Operational EBIT of DKK 415 Million for the Fourth Quarter of 2019
25.02.2020
Interim Report: 
Presentation:
The Bakkafrost Group delivered a total operating EBIT of DKK 415.3 million in Q4 2019. Harvested volumes for the Group were 25.9 thousand tonnes gutted weight, whereof 17.9 thousand tonnes were harvested in the Faroe Islands (FO) and 7.9 thousand tonnes in Scotland (SCO). The combined Farming FO and VAP segments made an operational EBIT of DKK 374.9 million. The farming segment made an operational EBIT of DKK 338.3 million in the Faroe Islands (FO) and DKK 18.1 million in Scotland (SCO). Achieved prices and volumes in the Faroese operations increased and thus had a positive effect on the operational EBIT. The VAP segment made an operational EBIT of DKK 36.6 million. The EBITDA for the FOF segment was DKK 57.7 million.
(Figures in parenthesis refer to the same period last year unless otherwise specified)
On the 8[th] of October 2019, Bakkafrost acquired majority of the Scottish Salmon Company (SSC). From this date, SSC is a part of the Bakkafrost Group and is consolidated into Bakkafrost's accounts. Unless otherwise stated, all figures presented in this press release include SSC from this date on. SSC's figures prior to this date are not included in the figures for the Group for the full year 2019 or in other comparative figures prior to this date.
The Group made a profit for Q4 2019 of DKK 219.5 million (DKK -6.6 million). For 2019, the profit was DKK 801.9 million (DKK 960.3 million).
Commenting on the result, CEO Regin Jacobsen said:
"We are satisfied with the result for 2019. The beginning of the fourth quarter was characterized by high supply of small fish, which caused disruption in the market. At the end of the quarter supply pressure shifted to demand driven growth. Our harvested volumes in the Faroe Islands were the highest ever for a fourth quarter - with record big fish - the revenue and operational result was also record high for a fourth quarter. The biological performance has been very good. The new Strond Hatchery is up-scaling production and contributes from now on significantly to our operation. We are pleased about the VAP segment's good
results for the quarter.
2019 has been an eventful year for Bakkafrost. We have made a giant leap into a new geography by the acquisition of The Scottish Salmon Company. This acquisition has increased the scale of our operation significantly and brought us new possibilities to exploit for many years ahead. We are very excited about this but do realize that it will take time before we will really see results of the investments we will do in the Scottish operation. We are convinced that this is possible, however, with the committed people we have in the organization in Scotland and in the Faroe Islands."
The total volumes harvested in Q4 2019 were 25,855 tonnes gutted weight, whereof 17,930 tonnes were harvested in the Faroe Islands (12,234 tgw) and 7,925 tonnes in Scotland. Total harvested volumes in 2019 were 65,109 tonnes gutted weight: 57,184 tonnes in the Faroe Islands (44,591) and 7,925 tonnes in Scotland.
In total, 10.7 million (3.3 million) smolts were transferred during Q4 2019, whereof 5.0 million were transferred in FO and 5.7 million were transferred in SCO. During 2019, 18.3 million (12.5 million) smolts were transferred: 12.7 million in FO and 5.7 million in SCO.
The combined FO farming and VAP segments made an operational EBIT of DKK 374.9 million (DKK 207.7 million) in Q4 2019. The operational EBIT per kg in Q4 2019 was DKK 20.91 (DKK 16.98), which corresponds to NOK 28.25 (NOK 21.91) for the combined FO farming and VAP segments. For 2019, the combined FO farming and VAP
segments made an operational EBIT of DKK 1,166.7 million (DKK 943.2 million).
The FO farming segment made an operational EBIT of DKK 338.3 million (DKK 204.4 million) in Q4 2019. The harvested volumes and the achieved prices were higher in Q4 2019, compared to Q4 2018. For 2019, the operational EBIT was DKK 1,103.0 million (DKK 965.7 million).
The SCO farming segment made an operational EBIT of DKK 18.1 million in Q4 2019.
The VAP segment made an operational EBIT of DKK 36.6 million (DKK 3.3 million) for Q4 2019. For 2019, the operational EBIT was DKK 63.7 million (DKK -22.4 million).
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 57.7 million (DKK 60.4 million) for Q4 2019, and the EBITDA margin was 17.1% (21.0%). The EBITDA was DKK 275.8 million for 2019 (DKK 254.3 million), corresponding to an EBITDA margin of 19.9% (20.0%).
During Q4 2019, Havsbrún sourced 35,180 tonnes (46,478 tonnes) of raw material, and for 2019, Havsbrún sourced 278,664 tonnes (302,465 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 was 8 October 2019. Further acquirements in Q4 2019 resulted in Bakkafrost holding 95.6% of the shares at year end.
SSC is an 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 33,799 tonnes gutted weight in 2019 and exported to 21 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 651 employees.
