Bakkafrost P/f

Earnings Release • May 20, 2014

Highest margins ever per kilo

Highest margins ever per kilo

The Bakkafrost Group delivered a total operating EBIT

of DKK 185.5 million in Q1 2014. The combined farming

and VAP segment made an operational EBIT of DKK 176.7

million. The EBITDA for the feed segment was DKK 22.2

million in Q1 2014.

Commenting on the results, CEO Regin Jacobsen said:

"Q1 2014 is the quarter where Bakkafrost has had the

highest margins per kg since the listing of the

company in 2010. The result is based on a good biology

and a strong salmon market. Bakkafrost´s focus is on

maintaining the good biology and selling the products

to the best long-term paying markets."

The Group made a profit for the quarter of DKK 87.2

million (DKK 67.5 million).

The total volumes harvested in Q1 2014 were 9,269

tonnes gutted weight (8,296 tgw) an increase of 11.7%.

Bakkafrost transferred 3.0 million smolts in Q1 2014

(2.1 million). Due to the favourable seawater

temperatures in the Faroes, Bakkafrost releases smolts

during the whole year.

In Q1 2014 the associated company P/F Faroe Farming

harvested 2,166 tonnes gutted weigth (2,355 tgw).

On the 24th of April 2014 Bakkafrost - via its 100%

owned subsidiary Havsbrún - acquired an additional

41.15% in Hanstholm Fiskemelsfabrik. After the

acquisition Bakkafrost owned 81.01% of the company.

The 9th May 2014 Bakkafrost divested all its shares in

Hansholm Fiskemelsfabrik to FF Skagen A/S. In return

Bakkafrost, via its subsidiary P/F Havsbrún, received

a 17% share interest in FF Skagen A/S. The transaction

is subject to the approval of the Danish competition

and Consumer Authority. The investment is a strategic

investment and part of the consolidation of the

fishmeal and fish oil industry.

In accordance with the Group's dividend policy,

Bakkafrost paid out DKK 4.50 (NOK 4.98) per share in

April 2014. The amount corresponds to approximately

DKK 219.9 million (NOK 243.3 million). Bakkafrost

purchased 366,700 treasury shares at a price of NOK 86

each in December 2013.

In February 2014, a routine surveillance test detected

a possible pathogenic ISA-virus at Bakkafrost's

farming site A-80. The detection was not connected to

any increase in mortality, and there was no impact on

fish health or fish welfare. Bakkafrost decided to

activate the ISA-contingency plan immediately and

hence enforced slaughtering of the last cage at the

farming site A-80 Selatrað. The site was empty before

mid February. No signs of ISA have been detected since

and no cost increase was related to the detection.

The farming companies and the authorities have high

focus to maintaining the good biological status in the

Faroe Islands. Regular surveillance tests for ISA-

viruses have been performed at all farms during the

last approx 10 years in sea sites in the Faroes.

Bakkafrost and the other farmers in the Faroe Islands

will work with the Faroese Food and Veterinary

authority to avoid the introduction of the AGD and

ISA.

The combined farming and VAP segment made an

operational EBIT of DKK 176.7 million (DKK 101.3

million) in Q1 2014.

The farming segment made an operational EBIT of DKK

186.2 million (DKK 124.5 million). The reason for the

improved result is mainly due to higher prices, but

also due to higher harvested volumes.

As expected, the VAP segment had a loss on its

operations in Q1 due to high salmon spot prices. The

VAP segment made an operational EBIT of DKK -9.5

million (DKK -23.2 million) for Q1 2014. There is

normally a time lag between the changes in the spot

prices and the changes in the contract prices. Even if

the contract prices have increased significantly

lately, they did not cover the strong spot prices that

we have experienced in Q1 2014.

The third segment - fishmeal, oil and feed - made an

operational EBITDA of DKK 22.2 million (DKK 24.8

million) in Q1 2014.

In Q1 2014, Havsbrún sourced 44,159 tonnes of raw

material (30,938 tonnes).

