Annual Report • Mar 13, 2017
Annual Report
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www.bakkafrost.com
Faroese Company Registration No. 1724
| Chairman's Statement | 4 |
|---|---|
| Statement by the Management and the Board of Directors |
6 |
| Who Are We? | 8 |
| Key Figures | 10 |
| Main Events | 12 |
| Outlook | 14 |
| STRATEGY | 17 |
|---|---|
| Business Objectives and Strategy | 18 |
| Business Model | 19 |
| Bakkafrost's History | 22 |
| The Value Chain | 24 |
| Group Structure | 29 |
| Operation Sites | 30 |
| PERFORMANCE | 32 |
|---|---|
| Operational Review | 33 |
| Financial Review | 36 |
| Farming Segment | 38 |
| VAP Segment | 40 |
| FOF Segment | 42 |
| Business Review | 46 |
| RISK | 61 |
|---|---|
| Risk and Risk Management | 62 |
| Statement by the Management and the | |
|---|---|
| Board of Directors on the Annual Report | 80 |
| Independent Auditor's Report | 81 |
| CONTENS STATEMENTS AND NOTES | 86 |
|---|---|
| Consolidated Income Statement | 88 |
| Consolidated Statement of Comprehensive Income | 89 |
| Consolidated Statement of Financial Position | 90 |
| Consolidated Statement of Financial Position | 91 |
| Consolidated Cash Flow Statement | 92 |
| Consolidated Statement of Changes in Equity | 93 |
| NOTES - SECTION 1 BASIS OF PREPARATION | 95 |
|---|---|
| NOTES - SECTION 2 RESULT FOR THE YEAR | 99 |
| NOTES - SECTION 3 ASSETS AND LIABILITIES | 110 |
| NOTES - SECTION 4 CAPITAL STRUCTURE AND FINANCING ITEMS |
129 |
| NOTES - SECTION 5 OTHER DISCLOSURE | 136 |
| P/F BAKKAFROST - TABLE OF CONTENTS | 144 |
|---|---|
| P/F BAKKAFROST - Income Statement | 145 |
| P/F BAKKAFROST - Statement of Financial Position | 146 |
| P/F BAKKAFROST - Statement of Financial Position | 147 |
| P/F BAKKAFROST - Cash Flow Statement | 148 |
| P/F BAKKAFROST - Statement of Changes in Equity | 149 |
| P/F BAKKAFROST - Notes to the Financial Statements 151 |
| APPENDIX | 158 |
|---|---|
| Quarterly Financial Figures 2015-2016 | 158 |
| Market Announcements Published in 2016 | 160 |
| Financial Calendar for 2017 | 161 |
| Glossary | 162 |
RÚNI M. HANSEN Chairman of the Board
The salmon industry experienced nearly unprecedented price levels in 2016. The salmon price reached heights not seen since the 1980's due to the growing demand for salmon in the global market and the decreased global supply of salmon in 2016. Bakkafrost had a good year in 2016 with record high financial results.
Bakkafrost reached a profit of DKK 1,339 million after tax, which is an improvement, compared to previous years. The result is achieved by focused and committed employees throughout our operation and a quality product acknowledged by our valuable customers. Bakkafrost continues to be committed to providing tasty and healthy quality salmon products to the global marketplace.
In order to sustain Bakkafrost's profitability for the future, our focus must be on business; but no company within our field of industry will succeed without focusing on biology. Investments reducing the biological risk have therefore been key elements in Bakkafrost's investment programme, with five-year's investment plans announced in 2013 and again in 2016.
To highlight our focus on the biological risk, Bakkafrost has invested in a new service vessel in 2016, which was not part of the investment plan announced in June 2016. The primary assignment of the service vessel will be sea lice treatment of the salmon. Bakkafrost has to be flexible in order to maintain the operational risk on an acceptable level.
Around half of our investments for the next five years will be enhancing the smolt production on land in hatcheries. The plan is to increase the size of smolt produced on land to 500 grams each. This will reduce the production time in the sea and reduce the biological risks. These investments will also open up for production growth over the coming years.
In July 2016, Bakkafrost acquired 51% of the remaining shares in Faroe Farming, making it 100% of the shares. Faroe Farming is the sole salmon farming company in the southern part of the Faroe Islands. Bakkafrost sees some great opportunities both for the company and for the local community making this operation even more efficient and able to create more values..
2016 marked the year, when Bakkafrost made a leap in the right direction when it comes to increasing competitiveness. The merging of seven factories into one factory in Glyvrar took the finalizing phase in 2016. The harvest production opened in the summer of 2016, and the value added product processing has started in 2017. We trust both the harvest and the value added product production will start achieving synergies and optimizations at the new settings in Glyvrar in the near future.
Bakkafrost got its second farming site ASC certified in 2016, and aims to get all farming sites ASC certified by 2020. To get the certification, the operation needs to meet certain requirements varying from animal health to environment and social responsibility.
Although Bakkafrost has initiated another five-year investment plan, the dividend policy is unchanged. And based on the solid performance of Bakkafrost in 2016, the Board of Directors will propose a dividend of DKK 8.70 per share at the Annual General Meeting, which corresponds to a total dividend of DKK 425.1 million.
On behalf of the Board of Directors, I would like to express our appreciation to all of Bakkafrost's employees for the commitment and hard work in 2016.
Bakkafrost harvested lower volumes in 2016 than in 2015, but delivered a record high financial result in 2016. The salmon market experienced significant increase in the salmon prices in 2016, compared to 2015. The VAP segment sells on long term contracts and in an environment where spot prices increase rapidly, thus the VAP segment struggled, as the prices in the long-term contracts have a time lag, compared with the spot price for fresh salmon. The Farming segment experienced record high margins, and the FOF segment had a very good year in 2016.
The Farming segment harvested 47,542 tgw in 2016, compared with 50,565 tgw in 2015. This corresponds to a decrease of 6%. The harvest in the Farming segment is dependent on available farming sites with fish at the aimed harvest weight. The biological situation has been stable in 2016, although there was a suspicion of ISA at one of our farming sites in July 2016. The suspicion arose after a routine surveillance test at the site. Mortality was not higher, and no factors indicated an ISA outbreak at the farming site.
The good performance in the Farming segment was due to the good biological situation and the high salmon spot prices achieved for the harvested volumes.
Bakkafrost acquired the remaining outstanding shares in P/F Faroe Farming, which became part of the Bakkafrost Group from the 1st of July 2016. Faroe Farming is a salmon farming company and operates in Suðuroy, the southernmost island in the Faroes. Faroe Farming had three farming licenses in Suðuroy. Simultaneously, Bakkafrost relinquished two farming licenses to the Faroese Authorities. The relinquished licenses were Svínáir (A-03) and Hovsfjørður (A-17/18). After these two transactions, Bakkafrost now holds 14 licenses for farming salmon in the Faroe Islands. Faroe Farming is now part of Bakkafrost Group's Farming West division. Bakkafrost believes that salmon farming in Suðuroy can be significantly optimized. Bakkafrost has announced an investment plan for the next five years and trusts that opportunities concerning Faroe Farming and Suðuroy will result in increased value for both Bakkafrost and Suðuroy in general.
The VAP segment's production was nearly unchanged,18,120 tgw in 2016, compared to 18,196 tgw in 2015. The percentage of total harvest used for VAP production increased to 37% in 2016, compared to 33% in 2015. The VAP contract prices have increased gradually in 2016, but were not able to increase at the same rate as the spot price for fresh salmon. Thus, the VAP segment realized negative margins in 2016.
The raw material intake in the FOF segment was record high at 235,014 tonnes in 2015. The raw material intake was 201,222 tonnes in 2016, a decrease of 14%, compared with 2015. The production of fishmeal and fish oil was consequently lower in 2016, compared to 2015. The feed sale increased 7% from 78,865 tonnes in 2015 to 84,587 tonnes in 2016. The margins in the FOF segment were high in 2016.
2016 was a year with a dramatic price increase, not seen for many years. The price increase in NOK was 50%, as the average NOS salmon price was NOK 63.13 per kilo in 2016, compared to NOK 42.09 per kilo in 2015. Taking the NOK/EUR currency situation into consideration, the price increase in 2016 was around 45%. The average NOS salmon price in EUR was EUR 6.80 per kilo in 2016, compared with EUR 4.70 per kilo in 2015.
The feed cost – representing around 60% of the costs in a kilo of salmon – have been relative flat in 2016 and at the same level as for the second half of 2015.
The health cost has increased in recent years, and sea lice is an area, which has demanded more and more attention. The cost related to sea lice treatment increased in 2016, compared to 2015. Part of the health cost relates to fresh water treatment with M/S Hans á Bakka and lumpfish. This part will most likely experience a relative increase in the coming years, and the cost related to medical treatment will in turn experience a relative decrease.
Bakkafrost Group's interest bearing debt amounted to DKK 635.3 million at the end of 2016, compared with DKK 391.7 million at year-end 2015, and had available funds of approximately DKK 654.5 million.
The Bakkafrost Group made a profit of DKK 1,338.9 million for 2016, compared with DKK 810.2 million for 2015. Bakkafrost's equity ratio was 66% at the end of 2016, compared to 66% at the end of 2015. Bakkafrost paid out DKK 403.1 million in dividends in the second quarter of 2016, corresponding to DKK 8.25 per share.
Bakkafrost is the market leader of top quality salmon from the Faroe Islands. We offer a wide range of healthy and nutritious salmon products from our own facilities.
The abundance of nature and the cool and steady sea temperature of the North Atlantic Current surround the Faroe Islands, providing perfect conditions for salmon.
Bakkafrost is probably the most vertically integrated salmon farming company in the world. Bakkafrost controls all aspects of production – from feed to finished value added products. This ensures unrivalled traceability and consistent high quality.
Our longstanding experiences in the seafood industry and our focus on providing our customers with top quality salmon products has made Bakkafrost well reputed as a reliable and responsible partner.
We are committed to maintaining the highest standards in relation to fish welfare, sustainability and sound stewardship of the environment.
We are dedicated to providing consumers worldwide with top quality tasty and nutritious salmon products.
Fig. 1
| Income statement | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Operating revenues | 3,202,686 | 2,850,363 | 2,683,319 | 2,491,081 | 1,855,544 |
| Operational EBIT* | 1,164,953 | 1,000,583 | 833,775 | 587,010 | 323,040 |
| Operational EBITDA* | 1,298,214 | 1,108,681 | 930,944 | 673,669 | 403,284 |
| Earnings before interest and taxes (EBIT) | 1,673,587 | 928,758 | 892,291 | 701,320 | 343,520 |
| Earnings before taxes (EBT) | 1,632,614 | 924,471 | 899,191 | 727,351 | 323,681 |
| Net earnings | 1,338,887 | 810,175 | 647,105 | 589,218 | 267,875 |
| Earnings per share before fair value adjustment of | |||||
| biomass and provision for onerous contracts (DKK) | 17.57 | 17.16 | 12.33 | 10.55 | 5.01 |
| Earnings per share after fair value adjustment of | |||||
| biomass and provision for onerous contracts (DKK) | 27.56 | 16.69 | 13.34 | 12.07 | 5.76 |
| Statement of financial position | |||||
| Total non-current assets | 2,567,212 | 1,957,061 | 1,462,633 | 1,328,179 | 1,197,655 |
| Total current assets | 2,850,904 | 1,963,325 | 2,000,300 | 1,784,047 | 1,373,256 |
| TOTAL ASSETS | 5,418,116 | 3,920,386 | 3,462,933 | 3,112,226 | 2,570,911 |
| Total equity | 3,549,035 | 2,580,482 | 2,063,653 | 1,665,277 | 1,262,912 |
| Total liabilities | 1,869,081 | 1,339,904 | 1,399,280 | 1,446,949 | 1,307,999 |
| TOTAL EQUITY AND LIABILITIES | 5,418,116 | 3,920,386 | 3,462,933 | 3,112,226 | 2,570,911 |
| Net interest bearing debt** | 635,266 | 391,743 | 232,711 | 603,074 | 806,903 |
| Equity share | 66% | 66% | 60% | 54% | 49% |
* Aligned for fair value adjustments of biomass, onerous contracts provision, income from associates, revenue tax and other non-operating related adjustments. ** Derivatives related to long-term interest bearing debt amounting to DKK 101,734 are not included.
KEY FIGURES
MAIN EVENTS
Bakkafrost enhances the already ongoing hatchery investments by announcing construction of a new 29,000 m3 hatchery at Strond, Klaksvík.
AGM decides to pay a dividend of DKK 8.25 per share.
Havsbrún, the fishmeal, fish oil and fish feed factory, celebrates its 50th anniversary. A public concert inside Havsbrún's new storage tunnels was part of the anniversary. The tunnels have a capacity of around 20 thousand tonnes of fishmeal.
The salmon prices have increased to record levels in 2016. The increase is due to strong demands in nearly all markets combined with a decrease in supply in 2016. The estimated decrease in total supply in 2016 is approximately 4%, compared to 2015.
2016 was special because of unusual circumstances in Chile, as a harmful algal bloom hit the Chilean salmon industry and resulted in around 25 million fish being taken out, corresponding to 100,000 tonnes of harvested fish. In a matter of days, the supply picture for 2016 changed from an expected increase to a decrease. Such force majeure circumstances cannot be assumed in future expectations. The latest update from Kontali still estimates a global supply of Atlantic salmon to increase around 1% in 2017, compared to 2016.
The market place is one of Bakkafrost's most significant risk areas. Bakkafrost has a geographical and a market price approach. These approaches reduce the exposure to the market risk. To diversify the geographical market risk, Bakkafrost sells its products to all the largest salmon markets in the world, USA, the Far East, Europe and Russia.
The outlook for the farming segment is good. The estimates for harvesting volumes and smolt releases are dependent on the biological development. The investments in producing larger smolts will gradually reduce the time needed in the fjords to farm the salmon. This is expected to reduce biological risk and increase the capacity. The capacity growth from this investment program will appear in harvested volumes gradually until 2021.
To reduce risk, Bakkafrost decided in January 2017 to harvest 190,000 fish earlier than anticipated and not at optimal harvest weight. The harvest was a precautionary action as the fish was under suspicion of having pathogenic ISA. Reference is made to Bakkafrost's market announcement on the 20th of January 2017. Bakkafrost expects to harvest 55,500 tonnes gutted weight in 2017. This is 500 tonnes less than the previous forecast and relates to the precautionary harvest.
Bakkafrost expects to release 11.5 million smolts in 2017, compared with 11.7 million smolts in 2016 and 11.3 smolts released in 2015 – smolts released by Faroe Farming before becoming part of the Bakkafrost Group are included. The number of smolts released is a key element of predicting Bakkafrost's future production.
The biological situation is Bakkafrost's most important risk area. The suspicion of a possible pathogenic ISA virus at one of Bakkafrost's farming sites in July 2016 and again in January 2017 – although the suspicion has not been confirmed – draws attention to the importance of good animal welfare and biology, reducing the biological risk. Bakkafrost focuses on biological risk continuously and has made several new investments and procedures to diminish this risk.
Sea lice is an area, which has demanded much effort and is a part of the biological risk. The new Faroese regulations on sea lice control in salmon farming are expected to increase the operational costs for farming salmon in the Faroe Islands.
Bakkafrost focuses on using non-chemical methods in treatments against sea lice. Bakkafrost's live fish carrier M/S Hans á Bakka has carried out fresh water treatment against sea lice since Q4 2015. In Q4 2016, Bakkafrost invested in a service vessel, M/S Martin, which will primarily use warm sea water treatment against sea lice. M/S Martin is expected to start operation in Q1 2017, which will increase the treatment capacity against sea lice significantly. Furthermore, Bakkafrost will increase the use of lumpfish in farming significantly in 2017.
Bakkafrost has signed contracts covering around 36% of the expected harvested volumes for 2017.
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 long-term strategy is selling around 40-50% of the harvested volumes of salmon as VAP products at fixed price contracts. Selling the products at fixed prices reduces the financial risk with fluctuating salmon prices. The market price for contracted VAP products follows a more stable pattern instead of short-term fluctuations as in the spot market.
The price level on long-term contracts are on a higher level than ever before. At present, there are no indications that this price level should decrease significantly.
The outlook for the production of fishmeal and fish oil is dependent on the availability of raw material. The ICES 2017 recommendation for blue whiting is 1,342 thousand tonnes, compared with 776 thousand tonnes in 2016. Recommendations for herring and mackerel quotas have increased as well. The forecast for production of fishmeal and fish oil are positive and will most likely increase due to higher quotas and better availability.
The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost's internal use of fish feed.
Havsbrún's sales of fish feed in 2017 are expected to be at 85,000 tonnes.
In June 2016, Bakkafrost announced a five-year investment plan from 2016 to 2020. The total investments for the period is DKK 2.2 billion, including maintenance CAPEX.
The purpose of the investment plan is to continue to have one of the most cost conscious value chains in the farming industry, to carry out organic growth, increase flexibility and reduce the biological risk to meet the future consumers' trends and to be more end-customer orientated.
Bakkafrost aims at being self-supplied with smolts at a size of 500g each. The benefits are a shorter production time at sea as well as reduced biological risk. To reach this goal, approximately half of Bakkafrost's total investments over the next five years will be in hatcheries.
The investment of the new harvest/VAP factory at Glyvrar is in its final stages. The harvest operation started in the summer of 2016 and ramped up during the second half of 2016. The harvest factory at Kollafjørður will be closed in Q1 2017. The VAP production in the new harvest/VAP factory will start operation in Q1 2017. The old VAP production factory at Glyvrar was closed in Q4 2016 and the VAP production at Fuglafjørður will be closed in Q1 2017. 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 the value of offcuts from salmon harvested and processed in the new harvest/VAP factory. In 2017, Bakkafrost will invest in a new salmon meal and salmon oil plant, located in Fuglafjørður and operated by Havsbrún. The new salmon meal and salmon oil plant is expected to start operation in late 2017 and is expected to have positive margins in 2018. The FOF segment will also invest in a new feed line, which will increase the capacity of the feed production.
Free cash flow from operations, existing financing facilities and partly new financing if advantageous will finance the investments. The dividend policy will be unchanged.
Improved market balances in the world market for salmon products and cost conscious production will likely improve the financial flexibility going forward. A high equity ratio together with Bakkafrost's bank financing and the issuance of bonds makes Bakkafrost's financial situation strong. This enables Bakkafrost to carry out its investment plans to further focus on strengthening the Group, M&A's, organic growth opportunities and fulfil its dividend policy in the future.
Bakkafrost's core values support our performance and guide our behaviour as company, individuals and Group. In all our activities, we are committed to creating long-term value to our customers, shareholders and the society by living our values to be reliable, show respect and to be persistent, efficient and ambitious. Our core values and high standards define the attitudes and behaviours that are required to be a world-class company in the salmon industry.
Bakkafrost aims at being a world-class company in the salmon industry. We are committed to provide tasty and healthy quality salmon products to the global marketplace, while focusing on:
The Group's strategic focus is to develop the core business further and to focus on activities, which create the best possible value for customers and shareholders. Bakkafrost's long-term experiences within the seafood industry date back to 1968, and overall the Group's long-term strategic objective is to secure a healthy, attractive and competitive cost conscious salmon farming group.
Our aim – to be a world-class company in the salmon industry providing consumers worldwide with a wide range of healthy and nutritious salmon products – is supported by Bakkafrost's main operational strategies:
We are committed to securing a long-term sustainable increase in production, while balancing animal welfare and a cost conscious production.
Fish health, fish welfare and the prevention of diseases are areas of vital importance to us. We aim at farming salmon in a sustainable environment securing the welfare and well-being of the salmon.
We aim at delivering products that match or exceed the requirements of our customers.
We are dedicated to creating an interesting place of work, promoting dialogue and making room for different points of view to find the best solutions.
We are dedicated to optimizing the total value chain – from feed to finished product – and utilizing the benefits of competitive advantages throughout the value chain.
We strive for a continuous market driven increase and development in feed, farming, production and sales, in addition to other potential prospects for growth.
We are focused on maintaining and strengthening our position in the marketplace as a reliable partner and supplier of healthy and nutritious salmon products. These priorities shape our actions with the purpose of creating value to our customers and shareholders. Furthermore, we aim at contributing to the society and continue pursuing the company's growth strategy.
Bakkafrost is probably the most vertically integrated salmon farming company in the world, which gives Bakkafrost full control and responsibility over all aspects of production. This enables Bakkafrost to have optimal control over the quality of its salmon and the costs of production.
Bakkafrost holds 14 sea farming licenses in the Faroe Islands. The licenses give the right to utilize a given area of fjords for farming fish. The Faroese legislation has imposed measures in order to regulate the activity into being environmentally sustainable.
The Gulf Stream provides stable farming conditions in the Faroe Islands throughout the year as well as excellent water quality. The water temperature in the region is steady, with a fluctuation of only 5 °C during the year. The lowest temperatures, approximately 6 °C, are usually reached in February, and the highest temperatures, approximately 11 °C, are reached in the late summer months.
The farming areas are large and have the capacity to support the quantities farmed on each site. The biological situation in the Faroe Islands provides the opportunity to utilize a higher-than-average weight of the fish, minimizing unit costs, biological feed conversion rate and giving a best-in-class performance. The excellent biological situation is crucial to maintain production costs at current levels and to maximize the return on the invested capital.
Bakkafrost operates five fully owned hatcheries and 17 fish farming sites for marine production of Atlantic salmon in the Faroe Islands in addition to three sites currently out of production. Bakkafrost has temporary permission to farm at one farming site until the fish is harvested, which
Fig. 8
is expected to be in 2017. The farming sites are located in 16 different fjords.
All primary processing takes place at the harvest factories in Glyvrar, Kollafjørður and Vágur. The harvest factory at Glyvrar started operation in the summer of 2016 at the same time as the harvest factory in Klaksvík was closed. The harvesting operation in Kollafjørður will close in Q1 2017. Harvest from Suðuroy will be in Vágur, while harvest from all other farming sites will be in Glyvrar. The secondary processing takes place at the VAP facilities in Glyvrar and Fuglafjørður. In 2017, the new VAP factory at Glyvrar will replace the old VAP factory in Glyvrar and Fuglafjørður.
To ensure prime quality, Bakkafrost has implemented a series of procedures and quality control systems not only at our own salmon farms and processing plants, but also for our suppliers. All stages of our production chain are Global GAP compliant. Other certifications include ASC, HACCP, IFS and BRC.
Bakkafrost is a member of the Global Salmon Initiative (GSI). GSI is focused on three pillars of sustainability: reducing environmental impact, increasing social contribution and maintaining economic growth.
Our most important asset is our employees, and for Bakkafrost to remain a high-performing organization and expand our leading market position, it is vital to attract and retain employees with the right competences and knowledge. Therefore, we shall maintain and further strengthen the focus on HR, work satisfaction and developing the competences of the employees.
The foundations of our human resource development are the company culture and the fundamental values of Bakkafrost to be a reliable and responsible partner. Many great results have been achieved during the past years, but there is still room for improvement. Thus, striving continuously to improve our business is embedded in our company culture.
We aim at strengthening the competences of our employees on all levels in the Group on a continuous basis by implementing relevant training schemes to meet current and future demands for a qualified workforce. Supporting Bakkafrost's strategy and securing high standards in our business conduct in addition to creating the best possible value for our customers is essential for all training efforts.
Bakkafrost's training is performed as work-related training, in-house and external courses, and other forms of training. It is an ongoing process to further developing professional competences as well as developing leadership skills on all levels in the Group.
For work-related training, in-house and external courses, as well as other forms of training, we engage and form partnerships with local educational institutions and experts focusing on health, safety, business and commerce education.
In 2016, the number of full-time equivalent employees in the Bakkafrost Group was 820 employees, compared to 725 employees in 2015.
There are seasonal variations related to the Harvest and VAP divisions, primarily due to short-term employment of young employees of one to two years.
Fig. 9
The following is a summary of the main events and milestones of the company since its establishment.
The Bakkafrost business is established by the two brothers Hans and Róland Jacobsen. The first processing plant is built the same year. The third brother, Martin Jakobsen, joins the company in 1971.
A second processing plant is built in Glyvrar. The business idea is to catch herring in the Faroese fjords and to process and sell spiced and marinated herring fillets.
Packaging of flatfish from other Faroese fish producers for the UK market begins. This is mainly to stabilize the existing business, as the volumes of herring caught decreases.
Bakkafrost starts fish farming activities – one of the first companies in the Faroe Islands to do so.
Development of the production of blue whiting into mince and surimi in the Faroe Islands begins. The blue whiting stock plummets in 1990, causing financial distress for the Group and the rest of the sector.
P/F Bakkafrost is incorporated as SP/F Faroe Salmon by Jón Purkhús and Heini Gregersen, and production of farmed salmon and smolt starts.
The Group is restructured by Regin Jacobsen, Hans Jacobsen and Martin Jakobsen. At this time, the Group establishes P/F Alistøðin á Bakka, which has farming licences for salmon in two fjords, slaughtering capacities for salmon in Glyvrar as well as pelagic processing capabilities and production of styropor boxes for transportation of fish.
A value added product (VAP) factory for salmon is built within an existing location, the factory at Glyvrar. The investment is limited, and the capacity is low. The company receives a licence to produce smolt and fry in Glyvrar/Glyvradalur.
The Group increases the VAP capacity to around 22 tonnes gutted weight per day through two separate investments during this period to facilitate further growth.
The Group grows through acquisitions and mergers and increases its farming capacity by 15,000 tgw, to a total capacity of 18,000 tgw of salmon. The Group gains access to six new fish farming fjords and two hatcheries for production of smolt and fry. The Group makes large investments to increase the VAP factory at Glyvrar to manage the increased volumes, and the factory reaches a capacity of 55 tgw per day.
The shareholders of Bakkafrost and Vestlax agree to merge the companies. The merger is scheduled for 1 January 2010. P/F Vestlax Holding's shareholders agree to be remunerated in Bakkafrost shares. The Vestlax Group has a capacity of 11,000 tgw of salmon and trout and a harvesting plant located in Kollafjørður.
This was the best year so far in terms of produced volumes, revenues and operating profit. The decision is made to list the company on Oslo Børs.
Bakkafrost and Vestlax merge. The combined company is the largest farming company in the Faroe Islands with around 55% of the farmed salmon from the Faroe Islands. The fully integrated company, ranging from smolt production to farming to finished VAP products, harvests 21,626 tgw in 2010. On 26 March 2010, the company is listed on Oslo Børs and broadened its shareholder base. In addition to local Faroese investors, the company is now owned by international investors from all over Europe and the USA.
Bakkafrost acquires P/F Havsbrún, a modern, internationally renowned producer of fishmeal, fish oil and fish feed situated in the Faroe Islands. Most the produced fishmeal and oil is used for its own fish feed production, and the rest is being exported. Bakkafrost is Havsbrún's largest customer. P/F Havsbrún owns 78.1% of the farming companies P/F Faroe Farming and P/F Viking Seafood with a total of 5 licenses. Following the acquisition of P/F Havsbrún, Bakkafrost also acquires the minority shares in P/F Viking Seafood and thus controls 100% of the shares.
The Havsbrún Group, acquired in 2011, is integrated into the Bakkafrost Group, and business synergies, created by this acquisition, are realized. The integration process includes the reorganization of the Group structure, and in order to comply with the Faroese farming law, 51% of the farming company Faroe Farming is sold. With effect from 1 January 2013, a sales company, Bakkafrost plc in UK, is acquired in late 2012.
Bakkafrost announces its five-year investment plan to make the onshore operation more efficient, to increase organic growth and to reduce the biological risk. Part of the plan is also building a new live fish carrier, "Hans á Bakka". To reduce biological risk, Bakkafrost exchanges the farming site in Vestmanna with the site in Gøtuvík, previously operated by P/F Luna.
The first part of the investment plan is finalized, as the new packaging plant is built in Glyvrar and starts production. A new hatchery, making Bakkafrost self-supplied with smolts, is built in Norðtoftir and begins production. The building of the new Harvest/VAP facility in Glyvrar starts, and the construction of the new live fish carrier in Yalova, Istanbul, progresses. The ship will be delivered in June 2015.
Bakkafrost starts feeding its salmon with feed produced from fish oil, which is cleaned for environmental pollutants. Bakkafrost achieves ASC certification for the salmon farming site at Gøtuvík – the first farming site in the Faroe Islands to be ASC certified. In July, Bakkafrost's new live fish carrier M/S Hans á Bakka is delivered.
Bakkafrost announces a new five-year investment plan until 2020. Bakkafrost enhances the onshore operation and aims at producing 500 grams smolt by 2020. The new Harvest/VAP facility in Glyvrar starts harvest operation in the summer, and Bakkafrost acquires the remaining outstanding shares (51%) in P/F Faroe Farming. Bakkafrost purchases "M/S Martin", which will operate as a service vessel within sea farming operations.
Bakkafrost controls the entire value chain from own production of fishmeal, fish oil and fish feed to sales and marketing of finished VAP products. Control of the entire value chain is considered important to ensure availability, traceability and to be able to control the product flow on a daily basis. Both customers and processing facilities depend on daily availability of salmon and depend entirely on a steady flow of harvested fish.
The quality of the salmon is the final result of the whole operation, from production of fishmeal and fish oil to the processing of the salmon. The documentation and traceability from finished product back to the raw material in the feed and the salmon eggs is important for the customers and therefore important to Bakkafrost.
The control of the entire value chain enables Bakkafrost to enter into long-term delivery contracts and long-term customer relationships without being dependent on any third party to ensure the quality and predictability of the deliveries. It further enables better utilization of the facilities throughout the value chain and prevents sub-optimization between cost centres.
Bakkafrost sources raw material for the production of fishmeal and fish oil. Various pelagic species are used in this production. Bakkafrost maintains exceptionally high standards with regard to the raw material used, and thus secures a first-class meal, oil and feed product. The fish utilized in the production is purchased from Faroese as well as foreign vessels operating in the North Atlantic.
Fishmeal has a very high protein content, which makes it an ideal ingredient in the feed blends for fish. The fish oil produced is mainly used in fish feed, but is also used in a variety of health supplements and other products.
As producers of our own quality fish feed raw material, Bakkafrost is uniquely situated to select the very best fishmeal and oil for our feed production. Moreover, the produced fishmeal and oil in our fish feed comes from the very same species of fish on which wild ocean salmon feed. This fact alone dramatically enhances and assures the best possible growth conditions for our farming.
Since 2015, Bakkafrost has fed the salmon with fish feed produced from fish oil, which is cleaned for environmental pollutants like PCB and Dioxin. PCB and Dioxin can be detected in a variety of foods. Limits for the content of these environmental pollutants are strictly regulated. Routine tests made by the Faroese Food and Veterinary Authority – prior to cleaning the fish oil for environmental pollutants – show that the levels of these environmental pollutants in the salmon from the Faroe Islands are far below all assigned limits. Bakkafrost wants, however, to differentiate its salmon even more by cleaning the fish oil, and thus strengthening Bakkafrost salmon's position as one of the healthiest farmed salmon in the marketplace.
Bakkafrost has invested in a high marine profile in the fish feed, aiming at keeping the salmon's diet as close as possible to the natural diet of the wild salmon. Bakkafrost's fish feed profile has measurable benefits. The salmon has a healthier nutritional profile, which gives the salmon a better meat structure, supplying the end customers with a superior product.
Bakkafrost owns a total of five hatchery licences. The Bakkafrost Group operates five hatcheries with a total production capacity of some 12 million smolts per year.
Bakkafrost purchases salmon eggs from different external suppliers based in the Faroe Islands and Iceland. The capacity of Bakkafrost's suppliers is sufficient to meet the current and future need of eggs.
The vitality of the fish is important. Therefore, the selection of the best genetic properties is vital. The fish's resistance to diseases is an important property of the fish. To ensure access to high-quality eggs, Bakkafrost's strategy is to buy eggs from selected external suppliers that invest significant efforts and resources to improve product quality and performance.
Bakkafrost's hatcheries are located in environments with large quantities of clean fresh water, where no villages or industries are competing for the water. This is important, as there is no ground water available in the Faroe Islands. The hatcheries are equipped with closed water circulation systems with bio filters, and the fish tanks are inside buildings in order to limit the effect of external factors such as weather, birds and other pollution. The workforce in the hatcheries is very experienced; many of the employees have been working at the hatcheries for a long period of time.
Historically, Bakkafrost has released smolts into the sea with an average weight of 50–60g. Over the last years, Bakkafrost has changed the strategy releasing smolt with an average weight of 150g and higher. The Group believes this has had a positive effect when measuring productivity and mortality, and hence contributed to improving the Group's results. Bakkafrost has a long-term goal of increasing the size of the smolts further the coming years to 500g each.
To reach the long-term goal, Bakkafrost has expanded the hatchery at Viðareiði by 8,000m3. Smolt production started in the new facilities in the second half of 2016. For the coming years, Bakkafrost plans to gradually increase the average smolt size, and Bakkafrost commenced the construction of a new 29,000m3 capacity hatchery in 2016, which according to plan will start production in H2 2018.
Bakkafrost's 20 fish farming sites are located in the central, northern and southern part of the Faroe Islands. On average, each fish farm can produce around 3,000 tonnes gutted weight per year with the present production regime.
The fish is kept, fed and nurtured in large sea cages, providing the fish with abundant space to grow for a period of 16–18 months. During this period, the fish grows from around 150g+ up to Bakkafrost's average target weight of about 6.0–6.5 kg wfe. This target weight is considered to provide an optimal breakdown/mix of sizes in order to serve both the fresh fish market and the internal VAP production.
As a rule, the larger fish are distributed as fresh fish and the smaller fish are used as raw material in the VAP production. The fish are fed several times a day, and the feed consumption is monitored continuously. Since the new veterinary model was implemented in 2003, the biological feed conversion rate has decreased from around 1.20 to around 1.16, reducing the feed used by approximately 8.5%. This is considered to be a direct result of the improved fish health.
During the entire production period, each separate generation is kept in a separate fjord, and after all locations in a fjord have been harvested, the fjord is set aside for 2–4 months before a new generation is released. This operating model was introduced in 2003, and the observed effects are better productivity, less mortality and better utilization of the feed. On average, the mortality rate has been less than 10% for all farmers in the Faroe Islands since the new veterinary model was implemented.
The main goal of the farming operation is to produce salmon at a low feed conversion rate and with low mortality. To reach this goal, Bakkafrost believes the environment is important, and therefore does its utmost to create and maintain a healthy environment for the fish. Following national regulations, environmental investigations are undertaken each year by external agencies at each farming location. The result of each survey becomes input data used in the tactical planning to achieve the best environmental sustainable farming results possible.
The environmental authorities also have to approve a 3-year production plan for the Faroese salmon companies on a yearly basis.
Bakkafrost's FSV fleet consists of one vessel for smolt transport and three vessels for transportation of fish to harvest: one small live fish carrier (230m3/45 tonnes wfe) and a larger live fish carrier (660m3/110 tonnes wfe), both with closed systems. The third and largest live fish carrier (3,000m3/450 tonnes wfe), is equipped with the latest technology. In addition to transporting fish to harvest, the largest live fish carrier has equipment for treatment of the fish.
In October, Bakkafrost acquired "M/S Martin", which will operate as a FSV within sea farming operations and is equipped with a system for delousing salmon using lukewarm sea water.
