Bakkafrost P/f

Earnings Release • May 23, 2017

BAKKAFROST: Operational EBIT of DKK 335 million for the first quarter of 2017

BAKKAFROST: Operational EBIT of DKK 335 million for the first quarter of 2017

The Bakkafrost Group delivered a total operating EBIT of DKK 335.5 mil­lion in

Q1 2017. Harvested volumes were 13.2 thousand tonnes gutted weight. The combined

farming and VAP segments made an operational EBIT of DKK 320.2 million. The

farming segment made an operational EBIT of DKK 373.2 million. The salmon spot

prices continued in Q1 2017 on a high level from 2016, which was positive for

the farming segment. The VAP segment realized higher prices, but is not matched

by the high spot prices, and therefore the VAP segment had negative margins in

Q1 2017. The VAP segment made an operational EBIT of DKK -53.0 mil­lion. The

EBITDA for the FOF segment was DKK 45.1 million.

The total volumes harvested in Q1 2017 were 13.2 thousand tonnes gutted weight.

Bakkafrost trans­ferred 1.4 million smolts in Q1 2017. In Q1 2017, Havsbrún

sourced 106.6 thousand tonnes of raw material.

The farming segment made an operational EBIT of DKK 373.2 million for Q1 2017,

which corresponds to NOK 34.27 per kg. The VAP segment made an operational EBIT

of DKK -53.0 million for Q1 2017. Although the sales prices in the VAP segment

have increased, the VAP segment continued to have negative results, primarily

due to the high salmon spot prices. The new VAP factory at Glyvrar started

production in January 2017, and Q1 2017 was the first quarter when both the

harvest operation and the VAP production operated in the combined VAP/harvest

factory at Glyvrar. Simultaneously, the old VAP factories were closed. The

combined farming and VAP segments made an operational EBIT of DKK 320.2 million

for Q1 2017, which corresponds to NOK 29.40 per kg. The FOF segment (fishmeal,

oil and feed) made an operational EBITDA of DKK 45.1 million for Q1 2017.

Commenting on the result, CEO Regin Jacobsen said:

"The first quarter of 2017 was an eventful quarter for Bakkafrost in many ways.

In January, Bakkafrost started the VAP production in the new combined

harvest/VAP factory at Glyvrar, which was the last of three operations to start

up at the premises at Glyvrar since 2014. The two previous are the packaging

operation and the harvest operation, which started up in 2014 and 2016

respectively. There were challenges in the farming operation in this quarter, as

ISA-virus was confirmed on one farming site. Since ISA suspicion arose in July

2016, Bakkafrost has monitored the development at the farming site closely

together with the authorities. Timely action has been taken and all fish

harvested immediately."

Bakkafrost's farming site A-73 Hvannasund Norður has been under suspicion of

pathogenic ISA-virus since July 2016. The suspicion rose anew in January 2017,

and Bakkafrost decided to harvest the two cages, related to the suspicion. Medio

March 2017, Bakkafrost decided to harvest the whole site early as a

precautionary action. At the end of March 2017, pathogenic ISA-virus at farming

site A-73 Hvanna-sund Norður was confirmed. Bakkafrost decided to accelerate the

already started harvest. The harvest of farming site A-73 Hvannasund Norður

ended on 12 April 2017, and the average size of the harvested fish was just

below 3 kg gutted weight.

The Bakkafrost Group's net interest bearing debt amounted to DKK 458.6 million

at the end of Q1 2017. Bakkafrost had undrawn credit facilities of approximately

DKK 826.4 million at the end of Q1 2017 and the equity ratio was 65% at 31 March

OUTLOOK

Market

The salmon market has for the last year or so been affected by decline in

supply. The main factors behind this were the harmful algal bloom in Chile in

February 2016 and the biological issues in Norway. The negative effect of the

Chilean algal bloom on supply of salmon continued into Q1 2017. Expecta­tions

are that global supply of Atlantic salmon will shift from reduced supply into

growth of supply in Q2 2017. The latest update from Kontali Analyse estimates a

global supply of Atlantic salmon to in­crease around 2% in 2017, compared to -6%

in 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.

Farming

The outlook for the farming segment is good. The estimates for harvesting

volumes and smolt releases are dependent on the biological development.

The biological situation is Bakkafrost's most important risk area. The confirmed

presence of patho­genic ISA-virus at farming site A-73 in March, draws attention

to the importance of a high quality veter­inary system to reduce the biological

risk. Harvest of the fish at farming site A-73 was finished on 12th April 2017,

and the site is now in fallow. Bakkafrost focuses on biological risk

continuously and has made several new investments and procedures to diminish

this risk.

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.

Bakkafrost expects to harvest 53,500 tonnes gutted weight in 2017.

Bakkafrost expects to release 11.5 million smolts in 2017, compared with 11.7

million smolts in 2016 and 11.3 million 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.

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, which aim at

reducing the number of sea lice even further, is 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 freshwater

treatment against sea lice since Q4 2015. In Q4 2016, Bakkafrost invested in a

service vessel, M/S Martin, which will primarily use lukewarm sea­water

treatment against sea lice. M/S Martin started operation in Q1 2017. In addition

to M/S Martin, Bakkafrost invested in another service vessel, M/S Róland, in Q1

2017. M/S Róland is equipped with the same system as M/S Martin and is expected

to start operation in June/July 2017. Furthermore, Bakkafrost will increase the

use of lumpfish in farming significantly in 2017.

VAP (Value added products)

Bakkafrost has signed contracts covering around 39% of the expected harvested

volumes for the rest of 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,

there are, however, no indications that this price level should decrease

significantly.

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 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 is 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.

Investments

In June 2016, Bakkafrost announced a five-year investment plan from 2016 to

2020. The total invest-ments for the period are DKK 2.2 billion, including

maintenance CAPEX. Investments of around DKK 100 million in the two service

vessels, M/S Martin and M/S Róland during 2017, are not included in the

investment plan.

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.

Both the harvest operation and the VAP production in the new harvest/VAP factory

at Glyvrar are operating. The harvest operation started in the summer of 2016,

and the VAP production started in Q1 2017. The old harvest factories in

Klaksvík, Kollafjørður and Strendur are closed, as well as the old VAP factories

in Fuglafjørður and Glyvrar. There are 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.

Financial

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 and bond financing

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.

Please find enclosed the Company's Q1 2017 report and presentation.

Contacts:

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

Gunnar Nielsen, 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. 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 Fuglafjørður. The Group has

primary processing in Glyvrar and Vágur, and secondary pro­cessing (VAP) in

Glyvrar. The Group operates sea farming in Norðoyggjar, Eysturoy, Streymoy and

Suðuroy. The headquarter is located in Glyvrar, and the company has 820 fulltime

employees.

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2017-Q1

Presentation (http://mbpublicbinaryproxy/Public/12459/2271616/976a360da785b079.pd

f)    Q1 2017 Condenced Interim Consolidated

Accounts (http://mbpublicbinaryproxy/Public/12459/2271616/9718215eb9701fb0.pdf)