P/F Bakkafrost
OSE:BAKKA
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Good morning, ladies and gentlemen, and welcome to the presentation of the First Quarter of 2018 for Bakkafrost. We will first go through the summary of the quarter and then a brief summary of the market and sales segment information, then the group finals and the outlook. Bakkafrost harvested in this quarter 12,237 tonnes of salmon compared with 13,158 tonnes last year. The feed sales were 13,923 tonnes compared with 19,827 in the first quarter of 2017. The sourcing of raw material for Havsbrún in the first quarter were 130,104 tonnes compared with 106,567 last year. The total revenues for the group amounted to DKK 851 million compared with DKK 854 million last year. The operational EBIT for the group was DKK 268 million compared with DKK 335 million last year. The cash flow from operations were DKK 368 million compared with DKK 365 million last year. The farming and FOF segment had positive results, while the VAP segment had loss in this quarter. The result for the farming segment decreased due to lower salmon prices in the quarter and higher costs. The VAP's result was negative again, but the FOF segment had a very strong result in this quarter. If you look into the numbers, we see that the farming and VAP margin decreased from NOK 29.40 to NOK 22.92 this year. The VAP had a negative margin of NOK 7.10 per kilo compared with NOK 17.62 last year. The farming margin was NOK 24.15 in the first quarter compared with NOK 34.27 last year. The FOF segment delivered a very strong margin of 28.8% compared with 16.3% last year. And the group EBIT was DKK 268 million compared with DKK 335 million last year where the main difference is the cost in the farming segment. If you look briefly into the market and sales for Bakkafrost in this quarter, we see that the sales to Eastern Europe and Asia increased and the sales to EU and U.S. market dropped in the first quarter compared with last year. VAP on contract was at the lowest level for many years in a single quarter. The EU market decreased its revenues from 46% in the first quarter last year to 31% this year. The U.S. market decreased from 19% to 16%. The Asia market increased from 13% to 21%. The Eastern European market increased from 22% to 32% in this quarter. And VAP was changed from 28% last year to 17% this year. The table below in the middle on the right side shows the fresh salmon only. If you look at the development of market prices during the quarter, we see that the reference price increased in Europe and decreased in the U.S. in the second -- and it increased during the quarter from a level of around NOK 51 up to close to NOK 80 during the end of the quarter. This last 6 weeks of this quarter, we saw the highest increase ever of salmon price, 51% compared with where it started, the increase. In 1 quarter, we have seen similar change of price, that was in the third quarter of 2016, but that change was over a longer period than this time. So it was an exceptionally high price increase that happened from middle of February until the end of March this year. The price change was NOK 25.95, which is around 50%, from NOK 51.90 to NOK 77.85. Year-on-year, the changes in average for the quarter, close to NOK 6, which is 8.8% down from NOK 67.07 to NOK 61.14. Quarter-on-quarter, the prices increased NOK 10.98 from NOK 50.16 to NOK 61.14. The supply in this quarter increased 10% compared with the first quarter last year, which corresponds to 45,190 tonnes of salmon. And we see on the graph below that it's especially in January where we saw a high increase of volumes, around 25% increase in volumes in January. And then February, the increase is around 10%, while we saw in March that the increase of volumes were very low. If you look at the supply growth, we see that the market in the first quarter supplied 518,000 tonnes, which is up 10% compared with last year, when it was 470,000 tonnes. Supply from European regions were 314,000 tonnes, which represent nearly 4% increase compared with the first quarter last year. The supply increase from Norway was 5.6%. The increase in supply from Norway was in the first part of the quarter. The average rate of the harvested fish in Norway was 4.9% last year and 5.0 -- sorry, 4.9 kilo last year and 5.0 kilo this year whole fish equivalent. The supply from the U.K. was down 13% compared with the same period last year. The Faroe Islands increased the harvest by 6% compared with last year. The temperature in the North Atlantic in this quarter has been significantly lower than the year before. The Chilean harvest increased 29% in the first quarter 2018 compared with this year -- compared with last year, up to 152,000 tonnes. And supply from Canada increased 4%. If you look at the demand side, we see that the EU consumption increased 6.8% in this quarter compared with last year. The U.S. consumption increased 9%, up to 109,000 tonnes in the first quarter, increasing nearly 9,000 tonnes in the quarter. The U.S. market has been developing very positively both in 2016 and '17 and continues into 2018. We have a great belief in this market and see great potential in the U.S. market going forward. The