Bakkafrost P/f

Annual Report • Feb 25, 2014

Best year ever and dividend of DKK 4,50 (NOK 5.03*) per share

Best year ever and dividend of DKK 4,50 (NOK 5.03*) per share

The Bakkafrost Group delivered a total operating EBIT

of DKK 125.8 million in Q4 2013. The combined farming

and VAP segment made an operational EBIT of DKK 124.9

million in Q4 2013. For 2013, Bakkafrost made an

operational EBIT amounting to DKK 587.0 million. The

EBITDA for the feed segment was DKK 21.3 million in Q4

2013. For 2013, the EBITDA for the feed segment was

DKK 125.8 million.

Commenting on the results, CEO Regin Jacobsen said:

"2013 is the best year ever for the Bakkafrost Group.

The salmon market has been stronger than expected,

with the new markets taking the lead. In 2013 we

announced our 5 year investment plan, which will

prepare the company for the future. Recently we have

tested the veterinary early warning system in the

Faroe Islands. The outcome has proved a good system

and we still have a strong biology."

The Group made a profit for the quarter of DKK 137.9

million (DKK 148.2 million). For 2013, the profit was

DKK 589.2 million (DKK 281.3 million).

The total volumes harvested in Q4 2013 were 11,097

tonnes gutted weight (13,044 tgw). The total harvested

volumes for 2013 were 41,268 tonnes gutted weight

(44,341 tgw).

Bakkafrost transferred 2.8 million smolts in Q4 2013

(2.3 million). In 2013, 9.5 million smolts have been

transferred (10.7 million). This is a bit lower than

the guidance and is due to a slight delay in timing

from the end of 2013 to the beginning of 2014. The

smolt release is less in 2013, compared to 2012, due

to available sites for smolt release. Due to the

favourable seawater temperatures in the Faroes,

Bakkafrost releases smolts during the whole year.

Bakkafrost has built a new hatchery which will

commence production in H1 2014. Following this

Bakkafrost will be self supplied with smolts.

In accordance with the Group's dividend policy,

Bakkafrost aims to give its shareholders a competitive

return on their investment, both through payment of

dividends from the company and by securing an increase

in the value of the equity through positive

operations. Bakkafrost's financial position is strong

with a healthy balance sheet, a competitive operation

and undrawn available credit facilities. The Board of

Directors has therefore decided to propose to the

Annual General Meeting that DKK 4.50 (NOK 5.03*) per

share shall be paid out as dividend. This corresponds

to approximately DKK 219.9 million (NOK 245.9*

million). The dividend per share in NOK is subject to

changes depending on the exchange rate between DKK and

NOK when the dividend is paid out. In addition to the

dividend, Bakkafrost purchased 366,700 own shares at a

price of NOK 86 each in December 2013. Following the

transaction, Bakkafrost holds 378,581 shares

corresponding to 0.77% of the total share capital.

The 28th of October 2013, Bakkafrost announced the

suspicion of Neoparamoeba perurans at a Bakkafrost

farming site in Fuglafjørður. Further PCR analysis

carried out by the Faroese Food- and Veterinary

Authorities have detected the presence of Neoparamoeba

perurans. The Neo-paramoeba perurans agent is known to

be able to cause amoeba gill disease (AGD). All other

sites in the Faroes were examined, and Neoparamoeba

perurans has been detected on a number of them,

including sites that Bakkafrost owns. The detected

sites have been treated with Hydrogen Peroxide. No

increase in mortality has been observed and no disease

outbreak has occurred at any of the detected sites,

but the detection of Neoparamoeba perurans agent has

increased the biological risk.

In February 2014 a routine surveillance test detected

a possible pathogenic ISA-virus on Bakkafrost farming

site A80. 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 emty before mid

february.

The farming companies and the authorities have put a

lot of work into maintaining the good biolog-ical

status in the Faroe Islands. Regular surveill-ance

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 124.9 million (DKK 95.8

million) in Q4 2013. For 2013 the combined farming and

VAP segment made an operational EBIT of DKK 551.9

million (DKK 311.0 million).

