Global rise for salmon boosts Bakkafrost

BUOYED by a global rise in demand for salmon, the Bakkafrost group, the largest fish farmer in the Faroe Islands, today announced a 30 million Danish kroner (DKK) rise in EBIT (earnings before tax and interest) for the final quarter of 2015.
The directors are proposing a final dividend of DKK 8.25 per share.
The company delivered a total operating EBIT of DKK 257 million for Q4 2015, compared with DKK 227 million for Q4 2014.
Harvested volumes were 13.675 tonnes gutted weight in Q4 2015 and 50,565 tonnes for the whole of 2015.
Bakkafrost said the farming segment delivered an operational fourth quarter EBIT of DKK 215 million, which corresponds to NOK 19.67 per kg.
The VAP segment made an operational EBIT of DKK 24 million. The FOF segment delivered an EBITDA of DKK 45 million for Q4 2015.
CEO Regin Jacobsen said: ‘2015 was an eventful year for Bakkafrost. In the summer, the live fish carrier Hans á Bakka was delivered to Bakkafrost, which we consider a milestone for the salmon farming industry in the Faroes.
‘The activity was high, both regarding operation and investments, and all in all the result was good.
‘Large harvested volumes of salmon, the good sourcing situation of raw material in the FOF segment and the good result in the VAP segment was the reason for the record high operational EBIT of DKK 1,001 million for 2015.’
Bakkafrost released 4.9 million smolts during the final part of last year and 11.3 million smolts for the whole 2015.
The group’s feed producer Havsbrún reported that sourcing of raw material in the fourth quarter was good. Havsbrún purchased 64 thousand tonnes of raw material in Q4 2015.
Its purchase of raw material in 2015 amounted to 235 thousand tonnes, compared to 193 thousand tonnes in 2014.
In December 2015, Bakkafrost secured the refinancing of its bank loan that would have matured at the end of 2016. The new agreement both extends and restructures Bakkafrost’s credit facilities.
The new loan is a multi-currency revolving credit facility for a period of five years, totalling DKK 850 million. The agreement also has an accordion increase option of maximum DKK 750 million.
Bakkafrost’s net interest bearing debt at the end of Q4 2015 was DKK 391 million, compared with DKK 233 million at year end 2014. Bakkafrost had undrawn credit facilities of approximately DKK 890 million at the end of Q4 2015, and the equity ratio was 66 per cent.
Turning to the future, Bakkafrost said the global demand in the salmon market continues with strong growth rates.
The markets were affected differently by currency developments during the year, but it expects the market balance will be tighter this year.
Global supply of Atlantic salmon is expected to decrease by three per cent in volume during 2016. Production capacity is close to full utilisation and further expansion relates to high investments.
Farming
The outlook for the farming segment is good. The biology and veterinary situation is the most important risk area, which it is addressing with new investments and procedures.
Sea lice is an area which has demanded more effort, said the company. Its live fish carrier, Hans á Bakka, has freshwater treatment equipment installed, which has been effective against sea lice.
Bakkafrost expects to harvest 48,000 tonnes gutted weight in 2016. Its forecast for smolt release in 2016 is 10.4 million pieces. The estimates for harvesting volumes and smolt releases are, as always, dependent on the biological situation.
Value added products (VAP)
Bakkafrost’s long-term strategy is to sell around 40 to 50 per cent of the harvested volume of salmon as value added products on fixed price contracts. The contracts last for six to 12 months.
Contracts have been signed covering around 60 per cent of the VAP capacity for 2016. This corresponds to around 25 per cent of the expected harvested volumes for 2016.
Fishmeal, fish oil and feed (FOF)
The outlook for the production of fishmeal and fish oil is dependent on the availability of raw material.
The quotas for catching blue whiting in the North Atlantic are expected to be reduced and, therefore, the production of fishmeal and fish oil is most likely to reduce in volume in 2016 from relatively high volumes in 2015.
The major market for Havsbrún´s fish feed is the local Faroese market, including Bakkafrost’s internal use of fish feed.
Investments
Bakkafrost has announced an investment plan for the period until 2017, to continue to have one of the most cost efficient value chains in the farming industry, carry out organic growth, increase flexibility and reduce the biological risk to meet future consumer trends and to be more end-customer orientated.
The total investments for the period 2014-2017 were announced to be DKK 1,370 million including maintenance CAPEX. The investment plan for the next two years is DKK 570 million.
Investment in the new factory will be finalised in 2016. The harvest operation is expected to start in Q2 2016, while the VAP operation will start in H2 2016.
There will be some extra costs during the start-up period, but the investment is expected to result in operational savings of DKK 70-90 million per year with gradual effect from 2017.
Bakkafrost plans to increase its smolt capacity, making it self-supplied with smolts at a size of 200-300g each before end 2017.
The benefits are shorter production time at sea as well as reduced biological risk. The expansion of the hatchery in Viðareiði, which started in 2015, will be finalised in Q2 2016. The expansion will increase fourfold the capacity of this hatchery. An investment in a new hatchery site is expected to start in 1H 2016.