Quarterly Report • May 5, 2020
Quarterly Report
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OPERATIONAL EBIT VAP AND FARMING FO DKK/KG
| Highlights2 | Statement by the Management and the |
|---|---|
| Board of Directors on the Interim Report13 | |
| Summary of the 1st Quarter 20203 | |
| Financial Review 4 |
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| Income Statement 4 |
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| Statement of Financial Position 4 |
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| Cash Flow5 | |
| Farming Segment Faroe Islands (FO) 6 |
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| Farming Segment Scotland (SCT)7 |
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| VAP Segment 8 |
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| FOF Segment9 | |
| Consolidated Income Statement 14 |
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|---|---|
| Consolidated Statement of | |
| Comprehensive Income 14 |
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| Consolidated Statement of | |
| Financial Position15 | |
| Consolidated Cash Flow Statement 16 |
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| Consolidated Statement of | |
| Changes in Equity17 | |
| Notes to the Account18 Contacts30 |
|---|
| Q1 | Q1 | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| INCOME STATEMENT | 0 | |
| Group - Operating revenue | 1,255,226 | 963,709 |
| Group - Operational EBIT* | 248,083 | 267,704 |
| Group - EBIT | -181,760 | 260,528 |
| Group - Profit for the period | -147,981 | 212,836 |
| Operational EBIT* (Farming and VAP) (DKK) | 192,127 | 231,067 |
| Operational EBIT/kg (Farming and VAP) (DKK) | 18.01 | 16.86 |
| Operational EBIT/kg (Farming and VAP) (NOK) | 25.10 | 21.99 |
| Farming Faroe Islands - Operating revenue | 632,533 | 755,402 |
| Farming Faroe Islands - Operational EBIT* | 202,925 | 229,743 |
| Farming Faroe Islands - Operational EBIT margin | 32.1% | 30.4% |
| Farming Faroe Islands - Operational EBIT/kg (DKK) | 19.02 | 16.76 |
| Farming Faroe Islands - Operational EBIT/kg (NOK) | 26.51 | 21.86 |
| Farming Scotland - Operating revenue | 412,395 | n/a |
| Farming Scotland - Operational EBIT* | 29,740 | n/a |
| Farming Scotland - Operational EBIT margin | 7.2% | n/a |
| Farming Scotland - Operational EBIT/kg (DKK) | 4.09 | n/a |
| Farming Scotland- Operational EBIT/kg (NOK) | 5.70 | n/a |
| VAP - Operating revenue | 274,308 | 260,574 |
| VAP - Operational EBIT* | -10,798 | 1,324 |
| VAP - Operational EBIT margin | -3.9% | 0.5% |
| VAP - Operational EBIT/kg (DKK) | -2.00 | 0.28 |
| VAP - Operational EBIT/kg (NOK) | -2.78 | 0.37 |
| FOF - Operating revenue | 309,969 | 283,411 |
| FOF - EBITDA | 40,212 | 65,252 |
| FOF - EBITDA margin | 13.0% | 23.0% |
| NOK/DKK (average) | 71.76 | 76.66 |
| DKK 1,000 | 2020 | 2019 |
|---|---|---|
| Q1 | Q1 |
| FINANCIAL POSITION AND CASH FLOW | ||
|---|---|---|
| Total Assets*** | 12,259,660 | 13,101,405 |
| Equity*** | 8,129,499 | 8,496,875 |
| Equity ratio*** | 66% | 65% |
| Net interest-bearing debt*** | 988,458 | 1,018,685 |
| Cash flow from operations | 365,249 | 76,503 |
| Cash flow from financing | -772,459 | 54,146 |
| PROFITABILITY | ||
| Basic earnings per share (DKK) | -2.50 | 4.37 |
| Diluted earnings per share (DKK) | -2.50 | 4.37 |
| ROCE** | 2.1% | 4.8% |
| VOLUMES | ||
| Harvested volumes Faroe Islands (tgw) | 10,667 | 13,707 |
| Harvested volumes Scotland (tgw) | 7,268 | n/a |
| VAP produced volumes (tgw) | 5,408 | 4,689 |
| Sold feed tonnes | 19,123 | 16,264 |
| Internal feed sales tonnes | 14,317 | 13,960 |
| Smolt released thousand Faroe Islands (pcs) | 2,263 | 1,720 |
| Smolt released thousand Scotland (pcs) | 1,032 | n/a |
* Aligned for fair value adjustment of biomass, onerous contracts provisions, income from associates and revenue tax – refer to Note 10
** Return on average capital employed, based on operational EBIT – refer to Note 10
*** Comparing figures from end 2019
(Figures in parenthesis refer to the same period last year).
The Bakkafrost Group delivered a total operating EBIT of DKK 248.1 million in Q1 2020.
Total harvested volumes were 17.9 thousand tonnes gutted weight (tgw). Faroe Islands (FO): 10.7 tgw, Scotland (SCT): 7.3 tgw.
The combined FO farming and VAP segments made an operational EBIT of DKK 192.1 million. The FO farming segment made an operational EBIT of DKK 202.9 million. The SCT farming segment made an operational EBIT of DKK 29.7 million. Volumes in FO operations decreased and thus had a negative effect on the operational EBIT.
The VAP segment made an operational EBIT of DKK -10.8 million. The EBITDA for the FOF segment was DKK 40.2 million.
The Group made a profit for Q1 2020 of DKK -148.0 million (DKK 212.8 million).
Total harvested volumes for Q1 2020 were 17,935 tonnes gutted weight. FO: 10,667 tgw (13,707 tgw), SCT: 7,268 tgw (n/a).
In total, 3.3 million smolts were transferred during Q1 2020. FO: 2.3 million (1.7 million), SCT: 1.0 million (n/a).
The combined FO farming and VAP segments made an operational EBIT of DKK 192.1 million (DKK 231.1 million) in Q1 2020. The operational EBIT per kg in Q1 2020 was DKK 18.01 (DKK 16.86), which corresponds to NOK 25.10 (NOK 21.99) for the combined FO farming and VAP segments.
The FO farming segment made an operational EBIT of DKK 202.9 million (DKK 229.7 million) in Q1 2020. The harvested volumes were lower and the achieved prices were higher in Q1 2020, compared to Q1 2019.
A severe storm that hit the Faroe Islands in late February, caused a loss due to mortality amounting to DKK 23.4 million.
The SCT farming segment made an operational EBIT of DKK 29.7 million in Q1 2020.
The VAP segment made an operational EBIT of DKK -10.8 million (DKK 1.3 million) for Q1 2020.
The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 40.2 million (DKK 65.3 million) for Q1 2020, and the EBITDA margin was 13.0% (23.0%).
During Q1 2020, Havsbrún sourced 64,807 tonnes (115,530 tonnes) of raw material.
The Group was impacted by the significant market disruption from Covid-19 towards the end of the quarter.
The net interest-bearing debt amounted to DKK 988.5 million at the end of Q1 2020 (DKK 522.0 million). Undrawn credit facilities amounted to DKK 2,465.3 million at the end of Q1 2020.
The equity ratio was 66% at 31 March 2020, compared to 65% at the end of 2019.
(Figures in parenthesis refer to the same period last year).
The Group's operating revenue amounted to DKK 1,255.2 million (DKK 963.7 million) in Q1 2020.
The FO farming segment's harvest volumes were lower and the achieved prices were higher in Q1 2020, compared to the same quarter last year. The VAP segment had higher revenues because of higher volumes in Q1 2020, compared to Q1 2019. The FOF segment had higher external revenue in Q1 2020, mainly due to higher external sales of feed, compared to Q1 2019.
