ANNUAL REPORT 2019 1
ANNUAL REPORT 2019
Faroese Company Registration No. 1724 CONTENTS ANNUAL REPORT 2019 2
Chairman’s Statement 4 RISKS 62
Contents Statement by the Management and the Board of Directors 6 Risks and Risk Management 63
Outlook 8
Bakkafrost at a Glance 10 GOVERNANCE 68
Key Figures 13 Corporate Governance 69
Main Events 14 Corporate Responsibility and Sustainability 71
Shareholder Information 73
STRATEGY 15 Directors and Management 74
Business Objectives and Strategy 16 Directors’ Profiles 75
Business Model 18 Group Management’s Profiles 77
Outline of Bakkafrost’s History 19 Statement by the Management The Value Chain 20 and the Board of Directors on the Annual Report 78
Independent Auditor’s Report 79 PERFORMANCE 31
Operational Review 32
Financial Review 37
Farming Segment - Faroe Islands (FO) 40
Farming Segment - Scotland (STC) 42
VAP Segment 44
FOF Segment 46
Market Review 49 CONTENTS ANNUAL REPORT 2019 3
FINANCIAL STATEMENTS AND NOTES FINANCIAL STATEMENTS – P/F BAKKAFROST 147 – BAKKAFROST GROUP 82 Contents P/F BAKKAFROST - Income Statement 149 Consolidated Income Statement 86 P/F BAKKAFROST - Statement of Financial Position 150 Consolidated Statement of Comprehensive Income 87 P/F BAKKAFROST - Cash Flow Statement 152 Consolidated Statement of Financial Position 88 P/F BAKKAFROST - Statement of Changes in Equity 153 Consolidated Cash Flow Statement 90
Consolidated Statement of Changes in Equity 91 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 154
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – BAKKAFROST GROUP 92 APPENDIX 162 NOTES - SECTION 1 BASIS OF PREPARATION 93 Quarterly Financial Figures 2017-2019 162 NOTES - SECTION 2 RESULTS FOR THE YEAR 96 Market Announcements Published in 2019 165 NOTES - SECTION 3 ASSETS AND LIABILITIES 107 Financial Calendar for 2020 166 NOTES - SECTION 4 CAPITAL STRUCTURE Glossary 167 AND FINACING ITEMS 132
NOTES - SECTION 5 OTHER DISCLOSURES 139 CHAIRMAN’S STATEMENT 4
REACHING FOR NEW HORIZONS is sustainable and responsible in any way. As an example of Chairman’s this commitment, we are proud that our new Biogas plant is 2019 has been an extraordinary year for Bakkafrost in sever- about to be finished and will begin operation in Q1 2020. This Statement al ways. Most predominant was the giant leap we took, when innovative and circular way of thinking resources will convert we decided to acquire The Scottish Salmon Company (SSC) and biological waste from our operation into clean energy, heating hereby diversify our farming operation into a new geography. and natural fertilizer to the local farmers. For us this is about The acquisition has increased the scope of Bakkafrost’s oper- creating profit for the environment, and the biogas plant will 3 ation significantly and brings new growth and development save the environment for 11,000 m of CO2 per year. opportunities to the Group. Sustainable sourcing of raw materials and sustainable farm- 2019 was also the first time since the listing of Bakkafrost on ing is also key to us. For our feed production, we only use Oslo Børs in 2010 that we raised new share capital. Existing sustainably certified raw materials. In regard to our farming share owners and new investors were very supportive to our operation, we are pleased to be well on our way to reach our plans to acquire SSC and we were able to raise over 5.1 billion 2020-goal of having 100% of our farming sites in the Faroe NOK for the acquisition. Islands ASC-certified.
2019 was also a year with exceptionally high price volatility 2016 marked the beginning of our large smolt strategy, which in the salmon market. Even though the salmon price fell by will enable sustainable organic growth, improve efficiency and around 40% during the 3rd quarter of 2019, Bakkafrost man- reduce the biological risk. Therefore, we decided to upscale our aged to navigate safely through this with only small effect on smolt production by building a new hatchery at Strond, later our financial results. This was in part due to our effective sales to be followed by the announcement of expansion plans for 3 strategy and to the unique veterinary system in the Faroe Is- other hatcheries. The Strond facility is now operational, and lands, allowing us to let the fish grow longer in the fjords when during 2019, we have released several batches of large smolts feasible and sustainable to the environment. from the hatchery. Gradually into 2022, we will be able to pro- duce 500g smolts for all our sites in the Faroese operation. We care about the environment, which is the precondition for a healthy operation in the long run. Preserving and respecting Since Bakkafrost took over the farming operation in Suðuroy our heritage, operating in a society so dependent on nature, in 2016, we have made large investments in our farming sites – it is essential that the balance with nature is right and sus- and harvest facility in Suðuroy. The operation is performing tainable. We are very much aware of the current and future well and contributing significantly to our harvest volume in challenge we face, to be able to feed the world’s growing pop- 2019. Alongside our large smolt strategy, the farming sites in ulation with safe and healthy food but without compromising Suðuroy play an important role in our organic growth strategy our planet. We strongly believe that salmon farming has an in the Faroe Islands. important role to play in achieving this due to the very low feed-to-food conversion factor and low carbon footprint. But Following the agreement with the Faroese Government to take the salmon farming must be sustainable. over the responsibility of the Faroese broodstock programme, RÚNI M. HANSEN we have made commitments in order to save and preserve Chairman of the Board We are more committed than ever to ensure that our operation the Faroese strain of the North Atlantic Salmon. Having been CHAIRMAN’S STATEMENT ANNUAL REPORT 2019 5
legislation allowing offshore farming on the east side of the Faroe Islands was passed by the Faroese parliament and we have used the past couple of years to evaluate this opportunity to be prepared for the release of licenses.
Our investments in the Faroe Islands as well as the invest- ments we will make in Scotland will play a significant role in Bakkafrost’s future business model and give opportunities for sustainable production growth, reduced biological risk and cre- ate value for our customers and shareholders.
RETURN TO SHAREHOLDERS Based on the good performance in 2019, the Board of Directors will propose a dividend of DKK 8.31 per share at the Annual General Meeting convened in April 2020. This corresponds to a total dividend of DKK 491.5 million.
THANK YOU TO OUR EMPLOYEES On behalf of the Board of Directors, I express our apprecia- tion to all Bakkafrost employees for the commitment and hard work in 2019.
farmed for over 40 years in the Faroe Islands, this unique strain the broodstock operation is a long-term investment, which we was facing extinction. Bakkafrost has the option to obtain the are convinced will create value for Bakkafrost. genome rights in 2021, and we are building a new state of the art broodstock facility to secure future broodstock operation Looking ahead, we believe that offshore farming will be feasi- based on this strain. In the meantime, we are pleased to have ble and also a natural next step in the Faroe Islands for Bakka been able to deliver roe for this unique strain to our hatcheries frost. We see it as a growth potential, where we can capitalize and looking forward to being self-sufficient. The investment in on synergy effects with our existing value chain. In 2019, the STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2019 6
A YEAR MARKED BY DISRUPTIONS, At the end of the third quarter, the spot price fell to the low- Statement by VOLATILITY AND NEW OPPORTUNITIES est level since 2015. The monthly average prices in Septem- ber were as low as 49.89 NOK/kg. This price drop was partly the Management The first quarter of 2019, was very much affected by restrict- driven by an oversupply of smaller sized salmon into the ed access to the Russian market. In November 2018, Bakka market. This oversupply was mainly caused by a combina- and the Board frost’s access to the Russian market was suddenly closed, and tion of strong biological growth in Norway during the sum- we were not allowed into the Russian market again until late mer and increasing biological issues in several regions in the February 2019. The timing of the market ban was very un- third quarter. of Directors fortunate for Bakkafrost, as we had decided to be low on VAP contracts in 2018 and had around one third of the volume The low salmon prices remained into the fourth quarter, set aside for the Russian market. When the Russian market where the consequences of 40-45,000 tgw lost salmon in then was closed for Bakkafrost in November 2018 we, were Norway in May, which was caused by an algae bloom, drove suddenly forced to find new customers and channels for the prices upwards again. By the end of 2019, the spot price volume that otherwise would have been sold to Russian cus- (weekly average) was the highest since 2016 and December tomers. This had a significant negative effect on our achieved 2019 was 18% up, compared to December 2018. In 2019, prices in both the fourth quarter of 2018 and in the first the spread between the highest and lowest monthly average quarter of 2019. spot price during the year was 20.53 NOK per kg.
During 2019, Bakkafrost increased the contract levels, com- 2019 was an eventful year for Bakkafrost – the main event pared to the exceptionally low contract shares in 2018. being the acquisition of around 96% of the shares in The Hence the VAP segment’s production increased in 2019 to Scottish Salmon Company (SSC). We are very excited about 16,690 tgw, compared to 8,355 tgw in 2018. The percentage the future possibilities this will bring to Bakkafrost. We know of total harvest used in the VAP production was 29% in 2019, this will require effort to improve the operational perfor- compared to 19% in 2018. The contract prices also increased, mance of SSC and bring all the potential synergies into play and the margin for the VAP segment was significantly im- but are confident that we will succeed together with our com- proved, compared to 2018: The operational EBIT/kg for the mitted and highly competent employees in the Faroe Islands VAP segment was 3.82 DKK/kg in 2019, compared to -2,68 and Scotland. From Q4 2019 and onwards, the results from DKK/kg in 2018. SSC are consolidated into the Bakkafrost Group’s accounts.
The average salmon spot price for 2019 was slightly higher Bakkafrost’s DKK 3 billion investment programme for the than in 2018. However, the price was very volatile during period 2018-2022 targeting the Faroese operation is un- the year. The spot price in the beginning of 2019 was strong, changed by the acquisition and well underway. The overall compared to the beginning of 2018. January 2019 was 9,5% purpose with the programme, to reduce biological risk, in- up, compared to January 2018, and the first quarter of 2019 crease efficiency and to build capacity for 100,000 tonnes was 4% up, compared to Q1 2018. in the Faroe Islands, is still the goal. One of the milestones of the investment programme was the construction of the new In the middle of the second quarter, the prices suddenly dropped hatchery at Strond, which released the first batch of smolts and remained low (-5%), compared to the second quarter of 2018. in August 2019. During H2 2019, the production has been STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2019 7
ramped up and by year end the hatchery was contributing significantly to Bakkafrost’s large-smolt strategy.
Investments will also be needed in the newly acquired Scot- tish operation, and we have announced our expectation to make investments in SSC of around DKK 350 million per year for the next 5 years.
The Group’s operational EBIT was DKK 1,325 million for 2019, compared to DKK 1,075 million for 2018. The in- creased operational EBIT was mainly due to higher harvested volumes in the farming segment and SSC contributed DKK 18 million to the Group’s operational EBIT.
In 2019, the farming segment harvested 57,184 tgw in the Faroe Islands and 7,925 tgw in Scotland, compared to 44,591 tgw in 2018. This corresponds to an increase of 28% excluding the harvest volume in Scotland. The harvest in the farming segment is dependent on available farming sites with fish at to 2018. Fish oil prices were still lower than the price level In 2019, Bakkafrost refinanced the bank facilities for the the aimed harvest weight and the general biological situation. in 2015 and 2016. entire Group, including SSC. The 5-year facilities include a The biological performance in the Faroe Islands has been very EUR 352 million facility (plus a EUR 150 million accordion strong in 2019 with strong growth and low mortality. In our farming operation, the mechanical treatment strategy option) and a GBP 100 million facility for SSC. The Bakkafrost has shown good results. Since 2017, we have not used chem- Group’s interest-bearing debt amounted to DKK 1,019 million The raw material intake in the FOF segment was 278,664 ical bath treatments to combat sea lice, and the investment in at the end of 2019, compared with DKK 495 million at year- tonnes in 2019, compared to 302,465 tonnes in 2018. The well-equipped farming supply vessels with specialized and end 2018. The Group had undrawn credit facilities of DKK production of fishmeal and fish oil was consequently lower dedicated crews for doing treatments provides good results. 2,470 million at the end of 2019. in 2019, compared to 2018. The feed sale increased 25% and In 2019, we have had very low sea lice levels and good bi- amounted to 97,408 tonnes in 2019, compared to 77,775 ological performance. Together with the use of cleaner fish, The Bakkafrost Group made a profit of DKK 802 million for tonnes in 2018. The EBITDA margin in 2019 was 19,9%, com- the arsenal of mechanical treatment methods available on- 2019, compared with DKK 960 million for 2018. Bakkafrost’s pared to 20,0% in 2018. board the farming supply vessels have been sufficient to equity ratio was 65% at the end of 2019, compared to 70% keep sea lice levels under control and with even lower mor- at the end of 2018. Bakkafrost paid out DKK 403.1 million Havsbrún started production of salmon-meal and salmon oil tality rates than before. in dividends in the second quarter of 2019, corresponding to in its new production facility at the end of 2018. This pro- DKK 8.25 per share. duction is expected to increase the value of the offcuts in our In 2019, Bakkafrost acquired a new building for the opera- salmon production. tion in New Jersey, USA. This will allow for increased activity The management of Bakkafrost and our dedicated and talent- in the US operation and make it possible to develop new ed employees look forward to an exciting year ahead of us. Feed costs – representing around 50-60% of the costs in a products and services to our customers in the target area kilo of salmon – have increased slightly in 2019, compared around New Jersey OUTLOOK ANNUAL REPORT 2019 8
MARKET Outlook The global supply of Atlantic salmon increased around 3% in Q4 2019, compared to Q4 2018, according to the latest estimate from Kontali Analyse.
In Q1 2020, the global harvest of Atlantic salmon is expected to increase around 1%, compared to Q1 2019. The estimated global harvest of Atlantic salmon for 2020 is an increase of around 4%, compared to 2019.
Bakkafrost operates in the main salmon markets, Europe, USA, the Far East and Russia. During 2019, variation in sales distribution between the different markets is driven by the change in demand from quarter to quarter in the different re- supply vessels for mechanical delousing and mechanical gions. Bakkafrost, however, aims to have a balanced market cleaning of nets in the pens. During 2019, Bakkafrost’s spe- diversification to reduce market risk. cialized crews onboard these vessels have further refined their skills and methods resulting in improved fish welfare. It is worth noting, that the disturbance caused by the Corona virus (COVID-19), could impact our operations, as well as our The quality and performance of the smolts have also in- customers and suppliers, with significant financial and other creased significantly, and there are clear signs that the large consequences. As an example, the COVID-19 has caused dis- smolt and non-medical delousing strategies are working turbance to our sales into China, and any further disturbanc- successfully in the Faroe Islands. Looking ahead, Bakkafrost es can grow to have a significant impact for the Group. will extend these strategies into the farming operation in The Scottish Salmon Company. FARMING The outlook for the farming segment in the Faroe Islands Overall, the biological performance in the Faroese operation is good, and the overall operational performance is very has been strong during 2019 with good growth and low mor- good. There are many possibilities in the Scottish opera- tality rates. tion, it will, however, take time to transform its operational performance. The estimates for harvest volumes and smolt Bakkafrost has in the Q4 2019 report guided on an expect- releases in both geographies are dependent on the biologi- ed harvest for 2020 of 57,000 tonnes gutted weight in the cal development. Faroe Islands. But on 28 February 2020, a severe storm hit the Faroe Islands. The four-day storm caused damage on two Bakkafrost focuses on reducing biological risk continuously of Bakkafrost’s farming sites in the South Island (Suðuroy); and has made several new investments and procedures to A23 Hvalba and A15 Froðba. In total, Bakkafrost lost around diminish this risk. Bakkafrost focuses on using non-medical 1 million fish with an average weight of 2.1 kg. This inci- methods in treatments against sea lice and has invested in dent is expected to reduce the harvest in 2020 in the Faroe new technology to follow this strategy, including farming Islands by 5-6,000 tonnes gutted weight, reducing the ex- OUTLOOK ANNUAL REPORT 2019 9
pected harvest in 2020 to 51-52,000 tonnes gutted weight. Havsbrún has increased the expectation for sales of fish feed FINANCIAL In Scotland the expected harvest in 2020 is 35,000 tonnes in 2020 to be at 110,000 tonnes, depending on external Favourable market balances in the world market for salmon gutted weight. sales. products and cost-conscious production will likely maintain the financial flexibility going forward. Farming SCT has signed contracts for around 32% of the ex- The major market for Havsbrún´s fish feed is the local Far- pected harvest volumes in Farming SCT in 2020. These con- oese market including Bakkafrost FO’s internal use of fish During Q4 2019, Bakkafrost refinanced its bank facilities tracts usually last for 12 months. feed. amounting to EUR 352 million with a further accordion op- tion of EUR 150 million. In addition, bank facilities amount- Bakkafrost expects to release 15.0 million smolts in 2020 in BIOGAS ing to GBP 100 million were ensured to refinance The Scot- the Faroe Islands, compared to 12.7 million smolts in 2019 Bakkafrost’s new biogas plant is about to be finished and tish Salmon Company. Bakkafrost also issued shares in Q3 and 12.6 million smolts in 2018. The smolt release in Scot- will begin operation in Q1 2020. This innovative and circu- and Q4 2019 amounting to NOK 5,142 million to finance the land is expected to be 10.7 million smolts in 2020, com- lar way of thinking resources will convert biological waste acquisition of The Scottish Salmon Company. pared to 12.4 million smolts in 2019 and 8.6 million smolts from the farming operation into clean energy, heating and in 2018. The number of smolts released is a key element of natural fertilizer to the local farmers. Annual capacity will A high equity ratio together with Bakkafrost’s bank financ- predicting Bakkafrost’s future production. be 90-100,000 tonnes of waste conversion, corresponding to ing, makes Bakkafrost’s financial situation strong. This ena- an annual production of 45-50,000 tonnes of natural liquid bles Bakkafrost to carry out its investment plans in the Far- VAP (VALUE ADDED PRODUCTS) fertilizer, providing heat for 400 homes and electricity for oe Islands as well as in Scotland, hereby strengthening the Bakkafrost has signed contracts covering around 40% of the 1,900 homes with the current input predicted. The biogas Group, enabling M&A’s and organic growth opportunities as expected Faroese harvest volumes in Q1 2020 and 30% of plant is estimated to save the environment for 11,000 m3 well as to fulfil its unchanged dividend policy in the future. the harvest volume for 2020. Bakkafrost’s long-term strat- CO2 per year. egy is to sell around 40-50% of the Faroese harvested vol- umes of salmon as VAP products at fixed price contracts. INVESTMENTS The VAP contracts are at fixed prices, based on the salmon Bakkafrost’s investment programme for the period from 2020 Fig. 1 forward prices at the time they are agreed and the expecta- to 2022, excluding investments in The Scottish Salmon Com- tions for the salmon spot price for the contract period. The pany, will amount to around DKK 1.8 billion, including main- INVESTMENT PLAN (mDKK) contracts last for 6 to 12 months. tenance capex, and will reinforce Bakkafrost’s integrated busi- 765 ness model and ensure a capacity across the value chain to FOF (FISHMEAL, OIL AND FEED) be able to produce 100,000 tonnes gutted weight of salmon 590 The outlook for the production of fishmeal and fish oil is in the Faroe Islands. The aim of the investment programme is dependent on the availability of raw material. to minimize the biological risk, increase efficiency and create 390 sustainable organic growth. Bakkafrost’s focus on producing The ICES 2020 recommendation for blue whiting is 1,162 larger smolts plays a key role in achieving this goal. thousand tonnes, which corresponds to an increase of 2%, compared to ICES’s recommendation for 2019. In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments Bakkafrost expects a decrease in production volumes of fish- of around DKK 350 million per year for 2020-2024 in The 2020 2021 2022 meal and fish oil in 2020, compared to 2019. Scottish Salmon Company. Broodstock Smolt Farming VAP FOF BAKKAFROST AT A GLANCE ANNUAL REPORT 2019 10
Bakkafrost at a Glance
FAROE ISLANDS
Headquarters, Sales
Fishmeal, Fish oil & Fish feed
Broodstock, Hatcheries & Farming
Harvest & Processing
Farming Service Vessels, Packaging & Biogas
SCOTLAND Adminstration, Sales ENGLAND Broodstock, Hatcheries & Farming Sales Harvest & Processing
UNITED STATES OF AMERICA
Sales
Processing
LEGEND TO MAP SYMBOLS BAKKAFROST Salmon, packaging, fishmeal, fish oil and fish feed producer FISHMEAL BROODSTOCK HARVESTING FSV (FARMING SERVICE VESSELS) Location: Faroe Islands
Headquarters: Glyvrar, Eysturoy FISH OIL HATCHERIES PROCESSING PACKAGING Production and business-to-business sale: salmon, fishmeal, fish oil and fish feed
Longest integrated value chain in the industry FISH FEED FARMING SALES BIOGAS Listed on: Oslo Børs with ticker code BAKKA BAKKAFROST AT A GLANCE ANNUAL REPORT 2019 11
Facilities and locations
FAROE ISLANDS SCOTLAND
HAVSBRÚN
BAKKAFROST HEADQUARTERS
Map excludes farming sites not in operation in 2019 EDINBURGH OFFICE
Faroe Islands
Scotland
Operations under construction ANNUAL REPORT 2019 12 KEY FIGURES ANNUAL REPORT 2019 13
Fig. 2
(DKK 1,000) Key Figures Income Statement 2019 2018 2017 2016 2015
Operating revenues 4,511,107 3,177,422 3,770,049 3,202,686 2,850,363 Operational EBIT * 1,325,100 1,074,912 1,377,647 1,164,953 1,000,583 Operational EBITDA * 1,635,215 1,273,810 1,561,237 1,298,214 1,108,681 Earnings before interest and taxes (EBIT) 1,019,217 1,184,233 649,104 1,673,587 928,758 Earnings before taxes (EBT) 981,916 1,172,066 623,884 1,632,614 924,471 Net earnings 801,885 960,292 511,402 1,338,887 810,175
Earnings per share before fair value adjustments of biomass and provision for onerous contracts (DKK) 19.04 16.44 21.08 17.57 17.16 Earnings per share after fair value adjustments of biomass and provision for onerous contracts (DKK) 15.53 19.74 10.52 27.56 16.69
Statement of Financial Position Total non-current assets 8,632,516 3,396,036 3,023,807 2,567,212 1,957,061 Total current assets 4,468,889 2,406,487 2,131,709 2,850,904 1,963,325 TOTAL ASSETS 13,101,405 5,802,523 5,155,516 5,418,116 3,920,386
Total equity 8,496,875 4,077,029 3,626,429 3,549,035 2,580,482 Total liabilities 4,604,530 1,725,494 1,529,087 1,869,081 1,339,904 TOTAL EQUITY AND LIABILITIES 13,101,405 5,802,523 5,155,516 5,418,116 3,920,386
Net interest-bearing debt 1,018,685 495,479 258,070 635,266 391,743 Equity share 65% 70% 70% 66% 66%
*Aligned for fair value adjustments of biomass, onerous contracts provision, income from associates and other non operating related adjustments MAIN EVENTS ANNUAL REPORT 2019 14
November • Bakkafrost is announced as a finalist Main Events at Edie’s Sustainability Leaders Awards 2020 in the Sustainability Reporting & Communications category. May July September • Two of Bakkafrost’s • Contract is signed • Bakkafrost signes a share • Bakkafrost puts forward a Mandatory Offer farming sites, A-21 to acquire a new purchase agreement for 68.6% for the remaining shares in The Scottish Hvannasund Suður and production facility in of the shares in The Scottish Salmon Company. A-73 Hvannasund Norð, New Jersey, US, to Salmon Company. are ASC certified so far host Bakkafrost US’ • Bakkafrost’s farming sites A-05 Undir Síðu March this year. growing activity. • The share capital is increased and A-81 Kolbanagjógv become ASC certified. • Bakkafrost with 4,800,000 issued shares. launches its second • Bakkafrost signs the • The farming site A-06 • Bakkafrost wins the 2019 Faroese sustainability first ASC-only contract in Gulin is ASC certified. • The farming site A-19 Vágur is Business Initiative award for the Biogas report. China with retailer Hema. ASC certified. plant, Förka.
