P/F Bakkafrost
OSE:BAKKA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
506.5
697
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to the presentation of Bakkafrost's third quarter, 2018. In the third quarter, 2018, Bakkafrost harvested 7,217 tonnes of salmon, compared with 11,585 tonnes last year. The feed sales in the quarter was 23,468 tonnes compared with 22,320 last year. The raw material sourcing for the fishmeal, oil and feed section was 7,496 tonnes compared with 21,937 tonnes last year.
The revenues in the quarter were DKK 622 million compared with DKK 804 million last year. The operational EBIT was DKK 168 million compared with DKK 252 million last year.
The cash flow from the operations were DKK 324 million compared with DKK 334 million last year. In this quarter Bakkafrost reports positive results from all 3 segments.
A summary of the quarter, the operational leverage for the farming segment decreased, mainly due to lower volumes in the quarter.
There was positive EBIT for the VAP segment but lower EBITDA margin for the FOF segment. The farming and VAP combined increased from NOK 23.02 in the third quarter 2017 to NOK 25.34 this year. The VAP segment had a positive margin on NOK 2.49 this year compared with the loss last year on NOK 1.08.
The farming margin was NOK 24.85 compared with NOK 23.54 (sic) [ NOK 23.51 ] last year. The FOF margin this quarter was %11.7 compared with 23.2% last year. And the group operational EBIT was DKK 168 million compared with DKK 252 million last year.
Looking at the market and the sales this quarter, we see that the sales distribution had similar trends as we have seen in previous quarters. Sales to Eastern Europe increased, and sales to EU decreased in this quarter compared with last year. Small changes in the sales to the U.S. and Asia, and VAP contracts are still low. In this quarter, 20% of our sales are on contracts. The EU market decreased from 45% in the third quarter 2017 to 27% this year. The U.S.A. market decreased from 20% of our revenues to 18%. And sales in Eastern Europe increased from 14% to 32%. The harvest volumes used in VAP were 20% in this quarter compared with 45% last year. And year-to-date, we are at 17% on contracts, which are the VAP.
On the next page, we see a development of the spot prices during the quarter. We see that, in this quarter, compared with last year, the spot prices dropped 3% compared with last year, NOK 1.39, from NOK 56.70 to NOK 55.31. Quarter-on-quarter, there was a price drop on NOK 14.86, corresponding to 21% of the salmon price, dropped from NOK 70.17 to NOK 55.31. And on the chart below, we see the blue bars indicating the quantity. And in this quarter, there's a 5.4% increase of global supply compared with last year, which corresponds to 28,300 tonnes of salmon sold, higher sales this year compared with last year.
On the next page, we see an overview of the supply from the different countries. We see that the main contributor with higher volumes are Norway, corresponds to 4.1%, and Chile corresponds to 17.9% of the volume increase. So those are the 2 regions.
The average weight of harvested fish in Chile in this quarter was 4.6 kilo gutted weight. This is the average weight of the whole country. And the average weight of harvest in Norway was 4.1 kilo gutted weight. The average weight of Faroe Islands in this quarter for all farmers was 5.0 kilo.
Mainly in Chile, we have seen a very high -- very good development in key performing indicators. Good growth weight and high average weight of harvested fish. So all in all, there were 548,000 tonnes of salmon sold in this quarter compared with 520,000 tonnes last year.
On the next page, an overview on the markets. The main markets with good development and high sales are the U.S. market, which increased 11,700 tonnes compared with last quarter. We also see an increase in Russia, 6,100 tonnes, corresponding to 34% increase, and Greater China with 3,200 tonnes, but there's also a drop in ASEAN on 3,900 tonnes, so that's probably the same region. And Latin America with 4,200 tonnes. We see that the main markets are increasing their volumes, which is EU, the U.S. and China, Asia, and also positive growth in Russia. This growth is mainly coming from the Chilean supply.
We see that Chile has moved a lot of their fish to the U.S., from 53,000 last year to 66,000 this year. And we also see that, especially of fresh salmon, there are still noted records on the sale from Chile to China on fresh fish.
Concluding, we can see that it is little possibility for big growth for the next quarters, especially because Chile is on very high key performing indicators at the moment.
