Bakkafrost P/f · OSL:BAKKA

Bakkafrost P/f — Bakkafrost — Q2 2018 Earnings Presentation

45 slides from Bakkafrost P/f's earnings presentation, Aug 21, 2018

  1. Slide 1: Q2 2018 Bakkafrost Group

    Q2 2018 BAKKAFROST GROUP Oslo 21 August 2018

  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: Summary of Q2 2018

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX

  4. Slide 4: Highlights

    HIGHLIGHTS  Harvested 12,902 tgw in Q2 2018 (18,402 tgw in Q2 2017) Operation  Feed sales of 15,673 tonnes in Q2 2018* (17,032 tonnes in Q2 2017*)  Raw material purchase of 118,387 tonnes in Q2 2018 (163,100 tonnes in Q2 2017)  Revenues of DKK 954 million in Q2 2018 (DKK 1,206 million in Q2 2017

  5. Slide 5: Summary of the Quarter

    SUMMARY OF THE QUARTER The result for the Farming segment Q2 Q2 H1 H1 decreased due to lower volumes. The VAP (DKK million) 2018 2017 2018 2017 result was negative again, but the FOF Operating revenues 954 1,206 1,805 2,060 segment had a good result. Operational EBITDA 456 505 770 882  Farming/VAP

  6. Slide 6: Markets and Sales

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX

  7. Slide 7: Markets & Sales

    MARKETS & SALES Same trend in Q2 2018 as in previous quarter. Sales Total sales of salmon Q2 Q2 H1 H1 to Eastern Europe and Asia increased, and sales to by markets 2018 2017 2018 2017 EU decreased. Sales to USA was nearly flat in Q2 EU 27% 46% 29% 46% 2018, compared to Q2 2017. VAP on contract was o

  8. Slide 8: Acquisition of US Salmon Importer – North Landing

    ACQUISITION OF US SALMON IMPORTER – NORTH LANDING Bakkafrost signed an agreement in Q2 2018 to acquire the business and assets in North Landing. The acquisition has been closed in Q3 2018  North Landing – Sales office, handling and processing facilities in Clifton, New Jersey  Market access  Serv

  9. Slide 9: Global Markets

    GLOBAL MARKETS Large price reduction during Q2 2018 Spot prices (NASDAQ) on superior 4-5 [NOK/kg HOG] Q1 Q2 Q3 Q4  Exceptionally large price change during Q2 2018 80.00 70.00  Price change (low/high) of NOK 24.88 ~44% - from NOK 56.09 to NOK 80.97 60.00  y/y by 1.14 NOK/kg ~2% 50.00 - from NOK 69

  10. Slide 10: Development in Harvested and Sold Quantity by Origin

    DEVELOPMENT IN HARVESTED AND SOLD QUANTITY BY ORIGIN 8% supply growth in Q2 2018 SUPPLY DEVELOPMENT Q2 Q2 Change (HOG) 2018 2017 %  European harvest was flat Norway 253.9 235.2 8.0 %  Americas harvest increased by 16% UK 32.1 40.8 ‐21.2 % Ireland 2.0 5.1 ‐61.4 % 8% growth from Norway Faroes 16.1 2

  11. Slide 11: Salmon Markets, Sold Quantity (HOG)

    SALMON MARKETS, SOLD QUANTITY (HOG) Strong momentum in most markets Salmon markets, sold quantity (head on gutted - HOG) Estimated volumes Estimated volumes EU performed well Markets Q2 2018 Q2 2017 Volume % H1 2018 H1 2017 Volume % EU 217,900 204,200 13,700 6.7% 432,800 408,400 24,400 6.0%  Contra

  12. Slide 12: Short Term Supply Outlook

    SHORT TERM SUPPLY OUTLOOK  Modest supply growth expected coming quarters SUPPLY - TOTAL  Growth rate impacted by inventory movements 700 9% 8%  Growth in harvest likely to be instrumental for pricing 600 7%  Frozen products are materially sold through alternative channels 500 6% 400 5%  Europe

  13. Slide 13: Segment Information

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX First salmon meal and -oil produced at Havsbrún

