Bakkafrost P/f

Quarterly Report • Nov 10, 2020

Operational EBIT of DKK 103 Million for the Third Quarter of 2020

Operational EBIT of DKK 103 Million for the Third Quarter of 2020

(Figures in parenthesis refer to the same period last year unless otherwise

specified)

The Bakkafrost Group delivered a total operating EBIT of DKK 102.7 million in Q3

2020. Total harvested volumes were 21.6 thousand tonnes gutted weight (tgw).

Faroe Islands (FO): 11.1 tgw, Scotland (SCT): 10.5 tgw. The combined FO farming

and VAP segments made an operational EBIT of DKK 118.4 million. The FO farming

segment made an operational EBIT of DKK 96.6 million. The SCT farming segment

made an operational EBIT of DKK -28.4 million. The VAP segment made an

operational EBIT of DKK 21.8 million. The EBITDA for the FOF segment was DKK

69.5 million.

On the 8[th] of October 2019, Bakkafrost acquired majority of the Scottish

Salmon Company (SSC). From this date, SSC is a part of the Bakkafrost Group and

is consolidated into Bakkafrost's accounts. Unless otherwise stated, all figures

presented in this press release include SSC from this date on. SSC's figures

prior to this date are not included in the figures for the Group for the full

year 2019 or in other comparative figures prior to this date.

The Group made a profit for Q3 2020 of DKK 176.8 million (DKK 180.9 million).

For the first nine months of 2020, the profit was DKK 500.5 million (DKK 582.4

million). Total harvested volumes for Q3 2020 were 21,611 tonnes gutted weight.

FO: 11,135 tgw (12,938 tgw), SCT: 10,476 tgw (n/a). Total harvested volumes in

the first nine months of 2020 were 60,424 tgw (39,254 tgw). FO: 34,743 tgw

(39,254 tgw), SCT: 25,681 tgw (n/a). In total, 4.8 million (2.4 million) smolts

were transferred during Q3 2020. FO: 3.6 million (2.4 million), SCT: 1.3 million

(n/a). For the first nine months of 2020, 13.9 million (7.7 million) smolts were

transferred. FO: 8.7 million (7.7 million), SCT 5.2 million (n/a).

Commenting on the result, CEO Regin Jacobsen said:

"During this quarter, the global salmon market has again been affected by the

Covid-19 pandemic, putting pressure on the salmon industry and affecting the

financial returns across the industry negatively. Throughout the third quarter,

we have, however, been able to maintain a steady supply to our customers. In the

VAP segment, the supply has been higher than in a normal third quarter due to a

strongly increased demand from our retail customers in Europe and the US. The

sales to Russia have picked up again as well in this quarter.

The biology in the Faroe Islands has performed strongly, and the harvested fish

has had a high quality. This is partly a result of our investments in our

ability to produce larger smolts. Our investments in increased hatchery capacity

- latest with the completion of the Strond hatchery - has enabled us to increase

the average smolt size significantly, and this increase will continue as we have

now commenced the expansion of the hatcheries at Norðtoftir and Glyvradalur. In

2022, we expect to reach our target average smolt size of 500g.

We are now able to observe that the high quality of the larger smolts produced

has a positive impact on the performance of the smolts released into our marine

sites, which in combination with good stewardship and proper care make up good

end results.

In 2013, we set ourselves the ambitious goal to become 100% ASC* certified in

2020, and since then we have worked very hard to make it happen (*Aquaculture

Stewardship Council). This has required huge commitment from our employees, who

have worked hard on changing the way we operate, and to establish the necessary

competences in the company. I am therefore extremely pleased to be able to

announce that we have now got the final piece of the puzzle in place:

All Bakkafrost salmon in the Faroe Islands is now 100% ASC certified.

With our unique selling points, a flexible value chain, increasing harvest

volumes and a tight market outlook for 2021, it is our view that Bakkafrost is

in an excellent position."

The combined FO farming and VAP segments made an operational EBIT of DKK 118.4

million (DKK 257.3 million) in Q3 2020. The operational EBIT per kg in Q3 2020

was DKK 10.63 (DKK 19.89), which corresponds to NOK 15.24 (NOK 26.25) for the

combined FO farming and VAP segments. For the first nine months of 2020, the

combined FO farming and VAP segments made an operational EBIT of DKK 444.9

million (DKK 791.8 million).

