P/F Bakkafrost
OSE:BAKKA
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Good morning, ladies and gentlemen, and very welcome to the presentation of the first quarter of Bakkafrost's financial numbers. Today, I'm here with the new CFO, Høgni Jakobsen, which will present the financial numbers later in the presentation. First, we will go to the summary of the first quarter, then the market and sales, then the segments of the company then the group financials before we come to the outlook. Bakkafrost harvested in the first quarter 13,707 tonnes of salmon compared with 12,237 tonnes last year. Feed sales were 16,264 tonnes compared with 13,923 tonnes last year. The sourcing of raw materials for our feed, fishmeal and oil division, HavsbrĂşn, was 115,530 tonnes compared with 130,000 tonnes last year.The revenues for the group were DKK 964 million in the quarter compared with DKK 851 million last year. The operational EBIT amounted to DKK 268 million, which is precisely the same as last year. The cash flow from operations amounted to DKK 77 million compared with DKK 368 million last year. All 3 segments had positive operational EBIT. And then the summary of the quarter. The operational EBIT for the farming segment were at the same level. Positive operational EBIT for the VAP segment, but lower EBITDA margin for the FOF segment. The farming and VAP margin decreased from NOK 22.92 in the first quarter last year to NOK 21.99 this year. NOK 1 in difference. The VAP segment had a positive margin on 70 -- on NOK 37 compared with minus NOK 7.10 last year. The farming margin was NOK 21.86 compared with NOK 24.15 last year. The FOF margin was 23% this year compared with 28.8% last year. The group operational EBITDA amounted to DKK 268 million. The overview of the market on sales shows sales distribution, which changed compared with last year especially on fresh salmon. Sales to Eastern European market decreased significantly and all other markets increased in the fresh salmon sales. We increased our VAP here and we have sold more salmon on VAP contracts. The EU market increased from 31% up to 50% in the first quarter, which is actually the highest share to the European market since 2012 for the first quarter of Bakkafrost. The U.S. market increased from 16% to 23%, Asia from 21% to 24% and the Eastern European market decreased its share from 32% to 3%, which is the lowest share since the first quarter 2013. The volumes used in our VAP segment were 34% in the first quarter compared with 17% last year. The market strategy disruption from the fourth quarter scaled down by the end of the first quarter 2019. The development of salmon prices in the quarter showed a drop during January and February, but by the end of February significant increase on the spot price, which then dropped by the end of the quarter down to around NOK 65 before entering into April, into the second quarter. Similar trend as we saw last year where we also saw a sharp rise in prices in the quarter. And then last year, we saw a following drop in middle of the second quarter. Prices increased 12% compared with the previous quarter and year-on-year by NOK 2.4, 4%, from NOK 60.94 up to NOK 63.34. In this quarter, we saw growth of global supply on around 5% compared with the first quarter last year, which corresponds to around 18,000 tonnes of salmon. The deviation of the supply from the different regions shows that the supply from the European regions were about 327,000 tonnes, representing 5.4% increase compared with the first quarter last year. Supply from Norway increased 2% and average weight from Norwegian farmers were 4.4 kilos versus 4.5 kilos last year. Norway increased harvest in January by 2%, in February by 7% and then there was a drop of the supplies from Norway in March. Supply from U.K. increased 24.6% compared with last year. Faroe Islands increased their supply 21.8%, in first quarter this year compared with last year, up to 20,000 tonnes. Chilean harvest increased 1.7% in this quarter compared with last year up to 159,000 tonnes. Average weight of Chilean salmon in the first quarter was 4.7 kilo compared with 4.6 kilo last year. The spread of the markets shows that, in total, EU and the U.S. markets increased 3%. The biggest growth was in Ukraine and China and there was a drop in the Russian market and the Asian market, which is similar trend as we saw by the end of last year. There's a strong momentum in the Chinese market and there's also a strong growth in the Latin America market. On the next page, we see expected supply growth during 2019. The short-term supply outlook shows a temporary increase in the global supply ahead from present level, around 5% in the fourth quarter, and to a similar growth in the second quarter, around 5% supply growth. And then we had up to around 7% to 8% growth in the second half of 2019. Next year, we expect to start with a level of around 9%, and then during the year, there's a sharp drop through the whole year down to around 2% growth by the end of next year. But the fundamentals