December • Two of Bakkafrost’s farming sites, A-18 Hov and A-85 Nes, are ASC certified. October • Bakkafrost acquires the • Bakkafrost refinances the majority of the shares entire Group with a EUR in the Scottish Salmon 352 million facility and a Company. EUR 150 million accordion option for the Group, plus April • Extraordinary General a GBP 100 million facility • The annual general meeting June Meeting approves for The Scottish Salmon approves a dividend of • The second Capital Markets Day is further share issue. Company. DKK 8.25 per share. held in the Faroe Islands. August • The new hatchery at • Share capital is • The share capital is • Bakkafrost appoints a new • First release of smolt to the new Strond delivers its increased with increased with 869,756 CFO. farming site A23 Hvalba. first batch of smolts. 4,615,179 issued shares. issued shares. STRATEGY STRATEGY 15 STRATEGY and Strategy Business Objectives BUSINESS OBJECTIVES ANDSTRATEGY other potential prospects for growth. opment infeed, farming, production andsales, inadditionto We strive for acontinuous market driven increase anddevel • tives are: Today, to achieve this. munities inwhichwe operate, we willbeinabetter position ness, ourpeople, oursalmon,theenvironment andthecom Weing. recognize thatby investing inthehealthof ourbusi workforce, andcollective socialandenvironmental wellbe capability andreputation of thebusiness, thequalityof our extends Our strategy isfocused onsustainable value creation. This farming group. a healthy, attractive andcompetitive cost-conscious salmon back to 1968,andsince then,ourpriorityhasbeento run Bakkafrost’s experience withintheseafood industry dates ty acids. tainably andresponsibly produced protein andessential fat class salmon to meet the world’s growing demand for sus salmon industry. Our mission is to produce healthy world- Bakkafrost’s visionisto beaworld-class company in the DEVELOPMENT &GROWTH To beaworld-class company our beyond in thesalmonindustry seven VISION healthy financial financial and non-financial
returns, to strategic the To produce healthy world-class strength, objec MISSION ------salmon view to findthebest solutions. promoting dialogue andmakingroom for different points of We are dedicated to creating aninteresting place of work, • progress in2019. bakka wellbeing of thesalmon. See oursustainability report www. on inasustainable environment securingthewelfare and areas of vital importance to us.We aim at farming salm Fish • our progress in2019. www.bakkafrost.com/sustainability for more information on a cost-conscious production. Seeoursustainability report crease inproduction, whilebalancinganimalwelfare and We are committed to securingalong-term sustainable in • quirements of ourcustomers. We aimatdelivering products that match orexceed there • petitive advantages throughout thevalue chain. feed We are dedicated to optimizing thetotal value chain–from • ATTRACTIVE COMPANY CULTURE BIOLOGICAL SECURITY SUSTAINABILITY FOOD SAFETY &TOP QUALITY &CREATINGEFFICIENCY VALUE health, to frost.com/sustainability for more information onour finished fish product welfare – and To beresponsible, respectful, and persistent, efficient and the utilizing prevention VALUES ambitious ANNUAL REPORT 2019 the benefits of diseases of com are - - - - 16 STRATEGY BUSINESS OBJECTIVES ANDSTRATEGY our sustainability report. strategic objectives withourHealthy LivingPlan,outlined in In 2020,we willreview ourcorporate strategy andalignour cient andambitious. ing value for ourcustomers, shareholders and thesociety by act our Our core values, whichsupportourperformance andguide growth strategy. tributing to thesociety andcontinue pursuing thecompany’s customers andshareholders. Furthermore, we aimatcon shape ouractions withthepurpose of creating value to our of healthy andnutritious salmonproducts. These priorities sition inthemarketplace asareliable partnerandsupplier We are focused onmaintaining andstrengthening ourpo • SALES &MARKETING responsibly, behaviour, reflect showing our respect, commitment and being to creating persistent, long-term effi - - - - ANNUAL REPORT 2019 17 STRATEGY BUSINESS MODEL and thecosts of production. and responsibility over allaspects of production. Thisenables Bakkafrost to have optimal control over thequalityof its salmon Bakkafrost isprobably themost vertically integrated salmonfarming company intheworld, whichgives Bakkafrost fullcontrol Business Model Fig. 3 Fig. Geographical Diversification Shareholder Capital Natural Resources Skilled Workforce Pristine Waters RESOURCES Licences VALUE CHAIN SALES/MARKETING PACKAGING PROCESSING HARVESTING FSV FARMING BIOGAS HATCHERIES BROODSTOCK FISH FEED FISH OIL FISHMEAL Longest integrated value chain Sustainable fishmeal, fish oil CORPORATE STRATEGY Optimal farming conditions Lower than average feed High levels of Omega 3 in thesalmonindustry HOW WEDIFFER conversion ratio and fishfeed High quality Provenance Heritage
SUPERIOR QUALITY SALMON Community investments VALUES CREATED Shareholders returns Satisfied employees Satisfied customers Tax contributions ANNUAL REPORT 2019 18 STRATEGY please visitwww.bakkafrost.com/about/history For more details onBakkafrost’s history, OUTLINE OFBAKKAFROST’S HISTORY Bakkafrost’s History Outline of
rope andtheUSA. is now owned by international investors from allover Eu er base. Inadditionto local Faroese investors, thecompany Bakkafrost islisted onOsloBørs andbroadens its sharehold materials to finishedVAP products andSales. from Bakkafrost Group isanintegrated farming company, ranging farming company withaharvest factory inKollafjørður. The remunerated inBakkafrost shares. TheVestlax Group isa the companies. Vestlax Group’s shareholders agree to be The shareholders of Bakkafrost andVestlax agree to merge 2010 eration increases significantly, both onlandandatsea. ers withseveral farming companies. Bakkafrost’s farming op The Bakkafrost Group grows through acquisitions andmerg 2006 production. low, thisisBakkafrost’s starting pointof value-added salmon ar. Althoughtheinvestment islimited andthecapacity is Bakkafrost buildsafactory for value addingsalmonatGlyvr 1995 companies intheFaroe Islandsto doso. Bakkafrost 1979 company in1971. the sameyear. Thethird brother, MartinJakobsen, joinsthe Hans The Bakkafrost business isestablished by thetwo brothers 1968 smolt and Róland production, starts Jacobsen. fish farming fish farming, The activities first production processing – one of plant of packaging the is built first - - - - assets intheUS salmonimporter NorthLanding. ation. Bakkafrost closes theacquisition of thebusiness and programme. Bakkafrost’s new hatchery atStrond starts oper Bakkafrost starts theintegration of theFaroese broodstock 2018 FSVs MartinandRóland start operation. ities inSeptember. in Bakkafrost’s new harvest/VAP factory andtheheadquarters 2017 operation andaimsatproducing 500grams smoltby 2020. the same goals as in 2013. Bakkafrost enhances the onshore Bakkafrost 2016 growth andto reduce thebiological risk. the Bakkafrost 2013 ed intheFaroe Islands. renowned Bakkafrost acquires P/FHavsbrún, amodern,internationally 2011 Glyvrar onshore are producer announces updates operation finished. of a its fishmeal, new The more five-year public five-year efficient, fish is investment invited oil investment ANNUAL REPORT 2019 and to increase to fish visit plan feed, plan the to organic situat make facil with - - - 19 STRATEGY of harvested fish. availability Both customers andprocessing facilities dependonadaily traceability value chainisconsidered important to ensure availability, and own The Bakkafrost Group controls theentire value chainfrom THE VALUE CHAIN The Value Chain Fig. 4 Fig. marketing production of and salmon of to of finished EAL be fishmeal, able and VAP depend to fish control products. O L oil entirely the and Control product fish on a feed of EE steady flow the to entire daily. sales flow ROO TO party to ensure thequalityandpredictability of thedeliv tomer relationships without beingdependentonanythird enter into long-term delivery contracts andlong-term cus The control of theentire value chainenables Bakkafrost to important to Bakkafrost. isimportantthe salmoneggs for thecustomers andtherefore the ing of thesalmon.Thedocumentation andtraceability from tion, from production of fishmealandfishoil The qualityof thesalmonisresult of thewholeopera finished AT ER E product back to O A the raw material AR N in to theprocess the feed and - - - - Processing andSales. ue chain;Broodstock, Hatcheries, Farming, FSV, Harvesting, and a considerable addition to the following parts of our val quired were added to thevalue chain. And in2019, Bakkafrost ac chain onanongoing basis.In2018,broodstock andbiogas Bakkafrost continues to improve, adjust andextend thevalue between cost centres. throughout thevalue chainandprevents sub-optimization eries. It further enables better utilization of the facilities AR E T N The Scottish PRO E N Salmon Company, PA A N which ANNUAL REPORT 2019 is ALE AR ET N a good fit to - - 20 STRATEGY THE VALUE CHAIN All conditions for thesalmoninourfarming operations. position inourfeed provides afoundation for good growth species fishmeal fishmeal rials, Havsbrún is uniquely situated to select the very best As in theNorthAtlantic. fish The and contains theessential long-chain omega-3 fatty acids. ingredient with fishmeal, quality technology together withour standard anddemandsto high trimmings of species. meal Bakkafrost FISHMEAL, FISHOILANDFEED 5 Fig. EAL fish producers the processing fish a and balanced fish destined fish of In material and and fish fish and fish addition in sources oil material fish fish fish of oil fish used on oil. factories for amino our origin and oil oil which feed. This silage. fish to O L in direct in for enables own whole fish our acid our materials Fish is is as wild our The high-quality mainly mainly human dietary feed. well feed profile fish, oil feed salmon us combination as is to Fishmeal comes we for production. from based consumption a composition foreign EE manufacture which great also the feed. fish Faroese from on production utilize makes is vessels source of The feed various rich the our Moreover, dietary undergoes such co-products vessels top-quality very processing raw it in of ROO TO operating an of protein pelagic energy as mate same com ideal fish and fish the a - - - ture, supplyingtheend customers withasuperiorproduct. nutritional profile to feed, aimingatkeeping thesalmon’s diet asclose aspossible Bakkafrost on inthemarketplace. frost salmon’s position asoneof thehealthiest farmed salm more Bakkafrost wants, however, to differentiate its salmoneven on from theFaroe Islands are far below allassigned limits. that thelevels of these environmental pollutants inthesalm to made by theFaroese Food andVeterinary Authority –prior environmental pollutants are strictly regulated. Routine tests detected inavariety of foods. Limits for thecontent of these and Dioxin-Like-PCBs (DL-PCBs). Dioxin andDL-PCBs can be carbon AT ER E the cleaning by natural has cleansing cleaning profile, has measurable the diet invested fish filtration the which O A of oil the fish for benefits. gives in wild oil, to environmental a minimize high and the salmon. The salmon thus AR N marine salmon Bakkafrost’s strengthening the a pollutants profile better content has meat a in of healthier fish the – Bakka Dioxin struc show feed fish - - -
AR E T N • • •
700 tonnes of fish feed daily capacity 300 tonnes of fishoildaily capacity 450 tonnes of fishmealdaily capacity PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 21 STRATEGY 300 families for eachyear ina4-year generation interval. the remaining Faroese salmon.1,200families were created, support from theGovernment of theFaroe Islands,using The breeding programme was resurrected in2016with with ahighly-skilled team of employees. sary conditions for theprogramme to befullydeveloped new site ontheislandof Sandoy, willprovide the neces programme. Theinvestment into new infrastructure ata oe Islands,whichhasbeenbuiltupover theyears withthe salmon –but alsoprotect theintellectual capital intheFar more resilient roe –reducing risks of diseaseinfarmed The programme will enableaccelerated development of longest integrated value chain intheindustry. imize biosecurity, breeding andgenetics, andto have the The broodstock programme ispartof ourstrategy to max has theoption to obtain thegenome rights in2021. sibility of theFaroese broodstock programme. Bakkafrost In April2018,Bakkafrost took fullownership andrespon Native Faroese broodstock programme BROODSTOCK THE VALUE CHAIN The selective breeding programme isusingtargeted mating Fig. 6 Fig. EAL O L EE ROO TO - - - - to increase to peryear. 10millioneggs pacity to produce withproposed 6millioneggs investment The Native Hebrideanbroodstock programme hastheca sourced arrangement withathird party. facility inNorthUist withbroodstock reared underanout The broodstock programme ismanaged from ourLangass ticeably firmersalmonthanother Atlantic salmon. Hebridean waters whichresults inastrong, leanand no salmon, originallybred from wildstock andfarmed onlyin an broodstock programme producing pure Scottish Island In Scotland, theGroup operates auniqueNative Hebride Native Hebrideanbroodstock programme ity anddiseaseresistance. to concentrate thefollowing important traits: growth, qual AT ER E O A AR N
- - - - - AR E T N • • • •
Native Hebrideanbroodstock annual New Native Faroese broodstock facility in Native Faroese genome rights in2021 Native Faroese broodstock programme capacity to produce 6millioneggs Skálavík in2022 taken over in2018 PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 22 STRATEGY large quantities of cleanfresh water, where no villages or Bakkafrost’s hatcheries are located inenvironments with resources to improve product qualityandperformance. selected to Bakkafrost’s high-qualityeggs, strategy isto from buy eggs diseases of The new broodstock facility willbefullyoperational in2023. capability stock production. Thiswillincrease going forward. Bakkafrost’s In 2018, Bakkafrost started implementing part of our own brood of eggs. the Bakkafrost purchases externally. salmoneggs Thecapacity of 15 millionsmolts at260gperyear. of 220gfor annualrelease. Thiswillincrease during2020to production capacity of 12 million smolts at an average weight The Bakkafrost Group operates sixhatcheries withatotal Hatcheries intheFaroe Islands HATCHERIES THE VALUE CHAIN there isnoground water available intheFaroe Islands.The industries are competing for thewater. as Thisisimportant, Fig. 7 Fig. the EAL suppliers vitality best external is to an genetic of produce is important the sufficient suppliers fish properties O L eggs is property to important. will that meet is increase invest vital. the of EE the Therefore, current The significant significantly fish. fish’s To and ensure the resistance future efforts ROO TO when selection access need and the to -
2022/2023. ery sites inNorðtoftir andGlyvradalur to beginoperation in Suðuroy, and by increasing the capacity of our current hatch will the capacity of thehatcheries by atotal of 30,000m In January2019,Bakkafrost announced theplanto increase volumes from 2020/2021. investment programme willgradually appearinharvested in full operation from 2020. The capacity growth from this started anew batch every 3monthssince thenandwillbe hatchery atStrond started operation inJune2018andhas on theother hatcheries, isanimportant partof thisplan.The new production timeatseaaswell asreduced biological risk.The age weight of 400grams by 2021.Thebenefits are ashorter Bakkafrost aimsatproducing allsmolts for release atanaver 2019 andwillbesomewhat higherin2020,around 260g. The gists working onandwiththehatcheries. at thehatcheries for alongtime, andthere are several biolo very experienced; manyof theemployees have beenworking birds andother pollution. Theworkforce inthehatcheries is order to limittheeffect of external factors, suchasweather, tems hatcheries are equippedwithclosed water circulation sys AT ER E average be hatchery with achieved biofilters, weight at Strond, by O A and of building released the Klaksvík, fish a new tanks smolt and AR N hatchery the are was inside extended around at buildings Ónavík building 205g 3 . This in in in - - - -
AR E T N • • • million smolts withan average size of just over 90g. The annualcapacity of ourhatcheries inScotland iscirca 8 during 2020to expand in-housesmoltproduction. hatcheries In Scotland, theBakkafrost Group operates 11freshwater Hatcheries inScotland expected to beginoperation in2023. nual production capacity of around 3millionsmolts andis The
New hatchery atÓnavík intheFaroe Islands Increased capacity atNorðtoftir and The new hatchery atStrond intheFaroe capacity to beginoperation in2023 with additional3million smolts annual 2022/2023 Glyvradalur intheFaroe Islandsfrom Islands fullyoperational by year-end 2020 new hatchery with PRO E N an at investment Ónavík in Suðuroy PA A N of DKK ANNUAL REPORT 2019 has 45 an million ALE AR ET N expected planned an -
23 STRATEGY runoff into fjords. fertilizer’s higher absorption potential isexpected to decrease redistributed to farmers across theislands,free of charge. The 50,000 As on theequivalent fossil fuelreplacement) annually. This isprojected to save 11,000tonnes of CO homes withthecurrent input predicted. enough renewable heatfor 400homes andelectricity for 1,900 90-100,000 tonnes annuallyof allwaste from farms, providing When in operation, the plant has the capacity to convert up to gestate (whichisusedasfertilizer). latter whichisusedfor renewable production), energy anddi converted into biogas, namely carbon dioxide andmethane (the bic digestion. Uponcompletion of thisprocess, thebiomass is matter inthebiomass into smaller molecules through anaero and fertilizer. The process works by breaking down theorganic and The new biogas plantwillusewaste products from ourfarms BIOGAS THE VALUE CHAIN The renewable produced, energy will feed into the national grid, Fig. 8 Fig. EAL well other tonnes as fish producing and of natural dairy O L renewable farmers liquid fertilizer to energy, produce EE annually, it 2 renewable emissions (based emissions (based will which produce ROO TO energy will 45- be - -
• • • ulate sustainability through other industries. which reduce waste, reduce andavoid CO2 emissions, andstim This includes advancing circular solutions suchasthisone, to meet thegrowing demandfor sustainably produced protein. Our expected to beoperational in Q12020. Construction of thebiogas plantstarted in 2019 andtheplantis 49%. electricity from renewable sources by 2030,whichin2018was contributing to theFaroe Island’s nationaltarget to have 100% AT ER E
45-50,000 tonnes of natural liquidfertilizer 90-100,000 tonnes of waste conversion New biogas plantoperational inQ12020 annual estimated production annual capacity ambitious investment O A strategy focusses AR N on efficient growth -
AR E T N PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 24 STRATEGY THE VALUE CHAIN VAP production. in is considered to provide an optimal breakdown/mix of sizes up months. the The Suðuroy started operation in2019. steady sea temperatures. The new farming site in Hvalba in water qualityandcirculation dueto strong currents andcool tend Bakkafrost’s 19salmon farming sites inoperation in2019ex Farming intheFaroe Islands best environmental and sustainable farming results possible. becomes input data usedinthetactical planningto achieve the agencies at each farming location. The result of each survey ronmental investigations are undertaken eachyear by external environment and therefore does its utmost to create andmaintain ahealthy this goal, Bakkafrost believes theenvironment isimportant, at alow feed conversion rate andwithlow mortality. To reach The maingoal of thefarming operation isto produce salmon FARMING Fig. 9 Fig. order EAL to fish fish across target During with is to kept, serve 17 weight for abundant of this fed the the both of period, and O L fish. islands’ about the space nurtured Following fresh the 6.0–6.5 fjords to fish fish grow in and grows national kg EE large market wfe. for benefit sea from a This regulations, period and pens, from around target the ROO TO providing of excellent internal weight 16–18 200g+ envi - -
new generation isreleased After 90g upto average target weight of about 5.0kg wfe. 18-24 the The licence volume. Hebridean natural environment of the West Coast of Scotland and the The Bakkafrost Group operates 42 marine sites intheunique Farming inScotland generation isreleased. harvested, thefjord isset asidefor 2–4monthsbefore anew in aseparate fjord, andafter alllocations inafjord have been During theentire production period,eachgeneration iskept is monitored continuously. The smaller As AT ER E a fish fish fish rule, total months. fish are with is the harvest kept, Islands fed are abundant larger During several fed used the O A with and fish as this site times space nurtured 66,500 raw are period, is distributed set a material to day, aside tonnes grow in the AR N and large fish for in for the of as the 2+ sea a grows current fresh feed period months VAP pens, consumption from fish production. of permitted providing before and around around the a
AR E T N • • •
New farming site inHvalba intheFaroe 42 farming sites inoperation across theWest 19 farming sites inoperation across 17fjords Islands started operation in2019 Coast of Scotland andtheHebrideanIslands in theFaroe Islands PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 25 STRATEGY • • • equipped withthelatest technology andboth withclosed wfe) harvest: smolt The sels: Four live fishcarriers andtwo service vessels. Bakkafrost´s FSV intheFaroe Islands FARMING SERVICE VESSELS (FSV) THE VALUE CHAIN
Fig. 10 Fig. EAL New farming service vessel to support 7 farming service vessels (including3live fish 6 farming service vessels (including4live fish biosecurity strategy in2022 vessels) inScotland carriers, 2large workboats and2treatment Faroe Islands carriers), 53boats and23feed barges inthe live and transport One one fish medium FSV large carrier and fleet live O L two fleet size in fish vessels the live again carrier Faroe fish for consists (3,500m carrier Islands EE transportation (660m of 3 consist /450 two 3 /110 tonnes tonnes vessels of
ROO TO of six fish wfe), ves for to -
sible stress onthesalmon. lousing without usinganychemicals andcreating lowest pos Bakkafrost iscontinually seekingto improve methods for de net-cleaning andare alsoequippedto doother operations. various non-medical systems for lice-treatment, systems for in fresh water. Thetwo remaining FSV’s are equipped with est systems. AT ER E live fish In addition carrier O A has to transporting equipment AR N for fish treatment to harvest, of the the larg fish - - -
AR E T N largely owned. with ment vessels allunderlongterm charter agreements along vessels, three wellboats, two large workboats andtwo treat In FSV inScotland Scotland a fleet the of smaller PRO E N Bakkafrost vessels Group for PA A N operates site ANNUAL REPORT 2019 operations a ALE AR ET N fleet which of seven are -
26 THE VALUE CHAIN ANNUAL REPORT 2019 27
Fig. 11
EAL O L EE ROO TO AT ER E O A AR N AR E T N PRO E N PA A N ALE AR ET N
HARVESTING
Harvesting in the Faroe Islands Harvesting in Scotland In the Faroe Islands, all Bakkafrost´s fish is harvested at the The Bakkafrost Group operates two harvest stations, Arnish harvest factories in Glyvrar and Vágur. The harvest factory in Point in the North of Scotland and Ardyne in the South. Ar- Glyvrar has a daily capacity of around 350 tonnes wfe at the nish Point has a capacity of 114 tonnes per day and Ardyne
STRATEGY current run rate with one shift on average but can increase has a capacity of 152 tonnes per day. the daily capacity by 100-150 tonnes wfe. The harvest facto- ry in Vágur has a daily capacity of 100 tonnes wfe. Fish are transported from the farming sites to the harvest sites in live fish carriers. The fish is transported from the farming sites to the harvest factory in live fish carriers with closed water systems.
