Bakkafrost P/f · OSL:BAKKA

Bakkafrost P/f — Bakkafrost — Investor Day (June 2016)

131 slides from Bakkafrost P/f's investor day presentation, Jun 7, 2016

1. Slide 1: Bakkafrost – Capital Markets Day

   BAKKAFROST – CAPITAL MARKETS DAY Glyvrar, Faroe Islands, 7 June 2016 Regin Jacobsen, CEO & Gunnar Nielsen, CFO

2. Slide 2: Disclaimer

   DISCLAIMER  This presentation includes statements regarding future  No representation or warranty (expressed or implied) is results, which are subject to risks and uncertainties. made as to, and no reliance should be placed on, the Consequently, actual results may differ significantly from fairnes

3. Slide 3: Boutique origin for salmon – agenda

    BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

4. Slide 4: Natural conditions

   NATURAL CONDITIONS  Remote location  Pristine clear waters  Cool steady sea temperatures  Strong currents BAKKAFROST / Capital Markets Day 7 June 2016 Page 4

5. Slide 5: Bakkafrost – a world class salmon farming company

   BAKKAFROST – A WORLD CLASS SALMON FARMING COMPANY  Located in the Faroe Islands 725 full time employees  Harvest quantity 50,565 tonnes in 2015 10,934 tgw in Q1 2016 (9,726 tgw in Q1 2015)  Feed sales 78,865 tonnes in 2015 14,454 tonnes in Q1 2016* (14,400 tonnes in Q1 2015*)  Raw material intak

6. Slide 6: EBIT per kg

   EBIT PER KG Margin diverted since 2010 Price and EBIT per kg  Compared to a large selection of production in Norway, EBIT per kg has diverted significantly since 2010 6  The absolute improvement for Bakkafrost is a function of 5  Robust farming framework with ability to maintain 4 biological cont

7. Slide 7: Record prices, yet challenging to retain windfall profits

   RECORD PRICES, YET CHALLENGING TO RETAIN WINDFALL PROFITS  Global output has generally exceeded practical capacity given 25,0 DKK EBIT/kg (Largest public players) current tools (technology, regulations, industry cooperation/ practice and pharmacy) 20,0 Operational EBIT (DKK)  Pending progress in t

8. Slide 8: Biological control – a good regulatory farming environment

   BIOLOGICAL CONTROL – CRITERIA 1 A GOOD REGULATORY FARMING ENVIRONMENT Biological meltdown paved way for robust regulatory regime During the period 2001-2004 the Faroe Islands were severely struck by ISA outbreaks 80 12 Harvest (thousand tonnes HOG) 70 10 60 Number of ISA cases New legislation and re

9. Slide 9: Biological control – few players in each production region

   BIOLOGICAL CONTROL – CRITERIA 2 FEW PLAYERS IN EACH PRODUCTION REGION Highly fragmented industry, except Faroes  A tight regulatory regime is not enough 100% Other;  A large number of decisions will always be left to the 90% 15 players SHARE OF PRODUCTION Other; operators 80% 70 players  As oppos

10. Slide 10: Biological control – minimise exposure to other companies

    BIOLOGICAL CONTROL – CRITERIA 3 MINIMISE EXPOSURE TO OTHER COMPANIES IN EACH PRODUCTION AREA Structure of production zones  Strong regulatory framework  Few players to agree on coordination of unregulated matters – avoids “tragedy of the commons”  Limited overlap of players within production zone

11. Slide 11: ….But no-one is protected

    ….BUT NO-ONE IS PROTECTED Risks  Biological risk  Diseases, such as ISA, PD, AGD etc. Identify  Sea lice  Weather condition - storms  Price of salmon Re-evaluate Assess & and Control Analyse  Geopolitical situation – market access Risk Management  Fishery and quotas in the North Atlantic Ocea

12. Slide 12: Size and survival matters! Yield per smolt

    SIZE AND SURVIVAL MATTERS! Yield per smolt (HOG) 2010-2012G vs 2013G Average harvest weight (HOG) 5,50 6,50 2010-2012G vs 2013G 5,00 6,00 5,50 4,50 5,00 4,00 2012 - 2014 4,50 2012 - 2014 2015 3,50 2015 2012 - 2014 4,00 2012 - 2014 2012 - 2014 2015 2012 - 2014 2015 2012 - 2014 3,00 2015 3,50 2015 201

13. Slide 13: Size and survival matters! Benefits of yield per smolt

    SIZE AND SURVIVAL MATTERS! Average price diff. vs. 4/5 kg (2014-2016) Illustration of cost dynamics 6% 4% 2% 0% 2 / 3 kg 6 / 7 kg -2% -4% -6% FURTHER IMPACT OF MORTALITY/EARLY HARVEST -8% IMPACT OF LICE, DISEASE ETC. -10% (Treatment, slow growth, high FCR etc. -12% OPTIMAL COST CURVE -14% OPTIMAL HA

14. Slide 14: The market is willing to pay up for premium products

    THE MARKET IS WILLING TO PAY UP FOR PREMIUM PRODUCTS Price differential, Norway/Faroes  Consistent large sized fish forms baseline for price premium 6,00  Bakkafrost has further tailored its product for the Export price Faroes premium market through  Investing in very high inclusion rates of mari

15. Slide 15: Marine raw material is a finite resource

    MARINE RAW MATERIAL IS A FINITE RESOURCE Constant marine raw material availability  Fishmeal and fish oil key raw material for aquaculture 6.000 (salmonids in particular) 5.000  Extracted from wild catch (pelagic fish) with finite supply 4.000 KTonnes 3.000  Growing demand requires reduced inclus

