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Good morning, and welcome to Bakkafrost Presentation of the Fourth Quarter 2017. First, we will go through the summary of the quarter; and then a brief overview of the market and the sales of the company; and then the segment information; and then Gunnar will take us through the group financials; and then finally, the outlook for the industry.In this quarter, Bakkafrost harvested 11,470 tonnes compared with 12,940 tonnes the year before. The quantities of feed sold was 18,955 tonnes compared with 24,988 tonnes last year. The purchase of raw materials for Havsbrún's fishmeal and oil operation was 50,852 tonnes compared with 34,680 the year before. The group revenues was DKK 906 million in the quarter compared with DKK 868 million the year before. The operational EBIT for the group was DKK 331 million compared with DKK 350 million the year before. The cash flow from operations amounted to DKK 261 million compared with DKK 72 million the year before. In this quarter, we had positive results from all segments in the group. And then a brief summary of the quarter. The results of the farming segment decreased, mainly due to lower salmon prices. But the VAP result increased significantly, and the FOF segment had a strong result this quarter. The farming and the VAP margin decreased from NOK 32 in Q4 2016 into NOK 29.88 this quarter, a little bit about NOK 2 down. The VAP segment had a significant lift in the margin from minus NOK 11.95 last year to a positive margin of NOK 9.54 this year. The farming margin was NOK 25.76 in 2017 in the fourth quarter compared with NOK 37.70 last year, the year before. Havsbrún delivered a strong margin of 25% in the fourth quarter compared with 21.5% the year before. And the group operational EBIT was DKK 331 million compared with DKK 350 million the year before.This picture is from Funningsfjørður, where we harvested last autumn 11,136 tonnes of salmon in the third and fourth quarter in the year. This is one of our larger sites. And this picture was taken last week. In this quarter, the overview of sales, the split have changed a bit. If you look at sales to Eastern Europe, we see an increase, the sales to the EU decreased, and the VAP on contract decreased to 43%. EU market had a decrease of 3% from 48% in the fourth quarter 2016 to 45% in the fourth quarter 2017. The sales to the U.S. market decreased from 23% to 17%. And the sales in Asia were more or less stable, around 14%. Eastern Europe increased from 15% to 23%, and the contract share was 43% in the quarter compared with 48% the year before. An overview on the market prices. The red line is 2017, and the dotted red line is 2016. So we see in the quarter that there is a significant drop in market prices in Q4 2017 compared with the year before. The year-on-year drop is NOK 18.14 per kilo, amounting to 26%, from NOK 68.30 to NOK 50.16, so it's a significant drop in the market prices. Quarter-on-quarter, the drop is NOK 6.53 from NOK 56.70 to NOK 50.16. The blue bars indicate the -- on the chart below indicates the change in supply, and we see a significant increase of the global supply of salmon into that salmon market. Especially in this quarter, the supply increase is very high, around 17%, which is very much in 1 quarter, and that's the main reason for the drop in prices. We see same levels as we saw back in 2014 on the blue bars on this chart. When we look at the supply side in the market, we see that in this quarter, 603,000 tonnes of salmon were harvested globally. This is 16.1% increase compared with the same quarter last year. When we take into account the movement of inventories, we see that this corresponds to a change in the supply to the market on 12%. The inventory movements primarily origins from the Chilean industry. The supply in Europe were about 385,000 tonnes, representing nearly 10% increase from the same quarter the year before. Supply from Norway increased 11.2%, mainly due to improvement in procedures, productivity and better biology. Supply from the U.K. was up around 10% compared with the same period last year. But Faroe Islands dropped in supply 6.7% compared with the same period last year. The Chilean industry increased their supplies by 37% in the fourth quarter 2017 compared with the year before up to 158,000 tonnes. And inventories in Chile are calculated to have increased by 70,000 -- 17,000 tonnes, 1-7. But we think that this is mainly due to a more balanced market approach and bringing business back to normal again. The growth in Chile is related to the ramp-up in Chile after the algae bloom, which we saw early in 2016. Other sites that were harvested had a good productivity on