The Bakkafrost Group had a net interest bearing debt

at the end of Q1 2014 amounting to DKK 503.4 million

(DKK 641.6 million at year-end 2013) including

deposits and losses on financial derivatives relating

to the interest bearing debt. Bakkafrost had undrawn

credit facilities of approx DKK 804.6 million, of

which DKK 16.0 million are restricted at the end of Q1

Bakkafrost's equity ratio is 57%, compared to 54% at

the end of 2013.

Segments

Farming:

The operating revenue for Bakkafrost's farming segment

was DKK 518.1 million in Q1 2014 (DKK 425.0 million).

Operational EBIT, which is EBIT before fair value

adjustments on biological assets, amounted to DKK

186.2 million in Q1 2014 (DKK 124.5 million).

Operational EBIT/kg for the farming segment was DKK

20.09 (NOK 22.51) in Q1 2014, compared to DKK 15.01

(NOK 14.95) in Q1 2013. The salmon prices in Q1 2014

have been stronger than in Q1 2013 and thus higher

margins per kilo.

Value Added Products (VAP):

The operating revenue for the value added segment

amounted to DKK 232.3 million in Q1 2014 (DKK 147.7

million). The increase in the revenue from Q1 2013 to

Q1 2014 was 57%, while the volumes used for the VAP

products only increased by 37%.

Operational EBIT amounted to DKK -9.5 million in Q1

2014 (DKK -23.2 million), corresponding to an

operational EBIT of DKK -1.62 (NOK -1.82) per kg

gutted weight in Q1 2014, compared to DKK -5.46 (NOK

-5.44) per kg gutted weight in Q1 2013. The

operational loss in the VAP segment is due to the high

salmon spot prices. The VAP segment acquires its raw

material (fresh salmon) at spot prices each week.

Fishmeal, Fish Oil and Fish Feed:

The operating revenue for the fishmeal, fish oil and

fish feed segment amounted to DKK 178.1 million (DKK

157.5 million) in Q1 2014, of which DKK 92.9 million

represents sales to Bakkafrost's farming segment

corresponding to 52.2% (74.0%).

Operational EBITDA was DKK 22.2 million (DKK 24.8

million) in Q1 2014, and the operational EBITDA margin

was 12.45% (15.75%).

Sales of feed amounted to 13,956 tonnes (14,906

tonnes) in Q1 2014, of which the farming segment

internally used 10,598 tonnes (10,991 tonnes).

In the quarter, Havsbrún received 44,159 tonnes

(30,938 tonnes) of raw material for the production of

fishmeal and fish oil. The raw material intake is

dependent on the fishery in the North Atlantic and

available species of fish.

Statement of Financial Position

The Group's total assets as of end Q1 2014 amounted to

DKK 3,064.5 million, compared to DKK 3,112.2 million

at the end of 2013.

The Group's intangible assets are unchanged compared

to the beginning of the year and amounted to DKK 294.7

million. Intangible assets comprise primarily of the

fair value of acquired farming licences. No licences

in the North region are recorded with a value in the

Bakkafrost accounts.

Property, plant and equipment amounted to DKK 911.8

million at the end of Q1 2014, compared to DKK 916.7

million at the end of 2013. In Q1 2014 Bakkafrost made

investments in PP&E amounting to DKK 17.7 million.

Non-current financial assets amounted to DKK 126.2

million at the end of Q1 2014, compared to DKK 116.8

million at the end of 2013. The increase in the

financial assets relates mainly to the investment in

the new pelagic processing company Pelagos next to

Havsbrún in Fuglafjørður. It is expected that the

processing plant will be up running during the summer

2014. Bakkafrost owns 30% of the shares in Pelagos.

The Group's carrying amount (fair value) of biological

assets amounted to DKK 845.1 million at the end of Q1

2014, compared to DKK 965.9 million at the end of

2013. Included in the carrying amount of the

biological assets is a fair value adjustment amounting

to DKK 182.6 million, compared to DKK 296.4 million at

the end of 2013. The decrease is primarily due to

lower salmon prices at the end of Q1 2014 compared to

end 2013.