16. Slide 16: Bakkafrost offers a premium product

    BAKKAFROST OFFERS A PREMIUM PRODUCT Standard feed recipe 2016E(1)  Supply constraints makes fish oil and fish meal costly ingredients  Keeping the diet closer to the natural diet of wild salmon provides measurable benefits Other; 25% SPC Soy; 21%  Healthier nutritional profile of end product Fish

17. Slide 17: Healthy feed

    HEALTHY FEED  Local raw materials  High marine ingredient in feed  A different taste – taste of the Faroe Islands  Full traceability  Certifications and quality systems  Fish oil cleaned for pollutants BAKKAFROST / Capital Markets Day 7 June 2016 Page 17

18. Slide 18: Trade patterns driven by logistical costs and trade barriers

    TRADE PATTERNS DRIVEN BY LOGISTICAL COSTS AND TRADE BARRIERS 2015 EU USA Russia Brazil China Japan Other Total Production Norway 821 46 0 28 39 176 1 111 Trade barriers Chile 40 202 55 99 16 12 107 532  Trade issues such as UK 109 15 13 0 12 150 Canada 84 2 1 35 122 the Russia sanctions Faroe Isl.

19. Slide 19: Investments 2016 - 2020

     BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

20. Slide 20: Investment programme 2016 - 2020

    INVESTMENT PROGRAMME 2016 - 2020 Investments will be made step by step in the relevant parts in the value chain to secure:  Efficiency  Biological risk  Organic growth BAKKAFROST / Capital Markets Day 7 June 2016 Page 20

21. Slide 21: Investment programme 2016 - 2020 (DKK 2.2b)

    INVESTMENT PROGRAMME 2016 - 2020 Investment Programme 2016 – 2020 (DKK m) Investment program of DKK 2.2b from 2016 to 2020 590 570 Fishmeal, Oil & Feed (DKK 380m)  New salmon meal and –oil plant  New Feed line increase capacity 410  Advanced feed line capabilities 360 280 Smolt (DKK 1,130m)  Við

22. Slide 22: Illustration of capacity increase with investments

    ILLUSTRATION OF CAPACITY INCREASE WITH INVESTMENTS Capacity increase with investment program Smolt • Capacity expansion of 600% in order to reach 500g • Will lead to Farming capacity expansion of 30% Harvest/VAP Finalizing new plant • Capacity expansion from 60kt to ~110kt HOG VAP • New line increas

23. Slide 23: De-bottlenecking: shortening the sea-water production cycle

    DE-BOTTLENECKING: SHORTENING THE SEA-WATER PRODUCTION CYCLE TRANSFER TO SEAWATER TRANFER TO PROCESSING FRESHWATER STAGE (MONTHS) SEAWATER STAGE (MONTHS) FALLOWING 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 100 g 6 kg GW 30% REDUCTION TRANSFER TO SEAWATER TRANFER TO P

24. Slide 24: Viðareiði S-21 expansion 2016

    VIÐAREIÐI S-21 EXPANSION 2016 Overview S-21 New site expansion 2016  Volume expansion of 8,000 m3  Total tank capacity after expansion: 11,200 m3  Production 2015 – 3.3 million smolts with a size of 115 gram  Production will increase to 4.5 million smolts with an average weight of 300 gram  Hat

25. Slide 25: Strond S-24 project

    STROND S-24 PROJECT Strond S-24 Construction period 2016-2018 Building  Ground floor 20,000 m²  Total floor space 26,000 m²  Total tank volume 28,760 m³  Length 290 m – width 80 m Construction period 2016 to 2018  Number of employees: 12 BAKKAFROST / Capital Markets Day 7 June 2016 Page 25

26. Slide 26: Larger smolt

    LARGER SMOLT Size smolts and growth per day in farms (gram) Reduce risk  Time in sea water will be reduced by 6 months Growth (gram per day) in sea farm  Reduced mortality  Reduced need for treatment against sea-lice Increase in production  Possible to increase production by 30%  Time in hatche

27. Slide 27: Fresh water division capacity increase

    FRESH WATER DIVISION CAPACITY INCREASE Capacity increase in order to produce large smolt Capacity development  The capacity increases in 2016 with the new Hatchery at Viðareiði 8,000m3 Capacity  New Hatchery at Strond 29,000m3 in operation in 2018 50.000 45.000  Total capacity 4 folded from 2015

28. Slide 28: New hatchery S-24 Strond in Klaksvík

    NEW HATCHERY S-24 STROND IN KLAKSVÍK  In operation in H2 2018 New Hatchery Strond in Klaksvík  Capacity to produce ~7 million smolts á 500 gram  Goal to secure improvements in the following areas:  Efficiency  Biological risk  Organic growth BAKKAFROST / Capital Markets Day 7 June 2016 Page 28

29. Slide 29: Increased smolt production leads to increased production

    INCREASED SMOLT PRODUCTION LEADS TO INCREASED PRODUCTION Farming volume – growth potential with PS (1,000 tonnes) Larger smolt (PS) will reduce time of cycle in farming 70 65,0 60  Smolt size will gradually increase to 500 gram by 50 44,3 44,0 50,6 48,0 41,3 2020 40 36,3 30  Smolt release will gra

30. Slide 30: Expanding processing and VAP capacity

    EXPANDING PROCESSING AND VAP CAPACITY Goals  Increase capacity  Highest efficiency  Best flexibility  Highest quality  Reduce biological risk BAKKAFROST / Capital Markets Day 7 June 2016 Page 30

31. Slide 31: Consolidation of companies 2005 – 2010

    CONSOLIDATION OF COMPANIES 2005 – 2010 Overview of 7 Harvest- & VAP factories Fragmented inefficient processing structure  7 Sites  3 Harvest plants  2 VAP plants  2 Styropor plants  Internal transport  25 trucks daily  Challenge to optimize production and orders  No Pre-rigor production BAK

