Bakkafrost P/f

Annual Report • Feb 25, 2020

INTERIM REPORT

Q4 2019

HARVEST VOLUME - FAROE ISLANDS TGW

OPERATIONAL EBIT MDKK

OPERATIONAL EBIT VAP AND FARMING FO DKK/KG

Table of Contents

ig h l ig h H ts 2	by he d he S ta te t t Ma t a t me n na g em en n d o f ire he im Bo D to t In te Re t 1 4 ar c rs on r p or
th f he Su t 4 Q te 2 0 1 9 mm ar y o ua r r
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	l i da d Co te Inc S ta te t 1 5 ns o om e me n
	l i da d f Co te S ta te t o ns o me n
ina ia l iew F Re 5 nc v	Co he ive Inc 1 5 mp re ns om e
Inc S ta te t 5 om e me n	i Co l da te d S ta te t o f ns o me n
f ina ia l i ion S ta te t o F Po t 5 me n nc s	ina ia l i ion F Po t 1 6 nc s
Ca h low 6 F s	Co l i da d Ca h low S te F ta te t 1 7 ns o s me n
ing ( ) Fa Se t Fa Is lan ds F O 7 rm g me n ro e	i f Co l da te d S ta te t o ns o me n
ing lan d ( ) Fa Se t Sc t S C O 8 rm g me n o	ha in i C Eq ty 1 8 ng es u
Se V A P t 9 g me n
F O F Se t 1 0 g me n
	he No te to t Ac t 1 9 s co un
loo k Ou t 1 1
is ks R 1 3 f he f he Ev ts te t Da te t en a r o	d ix is k Ap 1 – R Fa to 3 4 p en c rs
ina ia i ion S ta te t o f F l Po t 1 3 me n nc s	Co ta ts 3 6 n c

Highlights

	Q 4	Q 4	YT D	YT D		Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18	DK K 1 00 0 ,	20 19	20 18	20 19	20 18
INC OM E S TA TE ME NT					FIN AN CIA L P OS ITI ON AN D C AS H F LO W
Gro - O rat	60 84 2	75 34 8	51 10 7	17 42 2	To tal As set s***	13 10 40 5	80 52 3	13 10 40 5	80 52 3
ing up pe re ve nue Gro - O rat ion al EB IT*	1, 4, 41 25 1	0, 23 50 9	4, 1, 32 10 0	3, 7, 07 91 2	uit ***	1, , 49 87 5	5, 2, 07 02 9	1, , 49 87 5	5, 2, 07 02 9
up pe Gro - E BIT	5, 30 1, 31 9	0, -4, 89 5	1, 5, 1, 01 9, 21 7	1, 4, 1, 18 4, 23 3	Eq y uit ati o* Eq	8, 6, 65 %	4, 7, 70 %	8, 6, 65 %	4, 7, 70 %
up rof it f the rio d Gro - P or	21 9, 51 2	-6, 62 0	80 1, 88 5	96 0, 29 2	y r t in -be ari de bt * Ne ter est	1, 01 8, 68 5	49 5, 47 9	1, 01 8, 68 5	49 5, 47 9
up pe					ng Cas h f low fro rat ion m o pe s	-14 9, 53 7	-58 92 1	1, 03 2, 95 0	91 2, 93 7
Op tio l E BIT * ( Far mi FO d V AP ) ( DK K) era na ng an	37 4, 90 9	20 7, 73 0	1, 16 6, 72 8	94 3, 23 5	Cas h f low fro m f ina nci ng	2, 63 8, 82 9	, 21 6, 46 5	4, 55 7, 49 1	-37 4, 84 8
tio l E / kg ( mi d V ) ( K) Op BIT Far FO AP DK era na ng an	20 .91	16 .98	20 .40	21 .15
tio l E / kg ( mi d V ) ( K) Op BIT Far FO AP NO era na ng an	28 .25	21 .91	26 .91	27 .24	PR OF ITA BIL ITY
					sic rni Ba har e ( DK K) ea ngs pe r s	4.2 5	-0. 14	15 .53	19 .74
mi Isla nd Op tin Far Far ng oe s - era g r ev en ue	94 19 6 5,	68 85 1, 1	3, 2, 46 2 15	2, 56 8, 36 6	Dil d e ing sha ( K) ute DK arn s p er re	4.2 5	-0. 14	.53 15	19 .74
mi Isla nd tio l E * Far Far Op BIT ng oe s - era na	33 8, 32 1	20 4, 40 0	1, 10 3, 00 1	96 5, 65 9	CE RO	4.1 %	4.3 %	15 .2%	21 .5%
mi Isla nd tio l E in Far Far Op BIT ng oe s - era na m arg	35 .8%	30 .0%	35 .0%	37 .6%
Far mi Far Isla nd Op tio l E BIT */ kg ( DK K) ng oe s - era na	18 .87	16 .71	19 .29	21 .66	VO LU ME S
Far mi Far Isla nd Op tio l E BIT */ kg ( NO K) ng oe s - era na	25 .49	21 .56	25 .44	27 .89	Ha ste d v olu s F e I sla nd s ( tgw ) rve me aro	17 93 0 ,	12 23 4 ,	57 18 4 ,	44 59 1 ,
					d v olu lan d ( ) Ha ste s S cot tgw rve me	7, 92 5	n/a	7, 92 5	n/a
mi tla nd ing Far Sco - O rat ng pe re ve nue	43 7, 17 1	n/a	43 7, 17 1	n/a	rod d v olu s ( ) VA P p tgw uce me	4, 21 9	2, 84 5	16 69 0 ,	8, 35 5
Far mi Sco tla nd - O rat ion al EB IT* ng pe	18 12 9 ,	n/a	18 12 9 ,	n/a	So ld f eed to nn es	28 39 8 ,	24 71 1 ,	97 40 8 ,	77 77 5 ,
Far mi Sco tla nd - O rat ion al EB IT m in ng pe arg	4.1 %	n/a	4.1 %	n/a	Int al f eed les to ern sa nn es	20 77 8 ,	21 64 9 ,	76 58 3 ,	70 24 0 ,
mi tla nd ion al IT*/ kg ( K) Far Sco - O rat EB DK ng pe	2.2 9	n/a	2.2 9	n/a	olt lea sed th d F sla nd s (p cs) Sm e I re ou san aro	4, 98 6	3, 26 7	12 65 1 ,	12 49 1 ,
mi tla nd ion al IT*/ kg ( K) Far Sco - O rat EB NO ng pe	3.0 9	n/a	3.0 9	n/a	olt lea sed th d S lan d ( ) Sm cot re ou san pcs	5, 69 6	n/a	5, 69 6	n/a
Op tin VA P - era g r ev en ue	24 8, 90 0	10 8, 99 0	96 48 4, 4	36 82 4, 7	* A lign ed for fa ir v alu dju of bi stm ent e a om ass	tra , on ero us con	isio cts pr ov ns,	in e f com rom	iat and as soc es
tio l E * VA P - Op BIT era na	36 58 8 ,	3, 33 0	63 72 7 ,	-22 42 4 ,	fer 10 ta to No te re ve nue x – re
tio l E in VA P - Op BIT era na m arg	14 .7%	3.1 %	6.6 %	-6. 1%
VA P - Op tio l E BIT / kg ( DK K) era na	8.6 7	1.1 7	3.8 2	-2. 68	** R etu ita l em loy ed bas ed rn on ave rag e c ap p ,	tio l E on op era na	BIT ref to er –	No te 10
Op tio l E / kg ( NO K) VA P - BIT era na	.72 11	1.5 1	5.0 4	-3. 46	*** ari fig s f d 2 Co 01 8 mp ng ure rom en
tin FO F - Op era g r ev en ue	33 7, 97 6	28 7, 68 9	1, 38 8, 46 1	1, 26 8, 56 4
FO F - EB ITD A	57 69 9 ,	60 40 7 ,	27 5, 79 6	25 4, 28 1
FO in F - EB ITD A m arg	.1% 17	21 .0%	19 .9%	20 .0%
K/ K ( e) NO DK ave rag	74 .01	77 .50	75 .83	77 .66

Summary of the 4th Quarter 2019 and 12 Months of 2019

(Figures in parenthesis refer to the same period last year).

On the 8th of October 2019, Bakkafrost acquired majority in the Scottish Salmon Company (SSC). From this date, SSC is part of the Bakkafrost Group and is consolidated into Bakkafrost's accounts.

Unless otherwise stated, all figures presented in this interim report include SSC from this date on. SSC's figures from Q1 to Q3 2019 are not included in this report.

The Bakkafrost Group delivered a total operating EBIT of DKK 415.3 million in Q4 2019.

Total harvested volumes were 25.9 thousand tonnes gutted weight (tgw). Faroe Islands (FO): 17.9 tgw, Scotland (SCO): 7.9 tgw.

The combined FO farming and VAP segments made an operational EBIT of DKK 374.9 million. The FO farming segment made an operational EBIT of DKK 338.3 million. The SCO farming segment made an operational EBIT of DKK 18.1 million. Achieved prices and volumes in FO operations increased and thus had a positive effect on the operational EBIT.

The VAP segment made an operational EBIT of DKK 36.6 million. The EBITDA for the FOF segment was DKK 57.7 million.

The Group made a profit for Q4 2019 of DKK 219.5 million (DKK -6.6 million). For 2019, the profit was DKK 801.9 million (DKK 960.3 million).

Total harvested volumes for 2019 were 65,109 tonnes gutted weight (44,591 tgw). FO: 57,184 tgw, SCO: 7,925 tgw.

In total, 10.7 million (3.3 million) smolts were transferred during Q4 2019. FO: 5.0 million, SCO: 5.7 million. During 2019, 18.3 million (12.5 million) smolts were transferred. FO: 12.7 million SCO: 5.7 million.

The combined FO farming and VAP segments made an operational EBIT of DKK 374.9 million (DKK 207.7 million) in Q4 2019. The operational EBIT per kg in Q4 2019 was DKK 20.91 (DKK 16.98), which corresponds to NOK 28.25 (NOK 21.91) for the combined FO farming and VAP segments. For 2019, the combined FO farming and VAP segments made an operational EBIT of DKK 1,166.7 million (DKK 943.2 million).

The FO farming segment made an operational EBIT of DKK 338.3 million (DKK 204.4 million) in Q4 2019. The harvested volumes and the achieved prices were higher in Q4 2019, compared to Q4 2018. For 2019, the operational EBIT was DKK 1,103.0 million (DKK 965.7 million).

The SCO farming segment made an operational EBIT of DKK 18.1 million in Q4 2019.

The VAP segment made an operational EBIT of DKK 36.6 million (DKK 3.3 million) for Q4 2019. For 2019, the operational EBIT was DKK 63.7 million (DKK -22.4 million).

The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 57.7 million (DKK 60.4 million) for Q4 2019, and the EBITDA margin was 17.1% (21.0%). The EBITDA was DKK 275.8 million for 2019 (DKK 254.3 million), corresponding to an EBITDA margin of 19.9% (20.0%).

During Q4 2019, Havsbrún sourced 35,180 tonnes (46,478 tonnes) of raw material, and for 2019, Havsbrún sourced 278,664 tonnes (302,465 tonnes) of raw material.

The net interest-bearing debt amounted to DKK 1,018.7 million at the end of 2019 (DKK 495.5 million). Undrawn credit facilities amounted to DKK 2,470.0 million at the end of Q4 2019.

On 25 September 2019, Bakkafrost signed a Share Purchase Agreement to acquire 68.6% of the outstanding shares in the Scottish Salmon Company (SSC) from Northern Link Ltd. The closing date was 8 October 2019. Further acquirements in Q4 2019 resulted in Bakkafrost holding 95.6% of the shares at year end.

SSC is an integrated salmon farming business, operating exclusively in Scotland with 60 sites across the West Coast and Hebridean Islands. The company is engaged in nearly all stages of the value chain ensuring full traceability and total supply chain integrity. The current annual production capacity is 50,000 tonnes. SSC produced 33,799 tonnes gutted weight in 2019 and exported to 21 countries with a focus on North America and the Far East. SSC has developed a range of strong flagship brands, including Native Hebridean Salmon, Tartan Salmon Label Rouge and Lochlander Salmon. The company has 651 employees.

Bakkafrost chose to increase the company's share capital for the acquisition of SSC. The acquisition was therefore carried out without substantial increase in Bakkafrost's external financing.

Bakkafrost aims at giving the shareholders a competitive return on their investment, both through payments of dividends and by value growth of the equity through positive operations.

The long-term goal of the Board of Directors is that 30-50% of earnings per share shall be paid out as dividend. Bakkafrost's financial position is strong with a solid balance sheet, a competitive operation and available credit facilities. The Board of Directors proposes to the Annual General Meeting that DKK 8.31 (NOK 11.23*) per share shall be paid out as dividend. The Annual General Meeting will be convened on Friday the 3rd of April 2020.

The equity ratio was 65% at 31 December 2019, compared to 70% at the end of 2018.

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

Financial Review

Income Statement

(Figures in parenthesis refer to the same period last year).

The Group's operating revenue amounted to DKK 1,604.8 million (DKK 750.3 million) in Q4 2019, and for 2019, the operating revenue amounted to DKK 4,511.1 million (DKK 3,177.4 million).

The FO farming segment's harvest volumes and achieved prices were higher in Q4 2019, compared to the same quarter last year. The VAP segment had higher revenues because of higher volumes in Q4 2019, compared to Q4 2018. The FOF segment had higher external revenue in Q4 2019, mainly due to higher external sales of fishmeal, compared to Q4 2018.

The Group's operational EBIT was DKK 415.3 million (DKK 230.5 million) in Q4 2019. The combined FO farming and VAP segments had higher operational EBIT in Q4 2019, compared to Q4 2018, and the FOF segment had marginally lower EBITDA in Q4 2019, compared to Q4 2018. For 2019, the Group's operational EBIT was DKK 1,325.1 million (DKK 1,074.9 million).