The Group's operational EBIT was DKK 248.1 million (DKK 267.7 million) in Q1 2020. The combined FO farming and VAP segments had lower operational EBIT in Q1 2020, compared to Q1 2019, and the FOF segment had lower EBITDA in Q1 2020, compared to Q1 2019.
The fair value adjustment of the Group's biological assets amounted to DKK -410.7 million (DKK 17.9 million) in Q1 2020. The adjustment is due to lower forward market prices for salmon at the end of the quarter, compared to the beginning of the quarter.
Change in provisions for onerous contracts amounted to DKK 0 million (DKK 0 million) in Q1 2020.
The revenue tax amounted to DKK -19.1 million (DKK -32.0 million) in Q1 2020.
Net financial items in Q1 2020 were DKK 0.7 million (DKK -1.2 million).
Net taxes amounted to DKK 33.1 million (DKK -46.5 million) in Q1 2020.
The result for Q1 2020 was DKK -148.0 million (DKK 212.8 million).
(Figures in parenthesis refer to end last year).
The Group's total assets amounted to DKK 12,259.7 million (DKK 13,101.4 million) at the end of Q1 2020.
Intangible assets amounted to 4,386.1 (DKK 4,395.7 million) at the end of Q1 2020.
Property, plant and equipment amounted to DKK 3,762.7 million (DKK 3,780.5 million) at the end of Q1 2020. Right of use assets amounted to DKK 480.1 million (DKK 332.8 million) in Q1 2020. Bakkafrost made investments in PP&E amounting to DKK 101.3 million during Q1 2020.
Non-current financial assets amounted to DKK 119.1 million (DKK 119.1 million) at the end of Q1 2020.
The carrying amount (fair value) of biological assets amounted to DKK 1,492.3 million (DKK 1,901.7 million) at the end of Q1 2020. Compared to year end 2019, biological assets have mainly decreased due to lower forward market prices. Included in the carrying amount of the biological assets is a fair value adjustment amounting to DKK -383.0 million (DKK 27.7 million) at the end of Q1 2020.
Inventories amounted to DKK 523.8 million (DKK 548.5 million) at the end of Q1 2020.
Total receivables, including long-term receivables and deferred tax assets, amounted to DKK 694.4 million (DKK 713.5 million) at the end of Q1 2020.
Total cash and cash equivalents amounted to DKK 801.1 million (DKK 1,309.5 million) at the end of Q1 2020.
The Group's equity, including non-controlling interests, amounted to DKK 8,129.5 million (DKK 8,496.9 million) at the end of Q1 2020. Non-controlling interest amounted to DKK 0.0 million (DKK 167.6 million). The change in equity consists primarily of the result for Q1 2020, but also acquisition of minorities amounting to DKK 167.6 million.
Total non-current liabilities amounted to DKK 3,149.7 million (DKK 3,679.6 million) at the end of Q1 2020.
Deferred taxes amounted to DKK 1,097.1 million (DKK 1,123.8 million) at the end of Q1 2020.
Long-term interest-bearing debt was DKK 1,789.5 million (DKK 2,328.2 million) at the end of Q1 2020.
Long-term leasing debt amounted to DKK 261.1 million and shortterm leasing debt amounted to DKK 201.0 million in total DKK 462.2 million (DKK 333.4 million) at the end of Q1 2020.
At the end of Q1 2020, the Group's total current liabilities were DKK 980.4 million (DKK 925.0 million). The current liabilities consist of financial derivatives, short-term leasing debt, accounts payable and other debt.
Total derivatives amounted to DKK 15.1 million (DKK 15.5 million) at the end of Q1 2020.
The equity ratio was 66% at the end of Q1 2020, compared to 65% at the end of 2019.
(Figures in parenthesis refer to the same period last year).
The cash flow from operations was DKK 365.2 million (DKK 76.5 million) in Q1 2020. The changes in working capital had a positive effect on the cash flow from operations.
The cash flow from investment activities amounted to DKK -101.3 million (DKK -106.0 million) in Q1 2020. The amount relates to investments in property, plant and equipment.
The cash flow from financing activities totalled DKK -772.5 million (DKK 54.1 million) in Q1 2020.
In Q1 2020, net change in cash flow amounted to DKK -508.5 million (DKK 24.7 million).
At the end of Q1 2020, the Group had unused credit facilities of DKK 2,465.3 million (DKK 971.1 million).
The Faroese farming segment produces high quality Atlantic salmon from juveniles to harvest size salmon. The salmon is sold to fresh fish markets globally and to the internal VAP production. The farming sites are in the Faroe Islands.
The total volumes harvested in Q1 2020 were 10,667 tonnes gutted weight (13,707 tgw) – a change in volume of -22%. 6,265 tgw came from the North region, 2,769 tgw from the West region and 1,633 tgw from the South region.
2.3 million (1.7 million) smolts were transferred in Q1 2020. This is in line with the smolt transfer plan.
| Q1 | Q1 | ||
|---|---|---|---|
| DKK 1,000 | 2020 | 2019 | Change |
| Financial | |||
| Total revenue | 632,533 | 755,402 | -16% |
| EBIT | -151,914 | 218,159 | -170% |
| Operational EBIT | 202,925 | 229,743 | -12% |
| Operational EBIT/kg (DKK) | 19.02 | 16.76 | 13% |
| Volumes | |||
| Harvested volumes Faroe Islands (tgw) | 10,667 | 13,707 | -22% |
| - Farming North |
6,265 | 6,743 | -7% |
| - Farming West |
2,769 | 6,964 | -60% |
| - Farming South |
1,633 | 0 | n/a |
| Smolts released (thousand) | 2,263 | 1,720 | 32% |
| - Farming North |
1,080 | 1,720 | -37% |
| - Farming West |
1,183 | 0 | n/a |
| - Farming South |
0 | 0 | n/a |
In Q1 2020, the operating revenue for the FO farming segment was DKK 632.5 million (DKK 755.4 million). The total revenue for the farming segment decreased in Q1 2020, compared with Q1 2019, because of lower volumes.
In Q1 2020, the farming segment's EBIT amounted to DKK -151.9 million (DKK 218.2 million).
Operational EBIT amounted to DKK 202.9 million (DKK 229.7 million) in Q1 2020, which corresponds to an operational EBIT margin of 32% (30%).
Operational EBIT/kg for the farming segment was DKK 19.02 (NOK 26.51) in Q1 2020, compared with DKK 16.76 (NOK 21.86) in Q1 2020.
A severe storm that hit the Faroe Islands in late February, caused a loss due to mortality amounting to DKK 23.4 million.
(Please note that the comparable figures and the narrative in this section are pro forma and are not part of the consolidated Bakkafrost accounts.)
The Scottish farming segment represents the operating business of The Scottish Salmon Company PLC (SSC) which was consolidated from 8 October 2019, when Bakkafrost gained control. The Scottish Salmon Company is committed to producing the finest quality Scottish Salmon with Scottish Provenance and full traceability. SSC has sites across the West Coast of Scotland and Hebridean Islands and is exporting globally with a focus on North America and the Far East.
The total volumes harvested in Q1 2020 were 7,268 tonnes gutted weight (8,725 tgw).
1.0 million smolts were transferred in Q1 2020 (2.5 million).
| Q1 | ||
|---|---|---|
| DKK 1,000 |
2020 | |
| Financial | ||
| Total revenue | 412,395 | |
| EBIT | -45,264 | |
| Operational EBIT | 29,740 | |
| Farming - Operational EBIT/kg (DKK) |
4.09 | |
| Volumes | ||
| Harvested volumes (tgw) | 7,268 | |
| Smolts released (thousand) | 1,032 |
In Q1 2020, the operating revenue for the SCT farming segment was DKK 412.4 million.