the back of the stop in production in this period. When we look at the market, the market side, demand side, then we see an overall increase in the demand on the 12% in volume in the quarter. EU consumed 7% more, less than the average on the demand side. However, contracts' prices -- or contracts are one of the main drivers in EU and have an impact on slowing down the changes into the final consumer. The U.S. market had a strong growth with 17% in the quarter, driven by imported fish as no local growth on the West side. Russia increased their imports by 14%. The demand in Asia is very strong and had, in the quarter, an incredible growth of 35%. The -- these volumes -- the total volumes in this quarter was 14,000 tonnes in Asia, the growth. And these volumes -- the growth is mainly from Tasmania, Chile and Norway.Following several quarters of global contraction supply, supply increased in the fourth quarter by 16%. It seems that supply growth in the next quarter will be more limited. The red line on the upper graph here indicates our expected growth rate each quarter for the next quarters, and these are numbers from Kontali. The dotted red line indicates the net growth after movement of inventories have been taken into account also. So what we see here is that the supply growth in the market comes down from a level of 16%, 17% in the fourth quarter down to around 2% by the end of this year. So we think that this will have an impact to the market balance as, normally, we expect a demand to be at least 8% in order to have a market balance in a balanced situation. There is, of course, a difference in the European supply side and the American supply side, which is also indicated on this page.We will have a brief look into the segments of Bakkafrost in this quarter. This quarter, all the volumes that we harvested came from the West region of Bakkafrost. 66% of the volume came from Fuglafjørður at an average weight of 6.6 kilos. The harvested volumes decreased 11% compared with the year before. The average weight overall was 6.2 whole fish equivalent. Bakkafrost transferred 3.4 million smolts in the fourth quarter. The transfer into A-71, which we saw the picture of, was delayed from originally planned in December into January. The seawater temperature in the fourth quarter was 8.8 degrees compared with 9 degrees the year before, so slightly lower than the year before but still within a normal range. The total harvest for the full year was 54,615 tonnes. We must bear in mind that in the first quarter, we had an outbreak of ISA, which caused us to harvest the A-73 site early, where we lost 3,000 tonnes. The average weight of that site was less than 3 kilos. When you look at the performance in operation, we see that we have a decline of -- from DKK 403 million (sic) [ DKK 402 million ] the year before into DKK 229 million this year, both because of a lower volume but also slightly lower margin. The margin decreased from NOK 37.70 in the fourth quarter 2016 to NOK 25.76 in the fourth quarter 2017; and for the full year, from NOK 34.50 to NOK 30.02. Bakkafrost had in 2017 some issues with biology. We had to harvest the site in A-73, which I mentioned before. This caused around 3,000 tonnes lower volume than expected and higher costs on harvested fish. Also, in this year, we have had some issues and some delay in the autumn with Kollafjørður, which decreased the growth of our fish, which we see also in the feed sales. This is part of the negative impact that we have seen in the autumn, which are partly included in the fourth quarter and will be partly included in the first quarter.Value-added operations have positive margins for the first time since the fourth quarter 2015. The revenues decreased by 8% to DKK 288 million in the fourth quarter from DKK 330 million (sic) [ DKK 313 million ] the year before. Operational EBIT in the fourth quarter was DKK 37 million compared with a negative margin of DKK 61 million the year before. The performance have improved, and lower raw material prices are the main driver. The operation of new factory improved in the fourth quarter, both with efficiency and yield, but lower prices are the main driver for the change. When you look at Havsbrún, fishmeal, oil and feed, there is a strong margin in the quarter and good raw material intake. The EBITDA for this part of our operations were -- amounted to DKK 94 million in the quarter compared with DKK 71 million before -- the year before. The EBITDA margin was 25.5% compared with 21% the year before. The feed sales decreased 24% in the quarter compared with the year before, down to 18,955 tonnes. External sales of fishmeal increased almost 13,000 tonnes, and we sold the highest