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Bakkafrost P/f

Earnings Release • Feb 20, 2018

7331_rns_2018-02-20_9b61c3bf-bb83-4ba2-ace0-e61555206108.pdf

Earnings Release

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Q4 2017

BAKKAFROST GROUP Oslo 20 February 2018

  • This presentation includes statements regarding future results, which are subject to risks and uncertainties. Consequently, actual results may differ significantly from the results indicated or implied in these statements.
  • No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein. Accordingly, none of the Company, or any of its principal shareholders or subsidiary undertakings or any of such person's officers or employees or advisors accept any liability whatsoever arising directly or indirectly from the use of this document.

SUMMARY OF Q4 2017

  • MARKETS AND SALES
  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK
  • APPENDIX

HIGHLIGHTS

Q
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*) Including internal sales of 17,597 tonnes in Q4 2017 (23,176 tonnes in Q4 2016)

**) EBIT before fair value adjustments of biomass, onerous contracts provisions, income from associates, badwill and revenue tax

SUMMARY OF THE QUARTER

The result of the Farming segment decreased due to lower salmon prices, but the VAP result increased significantly. The FOF segment had a strong result.

  • Farming/VAP margin decreased from 32.00 NOK/kg in Q4 2016 to 29.88 NOK/kg in Q4 2017
  • VAP segment had a significant lift in its margin from -11.95 NOK/kg in Q4 2016 to 9.54 NOK/kg in Q4 2017
  • Farming margin was 25.76 NOK/kg in Q4 2017, compared with 37.70 NOK/kg in Q4 2016
  • FOF delivered a strong margin of 25.5% in Q4 2017, compared with 21.5% in Q4 2016
  • Group Operational EBIT was DKK 331 million in Q4 2017, compared with DKK 350 million in Q4 2016
Q
4		 Q
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%		 2
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%

SUMMARY OF Q4 2017

MARKETS AND SALES

  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK
  • APPENDIX

Farming site A-71 Funningsfjørður Picture taken 13.02.2018 from Tyril, Gjógv By curtesy of Pól Sundskarð www.hiking.fo

MARKETS & SALES

Sales to Eastern Europe increased, and sales to EU decreased in Q4 2017, compared to Q4 2016. VAP on contract decreased to 43%

  • EU market had a decrease of 3% from 48% in Q4 2016 to 45% in Q4 2017
  • USA decreased from 23% to 17%
  • Asia increased from 14% to 15%
  • Eastern Europe increased from 15% to 23%
  • VAP/contract share was 43% in Q4 2017, compared with 48% in Q4 2016
T
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Ea
ter
Eu
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Lower salmon prices in Q4 2017

  • Prices decreased
  • y/y by 18.14 NOK/kg ~26.6% from 68.30 to 50.16
  • q/q by 6.53 NOK/kg ~11.5% from 56.70 to 50.16

Increased global supply in Q4 2017

11.8% increased global supply in Q4 2017, compared with Q4 2016, corresponding to 61,100 tonnes

Change in global market supply and market price

12% increase in supply to the markets (Q/Q)

  • 16% increase in global harvest
  • Large inventory build up in the quarter
  • Market players are rebuilding "normal" frozen inventory levels from low levels
  • Both in Norway and European harvest increased by 10%

European harvest increased by 10%

  • Norway benefited from improved productivity
  • Scotland experienced accelerated harvest due to biological challenges

American harvest increased by 29%

  • Ramp up in Chile after algae bloom problems in 2016
  • Productivity has exceeded expectations
  • Normal variation around stable level in Canada
S
O
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%

SALMON MARKETS, SOLD QUANTITY (HEAD ON GUTTED – HOG)

EU underperformed other markets

High contract prices and lead times in transferring reduced spot prices to end consumers

USA performed well in the quarter

Consumption growth 17%

Russia increasing from low level

  • Consumption impacted by trade sanctions
  • Increase mainly supplied by Chile

Japan

Consumption impacted by adverse currency movement

Greater China and ASEAN

  • Significant growth in consumption
  • Cover shortfall from the EU and the US

Positive development in other markets

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Gr
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S
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O
t
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To
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2

Comments:

Greater China = China / Hong Kong / Taiwan (incl. estimated re‐export from Vietnam) ASEAN = Association of Southeast Asian Nations (estimated re‐export from Vietnam subtracted) Latin America (including both Mexico and Caribbean + domestic consumption in Chile) All figures above are in tonnes hog, and are rounded to the nearest 100 tonnes.