The fair value adjustment of the Group's biological assets amounted to DKK -103.1 million (DKK -239.5 million) in Q4 2019. The adjustment is due to lower forward market prices for salmon and higher expected costs at harvest at the end of the quarter, compared to the beginning of the quarter. For 2019, the fair value adjustment amounted to DKK -220.6 million (DKK 195.8 million).

Change in provisions for onerous contracts amounted to DKK 0 million (DKK 17.0 million) in Q4 2019. For 2019, the change in provisions for onerous contracts amounted to DKK 0.0 million (DKK 0.0 million).

In Q4 2019, the profit from associated companies amounted to DKK 3.7 million (DKK 11.1 million). For 2019, the profit from associated companies amounted to DKK 13.8 million (DKK 9.4 million).

The revenue tax amounted to DKK -14.5 million (DKK -24.0 million) in Q4 2019. For 2019, the revenue tax was DKK -99.1 million (DKK -95.9 million). From the 1st of January 2019, the revenue tax rate in the Faroe Islands increased from 4.5% to 5.0%.

Net interests in Q4 2019 were DKK -30.5 million (DKK -1.9 million). For 2019, net interests were DKK -37.3 million (DKK -12.2 million).

Net taxes amounted to DKK -51.3 million (DKK 0.2 million) in Q4 2019. For 2019, net taxes amounted to DKK -180.0 million (DKK -211.8 million).

The result for Q4 2019 was DKK 219.5 million (DKK -6.6 million) and for 2019, the result was DKK 801.9 million (DKK 960.3 million).

Statement of Financial Position

(Figures in parenthesis refer to end last year).

The Group's total assets amounted to DKK 13,101.4 million (DKK 5,802.5 million) at the end of Q4 2019.

Intangible assets amounted to 4,395.7 (DKK 389.7 million) at the end of Q4 2019. The increase in the year relates wholly to the acquisition of SSC.

Property, plant and equipment amounted to DKK 3,780.5 million (DKK 2,884.3 million) at the end of Q4 2019. Right of use assets amounted to DKK 332.8 In Q4 2019, Bakkafrost FO made investments in PP&E amounting to DKK 214.2 million. Including the acquisition of SSC, PPE for 2019 amounts to DKK 700.4 million.

Non-current financial assets amounted to DKK 119.1 million (DKK 112.8 million) at the end of Q4 2019.

The carrying amount (fair value) of biological assets amounted to DKK 1,901.7 million (DKK 1,358.5 million) at the end of Q4 2019. Compared to year end 2018, biological assets have mainly increased due to the acquisition of SSC. Included in the carrying amount of the biological assets is a fair value adjustment amounting to DKK 27.7 million (DKK 382.8 million) at the end of 2019.

Inventories amounted to DKK 548.5 million (DKK 438.8 million) at the end of Q4 2019.

Total receivables, including long-term receivables and deferred tax assets, amounted to DKK 713.5 million (DKK 301.5 million) at the end of Q4 2019.

Total cash and cash equivalents amounted to DKK 1,309.5 million (DKK 316.9 million) at the end of Q4 2019.

The Group's equity, including non-controlling interests, amounted to DKK 8,496.9 million (DKK 4,077.0 million) at the end of Q4 2019. Non-controlling interest amounted to DKK 167.6 million (DKK 0.0 million). The change in equity consists primarily of the result for 2019, paid-out dividend and the emission of DKK 3,731.1 million.

Total non-current liabilities amounted to DKK 3,697.6 million (DKK 1,346.5 million) at the end of Q4 2019.

Deferred taxes amounted to DKK 1,123.8 million (DKK 534.4 million) at the end of Q4 2019.

Long-term debt was DKK 2,328.2 million (DKK 812.1 million) at the end of Q4 2019.

Long-term leasing debt amounts to DKK 225.6 million and short-term leasing debt amounts to DKK 107.8 million in total DKK 333,4 million (DKK 0.0 million) at the end of Q4 2019.

At the end of Q4 2019, the Group's total current liabilities were DKK 925.0 million (DKK 379.0 million). The current liabilities consist of accounts payable and tax payable.

Derivatives amounted to DKK 15.5 million (DKK 0.3 million) at the end of Q4 2019.

The equity ratio was 65% at the end of 2019, compared to 70% at the end of 2018.

Cash Flow

(Figures in parenthesis refer to the same period last year).

The cash flow from operations was DKK -149.6 million (DKK -58.9 million) in Q4 2019. The changes in working capital had a negative effect on the cash flow from operations. For 2019, the cash flow from operations was DKK 1,033.0 million (DKK 912.9 million).

The cash flow from investment activities amounted to DKK -3,791.3 million (DKK -146.8 million) in Q4 2019. The amount relates to investments in property, plant and equipment and investment in immaterial assets relating to the acquisition of SSC. For 2019, the cash flow from investments amounted to DKK -4,597.8 million (DKK -530.7 million).

The cash flow from financing activities totalled DKK 2,638.8 million (DKK 216.5 million) in Q4 2019. For 2019, cash flow from financing amounted to DKK 4,557.5 million (DKK -374.8 million). The amount is mainly affected by the share capital increase, amounting to DKK 3,731.1 million.

In Q4 2019, net change in cash flow amounted to DKK -1,302.0 million (DKK 10.7 million). For 2019, net change in cash flow amounted to DKK 992.7 million (DKK 7.3 million).

At the end of 2019, the Group had unused credit facilities of DKK 2,470.0 million (DKK 997.7 million).

Farming Segment – Faroe Islands (FO)

The Faroese farming segment produces high quality Atlantic salmon from juveniles to harvest size salmon. The salmon is sold to fresh fish markets globally and to the internal VAP production. The farming sites are in the Faroe Islands.

Volumes

The total volumes harvested in Q4 2019 were 17,930 tonnes gutted weight (12,234 tgw) – a change in volume of 47%. Total harvested volumes for 2019 were 57,184 tonnes gutted weight (44,591 tgw), which is in line with the forecast for 2019.

5.0 million (3.3 million) smolts were transferred in Q4 2019. For 2019, 12.7 million (12.5 million) smolts were transferred. This is in line with the smolt transfer plan.

	Q 4	Q 4		Y T D	Y T D
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	C ha ng e	2 0 1 9	2 0 1 8	C ha ng e
ina ia l F nc
l re To ta ve nu e	9 4 5, 1 9 6	6 8 1, 8 5 1	3 9 %	3, 1 5 2, 4 6 2	2, 5 6 8, 3 6 6	2 3 %
E B I T	4 6 0, 1 7 3	-5 8, 8 7 3	8 8 2 %	1, 0 2 8, 8 4 0	1, 0 6 5, 9 2 3	-3 %
ion l Op t E B I T era a	3 3 8, 3 2 1	2 0 4, 4 0 0	6 6 %	1, 1 0 3, 0 0 1	9 6 5, 6 5 9	1 4 %
Fa ing Op t ion l E B I T / kg ( D K K ) rm era a -	1 8. 8 7	1 6. 7 1	1 3 %	1 9. 2 9	2 1. 6 6	-1 1 %
lum Vo es
d v lum ( ) Ha te tg rve s o es w	1 7, 9 3 0	1 2, 2 3 4	4 7 %	5 7, 1 8 4	4 4, 5 9 1	2 8 %
ing t h Fa No rm r -	0	3, 9 9 6	-1 0 0 %	1 8, 2 2 5	2 8 8 8 5,	-2 9 %
ing Fa We t rm s -	1 3, 1 5 5	9 5, 8 4	% 1 2 3	0 3 2, 2 1	0 1 4, 8 8	9 % 1 2
ing h Fa So t rm u -	4, 7 7 5	2, 3 4 4	1 0 4 %	6, 7 2 2	4, 6 1 4	4 6 %
l lea d ( ho d ) Sm ts t o re se us an	4, 9 8 6	3, 2 6 7	5 3 %	1 2, 6 5 1	1 2, 4 9 2	1 %
Fa ing No t h rm r -	2, 6 4 3	3, 2 6 7	-1 9 %	5, 5 8 4	3, 8 8 7	4 4 %
ing Fa We t rm s -	2, 3 4 3	0		5, 2 7 0	6, 8 5 1	% -2 3
ing h Fa So t rm u -	0	0		1, 7 9 7	1, 7 5 4	2 %

Financial Performance

In Q4 2019, the operating revenue for the FO farming segment was DKK 945.2 million (DKK 681.9 million). The total revenue for the farming segment increased in Q4 2019, compared with Q4 2018, mainly because of higher volumes. The operating revenue for the farming segment for 2019 was DKK 3,152.5 million (DKK 2,568.4 million).

In Q4 2019, the farming segment's EBIT amounted to DKK 460.2 million (DKK -58.9 million). The farming segment's EBIT for 2019 was DKK 1.028,8 million (DKK 1,065.9 million).

Operational EBIT amounted to DKK 338.3 million (DKK 204.4 million) in Q4 2019, which corresponds to an operational EBIT margin of 36% (30%). For 2019, operational EBIT was DKK 1,103.0 million (DKK 965.7 million).

Operational EBIT/kg for the farming segment was DKK 18.87 (NOK 25.49) in Q4 2019, compared with DKK 16.71 (NOK 21.56) in Q4 2018. Operational EBIT/kg for 2019 was DKK 19.29 (NOK 25.44), compared with DKK 21.66 (NOK 27.89) for 2018.

Farming Segment – Scotland (SCO)

Please note that the comparable figures and the narrative in this section are pro forma and are not part of the consolidated Bakkafrost accounts.

The Scottish farming segment represents the operating business of The Scottish Salmon Company PLC (SSC) which was consolidated from 8 October 2019, when Bakkafrost gained control. The Scottish Salmon Company is committed to producing the finest quality Scottish Salmon with Scottish Provenance and full traceability. SSC has sites across the West Coast of Scotland and Hebridean Islands and is exporting globally with a focus on North America and the Far East.

Volumes

The total volumes harvested in Q4 2019 were 7,925 tonnes gutted weight (7,045 tgw). Total harvested volumes for the full year 2019 were 33,799 tonnes gutted weight (29,913 tgw), reflecting a slightly higher performance against the guidance of 33,000 tonnes provided by SSC in their first half update.

5.7 million smolts were transferred in Q4 2019 (3.5 million). For the full year 2019, 12.4 million smolts were transferred (8.6 million).

DKK 1,000 2019 Financial Total revenue 437,171 EBIT -224,285 Operational EBIT 18,129 Farming - Operational EBIT/kg (DKK) 2.29 Volumes Harvested volumes (tgw) 7,925 Smolts released (thousand) 5,696

Q4

Financial Performance

In Q4 2019, the operating revenue for the SCO farming segment was DKK 437.2 million.

Operational EBIT amounted to DKK 18.1 million.

The drive in export sales and strong demand in Q4 2019 resulted in an improved operational EBIT/kg. Farming costs per kilo were impacted by mortality events in the First Half of 2019, and costs continued to be carried into Q4 2019.

VAP Segment

The VAP (value added products) segment produces skinless and boneless portions of salmon in the Faroe Islands. The main market for the VAP products is Europe with increasing sales in other markets. The VAP products are sold on long-term fixed price contracts.

Volumes

24% (23%) of the total harvested volumes in Q4 2019 went to the production of VAP products, and 29% (19%) of the harvested volumes for 2019 went to production of VAP products.

The VAP production in Q4 2019 was 4,219 tonnes gutted weight (2,845 tgw), an increase of 48%, compared to Q4 2018. The volumes were higher, and the segment had higher contract coverage in Q4 2019, compared to Q4 2018. For 2019, the VAP production was 16,690 tgw (8,355 tgw).

	Q 4	Q 4		Y T D	Y T D
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	C ha ng e	2 0 1 9	2 0 1 8	C ha ng e
ina ia l F nc
l re To ta ve nu e	2 4 8, 9 0 0	1 0 8, 9 9 0	1 2 8 %	9 6 4, 4 8 4	3 6 4, 8 2 7	1 6 4 %
E B I T	3 6, 5 8 8	2 0, 4 0 1	7 9 %	6 3, 7 2 7	-2 2, 4 2 4	3 8 4 %
Op t ion l E B I T era a	3 6, 5 8 8	3, 3 3 0	9 9 9 %	6 3, 7 2 7	-2 2, 4 2 4	3 8 4 %
V A P - Op t ion l E B I T / kg ( D K K ) era a	8. 6 7	1. 1 7	6 4 1 %	3. 8 2	-2. 6 8	2 4 2 %
lum Vo es
du d v lum ( ) V A P p tg ro ce o es w	4, 2 1 9	2, 8 4 5	4 8 %	1 6, 6 9 0	8, 3 5 5	1 0 0 %
d v lum d in Ha te V A P rve s o es us e
du ion t p ro c	2 % 4	2 3 %	% 1	2 9 %	9 % 1	6 % 5
d v lum l d fre h / fro Ha te rve s o es so s ze n	7 6 %	7 7 %	0 %	7 1 %	8 1 %	-1 3 %

Financial Performance

The operating revenue for the VAP segment amounted to DKK 248.9 million (DKK 109.0 million) in Q4 2019. The increase in revenue is due to higher volumes in Q4 2019, compared with Q4 2018. For 2019, the VAP revenue was DKK 964.5 million (DKK 364.8 million).

The VAP segment had an EBIT amounting to DKK 36.6 million (DKK 20.4 million) in Q4 2019. Changes in onerous contracts were DKK 0.0 million (DKK 17.0 million). In 2019, the VAP segment's EBIT amounted to DKK 63.7 million (DKK -22.4 million).

