The Bakkafrost Group delivered a total operating EBIT of DKK 307.1 million for
Q2 2016. Harvested volumes were 13.0 thousand tonnes gutted weight. The combined
farming and VAP segments made an operational EBIT of DKK 289.5 million. The
farming segment made an operational EBIT of DKK 357.9 million and the increased
salmon spot prices had a positive effect on the farming segment. The high salmon
spot prices affected the VAP segment negatively, and the VAP segment made an
operational EBIT of DKK -68.4 million. The EBITDA for the FOF segment was DKK
45.4 million.
The total volumes harvested in Q2 2016 were 13.0 thousand tonnes gutted weight.
Bakkafrost transferred 1.9 million smolts in Q2 2016. In Q2 2016, Havsbrún
sourced 84.0 thousand tonnes of raw material.
The farming segment made an operational EBIT of DKK 357.9 million for Q2 2016,
which corresponds to NOK 34.47 per kg. The VAP segment made an operational EBIT
of DKK -68.4 million for Q2 2016. The high spot prices in Q2 2016 had a negative
effect on the operational EBIT in the VAP segment. The combined farming and VAP
segments made an operational EBIT of DKK 289.5 million for Q2 2016, which
corresponds to NOK 27.88 per kg. The FOF segment (fishmeal, oil and feed) made
an operational EBITDA of DKK 45.4 million for Q2 2016.
Commenting on the result, CEO Regin Jacobsen said:
"We are very satisfied with the result for Q2 2016. The salmon spot price has
been record high in the quarter and the biological performance has been good.
The VAP segment has struggled, but we maintain our strategy to sell a share of
our production as value added products. The development in our fishmeal, fish
oil and fish feed segment in the quarter was also good. The five year investment
plan was updated in June on our Capital Market Day, and the hatchery in
Viðareiði is starting production at the moment, the new Harvest plant has
started operation, and the construction of the new hatchery in Strond has
commenced."
On 14 July 2016, Bakkafrost announced suspicion of pathogenic ISA virus in the
farming site A-73 Hvannasund Norður based on regular ISA test results, carried
out by the Veterinary Authorities according to the Faroese veterinary system.
Consequently, Bakkafrost prepared to take necessary actions, and the Veterinary
Authority undertook further tests in order to confirm the suspicion of
pathogenic ISA virus. After a week of extensive testing, all the results were
negative and did not prove the presence of pathogenic ISA virus.
After that, the Veterinary Authority increased surveillance at the farming site
A-73 Hvannasund Norður and carried out extra tests on neighbouring farming
sites, which will be carried out for the next half year. This procedure is
stipulated in the Faroese veterinary farming regime with the purpose of securing
and maintaining good biology in the Faroese farming industry.
Bakkafrost acquired the remaining outstanding shares (51%) in P/F Faroe Farming,
effective from 1 July 2016. The Faroese Registry and the Competition Authorities
have approved Bakkafrost's acquisition of P/F Faroe Farming. Simultaneously,
Bakkafrost filed (relinquished) two farming licenses to the Faroese Authorities.
Following these two transactions, Bakkafrost has 14 licenses for farming salmon
in the Faroe Islands.
The Bakkafrost Group's net interest bearing debt amounted to DKK 603.0 million
at the end of Q2 2016. Bakkafrost had undrawn credit facilities of approximately
DKK 642.8 million at the end of Q2 2016 and the equity ratio was 61% at 30 June
2016.
OUTLOOK
Market
The global demand in the salmon market continues with strong growth rates. The
market balance will be tighter in 2016, compared to 2015. Global supply of
Atlantic salmon is expected to decrease by approximately 4% in volume during
2016, compared to 2015. The decrease is expected to be 8-9% in the second half
of 2016. Production capacity is close to full utilization and further expansion
relates to high investments.
Farming
The outlook for the farming segment is good. The estimates for harvesting
volumes and smolt releases are as always dependent on the biological situation.
