Bakkafrost P/f

Earnings Release • Aug 26, 2014

Positive results from all segments contributing to a strong result for the result in Q2 2014

Positive results from all segments contributing to a strong result for the result in Q2 2014

The Bakkafrost Group delivered a total operating EBIT

of DKK 212.1 million in Q2 2014. The combined farming

and VAP segment made an operational EBIT of DKK 180.0

million in Q2 2014. The Farming segment made an

operational EBIT of DKK 159.5 million. The salmon spot

prices decreased during the quarter, while the VAP

contract prices stayed on a record high level. Because

of the decreasing spot prices, the performance in the

VAP segment improved during the quarter, and the

operational EBIT came to DKK 20.5 million in Q2 2014.

The EBITDA for the FOF segment was DKK 57.0 million in

Q2 2014.

Commenting on the results, CEO Regin Jacobsen said:

"We are very satisfied with the result for Q2 2014, as

all segment made profit. The biological development

has been positive and our sales prices for VAP

products are on a level where we again see positive

margins. The spot price, on the other hand, have

decreased some lately due to the increase in supply of

fresh salmon. For our Fish meal, fish oil and fish

feed department the quarter was good."

The Group made a profit for the quarter of DKK 126.2

million (DKK 184.2 million). For H1 2014, the profit

was DKK 213.4 million (DKK 251.7 million).

The total volumes harvested in Q2 2014 were 11,212

tonnes gutted weight (10,540 tgw). The total harvested

volumes in H1 2014 were 20,481 tonnes gutted weight

(18,836 tgw). The reason for the increase in the

harvested volumes year on year is that Bakkafrost will

harvest higher volumes this year compared to the year

before.

Bakkafrost transferred 1.9 million smolts in Q2 2014

(1.8 million), which is in line with the company's

plans. Year to date 4.9 million have been transferred

(3.9 million). The smolt release is higher in 2014

compared to 2013, due to available sites for smolt

release.

In Q2 2014, the associated company P/F Faroe Farming

harvested 47 tonnes gutted weight (943 tgw). In H1

2014, Faroe Farming harvested 2,212 tonnes gutted

weight (3,298 tgw).

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

owned subsidiary Havsbrún - acquired an addition-al

41.15% in Hanstholm Fiskemelsfabrik. After the

acquisition, Bakkafrost owned 81.01% of the company.

The 9th May 2014, Bakkafrost divested all its shares

in Hanstholm Fiskemelsfabrik to FF Skagen A/S. In

return, Bakkafrost, via its subsidiary P/F Havsbrún,

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

investment is a strategic investment and part of the

consolidation of the fishmeal and fish oil industry.

In accordance with the Group's dividend policy,

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

April 2014. The amount corresponds to approximately

DKK 219.9 million (NOK 243.3 million).

In February 2014, a routine surveillance test detected

a possible pathogenic ISA-virus at Bakkafrost's

farming site A-80. There was no increase in mortality,

and no impact on fish health or fish welfare, however.

Bakkafrost decided to activate the ISA-contingency

plan immediately and hence enforced slaughtering of

the last cage at the farming site A-80 Selatrað. The

detected site, together with all the neighbouring

sites are now empty. No signs of ISA have been

observed since, and no cost increase was related to

the detection.

The farming companies and the authorities have put a

lot of work into maintaining the good biological

status in the Faroe Islands. Regular surveillance

tests for ISA-viruses have been performed at all farms

during the last approx. 10 years at sea sites in the

Faroes. Bakkafrost and the other farmers in the Faroe

Islands will work with the Faroese Food and Veterinary

authority to avoid the introduction of AGD and ISA.

The combined farming and VAP segment made an

operational EBIT of DKK 180.0 million (DKK 157.8

million) in Q2 2014. For H1 2014, the combined farming

and VAP segment made an operational EBIT of DKK 356.7

million (DKK 259.0 million).

The farming segment made an operational EBIT of DKK

159.5 million (DKK 199.5 million) in Q2 2014. The

reason for the decrease is lower spot prices in Q2

2014, as the harvested volumes are higher. For H1

2014, the operational EBIT was DKK 345.7 million (DKK

324.1 million).

The VAP segment made an operational EBIT of DKK 20.5

million (DKK -41.8 million) for Q2 2014. The improved

result is primarily due to a combination of improved

contract prices and lower raw material prices. There

is normally a time lag between the changes in the spot

prices and the changes in the contract prices. The

contract prices have increased significantly from the

level in 2013, due to the high salmon spot prices.

