Bakkafrost P/f · OSL:BAKKA

Bakkafrost P/f — Bakkafrost — Q3 2014 Earnings Presentation

43 slides from Bakkafrost P/f's earnings presentation, Oct 28, 2014

1. Slide 1: Q3 2014 Bakkafrost Group

   Q3 2014 BAKKAFROST GROUP Glyvrar 28 October 2014

2. Slide 2: Disclaimer

   DISCLAIMER ƒ This presentation includes statements regarding future ƒ 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: Agenda

   ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

4. Slide 4: Bakkafrost – the largest fish farming company in the Faroe Islands

   BAKKAFROST – THE LARGEST FISH FARMING COMPANY IN THE FAROE ISLANDS ƒ Largest salmon farming company in the Faroe Islands ƒ ~63% of harvest volumes in Q3 2014 ƒ 50% of farming licenses ƒ Harvested 10,881 tgw in Q3 2014 (11,335 tgw in Q3 2013) ƒ Feed sale of 29,808 tonnes in Q3 2014* (31,961 tonnes in

5. Slide 5: Summary of the quarter

   SUMMARY OF THE QUARTER Q3 Q3 M9 M9 All segments contributing to the good result (DKK million) 2014 2013 2014 2013 Operating revenues 584.1 741.1 1,926.0 1,824.4 ƒ Combination of contracts and spot sale Operational EBITDA 232.9 208.4 676.4 525.0 boosted earnings Operational EBIT 208.7 186.8 606.3 461

6. Slide 6: Summary of the quarter

   SUMMARY OF THE QUARTER ƒ Market ƒ The balance tipped last month in Q3 ƒ VAP products strong performance ƒ High demand despite market challenges ƒ Market interruption by the import ban put into effect by the Russian authorities ƒ Operation ƒ Harvested volumes 4% lower compared with Q3 2013 ƒ Transfer

7. Slide 7: Markets and Sales

   ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

8. Slide 8: Global markets

   GLOBAL MARKETS Spot prices on fresh salmon 4-5 [NOK/kg HOG] 55,00 ƒ The NASDAQ salmon price for size 4-5 decreased: 50,00 ƒ y/y Q3 2014 / Q3 2013 by ~10% 45,00 - by 3.91 NOK/kg from 38.59 to 34.68 40,00 35,00 ƒ q/q Q3 2014 / Q2 2014 by ~14% - by 5.64 NOK/kg from 40.32 to 34.68 30,00 25,00 ƒ The grow

9. Slide 9: Markets & Sales

   MARKETS & SALES Total sales of salmon Q3 Q3 M9 M9 Bakkafrost benefits of the global salmon market by markets 2014 2013 2014 2013 EU 35% 47% 46% 50% ƒ Strong position on all growth markets USA 21% 24% 22% 21% ƒ Increased sale to Eastern Europe due to higher Asia 20% 25% 22% 26% harvest and changed ma

10. Slide 10: A market in balance in 2014, limited growth expected in 2015

    A MARKET IN BALANCE IN 2014, LIMITED GROWTH EXPECTED IN 2015 ƒ The expected supply in 2014 from Norway has Global supply of Atlantic Salmon (head on gutted - HOG) been reduced 20,000 tonnes since Q2 2011 2012 2013 2014E 2015E Norway 904 1.066 1.029 1.075 1.139 ƒ Norway is expected to increase volume

11. Slide 11: Demand development split by markets

    DEMAND DEVELOPMENT SPLIT BY MARKETS Salmon markets, sold quantity (head on gutted - HOG) ƒ The supply growth in Q3 2014 was Estimated volumes Q3 comparison Estimated volumes YTD comparison Markets Q3 2014e Q3 2013 Volume % YTD 2014e YTD 2013 Volume % 13% compared with Q3 2013 EU 229.700 204.400 25.3