  14. Slide 14: Farming – Harvest Volume

    FARMING – HARVEST VOLUME Harvested volumes Harvest Volumes Q2 Q2 H1 H1 tonnes [HOG] 2018 2017 2018 2017  Harvested volumes decreased by 30% in Q2 2018, compared with Q2 2017 North Region 12,902 13,581 15,638 22,705  The harvest in Q2 2018 was in the North West Region 0 4,821 9,501 8,855 Region onl

  15. Slide 15: Farming – Operational Performance

    FARMING – OPERATIONAL PERFORMANCE Improved production costs and higher Q2 Q2 H1 H1 prices had positive effect on performance, (DKK million) 2018 2017 2018 2017 but volumes were lower in Q2 2018, Operating revenues 775 1,039 1,441 1,790 compared to Q2 2017 Operational EBIT 393 489 622 863  The opera

  16. Slide 16: Farming – Operational Performance

    FARMING – OPERATIONAL PERFORMANCE Operation Margin - EBIT per kg total harvested quantity [NOK/kg]  Farming EBIT increased by NOK 5.59 per kg to NOK 39.09 in Q2 2018, compared to NOK 40.00 33.50 in Q2 2017 35.00 39.09 33.50 33.71  Non recurring gain included in operational 30.00 31.85 EBIT of DKK

  17. Slide 17: Value Added Products (VAP)

    VALUE ADDED PRODUCTS (VAP) VAP margin negative Q2 Q2 H1 H1 (DKK million) 2018 2017 2018 2017  Substantial decrease in revenue by 66% to DKK 94 Operating revenues 94 273 187 464 million in Q2 2018, from DKK 273 million in Q2 2017 Operational EBIT -17 -54 -29 -108  Operating EBIT in Q2 2018 was DKK

  18. Slide 18: Fishmeal, Oil and Feed (FOF)

    FISHMEAL, OIL AND FEED (FOF) Margins reduced from previous quarter, Fishmeal, Oil and Feed but still strong Q2 Q2 H1 H1  EBITDA of DKK 66 million in Q2 2018, (DKK million) 2018 2017 2018 2017 compared with DKK 48 million in Q2 2017 Operating revenues 326 317 627 594  EBITDA margin of 20.2% in Q2 2

  19. Slide 19: Market Conditions Feed

    MARKET CONDITIONS FEED Feed sales lower Volumes of raw material purchase and feed sale [tonnes]  Quantity of feed sold was 15,673 tonnes in Q2 2018, 35,000 175,000 Raw material (tonnes) compared to 17,032 tonnes in Q2 2017 30,000 150,000 Feed sale (tonnes) 25,000 125,000  Biomass on lower level in

  20. Slide 20: Group Financials

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX Bakkafrost HQ Glyvrar

  21. Slide 21: Group Profit and Loss

    GROUP PROFIT AND LOSS  Revenues on lower level in Q2 2018 due to Q2 Q2 H1 H1 lower harvest. Revenues in Q2 2018 (DKK million) 2018 2017 2018 2017 amounted to DKK 954 million, compared to Operating revenues 954 1,206 1,805 2,060 DKK 1,206 million in Q2 2018. Operational EBITDA* 456 505 770 882  Ope

  22. Slide 22: Operational EBIT and Earnings per Share

    OPERATIONAL EBIT* AND EARNINGS PER SHARE 459 408 350 335 331 303 307 257 254 255 252 268 235 206 Operational EBIT* (DKK million) 2015 2016 2017 YTD 2018 1,001 1,165 1,378 676 11.44 8.19 7.13 6.96 6.56 5.60 Earnings per share 4.39 4.61 3.91 (DKK) 3.46 2.73 1.63 1.16 -0.45 2015 2016 2017 YTD 2018 16.6

  23. Slide 23: Balance Sheet

    BALANCE SHEET  Intangible assets at the end of Q2 2018 are End H1 End H1 End unchanged from year end 2017 (DKK million) 2018 2017 2017 Intangible assets 377 377 377  Investments in PPE of DKK 131 million in Q2 2018 Property, plant and equipment 2,715 2,380 2,570 and PPE amounts to DKK 2.7 billion