Bakkafrost chose to increase the company's share capital for the acquisition of SSC. The acquisition was therefore carried out without substantial increase in Bakkafrost's external financing.
Bakkafrost aims at giving the shareholders a competitive return on their investment, both through payments of dividends and by value growth 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. Bakkafrost's financial position is strong with a solid balance sheet, a competitive operation and available credit
facilities. The Board of Directors proposes to the Annual General Meeting that DKK 8.31 (NOK 11.23*) per share shall be paid out as dividend. The Annual General Meeting will be convened on Friday the 3[rd] of April 2020.
The net interest-bearing debt amounted to DKK 1,018.7 million at the end of 2019 (DKK 495.5 million). Undrawn credit facilities amounted to DKK 2,470.0 million at the end of Q4 2019.
*The dividend per share in NOK is subject to changes depending on the exchange rate between NOK and DKK, which will be announced after the Annual General Meeting.
OUTLOOK
Market
The global supply of Atlantic salmon increased around 3% in Q4 2019, compared to Q4 2018, according to the latest estimate from Kontali Analyse.
In Q1 2020, the global harvest of Atlantic salmon is expected to increase around 1%, compared to Q1 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 4%, compared to 2019.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. During 2019, 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 in the Faroe Islands is good, and the overall operational performance is very good. There are many possibilities in the Scottish operation, it will however take time to transform its operational performance. The estimates for harvest volumes and smolt releases in both geographies 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, including farming supply vessels for mechanical delousing and mechanical cleaning of nets in the pens. During 2019, Bakkafrost's specialized crews onboard these vessels have further refined their skills and methods resulting in improved fish welfare.
The quality and performance of the smolts have also increased significantly and there are clear signs that the large smolt and non-medical delousing strategies are working successfully in the Faroe Islands. Looking ahead, Bakkafrost will extend these strategies into the farming operation in The Scottish Salmon Company.
Overall, the biological performance in the Faroese operation has been strong during 2019 with good growth and low mortality rates.
In 2020, Bakkafrost expects to harvest 57,000 tonnes gutted weight in the Faroe Islands and 35,000 tonnes gutted weight in Scotland.
Farming SCO has signed contracts for around 32% of the expected harvest volumes in Farming SCO in 2020. These contracts usually last for 12 months.
Bakkafrost expects to release 15.0 million smolts in 2020 in the Faroe Islands, compared to 12.7 million smolts in 2019 and 12.6 million smolts in 2018. The smolt release in Scotland is expected to be 10.7 million smolts in 2020, compared to 12.4 million smolts in 2019 and 8.6 million smolts in 2018.
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% of the expected Faroese harvest volumes in Q1 2020 and 30% of the harvest volume for 2020. Bakkafrost's long-term strategy is to sell around 40-50% of the Faroese 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 2020 recommendation for blue whiting is 1,162 thousand tonnes, which corresponds to an increase of 2%, compared to ICES's recommendation for 2019.
Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2020, compared to 2019.
Havsbrún has increased the expectation for sales of fish feed in 2020 to be at 110,000 tonnes, depending on external sales.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost FO's internal use of fish feed.
Investments
Bakkafrost's investment programme for the period from 2020 to 2022, excluding investments in The Scottish Salmon Company, will amount to around DKK 1.8 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 in the Faroe Islands. The aim of the investment programme 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.
In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments of around 350 mDKK per year for 2020-2024 in The Scottish Salmon Company.
Financial
Favourable market balances in the world market for salmon products and cost -conscious production will likely maintain the financial flexibility going forward.
During Q4 2019, Bakkafrost refinanced its bank facilities amounting to 352 mEUR with a further accordion option of 150 mEUR. In addition, bank facilities amounting to 100 mGBP were ensured to refinance The Scottish Salmon Company.
Bakkafrost also issued shares in Q3 and Q4 2019 amounting to 5,142 mNOK to finance the acquisition of The Scottish Salmon Company.
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 in the Faroe Islands as well as in Scotland, hereby strengthening the Group, enabling M&A's and organic growth opportunities as well as to fulfil its unchanged dividend policy in the future.
Please find the Company's Q4 2019 report and the Q4 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 and the second largest salmon farmer in Scotland. 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 (Faroe Islands). The Group has primary processing in Glyvrar and Vágur (Faroe Islands), and secondary processing (VAP) in Glyvrar (Faroe Islands). The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and Suðuroy (Faroe Islands) and in Scotland. The Group has broodstock operations in Streymoy and Sandoy (Faroe Islands) and in Scotland. The Group is also building a biogas plant in Streymoy (Faroe Islands) which will begin operation in Q1 2020. The headquarter is located in Glyvrar (Faroe Islands) and has sales and administration offices in Grimsby (UK), Edinburgh (Scotland) and in New Jersey (US). The Bakkafrost Group has 1,510 employees (full-time equivalents).
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