Bakkafrost : Operational EBIT of DKK 182 Million for the Second Quarter of 2020

The Bakkafrost Group delivered a total operating EBIT of DKK 181.9 million in Q2 2020. Total harvested volumes were 20.9 thousand tonnes gutted weight (tgw). Faroe Islands (FO): 12.9 tgw, Scotland (SCT): 7.9 tgw. The combined FO farming and VAP segments made an operational EBIT of DKK 134.4 million. The FO farming segment made an operational EBIT of DKK 85.8 million. The SCT farming segment made an operational EBIT of DKK 28.8 million. Volumes increased and thus had a positive effect on the operational EBIT. The VAP segment made an operational EBIT of DKK 48.6 million. The EBITDA for the FOF segment was DKK 49.9 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 Q2 2020 of DKK 471.7 million (DKK 188.6 million). For H1 2020, the profit was DKK 323.7 million (DKK 401.4 million). Total harvested volumes for Q2 2020 were 20,878 tonnes gutted weight, whereof 12,941 tgw were harvested in the Faroe Islands (12,609 tgw) and 7,937 tgw were harvested in Scotland. Total harvested volumes in H1 2020 were 38,813 tgw (26,316 tgw), whereof 23,608 tgw were harvested in the Faroe Islands (26,316 tgw) and 15,205 tgw were harvested in Scotland (n/a). In total, 5.8 million (3.6 million) smolts were transferred during Q2 2020: 2.9 million (3.6 million) in the Faroe Islands and 2.8 million (n/a) in Scotland. In H1 2020, 9.1 million (5.3 million) smolts were transferred: 5.2 million (5.3 million) in the Faroe Islands and 3.9 million (n/a) in Scotland.

Commenting on the result, CEO Regin Jacobsen said:

"H1 2020 has been severely affected by the Covid-19 pandemic. Together with increased transportation costs and currency movements, this has had a negative impact on our financial results. We are, however, pleased to have positive results in all segments: VAP, FOF and the farming segments in the Faroe Islands and Scotland. We are also grateful that we have been able to keep our employees safe during the pandemic and of having been able to maintain the supply of healthy and safe salmon products to our customers.

In this quarter we are especially content with the strong results from our VAP segment which has produced higher volumes than ever before in order to serve the increased demand from our retail customers. The flexibility in our integrated value chain has proven its value and demonstrated our ability to adapt quickly to changes in market dynamics.

We are also pleased by the benefits that are now beginning to materialize in the operation in Scotland as well as from our large investment programme. The new hatchery at Strond is now in full operation delivering a substantive share of our required smolt volume in the Faroe Islands and with steady increase in average smolt size. The farming segment will greatly benefit from this improvement over the coming quarters. In Scotland, we have taken important steps to implement the strategy with the initiated expansion of the Applecross hatchery. Finally, our new biogas plant has commenced operation and will during the coming months start producing clean energy and contribute to achieving our ambitious carbon reduction target to halve our CO2-emission by 2030.

Looking forward, we expect the Covid-19 pandemic to continue for some time, challenging the global market for salmon and making the outlook hard to predict. We believe, however, that the long-term outlook is still good as the fundamentals in the protein market have not changed."

 

The combined FO farming and VAP segments made an operational EBIT of DKK 134.4 million (DKK 303.4 million) in Q2 2020. The operational EBIT per kg in Q2 2020 was DKK 10.38 (DKK 24.06), which corresponds to NOK 15.34 (NOK 31.31) for the combined FO farming and VAP segments. For H1 2020, the combined FO farming and VAP segments made an operational EBIT of DKK 326.5 million (DKK 534.5 million).

The FO farming segment made an operational EBIT of DKK 85.8 million (DKK 303.4 million) in Q2 2020. The harvested volumes were slightly higher, and the achieved prices were lower in Q2 2020, compared to Q2 2019. For H1 2020, the operational EBIT was DKK 288.7 million (DKK 533.2 million).

The SCT farming segment made an operational EBIT of DKK 28.8 million in Q2 2020. For H1 2020, the operational EBIT was DKK 58.5 million.

The VAP segment made an operational EBIT of DKK 48.6 million (DKK 0.0 million) for Q2 2020. For H1 2020, the operational EBIT was DKK 37.8 million (DKK 1.3 million).

The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 49.9 million (DKK 58.4 million) for Q2 2020, and the EBITDA margin was 18.6% (20.6%). The EBITDA was DKK 90.1 million in H1 2020 (DKK 123.6 million), corresponding to an EBITDA margin of 15.6% (21.8%).

During Q2 2020, Havsbrún sourced 122,512 tonnes (110,109 tonnes) of raw material, and in H1 2020, Havsbrún sourced 187,319 tonnes (225,639 tonnes) of raw material.

In Q2 2020, Bakkafrost's full-time employees from 2019, still employed in Bakkafrost, have received bonus shares with the value of 2% of their salary in 2019. In total, Bakkafrost allocated 14,368 shares to its employees. The total allocation amounted to DKK 6.2 million and was based on the closing share price on the allocation day, 3 June 2020.

The net interest-bearing debt amounted to DKK 1,116 million at the end of Q2 2020, compared to DKK 1,019 million at year-end 2019. Undrawn credit facilities amounted to DKK 2,323 million at the end of Q2 2020.

