Operational EBIT of DKK 303 Million for the Third Quarter of 2019
05.11.2019
Presentation: 
Q3 2019 Report:
The Bakkafrost Group delivered a total operational EBIT of DKK 303.4 million in Q3 2019. Harvested volumes were 12.9 thousand tonnes gutted weight. The combined farming and VAP segments made an operational EBIT of DKK 257.3 million. The farming segment made an operational EBIT of DKK 231.5 million. The salmon spot prices decreased significantly in Q3 2019, compared to the previous quarter. The price decrease had a negative effect on the operational EBIT in the farming segment, while it had a positive effect on the operational EBIT in the VAP segment. The VAP segment made an operational EBIT of DKK 25.9 million. The EBITDA for the FOF segment was DKK 94.5 million.
(Figures in parenthesis refer to the same period last year unless otherwise specified)
The Group made a profit for Q3 2019 of DKK 180.9 million (DKK 355.9 million). For the first nine months of 2019, the profit was DKK 582.4 million (DKK 966.9 million).
Commenting on the result, CEO Regin Jacobsen said:
"Despite 10% lower salmon spot prices during the third quarter for 2019, compared to the same quarter last year, Bakkafrost has delivered strong operational results this quarter. The average size of the harvested salmon has been exceptionally high, which has put us in a very good position to withstand the difficult market situation. The biological performance has been very good with high growth rates for the salmon. Sea lice and mortality rates have been mongst the lowest for many years. This is a result of committed and skilled employees and a strong effort on a continuous improvement of the biology and the welfare of the salmon."
The total volumes harvested in Q3 2019 were 12,938 tonnes gutted weight (7,217 tgw). Total harvested volumes in the first nine months of 2019 were 39,254 tonnes gutted weight (32,356 tgw). The guidance for harvest in 2019 is maintained at 54,500 tonnes gutted weight.
2.4 million (3.3 million) smolts were transferred during Q3 2019. During the first nine months of 2019, 7.7 million (9.2 million) smolts were transferred. 0.8 million smolts - out of the 13.5 million smolts, which were expected to be released in 2019 - will be postponed for release in Q1 2020 in order to reduce the risk associated with smolt release during the coldest weeks of the year. Thus, the new expected smolt release for 2019 is 12.7 million smolts.
The combined farming and VAP segments made an operational EBIT of DKK 257.3 million (DKK 142.4 million) in Q3 2019. The operational EBIT per kg in Q3 2018 was DKK 19.89 (DKK 19.73), which corresponds to NOK 26.25 (NOK 25.34) for the combined farming and VAP segments. For the first nine months of 2019, the combined farming and VAP segments made an operational EBIT of DKK 791.8 million (DKK 735.5 million).
The farming segment made an operational EBIT of DKK 231.5 million (DKK 139.6 million) in Q3 2019. The harvested volumes were higher, but the achieved prices were lower in Q3 2019, compared to Q3 2018. For the first nine months of 2019,
the operational EBIT was DKK 764.7 million (DKK 761.3 million).
The VAP segment made an operational EBIT of DKK 25.9 million (DKK 2.8 million) for Q3 2019. For the first nine months of 2019, the operational EBIT was DKK 27.1 million (DKK -25.8 million).
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 94.5 million (DKK 41.4 million) for Q3 2019, and the EBITDA margin was 19.5% (11.7%). The EBITDA was DKK 218.1 million for the first nine months of 2019 (DKK 193.9 million), corresponding to an EBITDA margin of 20.8% (19.8%).
During Q3 2019, Havsbrún sourced 17,845 tonnes (7,496 tonnes) of raw material, and for the first nine months of 2019, Havsbrún sourced 243,484 tonnes (255,987 tonnes) of raw material.
On 25 September 2019, Bakkafrost signed a Share Purchase Agreement to acquire 68.6% of the outstanding shares in the Scottish Salmon Company (SSC) from Northern Link Ltd. The closing date is 8 October 2019. Following the signing of the Share Purchase Agreement Bakkafrost acquired additional 9.2% of the shares in SSC in Q3 2019.
SSC is a fully integrated salmon farming business operating exclusively in Scotland with 60 sites across the West Coast and Hebridean Islands. The company is engaged in nearly all stages of the value chain ensuring full traceability and total supply chain integrity. The current annual production capacity is 50,000 tonnes. SSC produced 29,913 tonnes gutted weight in 2018 and exported to 26 countries with a focus on North America and the Far East. SSC has developed a range of strong flagship brands, including Native Hebridean Salmon, Tartan Salmon Label Rouge and Lochlander Salmon. The company has over 600 employees.