All the fish is harvested at the harvest factories in Glyvrar, Kollafjørður and Vágur. In 2016, the harvest factory in Klaksvík was closed and the new harvest factory in Glyvrar started production. The harvest factory in Kollafjørður will close in Q1 2017, as the harvest factory at Glyvrar will ramp up production. The harvest factories have a normal daily capacity of around 350 tonnes wfe at the current run rate with one shift on average, but can increase the daily capacity by 100-150 tonnes wfe. The fish is transported from the farming sites to the harvest factory in live fish carriers with closed water systems.
The 4,000m2 VAP factory at Glyvrar has a production capacity of 30 tonnes of skinless and boneless 125g vacuum-packed portions in retail boxes per day with two shifts. The VAP factory at Fuglafjørður has a capacity of 15 tonnes of skinless and boneless 125g vacuum-packed chain packed portions per day with two shifts. The primary customers for these products are the European supermarket chains. Opportunities to grow into new regions and to new customers are present, but as demand from existing customers has grown rapidly, Bakkafrost's strategy over the last years has been to show full commitment to existing customers, rather than increasing the number of customers.
Another market segment important for the VAP products is industrial customers buying whole fillets for further processing and by-products. This market has been developed during the last eight years, and all by-products are now sold at a margin. The customers in this segment are mainly European or from the Far East.
Bakkafrost has invested in a state of the art VAP factory at Glyvrar. The VAP factory will be combined with the new harvest factory at Glyvrar, which started production in 2016. The new VAP factory will start production in early 2017 and the old VAP factories at Glyvrar and Fuglafjørður will close. The opening of the new VAP factory will increase the VAP capacity from the present approximately 20,000 tgw raw material up to 30,000 tgw, and will enable the VAP factory to deliver according to market demands. In addition to the increase in capacity, the VAP production will be more efficient and secure a continuing lead in quality.
Bakkafrost has a packaging factory, which is located and integrated into the new harvest/VAP factory at Glyvrar. The packaging factory started operation in 2014 and produces styropor boxes for the fresh salmon, both for sea and air freight. The packaging factory at Glyvrar meets all Bakkafrost's need for styropor boxes and has equipment to customize the boxes with logo etc.
Bakkafrost has two sales offices, one office located in Glyvrar in the Faroe Islands, serving the global market, and one in the UK, serving the UK market. The UK sales office was acquired in late 2012. Prior to this, the sales office was owned by a Bakkafrost customer, thus having the experience and knowledge of selling Bakkafrost's products into the UK market.
The Group's strategy is to balance the sales mix between different geographical markets and different product segments. Bakkafrost's most important markets are the European, US, Chinese and Russian market. As a rule, the VAP products are sold on long-term contracts and the whole fish is sold on the spot market.
Bakkafrost believes that its capability to serve these geographical markets with the two categories of products efficiently reduces cross-cycle fluctuations in both revenues and profitability.
The strategy is to offer advantages to the larger supermarket chains by securing product availability and stable high quality and preferred products.
The current distribution network is based on transportation by ship and truck to Europe and Russia and by plane to the US and China from the UK. Bakkafrost can distribute both fresh and frozen fish to the various markets.
With the existing distribution network, Bakkafrost can ship products to the UK within 20 hours by ship. From the UK, the products are distributed by plane to major airports in the US and China within 24 hours, with a total cost of DKK 10–14 per kg from factory to customer.
Products planned for the European and Russian markets are transported by ship to Denmark or the UK within two days for further distribution on trucks.
The figure below shows the structure of the Bakkafrost Group based on activities.
Bakkafrost is the market leader and largest salmon farmer in the Faroe Islands. The Group is fully integrated, from production of fishmeal, fish oil and fish feed to production of smolt, farming, value added products and sales. Bakkafrost operates 20 farming sites, and the company has 820 full-time employees.
Norðtoftir S-03; Húsar S-04; Gjógv S-08; Glyvradalur S-16; Viðareiði S-21
Svínáir A-03**; Lambavík A-04; Undir Síðu A-05; Gulin A-06; Hvannasund Suður A-11; Kunoyarnes A-12; Borðoyarvík A-13; Hvannasund Suður A-21; Gøtuvík A-25 and A-47*; Fuglafjørður A-57; Árnafjørður A-63; Funningsfjørður A-71; Haraldssund A-72; Hvannasund Norður A-73; Selatrað A-80*; Kolbeinagjógv A-81; Kaldbaksfjørður A-82; Undir Nesi A-85*
Drelnes/Øravík A-15; Hov***A-18; Vágsfjørður A-92
Stígabrúgv; Vesthav; Víkingur; Hans á Bakka; Martin
Glyvrar; Vágur FO-900; Kollafjørður****
Glyvrar; Fuglafjørður****
Glyvrar; Grimsby, UK
Glyvrar
Havsbrún, Fuglafjørður
* Not in use at the moment
** The license is relinquished.
*** In use until June 2017. The license is relinquished. **** Will be closed in Q1 2017
PERFORMANCE
Harvested in 2016
Bakkafrost had a record high financial result in 2016, although the harvested volumes decreased, compared to 2015. The farming segment harvested 47,542 tonnes gutted weight, compared to 50,565 tonnes gutted weight in 2015. The decrease in harvested volume is due to available farming sites at preferred harvest weight. The prices in 2016 were at a record high level and the biological performance was good, which is the basis for keeping costs low.
The VAP segment struggled because of the record high spot prices in 2016. The VAP operation performed well, and the activity level was the same as last year. The VAP factories at Glyvrar and Fuglafjørður produced 18,120 tonnes in 2016, compared to 18,196 tonnes in 2015. 2016 was the last full year of production from the factories at Glyvrar and Fuglafjørður. The old VAP factory at Glyvrar was closed at the end of 2016, and the VAP factory at Fuglafjørður was closed in the beginning of 2017. The new VAP factory at Glyvrar started in the beginning of 2017.
The FOF segment performed very well in 2016 and had good access to raw material. The production of fishmeal and fish oil depends on the sourcing of raw material, and the availability is highly related to the quotas for pelagic fishery in the North Atlantic. Bakkafrost received 201,222 tonnes of raw material, a decrease of 14%, compared to 2015, when 235,014 tonnes were sourced. Beside sourcing wild caught pelagic fish, Bakkafrost also sourced off cuts from fish factories in the Faroe Islands. Bakkafrost sold 84,587 tonnes of feed, of which 92% were used internally. Bakkafrost also sells excess fishmeal and fish oil externally, which is not used for Bakkafrost's own feed production. Bakkafrost sold 23,461 tonnes of fishmeal externally in 2016, which is similar to 2015. Nearly all the production of fish oil is used for Bakkafrost's feed production – only 10 tonnes of fish oil were sold in 2016, compared to 15 tonnes in 2015.
In terms of production costs, our farming operation has delivered strong results following the implementation of the veterinary regime in the Faroe Islands – a set of laws implemented since 2003, stating quite strictly, how salmon farmers must operate. The Faroese veterinary system has improved fish health and reduced costs. Thus, Bakkafrost's EBIT per kg has improved and is among the highest, compared to peers.
The farming costs have increased, compared to three to five years ago. This is especially related to the increased feed cost and health cost, and to the fact that the farming sites have been moved further out the fjords to more exposed areas, where more expensive equipment is needed. Bakkafrost uses salmon feed with a high marine profile, which is relatively costly, because of the high level of marine ingredients. Bakkafrost gets other benefits from this diet, which is similar to the diet of the wild salmon. Good animal welfare has positive impact on non-feed cost elements and results in higher production efficiency.
The health cost mainly relates to treatments against sea lice. The most used treatment has been medical treatment, but in 2015, Bakkafrost began using fresh water treatment against sea lice on board its new FSV M/S Hans á Bakka. In addition to this, Bakkafrost has used lumpfish at some farming sites to reduce number of sea lice. Bakkafrost will increase its use of lumpfish and has made investment in a new FSV, M/S Martin, which will use a system with lukewarm sea water against sea lice.
The purpose of these initiatives is to maintain a sustainable, cost conscious farming operation.
The objective of the veterinary model is to increase biological and veterinary security and to support a sustainable and healthy operation. Through total separation of salmon generations, vaccination against different diseases (ISA among others), strict regulation of movement of equipment and fish and other regulations, the results for the 2005– 2015 generations on feed conversion ratio, mortality and productivity are among the best results ever seen in the Faroese history of salmon production and are solid, compared to peers in the industry. These factors, together with our dedicated staff, are the basis for the satisfying result for 2016.
Bakkafrost's salmon farms are located in areas with attractive qualities for salmon farming in terms of water quality, water temperature and circulation. The Faroese fjords provide separation between locations, which improves biological control and area management. Relatively short distances between farming areas and processing facilities and well-developed infrastructure offer cost-efficient transportation of both feed and fish on land and at sea.
Bakkafrost has over the last three years been working on merging seven factories into one. Bakkafrost replaced two old packaging factories in 2014 with a new packaging factory in Glyvrar. The new packaging factory is integrated into the new harvest/VAP factory, which has been under construction for the last two years. The harvesting part of the factory started operation in the summer of 2016, and according to plan the full factory at Glyvrar will be in operation from January 2017. This will secure a more cost conscious production from packaging to finished value added product ready for the market.
Bakkafrost invests in all parts of its value chain. Bakkafrost announced a five-year investment plan in 2013, and in June 2016, an updated five-year investment plan was announced. The updated investment plan amounts to around DKK 2.2 billion from 2016 to 2020. The 2013 and 2016 investment plans have three main goals; reducing the biological risk, increasing efficiency and giving organic growth.
Around half of the investment plan from 2016 will be in the hatchery operation. Bakkafrost was self-supplied with smolts in 2014, when the expansion on the hatchery at Norðtoftir was finished. Bakkafrost is now expanding the capacity, giving opportunity for production of larger smolt in the hatcheries. The larger smolt will have a positive effect on the biological risk and the future growth potential. Larger smolt will reduce the production time at sea in the farming sites. In 2016, Viðareiði started production in the new facilities. This has four folded the capacity of the hatchery at Viðareiði.
Bakkafrost started the construction of a new hatchery at Strond in 2016. This hatchery will be Bakkafrost's largest hatchery by far, and will give a significant lift to Bakkafrost's production capacity, and will therefore be crucial for Bakkafrost to reach the goal of 500 g smolt average weight for all smolts released into the sea.
Bakkafrost has long-term experience in producing and selling value added products (VAP). In 2016, the total VAP production represented 37% of the harvested volumes, compared to 33% in 2015. The increase in percentage is due to lower harvested volumes, but the VAP production remained on the same level in 2016 as in 2015. Bakkafrost's long-term strategy is that VAP products shall represent 40–50% of the Group's harvested volumes.
The sales of VAP products stabelize the Group's earnings, as the sales are based on fixed-price contracts. The contract prices are not as volatile as the spot market prices for fresh salmon. There is a time lag between the increase in the spot prices and a subsequent increase in the contract prices for VAP products. On the other hand, when the spot prices decrease, there is a time lag until the contract prices decrease. In 2016, Bakkafrost had a significant loss on the sales of VAP products, which reflect the exceptional price increase of the salmon spot price in 2016. The loss in the VAP segment is related to the spread between the contract price level and the weekly spot prices. The VAP segment had contract prices on a record high level, but still realized a loss compared to the weekly spot prices.
The new VAP factory, which is combined with the new harvest factory at Glyvrar, will increase the production capacity and give flexibility to expand the portfolio of VAP products.
By focusing on meeting existing customers' demands, Bakkafrost benefits from its long-term relationships with a large number of customers.
The relationships with customers have proven to give a competitive advantage through product development and marketing. Thus, Bakkafrost has customers; it has been trading with for more than 20 years.
In 2014, Bakkafrost announced the goal to get the first farming site ASC certified in 2015 and have all its farming sites ASC certified by 2020. The ASC standard was developed in cooperation with WWF and is seen as the most stringent standard in the aquaculture industry with requirements regarding fish welfare, sea lice, smolt production, feed production and the environment. Bakkafrost's farming site, Gøtuvík, became ASC certified in 2015 as the first Faroese farming site to get an ASC certification, and in 2016, Bakkafrost's farming site, Gulin, became ASC certified. Bakkafrost is still working on getting more farming sites ASC certified.
Bakkafrost and the other Faroese salmon producers are in a favourable competitive position in the US market. Therefore, Bakkafrost has established an experienced sales force with long-term relations with customers in the US. The company has a running operation and on-going sales of large salmon, supported by efficient logistical systems for the distribution of the products (both fresh and frozen) from the Faroe Islands to the US.
The US market prefers the higher-than-average size and weight and the high level of Omega-3 offered in the salmon produced in the Faroe Islands by Bakkafrost. As a result, the US market has become a significant market for Bakkafrost. The sales to the US market accounted for 33% of Bakkafrost's total sales of fresh whole salmon in 2016, compared to 26% in 2015. The US market performed well in 2016.
Since 2011, the export of large fresh salmon to China has increased significantly. The logistics from the Faroe Islands to China are also efficient. In 2016, the sales to China regained some of the sales lost in 2015. The sales to Asia, which is mainly China, accounted for 25%, compared to 21% of total sales of fresh whole salmon in 2015.
The sales to Russia increased significantly following the import ban of Norwegian salmon to Russia in Q3 2014. The ban resulted in a favourable market position and access for Faroese salmon on the Russian market from second half of 2014 and throughout 2015. But in late 2015, the sales to Russia decreased again and have stabilized on a lower level. It is uncertain how long the import ban for Norwegian salmon will last. Of the total sales of fresh whole salmon, the Eastern Europe market, where Russia is the main market, accounted for 23% in 2016, compared to 42% in 2014, which is a decrease of nearly 50% year on year.
Havsbrún received record high quantities of raw materials in 2015, since becoming part of the Bakkafrost Group in 2011. The received quantities of raw materials were also high in 2016. The raw material situation will be volatile in the future. Quotas for fishing blue whiting, however, have increased over the last years. This should improve Havsbrún's possibilities of sourcing raw material to its production of fishmeal and oil. Furthermore, processing plants for pelagic species have been built in the Faroe Islands in recent years, increasing access to off-cuts from this production.
The fish oil market has been volatile for the last two to three years. The price increased significantly at the end of 2014 and early 2015. In 2016, the fish oil price has decreased, but not to the same level as in the beginning of 2014. The world's total production of fish oil has been relatively stable for many decades, while the demand for fish oil has increased. Therefore, fish oil is expected to be a scarce resource in the future, but decreasing content of fish oil in the salmon feed, led by the major producers, will reduce some of the demand. Bakkafrost's strategy is to have a high content of fish oil in the feed, resulting in a salmon with a high content of omega 3.
Even though all tests show that the levels of pollutants in the Bakkafrost salmon are well within the safety limits imposed by e.g. the European Union, Bakkafrost has cleaned the fish oil used for Bakkafrost's salmon feed for PCB and other pollution from early 2015.
The fishmeal market did not experience the same price decrease as fish oil in 2016, but fell somewhat at the end of 2016. Havsbrún opened two tunnels for fishmeal inventory in the summer of 2016. Previously, Havsbrún has rented storage rooms in similar circumstances, but has now full control over the inventory capacity and is prepared to store large quantities of fishmeal. The production of fishmeal and fish oil is seasonal and it is important to be able to source the raw materials needed.
The sales of feed increased in 2016, compared to 2015, due to higher biomass. The total sales of feed in 2016 were 84,587 tonnes, compared to 78,865 tonnes in 2015. The fish feed price has been flat in 2016 and on average marginally lower than in 2015.
The supply of salmon to the world market decreased by around 4% in 2016 (2015: 4% increase). The decrease was due to the harmful algal bloom in Chile in Q1 2016, where around 25 million fish were taken out and had a negative supply effect of around 100,000 tonnes in the second half of 2016. The average salmon spot price in 2016 was DKK 50.62, compared to DKK 35.12 in 2015, corresponding to an increase of 44%.
The prices for value added products (VAP) have increased in 2016 and are now on a level not experienced before. Important for the result for the VAP segment are also the raw material prices, as the VAP segment purchases its raw material on the salmon spot market every week. The raw material prices in DKK have seen a significant increase in 2016. Therefore, the VAP segment made a loss in 2016, although the sales prices achieved in 2016 had never been higher. The value added products are typically sold on fixed price contracts with duration of 6-12 months, where the prices for VAP products follow the trend on the spot market with a time lag. The spread between the fixed price contracts and the spot market was big in 2016.
The feed prices have been fairly flat in 2016, and the average feed price in 2016 was lower than the average feed price in 2015. The reason for the fluctuations in the feed price is the market situation for fish oil and fishmeal, which are the main ingredients in Bakkafrost's/Havsbrún's salmon feed. The fluctuations in the feed prices will be reflected in the production costs for salmon.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Operating revenue | 3,202,686 | 2,850,363 |
| Purchase of goods | -920,148 | -992,497 |
| Change in inventory and biological | ||
| assets (at cost) | 58,874 | 215,432 |
| Salary and personnel expenses | -327,825 | -281,085 |
| Other operation expenses | -715,373 | -683,532 |
| Depreciation | -133,261 | -108,098 |
| Operational EBIT | 1,164,953 | 1,000,583 |
| Fair value adjustments on | ||
| biological assets | 608,195 | -27,578 |
| Onerous contracts | -16,372 | -51,004 |
| Income from associates | 14,821 | 6,757 |
| Revenue tax | -108,450 | 0 |
| Badwill | 10,440 | 0 |
| EBIT | 1,673,587 | 928,758 |
| EBT | 1,632,614 | 924,471 |
| Taxes | -293,727 | -114,296 |
| Profit or loss for the period | 1,338,887 | 810,175 |
The Bakkafrost Group generated gross operating revenues of DKK 3,202.7 million in 2016, compared to DKK 2,850.4 million in 2015. The increase in the revenue is mainly due to higher prices for both fresh/frozen salmon and value added products in 2016. Harvested volumes of salmon decreased 6% in 2016, compared to 2015, and the volumes sold as value added products were nearly the same in 2016 as in 2015. The external revenue from sales of feed and fishmeal was nearly the same in 2016, compared to 2015. The external sales of fish oil were marginal both in 2016 and in 2015.
The operations harvested a total of 47,542 tonnes gutted weight, compared to 50,565 tonnes in 2015. Operational EBIT was DKK 1,165.0 million, compared to DKK 1,000.6 million in 2015. A positive fair value adjustment of the Group's biological assets has been recognized in 2016 amounting to DKK 608.2 million, compared to a negative adjustment of DKK -27.6 million in 2015. The positive fair value adjustment is due to both improved prices and higher biomass in the sea at year-end 2016, compared to the previous year.
In 2016, Bakkafrost made a change in provisions for onerous contracts of DKK -16.4 million, compared to a change in provisions for onerous contracts amounting to DKK -51.0 million in 2015. The provisions are made, as Bakkafrost has long term contracts to deliver value added products at a fixed price in the future. The reason is high raw material costs at the end of 2016, compared to the contract prices.
In 2016, the Group's associated companies made a net result to Bakkafrost of DKK 14.8 million, compared to DKK 6.8 million in 2015.
The Faroese Parliament changed the taxes on salmon farming in the Faroe Islands in December 2015. The tax changes were effective from 1 January 2016. The new revenue tax is not classified as taxes, but is classified as costs and is included in EBIT. The revenue tax amounted to DKK -108.5 million (DKK 0.0 million).
Bakkafrost recognized a badwill amounting to DKK 10.4 million (DKK 0.0 million) in 2016, following the acquisition of the remaining outstanding shares in P/F Faroe Farming in 2016. The badwill is the difference between the payment for P/F Faroe Farming and the value of the net assets purchased.
Financial income in 2016 amounted to DKK 1.5 million, compared to DKK 3.6 million in 2015. Net interest expenses amounted to DKK -26.0 million, compared to DKK 24.6 million in 2015. Net currency effects amounted to DKK -12.4 million, compared to DKK 23.4 million in 2015. Included in the net currency is an unrealized exchange rate adjustment relating to the bond loan of NOK 500 million amounting to DKK -21.1 million, compared to DKK 23.6 million in 2015.
Net taxes amounted to DKK -293.7 million, compared to DKK -114.3 million in 2015.
The consolidated net profit totalled DKK 1,338.9 million in 2016, compared to DKK 810.2 million in 2015. Earnings per share totalled DKK 27.56 in 2016, compared to DKK 16.69 in 2015.
Earnings per share in 2016
| 1,000 DKK | 2016 | 2015 | Increase |
|---|---|---|---|
| Total revenue | 2,840,870 | 2,273,595 | 25% |
| EBIT | 1,825,963 | 815,544 | 124% |
| Operational EBIT | 1,314,542 | 841,243 | 56% |
| Farming - Operational EBIT/kg (DKK) | 27.65 | 16.64 | 66% |
| Harvested volume (tgw) | 47,542 | 50,565 | -6% |
The 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 located in the southern, central and northern part of the Faroe Islands.
Bakkafrost acquired the remaining outstanding shares of Faroe Farming, which became part of the Bakkafrost Group from 1 July 2016. Simultaneously with the Faroe Farming acquisition, Bakkafrost relinquished two farming licenses back to the Faroese Authorities and after these two transactions the salmon farming capacity of Bakkafrost has increased. The farming operation in Faroe Farming is organized into the farming operation of Farming West.
The Group's farming segment harvested 47,542 tonnes gutted weight in 2016, compared to 50,565 tonnes gutted weight in 2015. Farming North harvested 24,768 tonnes gutted weight in 2016, compared to 27,619 tonnes gutted weight in 2015. Farming West, including Faroe Farming from 1 July 2016, harvested 22,774 tonnes gutted weight in 2016, compared to 22,946 tonnes in 2015.
The Group transferred 11.0 million smolts to the sea in 2016. Faroe Farming, which is part of Bakkafrost Group from 1 July 2016, released 0.7 million smolts in 2016, prior to being part of the Group. The smolt release in 2015 was 11.3 million smolts.
The market was very good for the farming segment in 2016 as the global supply of Atlantic salmon decreased and the spot price on salmon increased significantly in 2016. The good financial performance in the farming segment is also due to good and stable farming operations and no material biological issues in 2016.
Total revenues for Bakkafrost's farming segment in 2016 amounted to DKK 2,840.9 million, compared to DKK 2,273.6 million in 2015, an increase of 25%. Gross external operating revenues for Bakkafrost's farming segment increased to DKK 1,973.7 million in 2016, up from DKK 1,763.5 million in 2015, although the volumes sold externally decreased in 2016, compared to 2015. The internal revenue also increased in 2016 from DKK 510.1 million in 2015 to DKK 867.2 million in 2016. The volumes sold to the VAP segment were higher in 2016 than in 2015, but the main reason for the increase in revenue both externally and internally in 2016 was the price increase.
In 2016, operational EBIT totalled DKK 1,314.5 million, compared to DKK 841.2 million in 2015. This corresponds to an operational EBIT of DKK 27.65 (NOK 34.50) per kg gutted weight, compared to DKK 16.64 (NOK 19.63) per kg gutted weight in 2015.
Fig. 21 Fig. 22 Fig. 23
Fig. 24
Fig. 25
| 1,000 DKK | 2016 | 2015 | Increase |
|---|---|---|---|
| Total revenue | 880,945 | 736,657 | 20% |
| EBIT | -217,053 | 35,024 | -720% |
| Operational EBIT | -200,681 | 86,051 | -333% |
| VAP - Operational EBIT/kg (DKK) | -11.08 | 4.73 | -334% |
| VAP produced volume (tgw) | 18,120 | 18,196 | 0% |
The VAP (value added products) segment produces skinless and boneless portions of salmon. The main market for the VAP products is Europe with increasing sales in other markets. The VAP products are sold on long-term contracts.
Bakkafrost has a long-term strategy of producing 40-50% of its harvested salmon as value added products. The output is predominantly portions for the retail market in Europe, but some sales are also to the US retail market. The strategy with the value added products is – in addition to increasing the Group's earnings – to reduce the volatility in the Bakkafrost Group's net earnings, as these products are sold at different fixed-price contracts for a period of up to 12 months. As there is a time lag between the movement in the fresh salmon prices and the contract prices, Bakkafrost normally makes a profit in the VAP segment, when the spot prices are decreasing and vice versa, when the spot prices increase during a period. Therefore, the VAP segment has struggled in 2016 even though the contract prices for the value added products have increased in 2016.
For 2016, 37% of the total harvested volumes went to the production of VAP products, compared to 33% in 2015.
The VAP production in 2016 was 18,120 tonnes gutted weight, compared to 18,196 tonnes gutted weight in 2015.
The contract prices in 2016 have not increase at the same rate as the spot price, but the contract prices are on a higher level than in 2015. The VAP segment's operating revenue amounted to DKK 880.9 million in 2016, compared to DKK 736.7 million in 2015, an increase of 20%.
Operational EBIT in 2016, which is EBIT adjusted for provision for onerous contracts etc., totalled DKK -200.7 million, compared to DKK 86.1 million in 2015. This corresponds to an operational EBIT of DKK -11.08 (NOK -13.82) per kg gutted weight, compared to DKK 4.73 (NOK 5.58) per kg gutted weight in 2015. The main reason for the loss in the VAP segment in 2016 is the record high salmon spot prices affecting the raw material cost heavily.
The VAP segment had onerous contracts at the end of 2016, and therefore a change in provision amounting to DKK -16.4 million was made. The reason is the high raw material prices seen at the end of 2016, compared to the contract prices.
Fig. 28
Fig. 29
PRODUCT WEIGHT OF VAP (tgw)
Fig. 30
DISTRIBUTION OF HARVESTED VOLUMES (%)
| 1,000 DKK | 2016 | 2015 | Increase |
|---|---|---|---|
| Total revenue | 1,158,111 | 1,048,052 | 11% |
| EBIT | 230,350 | 177,411 | 30% |
| EBITDA | 247,881 | 202,052 | 23% |
| FOF - EBITDA margin | 21.4% | 19.3% | 11% |
| Sold feed tonnes | 84,587 | 78,865 | 7% |
The FOF (fishmeal, -oil and feed) segment produces fishmeal, fish oil and fish feed. Most of the production is used for fish feed, which is used internally in the farming segment. The quality of the fish feed is important to the quality of the salmon from Bakkafrost. Fishmeal, fish oil and fish feed is also sold externally.
Havsbrún, which represents the FOF segment, has over the last couple of years had an improving raw material situation for the fishmeal and fish oil production. The produced fishmeal and oil was partly used internally for the feed production and partly exported. In 2016, Havsbrún sourced 201,222 tonnes of raw material, compared to 235,014 tonnes in 2015, which corresponds to a decrease of 14%. The raw material intake depends on the fishery in the North Atlantic and available species of fish.
The production of fishmeal in 2016 was 44,155 tonnes, compared to 49,343 tonnes in 2015. The production of fish oil in 2016 was 7,369 tonnes, compared to 7,854 tonnes in 2015. The production of fish oil varies, depending on the species of fish for production and the timing of catch.
Havsbrún sold 84,587 tonnes of feed in 2016, compared to 78,865 tonnes in 2015. Bakkafrost used 78,029 tonnes of the sold feed in 2016 internally, corresponding to 92%. The internal use in 2015 was 89%.
Total revenues for Bakkafrost's FOF segment in 2016 amounted to DKK 1,158.1 million, compared to DKK 1,048.1 million in 2015, an increase of 11%.
The external operating revenue for the FOF segment amounted to DKK 348.0 million in 2016, compared to DKK 350.2 million in 2015. The decrease in the external revenue from 2015 to 2016 is mainly due to lower external sale of fish feed and fish oil, as external sale of fishmeal was nearly the same in 2016 as in 2015.
The internal revenue in 2016 amounted to DKK 810.1 million, compared to DKK 697.8 million in 2015. The internal revenue comprises the sales of feed to Bakkafrost's farming activities.
EBITDA was DKK 247.9 million in 2016, compared to DKK 202.1 million in 2015, and the EBITDA margin was 21.4% in 2016, compared to 19.3% in 2015.
Fig. 34
Fig. 35
The Group's total assets as at end 2016 amounted to DKK 5,418.1 million, compared to DKK 3,920.4 million at the end of 2015. The acquisition of P/F Faroe Farming has had some effect on the Group's financial position in 2016. The Group's total assets have not changed significantly by the acquisition of P/F Faroe Farming, but changes have, however, been in the classification of assets and liabilities. Reference is made to Note 5.3.
The Group's intangible assets amounted to DKK 376.7 million at the end of 2016, compared to DKK 294.7 million at the end of 2015. Intangible assets comprise primarily the fair value of acquired farming licences. The addition of DKK 82.0 million in the period relates to the acquisition of P/F Faroe Farming. No licences in the North region are recorded with a value in the Bakkafrost accounts.
Property, plant and equipment amounted to DKK 2,118.5 million at the end of 2016, compared to DKK 1,531.5 million at the end of 2015. In 2016, Bakkafrost made investments in PP&E amounting to DKK 686.6 million. The most significant investments Bakkafrost carried out in 2016, were in the expansion of the hatchery at Viðareiði, the new FSV M/S Martin, the new hatchery at Strond, the new combined harvest/VAP factory at Glyvrar and the new administration building at Glyvrar. Other investments relate mainly to maintenance investments.
Investments in associated companies and stocks and shares amounted to DKK 59.4 million at the end of 2016, compared to DKK 130.9 million at the end of 2015. The decrease in financial assets relates to the acquisition of the remaining 51% outstanding shares in P/F Faroe Farming. Following the acquisition, Bakkafrost holds 100% of the shares in P/F Faroe Farming, which is consolidated into the Group from 1 July 2016.
Bakkafrost had DKK 12.7 million long-term receivables at the end of 2016, compared to DKK 0.0 million at the end of 2015.
The Group's carrying amount (fair value) of biological assets amounted to DKK 1,858.4 million at the end of 2016, compared to DKK 1,060.3 million at the end of 2015. Biological assets have increased by the inclusion of Faroe Farming's biological assets. Included in the carrying amount of the biological assets is a fair value adjustment amounting to DKK 880.5 million, compared to DKK 257.3 million at the end of
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Intangible assets | 376,675 | 294,675 |
| Property, plant and equipment | 2,118,470 | 1,531,493 |
| Financial assets | 72,067 | 130,893 |
| NON-CURRENT ASSETS | 2,567,212 | 1,957,061 |
| Inventory | 2,214,039 | 1,482,239 |
| Receivables | 401,869 | 379,234 |
| Cash and cash equivalents | 234,996 | 101,852 |
| CURRENT ASSETS | 2,850,904 | 1,963,325 |
| ASSETS | 5,418,116 | 3,920,386 |
| Equity | 3,549,035 | 2,580,482 |
| Deferred taxes | 545,699 | 349,546 |
| Long-term interest bearing debt | 827,146 | 447,559 |
| Derivatives | 101,456 | 128,804 |
| Non-current liabilities | 1,474,301 | 925,909 |
| Trade payables | 138,873 | 195,223 |
| Current tax liabilities | 140,704 | 155,359 |
| Provision for onerous contracts | 67,378 | 51,004 |
| Other current liabilities | 47,825 | 12,409 |
| Current liabilities | 394,780 | 413,995 |
| EQUITY AND LIABILITIES | 5,418,116 | 3,920,386 |
The Group's total inventories amounted to DKK 355.6 million as at the end of 2016, compared to DKK 422.0 million at year-end 2015. The inventory primarily represents Havsbrún's inventory of fishmeal, fish oil and fish feed in addition to feed at the feed stations, finished VAP products, packing materials and other raw materials.
The Group's total receivables amounted to DKK 401.9 million as at the end of 2016, compared to DKK 379.2 million at the end of 2015.
Cash and cash equivalents at the end of 2016 amounted to DKK 235.0 million, compared to DKK 101.9 million at the end of 2015.
The Group's equity at the end of 2016 was DKK 3,549.0 million, compared to DKK 2,580.5 million at the end of 2015. The increase in equity consists primarily of the positive result for 2016, reduced by the dividend paid out in April 2016.
The Group's total non-current liabilities amounted to DKK 1,474.3 million at the end of 2016, compared to DKK 925.9 million at the end of 2015. Deferred taxes amounted to DKK 545.7 million, compared to DKK 349.5 million at the end of 2015.
Long-term debt was DKK 827.1 million at the end of 2016, compared to DKK 447.6 million at the end of 2015. There was a currency loss on the long-term debt nominated in NOK, increasing the long-term debt. Derivatives amounted to DKK 101.5 million at the end of 2016, compared to DKK 128.8 million at the end of 2015 due to volatility in NOK, compared to DKK.
The Bakkafrost Group's net interest bearing debt, including deposits and losses on financial derivatives relating to the interest bearing debt, amounted to DKK 635.3 million at the end of 2016, compared to DKK 391.7 million at the end 2015.
Bakkafrost's interests bearing debt consists of a bank loan and a bond loan. The bank loan is a multicurrency revolving credit facility totalling DKK 850 million and the bond loan of NOK 500 million has a five-year maturity and is payable 14 February 2018. The interest rate of the bonds is NIBOR 3m +4.15%. Following the issuance of the bonds in 2013, Bakkafrost entered into a currency/interest rate swap, hedging the exchange rate, and switched the interest rate from NIBOR 3m to CIBOR 3m. Bakkafrost entered the swap due to its exposure to DKK, as a large part of the income and costs are in DKK and EUR.
At the end of 2016, the Group's total current liabilities were DKK 394.8 million, compared to DKK 414.0 million at the end of 2015. Bakkafrost had no short-term interest bearing debt at the end of 2016, and neither at the end of 2015.
Trade payable amounted to DKK 138.9 million, compared to DKK 195.2 million at the beginning of the year. Provision for onerous contracts at year-end 2016 amounted to DKK 67.4 million, compared to DKK 51.0 million in 2015.
Bakkafrost's equity ratio was 66% at the end of 2016, the same as at the end of 2015.
The total cash flow from operations in 2016 was DKK 849.6 million, compared to DKK 767.8 million in 2015. The cash flow from operation in 2016 is primarily due to strong results. Combined with paid taxes, the increase in receivables and the decrease of current debts in 2016 had a negative effect on the cash flow from operations in 2016. Cash flow from investment activities amounted to DKK -740.0 million, compared to DKK -601.5 million in 2015.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Cash flow from operations | 849,599 | 767,838 |
| Cash flow from investments | -739,985 | -601,512 |
| Cash flow from financing | 23,530 | -469,583 |
| Net change in cash and | ||
| cash equivalents in period | 133,144 | -303,257 |
| Cash and cash equivalents – opening balance |
101,852 | 405,109 |
For 2016, cash flow from financing amounted to DKK 23.5 million, compared to DKK -469.6 million for 2015. The change in long term interest bearing debt of DKK 379.3 million had a positive effect on cash flow from financing in 2016. Other 2016 figures include financial expenses of DKK -30.5 million, sales of treasury shares of DKK 3.7 million, net dividend payment of DKK -400.6 million and financing of an associated company amounting to DKK 70.0 million.
With the established credit facilities, the Group's liquidity and financial strength is considered good. Bakkafrost had undrawn credit facilities of approximately DKK 654.5 million at the end of 2016.
Bakkafrost is committed to produce healthy, sustainable, top quality salmon with the properties that create value for the customers and thereby maximize the Group's result. Because of this, Bakkafrost has received a price premium for its salmon in recent years.
