P/F Bakkafrost
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Good morning, and welcome to the presentation of Bakkafrost First Quarter 2021. This morning, we are at our processing factory in Glyvrar, which is attached to the head office. And outside, we have Hans á Bakka, which came in this morning, brought 300 tonne of salmon for today's operation. So today's catch will be processed starting right now, as we speak. And at the end of the presentation, we might have time to look 10 seconds into the factory to see some fish. We will start with the summary of the quarter, and then we will look into the market and the sales and some segment information. Then our CFO, Hogni Dahl Jakobsen, will present the financial numbers and the ESG. And then finally, the outlook for the market and for the company. In the first quarter, Bakkafrost harvested in the Faroe Islands 14,025 tonnes compared with 10,667 tonnes last year. In Scotland, we harvested 7,000 tonnes compared with 7,268 tonnes last year. The feed sales in the first quarter were 23,700 tonnes compared with 19,125 tonnes last year. The raw material sourcing in the first quarter was 48,547 tonnes compared with 64,800 tonnes last year. The revenues in the quarter amounted to DKK 1.176 billion in the first quarter 2021 compared with DKK 1.255 billion last year. The operational EBIT in the first quarter amounted to DKK 223.5 million compared with DKK 248 million last year. The cash flow from operations amounted to DKK 137 million in the first quarter compared to DKK 365 million last year. We had positive operations for the various segments, but negative in Scotland. In the quarter, Bakkafrost paid out DKK 3.65 out in dividend per share, totaling DKK 216 million for last year. And this was paid out 10 days ago. If you look at the summary of the quarter, we see that the farming -- the combined farming and VAP margin dropped from DKK 25.10 last year, down to DKK 21.48 per kilo. In Scotland, the margin dropped from DKK 5.70 down to minus DKK 1.23. The pure VAP margin increased from minus DKK 2.97, up to plus DKK 18.56 in this quarter. And the FOF margin increased from 13% to 15%. If we look at the markets and the sales. For Bakkafrost, in this quarter we saw a huge increase in demand in Europe, mainly driven by retail, but also as reopening of Horeca segment we saw a good demand from that on top of the retail. So from Faroe Islands, the share in Western Europe increased from 52% to 59%. North America dropped from 28% to 20% of the Faroese revenues, Asia from 14% to 9%, and Eastern Europe increased from 6% to 12%. If you look at the Scottish numbers, the main deviation here is that Europe dropped from 91% to 88%, and North America increased from 5% to 9%. In Faroes, the share of VAP volume dropped from 51% last year down to 38% this year. The salmon prices increased significantly during the quarter. We saw a starting price of around NOK 47, increased up to around NOK 70 by the end of the quarter. Year-on-year, if we compare the quarters, there is a significant drop on prices from around NOK 70 down to NOK 54. If you look at quarter-on-quarter, there is an increase from 45 -- NOK 44 to NOK 54, 23% up. The current salmon price seems to be quite strong even when foodservice is not fully back. So far in the second quarter, the Nasdaq price is close to 5 years peak for this time of year even if the volumes are all-time high. When we look at the development in the harvested and sold quantity by origin, we see that the Norwegian supply increased around 16%, which is in line with the total supply increase of around 16% to the market.In Norway, the sales were higher than expected in the quarter, mainly driven by large fish. The average weight was around 4.6 kilos in the quarter compared with 4.4 kilos last year. We think that it's mainly driven by a larger number of large smolts that was released last year. We see that European harvest is up 18%. U.K. had a 23% increase in harvest. Average weight is around 4.3 kilos versus 3.8 kilos last year. In the Faroe Islands, we harvested 31% more in this quarter compared with last year, and the average weight is unchanged at 5.2 kilos. In Faroe Islands, we saw also that the numbers are positively affected by a larger share of big smolts in Faroe Islands, and this trend will continue in the Faroe Islands. In Chile, we see also an increased supply in the quarter. The weight -- the average weight of the fish was 4.7 kilos compared with 4.6 kilos last year. But there is a drop in biomass in Chile that we will see affecting the supply going forward. When we look at the markets, we see a very strong and impressive increase in demand. There is a high elasticity, especially in the European market, during this quarter, high retail share compared with other markets and also high activity on campaigns. We expect that retail sales will remain high with outdoor evening barbecue and foodservice will come back, which will add on top of these volumes. There is an increased positivity in the market with signs of lockdowns easing in U.K. and elsewhere. France is also easing lockdown, opening outside from 19th of May. We see also Fish Pool prices strong, around 59 for the next 12 months. In U.S., we see also a strong demand, high volumes, which are cleared at good prices. And we saw also export growth in March and April higher than last year. April was up around 9%. But we expect some moderate growth especially from Chile as we go into the next months following the algae bloom there. There's a high growth in the Russian market, 36% growth, which is mainly imports of frozen goods from Chile. High increase in Japan, 24%. Some drop in Greater China. We saw also in the beginning of the quarter that the markets in China were very much hampered, but there