Bakkafrost P/f

Earnings Release • Aug 25, 2020

Operational EBIT of DKK 182 Million for the Second Quarter of 2020

Operational EBIT of DKK 182 Million for the Second Quarter of 2020

The Bakkafrost Group delivered a total operating EBIT of DKK 181.9 million in Q2

2020. Total harvested volumes were 20.9 thousand tonnes gutted weight (tgw).

Faroe Islands (FO): 12.9 tgw, Scotland (SCT): 7.9 tgw. The combined FO farming

and VAP segments made an operational EBIT of DKK 134.4 million. The FO farming

segment made an operational EBIT of DKK 85.8 million. The SCT farming segment

made an operational EBIT of DKK 28.8 million. Volumes increased and thus had a

positive effect on the operational EBIT. The VAP segment made an operational

EBIT of DKK 48.6 million. The EBITDA for the FOF segment was DKK 49.9 million.

(Figures in parenthesis refer to the same period last year unless otherwise

specified)

On the 8[th] of October 2019, Bakkafrost acquired majority of the Scottish

Salmon Company (SSC). From this date, SSC is a part of the Bakkafrost Group and

is consolidated into Bakkafrost's accounts. Unless otherwise stated, all figures

presented in this press release include SSC from this date on. SSC's figures

prior to this date are not included in the figures for the Group for the full

year 2019 or in other comparative figures prior to this date.

The Group made a profit for Q2 2020 of DKK 471.7 million (DKK 188.6 million).

For H1 2020, the profit was DKK 323.7 million (DKK 401.4 million). Total

harvested volumes for Q2 2020 were 20,878 tonnes gutted weight, whereof 12,941

tgw were harvested in the Faroe Islands (12,609 tgw) and 7,937 tgw were

harvested in Scotland. Total harvested volumes in H1 2020 were 38,813 tgw

(26,316 tgw), whereof 23,608 tgw were harvested in the Faroe Islands (26,316

tgw) and 15,205 tgw were harvested in Scotland (n/a). In total, 5.8 million (3.6

million) smolts were transferred during Q2 2020: 2.9 million (3.6 million) in

the Faroe Islands and 2.8 million (n/a) in Scotland. In H1 2020, 9.1 million

(5.3 million) smolts were transferred: 5.2 million (5.3 million) in the Faroe

Islands and 3.9 million (n/a) in Scotland.

Commenting on the result, CEO Regin Jacobsen said:

"H1 2020 has been severely affected by the Covid-19 pandemic. Together with

increased transportation costs and currency movements, this has had a negative

impact on our financial results. We are, however, pleased to have positive

results in all segments: VAP, FOF and the farming segments in the Faroe Islands

and Scotland. We are also grateful that we have been able to keep our employees

safe during the pandemic and of having been able to maintain the supply of

healthy and safe salmon products to our customers.

In this quarter we are especially content with the strong results from our VAP

segment which has produced higher volumes than ever before in order to serve the

increased demand from our retail customers. The flexibility in our integrated

value chain has proven its value and demonstrated our ability to adapt quickly

to changes in market dynamics.

We are also pleased by the benefits that are now beginning to materialize in the

operation in Scotland as well as from our large investment programme. The new

hatchery at Strond is now in full operation delivering a substantive share of

our required smolt volume in the Faroe Islands and with steady increase in

average smolt size. The farming segment will greatly benefit from this

improvement over the coming quarters. In Scotland, we have taken important steps

to implement the strategy with the initiated expansion of the Applecross

hatchery. Finally, our new biogas plant has commenced operation and will during

the coming months start producing clean energy and contribute to achieving our

ambitious carbon reduction target to halve our CO\2\-emission by 2030.

Looking forward, we expect the Covid-19 pandemic to continue for some time,

challenging the global market for salmon and making the outlook hard to predict.

We believe, however, that the long-term outlook is still good as the

fundamentals in the protein market have not changed."

The combined FO farming and VAP segments made an operational EBIT of DKK 134.4

million (DKK 303.4 million) in Q2 2020. The operational EBIT per kg in Q2 2020

was DKK 10.38 (DKK 24.06), which corresponds to NOK 15.34 (NOK 31.31) for the

combined FO farming and VAP segments. For H1 2020, the combined FO farming and

VAP segments made an operational EBIT of DKK 326.5 million (DKK 534.5 million).