The Bakkafrost Group is determined to further strengthening its position in the marketplace by investing in the implementation and marketing of the below USPs (unique selling points).
The natural conditions in and around the Faroe Islands are perfect for raising salmon, and Bakkafrost is committed to promote the Faroe Islands origin as a boutique origin for top quality salmon. The North Atlantic Current engulfs the Faroe Islands with cool and steady sea temperatures. Bakkafrost is the market leader in farming salmon in the Faroe Islands.
As the Faroe Islands produce only about 3% of the world's salmon and demand is high for the origin, the customers, who prefer the Faroe Islands origin, must pay a premium to get their share of Faroe Islands salmon.
The Faroe Islands aquaculture industry produces the largest Atlantic salmon in the world. The average weight of Faroese salmon in 2016 was 5.2 kg, gutted weight. The price difference between the different sizes of salmon has been historically big during the last years, where especially the 6+ kg salmon sizes have received a considerable price premium. This is due to a lack of supply of larger size salmon as it requires good biology to produce large salmon. The longer the salmon is at sea, the more it is exposed to different risks.
Bakkafrost aims at producing salmon with an average weight of around 5.2 kg, gutted weight, which is possible due to the Group´s good biological situation.
Bakkafrost has its own Sales and Marketing Department, which is responsible for selling Bakkafrost´s salmon worldwide. The Group aims at selling its salmon as directly as possible to the best paying segments worldwide. Bakkafrost´s strategy is to have a healthy geographical sales diversification to minimize the risk of any individual market fluctuations.
Bakkafrost wants to have as many options as possible when it comes to markets and global reach. By working closely with key freight forwarders, Bakkafrost has developed an industry leading logistics setup, which ensures that Bakkafrost´s salmon is delivered as fresh as possible by airfreight worldwide at the most competitive transport prices. 55.6% of Bakkafrost´s fresh salmon was exported by airfreight in 2016. Bakkafrost's salmon is shipped to major airports, where the salmon is transported with passenger airlines to markets worldwide.
This effective logistics network is evident, when looking at Bakkafrost´s sales in 2016 (Fig. 36 marked blue).
The brand preference for Bakkafrost's salmon is especially strong in the US, where demand from the Group's customers for salmon above 6 kg is particularly strong. Bakkafrost has a strong market share in China as well. A large share of the salmon, which Bakkafrost exports to the US and China, is used for sushi.
Bakkafrost´s salmon appeals especially to the premium sushi segment, as it has a strong sustainability profile. Bakkafrost does not use any antibiotics and only uses Non-GMO raw material in the feed.
Bakkafrost is one of the leading processors of frozen salmon portions, which are sold by leading European and US retailers. Bakkafrost aims to add value to its VAP production through focusing on producing high quality products and being a reliable and responsible supplier.
The strategy of diversifying Bakkafrost´s product mix has other clear benefits for the Group. It increases the revenue stability as salmon portions are sold on 3-18 month contract prices and whole fresh salmon on spot prices. Bakkafrost does not need to push fresh whole fish sales in adverse market conditions.
Feed is one of the most important aspects in the production of salmon, both in regards to costs and quality of the salmon.
Bakkafrost is one of the most vertically integrated salmon
farming companies in the world. Uniquely, Bakkafrost even produces its own fishmeal and fish oil, which is used for the company´s salmon feed. This gives Bakkafrost full control and responsibility over all aspects of production, and it gives our clients unparalleled traceability.
The vertical integration gives Bakkafrost the knowhow and ability to make the decision to invest in salmon feed with a substantially higher percentage of marine content. Bakkafrost salmon feed is about 50% richer in marine content, than the industry average.
The marine content gives Bakkafrost salmon a better fat content rich in the healthy Omega 3 fatty acids DHA and EPA. This natural diet is also evident in the good taste of Bakkafrost´s salmon.
The natural diet for wild salmon is rich in marine resources, and by keeping the diet of Bakkafrost salmon as natural as possible, the Group is able to have one of the industry´s best Feed Conversion Ratios, which is a key indicator of fish welfare and low production costs.
Bakkafrost has announced that from 2015 all of the Group's salmon is to be produced with fish oil, which is cleaned for environmental pollutants. All tests have shown that the levels of pollutants in the Bakkafrost salmon, prior to cleaning the fish oil, are well within the safety limits, imposed by e.g. the European Union. Some premium consumer segments are, however, concerned about any levels of environmental pollutants in their food, and by exclusively using cleaned fish oil, Bakkafrost can add value to its salmon by making it even more desirable to these discerning customers.
Bakkafrost is pursuing the rigours ASC certification, and the first farming area was certified in 2015.
ASC is predicted to become the main aquaculture certification standard, and by being one of the first companies to obtain this standard, Bakkafrost should be able to get a price premium for its ASC certified salmon, as the supply of ASC salmon will be quite limited in the near future.
Becoming one of the first companies certified by ASC also underlines Bakkafrost´s commitment to sustainability and care for the environment – values, which Bakkafrost´s discerning customers value.
Capture fisheries and aquaculture is estimated to have supplied about 168 million tonnes of fish in 2015, of which about 147 million tonnes were utilized as food. This corresponds to seafood consumption per capita of 20 kg (live weight equivalent).
Overall global capture fisheries production continues to remain stable at just above 90 million tonnes of which about 20 million tonnes are utilized in the production of fishmeal and fish oil. This share of non-food uses has declined in recent year as quotas have been reduced, and there has been an increasing demand for seafood products for human consumption.
2014 was the first year where more than half of the world seafood for human consumption has been supplied by the aquaculture industry. While global aquaculture production has increased significantly from 2010 to 2014, industry reports indicate marginal growth in both 2015 and 2016.
The figure below shows world seafood production (for human consumption) and consumption per capita 1999–2015E:
In 2016, worldwide supply (all markets) of farmed Atlantic salmon declined by approximately 4 percent, and ended just above 2.2 million tonnes wfe, while the global harvest volume ended down 7 percent.
Furthermore, this only represents a world Atlantic salmon per capita consumption of around 300 grams wfe or approx. 150 grams of edible product, which is one meal per capita per year.
The world's largest consumer market of Atlantic salmon, however, is the European Union, where 1.05 million tonnes wfe were consumed in 2016, and with a population of approx. 512 million this corresponds to a per capita consumption of 2.05 kg wfe per year. This indicates approx. 7 meals per capita per year on average. Within the EU, Germany and France are the largest single markets.
Since the Russian import ban was implemented in August 2014, trade flow of Atlantic salmon products, saw a global reallocation which continued in 2015. Chilean and Faroese salmon have taken over as the largest suppliers to the Russian market, which also saw a decline in 2016 to 75 thousand tonnes wfe – which is less than half of the volume supplied in 2012.
Market prices for Atlantic salmon saw a significant increase last year due to limited supply – and the Norwegian spot price for fresh whole superior salmon saw new records in 42 of 52 weeks in 2016, even when adjusted for currency (in EUR) and inflation. The average export price from the Faroe Islands versus Norway continued to show a significant premium – approximately 1.00 EUR per kilo hog for fresh whole salmon. This must be seen in relation to the price level for large sized salmon, which has trended on a correspondingly high level, and that a higher share of the production is large sized salmon (6+ kilo) in the Faroe Island.
The figure below shows per capita consumption for farmed Atlantic salmon from 1995–2016E for the selected main markets of the US, the EU, Russia and Japan.
In 2016, the US market for farmed Atlantic salmon ended on a similar level as the previous year – exceeding 400,000 tonnes wfe. With a population of more than 320 million, this corresponds to a per capita consumption of approx. 1.3 kg wfe per year – indicating 4-5 meals per capita per year.
While Chilean production of Atlantic salmon dropped last year – because of the algal bloom outbreak – a larger share of their sales was allocated to the US Market, increasing from 37.5% in 2015 to 43.1% in 2016. In terms of volume, supply dropped somewhat (-3%) to 217.3 thousand tonnes
wfe – and still every second Atlantic salmon consumed in the US market is of Chilean origin.
Canadian supply increased the most (+8% or 7,800 tonnes wfe) last year, while also Norway and the Faroe Islands increased the supply to the US market. Supply from the United Kingdom and Other regions (incl. domestic supply) saw a decline in 2016
The table below shows supplies of Atlantic salmon to the US market – in tonnes wfe:
| Country | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E |
|---|---|---|---|---|---|---|---|---|---|---|
| Chile | 187,500 | 174,200 | 107,100 | 53,200 | 99,100 | 162,200 | 191,600 | 214,700 | 224,100 | 217,300 |
| Canada | 80,100 | 86,300 | 81,100 | 87,600 | 80,400 | 98,200 | 77,400 | 55,000 | 92,900 | 100,700 |
| Norway | 14,300 | 9,600 | 40,300 | 53,800 | 28,700 | 23,700 | 27,000 | 39,900 | 51,200 | 55,700 |
| Faroe Islands | 1,600 | 2,700 | 11,200 | 10,000 | 16,700 | 13,100 | 16,400 | 16,900 | 14,500 | 16,600 |
| United Kingdom | 14,300 | 13,100 | 21,900 | 20,600 | 21,500 | 17,700 | 16,100 | 20,400 | 16,300 | 12,900 |
| USA | 7,100 | 4,500 | 8,800 | 6,900 | 13,200 | 9,400 | 10,100 | 16,200 | 13,800 | 8,300 |
| Other | 800 | 1,500 | 6,100 | 10,900 | 3,900 | 2,300 | 4,200 | 4,200 | 2,800 | 2,700 |
| Total | 305,700 | 291,900 | 276,500 | 243,000 | 263,500 | 326,600 | 342,800 | 367,300 | 415,600 | 414,200 |
| Change | 4% | -5% | -5% | -12% | 8% | 24% | 5% | 7% | 13% | 0% |
Source: Kontali Analyse
Source: Kontali Analyse
Despite strong demand for Atlantic salmon products, reflected by increased prices – also compared to other protein sources – supply fell by 3 percent in 2016. In wfe-equivalents, supply totalled just above 1.05 million tonnes last year – of which Norwegian salmon accounted for 82 percent.
The two largest suppliers to the EU Market, Norway and United Kingdom, both saw lower sales in terms of volume last year – decreasing 6 and 3 percent, respectively. While salmon with both Chilean and Faroese origins increased their sales and market share on the EU market.
The trend observed on the EU Market during the past 3 years must be seen in relation to the Russian import ban – which was imposed in August 2014. The share of Norwegian sales going to the EU was 66 percent in 2013, compared to 74 percent in both 2015 and 2016. This means the largest market for Atlantic salmon is more sensitive to the production and productivity development in Norway.
The top 3 countries in the European market (France, Germany and the United Kingdom) represent more than 50 percent of the Atlantic salmon consumption.
The table below shows supplies of Atlantic salmon to the EU market – in tonnes wfe:
| Country | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E |
|---|---|---|---|---|---|---|---|---|---|---|
| Norway | 506,800 | 532,200 | 591,700 | 615,300 | 648,400 | 761,900 | 755,500 | 834,600 | 912,200 | 860,200 |
| United Kingdom | 114,200 | 118,300 | 114,400 | 112,800 | 117,500 | 117,000 | 110,300 | 117,800 | 120,700 | 117,400 |
| Chile | 67,800 | 67,100 | 39,900 | 10,600 | 17,200 | 27,000 | 50,200 | 50,500 | 44,900 | 53,900 |
| Faroe Islands | 13,100 | 29,900 | 30,000 | 26,300 | 29,900 | 36,000 | 33,500 | 31,400 | 19,000 | 25,200 |
| Other/ Re-export | 3,800 | -8,200 | -5,600 | -12,500 | -6,000 | -6,400 | -16,700 | -16,700 | -8,800 | -1,900 |
| Total | 705,700 | 739,300 | 770,400 | 752,500 | 807,000 | 935,500 | 932,800 | 1,017,600 | 1,088,000 | 1,054,800 |
| Change | 9% | 5% | 4% | -2% | 7% | 16% | 0% | 9% | 7% | -3% |
Source: Kontali Analyse
Source: Kontali Analyse
While supply to China and Hong Kong saw 2-digit growth from 2010 to 2014 – increasing from just above 40,000 tonnes wfe to almost 90,000 tonnes wfe – supply in both 2015 and 2016 ended on a similar level.
In the corresponding time-period, supply from the Faroe Islands to these markets grew to just above 10,000 tonnes wfe – accounting from more than 10% of the total market.
Supply from Norway saw a significant drop last year – particularly to Hong Kong – while supply from Chile (direct to China) increased significantly. Furthermore, an increasing
share of Chilean supply has been fresh whole salmon – of the 29,300 tonnes wfe supplied in 2016, 51% of the volume was fresh whole.
In addition to direct supply from Australia and Canada to China, the other category below includes estimated re-export of Norwegian salmon through Vietnam and Thailand. In 2016, this re-export is estimated to have increased to more than 10,000 tonnes wfe.
Supply of Atlantic salmon to China and Hong Kong – in tonnes wfe:
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E | |
|---|---|---|---|---|---|---|---|---|---|---|
| Chile | 1,300 | 3,700 | 14,900 | 3,400 | 5,200 | 4,900 | 9,600 | 20,000 | 18,300 | 29,300 |
| Other countries | 700 | 2,300 | 2,700 | 3,500 | 11,300 | 7,000 | 10,400 | 4,100 | 11,500 | 19,400 |
| Norway | 21,000 | 20,600 | 25,800 | 33,000 | 24,300 | 34,500 | 27,800 | 34,100 | 31,100 | 16,500 |
| United Kingdom | 300 | 400 | 800 | 800 | 5,400 | 8,000 | 11,500 | 16,400 | 14,900 | 12,100 |
| Faroe Islands | - | - | - | 300 | 4,400 | 7,800 | 10,200 | 12,400 | 9,600 | 10,300 |
| Total | 23,300 | 27,000 | 44,200 | 41,000 | 50,600 | 62,200 | 69,500 | 87,000 | 85,400 | 87,600 |
| Growth rate | 16% | 64% | -7% | 23% | 23% | 12% | 25% | -2% | 3% |
Source: Kontali Analyse
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E | |
|---|---|---|---|---|---|---|---|---|---|---|
| Atlantic salmon | 1,398,500 | 1,495,300 | 1,475,100 | 1,455,500 | 1,633,700 | 2,000,350 | 2,041,650 | 2,228,000 | 2,318,900 | 2,163,900 |
| Pink | 521,400 | 310,000 | 608,600 | 399,100 | 587,500 | 410,300 | 580,600 | 307,900 | 398,900 | 307,400 |
| Chum | 316,800 | 293,300 | 357,200 | 309,300 | 274,600 | 294,700 | 338,300 | 321,900 | 338,100 | 308,000 |
| Small trout | 386,500 | 404,500 | 432,700 | 446,600 | 490,600 | 534,100 | 577,500 | 569,000 | 588,800 | 631,600 |
| Large trout | 312,600 | 338,700 | 310,000 | 319,900 | 335,300 | 376,900 | 309,500 | 292,200 | 268,300 | 263,100 |
| Coho | 142,200 | 144,800 | 131,000 | 160,700 | 174,400 | 191,000 | 176,800 | 200,400 | 189,900 | 154,000 |
| Sockeye | 158,700 | 132,900 | 141,000 | 167,600 | 148,800 | 142,300 | 133,200 | 173,700 | 190,300 | 191,500 |
| Chinook | 22,200 | 18,100 | 18,500 | 19,700 | 22,000 | 18,800 | 22,000 | 25,900 | 25,100 | 24,500 |
| Total | 3,258,900 | 3,137,600 | 3,474,100 | 3,278,400 | 3,666,900 | 3,968,450 | 4,179,550 | 4,119,000 | 4,318,300 | 4,044,000 |
| Growth rate | 11% | -4% | 10% | -6% | 11% | 8% | 5% | -1% | 5% | -7% |
Source: Kontali Analyse
Following 5 years with global growth in harvest of farmed Atlantic salmon, 2016 saw a decline of 7 percent or 155,000 tonnes wfe worldwide.
The two largest producing countries, Norway and Chile, which combined account for approximately 80 percent of the global harvest volume, both saw a significant drop in harvest.
In Norway, mainly challenges with sea lice and other fish health issues led to a reduction in both production and productivity. As a result of harvesting salmon earlier at lower harvest weight, in addition to poorer growth development the second year in sea due to sea lice treatments – led to a fall in harvest volume of 7 percent.
The algal bloom outbreak in Chile led to extraordinary losses of approximately 25 million individuals. Consequentially, this led to lower harvest potential for the second half of 2016. Furthermore, slightly poorer growth development due to both sea lice and SRS was also a contributing factor to the 16 percent decline in harvest volume.
The only notable increase in harvest volume, observed last year, came from North America, which increased by almost 10,000 tonnes wfe. In addition, on Iceland production is picking up and increased approx. 4,000 tonnes wfe, a doubling compared to the previous year.
The global harvest quantity of Atlantic salmon for 2007– 2016E is illustrated in the table below.
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E | |
|---|---|---|---|---|---|---|---|---|---|---|
| Norway | 723,300 | 741,000 | 855,700 | 944,600 | 1,005,600 | 1,183,100 | 1,143,600 | 1,199,000 | 1,234,200 | 1,171,100 |
| Chile | 356,400 | 403,500 | 239,100 | 129,600 | 221,000 | 364,000 | 468,100 | 582,900 | 598,200 | 504,400 |
| United Kingdom | 134,900 | 136,400 | 144,300 | 142,900 | 154,700 | 159,400 | 157,800 | 170,500 | 166,300 | 160,100 |
| Canada | 111,000 | 122,000 | 121,900 | 122,000 | 119,500 | 136,500 | 115,100 | 95,000 | 135,200 | 142,500 |
| Faroe Islands | 19,100 | 36,900 | 47,100 | 41,800 | 56,300 | 70,300 | 72,600 | 82,700 | 76,900 | 75,900 |
| Australia | 23,800 | 25,700 | 32,200 | 33,000 | 36,000 | 40,000 | 39,000 | 42,000 | 55,000 | 54,000 |
| USA | 12,300 | 17,000 | 16,400 | 18,000 | 18,300 | 19,600 | 20,300 | 24,000 | 20,200 | 22,000 |
| Others | 2,400 | 1,400 | 3,600 | 5,800 | 6,300 | 11,850 | 14,550 | 19,600 | 17,200 | 19,000 |
| Ireland | 15,300 | 11,400 | 14,800 | 17,800 | 16,000 | 15,600 | 10,600 | 12,300 | 15,700 | 14,900 |
| Total | 1,398,500 | 1,495,300 | 1,475,100 | 1,455,500 | 1,633,700 | 2,000,350 | 2,041,650 | 2,228,000 | 2,318,900 | 2,163,900 |
| Growth rate | 10% | 7% | -1% | -1% | 12% | 22% | 2% | 9% | 4% | -7% |
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016E | |
|---|---|---|---|---|---|---|---|---|---|---|
| Norway | 76,200 | 86,300 | 81,000 | 55,600 | 54,000 | 73,700 | 73,900 | 73,800 | 71,500 | 84,500 |
| Chile | 169,300 | 179,300 | 149,600 | 189,000 | 203,500 | 227,900 | 156,600 | 131,700 | 100,400 | 74,200 |
| Others | 34,500 | 36,700 | 41,000 | 44,900 | 46,900 | 45,300 | 48,900 | 54,400 | 62,700 | 69,800 |
| Finland | 11,500 | 12,000 | 12,700 | 10,400 | 9,300 | 9,000 | 9,900 | 12,400 | 13,000 | 14,500 |
| Denmark | 9,900 | 10,000 | 10,100 | 9,800 | 10,900 | 10,500 | 10,500 | 10,500 | 10,900 | 10,500 |
| Sweden | 4,500 | 5,700 | 6,400 | 7,900 | 10,700 | 10,500 | 9,700 | 9,400 | 9,800 | 9,600 |
| Faroe Islands | 6,700 | 8,700 | 9,200 | 2,300 | - | - | - | - | - | - |
| Total | 312,600 | 338,700 | 310,000 | 319,900 | 335,300 | 376,900 | 309,500 | 292,200 | 268,300 | 263,100 |
| Growth rate | 21% | 8% | -8% | 3% | 5% | 12% | -18% | -6% | -8% | -2% |
Source: Kontali Analyse
PERFORMANCE
After the ISA-crisis in the Faroe Islands (2006), the average annual harvest growth rate has been 26.5% for Atlantic salmon until 2014, where harvest and production reached its all-time high level. Harvest in 2014 was 82.7 thousand tonnes wfe, which in comparison to 2006 represents an increase of just above 70 thousand tonnes wfe.
Mainly due to reorganization of the production cycle of one company, harvest decreased 8 percent in 2015. Last year, the harvest volume fell further and down by 5 percent. Preliminary indications point towards a 10 percent increase in 2017.
Supply of Atlantic Salmon from the Faroe Islands (tonnes wfe)
The biological performance of the Faroese salmon producers has over the last few years been the best in the world – with low loss rates and high average harvest weigh, leading to the highest smolt yield in the industry.
Furthermore, with limited global production of large sized salmon – the Faroese companies focused on markets demanding these products, and achieving premium and higher sales prices compared to other producing regions. This combined with low cost of production, has led to the best EBIT-margins in the industry.
Fig. 48
Fig. 49
| Supply from | Supply to Markets | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | Faroe Islands | EU | share | USA | share | Japan | share | Russia | share | Others | share |
| 2009 | 48,100 | 30,000 | 62% | 11,200 | 23% | 600 | 1% | 1,100 | 2% | 5,200 | 11% |
| 2010 | 42,400 | 26,300 | 62% | 10,000 | 24% | 700 | 2% | 200 | 0% | 5,200 | 12% |
| 2011 | 57,200 | 29,900 | 52% | 16,700 | 29% | 600 | 1% | 2,500 | 4% | 7,500 | 13% |
| 2012 | 72,100 | 36,000 | 50% | 13,100 | 18% | 1,100 | 2% | 8,000 | 11% | 13,900 | 19% |
| 2013 | 73,400 | 33,500 | 46% | 16,400 | 22% | 1,100 | 1% | 2,600 | 4% | 19,800 | 27% |
| 2014 | 83,300 | 31,400 | 38% | 16,900 | 20% | 800 | 1% | 15,700 | 19% | 18,500 | 22% |
| 2015 | 76,900 | 19,000 | 25% | 14,500 | 19% | 800 | 1% | 27,300 | 36% | 15,300 | 20% |
| 2016E | 73,200 | 25,200 | 34% | 16,600 | 23% | 400 | 1% | 18,500 | 25% | 12,500 | 17% |
Source: Kontali Analyse
PERFORMANCE
During 2016, the salmon farming industry has seen record high price levels, both in Europe and America. As mentioned earlier, reduced production and productivity in the two largest Atlantic salmon producing countries has led to a fall in global harvest of approximately 7 percent. However, due to realization of frozen inventory stock in Chile, global supply to all markets is estimated down 4 percent – of which H1 2016 was in line with last year, but where the second half decreased by almost 8 percent.
Limited supply and lower supply volumes, combined with an increasing share of sales on contracts – had an amplifying effect on the available spot volume and spot prices. Furthermore, prices measured in NOK were also positively affected by the weak Norwegian krone against the main trading currencies.
In Europe, prices for Atlantic salmon increased also significantly – also compared to other protein sources, such as
chicken, beef, and pork. While the coverage, i.e. number of retail stores selling salmon products, only fell slightly – the notable change was in the promotion activity. In France, promotions of fresh whole salmon fell from 19 % on average in 2015 to 13 % last year. For fresh fillets and fresh portions, promotion fell from 32 % to 23 % and 19 % to 13 % on average.
In contrast to spot prices, average export prices for fresh whole salmon in Norway trended on a lower level – a result of high contract share, and partly high deviation between spot and contract prices. Thus, achieved sales prices for farmers and purchase prices for consumers is somewhat lower than the trend observes in the graph below.
The graph below shows relative change in global supply of Atlantic salmon and European spot prices for fresh Atlantic salmon (NOK/kilo), by month – year over year, from 2013 to 2016.
Change in global market supply of farmed Atlantic salmon from the previous year. Change in European spot prices - fresh Atlantic salmon (Fish Pool Index) from previous year. Source: Kontali Analyse
Norway is the largest producing country of farmed salmonids, while Chile during the past years has strengthened its position as the world second largest producer. Before the ISA-crisis (2008), Chilean production and harvest of salmonids almost reached 700,000 tonnes wfe. Highly affected by the significant fall, the market structure reversed in 2010 back to the structure seen in 2005. The recovery of the Chilean industry and growth in production in Europe contributed to industry consolidations.
In 2015, the world's fifteen largest salmon farming companies harvested approx. 1.7 million tonnes of Salmonids (Atlantic Salmon, Coho Salmon, Chinook, Big Trout), representing 61% of the total harvest quantity in 2015. In Norway, these companies made up 61% of the total harvest and 66% in Chile. See table below for more details:
Fig. 51
| Ranking Group | Head-Office | Total | Norway | UK | Chile | North America Faroe Islands Ireland | Others | |||
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | MARINE HARVEST GROUP | NO | 466,800 | 283,100 | 55,700 | 69,400 | 44,600 | 3,200 | 10,800 | |
| 2 | LERØY SEAFOOD GROUP (incl. Norskott Havbruk) | NO | 190,200 | 175,200 | 15,000 | |||||
| 3 | MITSUBISHI / CERMAQ | NO | 185,000 | 64,000 | 100,000 | 21,000 | ||||
| 4 | SALMAR (incl. Norskott Havbruk) | NO | 166,600 | 151,600 | 15,000 | |||||
| 5 | EMPRESAS AQUACHILE | CL | 108,900 | 108,900 | ||||||
| 6 | COOKE AQUACULTURE | CA | 95,200 | 21,000 | 25,000 | 49,200 | ||||
| 7 | GRIEG SEAFOOD | NO | 72,700 | 38,600 | 18,200 | 15,900 | ||||
| 8 | SALMONES MULTIEXPORT | CL | 63,700 | 63,700 | ||||||
| 9 | AUSTRALIS SEAFOOD | CL | 60,100 | 60,100 | ||||||
| 10 | BAKKAFROST | FO | 56,200 | 56,200 | ||||||
| 11 | PESQUERA LOS FIORDOS | CL | 50,000 | 50,000 | ||||||
| 12 | PESQUERA CAMANCHACA | CL | 43,300 | 43,300 | ||||||
| 13 | NORDLAKS HOLDING | NO | 43,000 | 43,000 | ||||||
| 14 | NOVA SEA | NO | 41,600 | 41,600 | ||||||
| 15 | SALMONES AUSTRAL (PACIFIC STAR + TRUSAL) | CL | 40,000 | 40,000 | ||||||
| Sum top 15 | 1,683,300 | 797,100 124,900 | 560,400 | 130,700 | 59,400 | 10,800 | 0 | |||
| Others | 1,088,900 | 508,600 | 46,100 | 291,600 | 31,500 | 17,500 | 5,400 188,200 | |||
| Total | 2,772,200 | 1,305,700 | 171,000 | 852,000 | 162,200 | 76,900 | 16,200 188,200 | |||
| Top 10 WW in % of total harvest quantity | 53% | 55% | 73% | 50% | 81% | 77% | 67% | 0% | ||
| Top 15 WW in % of total harvest quantity | 61% | 61% | 73% | 66% | 81% | 77% | 67% | 0% |
Source: Kontali Analyse
The cost of producing 1 kg of Atlantic salmon is highly influenced by the feed cost, which comprises between 50 and 60 percent of the production cost. This expense depends mainly on two factors: The price of the fish feed, and how much feed is needed to produce 1 kg of fish at the point of harvest/sale. The latter is also known as the economic feed conversion rate (EFCR), and considers losses (mortality, escapes, discards, etc.), biological feed conversion rate and other factors.
During the past decade, it is mainly the increased feed price, which has driven the total cost upwards – as commodity prices for the ingredients used in the salmon feed have increased and markup for the feed producers have
remained fairly stable. During the last 5 years, biological challenges and efforts to combat the levels of sea lice have increased labour and other operational costs.
Compared to Norwegian farmers the average cost of production is somewhat lower for Faroese farmers - a result of better biological performance; lower feed conversion ratio and higher smolt yield (higher average harvest weights and lower loss-rates), but also due to what has become a generally higher cost level in Norway.
The figure below shows the cost split for Atlantic salmon – 2015G est.
Cost split Norway 2015G est.
Feed consumption to ocean-farmed salmonids saw double digit growth in both 2011 and 2012, while at the same time total tonnages exceeded 3.7 million. The following year (2013), consumption and sales decreased approx. 2% due to lower production in the main farming regions.
The following year (2014) feed consumption increased with 8% to a new all-time high record of just above 3.9 million tonnes of fish feed. This record was again beaten in 2015, by a marginal increase of 1 percent or 20,000 tonnes.
Last year, the global feed consumption decreased by 6 percent – mainly driven by a 17% fall in feed consumption (all-salmonids) in Chile. The lost growth and feed consumption of the individual losses in the algal bloom is the main reason behind this development.
The share of marine ingredients in feed for farmed salmonids has over the last decade decreased. However, both
fishmeal and fish oil prices still impact the feed-price delivered to farmers.
The raw material situation in 2016 to the fishmeal and fish oil producers has been difficult due to a 20% decrease in the landings of industrial species in the main producing countries.
However, a successful second season in Peru has built fishmeal inventories during the last months of 2016. The Peruvian fishmeal production is estimated to approximately 450,000 tonnes the last season. This eased the situation in the fishmeal and fish oil markets, and prices decreased towards the end of 2016.
China is the world's largest consumer of fishmeal and represents approx. 70% of the Peruvian exports. Imports of fishmeal to China were above 1 million tonnes last year.
Atlantic Salmon, Large Trout, Coho, Chinook
| In 1000 tonnes | 2011 | 2012 | Change | 2013 | Change | 2014 | Change | 2015 | Change | 2016E | Change |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Norway | 1,494 | 1,652 | 11% | 1,618 | -2% | 1,738 | 7% | 1,743 | 0% | 1,707 | -2% |
| Chile* | 1,037 | 1,258 | 21% | 1,204 | -4% | 1,283 | 7% | 1,237 | -4% | 1,023 | -17% |
| Others | 239 | 272 | 14% | 286 | 5% | 319 | 12% | 346 | 8% | 365 | 5% |
| North America | 225 | 235 | 5% | 202 | -14% | 235 | 16% | 253 | 8% | 257 | 2% |
| UK | 228 | 210 | -8% | 224 | 7% | 230 | 3% | 241 | 5% | 247 | 2% |
| Faroe Islands | 85 | 89 | 5% | 96 | 8% | 97 | 2% | 103 | 6% | 106 | 3% |
| Total | 3,307 | 3,716 | 12% | 3,630 | -2% | 3,903 | 8% | 3,923 | 1% | 3,705 | -6% |
* Chile - Including fresh water feed, but excluding exports (exports ranging from 10-15,000 tonnes between 09 and 14E)
Source: Kontali Analyse
The Bakkafrost Group is exposed to a number of different risks, and risks will always be a natural part of our business activities. Risk management is therefore crucial, so that the risks, Bakkafrost is exposed to, are reduced to an acceptable level.
Bakkafrost has general operational and business risks arising from the normal business activities in the value chain. In addition to the operational risks, Bakkafrost is exposed to markets and financial risks arising from the normal business activities in the value chain.
Although operational risks are, to a certain extent, reflected in budgets by means of estimates for mortality and the percentage of fish whose quality is downgraded in connection with primary processing, such risks might, if occurring, materially affect Bakkafrost's results and financial condition. Bakkafrost's operations can also be materially impacted by what is classified as normal operating risks, e.g. quality from suppliers and sub-suppliers, etc. The salmon farming industry is associated with a high level of biological risk, and Bakkafrost aims at reducing that risk through the entire production cycle by means of systematic group-wide biosecurity auditing.
Bakkafrost's production facilities are located within a relatively small geographical area limited to the Faroe Islands; accordingly, some operational risks, if occurring, can affect Bakkafrost strongly (e.g. weather conditions, some diseases, etc.).
The growth rate of farmed salmon depends, among other things, on weather conditions. Unexpected warm or cold temperatures can have a significant negative impact on growth rates and feed consumption. Bakkafrost operates at sea under sometimes challenging conditions. This can result in incidents or necessary measures that may have significant cost implications, e.g. unexpected maintenance/ repairs or escaped fish. Bakkafrost is continually working on reducing risks using experience with equipment, location and operational organization. Bakkafrost's facilities are located in areas where the weather conditions are well known and the facilities well secured, though other weather conditions, such as storms or floods, could also lead to unexpected losses at facilities.
Operation of fish farming facilities involves considerable risk with regard to disease. In the case of an outbreak of disease, Bakkafrost will, in addition to the direct loss of fish, incur substantial costs in the form of premature harvesting, loss of quality of harvested fish and subsequent periodic reduced production capacity.
A routine surveillance test in July 2016, detected a possible pathogenic ISA-virus at Bakkafrost farming site A-73 Hvannasund Norður. After the suspicion, extensive tests at the farming site have been carried out with the purpose of confirming the suspicion. All results have been negative and have not proven the presence of a pathogenic ISA virus.
As the tests in July 2016 did not confirm the suspicion, the Veterinary Authority increased surveillance for at least six months at the farming site and carried out extra tests on neighbouring farming sites as well. This procedure is stipulated in the Faroese veterinary farming regime, which has the purpose of securing and maintaining good biology in the Faroese farming industry. Tests taken by the Faroese Veterinary Authority at farming site A-73 Hvannasund Norður in January 2017, as part of the increased surveillance, resulted again in suspicion of a pathogenic ISA virus at the farming site. The suspicion of a pathogenic ISA virus concerned two cages, whereof one cage was the same cage that was under suspicion of a pathogenic ISA virus in July 2016. Bakkafrost decided to take immediate action and harvested all the fish in these two cages. The results from these tests and following tests have not confirmed the suspicion of a pathogenic ISA virus at farming site A-73 Hvannasund Norður. The farming site will continue to be under increased surveillance.
The finding of this potentially virulent ISA virus highlights the importance of the Faroese strict prophylactic measures and surveillance. The Faroese veterinary farming regime stipulates vaccination against ISA of minimum 80% of the fish in each farming site. Bakkafrost vaccinates all fish against ISA.
The suspicion of Neoparamoeba perurans in the Faroe Islands in 2013 has further increased the risk for diseases. The Neoparamoeba perurans agent is known to be able to cause amoeba gill disease (AGD). Farming sites, where there is suspicion of Neoparamoeba perurans, are treated with Hydrogen Peroxide. Hydrogen Peroxide is also used as treatment against sea lice. Bakkafrost has the necessary equipment and staff knowledge to carry out treatments if necessary, and with the new modern live fish carrier capable to carry out fresh water treatment of the fish, Bakkafrost is well prepared to handle the risk.
The increasing number of sea lice is one of the largest risks and challenges in the farming industry globally and in the Faroe Islands today. Increased number of sea lice may cause stress, which can lead to diseases. Bakkafrost has procedures for how to reduce the number of sea lice with different types of treatment. The procedures are improved on a continuing basis. Like almost all other salmon farming companies, Bakkafrost is looking into non-medicinal treatment options. The future goal is that medicinal treatments will be exchanged with non-medicinal treatment options.