  24. Slide 24: Cash Flow

    CASH FLOW  Cash flow from operations amounted to DKK Q2 Q2 H1 H1 279 million in Q2 2018, compared to DKK 498 (DKK million) 2018 2017 2018 2017 million in Q2 2017 Cash flow from operations 279 498 648 863  Cash flow from investments represents net Cash flow from investments -108 -170 -219 -349 inve

  25. Slide 25: Net Interest-Bearing Debt (NIBD)

    NET INTEREST-BEARING DEBT (NIBD) Net Interest-Bearing Debt Development in NIBD in DKK millions  Cash flow from operating activities decreased the NIBD with DKK 421 million in Q2 2018 2 142 421  Dividend payment increased the NIBD with DKK 511 million in Q2 2018 511  Net investments, change in wor

  26. Slide 26: Outlook

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX A-18 Hovsfjørður - new exposed site in Suðuroy employed in June 2018

  27. Slide 27: Outlook

    OUTLOOK Market VAP  Global supply in Q2 2018 increased around 8%  Contracted around 12% of expected harvest for the rest of 2018  Global harvest increase in 2018 expected to be around 6-8% (4% at last presentation)  Supply growth next three quarters expected to be Fishmeal, Oil and Feed between

  28. Slide 28: Investment Plan 2018 - 2022

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX Hatchery Strond, Klaksvík under construction First batch of eggs came into the hatchery 19 June 2018. At full operation in 2019/2020, the hatchery is expected to produ

  29. Slide 29: Investment Programme 2018 - 2022

    INVESTMENT PROGRAMME 2018 - 2022 Same aim as in previous investment programs:  Biological risk  Efficiency  Sustainable growth And investments will be made step by step in the relevant parts of the value chain BAKKAFROST / Q2 2018 PRESENTATION Page 29

  30. Slide 30: ~55% Sustainable Growth in Harvest Expected by 2023

    ~55% SUSTAINABLE GROWTH IN HARVEST EXPECTED BY 2023 (CAGR 9.2%) Sustainable Growth part of Investment Program  New portfolio of sites in Suðuroy  10,000 tonnes expected by 2023  Full infrastructure to be upgraded  Roll-out of large smolt strategy  15,000 tonnes expected by by 2022 (1)  R&D pro

  31. Slide 31: Suðuroy – Sole Operator in Reorganized Production Cluster

    SUÐUROY – SOLE OPERATOR IN REORGANIZED PRODUCTION CLUSTER  To be operated with separate Suðuroy - Reorganized production cluster infrastructure  Harvest capacity of 15,000 tonnes annually  Of which 5,000 tonnes from large smolt  Separate hatchery for large smolt  Four farming sites 112 km  Onl

  32. Slide 32: Preparing for the Future – Updated Investment Plan

    PREPARING FOR THE FUTURE – UPDATED INVESTMENT PLAN (DKK 3 BILLION) Fishmeal, oil and feed (DKK ~ 425 million) Investment program 2018 - 2022  Increased fish oil capacity to support marine index 765 715  Increased feed capacity and advanced feed line capabilities 590 540 Development of unique Faroe

  33. Slide 33: In-House Broodstock Operation

    IN-HOUSE BROODSTOCK OPERATION  Breeding program based on gene Sandoy eastside – remote and good location for broodstock site pool of local wild salmon strain  Adaptability to local biology  Product differentiation  Support branding strategy  Independence of external suppliers  Veterinary contr

  34. Slide 34: Sustainability Update – Biogas Plant Investment

    SUSTAINABILITY UPDATE – BIOGAS PLANT INVESTMENT Faroe Islands Biogas Plant Investment (2019-)  Sustainability commitment  Part of Bakkafrost’s 2020 Healthy Living Plan  Waste management  40-50,000 tonnes from salmon and dairy farms to be processed, annually  Heat and electricity production  En