32. Slide 32: Synergies from consolidation

    SYNERGIES FROM CONSOLIDATION 2005 – 2010 New plant in operation in H2-2016  Reduced costs in:  Logistics  Operation  Energy  Maintenance Amounting to DKK 70 – 90 million per year BAKKAFROST / Capital Markets Day 7 June 2016 Page 32

33. Slide 33: Global supply picture 2016 - 2020

     BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

34. Slide 34: Kontali's forward looking estimates for output

    KONTALI’S FORWARD LOOKING ESTIMATES FOR OUTPUT FACTORS DRIVING HIGHER GROWTH Estimated supply 2015 – 2020 (HOG Farmed Atlantic Salmon) • Lower sea lice pressure Norway - reduced treatment • Faster development of alternatives to antibiotics, for control/combat of SRS - Chile 2.500 • Higher & faster t

35. Slide 35: Finance

     BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

36. Slide 36: Key financials

    KEY FINANCIALS Revenue Operational EBIT 1.000 350 900 905 300 800 303 800 250 700 741 757 760 711 257 254 677 DKK million DKK million 600 667 227 235 610 631 613 200 584 212 209 206 500 187 186 473 150 169 400 300 100 126 105 200 50 100 0 0 Profit for the period Cash Flow from operations 350 400 300

37. Slide 37: Financial position

    FINANCIAL POSITION Strong balance sheet Financial structure 4.500  NIBD DKK 218 million Intangible assets Other liabilities  Dividend DKK 403 million paid out Q2 4.000 2016 Current assets 3.500 Longterm debt  Necessary to handle 3.000  Investments 2016 - 2020 Dividend paid Q2 16 DKK million  Di

38. Slide 38: Return on capital employed

    RETURN ON CAPITAL EMPLOYED  Capital employed has in average ROCE * and Capital Employed increased 23% yearly from 2010 to 2015 35,0% 3,5 30,6% 28,7%  Return on capital employed has varied 30,0% 3,0 26,0% from 16.6% in 2012 to 30.6% in 2015 24,4% 25,0% 22,4% 2,5 DKK billion 20,0% 2,0 16,6% 3,3 15,0

39. Slide 39: Dividend

    DIVIDEND Dividend per share in % of adj. EPS * Dividend policy 100% 99%  Competitive return through: 90% 80%  Dividends 70%  Increase in the value of the equity 60% 49%** 49% 46% 48%** 50% 40%  Generally, Bakkafrost shall pay dividend to its 40% 30% shareholders 19% 20%  A long-term goal is tha

40. Slide 40: Financial targets

    FINANCIAL TARGETS Financial targets Status per Q1 2016 VAP contract coverage: 40-50% on a 12 month roll VAP contract coverage last four quarters: 32% Equity target: > 50% Equity ratio: 66% Dividend: 30-50% of adj. EPS Dividend (pay-out 2010-2015): 48% Growth: 30% over next 5 years BAKKAFROST / Capit

41. Slide 41: NIBD & cash flow – sources and uses

    NIBD & CASH FLOW – SOURCES AND USES Significant cash outflow from 2013 NIBD and cash flow 2013 - 2015 to 2015: 0 -100  Investments DKK 1,023 million -233 -200 -391  ∆ Working Capital DKK 417 million -300 -639 -224 -400 -807  Dividend payment DKK 607 million -500 -600 -20 -700 971 -222 -603 -800 S

42. Slide 42: Working capital implications

    WORKING CAPITAL IMPLICATIONS Hatchery investment Increased Working Capital (accumulated)  The investment in hatcheries will increase 350 capacity and thus biomass, both on land and at sea 300  Will result in increased future volume harvested 250  The blue bars on the graph illustrate a linear acc

43. Slide 43: Investments – future vs. past

    INVESTMENTS - FUTURE VS. PAST Past 3 years Investments since 2013 700  Investments 2013 – 2015  DKK 1.0 billion (incl. maintenance) 600 500 Future 5 years DKK million 400  Investments 2016 – 2020  DKK 2.2 billion (incl. maintenance) 300 200 Maintenance level 100  Maintenance level have increase

44. Slide 44: Tax regime in the Faroe Islands

    TAX REGIME IN THE FAROE ISLANDS Two types of taxes for sea farming companies Revenue tax % 5,0%  The corporate tax is 18% 4,5%  Corporate tax is paid in Q4 following year 4,0% 3,5%  The revenue tax is calculated on basis of harvested volume 3,0% and international official salmon prices 2,5%  Thr

45. Slide 45: Financing of Bakkafrost

    FINANCING OF BAKKAFROST Bank loan and Bond 2016 2017 2018 2019 2020  DKK 850 multicurrency revolving credit facility DKK 850 million RCF  DKK 750 million accordion option DKK 750 million Accordion Option  NOK 500 million bond (swapped into DKK) NOK 500 million Bond Financial covenants  Bank loan

46. Slide 46: NIBD and available funding Q1 2016

    NIBD AND AVAILABLE FUNDING Q1 2016 NIBD and available funding Financing of the Group 2.000  Total funding to ~ DKK 1,291 million 1.800  Bonds NOK 500 million due Feb 2018 1.600 (swapped into DKK) 1.400  Revolving credit facility of DKK 850 1.200 million due in 2020 1.000 800  Can be increased by

47. Slide 47: Sales contracts

    SALES CONTRACTS Strategic goal VAP split per quarter  Value added products are sold on long-term 100% contracts 90% 80%  Long-term strategy is to sell 70%  40-50% of the harvested volumes of 60% salmon on fixed price contracts 50%  Fixed price contracts vary from 6 to 12 40% months 30%  The pri