Volume and EBIT were impacted due to the mix of sites in this generational cycle and some specific health issues earlier in cycle at harvesting sites.
Operational EBIT amounted to DKK 29.7 million.
Operational EBIT/kg for the farming segment in Scotland was DKK 4.09 (NOK 5.70) in Q1 2020.
The VAP (value added products) segment produces skinless and boneless portions of salmon in the Faroe Islands. The main market for the VAP products is Europe with increasing sales in other markets. The VAP products are sold on long-term fixed price contracts.
51% (34%) of the total Faroese harvested volumes in Q1 2020 went to the production of VAP products.
The VAP production in the Faroe Islands was 5,408 tonnes gutted weight (4,689 tgw) in Q1 2020, an increase of 15%, compared to Q1 2019. The volumes were higher, and the segment had higher contract coverage in Q1 2020, compared to Q1 2019.
| Q1 | Q1 | ||
|---|---|---|---|
| DKK 1,000 | 2020 | 2019 | Change |
| Financial | |||
| Total revenue | 274,308 | 260,574 | 5% |
| EBIT | -10,798 | 1,324 | -916% |
| Operational EBIT | -10,798 | 1,324 | -916% |
| VAP - Operational EBIT/kg (DKK) |
-2.00 | 0.28 | -807% |
| Volumes | |||
| VAP produced volumes (tgw) | 5,408 | 4,689 | 15% |
| Harvested Faroese volumes used in VAP production | 51% | 34% | 48% |
| Harvested volumes sold fresh/frozen | 49% | 66% | -25% |
The operating revenue for the VAP segment amounted to DKK 274.3 million (DKK 260.6 million) in Q1 2020. The increase in revenue is due to higher volumes in Q1 2020, compared with Q1 2019.
The VAP segment had an EBIT amounting to DKK -10.8 million (DKK 1.3 million) in Q1 2020. Changes in onerous contracts were DKK 0.0 million (DKK 0.0 million).
Operational EBIT amounted to DKK -10.8 million (DKK 1.3 million) in Q1 2020, corresponding to an operational EBIT of DKK -2.00 (NOK -2.78) per kg gutted weight in Q1 2020, compared with DKK 0.28 (NOK 0.37) per kg gutted weight in Q1 2019.
The FOF (fishmeal, oil and feed) segment produces fishmeal, fish oil and fish feed. Most of the production is used for fish feed, used internally in the FO farming segment. The quality of the fish feed is important to the quality of the salmon from Bakkafrost FO. Fishmeal, fish oil and fish feed are also sold externally.
Havsbrún received 64,807 tonnes (115,530 tonnes) of raw material to produce fishmeal and fish oil in Q1 2020. The raw material intake depends on the fishery in the North Atlantic and available species of fish.
The production of fishmeal in Q1 2020 was 14,135 tonnes (24,738 tonnes).
The production of fish oil in Q1 2020 was 1,533 tonnes (4,094 tonnes). The production of fish oil varies, depending on the species of fish sourced for production and the timing of catch.
Sales of feed amounted to 19,123 tonnes (16,264 tonnes) in Q1 2020, of which the FO farming segment internally used 14,317 tonnes (13,960 tonnes) or 74.9% (85.8%).
| Q1 | Q1 | ||
|---|---|---|---|
| DKK 1,000 | 2020 | 2019 | Change |
| Financial | |||
| Total revenue | 309,969 | 283,411 | 9% |
| EBIT | 33,009 | 62,512 | -47% |
| EBITDA | 40,212 | 65,252 | -38% |
| FOF - EBITDA margin |
13.0% | 23.0% | -44% |
| Volumes (tonnes) | |||
| Total Feed sold | 19,123 | 16,264 | 18% |
| - Feed internal sale |
14,317 | 13,960 | 3% |
| - Feed external sale |
4,806 | 2,304 | 109% |
| Fishmeal external sale | 11,772 | 9,987 | 18% |
| Fish oil external sale | 5 | 1 | 400% |
| Received raw material | 64,807 | 115,530 | -44% |
The operating revenue for the FOF segment amounted to DKK 310.0 million (DKK 283.4 million) in Q1 2020, of which DKK 143.9 million (DKK 139.2 million) represented sales to Bakkafrost's FO farming segment, corresponding to 46.4% (49.1%).
revenue due to higher volumes of feed sold in Q1 2020, compared
to Q1 2019. EBITDA was DKK 40.2 million (DKK 65.3 million) in Q1 2020, and the EBITDA margin was 13.0% (23.0%). Havsbrún sources raw pelagic fish for the fishmeal and fish oil production, which are part of the recipe to produce salmon feed.
The global harvest of Atlantic salmon increased around 2.3% in Q1 2020, compared to Q1 2019, according to the latest estimate from Kontali Analyse. The market was affected negatively by the market disruption caused by Covid-19 pandemic, especially towards the end of the quarter.
Looking forward the market dynamics will still be affected by the Covid-19 situation which imposes greater uncertainty to the market development estimates. In Q2 2020, the global harvest of Atlantic salmon is expected to increase around 2-4%, compared to Q2 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 2-4%, compared to 2019.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. During 2020, variation in sales distribution between the different markets is driven by the change in demand from quarter to quarter in the different regions. In Q1 2020 and during the coming quarters, the sales distribution will most likely be affected by changing market dynamics caused by the Covid-19 pandemic. Bakkafrost, however, aims to have a balanced market diversification to reduce market risk.
The outlook for the farming segment in the Faroe Islands is good, and the overall operational performance is very good. There are many possibilities in the Scottish operation. The gradual improvements will start this year and will be revealed over the next years. The estimates for harvest volumes and smolt releases in both geographies are dependent on the biological development.
Bakkafrost focuses on reducing biological risk continuously and has made several new investments and procedures to diminish this risk. Bakkafrost focuses on using non-medical methods in treatments against sea lice and has invested in new technology to follow this strategy, including farming supply vessels for mechanical delousing and mechanical cleaning of nets in the pens.
The quality and performance of the smolts have also increased significantly, and there are clear signs that the large smolt and non-medical delousing strategies are working successfully in the Faroe Islands. Looking ahead, Bakkafrost will extend these strategies into the Scottish farming operation.
Overall, the biological performance in the Faroese and Scottish operations have been strong during Q1 2020 with good growth and low mortality rates, except for the mortality caused by the severe storm that hit our farming sites in the Faroe Islands in late February. The loss of around 1.2 million fish has caused Bakkafrost to lower the expected harvest volume for 2020 in the Faroe Islands to 50,000 tonnes gutted weight, while the expected harvest in 2020 in Scotland is increased to 39,000 tonnes gutted weight.
Farming SCT has signed contracts for around 25% of the expected harvest volumes in Farming SCT in 2020. These contracts usually last for 12 months.
Bakkafrost expects to release 15.0 million smolts in 2020 in the Faroe Islands, compared to 12.7 million smolts in 2019 and 12.6 million smolts in 2018. The smolt release in Scotland is expected to be 10.7 million smolts in 2020, compared to 12.4 million smolts in 2019 and 8.6 million smolts in 2018. The number of smolts released is a key element of predicting Bakkafrost's future production.
Bakkafrost has signed contracts covering around 47% of the expected Faroese harvest volumes in Q2 2020 and 40% of the harvest volume for 2020. Bakkafrost's long-term strategy is to sell around 40-50% of the Faroese harvested volumes of salmon as VAP products at fixed price contracts.