Bakkafrost uses lumpfish as cleaner fish for sea lice. Lumpfish is the only cleaner fish used in the Faroe Islands, and is an important preventive measure against sea lice. Bakkafrost will increase the use of lumpfish in its farming sites.
Since late 2015, Bakkafrost used fresh water baths on-board Hans á Bakka as sea lice treatment. This treatment has been effective. Bakkafrost has made new investments in two FSVs, installed with treatment systems using lukewarm sea water to clean the salmon for lice.
Although Bakkafrost does not tolerate the escape of farmed salmon, there is a risk that escapes will occur, in which case the Bakkafrost's business could be materially adversely affected, directly through loss of farmed salmon, and indirectly through the spread of diseases, governmental sanctions, negative publicity or other indirect effects. Procedures and new technological solutions in this respect are constantly monitored.
As the aquaculture industry has evolved and developed, the biological limits for how fast fish can grow have also been challenged. As with all other forms of intensive food production, a number of production-related disorders arise, i.e. disorders caused by intensive farming methods.
As a rule, such disorders appear infrequently, but certain populations can be severely affected. The most important production-related disorders relate to physical deformities and cataracts. These invariably cause financial loss by way of reduced growth and inferior health, reduced quality on harvesting and damage to the industry's reputation.
Fig. 55 Fig. 56 Fig. 57
Source: Avrik
* The figures represent salmon generations from approx. 100% of all Faroese fish farmers.
The production of fishmeal, fish oil and fish feed follows established methods with automated and controlled processes. However, any production is vulnerable to downtime and possible insufficient supply of raw material input. Unexpected shortfalls in raw material due to limited catch volumes or limited delivery or purchase of fish or supply of substitutes, could affect the volumes produced in the factory. This may result in incidents or necessary measures that may have significant cost implications. Bakkafrost is continually working on reducing risks.
Bakkafrost's fishmeal, fish oil and fish feed department at Havsbrún's facilities are located in the Faroe Islands, in which case the company's business could be materially adversely affected directly from any trade restrictions, or indirectly through restrictions on ocean harvests or quotas.
Although operational risk is to a certain extent reflected in budgets by means of estimates for prices and volumes, such risks might, if occurring, materially affect the company's results and financial condition. Bakkafrost's operations may also be materially impacted by what is classified as normal operating risks, i.e. quality from suppliers and sub-suppliers, etc.
Feed may, through its use of different types of raw materials and ingredients and through its production processes, be exposed to contamination by a number of undesirable substances. Most contaminants are accumulated in organisms such as marine wild catch used to produce fishmeal and fish oil. These contaminants are deposited into the organism's fat, and the concentration is greater the higher up the food chain. Authorities set maximum allowable levels for the most important contaminants. These limits are continuously monitored by the authorities and may be altered. There is also the possibility of "new" contaminants being added periodically to the list.
Generally, contamination may occur either accidentally or deliberately through malicious product tampering. Such contamination has the potential to affect the environment, fish health and/or food safety, with a potential negative impact on the public's confidence in eating salmon. Any of these events could have a negative impact on Bakkafrost's operating result and financial condition. Future legislation may increase the risk of non-compliance and the cost of ensuring compliance. The reputation risk associated with non-compliance may be significant even if there is no impact on the environment, fish health or food safety.
Bakkafrost's feed department, Havsbrún, operates a number of controls to reduce the risk of contamination. Examples of measures and controls, included in HACCP and ISO procedures, include supplier audits and supplier specifications of raw materials, targeted sourcing of raw materials, regular raw material and finished feed quality control analyses, procedures for cleaning of fish oils, etc. and strict plant security procedures. The risks, however, can never be completely eliminated.
Contaminants that may be a risk for fish feed include, but are not limited to, organic contaminants such as dioxins and PCB, mycotoxins, pesticides, anti-oxidants (such as Ethoxyquin and BHT), brominated flame retardants and bacterial contamination and inorganic contaminants such as lead, mercury, arsenic and cadmium.
Even though all tests show that the levels of pollutants in the Bakkafrost salmon are well within the safety limits, imposed by e.g. the European Union, Bakkafrost has from early 2015 cleaned the fish oil used for Bakkafrost's salmon feed for PCB and other pollutants.
The feed may also, through accidents or tampering, be contaminated by other inorganic substances such as mineral oil, physical objects, etc. Several substances in addition to the list above are being monitored.
IT-related risks have increased in recent years, as IT has become more integrated in Bakkafrost's operations. Therefore, breakdown of Bakkafrost's control systems and administrative systems will have negative effect on Bakkafrost's operations. The IT risks are assessed continuously based on the importance of a potential event for Bakkafrost operations and the likelihood that the event may occur.
Bakkafrost's financial position and future development depend to a considerable extent on the price of farmed salmon, which has historically been subject to substantial fluctuations. Farmed salmon is a commodity, and it is therefore reasonable to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demand for farmed salmon is a key parameter. Increased supply may cause prices to decline, as was the case in 2001–2003, 2011-2012 and again in mid-2014. This could, in turn, have a significant impact on the company's profitability and cash position.
The price of fishmeal and fish oil, have historically been subject to substantial fluctuations. Fishmeal and fish oil are commodities, and it is therefore reasonable to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demand for fishmeal and fish oil is a key parameter. Decreased supply may cause prices to increase. This could in turn have an impact on the company's profitability and cash position.
Feed costs account for a significant proportion of the total production costs within the salmon farming segment, and fluctuations in feed prices could therefore have a major impact on profitability. Feed prices are affected by both the global market for fishmeal and marine/animal/vegetable oils, and the feed industry is dominated by a small number of large, global producers.
Natural limitations in the marine resource base could lead to global shortages of fishmeal and fish oil for the fish feed production. The feed producers have come a long way, however, in their efforts to replace some of the marine based input factors with vegetable raw materials. Furthermore, the production of fish feed is an integrated part in Bakkafrost's value chain and thus reducing this risk.
Bakkafrost sells its salmon products to more than 20 different countries. Fishmeal, fish oil and feed are sold to a limited number of countries. From time to time, due to different reasons, the company might suffer export restrictions to countries or regions. This could, in turn, have a significant impact on the company's profitability and cash position.
Bakkafrost seeks to manage financial risks through operational measures or (where such measures are not available) through the use of financial derivatives. A policy on the management of these risks has been approved by the Board of Directors.
The follow-up of internal procedures associated with financial reporting is undertaken as part of the management's day-to-day supervision and the process owners' follow-up. Please refer to Note 4.1 for additional information.
Bakkafrost trades in the world market for farmed salmonids. The revenues and accounts receivables are predominantly denominated in DKK, EUR and USD, but to some extent also in other foreign currencies. On the other hand, purchases of raw materials etc. are predominantly denominated in DKK, but linked to the USD. Therefore, Bakkafrost has some natural hedging. For those currencies not fully hedged, fluctuations in foreign exchange rates present a financial risk to Bakkafrost.
Bakkafrost's financing is in DKK and NOK and is a combination of bank financing and bond financing. The bank financing is in DKK, but Bakkafrost has the possibility to finance in different other currencies. The bond financing is in NOK and thus, there is a currency risk towards the bond financing. To reduce this risk, Bakkafrost has entered into a currency/interest rate swap, hedging the exchange rate and has switched the interest rate from NIBOR 3m to CIBOR 3m.
In connection with some material investments, Bakkafrost is in some degree exposed to NOK, USD and EUR.
The risk that counterparties do not have the financial strength to meet their obligations is considered relatively low, since losses due to bad debts historically have been small. Bakkafrost has guidelines to ensure that sales are made only to customers that have not previously had payment problems and that outstanding balances do not exceed fixed credit limits. The majority part of the total accounts receivables is insured. As not all receivables are insured, Bakkafrost must accept a certain risk element in accounts receivables.
The main credit risk on the date of the statement of financial position regards Bakkafrost's receivables portfolio.
Liquidity risk is the risk that Bakkafrost will not be able to meet its financial obligations as they fall due. Liquidity risk is managed by maintaining a flexible financial structure, which is secured by means of established borrowing facilities. Bakkafrost's objective is to have sufficient cash, cash equivalents or medium-term credit facilities to meet its borrowing requirement in the short term. Unused credit facilities and terms are described in Note 4.1.
The prime objective of Bakkafrost's capital management is to ensure that it maintains a good credit rating to achieve favourable borrowing terms. By ensuring a good debt-to-equity ratio, Bakkafrost will support its business operations. Bakkafrost manages and makes changes to its capital structure in response to an ongoing assessment of financial conditions under which the business operates and its short- and medium-term outlook, including any adjustment in dividend pay-outs, buyback of own shares, capital reduction or issue of new shares.
P/F Bakkafrost is dedicated to maintaining high standards of corporate governance. The company endeavours to be in compliance with the Norwegian corporate governance regime, as detailed in the Norwegian Code of Practice for Corporate Governance, published on 30 October 2014 by the Norwegian Corporate Governance Board (the "Code of Practice"). The recommendation may be found at www. nues.no. Beside the Corporate Governance description in our annual report, Bakkafrost publishes a more detailed report on Corporate Governance, which may be found on our website.
Bakkafrost does not comply with the following recommendations in the Norwegian Code of Practice for Corporate Governance:
To ensure adherence to the principles, the company has elaborated specific instructions regarding rules of procedure for the Board of Directors, instructions for the Nomination Committee, instructions for the Chief Executive Officer and other management, guidelines with regards to
Bakkafrost's shareholders exercise their rights at the General Meeting.
Consists of six members, which are elected every second year. The Chairman is elected every year. The Board of Directors is responsible for the overall management of Bakkafrost.
The Group Executive Management is responsible for the day-to-day management of Bakkafrost.
Consists of four members which are elected by AGM. Recommends candidates for election to the Board of Directors and Directors' fees.
Consists of three members from the Board of Directors and is chaired by the Board of Directors' Chairman.
values and ethics, instructions for the Audit Committee, an investor relations policy, guidelines relating to takeover bids and guidelines for related-party transactions.
Shareholders exercise their rights at Bakkafrost's general meeting – such as appointing Bakkafrost's Nomination Committee, Board of Directors and auditor.
The procedures at Bakkafrost's general meeting follow the standard rules stipulated in the Faroese company law and Bakkafrost's Article of Association.
The Nomination Committee recommends candidates for election to the Board of Directors and the Directors' fees. The deadlines for submitting proposals to the Nomination Committee is 31 January.
Bakkafrost's General Meeting elects the members, hereunder its chairman, for the Nomination Committee for a period of two years, unless the General Meeting decides otherwise. The remuneration payable to the Nomination Committee's members is also determined by the General Meeting.
The regulations governing the work of the Nomination Committee are incorporated in Bakkafrost's Articles of Association.
At the end of 2016, the members of the Nomination Committee were:
Bakkafrost's Board of Directors is responsible for the overall management of the company and appoints a management of one or several managers to manage the daily business of Bakkafrost. The Board of Directors sets out the strategy for Bakkafrost and decides major investments and divestments. The Board of Directors is also responsible that Bakkafrost at any time has an appropriate capital base, key policies, control and audit matters. The Board of Directors is responsible for Bakkafrost's Risk Management and material operational decisions.
The majority of the members of the Board of Directors shall be resident in the Faroe Islands. The chairman of the Board of Directors is elected by the general meeting, whilst the vice-chairman is appointed by the Board of Directors. The Board of Directors shall have between three and seven members. Information about the members of the Board of Directors may be found in "Directors' Profiles" in the Annual Report.
The Board of Directors has laid down detailed rules regarding its activities in a working procedure, which is reviewed regularly.
The Board of Directors held nine meetings in 2016. Below under each Director's profile is disclosed each Director's participation in the Board meetings held during 2016.
The members of the Board of Directors receive a fixed remuneration, which is approved by the general meeting. The members of the Board of Directors are not part of Bakkafrost's share savings plan for employees.
The Audit Committee is a sub-committee of the Board of Directors and assists the Board of Directors in overseeing the financial and non-financial reporting process, financial and business-related risks, internal controls and compliance with statutory and other requirements from public authorities.
The Audit Committee decides the framework of Bakkafrost's external auditors, evaluates the auditors' independence and qualifications.
The company's audit committee met five times during 2016 to review accounting and operational issues in detail. The committee consists of Rúni M. Hansen (Chairman), Øystein Sandvik and Teitur Samuelsen.
The Group Executive Management manages Bakkafrost's daily business and shall adhere to any decisions made by the Board of Directors as well as to any rules and requests from the Board of Directors.
The Board of Directors has in executive instructions laid down specific rules regarding the authority and duties of the Group Executive Management. The Board of Directors also decides the employment conditions of the Group Executive Management and gives more specific rules regarding its work.
The Group Executive Management consist of CEO Regin Jacobsen, CFO Gunnar Nielsen and MD Odd Eliasen. Information about the Group Executive Management may be found in "Group Managements' Profiles" in the Annual Report.
Bakkafrost is a totally vertical integrated company controlling the extended value chain from feed to salmon products. The number of employees in the Bakkafrost Group at year-end 2016 was equivalent to 820 full-time employees at a large number of locations in the Faroe Islands.
Bakkafrost's Code of Conduct and the Group's values define standards that apply to the entire Group guiding all employees on how to interact at work and promoting standards of good business practice. Bakkafrost's most important asset is the employees. Our employees are committed to creating value to our customers and shareholders by living our values to be reliable, show respect and to be persistent, efficient and ambitious. Our company policy is to ensure that all employees are treated equally and with respect, and we encourage our employees to help create a work environment free from any discrimination.
The safety and occupational health of our employees are of vital importance to Bakkafrost. Great focus is on all initiatives in relation to the employees' health and safety. We aim to support, maintain and improve standards on all levels in the Group, with focus on training on all levels, and continue to work towards our goal, to be an injury and accident free work place.
Fish health, animal welfare and bio-security are of the utmost importance for Bakkafrost. All sites are continuously under a disease and health surveillance, and efforts are made to ensure that the fish thrive and that good fish welfare is maintained at all sites.
In February 2014, a potential virus causing ISA was found at Bakkafrost site A-80, holding harvest size fish. Due to the early detection programme, surveillance and everyday bio-security procedures, this potential threat was revealed and contained at this one site whilst the fish was harvested. This ISA-virus did not result in clinically ill fish.
The suspicion of a pathogenic ISA virus was again raised last year, in July 2016, at Bakkafrost site A-73. It was not possible to confirm the presence of the virus, and the site was under increased veterinary surveillance, and strict bio-security measures have since been employed, according to stipulation in the Faroese Veterinary Regime.
New suspicion of pathogenic ISA virus at this same site rose again in January 2017. To reduce the risk, Bakkafrost decided as a precautionary action to harvest the two cages, which were under suspicion. No clinical sign of disease has been established at the site and further testing has not confirmed the presence of a pathogenic ISA virus. At present, a quarantine zone has been established around the site, and the site will be under increased surveillance for the next six months.
Bakkafrost has high focus on combatting sea lice. The focus is on a local level, as well as on a regional and national level, in collaboration with all other salmon farming companies and the authorities in the Faroe Islands on both short- and long- term prevention strategies and trying out non-medicinal approaches.
Efforts are made to find alternative methods to reduce salmon lice infestation. The new methods include mechanical and non-medicinal treatment such as treatment with fresh water and thermal delicing, and preventive steps such as the use of cleaner fish. Bakkafrost sees great importance in investing in new equipment to implement alternative treatment methods and optimizing procedures of alternative treatment already in place. With the new investments in FSV Martin and FSV Róland (purchased in February 2017), Bakkafrost will significantly increase treatment capacity and reduce medical treatments. Bakkafrost also aims to insert cleaner fish (lumpfish) in all new stocking in sea cages, where possible, to prevent salmon lice infestation.
The amoeba "Paramoeba perurans", known to be able to cause amoebic gill disease (AGD), has since 2013 been a normal find in PCR samples from Faroese salmon sites. The amoeba has not shown to be aggressive on the gills of Faroese salmon and clinical signs caused by this amoeba are infrequent. Close surveillance with gill-scoring and PCR- samples was initiated in 2014 and is ongoing, and Bakkafrost is well equipped for treatments if necessary.
Bakkafrost is increasing the hatchery capacity significantly and focusing even more on larger high quality smolts. Introduction of IPN-QTL eggs has lowered mortalities in hatcheries and further improved fish quality and welfare.
Our goal is to minimize the impact of our production on the environment and wildlife. This is applicable throughout the whole value chain from feed, farming and to the processed finished product.
Bakkafrost is working on ASC standard certifications and this work will continue over the coming years. The standards seek to minimize or eliminate the key negative environmental and social impacts of salmon farming. At this point two of the company's sites have achieved ASC standard certification, and an additional two are in the process of being certified.
Food safety and quality is of top priority to Bakkafrost. The centralization of our activity facilities – packaging plant, harvesting plant and VAP production is now finalized with the building of a new state-of-the-art integrated harvesting and VAP plant at Glyvrar. This project will improve the quality of our products and will increase our capacity and emergency backup. We will be able to take out synergies, reduce costs, increase efficiency and meet future consumers' trends.
The company holds several certifications. The whole company is Global GAP certified. Global GAP is an international standard, which focuses on food safety throughout the whole production (based on HACCP), fish welfare and health, safety and minimizing the impact on the environment. Hence, all of our value chain is Global GAP certified – this includes our feed production, hatcheries, all our sea sites, our harvesting and processing plant.
All units, both harvesting and processing are approved and certified by the Faroese authorities based on HACCP standards and EU legislation.
The VAP production is certified according to the BRC and IFS standards both of which were updated in 2016.
Havsbrún, the meal, oil and feed production, holds multiple certifications. Havsbrún is certified according to the Global GAP standard, the ISO 9001:2000 and GMP+ standards, and holds an IFFO RS certification.
As mentioned earlier, we have started working towards an ASC standard certification for all sites and have achieved certification at two of the company's farming sites and the processing plant, and an additional two farming sites are in the process of being certified. Our intention is to have all of our sites certified by 2020.
Information to shareholders has high priority in Bakkafrost. The company aims at maintaining a regular dialogue with the Group's shareholders through the formal channel of stock exchange announcements, interim reports, annual reports, annual general meetings and presentations to investors and analysts.
The consolidated accounts have been audited by P/F Januar, løggilt grannskoðanarvirki (State Authorized Public Accountants), which is also the auditor of the parent company and all its subsidiaries, registered in the Faroe Islands. Auditor for Havsbrún Norge ASA is Bruli Revisjon AS, and auditor for Havsbrún Shetland Plc. is A9 Partnership Ltd. Auditors for Bakkafrost UK Ltd is Forrester Boyd Chartered Accountants.
Bakkafrost aims to give its shareholders a competitive return on their investment, both through payment of dividends from the company and by securing an increase in the value of the equity through positive operations.
Generally, the company should pay dividends to its shareholders, but it is the responsibility of the Board of Directors to make an overall assessment in order to secure the company a healthy capital base, both for the daily operations and for a healthy future growth of the company.
A long-term goal for the Board of Directors is that 30–50% of adjusted EPS shall be paid out as dividends.
Bakkafrost's financial position is strong with a healthy balance sheet, a competitive operation and undrawn available credit facilities. The Board of Directors has therefore decided to propose to the Annual General Meeting that DKK 8.70 (NOK 10.36*) per share shall be paid out as dividends. This corresponds to approximately DKK 425.1 million (NOK 506.0* million).
The parent company P/F Bakkafrost had a net profit of DKK 746.6 million for 2016. The Board of Directors has decided to propose to the Annual General Meeting that DKK 8.70 (approximately NOK 10.36*) per share shall be paid out as dividends. This corresponds to approximately DKK 425.1 million (NOK 506.0* million).
The Board thereby proposes the following allocation of funds:
After payment of dividends, the distributable equity totals DKK 2,391.6 million.
P/F Bakkafrost had, on 31 December 2016, a total of 48,858,065 shares outstanding, each with a nominal value of DKK 1. Of the 48,858,065 shares outstanding, P/F Bakkafrost holds 274,575 treasury shares as at 31 December 2016.
Ticker code: BAKKA
These shareholders held directly or indirectly more than 5% of the shares in the company as at 31 December 2016: Oddvør Jacobsen and Regin Jacobsen.
* The dividend per share in NOK is subject to changes depending on the currency rate NOK/DKK. The currency rate NOK/DKK will be announced on ex-date.
RÚNI M. HANSEN Chairman of the Board
Born 1967. Faroese citizen. Joined the Board in 2009 and has been Chairman since. Term of office expires in 2017. Is considered to be independent. Executive chairman of the industry holding company Tjaldur.
MSc. in Economics and Business Administration, Copenhagen Business School. MBA, Lancaster University Management School.
Participated in 8 Board meetings in 2016.
Number of shares held in Bakkafrost:
Holds 10,000 shares – no change in portfolio in 2016.
Mr. Hansen has extensive experience in the international oil and gas industry. For a number of years, Mr. Hansen was the Country Manager for Statoil in charge of operations in the Faroes and Greenland, including operation of drilling campaigns. He has also been Manager of Commercial and Negotiations for Europe and North Africa at Statoil.
Member of the World Economic Forum´s Global Agenda Council on the Arctic in the period 2012-2016.
Deputy Chairman of the Board
Born 1962. Faroese citizen. Joined the Board in 2009 and has been Deputy Chairman since. Term of office expires in 2018. Is considered to be independent. Managing Director at Hotel Føroyar.
MBA, Lancaster University Management School.
Participated in all 9 Board meetings in 2016.
Holds no shares – no change in portfolio in 2016.
Mr. Jensen has extensive experience in seafood and marketing. Mr. Jensen had a long career at Faroe Seafood, where Mr. Jensen was Marketing Director from 1999 to 2001. Mr. Jensen is presently also Chairman of P/F Frost and of the Faroe Islands Tourist Board.
Born 1972. Faroese citizen. Joined the Board in 2016. Term of office expires in 2018. Is considered to be independent. Managing Director at P/F Eystur- og Sandoyartunlum.
MSc. in Business Economics & Auditing, Copenhagen Business School.
Participated in 7 Board meetings in 2016.
Holds 100 shares – no change in portfolio in 2016.
Mr. Samuelsen has an extensive experience from accounting and finance. Mr. Samuelsen has worked at KMPG and Dong E/P in Denmark and has been the financial manager at Atlantic Petroleum (2005-2009) and Bakkafrost (2009- 2014). Mr. Samuelsen is presently a member of the Board of Directors at P/F 6. September, Vest Pack and Tryggingarfelagið Føroyar.
Board member
Born 1958. Faroese citizen. Joined the Board in 2006. Term of office expires in 2018. Is not considered to be independent. Manager at the Marine Department in Tryggingarfelagið Føroyar.
Chief Officer, Vinnuháskúlin, Centre of Maritime Studies & Engineering.
Participated in all 9 Board meetings in 2016.
Holds 7,000 shares – no change in portfolio in 2015.
Mr. Dahl has maritime experience, has sailed as both officer and captain. Following his maritime career, Mr. Dahl has extensive experience from the insurance and finance sector. Mr. Dahl is presently Director of Føroya Realkreditstovnur, the Faroese ship-financing fund.
Born 1971. Faroese citizen. Joined the Board in 2008. Term of office expires in 2017. Is not considered to be independent. Sales Manager at Bakkafrost.
Basic Vocational Course, Commercial Line, Faroese Business School.
Participated in 8 Board meetings in 2016.
Holds directly and indirectly 14,974 shares – change in portfolio in 2016: +166 shares.
Mrs. Frederiksberg has extensive experience in the salmon industry and sales. Mrs. Frederiksberg has been part of Bakkafrost's administration team and sales team for over 25 years.
Born 1948. Norwegian citizen. Joined the Board in 2013. Term of office expires in 2017. Is considered to be independent.
Education: Bank Economist.
Holds no shares – no change in portfolio in 2016.
Mr. Sandvik has an extensive experience from the finance sector and seafood. Mr. Sandvik has held several positions at Nordea Bank Norge within fish farming and fishery. Mr. Sandvik is presently a member of the Board of Directors of Coldwater Prawns of Norway AS.
REGIN JACOBSEN Chief Executive Office
Born 1966. Faroese citizen. Mr. Jacobsen has been Chief Executive Officer of Bakkafrost since 1989.
Graduate Diploma in Business Administration and Accounting (HD-R), Aarhus School of Business.
Holds 4,493,517 shares – changes in portfolio in 2016: +503 shares.
Mr. Jacobsen has extensive experience from the salmon industry and finances. Mr. Jacobsen was Financial Manager of Bakkafrost before he became Chief Executive Officer of Bakkafrost.
Born 1977. Faroese citizen. Mr. Nielsen has been Chief Financial Officer of Bakkafrost since 2014.
Graduate Diploma in Business Administration and Accounting (HD-R), Aarhus School of Business. MSc. in Business Economics & Auditing, Copenhagen Business School.
Holds 662 shares – changes in portfolio in 2016: +345 shares.
Mr. Nielsen has experience in the finance sector. Mr. Nielsen has held positions as corporate finance advisor and auditor. Before joining Bakkafrost, Mr. Nielsen held different positions at the TF Group, including being advisor and CEO in TF Íløgur.
Managing Director of Havsbrún
Born 1965. Faroese citizen. Mr. Eliasen has been Managing Director for Havsbrún since 2012.
Teacher Certificate Exam, Faroese Teacher Training College.
Holds 171,717 shares – changes in portfolio in 2016: +385 shares.
Mr. Eliasen has broad experience from the fish farming industry and has been an active player in restructuring the fish farming industry in the Faroe Islands. Mr. Eliasen has been responsible for Havsbrún's farming activities and has held various board positions in the industry. Mr. Eliasen was a board member of Bakkafrost from 2006 to 2012.
Símun P. Jacobsen (born 1963) was appointed Senior Sales Manager at Bakkafrost in 2012. Mr. Jacobsen holds a Graduate Diploma in Business Administration and Accounting (HD-R) from Handelshøjskolen Syd in Denmark. Mr. Jacobsen held the position as sales manager at United Seafood from 1998 and at Faroe Seafood from 2005.
Kári Jacobsen (born 1963) was appointed VAP Manager at Bakkafrost in 2008. Mr. Jacobsen was educated at Statens Fagskole for Fiskeindustri in Vardø and held the position as production manager at Tavan from 1984 to 1994, and from 1999 to 2008. Mr. Jacobsen held the position as production manager at United Seafood from 1994 to 1998.
Andrias Petersen (born 1973) was appointed Harvest Manager at Bakkafrost in 2010, following the merger of Vestlax Group with Bakkafrost. Mr. Petersen holds a BSc in Chemical Engineering from the Technical University of Denmark. From 2002 to 2008, he joined the Faroese Food, Veterinary and Environmental Agency, and from 2008 to 2010, Mr. Petersen held the position as production manager at Vestlax.
Jón Purkhús (born 1958) was appointed Farming Manager at Bakkafrost in 2006, following the merger of Faroe Salmon with Bakkafrost. Mr. Purkhús has held positions in the Faroese salmon farming industry and was the founder of Faroe Salmon, where he held the position as managing director from 1985.
Oddvald Olsen (born 1964) was appointed Farming Manager at Bakkafrost in 2011. Mr. Olsen has held positions in the Faroese salmon farming industry and from 1993 to 2004, he held the position as managing director in Sjólaksur. Mr. Olsen joined Bakkafrost in 2010.
Hartvig Joensen (born 1967) was appointed Manager at Havsbrún's Fishmeal and Fish Oil Department in 2005. He was educated at Copenhagen University College of Engineering as a Technical Assistant and holds a Diploma in Leadership from the Faroese Business School.
Rúni Weihe (born 1980) holds a MSc in Fisheries from the University in Tromsø, Norway. From 2008, Mr. Weihe held the position as Research & Development Manager of Havsbrún's Feed Division and in 2014, he was appointed Division Manager. Mr. Weihe holds both managerial positions.
Anna Johansen (born 1974) was appointed Quality Manager at Bakkafrost in 2010, following the merger of Vestlax Group with Bakkafrost. Mrs. Johansen holds a cand.scient in biology from the University of Copenhagen, Denmark. From 2003 to 2007, she joined the Faroese Food, Veterinary and Environmental Agency, and from 2007 to 2010, she held the position as quality manager at Vestlax. In 2015, Mrs. Johansen was appointed Group Quality Manager.
Leif av Reyni (born 1976) was appointed Fresh Water Manager at Bakkafrost in 2010, following the merger of Vestlax Group with Bakkafrost. Mr. Reyni holds a BSc in Aquaculture from Høgskolen in Sogndal, Norway and a MSc degree in Aquaculture from Stirling University, Scotland. From 2003 to 2004 and from 2005 to 2009, Mr. Reyni held positions at Vestlax as production manager and manager for sea sites and hatcheries.
Guðrun Olsen (born 1964) was appointed Group HR Manager at Bakkafrost in 2012. She holds a BA from the Copenhagen Business School and a MA degree in International Corporate Communication from the University of Southern Denmark in Odense. From 1994 to 2004, Mrs. Olsen held positions as company secretary and HR & adm. manager at Faroe Seafood.
Sverri Kjærbæk (born 1964) was appointed Operations Manager at Bakkafrost in September 2016. Mr. Kjærbæk holds a Master's Certificate from Føroya Sjómansskúli in Tórshavn, Faroe Islands, and from 1989 to 2007, he held positions as captain in Mærsk Line. From 2007, Mr. Kjærbæk has served as captain on board passenger as well as offshore vessels.
The Management and the Board of Directors have today considered and approved the Annual and Consolidated Report and Accounts of P/F Bakkafrost for the financial year 1 January 2016 to 31 December 2016.
The Annual Report has been prepared in accordance with the International Financial Reporting Standards as adopted by the EU and Faroese disclosure requirements for listed companies.
In our opinion, the accounting policies used are appropriate, and the Annual and Consolidated Report and Accounts gives a true and fair view of the Group's and parent company's financial positions at 31 December 2016, as well as the results of the Group's and the parent company's activities and cash flows for the financial year 1 January 2016 to 31 December 2016.
In our opinion, the management's review provides a true and fair account of the development in the Group's and the parent company's operations and financial circumstances, of the results for the year and of the overall financial position of the Group and the parent company as well as a description of the most significant risks and elements of uncertainty facing the Group and the parent company.
We recommend that the annual report be adopted at the annual general meeting.
Glyvrar, 13 March 2017
Regin Jacobsen CEO
Chairman of the Board Deputy Chairman of the Board Board Member
Rúni M. Hansen Johannes Jensen Øystein Sandvik
Virgar Dahl Annika Frederiksberg Teitur Samuelsen Board Member Board Member Board Member
TO THE SHAREHOLDERS OF P/F BAKKAFROST
In our opinion, the consolidated annual accounts and the annual accounts give a true and fair view of the assets and liabilities, of the financial position of the Group and the Company as at 31 December 2016, and of the results of the Group and the Company operations as well as the consolidated cash flows for the financial year 1 January - 31 December 2016 in accordance with International Financial Reporting Standards as adopted by the EU.
We have audited the consolidated annual accounts and the annual accounts of P/F Bakkafrost for the financial year 1 January - 31 December 2016, which comprise Income Statement, Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, and notes, including a summary of accounting policies used, for both the Group and the Company, as well as consolidated statement of cash flows. The consolidated annual accounts and the annual accounts are prepared in accordance with the International Financial Reporting Standards as adopted by the EU.
We conducted our audit in accordance with international standards on auditing and the additional requirements applicable in the Faroe Islands. Our responsibilities under those standards and requirements are further described in the below section "Auditor's responsibilities for the audit of the consolidated annual accounts and the annual accounts".
We are independent of the Group in accordance with international ethics standards for accountants (IESBA's Code of Ethics) and the additional requirements applicable in the Faroe Islands, and we have fulfilled our additional ethical responsibilities in accordance with these standards and requirements. We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are the matters, which we consider central to our audit of the annual and consolidated accounts for 2016. The matters are considered during our audit of the accounts in their entirety and when forming our opinion. We do not provide separate opinions on these matters.
Biomass at marine sites is not accurately ascertainable prior harvest. Accounting for biomass at marine sites involves performing accounting estimates, based on factual information about the production process such as stocking, feeding, sea temperature, exposure to daylight and treatment for lice and other health issues and knowledge about how salmon responds to these factors in terms of growth rate, mortality, feed consumption ratio, and liability to stress and desease. Management exercises material accounting estimates in accounting for biomass.
We apply our experience and knowledge about the characteristics of salmon production process when considering the accounting estimates. We assure ourselves, that the estimates are based on factual data, and data which can be supported empirically. We assure ourselves, that management is applying estimates in a way consistent with knowledge of the production process, and that the estimates are performed consistently and that the estimates are free from bias. Further, we assure ourselves of the ability of the management to perform these estimates Measuring biomass at fair value entails exercising material estimates on future events and values, such as development in biomass during remaining growth period, future quality distribution, future market conditions at expected point of harvest, finishing costs etc. The management is exercising material estimates in value measurement on biomass at Fair Value.
by examining estimates made by the management at prior balance sheet dates on an ex-post basis.
We assure ourselves, that estimates are based on ascertainable information on market forecasts as well as company specific data. We assure ourselves that the forecasts of future conditions are based on the best information available at the time of the estimates. We also ascertain that estimates on future market conditions are based on public market analyses, and that valuation techniques are in line with generally accepted valuation principles, and are applied in a consistent and unbiased manner.
The management is responsible for the management's review.
Our opinion on the consolidated annual accounts and the annual accounts does not cover the management's review, and we do not express any kind of assurance opinion on the management's review.
In connection with our audit of the consolidated annual accounts and the annual accounts, our responsibility is to read the management's review and in that connection consider whether the management's review is materially inconsistent with the consolidated annual accounts and the annual accounts or our knowledge obtained during the audit, or whether it otherwise appears to contain material misstatement.
Furthermore, it is our responsibility to consider whether the management's review provides the information required under the International Financial Reporting Standards as adopted by EU.
Based on the work we have performed, we believe that the management's review is in accordance with the consolidated annual accounts and the annual accounts and that it has been prepared in accordance with the requirements of the International Financial Reporting Standards as adopted by EU. We did not find any material misstatement in the management's review.
The management is responsible for the preparation of consolidated annual accounts and annual accounts that give a true and fair view in accordance with the International Financial Reporting Standards as adopted by EU. The management is also responsible for such internal control as the management determines what is necessary to enable the preparation of consolidated annual accounts and annual accounts that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated annual accounts and the annual accounts, the management is responsible for evaluating the Group's and the Company's ability to continue as a going concern, and, when relevant, disclosing matters related to going concern and using the going concern basis of accounting when preparing the consolidated annual accounts and the annual accounts, unless the management either intends to liquidate the Group or the Company or to cease operations, or if it has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated annual accounts and the annual accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report including an opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with international standards on auditing and the additional requirements applicable in the Faroe Islands will always detect a material misstatement when it exists. Misstatements may arise due to fraud or error and may be considered material if, individually or on aggregate, they could reasonably be expected to influence the economic decisions made by users on the basis of these consolidated annual accounts and annual accounts.
As part of an audit conducted in accordance with international standards on auditing and the additional requirements applicable in the Faroe Islands, we exercise professional evaluations and maintain professional scepticism throughout the audit. We also:
counting estimates and related disclosures made by the management.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in the internal control that we identify during our audit.