Russian consumption of salmon in this quarter increased 38% from 14,100 in 2017 to 19,500 in the first quarter 2018. The majority of the growth origins from Chile. Greater China increased consumption by 34% in this quarter, continues its strong growth from 2017. ASEAN increased by 1%. Latin America is up by 16% to 40,000 tonnes. The supply side for this is Chile. The price in this quarter in Latin America were lower than last year. Brazil increased by nearly 60% in this quarter. The Ukraine market increased 13%. And other markets increased their consumption by 6%, up to 68,000 tonnes in the first quarter 2018. If you look at the supply side quarter-by-quarter, we see that there has been that change compared with last year. Last year, we remember that the graph was a line -- more or less a line steady decrease during the year, where we had the largest increase in the first quarter. Now we see that we still expect a modest supply growth for the coming quarters but lower than before. 10% growth is behind us in the first quarter. And for the next 4 quarters, we expect that this supply will drop to around 2% growth each quarter compared with same quarter the year before. There are, however, different scenarios in Europe and Americas where Americas looks to have less supply growth than Europe. However, the supply growth will be stable when we look at the global supply growth, around 2%. The main explanation for the change in the supply picture compared with our estimates in February are, number one, higher harvest in December and January than anticipated by Kontali; number two, lower temperatures during February and March causing lower growth; and number three, the algae issues in Chile causing increased harvest and some increased mortality in February. Then the segment information from Bakkafrost. In the first quarter of 2018, around 78% of the harvest in Bakkafrost came from the West region. The total volumes of Bakkafrost decreased 7% compared with last year. And in the West region, we harvested mainly from [indiscernible] and also our share is from Glyvrar in the South Island. The average weight is 4.7 kilo for the group, but there is a difference in the West and the North. The North had an average weight of 5.1 gutted and the West had an average weight of 4.6. There's also a big difference in the cost of these 2 regions. The difference is around NOK 8 in this quarter, which is exceptionally high. Normally, the difference would be only maybe NOK 1 to NOK 2 in [indiscernible] and the other regions. But in this quarter, the cost in the West corresponds to around NOK 36 per kilo gutted weight harvested, ready for export, while the North is around NOK 28. The cost in the West, I briefly mentioned this at the last presentation, is mainly higher due to the issues we had in last autumn in [indiscernible] with higher increase of [ Calicus ], which came in August/September; and also some algaes that caused low growth and the higher mortalities in this fish. This fish was finished harvested in the first quarter. And in the second quarter, we are now harvesting from the North. The smolt transfer in this quarter was all-time high for the first quarter. This is mainly due to that we moved some transfer from December into January, 3.1 million fish. And as mentioned, the seawater temperature in North Atlantic in general had been lower than years before. In the last 12 or 14 years, we have never measured as low temperature in March/April as this year. And average for this quarter, the temperature was 0.78 degrees lower than last year. The average temperature in the first quarter were 6.17 degrees measured in our farming sites. The operational revenues for the farming segment was DKK 667 million, and the EBIT, DKK 228 million. This is a margin on 34%. The picture below are from last Sunday when I had a trip visiting our farming sites in the North. This is Haraldssund, where we are harvesting good fish at the moment. We see the farmers ready preparing for harvest. The performance in the first quarter had a margin on 24.15%. As I mentioned, the main difference is the cost, which are higher than normal. The EBIT is down by NOK 10.12. Of course, the salmon price is down, but -- so there's a combination. The difference between the North region and the West region was NOK 11.04 in the margin. However, the West had higher production cost and also harvested more in the beginning of the quarter, which also plays a role here. On the next page, we have the VAP. The revenues came down by 50 -- 51%, down to DKK 93 million compared with DKK 192 million last year. We have reduced our operations in the VAP as contracts are on much lower level than before. So normally, we have been running for many years with 2 shifts. At the moment, we're running only with 1 shift. This will also continue in the second quarter. Our contracts are -- we have fewer contracts, which means that we will sell more salmon on -- as whole fish. Higher raw material prices and lower activity in the first quarter are the reason for the negative margin. Of course, with lower volumes, fixed costs are playing a larger impact into the margin. On the next page, we have an overview on the FOF segment, which