behind this assumption is an increased efficiency and improved biology in Norway, together with steady biology and good levels in Chile for the second half of 2019. Looking at the segments of Bakkafrost. The farming volumes amounted to 13,707 tonnes in the first quarter and we expect to harvest 54,500 tonnes for the full year, gutted weight. The harvest volumes increased by 12% in the first quarter this year compared with last year. The harvest in the North region was 49% and in the West region 51% in the quarter breakdown. And the average weight of the harvested fish increased 0.5 kilos in the first quarter up to 5.2 kilos head on gutted from 4.7 kilos last year. The smolt transfer was 1.7 million smolts in the first quarter compared with 3.1 million last year. We have waited until the second quarter with some of the fish where we will have a larger smolt release. The seawater temperature in the fourth quarter increased 0.53 degrees from 6.1 up to 6.7 degrees in the first quarter. The farming segment increased the volumes and drove up revenues, from DKK 667 million last year up to DKK 755 dollars this year, mainly because of the higher volumes. The operational EBIT increased from DKK 228 million up to DKK 230 million and the margin from 34% dropped down to 30% in this quarter. The operational costs were down by DKK 1.16 compared with the first quarter last year. The average weight in the West segment was 5.7 kilo and the North 4.9 kilos. The operational performance and biology have improved in this quarter and especially during the end of the quarter. The farming operation EBIT margin decreased by NOK 2.29 from NOK 24.15 last year down to NOK 21.86 this year. The operational EBIT per kilo in the North region was NOK 22.78. The North harvested 1/3 of its fish in January and 2/3 in March. The fish in the North originated from [ HovsfjørĂ°ur ] in January and from Hvannasund in February and March by the end of the quarter. The region West had an operational EBIT of NOK 19.97. This fish was harvested mainly early in the quarter. The fish originated mainly from GøtuvĂk and Hvalba in the beginning of the quarter. Hvalba with impressive average weight of 6.7 kilo head on gutted. The biological situation is good and operational performance is improved in the first quarter compared with first quarter 2018. Impressive results from FunningsfjørĂ°ur in the West region strengthened our belief in large smolt strategy. The harvest in FunningsfjørĂ°ur started in March. This fish was transferred in February 2018 at 290-gram and harvested in March 2019, 13 months later, at 7.1-kilo whole fish equivalent. Very good biological performance KPI with FCR at 1.04 and growth rate at 3.8 are promising numbers and the best part is that this has also a positive impact on costs.The change of the revenue tax is adjusted to 5% placed from the 1st of January where also a downside protection on prices are amended, so that the full taxation is from NOK 47 from NOK 36 as reported. The VAP operational EBITDA margin increased from negative numbers into slightly positive in the first quarter, but also with higher spot prices on salmon. The revenue nearly tripled to DKK 261 million from DKK 93 million last year. The operating EBIT was DKK 1 million compared with minus DKK 12 million. The operational EBIT was NOK 0.37 compared with minus NOK 7.1 last year. The higher ratio of total harvest of salmon to VAP was 34% versus 17% last year. And Bakkafrost has 33% of our revenues for the rest of the year committed into contracts, and there were no onerous contracts or provisions for onerous contracts by the end of the quarter, despite the higher salmon price. The fishmeal, oil and feed segment had an EBITDA of DKK 65 million in the first quarter compared with DKK 86 million last year. The EBITDA margin was 23% compared with 28.8% in the first quarter of '18. The feed sales increased by 17%, but external fishmeal sales decreased by 19% in the first quarter. The inventory of fishmeal has increased quite much in the quarter to be sold later. HavsbrĂşn received totally 115,000 tonnes of raw materials compared with 130,000 tonnes last year. Both internal and external sales increased of feed in the quarter compared with last year. The prices on raw materials continued to increase during the quarter. The quotas on pelagic fish are the main driver of the prices settings of these raw materials. Prices of salmon feed is based on actual and expected raw material prices in the beginning of the respective quarter. The use of marine raw materials with own recipe of feed is one of the most important drivers to produce the unique, healthy and safe, high-quality salmon in Bakkafrost. For the last couple of years, all our feed contains only purified fish oil produced in-house and for more than 1 year we have not used toxic green in our fishmeal production. We will stick to our strategy to produce healthy, high-quality salmon despite high costs on the marine raw materials. Now we will have a presentation of the financial numbers by Høgni Jakobsen.