  35. Slide 35: Updated Investment Program to Support Sustainable Growth

    UPDATED INVESTMENT PROGRAM TO SUPPORT SUSTAINABLE GROWTH Total investments of DKK 3 billion (2018-2022)  Front loaded average investment level of DKK 10/kg  Incremental investments of DKK 120/kg growth (25k tgw) Completes upgrading of entire infrastructure in value chain  Total investments of DKK

  36. Slide 36: Appendix

     SUMMARY OF Q2 2018  MARKETS AND SALES  SEGMENT INFORMATION  GROUP FINANCIALS  OUTLOOK  INVESTMENT PLAN 2018 - 2022  APPENDIX

  37. Slide 37: Development in Harvested and Sold Quantity by Origin

    DEVELOPMENT IN HARVESTED AND SOLD QUANTITY BY ORIGIN Global Supply of Atlantic Salmon (HOG) 8% harvest growth in 2018 2015 2016 2017E 2018E 2019E Norway 1,112 1,055 1,078 1,184 1,219  The estimated supply growth increased during UK 150 142 157 141 159 Q2 from 7% to 8% Ireland 14 14 15 13 15  Norwa

  38. Slide 38: Q2 2018 Market Environment

    Q2 2018 MARKET ENVIRONMENT  Sequential increase in quarterly price continued in Q2 PRICE NORWAY 8.0 7.4 60.0  Decreasing prices during the quarter 6.9 7.3 7.2 7.2 7.0 6.4 6.2 6.0 50.0 6.0  Nasdaq Norway price EUR 7.2 in Q2 2018 5.1 40.0 5.0  1% decrease, compared to Q2 2017 EUR DKK 4.0 30.0 3.0

  39. Slide 39: Superior Biology Combined with State of the Art Infrastructure

    SUPERIOR BIOLOGY COMBINED WITH STATE OF THE ART INFRASTRUCTURE FISHMEAL, OIL AND FEED BROODSTOCK SMOLT SEA WATER PROCESSING SALES/MARKETING Equivalent to 100k (tgw) None 12 million @ 200 grams 21 farming sites/17 fjords 130k primary (tgw) Central sales Faroes annual harvest @ 55k (tgw) @100g smolt/

  40. Slide 40: Development per Quarter Q1 2015 – Q2 2018

    DEVELOPMENT PER QUARTER Q1 2015 – Q2 2018 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (mDKK) 2018 2018 2017 2017 2017 2017 2016 2016 2016 2016 2015 2015 2015 2015 Revenue 954 851 906 804 1,206 854 868 640 790 905 760 677 800 613 Operational EBIT 408 268 331 252 459 335 350 255 307 254 257 206 303 235

  41. Slide 41: Dividend

    DIVIDEND Dividend Dividend per share in % of adj. EPS* • Dividend for 2017 of DKK 10.50 (NOK 13.52) per 100% 99% share was paid in Q2 2018 90% 80% 70% 60% 50% 50% 49%** 49% 46% 49% Dividend policy 50% 40% 40% 30%  Competitive return through: 19% 20% 10%  Dividends 0%  Increase in the value of the

  42. Slide 42: Page 42

    BAKKAFROST / Q2 2018 PRESENTATION Page 42

  43. Slide 43: Faroe Islands

    FAROE ISLANDS  18 islands – 1,387 km2  50,750 inhabitants (Mar 2018)  Home rule – within the Kingdom of Denmark  Part of the Danish monetary union, Danish krone (DKK) Key sectors (% of wage earners, 2017)  Service/public admin.: ~33%  Private service: ~32%  Construction: ~14%  Fishing : ~21%

  44. Slide 44: Largest Shareholders

    LARGEST SHAREHOLDERS 20 largest shareholders Share development Traded daily No of shares % Name Type Nationality 12 months development NOK/share 5 years development Traded Monthly NOK/share Subscribe Oslo Stock Exchange Releases from BAKKA by e-mail on: http://www.bakkafrost.com/en/bakkafrost_invest

  45. Slide 45: Page 45

    BAKKAFROST / Q2 2018 PRESENTATION Page 45

Bakkafrost — Q2 2018 Earnings Presentation on 6ix