Salmon markets, sold quantity (head on gutted - HOG)

SHORT TERM SUPPLY OUTLOOK

Lower supply growth

  • Supply to the market likely to be impacted by inventory reductions
  • Supply from Europe expected to be volatile in the coming quarters

  • Supply growth from Americas expected to drop

  • SUMMARY OF Q4 2017

  • MARKETS AND SALES
  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK
  • APPENDIX

Harvested volumes

  • All volumes harvested in Q4 2017 came from the West Region, 66% came from A-57 Fuglafjørð at average 6.6 kg wfe
  • Harvested volumes decreased by 11% in Q4 2017, compared with Q4 2016
  • Average weight of harvested fish in the quarter was 6.2 wfe

Smolt transfer

Bakkafrost transferred 3.4 million smolts in Q4 2017 (3.3 million smolts in Q4 2016), the planned transfer to A71 was delayed to January

Seawater temperatures in the Faroe Islands

Temperatures in Q4 2017 were in average 8.8oC, compared with 9.0oC in Q4 2016 and 8.7oC in average previous 5 years

H
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Seawater Temperatures in the Faroe Islands 2003 – 2017 [°C]

Reduced margin at lower prices

The operational EBIT decreased by 43% from DKK 402 million in Q4 2016 to DKK 229 million in Q4 2017

(
D
K
K
i
l
l
i
)
m
o
n		 Q
4
2
0
1
7		 Q
4
2
0
1
6		 2
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1
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1
6
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a
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g
n		 4
0
%		 5
2
%		 4
4
%		 4
6
%

Operation

  • Farming EBIT down by 11.94 NOK per kg to 25.76 in Q4 2017, compared to 37.70 in Q4 2016
  • Farming EBIT has decreased approximately 10 NOK in second half 2017, compared with first half 2017. The reason is the price reduction during 2017

25.7637.7030.0234.500.005.0010.0015.0020.0025.0030.0035.0040.00Q4 2017 Q4 2016 2017 2016

(
N
O
K
/
k
)
g		 Q
4
2
0
1
7
N
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0		 2
5.
7
6		 2
5.
7
6

Margin - EBIT per kg total harvested quantity [NOK/kg]

VAP margin positive for first time since Q4 2015

  • Revenues decreased by 8% to DKK 288 million in Q4 2017, from DKK 313 million in Q4 2016
  • Operating EBIT in Q4 2017 was DKK 37 million, compared with DKK -61 million in Q4 2016

Performance improved and lower raw material prices in Q4 2017

Operation in the new VAP factory improved in Q4 2017, and the lower salmon spot prices in Q4 2017,compared to Q4 2016, resulted in reduced rawmaterial cost

(
D
K
K
i
l
l
i
)
m
o
n		 Q
4
2
0
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-
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Very strong margin in the quarter Fishmeal, Oil and Feed

  • EBITDA of DKK 94 million in Q4 2017, compared with DKK 71 million in Q4 2016
  • EBITDA margin of 25.5% in Q4 2017, compared with 21.5% in Q4 2016
  • Feed sales decreased 24% in Q4 2017, compared to Q4 2016
  • External sales of fishmeal increased almost 13 thousand tonnes in Q4 2017, compared to Q3 2017, due to record high sourcing in 2017

Havsbrún sourced 342 thousand tonnes in 2017, which is a record in its history

Havsbrún sourced 50,852 tonnes of raw material in Q4 2017, compared with 34,680 tonnes in Q4 2016

* Including sales to Bakkafrost, corresponding to ~93% of feed volumes in Q4 2017 (Q4 2016: 93%)

(
)
D
K
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4

Sourcing of raw material (tonnes)

