The Bakkafrost Group delivered a total operating EBIT
of DKK 212.1 million in Q2 2014. The combined farming
and VAP segment made an operational EBIT of DKK 180.0
million in Q2 2014. The Farming segment made an
operational EBIT of DKK 159.5 million. The salmon spot
prices decreased during the quarter, while the VAP
contract prices stayed on a record high level. Because
of the decreasing spot prices, the performance in the
VAP segment improved during the quarter, and the
operational EBIT came to DKK 20.5 million in Q2 2014.
The EBITDA for the FOF segment was DKK 57.0 million in
Q2 2014.
Commenting on the results, CEO Regin Jacobsen said:
"We are very satisfied with the result for Q2 2014, as
all segment made profit. The biological development
has been positive and our sales prices for VAP
products are on a level where we again see positive
margins. The spot price, on the other hand, have
decreased some lately due to the increase in supply of
fresh salmon. For our Fish meal, fish oil and fish
feed department the quarter was good."
The Group made a profit for the quarter of DKK 126.2
million (DKK 184.2 million). For H1 2014, the profit
was DKK 213.4 million (DKK 251.7 million).
The total volumes harvested in Q2 2014 were 11,212
tonnes gutted weight (10,540 tgw). The total harvested
volumes in H1 2014 were 20,481 tonnes gutted weight
(18,836 tgw). The reason for the increase in the
harvested volumes year on year is that Bakkafrost will
harvest higher volumes this year compared to the year
before.
Bakkafrost transferred 1.9 million smolts in Q2 2014
(1.8 million), which is in line with the company's
plans. Year to date 4.9 million have been transferred
(3.9 million). The smolt release is higher in 2014
compared to 2013, due to available sites for smolt
release.
In Q2 2014, the associated company P/F Faroe Farming
harvested 47 tonnes gutted weight (943 tgw). In H1
2014, Faroe Farming harvested 2,212 tonnes gutted
weight (3,298 tgw).
On the 24th of April 2014, Bakkafrost - via its 100%
owned subsidiary Havsbrún - acquired an addition-al
41.15% in Hanstholm Fiskemelsfabrik. After the
acquisition, Bakkafrost owned 81.01% of the company.
The 9th May 2014, Bakkafrost divested all its shares
in Hanstholm Fiskemelsfabrik to FF Skagen A/S. In
return, Bakkafrost, via its subsidiary P/F Havsbrún,
received a 17% share interest in FF Skagen A/S. The
investment is a strategic investment and part of the
consolidation of the fishmeal and fish oil industry.
In accordance with the Group's dividend policy,
Bakkafrost paid out DKK 4.50 (NOK 4.98) per share in
April 2014. The amount corresponds to approximately
DKK 219.9 million (NOK 243.3 million).
In February 2014, a routine surveillance test detected
a possible pathogenic ISA-virus at Bakkafrost's
farming site A-80. There was no increase in mortality,
and no impact on fish health or fish welfare, however.
Bakkafrost decided to activate the ISA-contingency
plan immediately and hence enforced slaughtering of
the last cage at the farming site A-80 Selatrað. The
detected site, together with all the neighbouring
sites are now empty. No signs of ISA have been
observed since, and no cost increase was related to
the detection.
The farming companies and the authorities have put a
lot of work into maintaining the good biological
status in the Faroe Islands. Regular surveillance
tests for ISA-viruses have been performed at all farms
during the last approx. 10 years at sea sites in the
Faroes. Bakkafrost and the other farmers in the Faroe
Islands will work with the Faroese Food and Veterinary
authority to avoid the introduction of AGD and ISA.
The combined farming and VAP segment made an
operational EBIT of DKK 180.0 million (DKK 157.8
million) in Q2 2014. For H1 2014, the combined farming
and VAP segment made an operational EBIT of DKK 356.7
million (DKK 259.0 million).
The farming segment made an operational EBIT of DKK
159.5 million (DKK 199.5 million) in Q2 2014. The
reason for the decrease is lower spot prices in Q2
2014, as the harvested volumes are higher. For H1
2014, the operational EBIT was DKK 345.7 million (DKK
324.1 million).
The VAP segment made an operational EBIT of DKK 20.5
million (DKK -41.8 million) for Q2 2014. The improved
result is primarily due to a combination of improved
contract prices and lower raw material prices. There
is normally a time lag between the changes in the spot
prices and the changes in the contract prices. The
contract prices have increased significantly from the
level in 2013, due to the high salmon spot prices.