quantity of fishmeal externally ever in a quarter.Havsbrún sourced in the year 342,000 tonnes of fish, which is record high ever since Havsbrún started; and in this quarter, 50,852 tonnes. So this is an important part of our operations, both with the margins but, of course, also with the strategy of our operations with a high level of marine ingredients in our feed. But the market situation for fishmeal and oil have changed. The prices are increasing again, both on fishmeal and oil. We see on this chart an overview of how our use of fishmeal and oil goes through the year and how our inventories of fishmeal and oil goes through the year. We see that it's mainly in the first quarter that we have the largest intakes and in the second half of the year where we have the largest use of fishmeal and oil. And then we see on the chart below the prices, an index price on fishmeal and oil, where we see the last 2 quarters, there have been an increase of these costs. So we have had a positive impact on costs in our farming operations for a couple of quarters. Now this is limiting out again. This picture is from the Strond investment, the new smolt hatchery, and this is taken in January. And as you see, the building -- the small building there far in the end of the picture, it's not that small. The length of the total building will be 300 meters, but the first part of it is now about to be finished. And we plan to start with eggs during the summer. And then we -- the rest of the building will be built by the end of this year. Now Gunnar will take us through the group financials.
Good morning, ladies and gentlemen. I will briefly guide us through the group's financial for the fourth quarter and for the full year 2017. If we look at the group's profit and loss, please note that the numbers are in Danish kroner. The revenue for the group increased from DKK 868 million in the fourth quarter last year to DKK 906 million fourth quarter this year. For the full year 2017, the group's revenue amounted to DKK 3.8 billion compared to DKK 3.2 billion last year. The harvested volumes were higher in 2017 (sic) [ 2016 ] fourth quarter than fourth quarter 2017. But for the full year, the total volumes harvested was higher in 2017 than in 2016. The operational EBIT in the fourth quarter 2017 was DKK 331 million compared to DKK 350 million fourth quarter last year. And for the full year, the operational EBIT amounted to DKK 1.4 billion compared to DKK 1.2 billion last year. If we take the full year, this is a record operational EBIT for the group.The fair value adjustments on biological assets decreased significantly due to lower prices. The fair value adjustments in the fourth quarter '17 is negative by DKK 359 million compared to DKK 408 million positive same quarter last year. There were no changes in onerous contracts this quarter compared to a minus DKK 66 million last year -- or same quarter last year. Revenue tax amounted to DKK 20 million compared to DKK 33 million fourth quarter last year. Net financial items amounted to DKK 2 million in the fourth quarter and DKK 8 million positive in fourth quarter 2016. The profit for the period is minus DKK 22 million in fourth quarter compared with DKK 555 million same quarter last year. The main difference, as you see, is the difference in fair value adjustments, which were quite positive in fourth quarter '16 and was negative now in the fourth quarter '17. For the full year, the profit for the period is DKK 511 million compared to DKK 1.3 billion in '16. And at the -- the same differences there is the fair value adjustments.If we look at operational EBIT, this is numbers which I have taken us through is the operational EBIT for the full year is record high. On earnings per share, this is not adjusted, this is earnings per share, we had minus 45 -- DKK 0.45 in the quarter. And for the full year, it's DKK 10.52 for the full year 2017. This is not adjusted by the fair value. And that is, approximately, if we adjust it by the fair value, it's more less than this 21 -- approximately DKK 21 earnings per share, fair value adjusted.If we look at the balance sheet, we see that intangible assets are unchanged. And that comprises mainly the fair value of the acquired farming licenses of DKK 377 million. Property, plant and equipment amounted to DKK 2.6 billion at the end of '17. In the quarter, we had investments of DKK 169 million. Financial assets amounts to DKK 77 million compared to DKK 59 million. Biological assets have changed or decreased significantly, mainly due to the lower fair value adjustment. It is DKK 1.1 billion at the end of '17 compared to 1-point-almost-9 billion Danish kroner same quarter -- or at the end of '16. Inventory