48. Slide 48: Summary

     BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

49. Slide 49: Summary

    SUMMARY Vision Investment plan 2016 – 2020 DKK 2,2b  To keep on developing the company into being a world-class company in the salmon industry. Fresh Water Ambition level increased in order to reach 500g by 2020 and 14 million fish per year  The Group’s strategic focus is to develop the core Fishm

50. Slide 50: Appendix

     BOUTIQUE ORIGIN FOR SALMON - MADE IN THE FAROE ISLANDS  INVESTMENTS 2016 - 2020  GLOBAL SUPPLY PICTURE 2016 - 2020  FINANCE  SUMMARY  APPENDIX

51. Slide 51: Organisation

    ORGANISATION Group Organisation Chart BAKKAFROST / Capital Markets Day 7 June 2016 Page 51

52. Slide 52: Larger smolt – reduced risk and organic growth

    LARGER SMOLT – REDUCED RISK AND ORGANIC GROWTH Results with large smolt in the Faroe Islands Actual growth period with larger smolt Months for growth Growth potential • Reduced risk until harvest vs 100g smolt • Up to 6 months of reduced growth period will reduce risk significantly • Reduced mortali

53. Slide 53: Bakkafrost Farming – Fresh Water Division

    BAKKAFROST FARMING – FRESH WATER DIVISION Capital Markets Day, Viðareiði, Faroe Islands Leif av Reyni, Fresh Water Manager

54. Slide 54: Fresh water division

    FRESH WATER DIVISION Overview of facilities Leif av Reyni, Fresh Water Manager Leif av Reyni (born 1976) holds a BSc in Aquaculture from Høgskolen in Sogndal, Norway (1999– 2002) and an MSc degree in Aquaculture from Stirling University, Scotland. From 2003–2004, Mr. Reyni worked for Vestlax and fro

55. Slide 55: Smolt production

    SMOLT PRODUCTION From egg to adult salmon Salmon life cycle  Farming of smolts from eyed eggs  Imitating nature  Creating the perfect environment  Quality above costs  Time from eyed eggs to 150 gram is approx. 12 months BAKKAFROST / Capital Markets Day 7 June 2016 Page 55

56. Slide 56: Leading in recirculation technology for smolt production

    LEADING IN RECIRCULATION TECHNOLOGY FOR SMOLT PRODUCTION Water Recirculation Principle Zero Water Change System Full recirculation  New technology for zero water exchange  Improved growth potential  Stable environment  Fresh water is a bottleneck for smolt production in the Faroe Islands BAKKAFR

57. Slide 57: Smolt production hatchery division

    SMOLT PRODUCTION HATCHERY DIVISON Bakkafrost hatchery sites Larger smolt will reduce time of cycle in farming  Smolt size will gradually increase to 500 gram by 2020  Smolt release will gradually increase to 14 million pcs as production cycle decreases from 24 to 14 months (incl. fallowing period)

58. Slide 58: Viðareiði S-21 expansion 2016

    VIÐAREIÐI S-21 EXPANSION 2016 Overview S-21 New site expansion 2016  Volume expansion of 8,000 m3  Total tank capacity after expansion: 11,200 m3  Production 2015 – 3.3 million smolts with a size of 115 gram  Production will increase to 4.5 million smolts with an average weight of 300 gram  Hat

59. Slide 59: Viðareiði S-21

    VIÐAREIÐI S-21 BAKKAFROST / Capital Markets Day 7 June 2016 Page 59

60. Slide 60: The world's largest hatchery Strond S-24

    THE WORLDS LARGEST HATCHERY STROND S-24 BAKKAFROST / Capital Markets Day 7 June 2016 Page 60

61. Slide 61: New hatchery S-24 Strond in Klaksvík

    NEW HATCHERY S-24 STROND IN KLAKSVÍK  Significant capacity expansion New Hatchery Strond in Klaksvík  Increase average size of smolts for Bakkafrost Group up to above 400 gram in 2019  Reduce risk in farming  Reduce total time of production cycle at sea  Environment  Recycling of 99.7% of wate

62. Slide 62: New hatchery S-24 Strond in Klaksvík

    NEW HATCHERY S-24 STROND IN KLAKSVÍK  In operation in H2 2018 New Hatchery Strond in Klaksvík  Capacity to produce 7 million smolts á 500 gram  Goal to secure improvements in the following areas:  Efficiency  Biological risk  Organic growth BAKKAFROST / Capital Markets Day 7 June 2016 Page 62

63. Slide 63: Strond S-24

    STROND S-24 Located in a 73,000 m2 quarry at Strond beside S-24 Building site Strond in Klaksvík Haraldssund  The architect has put a lot of effort in recreating nature  Good access to sea- and freshwater BAKKAFROST / Capital Markets Day 7 June 2016 Page 63

64. Slide 64: Strond S-24 production capacity

    STROND S-24 PRODUCTION CAPACITY Tank overview Production capacity No.tanks Tank volume Total volume Fish size (gr)  35,0 million 100 gram smolts Incubation 8 Startfeeding 12 30 m3 360 m3 0.15-5.9  17,5 million 200 gram smolts Growth system 1 8 200 m 3 1,600 m3 5.9-57 Growth system 1 8 200 m 3 1,60

65. Slide 65: Strond S-24 project

    STROND S-24 PROJECT Strond S-24 Construction period 2016-2018 Building  Ground floor 20,000 m²  Total floor space 26,000 m²  Total tank volume 28,760 m³  Length 290 m – width 80 m Construction period 2016 to 2018  Number of employees: 12 BAKKAFROST / Capital Markets Day 7 June 2016 Page 65