Bakkafrost has acquired the remaining outstanding shares in P/F Faroe Farming,
effective from 1 July 2016. P/F Faroe Farming is a salmon farming company and
operates in the southern part of the Faroe Islands, Suðuroy. P/F Faroe Farming
holds three farming licenses in Suðuroy, Faroe Islands, and the total harvested
volumes for 2015 were 4,681 tonnes gutted weight, and the harvested volumes for
H1 2016 were 2,054 tonnes gutted weight. P/F Faroe Farming will be consolidated
into Bakkafrost Group from 1 July 2016. P/F Faroe Farming expects to harvest
1,000 tonnes gutted weight in the second half of 2016.
Together with Bakkafrost's unchanged expected harvest (excl. Faroe Farming) of
48,000 tonnes gutted weight, the total harvest for Bakkafrost Group in 2016 will
be 49,000 tonnes gutted weight.
The number of smolts released is one key element of predicting Bakkafrost's
future production. Bakkafrost forecasts a release of 10.4 million smolts in
2016, compared with 11.3 million smolts released in 2015 and 10.4 million smolts
released in 2014.
The biological situation is Bakkafrost's most important risk area. The suspicion
of possible pathogenic ISA virus in on of Bakkafrost's farming sites on 14 July
2016 draws the attention to the importance of good animal welfare and biology to
reduce the biological risk. Bakkafrost is focusing on the biological risk
continuously and has made several new investments and procedures to diminish
this risk.
VAP (Value added products)
Bakkafrost has signed contracts covering around 79% of the VAP capacity for the
rest of 2016. This corresponds to around 39% of the expected harvested volumes
for the rest of 2016. The remaining 21% are expected to be committed during the
period. Bakkafrost has already signed contracts covering approximately 50% of
the VAP capacity for 2017. In connection with the negotiation and signing of the
new contracts for 2017, Bakkafrost has renegotiated the prices for part of the
remaining quantities from the end of Q3 2016 in line with the forward price
picture.
FOF (Fishmeal, -oil and feed)
The outlook for the production of fishmeal and fish oil is dependent on the
availability of raw material. The quotas for catching blue whiting in the North
Atlantic are expected to be reduced, and therefore the production of fishmeal
and fish oil are most likely to reduce in volume in 2016 from relatively high
volumes in 2015.
Havsbrún's sales of fish feed in 2016 are expected to be at 80,000 tonnes.
Investments
In June 2016, Bakkafrost announced a five-year investment plan from 2016 to
2020. The total investments for the period is DKK 2.2 billion, including
maintenance CAPEX.
The purpose of the investment plan is to continue to have one of the most cost
conscious value chains in the farming industry, carry out organic growth,
increase flexibility and reduce the biological risk to meet the future
consumers' trends and to be more end-customer orientated.
Bakkafrost has a goal to be self-supplied with smolts at a size of 500g each.
The benefits are a shorter production time at sea as well as reduced biological
risk. To reach this goal, approximately half of Bakkafrost's total investments
over the next five years will be in hatcheries.
The investment of the new harvest/VAP factory will be finalised in 2016. The
harvest operation has started and the VAP operation is expected to start in Q4
2016. There will be some extra costs during the start-up period, but the
investment is expected to result in operational savings of DKK 70-90 million per
year with gradual effect from 2017.
Bakkafrost plans to increase the value of offcuts from salmon harvested and
processed in the new harvest/VAP factory. Bakkafrost will invest in a new salmon
-meal and salmon-oil plant, located in Fuglafjørður and operated by Havsbrún.
The FOF segment will also invest in a new feed line, which will increase the
capacity of the feed production.
Financial
Improved market balances in the world market for salmon products and cost
conscious production will likely improve the financial flexibility going
forward. A high equity ratio together with Bakkafrost's bank financing and the
issuance of bonds 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 fulfil its dividend policy in
the future.
Please find enclosed the Company's Q2 2016 report and presentation.
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
operates licenses on 14 farming fjords. The Group has primary processing in
Glyvrar, Kollafjørður, Vágur, and secondary processing (VAP) in Glyvrar and
Fuglafjørður. The headquarter is located in Glyvrar, and the company has 765
fulltime employees.
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