Bakkafrost has chosen to increase the company's share capital for the acquisition of SSC. The acquisition is therefore carried out without substantial increase in Bakkafrost's external financing.
The net interest-bearing debt amounted to DKK -1,271.5 million, and thus positive, at the end of Q3 2019 (DKK 495.5 million at year-end 2018). Undrawn credit facilities amounted to DKK 1,481.0 million at the end of Q3 2019.
The equity ratio was 68% at 30 September 2019, compared to 70% at the end of 2018.
OUTLOOK
Market
According to the latest estimate from Kontali Analyse the global supply of Atlantic salmon in Q3 2019 increased around 13%, compared to Q3 2018. The global harvest of Atlantic salmon in Q4 2019 is expected to increase 3%, compared to Q4. The estimated global supply of Atlantic salmon for 2019 is an increase of around 7%, compared to 2018.
The supply of Atlantic salmon will be tight in 2020, as global supply in 2020 is estimated to increase around 4%, compared to estimated supply in 2019.
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.
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 follow this strategy.
The biological performance in 2019 has been strong with good growth and low mortality rates. There are clear signs that the large smolt and non-medical delousing strategies are working successfully.
Bakkafrost's guidance for harvest in 2019 is maintained at 54,500 tonnes gutted weight. In 2020, Bakkafrost expects to harvest 57,000 tonnes gutted weight, excluding the harvest from The Scottish Salmon Company.
Bakkafrost expects to release 12.7 million smolts in 2019, compared to 12.6 million smolts in 2018 and 9.9 million smolts in 2017. This is 0.8 million smolts less than previously expected and is caused by the decision to postpone the release of 0.8 million smolts to Q1 2020 hereby reducing the risk associated with releasing smolt during the coldest weeks of the year. This is made possible by the increased smolt capacity on land from the Strond hatchery. Bakkafrost expects to release 15.0 million smolts in 2020, excluding the smolt release in The Scottish Salmon Company. 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 40% for the expected harvested volumes in Q4 2019 and 26% for the harvest volume of 2020. 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 2019 recommendation for blue whiting is 1,143 thousand tonnes, which corresponds to a decrease of 18%, compared to ICES's recommendation for 2018. The ICES 2020 recommendation for blue whiting is 1,162 thousand tonnes.
Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2019, compared to 2018. Havsbrún has increased the expectation for sales of fish feed in 2019 to be at 98,000 tonnes, depending on external sales. Havsbrún's sales of fish feed for 2020 is expected to be 110,000 tonnes.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost's internal use of fish feed.
Investments
Bakkafrost's investment program for the period from 2019 to 2022, excluding investments in The Scottish Salmon Company, will amount to DKK 2.5 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. The aim of the investment program 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.
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, 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.
During Q3 2019, Bakkafrost increased the company's share capital for the acquisition of SSC. The acquisition was therefore carried out without substantial increase in Bakkafrost's external financing.
Acquisitions
In Q3 2019, Bakkafrost signed a binding Share Purchase Agreement to acquire 68.6% of The Scottish Salmon Company (SSC) to be closed in Q4 2019. This was followed by an acquisition of additional 9.2% of the shares in SSC in Q3 2019. Bakkafrost intends to acquire the remaining shares of SSC during Q4 2019. Bakkafrost will do this through a mandatory offer for the remaining shares in SSC, followed by a compulsory offer for the last 10% of the shares in case more than 90% ownership is reached by the mandatory offer.
At the time of publication of this report (5 Nov 2019), Bakkafrost has acquired additional shares in SSC and holds a total of 80.77% of the shares.
The acquisition of SSC is financed by issuing new shares in Bakkafrost, and Bakkafrost intends to delist SSC from Oslo Børs if 100% ownership of the company is obtained.
More information about the acquisition of SSC, including the strategic rationale behind the acquisition, can be found in Note 9 in the Company's Q3 2019 report.
Please find the Company's Q3 2019 report and the Q3 2019 presentation enclosed.
Contacts:
- 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.
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 and Vágur, and secondary processing (VAP) in Glyvrar. The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and Suðuroy. The Group has broodstock operations in Streymoy and Sandoy and is building a biogas plant in Streymoy. The headquarter is located in Glyvrar, and the company has 1.055 employees.
In Q3 2019 the Group signed a Share Purchase Agreement to acquire 68,6% of the shares in The Scottish Salmon Company.
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