When the spot prices decreased during the quarter, the

contracts became profitable, compared to selling the

salmon on the spot market. For H1 2014, the

operational EBIT was DKK 11.0 million (DKK -65.0

million).

The third segment - FOF (fishmeal, oil and feed), made

an operational EBITDA of DKK 57.0 million (DKK 30.9

million) in Q2 2014, and for H1 2014, the operational

EBITDA amounted to DKK 79.1 million (DKK 55.7

million). The increase in the EBITDA is primarily due

to higher production of fishmeal and fish oil, as the

raw material intake has increased significantly.

In Q2 2014, Havsbrún sourced 107,372 tonnes of raw

material (42,782 tonnes) and in H1, Havsbrún sourced

151,531 tonnes of raw material (73,519 tonnes).

The Bakkafrost Group had a net interest bearing debt

at the end of Q2 2014 amounting to DKK 555.0 million

(DKK 638.6 million at year-end 2013) including

deposits and losses on financial derivatives relating

to the interest bearing debt. Bakkafrost had undrawn

credit facilities of approximately DKK 738.0 million,

of which DKK 16.0 million were restricted at the end

of Q2 2014.

Bakkafrost's equity ratio is 53%, compared to 54% at

the end of 2013.

Segments

Farming:

The operating revenue for Bakkafrost's farming segment

was DKK 515.6 million in Q2 2014 (DKK 520.4 million)

and DKK 1,033.7 million for H1 2014 (DKK 945.4

million).

Operational EBIT, which is EBIT before fair value

adjustments on biological assets, amounted to DKK

159.5 million in Q2 2014 (DKK 199.5 million), and for

H1 2014, it was DKK 345.7 million (DKK 324.1 million).

Operational EBIT/kg for the farming segment was DKK

14.23 (NOK 15.65) in Q2 2014, compared to DKK 18.93

(NOK 19.34) in Q2 2013. The salmon prices in Q2 2014

have been weaker in average, compared to Q2 2013 and

thus lower margins. Operational EBIT/kg for H1 2014

was DKK 16.88 (NOK 18.75), compared to DKK 17.20 (NOK

17.27 for H1 2013.

Value Added Products (VAP):

The operating revenue for the value added segment

amounted to DKK 267.0 million in Q2 2014 (DKK 168.1

million). For H1 2014, the revenue was DKK 499.2

million (DKK 315.9 million). The increase in the

revenue from Q2 2013 to Q2 2014 is 59%, while the

volumes that went for VAP products only increased by

21%.

Operational EBIT amounted to DKK 20.5 million in Q2

2014 (DKK -41.8 million), corresponding to an

operational EBIT of DKK 3.44 (NOK 3.79) per kg gutted

weight in Q2 2014 (DKK -8.61 (NOK -8.80) per kg gutted

weight).

The increase in the operational EBIT margins is due to

higher contract prices and a decrease in the raw

material prices. The VAP segment acquires its raw

material (fresh salmon) at spot prices each week. For

H1 2014, operational EBIT amounted to DKK 11.0 million

(DKK -65.0 million), corresponding to an operational

EBIT of DKK 0.93 (NOK 1.04) per kg gutted weight in H1

2014 (DKK -7.14 (NOK -7.17) per kg gutted weight).

FOF (Fishmeal, Fish Oil and Fish Feed):

The operating revenue for the FOF segment amounted to

DKK 280.1 million (DKK 250.8 million) in Q2 2014, of

which DKK 146.7 million (DKK 152.8 million) represents

sales to Bakkafrost's farming segment corresponding to

52.4% (60.9%). For H1 2014, the revenue was DKK 458.2

million (DKK 408.2 million), of which DKK 239.7

million (DKK 269.2 million ) represents sales to

Bakkafrost's farming segment corresponding to 52.4%

(65.9%).

Operational EBITDA was DKK 57.0 million (DKK 30.9

million) in Q2 2014, and the operational EBITDA margin

was 20.3% (12.3%). For H1 2014, the EBITDA was DKK

79.1 million (DKK 55.7 million), and the margin was

17.3% (13.6%).