When the spot prices decreased during the quarter, the
contracts became profitable, compared to selling the
salmon on the spot market. For H1 2014, the
operational EBIT was DKK 11.0 million (DKK -65.0
million).
The third segment - FOF (fishmeal, oil and feed), made
an operational EBITDA of DKK 57.0 million (DKK 30.9
million) in Q2 2014, and for H1 2014, the operational
EBITDA amounted to DKK 79.1 million (DKK 55.7
million). The increase in the EBITDA is primarily due
to higher production of fishmeal and fish oil, as the
raw material intake has increased significantly.
In Q2 2014, Havsbrún sourced 107,372 tonnes of raw
material (42,782 tonnes) and in H1, Havsbrún sourced
151,531 tonnes of raw material (73,519 tonnes).
The Bakkafrost Group had a net interest bearing debt
at the end of Q2 2014 amounting to DKK 555.0 million
(DKK 638.6 million at year-end 2013) including
deposits and losses on financial derivatives relating
to the interest bearing debt. Bakkafrost had undrawn
credit facilities of approximately DKK 738.0 million,
of which DKK 16.0 million were restricted at the end
of Q2 2014.
Bakkafrost's equity ratio is 53%, compared to 54% at
the end of 2013.
Segments
Farming:
The operating revenue for Bakkafrost's farming segment
was DKK 515.6 million in Q2 2014 (DKK 520.4 million)
and DKK 1,033.7 million for H1 2014 (DKK 945.4
million).
Operational EBIT, which is EBIT before fair value
adjustments on biological assets, amounted to DKK
159.5 million in Q2 2014 (DKK 199.5 million), and for
H1 2014, it was DKK 345.7 million (DKK 324.1 million).
Operational EBIT/kg for the farming segment was DKK
14.23 (NOK 15.65) in Q2 2014, compared to DKK 18.93
(NOK 19.34) in Q2 2013. The salmon prices in Q2 2014
have been weaker in average, compared to Q2 2013 and
thus lower margins. Operational EBIT/kg for H1 2014
was DKK 16.88 (NOK 18.75), compared to DKK 17.20 (NOK
17.27 for H1 2013.
Value Added Products (VAP):
The operating revenue for the value added segment
amounted to DKK 267.0 million in Q2 2014 (DKK 168.1
million). For H1 2014, the revenue was DKK 499.2
million (DKK 315.9 million). The increase in the
revenue from Q2 2013 to Q2 2014 is 59%, while the
volumes that went for VAP products only increased by
21%.
Operational EBIT amounted to DKK 20.5 million in Q2
2014 (DKK -41.8 million), corresponding to an
operational EBIT of DKK 3.44 (NOK 3.79) per kg gutted
weight in Q2 2014 (DKK -8.61 (NOK -8.80) per kg gutted
weight).
The increase in the operational EBIT margins is due to
higher contract prices and a decrease in the raw
material prices. The VAP segment acquires its raw
material (fresh salmon) at spot prices each week. For
H1 2014, operational EBIT amounted to DKK 11.0 million
(DKK -65.0 million), corresponding to an operational
EBIT of DKK 0.93 (NOK 1.04) per kg gutted weight in H1
2014 (DKK -7.14 (NOK -7.17) per kg gutted weight).
FOF (Fishmeal, Fish Oil and Fish Feed):
The operating revenue for the FOF segment amounted to
DKK 280.1 million (DKK 250.8 million) in Q2 2014, of
which DKK 146.7 million (DKK 152.8 million) represents
sales to Bakkafrost's farming segment corresponding to
52.4% (60.9%). For H1 2014, the revenue was DKK 458.2
million (DKK 408.2 million), of which DKK 239.7
million (DKK 269.2 million ) represents sales to
Bakkafrost's farming segment corresponding to 52.4%
(65.9%).
Operational EBITDA was DKK 57.0 million (DKK 30.9
million) in Q2 2014, and the operational EBITDA margin
was 20.3% (12.3%). For H1 2014, the EBITDA was DKK
79.1 million (DKK 55.7 million), and the margin was
17.3% (13.6%).
Sales of feed amounted to 18,827 tonnes (18,196
tonnes) in Q2 2014, of which the farming segment
internally used 14,784 tonnes (14,412 tonnes). In H1
2014, the feed sale was 32,783 tonnes (33,102 tonnes).