• 57,184 tonnes gw of salmon harvested in 2019 in the Faroe Islands, and 33,799 tonnes in Scotland
• Total daily harvesting capacity of 450 tonnes wfe in the Faroe Islands, and 266 tonnes in Scotland STRATEGY • • THE VALUE CHAIN European orfrom theFar East. the last decade. Thecustomers inthissegmentare mainly ing andby-products. Thismarket hasbeen developed during industrial Another market segmentimportant for theVAP products is the Horeca segment. customers for these products are the supermarket chains and ity of 100tons of value-added products aday. Theprimary The4,000m Processing intheFaroe Islands PROCESSING
Fig. 12 Fig. EAL Combined annual capacity inScotland 40,000 tonnes annualsecondary processing increases to 50,000tonnes during2020 capacity intheFaroe Islands customers 2 VAP factory atGlyvrar hasaproduction capac O L buying whole fillets EE for further ROO TO process - - bined annualcapacity of around 50,000tonnes. 2020 inboth processing factories whichwillresult inacom packaging plants as well asaSmokehouse inStornoway. Both processing rybank in theNorthof Scotland and Cairndow in the South, The Bakkafrost Group operates two processing factories, Ma Processing inScotland AT ER E are facilities. equipped O A Significant with pre-rigour investment AR N filleting, is planned portioning during and - - AR E T N PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 28 STRATEGY • equipment to customize theboxes withlogo etc. ar meets allBakkafrost’s needfor styropor boxes andhas both for seaandairfreight. Thepackaging factory atGlyvr ing factory produces styropor boxes for thefresh salmon, integrated into the Glyvrar processing facility. The packag Bakkafrost hasapackaging factory, whichislocated and PACKAGING THE VALUE CHAIN
Fig. 13 Fig. EAL 70,000 tonnes of salmon, annual packaging capacity O L
EE ROO TO - AT ER E O A AR N AR E T N PRO E N PA A N ANNUAL REPORT 2019 ALE AR ET N 29 STRATEGY THE VALUE CHAIN various markets. Bakkafrost by plane to theUS andChinafrom theUKand/orDenmark. based ontransportation by shipto Europe and Russia and The current distribution network from the Faroe Islands is Distribution from theFaroe Islands ity andpreferred products. chains by securing product availability and stable high qual The strategy isto offer advantages to thelarger supermarket profitability. ciently graphical Bakkafrost believes thatits capability to serve these geo lands issoldonthespot market. long-term and Russian market. arule, As the VAP products are soldon The most important markets are the European, US, Chinese ferent geographical markets anddifferent product segments. The Group’s strategy isto balance thesales mixbetween dif SALES ANDDISTRIBUTION Fig. 14 Fig. EAL reduces markets contracts can cross-cycle distribute with O L and the the both fluctuations two whole fresh categories EE fish and in from both frozen of products revenues the fish ROO TO Faroe to effi and the Is - - - - - America, and other Asia export markets from theUK. portation by Eurotunnel to Europe andby planeto North The distribution network from Scotland isbasedontrans Distribution from Scotland for furtherdistribution on trucks. transported by shipto DenmarkortheUKwithintwo days Products plannedfor the European andRussian markets are 10–14 perkg from factory to customer. in theUS andChinawithin24hours, withatotal cost of DKK mark, theproducts are distributed by planeto majorairports ship andto Denmarkwithin36hours. From theUKandDen products from theFaroe Islandsto theUKwithin20hours by With theexisting distribution network, Bakkafrost can ship AT ER E O A AR N - - AR E T N (15%) Asia • •
Markets served: Eastern Europe (8%) North America (17%) Western Europe (59%) 37 countries Sales to PRO E N
PA A N ANNUAL REPORT 2019 ALE AR ET N 30 PERFORMANCE PERFORMANCE ANNUAL REPORT 2019 31 PERFORMANCE Operational Review OPERATIONAL REVIEW censes inthenorth-west of Scotland. Thelicenses give theright south parts of theFaroe Islandsaswell asnewly acquired li Bakkafrost holdsseafarming licenses inthenorth-east and FARMING returns ontheinvested capital. to maintain production costs atcurrent levels and to maximize in class performance. Theexcellent biological situation iscrucial mizes unit costs, biological feed conversion rate and gives best to ological situation in theFaroe Islandsprovides theopportunity basis by both veterinary andenvironmental authorities. Thebi Production plansintheFaroe Islandsare approved onayearly Salmon Producers’ Organisation (SSPO) and Marine Scotland. tary basisthrough avariety of channelsincludingtheScottish transparently andshare data onboth acompulsory andvolun and Scottish Natural Heritage. SSC are committed to operating ronmental Protection Agency (SEPA), FishHealthInspectorate by arange of bodies, includingMarine Scotland, Scottish Envi farming sectors intheUKandoursites are regularly audited in Scotland isoneof themost transparent andhighly regulated tally All farm sites intheFaroe IslandsandScotland are environmen summer months. the ruary, temperatures, with water quality. Thewater temperature intheregions issteady, Islands andScotland throughout theyear aswell asexcellent The GulfStream provides stable farming conditions intheFaroe ties, are requested inorder to certify theoperation. indicators. Yearly reports andplans,approved by theauthori thorities focus onveterinary andenvironmental key performing to utilize utilize Faroe certified a and fluctuation a a Islands the higher given and approximately highest and area than yearly of 14.5 only of temperatures, average a audited °C 6-8 fjords in 6 Scotland, °C °C, weight for by during are agencies. farming approximately usually of are the the reached fish. year. fish, reached Salmon Farming which The 10.5 in farming the in lowest mini °C Feb late au in ------
knowledge of theequipment andthetreatment methods, the but after astart-up phaseandmore experience and better new mechanical treatments resulted inelevated mortality, ing with clean sea water with ambient temperature. These ments, From The healthcosts mainlyrelate to treatments against sealice. non-feed cost elements. standards of animalwelfare whichhave apositive impact on higher in the wild,isusedinboth theFaroes andScotland, thisresults Salmon feed withahighmarinecontent, similarto thediet in ed. Theplanisalsoto dosoinScotland where possible. more exposed areas, where more expensive equipment is need Islands, farming sites have beenmoved furtherout thefjords to because of increased feed costs andhealthcosts. IntheFaroe The farming costs have increased inrecent years, especially refine andimprove thefarming method inScotland. the farming intheFaroe Islands.Itwilltherefore take timeto The farming inScotland differs andlegislationfrom inbiology kg intheFaroe Islandsisamongthehighest, compared to peers. prove and (ISA amongothers), strict regulation of movement of equipment of salmongenerations, vaccination against different diseases support asustainable andhealthy operation, by total separation Islands isto increase biological andveterinary securityandto The objective of theBakkafrost farming method intheFaroe ered strong results, compared to peers. In terms of production costs, ourfarming operation hasdeliv AND VETERINARY MODEL VALUE ORIENTEDPRODUCER relatively fish 2015, fish production including and health high Bakkafrost other and freshwater, feed efficiency, regulations. reduce costs. has this costs. However, mainly lukewarm This is Thus, also method used
benefits ANNUAL REPORT 2019 sea impacted Bakkafrost’s non-medical continuous water are by
and evident EBIT the to flush treat high im per in - - - - -
32 PERFORMANCE OPERATIONAL REVIEW farming operation. these initiatives isto maintain asustainable, cost-conscious farming sites to reduce thenumberof sealice. Thepurpose of In treatments. on improving thenegative sideeffects of these mechanical mortality level hasimproved, but Bakkafrost isstill working risk, increasing efficiency andgivingorganic growth. The goals for theinvestment planare; reducing thebiological have not beenfurtherallocated to theScottish value chain. land. These investments are still ataplanningstage and of the Faroe Islands,Bakkafrost expects to make investments addition to theplannedinvestments inthevalue chainin DKK 1.2billionhasbeeninvested inthelast two years. In from August 2018amounted to around DKK3billion.Around all Bakkafrost hasinvested nearlyDKK3billionsince 2013in INVESTMENTS TO REDUCEBIOLOGICAL RISK around addition parts 15 Fig. MORTALITY %OFOUTPUTFARMING FO 2 2 1 1 0 0 0 of DKK 2009 M to its o r 350 this,
2010 value t a l i million 2011 t Bakkafrost y chain.
2012 % o per f 201 F
The o O year u
201 has t five-year p u for 201 used t
F 2020- 201 a r lumpfish m investment
201 i n 2024 g
201 at 2019 in some Scot plan -
corresponding to a70%increase insize. increased The average release size of smoltintheFaroe Islandshas the hatchery inSuðuroy isexpected to commence late 2020. growth inBakkafrost’s smoltproduction. Theconstruction of expanding two of its existing hatcheries, enablingfurther Bakkafrost plansbuildinganew hatchery inSuðuroy and average weight of 500g. ation thiscapacity willbearound 12millionsmolts withan weight of When the capacity 200g. atStrond isinfulloper pacity of around 12millionsmolts for release atanaverage At present, theFaroese smoltproduction hasayearly ca Faroese smoltcapacity substantially. Strond willbefullyoperating in2020.Thiswillincrease the and Viðareiði have beenexpanded andthenew hatchery at all smolts released into thesea.Thehatcheries atNorðtoftir with the Faroe Islands.Theoperation intheFaroes isself-supplied Around DKK1billionwillbeinvested inthesmoltoperation in BIOLOGICAL FEEDFACTOR FARMING FO Fig. 16 Fig. 1 1 1 1 1 smolt 2 1 1 0 0 0 0 0 from
2011 but around aims 2012 B I O to L O
201 120g G have I C
201 A L in
an F 2014 E E average
201 D
F A to 201 C T around O weight R 201 205g
201 of 500g in 2019 2019, for - - bution andmaintaining economic growth. ability: Reducing environmental increasing impact, socialcontri Salmon Initiative (GSI).GSIisfocused onthree pillars of sustain ISO9001:2008 andBRC. Bakkafrost isamemberof theGlobal pliant. All stages of ourFaroese production chainare GlobalG.A.P. com salmon farms andprocessing plants, but alsofor oursuppliers. of procedures andqualitycontrol systems, not onlyatourown To ensure primequality, Bakkafrost hasimplemented aseries CERTIFICATES e.g. new feeding barges, catamarans andlarger pens. been invested innew equipmentatBakkafrost’s farming sites, fish ation. Bakkafrost hasinvested innew equipmentinthefarming oper SMOLT NUMBERANDAVERAGE RELEASE, SIZE is alsoto increase thesizes of smolts inScotland. duce the production time at sea in the farming sites. The plan risk andthefuture growth potential, aslarger smolts willre The larger smolts willhave apositive effect onthebiological AVERAGE HARVEST WEIGHTFARMING FO (KG LW) Fig. 17 Fig.
carrier 0 0 0 0 Since Other 0 0 0 0 0 0 0 and 2015,
2009 certifications A two 2010 V E Bakkafrost F R service A A
2011 R G M E I
2012 N include H vessels. G A has
R 201 F O V E acquired
( ASC,
201 S K Significant T G
W
L
201 HACCP, W ANNUAL REPORT 2019 E I three ) 201 G H T amount IFS,
201 ships,
201 GMP+, has one 2019 MSC, also live - - - - -
33 PERFORMANCE awarded Farming and Farming Scotland holdsnational and international accreditations more farming sites certified. ASC holding sites ing period from 2016to 2018,Bakkafrost hadsixadditional farm the Bakkafrost’s environment. fish ard intheaquaculture industry with requirements regarding cooperation withWWF andisseenasthemost stringent stand lands Bakkafrost’s goal isto have allits farming sites intheFaroe Is OPERATIONAL REVIEW The processing facilities have beenawarded thehighest level all its marineand processing sites, aswell asthefeed suppliers. sites SMOLT NUMBERANDAVERAGE RELEASE, SIZE 18 Fig. first welfare, certifications to ASC 1 1 1 0 2 0 2 its ASC Faroese Scotland ASC 3-star certified list 2 0 certifications. farming sea 1 certified. of Best lice, farming ASC was across 2 by 0 1 Aquaculture site, smolt 2020. certified the In the 2019, site Gøtuvík, 2 first Bakkafrost 0 production, 1 The value to salmon sites, Bakkafrost ASC get 2 Practice 0 1 was chain, an standard and A is producer ASC feed ASC 2 still 0 including do 1 (BAP) included
certified production certification. working now was 2 certification 0 in 1 9 have developed the Global eight in on 0 1 1 2 2 0 0 0 UK 0 0 0 0 2015 15 and getting In G.A.P. more to
sites A the the for be as in - - -
GEOGRAPHICAL LOCATION processing andsupplychainmanagement. of BritishRetail Consortium (BRC) Accreditation for food safety, strategic level and are expected to beon this level going for Going into 2019,theVAP volumes were again atthelong-term there isatimelaguntilthecontract prices decrease. VAP products. Ontheother hand,whenthespot prices decrease, spot prices andasubsequent increase inthecontract prices for fresh salmon. There isatime lag between theincrease inthe contract prices are not asvolatile asthespot market prices for earnings, vested volumes. Thesales of VAP products stabilize theGroup’s that value addedproducts (VAP). Bakkafrost’s long-term strategy is Bakkafrost hasalong-term experience inproducing and selling VAP position inthemainmarkets: EU, US andEastern Asia, Europe. ated market strategy. Thishasensured Bakkafrost agood market Over thepast manyyears Bakkafrost hasdeveloped adifferenti itive advantage through product development andmarketing. The relationships withcustomers have proven to give acompet benefits By focusing onmeeting existing customers’ demands,Bakkafrost MARKETS STRONG CUSTOMER BASE INALLMAJOR of both feed andfishonlandatsea. well-developed tances between farming areas andprocessing facilities and biological control andarea Relatively management. shortdis fjords provide separation between locations, which improves water quality, water temperature andcirculation. TheFaroese areas withattractive qualities for salmon farming interms of Salmon farms in the Faroe Islands and Scotland are located in VAP from products as the its infrastructure sales long-term shall are represent based relationships offer on 40–50% cost-efficient fixed-price
with of many the transportation contracts. Faroese customers. har The - - - - -
volatile periodin2016to 2018.The world’s total production of In feed. were Havsbrún sold97,408tonnes of feed in2019,of which79% the production of fishoilisusedfor feed production. compared Havsbrún production. Islands inrecent years, increasing access to offcuts from this cessing plants for pelagicspecies have beenbuiltintheFaroe offcuts Beside sourcing raw material to its production of fishmealandfishoil. the last years. Thishasimproved Havsbrún’s possibilities of Quotas Atlantic. Theraw material situation willbevolatile inthefuture. is depends onthesourcing of raw material, andtheavailability compared 278,664 tonnes of raw materials in 2019, a decrease of 8%, 2019 andhadgood access to raw material. Havsbrún received Havsbrún –FOF segment–performed again very well in PRODUCTION OFFISHMEAL,OIL ANDFEED the VAP segment. VAP segmentfor 2019hadapositive effect onthemarginsin to The VAP segment produced 16,690 tonnes in2019,compared were uncertain atthis period. decided to lower theVAP volumes, asprice indications for 2018 of thesteep increase of thespot prices. In2018,Bakkafrost ward. TheVAP segmentstruggled in2016and2017because highly 8,355 2019, used sourcing for from tonnes related the sold with with internally. fishing pelagic fish 31,769 43,235 2018. wild in to oil blue 2018. the caught In fish market The tonnes tonnes quotas whiting, 2018, The factories production pelagic was higher Havsbrún of in for however, 2018, fishmeal more pelagic fish, in volumes of the Havsbrún a ANNUAL REPORT 2019 sold stable fishmeal have decrease fishery externally Faroe 77,775 and coming increased Islands. in prices also and of
the tonnes in 27%. sourced fish from 2019, in North over Pro the All oil of a -
34 PERFORMANCE OPERATIONAL REVIEW brún’s Even though alltests show thatthelevels of pollutants inHavs high content of omega 3. high reduce some of thedemand. Bakkafrost’s strategy isto have a of ed to beascarce resource inthefuture but decreasing content demand fish fish oil content fish oil has for in oil been fish of the are fish oil salmon relatively well has oil within in increased. feed, the stable feed, the led safety for by Therefore, resulting the many limits major decades, in fish a imposed producers, salmon oil is while expect by with will e.g. the a - -
leading market position, itis vital to attract andretain employ frost to remain ahigh-performing organization and expand our Our most important resource isouremployees, andfor Bakka PEOPLE The fishmealmarket was stable during2019. 2015. Bakkafrost’s salmonfeed for dioxin andDL-PCBs from early the European Union, Havsbrún has cleaned the fish oil used for -
For further information see ourSustainability Report 2019. two years. due to short-term employment of young employees of oneto variations related to the Harvest and VAP divisions, primarily compared to 824employees in2018.There are strong seasonal Bakkafrost In 2019, the number of full-time equivalent employees in the health, safety, business andcommerce education. ships withlocal educational institutions andexperts focusing on well asother forms of training, we engage andform partner For work-related training, in-houseandexternal courses, as the Group. tences aswell asdeveloping leadership skillsonalllevels in an ongoing process to furtherdeveloping professional compe house andexternal courses, andother forms of training. Itis Bakkafrost’s training isperformed aswork-related training, in- for alltraining efforts. creating thebest possible value for ourcustomers isessential securing highstandards inourbusiness conduct inadditionto for relevant training schemes to meet current andfuture demands all levels in the Group on a continuous basis by implementing We aimatstrengthening thecompetences of ouremployees on to nurture ourcompany culture. been achieved during the past years and we strive continuously be areliable andresponsible partner. Manygreat results have company culture andthefundamental values of Bakkafrost to The foundations of ourhumanresource development are the satisfaction anddeveloping thecompetences of theemployees. shall maintain andfurtherstrengthen thefocus onHR,work ees withtheright competences andknowledge. Therefore, we a qualified Group workforce. was 1,553 Supporting employees Bakkafrost’s (FO: ANNUAL REPORT 2019 926 and strategy SCT: 627), and - -
