Commenting on the results, CEO Regin Jacobsen said: "Q1 2014 is the quarter where Bakkafrost has had the highest margins per kg since the listing of the company in 2010. The result is based on a good biology and a strong salmon market. Bakkafrost's focus is on maintaining the good biology and selling the products to the best long-term paying markets."
The Group made a profit for the quarter of DKK 87.2 million (DKK 67.5 million).
The total volumes harvested in Q1 2014 were 9,269 tonnes gutted weight (8,296 tgw) an increase of 11.7 per cent.
Bakkafrost transferred 3.0 million smolts in Q1 2014 (2.1 million). Due to the favourable seawater temperatures in the Faroes, Bakkafrost releases smolts during the whole year.
In Q1 2014 the associated company P/F Faroe Farming harvested 2,166 tonnes gutted weigth (2,355 tgw).
On the 24th of April 2014 Bakkafrost – via its 100 per cent owned subsidiary Havsbrún – acquired an additional 41.15 per cent in Hanstholm Fiskemelsfabrik. After the acquisition Bakkafrost owned 81.01 per cent of the company. The 9th May 2014 Bakkafrost divested all its shares in Hansholm Fiskemelsfabrik to FF Skagen A/S. In return Bakkafrost, via its subsidiary P/F Havsbrún, received a 17 per cent share interest in FF Skagen A/S. The transaction is subject to the approval of the Danish competition and Consumer Authority. The investment is a strategic investment and part of the consolidation of the fishmeal and fish oil industry.
In accordance with the Group’s dividend policy, Bakkafrost paid out DKK 4.50 (NOK 4.98) per share in April 2014. The amount corresponds to approximately DKK 219.9 million (NOK 243.3 million). Bakkafrost purchased 366,700 treasury shares at a price of NOK 86 each in December 2013.
In February 2014, a routine surveillance test detected a possible pathogenic ISA-virus at Bakkafrost’s farming site A-80. The detection was not connected to any increase in mortality, and there was no impact on fish health or fish welfare. Bakkafrost decided to activate the ISA-contingency plan immediately and hence enforced slaughtering of the last cage at the farming site A-80 Selatrað. The site was empty before mid February. No signs of ISA have been detected since and no cost increase was related to the detection.
The farming companies and the authorities have high focus to maintaining the good biological status in the Faroe Islands. Regular surveillance tests for ISA-viruses have been performed at all farms during the last approx 10 years in sea sites in the Faroes. Bakkafrost and the other farmers in the Faroe Islands will work with the Faroese Food and Veterinary authority to avoid the introduction of the AGD and ISA.
The combined farming and VAP segment made an operational EBIT of DKK 176.7 million (DKK 101.3 million) in Q1 2014.
The farming segment made an operational EBIT of DKK 186.2 million (DKK 124.5 million). The reason for the improved result is mainly due to higher prices, but also due to higher harvested volumes.
As expected, the VAP segment had a loss on its operations in Q1 due to high salmon spot prices. The VAP segment made an operational EBIT of DKK -9.5 million (DKK -23.2 million) for Q1 2014. There is normally a time lag between the changes in the spot prices and the changes in the contract prices. Even if the contract prices have increased significantly lately, they did not cover the strong spot prices that we have experienced in Q1 2014.
The third segment – fishmeal, oil and feed – made an operational EBITDA of DKK 22.2 million (DKK 24.8 million) in Q1 2014.
In Q1 2014, Havsbrún sourced 44,159 tonnes of raw material (30,938 tonnes).
The Bakkafrost Group had a net interest bearing debt at the end of Q1 2014 amounting to DKK 503.4 million (DKK 641.6 million at year-end 2013) including deposits and losses on financial derivatives relating to the interest bearing debt. Bakkafrost had undrawn credit facilities of approx DKK 804.6 million, of which DKK 16.0 million are restricted at the end of Q1 2014.
Bakkafrost’s equity ratio is 57 per cent , compared to 54 per cent at the end of 2013.