66. Slide 66: Larger smolt

    LARGER SMOLT Size smolts and growth per day in farms (gram) Reduce risk  Time in sea water will be reduced by 6 months Growth (gram per day) in sea farm  Reduced mortality  Reduced need for treatment against sea-lice Increase in production  Possible to increase production by 30%  Time in hatche

67. Slide 67: New hatchery at Strond in Klaksvík

    NEW HATCHERY AT STROND IN KLAKSVÍK  Significant capacity expansion Capacity development  The capacity increases in 2016 with the new Hatchery at Viðareiði 8,000m3 Capacity  New Hatchery at Strond 29,000m3 in operation in 2018 50.000 45.000  Total capacity 4 folded from 2015 to 2018 40.000 Strond

68. Slide 68: Larger smolt – reduced risk and organic growth

    LARGER SMOLT – REDUCED RISK AND ORGANIC GROWTH Results with large smolt in the Faroe Islands Actual growth period with larger smolt Months for growth Growth potential • Reduced risk until harvest vs 100g smolt • Up to 6 months of reduced growth period will reduce risk significantly • Reduced mortali

69. Slide 69: Bakkafrost – Fishmeal, Oil & Feed

    BAKKAFROST – FISHMEAL, OIL- & FEED Capital Markets Day, Fuglafjørður, Faroe Islands Odd Eliasen, Managing Director Havsbrún

70. Slide 70: Welcome to Havsbrún

    WELCOME TO HAVSBRÚN – BENEFITS FROM RAW MATERIAL, AVAILABILITY AND SHORT DISTANCES “We can provide fresh high quality marine based feed to Bakkafrost’s salmon within 3 hours from landing of pelagic fish” Mr. Eliasen has broad experience from the fish farming industry and has been an active player in

71. Slide 71: Havsbrún - FOF

    HAVSBRÚN - FOF Separate business unit with its own P&L BAKKAFROST / Capital Markets Day 7 June 2016 Page 71

72. Slide 72: Converting gastronomically unattractive fish to healthy salmon

    CONVERTING GASTRONOMICALLY UNATTRACTIVE FISH TO HEALTHY SALMON  Value increase of fish by-product, fish offcuts  Fish not suitable for human consumption  Fish for which there is no market  Rejected pelagic fish for human consumption  Valuable fish proteins and vital essential fish oil BAKKAFROS

73. Slide 73: Facts – Havsbrún (FOF)

    FACTS – HAVSBRÚN (FOF) Production capacity  Conversion of 2,000 tonnes of raw material per day to fishmeal and oil  550 tonnes of feed per day Large storage capacity  4,800 tonnes of raw material  35,000 tonnes of fishmeal  13,500 tonnes of fish oil  3,000 tonnes fish feed BAKKAFROST / Capital

74. Slide 74: No need to import raw material from afar

    NO NEED TO IMPORT RAW MATERIAL FROM AFAR Catching grounds for different fish species close to Faroe Islands Optimal raw material availability  Blue Whiting Summer Capelin Herring  Winter Capelin  Summer Capelin  Mackerel Winter Capelin  Herring Mackerel Short distance from fishing grounds to fe

75. Slide 75: Development of fish deliveries to Havsbrún

    DEVELOPMENT OF FISH DELIVERIES TO HAVSBRÚN Sourcing of raw materials 1966 - 2016 Raw material sourcing 350.000  Since 1998 Blue Whiting is main species 300.000  Blue Whiting requires 250.000 high power (new 200.000 technology) fishing vessels 150.000  Since 1998 the quantity 100.000 has been belo

76. Slide 76: Additional raw material from by-products / off-cuts

    ADDITIONAL RAW MATERIAL FROM BY PRODUCTS / OFF-CUTS Benefits from large pelagic industry New Pelagic industry in the Faroe Islands  The Faroe Islands have built a large pelagic processing industry since 2012  By-products / fish offcuts important resource  Bakkafrost can apply these products susta

77. Slide 77: 3 hours from raw fish to feeding the salmon

    3 HOUR’S FROM RAW FISH TO FEEDING THE SALMON Short distance from fishing grounds to feeding the salmon  Blue Whiting concentrated south of Faroe Islands  New pelagic fleet with super cooling system  A unique 3 hours process step  A marine based recipe  Advantages in key factors  Consumers are

78. Slide 78: Marine raw material is a finite resource

    MARINE RAW MATERIAL IS A FINITE RESOURCE Constant marine raw material availability  Fishmeal and fish oil key raw material for aquaculture 6.000 (salmonids in particular) 5.000  Extracted from wild catch (pelagic fish) with finite supply 4.000 KTonnes 3.000  Growing demand requires reduced inclus

79. Slide 79: Branding Bakkafrost salmon

    BRANDING BAKKAFROST SALMON Special high-performance feed  Higher content of marine ingredients, compared with industry standard (Natural diet)  Especially rich in Omega 3 fatty acids  Purified fish oil Produced of fish from sustainable quotas  Produced from off-cuts and fish, which is not used f

80. Slide 80: Bakkafrost offers a premium product

    BAKKAFROST OFFERS A PREMIUM PRODUCT Standard feed recipe 2016E(1)  Supply constraints makes fish oil and fishmeal costly ingredients  Keeping the diet closer to the natural diet of wild salmon provides measurable benefits Other; 25% SPC Soy; 21%  Healthier nutritional profile of end product Fish

81. Slide 81: Development in fish oil/meal inclusion rates

    DEVELOPMENT IN FISH OIL/MEAL INCLUSION RATES Marine ingredients reduced over time Inclusion rates of marine ingredients in Bakkafrost feed  Over the last 20 years inclusion of marine ingredients have been reduced 50 from 72% in total to 44% in total 45 40 35 30 percentage 25 20 15 10 5 0 Fish Meal

