Bakkafrost P/f · OSL:BAKKA

Bakkafrost P/f — Bakkafrost — Investor Presentation (2016)

56 slides from Bakkafrost P/f's investor presentation, 2016

  1. Slide 1: General Presentation 2016

    GENERAL PRESENTATION 2016 BAKKAFROST GROUP Glyvrar, Faroe Islands

  2. Slide 2: Disclaimer

    DISCLAIMER  This presentation includes statements regarding future  No representation or warranty (expressed or implied) is results, which are subject to risks and uncertainties. made as to, and no reliance should be placed on, the Consequently, actual results may differ significantly from fairnes

  3. Slide 3: Macro Environment

    BAKKAFROST = MACRO ENVIRONMENT

  4. Slide 4: Relationship between key food categories

    RELATIONSHIP BETWEEN KEY FOOD CATEGORIES 6,0 Protein supply quantity (g/capita/day) 5,0  Among the four most common protein categories, Seafood has the largest consumption protein per capita 4,0  Together with poultry, seafood also accounts for the 3,0 largest protein intake per capita 2,0  Prote

  5. Slide 5: Seafood instrumental in the trend towards a more healthy diet

    SEAFOOD INTSTRUMENTAL IN THE TREND TOWARDS A MORE HEALTHY DIET 12,0 Fat supply quantity (g/capita/day)  The fight against obesity requires reduced amounts of energy (kcal) and saturated fat 10,0  Seafood is generally very low in fat content 8,0  Certain species such as salmonids and pelagic fish

  6. Slide 6: Fresh water and CO2 emission per kg edible meat

    FRESH WATER AND CO2 EMISSION PER KG EDIBLE MEAT 15 400 litres 6 000 litres 4 300 litres 1 400 litres 30 kg 5,9 kg 3,4 kg 2,9 kg  Consumer awareness of environmental impact puts pressure on retail  Costs of emission and water usage are becoming tangible and increasing Source: M.M. & Hoekstra A.Y. (

  7. Slide 7: Relationship between key food categories

    RELATIONSHIP BETWEEN KEY FOOD CATEGORIES Feed conversion 4,0-10,0 3,0 1,7 1,2 Energy retention 27 % 14 % 10 % 27 % Protein retention 15 % 18 % 21 % 24 % Edible yield 41 % 52 % 46 % 68 % Edible meat per 100kg feed 4,0-10,0 17,0 21,0 57,0  Seafood represented by farmed Atlantic Salmon  Trend of incr

  8. Slide 8: Strongly increasing consumption per capita

    STRONGLY INCREASING CONSUMPTION PER CAPITA Development in consumption per captia  Consumption per capita has risen, and is 20 expected to continue to rise – with one exception 18  The most efficient categories, seafood and 16 poultry, has outperformed, and is expected to continue to outperform, po

  9. Slide 9: Annual population growth continues above 1% until 2025

    ANNUAL POPULATION GROWTH CONTINUES ABOVE 1% UNTIL 2025 World population – Development and forecasts  Increased consumption per capita combined 12,0 3,0 % with sharply rising population growth forms a large force 10,0 2,5 %  Total consumption of the four categories expected to rise by >13% from 201

  10. Slide 10: Price development in line with poultry and cattle meat

    PRICE DEVELOPMENT IN LINE WITH POULTRY AND CATTLE MEAT World population – Development and forecasts 300,00  Salmon prices have been volatile and risen in line with chicken prices  Beef prices have generally risen more 250,00  Pork has become relatively cheaper 200,00 150,00 100,00 50,00 - 2000 20

  11. Slide 11: Snapshot at market prices (Sainsbury UK)

    SNAPSHOT AT MARKET PRICES (SAINSBURY UK) Number of items 30 64 43 32 High (GBP/kg) 36,50 15,00 19,00 50,00 Mean (GBP/kg) 21,11 6,31 10,20 19,72 Median (GBP/kg) 21,00 5,84 10,54 17,80 Low (GBP/kg) 6,43 1,80 5,20 5,56 Comparison between categories (e.g. median salmon product 29% higher than average of