12. Slide 12: Supply of Atlantic salmon to the Russian market

    SUPPLY OF ATLANTIC SALMON TO THE RUSSIAN MARKET Supply of Atlantic Salmon (hog-equvivalents) ƒ Overall supply of Atlantic salmon to Russia By month Total Norway Chile Faroe Others* continues to fall - down 6 % so far this year January 10 000 7 300 1 700 100 900 February 8 500 6 300 1 200 100 900 ƒ N

13. Slide 13: Segment Information

    ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

14. Slide 14: Farming – Harvest volume

    FARMING – HARVEST VOLUME Harvest Volumes Q3 Q3 M9 M9 Harvested volumes tonnes [HOG] 2014 2013 2014 2013 ƒ Harvested volumes decreased by 4% in the West 1,033 4,340 13,319 9,073 quarter but are up 4% YTD ƒ 91% of the volumes from the North region North 9,848 6,995 18,043 21,098 Total 10,881 11,335 31

15. Slide 15: Farming – Operational performance

    FARMING – OPERATIONAL PERFORMANCE Q3 M9 Revenues and margin (DKK million) Q3 2014 2013 2014 M9 2013 ƒ Operational EBIT margin increased from 36% to Operating revenues 435 520 1,469 1,466 38% Operational EBIT 167 188 513 512 ƒ Good biology and fish health Operational EBIT margin 38% 36% 35% 35% ƒ Sat

16. Slide 16: Farming – Operational performance

    FARMING – OPERATIONAL PERFORMANCE Margin - EBIT per kg total harvested quantity [NOK/kg] 19,00 Operation ƒ Lower EBIT/kg due to increased supply of salmon during the quarter and hence lower spot prices 18,15 ƒ Harvested fish with good biological and financial 17,59 17,02 performance 17,02 14,00 Q3 2

17. Slide 17: Farming – Drivers behind margins

    FARMING – DRIVERS BEHIND MARGINS Normal Distribution of Harvest Size gw/Kg) ƒ The salmon size follows a normal distribution. Increased average weight means increased quantity of large fish and decreased quantity of small fish ƒ The average size of the harvested salmon was 7% 30-40% higher in Q3 2014

18. Slide 18: Farming – Drivers behind margins

    FARMING – DRIVERS BEHIND MARGINS Distribution of sizes in producing contries, Q3 2014 in percent (est.) ƒ Faroe Islands have the largest global share of large Country 1-2 2-3 3-4 4-5 5-6 6-7 7+ Atlantic Salmon Faroe Island 0,1 % 1,0 % 7,2 % 23,0 % 33,9 % 23,9 % 10,9 % Norway 0,8 % 8,4 % 26,9 % 33,9

19. Slide 19: Segment VAP

    SEGMENT VAP Q3 Q3 M9 M9 Revenues and margin (DKK million) 2014 2013 2014 2013 ƒ Strong result in in VAP due to high contracts prices Operating revenues 155 148 654 464 and spot prices under pressure Operational EBIT 27 -20 38 -85 ƒ Utilised low salmon prices to produce on stock Operational EBIT marg

20. Slide 20: Segment VAP

    SEGMENT VAP Margin - EBIT per kg total harvested quantity [NOK/kg] Strategy 25 20 ƒ Bakkafrost’s strategy is to sell 40-50% of our products as VAP products directly to end markets in Europe and 15 US 10 5 ƒ Contract period is normally between 6 and 12 months 0 ƒ Losses during periods with high incre

21. Slide 21: Segment Fishmeal, Oil and Feed (FOF)

    SEGMENT FISHMEAL, OIL AND FEED (FOF) Fishmeal, Oil and Feed ƒ Sale of fishmeal normalised in Q3 2014 compared to Q3 2013 Q3 Q3 M9 M9 (DKK million) 2014 2013 2014 2013 ƒ EBITDA margin increased due to favourable Operating revenues 287 422 746 831 market development EBITDA 62 48 141 104 ƒ Sale in 2014