Good morning, everyone. Høgni Jakobsen is my name and I'm the new CFO of Bakkafrost. Excited to be here today and present the financials for you. So let's start out with looking at the P&L. The revenue for the first quarter this year was DKK 964 million, which is an increase of 13% compared to last -- the first quarter of last year. The main reason is higher volumes in the farming segment and in the VAP segment as well. The operational EBIT was the same as first quarter 2018, DKK 268 million, and we have fair value adjustments of DKK 18 million this quarter and that's due to higher or increasing salmon prices throughout the quarter. We paid DKK 32 million in revenue tax, which are recognized as costs, and that is mainly because of the rise in tax rate as Regin explained earlier. The financial items amounted to minus DKK 1 million compared to minus DKK 19 million first quarter of last year. And taxes were minus DKK 46 million compared to minus DKK 60 million first quarter last year. And that gives us a profit of DKK 213 million this quarter compared to DKK 272 million last -- the same quarter -- first quarter last year. If we look at the operational EBITDA and how that has evolved quarterly over the past years, we see that we are on the same level as first quarter in 2018, higher than the 2 previous quarters, but otherwise, we are on the same level as in 2002 -- 2015 and 2016 in regards to the first quarters. Earnings per share was DKK 4.37 in this quarter significantly higher than the previous quarter but a bit lower than the DKK 5.60 we had in the first quarter of 2018. Moving on to the balance sheet. The intangible assets increased by DKK 1 million and was -- amounted to DKK 391 million by the end of the quarter. And we made investments of DKK 120 million during this quarter. And property, plant and equipment now amounts to DKK 3 billion by the end of the quarter. The financial assets amount to DKK 116 million compared to DKK 113 million by that end of 2018. And the carrying amount of the biomass was roughly DKK 1.3 billion whereas DKK 401 million are fair value adjustments. Inventory amounts to DKK 563 million compared to DKK 439 million by the end of 2018. And receivables DKK 430 million compared to DKK 269 million by the end of 2018. Equity was DKK 4.3 billion roughly and the equity rate is still on 70%. Net interest-bearing debt is DKK 522 million, and I will come back to that in more detail in a moment. If we look at the cash flow first, we had a cash flow -- positive cash flow of DKK 77 million in this quarter compared to DKK 368 million in the first quarter last year. Cash flow from investments amounted to DKK 100 million -- minus DKK 106 million. And cash flow from financing were DKK 54 million compared to DKK 102 million previous -- the same -- the first quarter previous year, and that gives us a net cash -- net change in cash flow this quarter of DKK 25 million. And back to that net interest-bearing debt. We left previous quarter with a net interest-bearing debt of DKK 495 million, which will then increase by the net investments during this quarter with DKK 106 million. Changes in working capital increased the net interest-bearing debts with DKK 217 million, but then cash from operating activities decreased it with DKK 297 million. So that gives us a net interest-bearing debt of DKK 522 million by the end of this quarter. And finally, on the financing, we still have EUR 200 (sic) [ EUR 200 million ] in bank facilities and undrawn facilities of DKK 971 million. Yes, back to you, Regin.
The outlook for Bakkafrost on the sector as a whole, we see global supply in the first quarter, which increased around 5%. And we see a similar trend going into the second quarter, but with a slightly higher supply growth in the second half of the year, between 7% and 8%. The market balance for Bakkafrost has been restored after a difficult period since November last year. In the farming segment, we expect to harvest 54,500 tonnes gutted weight in 2019. We expect to release 13.5 million smolts in 2019 compared with 12.5 million last year and 9.9 million the year before. The new hatchery in Strond is now about to start the fourth batch of eggs since the first eggs were hatched last summer. The first fish will be transferred to the sea sites in the second half of 2019 where we will -- and this will impact our total capacity of producing larger smolts. The biological development in the fourth quarter was positive. In the VAP, we are pleased to experience a better market development and more activity in the VAP segment, and at the moment, we see contracts already committed for 33% of their volumes we have available for 2019. In the fishmeal, oil and feed segment, we expect to sell around 85,000 tonnes of feed this year. Business development, investment program. Well, the highest focus at the moment is on the investment program, where we will still continue to invest in reducing risk, improving efficiency of the company and to create organic growth for our operations and we have, at the moment, several new projects that we are starting up mainly focusing on small capacity in addition to live fish carrier and biogas, which these projects are -- some of them already started and about to start in the next coming months. But we will have a higher focus in the presentation on our Capital Market Day coming up now on the 12th of June. Thank you very much, and if there are any questions, we will be pleased to take this.Kolbjørn?
Kolbjørn Giskeødegård, Nordea Markets. It looks as there was a negative deviation to competitive consensus expectations on these results, and that for my eyes, it looks that when you have a stable or even declining cost base, it looks like it's pricing issues, 50% of the volumes sold to the EU market and only 3% to the Eastern European market. Is that sort of a comfortable situation with you? Or will you -- do you see any changes in that going forward?
Yes. As you know, we were closed in Russia until the end of February, and of course, it takes some weeks to restore that situation. That said, we don't expect to go back to the same level of exposure in Russia as before. We are selling some fish into the Eastern European market now, but I think that we will have a new balance in our operations and that takes time to restore, but I'm confident that we have a much, much better balance now from the second quarter. Not as much in Russia as we had before, but there will be a certain share into this market going forward. The EU, 50% will probably go a little bit down. We have been normally, for the last couple of years, around 40% in the EU. So I think that between 40% and 45% is reasonable to expect. Of course, all -- or not all but the majority of the VAP sales are in the EU market, which is increasing at the moment.