The FO farming segment made an operational EBIT of DKK 96.6 million (DKK 231.5

million) in Q3 2020. The harvested volumes were lower, and the achieved prices

were slightly lower in Q3 2020, compared to Q3 2019. For the first nine months

of 2020, the operational EBIT was DKK 385.3 million (DKK 764.7 million).

The SCT farming segment made an operational EBIT of DKK -28.4 million in Q3

2020. For the first nine months of 2020, the operational EBIT was DKK 30.1

million. Costs of DKK 41 million relate to incident-based mortality in Q3 2020.

The VAP segment made an operational EBIT of DKK 21.8 million (DKK 25.9 million)

for Q3 2020. For the first nine months of 2020, the operational EBIT was DKK

59.6 million (DKK 27.1 million).

The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 69.5 million (DKK

94.5 million) for Q3 2020, and the EBITDA margin was 14.4% (19.5%). The EBITDA

was DKK 159.6 million for the first nine months of 2020 (DKK 218.1 million),

corresponding to an EBITDA margin of 15.1% (20.8%).

During Q3 2020, Havsbrún sourced 24,101 tonnes (17,845 tonnes) of raw material,

and in the first nine months of 2020, Havsbrún sourced 211,420 tonnes (243,484

tonnes) of raw material.

The Group has been impacted by the market disruption from Covid-19 from late Q1

The net interest-bearing debt amounted to DKK 1,256.7 million at the end of Q3

2020, compared to DKK 1,018.7 million at year-end 2019. Undrawn credit

facilities amounted to DKK 2,163 million at the end of Q3 2020.

The equity ratio was 68% at 30 September 2020, compared to 65% at the end of

OUTLOOK

Market

The global harvest of Atlantic salmon was 4.8% higher in Q3 2020, compared to Q3

2019, according to the latest estimate from Kontali Analyse. The market was

affected negatively by the market disruption caused by the Covid-19 pandemic.

Looking forward, the market dynamics will still be affected by the Covid-19

situation which imposes greater than normal uncertainty to the market

development estimates. In Q4 2020, the global harvest of Atlantic salmon is

expected to increase around 5%, compared to Q4 2019. The estimated global

harvest of Atlantic salmon for 2020 is an increase of around 4%, compared to

2019. In 2021, the global harvest of salmon is expected to increase around 1%,

compared to 2020.

Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and

Russia. The Covid-19 pandemic has caused global market disruptions and a shift

from foodservice to retail. These changes will continue for some time, but

Bakkafrost has kept a high focus on ensuring the flow in the market and aims to

balance the market diversification to reduce market risk.

There will be at tight supply of salmon in 2021, especially in the second half

of 2021 according to Kontali Analyse. Bakkafrost will have increased harvest

volumes of salmon in 2021 (106,500 tonnes combined), compared with 2020 (89,000

tonnes).

It is uncertain what "new normal" the market will settle at, once the Covid-19

pandemic has passed. During the pandemic, new and innovative business models

have emerged, especially in food service. It is not unlikely that some of these

are here to stay and due to our highly flexible value chain, Bakkafrost is well

positioned to adapt to these changes.

Farming

Overall, the biological performance of the harvested fish in the Faroe Islands

has been strong during Q3 2020. The growth has been strong, sea lice counts low

and the quality of the harvested fish has been exceptionally high. The average

size of transferred smolt continues to increase in the Faroe Islands, and

Bakkafrost is well on track in pursuing the large-smolt strategy. In 2020, the

average weight of the transferred smolt will be around 300g, expected to

increase to around 400g in 2021 and 500g in 2022. This is driven by the

massively increased production capacity delivered by the Strond hatchery which

is now in full operation producing large and high-quality smolts. To add further

capacity, expansion of the existing hatcheries at Norðtoftir and Glyvradalur

have commenced. As these expansions are made to already existing hatcheries, the

increased production output will be available already in 2022, enabling

Bakkafrost to produce 20 million smolts of 500g.

Some of the benefits of the large-smolt strategy are already materializing as

the production cycle in the fjords are reduced to 12-14 months for the smolts

released this year.