had a strong quarter in the first quarter 2018. The EBITDA was DKK 86 million compared with DKK 45 million last year. The EBITDA margin was 28.8% compared with 16% last year. The feed sales decreased. This is both due to lower biomass and lower temperature in the first quarter. But we had a strong performance with fishmeal and oil and high intake of raw materials for fishmeal and oil production. And we sold high quantity of fishmeal on external contracts, 11,399 tonnes in this quarter compared with 7,563 last year. We see also at the graph at the bottom that intake has increased and is all-time high in the first quarter. The prices on fishmeal and oil have increased during the last quarters. Quantity of fish feed was lower, which corresponds to the lower biomass and the lower temperature. The use of fishmeal and oil for feed is normally highest in the autumn, but the production of fishmeal and oil is normally highest in the springtime, so that's why we need to have some inventories during the year. We see that the prices at the bottom graph on fishmeal and oil have increased during the last quarters, which is negative for costs of feed and cost price salmon. Right now, it seems that this graph has turned, and this cost -- these prices have come down again. So this increase of -- these cost prices seem to change in the second quarter. Actually, in the first quarter 2018, the fish oil prices are in the highest level since the first quarter 2015. On the next page, we see a picture taken last week also on the Strond facility. We expect to put the first eggs into this hatchery on June 20, 5 weeks from now. And then Gunnar will take us through the financials.
Yes, good morning. If we look at the P&L, we see that the revenue in the first quarter 2018 is nearly on the same level as the first quarter 2017 at DKK 851 million compared to DKK 854 million. The farming segment and the VAP segment had lower revenues, while the FOF, fishmeal and oil and feed, had higher external revenues this quarter compared to last year. The operational EBITDA in the first quarter 2018 decreased to DKK 268 million compared to DKK 335 million first quarter last year. Fair value adjustments on biological assets was positive by DKK 107 million, and this is due to higher salmon prices at the end of the quarter compared to the beginning of the quarter. We had no provisions for onerous contracts in the first quarter 2018. Income from associates is DKK 2 million, same as last year, and the revenue tax, recognized as cost, amounted to DKK 26 million in the first quarter this year compared to DKK 30 million first quarter 2017. Net financial items amounted to minus DKK 19 million this quarter, first quarter, compared to 6 -- minus DKK 6 million first quarter 2017. Taxes amounted to 60 -- minus DKK 60 million first quarter 2018 compared to minus DKK 18 million first quarter 2017. This gives the group profit, a net profit after tax of DKK 272 million in the first quarter 2018 compared to DKK 79 million same quarter last year. If we look at the operational EBIT, the first quarter, we see that it is higher than the operational EBIT in the first quarter in 2015 and '16 but lower than the first quarter operational EBIT in 2017, landed on DKK 268 million. The earnings per share in this quarter was DKK 5.60 per share in this quarter. If we look at the balance sheet at the end of March 2018, we see that intangible assets are unchanged. The group made investments in property, plant and equipment of DKK 111 million and is at DKK 2.6 billion. Financial assets is DKK 79 million, nearly the same as year-end last year, DKK 2 million up. Long-term receivables is DKK 9 million compared to 0 at the end of 2017. Biological assets is DKK 1.1 billion, whereof fair value adjustments of DKK 294 million. Inventory amounts to DKK 429 million compared to DKK 306 million at year-end last year. So the good raw material intake of the FOF segment plays a part in this inventory. Receivables is DKK 244 million compared to DKK 262 million at the end of 2017. The group's equity increased as a result of positive operations in this quarter. At the end of the quarter, the group's equity was DKK 3.9 billion, which corresponds to an equity ratio of 69%. Cash flow. If we look at the cash flow, we see that the group's cash flow from operations in the quarter was nearly on the same level as same quarter last year at DKK 368 million. Cash flow from investments is minus DKK 111 million, as mentioned, and represented by purchase of property, plant and equipment. If we briefly look at the net interest-bearing debt, we see that it has changed or decreased of over DKK 150 million in the quarter. If we look at operating activities and changes in working capital, it decreased the NIBD with over DKK 280 million, while net investments and other increased the NIBD with almost DKK 130 million, giving us an NIBD of DKK 102 million at the end of March 2018. In this quarter, Bakkafrost has repaid the NOK 500 million bond in February and has agreed a new financing, EUR 200 million bank financing in this quarter. We had undrawn loan facilities of nearly DKK 1.4 billion at the end of the quarter. Now I will give the word back to Regin.