The FO farming segment made an operational EBIT of DKK 85.8 million (DKK 303.4

million) in Q2 2020. The harvested volumes were slightly higher, and the

achieved prices were lower in Q2 2020, compared to Q2 2019. For H1 2020, the

operational EBIT was DKK 288.7 million (DKK 533.2 million).

The SCT farming segment made an operational EBIT of DKK 28.8 million in Q2 2020.

For H1 2020, the operational EBIT was DKK 58.5 million.

The VAP segment made an operational EBIT of DKK 48.6 million (DKK 0.0 million)

for Q2 2020. For H1 2020, the operational EBIT was DKK 37.8 million (DKK 1.3

million).

The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 49.9 million (DKK

58.4 million) for Q2 2020, and the EBITDA margin was 18.6% (20.6%). The EBITDA

was DKK 90.1 million in H1 2020 (DKK 123.6 million), corresponding to an EBITDA

margin of 15.6% (21.8%).

During Q2 2020, Havsbrún sourced 122,512 tonnes (110,109 tonnes) of raw

material, and in H1 2020, Havsbrún sourced 187,319 tonnes (225,639 tonnes) of

raw material.

In Q2 2020, Bakkafrost's full-time employees from 2019, still employed in

Bakkafrost, have received bonus shares with the value of 2% of their salary in

2019. In total, Bakkafrost allocated 14,368 shares to its employees. The total

allocation amounted to DKK 6.2 million and was based on the closing share price

on the allocation day, 3 June 2020.

The net interest-bearing debt amounted to DKK 1,116 million at the end of Q2

2020, compared to DKK 1,019 million at year-end 2019. Undrawn credit facilities

amounted to DKK 2,323 million at the end of Q2 2020.

The equity ratio was 69% at 30 June 2020, compared to 65% at the end of 2019.

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, but due to the

uncertainty imposed by the Covid-19 pandemic in Q1 2020, the Board of Directors

have previously decided to postpone the decision on dividend payment for 2019

until Bakkafrost's H1 presentation on 25 August 2020, at which time the Board of

Directors expected the level of uncertainty to have reduced. The Board of

Directors have now concluded that the uncertainty is still high and have

therefore decided not to propose payments of dividends for 2019.

OUTLOOK

Market

The global harvest of Atlantic salmon was 3.4% higher in Q2 2020, compared to Q2

2019, according to the latest estimate from Kontali Analyse. The market was

affected negatively by the market disruption caused by the Covid-19 pandemic.

Looking forward, the market dynamics will still be affected by the Covid-19

situation which imposes greater than normal uncertainty to the market

development estimates. In Q3 2020, the global harvest of Atlantic salmon is

expected to increase around 5%, compared to Q3 2019. The estimated global

harvest of Atlantic salmon for 2020 is an increase of around 3-4%, compared to

Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and

Russia. The Covid-19 pandemic has caused significant impact in the global

market, especially in the food service segment. These issues will continue for

some time, but a high focus has been kept to ensure the flow in the market, and

Bakkafrost aims to balance the market diversification to reduce market risk.

Farming

The size of transferred smolt is increasing and will gradually impact the

farming output over the next couple of years. The losses of fish to the severe

storm, that hit the Faroe Islands in late February, caused a severe damage and

took the harvest volume down from expected 57,000 tonnes to 50,000 tonnes in

2020. The operation in Scotland is gradually improving its key performing

indicators and is expected to improve further over the coming years as further

investments in the operation will add benefits.

Bakkafrost focuses on reducing biological risk continuously and has over the

past years made significant investments to diminish this risk, but also to

improve efficiency and ensures sustainable growth.

The Strond hatchery is now in full operation producing high-quality smolts and

gradually increasing the average smolt size to reach 500g as part of Bakkfrost's

large-smolt strategy. This strategy will also be extended to the Scottish

farming operation where the plan is to invest in 2 or 3 large hatcheries in the

coming years in order to become self-sufficient with large smolts.

Overall, the biological performance in the Faroese and Scottish operations have

been strong during Q2 2020.  Bakkafrost's expected harvest volume in 2020 in the

Faroe Islands is 50,000 tonnes gutted weight, while the expected harvest in 2020

in Scotland is 39,000 tonnes gutted weight. Harvest volumes for 2021 in the

Faroe Islands are expected to reach 62,500 tonnes gutted weight and 44,000

tonnes gutted weight in Scotland.