Operational EBIT amounted to DKK 36.6 million (DKK 3.3 million) in Q4 2019, corresponding to an operational EBIT of DKK 8.67 (NOK 11.72) per kg gutted weight in Q4 2019, compared with DKK 1.17 (NOK 1.51) per kg gutted weight in Q4 2018.

For 2019, operational EBIT amounted to DKK 63.7 million (DKK -22.4 million), corresponding to an operational EBIT of DKK 3.82 (NOK 5.04) per kg, compared with an operational EBIT of DKK -2.68 (NOK -3.46) in 2018.

FOF Segment

The FOF (fishmeal, oil and feed) segment produces fishmeal, fish oil and fish feed. Most of the production is used for fish feed, used internally in the FO farming segment. The quality of the fish feed is important to the quality of the salmon from Bakkafrost FO. Fishmeal, fish oil and fish feed are also sold externally.

Volumes

Havsbrún received 35,180 tonnes (46,478 tonnes) of raw material to produce fishmeal and fish oil in Q4 2019. The raw material intake depends on the fishery in the North Atlantic and available species of fish. In 2019, Havsbrún received 278,664 tonnes (302,465 tonnes) of raw material.

The production of fishmeal in Q4 2019 was 8,076 tonnes (10,801 tonnes). In 2019, Havsbrún produced 60,646 tonnes (65,141 tonnes) of fishmeal.

The production of fish oil in Q4 2019 was 2,915 tonnes (3,887 tonnes). The production of fish oil varies, depending on the species of fish sourced for production and the timing of catch. For 2019, Havsbrún produced 9,633 tonnes (10,257 tonnes) of fish oil.

Sales of feed amounted to 28,398 tonnes (24,711 tonnes) in Q4 2019, of which the FO farming segment internally used 20,778 tonnes (21,649 tonnes) or 73.2% (87.6%). In 2019, Havsbrún sold 97,408 tonnes (77,775 tonnes) of feed, of which the FO farming segment internally used 76,583 tonnes (70,240 tonnes).

	Q 4	Q 4		Y T D	Y T D
0 0 0 D K K 1,	2 0 9 1	2 0 8 1	C ha ng e	2 0 9 1	2 0 8 1	C ha ng e
ina ia l F nc
l re To ta ve nu e	3 3 7, 9 7 6	2 8 7, 6 8 9	1 7 %	1, 3 8 8, 4 6 1	1, 2 6 8, 5 6 4	9 %
E B I T	5 7, 1 8 4	6 3, 8 4 4	-1 0 %	2 5 7, 8 7 0	2 3 3, 9 8 1	1 0 %
E B I T D A	5 6 9 9 7,	6 0, 4 0 7	-4 %	2 5, 9 6 7 7	2 5 4, 2 8 1	8 %
in F O F - E B I T D A ma rg	1 7. 1 %	2 1. 0 %	-1 9 %	1 9. 9 %	2 0. 0 %	-1 %
Vo lum ( to ) es nn es
To ta l Fe d s l d e o	2 8, 3 9 8	2 4, 7 1 1	1 5 %	9 7, 4 0 8	7 7, 7 7 5	2 5 %
d in l sa le Fe ter e na -	2 0, 7 7 8	2 1, 6 4 9	% -4	7 6, 5 8 3	7 0, 2 4 0	% 9
d e l s le Fe ter e na a x -	7, 6 2 0	3, 0 6 2	1 4 9 %	2 0, 8 2 5	7, 5 3 5	1 7 6 %
l d s l d To ta Fe e o	2 8, 3 9 8	2 4, 7 1 1	1 5 %	9 7, 4 0 8	7 7, 7 7 5	2 5 %
F is hm l e ter l sa le ea x na	4, 1 2 3	3, 8 2 7	9 %	3 1, 6 9 7	4 3, 2 3 5	-2 % 7
is h o i l e l sa le F ter x na	0	6	-1 0 0 %	1 0	3, 2 2 5	-1 0 0 %
ive d r ia l Re ter ce aw m a	3 5, 1 8 0	4 6, 4 7 8	-2 4 %	2 7 8, 6 6 4	3 0 2, 4 6 5	-8 %

Financial Performance

The operating revenue for the FOF segment amounted to DKK 338.0 million (DKK 287.7 million) in Q4 2019, of which DKK 212.1 million (DKK 213.6 million) represented sales to Bakkafrost's FO farming segment, corresponding to 62.7% (74.3%). For 2019, the revenue amounted to DKK 1,388.5 million (DKK 1,268.6 million) of which DKK 780.7 million (DKK 682.1 million) represented sales to Bakkafrost's FO farming segment, corresponding to 56.2% (53.8%).

Total revenue for the FOF segment in Q4 2019 increased 17%, compared to the same quarter last year. The internal revenue is on the same level as in Q4 2018, but the external sales have increased signifi-

cantly. The increase in external revenue is due to higher volumes of feed sold in Q4 2019, compared to Q4 2018. EBITDA was DKK 57.7 million (DKK 60.4 million) in Q4 2019, and the EBITDA margin was 17.1% (21.0%). Havsbrún sources raw pelagic fish for the fishmeal and fish oil production, which are part of the recipe to produce salmon feed. For 2019, the EBITDA was DKK 275.8 million (DKK 254.3 million), corresponding to an EBITDA margin of 19.9% (20.0%).

Outlook

Market

The global supply of Atlantic salmon increased around 3% in Q4 2019, compared to Q4 2018, according to the latest estimate from Kontali Analyse.

In Q1 2020, the global harvest of Atlantic salmon is expected to increase around 1%, compared to Q1 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 4%, compared to 2019.

Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. During 2019, variation in sales distribution between the different markets is driven by the change in demand from quarter to quarter in the different regions. Bakkafrost, however, aims to have a balanced market diversification to reduce market risk.

Farming

The outlook for the farming segment in the Faroe Islands is good, and the overall operational performance is very good. There are many possibilities in the Scottish operation, it will however take time to transform its operational performance. The estimates for harvest volumes and smolt releases in both geographies are dependent on the biological development. Bakkafrost focuses on reducing biological risk continuously and has made several new investments and procedures to diminish this risk. Bakkafrost focuses on using non-medical methods in treatments against sea lice and has invested in new technology to follow this strategy, including farming supply vessels for mechanical delousing and mechanical cleaning of nets in the pens. During 2019, Bakkafrost's specialized crews onboard these vessels have further refined their skills and methods resulting in improved fish welfare.

The quality and performance of the smolts have also increased significantly and there are clear signs that the large smolt and non-medical delousing strategies are working successfully in the Faroe Islands. Looking ahead, Bakkafrost will extend these strategies into the farming operation in The Scottish Salmon Company.

Overall, the biological performance in the Faroese operation has been strong during 2019 with good growth and low mortality rates.

In 2020, Bakkafrost expects to harvest 57,000 tonnes gutted weight in the Faroe Islands and 35,000 tonnes gutted weight in Scotland.

Farming SCO has signed contracts for around 32% of the expected harvest volumes in Farming SCO in 2020. These contracts usually last for 12 months.

Bakkafrost expects to release 15.0 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.

The number of smolts released is a key element of predicting Bakkafrost's future production.

VAP (Value added products)

Bakkafrost has signed contracts covering around 40% of the expected Faroese harvest volumes in Q1 2020 and 30% of the harvest volume for 2020. Bakkafrost's long-term strategy is to sell around 40-50% of the Faroese harvested volumes of salmon as VAP products at fixed price contracts.

The 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.

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.

Bakkafrost expects a decrease in production volumes of fishmeal and fish oil in 2020, compared to 2019.

Havsbrún has increased the expectation for sales of fish feed in 2020 to be at 110,000 tonnes, depending on external sales.

The major market for Havsbrún´s fish feed is the local Faroese market including Bakkafrost FO's internal use of fish feed.

Investments

Bakkafrost's investment programme for the period from 2020 to 2022, excluding investments in The Scottish Salmon Company, 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.

In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments of around 350 mDKK per year for 2020- 2024 in The Scottish Salmon Company.

Financial

Favourable market balances in the world market for salmon products and cost-conscious production 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. Bakkafrost also issued shares in Q3 and Q4 2019 amounting to 5,142 mNOK to finance the acquisition of 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.

Risks

Biological risk has been and will be a substantial risk for Bakkafrost.

The company's risk profile has changed after the acquisition of SSC, and a new risk profile has been written. We have chosen to include the new profile in this report as Appendix 1. The change basically concerns the specific conditions that are added in connection with SSC, but the change in description is not limited to these conditions.

Bakkafrost is, as explained in the Annual Report 2018, exposed to the salmon price. Global supply of salmon is expected to increase in 2020 and will influence the salmon price.

Reference is made to the Outlook section of this report for other comments to Bakkafrost's risk exposure and to Appendix 1.

Events after the Date of the Statement of Financial Position

From the date of the statement of financial position until today, no events have occurred which materially influence the information provided by this report.

Statement by the Management and the Board of Directors on the Interim Report

The Management and the Board of Directors have today considered and approved the interim report of P/F Bakkafrost for the period 1 January 2019 to 31 December 2019.

The interim report, which has not been audited or reviewed by the company's independent auditors, has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and Faroese disclosure requirements for listed companies.

In our opinion, the accounting policies used are appropriate, and the interim report gives a true and fair view of the Group's financial positions at 31 December 2019, as well as the results of the Group activities and cash flows for the period 1 January 2019 to 31 December 2019.

In our opinion, the management's review provides a true and fair presentation of the development in the Group operations and financial circumstances of the results for the period and of the overall financial position of the Group as well as a description of the most significant risks and elements of uncertainty facing the Group. Please see changes in the Group's most significant risks and uncertainties described in the revised Appendix 1.

Glyvrar, February 20th, 2020

Management:

Regin Jacobsen CEO

The Board of Directors of P/F Bakkafrost:

Rúni M. Hansen Johannes Jensen Teitur Samuelsen Chairman of the Board Deputy Chairman of the Board Board Member

Øystein Sandvik Annika Frederiksberg Einar Wathne Board Member Board Member Board Member

Consolidated Income Statement

For the period ended 31 December 2019

	Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18
tin Op era g r ev en ue	1, 60 4, 84 2	75 0, 34 8	4, 51 1, 10 7	3, 17 7, 42 2
Pu rch of od ase go s	-35 1, 70 7	-33 2, 72 1	-1, 35 4, 92 1	-1, 07 4, 64 5
e i n i iolo ica Ch ent d b l as set s (a t c ost ) ang nv ory an g	-16 3, 22 2	15 4, 41 6	-29 42 3 ,	19 9, 69 6
Sal d p l ex ary an ers on ne pen ses	-18 4, 80 6	-10 3, 51 8	-51 2, 76 1	-35 3, 75 6
Oth tin er op era g e xp en ses	-36 0, 61 1	-18 6, 56 9	-97 8, 78 7	-67 4, 90 7
cia tio De pre n	-12 9, 24 5	-51 44 7 ,	-31 0, 11 5	-19 8, 89 8
tio l EB IT * Op era na	41 5, 25 1	23 0, 50 9	1, 32 5, 100	1, 07 4, 91 2
Fai alu dju f b iolo ica l as stm ent set r v e a s o g s	-10 3, 09 8	-23 9, 54 8	-22 0, 56 7	19 5, 81 9
On tra cts ero us con	0	17 07 6 ,	0	0
e f iat Inc om rom as soc es	3, 65 3	11 10 4 ,	13 81 2 ,	9, 36 9
Rev tax en ue	48 -14 7 ,	-24 03 6 ,	-99 12 8 ,	-95 86 7 ,
nin bef in d t ( IT) Ear ter est EB gs ore an ax es	30 1, 31 9	-4, 89 5	1, 01 9, 21 7	1, 184 23 3 ,
t in Ne ter est re ve nue	3, 39 7	56 2	4, 99 6	2, 65 1
t in Ne ter est ex pen ses	-9, 70 4	-2, 26 2	-17 11 4 ,	-12 47 7 ,
eff Ne t c ect urr en cy s	50 0 -14 ,	29 3	67 0 -12 ,	9 1, 41
Oth fin ial er anc ex pe nse s	-9, 74 0	-51 9	-12 51 3 ,	-3, 76 0
nin bef s ( T) Ear ta EB gs ore xe	27 0, 77 2	-6, 82 1	98 1, 91 6	1, 17 2, 06 6
Tax es	-51 26 0	20 1	-18 0, 03 1	-21 1, 77 4
	,
fit los s fo r th eri od Pro or e p	21 9, 51 2	-6, 62 0	80 1, 88 5	96 0, 29 2
fit s fo tri Pro los r th at bu tab le t or e y ear o
llin int No tro sts n-c on g ere	-8, 38 2	0	-8, 38 2	0
Ow f P / F B akk afr ost ner s o	22 7, 89 4	-6, 62 0	81 0, 26 7	96 0, 29 2
nin sh ( K) Ear DK gs per are	4.2 5	-0. 14	15 .53	19 .74
Dil d e ing sha ( K) ute DK arn s p er re	4.2 5	-0. 14	15 .53	19 .74

* Operational EBIT is EBIT before fair value of biomass, onerous contracts, income from associates and revenue tax.