35 PERFORMANCE FINANCIAL REVIEW ANNUAL REPORT 2019 36 PERFORMANCE FINANCIAL REVIEW Financial Review salmon. the ingredients market 2018. erage feed price was lower thantheaverage feed price in The time lag. added products follow the trend onthespot market witha with duration of 6-12months,where theprices for value added Therefore, higher volumes in 2019, as overhead costs were the same. frost’s value addedproduction were positively affected by somewhat lower, compared to 2018.Themarginsof Bakka experienced somevolatility in 2019,theaverage price was spot market every week. Althoughtheraw material prices as theVAP segmentpurchases its raw material onthesalmon result for theVAP segment are alsotheraw material prices, 2019 andare onthesamelevel asin2018.Important for the The in 2018adecrease of 6%. spot price in2019was DKK44.20,compared to DKK47.18 around 6% in 2019 (2018: 6% increase). The average salmon The supplyof salmonto theworld market increased by feed prices feed The products situation prices prices the for reason in value VAP Bakkafrost’s will have are for for segment added fish be typically the been reflected oil fluctuations products and salmon made fairly sold fishmeal, in a flat feed. on profit the (VAP) in in fixed production the which The 2019, in have feed 2019. price fluctuations flatten are and price The contracts costs the the out is value main av the for in in - - weight, compared to 44,591tonnes in2018. The to 2018.Theexternal sales of fishfeed increased 176%. revenue value added products increased 100%in2019.Theexternal 46% in2019,compared to 2018,andthevolumes soldas products in2019.Harvested volumes of salmonincreased higher volumes of both fresh/frozen salmonandvalue added million in2018.Theincrease intherevenue ismainly dueto of The Bakkafrost Group generated gross operating revenues Profit orloss for theperiod Taxes EBT EBIT 195,819 Revenue tax -220,567 Income from associates Fair value adjustments of biological assets Operational EBIT Depreciation Other operation expenses Salary andpersonnel expenses Change ininventory andbiological assets (atcost) Purchase of goods Operating revenue DKK 1,000 INCOME STATEMENT DKK operations 4,511.1 from sales harvested million of fishmeal in 2019, a total decreased compared of 65,109 ANNUAL REPORT 2019 13491 -1,074,645 -1,354,921 1,019,217 1,184,233 1,325,100 4,511,107 -180,031 -211,774 -198,898 -310,115 -978,787 -353,756 -512,761 in 801,885 981,916 1,172,066 9,2 -95,867 -99,128 -29,423 13,812 2019, to 2019 tonnes DKK
compared 1,074,912 3,177,422 -674,907 3,177.4 199,696 960,292 gutted 9,369 2018
37 PERFORMANCE lion attheendof 2019,compared to DKK389.7millionat The end of 2018. 13,101.4 The Group’s total assets asatend2019 amounted to DKK STATEMENT OF FINANCIALPOSITION totalled compared to DKK960.3millionin2018.Earnings pershare The -211.8 millionin2018. Net taxes amounted to DKK-180.0million,compared to DKK 3.8 millionin2018. expenses million, million in2018.Net currency effects amounted to DKK-12.7 es compared to DKK2.7millionin2018.Net interest expens Financial lion in2018. to Bakkafrost of DKK13.8million,compared to DKK9.4mil In 2019,theGroup’s associated companies madeanet result acquisition date. and longer farming period atyear-end, compared withthe Scottish operation, which relates to higher expected costs adjustment relates to negative fair value adjustment inthe ment amounting to DKK -220.6 million, compared to an adjust the Group’s biological assets hasbeenrecognized in2019 1,074.9 millionin2018.Anegative fair value adjustment of Operational FINANCIAL REVIEW the acquisition of The Scottish Salmon Company Plc. Intangi the endof 2018.Thechange relates to intangible assets from amounted consolidated Group’s of compared DKK DKK amounted million, income EBIT intangible 15.53 195.8 to DKK net was to compared in in million profit to DKK 2019, 2019 DKK -17.1 assets DKK 1.4 totalled 1,325.1 in compared million, amounted -12.5 to million amounted 2018. DKK DKK million, million, compared in The 5,802.5 to 801.9 2018. to to DKK negative compared compared DKK DKK million Other 19.74 million to 4,395.7 5.0 DKK fair financial in in million, to to at 2019, 2018. value -12.5 DKK DKK mil the - - - - -
Property, ing licences, andgoodwill relating to thedeferred tax hereof. ble assets comprise primarilythefair value of acquired farm in Scotland was acquired. at seatheend of 2019, compared to whentheoperations higher expected costs, lower salmonprices andlonger period relates to theoperations inScotland. The decrease isdue to 382.8 adjustment amountingto DKK27.7million,compared to DKK in thecarrying amountof thebiological assets isafair value pared amounted to DKK1,901.7millionattheendof 2019,com The Group’s carrying amount(fair value) of biological assets end of 2019,compared to DKK9.2millionattheendof 2018. Bakkafrost had DKK4.4millioninlong-term receivables atthe to SSC. to DKK0millionattheendof 2018.Theamountisrelated Deferred tax assets amounted to DKK37.6 million, compared companies. in pared to DKK112.8millionattheendof 2018.Theincrease amounted to DKK 119.1 million at the end of 2019, com Investments inassociated companies andstocks andshares relates to IFRS16. of 2019,compared to DKK0attheendof 2018.Theamount Right of useassets amounted to DKK332.8millionattheend investments relate mainlyto maintenance investments. carried out in2019,were inthenew hatchery atStrond. Other million amounting end of 2018.In2019,Bakkafrost madeinvestments inPP&E lion attheendof 2019,compared to DKK2,884.3millionatthe financial million to in DKK plant 2018. to assets at DKK 1,358.5 and the The relates equipment 1,167.8 end most million of significant to 2018. million, the amounted at The the result compared investments, most end from to of significant DKK 2018. the to 3,780.5 DKK associated Bakkafrost Included change 526.0 mil - - - -
end of 2018. DKK At theendof 2019,the Group’s total current liabilities were to volatility inNOK, compared to DKK. 2019, compared to DKK0.3millionattheendof 2018due Derivatives compared to DKK812.1millionattheendof 2018. Long-term debt was DKK2,328.2millionattheendof 2019, acquisition of SSC. of 2018.Themainreason for theincrease isrelated to the 1,123.8 million attheendof 2018.Deferred taxes amounted to DKK 3,679.6 The Group’s total non-current liabilities amounted to DKK the dividendpaidout inApril2019. share capital andof thepositive result for 2019,reduced by The increase inequityisprimarilydueto theincrease of the lion, compared to DKK4,077.0millionat theendof 2018. The Group’s equityattheendof 2019was DKK 8,496.9mil end of 2018. DKK Cash andcash equivalents attheendof 2019amounted to end of 2018. as at the end of 2019, compared to DKK 292.3 million at the The materials andother raw materials. to brún’s at year-end 2018.The inventory primarily represents Havs lion asattheendof 2019,compared to DKK438.8million The feed Group’s Group’s 1,309.5 925.0 inventory at million million, the million, total amounted total million, feed at compared of receivables the inventories fishmeal, stations, compared compared end to of DKK to 2019, fish amounted finished DKK amounted to to 13.5 oil DKK compared DKK 534.4 and VAP million ANNUAL REPORT 2019 379.0 to 316.9 fish to million DKK products, DKK feed to at million million 671.5 DKK the 548.5 in at addition the packing 1,346.5 end million at at mil end the the of - - - 38 PERFORMANCE pared to 70%attheendof 2018. Bakkafrost’s DKK 204.5millionatthebeginningof theyear. Trade FINANCIAL REVIEW payable equity amounted ratio was to DKK 65% 584.4 at the million, end of compared 2019, com to - Non-current assets ASSETS DKK 1,000 EQUITY AND LIABILITIES Total liabilities Current liabilities Other current liabilities Short-term leasing debt Current tax liabilities Trade payables Derivatives Current liabilities Non-current liabilities Derivatives Long-term leasingdebt Long-term interest-bearing debt Deferred taxes Equity ASSETS CURRENT ASSETS Cash andcash equivalents Receivables Inventory Current assets NON-CURRENT ASSETS Financial assets Property, plantandequipment Intangible assets 13,101,405 13,101,405 ,2,3 812,053 2,328,231 534,430 1,123,796 316,894 1,309,546 1,797,309 2,450,237 2,884,325 4,113,323 389,745 4,395,687 4,604,530 3,679,578 8,496,875 4,431,296 8,670,109 107,808 152,655 195,484 204,500 584,435 225,585 292,284 671,513 161,099 924,952 372 21,536 23,732 13,493 320 1,966 0 2019
5,802,523 1,725,494 1,346,483 4,077,029 5,802,523 2,406,487 3,396,036 121,966 379,011 2018 0 0
Cash andcash equivalents –closing balance Cash andcash equivalents –openingbalance Cash flow from financing Cash flow from investments Cash flow from operations Operating profit (EBIT) Cash flow from operations DKK 1,000 at theendof 2019. drawn credit facilities of approximately DKK2,470.0 million and With the established credit facilities, the Group’s liquidity lion andnet dividendpaymentof DKK-401.5million. DKK -20.8million,sales of treasury shares of DKK68.4mil in million change inlong-term interest-bearing debt of DKK1,217.6 million, compared to DKK-374.8million for 2018.The For billion relates to acquiring SSC. million, flow ative results. Paid taxes andchange inworking capital hadaneg cash 1,036.4 million,compared to DKK912.9millionin2018.The The FLOWCASH 2019. 2019, financial total flow from effect had compared Other from cash investment cash a on strength positive flow operations the 2019 flow to cash from DKK is effect from figures activities considered flow financing in -530.7 on operations 2019 from include the amounted million amounted is operations good. cash primarily financial ANNUAL REPORT 2019 46126 -530,746 -4,601,246 in flow ,5,9 -374,848 4,557,491 912,937 1,036,407 1,184,233 1,019,217 1,309,546 Bakkafrost in 316,894 to 2019 2018. 2019 to from in DKK due DKK expenses 2019.
was DKK financing to -4,601.2 4,557.5 had 316,894 309,551 strong 2018 Cash DKK -3,9 un of - - -
39 PERFORMANCE The farming segmentproduces highqualityAt - Faroe Islands(FO) Farming Segment FARMING SEGMENT -FAROE ISLANDS (FO) farming sites are located intheFaroe Islands. globally andto theinternal VAP production. The salmon. lantic salmonfrom juveniles to harvest size The salmon is sold to fresh fish markets - Harvested volume (tgw) Farming -Operational EBIT/kg (DKK) Operational EBIT EBIT Total revenue DKK 1,000 only minorbiological issues in2019. ment isalsodue to good andstable farming operations and er The market in2019 was inlinewith2018, with slightly low FINANCIAL PERFORMANCE The smoltrelease in2018was 12.5millionsmolts. The Group released 12.7 million smolts into the seain2019. 4,614 tonnes in2018. harvested 6,722tonnes gutted weight in2019,compared to 2019, compared to 14,088tonnes in2018.Farming South Farming West harvested 32,210tonnes gutted weight in in 2018. weight The VOLUMES 2019, prices. Group’s Farming in compared The 2019, farming good North compared financial to segment harvested 25,888 to performance harvested 44,591 tonnes 18,252 tonnes gutted 57,184 tonnes in the gutted weight gutted tonnes farming
weight in weight gutted 2018. seg in - -
weight in2018. weight, compared to DKK21.66(NOK 27.89)perkg gutted operational pared In 2019,operational EBITtotalled DKK1,103 million, com than in2018. volumes soldto theVAP segmentwere 100%higherin 2019 DKK pared to 2018. The internal revenue increased in 2019 from 2018. Thevolumes soldexternally increased in2019,com 2,501.6 revenues for Bakkafrost’s farming segmentincreased to DKK million in2018,achange of 23%.Gross external operating amounted Total revenues for Bakkafrost’s farming segment in 2019 342.2 to million DKK to million EBIT DKK 965.7 in of 3,152.5 in 2019, ,0,0 9569 14% 23% 965,659 1,065,923 1,103,001 2,568,366 1,028,840 3,152,462 million DKK 2018 714 451 28% 44,591 57,184 19.29 2019 19.29 million, up to in DKK from 2018. (NOK 650.8 compared DKK This 25.44) ANNUAL REPORT 2019 21.66 million 2018 2,226.1 corresponds to per DKK in 2019. million kg 2,568.4 Change gutted to -11% The -3% an in - - 40 PERFORMANCE FARMING SEGMENT -FAROE ISLANDS (FO) 1 1 SMOLT -THOUSAND RELEASE SMOLTS TOTAL REVENUE(DKK1,000) Fig. 22 Fig. 19 Fig. 1 1 1 0 2 2 2 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 S 2
1 2 2010 0 m 1
0 2010 0
o 2 2011 T l 2011 t o
1
2 2 2012 t r 1 0 0 a e
1 2012 0 l l s 0 2 201 e r m e a 201 v o s 2 201 9 2 e e l 9 0 201 t 1
0 n s t 0 2 201 u h 201 e o 2 201 u 1 2 2
s 201 0 1 a 0
2 201 0 n 201 d 2 201
1
2 201 2 0
1 2 2019 0 9 0 2019
HARVEST VOLUMES (TGW) Fig. 23 Fig. 2 1 Fig. 20 Fig. 1 1 2 2 OPERATIONEL EBIT/KG (DKK)
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O 2 2010 p 2 0 2010 e 0 1 r 0
2 2011 0 a
H 2011 t i
a 2 2012 o 2 r n 2012 0 v 1 e
0 2 201 e 0 l
201 s E
t 2 201 B
v 2
201 I 0 T o 1
0 2 201 / l 0 k u 201 g m 2 201
( 2 e 201 D 0
1 2 201 0 K (T 0
201 K G
2 201 ) W)
2 201 0 2
1 2 2019 0 9 0 2019 Fig. 21 Fig.
1 1 1 1 1 2 HARVESTED VOLUME (TGW)
2 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
2 2010 H
2010 a 2 2011 r v
2011 e
2 2012 s t
2012 e
2 201 d
201 v
2 201 o
201 l u
2 201 m 201 e ANNUAL REPORT 2019
2 201 201 T G 2 201 W 201 2 201 201 2 2019 2019 41 PERFORMANCE Please - Scotland (SCT) Farming Segment FARMING SEGMENT -SCOTLAND (SCT) and theFar East. a focus ondeveloping sales into NorthAmerica and HebrideanIslandsexports globally, with SSC has sites across the West Coast of Scotland with Scottish Provenance andfulltraceability. producing The Scottish SalmonCompany iscommitted to October 2019,whenBakkafrost gained control. pany PLC (SSC) whichwas consolidated from 8 operating business of TheScottish SalmonCom The Scottish farming segmentrepresents the part of the consolidated Bakkafrost accounts. rative inthissection are proforma andare not note the that finest the comparable quality Scottish figures and Salmon nar - - Smolts released (thousand) Harvested volumes (tgw) Volumes Farming -Operational EBIT/kg (DKK) Operational EBIT EBIT Total revenue Financial DKK 1,000 year 2019,12.4millionsmolts were transferred. 5.7 provided by SSC intheirfirst halfupdate. higher performance against theguidance of 33,000tonnes 2019 gutted weight. Total harvested volumes for thefullyear The VOLUMES million total were
volumes smolts 33,799 harvested were tonnes transferred gutted in Q4 weight, 2019 in Q4 reflecting were 2019. 7,925 For
a slightly the tonnes full
of 2019. per kilowere impacted by mortality events intheFirst Half resulted inanimproved operational EBIT/kg. Farming costs The drive inexport sales andstrong demandinQ42019 Operational EBITamounted to DKK18.1million. was DKK437.2million. In 2019,theoperating revenue for theSCTfarming segment FINANCIAL PERFORMANCE
ANNUAL REPORT 2019 -224,285 437,171 18,129 5,696 7,925 2019 2.29 42 PERFORMANCE FARMING SEGMENT -SCOTLAND (SCT) ANNUAL REPORT 2019 43 PERFORMANCE VAP SEGMENT The VAP (value addedproducts) segmentproduc VAP Segment fixed-price contracts. markets. TheVAP products are soldonlong-term products isEurope with increasing sales inother the Faroe Islands.Themainmarket for theVAP es skinless andboneless portionsof salmonin - VAP produced volume (tgw) VAP -Operational EBIT/kg (DKK) Operational EBIT EBIT Total revenue DKK 1,000 weight, compared to 8,355tonnes gutted weight in2018. The VAP production in 2019 was 16,690 tonnes gutted production of VAP products, compared to 19%in2018. For 2019,29%of thetotal harvested volumes went to the during aperiod. decreasing andvice versa, whenthespot prices increase makes salmon prices andthecontract prices, Bakkafrost normally thereAs isatimelagbetween themovement inthefresh ent Group’s net earnings, asthese products are soldatdiffer Group’s earnings – to reduce the volatility in the Bakkafrost the value-added products is–inadditionto increasing the some sales are alsoto theUS retail market. Thestrategy with predominantly portionsfor theretail market inEurope, but its harvested salmonasvalue addedproducts. Theoutput is Bakkafrost VOLUMES fixed-price a profit has in a contracts long-term the VAP for segment, strategy a period when of of producing the up spot to 12 40-50%
prices months. are of -
lion in2018. 0.0 millionwas made, compared to achange of DKK0.0mil 2019, andtherefore achange in provision amountingto DKK The VAP segmenthadnoonerous contracts attheend of weight in2018. weight, compared to DKK-2.68(NOK-3.46)perkg gutted an compared to DKK-22.4millionin2018.Thiscorresponds to vision for onerous contracts etc., totalled DKK63.7million, Operational EBITin2019,whichisadjusted for pro DKK 364.8millionin2018,aincrease of 164%. enue higher level thanin2018.TheVAP segment’s operating rev rate asthespot prices, but thecontract prices were ona The contract prices in2019have not increased atthesame FINANCIAL PERFORMANCE operational amounted EBIT to DKK of 964,484 660 ,5 100% 8,355 16,690 63,727 63,727 DKK 964.5 2019 3,82 3.82 million (NOK 364,827 -22,424 -22,424 in ANNUAL REPORT 2019 5.04) -2.68 2018 2019, per compared kg Change gutted 384% 384% 242% 164% to - - - 44 PERFORMANCE VAP SEGMENT 2 2 1 1 1 1 2 2 PRODUCT WEIGHT OFVAP (TGW) TOTAL REVENUE(DKK1,000) Fig. 27 Fig. 24 Fig. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
2 2 2010 0 2 1 2010 0 0 2 2011 P r
2011 T o 1 o
d 2 2012 2 0 u t 1
1 2012 a c 0 t 0
2 201 l
w
201 r e e i 1 2 201 v g 2 9 0 h e 1 201 1 t 0 n
0 2 201 o u f 201
V e Vap
A 2 201 2 P 0 201 1 0
( 0
T 2 201
G 201 W 2 201 1 ) 2
0 201 1 0 9 2 2019 0 2019
25 Fig. Fig. 28 Fig. 2 1 1
1 DISTRIBUTION OFHARVESTED VOLUMES (%) OPERATIONEL EBIT/KG (DKK) 1 1
0 2 0 0 0 0 0 0 0 0 0
0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 p D e i 2
s 2 2010 0 r t 1 a r
2010 i t b
2 2011 i u o 2011 � n o 2 2 2012 e 0 n 1 l 2012
E o
2 201 f B
201 H ( I %) T
a 2 201 2 0 / r
201 1 v k
e g
2 201 s
t 201 ( A e D P 2 201 d
2 K
0 1 201 v 1 1 9 K o
2 201 ) VAP l u
201 m 2 201 e 2 201 0 2 s 1 1 9
9 2 2019 2019 Fig. 26 Fig.
