Satisfying Q2 for Bakkafrost

 The salmon prices in the quarter were stronger than anticipated as the world supply of salmon increased by 30% from Q2 2011 to Q2 2012.

Commenting on the results, CEO Regin Jacobsen said: "The result for Q2 2012 was satisfying. All segments had positive result and thus contributed to the group result. The salmon price, during the Q2 2012, has been satisfying taking into account that we have seen a massive increase in the supply of salmon. The outlook is also good as we don't expect the same increase in the supply from Q4 2012 and forward, which means that the marked will be more in balance."

Financial Review In March 2012, Bakkafrost announced that an agreement had been reached to acquire the non-controlling shares in P/F Faroe Farming, corresponding to 21.93% of the shares in the Company. Consequently, Bakkafrost became the sole owner of the shares in P/F Faroe Farming effective from 1st January 2012. The transaction was an equity transaction. Subsequent to the acquisition of the non-controlling interests, Bakkafrost sold 51% of the total shares in P/F Faroe Farming to the Faroese based investment company P/F Tjaldur. The transaction was, among other things, subject to authority approval. Bakkafrost has received authority approval and consequently the transaction is finalised. Therefore, Bakkafrost now complies with the legal requirements stipulating a maximum control of 50% of the licenses in the Faroe Islands. Faroe Farming's activities are classified as discontinuing operations, as the final settlement of the agreement was made after the balance sheet date.  

The operating revenues amounted to DKK 416.3 million in Q2 2012 (DKK 314.3 million). For H1 2012 the operating revenue amounted to DKK 816.3 million (DKK 554.6 million). The increase in the revenue is due to higher harvested volumes at a lower price and the acquisition of the Havsbrún Group in the summer 2011. Operational EBIT was DKK 77.7 million in Q2 2012 (DKK 126.9 million). For H1 2012 operational EBIT was DKK 137.7million (DKK 219.2). A fair value adjustment of the Group's biological assets has been recognised in Q2 2012, amounting to DKK 16.7 million (DKK -158.4 million). In H1 2012, a fair value adjustment has been recognised amounting to DKK 9.3 million (DKK -117.4 million). No provisions for onerous contracts are in Q2 2012 and H1 2012 (reversal of DKK 8.0 million in Q2 2011 and a reversal of DKK 2.9 million in H1 2011).

Income from associated companies amounts to DKK -3.1 million (DKK 0.0 million) in H1 2012 and relates to the result from Hanstholm Fiskemelfabrik in which Bakkafrost has a shareholding of 34%. Net interest in Q2 2012 amounted to DKK -2.2 million (DKK -2.8 million). For H1 2012 net interest amounted to DKK -9.9 million (DKK -3.6 million). The increase in the net interests is due to higher interest bearing debt following the acquisition of Havsbrún in 2011.

Net taxes amounted to DKK -20.3 million in Q2 2012 (DKK 1.4 million). For H1 2012 net taxes amounted to DKK -27.1 million (DKK -22.2 million). The result for Q2 2012 for the continuing operations was DKK 71.8 million (DKK -25.6 million). For H1 2012 it was DKK 107.0 million (DKK 77.9 million). The result after tax for Q2 2012 for the discontinuing operations was DKK 19.1 million (DKK 0 million). For H1 2012 the result was DKK 0.3 million (DKK 0 million). Thus, the total result for Q2 2012 was DKK 90.9 million (DKK -25.6 million) and the result for H1 2012 was DKK 107.3 million (DKK 77.9 million). The cash flow from operations in Q2 2012 was DKK 151.1 million (DKK 167.8 million). The Group's strong cash flow from operations is due to a good result from the operation, combined with the classification of Faroe Farming as a discontinuing operation, and a reduction of receivables compared with Q1 2012. Cash flow from operations for H1 2012 amounted to DKK 233.1 million (DKK 268.6 million). The cash flow from investment activities in Q2 2012 amounted to DKK -19.8 million (DKK -577.9 million) and originates from investments made in all parts of the Group's value chain. The first six months of 2012 the Group made investment of DKK 36.8 million (DKK 598.2 million).

Cash flow from financing activities totalled DKK - 121.6 million in Q2 2012 (DKK 361.7 million) and relates first of all to decrease in debt, the acquisition of the minority shares in Faroe Farming and payout of dividend. In H1 2012 cash flow from financing amounted to DKK -164.3 million (DKK 325.9 million) Net cash flow from discontinuing operations amounted to DKK 4.6 million compared to nil in Q2 2011 and for H1 2012 DKK 0 million (DKK 0 million). Faroe Farming has built up biomass during H1 2012.

Net cash flow in Q2 2012 amounted to DKK 14.3 million (DKK -48.4 million) and for H1 2012 DKK 31.9 million (DKK -3.7 million). The Group had a net interest bearing debt at the end of Q2 2012 amounting to DKK 732.7 million (DKK 816.8 million at year-end 2011) and had undrawn credit facilities of DKK 317.3 million.  

