The Bakkafrost Group delivered a total operating EBIT of DKK 407.9 million in Q2
2018. Harvested volumes were 12.9 thousand tonnes gutted weight. The combined
farming and VAP segments made an operational EBIT of DKK 376.3 million. The
farming segment made an operational EBIT of DKK 393.2 million. The salmon spot
prices increased in Q2 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 -16.9 million. The EBITDA for
the FOF segment was DKK 66.0 million.
The Group made a profit for Q2 2018 of DKK 338.8 million (DKK 398.1 million).
For H1 2018, the profit was DKK 611.1 million (DKK 477.1 million).
The total volumes harvested in Q2 2018 were 12,902 tonnes gutted weight (18,402
tgw). Total harvested volumes in H1 2018 were 25,139 tonnes gutted weight
(31,560 tgw). Bakkafrost has reduced its guidance for volumes for 2018 by 2,000
tonnes gutted weight, from 51,000 tonnes to 49,000 tonnes gutted weight.
2.8 million (1.9 million) smolts were transferred during Q2 2018. In H1 2018,
5.9 million (3.3 million) smolts were transferred.
Commenting on the result, CEO Regin Jacobsen said:
"The salmon price was good in the second quarter, and although the price fell
throughout the quarter, the result for Bakkafrost was good for the second
quarter. Bakkafrost has in recent years made large investments to develop the
company and now we are pleased to announce a new investment plan for the period
from 2018 to 2022. Bakkafrost expects to make investments of around DKK 3
billion during this period. The salmon farming business has developed
dramatically since it started in the Faroe Islands. We foresee great
opportunities for development in the future and to be able to transfer these
opportunities into realities, large investments are needed."
The combined farming and VAP segments made an operational EBIT of DKK 376.3
million (DKK 435.0 million) in Q2 2018. The operational EBIT per kg was DKK
29.17 (DKK 23.64) in Q2 2018, which corresponds to NOK 37.41 (NOK 29.77) for the
combined farming and VAP segments. For H1 2018, the combined farming and VAP
segments made an operational EBIT of DKK 593.1 million (DKK 755.2 million).
The farming segment made an operational EBIT of DKK 393.2 million (DKK 489.5
million) in Q2 2018. The harvested volumes were lower, and the average spot
price was higher in Q2 2018, compared to Q2 2017. For H1 2018, the operational
EBIT was DKK 621.6 million (DKK 862.7 million).
The VAP (Value Added Products) segment made an operational EBIT of DKK -16.9
million (DKK -54.5 million) for Q2 2018. The VAP segment has had negative
results from Q2 2016 until Q3 2017, when it turned to a surplus, but the salmon
spot prices increased again in Q1 2018, resulting in negative margins. For H1
2018, the operational EBIT was DKK -28.5 million (DKK -107.5 million).
The FOF segment (Fishmeal, Oil and Feed) made an EBITDA of DKK 66.0 million (DKK
47.8 million) for Q2 2018, and the EBITDA margin was 20.2% (15.1%). The EBITDA
was DKK 152.5 million in H1 2018 (DKK 93.0 million), corresponding to an EBITDA
margin of 24.3% (15.6%).
During Q2 2018, Havsbrún sourced 118,387 tonnes (163,100 tonnes) of raw
material, and in H1 2018, Havsbrún sourced 248,491 tonnes (269,667 tonnes) of
raw material.
In accordance with Bakkafrost's dividend policy and the resolution of the Annual
General Meeting 2018, Bakkafrost paid out DKK 10.50 (NOK 13.52) per share on 30
April 2018. The total dividend payment was DKK 513.0 million (NOK 660.6
million).
In Q2 2018, Bakkafrost's full-time employees from 2017, still employed in
Bakkafrost, have received bonus shares with the value of 2% of their salary in
2017. In total, Bakkafrost allocated 14,206 shares to its employees. The total
allocation amounted to DKK 5.2 million and was based on the closing share price
on the allocation day, 14 June 2018.
Bakkafrost has through its recently established subsidiary, Bakkafrost US signed
an agreement in Q2 2018 to acquire the business and assets in North Landing,
which is a US salmon importer focusing on the East Coast and has a sales office,
handling and processing facilities in Clifton, New Jersey, USA. Through the
acquisition, Bakkafrost will have a better market access and better abilities to
serve Bakkafrost's customers in the US market. The acquisition of North Landing
has been closed in Q3 2018.
Bakkafrost relinquished farming sites A-03 Svínáir and A-17/18 Hovsfjørður in
July 2016 to comply with Faroese law, when acquiring the remaining outstanding
shares in P/F Faroe Farming, which had farming operations in Suðuroy, Faroe
Islands. Faroe Farming has since been merged with P/F Bakkafrost Farming.