  12. Slide 12: Seafood – Catch and Aquaculture

     SEAFOOD – CATCH AND AQUACULTURE

  13. Slide 13: Relationship between global key seafood categories

    RELATIONSHIP BETWEEN GLOBAL KEY SEAFOOD CATEGORIES Aquaculture growing, and overtakes wild catch  Minor growth in catch as resource is close to CAGR: Capture: 0,5% Aquaculture: 2.8% capacity 100% 90%  Aquaculture growing at a high annual rate (2.8%) 80% 70%  By 2020 aquiculture is expected to ove

  14. Slide 14: Aquaculture origins, species and type of production

    AQUACULTURE ORIGINS, SPECIES AND TYPE OF PRODUCTION 80  Aquaculture has Millions Tonnes 70 grown 60 considerably since the 50 1990´s 40 30  Aquaculture still 20 dominated by non-industrial 10 production 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 200

  15. Slide 15: Aquaculture species

    AQUACULTURE SPECIES  Farmed Atlantic Low salmon represents the future aquaculture as highly industrialized with Freshwater Trout Atlantic Salmon fairly good control of operational Sea-weed risks Tilapia  There is a great Level of Operational Risk potential in global Shrimp food production in Carps

  16. Slide 16: Farmed Atlantic Salmon

    BAKKAFROST * FARMED ATLANTIC SALMON

  17. Slide 17: Relationship between key seafood categories

    RELATIONSHIP BETWEEN KEY SEAFOOD CATEGORIES 8,0 Fish/Seafood (kg/capita/yr) 7,0  Farmed Atlantic salmon constitutes a small high end niche within the global seafood space 6,0 5,0  Still key category in retail on a global level due to 4,0  High nutritional level 3,0  Consistent delivery through t

  18. Slide 18: Salmon – wild vs. farmed

    18 SALMON – WILD VS. FARMED Output farmed and wild salmon (1,000 tonnes HOG) 2.400  As for wild catch in general, wild salmon catch revolves around a stable average 2.200  Wild salmon’s impact on farmed salmon 2.000 prices has gradually diminished 1.800 1.600 1.400 1.200 1.000 800 600 400 200 - 20

  19. Slide 19: Development in global output

    DEVELOPMENT IN GLOBAL OUTPUT Global output farmed Atlantic salmon (CAGR 8%) 2500  Farmed Atlantic salmon has grown by about 8% per annum since the mid nineties  The volatility in growth has been driven by 2000 biological set-backs and financial constraints In thousand tonnes HOG due to cyclical pr

  20. Slide 20: Salmon requires conditions found in remote areas

    SALMON REQUIRES CONDITIONS FOUND IN REMOTE AREAS  SEAWATER TEMPERATURES  BIOLOGIC ENVIRONMENT  PROTECTED WATERS Source: www.mapchart.net, Google Maps BAKKAFROST / GENERAL PRESENTATION 2016 Page 20

  21. Slide 21: Development in output by most significant regions

    DEVELOPMENT IN OUTPUT BY MOST SIGNIFICANT REGIONS Norway (CAGR 8%) Chile (CAGR 13 %) 1.200 600 In thousand tonnes HOG In thousand tonnes HOG 1.000 500 800 400 600 300 400 200 200 100 0 0 UK (CAGR 5 %) North America (CAGR 6 %) 180 160 160 In thousand tonnes HOG In thousand tonnes HOG 140 140 120 120

  22. Slide 22: Trade patterns driven by logistical costs and trade barriers

    TRADE PATTERS DRIVEN BY LOGISTICAL COSTS AND TRADE BARRIERS 2015 EU USA Russia Brazil China Japan Other Total Production Norway 821 46 0 28 39 176 1 111  Trade issues such as Chile 40 202 55 99 16 12 107 532 the Russia sanctions UK 109 15 13 0 12 150 and strained relationship Canada 84 2 1 35 122 b