Consolidated Statement of Comprehensive Income

For the period ended 31 December 2019

	Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18
Pro fit for th eri od e p	22 7, 89 4	-6, 62 0	81 0, 26 7	96 0, 29 2
Ch fin ial de riv ati ang es on anc ve s	-18 39 0 ,	30 8	-17 78 9 ,	12 6, 93 5
He f in e t eff ect reo com ax	2, 81 4	-56	2, 70 5	-22 84 8 ,
har e-b d p Res e t nt erv o s ase ay me	-3, 66 0	56 9	-1, 09 4	2, 27 9
nsl ati dif fer Cu tra rre ncy on enc es	71 95 5 ,	-1	72 67 3 ,	-95
Ad jus of sha tm ent tre asu ry res	2, 75 1	17 7	15 45 7 ,	2, 63 4
the reh siv e in o b ecl ifie d t Ne t o e t r co mp en com e r ass o
fit los s in bse t p eri od pro or su qu en s	55 47 0 ,	99 7	71 95 2 ,	10 8, 90 5
Ne t o the reh siv e in ot to be las sif ied to r co mp en com e n rec
fit los s in bse t p eri od pro or su qu en s	0	0	0	0
Oth he nsi in er com pre ve com e	55 47 0 ,	99 7	71 95 2 ,	10 8, 90 5
To tal ot he reh siv e in e f the rio d r co mp en com or pe	28 3, 36 4	-5, 62 3	88 2, 21 9	1, 06 9, 19 7
Co reh siv e in e f the rio d a ttr ibu tab le t mp en com or pe o
No tro llin int sts n- con g ere	-8, 38 2	0	-8, 38 2	0
f P / akk afr Ow F B ost ner s o	29 1, 74 6	-5, 62 3	89 0, 60 1	1, 06 9, 19 7

Consolidated Statement of Financial Position

As at 31 December 2019

	31 De c	31 De c
DK K 1 00 0 ,	20 19	20 18
AS SET S
No t a ts n-c urr en sse
ible Int set ang as s	4, 39 5, 68 7	38 9, 74 5
lan nd uip Pro rty t a nt pe , p eq me	3, 78 0, 49 9	2, 88 32 4, 5
Rig ht of set as use s	33 2, 82 4	0
Fin ial ets anc ass	11 9, 08 4	11 2, 76 6
eiv ab les Lon ter g- m rec	4, 42 2	9, 20 0
To tal t a ts no n-c urr en sse	8, 63 2, 51 6	3, 39 6, 03 6
Cu nt ets rre ass
Bio log ica l as s ( bio ss) set ma	1, 90 1, 72 9	1, 35 8, 46 2
Inv ent ory	54 8, 50 8	43 8, 84 7
tal in To nto ve ry	2, 45 0, 23 7	1, 79 7, 30 9
Ac nts cei ble cou re va	62 5, 99 3	26 9, 34 8
De fer red ta ts x a sse	37 59 3	0
Oth eiv ab les er rec	, 45 52 0 ,	22 93 6 ,
cei To tal ble re va s	70 9, 10 6	29 2, 28 4
Cas h a nd sh uiv ale nts ca eq	1, 30 9, 54 6	31 6, 89 4
To tal nt ets cu rre ass	4, 46 8, 88 9	2, 40 6, 48 7
TO TA L A SSE TS	13 10 1, 40 5	5, 80 2, 52 3
	,

DK K 1 00 0 ,	31 De c 20 19	31 De c 20 18
EQ UIT Y A ND LIA BIL ITI ES
uit Eq y
Sha ita l re cap	59 29 4 ,	48 85 8 ,
Oth uit er eq y	8, 26 9, 96 1	4, 02 8, 17 1
llin int No tro sts n-c on g ere	16 7, 62 0	0
To tal uit eq y	8, 49 6, 87 5	4, 07 7, 02 9
t li ab ilit ies No n-c urr en
fer red d o the De r ta an xes	1, 12 3, 79 6	53 4, 43 0
int bea rin de bt Lon ter st- g- m ere g	2, 32 8, 23 1	81 2, 05 3
lea sin de bt Lon ter g- m g	22 5, 58 5	0
Fin ial de riv ati anc ve s	96 6 1,	0
tal t li ab ilit ies To no n-c urr en	3, 67 9, 57 8	1, 34 6, 48 3
Cu nt liab ilit ies rre
Fin ial riv ati de anc ve s	13 49 3 ,	32 0
Sho le asi de bt rt-t erm ng	10 7, 80 8	0
ble d o the r d ebt Ac nts cou pa ya an	80 3, 65 1	37 8, 69 1
tal liab ilit ies To nt cu rre	92 95 2 4,	37 9, 01 1
tal lia bil itie To s	4, 60 4, 53 0	1, 72 5, 49 4
TO TA L E Q UIT Y A ND LIA BIL ITI ES	13 10 1, 40 5 ,	5, 80 2, 52 3

Consolidated Cash Flow Statement

For the period ended 31 December 2019

	Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18
nin bef in Ear ter est d t ( EB IT) gs ore an ax es	30 1, 31 9	-4, 89 5	1, 01 9, 21 7	1, 184 23 3
				,
Ad jus s fo rite -do nd de cia tio tm ent r w wn s a pre n	13 2, 97 4	51 44 7 ,	31 3, 84 4	17 7, 89 8
Ad jus s fo alu dju of bi tm ent stm ent r v e a om ass	10 3, 09 8	23 9, 54 8	22 0, 56 7	-19 5, 81 9
Ad jus tm ent s fo r in e f iat com rom as soc es	-3, 65 3	-11 10 4 ,	-13 81 2 ,	-9, 36 9
Ad jus tm ent s fo eff ect r c urr en cy s	-14 50 0 ,	1, 11 9	-9, 24 9	11 05 9 ,
id Tax es pa	-15 2, 10 0	-20 1, 67 8	-15 2, 10 0	-20 1, 67 8
Ad jus s fo isio f o tm ent tra cts r p rov n o ne rou s c on	0	-17 07 6 ,	0	0
Ch in inv ent an ge ory	-75 0, 33 0	-14 3, 06 6	-87 3, 49 5	-19 8, 98 1
Ch in eiv ab les an ge rec	-31 8, 08 6	-34 7	-42 5, 66 9	10 3, 43 7
Ch e i de bts ent ang n c urr	55 1, 74 1	27 13 1 ,	95 3, 64 7	42 15 7 ,
h f low fro ion Cas rat m o pe s	-14 9, 53 7	-58 92 1 ,	1, 03 2, 95 0	91 2, 93 7
inv Cas h f low fro est nts m me
isit ion of im ial Ac ter ets qu ma ass	-3, 52 9, 39 7	20 2	-3, 52 9, 39 7	-12 05 7 ,
ds fro ale of fix ed Pro ets cee m s ass	0	0	0	25 00 0 ,
fo has f fi xed Pay nts set me r p urc e o as s	-26 1, 90 3	-14 7, 01 9	-70 1, 50 4	-51 6, 79 3
t in in fin ial Ne stm ent ets ve anc ass	0	0	-37 1, 13 0	-26 89 6 ,
Ch e i n lo eiv ab les ter ang ng- m rec	0	0	24 2 4,	0
h f fro inv Cas low est nts m me	-3, 79 1, 30 0	-14 6, 81 7	-4, 59 7, 78 9	-53 0, 74 6
h f low fro m f ina nci Cas ng
Ch in int bea rin de bt (s ho nd lon ) st- rt a an ge ere g g	67 3, 56 7	21 8, 0 51	21 60 0 1, 7,	6, 78 3 14
Fin ial inc anc om e	3, 39 7	56 1	4, 99 8	2, 65 0
Fin ial anc ex pen ses	-10 62 4 ,	-2, 78 3	-20 80 7 ,	-16 23 7 ,
Lea nts se pay me	-42 27 4 ,	0	-42 27 4 ,	0
eed s f le o f o sh Ne t p roc rom sa wn are s	43 2	17 7	68 35 8 ,	2, 63 4
sed uit iss ion Inc rea eq y - em	2, 01 4, 33 1	0	3, 73 1, 12 9	0
Div ide nd id pa	0	0	-40 1, 51 3	-51 0, 67 8
h f low fro m f ina nci Cas ng	2, 63 8, 82 9	21 6, 46 5	4, 55 7, 49 1	-37 4, 84 8
Ne t c ha in sh d c ash uiv ale nts in rio d nge ca an eq pe	-1, 30 2, 00 8	10 72 7 ,	99 2, 65 2	7, 34 3
h a nd h e iva len ing ba lan Cas ts cas qu – o pen ce	2, 61 1, 55 4	30 6, 16 7	31 6, 89 4	30 9, 55 1
Cas h a nd sh uiv ale los ing ba lan al nts tot ca eq – c ce	1, 30 9, 54 6	31 6, 89 4	1, 30 9, 54 6	31 6, 89 4

Consolidated Statement of Changes in Equity

As at 31 December 2019

		Shar e		Shar e-	Curr ency			Biom ass Fair valu e
	Shar e	ium Prem	Trea sury	base d	slati tran on		osed Prop	adju st-	ined Reta	l Tota
DKK 1,00 0	Capi tal	Rese rve	Shar es	Paym ent	diffe renc es	Deri vativ es	Divid end	ts men	Earn ings	Equi ty
Equi ty 0 1.01 .201 9	48,8 58	306, 537	-15,5 25	6,15 3	6,17 6	-264	403, 079	382, 770	2,93 9,24 6	4,07 7,02 9
Cons olida ted p rofit	0	0	0	0	0	0	0	-220 ,567	1,07 1,23 0	850, 663
Othe preh ensiv e inc r com ome:
Chan ges i n fin ancia l der ivati ves	0	0	0	0	0	-17,7 89	0	0	0	-17,7 89
Here of in tax effec t come	0	0	0	0	0	2,70 5	0	0	0	2,70 5
Shar e-ba sed p nt ayme	0	0	0	-1,09 4	0	0	0	0	0	-1,09 4
Curre latio n dif feren ncy t rans ces	0	0	0	0	72,6 74	0	0	0	0	72,6 74
Tota l oth hens ive i er co mpre ncom e	0	0	0	-1,09 4	72,6 74	-15,0 84	0	0	0	56,4 96
ensi ve in Tota l com preh com e	0	0	0	-1,09 4	72,6 74	-15,0 84	0	-220 ,567	1,07 1,23 0	907, 159
Tran sacti ith o on w wner s:
Shar ital i e Cap ncrea se	10,2 85	3,72 0,83 8	0	0	0	0	0	0	0	3,73 1,12 3
share Trea sury s	0	0	15,4 57	0	0	0	0	0	0	15,4 57
Paid- out d ivide nd	0	0	0	0	0	0	-403 ,079	0	1,56 6	-401 ,513
Tota l tra tion with nsac own ers	10,2 85	3,72 0,83 8	15,4 57	0	0	0	-403 ,079	0	1,56 6	3,34 5,06 7
l cha in e quity Tota nges	10,2 85	3,72 0,83 8	15,4 57	-1,09 4	72,6 74	-15,0 84	-403 ,079	-220 ,567	1,07 2,79 6	4,25 2,22 6
ollin Non- contr g int erest s									167, 620	167. 620
Tota l equ ity 3 1.12 .201 9	59,1 43	4,02 7,37 5	-68	5,05 9	78,8 50	-15,3 48	0	162, 203	4,17 9,66 1	8,49 6,87 5
Equi ty 0 1.01 .201 8	48,8 58	306, 537	-18, 159	3,87 4	6,27 1	-104 ,351	513, 009	186, 951	2,68 3,43 9	3,62 6,42 9
Cons olida ted p rofit	0	0	0	0	0	0	0	195, 819	772, 455	958, 645
Othe preh ensiv e inc r com ome:
Chan ges i n fin ancia l der ivati ves	0	0	0	0	0	126, 935	0	0	-138 ,748	-11,8 13
Here of in tax effec t come Shar e-ba	0	0	0	0	0	-22,8 48	0	0	22,8 48	0
sed p nt ayme latio n dif feren Curre	0 0	0 0	0 0	2,27 9 0	0 -95	0 0	0 0	0 0	0 0	2,27 9 -95
ncy t rans ces l oth hens ive i Tota	0	0	0	9	-95	087	0	0	-115	9
er co mpre ncom e Tota l com preh ensi ve in com e	0	0	0	2,27 2,27 9	-95	104, 104, 087	0	195, 819	,900 656, 555	-9,62 958, 645
sacti ith o Tran on w wner s:
share Trea sury s	0	0	2,63 4	0	0	0	0	0	0	2,63 4
Paid- out d ivide nd	0	0	0	0	0	0	-513 ,009	0	2,33 1	-510 ,678
osed divi dend Prop	0	0	0	0	0	0	403, 079	0	-403 ,079	0
l tra tion with Tota nsac own ers	0	0	2,63 4	0	0	0	-109 ,930	0	,748 -400	-508 ,044
l cha in e quity Tota nges	0	0	2,63 4	2,27 9	-95	104, 087	-109 ,930	195, 819	255, 807	450, 601
Tota l equ ity 3 1.12 .201 8	48,8 58	306, 537	-15,5 25	6,15 3	6,17 6	-264	403, 079	382, 770	2,93 9,24 5	4,07 7,02 9

Notes to the Account

Accounting Policy

General Information

P/F Bakkafrost is a limited company incorporated and domiciled in the Faroe Islands.

The Group's Annual Report as at 31December 2018 is available upon request from the company's registered office at Bakkavegur 9, FO-625 Glyvrar, Faroe Islands, or at www.bakkafrost.com.

This Condensed Consolidated Interim Report is presented in DKK.

Note 1. Statement of Compliance

This Condensed Consolidated Interim Report has been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim Financial Reporting as adopted by the EU. It does not include all the information required for the full Annual and Consolidated Report and Accounts and should be read in conjunction with the Annual and Consolidated Report and Accounts for the Group as at 31 December 2018.

This interim report has not been subject to any external audit.

Note 2. Significant Accounting Policies

The accounting policies applied by the Group in this Condensed Consolidated Interim Report are the same as those applied in the Annual Report as at and for the year ended 31 December 2018. The Group has, however, as mentioned in the Annual Report 2018, applied the IFRS 16 Leases standard from 1 January 2019.