Outlook
Market
The outlook for the salmon market in 2014 is good. We expect a seasonal supply increase during the summer and autumn.
The total Global supply of salmon in 2014 is expected to increase around 8 per cent mainly due to a mild winter in Norway. Based on historical numbers, the salmon marked is in balance, when the supply increases by 6-8 per cent per year, but the previous two years have indicated that the salmon market is stronger than before and can take a supply increase up to 10-12 per cent and still be in balance. In 2013 the average NOS (Independent exporters purchase price, spot from farmers) was NOK 39.07 per kg. Therefore, it is expected that the average NOS price for 2014 will be in the same price range as in 2013.
Bakkafrost expects to sell around 55 per cent of the harvested volume of salmon in the spot market in 2014 and around 45 per cent as VAP.
The market place is one of Bakkafrost’s most significant risk areas. To reduce the exposure to the market risk, Bakkafrost has a geographical approach and a market price approach. To diversify the geographical market risk, Bakkafrost sells its products to some of the largest salmon markets in the world, US, the Far East, Europe and Russia. The sale to Russia has been low the last quarters, as the Russian market is not a strategic market for Bakkafrost.
Farming
The outlook for the farming segment is good. The biological situation is good and the price outlook in the spot market is good. Bakkafrost’s expected harvest is unchanged at 45,000-48,000 tonnes gutted weight in 2014, and Faroe Farming, in which Bakkafrost holds 49 per cent , expects to harvest around 5,000 tonnes in 2014.
The number of smolts released is one key element of predicting the future production for the Group. Bakkafrost’s forecast for the smolt release in 2014 is 11.6 million smolts and shall be compared to the number of smolts released in 2012, when the smolt release was 10.7 million. The same sites are available for smolt release in 2014, as in 2012.
The estimates for harvesting volumes and smolt releases, is as always, dependent on the biological situation. The overall biological situation in the Faroe Islands is good, but the detection of Neoparamoeba perurans in the Faroes and the detection of an ISA virus are new risks to handle. The number of sea lice is lower than in previous years after a coordinated treatment in the Faroe Islands in 2013. The coordinated strategic treatment against lice will continue in 2014.
Fish oil, meal and feed
The major market for Havsbrún´s fish feed is the local Faroese market. It is expected that the total consumption of fish feed in the Faroe Islands will be approximately 90,000-95,000 tons in 2014. Depending on the purchase from external customers in the Faroe Islands and abroad, the sale of fish feed will be approximately 83,000-87,000 tonnes.
With the positive outlook for the fisheries of blue whiting and the establishment of a pelagic fish processing plant next to Havsbrún's production facilities in Fuglafjørður the outlook for sourcing raw material is better than in recent years. Off-cuts from the new processing facility, which Bakkafrost
has a 30 per cent share in, can be used for the production of fishmeal and fish oil. However, depending on supply, demand and the price level, the sourcing of raw material for the production of fish oil and -meal is very uncertain. An alternative to Havsbrún’s production of fish oil and -meal is purchasing these raw materials from other producers, which has been common in recent years.
Investments
In July 2013, Bakkafrost announced a five-year plan for optimising its value chain, resulting in savings, increased production and reduced biological risk. The yearly investments amount to DKK 170 million per year, including maintenance investments of DKK 80-90 million per year. In addition to the yearly investments of DKK 170 million, Bakkafrost is building a new well boat, estimated to DKK 230 million. Thus, the total investments will exceed DKK 1 billion for the 5-year period. The investments in 2014 are estimated to DKK 170 million in addition to prepayment for the well boat amounting to DKK 42 million.
Financial
Improved market balances in the world market for salmon products and costs effective production will likely improve the financial flexibility going forward. A high equity ratio together with the Group’s bank financing and the issuance of bonds, makes Bakkafrost’s financial situation strong, which enables Bakkafrost to carry out its investment plans to further focus on strengthening the Group, M&A’s, organic growth opportunities and fulfil its dividend policy in the future.