has decreased by DKK 50 million from DKK 356 million end '16 to DKK 306 million end '17. Receivables have also decreased by DKK 30 million, down to DKK 262 million. And the total assets amounts to DKK 5.2 billion compared to DKK 5.4 billion. There is a positive change in equity compared to last year, and that is due to the positive results, but also, we have paid out the dividend in '17 as well. The equity ratio at the end of '17 is 70%. The net interest-bearing debt is DKK 258 million. I'll come back to that later. If you look at the cash flow, we see that we had good cash flow in the fourth quarter 2017 compared to 2016 same quarter. We had DKK 261 million positive from operations compared to DKK 72 million in fourth quarter '16. The changes in working capital had a positive effect on this. And the cash flow from investments were DKK 169 million minus. And we also paid down -- or cash flow from financing was minus DKK 130 million. We had undrawn loan facilities of around DKK 1 billion at the end of 2016. A note to that is that we have refinanced in January 2018 our bank facility. And at the same time, we have also paid the bond loan, the out, which matured here in February 2018. So coming from DKK 356 million as net interest-bearing debt in the third quarter, we had positive cash flow from operating activities and changes in working capital, that was positive of around DKK 400 million. And if we take off the net investments and the paid taxes of around DKK 300 million, we had a net positive effect on the NIBD of around DKK 100 million. So we landed on DKK 258 million at the end of the quarter -- or at the end of 2017. We see that -- on the bottom there that we have a new financing in place in 2018. The bond loan is paid here in the first quarter in '18. And we have agreed with existing loan provider that -- a new EUR 200 million credit facility. Now I'll give back the word to Regin.
This picture is Hans á Bakka, providing fish for our harvesting one day in January, north of [ Cutler ] and north of Eysturoy, yes, in an average -- on an average day in Faroe Islands. The outlook for the industry and for Bakkafrost as a company. We saw that in the fourth quarter, there was a high increase of the supplies and a buildup of inventories so that the net impact was around 12%. We expect a global supply increase on harvest in 2018 around 6%. As it looks at the moment, the supply -- the harvest will be larger in the beginning of the year, as shown earlier in the presentation, and would reduce during the year. And the latest couple of weeks indicates that the feeling that there is a market balance, where the market needs at least 8% in order to be in balance, seem to be fair as we have indications at the moment that there is a change in the market when the supply is lower. Bakkafrost expects to harvest 51,000 tonnes in the year, and we expect to release 13.9 million smolts compared with 9.9 million last year and 11.7 million in 2016. We made an agreement with the Fiskaaling and the Faroese Authorities to take responsibility of the Faroese brood stock program, with an option to have the rights for this genome from 2021 and onwards. So we are quite exciting (sic) [ excited ] about this and are working with the project at the moment. No final decision have been made yet. The contracts going forward for this year, at the moment, are on a lower level than before; 14% of the harvest for the rest of the year are contracted. As you know, our contracts are normally between 3 and 12 months. At the moment, the time length of our contracts are lower than before. Our strategy is still to sell between 40% and 50% of the harvested volumes on contracts, but that's for the full year. That does not necessarily mean that, on a specific time, we should have 40% of 1 year's volume in contract.We expect to have around 80 -- to acquire -- or to sell around 85,000 tonnes of feed in this year. And at the moment, the situation with quotas for fishmeal and oil are okay compared with last year. And the new facility to produce salmon meal and oil is about to be finished, and we expect to start operations in the beginning of the second quarter. We still work with our goal to optimize our value chain. And the overall goal is to reduce costs, to improve biology, to ensure that biology is good, and to bring down the risk. So these investments with larger hatcheries, et cetera, are continuing, and we stick to the program out to 2020. We are keeping a close eye on possibilities in the market that might arise, and we have a good financial situation for the company to take advantage if we find possibilities. Thank you very much. And if you have any questions, I will gladly answer them.