has been a very positive development, especially in March and April, in China. When we look at the market balance and the outlook for the next 4 quarters, we see that the increase of supply in the first quarter, 16%, will not last. We see a significant drop in front of us on market supply. In Europe, there is expected flat or stable supply growth around 8%, but a huge drop expected in Americas. Our take is that the main change in the market balance seems to be a very strong demand, and this has boosted prices, especially in March and April. And this could be related to lower prices last year in the market, which has boosted the demand and new markets. Supply growth in the fourth quarter and the first quarter into the market were much higher than anticipated, especially in the first quarter. Despite 16% supply growth, demand growth was even higher. A lot of salmon has been harvested from the biomass in Chile and Norway. This means that there's less fish, less for the next 4 quarters, which again, means a totally different market balance. During the next quarters, we will see a low supply from Chile down to around minus 20% compared with last year where we had a growth. From Europe, the growth rate will be lower than anticipated earlier. Going to the segments. In the first quarter, we harvested in the Faroe Islands 80% of the volumes from the north segment, 18% from the west and only 1% from the south. In the north, the majority of the fish came from Hvannasund, a good site and good fish. Cost price more or less an average. In the West, the majority came from GøtuvĂk, also average. So all in all, it was a bit average on cost, slightly or marginally up. And the GøtuvĂk fish was around 4.5 kilos, and the Hvannasund fish was around 5.2 kilos. And from southern -- from south was 7.5 kilos. So some remaining large fish coming into January. The average weight was 5 kilos all in all compared with 5.2 kilos last year. In Scotland, the fish came out at 4.2 kilos versus 4 kilos. So good, 5% up compared to last year, good development. Salmon transfers in Faroes was 2.4 versus 2.3 last year, 4% up; and Scotland, 1.6 versus 1.0, 60% up. In Faroes, we see a good increase of the size of the smolt at 382-gram versus 309-gram last year, so 24% up. That is in line with expectations. We expect this year to stock around 400-gram in average. In Scotland, there's a flat development, no change, more or less. We expect, of course, that this will be changed significantly in the future. Temperatures in the water is slightly up or more or less in line with previous years. If you look at the operational performance, we see that in the Faroe Islands, we had a drop in margin compared with last year from 32% to 22% from DKK 203 million to DKK 143 million. And the revenues from DKK 633 million to DKK 645 million, 2% up. In Scotland, the margin dropped from DKK 30 million down to minus DKK 6 million. The operational margin from 7% down to minus 2%, and the revenue from DKK 412 million down to DKK 322 million. On the next page, we have the operational performance. We see that in Faroes, the margin dropped from NOK 26.51 to NOK 14.10, the farming margin, NOK 12 down. In Scotland, NOK 7 down from NOK 5.7 to minus NOK 1.3. In Faroe Islands, I would say that the biological performance was good in the quarter. Feed conversion rate, all-time low, 1.04 biological feed conversion rate. TTC, all-time high. We had some losses last year which has impacted our costs. But there are no big issues in the first quarter on biology. In Scotland, also good numbers, feed conversion rate also low, 1.14. TTC also all-time high, developing in the right direction. There's a cost reduction in Scotland, GBP 0.7 per kilo compared with last year. We continue to focus on reducing costs in Scotland. But the main game-changer in Scotland is our strategy with increasing the smolt size. We expect to see some gradual change within 1 year as Applecross Project #3 will start an operation now. This means that we will add some capacity and be able to produce 4 million smolts at Applecross at 125-gram. But the bigger change will be within 2 to 3 years as the next expansion, Applecross 4, will commence production. Further details into that will be on our Capital Markets Day in September. When we look at the VAP in this quarter, we see probably the best quarter from VAP ever. We had good development, good production. Revenues 9% up to DKK 300 million. Operational EBIT significantly up from minus DKK 11 million to plus DKK 75 million. Operational EBIT from minus NOK 3 to plus NOK 18.56. So that's good -- probably the best quarter ever. We had all KPIs develop in the right direction, high demand and low costs. So VAP has contributed to good flexibility with Bakkafrost value chain during this difficult period with the pandemic, but we expect to see big changes in quarters to come as raw material cost and salmon price will increase significantly. And of course, we have contracts to respect. Looking at fishmeal, oil and feed. We see in this segment lower activity, especially in the fishmeal and oil, some lower raw material sourcing, which is the main driver for the fishmeal and oil. However, we expected a bit lower volumes this year, and we have a good development in feed operation. So compared with last year on the fishmeal and oil, that's the biggest difference. But feed goes up from 19,000 tonnes to 24,000 tonnes. And the EBITDA margin is stable. So less, externally, fishmeal sold and less raw material sourced. When you look at the market prices on fishmeal and oil, they are a bit stable. Fish oil a bit down, fishmeal a bit up. So the big driver is the raw material sourcing, which will be slightly lower this year. And then Hogni Dahl Jakobsen, our CFO, will present the financials.
