The Bakkafrost Group delivered a total operating EBIT of DKK 331.2 million in Q4
2017. Harvested volumes were 11.5 thousand tonnes gutted weight. The combined
farming and VAP segments made an operational EBIT of DKK 265.4 million. The
farming segment made an operational EBIT of DKK 228.8 million. The salmon spot
prices decreased in Q4 2017, compared to the previous quarter. The price
decrease had a negative effect on the operational EBIT in the farming segment.
The VAP segment made an operational EBIT of DKK 36.5 million, which is an
improvement due to the decrease in the salmon spot prices in Q4 2017. The EBITDA
for the FOF segment was DKK 93.6 million.
The total volumes harvested in Q4 2017 were 11.5 thousand tonnes gutted weight.
Bakkafrost transferred 3.4 million smolts, and Havsbrún sourced 50.9 thousand
tonnes of raw material in Q4 2017.
The farming segment made an operational EBIT of DKK 228.8 million for Q4 2017,
which corresponds to NOK 25.76 per kg. The VAP segment made an operational EBIT
of DKK 36.5 million for Q4 2017. The VAP segment has had a loss from the first
quarter of 2016 until Q3 2017. The salmon spot prices decreased in Q4 2017, and
from the end of Q3 2017 until the end of Q4 2017, the margins were positive. The
combined farming and VAP segments made an operational EBIT of DKK 265.4 million
for Q4 2017, which corresponds to NOK 29.88 per kg. The FOF segment (fishmeal,
oil and feed) made an operational EBITDA of DKK 93.6 million for Q4 2017.
Commenting on the result, CEO Regin Jacobsen said:
"Bakkafrost had an excellent performance in the quarter, considering that the
salmon spot price has decreased over 25%, compared to the same quarter last
year. The VAP segment had a positive margin in the quarter for the first time
since 2015. Havsbrún had a record year in raw material sourcing during its 50
years long history. Looking forward, we are excited about the agreement we have
made with P/F Fiskaaling and the Faroese Authorities about the Faroese brood
stock program. To develop the Faroese brood stock program will demand effort and
resources for Bakkafrost, but we believe this might be an exciting project,
which can benefit us in the long run."
In Q4 2017, Bakkafrost signed an agreement with P/F Fiskaaling and the Faroese
Ministry of Foreign Affairs and Trade concerning the Faroese brood stock
program. According to the agreement, Bakkafrost will take over responsibility of
the brood stock program from P/F Fiskaaling from 1 April 2018, and from 1
January 2018 to 1 April 2018, Bakkafrost will hold all expenses in this regard.
Bakkafrost will continue to develop the brood stock program, renting the
existing brood stock facilities from P/F Fiskaaling until 2021. During the next
three years, Bakkafrost will examine the feasibility of the brood stock program
and determine, whether investments in a new brood stock facility will be needed.
According to the agreement, the genome rights in the Faroese brood stock program
will be transferred to Bakkafrost in 2021.
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. Therefore, the
Board of Directors proposes to the Annual General Meeting that DKK 10.50 (NOK
13.65*) per share shall be paid out as dividend. The proposed dividend
corresponds to 50% of adjusted earnings for 2017. The Annual General Meeting
will be convened on the 13th of April 2018.
The Bakkafrost Group's net interest bearing debt amounted to DKK 258.1 million
at the end of Q4 2017. Bakkafrost had undrawn credit facilities of DKK 1,004.6
million at the end of Q4 2017 and the equity ratio was 70% at 31 December 2017.
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 has a maturity during Q1 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 facility is subject to signing a facility agreement,
which is expected to take place during Q1 2018.
* 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 salmon prices have dropped significantly during the second half of 2017 from
all-time high levels earlier in 2017 and in 2016. This drop was expected, as the
combination of high prices and supply ramp up emerged with the harvest of new
generation fish released in 2016.
The two most important farming regions, Norway and Chile, increased their
volumes significantly in Q4 2017, compared to same period in 2016. The strong
supply increase is the main driver for the price drop in Q4 2017. The latest
update from Kontali Analyse estimates that the global supply of Atlantic salmon
increased around 12% in Q4 2017, compared to Q4 2016. Going forward, the global
harvest growth is expected to be around 6% in 2018.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and
Russia. Variation in sales distribution between the different markets are 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 harvesting
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
in full operation from 2020. The capacity growth from this investment program
will gradually appear in harvested volumes from 2020.
According to the agreement between Bakkafrost, P/F Fiskaaling and the Faroese
Ministry of Foreign Affairs and Trade, Bakkafrost will take responsibility of
the Faroese brood stock program from 1 April 2018 and continue to develop the
brood stock program with the option to get the genome rights in 2021. 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.
VAP (Value added products)
Bakkafrost has signed contracts covering around 14% of the expected harvested
volumes for 2018. The contract coverage is reduced, compared to previous year,
because some contracts were not renewed in Q4 2017. 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 the
beginning of 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 Q4 2017 report and the Q4 2017 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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