The VAP contracts are at fixed prices, based on the salmon forward prices at the time they are agreed and the expectations for the salmon spot price for the contract period. The contracts last for 6 to 12 months.
The outlook for the production of fishmeal and fish oil is dependent on the availability of raw material.
The ICES 2020 recommendation for blue whiting is 1,162 thousand tonnes, which corresponds to an increase of 2%, compared to ICES's recommendation for 2019.
Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2020, compared to 2019.
Havsbrún's sales of fish feed in 2020 are expected to be 110,000 tonnes, depending on external sales.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost FO's internal use of fish feed.
Bakkafrost's investment programme for the period from 2020 to 2022, excluding investments in The Scottish Salmon Company, will amount to around DKK 1.8 billion, including maintenance capex, and will reinforce Bakkafrost's integrated business model and ensure a capacity across the value chain to be able to produce 100,000 tonnes gutted weight of salmon in the Faroe Islands. The aim of the investment programme is to minimize the biological risk, increase efficiency and create sustainable organic growth. Bakkafrost's focus on producing larger smolts plays a key role in achieving this goal.
mDKK
In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments of around 350 mDKK per year for 2020-2024 in The Scottish Salmon Company.
Despite the uncertainties imposed by the Covid-19 pandemic, long term market balances in the world market for salmon products will most likely remain favourable for Bakkafrost. Bakkafrost has a long value chain and a cost-efficient production of high-quality salmon products and will likely maintain the financial flexibility going forward.
During Q4 2019, Bakkafrost refinanced its bank facilities amounting to 352 mEUR with a further accordion option of 150 mEUR. In addition, bank facilities amounting to 100 mGBP were ensured to refinance The Scottish Salmon Company.
A high equity ratio together with Bakkafrost's bank financing, makes Bakkafrost's financial situation strong. This enables Bakkafrost to carry out its investment plans in the Faroe Islands as well as in Scotland, hereby strengthening the Group, enabling M&A's and organic growth opportunities as well as to fulfil its unchanged dividend policy in the future.
Bakkafrost plays an important role in ensuring healthy food for the world's growing population, and this role is especially important in the difficult times the world is facing now.
Bakkafrost has implemented a range of measures to protect our workforce and ensure continuous production. New procedures and social distancing are implemented widely in the business, and production and office facilities have been modified where necessary to prevent infection. In the Faroe Islands all our employees are offered free Covid-19 screening by health professionals every second week until late June 2020.
Bakkafrost is taking all necessary steps to protect the business, and we are constantly adapting to the changing market conditions and shifting demands from customers.
As an extraordinary precautionary measure, in March 2020, the Board of Directors postponed the decision on dividend payments for 2019 until 25 August 2020, due to the uncertainty caused by the Covid-19 pandemic.
Biological risk has been and will be a substantial risk for Bakkafrost. The Annual Report 2019 gives more explanation on the biological risk and Bakkafrost's risk management in this regard.
Reference is made to the Outlook section of this report for other comments on Bakkafrost's risk exposure and to Note 3. Please note the comments on Covid-19, which impose significant risks.
Bakkafrost is, as explained in the Annual Report 2019, exposed to the salmon price.
The Annual Report 2019 is available on request from Bakkafrost and on Bakkafrost's website, www.bakkafrost.com.
From the date of the statement of financial position until today, no events have occurred which materially influence the information provided by this report.
The Management and the Board of Directors have today considered and approved the interim report of P/F Bakkafrost for the period 1 January 2020 to 31 March 2020.
The interim report, which has not been audited or reviewed by the company's independent auditors, has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and Faroese disclosure requirements for listed companies.
Glyvrar, May 4th, 2020
Management:
Regin Jacobsen CEO
The Board of Directors of P/F Bakkafrost:
Rúni M. Hansen Johannes Jensen Teitur Samuelsen Chairman of the Board Deputy Chairman of the Board Board Member
31 March 2020.
In our opinion, the accounting policies used are appropriate, and the interim report gives a true and fair view of the Group's financial positions at 31 March 2020 as well as the results of the Group activities and cash flows for the period 1 January 2020 to
In our opinion, the management's review provides a true and fair presentation of the development in the Group operations and
Øystein Sandvik Annika Frederiksberg Einar Wathne Board Member Board Member Board Member financial circumstances of the results for the period and of the overall financial position of the Group as well as a description of the most significant risks and elements of uncertainty facing the Group.
Over and above the disclosures in the interim report, no changes in the Group's most significant risks and uncertainties have occurred relative to the disclosures in the annual report for 2019.
For the period ended 31 March 2020
| Q1 | Q1 | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Operating revenue | 1,255,226 | 963,709 |
| Purchase of goods | -284,046 | -361,540 |
| Change in inventory and biological assets (at cost) | -187,897 | 34,013 |
| Salary and personnel expenses | -148,713 | -114,552 |
| Other operating expenses | -267,470 | -200,153 |
| Depreciation | -119,017 | -53,773 |
| Operational EBIT* | 248,083 | 267,704 |
| Fair value adjustments of biological assets | -410,711 | 17,871 |
| Income from associates | 0 | 6,947 |
| Revenue tax | -19,132 | -31,994 |
| Earnings before interest and taxes (EBIT) | -181,760 | 260,528 |
| Net interest revenue | 803 | 111 |
| Net interest expenses | -9,527 | -1,865 |
| Net currency effects | 15,448 | 1,425 |
| Other financial expenses | -6,015 | -864 |
| Earnings before taxes (EBT) | -181,051 | 259,335 |
| Taxes | 33,070 | -46,499 |
| Profit or loss for the period | -147,981 | 212,836 |
| Profit or loss for the year attributable to | ||
| Non-controlling interests | 0 | 0 |
| Owners of P/F Bakkafrost | -147,981 | 212,836 |
Earnings per share (DKK) -2.50 4.37 Diluted earnings per share (DKK) -2.50 4.37
For the period ended 31 March 2020
| Q1 | Q1 | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Profit for the period | -147,981 | 212,836 |
| Changes on financial derivatives | 3 | -274 |
| Hereof income tax effect | 8 | 33 |
| Reserve to share-based payment | -1,560 | 839 |
| Currency translation differences | -48,784 | 1 |
| Adjustment of treasury shares | -1,610 | -2,993 |
| Net other comprehensive income to be | ||
| reclassified to profit or loss in subsequent periods | -51,943 | -2,394 |
| Net other comprehensive income not to be | ||
| reclassified to profit or loss in subsequent periods | 0 | 0 |
| Other comprehensive income | -51,943 | -2,394 |
| Total other comprehensive income for the period | -199,924 | 210,442 |
| Comprehensive income for the period attributable to | ||
| Non- controlling interests | 0 | 0 |