82. Slide 82: Consumer confidence

    CONSUMER CONFIDENCE Cleaning of fish oil  In Q1 2015 Havsbrún started cleaning all relevant fish oil used for Bakkafrost salmon  Cleaning of the fish oil removes and reduces environmental pollutants  By cleaning pollutants we expect to remove doubts regarding salmon intake  Should make intake li

83. Slide 83: Main objectives for feed from Havsbrún

    MAIN OBJECTIVES FOR FEED FROM HAVSBRÚN  Lowest mortality YOU CAN TASTE THE DIFFERENCE!  Best fish welfare  Highest yield per smolt  Highest harvest weight  Lowest FCR  High growth - high TGC  Highest fillet yield, low harvest yield  Highest in Omega 3  Highest market price BAKKAFROST / Capi

84. Slide 84: Bakkafrost Farming – Seafarming Division

    BAKKAFROST FARMING – SEAFARMING DIVISION Capital Markets Day, Faroe Islands Jón Purkhús, Farming Manager Oddvald Olsen, Farming Manager

85. Slide 85: Farming organisation

    FARMING ORGANISATION W N BAKKAFROST / Capital Markets Day 7 June 2016 Page 85

86. Slide 86: Site visit farming

    SITE VISIT FARMING Main objectives • Zero disease, zero lice and low environmental impact • Efficient feed conversion (EFCR to HOG of about 1,3) • Low mortality (<5%) • Growth (TGC) of 3.0 – 3.2 (between 17.2 – 18.3 months from 100 gram to 5.2 kg HOG) • To gradually introduce larger smolt in order t

87. Slide 87: Learned from a hard lesson – robust scalable framework

    LEARNED FROM A HARD LESSON – ROBUST SCALABLE FRAMEWORK Biological meltdown paved way for tight regulatory regime During the period 2001-2004 the Faroe Islands were severely struck by ISA outbreaks 80 12 Harvest (thousand tonnes HOG) 70 10 Number of ISA cases 60 8 50 New legislation and regulation wa

88. Slide 88: Coordinated production and regulations key success factor

    COORDINATED PRODUCTION AND REGULATIONS KEY SUCCESS FACTOR  Strong regulatory framework  Few players to agree on coordination of unregulated matters – avoids “tragedy of the commons”  Limited overlap of players within production zones  Swaps have enforced each players “independence”  Existing li

89. Slide 89: Site #1: A-57 Fuglafjørður

    SITE #1: A-57 FUGLAFJØRÐUR Farming area and 2014 generation results  Depth 30-35m  High current Latest results (Q3 2015) A-57  Harvested 1.62 mill pcs  Average weight: 5.8 kg HOG  Total 9,500 tonnes HOG  FCR: 1.15  Mort 4.6%  TGC 2.93  Costs per kg wfe (DKK)  Smolts 1.78  Feed 11.05  Oth

90. Slide 90: Site #1: A-57 Fuglafjørður

    SITE #1: A-57 FUGLAFJØRÐUR 2016 generation A57 FuglafjørðurA-57 Fuglafjørður, : Status, 29-05-2016 th status 29 May 2016 Cage no Origin Count Size (g) Biomass (kg) Date released  Released during April and first two weeks of May 2016 01-00620 S-08 FA Apr.16 100.355 235 23.620 06-04-2016 02-00651 S-2

91. Slide 91: Site #2: A-71 Funningsfjørður

    SITE #2: A-71 FUNNINGSFJØRÐUR Farming area and 2014 generation results  Depth 40m A-71  High current Latest results (Q2 2015)  Harvested 1.8 mill pcs  Average weight: 5.4 kg HOG  Total 9,836 tonnes HOG  FCR: 1.28  Mort 9.8%  TGC 2.91  Costs per kg wfe (DKK)  Smolts 1.92  Feed 12.29  Othe

92. Slide 92: Site #2: A-71 Funningsfjørður

    SITE #2: A-71 FUNNINGSFJØRÐUR 2016 generation A-57 Funningsfjørður, status 29th May 2016 Cage no Origin Count Size (g) Biomass (kg) Date released  Released during Dec-Jan and two cages in April 2016 02-00631 S21 S04 SBST Des15 182.642 444 81.071 19-12-2015 01-00633 S21 SB Des15 192.446 476 91.626 2

93. Slide 93: Site #3: A-21&A11 Hvannasund Suður

    SITE #3: A-21&A11 HVANNASUND SUÐUR Farming area and 2013 generation results  Depth 50 – 60m  High current A-21 &A-11 Latest results (Q1-2015)  Harvested 2.5 mill pcs  Average weight: 5.8 kg HOG  Total 14,638 tonnes HOG  FCR: 1.13  Mort 4.9%  TGC 3.27  Costs per kg wfe (DKK)  Smolts 1.43 

94. Slide 94: Site #3: A-21&A11 Hvannasund Suður

    SITE #3: A-21&A11 HVANNASUND SUÐUR 2015 generation A-11 & A21 Hvannasund Suður, status 29th May 2016 Cage no Origin Count Size (g) Biomass (kg) Date released  Released during Oct and Nov and two cages in Dec 2015 A-11 01-00822 S-03 SF Okt 14 70.845 1.179 83.554 12-11-2015 02-00635 S-03 SF Okt 14 69

95. Slide 95: Bakkafrost Quality Department

    BAKKAFROST QUALITY DEPARTMENT Capital Markets Day, Faroe Islands Anna Johansen, Group Quality Manager