The farming segment made an operational EBIT of DKK

130.8 million (DKK 84.3 million). The reason for the

improved result is due to higher prices as the

harvested volumes are lower. On the other hand result

and volumes are lower than expected because of the

early harvest on the first site with the suspicion of

Neoparamoeba perurans. For 2013, the operational EBIT

was DKK 642.3 million (DKK 274.0 million).

As expected, the VAP segment had a loss on its

operations in Q4 due to high salmon spot prices. The

VAP segment made an operational EBIT of DKK -5.9

million (DKK 11.5 million) for Q4 2013. For 2013, the

accumulated losses amounted to DKK -90.5 million (DKK

37.0 million). There is normally a time lag between

the changes in the spot prices and the changes in the

contract prices. Therefore, typically the VAP segment

has losses the first quarters in a longer period with

increasing salmon prices.

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

operational EBITDA of DKK 21.3 million (DKK 18.4

million) in Q4 2013 and for 2013 the operational

EBITDA amounted to DKK 125.8 million (DKK 84.5

million). The increase in the EBITDA is primarily due

to higher production of fishmeal and fish oil.

In Q4 2013, Havsbrún sourced 18,432 tonnes of raw

material (11,691 tonnes), and for 2013 the raw

material intake was 160,581 tonnes (47,122 tonnes).

The Bakkafrost Group had a net interest bearing debt

at the end of 2013 amounting to DKK 678.0 million (DKK

806.9 million at year-end 2012) and had undrawn credit

facilities of approx DKK 684.0 million, of which DKK

15.6 million are restricted.

Bakkafrost's equity ratio is 54%, compared to 49% at

the end of 2012. Bakkafrost paid out DKK 97.7 million

in dividend in Q2 2013.

On 14 February 2013, Bakkafrost issued un-secured

bonds at a total nominal value of NOK 500,000,000; the

issue date was 14 February 2013. The bonds were listed

on the market on 3 May 2013. The interest rate is

NIBOR 3 months plus a margin of 4.15 %. The bonds are

measured at fair value at initial recognition. The

bonds mature five years from the issue date at their

nominal value.

In Q2, all full-time employees from 2012, still

employed at Bakkafrost, have received bonus shares

with a total value of 2% of paid out salary in 2012.

In total Bakkafrost has allocated 45,957 shares to its

employees at a fair value on DKK 3.2 million. The

grant date was 22 May 2013 and the share price was DKK

69.65 (NOK 69.75) per share.

Segments

Farming:

The operating revenue for Bakkafrost's farming segment

was DKK 525.9 million in Q4 2013 (DKK 435.0 million)

and DKK 1,991.6 million for 2013 (DKK 1,371.7

million).

Operational EBIT, which is EBIT before fair value

adjustments on biological assets, amounted to DKK

130.8 million in Q4 2013 (DKK 84.3 million), and for

2013 it was DKK 642.4 million (DKK 274.0 million).

Operational EBIT/kg for the farming segment was DKK

11.79 (NOK 13.02) in Q4 2013, compared to DKK 6.46

(NOK 6.38) in Q4 2012. The salmon prices in Q4 2013

have been stronger than in Q4 2012 and thus higher

margins per kilo. Operational EBIT/kg for 2013 was DKK

15.57 (NOK 16.27), compared to DKK 6.18 (NOK 6.20) for

Value Added Products (VAP):

The operating revenue for the value added segment

amounted to DKK 202.6 million in Q4 2013 (DKK 153.8

million). For 2013, the revenue was DKK 666.2 million

(DKK 526.3 million). The increase in the revenue from

Q4 2012 to Q4 2013 is 32%, while the volumes that went

for VAP products only increased by 12%.

Operational EBIT amounted to DKK -5.9 million in Q4

2013 (DKK 11.5 million), corresponding to an

operational EBIT of DKK -1.17 (NOK -1.29) per kg

gutted weight in Q4 2013, compared to DKK 2.55 (NOK

2.52) per kg gutted weight in Q4 2012. The decrease in

the operational EBIT margins is due to higher salmon

spot prices. The VAP segment acquires its raw material

(fresh salmon) at spot prices each week. For 2013,

operational EBIT amounted to DKK -90.5 million (DKK

37.0 million), corresponding to an operational EBIT of

DKK -4.93 (NOK -5.16) per kg gutted weight in Q4 2013,

compared to DKK 2.30 (NOK 2.31) per kg gutted weight

in 2012.