We also provide a statement to the Board of Directors stating, that we adhere to the relevant ethical requirements relating to our independence, and provide information on any relation, which may reasonably be considered to influence our independence, and where relevant, security measures employed.
Based on the issues communicated to the Board of Directors, we determine which issues we consider key to our audit of the annual and consolidated accounts for the current period, and hence Key Audit Matters. We describe these matters in our report, unless legislation or other legal impediments prohibit publication of the matters, or in
the extremely rare circumstances, where we determine, that matters cannot be described in our Auditors Report, because negative implications thereof may reasonably be expected to outweigh the public interest in the information provided by description of Key Audit Matters.
Tórshavn, 13 March 2017
løggilt grannskoðanarvirki State Authorized Public Accountants Company reg.no. 5821
Heini Thomsen State Authorized Public Accountant
Bakkafrost Group
| Consolidated Income Statement for the year ended 31 December | 88 |
|---|---|
| Consolidated Statement of Comprehensive Income for the year ended 31 December | 89 |
| Consolidated Statement of Financial Position as at 31 December | 90 |
| Consolidated Cash Flow Statement for the year ended 31 December | 92 |
| Consolidated Statement of Changes In Equity for the year ended 31 December | 93 |
| Notes - Section 1 Basis of Preparation | 95 |
| This section gives an overview of the financial accounting policies in general | |
| and an overview of the management's key accounting estimates. | |
| Note 1. General Information | 95 |
| Note 1.1 Summary of Significant Accounting Policies | 95 |
| Note 1.2 Basis of Presentation | 95 |
| Note 1.3 Consolidation Principles | 95 |
| Note 1.4 Translation of Foreign Currencies | 96 |
| Note 1.5 Classification Principles | 96 |
| Note 1.6 Functional Currency | 97 |
| Note 1.7 Standards Issued, but not yet effective | 97 |
| Note 1.8 Amendments to Existing Standards in Issue | 97 |
| Note 1.9 Accounting Estimates | 98 |
| Notes - Section 2 Result for the Year | 99 |
| This section gives more details on the results for the year, including | |
| operating segments, taxes and employee costs. | |
| Note 2.1 Revenues | 99 |
| Note 2.2 Major Customers | 99 |
| Note 2.3 Operating Segment Information | 100 |
| Note 2.4 Salaries and other Personnel Expenses | 104 |
| Note 2.5 Other Operating Expenses | 106 |
| Note 2.6 Research and Development | 106 |
| Note 2.7 Net Financial Items | 107 |
Note 2.8 Tax 108
Notes - Section 3 Assets and Liabilities 110
| This section gives more details on the assets that form the basis for | |
|---|---|
| the activities of Bakkafrost, and the related liabilities. | |
| Note 3.1 Intangible Assets | 110 |
| Note 3.2 Property, Plant and Equipment | 114 |
| Note 3.3 Companies in the Group | 116 |
| Note 3.4 Shares and Holdings in other Companies | 117 |
| Note 3.5 Inventory | 117 |
| Note 3.6 Biological Assets | 118 |
| Note 3.7 Accounts Receivables and other Receivables | 121 |
| Note 3.8 Cash and Cash Equivalents | 122 |
| Note 3.9 Share Capital and Major Shareholders | 122 |
| Note 3.10 Interest Bearing Debt | 123 |
| Note 3.11 Mortgages and Guarantees | 126 |
| Note 3.12 Derivatives | 126 |
| Note 3.13 Provisions | 128 |
| Notes - Section 4 Capital Structure and Financing Items | 129 |
| This section gives an insight into the capital structure and financing items. | |
| Note 4.1 Financial Risk Management | 129 |
| Note 4.2 Categories and Fair Value of Financial Instruments | 134 |
| Note 4.3 Earnings Per Share | 135 |
| Notes - Section 5 Other Disclosure | 136 |
| This section gives more details on the statutory notes that have secondary | |
| importance from the perspective of Bakkafrost. | |
| 5.1 Capital Commitments | 136 |
| 5.2 Related-Party Transactions | 137 |
| 5.3 Business Combinations | 138 |
| 5.4 Events after the Date of the Statement of Financial Position | 139 |
| 5.5 Auditor's Fees | 139 |
| 5.6 Going Consern | 139 |
| 5.7 Alternative Performance Measures | 140 |
| 5.8 Correction to Prior Period Line Items | 142 |
FOR THE YEAR ENDED 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| Operating revenue | 3,202,686 | 2,850,363 | |
| Purchase of goods | -920,148 | -992,497 | |
| Change in inventory and biological assets (at cost) | 58,874 | 215,432 | |
| Salary and personnel expenses | 2.4 | -327,825 | -281,085 |
| Other operation expenses | 2.5 | -715,373 | -683,532 |
| Depreciation | 3.2 | -133,261 | -108,098 |
| Operational EBIT* | 1,164,953 | 1,000,583 | |
| Fair value adjustments on biological assets | 3.6 | 608,195 | -27,578 |
| Onerous contracts | 3.13 | -16,372 | -51,004 |
| Income from associates | 14,821 | 6,757 | |
| Revenue tax | -108,450 | 0 | |
| Badwill | 10,440 | 0 | |
| Earnings before interest and taxes (EBIT) | 1,673,587 | 928,758 | |
| Financial income | 2.7 | 1,524 | 3,599 |
| Net interest expenses | 2.7 | -25,983 | -24,622 |
| Net currency effects | 2.7 | -12,355 | 23,350 |
| Other financial expenses | 2.7 | -4,159 | -6,614 |
| Earnings before taxes (EBT) | 1,632,614 | 924,471 | |
| Taxes | 2.8 | -293,727 | -114,296 |
| Profit or loss for the period continuing operations | 1,338,887 | 810,175 | |
| Profit or loss for the year attributable to | |||
| Non-controlling interests | 0 | 0 | |
| Owners of P/F Bakkafrost | 1,338,887 | 810,175 | |
| *Operational EBIT is EBIT before fair value on biomass, onerous contracts and income | |||
| from associates, badwill and revenue tax | |||
| Earnings per share (DKK) | 4.3 | 27.56 | 16.69 |
FOR THE YEAR ENDED 31 DECEMBER
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Profit for the year | 1,338,887 | 810,175 |
| Fair value adjustment on financial instruments | 26,789 | -11,492 |
| Income tax effect | -4,364 | 1,753 |
| Currency translation differences | 3,822 | 576 |
| Reserve to share-based payment | 1,566 | 924 |
| Adjustment on treasury shares | -1,366 | 0 |
| Net other comprehensive income to be reclassified to profit or loss in subsequent periods | 26,447 | -8,239 |
| Net other comprehensive income not to be reclassified to profit or loss in subsequent periods | 0 | 0 |
| Other comprehensive income | 26,447 | -8,239 |
| Total comprehensive income for the year net tax | 1,365,334 | 801,936 |
AS AT 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 376,675 | 294,675 | |
| Total intangible assets | 3.1 | 376,675 | 294,675 |
| Land buildings and other real estate | 874,907 | 585,741 | |
| Plant machinery and other operating equipment | 906,046 | 797,450 | |
| Other operating equipment | 58,999 | 44,093 | |
| Vessels | 278,518 | 0 | |
| Prepayments for purchase of PP&E | 0 | 104,209 | |
| Total property, plant and equipment | 3.2 | 2,118,470 | 1,531,493 |
| Non-current financial assets | |||
| Investments in associated companies | 3.3 | 34,111 | 105,785 |
| Investments in stocks and shares | 3.4 | 25,296 | 25,108 |
| Long term receivables | 3.7 | 12,660 | 0 |
| Total non-current financial assets | 72,067 | 130,893 | |
| TOTAL NON-CURRENT ASSETS | 2,567,212 | 1,957,061 | |
| Current assets | |||
| Biological assets (biomass) | 3.6 | 1,858,435 | 1,060,273 |
| Inventory Total inventory |
3.5 | 355,604 2,214,039 |
421,966 1,482,239 |
| Accounts receivables | 3.7 | 292,009 | 199,263 |
| Other receivables | 3.7 | 109,860 | 179,971 |
| Total receivables | 401,869 | 379,234 | |
| Cash and cash equivalents | 3.8 | 234,996 | 101,852 |
| TOTAL CURRENT ASSETS | 2,850,904 | 1,963,325 | |
| TOTAL ASSETS | 5,418,116 | 3,920,386 |
AS AT 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 3.9 | 48,858 | 48,858 |
| Other equity | 3,500,177 | 2,531,624 | |
| Total equity | 3.9 | 3,549,035 | 2,580,482 |
| Non-current liabilities | |||
| Deferred taxes | 2.8 | 545,699 | 349,546 |
| Long-term interest bearing debt | 3.10 | 827,146 | 447,559 |
| Derivatives | 3.12 | 101,456 | 128,804 |
| Total non-current liabilities | 1,474,301 | 925,909 | |
| Current liabilities | |||
| Short-term interest bearing debt | 3.10 | 0 | 0 |
| Trade payables | 138,873 | 195,223 | |
| Current tax liabilities | 2.8 | 142,016 | 155,359 |
| Provisions for onerous contracts | 3.13 | 67,378 | 51,004 |
| Other current liabilities | 46,513 | 12,409 | |
| Total current liabilities | 394,780 | 413,995 | |
| Total liabilities | 1,869,081 | 1,339,904 | |
| TOTAL EQUITY AND LIABILITIES | 5,418,116 | 3,920,386 |
FOR THE YEAR ENDED 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| Cash flow from operations | |||
| Operating profit (EBIT) | 1,673,587 | 928,758 | |
| Adjustments for write-downs and depreciation | 3.2 | 135,575 | 112,812 |
| Adjustments for value adjustments on biomass | 3.6 | -608,195 | 27,578 |
| Adjustments for income from associates | -9,146 | -6,758 | |
| Adjustments for currency effects | -10,125 | 27,138 | |
| Adjustments for badwill | -10,440 | 0 | |
| Recieved dividend | 3,186 | 0 | |
| Provision for onerous contracts | 16,372 | 51,004 | |
| Taxes paid | -154,635 | -148,225 | |
| Change in inventory | -4,494 | -228,898 | |
| Change in receivables | -78,769 | -60,296 | |
| Change in current debts | -103,317 | 64,725 | |
| Cash flow from operations | 849,599 | 767,838 | |
| Cash flow from investments | |||
| Proceeds from sale of fixed assets | 20,539 | 4,801 | |
| Payments made for purchase of fixed assets | 3.2 | -686,605 | -607,627 |
| Purchase of shares and other investments | -75,244 | 0 | |
| Change in long-term receivables | 1,325 | 1,314 | |
| Cash flow from investments | -739,985 | -601,512 | |
| Cash flow from financing | |||
| Repayment of long-term debt | 0 | -100,000 | |
| Change in revolving credit facilities | 379,329 | -51,076 | |
| Financial income | 1,523 | 3,601 | |
| Financial expenses | -30,459 | -31,235 | |
| Proceeds/Acquisition of treasury shares | 3,712 | 6,092 | |
| Financing of associate | 70,048 | -5,981 | |
| Dividend paid | -400,623 | -290,984 | |
| Cash flow from financing | 23,530 | -469,583 | |
| Net change in cash and cash equivalents in period | 133,144 | -303,257 | |
| Cash and cash equivalents – opening balance | 101,852 | 405,109 | |
| Cash and cash equivalents – closing balance total | 234,996 | 101,852 |
The Group's statement of cash flow shows a breakdown of the Group's overall cash flow into operating, investing and financing activities. The statement shows the individual activity's impact on cash and cash equivalents. The cash flow deriving from the acquisition and sale of business is presented under investing activities.
FOR THE YEAR ENDED 31 DECEMBER
Restricted equity comprises equity in which distribution to the shareholders may only take place adhering to specific procedures prescribed by the Faroese Limited Companies Act. Restricted equity consists of Equity Recognition Surplus and Fair Value Adjustments of Biomass. Free equity may be readily distributed to the shareholders, or otherwise disposed of, after due approval by the AGM. The composition of equity may be specified as follows:
| 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 01.01.2016 | 48,858 | 306,537 | -19,679 | 1,085 | 2,034 | -105,621 | 403,079 | 257,277 | 1,686,912 2,580,482 | |
| Consolidated profit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 623,214 | 719,514 1,342,728 | |
| Other comprehensive income: | ||||||||||
| Fair value adjustment on | ||||||||||
| financial derivatives | 0 | 0 | 0 | 0 | 0 | 26,789 | 0 | 0 | 0 | 26,789 |
| Income tax effect | 0 | 0 | 0 | 0 | 0 | -4,364 | 0 | 0 | 0 | -4,364 |
| Share-based payment | 0 | 0 | 0 | 1,566 | 0 | 0 | 0 | 0 | 0 | 1,566 |
| Currency translation differences | 0 | 0 | 0 | 0 | 3,822 | 0 | 0 | 0 | 0 | 3,822 |
| Total other comprehensive income | 0 | 0 | 0 | 1,566 | 3,822 | 22,425 | 0 | 0 | 0 | 27,813 |
| Total comprehensive income | 0 | 0 | 0 | 1,566 | 3,822 | 22,425 | 0 | 623,214 | 719,514 | 1,370,541 |
| Transaction with owners: | ||||||||||
| Treasury shares | 0 | 0 | -1,366 | 0 | 0 | 0 | 0 | 0 | -1,366 | |
| Paid-out dividend | 0 | 0 | 0 | 0 | 0 | -403,079 | 0 | 2,457 | -400,622 | |
| Proposed dividend | 0 | 0 | 0 | 0 | 0 | 425,065 | 0 | -425,065 | 0 | |
| Total transaction with owners | 0 | 0 | -1,366 | 0 | 0 | 0 | 21,986 | 0 | -422,608 | -401,988 |
| Total changes in equity | 0 | 0 | -1,366 | 1,566 | 3,822 | 22,425 | 21,986 | 623,214 | 296,906 | 968,553 |
| Total equity 31.12.2016 | 48,858 | 306,537 | -21,045 | 2,651 | 5,856 | -83,196 | 425,065 | 880,491 | 1,983,818 3,549,035 | |
| Equity 01.01.2015 | 48,858 | 306,537 | -25,557 | 161 | 1,458 | -95,882 | 293,148 | 284,855 | 1,250,075 2,063,653 | |
| Consolidated profit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -27,578 | 837,753 | 810,175 |
| Other comprehensive income: | ||||||||||
| Fair value adjustment on financial derivatives | 0 | 0 | 0 | 0 | 0 | -11,492 | 0 | 0 | 0 | -11,492 |
| Income tax effect | 0 | 0 | 0 | 0 | 0 | 1,753 | 0 | 0 | 0 | 1,753 |
| Share-based payment | 0 | 0 | 0 | 924 | 0 | 0 | 0 | 0 | 0 | 924 |
| Currency translation differences | 0 | 0 | 0 | 0 | 576 | 0 | 0 | 0 | 0 | 576 |
| Total other comprehensive income | 0 | 0 | 0 | 924 | 576 | -9,739 | 0 | 0 | 0 | -8,239 |
| Total comprehensive income | 0 | 0 | 0 | 924 | 576 | -9,739 | 0 | -27,578 | 837,753 | 801,936 |
| Transaction with owners: | ||||||||||
| Treasury shares | 0 | 0 | 5,878 | 0 | 0 | 0 | 0 | 0 | 0 | 5,878 |
| Paid-out dividend | 0 | 0 | 0 | 0 | 0 | 0 | -293,148 | 0 | 2,163 | -290,985 |
| Proposed dividend | 0 | 0 | 0 | 0 | 0 | 0 | 403,079 | 0 | -403,079 | 0 |
| Total transaction with owners | 0 | 0 | 5,878 | 0 | 0 | 0 | 109,931 | 0 | -400,916 | -285,107 |
| Total changes in equity | 0 | 0 | 5,878 | 924 | 576 | -9,739 | 109,931 | -27,578 | 436,837 | 516,829 |
| Total equity 31.12.2015 | 48,858 | 306,537 | -19,679 | 1,085 | 2,034 | -105,621 | 403,079 | 257,277 | 1,686,912 2,580,482 |
BAKKAFROST 94 ANNUAL REPORT 2016
Bakkafrost Group
The section gives an overview of the financial accounting policies in general and an overview of the management's key accounting estimates.
P/F Bakkafrost ("company") is a public limited company domiciled in the Faroe Islands at Bakkavegur 8, Glyvrar.
P/F Bakkafrost was listed on the Oslo Stock Exchange in 2010 with ticker code BAKKA.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented.
The Annual Report comprises the income statement, statement of comprehensive income, statement of financial position, specification of changes in equity, cash flow statement and note disclosures for the Group. The accounting year equals the calendar year. The financial statements were formally drawn up in accordance with International Financial Reporting Standards (IFRS) and the interpretations issued by the International Accounting Standards Board as approved by the European Community and the additional requirements in the Faroese Financial Reporting act.
The Annual and Consolidated Report and Accounts for the period 1 January to 31 December 2016 comprises both the Consolidated Annual Report and Accounts for P/F Bakkafrost and its subsidiaries (Group) and the separate Annual Accounts for the parent company.
The financial statements were formally authorised for issue by the Board of Directors on 13 March 2017.
The Annual Report has been prepared on a historical cost basis except for where IFRS require recognition at fair value, mainly valuation of licences, which are acquired by business combinations, and of biomass.
Preparation of the financial statements involves the use of estimates and assumptions. Changes in estimates and estimated assumptions are accounted for when they occur. Descriptions about the various estimates applied are given in the notes to the accounts where relevant.
There are no new or amended IFRSs or IFRIC interpretations that are effective for the financial year beginning on or after 1 January 2016 that are assumed to have a material impact on the Group.
The consolidated financial statements include P/F Bakkafrost and the subsidiaries over which P/F Bakkafrost has controlling influence either by shareholding or by agreement. A controlling interest is normally deemed to exist when ownership directly or indirectly exceeds 50 percent of the voting rights. Controlling interest may also exist by nature of agreement. Similarly, limitations in voting rights by agreement may impede exercise of control, and the investment concerned will be considered an associate.
Newly acquired subsidiaries are included from the date on which a controlling interest is secured, and divested subsidiaries are included up until the date of divestment. The consolidated accounts have been prepared in accordance with uniform accounting principles for similar transactions in all companies included in the consolidated accounts.
All material transactions and balances between Group Companies have been eliminated.
Shares in subsidiaries have been eliminated in the consolidated financial statements in accordance with the acquisition method. This means that the acquired company's assets and liabilities are reported at fair value at the date of acquisition, with any excess value being classified as goodwill. Where the fair value of the assets acquired exceeds the payment made, the difference is treated as badwill in the Income Statement.
When shares are acquired in stages, the value basis of the assets and liabilities is the date the Group was formed. Later acquisition of assets in existing subsidiaries will not affect the value of assets or liabilities, except for goodwill, which is calculated with each acquisition.
Investments in companies in which the Group has a significant influence (associated companies) are treated in accordance with the equity method in the consolidated accounts. A considerable influence is normally deemed to exist when the Group owns 20–50 percent of the voting capital. The Group's share of the profits in such companies is based on profit after tax, less internal gains and depreciation on excess value due to the cost price of the shares being higher than the acquired portion of book equity. In the Income Statement, the profit share is presented on a separate line, while the assets are presented in the statement of financial position as non-current financial assets. The accounting principles used by associated companies have been changed where necessary to achieve consistency with the principles used by the Group.
For each individual entity, which is recognized in the consolidated accounts, a functional currency is determined in which the entity measures its results and financial position. The functional currency is the currency of the primary economic environment in which the entity operates. Transactions in other currencies, then the functional currency, are transactions in a foreign currency.
A foreign currency transaction is, on initial recognition, recorded in the functional currency, at the spot exchange rate between the functional currency and the foreign currency on the date of the transaction.
At each balance sheet date, receivables, payables and other monetary items in foreign currency are translated to the functional currency using the closing rate. Exchange differences arising on the settlement of monetary items or on translating monetary items, at rates different from those at which they were translated on initial recognition during the period or in previous financial statements, shall be recognized in the income statement under financial revenues and expenses.
On consolidation, the results and financial position of the Group's individual entities with different functional currencies than the Group's presentation currency (DKK) are translated into the Group's presentation currency using the following procedure:
Biomass is recognized at fair value in the Statement of Financial Position. Changes in biomass and inventory measured at cost are presented as a one-line item in the Income Statement. Biomass at cost consists of all production costs including actual interest costs. The biomass is then adjusted to fair value, i.e. market value less finishing costs, by adding an IFRS adjustment. The IFRS adjustment is the difference between biomass measured at cost and measured at fair value.
Cash and cash equivalents consist of cash in hand and bank deposits. Assets, which form part of the production cycle and fall due for payment within 12 months, are classified as current assets. Other assets are classified as non-current assets. Liabilities, which form part of the production cycle or fall due for payment within 12 months, are classified as current liabilities. Other liabilities are classified as noncurrent liabilities.
Dividend proposals are not classified as liabilities until the parent company has assumed an irrevocable obligation to pay the dividend, normally when dividend proposals have been approved by the Annual General Meeting.
Next year's instalments on long-term debts are classified as current liabilities.
Changes in the fair value of biological assets are presented on a line item separately from biomass changes measured at cost under operating profit/loss. This allows the reader of the Financial Report to determine both production efficiency and biomass at fair value.
The consolidated accounts are presented in Danish Kroner (DKK), which is the Group's functional and presentation currency. All transactions in foreign currencies are translated into DKK at the time of transaction. In the statement of financial position, monetary items in foreign currencies are translated at the exchange rate in effect on the statement of financial position date.
Standards and interpretations which are issued at the date of the Groups Financial statements, but will become effective later are disclosed below. The disclosures contain standards including amendments, which may influence recognition or measurements in the Financial statements, alter existing disclosures or require additional disclosures when effective at a future date. The standards are implemented as they become effective.
New standards regulating issues not relevant to the Group are omitted from this narrative.
IFRS 16 Leases was issued in January 2016. It sets out the principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 monthes, unless the underlying asset is of low value. A lessee is required to recognize right-of-use asset representing its right to use the underlying leased asset, and a lease liability representing its obligation to make lease payments. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted given certain preconditions are adhered to. The standard will be material to leases by Bakkafrost Group, but has no effect on present lease obligations.
IFRS 15 was issued in May 2014, and supersedes all current revenue recognition requirements under existing IFRS regulation. IFRS 15 is more prescriptive than existing IFRS regulation and establishes a comprehensive framework for revenue recognition. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled to, in exchange for transferring goods or services to a customer. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers: Identify the contract with a customer: Identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation
IFRS 15 is effective for periods beginning on or after 1 January 2017. Earlier application is permitted.
The disclosure initiative amendments address concerns expressed about some of the existing presentation and disclosure requirements in IAS 1 and ensure that entities can use judgement when applying those requirements. As a result, it introduces five narrow focus improvements to the disclosure requirements that relate to materiality; order of the notes, subtotals, accounting policies and disaggregation, The amendments also clarify the requirements in paragraph 82A of IAS 1 for presenting an entity's share of items of other comprehensive income of associates and joint ventures accounted for using the equity method, These amendments are required to be applied for accounting periods beginning on or after 1 January 2016. Earlier application is permitted.
The preparation of financial statements in accordance with IFRS requires the management to make judgement estimates and assumptions that affect the application of accounting principles and carrying amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on experience and other factors perceived to be relevant and probable when the judgements were made.
Estimates are reviewed on an on-going basis, and actual values and results may deviate from the initial estimates. Revision to accounting estimates are recognized in the period in which the estimates are revised. The evaluations and estimates, deemed to be of greatest significance for Bakkafrost Group's Financial Statements, are described in the notes.
This section gives more details on the results for the year, including operating segments, taxes and employee costs.
Revenue is measured at the fair value of the consideration received or receivables for the sale of goods and services in the ordinary course of business. Revenue is recognized net of discounts, VAT and other sales related taxes.
The revenue of the Group is mainly for sales of salmon, fishmeal, fish oil and feed. Sales revenues are recognized when the goods are delivered and both title and risk has passed to the customer. This will normally be upon delivery.
One customer represents DKK 452 million of the revenue amount in the VAP segment. This is 51% of the total revenue in the VAP segment.
| Value Added | Fishmeal, | Bakkafrost | |||
|---|---|---|---|---|---|
| 2016 – DKK 1,000 | Farming | Products | oil and feed | Eliminations | Group |
| External operating revenues | 1,973,720 | 880,945 | 348,021 | 0 | 3,202,686 |
| Internal operating revenues | 867,150 | 0 | 810,090 | -1,677,240 | 0 |
| Total operating revenues | 2,840,870 | 880,945 | 1,158,111 | -1,677,240 | 3,202,686 |
| Depreciation and amortization | -89,089 | -13,056 | -31,116 | 0 | -133,261 |
| Operating expenses | -627,149 | -201,420 | -910,230 | -165,672 | -1,904,471 |
| Internal operating expenses | -810,090 | -867,150 | 0 | 1,677,240 | 0 |
| Operating EBIT | 1,314,542 | -200,681 | 216,765 | -165,672 | 1,164,954 |
| Provision for onerous contracts | 0 | -16,372 | 0 | 0 | -16,372 |
| Fair value adjustments on biological assets | 608,195 | 0 | 0 | 0 | 608,195 |
| Income from associates | 1,236 | 0 | 13,585 | 0 | 14,821 |
| Badwill | 10,440 | 0 | 0 | 0 | 10,440 |
| Revenue tax | -108,450 | 0 | 0 | 0 | -108,450 |
| EBIT | 1,825,963 | -217,053 | 230,350 | -165,672 | 1,673,588 |
| Net interest revenue | 22,108 | 4,738 | 54 | -25,376 | 1,524 |
| Net interest expenses | -30,623 | -54 | -20,682 | 25,376 | -25,983 |
| Net currency effects | -14,744 | 1 | 2,388 | 0 | -12,355 |
| Other financial expenses | -3,948 | -17 | -194 | 0 | -4,159 |
| Earnings before taxes | 1,798,756 | -212,385 | 211,916 | -165,672 | 1,632,615 |
| Taxes | -293,798 | 38,228 | -38,157 | 0 | -293,727 |
| Net earnings | 1,504,958 | -174,157 | 173,759 | -165,672 | 1,338,888 |
| Operating EBITDA | 1,403,631 | -187,625 | 247,881 | -165,672 | 1,298,215 |
| ASSETS | 5,060,263 | 375,538 | 703,222 | -720,907 | 5,418,116 |
| Whereof intangible assets | 376,675 | 0 | 0 | 0 | 376,675 |
| LIABILITIES | 710,184 | 25,895 | 495,784 | 637,218 | 1,869,081 |
| INVESTMENTS | |||||
| Property, plant and equipment | 541,940 | 113,296 | 31,767 | 0 | 687,003 |
| Depreciation | -89,089 | -13,056 | -31,116 | 0 | -133,261 |
| Value Added | Fishmeal, | Bakkafrost | |||
|---|---|---|---|---|---|
| 2015 – DKK 1,000 | Farming | Products | oil and feed | Eliminations | Group |
| External operating revenues | 1,763,498 | 736,657 | 350,208 | 0 | 2,850,363 |
| Internal operating revenues | 510,097 | 0 | 697,844 | -1,207,941 | 0 |
| Total operating revenues | 2,273,595 | 736,657 | 1,048,052 | -1,207,941 | 2,850,363 |
| Depreciation and amortization | -71,202 | -7,354 | -29,542 | 0 | -108,098 |
| Operating expenses | -663,306 | -133,155 | -846,000 | -99,221 | -1,741,682 |
| Internal operating expenses | -697,844 | -510,097 | 0 | 1,207,941 | 0 |
| Operating EBIT | 841,243 | 86,051 | 172,510 | -99,221 | 1,000,583 |
| Provision for onerous contracts | 0 | -51,004 | 0 | 0 | -51,004 |
| Fair value adjustments on biological assets | -27,578 | 0 | 0 | 0 | -27,578 |
| Income from associates | 1,879 | -23 | 4,901 | 0 | 6,757 |
| EBIT | 815,544 | 35,024 | 177,411 | -99,221 | 928,758 |
| Net interest revenue | 25,681 | 7,093 | 512 | -29,687 | 3,599 |
| Net interest expenses | -31,682 | -8 | -22,619 | 29,687 | -24,622 |
| Net currency effects | 23,539 | -7 | -182 | 0 | 23,350 |
| Other financial expenses | -6,370 | -16 | -228 | 0 | -6,614 |
| Earnings before taxes | 826,712 | 42,086 | 154,894 | -99,221 | 924,471 |
| Taxes | -80,324 | -6,030 | -27,942 | 0 | -114,296 |
| Net earnings | 746,388 | 36,056 | 126,952 | -99,221 | 810,175 |
| Operating EBITDA | 912,445 | 93,405 | 202,052 | -99,221 | 1,108,681 |
| ASSETS | 3,976,007 | 261,835 | 793,774 | -1,111,230 | 3,920,386 |
| Whereof intangible assets | 294,675 | 0 | 0 | 0 | 294,675 |
| LIABILITIES | 1,148,144 | 50,788 | 572,846 | -431,874 | 1,339,904 |
| INVESTMENTS | |||||
| Property, plant and equipment | 470,565 | 1,535 | 31,013 | 0 | 503,113 |
| Prepayment for PP&E | 104,209 | 0 | 0 | 0 | 104,209 |
| Depreciation | -71,202 | -7,354 | -29,542 | 0 | -108,098 |
| SALMON - DISTRIBUTION OF HARVESTED | 2016 | 2015 | ||||
|---|---|---|---|---|---|---|
| AND PURCHASED VOLUME | tgw | % | tgw | % | ||
| Harvested volume used in VAP production | 17,458 | 35.2% | 16,870 | 29.8% | ||
| External purchase of salmon for VAP production | 662 | 1.3% | 1,325 | 2.3% | ||
| Harvested volume sold fresh/frozen | 30,084 | 60.7% | 33,695 | 59.6% | ||
| External purchase of salmon sold fresh/frozen | 1,392 | 2.8% | 4,681 | 8.3% | ||
| Harvested and purchased volume | 49,596 | 100% | 56,571 | 100% |
| FISHMEAL, OIL AND FEED (FOF) | 2016 | 2015 | ||
|---|---|---|---|---|
| DISTRIBUTION FEED | tonnes | % | tonnes | % |
| Volumes used internally | 78,028 | 92.2% | 70,074 | 88.9% |
| External purchase | 6,558 | 7.8% | 8,791 | 11.1% |
| Sold volumes | 84,586 | 100.0% | 78,865 | 100.0% |
| PRODUCTION OF FISHMEAL AND FISH OIL | 2016 | 2015 | ||||
|---|---|---|---|---|---|---|
| tonnes | % | tonnes | % | |||
| Fishmeal | 44,155 | 85.7% | 49,343 | 86.3% | ||
| Fish oil | 7,369 | 14.3% | 7,854 | 13.7% | ||
| Sold volume | 51,524 | 100.0% | 57,197 | 100.0% |
| 2016 – DKK 1,000 | Farming | VAP | FOF |
|---|---|---|---|
| Europe | 344,031 | 784,054 | 348,021 |
| Eastern Eurpope | 400,584 | 33,002 | 0 |
| USA | 576,926 | 28,960 | 0 |
| China | 407,887 | 2,062 | 0 |
| Other | 244,292 | 32,867 | 0 |
| Total | 1,973,720 | 880,945 | 348,021 |
| 2015 – DKK 1,000 | Farming | VAP | FOF |
| Europe | 163,750 | 642,591 | 350,208 |
| Eastern Eurpope | 659,651 | 39,728 | 0 |
| USA | 430,503 | 41,741 | 0 |
| China | 296,396 | 4,476 | 0 |
| Other | 213,198 | 8,121 | 0 |
| Total | 1,763,498 | 736,657 | 350,208 |
The Group has three reportable segments in accordance with IFRS 8 Operating segments. The Group's main strategic business area is aquaculture, which consists of three segments: fish farming, value added products (VAP) and production and sales of fishmeal, fish oil and fish feed (FOF).
The same accounting principles, as described for the consolidated financial statements, have been applied for the segment reporting. Intersegment transfers or transactions are entered into under normal commercial terms and conditions, and the measurement used in the segment reporting is the same as used for the third parties transactions. The pricing principle between the VAP and Farming segment is based on market reference prices for spot sale. The pricing principle between the FOF and farming segment is based on quarterly contracts.
Realization of excess values on tangible and intangible assets deriving from acquisitions is not allocated to the segments.
Fish farming involves the breeding and on-growing of
salmon as well as the harvesting, sales and distribution of salmon. The Group has production facilities in the southern, central and northern parts of the Faroe Islands. There are no significant differences in the production properties of the licences, and the Group therefore reports the farmed salmonids, including the sale of fresh salmon, as one segment.
A significant share of the farmed products is value added at the factories in Glyvrar and Fuglafjørður. The outputs of the factories are predominantly portions for the retail market. The business segment definition is based on the distinction between output sold to the industrial market and the value-added products for the end-consumers in the retail market.
Fishmeal, fish oil and fish feed involves the production and sale of fishmeal, fish oil and fish feed. The production of fishmeal, fish oil and fish feed is operated by Bakkafrost's subsidiary Havsbrún and is in Fuglafjørður.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 288,787 | 250,211 |
| Social security taxes | 11,407 | 9,038 |
| Pension expenses | 22,413 | 19,001 |
| Other benefits | 5,218 | 2,835 |
| Total payroll expenses | 327,825 | 281,085 |
| Average number of full-time employees | 820 | 725 |
| DKK 1,000 | Total | ||||
|---|---|---|---|---|---|
| Salary and other benefits paid | Salary | Bonus | Pension | Other | 2016 |
| Chief Executive Officer | 1,800 | 189 | 0 | 87 | 2,076 |
| Managing Director | 1,380 | 144 | 0 | 87 | 1,611 |
| Chief Financial Officer** | 1,296 | 138 | 0 | 87 | 1,521 |
| Total remuneration | 4,476 | 471 | 0 | 261 | 5,208 |
| DKK 1,000 | Total | ||||
|---|---|---|---|---|---|
| Salary and other benefits paid | Salary | Bonus | Pension | Other | 2015 |
| Chief Executive Officer | 1,792 | 183 | 0 | 88 | 2,063 |
| Managing Director | 1,353 | 142 | 0 | 88 | 1,583 |
| Chief Financial Officer* | 124 | 0 | 0 | 0 | 124 |
| Chief Financial Officer** | 1,071 | 91 | 0 | 88 | 1,250 |
| Total remuneration | 4,340 | 416 | 0 | 264 | 5,020 |
* The Chief Financial Officer resigned his position in November 2014. ** Appointed Chief Financial Officer as of December 2014.
| DKK 1,000 | 2016 | 2015 | |
|---|---|---|---|
| Rúni M. Hansen** | Chairman of the Board | 440 | 421 |
| Johannes Jensen | Deputy Chairman of the Board | 250 | 239 |
| Annika Frederiksberg* | Member of the Board | 200 | 191 |
| Virgar Dahl | Member of the Board | 200 | 191 |
| Teitur Samuelsen/** | Member of the Board | 172 | 0 |
| Øystein Sandvik | Member of the Board | 240 | 235 |
| Tor Magne Lønnum*** | Member of the Board | 66 | 235 |
| Total remuneration | 1,568 | 1,512 |
* Annika Frederiksberg is also an employee in the Bakkafrost Group. For this, she received DKK 604 thousand (2015: DKK 596 thousand)
** Member of the audit committee. Salary includes fee to the audit committee
*** Member of the Board of Directors until April 2016
**** Member of the Board of Directors from April 2016
The total remuneration to the corporate management consists of basic salary (main element), benefits in-kind and pension schemes, but varies from person to person. The Group's Chief Executive Officer determines the remunerations to other management in agreement with the Chairman of the Board of Directors. The total remuneration is determined based on the need to offer competitive terms in the various business areas. The remunerations should promote the Group's competitiveness in the relevant labour market.