On the next page we have an overview of the volume growth for the next quarters, including also the third quarter next year. We see that there is a modest supply growth expected for the coming quarters. We are coming from a supply increase around 5% in the third quarter, dropping down to around 1% in the fourth quarter and up to around 2% in the first quarter 2019. So the supply increase has been taken down, and there seems to be less availability in the market, mainly due to biological issues in many regions and less fish in the sea.
And if we look at the development in 2019, we expect supply increase in the first quarter around 2% and in the second and third quarter around 4% to 5%.
And then the farming segment. In this quarter, Bakkafrost harvested 7,217 tonnes, 6,254 tonnes came from the North region and 963 tonnes came from the West region. So the North volume corresponds to around 87% of the volume in this quarter. The average weight of the fish from Bakkafrost in this quarter was 5.2 kilos. And there is a variation between the sites in Bakkafrost from 4.9 kilos up to 5.9 kilos. Kunoyarnes harvested fish at 5.4 kilos, Lambavík at 4.9 kilos, Árnafjørður at 5.1 kilos, and Gulin, which is the site that we harvested at the end of the period and going into the fourth quarter, at 4.9 kilos.
We transferred 3.3 million smolts in this quarter into the sea compared with 3.2 million last year. Lambavík, which was supposed to be transferred in December has been moved into January, and that's why we have changed the number for the full year from 13.9 million to 12.9 million smolts. The seawater temperature in this quarter was 9.93 degrees, compared with 10.22 degrees, so marginally lower than last year.
On the next page we have an overview of the algae situation in Kolbanagjógv that we noticed on September the 19, where we had a critical incident. We noticed on September 19 a lower appetite from the fish. We also saw sea lice disappearing from the lumpfish. That was a special note reported from the farmers that afternoon. And they also took samples from the waters also that afternoon to check for algae.
On Thursday, the 20, they reported high mortality. And we took out close to 700,000 smolts at 500 gram. They had been in the water for 2 months, good health, good growth. And then just in 12 to 18 hours, these fish was dead.
Since this incident these fish, the fish that survived, have had good growth, good health, and today the average weight of this fish is 825 gram. So this is the first time ever that we have such an incident in this area. We saw algae in [indiscernible] in the 80s, and also in Kaldbak, and this was also combined with where farmers from the land had care. They had fertilized the land. So our suspicion is that there's a combination between these 2 things. We had a neighboring farm only 1 kilometer from this site, and there was absolutely no signs on this site A-05 that you also see on this map only 1 kilometer away.
Since this incident, there has been nothing reported and no algae observed. Of course, the weather conditions have also changed.
We are building, as you know, a biogas plant, and that will reduce this kind of risks in the future, so at least fertilizing land will be more controlled. The farming operational performance in this quarter, we see lower volumes. And we also, of course, have impact, a negative impact, corresponding to around DKK 1 per kilo on the costs of the fish in this quarter. The operational EBIT decreased from DKK 217 million to DKK 140 million. The operational EBIT margin was 31% compared with 35% last year. And the mortality in Kolbanagjógv due to the algae cost an expense of DKK 7.2 million. The delay in the start-up of the harvesting factory in Suðuroy, it was supposed to start up in the beginning of September, but it started mid-October. That means that despite we are harvesting very large fish, around 6 kilo, and they will increase in size during the next 2 months, we will want -- we will take a part of this fish up in January instead of December.
The cost of the fish in this quarter was DKK 19.27 per kilo. And thus, the average cost of all our farms in this quarter. This is whole fish at cage. This corresponds to an average price of -- cost price for Bakkafrost at around NOK 13 per kilo in this quarter.
However, there is a variation between the farms, Kunoyarnes at NOK 20.15, Lambavík at NOK 19.17, Árnafjørður at NOK 20.09, and Gulin, which was at the end of the period at NOK 17.11, which is the lowest cost price we have seen for the last 3 years.
On the next page, we have an overview on EBIT compared with last year and this quarter and also the first 9 months. The farming operational EBIT increased NOK 1.34 from NOK 23.51 to NOK 24.85 in this quarter. And the operational EBIT from Region North was NOK 23.95; and the West, NOK 30.68. The majority of the harvest in the North was in the beginning of the period. On the first 9 months, the average margin is NOK 30.28 compared to NOK 31.05 last year.