The Group's total inventories amounted to DKK 248.5

million as of end Q1 2014, compared to DKK 235.5

million at year-end 2013. The inventory primarily

represents Havsbrún's inventory of fishmeal, fish oil

and fish feed, in addition to feed at the feed

stations, packing materials and other raw materials.

The Group's total receivables amounted to DKK 394.8

million as of end Q1 2014, compared to DKK 400.6

million at the end of 2013.

The Group's equity at the end of Q1 2014 is DKK

1,760.8 million, compared to DKK 1,665.3 million at

the end of 2013. The change in equity in Q1 2014

primarily consists of the profit for the period, and a

positive fair value adjustment to a currency-/interest

rate swap related to the bond financing. The dividend

totalling DKK 219.9 million, approved on the AGM the

5th of April 2014, has been paid out 29 April 2014.

The Group's total non-current liabilities amounted to

DKK 1,017.1 million at the end of Q1 2014, com-pared

to DKK 1,071.0 million at the end of 2013. Deferred

and taxes payable in 2015 amounted to DKK 333.9

million, compared to DKK 310.9 million at the end of

2013. Long-term debt was DKK 619.1 million at the end

of Q1 2014, compared to DKK 685.2 million at the end

of 2013. Derivatives amounted to DKK 64.2 million at

the end of Q1 2014 compared to DKK 74.9 million at the

end of 2013.

Bakkafrost's interests bearing debt consists of two

bank loans and a bond loan. The bank loans are one

instalment loan of DKK 275 million, payable with DKK

25 million each quarter, and one overdraft facility

payable in 2016 with the full amount of DKK 553

million. 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, 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. 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 Q1 2014, the Group's total current

liabilities are DKK 286.5 million, compared to DKK

376.0 million at the end of 2013. Short-term interest

bearing debt amounts to DKK 100.0 million and relates

to a short-term part of long-term debt as described

above. Accounts payable amount to DKK 186.5 million,

compared to DKK 276.0 million at the beginning of the

year. The decrease is primarily due to lower

provisions for onerous contracts.

Bakkafrost's equity ratio is 57%, compared to 54% at

the end of 2013.

Cash Flow

The cash flow from operations improved significantly

in Q1 2014 compared to Q1 2013. The cash flow from

operation in Q1 2014 was DKK 108.3 million (DKK 34.1

million). The Cash flow from operations was positively

affected by higher sales prices.

The cash flow from investment activities in Q1 2014

amounted to DKK -34.2 million (DKK -28.6 million). The

amount relates to investments in fixed assets and in

the investment in the pelagic processing company

Pelagos.

Cash flow from financing activities totalled DKK -12.7

million in Q1 2014 (DKK 93.5 million). The interest

bearing debt decreased by DKK 66.1 million, while

financing of associated companies contributed

positively with DKK 62.5 million.

Net change in cash flow in Q1 2014 amounted to DKK

61.4 million (DKK 98.9 million).

At the end of Q1 2014 Bakkafrost had unused credit

facilities of approximately DKK 804.0 million of which

DKK 16.0 million are restricted.

Outlook

MARKET

The outlook for the salmon market in 2014 is good. We

expect a seasonal supply increase during the summer

and autumn.

The total Global supply of salmon in 2014 is expected

to increase around 8% mainly due to a mild winter in

Norway. Based on historical numbers, the salmon marked

is in balance, when the supply increases by 6-8% per

year, but the previous two years have indicated that

the salmon market is stronger than before and can take

a supply increase up to 10-12% and still be in

balance. In 2013 the average NOS (Independent

exporters purchase price, spot from farmers) was NOK

39.07 per kg. Therefore, it is expected that the

average NOS price for 2014 will be in the same price

range as in 2013.

Bakkafrost expects to sell around 55% of the harvested

volume of salmon in the spot market in 2014 and around

45% as VAP.

The market place is one of Bakkafrost's most

significant risk areas. To reduce the exposure to the

market risk, Bakkafrost has a geographical approach

and a market price approach. To diversify the

geographical market risk, Bakkafrost sells its

products to some of the largest salmon markets in the

world, US, the Far East, Europe and Russia. The sale

to Russia has been low the last quarters, as the

Russian market is not a strategic market for

Bakkafrost.