1 2 VAP VOLUME (TGW) 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0
2 2010 2010 2 2011 V 2011 A 2 2012 P
2012 v 2 201 o
201 l u 2 201 m 201 e 2 201
201 T G 2 201 ANNUAL REPORT 2019 W 201 2 201 201 2 201 201 2 2019 2019 45 PERFORMANCE fish feed are alsosoldexternally. salmon the internally in thefarming Thequalityof segment. production duces The FOF Segment FOF SEGMENT fish FOF fishmeal, from feed (fishmeal, is Bakkafrost. is used fish important for -oil oil and fish and Fishmeal, to fish feed, feed) the feed. which quality segment fish Most is oil of of used pro and the the - to 90%. The internal usein2018was 70,240tonnes, corresponding of thesoldfeed in2019internally, corresponding to 79%. to Havsbrún sold 97,408 tonnes of feed in 2019, compared fish for production andthetimingof catch. The 2019 pared The lantic andavailable species of fish. raw tonnes in2018,whichcorresponds to adecrease of 8%.The 278,664 production, andpartlyexported. In 2019,Havsbrún sourced fishmeal tion last couple of years hadanimproving raw material situa Havsbrún, whichrepresents hasover theFOF segment, the VOLUMES Sold feed tonnes FOF -EBITDA margin EBITDA EBIT Total revenue DKK 1,000 77,775 production production material for was to the 65,141 and tonnes 9,633 tonnes fishmeal intake oil of of tonnes, tonnes were of fishmeal fish in depends 2018. raw and oil in partly compared varies, 2018. fish material, in Bakkafrost on 2019 oil used depending the The production. to was fishery internally production compared 10,257 used 60,646 on in tonnes 76,583 The the the for tonnes, to of
species North produced fish the 302,465 in tonnes 2019. oil com feed At of in - - -
2019, compared to 20.0%in2018. 254.3 EBITDA activities. revenue comprises thesales of feed to Bakkafrost’s farming lion, compared to DKK682.1millionin2018.Theinternal The internal revenue in2019amounted to DKK780.7mil feed. 2018 million in2018.Theincrease intheexternal revenue from ed The external operating revenue for theFOF segmentamount million in2018,anincrease of 9%. amounted Total revenues for Bakkafrost’s FOF segmentin2019 FINANCIAL PERFORMANCE to to DKK million was 2019 to 607.8 DKK DKK in is 2018, mainly 1,388.5 million 275.8 ,8,6 1,268,564 1,388,461 5,7 2391 10% 254,281 233,981 275,796 257,870 and 748 775 25% 77,775 97,408 19.9% million due 2019 in million, the 2019, to EBITDA higher in compared compared 2019, ANNUAL REPORT 2019 margin external 20.0% 2018 compared to to was DKK sale DKK 19.9% 1,268.6 to Change of 586.5 DKK fish -1% 8% 9% in - - 46 PERFORMANCE FOF SEGMENT 1 1 1 TOTAL EBITDA (DKK1,000) Fig. 32 Fig. 29 Fig. FISH FEEDPRODUCTION VOLUMES (TONNES) 2 0 2 0 1 2 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2011 2 0
2 2012 0 1 0 F 0
i 2012 s h 2 201 T
o f e
2 201 t e 0 a 0 1 d
0 2 201 l
0
p
201 E r o B
d 2 201 I 2 u T 0
201 c 2 1 D t 0 i 0 2 201 o A n 201
v o
2 2 201 0 0 l 1 u 1
0 201 m 0
e 2 201 s
201 ( 9 t 2 9 o 0 2 2019 2 1 n 0 9 n 0 2019 e s )
Fig. 30 Fig. Fig. 33 Fig. 2 2 1 1 1 1 2 2 SOURCING OFRAW MATERIAL (TONNES) SOLD FEEDTONNES
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2011 2 S 2 o
0 2 2012 1 0 l 0 2012 d 0 S
o
2 201 f u e 2 r 201 0 e 2 c 1 0 i d n 1 2 2 201 0 g
0 t 201 o o f n
2 201 r a 2 n 2
0 201 w e 1 0
2 201 s m 0
a 201 T t G e 2 201 0 2 r W 2 0 i a 1 201 0 l
0 ( 2 201 t o
n 201 2 n 2
2 2019 0 e 1 s 9 0
) 2019 0 Fig. 31 Fig. 2 2 1 1 EBITDA MARGIN (%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2011 2 2012
2012 E
2 201 B I
201 T D 2 201 A
201 m 2 201 a
201 r 2 201 g i n 201 ANNUAL REPORT 2019
2 201 % 201 2 201 201 2 2019 2019 47 PERFORMANCE MARKET REVIEW ANNUAL REPORT 2019 48 PERFORMANCE MARKET REVIEW Market Review weight of around 5.3kg (gutted weight). Our aimatBakkafrost isto produce salmonwithanaverage is exposed to different risks asinanynatural environment. good biology. Thelonger thesalmonisatsea,more it capitalize onthis position. Farming large salmon demands good supply of larger sizes, Bakkafrost was well placed to on over 6 kg achieved a considerable price premium. particularly thecase last year. Dueto lackof supply, salm been evident between thedifferent sizes of salmon,thiswas weight). average ducing thelargest Atlantic salmonintheworld. In2019,the The Faroe Islandsaquaculture industry isrecognized as pro LARGE SALMON select customers. world withaccepted premium positioning andispreferred by high demand. Bakkafrost salmonissought after around the the world’s salmon, the salmon from the Faroe Islands is in quality, but astheFaroe Islandsonlyproduce about 2.7%of Salmon from TheFaroe Islands isrecognized globallyastop LIMITED VOLUMES producing exceptional qualitysalmon. Bakkafrost will further promote this unique provenance as tic around the Faroe Islands are perfect for raising salmon. The natural conditions andcold waters intheNorthAtlan FAROE ISLANDS ORIGIN (unique sellingpoints). tion by investing indifferentiation and thefollowing USPs The Bakkafrost Group plansto furtherstrengthen thisposi reflects positively intheGroup’s results. This ensures aprice premium can beachieved whichinturn able andqualitysalmon,trulycreating value for customers. Bakkafrost is committed to producing; tasty, healthy, sustain In weight recent of years, Bakkafrost a significant salmon was price 5.55 difference kg (gutted With has - - - - - GMO ingredients infeed. Bakkafrost does not useanyantibiotics anduses onlynon- ticularly important to clients inthepremium sushisegment. The marketsushi segment, share inChinaisalsostrong. demand for salmon over 6 kg isstrong, predominantly in the The Bakkafrost brand isparticularlystrong inUSA, where SEGMENTATION Bakkafrost´s sales in2019: This effective logistics network isevident, whenlookingat wide locations. then linkingwithfurtherpassenger airlines to diverse world fresh as possible by freight carriers to major airports and ensuring thatBakkafrost´s salmonisalways delivered as fective frost works closely with key freight forwarders to ensure ef around theworld. To maintain theleadingposition, Bakka tribution of fresh perishableproduce whichis sought after Fast reliable logistics withglobalreach isvital for thedis WORLDWIDE REACH market fluctuations. graphical premium isachieved. Thestrategy continues to ensure geo ty attributes of Bakkafrost Salmonare recognized andaprice Group focusses ondirect sales into channelswhere thequali sponsible for theworldwide sales of Bakkafrost Salmon.The The Sales andMarketing DepartmentatBakkafrost isre SALES ANDGEOGRAPHICAL DIVERSIFICATION strong logistics sales sustainability diversification and first profile class thereby customer of Bakkafrost minimizing ANNUAL REPORT 2019 service Salmon worldwide, the risk is par of ------49 PERFORMANCE stability with 6 and 12 months contracts being negotiated ditional The ble andresponsible supplier. the highest qualityproduct andbeingrecognized asarelia ers. Bakkafrost addsvalue to VAP production by producing tions, themainmarkets are leading European andUS retail Bakkafrost holdsa leading position infrozen salmonpor VAP MARKET REVIEW conditions. and Fig. 34 Fig. diversification offers benefits an outlet for of the for the Group; whole Bakkafrost fresh it ensures product fish in increased adverse mix brings FAROE ISLANDS revenue market ad - - - - and gives clients unparalleled traceability. full control andresponsibility over allaspects of production own farming companies intheworld anduniquelyproduces its Bakkafrost isoneof themost vertically integrated salmon Vertical integration cost. salmon production withregard to thequalityof salmonand Feed isrecognized asoneof themost important aspects in FEED fishmeal and fish oil. This ensures that Bakkafrost has across all sites by 2021. commitment, to cerning environment in which it operates, this is fundamental for dis Bakkafrost iscommitted to sustainability andcare for the ASC in theexceptional taste of Bakkafrost Salmon. acids DHAandEPA. Thenatural diet alsoensures enjoyment sures theoptimum fat content, richinhealthy Omega 3fatty for thequalityof Bakkafrost Salmon,themarinecontent en The diet richinmarinecontent isthemost important factor welfare andlow production costs. Feed this, theGroup isableto have oneof theindustry´s best marine resource. By keeping theBakkafrost diet close to marine content. Thenatural diet for wildsalmonisrichin to decideto invest insalmonfeed withsubstantially higher Vertical integration meansthatBakkafrost hastheexpertise Feed richinmarinecontent achieve Conversion customers. ASC and certification, Ratios Bakkafrost is rigorously (FCR) which which was pursuing one underpins is a of ANNUAL REPORT 2019 key the ASC indicator first the certification Bakkafrost companies of fish - - 50 PERFORMANCE MARKET REVIEW main stable just above 90million tonnes, of whichabout 20 Overall, consumption percapita of 20kg (live weight equivalent). tonnes were utilized asfood. Thiscorresponds to seafood million Capture SEAFOOD CONSUMPTION over thelast couple of years. The share of non-food uses hasremained atasteady level million Source: Kontali, FAO 35 Fig. WORLD SEAFOOD PRODUCTION FOR HUMANCONSUMPTION ANDCONSUMPTION PERCAPITA is tonnes fisheries global
1 1 1 1 1 2
utilized
2 0 2 0 0 0 0 0 0 0 0 0 0 0 capture of 2 0 0 and 0 in fish 2 the
0 aquaculture 0 in 1 fisheries production 2 2017, 0 0 2
2 0
0 of production is which 2 0 of estimated 0
fishmeal 2 0 0 about continues 2 0 0 to and 153 about 2 0 0 fish million to 2 0 173 0 oil. re -
2 0 0 9 2 continue alsointheupcoming years. increasing demandfor seafood. Thistrend ismost likely to remains stable. Consequently, aquaculture has covered the world Aquaculture production continues to increase its share of the 0
1 0
2 0 1 seafood 1 2 0 1 2
2 0 consumption, 1 2 0 1 2 0 1 2 as P 0 1 capture
2 0 1
2 0 1 fisheries E 2 0 1 9 E
production 1 1 1 1 1 2 2 9 0 1
ANNUAL REPORT 2019 51 PERFORMANCE per capita peryear onaverage. sumption of 2.2 kg wfe per year – equal to approx. 7-8 meals of tonnes however, istheEuropean Union(EU-28), where 1.1million The world’s largest consumer market of Atlantic salmon, which isabout onemealpercapita peryear. prox. ply volume corresponds to apercapita consumption of ap creased In 2019,worldwide supplyof farmed Atlantic salmonin CONSUMPTION TRENDS MAIN MARKETS FOR SALMON AND MARKET REVIEW Source: Kontali approx.
PER CAPITA CONSUMPTION OFATLANTIC SALMON (KG/CAPITA) 36 Fig. 0 1 1 2 2 0 0
300 0 0 0 0 0 wfe by grams 512 6% 2 were 0 1 0 and million, wfe consumed exceeded or 2 0 1 this approx. 1 in corresponds 2.5 2019 2 0 150 million 1 2 (+6%). grams tonnes 2 to 0 1 With of a per edible wfe. a capita population 2 0 1 The product, sup con 2 - - - - 0 1 producing and strong performance andgrowth from other European (+9%). Supply increase was most notable from Europe in2019 normal, spot prices increased again towards Christmas. on theEuropean market ledto downwards price pressure. As Particularly highersupplyinsecond half(July-September) low 60NOKperkg onaverage –somewhat lower than2018. European spot prices for Atlantic salmonin2019endedbe shares assupplyfell by 2%from 2018. served 2 0 1 This from regions is 2 Chile 0 a 1 result (+2%), (+24%). 2 of 0 1 supply while A slight 2 Canadian 0 growth 1 9 E supply from salmon growth Norway R U E U lost A was market (+6%) ob - - ANNUAL REPORT 2019 52 PERFORMANCE MARKET REVIEW Increase ing 5-6mealspercapita peryear. capita consumption of approx. 1.6kg wfe peryear –indicat With apopulationof 329million,thiscorresponds to aper 37 In 2019,theUS market for farmed Atlantic salmongrew by THE US MARKET type of retailers. to the EU market there is larger difference in segments and increasing trend towards the fresh category. Also, compared partly build-up around the frozen category, there is a clear While theUS industry (both HORECA andretail segment)is lantic salmonhasincreased by almost 270000tonnes wfe. During thepast decade (since 2010)theUS market for At ble around 90000tonnes wfe. compared to theprevious year. Supplyfrom Canada was sta Kingdom Europe behind thevolume growth, but alsoincreased supplyfrom 200 was tonnes in increased supply notable wfe supply from – (+17%). to a Chile by total Both approx. (+6%) supply Faroe 5 was 000 of Islands 519 the tonnes main 700 and in tonnes. United driver 2019, - - - Source: Kontali SUPPLY OFATLANTIC SALMON TO THEUS MARKET(TONNES WFE) 37 Fig. SUPPLY OFATLANTIC SALMON TO THE US MARKET(TONNES WFE) 38 Fig. Total Other USA United Kingdom Faroe Islands Norway Canada Chile Country
1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 2 0 1 0 247,700 15,600 20,600 10,000 53,800 87,600 53,200 6,900 2010 2 0 1 1 266,600 13,200 21,500 16,600 28,700 80,400 99,100 7,100 2011 2012 2 0 1 2 162,200 330,000 17,700 13,100 23,700 98,200 2 9,400 5,700 0 1 2 191,600 350,000 0 10,100 11,400 16,100 16,400 27,000 77,400 1 2013 2 0 1 214,700 373,900 16,200 10,600 20,400 17,100 39,900 55,000 2014 2 0 1 224,100 427,600 13,800 14,600 16,300 14,700 51,200 92,900
2015 2 0 1 217,300 100,900 427,500 16,300 12,700 16,900 55,700 2 7,700 0 2016 1 2 0 1 220,400 446,400 9 13,100 19,600 18,000 14,800 68,400 92,100 E 2017 2018 267,200 482,500 N U U O 21,300 16,100 12,800 67,300 90,500 ANNUAL REPORT 2019 7,300 A
284,300 519,700 519,700 29,200 20,300 18,200 68,300 91,600 2019E 7,800 7,800
53 PERFORMANCE food service industry (Hotels, restaurants, catering). was soldthrough retail chains, whiletheremainder went to value-added products. Around 70%of Atlantic salmonsupply egory fresh wholesalmonasraw material. Thelargest product cat EU hasalarge secondary processing industry whichuses tic salmonhasincrease by more than365000tonnes wfe. During thepast decade (since 2010)theEUmarket for Atlan year, whilesupplyfrom Chilewas somewhat lower volumes. the wfe orby 4% in2019. There was also anotable increase from Norwegian supplyto theunionincreased by 33700tonnes counting for approx. 50%of thetotal consumption. salmon consuming markets withintheEuropean Unionac Germany, France andtheUnited Kingdom are thelargest per year –indicating 7-8mealspercapita peryear. this corresponds to apercapita consumption of 2.2kg wfe lion by 67400tonnes wfe or6%–to atotal supplyof 1.12mil In 2019,theEUmarket for farmed Atlantic salmonincreased THE EUMARKET MARKET REVIEW Faroe tonnes is fresh Islands wfe. fillets With (+47%) followed a combined and by United smoked population Kingdom salmon of 512 (+24%) and million, other last - - - - Source: Kontali
Fig. 39 Fig. SUPPLY OFATLANTIC SALMON TO THE EUMARKET(TONNES WFE) 40 Fig. SUPPLY OFATLANTIC SALMON TO THEEUMARKET(TONNES WFE) Total Other/ Re-export Faroe Islands Chile United Kingdom Norway Country 1 1 1
2
0 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 1 112,800 615,300 757,500 0 25,400 10,600 -6,600 2010 2 0 1 1 117,500 648,400 820,500 28,700 17,200 8,700 2011 2012 2 0 1 2 117,000 761,900 933,200 36,800 27,000 -9,500 2 0 1 110,300 755,500 931,200 -19,100 2 34,300 50,200 0 1 2013 2 1,005,100 0 117,800 834,600 -30,100 1 32,300 50,500 2014 2 0 1 1,070,900 121,100 912,200 -27,700 20,400 44,900 2015 2 0
1 1,041,100 115,400 860,200 -16,800 28,400 53,900 2 2016 0 1 1,019,500 2 0 124,900 841,400 -17,100 1 27,800 42,500 9 E 2017 2018 1,057,300 109,500 910,800 -24,300 20,600 40,700 ANNUAL REPORT 2019 N U O
R 1,124,700 1,124,700 135,400 944,500 -21,600 30,200 36,200 2019E
54 PERFORMANCE MARKET REVIEW volumes from both these regions. 96%of thisvolume was Islands last year. Infact, 2019showed record highsupply The growth was most notable from Norway andtheFaroe tinued significant Supply of Atlantic salmonto ChinaandHongKong have seen CHINA /HONGKONG to better availability of large sized salmoninEurope. (6+ Supply to Chinaismainly fresh wholesalmonandlarge sizes whole and40%frozen wholesalmon. 45 Chile remained thelargest supplier to Chinawithexport of fresh wholesalmon. 000 kg). to Increase tonnes increase growth wfe in by over supply of 12% Atlantic the and last past exceeded year salmon decade. must – 125 In of be 2019, which 000 seen supply tonnes in 60% relation fresh con wfe. - Source: Kontali Fig. 41 Fig. Fig. 42 Fig. sad 10 ,1 680 ,4 1,5 950 040 ,3 1,0 14,970 10,700 8,730 10,410 10,900 9,520 12,710 12,660 11,050 SUPPLY OFATLANTIC SALMON TO CHINA ANDHONGKONG (TONNES WFE) 9,640 12,250 14,920 6,800 16,430 3,710 Total 11,540 160 Others 8,020 Canada Faroe Islands 5,400 Australia 770 Denmark United Kingdom Chile Norway Country SUPPLY OFATLANTIC SALMON TO CHINAANDHONGKONG (TONNES WFE) 1 1 1 2 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 1 0 290 420 440 770 410 110 640 780 090 42,990 30,920 17,860 16,480 31,110 34,140 27,770 34,450 24,260 32,970 40,720 ,5 150 9 10 4 640 ,7 1,0 800 9,650 8,000 11,800 1,670 45,540 6,420 44,770 940 27,790 29,280 150 18,270 290 19,960 9,630 1,500 1,550 4,920 5,180 3,380 2010 5 60 8 30 8 240 ,9 210 ,0 870 5,300 2,120 340 5,790 2,430 80 280 130 320 350 580 310 690 100 550 110 720 620 2 0 1 1 49,890 9,040 2011 2012 2 0 1 2 61,160 2 6,000 0 1 2 69,430 10,070 0 1 2013 2 0 1 86,350 3,200 2014 2 0 1 85,310 2,510 2015 2 0 1
88,050 12,090 2016 2 0 1 2 0 99,540 18,240 1 2017 2018 9 E 113,020 126,300 ANNUAL REPORT 2019 610 0 250 10 N U A O
2019E 1,130 55 PERFORMANCE MARKET REVIEW Source: Kontali
Fig. 43 Fig. 2 1 GLOBAL SUPPLY OFALLFARMED AND WILDSALMONIDS 44 Fig. Total Chinook Coho Sockeye Large trout Pink Chum Small trout Atlantic salmon HISTORICAL SUPPLY OFALLSALMONIDS (TONNES WFE) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 2 1,455,302 0 3,284,902 1 160,700 167,600 326,600 399,100 309,300 446,600 0 19,700 2010 2 0 1 1,633,400 3,675,800 1 174,400 148,800 344,500 587,500 274,600 490,600 22,000 2011 2012 2 0 1 2 1,998,550 3,975,450 191,000 142,300 385,700 410,300 294,700 534,100 18,800 2 0 1 2,041,250 4,189,950 176,800 133,200 320,800 580,600 338,300 577,500 2 21,500 0 1 2013 2,229,300 4,118,200 2 0 200,400 173,700 307,000 307,900 321,900 555,700 1 (TONNES WFE) 22,300 2014 2 0 1 2,319,100 4,314,100 189,900 190,300 280,500 398,900 338,100 573,400 23,900 2015 2 0 1 2,161,950 4,045,950 151,800 183,000 279,100 354,300 280,900 612,700 22,200 2 2016 0 1 2,290,500 4,284,700 2 194,900 173,700 262,400 448,400 261,100 630,800 0 22,900 1 9 2017 2018 E 2,405,100 4,582,800 211,100 167,900 267,200 591,300 268,600 648,300 23,300 A P L
2,581,200 4,762,100 4,762,100 234,100 178,700 303,100 547,300 225,400 666,300 26,000 2019E
ANNUAL REPORT 2019 56 PERFORMANCE MARKET REVIEW linked to sealice regulation and treatment to combat lice and a decrease inaverage harvest weights. Thisisparticularly has beenlimited since 2012dueto lower yieldsdriven by spite increasing smoltstocking, harvest growth inNorway and Norway is the largest producing country of Atlantic salmon FARMED ATLANTIC SALMON GLOBAL HARVEST OF tonnes wfe in2019. Also, land-based plantsRAS (global) harvested approx. 6 000 Russia withmarginalproduction below 20000tonnes WFE. Other regions withconventional farming includeIreland, production around 24000in2019. Investments andefforts onIceland are showing results and year with biological challenges and sealice related issues. Faroe Islands saw vast increased production - following a ble last year, whileboth United Kingdom (Scotland) andthe Production in North America (Canada) and Australia was sta in 2019. year. Key production parameters showed good results also ery biology-wise andseenimproved productivity year after Since ISA-crisis in2008-2009,Chilehasexperienced recov Chile, accounted for 27%of theglobalproduction in2019. The second largest producing country of Atlantic salmon, capacity constraints. account for 52% of the
global production in 2019. De - - - Source: Kontali 45 Fig. GLOBAL HARVEST OFATLANTIC SALMON (TONNES WFE) 46 Fig. GLOBAL HARVEST OFATLANTIC SALMON *Total Landbased RAS Others Russia Iceland Australia Ireland Faroe Island North America UK Chile Norway Country
1 1 2 2
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 2 0 1,455,202 1 0 140,000 142,900 129,600 944,600 33,000 17,800 41,800 3,500 1,200 2010 802 2 0 - 1 1 1,005,600 1,633,400 137,800 154,700 221,000 36,000 16,000 56,300 4,000 1,200 2 2011 2012 100 700 0 1 2 1,183,100 1,998,150 2 156,100 159,400 364,000 0 40,000 15,600 70,300 1 6,000 3,250 100 300 2 (TONNES WFE) 0 1,143,600 2,041,050 1 135,400 157,800 468,100 10,000 39,000 10,600 72,600 3,350 2013 300 300 2 0 1 1,199,000 2,229,400 119,000 170,500 582,900 14,500 42,000 12,300 82,700 1,800 4,400 2 2014
300 0 1
1,234,200 2,319,100 2 155,400 166,300 598,200 0 13,600 54,400 15,700 75,600 1 1,800 3,600 2015 300 2 0 1 1,171,100 2,161,850 168,500 157,400 504,400 50,900 15,800 77,300 2,900 8,100 5,000 2016 450 2 0 1 9 E 1,207,800 2,290,400 158,700 177,200 564,200 11,500 61,200 17,000 80,300 3,400 8,600 2017 2018 500 U N A R O L
1,253,400 2,405,100 A 165,400 153,600 660,100 13,600 62,600 14,300 71,700 ANNUAL REPORT 2019
4,500 5,400 R A 500 1,333,400 2,582,900 2,582,900 164,000 183,600 690,200 24,000 14,500 62,600 17,100 86,600 2019E 6,400 500
57 PERFORMANCE 35%. share of supplyeach.European market accounted for approx. (3 continents) andsofar in2019(Jan-Nov) accounted for 20% large sized salmon.Top 3markets are Russia, USA andChina market Another factor whichallows theFaroe Islandsto have good mented in2014. 000 tonnes WFE annually since the import ban was imple plier on -theFaroe Islandshave remained thelargest salmonsup With continued Russian importembargo for Norwegian salm 86 900tonnes wfe (+21%). recovery came asexpected andsupplywas record strong of contributed to lower production in2018.Last year, 2019, The issues like gilldiseasebut alsoby higherlevels of sealice. However, inlate 2017theindustry was faced withhealth est smoltyieldintheindustry. rates andhighaverage harvest weights -leadingto thehigh the last decade, beenthebest intheworld –withlow loss The biological performance of the Faroese salmon has over SALMON FROM THEFAROE ISLANDS SUPPLY OFFARMED ATLANTIC MARKET REVIEW losses
of fresh diversification rose whole significantly salmon is a to high in Russia, the share last with
months of exports production of of 2017 15 being - and 25 - - - -
Source: Kontali
Fig. 47 Fig. (ILLUSTRATES THEMARKETDIVERSIFICATION) SUPPLY OFATLANTIC SALMON FROM THEFAROE ISLANDS TO DIFFERENTMARKETS (TONNES WFE) 48 Fig. SUPPLY OFATLANTIC SALMON FROM THEFAROE ISLANDS (TONNES WFE) All other markets France Italy Netherlands Germany Spain United Kingdom Denmark China USA Russia Country 1 2 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 1 0 2,682 7,251 5,940 4,385 9,994 8,349 2 2010 177 283 465 208 0 36 1 1
2 16,579 0 3,636 6,265 7,631 5,195 3,648 2,373 8,158 1 2011 2012 637 2 43 3 2 0 1 13,085 13,056 5,304 1,466 8,637 9,466 4,806 6,738 7,997 33 25 2 0 1 16,394 11,439 10,199 15,071 3,938 1,447 9,603 2,613 2013 906 2 75 0 1 0 17,105 11,256 10,945 15,465 11,557 2 3,663 9,050 2,122 0 2014 1 176 0 0 2 0 1 14,671 25,660 1,740 4,633 5,489 5,404 9,505 7,266 2015 253 138 - 2 0 1 16,908 10,305 19,798
3,061 8,024 5,010 8,156 5,780 T 2016 363 651
19
2 N 0 1 9 14,820 10,916 24,096 1,557 5,621 4,920 1,056 8,556 7,273 2017 2018 404 92 U U N A A
12,829 23,812 10,615 ANNUAL REPORT 2019 1,375 6,538 7,654 1,421 5,183 599 306 460 (Jan-Nov) YTD 2019 YTD 16,641 16,758 13,616 1,484 3,348 1,274 4,418 9,879 2,427 1,955 6,763 6,763
58 PERFORMANCE MARKET REVIEW market (demand)for Atlantic salmon,particularlyinEurope. per kilo. Thiswas anearlyindicator of astrong underlying es were strong withspot prices averaging around 60NOK spite the Supply volume inJanuary2019was record strong, andfor SUPPLY ANDMARKETPRICES CHANGE INMARKET what In thelast quarter of 2019,globalsupply rate was some low market prices fell to thelow NOK40-ties. cessing industry onholidayandglobaldemandseasonal increase inavailability. Furthermore, withEuropean pro 2018. Theindustry andmarket were surprisedby strong harvest this month.Also, Scotland andtheFaroe Islandshadhigh challenges were contributing factors to highharvest pace Norway, September showed aglobalsupplyincrease above 20%.In Most tial for thesecond half. to show good growth andfacilitated volume growth poten rate Global 000 tonnes wfe. 2020. Lost potential could have corresponded to approx. 46 losses would leadlower harvest potential inQ4andinto losses In May, salmon farmers inNorthernNorway suffered heavy NOK 70-ties. Market demand remained strong and allowed for prices in towards Easter. Aprilsupplyvolumes showed 11%growth. In Europe, awarm winter periodallowed for good growth first of 5% of lower (9.6 supply 5%. the time activity better particularly At million (+3-4%) volume the in in thefirst halfof availability history same – fish) with and growth sealice time due exceeded in