On the next page, there is an overview on the VAP segment. We had a substantial decrease in our operation in the VAP this year year-to-date. But also in this quarter the revenue decreased 72% from DKK 246 million to DKK 69 million this quarter. And on the positive side, we have a positive margin on DKK 3 million compared to a loss last year of DKK 4 million.
There have been a less willingness in the contract market to accept the price levels that we have seen the last year. However, I think that with a lower supply for the next year, I think that there is a change in the markets. So the market balance will probably in the future for next coming months come closer to each other on the supply and demand side.
On the FOF segment we see a stable operation. Operational revenue on DKK 354 million compared with DKK 342 million last year, mainly due to sales of goods on stock. Of course, the feed operation is very active in the third quarter. The EBITDA dropped, however, from DKK 79 million last year to DKK 41 million in the quarter this year. And the margin was 11.7% compared with 23% last year, mainly due to a drop in the sales value of fishmeal from our stock.
The feed volumes increased from 22,320 tonnes up to 23,468 tonnes this year, and we sold fishmeal out of our stocks, 11,648 tonnes compared with 14,547 tonnes last year.
There was -- in the third quarter, we are always low on sourcing raw material to the fishmeal and oil operation. This year, it was 7,406 tonnes compared with 21,900 tonnes last year.
On the next page, there is an overview on the market development, the market trends on fishmeal and oil. We have normally -- we are quite active in sourcing in the first half of the year, the first and the second quarter. And then in the third quarter, it's low activity. And then we start again operation in the fourth quarter. Normally, in mid-November we start with blue whiting catch in the North Atlantic. We've also seen significant dropoff of the price of fish oil. There was a drop on fishmeal also in the second quarter, which have increased again a bit in the third quarter, the prices.
So now fish oil prices are on the same level as the low level in 2017
Now Gunnar Neilsen will take us through the group financials.
Good morning. I will guide us briefly through the group's financials for the third quarter. We'll take a look at the P&L first. We see that the revenue is on a lower level this quarter compared to last year, and that is due to, as Regin has explained, lower harvest and generally lower activity in the quarter. We had an operating revenue of DKK 622 million compared to DKK 804 million last year same quarter. Operational EBIT in the third quarter 2018 decreased and amounted to DKK 168 million compared to DKK 252 million third quarter last year.
We see quite a change in fair value adjustments on biomass, biological assets. It was positive with DKK 293 million this quarter compared to a cost or a decrease same quarter last year of DKK 155 million. And that is due to higher salmon spot prices and future prices of salmon.
Onerous contracts was minus DKK 11 million compared to a positive of DKK 12 million same quarter last year. Income from associates was minus DKK 2 million. Revenue tax is minus DKK 14 million this quarter compared to minus DKK 24 million same quarter last year. And that is also due to the farming revenue. With lower harvested volumes, this also decreases. EBIT for the group was DKK 435 million compared to DKK 84 million same quarter last year.
Financial assets amounted to minus DKK 1 million, compared to minus DKK 16 million same quarter last year. Taxes amounted to
minus DKK 78 million this quarter compared to minus DKK 12 million same quarter last year. All in all this gives a profit for the group of DKK 356 million, DKK 300 million more than same quarter last year, but of course, the fair value adjustment has a big influence on this number.
If we take a look on the development of the group operational EBIT quarter -- quarterly, 4 years back, we see that year-to-date, the group operational EBIT is on DKK 844 million year-to-date. And earnings per share this quarter is DKK 7.32 per share. And year-to-date, it's almost DKK 20, DKK 19.88 per share.
If we take a brief look on the balance sheet, we see that the intangible assets has increased by DKK 12 million in this quarter and now amounts to DKK 389 million. Property, plant and equipment amounts to DKK 2.8 billion. Financial assets is DKK 102 million compared to DKK 77 million at the end of last year.
We see that the biological assets amount to 1.6 -- or DKK 1.56 billion in biological assets. Inventory is DKK 331 million. And the total assets amount to DKK 5.8 billion total assets.