| Owners of P/F Bakkafrost | -199,924 | 210,442 |
As at 31 March 2020
| 31 Mar. | 31 Dec. | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| ASSETS | ||
| Non-current assets | ||
| Intangible assets | 4,386,056 | 4,395,687 |
| Property, plant and equipment | 3,762,740 | 3,780,499 |
| Right of use assets | 480,085 | 332,824 |
| Financial assets | 119,116 | 119,084 |
| Long-term receivables | 4,422 | 4,422 |
| Deferred tax assets | 37,840 | 37,593 |
| Total non-current assets | 8,790,259 | 8,670,109 |
| Current assets | ||
| Biological assets (biomass) | 1,492,337 | 1,901,729 |
| Inventory | 523,833 | 548,508 |
| Total inventory | 2,016,170 | 2,450,237 |
| Accounts receivable | 629,372 | 625,993 |
| Other receivables | 22,780 | 45,520 |
| Total receivables | 652,152 | 671,513 |
| Cash and cash equivalents | 801,079 | 1,309,546 |
| Total current assets | 3,469,401 | 4,431,296 |
| TOTAL ASSETS | 12,259,660 | 13,101,405 |
| 31 Mar. | 31 Dec. | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Share capital | 59,294 | 59,294 |
| Other equity | 8,070,205 | 8,269,961 |
| Non-controlling interests | 0 | 167,620 |
| Total equity | 8,129,499 | 8,496,875 |
| Non-current liabilities | ||
| Deferred taxes and other taxes | 1,097,117 | 1,123,796 |
| Long-term interest-bearing debt | 1,789,537 | 2,328,231 |
| Long-term leasing debt | 261,105 | 225,585 |
| Financial derivatives | 1,966 | 1,966 |
| Total non-current liabilities | 3,149,725 | 3,679,578 |
| Current liabilities | ||
| Financial derivatives | 13,158 | 13,493 |
| Short-term leasing debt | 201,047 | 107,808 |
| Accounts payable and other debt | 766,231 | 803,651 |
| Total current liabilities | 980,436 | 924,952 |
| Total liabilities | 4,130,161 | 4,604,530 |
| TOTAL EQUITY AND LIABILITIES | 12,259,660 | 13,101,405 |
For the period ended 3 1 March 2020
| DKK 1,000 2020 |
2019 |
|---|---|
| Earnings before interest and taxes (EBIT) -181,760 |
260,528 |
| Adjustments for write -downs and depreciation 150,431 |
53,773 |
| Adjustments for value adjustment of biomass 410,711 |
-17,871 |
| Adjustments for income from associates 0 |
-6,947 |
| Adjustments for currency effects -33,336 |
4,176 |
| Change in inventory 54,899 |
-38,581 |
| Change in receivables 19,112 |
-167,456 |
| Change in current debts -54,808 |
-11,119 |
| Cash flow from operations 365,249 |
76,503 |
| Cash flow from investments | |
| Payments for purchase of fixed assets -101,257 |
-109,957 |
| Net investment in financial assets 0 |
3,988 |
| Cash flow from investments -101,257 |
-105,969 |
| Cash flow from financing | |
| Change in interest -bearing debt (short and long) -539,705 |
59,515 |
| Acquisition of minorities -167,620 |
0 |
| Financial income 803 |
111 |
| Financial expenses -15,542 |
-2,729 |
| Lease payments -31,678 |
0 |
| Net proceeds from sale of own shares -18,717 |
-2,751 |
| Cash flow from financing -772,459 |
54,146 |
| Net change in cash and cash equivalents in period -508,467 |
24,680 |
| Cash and cash equivalents – opening balance 1,309,546 |
316,894 |
| Cash and cash equivalents – closing balance total 801,079 |
341,574 |
As at 31 March 2020
| Biomass | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Share | Share- | Currency | Fair value | |||||||
| Share | Premium | Treasury | based | translation | Proposed | adjust- | Retained | Total | ||
| DKK 1,000 | Capital | Reserve | Shares | Payment | differences | Derivatives | Dividend | ments | Earnings | Equity |
| Equity excl. minorities 01.01.2020 | 59,143 | 4,027,375 | -68 | 5,059 | 78,850 | -15,348 | 0 | 162,203 | 4,012,041 | 8,329,255 |
| Consolidated profit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -162,203 | 14,390 | -147,813 |
| Other comprehensive income: | ||||||||||
| Changes in financial derivatives | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 0 | 0 | 3 |
| Hereof income tax effect | 0 | 0 | 0 | 0 | 0 | 8 | 0 | 0 | 0 | 8 |
| Share-based payment | 0 | 0 | 0 | -1,560 | 0 | 0 | 0 | 0 | 0 | -1,560 |
| Currency translation differences | 0 | 0 | 0 | 0 | -48,784 | 0 | 0 | 0 | 0 | -48,784 |
| Total other comprehensive income | 0 | 0 | 0 | -1,560 | -48,784 | 11 | 0 | 0 | 0 | -50,333 |
| Total comprehensive income | 0 | 0 | 0 | -1,560 | -48,784 | 11 | 0 | -162,203 | 14,390 | -198,146 |
| Transaction with owners: | ||||||||||
| Treasury shares | 0 | 0 | -1,610 | 0 | 0 | 0 | 0 | 0 | 0 | -1,610 |
| Total transaction with owners | 0 | 0 | -1,610 | 0 | 0 | 0 | 0 | 0 | 0 | -1,610 |
| Total changes in equity | 0 | 0 | -1,610 | -1,560 | -48,784 | 11 | 0 | -162,2035 | 14,390 | -199,756 |
| Non-controlling interest 01.01.20 | 167,620 | |||||||||
| Change in non-controlling interest | -167,620 | |||||||||
| Non-controlling interest 31.03.20 | 0 | |||||||||
| Total equity 31.03.2020 | 59,143 | 4,027,375 | -1,678 | 3,499 | 30,066 | -15,337 | 0 | 0 | 4,026,431 | 8,129,499 |
| Equity 01.01.2019 | 48,858 | 306,537 | -15,525 | 6,153 | 6,176 | -264 | 403,079 | 382,770 | 2,939,245 | 4,077,028 |
| Consolidated profit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -220,567 | 1,071,230 | 850,663 |
| Other comprehensive income: | ||||||||||
| Changes in financial derivatives | 0 | 0 | 0 | 0 | 0 | -17,789 | 0 | 0 | 0 | -17,789 |
| Hereof income tax effect | 0 | 0 | 0 | 0 | 0 | 2,705 | 0 | 0 | 0 | 2,705 |
| Share-based payment | 0 | 0 | 0 | -1,094 | 0 | 0 | 0 | 0 | 0 | -1,094 |
| Currency translation differences | 0 | 0 | 0 | 0 | 72,674 | 0 | 0 | 0 | 0 | 72,674 |
| Total other comprehensive income | 0 | 0 | 0 | -1,094 | 72,674 | -15,084 | 0 | 0 | 0 | 56,496 |
| Total comprehensive income | 0 | 0 | 0 | -1,094 | 72,674 | -15,084 | 0 | -220,567 | 1,071,230 | 907,159 |
| Transaction with owners: | ||||||||||
| Share Capital increase | 10,285 | 3,720,838 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3,731,123 |
| Treasury shares | 0 | 0 | 15,457 | 0 | 0 | 0 | 0 | 0 | 0 | 15,457 |
| Paid-out dividend | 0 | 0 | 0 | 0 | 0 | 0 | -403,079 | 0 | 1,566 | -401,513 |
| Total transaction with owners | 10,285 | 3,720,838 | 15,457 | 0 | 0 | 0 | -403,079 | 0 | 1,566 | 3,345,067 |
| Total changes in equity | 10,285 | 3,720,838 | 15,457 | -1,094 | 72,674 | -15,084 | -403,079 | -220,567 | 1,072,796 | 4,252,226 |
| Non-controlling interest | 167,620 | 167,620 | ||||||||
| Total equity 31.12.2019 | 59,143 | 4,027,375 | -68 | 5,059 | 78,850 | -15,348 | 0 | 162,203 | 4,179,661 | 8,496,875 |
| Equity 01.01.2019 | 48,858 | 306,537 | -15,525 | 6,153 | 6,176 | -264 | 403,079 | 382,770 | 2,939,246 | 4,077,030 |
| Consolidated profit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17,871 | 197,220 | 215,091 |
| Other comprehensive income: | ||||||||||
| Changes in financial derivatives | 0 | 0 | 0 | 0 | 0 | -274 | 0 | 0 | 0 | -274 |
| Hereof income tax effect | 0 | 0 | 0 | 0 | 0 | 33 | 0 | 0 | 0 | 33 |
| Share-based payment | 0 | 0 | 0 | -2,993 | 0 | 0 | 0 | 0 | 0 | -2,993 |
| Currency translation differences | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 1 |
| Total other comprehensive income | 0 | 0 | 0 | -2,993 | 1 | -241 | 0 | 0 | 0 | -3,233 |
| Total comprehensive income | 0 | 0 | 0 | -2,993 | 1 | -241 | 0 | 17,871 | 197,220 | 211,858 |
| Transaction with owners: | ||||||||||
| Treasury shares | 0 | 0 | 839 | 0 | 0 | 0 | 0 | 0 | 0 | 839 |
| Total transaction with owners | 0 | 0 | 839 | 0 | 0 | 0 | 0 | 0 | 0 | 839 |
| Total changes in equity | 0 | 0 | 839 | -2,993 | 1 | -241 | 0 | 17,871 | 197,220 | 212,697 |
| Total equity 31.03.2019 | 48,858 | 306,537 | -14,686 | 3,160 | 6,177 | -505 | 403,079 | 400,641 | 3,136,466 | 4,289,727 |
P/F Bakkafrost is a limited company incorporated and domiciled in the Faroe Islands.