The company has chosen to reproduce the note on biological assets from the Annual Report 2018. The information in the note is adjusted, as Bakkafrost has included Farming Scotland in the calculation model in Q4 2019. Some of the components in the model now includes figures for both Farming Faroe Islands and Farming Scotland. The adjusted model involves calculation techniques and does not represent a change in accounting policies.

Note 3. Estimates and Risk Exposures

The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting principles and recognized amounts of assets, liabilities, income and expenses. The most significant estimates relate to the valuation of biological assets, which are measured at fair value. Estimates and underlying assumptions are reviewed on an ongoing basis and are based on the management's best assessment at the time of reporting. All changes in estimates are reflected in the financial statements as they occur.

The accounting estimates are described in the notes to the financial statements in the Annual Report 2018.

The company's risk profile has changed after the acquisition of SSC, and a new risk profile has been written. We have chosen to include the new profile in this report as Appendix 1. The change basically concerns the specific conditions that are added in connection with SSC, but the change in description is not limited to these conditions.

Note 4. Biomass

	31 De c	31 De c
DK K 1 00 0 ,	20 19	20 18
Bio log ica l as set ing nt 01 .01 s c arr y am ou	1, 35 8, 46 2	1, 09 6, 66 5
du rod ion rch Inc e t uct rea se o p or pu ase s	2, 02 1, 60 1	1, 33 3, 16 0
du isit ion inc l fa ir v alu Inc e t rea se o a cqu s - e	66 7, 48 2	0
Red ion du o h ing le ( f g ds sol d) uct e t est ts o arv or sa cos oo Fai alu th e b inn of th eri od	-1, 92 1, 45 6	-1, 27 3, 15 0
dju stm ent at ing r v e a eg e p ed rev ers	-24 4, 03 4	-18 6, 95 6
Fai alu dju stm ent at th nd of the rio d e a r v e e pe	27 69 5 ,	38 2, 77 5
al o f e lim ina tio t th e b inn ing of th eri od Rev ers n a eg e p	53 79 0 ,	59 8 75 ,
Eli mi ion nat s	-59 12 1 ,	-53 79 0 ,
nsl ati dif fer Cu tra rre ncy on enc es	-2, 68 9
Bio log ica l as ing the d o f th eri od set nt at s c arr y am ou en e p	1, 90 1, 73 0	1, 35 8, 46 2
ice bi ica Co st olo l as set pr g s	1, 93 5, 84 5	1, 02 9, 47 7
Fai alu dju stm ent at th nd of the rio d r v e a e e pe	27 69 5 ,	38 2, 77 5
Eli mi ion nat s	-59 12 1 ,	-53 79 0 ,
nsl ati dif fer Cu tra rre ncy on enc es	-2, 68 9	0
Bio log ica l as set ing nt arr am s c y ou	90 73 0 1, 1,	35 8, 46 2 1,
Bio ( ) ton ma ss nes
< 1 kg	5, 21 0	1, 95 8
1 k 2 kg g <	8, 64 9	2, 95 9
2 k kg 3 g <	10 33 4 ,	5, 18 9
3 k kg 4 g <	14 14 6 ,	6, 01 0
4 k g <	22 98 0 ,	22 96 2 ,
iom Vo lum f b at e o ass se a	61 31 9 ,	39 07 8 ,

	31 De c	31 De c
mb of fis h ( tho nd ) Nu er usa	20 19	20 18
< 1 kg	12 80 1 ,	4, 95 1
1 k kg 2 g <	5, 48 1	2, 11 3
2 k kg 3 g <	4, 27 1	2, 04 4
3 k 4 kg g <	4, 14 8	1, 78 2
4 k g <	63 4, 3	9 4, 35
tal mb of fis h a To t se nu er a	31 33 4 ,	15 24 9 ,
Nu mb of olt lea sed ( tho nd ) er sm re usa
mi rth Far No ng	5, 58 5	3, 97 8
mi Far We st ng	5, 27 0	6, 85 1
Far mi So uth ng	1, 79 7	1, 75 4
Far mi Sco tla nd* ng	5, 69 6	n/a
of To tal mb olt ele d nu er sm s r ase	18 34 8 ,	12 58 3 ,
*SSC rele ased tho nd s mol ts fr 6.7 Q1 t o Q3 20 19 usa om
sit ivi in Sen ty DK K 1 00 0 ,
Ch e i n d isc nt rat 1% ang ou e +	-10 1, 60 7	-93 58 6 ,
Ch e i n d isc 1% nt rat ang ou e -	36 11 5, 4	10 99 4, 1
Ch e i ale ice +5 DK K ang n s spr	25 1, 41 6	22 4, 14 3
Ch e i ale ice -5 DK K ang n s spr	-25 1, 41 6	-22 4, 14 3
Ch e i n b iom lum 1% ang ass vo e +	83 6 5,	6, 55 1
Ch e i n b iom lum 1% ang ass vo e -	-5, 83 6	-6, 55 1
On fo ard ice s in EU R F CA Os lo* e y ear rw pr
rio d e nd Pe	7.2 4	6.0 1
( for rd) 1 Q wa	6.7 2	6.4 8
2 Q ( for rd) wa	6.7 5	6.5 2
( for rd) 3 Q wa	5.5 1	5.9 4
( for rd) 4 Q wa	5.6 2	6.1 2
* S Fi sh Po ol ou rce

VALUATION OF BIOLOGICAL ASSETS

IAS 41 requires biomass to be accounted for at the estimated fair value net of sales costs and harvesting costs. The calculation of the estimated fair value is based on market prices for harvested fish. In the accounts, the change in estimated fair value is entered to the Income Statement on a continuous basis.

The Group's biological assets are salmon at all stages of the life cycle. The fish is divided into two main groups, depending on the stage of the life cycle. The first group is fish produced on shore. The second is, when the fish is released to sea.

For the first group, historical cost is deemed a reasonable approach to fair value, as there is little biological transformation. This assessment must be seen in the light of the fact that smolts are currently released to sea at a stage, when their weight is still relatively low.

For the second group, the fair value is calculated by applying a present value model at level 3 in the fair value hierarchy in IFRS 13. In accordance with the principle in IFRS 13 for highest and best use, the Group considers optimal harvest weight to be for Farming FO 5.2 kg gutted weight (6.3 kg live weight) and for Farming SCO 4.8 kg gutted weight (5.9 kg live weight).

The valuation model

The valuation model calculates the net present value of expected cash flow from biological assets.

Changes to estimated fair value of biological assets are presented on the line Fair value adjustments of biological assets in the Income Statement.

The measurement unit is the individual fish. However, for practical reasons, cash flows and estimates are carried out per locality.

Main components in the model are:

• Volume
• Production costs
• Sales price
• Discount rate

Volume

Estimated harvest volume is based on the actual number of fish in the sea on the balance sheet date, minus estimated future mortality from balance sheet date and multiplied by optimal harvest weight per fish.

Future mortality is estimated to be for Farming FO 0.6% and for Farming SCO 0.9% of the number of incoming fish per month.

Cost

Estimated future costs are based on the Group´s prognoses per locality. Cost comprises mainly feed-, production-, harvest- and transport costs.

Price

Estimated sales prices are based on:

FO: externally quoted prices from Fish Pool

SCO: A mixture of externally quoted prices from Fish Pool and already contracted prices

Fish Pool is a marketplace for financial purchase and sale agreements for superior Norwegian salmon size 3- 6 kg gutted weight. The volume on Fish Pool is, however, limited. This market is therefore initially to be insufficiently active and effective. Despite this, Bakkafrost's opinion is that the observable forward prices must be seen as the best approach to a price for the sale of salmon.

The prices are reduced for harvesting costs, freight costs to market to arrive at a net value back-to-farm and for Farming FO also revenue tax. The valuation also reflects the expected quality grading.

Discounts

The estimated future cash flow is discounted monthly. The monthly discount rate at 31 December 2018 is estimated to be 6% per month. The discount rate takes into account a risk adjustment and time value. The risk adjustment takes into account the volatility in volume, cost and price.

Mortality

Mortality above normal will be accounted for, when a farming site either experiences elevated mortality over time or mortality due to an incident.

Costs related to abnormal mortality will be recognized in the Income Statement and presented on the line for changes in inventory, while normal mortality is classified as part of production costs.

Bakkafrost uses a common indicator and threshold for all farming sites to assess normal and abnormal mortality. Indication of abnormal mortality is when a farming site in a month registers mortality exceeding 1.5% for Farming FO and 4% for Farming SCO of the incoming number of fish. A more detailed assessment is then carried out to evaluate, whether mortality is abnormal. These assessments take into account the cause of mortality and the size of the fish.

SIGNIFICANT ASSUMPTIONS

SENSITIVITY

The estimate of fair value of biomass will always be based on uncertain assumptions, even though the company has built substantial expertise in assessing these factors.

The Group considers three components to be key parameters for valuation. These are: average price, monthly discount rate and estimated biomass volume. In the table above a simulated sensitivity analysis to changes in fair value of the biological assets is portrayed in the event of changes in these parameters.

Note 5. Segments

ing O Fa t – F rm se g me n	Q 4	Q 4	Y T D	Y T D
0 0 0 D K K 1,	2 0 9 1	2 0 8 1	2 0 9 1	2 0 8 1
l re Ex ter na ve nu e	7 9 2, 8 5 7	5 6 7, 3 1 3	2, 5 0 1, 6 4 6	2, 2 2 6, 1 1 8
l re In ter na ve nu e	1 5 2, 3 3 9	1 1 4, 5 3 8	6 5 0, 8 1 6	3 4 2, 2 4 8
l re To ta ve nu e	9 4 5, 1 9 6	6 8 1, 8 5 1	3, 1 5 2, 4 6 2	2, 5 6 8, 3 6 6
ing Op t era ex p en se s	-5 4 4, 6 3 2	-4 3 5, 2 4 7	-1, 8 4 2, 1 1 7	-1, 4 4 8, 2 5 1
ia ion d a iza ion De t t t p rec an mo r	-6 2, 2 4 3	-4 2, 2 0 4	-2 0 7, 3 4 4	-1 5 4, 4 5 6
ion l Op t E B I T era a	3 3 8, 3 2 1	2 0 4, 4 0 0	1, 1 0 3, 0 0 1	9 6 5, 6 5 9
ir v lue d j f b io log ica l a Fa tm ts ts a a us en o sse	1 3 9, 3 1 6	-2 3 9, 5 4 8	2 1, 8 4 7	1 9 5, 8 1 9
fro ia Inc tes om e m as so c	-2, 9 7 7	3 1 1	3, 1 1 9	3 1 1
Re tax ve nu e	-1 4, 4 8 7	-2 4, 0 3 6	-9 9, 1 2 7	-9 5, 8 6 6
ing fo in ( ) Ea be ter t a d tax E B I T rn s re es n es	4 6 0, 1 7 3	-5 8, 8 7 3	1, 0 2 8, 8 4 0	1, 0 6 5, 9 2 3
f ina ia l i Ne t tem nc s	-2 3, 7 0 2	1, 7 1 9	-2 5, 9 1 9	-1 0, 0 0 8
ing fo ( ) Ea be tax E B T rn s re es	4 3 6, 4 7 1	-5 7, 1 5 4	1, 0 0 2, 9 2 1	1, 0 5 5, 9 1 5
Ta xe s	-7 3, 1 6 8	1 4, 1 6 6	-1 7 4, 5 3 3	-1 7 0, 5 2 7
f i fo io Pr t o los t he d o p er r s r	3 6 3, 3 0 3	-4 2, 9 8 8	8 2 8, 3 8 8	8 8 5, 3 8 8

ing S C O Fa t - rm se g me n	Q 4	Y T D
0 0 0 D K K 1,	2 0 9 1	2 0 9 1
l re Ex ter na ve nu e	4 3 7, 1 7 1	4 3 7, 1 7 1
l re To ta ve nu e	4 3 7, 1 7 1	4 3 7, 1 7 1
Op ing t era ex p en se s	-3 6 2, 3 7 2	-3 6 2, 3 7 2
ia ion d a iza ion De t t t p rec an mo r	-5 6, 6 7 0	-5 6, 6 7 0
ion l Op t E B I T era a	1 8, 1 2 9	1 8, 1 2 9
ir v lue d j f b io log ica l a Fa tm ts ts a a us en o sse	-2 4 2, 4 1 4	-2 4 2, 4 1 4
ing be fo in d ( ) Ea ter t a tax E B I T rn s re es n es	-2 2 4, 2 8 5	-2 2 4, 2 8 5
f ina ia l i Ne t tem nc s	-4, 9 7 7	-4, 9 7 7
ing be fo ( ) Ea tax E B T rn s re es	-2 2 9, 2 6 2	-2 2 9, 2 6 2
Ta xe s	3 7, 8 8 6	3 7, 8 8 6
f i los fo he io d Pr t o t o r s r p er	-1 9 1, 3 7 6	-1 9 1, 3 7 6

lue d de d p du Va ts a ro c	Q 4	Q 4	Y T D	Y T D
0 0 0 D K K 1,	2 0 9 1	2 0 8 1	2 0 9 1	2 0 8 1
l re Ex ter na ve nu e	2 4 8, 9 0 0	1 0 8, 9 9 0	9 6 4, 4 8 4	3 6 4, 8 2 7
l p ha f r ia l In ter ter na urc se o aw m a	-1 5 2, 3 3 9	-1 1 4, 5 3 8	-6 5 0, 8 1 6	-3 4 2, 2 4 8
ing Op t era ex p en se s	-5 6, 7 8 6	1 0, 7 6 6	-2 3 2, 4 5 9	-2 9, 9 1 8
ia ion d a iza ion De t t t p rec an mo r	-3, 1 8 7	-1, 8 8 8	-1 7, 4 8 2	-1 5, 0 8 5
ion l Op t E B I T era a	3 6, 5 8 8	3, 3 3 0	6 3, 7 2 7	-2 2, 4 2 4
is ion f o Pro tra ts v o ne rou s c on c	0	1 7, 0 7 1	0	0
ing be fo in d ( ) Ea ter t a tax E B I T rn s re es n es	3 6, 5 8 8	2 0, 4 0 1	6 3, 7 2 7	-2 2, 4 2 4
f ina ia l i Ne t tem nc s	-4 4	-6 4	-5 4 1	-5 1 9
ing be fo ( ) Ea tax E B T rn s re es	3 6, 5 4 4	2 0, 3 3 7	6 3, 1 8 6	-2 2, 9 4 3
Ta xe s	-6, 5 7 9	-3, 6 6 0	-1 1, 3 7 5	3 1
f i los fo he io d Pr t o t o r s r p er	2 9, 9 6 5	1 6, 6 7 7	5 1, 8 1 2	-2 2, 9 1 2