The equity ratio is 70% at the end of third quarter 2018. The group net interest bearing debt at the end of the quarter is nearly the same as the beginning of the year. It's DKK 286 million compared to DKK 258 million at the end of last year or the beginning of this year.
If we take a brief look through the cash flow, we see that, from operation, we have a positive of DKK 324 million cash flow from operations, almost the same as the same quarter last year when it was DKK 334 million, so DKK 10 million difference.
Cash flow from investments amount to DKK 164 million. At the end of the quarter we had undrawn loan facilities, or available financing, of DKK 1.2 billion. We see the development in NIBD on this chart.
We -- at the beginning of the quarter, we had a net interest-bearing debt of DKK 443 million. And at the end of the quarter, we have this DKK 286 million.
Now I'll give the word back to Regin.
The global supply in the third quarter increased around 5% compared with last year, and we expect in the fourth quarter the global supply to increase 1.4% compared with last year, which is very low in the fourth quarter. The global supply increase in 2018 total for the full year is expected to be around 7% compared with last year, and we expect in 2019 a global supply increase on 4%, nearly half of this year.
Bakkafrost guidance for harvest volume in 2018 is reduced from 49,000 tonnes to 46,000 tonnes due to the fact that we don't harvest the fish in Suðuroy as we have had expected as we have opened a new slaughtering factory there, and they started operation only 2 weeks ago. And therefore, 3,000 tonnes will be moved into next year in January. And in 2019, our guidance on volume is 53,000 tonnes. We have postponed release in Lambavík from December to January. And therefore, we moved 1 million fish. We expect to release 13.5 million smolt in 2019.
Our contracts on VAP products is 12% for the rest of this year of the volume. And we are presently negotiating new contracts for 2019.
We expect to have around 80,000 tonnes of feed produced and sold in this year and around 85,000 tonnes next year.
We still see great opportunities in growing our operations in the Faroe Islands and creating sustainable growth, reducing biological risks and improving our operational efficiency to secure our competitive position.
Bakkafrost has financial flexibility to look at the different possibilities in the market. The investment program for next 5 years was communicated on the last presentation. We will have a Capital Market Day in June next year to give insight into that, but we have already started to prepare this -- the actions for this, and we still see this opportunity for our operations, so there is no change in that.
Thank you very much for coming this morning, and if there are any questions I would be happy to answer. There's a microphone.
Kolbjørn Giskeødegård, Nordea Markets. An obvious question. When you're issuing your first 2019 guidance, what would that guidance have been if you have not had the incidents with the mortality in September? That's one question. And the second question is, do you see more frequent -- or is your experience that biological incidents that you have faced recently is occurring more frequently than it used to be?
Yes. First, we lost fish which corresponds to around 4,000 tonnes of fish on this side in Kolbanagjógv. 4,000 tonnes of harvest in 2019. So additional 4,000 tonnes would be a higher guidance in 2019. That means that instead of 53, it would be around 57. Yes, we have seen more issues recently. First we saw Hvannasund Norður in February 2017 where we had the ISA incident. And then we had [ PGD ] in Borðoyavík earlier this year. And now we saw these algae. These are 3 different things. They are not related, and they are not -- they're different kinds of issues. I would say that the risk for algae bloom in Faroe Islands is very low. And my feeling is that there needs to be at least 2 or 3 things combined, which are very unlikely to happen, but in this case, they happened. And I think that the risk in the future will be even lower when we are doing the biogas investment because that will reduce the risk that farmers are increasing our risk despite we cannot prove that this was the case. But our biologists and our veterinarians say that when they have discovered these kinds of issues, especially in the '80s, in some of the narrowing fjords in Faroe Islands, it was always combined with fertilizers being spread out close to farming sites. You are right that biological issues are the biggest risks for farming operations. And we have had a good track record in the Faroe Islands. But during the last 2 years, we have seen things that we had not seen before for a long time. I think also it proves to us that we have a very good veterinary system because despite that we saw ISA in Hvannasund Norður, we harvested the fish within 3 weeks. And we did not see any spread of this virus to other farms in the neighborhood. The [ PGD ], we also harvested this fish at lower weight, yes, but we prevented spread to any other sites. We have not seen any [ PGD ] in any other sites in the Faroes. So this was a precautionary action from our side to harvest the fish earlier than required in order to reduce the risk for any other sites. There is always a risk, of course, that virus and bacteria can spread and can affect the fish from wild fish, but I think the most important thing is that we have systems and capacity to react precautionary and take and diminish the risks.