  23. Slide 23: Development of key markets

    DEVELOPMENT OF KEY MARKETS EU (CAGR 5 %) USA (CAGR 3 %) 1.200 400 In thousand tonnes HOG In thousand tonnes HOG 350 1.000 300 800 250 600 200 150 400 100 200 50 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Russia (CAGR 2 %) Brazil (CAGR 17

  24. Slide 24: Development of key markets

    DEVELOPMENT OF KEY MARKETS Asia (CAGR 11 %) Others (CAGR 4 %) 350 250 In thousand tonnes HOG In thousand tonnes HOG 300 200 250 200 150 150 100 100 50 50 0 - 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Source: Kontali BAKKAFROST / GENERAL PRE

  25. Slide 25: Development in output and value – strongly appreciating category

    DEVELOPMENT IN OUTPUT AND VALUE – STRONGLY APPRECIATING CATEGORY Development in volume and value (price*volume)  Output has doubled Global harvest volume (thousand tonnes hog) 11,00 3.500 10,00  Value (price*output) has more than 3.000 Value of global volumes (EUR billion) tripled 9,00 8,00 2.500

  26. Slide 26: Historic price sensitivity to supply changes

    26 HISTORIC PRICE SENSITIVITY TO SUPPLY CHANGES Historic development in supply and price Relationship between supply and price changes  Changes in global supply has been the most significant driver of price changes  The market has historically been able to absorb about 7% supply increase at stable

  27. Slide 27: Kontali's forward looking estimates for output

    KONTALI’S FORWARD LOOKING ESTIMATES FOR OUTPUT FACTORS DRIVING HIGHER GROWTH Estimated supply 2015 – 2020 (HOG Farmed Atlantic Salmon) • Lower sealice pressure Norway - reduced treatment • Faster development of alternatives to antibiotics, for 2.500 control/combat of SRS - Chile • Higher & faster th

  28. Slide 28: De-bottlenecking: shortening the sea-water production cycle

    DE-BOTTLENECKING: SHORTENING THE SEA-WATER PRODUCTION CYCLE TRANSFER TO SEAWATER TRANFER TO PROCESSING FRESHWATER STAGE (MONTHS) SEAWATER STAGE (MONTHS) FALLOWING 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 100 g 6 kg GW 30% REDUCTION TRANSFER TO SEAWATER TRANFER TO P

  29. Slide 29: De-bottlenecking: new production technology

    DE-BOTTLENECKING: NEW PRODUCTION TECHNOLOGY  Sea water licences/biological constraints represent bottlenecks for further growth across all regions  Strong cash flows enables large R&D and capex project  Large engineering resources available in Norway due to the low activity in the oil and gas ind

  30. Slide 30: The Faroe Islands and Bakkafrost

     THE FAROE ISLANDS AND BAKKAFROST

  31. Slide 31: Record prices, yet challenging to retain windfall profits

    RECORD PRICES, YET CHALLENGING TO RETAIN WINDFALL PROFITS 2.500  Production has generally exceeded practical capacity given Global output current technology, regulations, industry cooperation/ 2.000 practice and pharmacy 1 000 tonnes HOG  Pending progress in the constraining factors, nature 1.500

  32. Slide 32: EBIT per kg

    EBIT PER KG Margin diverged since 2010 Price and EBIT per kg  Compared to a large selection of production in Norway, EBIT per kg has diverged significantly since 2010 6  The absolute improvement for Bakkafrost is a function of 5  Robust farming framework with ability to maintain 4 biological cont

  33. Slide 33: Biological control – criteria: a good regulatory farming environment

    BIOLOGICAL CONTROL – CRITERIA 1 A GOOD REGULATORY FARMING ENVIRONMENT Biological meltdown paved way for robust regulatory regime During the period 2001-2004 the Faroe Islands were severely struck by ISA outbreaks 80 12 70 Harvest (thousand tonnes HOG) 10 60 New legislation and regulation was introdu