MARKET CONDITIONS FEED

Feed sales decreased

  • Quantity of feed sold was 18,955 tonnes in Q4 2017, compared with 24,988 tonnes in Q4 2016
  • Negative growth conditions from Q3 2017 continued in Q4 2017, mainly because of treatments against sea lice

The market prices for marine ingredients increase again on the spot market

Both fishmeal and fish oil prices increased in Q4 2017, compared with Q3 2017, and are now nearly on same level as in Q4 2016

Volumes of raw material purchase and feed sale [tonnes]

  • SUMMARY OF Q4 2017
  • MARKETS AND SALES
  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK
  • APPENDIX

Construction of the new hatchery at Strond in Klaksvík (photo from Jan 11th 2018)

The operation is expected to start mid-2018. At full operation in 2019/2020 the hatchery is expected to produce 7 million smolt at 500 gram each.

GROUP PROFIT AND LOSS

  • Revenues increased from DKK 868 million in Q4 2016 to DKK 906 million in Q4 2017.
  • Operational EBIT in Q4 2017 decreased to DKK 331, compared to DKK 350 million in Q4 2016
  • Fair value of biomass decreased due to lower prices, compared to the end of last quarter, and no provision for onerous contracts
  • Income from associates was DKK 18 million in Q4 2017, compared to DKK 10 million in Q4 2016
  • Revenue tax, recognized as cost, amounted to DKK -20 million
  • Financial items amounted to DKK 2 million, whereof DKK 17 million is related to the NOK bond loan
  • Taxes amounted to DKK 5 million
  • There was a loss after tax of DKK -22 million, due to the large negative fair value adjustment of biological assets
(
)
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2
1.
4

* Operational EBITDA and EBIT adjusted for fair value adjustment of biomass, onerous contracts, income from associates, badwill and revenue tax.

OPERATIONAL EBIT* AND EARNINGS PER SHARE

Operational EBIT* (DKK million)

Earnings per share (DKK)

*) EBIT before fair value adjustments of biomass, onerous contracts provisions, income from associates, badwill and revenue tax

BALANCE SHEET

  • Intangible assets at the end of Q4 2017 are unchanged from Q4 2016
  • Investments in PPE of DKK 169 million in Q4 2017
  • Financial assets amount to DKK 77 million.
  • The carrying amount of biological assets amounts to DKK 1,097 million, whereof fair value adjustment amounts to DKK 187 million
  • Inventory decreased by DKK 50 million from the end of 2016 to DKK 306 million at the end of Q4 2017
  • Changes in equity because of positive results in 2017. Equity ratio is 70% (Covenants 35%)
  • NIBD at DKK 258 million down from DKK 635 million at end 2016*

* Incl. unrealized exchange gain, losses and deposits on financial derivatives related to the debt

(
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8

CASH FLOW

  • Cash flow from operations higher in Q4 2017, compared to Q4 2016, due to changes in working capital
  • Cash flow from investments represents investments in PPE
  • Cash flow from financing is affected by change in interest bearing debt
(
D
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NET INTEREST BEARING DEBT (NIBD)

Paid taxes Other NIBD Q4 2017

Net Interest Bearing Debt

  • Cash flow from operating activities and changes in working capital decreased the NIBD with DKK 402 million in Q4 2017
  • Net investments and other in Q4 2017 increased the NIBD with DKK NIBD169 million
  • Paid taxes increased the with 140 million in Q4 2017

Financing end Q4 2017

  • Total funding to ~ DKK 1,271 million
  • NIBD: DKK 258 million
  • Undrawn loan facilities: DKK 1,005 million

New financing in 2018

  • Bond Loan is paid in Q1 2018
  • New Credit Facility EUR 200 million agreed in Q1 2018

Development in NIBD in DKK millions

NIBD Q3 2017 Net investments Cash from

Change in

BAKKAFROST / Q4 2017 PRESENTATION

  • SUMMARY OF Q4 2017
  • MARKETS AND SALES
  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK
  • APPENDIX

OUTLOOK

Market

  • Global supply in Q4 2017 estimated to increase around 12%, compared to Q4 2016
  • Global harvest increase in 2018 expected to be around 6%

VAP

  • Contracted around 14% of expected harvest for the rest of 2018
  • Bakkafrost long-term strategy is to sell 40-50% of the harvested volumes as VAP products at fixed price contracts