Vidar Strat, ABG. You have reported, obviously, a very strong farming margin in this quarter. Can you tell us a little bit about if it is the cost that has come significantly down, or if it is the price realization that has been very strong in the quarter? Is this related to harvest sizes? Some color would be very interesting.
All of that, that's the short answer. So the impact is from all of those areas that you mentioned. In the quarter, we have harvested, as I mentioned, 68% of the volumes came from A-57 Fuglafjørður at an average size of 6.6 kilos. This Fuglafjørður harvested 10,390 tonnes of fish, and the cost of this fish was low. It was efficient site. So lower costs in the quarter than normal, but also quite good price achievement, large fish and good market, so all of these 3 boxes ticked.
And sorry, just a quick follow-up on that. How do you expect this to evolve going forward? Will there still be a significant share of high weights on the fish that you will harvest? And the costs also going forward will be interesting.
There will always be a normal variation between sites. And as I mentioned in the autumn 2017, we have had some issues with Kollafjørður, which have had -- increased some costs. Some of these were taken in the fourth quarter, and some will be taken in the first quarter. So within Bakkafrost, there can be a variation up to around DKK 4 to DKK 5 in difference between the best sites and the worst sites, if you can say so. So there are some natural advantages with some sites with larger volumes and better biological conditions, which will -- which have an impact on the costs. When it comes to average size, our goal is always to harvest fish about 6 kilos whole fish equivalent. So that's normally what we will try to achieve.
Kolbjørn Giskeødegård at Nordea Markets. A little bit -- can you elaborate a little bit about the general sea lice situation on the Faroe Islands, both yours and the industry in general? Also, one question about the harvesting profile 2018. Yes, I think I'll start with that.
Yes. When it comes to the sea lice situation, there has been a good development during the recent years, especially in 2017, where we started with this new program to use nonchemical -- we have used very few chemicals in the year and are using treatments with freshwater and hot water. And with [ blackfish ], that's the main strategy for our operations. And if you look at -- I gave you the numbers at the last presentation for the third quarter. And if you look at the fourth quarter, we have a similar development with sea lice. Compared with the year before, the numbers have been significantly lower, and also, treatments with chemicals have been on a very low level. There is, however, a backside of this kind of treatments, which we have seen in our feeding rate on some of the sites where we have had most treatments. So it's not only positive. But if you look at the numbers compared with the year before, we have a similar development, where sea lice numbers are around 40% lower in the fourth quarter 2017 compared with the fourth quarter 2016. And if you look at the present situation in the Faroe Islands with sea lice, we have never, since we started, to report sea lice had lower sea lice levels than in these last couple of months. When it comes to our harvest profile during the year, we have -- we expect to have -- we -- normally, we don't give a breakdown on harvest -- the harvest profile. We expect to have, more or less, a stable profile during the year. And this can vary compared to market situations and, of course, the sites that are available for harvest. So I don't have specific numbers to give you right now.
Can you give some flavor on the -- the view on contracts going forward, the contract share, and also on the smolt release profile?
Yes. As I mentioned, we will release 13.9 million smolts this year. We -- gradually, we are increasing the size of the smolts. Last year, the size was about 200 grams, on average. This year, it's around 220 grams. Of course, this will gradually reduce the cycle of the production, and that means that, gradually, there will be an increase. There is a page in the appendix indicating these information. Gradually, we'll -- up to '21, we expect to reach 70,000 tonnes. That's without increasing the number of each site, just reducing the cycle -- the length of the cycle. And that means that, on average, there will be an increase of released fish up to 2021.
And also the profile throughout the year when it comes to release?
That all depends on the sites available. We are -- this year, we are releasing higher numbers in the second and in the third quarter. So these are depending on sites are -- which sites are available for release. The new site in Strond, which are the main increase on capacity in smolt, will be available in operation during the summer. Then we will put egg into the hatchery. And then it will take 14, 15 months before the fish can be released. So that means that this capacity will be available for our operations in the second half of 2019. And that means that, hopefully, around 15 months later, we will see some harvest of that fish. And that's what we -- you see in the page in the appendix, how we will be able to ramp up our operations.
