Lower salmon harvest dents Bakkafrost’s Q2 profits, new investment plan underway
Bakkafrost Group delivered total operating earnings before interest and taxes (EBIT) of DKK 407.9 million (USD 63 million, EUR 54.7 million) in the second-quarter of this year, down from DKK 459.1 million (USD 70.9 million, EUR 61.6 million) in the corresponding period of 2017.
The Faroe Islands-based Atlantic salmon farmer’s operating revenues fell to DKK 954.3 million (USD 147.4 million, EUR 128 million) for the last quarter, and to DKK 1.8 billion (USD 277.9 million, EUR 241.3 million) for the first-half of the year. But while its Q2 profit was down to DKK 338.8 million (USD 52.3 million, EUR 45.4 million), profit for H1 2018 increased to DKK 611.1 million (USD 94.4 million, EUR 81.9 million).
It harvested 12,902 metric tons (MT) gutted weight of fish in the last quarter, representing a 30 percent decline from the 18,402 MT in Q2 2017. Its total harvested volume in the first-half of this year was 25,139 MT, down from 31,560 MT a year ago. The guidance volume for 2018 has now been reduced by 2,000 MT to 49,000 MT.
Its forecast for smolt release in 2018 is 13.9 million, compared with 9.9 million last year and 11.7 million in 2016.
“The salmon price was good in the second-quarter, and although the price fell throughout the quarter, the result for Bakkafrost was good,” said Regin Jacobsen, CEO of Bakkafrost.
Jacobsen also confirmed a new DKK 3 billion (USD 463.3 million, EUR 402.2 million) investment plan for the period 2018 to 2022.
“The salmon farming business has developed dramatically since it started in the Faroe Islands. We foresee great opportunities for development in the future and to be able to transfer these opportunities into realities, large investments are needed,” he said.
As such, over the next five years, Bakkafrost will use around DKK 425 million (USD 65.6 million, EUR 57 million) in its fishmeal, oil and feed (FOF) business to increase feed capacity and feed line capabilities. Investment will also be made to increase its fish oil capacity.
At the same time, around DKK 200 million (USD 30.9 million, EUR 26.8 million) will go into a new site to run the Faroese broodstock program, while its farming and value-added processing (VAP) segments will receive DKK 1.3 billion (USD 200.7 million, EUR 174.3 million) and DKK 85 million (USD 13.1 million, EUR 11.4 million) respectively.
Bakkafrost’s farming segment delivered an operational EBIT of DKK 393.2 million (USD 60.7 million, EUR 52.7 million) in Q2 2018, which corresponded to DKK 30.47 (USD 4.70, EUR 4.09) per kg, while its value-added processing (VAP) segment, which produced 1,970 MT of products, posted an operational EBIT of DKK -16.9 million (USD -2.6 million, EUR -2.3 million).
The group highlighted that the higher salmon spot prices had a negative effect on the VAP segment’s margin as it buys its raw material at spot prices. For H1 2018, the operational EBIT amounted to DKK -28.5 million (USD -4.4 million, EUR -3.8 million), corresponding to DKK -6.98 (USD -1.08, EUR -0.94) per kg, compared with DKK -12.07 (USD -1.86, EUR -1.61) in the same period of last year.
Bakkafrost has signed VAP contracts covering around 12 percent of the expected harvested volumes for the rest of 2018. Its long-term strategy is selling around 40-50 percent of the harvested volumes of salmon as VAP products at fixed price contracts.
Meanwhile, Bakkafrost’s FOF segment delivered earnings before interest, taxes, depreciation and amortization (EBITDA) of DKK 66 million (USD 10.2 million, EUR 8.8 million) in the last quarter, with its sales of fishmeal reaching 15,673 MT.
The group expects high production volumes of fishmeal and fish oil in 2018, although not at the record levels seen last year.
Its new salmon meal and salmon oil plant has also now started operation with the intention to increase the value of offcuts from salmon harvested and processed in the new harvest/VAP factory at Glyvrar.