22. Slide 22: Raw material prices and feed sale

    RAW MATERIAL PRICES AND FEED SALE Volumes of raw material purchase and feed sale [tonnes] Timing of raw material purchase affects profit 35.000 120.000 Feed sale Raw material (tonnes) ƒ Purchased high volumes of raw material for fishmeal 30.000 100.000 Feed sale (tonnes) production in Q2 at low pric

23. Slide 23: Group Financials

    ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

24. Slide 24: Group profit and loss

    GROUP PROFIT AND LOSS Q3 Q3 M9 M9 (DKK million) 2014 2013 2014 2013 Operating revenues 584 741 1,926 1,824 ƒ Lower revenues due to normalised sale from Operational EBITDA* 233 208 676 525 FOF in addition lower spot prices and Operational EBIT* 209 187 606 461 harvested volumes Fair value adjustment

25. Slide 25: Balance sheet

    BALANCE SHEET ƒ Investments in PPE of DKK ~48 million in Q3 2014 End Q3 and YTD of DKK ~ 127 million (DKK million) 2014 2013 Intangible assets 295 295 ƒ Increase in financial assets primarily due to Property, plant and equipment 973 917 investment in pelagic processing plant (Bakkafrost owns 30%) Fi

26. Slide 26: Cash flow

    CASH FLOW ƒ Significantly increased cash flow from operation Q3 Q3 M9 M9 due to: (DKK million) 2014 2013 2014 2013 Cash flow from operations 280 131 697 330 ƒ Higher operational earnings Cash flow from investments -47 -38 -153 -108 ƒ Entering of factory agreement and thus less Cash flow from financi

27. Slide 27: Status on Investment

    ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

28. Slide 28: Investments – Programme 2014 - 2017

    INVESTMENTS – PROGRAMME 2014 - 2017 Fishmeal & Oil Feed Hatchery Farming Wellboat Harvest Value Added Products Sales The investments will be made step by step in the relevant parts in the value chain to secure: ƒ Efficiency ƒ Biological risk ƒ Organic growth BAKKAFROST / Q3 PRESENTATION 2014 Page 28

29. Slide 29: Investments – Status on main investments

    INVESTMENTS – PROGRAMME 2014 - 2017 Status on main investments ƒ Harvest/VAP factory ƒ New Hatchery Norðtoftir ƒ Hans á Bakka ƒ Design finalised ƒ Completed summer 2014 ƒ Wellboat under construction in Yalova in Turkey ƒ Contracts for building and ƒ Total investment DKK 55 mill machinery signed ƒ Co

30. Slide 30: Outlook

    ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

31. Slide 31: Outlook

    OUTLOOK Market Fishmeal, oil and feed ƒ Tight market from Q4 2014 ƒ Forecast for feed sales 83,000 - 87,000 tonnes in 2014 ƒ Forward prices for the rest of 2014 are around NOK 39 per kg Business development ƒ Optimize the Value Chain according to the announced ƒ Global supply growth estimated to 8%

32. Slide 32: Appendix

    ƒ SUMMARY OF Q3 2014 ƒ MARKETS AND SALES ƒ SEGMENT INFORMATION ƒ GROUP FINANCIALS ƒ STATUS ON INVESTMENT ƒ OUTLOOK ƒ APPENDIX

33. Slide 33: Bakkafrost - Preparing for the future

    BAKKAFROST - PREPARING FOR THE FUTURE Financing of the investments 2014-2017 ƒ Use free cash flow from operations ƒ Unused financing of approximately DKK 921 million ƒ Partly new financing if advantageous ƒ Flexibility to postpone investment in case of adverse events Unchanged dividend policy BAKKAF

34. Slide 34: Financing

    FINANCING Financing of the Group NIBD NIBD and andfunding available avaible funding ƒ Total funding to DKK ~ 1,278 million 1600 ƒ Bonds NOK 500 million due Feb 2018 (swapped into 1400 DKK) 1200 ƒ Instalment loan of DKK 225 million, repayable with DKK 1000 25 million each quarter 800 ƒ Revolving cred