The farming operation in Scotland is gradually improving its key performing

indicators, however - as historical performances from previous years have

demonstrated - 3[rd] quarters are the most challenging quarters for the Scottish

farming operation. In this quarter, the mortality has been higher, especially

driven by biological issues induced by severe rainfall in August. This pattern

of challenging 3[rd] quarters may be expected for the next couple of years or so

but with gradually reduced severity as the large-smolt strategy is being

implemented in the Scottish farming operation. Once fully implemented, the large

-smolt strategy will be a game changer for the farming operation. To achieve

this, Bakkafrost plans to invest in 3 large hatcheries in the coming years to

become self-sufficient with large smolts.

Bakkafrost focuses on reducing biological risk continuously and has over the

past years made significant investments to diminish this risk, but also to

improve efficiency and ensures sustainable growth. The large-smolt strategy

occupies a central role in this in the Faroe Islands as well as in Scotland.

Bakkafrost's expected harvest volume in 2020 in the Faroe Islands is 50,000

tonnes gutted weight, while the expected harvest in 2020 in Scotland is 39,000

tonnes gutted weight. Harvest volumes for 2021 in the Faroe Islands are expected

to reach 62,500 tonnes gutted weight and 44,000 tonnes gutted weight in

Scotland.

Bakkafrost expects to release around 14.7 million smolts in 2020 in the Faroe

Islands, compared to 12.7 million smolts in 2019 and 12.6 million smolts in

2018. The smolt release in Scotland is expected to be 10.7 million smolts in

2020, compared to 12.4 million smolts in 2019 and 8.6 million smolts in 2018.

Bakkafrost expects to release 14.5 million smolts in 2021 in the Faroe Islands

and 11.0 million smolts in Scotland. The number and average weight of smolts

released are key elements of predicting Bakkafrost's future production.

The estimates for harvest volumes and smolt releases in both geographies are

dependent on the biological development.

VAP (Value Added Products)

Bakkafrost has made large investments in building a highly flexible value chain

which includes a state-of-the-art VAP factory with high capacity. This enables

Bakkafrost to adapt well to the rapidly changing market situations, which is a

great advantage during market disruptions as the one seen during the Covid-19

pandemic. Due to the flexibility and large capacity of the VAP factory,

Bakkafrost has been able to meet the significantly increased demand from the

retail segment by redirecting volumes into the VAP segment.

Bakkafrost has signed contracts covering around 50% of the expected Q4 2020

harvest volumes in the Faroe Islands and around 33% for the 2021 harvest volume.

For the harvest volumes in Scotland, 23% of the Q4 2020 volume is covered by

contracts. Contracts for 2021 are negotiated in November and December, and so

far 25% of the 2021 harvest volume in Scotland has been contracted.

Bakkafrost's long-term strategy is to sell around 40% of the harvested volumes

of salmon as VAP products at contracts.

The 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.

FOF (Fishmeal, Oil and Feed)

The outlook for the production of fishmeal and fish oil is dependent on the

availability of raw material.

The ICES 2020 recommendation for blue whiting is 1,162 thousand tonnes, which

corresponds to an increase of 2%, compared to ICES's recommendation for 2019.

The ICES 2021 recommendation for blue whiting is down 20% to 929 thousand

tonnes.

Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in

2020, compared to 2019. Havsbrún's sales of fish feed in 2020 are expected to be

110,000 tonnes, depending on external sales. Havsbrún's sales of fish feed for

2021 is expected to be 120,000 tonnes.

The major market for Havsbrún´s fish feed is the local Faroese market, including

Bakkafrost FO's internal use of fish feed, and the feed used in the Scottish

farming operation.

Investments

Bakkafrost's investment programme for the period from 2020 to 2022 in the Faroe

Islands, will amount to around DKK 1.8 billion, including maintenance capex, and

will reinforce Bakkafrost's integrated business model and ensure a capacity

across the value chain to be able to produce 100,000 tonnes gutted weight of

salmon in the Faroe Islands. The aim of the investment programme is to minimize

the biological risk, increase efficiency and create sustainable organic growth.

Bakkafrost's focus on producing larger smolts plays a key role in achieving this

goal.

All in all, Bakkafrost is on track with the investment programme. The hatchery

at Strond is finalized, and the expansion of the hatcheries at Norðtoftir and

Glyvradalur has commenced. As these expansions are made to existing hatcheries

in operation, the added capacity will materialize in increased output sooner,

compared to if they were greenfield projects. Hence the increased production

from these hatcheries will emerge from early 2022.