  34. Slide 34: Biological control – criteria: few players in each production region

    BIOLOGICAL CONTROL – CRITERIA 2 FEW PLAYERS IN EACH PRODUCTION REGION Highly fragmented industry, except Faroes  A tight regulatory regime is not enough 100% Other; SHARE OF PRODUCTION  A large number of decisions will always be left to the 90% 15 players Other; operators 80% 70 players  As oppos

  35. Slide 35: Biological control – criteria: minimise exposure to other companies

    BIOLOGICAL CONTROL – CRITERIA 3 MINIMISE EXPOSURE TO OTHER COMPANIES IN EACH PRODUCTION AREA  Strong regulatory framework  Few players to agree on coordination of unregulated matters – avoids “tragedy of the commons”  Limited overlap of players within production zones  Swaps have enforced each p

  36. Slide 36: But no-one is protected

    ….BUT NO-ONE IS PROTECTED Risks  Biological risk  Diseases, such as ISA, PD, AGD etc. Identify  Sea lice  Weather condition - storms  Price on salmon Re-evaluate Assess & and Control Analyse  Geopolitical situation – market access Risk Management  Fishery and quotas in the North Atlantic Ocea

  37. Slide 37: Size and survival matters

    SIZE AND SURVIVAL MATTERS Yield per smolt (HOG) Average harvest weight (HOG) 5,50 6,50 5,00 6,00 5,50 4,50 5,00 4,00 2012 - 2014 4,50 2012 - 2014 2015 3,50 2015 2012 - 2014 4,00 2012 - 2014 2012 - 2014 2015 2012 - 2014 2015 2012 - 2014 3,00 2015 3,50 2015 2012 - 2014 2015 2015 2,50 3,00 2,00 2,50 No

  38. Slide 38: Size and survival matters!

    SIZE AND SURVIVAL MATTERS! Average price diff. vs. 4/5 kg (2014-2016) Illustration of cost dynamics 6% 4% 2% 0% 2 / 3 kg 6 / 7 kg -2% -4% -6% FURTHER IMPACT OF MORTALITY/EARLY HARVEST -8% IMPACT OF LICE, DISEASE ETC. -10% (Treatment, slow growth, high FCR etc. -12% OPTIMAL COST CURVE -14% OPTIMAL HA

  39. Slide 39: The market is willing to pay up for premium products

    THE MARKET IS WILLING TO PAY UP FOR PREMIUM PRODUCTS Price differential, Norway/Faroes  Consistent large sized fish forms baseline for price premium 6,00  Bakkafrost has further tailored its product for the Export price Faroes premium market through  Investing in very high inclusion rates of mari

  40. Slide 40: Marine raw material is a finite resource

    MARINE RAW MATERIAL IS A FINITE RESOURCE Constant global marine raw material availability 6.000  Fish meal and fish oil key raw material for aquaculture 5.000 (salmonids in particular) 4.000  Extracted from wild catch (pelagic fish) with finite supply KTonnes 3.000  Growing demand requires reduce

  41. Slide 41: Bakkafrost invests in high marine profile

    BAKKAFROST INVESTS IN HIGH MARINE PROFILE Feed recipe Bakkafrost 2015  Supply constraints makes fish oil and fish meal costly ingredients Other 3%  Keeping the diet closer to the natural diet of wild salmon provides SPC Soy measurable benefits Vegitable Oil 14% Vital Wheat 16%  Healthier nutritio

  42. Slide 42: Healthy feed

    HEALTHY FEED  Local raw materials  High marine ingredient in feed  A different taste – taste of the Faroe Islands  Full traceability  Certifications and quality systems  Fish oil cleaned for pollutants BAKKAFROST / GENERAL PRESENTATION 2016 Page 42