Farming

  • Bakkafrost expects to harvest 51,000 tonnes in 2018
  • Expected total smolt release in 2018 is 13.9 million pieces, compared with 9.9 million pieces in 2017 and 11.7 million pieces in 2016
  • Bakkafrost has made an agreement with Fiskaaling and the Faroese Authorities to take responsibility of the Faroese broodstock program with the option to get the genome rights in 2021

Fishmeal, Oil and Feed

  • Feed sales in 2018 is expected to be around 85,000 tonnes
  • The new salmon fishmeal and -oil production is expected to start operation in beginning of Q2 2018 and have full production in second half 2018

Business development

  • Optimizing of the value chain according to the announced investment plan continues
  • Pursuing organic growth

  • Financial flexibility enables M&A

  • SUMMARY OF Q4 2017

  • MARKETS AND SALES
  • SEGMENT INFORMATION
  • GROUP FINANCIALS
  • OUTLOOK

DEVELOPMENT IN HARVESTED AND SOLD QUANTITY BY ORIGIN

9% supply increase in 2018

  • Total supply growth of 2% in 2017
  • Total supply growth of 9% in 2018
G
Su
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Su
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5
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1
7

Notes:

All figures are in hog-equivalents and thousand tonnes.

Figures represent sold quantity of Atlantic Salmon from each producing country

Source: Kontali

Q3 MARKET ENVIRONMENT

Reduced spot prices in Europe driven by supply growth

  • Nasdaq Norway price EUR 5.1 in Q4 2017
  • 31% decrease vs. Q4 2016
  • 15% decrease compared to Q3 2017
  • Fixed contracts realised at significant premium to spot prices

Less price pressure in the US

  • Urner Barry East coast prices
  • 13% decrease vs. Q4 2016
  • Flat prices compared to Q3 2017

Large inventory build-up impacted prices positively

M
A
R
K
E
T
C
U
R
R
E
N
C
Y		 Q
4
2
0
1
7		 Q
4
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0
1
6		 C
ha
%
ng
e
(
)
Na
da
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E
U
R
s
q
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ay		 5.
1
3		 7.
3
8		 %
3
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5
-
S
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(
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1
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kg
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1
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-
D
K
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t
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H
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(
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r
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1.
7
7		 6
4.
9
1		 2
0.
2
%
-

PRICE US – NORTH EAST

Source: Kontali

Share of large fish

  • Share of large fish 25% in Q4 2017, compared with average of 14%
  • Large fish share generally indicator on good performance and better market diversification

Share of large fish (>6kg)

Notes:

All figures are in hog-equivalents and thousand tonnes.

Figures represent sold quantity of Atlantic Salmon from each producing country

Source: Kontali

BAKKAFROST / Q4 2017 PRESENTATION

Investments will be made step by step in the relevant parts of the value chain to secure:

  • Biological risk
  • Efficiency
  • Organic growth

INVESTMENT PROGRAMME 2016 - 2020

Investment program of DKK 2.2b from 2016 to 2020

Fishmeal, Oil & Feed (380 mDKK)

  • New salmon meal and –oil plant
  • New feed line to increase capacity
  • Advanced feed line capabilities

Smolt (1,130 mDKK)

  • Viðareiði 2016 – finalizing facility
  • Strond 2018 – new facility
  • New site 2019
  • Upgrade existing facilities 2019-2020

Harvest/VAP Finalizing new plant (160 mDKK)

  • Consolidating fragmented processing structure into one state of the art facility
  • Represents large efficiency benefits
  • Improves capability of extracting benefits of a premium product in the fresh category

Investment Programme 2016 – 2020 (mDKK)

Results in

  • •reduced biological risk
  • •opportunities for organic growth
  • •better usage of off-cuts from the salmon production
  • •5-6 years pay back on investments

INCREASED SMOLT PRODUCTION LEADS TO INCREASED PRODUCTION

Larger smolt (PS) will reduce time of cycle in farming

  • Harvest cycle every second year from the same fjords until effect from larger smolt evolvs
  • Smolt size will gradually increase to 500 gram by 2020
  • Smolt release will gradually increase to ~14 million pcs as production cycle decreases from 24 to ~14 months (incl. fallowing period)
  • Production volume will gradually increase to ~70 thousand tonnes