96. Slide 96: Quality Department

    QUALITY DEPARTMENT Overview of Key Personnel in QD Quality Department Areas • Food safety/quality • Fish health and welfare: Anna Johansen, Group Quality Bio security Manager Anna Johansen (born 1974) holds a • Environment cand.scient in biology from the University of Copenhagen, Denmark (2002). Fro

97. Slide 97: Quality Department purpose

    QD Supervision - standards, customer demands, Supervision and advice certifications etc.  Purpose QD: • Ensure that Bakkafrost complies with all external and internal demands, relating to legislation, customers and standards • Development of quality systems, advice for practical solutions and super

98. Slide 98: Certifications

    CERTIFICATIONS  Entire value chain is certified according to the GlobalGAP standard  Global GAP is an international standard which focuses on  Food safety throughout the whole production (based on HACCP)  Fish welfare  Health, safety and minimizing the impact on the environment  The entire val

99. Slide 99: ASC certification process

    ASC SERTIFICATION PROCESS  The Aquaculture Stewardship Council (ASC) has defined a certification system together with WWF  Objective to minimize or eliminate the key negative environmental and social impacts of salmon farming  Difference from other standards:  Measureable parameters /common indi

100. Slide 100: ASC certification process

     ASC SERTIFICATION PROCESS  The standard has 7 main principles/criteria – with key indicators 1. Legal compliance (obeying the law, the legal right to operate) 2. Preservation of the natural environment and biodiversity 3. Preservation of water resources 4. Preservation of diversity of species and w

101. Slide 101: Quality management integrated in on-going investments

     QUALITY MANAGEMENT INTEGRATED IN ON-GOING INVESTMENTS  The construction teams have had quality management as an integral part of the ongoing construction projects in order to secure optimal adaptation to the various certification criteria  Bakkafrost has a central quality management team, which ha

102. Slide 102: Quality management integrated in ongoing investments

     QUALITY MANAGMENT INTEGRATED IN ONGOING INVESTMENTS  Examples within primary processing and VAP:  New electric stunning system  Improved cooling chain  Optimal utilisation of gutting machines through sorting of based on sizes  Reduced risk of microbiological contamination through securing appro

103. Slide 103: Bakkafrost Sales

     BAKKAFROST SALES Capital Markets Day, Glyvrar Faroe Islands Símun P. Jacobsen Sales Manager

104. Slide 104: Bakkafrost Sales

     BAKKAFROST SALES Global sales and marketing Símun P. Jacobsen, Senior Sales Manager Símun P. Jacobsen (born 1963), was appointed Senior Sales Manager for the Bakkafrost Group in 2012. Mr. Jacobsen holds a Graduate Diploma in Business Administration and Accounting (HD-R) from Handelshøjskolen Syd in

105. Slide 105: Sales & marketing - premium quality is the fulcrum

     SALES & MARKETING - PREMIUM QUALITY IS THE FULCRUM  History with salmon farming – Established in 1968  Involved with aquafarming in the Faroe Islands since the beginning  Rich traditions with salmon farming in the company – Same people  Location - The location of Faroe Islands is crucial for rai

106. Slide 106: Sales & marketing - premium quality is the fulcrum

     SALES & MARKETING - PREMIUM QUALITY IS THE FULCRUM  Special high-performance feed  Higher content of marine ingredients compared with industry standard (Natural diet)  Especially rich in Omega 3 fatty acids  Purified fish oil (Free of toxins)  Produced of fish from sustainable quotas  Produced

107. Slide 107: Sales & marketing - premium quality is the fulcrum

     SALES & MARKETING - PREMIUM QUALITY IS THE FULCRUM Average harvest weight (HOG)  Large smolt in new hatcheries minimizes the 7,00 biologically risks 6,00 5,00  No use of antibiotics 4,00  Environmentally friendly treatment for sea-lice on 3,00 farming sites (Fresh water treatment for sea-lice) 2,

108. Slide 108: Sales & marketing - premium quality is the fulcrum

     SALES & MARKETING - PREMIUM QUALITY IS THE FULCRUM  Gentle harvest - Pick up of state-of-the art wellboats  Transportation in salt water tanks  Short distance from farming sites to harvest plant  Minimal stress  Minimal carbon foot-print  Efficient and quick harvest  Chilled for optimal anima

109. Slide 109: Sales & marketing - premium quality is the fulcrum

     SALES & MARKETING - PREMIUM QUALITY IS THE FULCRUM  Customized packaging to individual customer  Flexible delivery  Sea freight (Economical delivery of large quantities)  Air freight (Fast delivery with freshness in mind)  Markets  Strategy – 60/40 split between spot and contract market  Divi

110. Slide 110: Bakkafrost – Adm. & HR

     BAKKAFROST – ADM. & HR Capital Markets Day, Faroe Islands Guðrun Olsen, Group HR Manager

111. Slide 111: Adm. & HR

     ADM. & HR Group Organisation Chart Guðrun Olsen, Group HR Manager Guðrun Olsen (born 1964) holds a BA from the Copenhagen Business School and a MA degree in International Corporate Communication from the University of Southern Denmark in Odense. From 1994 to 2004, Mrs. Olsen held positions as compan

112. Slide 112: Adm. & HR areas of activity

     ADM. & HR • Area of Activity & Responsibility • Administration Services Registration & Record office Salaries & Personnel Wages & Salaries Employment of personnel (total cyclus) Statistics • HR, Development & Internal Communication Mapping & Analysing Developing concepts Development processes (profe

113. Slide 113: Key figures in 2015

     KEY FIGURES IN 2015 Personnel • Salaries amounted to DKK 267 million • Number of full-time equivalent employees was 725 • In total 1,302 employees were paid a salary from Bakkafrost • The average age of Bakkafrost employees was 41 years • Distribution between males and females was: • 42% females • 5