The total remuneration must neither pose a threat to Bakkafrost's reputation nor be market leading, but should ensure that Bakkafrost attracts and retains senior executives with the desired skills and experience. The basic salary is subject to an annual evaluation and is determined based on general salary levels in the labour market.
Bakkafrost may terminate employment by giving Group Management Executives a notice period. The company's period of notice for the Group's Chief Executive Officer is 24 months. The company's period of notice for other Group Management Executives covers a period from 6 to 12 months.
Bakkafrost has established a share saving plan for its employees. It is the Board's intention that the plan shall be a continuing part of the company's employee incentive scheme. The Board shall, however, have the right to decide, in its sole discretion, whether the plan will be extended in the future, and the terms of the plan.
Employees may invest up to 5% of their base salary in Bakkafrost shares. The saved amount is deducted from the monthly net salary and used to purchase Bakkafrost shares in behalf of the employees. The purchase will be made from Bakkafrost's treasury shares or on the market. An employee may not change the savings amount during the year, but an employee may cancel the subscription during the year. The purchase price and the number of shares acquired by the company will be reported in accordance with the applicable regulations.
After a lock-in period of two calendar years, one extra share will be awarded for each share purchased. Shares transferred to employees are acquired by the company on the market.
As at 31.12.2016, there are no loans to employees.
The share saving plan liabilities and payroll expense have been allocated over the employees' contribution period. The contribution period is from when the employee signed the share saving plan and until the shares are granted. The fair value of these liabilities will be determined using the number of shares contracted at the start of the share saving plan, using the share price on the date of the employee signature, adjustment is made for estimated leavers of the share saving plan. The difference between the fair value and the share price, when the shares are granted, will be booked as a financial item in the income statement. The liability is recognized in other equity reserves within equity.
The Group has employed a defined contribution pension scheme. Pension premiums are charged to the Income Statement as they accrue. The Group has no additional pension liabilities towards the employees, apart from these periodical payments.
| 2016 | 2015 | |
|---|---|---|
| Maintenance | -157,186 | -138,927 |
| Operating expenses | -66,426 | -55,526 |
| Health | -104,313 | -88,435 |
| Freight | -234,050 | -238,401 |
| Energy | -90,554 | -94,073 |
| Other costs | -62,843 | -68,170 |
| Other operating expenses total | -715,372 | -683,532 |
| 2016 | 2015 | |
|---|---|---|
| R & D expenditure consist of other operating expenses and of saleries in total | 127 | 1,150 |
R & D expenditure in this note is only costs and salaries directly attributable to R & D in our FOF segment. Bakkafrost has a continued development of all the value chain. This is not seen as a R & D, but is an integrated part of other operating expenses and salaries.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Other financial income | 1,524 | 3,599 |
| Financial income | 1,524 | 3,599 |
| Interest expenses on long-term loans | -21,613 | -22,304 |
| Interest expenses on credit lines | -4,175 | -2,287 |
| Interest expenses on accounts payable | -195 | -31 |
| Financial expenses | -25,983 | -24,622 |
| Unrealized exchange gain on bond | 21,050 | 16,835 |
| Other exchange differences | -33,405 | 6,515 |
| Net currency effects | -12,355 | 23,350 |
| Other financial expenses | -4,159 | -6,614 |
| Other financial items | -4,159 | -6,614 |
| Net financial items | -40,973 | -4,287 |
Interest income is recognized on an accrual basis. Dividend is recognized when the shareholders' right to receive a dividend has been approved by the Annual General Meeting.
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings. Borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
| The tax expense for the year breaks down as follows: | 2016 | 2015 |
|---|---|---|
| Tax payable | 141,176 | 177,048 |
| Change in deferred tax | 152,551 | -62,752 |
| Tax expense on ordinary profit | 293,727 | 114,296 |
| Tax payable | 141,176 | 177,048 |
| Tax payable in the statement of financial position | 141,176 | 177,048 |
| Temporary | 2016 | Temporary | 2015 | |||
|---|---|---|---|---|---|---|
| Tax rate | Differences | Deferred tax | Tax rate | Differences | Deferred tax | |
| Licences | 18.0% | 375,678 | 67,622 | 18.0% | 293,675 | 52,862 |
| Property, plant and equipment | 18.0% | 897,044 | 161,468 | 18.0% | 669,378 | 120,488 |
| Financial assets | 18.0% | 26,972 | 4,855 | 18.0% | 16,620 | 2,992 |
| Biomass | 18.0% | 1,858,433 | 334,518 | 18.0% | 1,065,828 | 191,849 |
| Receivables | 18.0% | -70,745 | -12,734 | 18.0% | -54,006 | -9,721 |
| Currency effects | 18.0% | 45,736 | 8,233 | 18.0% | 79,226 | 14,261 |
| Derivatives (Equity posted) | 18.0% | -101,456 | -18,262 | 18.0% | -128,804 | -23,185 |
| Total temporary differences | 3,031,662 | 1,941,917 |
Deferred tax liabilities (+) / assets (-) 545,699 349,546
| Profit before tax | 1,632,614 | 924,471 |
|---|---|---|
| Expected tax at nominal tax rate (18%) | 293,871 | 166,405 |
| Special tax on farming licences - deferred | 0 | -79,780 |
| Special tax on farming licences - payable tax | 0 | 21,140 |
| Permanent differences | -524 | 6,531 |
| Calculated tax expense | 293,346 | 114,296 |
| Effective tax rate excl, equity entries | 17,97% | 12.36% |
Normal tax rate for companies resident in the Faroe Islands is 18%. All of Bakkafrost's material operations are in the Faroe Islands, but a minor sales office is in UK, where the tax rate is 20%, and a minor sales company is in Norway, where the tax rate is 29%.
In 2015, there was an addition to the normal 18% company tax rate in the Faroes, a special resource tax of 4.5%. There was also a special revenue tax on 0.5% based on official registered salmon prices. But for 2016, the special resource tax of 4.5% lapsed, and the revenue tax increases to 4.5%. This change in regulations affects the deferred special tax in 2015 with -79.8 million DKK.
The new revenue tax falls, however, outside the scope of IAS 12 and is hereafter classified as a cost, which will be included in EBIT.
Under the Faroese tax regime, growth of live biomass is not tax relevant before harvesting. Tax losses to be carried forward are infinite. Deferred taxes on temporary differences, deriving from shares in associated companies, are not entered because intercompany dividends are not tax relevant in the Faroese tax regime.
The tax expense is matched against the profit or loss be-
fore tax, as it appears in the accounts. Tax ascribable to equity transactions are taken to equity. The tax expense comprises tax payable (tax on the year's direct taxable income) and changes in net deferred taxes. Deferred tax liabilities and deferred tax assets are presented net in the statement of financial position, to the extent that tax assets and liabilities can be netted against each other.
Deferred tax in the statement of financial position is a nominal amount calculated on the basis of temporary differences between accounting and tax values at their intended use, as well as the taxable loss carried forward at the end of the financial year.
The accounting of deferred taxes reflects tax rates and tax laws that have been enacted or substantively enacted by the date of the statement of financial position. The recognition of a deferred tax asset is based on expectations of profitability in the future. In addition, there are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain.
Deferred taxes are calculated using the nominal tax rate according to IAS 12.
This section gives more details on the assets that form the basis for the activities of Bakkafrost, and the related liabilities.
| Total | |||
|---|---|---|---|
| DKK 1,000 | Goodwill | Licences | 2016 |
| Acquisitions costs as at 01.01.16 | 4,537 | 290,138 | 294,675 |
| Additions in the year as a result of acquisitions | 0 | 82,000 | 82,000 |
| Acquisitions costs as at 31.12.16 | 4,537 | 372,138 | 376,675 |
| Impairments 01.01.16 | 0 | 0 | 0 |
| Accumulated depreciation and write-downs as at 31.12.16 | 0 | 0 | 0 |
| Net book value as at 31.12.16 | 4,537 | 372,138 | 376,675 |
| Total | |||
| DKK 1,000 | Goodwill | Licences | 2015 |
| Acquisitions costs as at 01.01.15 | 4,537 | 290,138 | 294,675 |
| Additions in the year as a result of acquisitions | 0 | 0 | 0 |
| Acquisitions costs as at 31.12.15 | 4,537 | 290,138 | 294,675 |
| Impairments 01.01.15 | 0 | 0 | 0 |
| Accumulated depreciation and write-downs as at 31.12.15 | 0 | 0 | 0 |
| Net book value as at 31.12.15 | 4,537 | 290,138 | 294,675 |
Bakkafrost operates its sea farming activity in 14 identifiable CGUs based on single or groups of sea farming licenses, seven out of which are issued by the government without consideration, and hence are not capitalized. These belong to the North region.
The other seven CGUs are acquired as part of business combinations. Respectively, when acquiring the Vestlax Group, Havsbrún Group and Faroe Farming hence three groups of CGUs. These are all belonging to the West region. Bakkafrost considers these as significant in comparison to Bakkafrost's total carrying amount of goodwill and intangible assets with indefinite useful lives. Bakkafrost has decided to disclose specific information concerning these three groups of CGUs.
The Group tests intangible assets annually for impairment or more frequently if there are indications that the assets are impaired. The annual impairment test is performed at year-end. Bakkafrost has substantial assets with indefinite lives in the form of licenses. The licenses are subject to impairment testing in combination with goodwill in the annual test. Bakkafrost identifies each farming zone, which may contain one or several licences or farming sites as one cash-generating unit.
Impairment testing is carried out by calculating the net present value of estimated future cash flows (value in use) for the cash-generating unit, in line with IAS 36, and comparing the net present value of the cash flow towards the carrying amount of net assets held by the cash-generating unit (CGU). The cash flow used in the calculations represents the management's best estimate at the time of reporting. If the carrying amount is higher than the calculated value in use, the assets are considered impaired. The estimated cash flow is based on the assumption of continued operation. The basis for the estimated cash flow is the strategic plan for the following years. The strategic plans have been reviewed and the targets approved by the Group management.
All CGUs have the same operating assumptions since the operating conditions are predominantly the same all over the Faroe Islands. The considered operating conditions are costs of feed, smolt, harvest, packaging, transport and other costs. Other operating conditions considered the same are mortality, production time, fallowing and harvest weight. CAPEX is also assumed to be the same for all CGUs over the calculated period. All CGUs are calculated with the same WACC. If there will be variances between the assumptions for the different CGUs in the future, this will be incorporated into the impairment test.
The impairment testing at year-end did not result in identification of impairment losses. Intangible assets were tested for impairment to evaluate if the cash flow from a conservative estimate was sufficient to support the carrying amount of net assets. The test confirmed the asset values.
The key assumptions in the calculations of value in use are harvest volume, prices and costs, hence EBIDTA and WACC. Amongst other assumptions are inflation, CAPEX and terminal growth.
In general, the value in use has been determined based on future strategic plans considering the expected development in both macroeconomic and company-related conditions.
The assumptions used rest on uncertainty regarding product prices, input prices, biological performance and future regulatory frameworks. Costs can normally be estimated with more accuracy than income. As profitability in the salmon farming industry historically has been very volatile, depending on developments in the prices of salmon. Bakkafrost uses budgets and long-term plans for the first five years of the analysis, but returns to long- term historic averages for profitability in the sixth year and terminal period.
The key assumptions used in determining the value in use are:
not reflected in the figures used in the impairment test. Beyond the forecast period, capital expenditure will in general equal depreciation and relate to maintenance investments.
In connection with the impairment testing of intangible assets, a sensitivity analysis has been carried out. Sensitivity analysis has been performed for each of the defined cash generating units. With the assumptions used, the headroom is DKK 5,729 million.
Intangible assets, that are purchased individually, are capitalized at acquisition cost. Intangible assets acquired in connection with the purchase of a business entity are capitalized at acquisition cost when the criteria for separate recognition are met.
Intangible assets with a limited economic lifespan are depreciated systematically. Intangible assets are written down to the recoverable amount if the expected financial benefits do not cover their carrying amount.
Costs relating to research and development are charged as expenses as they accrue. R&D costs are capitalized in the statement of financial position, when it can be demonstrated that the relevant R&D projects carry economic benefits, that they can be technically finalized, and that the company intends to and is financially able to reap the economic benefits.
Capitalized R&D costs are recognized at acquisition cost less accumulated depreciation and write-downs. Capitalized R&D costs are depreciated in a straight line over the asset's estimated period of use.
Sea farming licences, which are purchased either as part of an acquisition or business combination according to IFRS 3, are capitalized at cost less accumulated write-downs according to a PPA analysis. Sea farming licences in the Faroe Islands are considered perpetual, given that certain preconditions regarding environmental protection and animal welfare are met. Consequently, sea farming licences are not depreciated systematically, but are subject to an annual impairment test. If the carrying amount exceeds the recoverable amount, licences are considered impaired, and write-downs are entered and charged to the Income Statement.
The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be appropriate. If not, the change in useful life from indefinite to finite is made on a prospective basis.
The sea farming licenses in the Faroe Islands are defined as the right to utilize a given area of fjords for farming fish. There are no provisions as to the maximum allowed biomass at the given site, but the legislation has imposed strict measures to regulate the farming activity in order to be environmentally sustainable.
The sea farming licenses are issued with a nominal lifespan of 12 years. Licenses are renewed, unless there is a specific reason against renewal, based on failure to fulfil the veterinary conditions set by the authorities. In connection with renewal of licenses, authorities may only decline renewal if specific legislation on area planning, animal welfare or environmental protection is in conflict with renewal of the licenses. Special emphasis is to be placed on the fact, that it is renewals of existing licenses. This means that sea farming licenses are operated in a 12-year rolling lifespan system, where the licenses are renewed every 12th year. In the very rare cases, where the authorities have declined to renew licenses in order the use locations for other purposes, the farmers have obtained licenses from the authorities at other locations.
Bakkafrost has therefore decided to account for sea farming licenses, which are capitalized, following the provisions for intangible rights with indefinite useful lives.
When the company assumes control over a separate business entity for a consideration that exceeds the fair value of the individual assets, the difference is entered as goodwill in the statement of financial position.
Goodwill deriving from purchases of subsidiaries and associates is presented under intangible assets. Goodwill is
SECTION 3
not depreciated, but is tested for impairment annually or more often if there are indications that its value is lower than the carrying amount. When assessing the need to write-down goodwill, this is assigned to relevant cash flow generating units or groups, which are expected to benefit from the acquisition.
Write-downs are performed in accordance with an assessment of the recoverable value of each of the cash-flow generating units to which the goodwill is assigned. To identify the Group's cash-flow generating units, the assets are grouped according to the lowest level to which separate and independent cash flows may be ascribed. Recoverable value is calculated based on value in use. This is arrived at by estimating future cash flows.
If the calculated value in use is less than the carrying amount of the cash-flow generating unit, goodwill is written down first, and then other assets as required.
The CGUs tested are in the West region.
| Total | Number | |||||||
|---|---|---|---|---|---|---|---|---|
| booked | of | EBITDA | WACC | WACC | ||||
| 31.12.2016 | Other | value | thousand | change | change | change | ||
| CGUs (1,000) | Licenses | assets**** | tested | WACC | smolt | of +/-1% | of -1% | of +1% |
| Vestlax acquisition* | 132,708 | 773,456 | 906,164 | 8.90% | 7,700 | 143,366 | 431,382 | -280,535 |
| Havsbrún acquisition** | 157,430 | 316,562 | 473,992 | 8.90% | 2,810 | 63,832 | 1,063,453 | -691,548 |
| Faroe Farming acquisition*** | 82,000 | 261,071 | 343,071 | 8.90% | 2,000 | 42,555 | 307,034 | -199,669 |
| TOTAL | 372,138 | 1,351,089 | 1,723,227 | 8.90% | 12,510 | 249,753 | 1,801,869 | -1,171,752 |
| TOTAL | 290,138 | 908,825 | 1,198,963 | 8.60% | 9,200 | 134,180 | 490,212 | -342,002 |
|---|---|---|---|---|---|---|---|---|
| Havsbrún acquisition** | 157,430 | 275,351 | 432,781 | 8.60% | 2,800 | 92,826 | 338,759 | -236,335 |
| Vestlax acquisition* | 132,708 | 633,474 | 766,182 | 8.60% | 6,400 | 41,354 | 151,453 | -105,667 |
* 4 CGUs in license numbers A03, A05, A06, A25, A57, A80 and A81. Acquired in 2010.
** 2 CGUs in license numbers A71 and A82. Acquired in 2011. *** 1 CGU in license number A15 and A92. Acquired in 2016.
**** Other assets consist of goodwill, PP&E, inventory, receivables, etc. that can be allocated to CGUs or are directly attributable to CGUs.
| Plant, | ||||||
|---|---|---|---|---|---|---|
| machinery, | ||||||
| Land | operating | Other | Prepayments | |||
| and equipment, | operating | for purchase | ||||
| DKK 1,000 | buildings fixtures etc. | equipment | Vessels | of PP&E | Total | |
| Acquisition costs as at 01.01.16 entities before acquisition | 794,661 | 1,367,029 | 123,283 | 0 | 104,209 | 2,389,183 |
| Acquisition costs from acquisition of subsidiary | 24,188 | 76,076 | 3,755 | 0 | 0 | 104,019 |
| Reclassification | -37,675 | -363,002 | 0 | 231,571 | 0 | -169,106 |
| Acquisitions during the year | 315,738 | 384,962 | 23,229 | 67,284 | -104,209 | 687,003 |
| Disposals and scrapping during the year | -24,870 | -8,328 | -6,607 | 0 | 0 | -39,805 |
| Acquisition costs as at 31.12.16 | 1,072,042 | 1,456,737 | 143,660 | 298,855 | 0 | 2,971,294 |
| Accumulated depreciations and write-downs as at 01.01.16 | -208,921 | -569,580 | -79,189 | 0 | 0 | -857,690 |
| Depreciation from acquisition of subsidiary | -4,315 | -38,639 | -3,398 | -46,352 | ||
| Reclassification | 37,675 | 142,157 | -10,726 | 0 | 169,107 | |
| Depreciations during the year | -26,115 | -89,118 | -8,417 | -9,611 | 0 | -133,261 |
| Accumulated deprecations and write-downs on disposals and scrapping | 4,541 | 4,488 | 6,345 | 0 | 15,374 | |
| Accumulated depreciations and write-downs as at 31.12.16 | -197,135 | -550,692 | -84,660 | -20,337 | 0 | -852,823 |
| Net book value as at 31.12.16 | 874,907 | 906,046 | 58,999 | 278,518 | 0 | 2,118,470 |
| DKK 1,000 | ||||||
| Acquisition costs as at 01.01.15 entities before acquisition | 585,491 | 1,013,653 | 109,253 | 0 | 114,513 | 1,822,910 |
| Acquisitions during the year | 209,605 | 391,486 | 16,536 | 0 | -10,305 | 607,322 |
| Disposals and scrapping during the year | -435 | -38,110 | -2,505 | 0 | 0 | -41,050 |
| Acquisition costs as at 31.12.15 | 794,661 | 1,367,029 | 123,284 | 0 | 104,209 | 2,389,183 |
| Accumulated depreciations and write-downs as at 01.01.15 | -185,221 | -522,191 | -74,251 | 0 | 0 | -781,663 |
| Depreciations during the year | -23,744 | -77,530 | -6,824 | 0 | 0 | -108,098 |
| Accumulated deprecations and write-downs on disposals and scrapping | 44 | 30,141 | 1,886 | 0 | 0 | 32,071 |
| Accumulated depreciations and write-downs as at 31.12.15 | -208,921 | -569,580 | -79,189 | 0 | 0 | -857,690 |
| Net book value as at 31.12.15 | 585,740 | 797,454 | 44,094 | 0 | 104,209 | 1,531,493 |
| Estimated Depreciation |
Scrap | |||
|---|---|---|---|---|
| lifetime | method | value | ||
| Land and buildings | 15-25 years | linear | 10% | |
| Plant, machinery, operating equipment, fixtures etc. | 8-15 years | linear | 0%-10% | |
| Other operating equipment | 3-8 years | linear | 0% | |
| Vessels | 15-25 years | linear | 10% |
Property, plant and equipment are capitalized at acquisition cost, less accumulated depreciation and write downs. When assets are sold, or divested, the book value is deducted and any loss or gain entered to the Income Statement. Ordinary depreciation commences from the date on which the asset goes into normal operation and is calculated based on its economic lifespan. Depreciation is assigned in a straight line over the expected economic lifespan of the assets, taking into consideration the estimated residual value.
If an asset comprises significant components with varying lifespan, these components are depreciated separately. The scrap value of the property, plant and equipment as well as the depreciation period and depreciation method employed are reassessed annually.
Facilities under construction are not depreciated. Depreciation is charged to expenses, when the facilities are ready for use. If the situation or circumstances indicate that the carrying amount of an asset cannot be recovered, an assessment is made about whether to write-down its value. If the recoverable value of the assets is less than the carrying amount and the impairment is not expected to be temporary, the assets are written-down to the recoverable value. The recoverable value is the greater of net sales price or value in use. Value in use is the present value of the future cash flows, which the asset will generate.
The consolidated accounts for 2016 include the following subsidiaries and associates:
| Nature of | Nominal | |||
|---|---|---|---|---|
| Currency | Business | Head Office | Ownership | share capital |
| DKK | Salmon farming | Glyvrar | 100% | 16,394 |
| DKK | Value adding of salmon (VAP) | Glyvrar | 100% | 50,000 |
| DKK | Sales of salmon and VAP products | Glyvrar | 100% | 667 |
| DKK | Production of styrofoam boxes | Glyvrar | 100% | 8,022 |
| DKK | Harvesting and gutting of salmon | Glyvrar | 100% | 795 |
| DKK | Production and sales of fishmeal, oil | |||
| and salmon feed | Fuglafjørður | 100% | 2,000 | |
| GBP | Sales company for Havsbrún | Lerwick | 100% | 17 |
| NOK | Sales company for Havsbrún | Flekkefjord | 100% | 105 |
| GBP | Sales company for Bakkafrost Sales | Grimsby | 100% | 1£ |
| DKK | Salmon farming and harvesting | Glyvrar | 100% | 44,300 |
| Carrying | Carrying | |||||
|---|---|---|---|---|---|---|
| DKK 1,000 | Head | Net | Share of | value | value | |
| Associated Companies | Office | Ownership | Additions | the result | 2016 | 2015 |
| P/F Pelagos | Fuglafjørður | 30% | 0 | 9 | 25,178 | 19,798 |
| P/F Salmon Proteins* | Eiði | 76% | 0 | 257 | 8,933 | 8,626 |
| P/F Faroe Farming** | Vágur | 100% | 0 | 0 | 0 | 77,361 |
| Total | 34,111 | 105,785 |
| Total Assets | Total assets | Equity | Equity | Result | Result | |
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| P/F Pelagos | 298,273 | 390,121 | 83,096 | 65,502 | 17,594 | 187 |
| P/F Salmon Proteins* | 15,418 | 15,095 | 11,566 | 11,308 | 258 | 118 |
| P/F Faroe Farming** | - | 174,240 | - | 80,326 | - | 12,960 |
* Voting rights 30%. The voting rights are limited in the Articles of Association of P/F Salmon Proteins
** P/F Faroe Farming is in the consolidation from 1 July 2016.
| Carrying | Carrying | |
|---|---|---|
| DKK 1,000 | amount | amount |
| Companies | 2016 | 2015 |
| Others | 25,296 | 25,108 |
| Total | 25,296 | 25,108 |
Investments in other companies are classified as available for sale. Shares and holdings in which the Group does not have significant influence are valued at cost as fair value cannot be measured reliably.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Raw materials and goods in-progress | 286,573 | 325,146 |
| Finished goods | 69,031 | 96,820 |
| Total inventory | 355,604 | 421,966 |
Raw materials primarily consist of raw material for the production of fishmeal, fish oil and fish feed and packaging materials used in processing.
Goods in-progress include semi-finished products and spare parts.
Finished products include all products ready for sale, such as fish feed, fresh and frozen whole salmon, as well as processed salmon products.
Inventories are measured at cost price.
Inventories consist of inventories in the farming unit, the VAP unit and the FOF unit.
Inventories consist of feed and additives. Inventories are measured at the lesser of cost or expected sales price less sales costs. The FIFO principle is used concerning the periodic assignment of inventory costs.
Inventories consist of raw material, additives, packaging material and finished goods. Raw material in the VAP unit consist basically of processed salmonids. Raw materials are measured at fair value at the time of harvesting.
Packaging material and additives are valued at the lesser of cost or expected sales price less sales costs. The FIFO principle is used concerning the periodic assignment of inventory costs.
Finished goods in inventory, fresh or frozen, are measured at the lesser of cost or the expected sales price less sales costs. In a case, where the cost price exceeds the sales price less sales cost, impairment is entered and charged to the Income Statement.
The cost price of goods produced in-house is the full production cost, including production costs, which can be only indirectly allocated to produce goods, less general administration costs.
Raw materials and purchased commodities are valued at the lower of historical cost and net realizable value in accordance with the FIFO principle.
Finished goods are fishmeal, oil and feed ready for deliverance to customer, valued at the lower of cost and net realizable value. The cost of finished goods includes any processing costs that have incurred. Processing costs consist of logistics, handling and storage costs.
The cost price of goods produced in-house is the full production cost, including production costs, which can be only indirectly allocated to produce goods, less general administration costs.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Biological assets carrying amount 01.01. | 1,060,274 | 1,013,959 |
| Increase due to production or purchases | 1,408,221 | 1,267,199 |
| Increase due to acquisitions | 118,233 | 0 |
| Reduction due to harvesting or sale (costs of goods sold) | -1,296,244 | -1,201,426 |
| Fair value adjustment at the beginning of the period reversed | -257,278 | -284,855 |
| Fair value adjustments at the end of the period | 880,492 | 257,278 |
| Reversal of elimination at the beginning of the period | 43,224 | 51,342 |
| Eliminations | -98,487 | -43,224 |
| Biological assets carrying amount 31.12. | 1,858,434 | 1,060,274 |
| Cost price biological assets | 1,076,429 | 846,220 |
| Fair value adjustments at the end of the period | 880,492 | 257,278 |
| Eliminations | -98,487 | -43,224 |
| Biological assets carrying amount | 1,858,434 | 1,060,274 |
| Whereof capitalized interests in biological assets* | 22,000 | 21,119 |
| * The capitalized interest rate is calculated using CIBOR 3 months +4.72%. | ||
| Biomass < 1 kg on average (tonnes live weight) | 2,039 | 2,215 |
| Biomass 1 kg - 4 kg on average (tonnes live weight) | 17,560 | 14,312 |
| Biomass > 4 kg on average (tonnes live weight) | 25,510 | 17,297 |
| Volume of biomass at sea (tonnes live weight) | 45,109 | 33,824 |
| Number of fish < 1 kg on average (thousand) | 4,884 | 5,259 |
| Number of fish 1 kg - 4 kg on average (thousand) | 7,842 | 5,624 |
| Number of fish > 4 kg on average (thousand) | 5,123 | 3,233 |
| Total number of fish at sea (thousand) | 17,849 | 14,116 |
| Volume of biomass harvested during the year (tonnes gutted weight) | 47,542 | 50,565 |
| Number of smolts released in Q1 (thousand) | 1,926 | 2,208 |
| Number of smolts released in Q2 (thousand) | 1,946 | 1,415 |
| Number of smolts released in Q3 (thousand) | 3,795 | 2,765 |
| Number of smolts released in Q4 (thousand) | 3,318 | 4,873 |
| Total number of smolts released in 2016 (thousand) | 10,985 | 11,261 |
IAS 41 requires biomass to be accounted for at the estimated fair value net of sales-costs and harvesting costs. The calculation of the estimated fair value is based on market prices for harvested fish. The prices are reduced for harvesting costs and freight costs to market to arrive at a net value back-to-farm. The valuation reflects the expected quality grading. In the accounts, the change in estimated fair value is entered to the Income Statement on a continuous basis.
The valuation model is completed for each business unit, and it is based on biomass at sea for each location. The specification of biomass includes total number of fish, estimated average weight and costs of the biomass. Number of kilo biomass is multiplied by value per kilo, which reflects the actual value. The price used is the price for sellable fish based on prices from Fish pool. The valuation takes into consideration that not all the fish are of the same quality.
Mortality above normal will be accounted for, when a site either experiences elevated mortality over time or massive mortality due to an incident at the farm (outbreak of disease, lack of oxygen etc.).
Bakkafrost has not had mortality above expected normal in the past years.
Changes in estimated fair value on biomass are recognized in the income statement at every closing. The fair value adjustment is reported on a separate line: "fair value adjustment on biomass". The change in fair value adjustment is calculated as the change in fair value of the biomass less the change in accumulated cost of production for the biomass. At harvest, fair value adjustments are reversed.
Biological assets (biomass) comprise salmon fry and fish in the sea. The valuation of biological assets is at fair value. The calculation is based on cost price with the addition/ subtraction of a fair value adjustment, which is based on market prices of salmon at marketable sizes on average for a generation. Consequently, the valuation of biomass in the statement of financial position reflects biomass at market values, and Income Statement presents production costs and fair value adjustments separately. This is in accordance with IAS 41, which requires biological assets to be measured at fair value.
At the point, when a new generation of smolt is launched to sea, the generation is measured at production cost. Smolts are predominantly produced in-house, and smolts put to sea are measured at production cost. At the early stages of production at sea, the assumption of the measurement being clearly unreliable is maintained. At average sizes of approximately 1 kg/fish, the fair value measurement of the generation becomes less than clearly unreliable. At this point, fair value measurement commences.
The fair value estimate incorporates the proportionate expected net profit at harvest during the interval starting from 1 kg ending at 4 kg. The best fair value estimate on fish below 1 kg is considered to be accumulated cost, while fish above 4 kg (mature fish) are valued to full expected net value. The sales prices are based on externally quoted spot and forward prices, where applicable, and/or the most relevant price information available for the period of which the fish is expected to be harvested, whereas spot market prices are applied to mature fish. Forward and spot prices from Fish Pool, a part of Oslo Børs ASA, are used as source for forward prices.
| Quarter | Prices in NOK FCA Oslo |
|---|---|
| At year-end 2016 | 78.89 |
| Q1-17 | 74.00 |
| Q2-17 | 71.80 |
| Q3-17 | 64.70 |
| Q4-17 | 64.50 |
Source: Fish Pool
As fish at fair value is harvested within one year, the fair value is not amortized.
The estimate of fair value of biomass will always be based on uncertain assumptions, even though the company has built substantial expertise in assessing these factors. Estimates are applied to the following factors: biomass volume, the quality of the biomass, the size distribution and market price.
The volume of biomass is an estimate that is based on the number of smolts put to sea, the estimated growth from the time of stocking, estimated mortality based on observed mortality in the period, etc.
The quality distribution of the biomass is not known until harvest and must be estimated. The estimate is based on the most recent historical data. History shows that realized downgrade has not resulted in significant price reductions. A change of +/-1% on the superior quality will have an impact on the valuation of approximately DKK +/-1.5 million, with current stocking.
Fish at sea grows at different rates, and even in a situation with good estimates for the average weight of the individual fish, there may be a spread in weight of the fish. The size distribution affects the price achieved for the fish, as each size-category of fish is priced separately in the market. When estimating the biomass value, a normal size distribution is applied.
The market price assumption is very important for the valuation, and even minor changes in the market price will give significant changes in the valuation. Valuation of biological assets is affected by the market prices of fish. A change of +/-1% will have an impact on the valuation of approximately DKK +/- 16 million, with current stocking.
| Change of +/-1% | mDKK |
|---|---|
| Volume of biomass | +/-23.0 |
| Percentage of superior quality | +/-1.5% |
| Market price | +/-16.0 |
The valuation of biomass in the sea involves estimates of both volume and quality of the biomass. When valuing the biomass, the most updated data on development in the biomass is used, and the estimated quality grading is based on historical data. According to IAS 41, the biomass is carried in the statement of financial position at estimated fair value on the date of the statement of financial position.
The estimate of the fair value of biomass will always be based on uncertain assumptions, even though the company has built substantial expertise in assessing these factors. The volume of biomass is an estimate that is based on the number of smolts put to sea, the estimated growth from the time of stocking, estimated mortality based on observed mortality in the period, etc.
In the autumn of 2014, The Financial Supervisory Authority of Norway (Finanstilsynet) initiated an evaluation of certain aspects of the financial reporting prepared by fish farming companies listed on Oslo Stock Exchange. The purpose of this process was to evaluate whether the industry companies reported in a uniform and consistent manner in accordance with IFRS. Finanstilsynet published a final report 17 November 2015 on their website (www.finanstilsynet.no.) In response to this process, affected fish farming companies established a financial reporting industry group as an arena for discussions and improvement work.
The group has had several meetings during the autumn of 2015 and again in 2016. The two main purposes have been as follows:
With respect to item 1 above, the participating companies have identified certain areas of improvement, and certain updates to the fair value model and information included in the disclosures have been made with effect from December 31, 2015. Further refinement to the disclosures and accounting practices are expected to be implemented with effect from the first Quarter of 2017.
With respect to item 2 above, work has been initiated, and will continue in 2017. The group aims to complete this work in time for an updated model to be implemented with effect from the first Quarter of 2017.
Participating companies in the financial reporting industry group are:
Lerøy Seafood Group ASA, Grieg Seafood ASA, Salmar ASA, Cermaq Group AS, Bakkafrost P/F and Marine Harvest ASA.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Accounts receivables | 292,009 | 199,263 |
| Provisions for bad debts | 0 | 0 |
| Net accounts receivables | 292,009 | 199,263 |
| Receivables from associated companies | 0 | 70,049 |
| Prepayments | 2,772 | 1,888 |
| Deposit for interest- and currency swap | 58,340 | 83,040 |
| VAT | 48,673 | 24,995 |
| Other | 75 | 0 |
| Other receivables | 109,860 | 179,972 |
| Total short term receivables | 401,869 | 379,235 |
| Long term receivables | 12,660 | 0 |
| Total accounts receivables and other receivables | 414,529 | 379,235 |
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Receivables not overdue | 206,301 | 185,082 |
| Overdue 0–6 months | 83,212 | 7,848 |
| Overdue more than 6 months | 2,496 | 6,333 |
| Total | 206,009 | 199,263 |
The Group's exposure to credit risks related to accounts receivables is disclosed in Note 4.1.