In 2019, one customer – as defined in IFRS 8.34 – represents DKK 510 million, corresponding to 53% of the revenue in the VAP segment.

is is i is F hm l, F h O l a d F h Fe d ea n e	Q 4	Q 4	Y T D	Y T D
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	2 0 1 9	2 0 1 8
Ex ter l re na ve nu e	1 2 5, 9 1 3	7 4, 0 4 5	6 0 7, 8 0 7	5 8 6, 4 7 7
In ter l re na ve nu e	2 1 2, 0 6 3	2 1 3, 6 4 4	7 8 0, 6 5 4	6 8 2, 0 8 7
To ta l re ve nu e	3 3 7, 9 7 6	2 8 7, 6 8 9	1, 3 8 8, 4 6 1	1, 2 6 8, 5 6 4
Co t o f g ds l d s oo so	-2 3 5, 3 2 4	-2 0 0, 0 4 2	-9 1 5, 3 7 7	-8 3 5, 0 3 5
Op t ing era ex p en se s	-4 4, 9 5 3	-2 7, 2 4 0	-1 9 7, 2 8 8	-1 7 9, 2 4 8
De ia t ion d a t iza t ion p rec an mo r	-7, 1 4 5	-7, 3 5 5	-2 8, 6 1 9	-2 9, 3 5 7
Op ion l t E B I T era a	0, 5 5 5 4	3, 0 2 5 5	2 4 7, 1 7 7	2 2 9 2 4, 4
fro ia Inc tes om e m as so c	6, 6 3 0	0, 9 2 1 7	0, 6 9 3 1	9, 0 5 7
ing be fo in d ( ) Ea ter t a tax E B I T rn s re es n es	8 5 7, 1 4	6 3, 8 4 4	2 8 0 5 7, 7	2 3 3, 9 8 1
f ina ia l i Ne t tem nc s	-1, 8 2 5	-3, 5 8 1	-5, 8 6 3	-1, 6 4 0
ing be fo ( ) Ea tax E B T rn s re es	5 5, 3 5 9	6 0, 2 6 3	2 5 2, 0 0 7	2 3 2, 3 4 1
Ta xe s	-9, 5 8 0	-1 0, 3 0 5	-4 4, 9 7 6	-4 1, 2 7 8
f i los fo he io d Pr t o t o r s r p er	4 5, 7 7 9	4 9, 9 5 8	2 0 7, 0 3 0	1 9 1, 0 6 3

Reconciliation of reportable segments

ing be fo ( ) to Gr tax E B T ou p ea rn s re es	Q 4	Q 4	Y T D	Y T D
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	2 0 1 9	2 0 1 8
ing Fa F O rm	4 3 6, 4 7 1	-5 7, 1 5 4	1, 0 0 2, 9 2 1	1, 0 5 5, 9 1 5
ing Fa S C O rm	-2 2 9, 2 6 2	/a n	-2 2 9, 2 6 2	/a n
( lue d de d p du ) V A P Va ts a ro c	3 6, 5 4 4	2 0, 3 3 7	6 3, 1 8 6	-2 2, 9 4 3
( is hm l, is h o i l a d f is h d ) F O F F F Fe ea n e	5 5, 3 5 9	6 0, 2 6 3	2 5 2, 0 0 7	2 3 2, 3 4 1
l im ina ion E t s	-2 8, 3 4 0	-3 0, 2 6 8	-1 0 6, 9 3 4	-9 3, 2 4 8
ing be fo ( ) Gr tax E B T ou p ea rn s re es	2 7 0, 7 7 2	-6, 8 2 2	9 8 1, 9 1 7	1, 1 7 2, 0 6 5

d l ia b i l i ies As ts t t se an p er se g me n	3 1 De c	3 1 De c	3 1 De c
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	2 0 1 8
ing Fa F O rm	6, 5 2 0, 2 2 8	4, 8 6 0, 2 2 7	4, 8 6 0, 2 2 7
ing Fa S C O rm	5, 6 4 0, 0 0 9	/a n
( lue d de d p du ) V A P Va ts a ro c	1 7 0, 1 5 8	1 9 2, 8 4 1	1 9 2, 8 4 1
is is i is F O F ( F hm l, F h O l a d F h Fe d ) ea n e	8 1 4, 6 7 3	7 4 9, 4 5 5	7 4 9, 4 5 5
im ina ion E l t s	-4 3, 6 6 3	0	0
To ta l a ts sse	1 3, 1 0 1, 4 0 5	5, 8 0 2, 5 2 3	5, 8 0 2, 5 2 3
Fa ing F O rm	2, 7 0 0, 7 1 0	1, 4 8 2, 7 5 1	1, 4 8 2, 7 5 1
Fa ing S C O rm	1, 6 9 6, 4 6 5	/a n
( lue d de d p du ts ) V A P Va a ro c	2, 2 5 7 7	3 1, 0 7 5	3 1, 0 7 5
O ( is hm l, is h O i l a d is h d ) F F F F F Fe ea n e	1 6 6 8 9 4,	2 0 9, 6 3 4	2 0 9, 6 3 4
l im ina t ion E s	-1 0, 1 0 6	2, 0 3 4	2, 0 3 4
l l ia b i l i ies To ta t	6 0 3 0 4, 4, 5	2 9 1, 7 5, 4 4	2 9 1, 7 5, 4 4

Note 6. Capital Commitments

The Group had capital expenditure committed but not provided in these accounts at the date of the Statement of Financial Position of approximately DKK 325 million. DKK 107 million relate to the building of new hatchery stations in the Faroe Islands. DKK 121 million relate to new marine sites and development of an existing freshwater site in Scotland. DKK 7 million relate to the building of the new biogas plant in the Faroe Islands.

Note 7. Transactions with Related Parties

Note 5.2 in Bakkafrost's Annual Report for 2018 provides detailed information on related parties' transactions.

Transactions between P/F Bakkafrost and its subsidiaries meet the definition of related party transactions. As these transactions are eliminated on consolidation, they are not disclosed as related party transactions.

Note 8. Fair Value Measurements

All assets/liabilities, for which fair value is recognized or disclosed, are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities.

Level 2: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable).

Level 3: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable).

For biological assets, the fair value calculation is done using a valuation model (level 3 in the valuation hierarchy) where the value is estimated based on observable market prices per period end.

For more information on these calculations, please refer to Note 4.

For assets/liabilities that are recognized at fair value on a recurring basis, the Group determines, whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement).

There have been no transfers into or out of Level 3 fair value measurements.

As at 31 December 2019, the Group held the following classes of assets/liabilities measured at fair value:

0 0 0 D K K 1,		Co t s
d l ia b i l i ies d a fa ir v lue As ts t t se an m ea su re a	ir v lue Fa a	t am ou n	l Le 1 ve	l 2 Le ve	l 3 Le ve
io log ica l a ( b iom ) B ts sse as s	1, 9 0 1, 7 3 0	1, 8 7 4, 0 3 5	0	0	1, 9 0 1, 7 3 0
ir v As ts d a t fa lue 3 1 / 1 2- 2 0 1 9 se me as ur e a	1, 9 0 1, 7 3 0	1, 8 7 4, 0 3 5	0	0	1, 9 0 1, 7 3 0
L ia b i l i t ies d a t fa ir v lue 3 1 / 1 2- 2 0 1 9 m ea su re a	0	0	0	0	0
io log ica l a ( b iom ) B ts sse as s	3 8, 6 2 1, 5 4	9 6 8 7 5, 7	0	0	3 8, 6 2 1, 5 4
d a fa ir v lue / As ts t 3 1 1 2- 2 0 1 8 se me as ur e a	1, 3 5 8, 4 6 2	9 7 5, 6 8 7	0	0	1, 3 5 8, 4 6 2
ia b i l i ies d a fa ir v lue 3 / 2- 2 0 8 L t t 1 1 1 m ea su re a	0	0	0	0	0

Note 9. Business Combinations

On 25 September 2019, Bakkafrost signed a binding Share Purchase Agreement (SPA) to acquire 68.6% of the outstanding shares in the Scottish Salmon Company (SSC) from Northern Link Ltd. The closing date was 8 October 2019. Further acquisition has been made in Q4, and at 31 December 2019 Bakkafrost held 95.6% of the shares in SSC.

SSC is an integrated salmon farming business operating exclusively in Scotland with 60 sites across the West Coast and Hebridean Islands. The company is engaged in nearly all stages of the value chain ensuring full traceability and total supply chain integrity. The current annual production capacity is 50,000 tonnes. SSC produced 33,798 tonnes gutted weight in 2019 and exported to 21 countries with a focus on North America and the Far East. SSC has developed a range of strong flagship brands, including Native Hebridean Salmon, Tartan Salmon Label Rouge and Lochlander Salmon. The company has 651 employees.

SSC's main office is in Edinburgh, Scotland.

Strategic Rationale

The strategic rationale for the acquisition includes the following:

• Provides Bakkafrost access to the Scottish farming region, which is a niche farming region with Scottish provenance products priced at a premium to the market.

• Creates a combined differentiated global leader in premium salmon with dual exposure to both Faroe Islands and Scottish premium salmon.

• Positive diversification of Bakkafrost's operations from a pure play Faroe Islands company to a presence in two attractive salmon farming markets while remaining both developed markets and premium product focused.

• Potential for material improvement in The Scottish Salmon Company's profitability over a five-year horizon through realization of identified synergies, transfer of best practices and a targeted investment programme. Bakkafrost expects to generate synergies in three key areas mainly related to Feed and Procurement, Sales Cooperation and SG&A and Overhead savings.

• Feed & Procurement: Bakkafrost produces fish feed with a significantly higher marine index, compared to industry feed. Supplying feed to SSC would result in fixed cost efficiency at Bakkafrost's feed facilities through intercompany sales of higher quality feed to SSC. Net synergy estimated at DKK 1.2 per kg feed, equating to annual synergies of approximately DKK 70 million from 2022 onwards (~NOK 2.6 / kg of SSC harvested salmon).

• Sales Cooperation: Both SSC and Bakkafrost market premium salmon and brands that obtain a significantly higher price due to provenance and product differentiation. Both companies plan to drive efficiencies by coordinating sales efforts going forward taking advantage of relative distribution strengths in global markets.

• SG&A & Overheads: Leaner head office structure in Scotland (through discontinuing the listed functions of SSC).

Bakkafrost also believes that there is the potential for transfer of best practices including (i) secondments to stimulate identification and transfer of best practices, (ii) implementation of better farming procedures for improved cost performance, (iii) gradual consolidation of sites, (iv) mitigation of biological threats through delousing expertise. The overall result of these actions is expected to result in larger fish improving price achievement and profitability.

Bakkafrost also plans to make targeted investments to achieve the efficiencies outlined above. These include investment in a new modern recirculation plant for smolt production replacing SSC's large number of small smolt facilities. Additionally, investments are planned to be directed towards replacing SSC's existing sea water equipment.

Bakkafrost is committed to strong cooperation with local communities and authorities and hopes to stimulate employment through significant investment in the business. Additionally, Bakkafrost is committed to ongoing work to strengthen the Scottish regulatory framework.

Net assets acquired

The majority of SSC's intangible assets is related to licenses. Licenses are viewed as perpetual in nature and are thus not amortized but made subject to an annual impairment review.

We have identified three significant brand names in SSC, namely Tartan Salmon, Lochlander Salmon and Native Hebridean. The remaining volumes are sold under the general Scottish Salmon Company brand, to a large extent to wholesalers and direct to customers. Brand is valued by the income approach by calculating the net present value (NPV).

We expect that most of the excess value from the transaction is related to licenses, and the question will be where to draw the line between goodwill and licenses. In the PPA, we have allocated value to all other identified assets including brand value, and the remaining excess value is subsequently allocated to licenses. We have then assessed this value by utilizing a top-down market approach.

We have not seen any indicators that the respective trade names have a definite expected life.

The aggregated goodwill of DKK 550.4 million recognized, arises from the tax calculations on the fair value adjustments. The table below summarizes the consideration paid for SSC and the assessed fair value of the assets acquired and liabilities assumed, recognized at the acquisition date.

The figures provided are subject to further scrutiny and may change as Bakkafrost becomes able to gain access to more information from SSC.

Acquisition-related costs were expensed to the profit or loss as incurred and included within operating cash flows in the Statement of Cash Flow. Total cost for Bakkafrost are DKK 10.8 million and costs held by SSC are DKK 57.0 million.