The outlook for the industry and for Bakkafrost especially is good. The market for salmon this year seems to be tight on the supply side, where we see a good growth from demand side. The global supply increase of 10% is behind us, and we expect only around 2% in the next 4 quarters -- each quarter on the supply increase. Bakkafrost expects to harvest 51,000 tonne this year. And we made an agreement with the Faroese authorities to take responsibility of the broodstock program, and we have an option in this agreement to have the rights of the genome from 2021 and onwards. Because of the difficult situation on the marketplace, especially in the fourth quarter and the beginning of the first quarter, we have much lower contracts level than normal. And still, we don't see a big change in this. So we expected, at least for a couple of months ahead of us, we will have a lower production on contracts and sell more of whole fish. Feed sales in 2018 will be around 85,000 tonnes, and we will -- we have started testing of the new fishmeal and oil factory, and we'll start regular production within next couple of weeks. We will still continue with the optimizing of the value chain with the investments that we have in place. And the investment program runs for until 2020. It's a high-investment program where focus is: Number one, to reduce the biological risk; number two, to improve the efficiency of the value chain; and number three, to create organic growth. So this has our full attention also for the next quarters and years. But however, we will pursue organic growth, and we have the financial flexibility in the company to look for mergers and acquisitions if the possibilities arise. This was all from us. If there are any questions, please.
Yes. Vidar Strat, ABG. The spot market is extremely strong at the moment. Can you elaborate a little bit about your ability to obtain a price premium in this market relative to the weak markets that we saw in Q4 and also the Q1 prices? That's the first question. The second question is regarding the harvesting profile in Q1 and also how much -- excuse me, in Q2, and also how much that will be harvested in North relative to West going forward?
Yes. The first question was about the prices. In the fourth quarter, Bakkafrost had a very good price achievement. In the first quarter, the price achievement has been still fairly good but not as good as in the fourth quarter mainly due to lower-sized fish. If you compare with the first quarter of 2017, our price achievement was very negatively affected by the ISA that affected the [indiscernible] north in the first quarter of 2017, and we had to harvest 3,000 tonnes of fish with an average weight between 2.5 and 3 kilos. That was first quarter 2017. In the first quarter 2018, we saw that, in the West, we harvested 4.5-kilo fish in the West, which is not as optimal for us as when we harvest larger fish. The second part of your question was about the West and the North split. In the second quarter, we will harvest mainly in the North. We are now harvesting from Haraldssund, where I show you the picture from last Sunday when I was on a boat trip where we harvested large fish in Haraldssund. We are also now harvesting from [indiscernible], which is also a good site. So that will be the main harvest in the second quarter. Was there another part of...
Harvesting profile [indiscernible] the beginning of...
Yes. We harvested -- the expectation is around 51,000 tonnes for the full year. So that means that we are more or less on average here in the first quarter, and I expect that, that will also be in the second quarter, similar levels.
Kolbjørn Giskeødegård, Nordea. Two questions. First of all, you're talking about low sea temperatures. You're also talking about low harvesting rates, especially in the U.S. You see a risk for these 2 factors for your current full year guiding at 51,000 tonnes. That's the first one. And the second one is about contracts, contract at 30% is, as we say, fairly low for being Bakkafrost. Are you comfortable with that level? And obviously, Q2 will be at this level. What about the second half? Should we expect contract levels to come back to normal levels as we see it in previous years?
When it comes to volumes, you're right that the growth in the first quarter, especially this year compared with last year, are very different. Last year, it was record high in first quarter for us, and this year is record low. We have a certain number of fish in the water. So how good we are to get the right average weight on our fish will make the result for the full year how good we will achieve the volumes. So that is how we can manage this if we can keep the fish so that we will be able to achieve the average weight that we should on our fish. So that will be our goal for the rest of the year: to manage the average weight of our fish. And of course, these guidances are always dependent on the biological development in our farming sites. That's what can -- that's what can play in here. If we don't reach the average weight, then there's a risk that volume will be less. So we have gone through our calculations, and we still think that we will be able to reach the 51,000 tonnes. If we do it good, it could be a little bit more. If we don't match exactly, then it can be slightly less. So it's a bit too early to make any changes on our goal. The second part of your question was about the contracts. At the moment, we are very low in contracts, and we are working to get more contracts. We had some large contracts that we lost by the end of the fourth quarter. And we saw a different -- we have different opinions about the market price than the buyers. By the end of the fourth quarter and beginning of the first quarter, it looks like the market expected summer prices beginning of the 50s. And our assumption was that the market price for 2018 should be in the end of the 50s. So that's why we couldn't find the solutions. Now we see that prices have even gone even higher than we expected. So it will take time for the market to accept this new price level. It'll take some time for us to build up a new contract portfolio with clients. So it'll probably take some time for to build up contract portfolio to match the goal for rough contract to be in the line between 40% and 50%. So I expect that the VAP segment will be lower during at least the second and probably also the third quarter. Any other question? Yes, please.