In Q2 2020, Bakkafrost commissioned a new 7,000 m[3] well boat with hybrid

technology to reduce the carbon emission and ensure optimal energy consumption.

The vessel will be delivered in H1 2022 and will play an important role in

Bakkafrost's large-smolt strategy and plans to grow beyond 100,000 tonnes in the

Faroe Islands with offshore farming, as well as adding freshwater treatment

capacity.

Bakkafrost's recently finished Biogas plant is an important stepping-stone on

Bakkafrost's sustainable growth path, as it delivers an efficient and

sustainable solution to waste management. By converting the growing biological

waste from the increasing operation into clean energy, the biogas plant alone is

expected to save the environment from 11,000 tonnes of CO\2\ per year. The

Biogas plant is now operational, supplying electricity into the Faroese

electricity grid as well as providing heating for the residents in Tórshavn, the

capital of the Faroe Islands.

In addition to the planned investments in the value chain in the Faroe Islands,

Bakkafrost expects to make investments of around DKK 350-400 million per year

for 2020-2024 in the Scottish operation. A significant part of this will be

invested in building 3 large hatcheries to increase smolt capacity and become

self-sufficient with large smolt. The first of these hatcheries will be the

Applecross hatchery, which is being expanded and equipped with RAS technology.

Other suitable sites for the next 2 large hatcheries are currently being

investigated.

Investments have also been made in expansion of the harvest capacity in Scotland

to increase the flexibility of the operation and accommodate the increased

harvest volumes expected in coming years.

Bakkafrost has announced that a Capital Market Day will be held on 15 June 2021,

where more details on the investment plan for the Faroe Islands and Scotland

will be presented.

Financial

Despite the uncertainties imposed by the Covid-19 pandemic, long term market

balances in the world market for salmon products will most likely remain

favourable for Bakkafrost. Bakkafrost has a long value chain and a cost

-efficient production of high-quality salmon products and will likely maintain

the financial flexibility going forward.

During Q4 2019, Bakkafrost refinanced its bank facilities amounting to 352 mEUR

with a further accordion option of 150 mEUR. In addition, bank facilities

amounting to 100 mGBP were ensured to refinance The Scottish Salmon Company.

A high equity ratio together with Bakkafrost's bank financing, makes

Bakkafrost's financial situation strong. This enables Bakkafrost to carry out

its investment plans in the Faroe Islands as well as in Scotland, hereby

strengthening the Group, enabling M&A's and organic growth opportunities as well

as to fulfil its unchanged dividend policy in the future.

Covid-19 pandemic

Bakkafrost plays an important role in ensuring healthy food for the world's

growing population, and this role is especially important in the difficult times

the world is facing at present.

During the Covid-19 pandemic, Bakkafrost's ability to operate in the Faroe

Islands has not been affected by the pandemic, and the operation in Scotland has

been only mildly affected. A range of preventive measures have been implemented

to protect our workforce and ensure continuous production. New procedures and

social distancing and working from home are implemented widely in the business,

and production and office facilities have been modified where necessary to

prevent infection. In the Faroe Islands, all our employees have been offered

regular free Covid-19 screening by health professionals.

As the market situation is significantly affected by the Covid-19 pandemic,

Bakkafrost is taking all necessary steps to protect the business and constantly

adapts to the changing market conditions and shifting demands from customers.

Please find the Company's Q3 2020 report and the Q3 2020 presentation enclosed.

Contacts:

· Regin Jacobsen, CEO of P/F Bakkafrost: +298 235001 (mobile)

· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: +298 235060 (mobile)

This information is subject of the disclosure requirements pursuant to section 5

-12 of the Norwegian Securities Trading Act.

About Bakkafrost:

Bakkafrost is the largest salmon farmer in the Faroe Islands and the second

largest salmon farmer in Scotland. The Group is fully integrated from feed

production to smolt, farming, VAP and sales. The Group has production of

fishmeal, fish oil and salmon feed in the Faroe Islands and primary and

secondary processing in the Faroe Islands and Scotland. The Group operates sea

farming and  broodstock operations in both the Faroe Islands and Scotland. The

Group has built a biogas plant in the Faroe Islands, which started operation in

Q2 2020. The headquarter is located in the Faroe Islands, and the Group has

sales and administration offices in Grimsby (UK), Edinburgh (Scotland) and in

New Jersey (US). The Bakkafrost Group has 1,644 employees (full-time

equivalents).

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