Sales of feed amounted to 18,827 tonnes (18,196

tonnes) in Q2 2014, of which the farming segment

internally used 14,784 tonnes (14,412 tonnes). In H1

2014, the feed sale was 32,783 tonnes (33,102 tonnes).

The internal sale was 25,382 tonnes (25,403 tonnes).

In the quarter, Havsbrún received 107,372 tonnes

(42,783 tonnes) of raw material for the production of

fishmeal and fish oil. The raw material intake depends

on the fishery in the North Atlantic and available

species of fish. In H1 2014, Havsbrún received 151,531

tonnes (73,720 tonnes) of raw material.

The production of fishmeal in Q2 2014 was 21,925

tonnes (8,929 tonnes). In H1 2014, Havsbrún produced

31,939 tonnes (15.767 tonnes) of fishmeal.

The production of fish oil in Q2 2014 was 391 tonnes

(1,936 tonnes). In H1 2014, Havsbrún produced 1,659

tonnes (3,541 tonnes) of fish oil. The production of

fish oil varies, depending on the species of fish

sourced for production. In both Q2 and H1 2014, the

raw material intake of blue whitening was high, but

the blue whitening has a low content of fish oil.

Statement of Financial Position

The Group's total assets as of end Q2 2014 amounted to

DKK 3,140.3 million, compared to DKK 3,112.2 million

at the end of 2013.

The Group's intangible assets are unchanged, compared

to the beginning of the year and amounted to DKK 294.7

million. Intangible assets comprise primarily the fair

value of acquired farming licences. For the licences

in the North region, there is not recorded a value in

the Bakkafrost accounts.

Property, plant and equipment amounted to DKK 949.5

million at the end of Q2 2014, compared to DKK 916.7

million at the end of 2013. In Q2 2014 Bakkafrost made

investments in PP&E amounting to DKK 61.0 million and

in H1 2014, investments were made for DKK 78.7

million.

Financial assets amounted to DKK 131.7 million at the

end of Q2 2014, compared to DKK 115.3 million at the

end of 2013. The increase in the financial assets

relates mainly to the investment in the new pelagic

processing company Pelagos next to Havsbrún in

Fuglafjørður, but also to the ownership in Hanstholm

Fiskemelsfabrik, that was sold to FF Skagen.

Long-term receivables have increased from DKK 1.5

million to DKK 15.0 million due to a feed financing

agreement.

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

assets amounted to DKK 812.8 million at the end of Q2

2014, compared to DKK 965.9 million at the end of

2013. Included in the carrying amount of the

biological assets is a fair value adjustment amounting

to DKK 172.8 million, compared to DKK 296.4 million at

the end of 2013. The decrease is primarily due to

lower salmon prices at the end of Q2 2014 compared to

end 2013, but also due to seasonal lower biomass at

sea.

The Group's total inventories amounted to DKK 284.1

million as of end Q2 2014, compared to DKK 235.5

million at year-end 2013. The inventory primarily

represents Havsbrún's inventory of fishmeal, fish oil

and fish feed, in addition to feed at the feed

stations, packing materials and other raw materials.

The Group's total receivables amounted to DKK 389.8

million as of end Q2 2014, compared to DKK 400.6

million at the end of 2013.

The Group's equity at the end of Q2 2014 is DKK

1,662.7 million, compared to DKK 1,665.3 million at

the end of 2013. The change in equity consists

primarily of the positive result for H1 and the gross

dividend of DKK 219.9 million paid out in April.

The Group's total non-current liabilities amounted to

DKK 1,161.6 million at the end of Q2 2014, com-pared

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

Deferred and other taxes payable in 2015 amounted to

DKK 417.3 million, compared to DKK 310.9 million at

the end of 2013. Because of the increase in the

special tax on farming companies and the change from a

provisional tax to a permanent tax, the deferred tax

has increased by DKK 42.6 million from end 2013 to end

Q2 2014.

Long-term debt was DKK 671.4 million at the end of Q2

2014, compared to DKK 685.2 million at the end of

2013. Derivatives amounted to DKK 73.0 million at the

end of Q2 2014, compared to DKK 74.9 million at the

end of 2013.

Bakkafrost's interests bearing debt consists of two

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

instalment loan of DKK 250 million, payable with DKK

25 million each quarter, and an overdraft facility

payable in 2016 with the full amount of DKK 553

million. The bond loan of NOK 500 million has a five-

year maturity and is payable 14 February 2018. The

interest rate of the bonds is NIBOR 3m + 4.15%.