The Group holds accounts receivables in foreign currencies amounting to DKK 160.1 million at year-end. Below is pre
sented the book value of receivables specified in currency, translated into DKK employing the currency value at 31.12.
| 2016 | 2015 |
|---|---|
| 144,579 | 70,422 |
| 53,133 | 42,250 |
| 79,666 | 47,888 |
| 11,873 | 9,459 |
| 15,418 | 29,244 |
| 304,669 | 199,263 |
Accounts receivables and other receivables are presented at face value less provisions for bad debts. Provisions for bad debts are made on the basis of an individual assessment of the receivables concerned. Due to insignificant cost and the short credit period, amortized cost is equivalent to face value less foreseeable losses.
Cash and cash equivalents consist of short-term bank deposits.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Share capital at 1 January | 48,858 | 48,858 |
| Share capital at 31 December | 48,858 | 48,858 |
| DKK | No. of Shares | Face Value Share Capital | |
|---|---|---|---|
| Ordinary shares | 48,858,065 | 1 | 48,858,065 |
| Total share capital | 48,858,065 |
| Reconciliation of outstanding shares: | 2016 | 2015 |
|---|---|---|
| Outstanding shares at 1 January | 48,557,621 | 48,520,737 |
| Purchase of treasury shares | 0 | 0 |
| Sale of own shares to cover the employee bonus program | 25,869 | 36,884 |
| Outstanding shares at 31 December | 48,583,490 | 48,557,621 |
| Treasury shares at 31 December | 274,575 | 300,444 |
All full-time employees from 2015, still employed in Bakkafrost, have received bonus shares in 2016 with a total value of 2% of paid out salary in 2015. In total, Bakkafrost has allocated 16,484 shares to its employees at a fair value of DKK 4.3 million. The grant date was 26 May 2016, and the share price was DKK 259.03 (NOK 322.10) per share.
These shareholders held directly or indirectly more than 5% of the shares in the company as at 31 December 2016: Oddvør Jacobsen and Regin Jacobsen.
Shares owned directly and indirectly by the members of the Board of Directors and Group Management:
| Name | Position | No. of shares | Shareholding |
|---|---|---|---|
| Rúni M. Hansen | Chairman of the Board | 10,000 | 0.02% |
| Johannes Jensen | Deputy Chairman of the Board | 0 | 0.00% |
| Teitur Samuelsen | Member of the Board | 100 | 0.00% |
| Annika Frederiksberg | Member of the Board | 14,974 | 0.03% |
| Virgar Dahl | Member of the Board | 7,000 | 0.01% |
| Øystein Sandvik | Member of the Board | 0 | 0.00% |
| Regin Jacobsen | Chief Executive Officer | 4,493,517 | 9.20% |
| Odd Eliasen | Managing Director | 171,717 | 0.35% |
| Gunnar Nielsen | Chief Financial Officer | 662 | 0.00% |
The Board has proposed a dividend per share of DKK 8.70 for 2016. Dividends in 2015 were DKK 8.25 per share. The dividends proposed are to be approved at the Annual General Meeting and if approved, the total dividend payment will amount to DKK 425.1 million. The dividend proposal has not been recognized as a liability at 31 December 2016, but is presented as an item within equity.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Long-term interest bearing debt | 419,496 | 62,246 |
| Next year's instalments on long-term interest bearing debt | 0 | 0 |
| Bonds | 407,650 | 385,313 |
| Total long-term interest bearing debt 31.12. | 827,146 | 447,559 |
| Derivatives | 101,456 | 129,076 |
| Security account derivatives | 58,340 | 83,040 |
| Next year's instalments on long-term interst bearing debt | 0 | 0 |
| Total short-term interest bearing debt 31.12. | 0 | 0 |
| Total interest bearing debt | 870,262 | 493,595 |
| Cash and cash equivalents | -234,996 | -101,852 |
| Net interest bearing debt | 635,266 | 391,743 |
The maturity structure of the Group's financial commitments is based on undiscounted contractual payments. As the credit limit is not necessarily in the same currency of debt drawn, currency fluctuations affect the amount available under the facilities at any time. In addition to the bank credit lines, which is issued in DKK, Bakkafrost has issued a 5-year tenor bond of NOK 500 million, equivalent to DKK 409.1 million, which matures in 2018.
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| The maturity plan of the Group's | Carrying | Contractual | Carrying | Contractual | |
| interest bearing debt is as follows | amount | payments | amount | payments | |
| Credit facilities | 419,496 | 419,496 | 62,246 | 62,246 | |
| Bonds | 407,650 | 409,100 | 385,313 | 388,050 | |
| Current liabilities | 0 | 0 | 0 | 0 | |
| Gross interest bearing debt | 827,146 | 828,596 | 447,559 | 450,296 | |
| Credit line | 1,259,100 | 1,164,600 | |||
| Available credit lines | 431,954 | 553,000 | |||
| Cash and cash equivalents | 234,996 | 405,109 | |||
| Total available credit lines | 666,950 | 958,109 | |||
| REMAINING PERIOD | |||||
| 31.12.2016 | 1–3 months | 3–12 months | 1–5 years | > 5 years | Total |
| Interest bearing bank loans | 0 | 0 | 419,496 | 0 | 419,496 |
| Bonds | 0 | 0 | 407,650 | 0 | 407,650 |
| Accounts payable and other debt | 252,764 | 142,016 | 0 | 0 | 394,780 |
| REMAINING PERIOD | |||||
| 31.12.2015 | 1–3 months | 3–12 months | 1–5 years | > 5 years | Total |
| Interest bearing bank loans | 0 | 0 | 62,246 | 0 | 62,246 |
| Bonds | 0 | 0 | 385,313 | 0 | 385,313 |
Accounts payable and other debt 258,636 155,359 0 0 413,995
The difference between the carrying amount and the total expected payments in the table above is due to upfront arrangement and legal fees incurred in connection with the refinancing of the credit facilities and the bond issue. One long-term bank borrowing is drawn from a revolving credit facility, under which the Group may draw and pay down any amount. The contractual payments illustrated in the table above do not reflect rollovers dates of loans drawn, but are based on the maturity date of the credit facilities.
Bakkafrost entered a new bank loan in December 2015. The bank loan is a multicurrency revolving credit facility of DKK 850 million for a period of five years. In addition to the DKK 850 million credit facility, the new agreement has an accordion increase option of maximum DKK 750 million. In connection with the refinancing Bakkafrost paid out the instalment loan in 2015, an amount of DKK 200 million. The new loan was effectuated in January 2016 and at the same time, the overdraft facility on DKK 553 million expired. Thus, the total bank financing amounts to DKK 850 million as per end 2016.
The loan facility is secured in both the Group's property, plants and other tangible, and fixed assets as well as stock, farming licences and insurance policies. The interest payable is the reference interest rate for the respective currencies (IBOR) plus a margin, which is calculated based on the Group's leverage ratio. The margin may vary between 0.85% p.a. and 1.90% p.a.
On 14 February 2013, Bakkafrost issued unsecured bonds on the Norwegian market at a total nominal value of NOK 500 million with a 5-year tenor. The bonds were listed on the market on 3 May 2013. The interest rate is NIBOR 3m, plus a margin of 4.15%. The bonds are measured at fair value at initial recognition.
Following the issuance of the bonds, Bakkafrost has entered into a currency/interest rate swap, hedging the exchange rate and switching the interest rate from NIBOR 3m to CIBOR 3m. Bakkafrost has entered the swap, due to its exposure to DKK, as a large part of the income and costs are in DKK and EUR.
At the end of 2016, the currency/interest rate swap was negative with DKK 101.5 million, charged to the comprehensive income. On the other hand, there was exchange gain on the NOK 500 million bond loan of DKK 95 million. This gain is entered to the Income Statement on a continuous basis. For unrealized losses in excess of DKK 45 million on the currency/interest rate swap, Bakkafrost is obliged to deposit the loss into a restricted bank account. At the end of 2016, the deposited amount is DKK 58.3 million and is presented under other receivables.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Long-term credit facilties | 0 | 0 | 0 | 419,496 | 0 |
| Bonds (NOK 500 million) | 0 | 407,650 | 0 | 0 | 0 |
| Interest rate/currency swap | 0 | 101,734 | 0 | 0 | 0 |
| Current liabilites | 0 | 0 | 0 | 0 | 0 |
| Gross interest bearing debt | 0 | 509,384 | 0 | 419,496 | 0 |
| 2015 | Cash flows | Acquistion | FX movements | 2016 | |
|---|---|---|---|---|---|
| Long term interest bearing debt | 447,559 | 357,250 | 0 | 22,337 | 827,146 |
| Short term interest bearing debt | 0 | 0 | 0 | 0 | 0 |
| Total interest bearing debt | 447,559 | 357,250 | 0 | 22,337 | 827,146 |
Regarding the loan facility, amounting to DKK 850 million, the covenant stipulates that the equity ratio of the Group must be at least 35% from the end of 2015. Furthermore, the leverage ratio shall not exceed 4.5. The company has the right to have leverage ratio up to 6.0 for three quarters.
The Bakkafrost Group had total available bank finances of DKK 850 million. The undrawn amount at 31 December 2016 was DKK 654.5 million. In addition to the undrawn amount of DKK 654.5 million, Bakkafrost had DKK 235.0 million in cash and thus available funds in total of DKK 889.5 million.
The bonds amounting to NOK 500 million have the following covenants:
and severely for the balance without limitations for each other.
Carrying amount of debt secured by mortgages and pledges
The Bakkafrost Group has a group financing covering the Group. In addition, the Group companies are liable jointly As part of the guarantees are also any insurance refunds. The bonds amounting to NOK 500 million, issued in 2013, are unsecured.
| DKK 1.000 | ||
|---|---|---|
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Long-term debt to financial institutions | 419,496 | 62,246 |
| Derivatives | 101,456 | 128,804 |
| Short-term debt to financial institutions | 0 | 0 |
| Total | 520,952 | 191,050 |
| Carrying amount of assets pledged as security for recognized debt | ||
|---|---|---|
| Licences | 376,675 | 294,675 |
| Property, plant and equipment | 2,118,470 | 1,531,493 |
| Financial assets | 34,111 | 100,461 |
| Biological assets (biomass) | 1,858,435 | 1,060,273 |
| Inventory | 355,604 | 421,966 |
| Accounts receivables | 0 | 199,263 |
| Other receivables | 0 | 179,971 |
| Total | 4,743,295 | 3,788,102 |
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Currency swaps regarding forward contracts | -278 | -272 |
| Interest and currency swaps regarding bonds | 101,734 | 129,076 |
| Derivatives total | 101,456 | 128,804 |
The fair value of derivatives held at the balance sheet date can be allocated as follows:
| Fair Value 2016 |
Recognized in the Income Statement 2016 |
Recognized in equity 2016 |
Fair Value 2015 |
Recognized in the Income Statement 2015 |
Recognized in equity 2015 |
|
|---|---|---|---|---|---|---|
| Currency derivatives | -278 | 0 | -278 | -272 | 0 | -272 |
| Interest and currency derivatives | 101,734 | 0 | 101,734 | 129,076 | 0 | 129,076 |
| Total | 101,456 | 0 | 101,456 | 128,804 | 0 | 128,804 |
| Interest and | Interest and | ||||||
|---|---|---|---|---|---|---|---|
| Currency derivatives |
currency deriviatives |
Total 2016 |
Currency derivatives |
currency deriviatives |
Total 2015 |
||
| Within one year | -278 | 0 | -278 | -272 | 0 | -272 | |
| Between one and five years | 0 | 101,734 | 101,734 | 0 | 129,076 | 129,076 | |
| After five years | 0 | 0 | 0 | 0 | 0 | 0 | |
| Total | -278 | 101,734 | 101,456 | -272 | 129,076 | 128,804 |
In accordance with IFRS 9, financial instruments falling within its remit are classified into the following categories: fair value with changes in value entered to the Income Statement, hold until maturity, loans and receivables, available for sale, and other liabilities.
Financial instruments, which are held primarily for buying or selling in the short term, are classified as being held for trading purposes. These instruments are included in the category of financial instruments recognized at fair value, with changes in value entered to the Income Statement alongside forward currency contracts, which are recognized at fair value, with changes in value, entered to the Income Statement.
Bonds are measured at fair value.
Interest rate swaps and forward currency settlement contracts are used as hedges of its exposure to foreign currency risk, interest expenses and instalment payments in foreign currencies. The hedges are cash flow hedges.
The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the cash flow hedge reserve.
Amounts recognized as other comprehensive income are transferred to the Income Statement, when the hedged transaction affects profit or loss, and when financial liabilities are settled, such as when the hedged financial income or financial expense is recognized.
If the forecast transactions or commitments are no longer expected to occur, the cumulative gain or loss previously recognized in equity is transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until firm commitment affects profit or loss, or settlement payments are made.
A provision is recognized when, and only when, the company has a valid liability (legal or self-imposed) deriving from an event which has occurred, and when it is probable (more likely than not) that a financial settlement will take place because of that liability, and when the amount in question can be reliably quantified. Provisions are reviewed on each closing date, and the level reflects the best estimate for the liability.
| 2016 | 2015 | |
|---|---|---|
| Provisions for onerous contracts 01.01 | 51,004 | 0 |
| Change in provisions for onerous contracts for the year | 16,374 | 51,004 |
| Provisions for onerous contracts 31.12 | 67,378 | 51,004 |
The Group enters into sales contracts for value added salmon products (VAP) on an on-going basis. The contracts involve physical settlement, and deliveries associated with the contracts form part of the Group's normal business activities. The contracts contain no built-in derivative elements.
With respect to fixed-price contracts, which result in the Group being obligated to sell salmon products at a price less than production cost (including fair value adjustment of raw materials at the point of harvesting), the contracts are considered onerous, and provisions are calculated and entered to the statement of financial position. The provision is charged to the Income Statement.
The company holds long-term sale contracts related to salmon products. These contracts do not contain any elements of embedded derivatives and are therefore not treated as financial instruments. The contracts are settled based exclusively on the assumption that delivery of salmon products should take place. The contracts are not tradable, nor do they contain a clause for settlement in cash or cash equivalents.
Provisions are made for estimated onerous contracts that oblige the Group to sell fish at a price less than calculated production costs including raw materials, biomass, measured at fair value.
This section gives an insight into the capital structure and financing items.
The Group's objective, when managing capital, is to maintain a capital structure able to support the operations and maximize shareholder value. The farming business is characterized by price volatility and challenging production dynamics. The Group must be financially solid in order to be able to cope with fluctuations in profits and financial position, and the consolidated equity ratio shall at no time be lower than 35 percent. At 31 December 2016, the Group's equity ratio was 66 percent.
According to the Group's dividend policy, under normal circumstances, average dividends over several years should be 30 to 50 percent of the adjusted net profit. The Board has proposed a dividend of DKK 8.70 per share for the financial year 2016, corresponding to a distribution to shareholders of DKK 425 million.
The Group manages the capital structure and adjusts corresponding to changes in the underlying economic conditions. The Group monitors continuously access to borrowed capital and has ongoing dialogue with its lenders. The Group is financed by bank loans and unsecured bonds. At 31 December 2016, net interest bearing debt amounted to DKK 635.3 million. Note 3.10 provides an overview of the debt's maturity profile and information on the debt's financial covenants. Bakkafrost complied with the covenants in its loan and bond agreements at the end of 2016.
There were no changes in the Group's approach to capital management during the year. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements.
The Group has exposure to the following risks from its use of financial instruments: market risk, liquidity risk and credit risk. This note presents information about the Group's exposure to each of these risks, the Group's objectives, policies and procedures for measuring and managing risk.
Further quantitative disclosures are included throughout these consolidated financial statements.
The main objective of Bakkafrost's financial risk management policies is to ensure the ongoing liquidity of the Group, defined as being at all times in a position to meet the liabilities of the Group as they fall due. This also includes being able to meet financial covenants on Group debt under normal circumstances.
Concerning insurance coverage, the Group insures against material risks, where the insurance is economically viable. The balance between the amount covered by insurance and what is left to own risk varies, depending on the nature of the risk, the value of the assets and prospective liabilities and the cost, actual coverage and the availability of insurance.
The Board of Directors believe that the most important measure against any risk is to have a strong financial position. At 31 December 2016, the Group's equity ratio was 66% percent.
Risk management policies and procedures are reviewed regularly to reflect changes in market conditions and the Group's activities.
Financial risk can be defined as the risk that the Group will not be able to meet its financial obligations.
In addition to bank loans and unsecured bonds, the Group has financial instruments such as accounts receivables, cash, shares, accounts payable, etc., which are ascribable directly to day-to-day business operations.
The Group uses financial derivatives, mainly currency forward contracts and interest rate swaps. The purpose of these instruments is to manage the interest rate and currency risks arising from the Group's operations. In 2013, the Group entered into a forward currency/interest rate swap, hedging the exchange rate and switching the interest rate on the bond loan from NIBOR 3m to CIBOR 3m.
The Group does not employ financial instruments, including financial derivatives, for the purpose of speculation.
The most important financial risks to which the company is exposed are interest rate risk, foreign exchange risk, liquidity risk and credit risk. The management monitors these risks on an on-going basis and draws up guidelines, for how these should be managed.
Market risk can be defined as the risk that the Group's income and expenses, future cash flows or fair value of financial instruments will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rates risk and other price risk (such as commodity prices and salmon spot prices).
Market risk is monitored and actively managed by the Group. Exposure to these risks is reduced by diversification, suitable controls and business tactics. In some cases, market risks are transferred to third parties via contractual price adjustment clauses, but rarely by means of financial derivatives. As hedging activities normally result in lower average expected return, the Group only uses external hedging, where there is a significant risk of breach of financial covenants.
Because of the international nature of its operations, the Group is exposed to fluctuations of foreign currency rates. For risk management purposes, three types of currency exposure have been identified, Translational exposure, Transactional exposure and Economic currency exposure:
Bakkafrost has subsidiaries abroad in the UK, Shetland and Norway. Therefore, Bakkafrost faces currency risks arising from the translation of subsidiaries whose functional currency differ from the presentation currency of the Group. The exposure related to equity of foreign subsidiaries is generally not hedged, as it is not considered material.
Most of the operating companies in the Group are exposed to changes in the value received or paid under foreign currency denominated committed transactions. For the farming segment exposure arises mainly from export sales, while for the FOF segment exposure results from the sourcing of raw materials in the international commodities markets.
Transactional exposure for the Group is mitigated by diversification benefits. Where opposite exposure from different segments are not perfectly offset, the residual effect of adverse movements in foreign currency rates on transaction streams could negatively impact the results and financial position of the Group, thus affecting covenants based on accounting measures.
The table below summarizes the foreign currency exposure on the net monetary position of all Group entities against their functional currency. The exposure on translating the financial statements of subsidiaries into the presentation currency is not included in the analysis.
| DKK 1,000 | |||||
|---|---|---|---|---|---|
| 2016 | EUR/DKK | GBP/DKK | USD/DKK | NOK/DKK | JPY/DKK |
| Cash and cash equivalents | 78,451 | 44,350 | - | 5,506 | 61 |
| Accounts receivables | 53,133 | 11,873 | 79,666 | 14,130 | 1,288 |
| Trade payables | -13,773 | -394 | -2,443 | -6,471 | - |
| Interest bearing debt | - | - | - | -409,100 | - |
| Forward contracts | - | - | -95,256 | - | - |
| Net exposure | 117,811 | 55,829 | -18,033 | -395,935 | 1,349 |
| 2015 | EUR/DKK | GBP/DKK | USD/DKK | NOK/DKK | JPY/DKK |
|---|---|---|---|---|---|
| Cash and cash equivalents | 21,602 | 3,846 | 29,809 | 5,629 | 969 |
| Accounts receivables | 42,250 | 9,459 | 47,888 | 29,244 | - |
| Trade payables | -588 | -7,678 | -89,773 | -549 | - |
| Interest bearing debt | - | - | - | -388,050 | - |
| Forward contracts | - | - | -18,316 | - | - |
| Net exposure | 63,264 | 5,627 | -30,392 | -353,726 | 969 |
| DKK 1,000 | ||||||
|---|---|---|---|---|---|---|
| 2016 | EUR/DKK | GBP/DKK | USD/DKK | NOK/DKK | JPY/DKK | Result |
| Net exposure | 117,811 | 55,829 | -18,033 | -395,935 | 1,349 | |
| Historical volatility last 5 years | 0.32% | 8.31% | 8.54% | 8.23% | 10.92% | |
| Total effect on Profit of +movements | 377 | 4,639 | -1,540 | -32,585 | 147 | -28,962 |
| Total effect on Profit of -movements | -377 | -4,639 | 1,540 | 32.585 | -147 | 28,962 |
| 2015 | EUR/DKK | GBP/DKK | USD/DKK | NOK/DKK | JPY/DKK | Result |
| Net exposure | 63,264 | 5,627 | -30,392 | -353,726 | 969 | |
| Historical volatility last 5 years | 0.51% | 8.20% | 9.98% | 8.49% | 12.21% | |
| Total effect on Profit of +movements | 323 | 461 | -3,033 | -30,031 | 118 | -32,162 |
| Total effect on Profit of -movements | -323 | -461 | 3,033 | 30,031 | -118 | 32,162 |
The analysis is based on the currencies that the Group is most exposed to at the end of 2016. The reasonable shifts in exchange rates in the table above are based on 5 years historical volatility.
If the relevant cross foreign exchange rates moved by the amounts showed in the table above, the effect on the Group's net income would be DKK 29.0 million (2015: DKK 32.2 million).
The Group does not hedge transaction exposure in the financial markets as a general rule. Currency protection measures may be allowed to prevent situations of financial distress in those cases, where the exposure cannot be effectively reduced by use of operational hedges.
| Bakkafrost Group buys | Bakkafrost Group sells | |||
|---|---|---|---|---|
| DKK | 95,256 | USD | 13,498 | |
| NOK | 500,000 | DKK | 505,050 |
| Bakkafrost Group buys | Bakkafrost Group sells | ||
|---|---|---|---|
| DKK | 18,316 | USD | 2,641 |
| NOK | 500,000 | DKK | 505,050 |
The Group is exposed to the risk that medium/long-term trend shifts in exchange rates might affect its competitive position. This strategic currency exposure is regularly monitored, but as the exposure is currently considered limited it is not actively hedged.
| Significant exchange rates (average) during the year EUR/DKK | GBP/DKK | USD/DKK | NOK/DKK | JPY/DKK | |
|---|---|---|---|---|---|
| 2016 | 744.52 | 910.57 | 673.27 | 80.18 | 6.21 |
| 2015 | 745.86 | 1,028.24 | 672.69 | 83.43 | 5.56 |
The Group is exposed to increase in interest rates as a result of having debt with floating interest rate terms. An increased cost of borrowing might adversely affect the Group's profitability. The Group does not have fixed interest rate debt.
According to the Group's finance policy, the main objective of interest rate risk management activities should be to minimize the risk of breach of the Group's debt covenants and to avoid situations of financial distress that might jeopardize strategic flexibility. Trading in interest rate derivatives is undertaken to cover existing exposures. Purely speculative transactions are not allowed.
In 2013, the Group entered into a currency/interest rate swap agreement with an underlying total of NOK 500 million in order to reduce interest rate and currency exposure on NOK, as the issued bonds are denominated in NOK. The currency/interest rate swap qualifies for hedge accounting, hence changes in fair value of this instrument is reported in Other Comprehensive Income and amounted to DKK 101.5 million as at 31 December 2016. The currency/ interest rate swap has settlement that match the maturity of the bond loan in 2018.
The Group has no fixed rate liabilities and is therefore not exposed to the risk, that changes in interest rates might drive changes in market value of outstanding debt.
A 100 basis points increase in interest rate at the reporting date would have a negative impact on the income statement amounting to DKK 6.4 million (2015: DKK 3.9 million), based on NIBD.
The farming segment is sensitive to fluctuations in the spot prices of salmon, which is determined by global supply and demand. The impact of changes in salmon spot prices is partly mitigated by long-term contracts at fixed prices in the VAP segment and financial contracts, however, due to long production cycles, it is difficult to respond quickly to global trends in market prices. Salmon is to a large extent traded based on spot prices, although this would vary with different markets and with the market position of the Group.
The Group's FOF segment is active in the international commodity markets. A large portion of raw materials needed in production is contracted in advance of periodic sales price regulations, this way the risk associated with increases in commodity prices is effectively transferred to feed customers, mainly inside the Group. Constraints in the availability of certain raw materials might result in increased sourcing costs in those cases, where an unexpected surge in sales volume makes it necessary to purchase raw materials outside of previously negotiated purchase agreements. Under these circumstances, it might not be possible to charge the customers with the increased cost, and profitability would thus suffer.
Liquidity risk arises from the Group's potential inability to meet its financial obligations towards suppliers and debt capital providers. The Group's liquidity situation is closely monitored, and rolling forecasts of cash flows and cash holdings are prepared regularly.
Liquidity risk is managed through maintaining flexibility in funding by securing available committed credit lines, provided by our bank syndicate, and through maintaining sufficient liquid assets with the same relationship banks.
The Group seeks to maintain committed facilities to cover forecast borrowings for the next 12 months, plus financial headroom to cover the planned investments and unforeseen movements in cash requirements. Please also refer to Note 3.10 for information on committed credit facilities, available credit lines, and maturity of interest bearing debt.
In addition to the above described sources of liquidity, Bakkafrost monitors funding options available in the capital markets as well as trends in the availability and cost of such funding with a view to maintain financial flexibility and limiting refinancing risk. Bakkafrost's overall liquidity as at 31 December 2016 included DKK 101.9 million, and DKK 101.9 million as at 31 December 2015 (see Note 3.10) of cash and cash equivalents held in various currencies.
Credit risk represents the accounting loss that would have to be recognized if other parties failed to perform as contracted, and is related to financial instruments such as cash and cash equivalents, receivables and derivative financial instruments.
Bakkafrost has a Group-wide credit management policy, governed by Bakkafrost's credit committee. The committee is responsible for granting credits to the Groups customers. In general, Bakkafrost uses credit insurance, bank guaranties, parent company guarantees, factoring agreement or other securities such as pledges on biological assets, thus reducing the actual risk on outstanding receivables significantly. Historically, losses due to bad debts have been low in Bakkafrost. Recoverable VAT, included in the balance, also reduces the risk. In addition to such risk mitigating measures, the Group focuses on detailed credit management in operating companies, supported by regular follow up by central functions.
Concentration of credit risk is at the outset not considered significant, since the Group's customers represent various industries and geographic areas. Counterparty risk against financial institutions is not considered significant, due to limited liquid assets and low traded volumes in derivatives. For these transactions, the Group relies upon Nordic relationship banks, other relationship banks or widely recognized commodity exchanges.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date consists of accounts receivables, other receivables and cash and cash equivalents and amounts to DKK 537.7 million. (2015: DKK 481.1 million). For age distribution of accounts receivables, please refer to Note 3.7.
Bakkafrost has implemented a Group-wide cash management policy with the overall objective of minimizing cash holdings, while ensuring sufficient liquidity to meet business needs, avoid shortage of cash and limit the need for borrowing. The cash management is carried out from the Group's head office.
The Group does not make extensive use of financial derivatives, and in those cases, where it is deemed appropriate to hedge an existing exposure on the financial markets, agreements are entered into with one of the Group's relationship banks.
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, refer to Note 3.6.
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 December 31st, 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 |
| Financial assets | 0 | 0 | 0 | 0 | 0 |
| Biological assets (biomass) | 1,858,435 | 1,076,429 | 0 | 0 | 1,858,434 |
| Assets measured at fair value 31-12-16 | 1,858,435 | 1,076,429 | 0 | 0 | 1,858,434 |
| Liabilities measured at fair value 31-12-16 | 0 | 0 | 0 | 0 | 0 |
| DKK 1,000 | Cost | ||||
| Assets and liabilities measured at fair value | Fair value | amount | Level 1 | Level 2 | Level 3 |
| Financial assets | 31 | 500 | 31 | 0 | 0 |
| Biological assets (biomass) | 1,060,274 | 846,220 | 0 | 0 | 1,060,274 |
| Assets measured at fair value 31-12-15 | 1,060,305 | 846,720 | 31 | 0 | 1,060,274 |
| Liabilities measured at fair value 31-12-15 | 0 | 0 | 0 | 0 | 0 |
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Profit for the year to the shareholders of P/F Bakkafrost | 1,338,887 | 810,175 |
| Fair value adjustment of biomass (IAS 41) | -608,195 | 27,578 |
| Onerous contracts provision | 16,372 | 51,004 |
| Tax on fair value adjustment | 106,528 | -15,386 |
| Adjusted profit for the year to shareholders of P/F Bakkafrost | 853,592 | 873,371 |
| Ordinary shares as at 01.01. | 48,858,065 | 48,858,065 |
| Ordinary shares as at 31.12. | 48,858,065 | 48,858,065 |
| Time-weighted average number of shares outstanding through the year | 48,574,193 | 48,545,675 |
| Earnings per share | 2016 | 2015 |
| Basic (DKK) | 27.56 | 16.69 |
| Diluted (DKK) | 27.56 | 16.69 |
Adjusted earnings per share (before fair value adjustments of biomass and provision for onerous contracts (adjusted EPS)
| 2016 | 2015 | |
|---|---|---|
| Basic (DKK) | 17.57 | 17.16 |
| Diluted (DKK) | 17.57 | 17.16 |
Bakkafrost Group has no stock option programme running at present.
Basic EPS is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the company and held as treasury shares.
Diluted earnings per share are adjusted for the dilution effect of issued share options. Bakkafrost has no share options outstanding.
Adjusted EPS is based on the reversal of certain fair value adjustments shown in the table above, as it is Bakkafrost's view that this figure provides a more reliable measure of the underlying performance.
This section gives more details on the statutory notes that have secondary importance from the perspective of Bakkafrost.
| 2016 | 2017 | 2018 |
|---|---|---|
| Total contractual new Hatchery | 411,200 | 0 |
| Total contractual other PPE investments | 73,680 | 0 |
| Total | 484,880 | 0 |
| 2015 | 2016 | 2017 |
| Total contractual new Harvest/VAP plant | 214,707 | 0 |
| Total contractual other PPE investments | 141,173 | 0 |
| Total | 355,880 | 0 |
The Group had capital expenditure committed but not provided in these accounts at the date of the Statement of Financial Position of approximately DKK 485 million. DKK 411 million relate to the building of the new hatchery stations.
Related parties are in this respect considered as persons or legal entities, which directly or indirectly possess significant influence on the Bakkafrost Group through shareholding or position and vice versa. Related party transactions are at arm's length terms.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Based on key personel | ||
| Revenues – Tryggingarfelagið Føroyar P/F | 4,314 | 2,859 |
| Purchase – Tryggingarfelagið Føroyar P/F | 28,040 | 25,847 |
| Accounts receivables – Tryggingarfelagið Føroyar P/F | 668 | 0 |
| Accounts payable – Tryggingarfelagið Føroyar P/F | 1,140 | 974 |
| Purchase – Hotel Føroyar P/F | 540 | 218 |
| Purchase - P/F Vest Pack | 9,629 | 0 |
| Accounts payable - P/F Vest Pack | 889 | 0 |
| Based on association | ||
| Revenues - FF Skagen A/S | 57,729 | 53,348 |
| Purchase - FF Skagen A/S | 11,710 | 12,201 |
| Accounts payable - FF Skagen A/S | 0 | 96 |
| Revenues - Pelagos P/F | 71 | 4 |
| Purchase - Pelagos P/F | 10,808 | 11,851 |
| Accounts receivables - Pelagos P/F | 43 | 0 |
| Accounts payable - Pelagos P/F | 0 | 256 |
| Revenues - Salmon Proteins P/F | 15,991 | 12,977 |
| Purchase - Salmon Proteins P/F | 3,866 | 2,054 |
| Accounts receivables – Salmon Proteins P/F | 1,386 | 1,504 |
| Accounts payable – Salmon Proteins P/F | 172 | 0 |
On the 29th of June 2016, Bakkafrost purchased 51% of the shares in P/F Faroe Farming. With this purchase, Bakkafrost became the owner of 100% of the shares in P/F Faroe Farming effective from the 1st of July 2016. The transaction is approved by the authorities.
Simultaneously with the agreement of acquiring 51% of the shares in P/F Faroe Farming, Bakkafrost has filed two licenses to the Faroese Authorities. The licenses filed (relinquished) are Svínáir (A-03) and Hovsfjørður (A-17/18).
Following these two transactions, P/F Bakkafrost has 14 licenses for farming salmon in the Faroe Islands.
Prior to the acquisition of P/F Faroe Farming, Bakkafrost had approximately 50% of the licenses in the Faroe Islands. Regulations limit the number of licenses controlled by one company to 50% of the total licenses. With the purchase of P/F Faroe Farming, Bakkafrost has filed (relinquished) two licenses and fulfils the legal requirements.
From 1 July to 31 December 2016, Faroe Farming contributed with a revenue of 0 DKK and a profit of 127.2 mDKK to the Group's results, mainly related to fair value adjustments of the biomass, as there was no harvest during this period. If the acquisition had occurred on the 1st of January 2016, the management estimates no change in the consolidated revenue, as the Group already sells all of Faroe Farming's harvest, and the consolidated profit for the period would have been 1.9 mDKK higher. In determining these amounts, the management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on the 1st of January 2016.
The payment is paid in cash and financed by existing facilities.
The key employees of P/F Faroe Farming will continue in the company.
The following fair values have been determined on this basis:
The fair value of intangible assets (Faroe Farming holds 2 farming licences) has been determined on an estimated fair value. Fair value has been identified in farming licenses by employing generally accepted valuation techniques. The market value of the licences is measured to DKK 82 million.
The fair value of biological assets has been determined based on the same accounting principles as in Bakkafrost.
The fair value of property, plant and equipment has been provisionally determined based on the booked value in P/F Faroe Farming's financial statements. The fair value of property, plant and equipment is pending a completion of an independent valuation. It is expected that there will not be a material fair value adjustment of property, plant and equipment.
Accounts receivables consists of receivables from VAT.
Accounts payable and other taxes comprise amounts payable to Bakkafrost of DKK 51.7 million.
| DKK 1,000 | 30 June 2016 |
|---|---|
| Intangible assets | 82,000 |
| Property, plant and equipment | 56,486 |
| Financial assets | 50 |
| Biological assets (biomass) | 119,112 |
| Receivables | 2,543 |
| Deferred taxes and other taxes | -41,830 |
| Accounts payable and other debt | -51,661 |
| Total net identifiable assets | 166,700 |
On 20 January 2017, Bakkafrost announced that suspicion of pathogenic ISA at farming site A-73 Hvannasund Norður had risen again. Initially, suspicion of pathogenic ISA rose in July 2016, after a routine surveillance test detected a possible pathogenic ISA-virus at farming site A-73 Hvannasund Norður. The results from the tests in January and following tests have not confirmed the suspicion of a pathogenic ISA virus at farming site A-73 Hvannasund Norður. The farming site will continue to be under increased surveillance. Reference is made to the Risk section of this report for further information. Apart from the above, from the date of the statement of financial position until today, no events have occurred which materially influence the information provided by this report.
This is regarding information regarding the company's financial position on the statement of financial position, which is received after the date of the statement of financial position, has been recognized in the annual accounts. Events after the date of the statement of financial position, which do not affect the company's financial position on the statement of financial position date, but which will affect the company's future financial position, are disclosed if material.