significant November or production took to related volume an 2019 place 200 algae issues growth ended with and growth, 000 in in bloom. Europe Q3 December tonnes and (+11%) compared market Majority fish continued a wfe. growth health where Euro pric De of to ------
40 NOKto almost 80NOKperkilo. age spot price increased by almost 100%-from just above limited pean spot prices picked uptowards Christmas withmore Source: Kontali SUPPLY ANDMARKETPRICES 49 Fig. 2 2 0 0 0 0 0 0 0 volume 1 available. 2 0 1 6 9 1 From 1 1 week 2 0 40 1 7 to 9 week 1 1 1 52 aver 2 0 - 1 8 9 1 1 1 2 0 1 9 9 1 1
A
N ANNUAL REPORT 2019
E A O
N
59 PERFORMANCE Chile. Seetable below for more details: companies madeup63%of thetotal harvest and67%in senting 61%of thetotal harvest quantity. InNorway, these (Atlantic Salmon, Coho Salmon, Chinook, Big Trout), repre nies harvested approx. 1.7milliontonnes wfe of salmonids In TOP 15-FARMING COMPANIES (SALMONIDS) MARKET REVIEW 2018, the world’s fifteen largest salmon farming compa - - Source: Kontali **** Scottish SeaFarms not included.Owned 50/50by Lerøy Seafood andSalmar ***Aqua Chile, Salmones Magellanes, Los Fiordos andFriosur merged in2018 **Mowi has48%ownership inNova Sea.Acquired NorthernHarvest in2018. * Allfarmed salmonids(Atlantic salmon,Large Trout, Coho andChinook).Figures rounded to nearest 100tonnes WFE(round bledweight) 50 Fig. TOP 15SALMON FARMING COMPANIES 2018 Share Farmed Salmonids Top 15 Norway Royal Salmon Nova Sea** Nordlaks Salmones Camanchaca Bakkafrost Blumar Australis Seafood Multiexport Foods Grieg Seafood Cooke Aquaculture Salmar **** Lerøy Seafood Group **** New AquaChile /Agrosuper *** Cermaq Group Mowi ** Group - HARVEST VOLUME, ALLFARMED SALMONIDS SPECIES Head-office NO NO NO NO NO NO NO NO FO CA CL CL CL CL CL 1 6% 1 6% 93% 67% 51% 63% 61% 2,880,400 1,754,400 115,500 158,300 180,000 188,000 192,000 416,900 40,000 42,100 44,600 48,500 55,500 58,800 81,800 82,900 49,500 Total 1,317,400 836,000 158,300 180,000 256,000 Norway 40,000 42,100 44,600 51,200 63,800
(TONNES WFE) United K, 157,800 79,900 13,200 24,000 42,700
912,900 615,700 188,000 104,000
48,500 55,500 58,800 81,800 20,000 59,100 Chile
North Am, North 169,850 157,800 18,500 71,500 24,200 43,600
Faroe Isl, 71,700 58,100 49,500 8,600
1 4% 0% 46% 81%
ANNUAL REPORT 2019 15,000 Ireland 6,900 6,900
235,750 Other
- 60 PERFORMANCE Thailand. 15% tonnes. fore but well above thelast 10years average of 1.2million meal 960,000 fish estimated to decrease around 20%to 4.6milliontonnes and from global Due delivered to farmers. both has over thelast decade shown adecreasing trend. However, The share of marine ingredients in feed for farmed salmonids or 80%ifChileisincluded. thousand tonnes. Approx. 60%of thisgrowth was inNorway Last year (2019)globalfeed market grew by 10%or400 year of 1%. feed consumption inNorway showed amodest increase last and other regions (increasing large trout production). Fish 4.16 milliontonnes. Most of the growth was seeninChile In 2018,theglobalfeed consumption increased by 3%to health related issues have increased theeconomic fcr. omass in 2017.Whilethebiological fcr hasbeenstable, higherbi consumption hasincreased andexceeded 4milliontonnes vest tion digit growth inboth 2011and2012,in2012consump Feed consumption to ocean-farmed salmonidssawdouble BUSINESS –FISHFEED REVIEW MARKET REVIEW oil to came exceeded volume was fishmeal the fishmeal losses a production 54% decrease tonnes. imported peak from of growth due and 3.7 year the other and In to in fish to is million volumes 2019, in has fish Peruvian e.g. China, estimated Asiatic 2018. oil been sealice oil around prices tonnes a were production suppliers 5% World Anchoveta limited to decrease treatments still sourced 1.35 of decrease fishmeal impact fish since mainly million decreased fisheries from from feed. then, around and the production Vietnam tonnes the Peru, While feed-price other fish in year notably 25% 2019, while fish feed har and fish be to is - - - - - certainties after thecorona virusoutbreak might affect the the continued effects of theswine diseaseandeconomic un but different uncertain elements intheChinese demandlike Due to the drop inproduction, we expect pressure on prices, Source: Kontali RAW MATERIAL PRICES2011-2018(USD/TONNES) 52 Fig. 51 Fig. Total Others Faroe Islands North America UK Chile Norway Country (ATLANTIC SALMON, LARGE TROUT, COHO, CHINOOK)(1,000TONNES) ESTIMATED FEEDCONSUMPTION/SALE TO SALMONIDS FOR SELECTED SALMONID PRODUCING REGIONS U 1 0 1 2 0 2 0 0 0 0 0 0 0 0 0 0 0
2 0 1,337 2,790 1 2010 235 221 216 720 61
N 1,037 1,494 3,340 2011 2012 273 225 227 85
20 1 1,254 1,652 3,730
290 235 210 89 N
1,209 1,618 3,650 2013 301 202 223 96 2 0 1
- 1,263 1,738 3,900 2014
N 334 235 231 98
remain highthecoming months. are onriseboth inPeru andinEurope andare expected to Chinese
2 0 1,239 1,743 3,940 1 2015 fishmeal 103 353 258 245
N demand 1,036 1,704 3,720 2016 107 362 266 244
20 19 and 1,191 1,822 4,040
keep 2017 2018 101 396 285 245 N prices ANNUAL REPORT 2019 1,269 1,837 4,170 firm. 102 427 290 246 Fish R 2019E 1,341 2,089 4,580 4,580 oil 111 476 291 272 prices
61 RISKS RISKS 62 RISKS At year-end, status onmainrisks are reported to theAudit ysis of theGroup’s risks was inDecember 2018. fied ysis for the whole Group. The risks are assessed and quanti assessment isfollowed upyearly withanextensive riskanal ities, market development, technology etc. The ongoing risk monthly reporting from theorganization onbusiness activ Group’s mainrisks onanongoing basis,basedonweekly or TheGroupdaily riskmanagement. Management assesses the ance withtheriskmanagement framework and theGroup’s The Group Management isresponsible for thedaily compli The Audit Committee supervises theriskmanagement. termines theframework for identifying andmitigating risks. risk management of the Group. The Board of Directors de The RISK MANAGEMENT STRUCTURE AND PROCESS activities inthevalue chain. markets In addition to the operational risks, Bakkafrost is exposed to ing from thenormalbusiness activities inthevalue chain. Bakkafrost hasgeneral operational andbusiness risks aris pact of these, are reduced to anacceptable level. risks activities. Riskmanagement istherefore crucial,so thatthe risks, andrisks willalways beanatural partof ourbusiness The Bakkafrost Group isexposed to anumberof different Risk Management RISKS ANDRISKMANAGEMENT the Board of Directors. Committee andisapproved by both theAudit Committee and and Board Bakkafrost and reported of financial Directors is to exposed the risks Group has arising to, the and Management. final the from potential responsibility the normal The financial latest business for anal im the ------the biological risk in the sea water grow-out stage. Examples One of thelargest riskfactors, Bakkafrost isexposed to, is Farming OPERATIONAL RISKS farming industry. However, in 2017, 2018 and part of 2019, ade experienced alower mortality rate thantherest of the The farming industry intheFaroe Islandshasinthelast dec Mortality auditing. duction cycle by means of systematic group-wide biosecurity Bakka industry isassociated withahighlevel of biological risk,and from suppliers and sub-suppliers, etc. The salmon farming by Bakka materially tion withprimaryprocessing, suchrisks might, ifoccurring, percentage ed inbudgets by means of estimates for mortality andthe Although significantly highervolatility. scores have generally beenless attractive andhave hada in recent years. In Scotland, however, thecorresponding outcome on key performance indicators has been attractive exceptionally good mitigating measures intheFaroe Islands, wipe-out of the biomass in a vast geographic area. Due to such risks can vary from minorcost variations to acomplete larger geographic areas. Theimpact from beingexposed to and required fallowing timebetween generations for sites or version ratio, costs of mechanical and medicinal treatment pricesmolt, achievement versus reference prices, feed con performance indicators suchasmortality, growth, yieldper exposure to suchthreats, there isalways avariation inkey ures are put inplace to mitigate negative impact arisingfrom sea lice andalgae blooms.Althoughcomprehensive meas of such what frost aims at reducing that risk through the entire pro frost’s operations can alsobematerially impacted risks is operational affect classified of are fish Bakkafrost’s direct whose as risks threats normal quality are, results to to operating is the a downgraded and certain fish financial risks, such extent, as e.g. in condition. diseases, connec reflect quality ------substantial costs intheform of premature harvesting, loss Bakkafrost with regard to diseases. Inthecase of anoutbreak of disease, Operation Disease facilities. as facilities well secured, thoughother weather conditions, such areas, where theweather conditions are well known andthe operational organization. Bakkafrost’s facilities are located in reducing risks usingexperience location and withequipment, or escaped fish,even ifBakkafrost iscontinually cant cost implications, e.g. unexpected maintenance/repairs in sea undersometimes challengingconditions. Thiscan result growth rates andfeed consumption. Bakkafrost operates at temperatures things, onweather conditions. Unexpected warm orcold The growth rate of farmed salmondepends,amongother Storms Group strives to maintain thisposition inthemarket. ferentiate from therest of thefarming industry. Bakkafrost Bakkafrost asaGroup alsointhefuture willbeableto dif quality andsize. Thisprice premium can onlybeobtained if mium isbasedon,amongst other things, brand, salmon achievement, comparing to reference prices. This price pre In recent years, Bakkafrost andSSC have hadahigherprice Price premium the mortality. changes mortality in2017,2018andpartof 2019demonstrates that and is now back to the level prior to 2017. The increase in In Q4 2019, however,ment. the mortality rate has decreased mainly due to a fromshift medical to mechanical lice treat Bakkafrost experienced anincrease inthemortality rate incidents storms in of or farming will, or fish floods, can necessary in farming methods have addition could facilities a also measures significant can to lead the have involves direct to that a ANNUAL REPORT 2019 unexpected significant negative may loss considerable of have working on impact fish, impact losses signifi incur risk on on at - - - - 63 RISKS boats andwell boats, predators etc. Escapes normally occur er, sites, each of which are exposed to risks linked to bad weath The company operates, however alarge numberof seawater Bakkafrost hasazero tolerance for escape of farmed salmon. Escapes to improve delousingmethods continuously. vessels assealice treatment. Additionally, Bakkafrost strives and lukewarm seawater treatment intwo farming service frost will an important preventive measure against sealice. Bakkafrost fish Bakkafrost with non-medicinaltreatment options. future goal isthat medicinal treatments will be exchanged kafrost islookinginto non-medicinaltreatment options. The basis. Like almost allother salmonfarming companies, Bak of treatment. Theprocedures are improved onacontinuing for how to reduce thenumberof sealice withdifferent types stress, whichcan leadto diseases. Bakkafrost hasprocedures Faroe Islandstoday. Increased number of sealice maycause and challenges inthefarming industry globallyandinthe The increasing number of sea lice is one of the largest risks Sea lice disease (PD)asanexample. prevalent in Scotland are in addition to the above Pancreas skeletal emia (ISA), Cardiomyopathy syndrome (CMS)andHeart (AGD), Bacterial kidney disease(BKD),Infectious salmonana in theFaroe Islands in recent years are Amoebicgilldisease production capacity. Examples of diseases beingprevalent of RISKS ANDRISKMANAGEMENT sonnel. as aresult of equipmentfailure or mistakes madeby theper quality handling increase is uses the The muscle of both only uses direct harvested of the inflammation cleaner freshwater fish, lumpfish use financial changing of fish fish lumpfish as bath and exposure used cleaner (HSMI). of subsequent on-board in in nets, the its Corresponding fish to farming operations Faroe escapes for a periodic live sea Islands, sites. is fish lice. moderate of diseases reduced carrier, Bakka Lump and work is ------hard to quantify for the accounts of Bakkafrost and for the salmon, governmental penalties andnegative publicityare effects such as spread of diseases, negative impact on wild due mation, corrupting data, orcausing operational disruption. for purposes of misappropriating assets orsensitive infor tems (e.g., through ormalicioussoftware “hacking” coding) are not limited to, gaining unauthorized access to digital sys attacks orunintentional events. Cyber incidents include, but ance. Ingeneral, cyberincidents can result from deliberate Group, these risks are typically not covered by anyinsur cial losses. Unlike manyother types of risks faced by the impacting Group andtheshareholders, suchascausing disruptions and which could result in material adverse consequences for the curity andrelated “cyber” risks both directly andindirectly, and OsloBørs are susceptible to operational, information se conduct business, theGroup, service providers to theGroup With theincreased useof technologies suchastheinternet to Cyber security harvesting anddamage to theindustry’s reputation. of reduced growth andinferior health,reduced quality on and production-related disorders relate to physical deformities populations can be severely affected. The most important arule,As suchdisorders appearinfrequently, but certain disorders caused by intensive farming methods. duction, anumberof production-related disorders arise, i.e. challenged. withallother As forms of intensive food pro biological theaquacultureAs industry hasevolved anddeveloped, the Deformities mitigate theriskof escapes. and new technological solutions are important elements to society asawhole. Procedures, qualityassurance systems to cataracts. the business limits geographic These for operations, how invariably diversification fast fish potentially cause can of financial grow the resulting sites. have loss The also in indirect by finan been way ------obligations from third party. risk is normally mitigated contractually through replacement feed isalsoindirectly exposed to thesameriskfactors, this quotas. tions, orindirectly through restrictions onocean harvests or materially adversely affected directly from any trade restric oe Islands, in which case the Company’s business could be feed departmentatHavsbrún’s facilities islocated intheFar on nificant result inincidents ornecessary measures that mayhave sig could affect thevolumes produced inthefactory. Thismay limited ed shortfalls inraw material dueto limited catch volumes or possible insufficient supplyof raw material input. Unexpect kafrost is vulnerable to food safety incidents, downtime and purchase Bakkafrost isexposed to certain risks whichmayrequire As tablished methods withautomated andcontrolled processes. The Fishmeal, fishoiland feed delay inprofits andcash flows. ing asolution to suchnegative event, whichwould implya of of cyber-attacks isprocessing andsales. For shorter periods The most exposed area of theCompany’s value chainincase nel to applymanualback-up systems to theextent possible. tacks. For Bakkafrost, suchanincidentwould require person can besubject to complete shutdowns asaresult of cyber-at periods, examples have shown thatlarge industrial groups network services unavailable to intended users). Inrecent denial-of-service attacks onwebsites (i.e., efforts to make not require gaining unauthorized access, suchascausing Cyber-attacks mayalsobecarried out inamannerthatdoes time, self-sufficient reducing production delivery Although harvestable cost of fish risks. implications. of or feed any operator The fishmeal, purchase fish salmon from Company’s can Bakkafrost of a fish be farmer of fish third held fish oil meal, fishmeal, party. or and being in is supply sea ANNUAL REPORT 2019 fish continually fish For a water oil net fish feed example, of and buyer oil substitutes, sites follow fish and working of pend feed, Bak fish fish es ------64 RISKS stances. Most contaminants are accumulated inorganisms, exposed to contamination by anumberof undesirable sub als andingredients andthrough its production processes, be Feed may, through its useof different types of raw materi Feed contaminants RISKS ANDRISKMANAGEMENT oil. These contaminants are deposited into the organism’s such as marine wild catch used to produce fishmeal and fish - - to thelist. possibility of “new” contaminants beingadded periodically tored by theauthorities andmaybealtered. There isalso the important contaminants. These limits are continuously moni chain. Authorities set maximum allowable levels for the most fat, and the concentration is greater thehigherup the food - taminated by other inorganic substances such as mineral oil, The feed mayalso, through accidents ortampering, becon tioxidant. antioxidant, Ethoxyquin, hasbeenreplaced withnatural an for DL-PCBs andother pollutants, andsince early2018,the 2015 posed by e.g. the European Union, Bakkafrost has from early the Bakkafrost salmon are well withinthesafety limits, im Even thoughalltests show thatthelevels of pollutants in mercury, arsenic andcadmium. rial contamination andinorganic contaminants suchaslead, oxyquin DL-PCBs, mycotoxins, pesticides, antioxidants suchasEth are not limited to, organic contaminants suchasdioxins and Contaminants The risks, however, can never becompletely eliminated. cleaning rial terials, targeted sourcing of raw materials, regular raw mate include measures andcontrols, includedinHACCP andISOprocedures, of controls to reduce theriskof contamination. Examples of The Company´s feed Havsbrún, department, operates anumber environment, fishhealthorfood safety. ance compliance. The reputation risk associated with non-compli increase theriskof non-compliance andthecost of ensuring ating events could have anegative impact onBakkafrost’s oper on health and/orfood safety withapotential negative impact tamination deliberately through maliciousproduct tampering. Suchcon Generally, contamination mayoccur eitheraccidentally or the and may result cleaned supplier public’s finished of and be has fish and BHT, significant the that the oils, audits confidence feed financial fish brominated may potential etc. quality and oil be and even used condition. supplier a in control strict to risk eating if for flame affect there for plant Bakkafrost’s specifications analyses, Future retardants salmon. fish the ANNUAL REPORT 2019 is security no environment, feed legislation impact procedures Any salmon include, procedures. of and of raw on bacte these feed may ma fish but the for ------
65 RISKS RISKS ANDRISKMANAGEMENT organizing its operations sothattheriskfor unexpected ations fare concerns, maymaterially impact theCompany’s oper Regulatory impositions dueto environmental oranimalwel Regulatory above are beingmonitored. physical objects, etc. Several substances inadditionto thelist which have beenadopted, it must beassumed (but there can the activities isnot contrary to overall development plans, fulfils government mayprolong thelicense period. Ifthecompany for aperiodof 12years from thedate of issue. The Faroese In the Faroese Islands, a salmon farming license is issued mental license of thecompany isrepealed. license. The license may also be withdrawn, if the environ ownership of licenses, or if the company does not use the withdrawn if the company breaches the rule on maximum with theissuance of thelicense. Thelicense mayalsobe or ifthelicensee breaches theconditions set inconnection against overall development plansandprotective measures, changed since thelicense was issued, orifthelicense goes farming operations if substantial preconditions have been The (SEPA). are overseen by theScottish Environment Protection Agency In Scotland, alllicenses andconsents, policies andregulations farming license. ing theprerequisites andrestrictions thatare connected to a dialogue with the Faroese and Scottish authorities regard Salmon farming isregulated by licenses. TheGroup hasgood or suddenchanges intheindustry framework. that theregulatory authorities willimpose restrictions and/ measures isreduced, but there willalways bealatent risk Faroese the and conditions financial authorities in condition. the may license withdraw The and Company if a licenses continuation emphasizes for fish of - - - - tions. which pend Bakkafrost’s Price onfishmeal and fishoil ply anddemandfor farmed salmonisakey parameter. follow acyclical pattern. Thebalance between thetotal sup reasonable to assume thatthemarket price willcontinue to tuations. Farmed salmonisacommodity, anditistherefore on, depend to a considerable extent on theprice of farmed salm The Price onfarmed salmon MARKET RISKS and thelikelihood thattheevent mayoccur. importance of apotential event for Bakkafrost operations ations. TheITrisks are assessed continuously, based on the tive systems will have negative effect on Bakkafrost’s oper breakdown of Bakkafrost’s control systems andadministra come more integrated in Bakkafrost’s operations. Therefore, IT-related risks have increased inrecent years, asIThasbe IT ing practice willbecome stricter. that therules onthisarea maybecome stricter orthatexist in relation to aquafarming, andtherefore itcan beexpected has become thesubject of increasing attention andpublicity exceeds vironmental studies show thatpollution of theenvironment last stocking, incase examinations of theseabedorother en demand areduction inthestocking of fry, compared to the isting practice, therelevant environmental authorities may Under theAct onEnvironmental Protection andunder ex the license periodprolonged. be noassurance) thatthecompany hasalegal claimto have which Company’s to Fishmeal have some certain has historically financial extent historically and financial specified fish on position been oil the position limits. been are price subject and commodities, subject The and of future to Faroese fishmeal future substantial to development substantial and development environment and it is fluctua fish there fluc de oil, ------Bakkafrost trades intheworld market for farmed salmonids. Foreign exchange risk Please refer to Note 4.1for additionalinformation. day-to-day supervisionandtheprocess owners’ follow-up. cial reporting isundertaken aspartof themanagement’s The Directors. agement of these risks has beenapproved by theBoard of through tional measures or(where suchmeasures are not available) Bakkafrost FINANCIAL RISKS value chainandthusreducing thisrisk. production input factors withvegetable raw materials. Furthermore, the ever, intheirefforts to replace someof themarinebased production. Thefeed producers have come alongway, how to Natural limitations inthemarineresource basecould lead large, globalproducers. and thefeed industry isdominated by asmallnumberof global pact fluctuations production costs within thesalmonfarming and segment, Feed Price onfish feed and cash position. could rameter. Decreased supplymaycause prices to increase. This supply to follow acyclical pattern. Thebalance between thetotal fore reasonable to assume thatthemarket price willcontinue global follow-up on costs in market and the profitability. turn shortages account of seeks use demand in have for fish of feed of fishmeal internal to financial feed an of for prices manage for Feed impact fishmeal a is fishmeal significant procedures an and could derivatives. prices integrated financial on marine/animal/vegetable and therefore the are and fish proportion company’s associated affected ANNUAL REPORT 2019 risks fish A part oil policy have for oil through in the is by Bakkafrost’s on profitability a of with a major the fish both the key opera finan man total feed oils, im pa the ------66 RISKS Liquidity riskisthethat Bakkafrost willnot beableto Liquidity risk certain riskelementinaccounts receivables. notAs allreceivables are insured, Bakkafrost must accept a The majoritypartof thetotal accounts receivables isinsured. that tomers thathave not previously hadpaymentproblems and rost has guidelines to ensure that sales are made only to cus losses dueto baddebts historically have beensmall.Bakkaf to meet theirobligations isconsidered relatively low, since The Credit risk hedging strategy. the Group, theBoard willcontinue to adapt its currency become SSC currency uses forward currency contracts to manage its exposure to other revenues. Traded andexport sales can bedenominated in is alsothemaincurrency for themajorityof contracted USD andEUR.SSCs maintransaction currency isGBP, which ments, Bakkafrost isinsomedegree exposed to NOK,GBP, other currencies. Inconnection withsomematerial invest and Company’s exchange those to EUR.Therefore, Bakkafrost hassomenatural For hedging. inated in DKK, which has a relatively stable rate compared purchases of raw materials etc. are predominantly denom extent alsoinother foreign currencies. Ontheother hand, denominated inDKK,EUR,USD andGBP, but to somesmall The revenues andaccounts receivables are predominantly RISKS ANDRISKMANAGEMENT managed meet risk is GBP, outstanding its currencies, currencies financed that financial an by fluctuations but rates financing increasingly counterparties maintaining Bakkafrost present exclusively balances obligations the not is most fully arising bank a a significant has do financial flexible do significant hedged, in as not financing not from the GBP. they have exceed financial possibility these risk fall As fluctuations source of the exports due. and to fixed which transactions. financial Bakkafrost. structure, of Liquidity is to in credit revenue continue is finance in DKK, EUR. strength foreign limits. which risk EUR The The SSC for to in is - - - -