Thank you, Regin, and good morning, everyone. If we look at P&L for this quarter, we can see that both the revenue and the operational EBIT is down compared to the first quarter last year. However, last year, in the first quarter, we were only minorly affected by the pandemic. So we were winding slowly into the pandemic, you could say. And in this quarter, it seems like we are winding slowly out of the pandemic. Revenue in this quarter was DKK 1.176 billion compared to DKK 1.26 billion in the same quarter last year. And the operational EBIT was DKK 224 million in this quarter. Fair value of the biomass was DKK 284 million in this quarter, and that's mainly due to changes of the salmon price but also due to the changes in the biomass itself, where, amongst others, we have a slightly reduced average harvest time of the fish that we have in sea. So the time to harvest is slightly shortened. Revenue tax in this quarter was DKK 20 million -- minus DKK 20 million, and we paid DKK 86 million in corporate taxes. Profits was changed from a loss in the first quarter of 2020 of DKK 148 million and turned into a profit of DKK 408 million in this quarter. And if we look at the development through the quarters, we can see that despite having a slightly lower operational EBIT in this quarter compared to last year, in the same quarter, this is the absolute best quarter that we have produced during the -- since the pandemic kicked in. And the same goes for the adjusted earnings per share, which were DKK 2.95 in this quarter. If we look at our balance sheet, intangible assets was DKK 4.493 billion. Property, plant and equipment increased from year-end 2020 where it was DKK 4.2 billion roughly to roughly DKK 4.4 billion by the end of this quarter. Biological assets amount to DKK 2.441 billion. Inventories were more or less unchanged and amount to DKK 772 million. And receivable increased by DKK 58 million to DKK 549 million. Accounts payable went in the opposite direction from DKK 629 million to DKK 400 million by the end of this quarter. Cash and cash equivalents were DKK 374 million by the end of this quarter. And equity roughly DKK 9.2 billion. Equity ratio was 67.7%. Moving on to the cash flow. Cash flow from operations reduced from DKK 365 million in the first quarter of last year to 136 -- DKK 137 million in this quarter. Cash flow from investments were minus DKK 268 million. And cash flow from financing were DKK 37 million. If we look at the development in the net interest-bearing debt, we left the last quarter, Q4, with a net interest-bearing debt of DKK 1.753 billion. Net investments added DKK 268 million; working capital, another DKK 228 million. And cash from operating activities reduced our net interest-bearing debt with DKK 310 million, resulting in a net interest-bearing debt of DKK 1.939 billion by the end of this quarter. Our bank facilities are unchanged. So we have EUR 363 million (sic) [ EUR 463 million ] in bank facility and an accordion option of EUR 150 million on top of that available to us. At the moment, we have undrawn -- or by the end of the quarter, we had undrawn credit facilities amounting to roughly DKK 1.5 billion, excluding the accordion option. Short update on headlines from the ESG agenda and our work on the ESG agenda in this quarter. In this quarter, we were nominated for 2 awards with edie Sustainability Awards and actually won one of them, as Regin won the award for Business Leader of the Year. We have also continued our work towards reducing our carbon emission and has -- and we have electrified one of our large sea barges with pulling out a 5.6-kilometer-long sea cable. We have also signed the contract to build a fully electric workboat, which will be delivered to us by the end of this year. On the research side, we have continued to fund our research projects about sea trout. And we have also decided to join the DigiHeart research project to gain more understanding of the heart health status of the salmon. And finally, we are still proud sponsors, main sponsor of the Faroese football team and have made an agreement on continuing the sponsorship of that. And with that, I will leave it back to you, Regin.