Fishmeal, Fish Oil and Fish Feed:

The operating revenue for the fishmeal, fish oil and

fish feed segment amounted to DKK 252.5 million (DKK

248.1 million) in Q4 2013, of which DKK 150.7 million

represents sales to Bakkafrost's farming segment

corresponding to 59.7% (61.5%). For 2013 the revenue

was DKK 1,083.0 million (DKK 889.3 million), of which

DKK 631.3 million represents sales to Bakkafrost's

farming segment corresponding to 58.3% (64.7%).

Operational EBITDA was DKK 21.3 million (DKK 18.4

million) in Q4 2013, and the operational EBITDA margin

was 8.45% (7.43%). For 2013 the EBITDA was DKK 125.8

million (DKK 84.5 million), and the margin was 11.61%

(9.50%).

Sales of feed amounted to 20,270 tonnes (25,047

tonnes) in Q4 2013, of which the farming segment

internally used 14,736 tonnes (16,210 tonnes). For

2013, the feed sale was 85,333 tonnes (91,398 tonnes).

The internal sale was 63,820 tonnes (61,506 tonnes).

The production of fishmeal in Q4 2013 was 4.324 tonnes

(2.829 tonnes). The production for 2013 was 34.031

tonnes (10.808 tonnes).

The production of fish oil in Q4 2013 was 1.619 tonnes

(1.229 tonnes). The production for 2013 was 15.996

tonnes (4.199 tonnes)

Statement of Financial Position

The Group's total assets as of end 2013 amounted to

DKK 3,112.2 million, compared to DKK 2,570.9 million

at the end of 2012.

The Group's intangible assets amounted to DKK 294.7

million at the end of 2013 (DKK 293.7 million) and

comprise primarily the fair value of acquired farming

licences. No licences in the North region are recorded

with a value in the Bakkafrost accounts. The increase

of DKK 1 million is goodwill in connection with the

acquisition of Faroe Seafood UK Ltd.

Property, plant and equipment amounted to DKK 916.7

million at the end of Q4 2013, compared to DKK 812.8

million at the end of 2012. In Q4 2013 Bakkafrost made

investments in PP&E amounting to DKK 63.9 million and

for 2013 DKK 165.2 million. In addition to the

investment, prepayment of DKK 34.6 million has been

made for future investments.

Non-current financial assets amounted to DKK 115.3

million at the end of 2013, compared to DKK 91.2

million at the end of 2012. The increase in the

financial assets relates mainly to the positive result

in Faroe Farming, a financial investment.

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

assets amounted to DKK 965.9 million at the end of

2013, compared to DKK 747.0 million at the end of

2012. Included in the carrying amount of the

biological assets is a fair value adjustment amounting

to DKK 296.4 million, compared to DKK 181.1 million at

the end of 2012.

The Group's total inventories amounted to DKK 235.5

million as of end 2013, compared to DKK 242.9 million

at year-end 2012. 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 400.6

million as of end 2013, compared to DKK 358.4 million

at the end of 2012. The increase is primarily due to

the increase in the salmon price and hence higher

accounts receivables. On the other hand, other

receivables have decreased due to lower receivables

from associated companies.

The Group's equity at the end of 2013 is DKK 1,665.3

million, compared to DKK 1,262.9 million at the end of

2012. The change in equity in 2013 primarily consists

of the profit for the period, a negative fair value

adjustment to a currency-/interest rate swap related

to the bond financing and payment of dividend to the

shareholders. Bakkafrost paid out DKK 97.7 million in

dividend in Q2 2013.

The Group's total non-current liabilities amounted to

DKK 1,071.0 million at the end of 2013, com-pared to

DKK 990.4 million at the end of 2012. Deferred taxes

amounted to DKK 310.9 million, compared to DKK 258.4

million at the end of 2012. Long-term debt was DKK

760.0 million at the end of 2013, compared to DKK

731.9 million at the end of 2012.