Carl Johannessen, Pareto. Can you say something more about the development in cost. You say it's down compared to Q1 last year, which was fairly high cost quarter, I remember. How was it compared to Q4 last year? And what do you think going forward?
Compared with Q4, our costs are around DKK 1 or DKK 1.25 higher compared with Q4. I think that, 2019, in general, I expect to see a positive development, but not a full restore before 2020. I expect that 2020 will be better for us because we have some issues that will not be finished before this year is finished. For example, we have lost some fish and that has also a negative impact on our operations. Cost-wise, we expect cost to be fairly flat this year. And of course, the main driver is feed. But if feed was stable, then I see potential for a decrease in our cost price as volumes are going to increase.
Lars Johnsen, Fearnley Securities. Out of the 13.5 million smolts that you are planning to release in 2019, could you say something about your planned smolt weight and when the volumes are planned to be harvested. Is this in '20 or in later?
Yes. The Strond facility, which is now in scaling-up phase, will start to deliver to the sites in the second half of this year. And by the end of the year, it will be more or less on full operation. That means that the impact from this investment will be seen mainly from 2020 and onwards. The average weight of our smolts this year, we hope that they will be at least around 200 -- between 200 and 250 gram, in that level, which is not very much increase compared with the years before. Last year, we were at around 175 gram. But the year before, we were at around 200 gram. So more or less flat, but the quantity is slightly increasing and the capacity is actually based on tonnes or kilos. So if you increase the numbers, then the average weight should normally come down. But as some of the fish are coming out by the end of this year from Strond, this adds to the capacity. As I mentioned in my presentation, we have seen very good numbers from larger fish from Funningsfjørður by the end of the first quarter, also going into the second order where we saw growth time on only 13 months based on 300-gram smolts. We have seen similar numbers from HiddenFjord in the Faroe Islands, which have produced large smolts, where they have realized very growth rates, more than our calculations are based on. So at least this is a good sign. Of course, it's also important to maintain the high quality of the fish. So it's not only about growing fast, it's also about maintaining a high quality. So this is something we have to work on, but at least it looks like the fundamentals under our calculations are safe.
Historically, you used to have premium on your prices of around EUR 1 per kilo. You do [the] quality and maybe also size of the fish. Is that premium gone now?
The premium of Bakkafrost salmon, as you mentioned, has historically been around EUR 1 per kilo and we have seen that during these market disruptions in the period from November until now, there have been some pressure on this premium. The main reason is that we had to shift a lot of volumes between markets. So both the markets where they originated from and markets where we moved these volumes into were affected. And during this period, we have struggled to obtain the normal premium. We think that with the high-quality fish we are producing, we achieved a premium on our products and that's our goal to restore going forward.
Mikkel Nyholt, Carnegie. I was wondering about the region West where you have an EBIT per kilo of closer to NOK 20. What is the upside potential there? Is that a level you're comfortable and happy with? Or do you expect to raise that closer to the EBIT margin you have in the Northern region?
As I mentioned during the presentation, a part of the volumes coming from the West in this quarter was early, early in the quarter especially the fish from Hvalba and from GøtuvĂk, that was early in the quarter and this was the most -- the biggest stake of the harvest in the West. And the prices in the beginning of the quarter were lower. So that's the main reason. The cost price in the West was actually in this quarter slightly lower than in the North. So, of course, when you have high price deviations during the quarter, that affects very much when we compare this to regions. I think that there is, at the moment, nothing that indicates that the West has a lower performance than North. It's a bit depending on which sites we are harvesting. And if I look at the cost price in this quarter, I see that where we had the worst performance in this quarter, there is a NOK 6 difference in the cost price compared with the best performers. So there is, especially in the beginning of the quarter, some bad numbers where we had to harvest fish early at lower weight, which hampered the results from the area.
Lastly, on the contract volumes, you now had 33% of the 2019 harvest contracted. Do you expect to reach that long-term strategy of 40% or 50%? Or do you have an internal strategy of being more spot oriented just as in Q4?
At the moment, we have 33% contracted, but as you know, some of the contracts are only renewed -- are renewed after each 3 months or 6 months. So therefore, when we talk about -- when we compare the actual contract level with the full year sale of contract, the actual contract level will always be slightly lower than what we expect to reach when the year is finished. So 33% is actually quite high because some contracts will be automatically renewed on a continuous basis. Maybe we will not reach the full goal this year, but at least, we will be higher than 33%. Well, if there are no other questions, then thank you very much.