Farming volume – growth potential with PS (1,000 tonnes)

Smolt size on released fish (size gram) Smolt release (million pcs)

Smolt production (1,000 tonnes)

DEVELOPMENT PER QUARTER Q1 2014 – Q4 2017

(
D
K
K
)
m		 Q
4
2
0
1
7		 Q
3
2
0
1
7		 Q
2
2
0
1
7		 Q
1
2
0
1
7		 Q
4
2
0
1
6		 Q
3
2
0
1
6		 Q
2
2
0
1
6		 Q
1
2
0
1
6		 Q
4
2
0
1
5		 Q
3
2
0
1
5		 Q
2
2
0
1
5		 Q
1
2
0
1
5		 Q
4
2
0
1
4		 Q
3
2
0
1
4		 Q
2
2
0
1
4		 Q
1
2
0
1
4
Re
ve
nu
e		 9
0
6		 8
0
4		 1,
2
0
6		 8
4
5		 8
6
8		 6
4
0		 9
0
7		 9
0
5		 6
0
7		 6
7
7		 8
0
0		 6
1
3		 7
5
7		 8
4
5		 1
1
7		 6
3
1
O
t
io
l
E
B
I
T
p
e
ra
na		 3
3
1		 2
5
2		 4
5
9		 3
3
5		 3
5
0		 2
5
5		 3
0
7		 2
5
4		 2
5
7		 2
0
6		 3
0
3		 2
3
5		 2
2
7		 2
0
9		 2
1
2		 1
8
6
Pr
f
i
t
/
Lo
o
s
s		 -2
2		 5
6		 3
9
8		 7
9		 5
5
5		 3
4
7		 2
2
4		 2
1
3		 3
1
9		 1
6
8		 1
9
1		 1
3
2		 2
2
2		 2
1
1		 1
2
6		 8
7
Ha
t
(
t
)
rv
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s
g
w		 1
1,
4
7
0		 1
1,
5
8
5		 1
8,
4
0
2		 1
3,
1
5
8		 1
2,
9
4
0		 1
0,
6
6
4		 1
3,
0
0
4		 1
0,
9
3
4		 1
3,
6
7
5		 1
2,
9
8
2		 1
4,
1
8
2		 9,
7
2
6		 1
2,
6
5
1		 1
0,
8
8
1		 1
1,
2
1
2		 9,
2
6
9
O
E
B
I
T
Fa
ing
&
V
A
P
p.
rm
(
N
O
K
/
kg
)		 2
9.
8
8		 2
3.
0
2		 2
9.
7
7		 2
9.
4
0		 3
2.
0
0		 2
8.
9
7		 2
7.
8
8		 2
7.
5
5		 2
1.
8
3		 1
8.
1
0		 2
2.
6
2		 2
6.
1
2		 1
9.
4
8		 1
9.
7
3		 1
7.
6
6		 2
1.
3
7
Eq
i
io
ty
t
u
ra		 0
%
7		 6
8
%		 6
4
%		 6
%
5		 6
6
%		 6
3
%		 6
1
%		 6
6
%		 6
6
%		 6
3
%		 6
1
%		 6
1
%		 6
0
%		 %
5
7		 3
%
5		 %
5
7
N
I
B
D		 2
8
5		 3
6
5		 6
0
5		 4
9
5		 6
3
5		 0
4
5		 6
0
3		 2
1
8		 3
9
1		 1
8
2		 3
0
2		 2
2
7		 2
3
3		 3
7
5		 5
5
5		 0
3
5

Revenue for the Bakkafrost Group has increased from 820 mDKK in 2010 to 3.8 bDKK in 2017.

Operational EBIT for the Bakkafrost Group has increased from 247 mDKK in 2010 to 1.4 bDKK in 2017.

The margin in Farming was NOK 30.02 per kg in 2017.

The margin in VAP was NOK -4.96 per kg in 2017.