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 and average weight of smolts released are key elements of predicting

Bakkafrost's future production.

The estimates for harvest volumes and smolt releases in both geographies are

dependent on the biological development.

VAP (Value Added Products)

Bakkafrost has made large investments in building a highly flexible value chain

which includes a state-of-the-art VAP factory with high capacity. This enables

Bakkafrost to adapt well to the rapidly changing market situations, which is a

great advantage during market disruptions as the one seen during the Covid-19

pandemic.  Due to the flexibility and large capacity of the VAP factory,

Bakkafrost has been able to meet the significantly increased demand from the

retail segment by redirecting volumes into the VAP segment.

Bakkafrost has signed contracts covering around 33% of the expected harvest

volumes for H2 2020. These contracts usually last for 12 months.

Bakkafrost's long-term strategy is to sell around 40% of the harvested volumes

of salmon as VAP products at contracts. The 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's sales of fish feed in 2020 are expected to be

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.

Bakkafrost's recently finished Biogas plant is an important step-stone on

Bakkafrost's sustainable growth path, as it delivers an efficient and

sustainable solution to waste management. By converting the growing biological

waste from the increasing operation into clean energy, the biogas plant alone is

expected to save the environment from 11,000 tonnes of CO\2\ per year.

In addition to the planned investments in the value chain in the Faroe Islands,

Bakkafrost expects to make investments of around DKK 350 million per year for

2020-2024 in The Scottish Salmon Company. A significant part of this will be

invested in building increased smolt capacity in order to become self-sufficient

with large smolt.

Financial

Despite the uncertainties imposed by the Covid-19 pandemic, long term market

balances in the world market for salmon products will most likely remain

favourable for Bakkafrost. Bakkafrost has a long value chain and a cost

-efficient production of high-quality salmon products and 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.

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.

Covid-19 pandemic

Bakkafrost plays an important role in ensuring healthy food for the world's

growing population, and this role is especially important in the difficult times

the world is facing at present.

During the Covid-19 pandemic, Bakkafrost's ability to operate in the Faroe

Islands has not been affected by the pandemic, and the operation in Scotland has

been only mildly affected. A range of preventive measures have been implemented

to protect our workforce and ensure continuous production. New procedures and

social distancing are implemented widely in the business, and production and

office facilities have been modified where necessary to prevent infection. In

the Faroe Islands, all our employees are offered regular free Covid-19 screening

by health professionals.

As the market situation is significantly affected by the Covid-19 pandemic,

Bakkafrost is taking all necessary steps to protect the business and constantly

adapts to the changing market conditions and shifting demands from customers.

Please find the Company's Q2 2020 report and the Q2 2020 presentation enclosed.

Contacts:

·

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

· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: +298 235060 (mobile)

This information is subject of the disclosure requirements pursuant to section 5

-12 of the Norwegian Securities Trading Act.

About Bakkafrost:

Bakkafrost is the largest salmon farmer in the Faroe Islands and the second

largest salmon farmer in Scotland. The Group is fully integrated from feed

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

fishmeal, fish oil and salmon feed in Fuglafjørður (Faroe Islands). The Group

has primary processing in Glyvrar and Vágur (Faroe Islands), and secondary

processing (VAP) in Glyvrar (Faroe Islands). The Group operates sea farming in

Norðoyggjar, Eysturoy, Streymoy and Suðuroy (Faroe Islands) and in Scotland. The

Group has broodstock operations in Streymoy and Sandoy (Faroe Islands) and in

Scotland. The Group has built a biogas plant in Streymoy (Faroe Islands) which

started operation in Q2 2020. The headquarter is located in Glyvrar (Faroe

Islands) and has sales and administration offices in Grimsby (UK), Edinburgh

(Scotland) and in New Jersey (US). The Bakkafrost Group has 1,663 employees

(full-time equivalents).

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR

INDIRECTLY, IN AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES.

This press release does not constitute or form part of an offer or solicitation

to purchase or subscribe for securities. The securities referred to herein may

not be offered or sold in the United States absent registration or an exemption

from registration as provided in the U.S. Securities Act of 1933, as amended.

Copies of this announcement are not being made and may not be distributed or

sent into the United States, Australia, Canada or Japan.