The Group's Annual Report as at 31 December 2019 is available upon request from the company's registered office at Bakkavegur 9, FO-625 Glyvrar, Faroe Islands, or at www.bakkafrost.com.
This Condensed Consolidated Interim Report is presented in DKK.
This Condensed Consolidated Interim Report has been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim Financial Reporting as adopted by the EU. It does not include all the information required for the full Annual and Consolidated Report and Accounts and should be read in conjunction with the Annual and Consolidated Report and Accounts for the Group as at 31 December 2019.
This interim report has not been subject to any external audit.
The accounting policies applied by the Group in this Condensed Consolidated Interim Report are the same as those applied in the Annual Report as at and for the year ended 31 December 2019.
The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting principles and recognized amounts of assets, liabilities, income and expenses. The most significant estimates relate to the valuation of biological assets, which are measured at fair value. Estimates and underlying assumptions are reviewed on an ongoing basis and are based on the management's best assessment at the time of reporting. All changes in estimates are reflected in the financial statements as they occur.
The accounting estimates are described in the notes to the financial statements in the Annual Report 2019.
| 31 Mar. | 31 Mar. | 31 Dec. | |
|---|---|---|---|
| DKK 1,000 | 2020 | 2019 | 2019 |
| Biological assets carrying amount 01.01. | 1,901,730 | 1,358,462 | 1,358,462 |
| Increase due to production or purchases | 549,857 | 298,952 | 2,021,601 |
| Increase due to acquisitions – incl. fair value | 0 | 0 | 667,482 |
| Reduction due to harvesting or sale (costs of goods sold) | -555,785 | -388,909 | -1,921,456 |
| Reduction due to mortality (costs of incidents-based mortality) | -23,375 | 0 | 0 |
| Fair value adjustment at the beginning of the period reversed | -27,695 | -382,775 | -244,034 |
| Fair value adjustment at the end of the period | -383,016 | 400,646 | 27,695 |
| Reversal of elimination at the beginning of the period | 59,121 | 53,790 | 53,790 |
| Eliminations | -45,515 | -49,221 | -59,121 |
| Currency translation differences | 17,014 | 0 | -2,689 |
| Biological assets carrying amount | |||
| at the end of the period | 1,492,336 | 1,290,945 | 1,901,730 |
| Cost price biological assets | 1,903,853 | 939,520 | 1,935,845 |
| Fair value adjustment at the end of the period | -353,187 | 400,646 | 27,695 |
| Eliminations | -45,515 | -49,221 | -59,121 |
| Currency translation differences | -12,815 | 0 | -2,689 |
| Biological assets carrying amount | 1,492,336 | 1,290,945 | 1,901,730 |
| Biomass (tonnes) | |||
| < 1 kg | 5,937 | 2,872 | 5,210 |
| 1 kg < 2 kg | 7,443 | 3,470 | 8,649 |
| 2 kg < 3 kg | 11,181 | 3,249 | 10,334 |
| 3 kg < 4 kg | 10,757 | 6,069 | 14,146 |
| 4 kg < | 22,593 | 18,379 | 22,980 |
| Volume of biomass at sea | 57,911 | 34,039 | 61,319 |
| 31 Mar. | 31 Mar. | 31 Dec. | |
|---|---|---|---|
| Number of fish (thousand) | 2020 | 2019 | 2019 |
| < 1 kg | 10,656 | 5,297 | 12,801 |
| 1 kg < 2 kg | 5,929 | 2,300 | 5,481 |
| 2 kg < 3 kg | 4,391 | 1,290 | 4,271 |
| 3 kg < 4 kg | 3,140 | 1,692 | 4,148 |
| 4 kg < | 4,428 | 3,467 | 4,633 |
| Total number of fish at sea | 28,544 | 14,046 | 31,334 |
| Number of smolt released YTD (thousand) Farming North |
1,080 | 1,721 | 5,585 |
| Farming West | 1,183 | 0 | 5,270 |
| Farming South | 0 | 0 | 1,797 |
| Farming Scotland | 1,032 | n/a | 5,696 |
| Total number of smolts released YTD | 3,295 | 1,721 | 18,348 |
| Sensitivity in DKK 1,000 | |||
| Change in discount rate +1% | -107,866 | -101,210 | -101,607 |
| Change in discount rate -1% | 121,000 | 90,067 | 115,364 |
| Change in sales price +5 DKK | 316,405 | 203,031 | 251,416 |
| Change in sales price -5 DKK | -316,405 | -203,031 | -251,416 |
| Change in biomass volume +1% | 6,488 | 5,857 | 5,836 |
| Change in biomass volume -1% | -6,488 | -5,857 | -5,836 |
| One-year forward prices in EUR FCA Oslo* | |||
| Period end | 5.47 | 7.23 | 7.24 |
| 1 Q (forward) | 4.68 | 6.89 | 6.72 |
| 2 Q (forward) | 4.63 | 6.06 | 6.75 |
| 3 Q (forward) | 4.72 | 6.06 | 5.51 |
| 4 Q (forward) | 5.58 | 6.43 | 5.62 |
| * Source Fish Pool |
| Farming - FO |
Q1 | Q1 |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| External revenue | 402,410 | 558,970 |
| Internal revenue | 230,123 | 196,432 |
| Total revenue | 632,533 | 755,402 |
| Operating expenses | -409,631 | -483,764 |
| Depreciation and amortization | -19,977 | -41,895 |
| Operational EBIT | 202,925 | 229,743 |
| Fair value adjustments of biological assets | -335,707 | 17,871 |
| Income from associates | 0 | 2,539 |
| Revenue tax | -19,132 | -31,994 |
| Earnings before interest and taxes (EBIT) | -151,914 | 218,159 |
| Net financial items | 4,783 | -2,457 |
| Earnings before taxes (EBT) | -147,131 | 215,702 |
| Taxes | 27,397 | -46,766 |
| Profit or loss for the period | -119,734 | 168,936 |
| Farming - SCO |
Q1 |
|---|---|
| DKK 1,000 | 2020 |
| External revenue | 412,395 | |
|---|---|---|
| Total revenue | 412,395 | |
| Operating expenses | -330,460 | |
| Depreciation and amortization | -52,195 | |
| Operational EBIT | 29,740 | |
| Fair value adjustments of biological assets | -75,004 | |
| Earnings before interest and taxes (EBIT) | -45,264 | |
| Net financial items | 13,583 | |
| Earnings before taxes (EBT) | -31,681 | |
| Taxes | 6,456 | |
| Profit for the period | -25,225 |
| Value added products | Q1 | Q1 |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| External revenue | 274,308 | 260,574 |
|---|---|---|
| Internal purchase of raw material | -230,123 | -196,432 |
| Operating expenses | -50,121 | -58,088 |
| Depreciation and amortization | -4,862 | -4,730 |
| Operational EBIT | -10,798 | 1,324 |
| Provision of onerous contracts | 0 | 0 |
| Earnings before interest and taxes (EBIT) | -10,798 | 1,324 |
| Net financial items | -218 | -57 |
| Earnings before taxes (EBT) | -11,016 | 1,267 |
| Taxes | 1,983 | -228 |
| Profit or loss for the period | -9,033 | 1,039 |
In Q1 2020, one customer - as defined in IFRS 8.34 - represents DKK 149 million, corresponding to 54% of the revenue in the VAP segment.