FARMING

The outlook for the farming segment is good. The

biological situation is good and the price outlook in

the spot market is good. Bakkafrost's expected harvest

is unchanged at 45,000-48,000 tonnes gutted weight in

2014, and Faroe Farming, in which Bakkafrost holds

49%, expects to harvest around 5,000 tonnes in 2014.

The number of smolts released is one key element of

predicting the future production for the Group.

Bakkafrost's forecast for the smolt release in 2014 is

11.6 million smolts and shall be compared to the

number of smolts released in 2012, when the smolt

release was 10.7 million. The same sites are available

for smolt release in 2014, as in 2012.

The estimates for harvesting volumes and smolt

releases, is as always, dependent on the biological

situation. The overall biological situation in the

Faroe Islands is good, but the detection of

Neoparamoeba perurans in the Faroes and the detection

of an ISA virus are new risks to handle. The number of

sea lice is lower than in previous years after a

coordinated treatment in the Faroe Islands in 2013.

The coordinated strategic treatment against lice will

continue in 2014.

Value added products (VAP)

The outlook for the sale of value added products is

good. Bakkafrost has signed contracts covering 75-80%

of the VAP capacity for the rest of 2014,

corresponding to 30% of the expected harvested volumes

for the rest of 2014. The last 20-25 % of the VAP

capacity is expected to be committed during the rest

of the year. The contracts are at fixed prices based

on the salmon prices at the time they are agreed and

the expectations for the salmon spot price for the

contract period. Therefore, the contracts are based on

a significant higher price level in 2014 than in 2013.

The contracts last for 6 to 12 months. The strategy is

to sell around 40-50% of the harvested volumes of

salmon as VAP products on 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 with trends instead of short-term

fluctuations as in the spot market.

Fish oil, -meal and feed

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

Faroese market. It is expected that the total

consumption of fish feed in the Faroe Islands will be

approximately 90,000-95,000 tons in 2014. Depending on

the purchase from external customers in the Faroe

Islands and abroad, the sale of fish feed will be

approximately 83,000-87,000 tonnes.

With the positive outlook for the fisheries of blue

whiting and the establishment of a pelagic fish

processing plant next to Havsbrún's production

facilities in Fuglafjørður the outlook for sourcing

raw material is better than in recent years. Off-cuts

from the new processing facility, which Bakkafrost

has a 30% share in, can be used for the production of

fishmeal and fish oil. However, depending on supply,

demand and the price level, the sourcing of raw

material for the production of fish oil and -meal is

very uncertain. An alternative to Havsbrún's

production of fish oil and -meal is purchasing these

raw materials from other producers, which has been

common in recent years.

Investments

In July 2013, Bakkafrost announced a five-year plan

for optimising its value chain, resulting in savings,

increased production and reduced biological risk. The

yearly investments amount to DKK 170 million per year,

including maintenance investments of DKK 80-90 million

per year. In addition to the yearly investments of DKK

170 million, Bakkafrost is building a new well boat,

estimated to DKK 230 million. Thus, the total

investments will exceed DKK 1 billion for the 5-year

period. The investments in 2014 are estimated to DKK

170 million in addition to prepayment for the well

boat amounting to DKK 42 million.

Financial

Improved market balances in the world market for

salmon products and costs effective production will

likely improve the financial flexibility going

forward. A high equity ratio together with the Group's

bank financing and the issuance of bonds, makes

Bakkafrost's financial situation strong, which 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.

Contacts:

Regin Jacobsen, CEO of P/F Bakkafrost: +298 23 50 01

(mobile)

Teitur Samuelsen, CFO of P/F Bakkafrost: +298 23 51 11

(mobile)

This information is subject of the disclosure

requirements acc. to §5-12 vphl (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 fish meal, fish oil and salmon feed

in Fuglafjørður. The Group operates licenses on 14

farming fjords. The Group has primary processing in

Klaksvík, Kollafjørð and Strendur and secondary

processing (VAP) in Glyvrar and Fuglafjørður. The

headquarters are located in Glyvrar, and the company

has a total of 640 employees.

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