The assets and liabilities recognized are as follows:

	Bo k Va lue o	ir Fa Va lue
D K K 1, 0 0 0, 0 0 0	/ / 8 1 0 2 0 1 9	d j tm t a us en	/ / 8 1 0 2 0 1 9
Go dw i l l o	5 0. 9	4 9 9. 6	5 5 0. 4
ice L ns es	2 0 1. 8	3, 1 3 1. 6	3, 3 3 3. 5
ds Br an	-	1 0 8. 4	1 0 8. 4
lan d e ip Pro ty t a t p er p n qu me n ,	7 0 2. 2	-	7 0 2. 2
iva b les Ac ts co un rec e	1 2 3. 4	-	1 2 3. 4
ies Inv to en r	3 1. 7	-	3 1. 7
io log ica l a B ts sse	6 6 0. 5	-	6 6 0. 5
he lu d ing h a d ba k O t t a ts, r c ur ren sse ex c ca s n n	4 0. 9	-	4 0. 9
h, ba k a d m ke b le i ies Ca ta t s n n ar se cu r	3 2. 5	-	3 2. 5
l a To ta ts sse	1, 8 4 4. 0	3, 7 3 9. 6	5, 5 8 3. 6
fer d De tax re es	1. 7	5 5 1. 3	5 5 2. 9
he lon l ia b i l i ies O t ter t r g- m	1 9 8. 5	-	1 9 8. 5
l ia b i l i ies in be ing Lo -te t ter t- ng rm es ar ,	1 9 2. 7	-	1 9 2. 7
l ia b i l i ies in be ing Cu t t ter t- rre n es ar ,	1 0 8. 4	-	1 0 8. 4
Ac ts b le co un p ay a	2 0 1. 8	-	2 0 1. 8
O t he t l ia b i l i t ies r c ur ren	2 3 9. 4	-	2 3 9. 4
Cu t tax rre n es	8. 3	-	8. 3
l l ia b i l i ies To ta t	9 5 0. 7	5 5 1. 3	1, 5 0 2. 0
ire d Ne t a ts sse ac q u			4, 0 8 1. 5
ha ice l loc ion Pu t rc se p r a a :
ha ice fo ha ( ) Pu 6 8. 6 % rc se p r r s res			2, 8 0 0. 4
ha ice fo ha ( ) Pu 1 0 0 % rc se p r r s res			4, 0 8 1. 5
ion lue ( ke lue f e i ) Tr t t v ty an sa c va ma r a o q u			4, 0 8 1. 5

2018:

On 1 July 2018, Bakkafrost purchased the business and assets in North Landing via Bakkafrost USA LLC.

The purchase was paid in cash and financed by existing facilities.

The key employees of North Landing continued in Bakkafrost USA LLC.

The fair value of intangible assets was determined on an estimated fair value. Fair value was identified in customer relationship employing generally accepted valuation techniques. The market value of the customer relationship was measured to DKK 6.2 million.

The fair value of property, plant and equipment was determined based on 3rd party valuation.

From 1 July to 31 December 2018, the acquired business contributed with a result of DKK -8.5 million to the Group's result.

Identifiable assets assumed:

DKK 1,000

Inv to en ry i i ia To ta l n t de t f b le ts e n as se	1, 5 9 0 2 8, 9 1 0
lan d e ip Pro ty t a t p er p n qu me n ,	3, 3 2 1 7
i b le In tan ts g as se	1 3, 9 4 8

Note 10. Pro forma figures

On 8 October 2019, Bakkafrost acquired 68.6% of the share capital in the Scottish Salmon Company Plc. Consequently, the comparison figures for 2019 do not provide an adequate basis for comparison as the Scottish Salmon Company is incurporated into the Profit & Loss statement from 8 October 2019.

In order to give an adequate basis for comparison, the following pro forma financial information, which presents the Profit & Loss statement as if the merger took place on 1 January 2019, is provided. The pro forma financials present the joint activity as one reporting entity for the period. The pro forma figures are based on the actual financial figures of the Groups.

D K K 1, 0 0 0	fo Pr 2 0 1 9 o rm a
ing Op t era re ve nu e	5, 7 7 9, 9 0 3
ing Op t ts era co s	-3, 8 5 9, 8 2 7
ia ion De t p rec	-5 0 3, 4 7 4
ion l * Op t E B I T era a	1, 4 1 6, 6 0 2
ir v lue d j f b io log ica l a Fa tm ts ts a a us en o sse	-6 7 0, 7 6 4
fro ia Inc tes as om e m so c	1 3, 8 1 2
Re tax ve nu e	-9 9, 1 2 8
ing fo in Ea be ter t a d tax ( E B I T ) rn s re es n es	6 6 0, 5 2 2
f ina ia l i Ne t tem nc s	-5 8, 3 6 1
ing be fo ( ) Ea tax E B T rn s re es	6 0 2, 1 6 1
Ta xe s	-1 1 8, 8 7 6
f i los fo he io d Pr t o t o r s r p er	4 8 3, 2 8 5

* Operational EBIT is EBIT before fair value of biomass, onerous contracts, income from associates and revenue tax.

Note 11. APM

- Alternative Performance Measures

Bakkafrost's financial information is prepared in accordance with international financial reporting standards (IFRS). In addition, the management's intention is to provide alternative performance measures, which are regularly reviewed by the management to enhance the understanding of the company's performance, but not replacing the financial statements prepared in accordance with IFRS. The alternative performance measures presented may be determined or calculated differently by other companies. Bakkafrost's experience is that these APM's are frequently used by analysts, investors and other parties.

These APM's are adjusted IFRS measures, defined, calculated and used in a consistent and transparent manner over the years and across the company where relevant.

NIBD

Net interest-bearing debt consists of both current and non-current interest-bearing liabilities, less related current and non-current hedging instruments, lease liabilities, financial instruments, such as debt instruments and derivatives and cash and cash equivalents. The net interest-bearing debt is a measure of the Group's net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the Group's cash position and its indebtedness. The use of the term 'net debt' does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure. Net debt is an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate interest-bearing liabilities (both current and non-current), derivatives and cash and cash equivalents. A reconciliation is provided below.

	3 1 De c	3 1 De c
0 0 0 D K K 1,	2 0 9 1	2 0 8 1
h a d c h e iva len Ca ts s n as qu	1, 3 0 9, 5 4 6	3 1 6, 8 9 4
iva ive De t r s	0	-3 2 0
d s ho in be ing de b Lo t- ter ter t- t ng - a n r m es ar	-2, 3 2 8, 2 3 1	-8 1 2, 0 5 3
in be ing de b Ne t ter t- t es ar	-1, 0 1 8, 6 8 5	-4 9 5, 4 7 9

Operational EBIT

Operational EBIT is EBIT aligned for fair value adjustments, onerous contracts provisions, income from associates and revenue tax.

Operational EBIT is a major alternative performance measure in the salmon farming industry. A reconciliation from EBIT to Operational EBIT is provided below.

	Q 4	Q 4	Y T D	Y T D
D K K 1, 0 0 0	2 0 1 9	2 0 1 8	2 0 1 9	2 0 1 8
E B I T	3 0 1, 3 1 9	-4, 8 9 5	1, 0 1 9, 2 1 7	1, 1 8 4, 2 3 3
ir v lue d j f b io log ica l a Fa tm ts ts a a us en o sse	1 0 3, 0 9 8	2 3 9, 5 4 8	2 2 0, 5 6 7	-1 9 5, 8 1 9
On tra ts ero us co n c	0	-1 7, 0 7 7	0	0
fro ia Inc tes om e m as so c	-3, 6 5 3	-1 1, 1 0 4	-1 3, 8 1 2	-9, 3 6 9
Re tax ve nu e	1 4, 4 8 7	2 4, 0 3 7	9 9, 1 2 8	9 5, 8 6 6
ion l Op t E B I T era a	4 1 5, 2 5 1	2 3 0, 5 0 9	1, 3 2 5, 1 0 0	1, 0 7 4, 9 1 2

Operational EBIT per kg

i F t: a r m n g s e g m e n	୪ ୓୮ ୧୭୬ ୉ ୆ ୍ ୘ ୊ୟ ୧୬ ୟ୲ ୲ ୣ୰ ୟ ୰୫ ୥ ୱୣ ୥ ୫ ୣ୬
	୪ ୦ୟ ୢ ୪୳ ୘୭ ሺ ሻ ୲ୟ ୲ୣ ୰୴ ୣୱ ୴୭ ୫ ୣୱ ୥ ୵
V A P t: s e g m e n	୪ ୓୮ ୧୭୬ ୉ ୆ ୍ ୘ ୚ ୅ ୔ ୟ୲ ୲ ୣ୰ ୟ ୱୣ ୥ ୫ ୣ୬
	୪ ୪୳ ୢ୳ ୢ ሺ ୪ ሻ ୘୭ ୧ୟ ୲ୟ ୲ୣ ୴୭ ୫ ୣୱ ୮ ୰୭ ୡୣ ୰ୟ ୫ୟ ୰ ୥ ୵ ୵
i d F V A P: a r m n g a n	୧୭୬ ୪ ୧୬ ୢ ୓୮ ୉ ୆ ୍ ୘ ୊ୟ ୚ ୅ ୔ ୟ୲ ୲ ୣ୰ ୟ ୰୫ ୥ ୟ୬ ୱୣ ୥ ୫ ୣ୬
	୪ ୦ୟ ୢ ୪୳ ሺ ሻ ୘୭ ୲ୟ ୲ୣ ୰୴ ୣୱ ୴୭ ୫ ୣୱ ୥ ୵

EBITDA

Earnings before interest, tax, depreciations and amortizations (EBITDA) is a key financial parameter for Bakkafrost's FOF segment. EBITDA before other income and other expenses is defined as EBITDA less gains and losses on disposals of fixed assets and operations and is reconciled in the section Group overview. This measure is useful to users of Bakkafrost's financial information in evaluating operating profitability on a more variable cost basis as it excludes depreciations and amortization expenses related primarily to capital expenditures and acquisitions, which occurred in the past, nonrecurring items, as well as evaluating operating performance in relation to Bakkafrost's FOF segment's competitors. The EBITDA margin presented is defined as EBITDA before other income and other expenses divided by total revenues.

Adjusted EPS

Adjusted EPS is based on the reversal of certain fair value adjustments shown in the table below, as it is Bakkafrost's view that this figure provides a more reliable measure of the underlying performance.

	Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18
fit for th th Pro to e y ear e sha reh old of P/ akk afr F B ost ers	21 9, 51 2	-6, 62 0	80 1, 88 5	96 0, 29 2
Fai alu dju of bi stm ent r v e a om ass	10 3, 09 8	23 9, 54 8	22 0, 56 7	-19 5, 81 9
isio On tra cts ero us con pr ov ns	0	-17 07 6 ,	0	0
fa ir v alu dju Tax stm ent on e a and isio tra cts on ero us con pr ov ns	-18 55 8 ,	-40 04 5 ,	-39 70 2 ,	35 24 7 ,
Ad jus ted ofi t fo r th to pr e y ear sha reh old of P/ f B ak kaf t ers ros	30 4, 05 2	17 5, 80 7	98 2, 75 0	79 9, 72 0
Tim eig hte d a be f e-w ve rag e n um r o sha and ing th h t he tst res ou rou g ye ar	51 62 4, 36 6 ,	48 64 5, 77 4 ,	51 62 4, 36 6 ,	48 64 5, 77 4 ,
Ad jus ted rni ha ea ngs pe r s re ( bef fa ir v alu dju f b iom d stm t o ore e a en ass an vis ion s fo ) (a dju d tra cts ste pro r o ne rou s c on S) EP	5.8 9	3.6 1	19 .04	16 .44

ROCE

Return on average capital employed (ROCE) is defined as the period's operational EBIT divided by the average capital employed, which is total assets adjusted for total current liabilities. The performance measure is expressed as a percentage and is useful for evaluating Bakkafrost's profitability.

	Q 4	Q 4	YT D	YT D
DK K 1 00 0 ,	20 19	20 18	20 19	20 18
tio Gro -Op l E BIT up era na	41 5, 25 1	23 0, 50 9	1, 32 5, 10 0	1, 07 4, 91 2
ita l em loy ed Av era ge cap p	10 14 9, 15 6 ,	5, 39 4, 03 6	8, 77 0, 50 6	5, 00 1, 24 9
RO CE	4.1 %	4.3 %	15 .1%	21 .5%

Appendix 1 – Risk Factors

Risks related to the Group's business and the industries in which it operates

The Bakkafrost Group is exposed to a number of different risks, and risks will always be a natural part of our business activities. Risk management is therefore crucial, so that the risks Bakkafrost is exposed to, and the potential financial impact of these are reduced to an acceptable level.

Bakkafrost has general operational and business risks arising from the normal business activities in the value chain. In addition to the operational risks, Bakkafrost is exposed to markets and financial risks arising from the normal business activities in the value chain.

RISK MANAGEMENT STRUCTURE AND PROCESS

The Board of Directors has the final responsibility for the risk management of the Group. The Board of Directors determines the framework for identifying and mitigating risks. The Audit Committee supervises the risk management.

The Group Management is responsible for the daily compliance with the risk management framework and the Group's daily risk management. The Group Management assesses the Group's main risks on an ongoing basis, based on weekly or monthly reporting from the organization on business activities, market development, technology etc. The ongoing risk assessment is followed up yearly with an extensive risk analysis for the whole Group. The risks are assessed and quantified and reported to the Group Management. The latest analysis of the Group's risks was in December 2019.

OPERATIONAL RISKS

Farming

One of the largest risk factors Bakkafrost is exposed to is the biological risk in the sea water grow-out stage. Examples of such risks are direct threats to the fish such as diseases, sea lice and algae blooms. Although comprehensive measures are put in place to mitigate negative impact arising from exposure to such threats, there is always a variation in key performance indicators such as mortality, growth, yield per smolt, price achievement versus reference prices, feed conversion ratio, costs of mechanical and medicinal treatment, and required fallowing time between generations for sites or larger geographic areas. The impact from being exposed to such risks can vary from minor cost variations to a complete wipe-out of the biomass in a vast geographic area. Due to exceptionally good mitigating measures in the Faroe Islands, outcome on key performance indicators has been attractive in recent years. In Scotland, however, the corresponding scores have generally been less attractive and have had a significantly higher volatility.