The internal sale was 25,382 tonnes (25,403 tonnes).
In the quarter, Havsbrún received 107,372 tonnes
(42,783 tonnes) of raw material for the production of
fishmeal and fish oil. The raw material intake depends
on the fishery in the North Atlantic and available
species of fish. In H1 2014, Havsbrún received 151,531
tonnes (73,720 tonnes) of raw material.
The production of fishmeal in Q2 2014 was 21,925
tonnes (8,929 tonnes). In H1 2014, Havsbrún produced
31,939 tonnes (15.767 tonnes) of fishmeal.
The production of fish oil in Q2 2014 was 391 tonnes
(1,936 tonnes). In H1 2014, Havsbrún produced 1,659
tonnes (3,541 tonnes) of fish oil. The production of
fish oil varies, depending on the species of fish
sourced for production. In both Q2 and H1 2014, the
raw material intake of blue whitening was high, but
the blue whitening has a low content of fish oil.
Statement of Financial Position
The Group's total assets as of end Q2 2014 amounted to
DKK 3,140.3 million, compared to DKK 3,112.2 million
at the end of 2013.
The Group's intangible assets are unchanged, compared
to the beginning of the year and amounted to DKK 294.7
million. Intangible assets comprise primarily the fair
value of acquired farming licences. For the licences
in the North region, there is not recorded a value in
the Bakkafrost accounts.
Property, plant and equipment amounted to DKK 949.5
million at the end of Q2 2014, compared to DKK 916.7
million at the end of 2013. In Q2 2014 Bakkafrost made
investments in PP&E amounting to DKK 61.0 million and
in H1 2014, investments were made for DKK 78.7
million.
Financial assets amounted to DKK 131.7 million at the
end of Q2 2014, compared to DKK 115.3 million at the
end of 2013. The increase in the financial assets
relates mainly to the investment in the new pelagic
processing company Pelagos next to Havsbrún in
Fuglafjørður, but also to the ownership in Hanstholm
Fiskemelsfabrik, that was sold to FF Skagen.
Long-term receivables have increased from DKK 1.5
million to DKK 15.0 million due to a feed financing
agreement.
The Group's carrying amount (fair value) of biological
assets amounted to DKK 812.8 million at the end of Q2
2014, compared to DKK 965.9 million at the end of
2013. Included in the carrying amount of the
biological assets is a fair value adjustment amounting
to DKK 172.8 million, compared to DKK 296.4 million at
the end of 2013. The decrease is primarily due to
lower salmon prices at the end of Q2 2014 compared to
end 2013, but also due to seasonal lower biomass at
sea.
The Group's total inventories amounted to DKK 284.1
million as of end Q2 2014, compared to DKK 235.5
million at year-end 2013. The inventory primarily
represents Havsbrún's inventory of fishmeal, fish oil
and fish feed, in addition to feed at the feed
stations, packing materials and other raw materials.
The Group's total receivables amounted to DKK 389.8
million as of end Q2 2014, compared to DKK 400.6
million at the end of 2013.
The Group's equity at the end of Q2 2014 is DKK
1,662.7 million, compared to DKK 1,665.3 million at
the end of 2013. The change in equity consists
primarily of the positive result for H1 and the gross
dividend of DKK 219.9 million paid out in April.
The Group's total non-current liabilities amounted to
DKK 1,161.6 million at the end of Q2 2014, com-pared
to DKK 1,071.0 million at the end of 2013.
Deferred and other taxes payable in 2015 amounted to
DKK 417.3 million, compared to DKK 310.9 million at
the end of 2013. Because of the increase in the
special tax on farming companies and the change from a
provisional tax to a permanent tax, the deferred tax
has increased by DKK 42.6 million from end 2013 to end
Q2 2014.
Long-term debt was DKK 671.4 million at the end of Q2
2014, compared to DKK 685.2 million at the end of
2013. Derivatives amounted to DKK 73.0 million at the
end of Q2 2014, compared to DKK 74.9 million at the
end of 2013.
Bakkafrost's interests bearing debt consists of two
bank loans and a bond loan. The bank loans are an
instalment loan of DKK 250 million, payable with DKK
25 million each quarter, and an overdraft facility
payable in 2016 with the full amount of DKK 553
million. The bond loan of NOK 500 million has a five-
year maturity and is payable 14 February 2018. The
interest rate of the bonds is NIBOR 3m + 4.15%.