Bakkafrost's interests bearing debt consists of two

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

instalment loan of DKK 300 million, payable with DKK

25 million each quarter, and one loan payable in 2016

with the full amount of DKK 553 million. The bond loan

of NOK 500 million was issued at 14 February 2013 and

is payable in full after five years i.e. at 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 2013, the Group's total current

liabilities are DKK 376.0 million, compared to DKK

317.6 million at the end of 2012. 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 276.0 million,

compared to DKK 217.6 million at the beginning of the

year. The increase is first of all due to higher tax

payables, provisions for onerous contracts and other

payables.

Bakkafrost's equity ratio is 54%, compared to 49% at

the end of 2012.

Cash Flow

The cash flow from operations in Q4 2013 was DKK 187.1

million (DKK 103.8 million). The Cash flow from

operations was positively affected by higher sales

prises on lower volumes and positive cash-flow due to

decrease in inventory. For 2013, the cash flow from

operations was DKK 517.5 million (DKK 285.6 million).

The cash flow from investment activities in Q4 2013

amounted to DKK -96.7 million (DKK -44.6 million). The

amount relates primarily to invest-ments in fixed

assets. For 2013, the cash flow from investments

amounts to DKK -204.4 million (DKK -66.9 million).

Included in the prepayments made for purchase of fixed

assets are approximately DKK 22 million for the well

boat that Bakkafrost has ordered for delivery in 2015.

Cash flow from financing activities totalled DKK

-72.2 million in Q4 2013 (DKK -43.9 million). The

interest bearing debt decreased by DKK 53.6 million,

purchase of own shares was DKK 28.1 million and

changes in financing of associated companies

contributed positively with DKK 16.3 million. For

2013, cash flow from financing amoun-ted to DKK -156.1

million (DKK -210.6 million).

Net change in cash flow in Q4 2013 amounted to DKK

18.3 million (DKK 15.3 million) and for 2013 DKK 157.0

million (DKK 8.2 million).

At the end of 2013 Bakkafrost had unused credit

facilities of approximately DKK 684.0 million of which

DKK 15.6 million are restricted.

Outlook

MARKET

The salmon marked have proved to be strong recent

years. Therefore the outlook for the salmon market in

2014 is good. Global supply of salmon in 2014 is

expected to increase 4-6%. Based on historical

numbers, the salmon marked is in balance, when the

supply increases by 6-8% per year. This together with

an average NOS (Independent exporters purchase price,

spot from farmers) price in 2013 of NOK 39.07 per kg

gives indications of salmon prices in the same price

range as in 2013 in average. As the supply of salmon

is expected to be low first half of 2014 it is

expected that the market will be tight, while more

salmon will be harvested in the second half.

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.

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 expects to harvest

45,000-48,000 tonnes gutted weight in 2014 and Faroe

Farming, which Bakkafrost holds

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

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. Therefore 2014

is comparable to 2012. Bakkafrost has invested in a

new hatchery amounting to DKK 53 million, which will

commence production in H1 2014. Following this

Bakkafrost will be self supplied with smolts.

The estimates for harvesting volumes and smolt

releases, is as always, dependent on the biological

situation in the Faroe Islands. The overall biolog-

ical situation in the Faroe Islands is good, but the

detection of Neoparamoeba perurans in the Faroes and

the possible 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

whole Faroese farming area during 2013. The number has

been significantly lower during the summer 2013,

compared to previous years. Therefore the farming

companies in the Faroes have decided, to do an

coordinated treatment again sea lice again in 2014.

Value added products (VAP)

The outlook for the sale of value added products is

good. Bakkafrost has already signed contracts covering

around 70% of the VAP capacity for 2014 corresponding

to 30% of the expected total harvested volumes in

2014. The last 30 % of the VAP capacity is expected to

be committed during the year. The contracts are at

fixed prices based on the salmon prices in 2013 and

the expectations for the salmon spot price for 2014.

Therefore the contracts are based on a significant

higher level in 2014 than in 2013.The contracts lasts

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 fluctu-ations as in

the spot marked.

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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