[indiscernible] You see supply growth at 2% at the end of the year; and demand, at least 8%. Does it mean that you see a quite bigger recovery in prices or not?
At least we expect a strong market. And during the year, as the profile indicates that there will be less and less salmon available, there will be -- we think that there will be impact in the market, or there will be an expectation that there will be less and less fish available. Of course, there is some -- there are some inventories at the moment that we don't exactly know how they impact. But of course, as they will be realized during the year, this impact will be less and less. So -- and we must also remember that 1 year ago, the inventories were totally empty. So there is also a natural inventory level which has to be maintained, which was not existing before. So yes, we expect that there will be -- of course, we are on a high level, but we expect that the market, the salmon -- the price for salmon will be relatively high.
Christian Nordby, Kepler Cheuvreux. You're mentioning M&A. Are you thinking of going outside the Faroe Islands?
Well, we have mentioned before that Bakkafrost is primarily looking into our close neighborhood where we see possibilities, opportunities. So that's the short answer.
Another question about the total supply from the Faroe Islands. How do you view that as [ in Kontali ] that's quite a strong supply growth even though you are reducing -- how do you view that situation?
Well, I think that on the short term, there will be a low supply from the Faroe Islands. As you said, this year is lower than last year. The growth in Faroe Islands is coming from larger smolts from -- not from increased production on each site. We think that it's important to have the risk profile in place and to reduce the risk and not just increase the number of fish. So that's why we think that reducing the time in the sea reduces the risk. So by producing larger smolts, which everybody are doing in the Faroe Islands now, we expect that this is a way we can grow. Also, with the new legislation, there will be a window to acquire open-sea licenses. So that's also a way, but I think this will be at least 4 years ahead of us or at least after 2021. Kolbjørn?
You're currently selling 40% of your spot sales in Russia in Q4. How do you view this large market or share of the total spot sales? And how do you expect that to develop in that period going forward?
Yes. As you mentioned, in this quarter of our total sales, 23% of the sales are in Russia of our total sales. 40% of the fresh salmon is in Russia -- or Eastern Europe, which would be mainly Russia. This can go a little bit up and down. And in this quarter, it was slightly higher than normal. If you look at the total for 2017, the average is 30% of the fresh and 21% of the total sales, which went up to -- from 21% to 23% and from 30% to 40%. So that is slightly higher in this quarter. And that's one of the benefits. We have a balanced market approach, so we don't want to expose all our sales in one market. So this is surely in the higher level that we expect to be in, in one market.
But are you worried what will happen in the day when the sanctions are lifted, and the competition in Russia will normalize?
No. I think it's an upside because then the market -- because the Russian market is under -- there's an undersupply into the market, this -- the market needs much more fish. And when it will open again, we remember then when Russia closed, 70,000 tonnes of fish were moved from Russia into Europe. And when this market will open again, when the sanctions are removed, this market will be supplied much more from Norway, which means that 70,000 tonnes will be less available in other markets.
Lage Bøhren, Carnegie. In Q4, did you sell all your external feed volumes to Faroese producers? Or is it outside Faroe Islands?
It's also outside the Faroe Islands.
And which regions, countries?
In Iceland and some in Norway as well.
Can you say like the percentage share between Iceland and Faroese in the quarter?
We give the exact number of internal sales and external sales in the report.
Yes, but then how much was sold to Faroese producers, and how much was sold to Iceland producers in the quarter?
In the quarter, I think that the majority is outside Faroe Islands, the majority, maybe 80%.
And what kind of margin do you have on that -- the feeds compared to like a standard salmon feed? Is it much above?
We have the same prices internally. We've used the same prices to our own fish as externally. So it's the same. So there's no difference. Thanks. Thank you very much.