Bakkafrost has been in dialogue with the Faroese Authorities on how the farming
operation in Suðuroy could be structured. In Q2 2018, the conclusion was made,
which resulted in Bakkafrost relinquishing farming site A-82 Kaldbaksfjørður and
getting back A-17/18 Hovsfjørður. In this restructuring Bakkafrost will have
future farming opportunities in A-23 Hvalbiarfjørður, which will be part of the
farming site A-15/16 Trongisvágsfjørður. Hvalbiarfjørður is a frontier farming
area where preliminary research has been done. Bakkafrost will now start
building up these new farming sites.
The net interest-bearing debt amounted to DKK 443.3 million at the end of Q2
2018 (DKK 258.1 million at year-end 2017). Undrawn credit facilities amounted to
DKK 1,039 million at the end of Q2 2018.
The equity ratio was 68% at 30 June 2018, compared to 70% at the end of 2017.
OUTLOOK
Market
The latest update from Kontali Analyse estimates that the global supply of
Atlantic salmon increased around 8% in Q2 2018, compared to Q2 2017. The growth
comes from Norway and Chile, which have increased the forecast for 2018 since Q1
2018. The global harvest growth is expected to be around 6-8% in 2018.
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.
Investments
Bakkafrost has since 2013, when the first five-years investment program was
announced, invested in its value chain to prepare the company for the future.
The last update on the investment program was in June 2016, when investments
from 2016 to 2020 were announced. The total investments for the 2016 to 2020
period was DKK 2.2 billion, including maintenance CAPEX.
Bakkafrost has updated the investment program and is pleased to announce an
investment program for the period from 2018 to 2022. The new investment program
builds on the same strategy set out in the investment program from June 2016,
but also includes new strategic initiatives.
The planned investment program from 2018 to 2022 will amount to DKK 3 billion
over 5 years and will reinforce Bakkafrost's integrated business model. The aim
of the investment program is to minimize the biological risk, increase
efficiency and create sustainable organic growth.
Maintenance capex is included in the investment program.
Over the next five years Bakkafrost will use around DKK 425 million in the
fishmeal, oil and feed business to increase feed capacity and feed line
capabilities. Investment will also be made to increase the fish oil capacity to
support marine index.
Bakkafrost has taken the full responsibility of the Faroese broodstock program
and obtains the genome rights in 2021. In the new investment program, Bakkafrost
expects to invest around DKK 200 million in a new site to run the broodstock
program in a totally closed land-based system.
Investment in the farming operation will be around DKK 1.3 billion over the next
five years. Investments in new sites in Suðuroy will together with the large
smolt strategy add a further capacity of 10 thousand tonnes. Farming site A
-17/18 Hovsfjørður has already started operation, and A-23 Hvalbiarfjørður is
expected to start operation in H1 2019. Investment will be in transportation of
fish and selected R&D investment to cater growth beyond current horizon.
Bakkafrost's sustainability commitment is also seen in the new investment plan.
Bakkafrost has - as part of Bakkafrost's 2020 Healthy Living Plan - decided to
build a biogas plant. The biogas investment is included in the farming operation
investment.
Bakkafrost will continue the existing smolt projects and launch new projects to
support the large smolt strategy for the new farming areas. Construction of a
new hatchery in Suðuroy for large smolt production is expected to commence early
2019. Bakkafrost's investments in smolt operation in the next five years will be
around DKK 1 billion.
Bakkafrost has recently invested in a new state of the art VAP factory in
Glyvrar. Investments in the VAP segment will be around DKK 85 million in the
next five years.
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 49,000 tonnes gutted weight in 2018. The reduction
of the 2018 harvest forecast of 2,000 tonnes gutted weight - from 51,000 tonnes
gutted weight previously - is due to earlier harvest in A-13 Borðoyarvík in Q2
2018 because of precautionary action to maintain a good biological situation.
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.
VAP (Value Added Products)
Bakkafrost has signed contracts covering around 12% of the expected harvested
volumes for the rest of 2018. The contract coverage is reduced, compared to the
previous year. 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 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 80,000 tonnes,
depending on external sales.
The new salmon meal and salmon oil plant started operation early in Q3 2018.
This operation will increase the value of offcuts from salmon harvested and
processed in the new harvest/¬VAP factory at Glyvrar.
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, which is unchanged although a new investment
program is announced.
Please find the Company's Q2 2018 report and the Q2 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 headquarters are located in Glyvrar, and the company
has 960 fulltime employees.
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