  43. Slide 43: Page 43

    BAKKAFROST / GENERAL PRESENTATION 2016 Page 43

  44. Slide 44: Vertically integrated value chain

    VERTICALLY INTEGRATED VALUE CHAIN Pelagic fishery Fishmeal –oil & feed Hatching Fresh water stage Harvest Sea water stage Primary processing Value added products (VAP) Logistics Sales & marketing BAKKAFROST / GENERAL PRESENTATION 2016 Page 44

  45. Slide 45: Bakkafrost

    \i/ BAKKAFROST

  46. Slide 46: Organisation

    ORGANISATION Group Organisation Chart BAKKAFROST / GENERAL PRESENTATION 2016 Page 46

  47. Slide 47: Temperatures

    TEMPERATURES Average temperature per month Relative feeding(1) by month 16,00 35% 14,00 30% Degrees centigrades 12,00 Relative feeding 25% 10,00 20% 8,00 6,00 15% 4,00 10% 2,00 5% 0,00 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Norway Chile Sco

  48. Slide 48: Market prices - US

    MARKET PRICES - US US - Retail prices Source: Urner Barry's Weekly Retail Summary Avg. $/lb 01.05.2015 01.05.2016 Chicken Bnls-Sknls Breast 3,51 3,79 Breast Tenders 4,44 4,08 Beef Roasts, Bottom Round 4,72 4,02 Steaks, Bn-In Rib 8,69 8,06 Steaks, Bnls Chuck 5,08 4,65 Steaks, T-Bone 8,84 8,21 Steaks,

  49. Slide 49: Market prices - France

    MARKET PRICES - FRANCE France - Retail prices Source: SNM Avg. €/Kg 01.04.2015 01.04.2016 Chicken Whole Chicken, Label Rouge 5,70 5,69 Beef Entrecote 19,49 19,99 Steak 17,88 18,00 Pork Cutlet 7,16 6,86 Steak 8,20 8,06 Seafood Whole salmon 9,14 10,25 Salmon Fillet 14,33 15,54 Salmon Fillet Portion 16

  50. Slide 50: Market prices - Japan

    MARKET PRICES - JAPAN Japan - Retail prices Source: MAFF Avg. Yen/100g 01.04.2015 01.04.2016 Chicken 136 138 Beef Loin 749 797 Imported 263 295 Pork Belly 223 226 Seafood Salmon 278 280 Tuna 385 396 Sea bream 525 537 Salted salmon 179 175 175 Seafood Salted salmon 179 537 Seafood Sea bream 525 396 S

  51. Slide 51: Certifications

    CERTIFICATIONS  Entire value chain is certified according to the GlobalGAP standard  Global GAP is an international standard which focuses on  Food safety throughout the whole production (based on HACCP)  Fish welfare  Health, safety and minimizing the impact on the environment  The entire val

  52. Slide 52: ASC certification process

    ASC SERTIFICATION PROCESS  The Aquaculture Stewardship Council (ASC) has defined a certification system together with WWF  Objective to minimize or eliminate the key negative environmental and social impacts of salmon farming  Difference from other standards:  Measureable parameters /common indi

  53. Slide 53: ASC certification process

    ASC SERTIFICATION PROCESS  The standard has 7 main principles/criteria – with key indicators 1. Legal compliance (obeying the law, the legal right to operate) 2. Preservation of the natural environment and biodiversity 3. Preservation of water resources 4. Preservation of diversity of species and w

  54. Slide 54: Quality management integrated in on-going investments

    QUALITY MANAGEMENT INTEGRATED IN ON-GOING INVESTMENTS  The construction teams have had quality management as an integral part of the ongoing construction projects in order to secure optimal adaptation to the various certification criteria  Bakkafrost has a central quality management team, which ha

  55. Slide 55: Quality management integrated in ongoing investments

    QUALITY MANAGMENT INTEGRATED IN ONGOING INVESTMENTS  Examples within primary processing and VAP:  New electric stunning system  Improved cooling chain  Optimal utilisation of gutting machines through sorting of based on sizes  Reduced risk of microbiological contamination through securing appro

  56. Slide 56: Bakkafrost

    \i/ BAKKAFROST

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