requirement intheshortterm. Unusedcredit facilities and lents ormedium-term credit facilities to meet its borrowing kafrost’s is secured by meansof established borrowing facilities. Bak of new shares. pay-outs, buyback of own shares, capital reduction orissue medium-term outlook, including any adjustment in dividend ditions underwhichthebusiness operates andits short- and ture Bakkafrost manages andmakes changes to its capital struc uity ratio, Bakkafrost willsupportits business operations. favourable borrowing terms. By ensuring agood debt-to-eq to ensure thatitmaintains agood credit rating to achieve The prime objective of Bakkafrost’s capital management is Capital structure andequity terms are described inNote 4.1. in response objective to is an to ongoing have sufficient assessment cash, of financial cash equiva con - - - - - ANNUAL REPORT 2019 67 GOVERNANCE GOVERNANCE 68 GOVERNANCE CORPORATE GOVERNANCE Governance Corporate • ernance: tions intheNorwegian Code of Practice for Corporate Gov Bakkafrost does not comply withthefollowing recommenda porate Governance, whichmaybefound onourwebsite. report, Bakkafrost publishes amore detailed report onCor Beside theCorporate Governance description inourannual tice”). The recommendation may be found at www.nues.no. Norwegian Corporate Governance Board (the“Code of Prac porate Governance, published on 17 October 2018 by the gime, as detailed in the Norwegian Code of Practice for Cor compliance withtheNorwegian corporate governance re of corporate governance. Thecompany endeavours to bein P/F Bakkafrost is dedicated to maintaining high standards board willsupportachange to theArticles of Association. if Association of P/FBakkafrost. Itistheboard’s view that cal reasons, thishasbeenimplemented into theArticles of permission maylast for more thanoneyear. For practi to increase theshare capital andbuyown shares. This that theAGM maygive theBoard of Directors authority law, a company may in its Articles of Association decide meeting isheldin2022.According to theFaroese company shares onbehalfof thecompany untiltheannualgeneral § 4Bgives theBoard of Directors authorization to buyown the ordinary general meeting of thecompany in2022,and Directors authorization to increase theshare capital until next annualgeneral meeting”. should be limited in time to no later than the date of the Bakkafrost’s Articles of Association §4Agives theBoard of Section 3stipulates, mandates “that granted to theboard shareholders find this authorization unacceptable, the ------BAKKAFROST’S GOVERNANCE MODEL is responsible for theoverall year. TheBoard of Directors management of Bakkafrost. management of Bakkafrost. Management isresponsible exercise theirrights atthe Bakkafrost’s shareholders Consists of 3-7members, which are elected every BOARD OFDIRECTORS The Group Executive GENERAL MEETING GROUP EXECUTIVE for theday-to-day General Meeting. SHAREHOLDERS MANAGEMENT Directors andDirectors’ fees. from theBoard of Directors and ischaired by theBoard for election to theBoard of NOMINATION COMMITTEE Consists of three members which are elected by AGM. Consists of four members, Recommends candidates of Directors’ Chairman. AUDIT COMMITTEE ANNUAL REPORT 2019 69 GOVERNANCE tion. mittee are incorporated inBakkafrost’s Articles of Associa The regulations governing thework of theNominationCom members isalsodetermined by theGeneral Meeting. The remuneration payable to theNominationCommittee’s of two years, unless theGeneral Meeting decides otherwise. der its chairman,for theNominationCommittee for aperiod Bakkafrost’s General Meeting elects the members, hereun mittee is31January. deadlines for proposals submitting to theNominationCom tion to the Board of Directors and the Directors’ fees. The The NominationCommittee recommends candidates for elec Nomination Committee Bakkafrost’s Articles of Association. standard rules stipulated intheFaroese company lawand The procedures at Bakkafrost’s general meeting follow the mittee, Board of Directors andauditor. meeting –suchasappointingBakkafrost’s NominationCom Shareholders exercise theirrights atBakkafrost’s general Shareholders andGeneral Meeting related-party transactions. policy, guidelines relating to takeover bidsandguidelines for instructions for theAudit Committee, aninvestor relations guidelines with regardsmanagement, to values and ethics, mittee, the Board of Directors, instructions for theNominationCom orated To ensure adherence to theprinciples, thecompany haselab Bakkafrost’s Governance Model CORPORATE GOVERNANCE specific instructions instructions for the Chief regarding Executive rules Officer of procedure and other for ------• • mittee were: At theendof 2019,themembers of theNominationCom muneration, which isapproved by thegeneral meeting. The The ticipation intheBoard meetings heldduring2019. under The Board of Directors heldsixteen meetings in2019.Below regularly. ing its activities inaworking procedure, whichisreviewed The Board of Directors haslaiddown detailed rules regard Report. Directors members. Information about themembers of theBoard of The Board of Directors shallhave between three andseven the vice-chairman is appointed by theBoard of Directors. Board of Directors iselected by thegeneral meeting, whilst shall beresident intheFaroe Islands.Thechairman of the The majorityof themembers of theBoard of Directors decisions. for Bakkafrost’s RiskManagement andmaterial operational trol andauditmatters. TheBoard of Directors isresponsible any timehasanappropriate capital base, key policies, con The Board of Directors isalsoresponsible thatBakkafrost at Bakkafrost and decides major investments and divestments. Bakkafrost. TheBoard of Directors sets out thestrategy for of oneorseveral managers to manage thedailybusiness of management of thecompany andappoints amanagement Bakkafrost’s Board of Directors isresponsible for theoverall Board of Directors • • Leif Eriksrød JacobsenRógvi Eyðun Rasmussen Gunnar íLiða (Chairman) members each may Director’s of be the found Board profile in “Directors’ of is disclosed Directors Profiles” each receive Director’s in a the fixed Annual par re - - - - - Managements’ Profiles” intheAnnualReport. the Group Executive Management may befound in“Group Havsbrún andCEO inSSC, OddEliasen.Information about Jacobsen, CFO Høgni D. Jakobsen andmanaging director of The Group Executive Management consist of CEO Regin ment andgives more specificrules regarding its work. the employment conditions of theGroup Executive Manage Executive TheBoard Management. of Directors alsodecides specific The Board of Directors hasinexecutive instructions laiddown the Board of Directors. Board of Directors aswell asto anyrules andrequests from ly business andshalladhere to anydecisionsmadeby the The Group Executive Management manages Bakkafrost’s dai Group Executive Management Sandvik andTeitur Samuelsen. committee consists of Rúni M.Hansen(Chairman),Øystein to review accounting and operational issues in detail. The The qualifications. external auditors, evaluates theauditors’ independence and The Audit Committee decides theframework of Bakkafrost’s statutory andother requirements from publicauthorities. business-related risks, internal controls andcompliance with financial rectors andassists the Board of Directors inoverseeing the The Audit Committee isasub-committee of theBoard of Di Audit Committee frost’s share savings planfor employees. members of the Board of Directors are not part of Bakka company’s rules and regarding non-financial audit committee the authority reporting met five and process, ANNUAL REPORT 2019 duties times financial during of the Group 2019 and - - - 70 GOVERNANCE and Sustainability Responsibility Corporate CORPORATE ANDSUSTAINABILITY RESPONSIBILITY dealing withother employees andallexternal stakeholders. ities. They must employ afair and honest approach inevery personal ethics intheconduct of theirduties andresponsibil quires allemployees to observe highstandards of business and which aimsto create asoundcorporate culture. TheCode re and society andare outlined inBakkafrost’s Code of Conduct, proach to creating long-term value for customers, shareholders values andprinciples. Its values guide its behaviourandap throughout thevalue chain,consistent withBakkafrost’s core The company upholdsandpromotes good business practice commitment to have zero cases of non-compliance. fare regulation intheFaroes. Thecompany hasanongoing health Bakkafrost acts inaccordance withstrict nationalworkplace Compliance andethical conduct into these in2020,through theHealthy LivingPlan. and management plansandwillcontinue to beintegrated Sustainability iscovered inBakkafrost’s corporate strategy responsibility of Bakkafrost’s Management Team. is overseen by theBoard of Directors andistheday-to-day thorities. Sustainability strategy, management andreporting ance with statutory and other requirements from public au cial andbusiness-related risks, internal controls andcompli The in theAnnualReport andSustainability Report. ternally onaregular basisandexternally onanannualbasis are monitored throughout thesupplychainandreported in bility our risk assessment process. The process allocates responsi approach to themanagement of sustainability riskthrough environmental issues. Thecompany follows aprecautionary bly, thisincludes thinkinglong-term oneconomic, social,and Bakkafrost’s core values specifyanintent to act responsi Governance andmanagement Audit for and the Committee safety, mitigation environmental, assists of significant the Board and operational fish in overseeing health risks. and finan Risks wel ------gagement. The 2023 Healthygagement. Living Plan will outline areas workforce competency, andto maintain highemployee en workplace, to attract and retain talent andexpertise, to build The company isdedicated to havinga diverse andinclusive to its core values. have acapable andengaged workforce, whichiscommitted achieve its mission andmeet its strategic objectives, itmust UK, Scotland andUSA. Itacknowledges thatinorder to Bakkafrost Human capital tainability Report. against these principles annuallyintheHealthy Living Sus and discrimination.Thecompany communicates its progress have aworkforce free from forced/compulsory/child labour, of association andtheright to collective bargaining; andto pact to pledge to protect humanrights; respect thefreedom by signing up to the ten principles of the UN Global Com In 2018,Bakkafrost strengthened its commitment inthisarea vironment whichisinclusive andfree from discrimination. commitment to create aprofessional andpositive work en creating optimal working conditions andculture, includinga Bakkafrost’s Code of Conduct alsooutlines its approach to asked to signupto, whenentering into agreements. bour force. Thisissupported by thestandards, suppliers are frost norits business partners shallexploit children asala Its Code states acommitment to ensure thatneitherBakka human rights abuses. human rights andto makingsure thatitisnot complicit in The company iscommitted to respecting the protection of Workplace andhumanrights and certifications isoutlined below. Further commitment to voluntary sustainability standards employs 1,553 employees ANNUAL REPORT 2019 in the Faroe Islands, ------71 GOVERNANCE to maintain anindustry-leading approach to animalwelfare, has health and welfare is maintained at all times. The company includes surveillance across allsites to ensure thatoptimal and assistants –hasastrategy inplace to achieve this,which health the ards andreducing theuseof chemicals andmedicines in Bakkafrost iscommitted to upholdingleadingwelfare stand Biosecurity, fishhealthand welfare er product qualityscores. maintain ourhighomega 3levels andmaintain highcustom highest standards, the company hasmadeacommitment to food safety regulations. well As asongoing adherence to the ing andmonitoring for compliance withnationalhealthand inspected by theauthorities; thisinvolves dailyproduct test hensive internal control system isinplace, whichisregularly try-leading product qualityandsafety standards. Acompre programmes (outlined below), Bakkafrost ensures indus Through Product qualityandsafety Employees receive regular training onthese. on the highest health, safety and environment standards. workplace. Thisisachieved through aset of guidelines based tematic approach to attaining aninjuryandaccident free The company’s Code outlines its intention to ensure asys working culture. ard of occupational health and safety and creating a healthy Protecting humancapital involves maintaining ahighstand Health, safety andwellbeing human capital. in whichthecompany willincrease focus, to strengthen its and to have zero fishescapes. CORPORATE ANDSUSTAINABILITY RESPONSIBILITY prevention made team various a commitment – made of best disease up practice of to and certified maintain sea standards lice. veterinarians, high The fish and experienced survival certification biologists, rates, fish ------Code outlines anintention to strive to bemarket leadingin ronment from eachstage of thevalue chain.Thecompany’s Bakkafrost iscommitted to minimizing pollution of theenvi Environmental management andsustainable feed tifications; meal, oil and feed production at Havsbrún, hold multiple cer according of duction hastheAquaculture Stewardship Council Chain (ASC) Bakkafrost’s harvesting andvalue-added product (VAP) pro star) andBRC for theprocessing plants andthesmokehouse. The operation inScotland isaccredited according to BAP (3- on. Our value chainalsohastheOhne Gentechnik Non-GMOadd welfare, healthandsafety, andenvironmental management. which tified farming sites, andharvesting andprocessing plant–iscer the Faroe Islands–feed production, broodstock, hatcheries, sustainability, qualityandsafety. Theentire value chainin standards Initiative (GSI).Bakkafrost subscribes to anumberof external the Faroese Aquaculture Association andtheGlobalSalmon wellAs as collaborating with the salmon industry through Collaboration andcertification on theenvironment, andreducing its GHGemissions. environmental standard, reducing theimpact from packaging health of theenvironment, includingmeeting athird-party sil fuelsandhasmadeaseries of commitments towards the The mentally friendlysolutions to theextent reasonably possible. ties have onnature andtheenvironment andapplyenviron bear inmindtheenvironmental effects work-related activi environmental protection. Allemployees willberequired to Custody company according focuses to and all certification, the is on units certification focused to BRC food the are and safety international on certified and IFS optimizing programmes food the throughout VAP to safety GLOBAL ISO9001:2015, production its standards. the efficient to production, ensure G.A.P. is use standard, The certified and product of fish fos fish the ------rost’s 2019Healthy LivingSustainability Report. 2019 performance against them,can befound inBakkaf to these issues, its planto meet its commitments, andits Further information onBakkafrost’s management approach stakeholder interest, suchascommunity investment. national level, andincrease transparency onissues of high demonstrate responsible leadership atboth a local andinter in thecompany. Thecompany hasmadeacommitment to a big responsibility to everyone with an invested interest Islands, through employment, taxes andreturns, meansithas The considerable value generated by Bakkafrost to theFaroe Responsible leadership andvalue generation in theFaroe certified. IslandsASC Bakkafrost has made a commitment to have all farming sites GMP+. of Custody standard. Oursalmonmealandoilalso have GMP+ fishmeal standards, and fish the oil IFFO division RS certification is certified ANNUAL REPORT 2019 and according the MSC to Chain the - - 72 GOVERNANCE SHAREHOLDER INFORMATION Information Shareholder exchange announcements, interim reports, annualreports, the Group’s shareholders through theformal channelof stock The company aimsatmaintaining aregular dialogue with Information to shareholders has high priority in Bakkafrost. credit facilities. TheBoard of Directors hastherefore decid ance sheet,acompetitive operation andundrawn available Bakkafrost’s adjusted EPSshall bepaidout asdividends. A for ahealthy future growth of thecompany. ny ahealthy capital base, both for thedailyoperations and to make anoverall assessment inorder to secure thecompa holders, but itistheresponsibility of theBoard of Directors Generally, the company should pay dividendsto its share of theequitythrough positive operations. from thecompany andby securinganincrease inthevalue turn ontheirinvestment, both through paymentof dividends Bakkafrost aimsto give its shareholders acompetitive re DIVIDEND POLICY - - - - - for subsidiaries all its subsidiaries, registered in theFaroe Islands.Auditor ants), which is also the auditor of the parent company and grannskoðanarvirkiløggilt (State Authorized PublicAccount The consolidated accounts have been audited by P/F Januar, AUDITORS analysts. annual general meetings andpresentations to investors and
long-term ants, Grimsby The Scottish SalmonCompany PlcisCampell Dallas, Glasgow. Bakkafrost USA LLC isEisnerAmperLLC. New Jersey. Bakkafrost UKLtd isForrester Boyd Chartered Account Havsbrún Shetland Plc.isA9Partnership Ltd. Lerwick Havsbrún Norge ASA isBruliRevisjon AS, Flekkefjord goal financial for the position Board of is Directors strong with is that a healthy 30–50% bal of ------rate NOK/DKK. Thecurrency rate NOK/DKKwillbeannounced onex-date. * Thedividendpershare inNOKissubject to changes, dependingonthecurrency vør Jacobsen, Regin Jacobsen andFolketrygdfondet. of theshares inthecompany asat31December 2019: Odd These LARGEST SHAREHOLDERS Ticker code: BAKKA holds 892treasury shares asat31December 2019. DKK 59,143,000 P/F Bakkafrost had, on31December 2019,atotal of SHAREHOLDERS, CAPITAL ANDVOTES DKK 7,601.5million. After paymentof dividends,thedistributable equitytotals Total provision for dividends:DKK491.5million - - - The Board thereby proposes thefollowing allocation of funds: million). idends. proximately NOK 11.23*) per share shall be paid out as div to propose to theAnnualGeneral Meeting thatDKK8.31(ap 800.8 millionfor 2019.TheBoard of Directors hasdecided The AND ALLOCATION OFPROFIT FOR THEYEAR PARENT COMPANY’S FINANCIALSTATEMENTS corresponds to DKK491.5million(NOK664.2*million). (NOK 11.23*)pershare shallbepaidout asdividends.This ed to propose to theAnnualGeneral Meeting thatDKK8.31 Transferred to other equity:DKK309.4million Result for 2019:DKK800.8million parent 1. shareholders Of This the company shares corresponds 59,143,000 outstanding, held P/F directly Bakkafrost to shares DKK each outstanding, or 491.5 indirectly had with ANNUAL REPORT 2019 million a a net nominal P/F more profit (NOK Bakkafrost value than of 664.2* DKK 5% of - - -
73 GOVERNANCE Directors andManagement 74 GOVERNANCE among other memberof Equinor´s Exploration Executive team. sive experience intheinternational oilandgas industry. He was on theArctic in the Period 2012-2016.Mr. Hansenhasexten was a member of the World Economic Forum´s Agenda Council Global Compact´s Platform for Sustainable Ocean Business. He ers to subscribe for shares. Mr. Hansen is member of The UN in December 2019duringtheSubsequent Offer to sharehold Holds 10,761shares atyear-end 2019–purchased 761shares Number of shares heldinBakkafrost: Participated inall16Board meetings in2019. Board meetings in2019: Business School.Postgraduate, Lancaster University. MSc. inEconomics andBusiness Administration, Copenhagen Education: holding company Tjaldur. ered Executive to beindependent. chairmanof theindustry been Born 1967.Faroese citizen. JoinedtheBoard in2009andhas Chairman of theBoard RÚNI M.HANSEN Directors’ Profiles DIRECTORS’ PROFILES Equinor (Statoil) he was intheseafood andshipping industry. in London, Copenhagen, OsloandThe Faroe Islands.Priorto During histime inEquinor (former Statoil) hehas been based Chairman since. Term of office expires in 2020. Is consid - - - Islands. presently also Chairmanof P/FFrost andof P/FVisitFaroe was Marketing Director from 1992to 2001. Mr. Jensenis keting. Hehad a longcareer atFaroe Seafood, where he Mr. Jensenhasextensive experience inseafood andmar in 2019. Holds noshares atyear-end 2019–nochange inportfolio Number of shares heldinBakkafrost: Participated inall16Board meetings in2019. Board meetings in2019: MBA, Lancaster University Management School. Education: P/F Gist &Vist. 2020. Isconsidered ManagingDirector to beindependent. at has Born 1962.Faroese citizen. JoinedtheBoard in2009and Deputy Chairmanof theBoard JOHANNES JENSEN been Deputy Chairman since. Term of office expires in - Betri Trygging. member of theBoard of Directors atP/F6.September and and Bakkafrost (2009-2014).Mr. Samuelsenispresently a mark and Mr. Samuelsenhasanextensive experience from accounting Holds 100shares –nochange inportfolio in2019. Number of shares inBakkafrost: Participated inall16Board meetings in2019. Board meetings in2019: School. MSc. inBusiness Economics &Auditing, Copenhagen Business Education: Managing Director atP/FEystur- ogSandoyartunlar. of Born 1972.Faroese citizen. JoinedtheBoard in2016.Term Board member TEITUR SAMUELSEN office finance. and expires has He been has in 2020. CFO worked at Is Atlantic at considered KMPG Petroleum and ANNUAL REPORT 2019 to Dong be independent. (2005-2009) E/P in Den - 75 GOVERNANCE tration team andsales team for over 25years. industry andsales. Shehas beenpartof Bakkafrost’s adminis Mrs. Frederiksberg hasextensive experience inthesalmon – change inportfolio in2019:+254shares. Holds Number of shares inBakkafrost: Participated in15Board meetings in2019. Board meetings in2019: School. Basic Vocational Course, Commercial Line, Faroese Business Education: Sales Manager atBakkafrost. of Born 1971.Faroese citizen. JoinedtheBoard in2008.Term Board member ANNIKA FREDERIKSBERG DIRECTORS’ PROFILES office directly expires and in indirectly 2020. Is not 15,810 considered shares to at be year-end independent. 2019 -