Fees paid to auditors (ex. VAT) breaks down as follows:
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Statutory auditing | 846 | 819 |
| Tax advisory services | 9 | 34 |
| Other services | 156 | 229 |
| Total auditor's fees | 1,011 | 1,082 |
With reference to the Group's profits, financial strength and long-term forecasts for the years ahead, it is confirmed that the financial statements for 2016 are based on the assumption that Bakkafrost is a going concern. In the opinion of the Board, the Group's financial position is good.
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, 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) and cash and cash equivalents. A reconciliation from these to net debt is provided below.
| DKK 1,000 | 31 Dec 2016 |
31 Dec 2015 |
|---|---|---|
| Cash and cash equivalents | 234,996 | 101,852 |
| Deposit for interest- and currency swap | 58,340 | 83,040 |
| Derivatives | -101,456 | -129,076 |
| Long-term interest bearing debt | -827,146 | -447,559 |
| Net interest bearing debt | -635,266 | -391,743 |
Operational EBIT is EBIT aligned for fair value adjustments, onerous contracts provisions, income from associates, badwill 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.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| EBIT | 1,673,587 | 928,758 |
| Fair value adjustments on biological assets | -608,195 | 27,578 |
| Onerous contracts | 16,372 | 51,004 |
| Income from associates | -14,821 | -6,757 |
| Revenue tax | 108,450 | 0 |
| Badwill | -10,440 | 0 |
| Operational EBIT | 1,164,953 | 1,000,583 |
| Farming segment: | Operational EBIT Farming segment | ||
|---|---|---|---|
| Total harvested volumes (gw) | |||
| VAP segment: | Operational EBIT 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 segments 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 above, as it is Bakkafrost's view that this figure provides a more reliable measure of the underlying performance.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Profit for the year to the shareholders of P/F Bakkafrost | 1,338,887 | 810,175 |
| Fair value adjustment of biomass | -608,195 | 27,578 |
| Onerous contracts provision | 16,372 | 51,004 |
| Tax on fair value adjustment | 106,528 | -15,386 |
| Adjusted profit for the year to shareholders of P/F Bakkafrost | 853,592 | 873,371 |
| Time-weighted average number of shares outstanding through the year | 48,574,193 | 48,545,675 |
| Adjusted earnings per share (before fair value adjustments | ||
| of biomass and provision for onerous contracts (adjusted EPS) | 17.57 | 17.99 |
A reclassification is made in the comparative figures in 2015 between the line items "Purchase of goods" and "Change in inventory and biological assets (at cost)". The correction is made for an error in the classification in the line items. The correction has no impact on other figures in the the annual account.
| 2015 | Before | Reclassification | After |
|---|---|---|---|
| Purchase of goods | -1,201,208 | 208,711 | -992,497 |
| Change in inventory and biological assets (at cost) | 424,143 | -208,711 | 215,432 |
P/F Bakkafrost
| P/F Bakkafrost – Income Statement for the Year Ended 31 December | 145 |
|---|---|
| P/F Bakkafrost – Statement of Financial Position as at 31 December | 146 |
| P/F Bakkafrost – Cash Flow Statement for the Year Ended 31 December | 148 |
| P/F Bakkafrost – Statement of Changes in Equity for the Year Ended 31 December | 149 |
| Note 1. Accounting Policies | 151 |
|---|---|
| Note 2. Salaries and Other Personnel Expenses | 151 |
| Note 3. Net Financial Items | 152 |
| Note 4. Property, Plant and Equipment | 153 |
| Note 5. Subsidiaries and Associates | 154 |
| Note 6. Investments in Stocks and Shares | 155 |
| Note 7. Share Capital and Major Shareholders | 155 |
| Note 8. Tax | 156 |
| Note 9. Security Pledges and Contingent Liabilities | 157 |
| Note 10. Related-Party Transactions | 157 |
FOR THE YEAR ENDED 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| Operating revenue | 60,538 | 47,800 | |
| Salary and personnel expenses | 2 | -21,827 | -19,803 |
| Other operation expenses | -21,321 | -20,206 | |
| Depreciation | 4 | -5,119 | -4,124 |
| Earnings before interest and taxes (EBIT) | 12,271 | 3,667 | |
| Dividends from subsidiaries | 5 | 722,203 | 525,261 |
| Income from other investments in shares | 6 | 33 | -132 |
| Financial income | 3 | 66,518 | 72,184 |
| Net interest expenses | 3 | -29,940 | -33,400 |
| Net currency effects | 3 | -15,797 | 19,249 |
| Other financial expenses | 3 | -3,336 | -5,937 |
| Earnings before taxes (EBT) | 751,952 | 580,892 | |
| Taxes | 8 | -5,375 | -10,013 |
| Profit to shareholders of P/F Bakkafrost | 746,577 | 570,879 | |
| Distribution of profit | |||
| Dividends | 425,065 | 403,079 | |
| Retained earnings | 321,512 | 167,800 | |
| Distribution in total | 746,577 | 570,879 |
AS AT 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 1,000 | 1,000 | |
| Total intangible assets | 1,000 | 1,000 | |
| Property, plant and equipment | |||
| Land, buildings and other real estate | 4 | 356,527 | 182,895 |
| Plant, machinery and other operating equipment | 4 | 39,512 | 52,388 |
| Prepayments | 4 | 0 | 104,208 |
| Total property plant and equipment | 396,039 | 339,491 | |
| Non-current financial assets | |||
| Investments in subsidiaries | 5 | 1,395,671 | 1,320,671 |
| Investments in stocks and shares | 6 | 1,747 | 1,714 |
| Total non-current financial assets | 1,397,418 | 1,322,385 | |
| TOTAL NON-CURRENT ASSETS | 1,794,457 | 1,662,876 | |
| Inventory | 2,606 | 1,123 | |
| Total inventory | 2,606 | 1,123 | |
| Receivables from Group companies | 1,840,156 | 1,496,782 | |
| Deferred taxes | 8 | 0 | 1,526 |
| Accounts receivables | 13,043 | 20,440 | |
| Other receivables | 58,386 | 80,814 | |
| Total receivables | 1,911,585 | 1,599,562 | |
| Cash and cash equivalents | 90,005 | 122,988 | |
| TOTAL CURRENT ASSETS | 2,004,196 | 1,723,673 | |
| TOTAL ASSETS | 3,798,653 | 3,386,549 |
AS AT 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 7 | 48,858 | 48,858 |
| Share premium fund | 117,368 | 117,368 | |
| Share-based payment | 494 | 202 | |
| Retained earnings | 2,224,874 | 1,876,497 | |
| Dividends | 425,065 | 403,079 | |
| Total equity | 2,816,659 | 2,446,004 | |
| Non-current liabilities | |||
| Long-term interest bearing debt | 9 | 812,442 | 446,549 |
| Derivatives | 101,456 | 128,804 | |
| Deferred taxes | 8 | 7,111 | 0 |
| Total non-current liabilities | 921,009 | 575,353 | |
| Current liabilities | |||
| Short-term interest bearing debt | 0 | 0 | |
| Payables to Group companies | 4,695 | 327,706 | |
| Accounts payable | 16,865 | 37,486 | |
| Other short-term liabilities | 39,425 | 0 | |
| Total current liabilities | 60,985 | 365,192 | |
| Total liabilities | 981,994 | 940,545 | |
| TOTAL EQUITY AND LIABILITIES | 3,798,653 | 3,386,549 |
FOR THE YEAR ENDED 31 DECEMBER
| DKK 1,000 | Note | 2016 | 2015 |
|---|---|---|---|
| Cash flow from operations | |||
| Operating profit (EBIT) | 12,271 | 3,667 | |
| Adjustments for write-downs and depreciation | 4 | 5,119 | 4,124 |
| Adjustments for net currency effects | -20,481 | 19,249 | |
| Adjustments for share-based payment | 2 | 292 | 176 |
| Taxes paid | 8 | -10,093 | -6,757 |
| Change in inventory | -1,483 | -642 | |
| Change in receivables | 29,825 | 38,388 | |
| Change in current debts | 27,239 | 19,161 | |
| Cash flow from operations | 42,689 | 77,366 | |
| Cash flow from investments | |||
| Investment in share capital in subsidiaries, etc., net | 5 | -75,000 | 0 |
| Payments made for purchase of fixed assets | 4 | -61,667 | -218,976 |
| Cash flow from investments | -136,667 | -218,976 | |
| Cash flow from financing | |||
| Changes in interest bearing debt (short and long) | 365,893 | -172,115 | |
| Financial income | 66,516 | 72,184 | |
| Financial expenses | -33,276 | -39,337 | |
| Financing of associates/subsidiaries | -666,385 | -139,604 | |
| Acquisition/sale treasury shares | 6,667 | 2,529 | |
| Dividend from subsidiaries | 5 | 722,203 | 525,261 |
| Dividend paid | -400,623 | -290,985 | |
| Cash flow from financing | 60,995 | -42,067 | |
| Net change in cash and cash equivalents in period | -32,983 | -183,677 | |
| Cash and cash equivalents – opening balance | 122,988 | 306,665 | |
| Cash and cash equivalents – closing balance total | 90,005 | 122,988 |
FOR THE YEAR ENDED 31 DECEMBER
| Share | Share | |||||
|---|---|---|---|---|---|---|
| premium | based | Retained | Proposed | |||
| DKK 1,000 | Share capital | account | payment | earnings | dividends | Total |
| 1 January 2016 | 48,858 | 117,368 | 202 | 1,876,497 | 403,079 | 2,446,004 |
| Net annual profit | 0 | 0 | 0 | 746,577 | 0 | 746,577 |
| Other comprehensive income: | ||||||
| Fair value adjustment on financial derivatives | 0 | 0 | 0 | 26,789 | 0 | 26,789 |
| Income tax effect | 0 | 0 | 0 | -4,364 | 0 | -4,364 |
| Total other comprehensive income | 0 | 0 | 0 | 22,425 | 0 | 22,425 |
| Total comprehensive income | 0 | 0 | 0 | 769,002 | 0 | 769,002 |
| Transaction with owners: | ||||||
| Share-based payment | 0 | 0 | 292 | 0 | 0 | 292 |
| Dividend treasury shares | 0 | 0 | 0 | 2,457 | 0 | 2,457 |
| Proceeds/acquisition treasury shares | 0 | 0 | 0 | 1,983 | 0 | 1,983 |
| Paid-out dividends | 0 | 0 | 0 | 0 | -403,079 | -403,079 |
| Proposed dividends | 0 | 0 | 0 | -425,065 | 425,065 | 0 |
| Total transaction with owners | 0 | 0 | 292 | -420,625 | 21,986 | -398,347 |
| Total changes in equity | 0 | 0 | 292 | 348,377 | 21,986 | 370,655 |
| 31 December 2016 | 48,858 | 117,368 | 494 | 2,224,874 | 425,065 | 2,816,659 |
| 1 January 2015 | 48,858 | 117,368 | 26 | 1,713,917 | 293,148 | 2,173,317 |
|---|---|---|---|---|---|---|
| Net annual profit | 0 | 0 | 0 | 570,879 | 0 | 570,879 |
| Other comprehensive income: | ||||||
| Fair value adjustment on financial derivatives | 0 | 0 | 0 | -11,492 | 0 | -11,492 |
| Income tax effect | 0 | 0 | 0 | 1,753 | 0 | 1,753 |
| Total other comprehensive income | 0 | 0 | 0 | -9,739 | 0 | -9,739 |
| Total comprehensive income | 0 | 0 | 0 | 561,140 | 0 | 561,140 |
| Transaction with owners: | ||||||
| Share-based payment | 0 | 0 | 176 | 0 | 0 | 176 |
| Dividend treasury shares | 0 | 0 | 0 | 2,163 | 0 | 2,163 |
| Currency exchange | -173 | 0 | -173 | |||
| Proceeds/acquisition treasury shares | 0 | 0 | 0 | 2,529 | 0 | 2,529 |
| Paid-out dividends | 0 | 0 | 0 | 0 | -293,148 | -293,148 |
| Proposed dividends | 0 | 0 | 0 | -403,079 | 403,079 | 0 |
| Total transaction with owners | 0 | 0 | 176 | -398,560 | 109,931 | -288,453 |
| Total changes in equity | 0 | 0 | 176 | 162,580 | 109,931 | 272,687 |
| 31 December 2015 | 48,858 | 117,368 | 202 | 1,876,497 | 403,079 | 2,446,004 |
The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), endorsed by the European Union (EU), and the additional requirements according to the Faroese Financial Reporting Act. The accounting policies applied to the consolidated accounts have also been applied to the parent company, P/F Bakkafrost. The notes to the consolidated accounts provide additional information to the parent company's accounts, which is not presented here separately. The company's financial statements are presented in DKK. Investments in subsidiaries are measured at historic cost, unless there is any indication of impairment. In case of impairment, an investment is written-down to fair value.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Wages and salaries | 17,930 | 16,996 |
| Share-based payments | 292 | 176 |
| Social security taxes | 754 | 577 |
| Pension expenses | 706 | 686 |
| Other benefits | 2,146 | 1,368 |
| Total payroll expenses | 21,828 | 19,803 |
| Average number of full-time employees | 29 | 29 |
For details of remuneration paid to senior executives, see notes to the consolidated financial statements. The company paid DKK 28,000 for audit service and DKK 10,000 for tax advisory. For other services, see note to the consolidated financial statements.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Interests received from Group companies | 65,314 | 69,611 |
| Realized profit on financial derivatives | 0 | 0 |
| Other financial income | 1,204 | 2,573 |
| Financial income | 66,518 | 72,184 |
| Interests paid to Group companies | -6,205 | -10,853 |
| Interest expenses on long- and short-term loans | -23,664 | -22,545 |
| Loss on financial derivatives | 0 | 0 |
| Interest expenses on accounts payable | -71 | -2 |
| Financial expenses | -29,940 | -33,400 |
| Unrealized exchange gain on bond | 21,050 | 23,550 |
| Other exchange differences | -5,253 | -4,301 |
| Net currency effects | 15,797 | 19,249 |
| Other financial expenses | -3,336 | -5,938 |
| Other financial items | -3,336 | -5,938 |
| Net financial items | 49,037 | 52,095 |
| DKK 1,000 | Land and buildings |
Other | equipment Prepayments | Total 2016 |
|---|---|---|---|---|
| Acquisition cost as at 01.01.16 | 199,660 | 56,904 | 104,208 | 360,772 |
| Reclassification prepayments | 24,333 | 79,875 | -104,208 | 0 |
| Disposals and scrapping during the year – reclass | 0 | -240,395 | 0 | -240,395 |
| Acquisitions during the year | 152,392 | 149,578 | 0 | 301,970 |
| Acquisition cost as at 31.12.16 | 376,385 | 45,962 | 0 | 422,347 |
| Accumulated depreciation and write-down as at 01.01.16 | -16,765 | -4,516 | 0 | -21,281 |
| Depreciations disposed assets | 92 | 92 | ||
| Depreciations during the year | -3,093 | -2,026 | -5,119 | |
| Accumulated depreciation and write-down as at 31.12.16 | -19,858 | -6,450 | 0 | -26,308 |
Net book value as at 31.12.16 356,527 39,512 0 396,039
| DKK 1,000 | Land and buildings |
Other | equipment Prepayments | Total 2015 |
|---|---|---|---|---|
| Acquisition cost as at 01.01.15 | 85,933 | 6,802 | 49,061 | 141,796 |
| Acquisitions during the year | 113,727 | 50,102 | 55,147 | 218,976 |
| Acquisition cost as at 31.12.15 | 199,660 | 56,904 | 104,208 | 360,772 |
| Accumulated depreciation and write-down as at 01.01.15 | -13,697 | -3,460 | 0 | -17,157 |
| Depreciations during the year | -3,068 | -1,056 | -4,124 | |
| Accumulated depreciation and write-down as at 31.12.15 | -16,765 | -4,516 | 0 | -21,281 |
| Net book value as at 31.12.15 | 182,895 | 52,388 | 104,208 | 339,491 |
A significant part of Bakkafrost's buildings is located on rented land.
| Estimated lifetime |
Depreciation method |
Scrap value |
|
|---|---|---|---|
| Land and buildings | 15-25 years | linear | 10% |
| Other operating equipment | 3-8 years | linear | 0% |
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Acquisition cost as at 01.01. | 1,323,437 | 1,323,437 |
| Additions during the year | 75,000 | 0 |
| Acquisition cost as at 31.12. | 1,398,437 | 1,323,437 |
| Re-evaluations as at 01.01. | -2,766 | -2,766 |
| Re-evaluations as at 31.12. | -2,766 | -2,766 |
| Net book value as at 31.12. | 1,395,671 | 1,320,671 |
| Carrying | Carrying | |||||
|---|---|---|---|---|---|---|
| amount in | amount in | |||||
| Cost | P/F | P/F | ||||
| DKK 1,000 | Method | Head | Voting | Bakkafrost | Bakkafrost | |
| Company | Yes/No | Office | Ownership | share | 2016 | 2015 |
| P/F Bakkafrost Processing | Yes | Glyvrar | 100% | 100% | 158,591 | 158,591 |
| P/F Bakkafrost Sales | Yes | Glyvrar | 100% | 100% | 879 | 879 |
| P/F Bakkafrost Packaging | Yes | Glyvrar | 100% | 100% | 7,781 | 7,781 |
| P/F Bakkafrost Harvesting | Yes | Glyvrar | 100% | 100% | 6,059 | 6,059 |
| P/F Bakkafrost Farming | Yes | Glyvrar | 100% | 100% | 233,828 | 233,828 |
| P/F Havsbrún | Yes | Glyvrar | 100% | 100% | 908,884 | 908,884 |
| Bakkafrost UK Ltd | Yes | Grimsby | 100% | 100% | 4,649 | 4,649 |
| P/F Faroe Farming | Yes | Glyvrar | 51% | 51% | 75,000 | 0 |
| Total subsidiaries | 1,395,671 | 1,320,671 |
| Excess | ||||
|---|---|---|---|---|
| dividends | Result | Result | ||
| DKK 1,000 | Dividends* | on result | 2016 | 2015 |
| P/F Bakkafrost Farming | 310,391 | 343,334 | 653,725 | 310,457 |
| P/F Bakkafrost Sales | 225,405 | -110,164 | 115,241 | 225,382 |
| P/F Bakkafrost Packaging | 5,531 | 8,206 | 13,737 | 5,486 |
| P/F Bakkafrost Harvest | 59,215 | -39,309 | 19,906 | 59,169 |
| P/F Bakkafrost Processing | 0 | -147,211 | -147,211 | 69,271 |
| P/F Havsbrún | 121,661 | 52,146 | 173,807 | 126,555 |
| Bakkafrost UK Ltd. | 0 | 7,161 | 7,161 | 3,774 |
| P/F Faroe Farming** | 0 | 30,570 | 30,570 | 0 |
| Total revenue Group contribution | 722,203 | 114,1733 | 866,936 | 800,094 |
*Dividends from subsidiaries paid out in 2016
** In consolidation from 1 July 2016
P/F Bakkafrost and subsidiaries, the Group, owns a total of 76% in P/F Salmon Proteins, which is an associated company on the Group level due to restrictions in exercising majority-voting rights. P/F Bakkafrost owns 14% in P/F Salmon Proteins and is included in the item Investment in stocks and shares.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Acquisition cost as of 01.01. | 183 | 183 |
| Acquisition cost as at 31.12. | 183 | |
| Re-evaluations as of 01.01. | 1,531 | 1,663 |
| Re-evaluations during the year | 33 | -132 |
| Re-evaluations as at 31.12. | 1,564 | 1,531 |
| Net book value as at 31.12. | 1,747 | 1,714 |
Shares and holdings, in which the Group does not have significant influence, are valued at cost. This is due to the fact that fair value cannot be measured reliably.
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Share capital at 31.12. | 48,858 | 48,858 |
| Share capital at 31.12. | 48,858 | 48,858 |
The share capital is distributed into shares of DKK 1 and multiples thereof. For shareholders holding more than 5% in the Company as at 31 December 2016, see Group Accounts.
The tax expense for the year breaks down as follows:
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Tax payable | -1,661 | -10,076 |
| Change in deferred tax | -3,714 | 63 |
| Tax expense on ordinary profit | -5,375 | -10,013 |
| Tax in the statement of financial position | ||
| Deferred tax | 7,111 | -1,526 |
| Tax in the statement of financial position | 7,111 | -1,526 |
| Specification of temporary differences | ||
| Property, plant and equipment | 95,950 | 39,753 |
| Swaps | -101,456 | -128,804 |
| Currency effects | 45,011 | 80,573 |
| Total temporary differences | 39,505 | -8,478 |
| Deferred tax liabilities (+) / assets (-) | 7,111 | -1,526 |
| Reconciliation from nominal to actual tax rate | ||
| Profit before tax | 751,952 | 580,892 |
| Expected tax at nominal tax rate (18%) | -135,351 | -104,561 |
| Permanent differences, including Group contribution without tax effect (18%) | 129,997 | 92,380 |
| Calculated tax expense | -5,355 | -12,181 |
| Effective tax rate | -0.71% | -2.10% |
As Parent company in the Bakkafrost Group, Bakkafrost P/F is the administrating company in the Group Joint Taxation, and is liable towards the Faroese Tax Authorities for taxes payable on behalf of its subsidiaries.
Carrying amount of debt secured by mortgages and pledges:
| DKK 1,000 | 2016 | 2015 |
|---|---|---|
| Long-term debt to financial institutions | 812,442 | 446,549 |
| Short-term debt to financial institutions | 0 | 0 |
| Total | 812,442 | 446,549 |
| Carrying amount of assets pledged as security for recognized debt: Property, plant and equipment |
396,039 | 339,491 |
| Non-current financial assets | 1,397,418 | 1,322,253 |
| Receivables | 1,911,585 | 1,599,562 |
| Total | 3,705,042 | 3,261,306 |
The company participates in a Group financing for the Bakkafrost Group. In connection to this, the company has together with other Group companies pledged licenses, property, plant and equipment, shareholdings, inventory and receivables as surety for the Group's total debt to the banks. In addition, the Group companies have a guaranteed severally and jointly for the balance without limitations for each other.
As part of the guarantees are also any insurance refunds.
As Parent company in the Bakkafrost Group, Bakkafrost P/F is the administrating company in the Group Joint Taxation and is liable towards the Faroese Tax Authorities for taxes payable on behalf of its subsidiaries.
The company operates cash pooling arrangements in the Group. Further, the company extends loans to subsidiaries and associates at terms and conditions reflecting prevailing market conditions for corresponding services, allowing a margin to cover administration and risk. The company allocates costs for corporate staff services and shared services to subsidiaries and renting of buildings.
The total amounts for rent are DKK 4.6 million (2015: DKK 3.9 million), allocation of administration etc. DKK 53.0 million (2015: DKK 42.5 million), financial incomes of DKK 65.3 million (2015: DKK 69.6 million) and financial expenses amounting to DKK 6.2 million (2015: DKK 10.9 million). The principle of arm's length is used in all transactions with related parties.
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
|---|---|---|---|---|---|---|---|---|
| DKK 1,000 | 2015 | 2015 | 2015 | 2015 | 2016 | 2016 | 2016 | 2016 |
| Operating revenue | 613,197 | 799,947 | 677,484 | 759,735 | 904,550 | 789,690 | 639,999 | 868,447 |
| Purchase of goods | -304,084 | -206,761 | -139,048 | -342,602 | -306,427 | -243,112 | -159,521 | -211,088 |
| Change in inventory and | ||||||||
| biological assets (at cost) | 167,919 | -28,169 | -73,489 | 149,168 | -70,320 | 39,083 | 53,180 | 36,931 |
| Salary and personnel expenses | -64,075 | -76,606 | -60,201 | -80,203 | -72,555 | -83,542 | -73,632 | -98,096 |
| Other operating expenses | -151,834 | -158,667 | -172,254 | -200,779 | -173,461 | -165,935 | -173,046 | -202,931 |
| Depreciation | -26,252 | -26,325 | -26,726 | -28,795 | -28,217 | -29,092 | -32,311 | -43,641 |
| Operational EBIT * | 234,871 | 303,419 | 205,769 | 256,524 | 253,570 | 307,092 | 254,669 | 349,622 |
| Fair value adjustments on | ||||||||
| biological assets | -54,936 | -38,042 | -17,652 | 83,052 | 107,646 | -29,379 | 121,802 | 408,126 |
| Onerous contracts | 0 | 0 | 0 | -51,004 | -59,959 | 22,778 | 86,411 | -65,602 |
| Income from associates | -2,867 | -10,796 | 85 | 20,335 | 3,087 | 6,665 | -4,689 | 9,758 |
| Revenue tax | -22,575 | -29,520 | -23,370 | -32,985 | ||||
| Badwill | 0 | 0 | 0 | 0 | 0 | 0 | 10,440 | 0 |
| Earnings before interest and | ||||||||
| taxes (EBIT) | 177,068 | 254,581 | 188,202 | 308,907 | 281,769 | 277,636 | 445,263 | 668,919 |
| Net interest revenue | 934 | 479 | 963 | 1,223 | 553 | 616 | 214 | 141 |
| Net interest expenses | -7,739 | -6,187 | -5,218 | -5,478 | -6,380 | -6,609 | -6,507 | -6,487 |
| Net currency effects | -2,571 | -8,630 | 28,493 | 6,058 | -14,490 | 1,163 | -13,987 | 14,959 |
| Other financial expenses | -1,536 | -3,040 | -928 | -1,110 | -1,066 | -1,045 | -1,022 | -1,026 |
| Earnings before taxes (EBT) | 166,156 | 237,203 | 211,512 | 309,600 | 260,386 | 271,761 | 423,961 | 676,506 |
| Taxes | -33,731 | -46,134 | -43,457 | 9,026 | -47,074 | -48,001 | -77,611 | -121,041 |
| Profit or loss for the period | 132,425 | 191,069 | 168,055 | 318,626 | 213,312 | 223,760 | 346,350 | 555,465 |
| Earnings per share (DKK) | 2.71 | 3.91 | 3.44 | 6.56 | 4.39 | 4.61 | 7.13 | 11.44 |
| Diluted earnings per share (DKK) | 2.71 | 3.91 | 3.44 | 6.56 | 4.39 | 4.61 | 7.13 | 11.44 |
*Operational EBIT is EBIT before fair value on biomass, onerous contracts and income from associates, badwill and revenue tax
| DKK 1,000 | 31 Mar 2015 |
30 Jun 2015 |
30 Sep 2015 |
31 Dec 2015 |
31 Mar 2016 |
30 Jun 2016 |
30 Sep 2016 |
31 Dec 2016 |
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Non-current assets | ||||||||
| Intangible assets | 294,675 | 294,675 | 294,675 | 294,675 | 294,675 | 294,675 | 376,675 | 376,675 |
| Property, plant and equipment | 1,121,493 | 1,168,209 | 1,345,531 | 1,531,493 | 1,622,469 | 1,792,855 | 1,971,356 2,118,470 | |
| Financial assets | 123,605 | 112,842 | 112,927 | 130,893 | 130,793 | 136,134 | 49,405 | 59,407 |
| Long term receivables | 1,314 | 0 | 0 | 0 | 0 | 0 | 0 | 12,660 |
| Total non-current assets | 1,541,087 | 1,575,726 | 1,753,133 | 1,957,061 | 2,047,937 | 2,223,664 | 2,397,436 2,567,212 | |
| Current assets | ||||||||
| Biological assets (biomass) | 974,351 | 902,525 | 947,372 | 1,060,273 | 1,129,744 | 1,036,553 | 1,412,544 1,858,435 | |
| Inventory | 407,220 | 418,860 | 297,090 | 421,966 | 370,759 | 485,187 | 378,493 | 355,604 |
| Total inventory | 1,381,571 | 1,321,385 | 1,244,462 | 1,482,239 | 1,500,503 | 1,521,740 | 1,791,037 2,214,039 | |
| Accounts receivables | 182,449 | 206,881 | 128,086 | 199,263 | 240,594 | 240,698 | 222,895 | 292,009 |
| Other receivables | 89,734 | 97,865 | 194,037 | 179,971 | 114,642 | 182,900 | 88,312 | 109,860 |
| Total receivables | 272,183 | 304,746 | 322,123 | 379,234 | 355,236 | 423,598 | 311,207 | 401,869 |
| Cash and cash equivalents | 414,851 | 295,843 | 250,215 | 101,852 | 320,624 | 173,730 | 240,856 | 234,996 |
| Total current assets | 2,068,605 | 1,921,974 | 1,816,800 | 1,963,325 | 2,176,363 | 2,119,068 | 2,343,100 2,850,904 | |
| TOTAL ASSETS | 3,609,692 3,497,700 | 3,569,933 | 3,920,386 | 4,224,300 | 4,342,732 4,740,536 | 5,418,116 | ||
| DKK 1,000 | 31 Mar 2015 |
30 Jun 2015 |
30 Sep 2015 |
31 Dec 2015 |
31 Mar 2016 |
30 Jun 2016 |
30 Sep 2016 |
31 Dec 2016 |
| EQUITY AND LIABILITIES | ||||||||
| Equity | ||||||||
| Share capital | 48,858 | 48,858 | 48,858 | 48,858 | 48,858 | 48,858 | 48,858 | 48,858 |
| Other equity | 2,168,572 2,072,405 | 2,211,432 | 2,531,624 | 2,752,840 | 2,585,138 | 2,948,297 3,500,177 | ||
| Total equity | 2,217,430 | 2,121,263 | 2,260,290 | 2,580,482 | 2,801,698 | 2,633,996 | 2,997,155 3,549,035 | |
| Non-current liabilities | ||||||||
| Deferred and other taxes | 451,452 | 495,184 | 529,831 | 349,546 | 398,242 | 445,033 | 567,992 | 545,699 |
| Long-term interest bearing debt | 501,131 | 549,048 | 389,430 | 447,559 | 492,697 | 736,572 | 708,084 | 827,146 |
| Financial derivatives | 91,069 | 91,775 | 127,255 | 128,804 | 119,780 | 114,425 | 94,222 | 101,456 |
| Total non-current liabilities | 1,043,652 | 1,136,007 | 1,046,516 | 925,909 | 1,010,719 | 1,296,030 | 1,370,298 1,474,301 | |
| Current liabilities | ||||||||
| Accounts payable and other debt | 248,610 | 240,430 | 263,127 | 413,995 | 411,883 | 412,706 | 373,083 | 394,780 |
| Total current liabilities | 348,610 | 240,430 | 263,127 | 413,995 | 411,883 | 412,706 | 373,083 | 394,780 |
| Total liabilities | 1,392,262 | 1,376,437 | 1,309,643 | 1,339,904 | 1,422,602 | 1,708,736 | 1,743,381 1,869,081 | |
| TOTAL EQUITY AND LIABILITIES | 3,609,692 3,497,700 | 3,569,933 | 3,920,386 | 4,224,300 | 4,342,732 4,740,536 | 5,418,116 |
(Exclusive Invitations, Managements', Board of Directors' and large shareholders' notification of trade and notification of trade regarding Bakkafrost's Share Savings Plan).
| 4 January 2016 | Q4 2015 Trading Update |
|---|---|
| 24 February 2016 | Q4 2015 Interim Results and Full Year 2015 |
| 3 March 2016 | Presentation Held at North Atlantic Seafood Forum |
| 14 March 2016 | Notice to Annual General Meeting |
| 14 March 2016 | Annual Report 2015 |
| 14 March 2016 | Strategic Decision to Enhance Investments in Hatchery |
| 15 March 2016 | Key Information Regarding Cash Dividend for Bakkafrost |
| 4 April 2016 | Q1 2016 Trading Update |
|---|---|
| 8 April 2016 | Protocol from Annual General Meeting |
| 11 April 2016 | Ex-Dividend DKK 8.25 |
| 11 April 2016 | Payment of Dividend in NOK on 25 April 2016 |
| 25 April 2016 | Payment Date for the Dividend |
| 10 May 2016 | Q1 2016 Interim Results |
| 7 June 2016 | Capital Markets Day Presentation |
| 7 June 2016 | General Bakkafrost Presentation |
| 29 June 2016 | Acquisition of Faroe Farming and of Two Licenses Relinquished |
| 4 July 2016 | Q2 2016 Trading Update |
|---|---|
| 14 July 2016 | Suspicion of a Possible ISA Virus on Farming Site A-73 |
| 21 July 2016 | Tests Have Not Confirmed ISA Virus on Farming Site A-73, Increased Surveillance Continues |
| 21 July 2016 | Acquisition of Faroe Farming Approved by Authorities |
| 23 August 2016 | Q2 2016 Interim Results |
| 5 October 2016 | Q3 2016 Trading Update |
|---|---|
| 4 November 2016 | Financial Calendar 2017 |
| 8 November 2016 | Q3 2016 Interim Results |
| 23 November 2016 | Presentation Held at Havbrukskonferansen |
| 3 January 2017 | Q4 2016 Trading Update |
| 10 January 2017 | Presentation Held at SEB Nordic Seminar |
| 20 January 2017 | Suspicion of Pathogenic ISA at A-73 Hvannasund Norður Rises Again |
| 27 February 2017 | Q4 2016 Interim Results and Full Year 2016 |
All market announcements are available on www.bakkafrost.com and www.newsweb.no.
| 27 February 2017 | Presentation of Q4 2016 and full year 2016 |
|---|---|
| 7 April 2017 | Annual General Meeting |
| 23 May 2017 | Presentation of Q1 2017 |
| 22 August 2017 | Presentation of Q2 2017 |
| 7 November 2017 | Presentation of Q3 2017 |
All quarterly presentations will take place at Hotel Continental, Stortingsgaten 24/26, Oslo, Norway.
Annual General Meeting will take place at Bakkavegur 8, Glyvrar, Faroe Islands. Please note that the financial calendar is subject to change.
Any changes will be announced via Oslo Børs, and the Group's website, www.bakkafrost.com, will be updated accordingly.
| AGM: | Annual General Meeting |
|---|---|
| ASC: | Aquaculture Stewardship Council |
| CGU: | Cash-generating Unit |
| EBT: | Earnings Before Tax |
| EBIT: | Earnings Before Interest and Tax |
| EBITA: | Earnings Before Interest, Amortization and Tax |
| EBITDA: | Earnings Before Interest, Tax, Depreciation and Amortization |
| EPS: | Earnings Per Share |
| FOF: | Fishmeal, Oil and Feed |
| FSV: | Farming Service Vessel |
| HACCP: | Hazard Analyses Critical Control Point |
| IAS: | International Accounting Standards |
| IFRS: | International Financial Reporting Standards |
| ISO: | International Organization for Standardization |
| NIBD: | Net Interesting Bearing Debt |
| PP&E: | Property, Plant and Equipment |
| R&D: | Research and Development Costs |
| TGW: | Tonnes Gutted Weight |
| USP: | Unique Selling Points |
| VAT: | Value Added Tax |
| VAP: | Value Added Products; Value Added Production |
| WACC: | Weighted Average Cost of Capital |
| WFE: | Whole Fish Equivalent |
Bakkafrost P/F · Bakkavegur 8 · PO Box 221 · FO-625 Glyvrar Tel +298 40 50 00 · Fax +298 40 50 09 · [email protected] · www.bakkafrost.com
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