| Fishmeal, Fish Oil and Fish Feed | Q1 | Q1 |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| External revenue | 166,113 | 144,166 |
| Internal revenue | 143,857 | 139,245 |
| Total revenue | 309,969 | 283,411 |
| Cost of goods sold | -219,224 | -161,083 |
| Operating expenses | -50,533 | -57,076 |
| Depreciation and amortization | -7,203 | -7,148 |
| Operational EBIT | 33,009 | 58,104 |
| Income from associates | 0 | 4,408 |
| Earnings before interest and taxes (EBIT) | 33,009 | 62,512 |
| Net financial items | -17,439 | 1,321 |
| Earnings before taxes (EBT) | 15,571 | 63,833 |
| Taxes | -2,803 | -11,490 |
| Profit or loss for the period | 12,768 | 52,343 |
| to Group earnings before taxes (EBT) | Q1 | Q1 |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Farming Faroe Island s |
-147,131 | 215,702 |
| Farming Scotland | -31,681 | 0 |
| VAP (Value added products) | -11,016 | 1,267 |
| FOF (Fishmeal, Fish oil and fish Feed) | 15,571 | 63,833 |
| Eliminations | -6,793 | -21,466 |
| Group earnings before taxes (EBT) | -181,050 | 259,336 |
| Assets and liabilities per segment | 31 Mar | 31 Dec |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Farming FO | 5,453,702 | 6,520,228 |
| Farming SCT | 5,778,277 | 5,640,009 |
| VAP (Value added products) | 182,490 | 170,158 |
| FOF (Fishmeal, Fish Oil and Fish Feed) | 896,989 | 814,673 |
| Eliminations | -51,797 | -43,663 |
| Total assets | 12,259,660 | 13,101,405 |
| Farming FO | 2,082,366 | 2,700,710 |
| Farming SCT | 1,893,643 | 1,696,465 |
| VAP (Value added products) | 45,245 | 52,772 |
| FOF (Fishmeal, Fish Oil and Fish Feed) | 144,555 | 164,689 |
| Eliminations | -35,648 | -10,106 |
| Total liabilities | 4,130,161 | 4,604,530 |
The Group had capital expenditures committed but not provided in these accounts at the date of the Statement of Financial Position of approximately DKK 702 million which relate to the farming segments in both the Faroe Islands and Scotland.
Note 5.2 in Bakkafrost's Annual Report for 2019 provides detailed information on related parties' transactions.
Transactions between P/F Bakkafrost and its subsidiaries meet the definition of related party transactions. As these transactions are eliminated on consolidation, they are not disclosed as related party transactions.
All assets/liabilities, for which fair value is recognized or disclosed, are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities.
Level 2: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable).
Level 3: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable).
For biological assets, the fair value calculation is done using a valuation model (level 3 in the valuation hierarchy) where the value is estimated based on observable market prices per period end.
For more information on these calculations, please refer to Note 4.
For assets/liabilities that are recognized at fair value on a recurring basis, the Group determines, whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement).
There have been no transfers into or out of Level 3 fair value measurements.
As at 31 March 2020, the Group held the following classes of assets/liabilities measured at fair value:
| DKK 1,000 | Cost | ||||
|---|---|---|---|---|---|
| Assets and liabilities measured at fair value | Fair value | amount | Level 1 | Level 2 | Level 3 |
| Biological assets (biomass) | 1,492,336 | 1,845,523 | 0 | 0 | 1,492,336 |
| Assets measured at fair value 31/3-2020 | 1,492,336 | 1,845,523 | 0 | 0 | 1,492,336 |
| Liabilities measured at fair value 31/3-2020 | 0 | 0 | 0 | 0 | 0 |
| Biological assets (biomass) | 1,901,730 | 1,874,035 | 0 | 0 | 1,901,730 |
| Assets measured at fair value 31/12-2019 | 1,901,730 | 1,874,035 | 0 | 0 | 1,901,730 |
| Liabilities measured at fair value 31/12-2019 | 0 | 0 | 0 | 0 | 0 |
There have been no new business combinations in Q1 2020.
On 25 September 2019, Bakkafrost signed a binding Share Purchase Agreement (SPA) to acquire 68.6% of the outstanding shares in The Scottish Salmon Company Plc (SSC) from Northern Link Ltd. The closing date was 8 October 2019. Further acquisition has been made in Q4, and at 31 December 2019, Bakkafrost held 95.6% of the shares in SSC.
SSC is an integrated salmon farming business operating exclusively in Scotland with 60 sites across the West Coast and Hebridean Islands. The company is engaged in nearly all stages of the value chain ensuring full traceability and total supply chain integrity. The current annual production capacity is 50,000 tonnes. SSC produced 33,798 tonnes gutted weight in 2019 and exported to 21 countries with a focus on North America and the Far East. SSC has developed a range of strong flagship brands, including Native Hebridean Salmon, Tartan Salmon Label Rouge and Lochlander Salmon. The company has 651 employees.
SSC's main office is in Edinburgh, Scotland.
The strategic rationale for the acquisition includes the following:
• Increases the scope of Bakkafrost's operation significantly and brings new growth and development opportunities to the Group.
Feed & Procurement: Bakkafrost produces fish feed with a significantly higher marine index, compared to industry feed. Supplying feed to SSC would result in fixed cost efficiency at Bakkafrost's feed facilities through intercompany sales of higher quality feed to SSC. Net synergy estimated at DKK 1.2 per kg feed, equating to annual synergies of approximately DKK 70 million from 2022 onwards (~NOK 2.6 / kg of SSC harvested salmon).
Sales Cooperation: Both SSC and Bakkafrost market premium salmon and brands that obtain a significantly higher price due to provenance and product differentiation. Both companies plan to drive efficiencies by coordinating sales efforts going forward, taking advantage of relative distribution strengths in global markets.
Bakkafrost also believes that there is the potential for transfer of best practices including (i) secondments to stimulate identification and transfer of best practices, (ii) implementation of better farming procedures for improved cost performance, (iii) gradual consolidation of sites, (iv) mitigation of biological threats through delousing expertise. The overall result of these actions is expected to result in larger fish, improving price achievement and profitability.
Bakkafrost also plans to make targeted investments to achieve the efficiencies outlined above. These include investment in a new modern recirculation plant for smolt production, replacing SSC's large number of small smolt facilities. Additionally, investments are planned to be directed towards replacing SSC's existing sea water equipment.