Following the issuance of the bonds, Bakkafrost has
entered into a currency/interest rate swap, hedging
the exchange rate and has switched the interest rate
from NIBOR 3m to CIBOR 3m. Bakkafrost has entered the
swap due to its exposure to DKK, as a large part of
the income and costs are in DKK and EUR.
At the end of Q2 2014, the Group's total current
liabilities are DKK 315.9 million, compared to DKK
376.0 million at the end of 2013. Short-term interest
bearing debt amounts to DKK 100.0 million and relates
to a short-term part of long-term debt as described
above. Accounts payable amount to DKK 215.9 million,
compared to DKK 276.0 million at the beginning of the
year. The decrease is primarily due to lower
provisions for onerous contracts.
Bakkafrost's equity ratio is 53%, compared to 54% at
the end of 2013.
Cash Flow
The cash flow from operations improved signifi-cantly
in Q2 2014 compared to Q2 2013. The cash flow from
operations in Q2 2014 was DKK 307.8 million (DKK 173.1
million). The Cash flow from operations has been
positively affected from reduction in working capital.
For H1 2014, the cash flow from operations was DKK
416.1 million (DKK 199.8 million).
The cash flow from investment activities in Q2 2014
amounted to DKK -71.5 million (DKK -40.7 million). The
amount relates mainly to investments in fixed assets.
For H1 2014, the cash flow from investments amounted
to DKK -105.7 million (DKK -69.3 million).
Cash flow from financing activities totalled DKK
-217.0 million in Q2 2014 (DKK -169.3 million). The
interest bearing debt decreased by DKK 51.9 million,
and financing of an associated company contributed
positively with DKK 45.4 million, and net payment of
dividends amounted to DKK 218.2 million. For H1 2014,
cash flow from financing amounted to DKK -229.7
million (DKK -68.5 million).
Net change in cash flow in Q2 2014 amounted to DKK
19.3 million (DKK -36.9 million) and for H1 2014 DKK
80.7 million (DKK 62.0 million).
At the end of Q2 2014, Bakkafrost had unused credit
facilities of approximately DKK 738.0 million of which
DKK 16.0 million are restricted.
Outlook
MARKET
The supply of farmed salmon is expected to increase by
around 8% in 2014, compared with 2013. The reason for
the increase is due to high seawater temperatures in
Norway and higher production in Chile. The supply
increase that commenced in Q2 is expected to continue
during Q3. In Q4, there is no significant expected
increase in the supply compared to the year before,
and therefore higher prices are expected, but the
conflict with Russia may impact the salmon prices
negatively - especially short term. The outlook for
2015 is favourable for the salmon farming industry, as
only a limited growth of 1% is expected.
Due to the changes in the MAB system in Norway, it is
likely that some harvest of salmon will be postponed
from 2014 to 2015. This will reduce the supply in H2
2014 and increase the supply in H1 2015.
The market place is one of Bakkafrost's most
significant risk areas. To reduce the exposure to the
market risk, Bakkafrost has a geographical app-roach
and a market price approach. To diversify the
geographical market risk, Bakkafrost sells its
products to some of the largest salmon markets in the
world, US, the Far East, Europe and Russia. The sale
to Russia has been low the last quarters, but may
increase the coming quarters, as salmon from the
Faroes Islands is not covered by the import ban put
into effect by the Russian authorities.
FARMING
The outlook for the farming segment is good. The
biological situation is good, and the price outlook in
the spot market is good.
Bakkafrost's expected harvest is unchanged at 45,000-
48,000 tonnes gutted weight in 2014 of which 55% will
be sold on the spot market, while 45% is planned to be
sold as value added products (VAP).
Faroe Farming, a company in which Bakkafrost holds
49%, expects to harvest around 5,000 tonnes in 2014.
The number of smolts released is one key element of
predicting the future production for the Group.
Bakkafrost's forecast for the smolt release in 2014 is
11.6 million smolts. The smolt release for 2014 shall
be compared to the smolts released in 2012, when the
smolt release was 10.7 million. The same sites are
available for smolt release in 2014 as in 2012.
The estimates for harvesting volumes and smolt
releases is as always dependent on the biological
situation. The biological situation in the Faroe
Islands is good, and Bakkafrost will continue to focus
on a good biological situation and improve procedures
where possible.