114. Slide 114: Full-time equivalent employees

     FULL-TIME EQUIVALENT EMPLOYEES Full-time equivalent employees Development 2011 - 2015 Total no of employees (line) • Number of employees increased by 45% from 2011 to 2015 BAKKAFROST / Capital Markets Day 7 June 2016 Page 114

115. Slide 115: Age distribution

     AGE DISTRIBUTION Age distribution 2013 – 2015 (no of employees) Development 2013 - 2015 • Average age of employees is 41 years • Group of employees age 25-34 years is increasing BAKKAFROST / Capital Markets Day 7 June 2016 Page 115

116. Slide 116: Where do Bakkafrost employees reside?

     WHERE DO BAKKAFROST EMPLOYEES RESIDE? Residence of Bakkafrost employees (red dots) Good representation from all Islands in 2015 • 49,192 Faroe Islanders allocated on 30 different municipalities • Number of full-time equivalent employees in Bakkafrost was 725 • 19 out of 30 Faroese municipalities are

117. Slide 117: Bakkafrost - VAP/Harvest

     BAKKAFROST - VAP/HARVEST Capital Markets Day, Glyvrar, Faroe Islands Kári Egholm Jacobsen, Manager VAP production and processing Andrias Petersen, Manager Harvest

118. Slide 118: Harvest & VAP processing

     HARVEST & VAP PROCESSING Organisation – á BAKKA Kári Egholm Andrias Petersen, Harvest Plant Management QualityQuality managemt Management Jacobsen, Manager - Manager VAP Production and Andrias Petersen (born 1973) Processing holds a BSc in Chemical Kári Jacobsen (born Engineering from the Technical

119. Slide 119: Plan for site visit - Á Bakka

     PLAN FOR SITE VISIT - Á BAKKA 1. Presentation 2. Walk through on site 3. Q&A BAKKAFROST / Capital Markets Day 7 June 2016 Page 119

120. Slide 120: Background – the investment programme 2014 - 2017

     BACKGROUND – THE INVESTMENT PROGRAMME 2014 - 2017 Goals  Increase capacity  Highest efficiency  Best flexibility  Highest quality  Reduce biological risk BAKKAFROST / Capital Markets Day 7 June 2016 Page 120

121. Slide 121: Background - the challenges in 2013

     BACKGROUND - THE CHALLENGES IN 2013 Overview of 7 Harvest- & VAP factories  Bottlenecks  Capacities  Productivity  Logistics  Flexibility  New products  Quality  Contingency plan BAKKAFROST / Capital Markets Day 7 June 2016 Page 121

122. Slide 122: Background - the challenges in 2013

     BACKGROUND - THE CHALLENGES IN 2013 Overview of 7 Harvest- & VAP factories  7 Sites  3 Harvest plants  2 VAP plants  2 Styropor plants  Internal transport  25 trucks daily  Challenge to optimize production and orders  No Pre-rigor production BAKKAFROST / Capital Markets Day 7 June 2016 Page

123. Slide 123: Main elements in the investment plan

     MAIN ELEMENTS IN THE INVESTMENT PLAN Merging 7 factories into 1 Centralisation of activities  Packaging, Harvest and VAP Synergies  All capacity available for all sites  Reduce costs per kg  Improved quality  Meet future market trends BAKKAFROST / Capital Markets Day 7 June 2016 Page 123

124. Slide 124: Main elements in the investment plan

     MAIN ELEMENTS IN THE INVESTMENT PLAN  Flexibility in production and product port folio Merging 7 factories into 1  Reduce bottlenecks in the production  Reduced wage costs per kg finished product  High capacity line(s) and maximized yield  Health, Environment and Safety in accordance with moder

125. Slide 125: Bakka production facilities

     BAKKA PRODUCTION FACILITIES Gutting and Value Added Products Hans á Bakka Administration Box storage 3,400 m2 16,700 m2 Styropor box production 1,400 m2 2,000 m2 3,700 m2 BAKKAFROST / Capital Markets Day 7 June 2016 Page 125

126. Slide 126: Main characteristics of the new plant

     MAIN CHARACTERISTICS OF THE NEW PLANT  New project 23,500 m2  Capacities per day  Receiving - 450 tonnes live fish  Gutting – 375 tonnes HOG  Filleting – 160 tonnes  100,000 tonnes harvest per year BAKKAFROST / Capital Markets Day 7 June 2016 Page 126

127. Slide 127: Main characteristics of the new plant

     MAIN CHARACTERISTICS OF THE NEW PLANT • Fresh and frozen products • Good flexibility to produce finished products demanded by the market in fresh & frozen natural products • Highest quality from live to finished products within 4 hours  Super cooling  Various types of packaging  Retail and cateri

128. Slide 128: Main characteristics of the new plant

     MAIN CHARACTERISTICS OF THE NEW PLANT  Estimated savings DKK 70 – 90 million per year  Logistics  Reduced production costs  Energy  Maintenance BAKKAFROST / Capital Markets Day 7 June 2016 Page 128

129. Slide 129: Overview

     OVERVIEW 1 ENTRANCE PRESENTATION 2 SHIPPING WHOLE FISH VIEW POINT 3 VAP SECTION BAKKAFROST / Capital Markets Day 7 June 2016 Page 129

130. Slide 130: Production floor

     PRODUCTION FLOOR 7 EXIT 5 VAP INFEED SECTION 6 PACKING SECTION 4 STUN AND BLEED BAKKAFROST / Capital Markets Day 7 June 2016 Page 130

131. Slide 131: Bakkafrost

     \i/ BAKKAFROST

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