Thank you. The outlook for the market is quite good. There is a bit of a changed market balance where supply increase will be down, and there would be less fish harvested after we have had 14.4% increase of harvest in the fourth quarter and 16% supply because inventories were also lowered. So coming from a very, very strong demand into a market where there will be less availability, we expect 1% to 2% decrease in the second quarter of global harvest and more or less 0 growth expected. 5% increase of global supply during 2021, where most of that is behind us. And we see that the forward price for the next 2 years is NOK 59, which also is the average for 2019, which was a strong year. In the farming segment, Bakkafrost expects to harvest 106,000 tonnes, 66,000 tonnes in Faroes and 40,000 tonnes in Scotland. We expect in Faroes to be quite stable around 18,000 tonnes or so per quarter for next 3 quarters. And in Scotland, between 10,000 tonnes and 12,000 tonnes per quarter for the next 3 quarters. We expect this year to stock around 14.5 million smolts in Faroes and around 11 million in Scotland. For 2021, we signed contracts for 28% of the total expected volume in the Faroe Islands and Scotland, which is more aligned with expectations and production. Normally, there will be some added during the year so that we will be above 30% when the year is finished. Our strategy is to allocate around 40% of expected volume into commitments and contracts at any time. Fishmeal, oil and feed, we expect to source around 120,000 tonnes in 2021, which is lower than last year. And -- but with the fish feed, we expect an increase of sales, mainly because we use more in Scotland. Our strategy at the moment is very much to focus on organic growth to pursue the growth of our value chain and to build that together with our company. So we are -- at the time now we are looking at the 5 years ahead of us. And we will come further into details on our Capital Markets Day in September about this next-5-year strategy. However, for the years 2020-'22, we expect to invest around DKK 1.8 billion, around DKK 600 million per year in the Faroes. And around DKK 1.2 billion in Scotland, around DKK 350 million to DKK 400 million per year, mainly in smolt hatcheries but also in some farming and processing operation. So by this, I will open up for questions.
[Operator Instructions] Go ahead with your question, please?
It's Alexander Aukner from DNB. Just a question on the VAP side. I think that's the main deviation from what I expect and consensus; very, very strong numbers. Just help me understand how you're able to generate higher margin despite lower volumes processed in the quarter versus last quarter and a higher spot price or raw material price. What's driving this very strong VAP performance?
Well, thank you, Alexander, for the question. In the VAP in this quarter, we have had a stable operation. But at the same time, as you remember, we had some inventories from the fourth quarter into the first quarter. So inventories were quite high at the beginning of the quarter. So we have generated some profit from those inventories. So that's the main deviation. So we have had a good production by the end in 2020 with low costs on raw materials.
Question here from Carl-Emil, Pareto. It's a bit in the same direction. But when you guide on 28% contract share for 2021, is that evenly split between Faroe Island and the U.K.? And if so, should we then expect that the volumes in VAP will come down on absolute levels going forward, so that you will have less sales from VAP, so to say?
In Faroe Islands, we did around 24,000 tonnes last year of HOG. This year, we will probably more or less on the same level, 24,000 tonnes, 26,000 tonnes. But as you said, our volumes is going up, so that means that the share will be slightly lower. In Scotland, we are doing something like 12,000 tonnes, 13,000 tonnes. We will probably be more or less on that same level during this year. And as you know, 40,000 tonnes is the total volume in Scotland. So some of the contracts last only for 6 months, some last 12 months and sometimes the volume is a bit flexible if there are promotions and so on. So the share will probably be slightly lower this year as -- especially in the Faroes as volumes increase.
Yes. I understand. And everything that goes in the VAP and the Faroes, is that on contract? Or are we kind of also selling fillets that are in the more spot market?
Yes. Normally, in Faroes, we have been doing very much in long-term contracts, but now we are doing some more fillets also, with fresh fillets exported overseas. So that's a new trend. I'm not sure yet how successful that will be. But there is a very big demand on those fillets, on those fresh fillets.
It's Alex Jones from Bank of America. You mentioned Asia demand improving in March and April. Could you give a bit more color on that and whether you're seeing demand back at pre-COVID levels? Or is there a bit more still to go there?