Value added products (VAP)
The outlook for the sale of value added products is
good. Bakkafrost has signed contracts covering 85% of
the VAP capacity for the rest of 2014, corresponding
to more than 30% of the expected harvested volumes for
the rest of 2014. The last 15 % of the VAP capacity
will be committed during the rest of the year. The
contracts are at fixed prices based on the salmon
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. The long-term
strategy is to sell around 40-50% of the harvested
volumes of salmon as VAP products on fixed price
contracts. Selling the products at fixed prices
reduces the financial risk with fluctuating salmon
prices. The market price for contracted VAP products
follows a more stable pattern with trends instead of
short-term fluctuations as in the spot market.
FOF (Fish oil, -meal and feed)
The outlook for the production of fish oil and
fishmeal has improved, as the available raw material
for the production of fish oil and -meal has
increased.
The quotas for catching blue whiting in the North
Atlantic has increased, and the opening of a new
pelagic processing plant next to Havsbrún's production
facilities improved the possibilities for getting
access to offcuts and raw material that cannot be used
for human consumption, but for the production of
fishmeal and oil.
However, depending on supply, demand and the price
level, the sourcing of raw material for the production
of fish oil and -meal is very uncertain. An
alternative to Havsbrún's production of fish oil and -
meal is purchasing these raw materials from other
producers, which has been common in recent years. Fish
oil and -meal is the most important raw material in
the production of a high quality fish feed for the
Bakkafrost salmon.
The major market for Havsbrún´s fish feed is the local
Faroese market including Bakkafrost's internal use of
fish feed.
It is expected that the total consumption of fish feed
in the Faroe Islands will be approximately 90,000-
95,000 tons in 2014. Depending on the purchase from
external customers in the Faroe Islands and abroad,
the sale of fish feed will be approximately 83,000-
87,000 tonnes.
Investments
In July 2013, Bakkafrost announced a five-year
investment plan for optimising its value chain,
resulting in savings, increased production and reduced
biological risk. The yearly investments were planned
to amount to DKK 170 million per year in addition to a
new wellboat, estimated to DKK 230 million. For the
period 2014-2017, the investments were forecasted to
DKK 900 million. Bakkafrost has now decided to
increase the level of ambition with two main changes.
1. Part of the plan was a new Harvest/VAP factory
estimated to DKK 300-350 million, resulting in
operational savings of DKK 50-70 million per year from
2017. The company has decided to advance the
investment, so the plant will be up running in 2016.
Further, the plant will be made more efficient, so
that the yearly operational savings will increase from
DKK 50-70 million per year to DKK 70-90 million per
year. By doing this, the investment will increase from
DKK 300-350 million to DKK 450 million.
2. Part of the investment plan was also to
increase the smolt capacity, making Bakka-frost self-
supplied and increasing the smolt size from ~100g to
~150g. Bakkafrost has now decided to speed us this
plan to increase the size to 200-300g before end 2017.
This will result in increased investments in smolt
capacity from DKK 50 millon to DKK 420 million. The
benefits are shorter production time at sea and
reduced biological risk. Due to the shorter time at
sea, Bakkafrost can gradually increase the farming
production by 10-15%.
The total investments for the period 2014-2017 will
thus be DKK 1.370 million. The investments will be
financed by free cash flow from operation, existing
financing facilities and partly new financing if
advantageous. In addition, Bakkafrost has the
possibility to postpone investments in case of adverse
events. The dividend policy will be unchanged.
Financial
Improved market balances in the world market for
salmon products and costs effective production will
likely improve the financial flexibility going
forward. A high equity ratio together with the Group's
bank financing and the issuance of bonds, makes
Bakkafrost's financial situation strong, which 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.
Contacts:
Regin Jacobsen, CEO of P/F Bakkafrost: +298 23 50 01
(mobile)
Teitur Samuelsen, CFO of P/F Bakkafrost: +298 23 51 11
(mobile)
This information is subject of the disclosure
requirements acc. to §5-12 vphl (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 fish meal, fish oil and salmon feed
in Fuglafjørður. The Group operates licenses on 14
farming fjords. The Group has primary processing in
Klaksvík, Kollafjørð and Strendur and secondary
processing (VAP) in Glyvrar and Fuglafjørður. The
headquarters are located in Glyvrar, and the company
has a total of 640 employees.
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