The equity ratio was 69% at 30 June 2020, compared to 65% at the end of 2019.

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, but due to the uncertainty imposed by the Covid-19 pandemic in Q1 2020, the Board of Directors have previously decided to postpone the decision on dividend payment for 2019 until Bakkafrost's H1 presentation on 25 August 2020, at which time the Board of Directors expected the level of uncertainty to have reduced. The Board of Directors have now concluded that the uncertainty is still high and have therefore decided not to propose payments of dividends for 2019.

 

OUTLOOK

Market

The global harvest of Atlantic salmon was 3.4% higher in Q2 2020, compared to Q2 2019, according to the latest estimate from Kontali Analyse. The market was affected negatively by the market disruption caused by the Covid-19 pandemic.

Looking forward, the market dynamics will still be affected by the Covid-19 situation which imposes greater than normal uncertainty to the market development estimates. In Q3 2020, the global harvest of Atlantic salmon is expected to increase around 5%, compared to Q3 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 3-4%, compared to 2019.

Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. The Covid-19 pandemic has caused significant impact in the global market, especially in the food service segment. These issues will continue for some time, but a high focus has been kept to ensure the flow in the market, and Bakkafrost aims to balance the market diversification to reduce market risk.

Farming

The size of transferred smolt is increasing and will gradually impact the farming output over the next couple of years. The losses of fish to the severe storm, that hit the Faroe Islands in late February, caused a severe damage and took the harvest volume down from expected 57,000 tonnes to 50,000 tonnes in 2020. The operation in Scotland is gradually improving its key performing indicators and is expected to improve further over the coming years as further investments in the operation will add benefits.

Bakkafrost focuses on reducing biological risk continuously and has over the past years made significant investments to diminish this risk, but also to improve efficiency and ensures sustainable growth.

The Strond hatchery is now in full operation producing high-quality smolts and gradually increasing the average smolt size to reach 500g as part of Bakkfrost's large-smolt strategy. This strategy will also be extended to the Scottish farming operation where the plan is to invest in 2 or 3 large hatcheries in the coming years in order to become self-sufficient with large smolts.

Overall, the biological performance in the Faroese and Scottish operations have been strong during Q2 2020.  Bakkafrost's expected harvest volume in 2020 in the Faroe Islands is 50,000 tonnes gutted weight, while the expected harvest in 2020 in Scotland is 39,000 tonnes gutted weight. Harvest volumes for 2021 in the Faroe Islands are expected to reach 62,500 tonnes gutted weight and 44,000 tonnes gutted weight in Scotland.

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 and average weight of smolts released are key elements of predicting Bakkafrost's future production.

The estimates for harvest volumes and smolt releases in both geographies are dependent on the biological development.

VAP (Value Added Products)

Bakkafrost has made large investments in building a highly flexible value chain which includes a state-of-the-art VAP factory with high capacity. This enables Bakkafrost to adapt well to the rapidly changing market situations, which is a great advantage during market disruptions as the one seen during the Covid-19 pandemic.  Due to the flexibility and large capacity of the VAP factory, Bakkafrost has been able to meet the significantly increased demand from the retail segment by redirecting volumes into the VAP segment.

Bakkafrost has signed contracts covering around 33% of the expected harvest volumes for H2 2020. These contracts usually last for 12 months.

Bakkafrost's long-term strategy is to sell around 40% of the harvested volumes of salmon as VAP products at contracts. The 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's sales of fish feed in 2020 are expected to be 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.

Bakkafrost's recently finished Biogas plant is an important step-stone on Bakkafrost's sustainable growth path, as it delivers an efficient and sustainable solution to waste management. By converting the growing biological waste from the increasing operation into clean energy, the biogas plant alone is expected to save the environment from 11,000 tonnes of CO2 per year.

In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments of around DKK 350 million per year for 2020-2024 in The Scottish Salmon Company. A significant part of this will be invested in building increased smolt capacity in order to become self-sufficient with large smolt.

Financial

Despite the uncertainties imposed by the Covid-19 pandemic, long term market balances in the world market for salmon products will most likely remain favourable for Bakkafrost. Bakkafrost has a long value chain and a cost-efficient production of high-quality salmon products and 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.

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.

Covid-19 pandemic

Bakkafrost plays an important role in ensuring healthy food for the world's growing population, and this role is especially important in the difficult times the world is facing at present.

During the Covid-19 pandemic, Bakkafrost's ability to operate in the Faroe Islands has not been affected by the pandemic, and the operation in Scotland has been only mildly affected. A range of preventive measures have been implemented to protect our workforce and ensure continuous production. New procedures and social distancing are implemented widely in the business, and production and office facilities have been modified where necessary to prevent infection. In the Faroe Islands, all our employees are offered regular free Covid-19 screening by health professionals.

As the market situation is significantly affected by the Covid-19 pandemic, Bakkafrost is taking all necessary steps to protect the business and constantly adapts to the changing market conditions and shifting demands from customers.

Please find the Company's Q2 2020 report and the Q2 2020 presentation enclosed.

 

Contacts:

 
·
Regin Jacobsen, CEO of P/F Bakkafrost: [phone] (mobile)

· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: [phone] (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 has built a biogas plant in Streymoy (Faroe Islands) which started operation in Q2 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 1,663 employees (full-time equivalents).

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