Dividend

• Dividend for 2017 of DKK 10.50 (NOK 13.65****) per share will be paid out in Q2 2018

Dividend policy

  • Competitive return through:
  • Dividends
  • Increase in the value of the equity
  • Generally, Bakkafrost shall pay dividend to its shareholders
  • A long-term goal is that 30–50% of EPS shall be paid out as dividend

* Adj. EPS is EPS adjusted for fair value adjustments of biomass and onerous contracts provisions

** Dividend and acquisition of treasury shares

*** Dividend is paid out the following year

**** The dividend per share in NOK is subject to changes depending on the exchange rate between DKK and NOK, which will be announced after the Annual General Meeting.

Dividend per share in % of adj. EPS *

Dividend per share (DKK) ***

FAROE ISLANDS

  • 18 islands – 1,387 km2
  • 50,498 inhabitants (Jan 2018)
  • Home rule – within the Kingdom of Denmark
  • Part of the Danish monetary union, Danish krone (DKK)
  • Key sectors (% of wage earners, 2016)
  • Service/public admin.: ~34%
  • Private service: ~31%
  • Construction: ~13%
  • Fishing : ~21%
  • Unemployment rate (Des 2017): 2.2%
  • Total working force (Nov 2017): 26,358
  • GDP: DKK ~18bn (2016)
  • GDP/capita: DKK 360,000 (2016) (Norway: DKK 455,000) (2016)

Total export of fish products (2016) 15% increased

  • DKK 7,680 million
  • whereof farmed fish accounts for 48%

TAXES

  • Total percent of GDP: 42.4% (2013)
  • Corporate tax: 18%
  • Farming revenue tax : 4.5% of revenues from 1 January 2016 more details see page 44 in Bakkafrost CMD presentation from June 2016
  • Restriction on single foreign ownership of 20% in farming companies
  • One company may max. control 50% of licences in the Faroe Islands Source: Hagstova Føroya

LARGEST SHAREHOLDERS

20 largest shareholders

No of shares ÷ ÷
Account name		 $*$ type ÷
Citizensh
4,594,437 $9.4\%$ Oddvør M. Jacobsen FRO
4,494,825 $9.2\%$ JACOBSEN JOHAN REGIN FRO
3,531,841 7.2% FOLKETRYGDFONDET NOR
3,497,015 7.2% Nordea Bank AB Denmark Branch, CCA NOM DNK
1,276,977 2.6% CLEARSTREAM BANKING NOM LUX
985.433 2.0% SWEDBANK ROBUR SMABO NORDEN SWE
888,989 1.8% AVIVA INVESTORS JPML SA RE CLT AVIVA LUX
821,529 1.7% JPMorgan Chase Bank, S/A NON-TREATY LENDI NOM GBR
715,565 1.5% State Street Bank an A/C CLIENT OMNIBUS F NOM USA
683,293 1.4% VERDIPAPIRFONDET DNB V/DNB ASSET MANAGEME NOR
638,468 1.3% NN (L) Global Sustai BROWN BROTHERS HARRI LUX
598,750 1.2% State Street Bank an OY59-EXEMPT LUX REGI NOM USA
581,260 1.2% JPMorgan Chase Bank, JPMCB RE HB SWED FUN NOM SWE
580,000 1.2% HANDELSBANKEN NORDEN NAJPMELS CLT H/BANKE SWE
554,502 1.1% Skandinaviska Enskil SEB AB, UCITS V - Sw NOM SWE
550,080 1.1% SEB SVERIGEFOND Skandinaviska Enskil SWE
526,499 1.1% JPMorgan Chase Bank, A/C VANGUARD BBH LEN NOM USA
496,894 1.0% NORDEA NORDIC FUND FIN
478,139 1.0% VERDIPAPIRFONDET ALF SEB Investor World G NOR
475,973 1.0% NN PARAPLUFONDS 1 N. BNY MELLON SA/NV NLD
26,970,469 55.2%
48,858,065 100 Total number of shares as per 15 February 2018
225,979 0.7 Wherof own shares
48.632.086 99.3 Total number of outstanding shares

Share development 12 months development NOK/shareTraded daily

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BAKKAFROST / Q4 2017 PRESENTATION

Page 38

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