35. Slide 35: Faroe Islands

    FAROE ISLANDS ƒ 18 islands – 1,387 km2 ƒ 48,288 inhabitants (February 28 2014) ƒ Home rule – within the Kingdom of Denmark ƒ Part of the Danish monetary union, Danish krone (DKK) Key sectors (% of wage earners, 2014) ƒ Service/public admin.: ~40% ƒ Private service: ~31% ƒ Construction: ~12% ƒ Fishin

36. Slide 36: Faroe Islands – excellent conditions for cost effective farming

    FAROE ISLANDS – EXCELLENT CONDITIONS FOR COST EFFECTIVE FARMING ƒ Natural growth area for wild salmon GEOGRAPHY ƒ Faroese fjords provide separation between locations ƒ Improves biological control and area management Average Seawater Temperatures ºC Faroe Islands Norway (Trøndelag) ƒ Stable seawater

37. Slide 37: New Harvest and VAP operation

    BAKKAFROST - PREPARING FOR THE FUTURE New Harvest and VAP operation The new plant and HQ 7 factories merged into one BAKKAFROST / Q3 PRESENTATION 2014 Page 37

38. Slide 38: Development per quarter Q1 2012 – Q2 2014

    DEVELOPMENT PER QUARTER Q1 2012 – Q2 2014 (mDKK) Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 584 711 631 667 741 610 473 582 457 416 400 Revenue 209 212 186 124 187 169 105 99 86 78 60 Op. EBIT 211 126 87 138 200 184 67 148 26 91 16 Profit/Loss 10,881 11,2

39. Slide 39: Industry structure has influence on the competitiveness

    INDUSTRY STRUCTURE HAS INFLUENCE ON THE COMPETITIVENESS Margin EBIT/kg last 15 years (NOK/kg) Margin EBIT/kg last 5 years (NOK/kg) Margin EBIT/kg 2013E (NOK/kg) 7 12 16 6 10 14 5 12 8 4 10 6 8 3 4 6 2 4 1 2 2 0 0 0 -2 -4 During the last 15 years, Norway The last five years BAKKA had a In 2013 BAKKA

40. Slide 40: Dividend

    DIVIDEND Dividend DPS in % of adj. EPS * ƒ Dividend of DKK 4.50 (NOK ~4.98) per share paid out in April 2014 100% 99% ƒ Bakkafrost purchased treasury shares in 2013, 90% equivalent to DKK 0.59 (NOK 0.66) per share 80% ƒ Dividend incl. the acquisition of treasury shares is 70% DKK 5.09 (NOK ~5.64) 60

41. Slide 41: Largest shareholders

    LARGEST SHAREHOLDERS 20 largest shareholders Share price development since listing in NOK 20 largest shareholders Last 12 No of shares % Name Origin months 4.594.437 9,4 Jacobsen Oddvør FRO 4.492.020 9,2 Jacobsen Regin FRO 2.831.829 5,8 SPAR NORD BANK A/S S/A CLIENT ACCOUNT NOM DNK 2.149.645 4,4 DAN

42. Slide 42: Tax increases approved by parliament

    TAX INCREASES APPROVED BY PARLIAMENT Licence tax on farming companies in the Faroes* ƒ Approved by the parliament in May 2014 ƒ From a provisional tax to a permanent tax ƒ Licence tax of: • 4.5% on taxable income • 0.5% on farming revenues Effect on YTD 2014 compared to 2013 tax rates estimated to:

43. Slide 43: Manager Feed Division Hatchery employee

    Manager Hatchery employee Foremen Farming Captain Harvest employee Foreman VAP employee Senior Quality Manager Technician Logistics Business Controller Marketing Manager Feed Division

Bakkafrost — Q3 2014 Earnings Presentation on 6ix