Bakkafrost is committed to strong cooperation with local communities and authorities and hopes to stimulate employment through significant investment in the business. Additionally, Bakkafrost is committed to ongoing work to strengthen the Scottish regulatory framework.
Most of SSC's intangible assets are related to licenses. Licenses are viewed as perpetual in nature and are thus not amortized but made subject to an annual impairment review.
We have identified three significant brand names in SSC, namely Tartan Salmon, Lochlander Salmon and Native Hebridean. The remaining volumes are sold under the general Scottish Salmon Company brand, to a large extent to wholesalers and directly to customers. Brand is valued by the income approach by calculating the net present value (NPV).
We expect that most of the excess value from the transaction is related to licenses, and the question will be, where to draw the line between goodwill and licenses. In the PPA, we have allocated value to all other identified assets including brand value, and the remaining excess value is subsequently allocated to licenses. We have then assessed this value by utilizing a topdown market approach. Please refer to the present page regarding strategic rationale.
We have not seen any indicators that the respective trade names have a definite expected life.
The aggregated goodwill of DKK 550.4 million recognized, arises from the tax calculations on the fair value adjustments. The table below summarizes the consideration paid for SSC and the assessed fair value of the assets acquired and liabilities assumed, recognized at the acquisition date.
The figures provided are subject to further scrutiny and may change as Bakkafrost becomes able to gain access to more information from SSC within the 12-month period stipulated by IFRS 3.
Acquisition-related costs were expensed to the profit or loss as incurred and included within operating cash flows in the Statement of Cash Flow. Total cost for Bakkafrost is DKK 10.8 million, and costs held by SSC are DKK 57.0 million.
The assets and liabilities recognized are as follows:
| Book Value | Fair Value | ||
|---|---|---|---|
| DKK 1,000,000 | 8/10/2019 | adjustment | 8/10/2019 |
| Goodwill | 50.9 | 499.6 | 550.4 |
| Licenses | 201.8 | 3,131.6 | 3,333.5 |
| Brands | - | 108.4 | 108.4 |
| Property, plant and equipment | 702.2 | - | 702.2 |
| Accounts receivables | 123.4 | - | 123.4 |
| Inventories | 31.7 | - | 31.7 |
| Biological assets | 660.5 | - | 660.5 |
| Other current assets, excluding cash and bank | 40.9 | - | 40.9 |
| Cash, bank and marketable securities | 32.5 | - | 32.5 |
| Total assets | 1,844.0 | 3,739.6 | 5,583.6 |
| Deferred taxes | 1.7 | 551.3 | 552.9 |
| Other long-term liabilities | 198.5 | - | 198.5 |
| Long-term liabilities, interest-bearing | 192.7 | - | 192.7 |
| Current liabilities, interest-bearing | 108.4 | - | 108.4 |
| Accounts payable | 201.8 | - | 201.8 |
| Other current liabilities | 239.4 | - | 239.4 |
| Current taxes | 8.3 | - | 8.3 |
| Total liabilities | 950.7 | 551.3 | 1,502.0 |
| Net assets acquired | 4,081.5 |
|---|---|
| Transaction value (market value of equity) | 4,081.5 |
|---|---|
| Purchase price for shares (100%) | 4,081.5 |
| Purchase price for shares (68.6%) | 2,800.4 |
Bakkafrost's financial information is prepared in accordance with international financial reporting standards (IFRS). In addition, the management's intention is to provide alternative performance measures, which are regularly reviewed by the management to enhance the understanding of the company's performance, but not replacing the financial statements prepared in accordance with IFRS. The alternative performance measures presented may be determined or calculated differently by other companies. Bakkafrost's experience is that these APM's are frequently used by analysts, investors and other parties.
These APM's are adjusted IFRS measures, defined, calculated and used in a consistent and transparent manner over the years and across the company where relevant.
Net interest-bearing debt consists of both current and non-current interest-bearing liabilities, less related current and non-current hedging instruments, lease liabilities, financial instruments, such as debt instruments and derivatives and cash and cash equivalents. The net interest-bearing debt is a measure of the Group's net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the Group's cash position and its indebtedness. The use of the term 'net debt' does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure. Net debt is an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate interest-bearing liabilities (both current and non-current), derivatives and cash and cash equivalents. A reconciliation is provided below.
| 31 Mar. | 31 Dec. | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Cash and cash equivalents | 801,079 | 1,309,546 |
| Long- and short-term interest-bearing debt |
-1,789,537 | -2,328,231 |
| Net interest-bearing debt | -988,458 | -1,018,685 |
Operational EBIT is EBIT aligned for fair value adjustments, onerous contracts provisions, income from associates and revenue tax.
Operational EBIT is a major alternative performance measure in the salmon farming industry. A reconciliation from EBIT to Operational EBIT is provided below.
| Q1 | Q1 | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| EBIT | -181,760 | 260,528 |
| Fair value adjustments of biological assets | 410,711 | -17,871 |
| Income from associates | 0 | -6,947 |
| Revenue tax | 19,132 | 31,994 |
| Operational EBIT | 248,083 | 267,704 |
| Operational EBIT Farming segment | |
|---|---|
| Farming segment: | Total harvested volumes (gw) |
| Operational EBIT VAP segment | |
| VAP segment: | Total volumes produced (raw material gw) |
| Farming and VAP: | Operational EBIT Farming and VAP segment |
| Total harvested volumes (gw) |
Earnings before interest, tax, depreciations and amortizations (EBITDA) is a key financial parameter for Bakkafrost's FOF segment. EBITDA before other income and other expenses is defined as EBITDA less gains and losses on disposals of fixed assets and operations and is reconciled in the section Group overview. This measure is useful to users of Bakkafrost's financial information in evaluating operating profitability on a more variable cost basis as it excludes depreciations and amortization expenses related primarily to capital expenditures and acquisitions, which occurred in the past, nonrecurring items, as well as evaluating operating performance in relation to Bakkafrost's FOF segment's competitors. The EBITDA margin presented is defined as EBITDA before other income and other expenses divided by total revenues.
Adjusted EPS is based on the reversal of certain fair value adjustments shown in the table below, as it is Bakkafrost's view that this figure provides a more reliable measure of the underlying performance.
| DKK 1,000 | 2020 | 2019 |
|---|---|---|
| Profit for the period to the shareholders of P/F Bakkafrost |
-147,981 | 212,836 |
|---|---|---|
| Fair value adjustment of biomass | 410,711 | -17,871 |
| Tax on fair value adjustment and onerous contracts provisions | -73,928 | 3,217 |
| Adjusted profit for the period to shareholders of P/F Bakkafrost |
188,802 | 198,182 |
| Time-weighted average number of shares outstanding through the period |
59,126,683 | 48,665,707 |
| Adjusted earnings per share (before fair value adjustment of | ||
| biomass and provisions for onerous contracts) (adjusted EPS) | 3.19 | 4.07 |
Return on average capital employed (ROCE) is defined as the period's operational EBIT divided by the average capital employed, which is total assets adjusted for total current liabilities. The performance measure is expressed as a percentage and is useful for evaluating Bakkafrost's profitability.
| Q1 | Q1 | |
|---|---|---|
| DKK 1,000 | 2020 | 2019 |
| Group -Operational EBIT | 248,083 | 267,704 |
| Average Capital Employed | 11,727,839 | 5,609,185 |
| ROCE | 2.1% | 4.8% |
Q1 Q1
P/F BAKKAFROST Bakkavegur 9 FO -625 Glyvrar Faroe Islands Telephone: +298 40 50 00 Fax: +298 40 50 09 Email: [email protected] Website: www.bakkafrost.com
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