There is still something to go there. There is a reopening in the market. We see a very strong development with reopening. There has been a steady trend during the quarter, and we saw especially in Asia in March a very strong development with reopening of markets. So we are quite confident that this will continue. And the same in the U.S., where reopening of the Horeca segment is a key driver. As you know, the Horeca segment is in Asia and U.S. the main salmon market. And that's why those markets were very much affected by the COVID-19. And now we see a very strong coming back of those markets. Our -- we have seen some numbers which indicate that the market now is more or less at 60%, 70% level of bookings in restaurants. So there is still something to go there. And we still expect more demand as the summer will come closer and there will be more reopening. We see similar trends also in Europe, where markets are not yet fully reopened, but there is a more higher development. Also there have been very low activity and they will probably be more active during the summer and autumn.
It's Lars Konrad Johnsen from Carnegie. Two quick questions from me. First on the freight cost which you reported is actually up compared to Q4. Could you give some details on the explanations behind? And how much this is actually impacting your EBIT margin out of Faroe Islands and how you see the development now as the world is gradually moving back to normal. Is the new normal, so to speak, higher than what it was back in 2019?
The air transport is higher, especially to the U.S. In Asia, we have seen quite good rates now, more or less, not quite fully but close to pre-COVID-19. But on our U.S. sales, which is 20% of the Faroese sales in the third quarter, there are significantly higher costs related to that transportation. We -- at the moment, we see availability of capacity but not -- the capacity is not the same as passenger planes are not as active as before between Europe and U.S. And I think it will be very much related; the cost of that transport will be very much related to passenger transportation as we mainly use those to cover our full need to transport the fish.
Okay. And second question. On the biomass, I see that you report that your biomass is close to 10% higher than last year. Could you share some details on how you see the biomass development over the coming 2 quarters? And how much biomass do you need to build in order to reach your harvest volume target?
Normally, we reduced biomass in the first half of the year. So normally in the second quarter, the biomass will also go slightly down. And normally, we build biomass in the third and fourth quarter. So that's the normal pattern. So there will be some reduction now in the second quarter and then we will build some biomass in the third and fourth quarter as we feed more in those quarters. We are, however, still building some biomass in our hatcheries. We hold much higher biomass in our hatcheries as production. If this year we are going to stock 15 million fish at 400-gram, that equals to 6,000 tonnes. So in order to produce that, there's some added to biomass also in the hatcheries. So some up, some slightly up.
But is the 10% that you are up now something that we maybe should expect also into the second half of the year? Or could it be even higher, you think?
I would say that first we will go slightly down. And then we will go up again in the third and fourth quarter, and the level will be probably slightly higher than what you saw by the end of last year. So by end of this year, should be slightly higher than the end of last year.
Chris Nordby from Kepler Cheuvreux. Can you comment a little bit on the fishmeal and fish oil and fish feed margin in the quarter, a bit more in-depth on should we expect it to stay at these levels? It was 12.8% EBIT margin, I think, in Q1. Or should we -- should it rise based on, I think, you commented a bit on inventory development in Q4?
I would say that it is likely that they are quite stable. You know that we have quite high inventories of fish meal built up by -- during the last 3 quarters, so those will remain fairly high. Normally, the peak of inventories in fishmeal and oil is by the end of the second quarter. So we are not going to reduce inventories. Maybe build a bit more. And our feed sales will be high going forward both in the second and third quarter. So there'll be higher activity. And now it's also the peak season; in the second quarter is the peak season for raw material sourcing. So normally that's a good quarter. But normally we build some inventories in that quarter, which are then released into our P&L in the third and fourth quarter. So I would say the best guess is stable.
And also, on farming cost side, it sounds like you're quite positive given very low feed conversion ratios that you've seen in the Faroe Islands maybe in particular. Should we expect costs to be quite good in Q2 at least at it looks now? Or how do you see that?
Yes. I would also say that my best guess is, quite stable. As you know, we had some issues in the beginning of last year, which impacted the last year's numbers and also the biomass. That should be finished now. So at the moment, we see a stable operation and good development. We are doing quite good with low feed conversion rate, as you mentioned, good growth, low mortality. So there is very little to go on more there. So therefore my best guess is, stable. Any last question? No. Hogni, should we show our today's catch of salmon into the production? Coming from Hvannasund. This fish today is around 5 kilos gutted coming into the markets. So this fish was arrived half an hour ago. And later today, they will be on the way to the markets in Asia, America, Europe. Thank you very much for the attention today. Thank you very much.