Following the issuance of the bonds, Bakkafrost has

entered into a currency/interest rate swap, hedging

the exchange rate and has switched the interest rate

from NIBOR 3m to CIBOR 3m. Bakkafrost has entered the

swap due to its exposure to DKK, as a large part of

the income and costs are in DKK and EUR.

At the end of Q2 2014, the Group's total current

liabilities are DKK 315.9 million, compared to DKK

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

bearing debt amounts to DKK 100.0 million and relates

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

above. Accounts payable amount to DKK 215.9 million,

compared to DKK 276.0 million at the beginning of the

year. The decrease is primarily due to lower

provisions for onerous contracts.

Bakkafrost's equity ratio is 53%, compared to 54% at

the end of 2013.

Cash Flow

The cash flow from operations improved signifi-cantly

in Q2 2014 compared to Q2 2013. The cash flow from

operations in Q2 2014 was DKK 307.8 million (DKK 173.1

million). The Cash flow from operations has been

positively affected from reduction in working capital.

For H1 2014, the cash flow from operations was DKK

416.1 million (DKK 199.8 million).

The cash flow from investment activities in Q2 2014

amounted to DKK -71.5 million (DKK -40.7 million). The

amount relates mainly to investments in fixed assets.

For H1 2014, the cash flow from investments amounted

to DKK -105.7 million (DKK -69.3 million).

Cash flow from financing activities totalled DKK

-217.0 million in Q2 2014 (DKK -169.3 million). The

interest bearing debt decreased by DKK 51.9 million,

and financing of an associated company contributed

positively with DKK 45.4 million, and net payment of

dividends amounted to DKK 218.2 million. For H1 2014,

cash flow from financing amounted to DKK -229.7

million (DKK -68.5 million).

Net change in cash flow in Q2 2014 amounted to DKK

19.3 million (DKK -36.9 million) and for H1 2014 DKK

80.7 million (DKK 62.0 million).

At the end of Q2 2014, Bakkafrost had unused credit

facilities of approximately DKK 738.0 million of which

DKK 16.0 million are restricted.

Outlook

MARKET

The supply of farmed salmon is expected to increase by

around 8% in 2014, compared with 2013. The reason for

the increase is due to high seawater temperatures in

Norway and higher production in Chile. The supply

increase that commenced in Q2 is expected to continue

during Q3. In Q4, there is no significant expected

increase in the supply compared to the year before,

and therefore higher prices are expected, but the

conflict with Russia may impact the salmon prices

negatively - especially short term. The outlook for

2015 is favourable for the salmon farming industry, as

only a limited growth of 1% is expected.

Due to the changes in the MAB system in Norway, it is

likely that some harvest of salmon will be postponed

from 2014 to 2015. This will reduce the supply in H2

2014 and increase the supply in H1 2015.

The market place is one of Bakkafrost's most

significant risk areas. To reduce the exposure to the

market risk, Bakkafrost has a geographical app-roach

and a market price approach. To diversify the

geographical market risk, Bakkafrost sells its

products to some of the largest salmon markets in the

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

to Russia has been low the last quarters, but may

increase the coming quarters, as salmon from the

Faroes Islands is not covered by the import ban put

into effect by the Russian authorities.

FARMING

The outlook for the farming segment is good. The

biological situation is good, and the price outlook in

the spot market is good.

Bakkafrost's expected harvest is unchanged at 45,000-

48,000 tonnes gutted weight in 2014 of which 55% will

be sold on the spot market, while 45% is planned to be

sold as value added products (VAP).

Faroe Farming, a company in which Bakkafrost holds

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

The number of smolts released is one key element of

predicting the future production for the Group.

Bakkafrost's forecast for the smolt release in 2014 is

11.6 million smolts. The smolt release for 2014 shall

be compared to the smolts released in 2012, when the

smolt release was 10.7 million. The same sites are

available for smolt release in 2014 as in 2012.

The estimates for harvesting volumes and smolt

releases is as always dependent on the biological

situation. The biological situation in the Faroe

Islands is good, and Bakkafrost will continue to focus

on a good biological situation and improve procedures

where possible.