Although operational risks are, to a certain extent, reflected in budgets by means of estimates for mortality and the percentage of fish whose quality is downgraded in connection with primary processing, such risks might, if occurring, materially affect Bakkafrost's results and financial condition. Bakkafrost's operations can also be materially impacted by what is classified as normal operating risks, e.g. quality from suppliers and sub-suppliers, etc. The salmon farming industry is associated with a high level of biological risk, and Bakkafrost aims at reducing that risk through the entire production cycle by means of systematic groupwide biosecurity auditing.

Mortality

The farming industry in the Faroe Islands has in the last decade experienced a lower mortality rate than the rest of the farming industry. However, in 2017, 2018 and part of 2019, Bakkafrost experienced an increase in the mortality rate mainly due to a shift from medical to mechanical lice treatment. In Q4 2019, however, the mortality rate has decreased and is now back to the level prior to 2017. The increase in mortality in 2017, 2018 and part of 2019 demonstrates that changes in farming methods can have a significant impact on the mortality.

Price premium

In recent years, Bakkafrost and SSC have had a higher price achievement, comparing to reference prices. This price premium is based on, amongst other things, brand, salmon quality and sizes. This price premium can only be obtained if Bakkafrost as a Group also in the future will be able to differentiate from the rest of the farming industry. Bakkafrost Group strives to maintain this position in the market.

Storms

The growth rate of farmed salmon depends, among other things, on weather conditions. Unexpected warm or cold temperatures can have a significant negative impact on growth rates and feed consumption. Bakkafrost operates at sea under sometimes challenging conditions. This can result in incidents or necessary measures that may have significant cost implications, e.g. unexpected maintenance/repairs or escaped fish, even if Bakkafrost is continually working on reducing risks using experience with equipment, location and operational organization.

Disease

Operation of fish farming facilities involves considerable risk with regard to diseases. In the case of an outbreak of disease, Bakkafrost will, in addition to the direct loss of fish, incur substantial costs in the form of premature harvesting, loss of quality of harvested fish and subsequent periodic reduced production capacity. Examples of diseases being prevalent in the Faroe Islands in recent years are Amoebic gill disease (AGD), Bacterial kidney disease (BKD), Infectious salmon anaemia (ISA), Cardiomyopathy syndrome (CMS) and Heart and skeletal muscle inflammation (HSMI). Corresponding diseases prevalent in Scotland are in addition to above Pancreas disease (PD) as an example.

Escapes

Bakkafrost has a zero tolerance for escape of farmed salmon. However, the Company operate a large number of sea water sites, each of which are exposed to risks linked to bad weather, handling of fish, changing of nets, operations of workboats and well boats, predators etc. Escapes normally occur as a result of equipment failure or mistakes made by the personnel. The direct financial exposure to escapes is moderate due to the geographic diversification of the sites. The indirect effects such as spread of diseases, negative impact on wild salmon, governmental penalties and negative publicity are hard to quantify for the accounts of Bakkafrost and for the society as a whole. Procedures, quality assurance systems and new technological solutions are important elements to mitigate the risk of escapes.

Deformities

As the aquaculture industry has evolved and developed, the biological limits for how fast fish can grow have also been challenged. As with all other forms of intensive food production, a number of production-related disorders arise, i.e. disorders caused by intensive farming methods.

As a rule, such disorders appear infrequently, but certain populations can be severely affected. The most important production-related disorders relate to physical deformities and cataracts. These invariably cause financial loss by way of reduced growth and inferior health, reduced quality on harvesting and damage to the industry's reputation.

Cyber security

With the increased use of technologies such as the internet to conduct business, the Group, service providers to the Group and Oslo Børs are susceptible to operational, information security and related "cyber" risks both directly and indirectly, which could result in material adverse consequences for the Group and the shareholders, such as causing disruptions and impacting business operations, potentially resulting in financial losses. Unlike many other types of risks faced by the Group, these risks are typically not covered by any insurance. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorized access to digital systems (e.g., through "hacking" or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). In recent periods examples have shown that large industrial groups can be subject to complete shutdowns as result of cyber-attacks. For Bakkafrost, such incident would require personnel to apply manual back-up systems to the extent possible. The most exposed area of the Company's value chain in case of cyber-attacks is processing and sales. For shorter periods of time, harvestable fish can be held in sea water sites pending a solution to such negative event, which would imply a delay in profits and cash flows.

Fishmeal, fish oil and fish feed

The production of fishmeal, fish oil and fish feed follow established methods with automated and controlled processes. As self-sufficient operator of fishmeal, fish oil and fish feed, Bakkafrost is exposed to certain risks which may require purchase of fish feed from a third party. For example, Bakkafrost is vulnerable to food safety incidents, downtime and possible insufficient supply of raw material input. Unexpected shortfalls in raw material due to limited catch volumes or limited delivery or purchase of fish or supply of substitutes could affect the volumes produced in the factory. This may result in incidents or necessary measures that may have significant cost implications. Bakkafrost is continually working on reducing risks. The Company's fishmeal, fish oil and fish feed department at Havsbrún's facilities is located in the Faroe Islands, in which case the Company's business could be materially adversely affected directly from any trade restrictions, or indirectly through restrictions on ocean harvests or quotas. Although any salmon farmer being a net buyer of fish feed is also indirectly exposed to the same risk factors, this risk is normally mitigated contractually through replacement obligations from a third party.

Feed contaminants

Feed may, through its use of different types of raw materials and ingredients and through its production processes, be exposed to contamination by a number of undesirable substances. Most contaminants are accumulated in organisms, such as marine wild catch used to produce fishmeal and fish oil. These contaminants are deposited into the organism's fat, and the concentration is greater the higher up the food chain. Authorities set maximum allowable levels for the most important contaminants. These limits are continuously monitored by the authorities and may be altered. There is also the possibility of "new" contaminants being added periodically to the list.

Generally, contamination may occur either accidentally or deliberately through malicious product tampering. Such contamination has the potential to affect the environment, fish health and/or food safety, with a potential negative impact on the public's confidence in eating salmon. Any of these events could have a negative impact on Bakkafrost's operating result and financial condition. Future legislation may increase the risk of non-compliance and the cost of ensuring compliance. The reputation risk associated with noncompliance may be significant even if there is no impact on the environment, fish health or food safety.

The Company´s feed department, Havsbrún, operates a number of controls to reduce the risk of contamination. Examples of measures and controls, included in HACCP and ISO procedures, include supplier audits and supplier specifications of raw materials, targeted sourcing of raw materials, regular raw material and finished feed quality control analyses, procedures for cleaning of fish oils, etc. and strict plant security procedures. The risks, however, can never be completely eliminated.

Contaminants that may be a risk for fish feed include, but are not limited to, organic contaminants such as dioxins and DL-PCBs, mycotoxins, pesticides, antioxidants such as Ethoxyquin and BHT, brominated flame retardants and bacterial contamination and inorganic contaminants such as lead, mercury, arsenic and cadmium.

Even though all tests show that the levels of pollutants in the Bakkafrost salmon are well within the safety limits, imposed by e.g. the European Union, Bakkafrost has from early 2015 cleaned the fish oil used for Bakkafrost's salmon feed for DL-PCBs and other pollutants, and since early 2018, the antioxidant, Ethoxyquin, has been replaced with natural antioxidant.

The feed may also, through accidents or tampering, be contaminated by other inorganic substances such as mineral oil, physical objects, etc. Several substances in addition to the list above are being monitored.

Regulatory

Regulatory impositions due to environmental or animal welfare concerns may materially impact the Company's operations and financial condition. The Company emphasises to organize its operations so that the risk for unexpected measures is reduced, but there will always be a latent risk that the regulatory authorities will impose restrictions and/or sudden changes in the industry framework. Salmon farming is regulated by licenses. The Group have good dialogue with the Faroese and Scottish authorities regarding the prerequisites and restrictions that are connected to a farming license. In Scotland, all licences and consents, policies and regulations as overseen by the Scottish Environment Protection Agency (SEPA). The Faroese authorities may withdraw licences for fish farming operations if substantial preconditions have been changed since the licence was issued, or if the licence goes against overall development plans and protective measures, or if the licensee breaches the conditions set in connection with the issuance of the licence. The licence may also be withdrawn, if the company breaches the rule on maximum ownership of licenses, or if the company does not use the licence. The licence may also be withdrawn, if the environmental licence of the company is repealed. In the Faroese Islands, a salmon farming licence is issued for a period of 12 years from the date of issue. The Faroese government may prolong the licence period. If the company fulfils the conditions in the license and if a continuation of the activities is not contrary to overall development plans, which have been adopted, it must be assumed (but there can be no assurance) that the company has a legal claim to have the license period prolonged. Under the Act on Environmental Protection and under existing practice, the relevant environmental authorities may demand a reduction in the stocking of fry compared to the last stocking, in case examinations of the seabed or other environmental studies show, that pollution of the environment exceeds certain specified limits. The Faroese environment has become the subject of increasing attention and publicity in relation to aquafarming, and therefore it can be expected that the rules on this area may become stricter or that existing practice will become stricter.

IT

IT-related risks have increased in recent years, as IT has become more integrated in Bakkafrost's operations. Therefore, breakdown of Bakkafrost's control systems and administrative systems will have negative effect on Bakkafrost's operations. The IT risks are assessed continuously, based on the importance of a potential event for Bakkafrost operations and the likelihood that the event may occur.

MARKET RISKS

Price on farmed salmon

The Company's financial position and future development depend to a considerable extent on the price of farmed salmon, which has historically been subject to substantial fluctuations. Farmed salmon is a commodity, and it is therefore reasonable to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demand for farmed salmon is a key parameter.

Price on fishmeal and fish oil

Bakkafrost's financial position and future development depend to some extent on the price of fishmeal and fish oil, which have historically been subject to substantial fluctuations. Fishmeal and fish oil are commodities, and it is therefore reasonable to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demand for fishmeal and fish oil is a key parameter. Decreased supply may cause prices to increase. This could in turn have an impact on the company's profitability and cash position.

Price on fish feed

Feed costs account for a significant proportion of the total production costs within the salmon farming segment, and fluctuations in feed prices could therefore have a major impact on profitability. Feed prices are affected by both the global market for fishmeal and marine/animal/vegetable oils, and the feed industry is dominated by a small number of large, global producers.

Natural limitations in the marine resource base could lead to global shortages of fishmeal and fish oil for the fish feed production. The feed producers have come a long way, however, in their efforts to replace some of the marine based input factors with vegetable raw materials. Furthermore, the production of fish feed is an integrated part in Bakkafrost's value chain and thus reducing this risk.

FINANCIAL RISKS

Bakkafrost seeks to manage financial risks through operational measures or (where such measures are not available) through the use of financial derivatives. A policy on the management of these risks has been approved by the Board of Directors.

The follow-up of internal procedures associated with financial reporting is undertaken as part of the management's day-to-day supervision and the process owners' follow-up. Please refer to Note 4.1 in the Annual Accounts 2018 for additional information.

Foreign exchange risk

Bakkafrost trades in the world market for farmed salmonids. The revenues and accounts receivables are predominantly denominated in DKK, EUR, USD and GBP, but to some small extent also in other foreign currencies. On the other hand, purchases of raw materials etc. are predominantly denominated in DKK, which has a relatively stable rate compared to EUR. Therefore, Bakkafrost has some natural hedging. For those currencies not fully hedged, fluctuations in foreign exchange rates present a financial risk to Bakkafrost.

The Company's financing is bank financing and is in EUR and GBP, but Bakkafrost has the possibility to finance in other currencies. In connection with some material investments, Bakkafrost is in some degree exposed to NOK, GBP, USD and EUR. SSCs main transaction currency is GBP, which is also the main currency for the majority of contracted revenues. Traded and export sales can be denominated in other currencies, the most significant of which is EUR. SSC uses forward currency contracts to manage its exposure to currency fluctuations arising from these transactions. The SSC is financed exclusively in sterling. As exports continue to become an increasingly significant source of revenue for the Group, the Board will continue to adapt its currency hedging strategy.

Credit risk

The risk that counterparties do not have the financial strength to meet their obligations is considered relatively low, since losses due to bad debts historically have been small. Bakkafrost has guidelines to ensure that sales are made only to customers that have not previously had payment problems and that outstanding balances do not exceed fixed credit limits. The majority part of the total accounts receivables is insured. As not all receivables are insured, Bakkafrost must accept a certain risk element in accounts receivables.

The main credit risk on the date of the statement of financial position regards Bakkafrost's receivables portfolio.

Liquidity risk

.

Liquidity risk is the risk that Bakkafrost will not be able to meet its financial obligations as they fall due. Liquidity risk is managed by maintaining a flexible financial structure, which is secured by means of established borrowing facilities. Bakkafrost's objective is to have sufficient cash, cash equivalents or medium-term credit facilities to meet its borrowing requirement in the short term. Unused credit facilities and terms are described in Note 4.1 in the Annual Accounts 2018.

Capital structure and equity

The prime objective of Bakkafrost's capital management is to ensure that it maintains a good credit rating to achieve favourable borrowing terms. By ensuring a good debt-to-equity ratio, Bakkafrost will support its business operations. Bakkafrost manages and makes changes to its capital structure in response to an ongoing assessment of financial conditions under which the business operates and its short- and mediumterm outlook, including any adjustment in dividend pay-outs, buyback of own shares, capital reduction or issue of new shares.

Contacts

P/F BAKKAFROST

Bakkavegur 9 FO-625 Glyvrar Faroe Islands Telephone: +298 40 50 00 Fax: +298 40 50 09 Email: bakkafrost@bakkafrost.com Website: www.bakkafrost.com