Bakkafrost equity ratio is 47% compared to 46% at the end of 2011. The increase is due to the positive result. On the other hand, the purchase of the non- controlling interest in Faroe Farming and the payment of dividend of DKK 48.9 million reduces the equity ratio. Bakkafrost aims at increasing the equity ratio to have a strong financial position to enable the Group to follow a strategy of pursuing further growth and profitability. The Board of Directors will continue to attach great importance to this going forward

Segments: For Q2 2012 the combined farming and VAP segment made an operational EBIT of DKK 78.3 million, corresponding to an EBIT/kg of DKK 7.66 (NOK 7.78), compared to an EBIT/kg of DKK 15.68 (NOK 16.46) in Q2 2011. For H1 2012 the operational EBIT was DKK 138.6 million, corresponding to an EBIT/kg of DKK 6.43 (NOK 6.53), compared to an EBIT/kg of DKK 16.18 (NOK 16.97) in H1 2011.

The pure farming segment made an operational EBIT of DKK 67.7 million, corresponding to an EBIT/kg of DKK 6.63 (NOK 6.73), compared to an EBIT/kg of DKK 15.52 (NOK 16.29) in Q2 2011. For H1 2012 the operational EBIT was DKK 116.5 million, corresponding to an EBIT/kg of DKK 5.40 (NOK 5.49), compared to an EBIT/kg of DKK 15.98 (NOK 16.77) in H1 2011.

The VAP segment made an operational EBIT of DKK 10.6 million in Q2 2012 (DKK 1.3 million in Q2 2011), corresponding to an operational EBIT of DKK 2.67 (NOK 2.72) per kg gutted weight in Q2 2012 (Q2 2011: DKK 0.37 (NOK 0.39) per kg gutted weight). For H1 2012 the operational EBIT/kg was DKK 2.78 (NOK 2.83), compared to DKK 0.41 (NOK 0.43) for H1 2011.

The third segment - fishmeal, oil and feed - made an EBITDA of DKK 13.7 million. For H1 2012 the EBITDA was DKK 24.8 million.  

Operations: The total harvested volume in Q2 2012 for the continuing operations was 10,219 tonnes gutted weight (8,092 tgw). For both continuing and discontinuing operations, the total harvested volume was 10,511 tonnes gutted weight. The first six months of 2012, Bakkafrost continuing operations harvested 21,567 tonnes gutted weight (13,552 tgw). For both continuing and discontinuing operations, Bakkafrost harvested 22,740 tonnes gutted weight in H1 2012 (13,552 tgw). Bakkafrost transferred 2.3 million smolts in Q2 2012, which is in line with the Company's plans. For H1 2012 Bakkafrost transferred 4.8 million smolts. In addition Faroe Farming transferred 0.4 million smolt in the 1st half of 2012. The number of fish in cages (continuing operations) is 2% higher at the end of Q2 2012 than at the same time last year. The average size of the fish is 9% higher.

Outlook: Bakkafrost increased its Group operational EBIT by 30% from DKK 60.0 million to DKK 77.7 million from Q1 2012 to Q2 2012, despite harvested volumes decreasing 10% and the world supply of salmon increasing by around 30% from Q2 2011 to Q2 2012. The Group also made a strong cash flow in the period, which opens up for commercial possibilities both organic and other. The strong result also enables the Group to continue its investment programme. In 2012, investments of around DKK 115.0 million will be made, including maintenance investments of around DKK 80.0 million. Investments will be made in all parts of the value chain.

Fish health, animal welfare and bio-security are ofcrucial importance for the Company. No outbreaks of diseases at sea have occurred during the last years. However, the focus on and challenges regarding sea lice have increased in the last few years. Bakkafrost and other farmers in the Faroe Islands have improved the strategy to reduce the number of sea lice in order to mitigate the biological risk from sea lice.

Bakkafrost expects to harvest between 42,000 to 44,000 tonnes gutted weight in 2012, compared to 36,343 tonnes gutted weight in 2011. This means that in the 2nd half of 2012 Bakkafrost plans to harvest between 20,500 and 22,500 tonnes gutted weight. In addition to this Faroe Farming is expected to harvest 6,000 tonnes gutted weight in 2012, of which 1,173 tonnes were harvested in H1 2012. In the short term, supply of farmed Atlantic salmon is expected to increase quarter on quarter, which may put the spot price under pressure, but from Q4 2012, the market is expected to be more in balance.The number of smolts released is one key element of predicting the future result for the Group. Bakkafrost's forecast for the smolt release is unchanged at 10.6 million smolts in 2012. On top of this Faroe Farming is expected to release 1.0 million smolts.

Bakkafrost has a combined market strategy to sell around 50-60% of the harvested salmon on the spot market as fresh whole salmon and 40-50% as VAP products sold on long-term contracts prices. This stabilises the Group's cash flow in a volatile salmon market. For the remainder of 2012 the Company has contracted nearly the full capacity of VAP products and started to commit contracts for 2013. The raw material situation for Havsbrún is expected to continue to be volatile, affecting the production of own fishmeal and oil. Alternatively, Havsbrún purchases fishmeal and oil on the world market. The raw material prices will likely increase in the near future, affecting Bakkafrost's as well as the total farming industry negatively, and consequently result in increased production costs. The outlook concerning Havsbrún's sales of fish feed is unchanged at around 85,000 tonnes in 2012.

Improved market balances on the world market for salmon products will likely improve the financial flexibility going forward. Bakkafrost will also in the future focus on further strengthening of the financial position, M&A and organic growth opportunities.