Value added products (VAP)

The outlook for the sale of value added products is

good. Bakkafrost has signed contracts covering 85% of

the VAP capacity for the rest of 2014, corresponding

to more than 30% of the expected harvested volumes for

the rest of 2014. The last 15 % of the VAP capacity

will be committed during the rest of the year. The

contracts are at fixed prices based on the salmon

prices at the time they are agreed and the

expectations for the salmon spot price for the

contract period.

The contracts last for 6 to 12 months. The long-term

strategy is to sell around 40-50% of the harvested

volumes of salmon as VAP products on fixed price

contracts. Selling the products at fixed prices

reduces the financial risk with fluctuating salmon

prices. The market price for contracted VAP products

follows a more stable pattern with trends instead of

short-term fluctuations as in the spot market.

FOF (Fish oil, -meal and feed)

The outlook for the production of fish oil and

fishmeal has improved, as the available raw material

for the production of fish oil and -meal has

increased.

The quotas for catching blue whiting in the North

Atlantic has increased, and the opening of a new

pelagic processing plant next to Havsbrún's production

facilities improved the possibilities for getting

access to offcuts and raw material that cannot be used

for human consumption, but for the production of

fishmeal and oil.

However, depending on supply, demand and the price

level, the sourcing of raw material for the production

of fish oil and -meal is very uncertain. An

alternative to Havsbrún's production of fish oil and -

meal is purchasing these raw materials from other

producers, which has been common in recent years. Fish

oil and -meal is the most important raw material in

the production of a high quality fish feed for the

Bakkafrost salmon.

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

Faroese market including Bakkafrost's internal use of

fish feed.

It is expected that the total consumption of fish feed

in the Faroe Islands will be approximately 90,000-

95,000 tons in 2014. Depending on the purchase from

external customers in the Faroe Islands and abroad,

the sale of fish feed will be approximately 83,000-

87,000 tonnes.

Investments

In July 2013, Bakkafrost announced a five-year

investment plan for optimising its value chain,

resulting in savings, increased production and reduced

biological risk. The yearly investments were planned

to amount to DKK 170 million per year in addition to a

new wellboat, estimated to DKK 230 million. For the

period 2014-2017, the investments were forecasted to

DKK 900 million. Bakkafrost has now decided to

increase the level of ambition with two main changes.

1. Part of the plan was a new Harvest/VAP factory

estimated to DKK 300-350 million, resulting in

operational savings of DKK 50-70 million per year from

2017. The company has decided to advance the

investment, so the plant will be up running in 2016.

Further, the plant will be made more efficient, so

that the yearly operational savings will increase from

DKK 50-70 million per year to DKK 70-90 million per

year. By doing this, the investment will increase from

DKK 300-350 million to DKK 450 million.

2. Part of the investment plan was also to

increase the smolt capacity, making Bakka-frost self-

supplied and increasing the smolt size from ~100g to

~150g. Bakkafrost has now decided to speed us this

plan to increase the size to 200-300g before end 2017.

This will result in increased investments in smolt

capacity from DKK 50 millon to DKK 420 million. The

benefits are shorter production time at sea and

reduced biological risk. Due to the shorter time at

sea, Bakkafrost can gradually increase the farming

production by 10-15%.

The total investments for the period 2014-2017 will

thus be DKK 1.370 million. The investments will be

financed by free cash flow from operation, existing

financing facilities and partly new financing if

advantageous. In addition, Bakkafrost has the

possibility to postpone investments in case of adverse

events. The dividend policy will be unchanged.

Financial

Improved market balances in the world market for

salmon products and costs effective production will

likely improve the financial flexibility going

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

bank financing and the issuance of bonds, makes

Bakkafrost's financial situation strong, which enables

Bakkafrost to carry out its investment plans to

further focus on strengthening the Group, M&A's,

organic growth opportunities and fulfil its dividend

policy in the future.

Contacts:

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

(mobile)

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

(mobile)

This information is subject of the disclosure

requirements acc. to §5-12 vphl (Norwegian Securities

Trading Act)

About Bakkafrost:

Bakkafrost is the largest salmon farmer in the Faroe

Islands. The Group is fully integrated from feed

production to smolt, farming, VAP and sales. The Group

has production of fish meal, fish oil and salmon feed

in Fuglafjørður. The Group operates licenses on 14

farming fjords. The Group has primary processing in

Klaksvík, Kollafjørð and Strendur and secondary

processing (VAP) in Glyvrar and Fuglafjørður. The

headquarters are located in Glyvrar, and the company

has a total of 640 employees.

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