So are these red flags for further expansion in volumes?
I think that when expanding in volumes, it's very important at the same time to reduce the risk. And I think that the way we are planning our expansion with large smolt will, at the same time, reduce the risk in the water because the fish will stand less time in the water. So that is our take that it will reduce the risk in the sea. And that's where we have seen larger risks. Of course, with Bakkafrost, what we have seen in 2017 and 2018, it demonstrates that this kind of risks are affecting us very much because we have low smolt capacity. The smolt capacity at Bakkafrost at the moment is the bottleneck of our operations. If Bakkafrost had larger smolt capacity in 2017 and '18 than we have, then we would have been able to put new smolts out there earlier. For example, in Kolbanagjógv, if our capacity on smolts was already there what we are building at the moment we would be able to put new fish out, because the smolt window was not closed. And then our volume in 2019 would not have been affected. But as we had a bottleneck on our hatchery capacity, we were not able to put new fish out there because we did not have them available. So that's one of our bottlenecks at the moment. And as we are building our hatchery capacity up, our smolt capacity up, this will also reduce the risk for these things to happen in the future.
Any other questions?
Yes, Vidar Strat from ABG. 2 questions, one is related to the volume guidance and expected smolt release. And you are guiding for an underlying 54,000 tonnes, if you take away those 3,000 tonnes that you're postponing and then adding the 4,000 tonnes from the mortality. But the 54,000 tonnes is not the significant growth from what we have seen before despite the significant growth in the smolt release that you're having in 2018 and also guiding for higher smolt release this year and next year -- excuse me, for next year. So does this mean that we will have a significant volume growth in 2020 then? Or do we still have to wait for 2021 until we see volume growth? That's the first question. The second question is related to the EBIT per kilo realization because you reported very impressive cost figures, but still the EBIT margin was somewhat softer than we expected. Does this mean that the price realization in the market has been more difficult now than before?
Yes. First, about the volume guidance, I am still convinced that we will be able to achieve the targets that we have in our 5-years plan. The only thing is that, as you know, the expansion of our smolt hatcheries takes little bit longer time than we had expected. When we communicated our investment in the Strond back in 2016, we expected the startup to be early 2018. The startup was in July -- June, July. And the startup will not be 100% from day 1. It starts a bit slower startup than we had expected originally. So that means that the first fish from Strond will be put in the sea by the end of next year, by the end of '19, which is close to 1 year later than we originally expected. And that means, of course, that we don't see any positive impact from the smolt expansion yet. In fact, it is the opposite. Because we acquired Faroe Farming 100% last year, and this -- and the positive side there is that we got increased capacity. But as we need more smolts to be produced, we only have 20,000 cubic meters available of production capacity at the moment. And 20,000 cubic meter gives a capacity of producing around 2,400 tonnes of fish per year. And if we produce more fishes, the average weight goes a bit down, which is the case at the moment. And therefore, this has a negative impact on 2019 at the moment that the fish will be a bit longer in the sea at the moment. We had expected the average weight of the fish in 2018 to be around 230 grams. But at the moment, we are slightly less than 200 grams, which is negative. But the positive thing is that we have got capacity, which will give us better upside after 2019. So if you look at the capacity growth, the area from South Island will give positive impact from 2020, but the large smolts won't give positive impact before 2021. And that means that I am still confident that in 2023 we will see the full impact from the investment program that we have communicated, but a little bit later than previously expected. And then about the cost price. The cost price in this quarter was slightly lower than previous quarters. If you compare our margin with the industry, of course, we have not seen other reports from other companies, but we still have a profit or a margin -- a brand margin on our products compared with the industry. I don't have the exact number for this quarter. It varies a bit from quarter-to-quarter, depending on the competitive position in the different markets. And therefore, you can see that some quarters it might be a little bit lower, some quarters it might be a little bit higher. And I don't have a specific number on the change from this quarter to previous quarters, or the last quarter last year, but there is some variation between the quarters.
Anything else?
Thank you very much for coming.