Carl-Emil from Pareto. You said you will open this new salmon oil new factory in Q2. Can you say something about volume -- production volumes we should expect from this factory and something about the earnings contribution.
This salmon oil factory will utilize the guts from the harvest plants. We hope that when we will be up and running at full capacity, this will increase the value compared with what we are doing today with around DKK 30 million in EBIT per year, not from 2018 but maybe '19 and for '20. So that's our long-term goal with this investment. And it's mainly the guts, but of course also a part of the skin, et cetera, from the [indiscernible] operation. Give him the microphone, please.
Your long-term aim to substantially increase the size of the smolt, can that only start when the new facility has been going? Or has it already started?
There is a slide in the presentation giving a overview of this. Yes, it's on Page #32. On Page #32 in the Appendix, we have an overview showing that if you look at the graph to the bottom to the left, at the bottom to the left, you see that, in 2020, the goal is to reach 500 gram. This is due to the fact that the Strond facility is needed with full capacity to produce 500-gram fish. We expect some benefit in 2019. As I mentioned in my presentation, we will start with the first eggs now on June 20. And to reach 500 grams, we need 18 months for this fish. So it's just about that we could reach 500 grams in 2020 if everything goes as planned. So there's a risk that we will not be fully on 500 gram in 2020. And then you need one year in the sea before you can harvest that fish. So that's the goal with this investment: to reduce the time in the sea, yes. With this capacity from Strond, we increased 29,000 cubic meters, which is more than double our existing capacity. In 2017, our average weight of smolt was 205 gram that you see here -- 205 gram is there. And there's a slight increase in 2019, up to 230 gram. And then in 2019, we expect 300 gram, and in 2020, 500 gram. And that is the way we can go from 51,000 tonnes up to 70,000 tonnes. You see that part of the increase comes from the production on land where the production goes up from 2,000 tonnes up to 6,000 tonnes. So that's an increase in 4,000 tonnes on land, which is part of the increase also that you will see of the 70,000 tonnes.
Lage from Carnegie. You're selling a lot of the salmon to Russia once again. Would you say that this is more than a strategic priority for you right now? Or is it more like a purely demand driven from that market? And if so, what do you feel is behind this willingness to pay for premium salmon meat in the Russian markets? That's the one thing. The other thing is what would you point to -- some big stumbling block for doing M&A in recent years, especially outside of Faroe Islands, since you repeated in the slides every quarter, but you're not really [indiscernible] just some considerations on that front.
You're pushing us? Well, it's right, you see in this quarter, we are all-time high in Eastern Europe, slightly higher than our guidance is. And this is mainly due to the fact that we have smaller fish in this quarter. Our premium markets mainly appreciates larger fish. When we look at market prices, our selling price in the Russian market are at similar prices as in other markets. Our long-term selling volume to Russia has been between 15% and 25%. So in this quarter, it's exceptionally high, higher than the normal, which is mainly due to the smaller fish. With regard to your pressure, well, let's see what things brings us. You know that our focus has been on our investment program, and we still see a lot of possibilities. This is also -- we might play the ball to you to say that, if you have some good ideas, you're always welcome to present them. But when -- it's just like with the salmon market, when prices are really high, sometimes it's difficult to make contracts because we think that they are -- they should be even higher than the customer thinks that they're too high. When there's momentum -- there's a change in the market, then sometimes there comes some momentum. So for us, it's -- I think time is -- the right time is very important. It's not just about to get something done. It's the timing is more important to get the right thing done, not just something. So you have to have patience with us. I think there was -- was there a question in the back, no? So thank you very much for coming this morning.