
Regin Jacobsen, CEO of P/F Bakkafrost: +298 235001 (mobile)
- Høgni Dahl Jakobsen, 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 and the second largest salmon farmer in Scotland. 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 (Faroe Islands). The Group has primary processing in Glyvrar and Vágur (Faroe Islands), and secondary processing (VAP) in Glyvrar (Faroe Islands). The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and Suðuroy (Faroe Islands) and in Scotland. The Group has broodstock operations in Streymoy and Sandoy (Faroe Islands) and in Scotland. The Group has built a biogas plant in Streymoy (Faroe Islands) which started operation in Q1 2020. The headquarter is located in Glyvrar (Faroe Islands) and has sales and administration offices in Grimsby (UK), Edinburgh (Scotland) and in New Jersey (US). The Bakkafrost Group has 1,553 employees (full-time equivalents).
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