Norway andinDrevik AS International AS. a memberof theBoard of Directors of Coldwater Prawns of Norge and seafood. Hehasheldseveral positions atNordea Bank Mr. 2019. Holds noshares atyear-end 2019–nochange inportfolio in Number of shares inBakkafrost: Participated inall16Board meetings in2019. Board meetings in2019: Bank Economist. Education: of office expires in2020.Isconsidered to beindependent. Born 1948. Norwegian citizen. Joined the Board in 2013. Term Board member ØYSTEIN SANDVIK Sandvik within has fish extensive farming and experience fishery. Mr. from Sandvik the finance is presently sector
and hasheldpositions asCEO inCargill andEWOS. Mr. Wathne has extensive experience from seafood business 2019. Holds noshares atyear-end 2019–nochange inportfolio in Number of shares inBakkafrost: Participated in14Board meetings in2019. Board meetings in2019: MBA, Handelshøyskolen BI. Ph.D. inAquaculture, NMBU. Master inAnimalNutrition atNMBU. Education: of office expires in2020.Isconsidered to beindependent. Born 1961. Norwegian citizen. Joined the Board in 2019. Term Board member EINAR WATHNE ANNUAL REPORT 2019 76 GOVERNANCE Group Management’s Profiles GROUP MANAGEMENT PROFILES before hebecame Chief Executive Officer of Bakkafrost. dustry Mr. Jacobsen hasextensive experience from the salmonin Change inportfolio in2019:+120,765shares. Holds 4,615,963shares at year-end 2019. Number of shares heldinBakkafrost: (HD-R), Aarhus Schoolof Business. Graduate DiplomainBusiness Administration andAccounting Education: ecutive Officer of Bakkafrost since 1989. Born 1966.Faroese citizen. Mr. Jacobsen hasbeenChief Ex Chief Executive Officer REGIN JACOBSEN and finances. He was Financial Manager of Bakkafrost - - been Management Consultant atPA Consulting Group. held positions asSenior Partner inQuorumConsulting and ment consulting sector. Before joiningBakkafrost, hehas Mr. Jakobsen hasextensive experience from themanage Change inportfolio in2019:+140shares. Holds 140shares atyear-end 2019. Number of shares heldinBakkafrost: merc.dat), Copenhagen Business School. MSc inBusiness Administration andComputer Science (cand. Business Design, Henley Business School. Education: been Chief FinancialOfficer of Bakkafrost since 2019. Born 1972. Faroese & Swedish citizen. Mr. Jakobsen has Chief FinancialOfficer HØGNI DAHL JAKOBSEN - member of Bakkafrost from 2006to 2012. ious board positions in the industry. Mr. Eliasen was a board sponsible for Havsbrún’s farming activities andhasheldvar fish dustry andhasbeenanactive player inrestructuring the Mr. Change inportfolio in2019:+10,804shares. Holds 183,870shares atyear-end 2019. Number of shares heldinBakkafrost: Teacher Certificate Exam, University of theFaroe Islands. Education: Director of Havsbrún since 2012. Born Chief Executive Officer inTheScottish Salmon Company Plc Managing Director of Havsbrún ODD ELIASEN Eliasen farming 1965. has Faroese industry broad citizen. in experience the Mr. Faroe Eliasen from Islands. ANNUAL REPORT 2019 the has He fish been has farming Managing been re in - - - 77 STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ON THE ANNUAL REPORT ANNUAL REPORT 2019 78
The Management and the Board of Directors have today con- flows for the financial year 1 January 2019 to 31 December Statement by sidered and approved the Annual and Consolidated Report 2019. and Accounts of P/F Bakkafrost for the financial year 1 Jan- the Management uary 2019 to 31 December 2019. In our opinion, the management's review provides a true and fair account of the development in the Group's and the par- and the Board of The Annual Report has been prepared in accordance with the ent company's operations and financial circumstances, of the International Financial Reporting Standards as adopted by results for the year and of the overall financial position of the EU and Faroese disclosure requirements for listed com- the Group and the parent company as well as a description of Directors on the panies. the most significant risks and elements of uncertainty facing the Group and the parent company. Annual Report In our opinion, the accounting policies used are appropriate, and the Annual and Consolidated Report and Accounts gives We recommend that the annual report be adopted at the an- a true and fair view of the Group’s and parent company’s fi- nual general meeting. nancial positions at 31 December 2019, as well as the results of the Group’s and the parent company’s activities and cash
Glyvrar, 10 March 2020
Management:
Regin Jacobsen CEO
The Board of Directors of P/F Bakkafrost
Rúni M. Hansen Johannes Jensen Øystein Sandvik Chairman of the Board Deputy Chairman of the Board Board Member
Annika Frederiksberg Teitur Samuelsen Einar Wathne Board Member Board Member Board Member INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2019 79
To the shareholders of P/F Bakkafrost Basis of opinion Independent We conducted our audit in accordance with international Opinion standards on auditing and the additional requirements ap- Auditor’s Report In our opinion, the consolidated annual accounts and the an- plicable in the Faroe Islands. Our responsibilities under those nual accounts give a true and fair view of the assets and lia- standards and requirements are further described in the bilities, of the financial position of the Group and the Compa- below section “Auditor’s responsibilities for the audit of the ny as at 31 December 2019, and of the results of the Group consolidated annual accounts and the annual accounts”. and the Company operations as well as the consolidated cash flows for the financial year 1 January - 31 December 2019 in Independence accordance with International Financial Reporting Standards We are independent of the Group in accordance with the in- at adopted by the EU. ternational ethics standards for accountants (IESBA's Code of Ethics) and the additional requirements applicable in the Identification Faroe Islands, and we have fulfilled our additional ethical We have audited the consolidated annual accounts and the responsibilities in accordance with these standards and re- annual accounts of P/F Bakkafrost for the financial year 1 quirements. We believe that the audit evidence obtained is January - 31 December 2019, which comprise Income State- sufficient and appropriate to provide a basis for our opinion. ment, Statement of Financial Position, Statement of Compre- hensive Income, Statement of Changes in Equity, and notes, including a summary of accounting policies used, for both the Key Audit matters Group and the Company, as well as consolidated statement of Key audit matters are the matters, which the auditors con- cash flows. The consolidated annual accounts and the annual sider central to their audit of the annual and consolidated ac- accounts are prepared in accordance with the International counts for 2019. The matters are considered during our audit Financial Reporting Standards at adopted by the EU. of the accounts in their entirety and when forming our opin- ion. We do not provide separate opinions on these matters. INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2019 80
Statement on the management’s review Key Audit matter Our response to the matter during our audit The management is responsible for the management’s review.
Biomass at cost Summary of audit approach Our opinion on the consolidated annual accounts and the Biomass at marine sites is not accurately ascertainable prior During our audit, we: to harvest, and material accounting estimates are applied at • Applied our experience and knowledge about the characteristics annual accounts does not cover the management’s review, the balance sheet date, regarding existence and valuation. of salmon production process when considering the accounting and we do not express any kind of assurance opinion on the Estimates are based on information on number at launch, estimates. management's review. feeding, sea temperature, exposure to daylight and treatment for • Assured ourselves, that the estimates are based on factual data, lice and other health issues and knowledge about how salmon and data which can be supported empirically. responds to these factors in terms of growth rate, mortality, feed • Assured ourselves, that management is applying estimates in In connection with our audit of the consolidated annual ac- consumption ratio, and liability to stress and decease. Material a way consistent with knowledge of the production process, counts and the annual accounts, our responsibility is to read inherent risk is related to biomass at sea. and that the estimates are performed consistently and that the the management’s review and in that connection consider estimates are free from bias. whether the management’s review is materially inconsistent • Assured ourselves of the ability of management to perform these estimates by examining estimates made by management with the consolidated annual accounts and the annual ac- at prior balance sheet dates on a back-end basis. counts or our knowledge obtained during the audit, or wheth- er it otherwise appears to contain material misstatement. Biomass at Fair Value according to IAS41 Summary of audit approach Measuring biomass at fair value includes present value During our audit, we: calculations based on complex inputs regarding the properties • Reviewed and reconciled the company specific characteristics of Furthermore, it is our responsibility to consider whether the man- of existing biomass and forecast regarding growth and mortality inputs into the valuation models agement’s review provides the information required under the In- rates from balance sheet date to harvest, quality distributions as • Reconciled inputs into the calculations model to observable ternational Financial Reporting Standards as adopted by EU. well as market conditions at expected harvest date. market conditions at the balance sheet date. • Reviewed the calculation model and ascertained that it was comparable to industry standards. Based on the work we have performed, we believe that the man- • On a sample bases reperformed net present value calculations. agement’s review is in accordance with the consolidated annual accounts and the annual accounts and that it has been prepared Valuation of licenses and goodwill Summary of audit approach The Group has acquired production licenses at significant During our audit, we: in accordance with the requirements of the International Finan- amounts as part of business combinations where the Group is • Reviewed the purchase price allocation, and assessed adherence cial Reporting Standards as adopted by EU. We did not find any identified as acquiree according to IFRS 3, and fair values are to recognition criteria stipulated in IAS38. material misstatement in the management’s review. calculated using generally accepted valuation models, based on • Reviewed valuation models for mathematical coherence and unobservable inputs according to level 3 inputs in IFRS13. reperformed calculations on a test basis . • Aligned inputs to board approved plans and budgets. Responsibilities for the accounts and the audit • Reviewed and challenged the useful life assumptions. • Reviewed impairment model, and ascertained that it is built on The management’s responsibilities for the consolidated supportable inputs. annual accounts and the annual accounts Accounting for business combinations Summary of audit approach The Group has completed material subsidiary acquisition during During our audit, we: The management is responsible for the preparation of consol- the year, which is accounted for according to IFRS 3 Business • Reviewed the SPA and related documentation. idated annual accounts and annual accounts that give a true Combinations. There are material risks related to the PPA, and • Reviewed and challenged the Purchase Price Allocation, the values attributed to individually identifiable assets and including identification of individual assets and liabilities. and fair view in accordance with the International Financial liabilities, and the measurement of goodwill. • Reviewed and challenged value measurement of identified Reporting Standards as adopted by EU. The management is assets and liabilities. also responsible for such internal control as the management determines is necessary to enable the preparation of con- INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2019 81
solidated annual accounts and annual accounts that are free procedures in response to those risks and obtain audit ev- the financial information of the entities or the business from material misstatement, whether due to fraud or error. idence that is sufficient and appropriate to provide a basis activities within the Group to express an opinion on the for our opinion. The risk of not detecting a material mis- consolidated annual accounts. We are responsible for the In preparing the consolidated annual accounts and the an- statement resulting from fraud is higher than the risk of direction, supervision and performance of the Group audit. nual accounts, the management is responsible for evaluating not detecting a misstatement resulting from error, as fraud We remain solely responsible for our audit opinion. the Group’s and the Company’s ability to continue as a going may involve collusion, forgery, intentional omissions, mis- concern, and, when relevant, disclosing matters related to representations, or overriding of internal control. We communicate with those charged with governance regarding, going concern and using the going concern basis of account- • Obtain an understanding of the internal controls relevant among other matters, the planned scope and timing of the audit ing when preparing the consolidated annual accounts and the to the audit in order to design audit procedures that are and significant audit findings, including any significant deficien- annual accounts, unless the management either intends to appropriate in the circumstances, but not for the pur- cies in the internal control that we identify during our audit. liquidate the Group or the Company or to cease operations, pose of expressing an opinion on the effectiveness of the or if it has no realistic alternative but to do so. Group’s and the Company’s internal controls. We also provide a statement to the Board of Directors stating, • Evaluate the appropriateness of accounting policies used that we adhere to the relevant ethical requirements relating Auditor’s responsibilities for the audit of the by the management and the reason¬ableness of account- to our independence, and provide information on any relation, consolidated annual accounts and the annual accounts ing estimates and related disclosures made by the manage- which may reasonably be considered to influence our inde- Our objectives are to obtain reasonable assurance about ment. pendence, and where relevant, security measures employed. whether the consolidated annual accounts and the annual • Conclude on the appropriateness of the management’s accounts as a whole are free from material misstatement, preparation of the consolidated annual accounts and the Based on the issues communicated to the Board of Directors, whether due to fraud or error, and to issue an auditor’s re- annual accounts being based on the going concern principle we determine which issues we consider key to our audit of port including an opinion. Reasonable assurance is a high and, based on the audit evidence obtained, whether a ma- the annual and consolidated accounts for the current period, level of assurance, but is not a guarantee that an audit con- terial uncertainty exists related to events or conditions that and hence Key Audit Matters. We describe these matters in our ducted in accordance with international standards on audit- may raise significant doubt about the Group’s and the Com- report, unless legislation or other legal impediments prohibit ing and the additional requirements applicable in the Faroe pany’s ability to continue as a going concern. If we conclude publication of the matters, or in the extremely rare circum- Islands will always detect a material misstatement when it that a material uncertainty exists, we are required to draw stances, where we determine, that matters cannot be described exists. Misstatements may arise due to fraud or error and attention in our auditor’s report to the related disclosures in in our Auditors Report, because negative implications thereof may be considered material if, individually or on aggregate, the consolidated annual accounts and the annual accounts may reasonably be expected to outweigh the public interest in they could reasonably be expected to influence the economic or, if such disclosures are inadequate, to modify our opinion. the information provided by description of Key Audit Matters. decisions made by users on the basis of these consolidated Our conclusions are based on the audit evidence obtained annual accounts and annual accounts. up to the date of our auditor’s report. However, future Tórshavn, 10. March 2020 events or conditions may cause the Group and the Company As part of an audit conducted in accordance with international to cease to continue as a going concern. Januar P/F standards on auditing and the additional requirements applica- • Evaluate the overall presentation, structure and contents løggilt grannskoðanarvirki ble in the Faroe Islands, we exercise professional evaluations and of the consolidated annual accounts and the annual ac- State authorized Public Accountants maintain professional scepticism throughout the audit. We also: counts, including the disclosures in the notes, and whether Company reg.no. 5821 the consolidated annual accounts and the annual accounts • Identify and assess the risks of material misstatement in reflect the underlying transactions and events in a manner the consolidated annual accounts and the annual accounts, that gives a true and fair view. Heini Thomsen Fróði Sivertsen whether due to fraud or error, design and perform audit • Obtain sufficient and appropriate audit evidence regarding State Authorised Public Accountant State Authorised Public Accountant 82
Financial Statements and Notes
BAKKAFROST GROUP TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 83
BAKKAFROST GROUP Table of Contents
Consolidated Income Statement for the year ended 31 December 86
Consolidated Statement of Comprehensive Income for the year ended 31 December 87
Consolidated Statement of Financial Position as at 31 December 88
Consolidated Cash Flow Statement for the year ended 31 December 90
Consolidated Statement of Changes in Equity as at 31 December 91
NOTES - SECTION 1 – BASIS OF PREPARATION 93
The section gives an overview of the financial accounting policies in general and an overview of the management’s key accounting estimates
Note 1. General Information 93
Note 1.1 Summary of Significant Accounting Policies 93
Note 1.2 Basis of Presentation 93
Note 1.3 Consolidation Principles 93
Note 1.4 Translation of Foreign Currencies 94
Note 1.5 Classification Principles 94
Note 1.6 Functional Currency 94
Note 1.7 New standards effective from 1 January 2019 94
Note 1.8 Standards Issued, but not yet Effective 95
Note 1.9 Accounting Estimates 95 TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 84
NOTES - SECTION 2 – RESULTS FOR THE YEAR 96
This section gives more details on the results for the year, including operating segments, taxes and employee costs.
Note 2.1 Revenues 96
Note 2.2 Major Customers 96
Note 2.3 Operating Segment Information 97
Note 2.4 Salaries and other Personnel Expenses 101
Note 2.5 Other Operating Expenses 103
Note 2.6 Research and Development Expenses 103
Note 2.7 Net Financial Items 104
Note 2.8 Tax 105
NOTES - SECTION 3 – ASSETS AND LIABILITIES 107
This section gives more details on the assets that form the basis for the activities of Bakkafrost, and the related liabilities.
Note 3.1 Intangible Assets 107
Note 3.2 Property, Plant and Equipment 111
Note 3.3 Leasing 113
Note 3.4 Companies in the Group 114
Note 3.5 Shares and Holdings in other Companies 117
Note 3.6 Inventory 118
Note 3.7 Biological Assets 119
Note 3.8 Accounts Receivables and other Receivables 122
Note 3.9 Cash and Cash Equivalents 123
Note 3.10 Share Capital and Major Shareholders 124
Note 3.11 Interest-bearing Debt 126
Note 3.12 Mortgages and Guarantees 129
Note 3.13 Derivatives 130
Note 3.14 Provisions 131 TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 85
NOTES - SECTION 4 – CAPITAL STRUCTURE AND FINANCING ITEMS 132
This section gives an insight into the capital structure and financing items.
Note 4.1 Financial Risk Management 132
Note 4.2 Categories and Fair Value of Financial Instruments 137
Note 4.3 Earnings per Share 138
NOTES - SECTION 5 – OTHER DISCLOSURES 139
This section gives more details on the statutory notes that have secondary importance from the perspective of Bakkafrost.
Note 5.1 Capital Commitments 139
Note 5.2 Related-Party Transactions 140
Note 5.3 Business Combinations 141
Note 5.4 Events after the Date of the Statement of Financial Position 144
Note 5.5 Auditor’s Fees 144
Note 5.6 Going Concern 144
Note 5.7 Alternative Performance Measures 144 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 86
DKK 1,000 2019 2018 Consolidated Operating revenue 4,511,107 3,177,422
Income Statement Purchase of goods -1,354,921 -1,074,645 Change in inventory and biological assets (at cost) -29,423 199,696 FOR THE YEAR ENDED 31 DECEMBER Salary and personnel expenses 2.4 -512,761 -353,756 Other operating expenses 2.5 -978,787 -674,907 Depreciation 3.1/3.2/3.3 -310,115 -198,898 Operational EBIT* 1,325,100 1,074,912
Fair value adjustments of biological assets 3.7 -220,567 195,819 Income from associates 13,812 9,369 Revenue tax - FO -99,128 -95,867 Earnings before interest and taxes (EBIT) 1,019,217 1,184,233
Financial income 2.7 4,996 2,651 Net interest expenses 2.7 -17,114 -12,477 Net currency effects 2.7 -12,670 1,419 Other financial expenses 2.7 -12,513 -3,760 Earnings before taxes (EBT) 981,916 1,172,066
Taxes 2.8 -180,031 -211,774 Profit or loss for the period continuing operations 801,885 960,292
Profit or loss for the year attributable to: Non-controlling interests -8,382 0 Owners of P/F Bakkafrost 810,267 960,292 801,885 960,292
Earnings/Diluted earnings per share (DKK) 4.3 15.53 19.74
*Operational EBIT is EBIT before fair value adjustment of biomass, onerous contracts, income from associates and revenue tax CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 87
DKK 1,000 2019 2018 Consolidated Profit for the year 810,267 960,292
Statement of Changes on financial derivatives -17,789 126,935 Hereof income tax effect 2,705 -22,848 Comprehensive Currency translation differences 72,673 -95 Income Reserve to share based payment -1,094 2,279 Adjustment treasury shares 15,457 2,634 Net other comprehensive income to be reclassified to profit or loss in subsequent periods 71,952 108,905 FOR THE YEAR ENDED 31 DECEMBER
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 0 0
Other comprehensive income 71,952 108,905
Total comprehensive income for the year net tax 882,219 1,069,197
Total comprehensive income attributable to: Non-controlling interests -8,382 0 Owners of P/F Bakkafrost 890,601 1,069,197 882,219 1,069,197 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 88
DKK 1,000 Note 2019 2018 Consolidated ASSETS Non-current assets Statement of Intangible assets 4,395,687 389,745 Total intangible assets 3.1 4,395,687 389,745 Financial Position Land buildings and other real estate 3.2 1,174,427 994,354 Plant machinery and other operating equipment 3.2 1,420,379 926,335 AS AT 31 DECEMBER Other operating equipment 3.2 210,750 160,064 Vessels 3.2 341,259 356,514 Prepayments for purchase of PP&E 3.2 633,683 447,059 Right of use assets 3.3 332,824 0 Total property, plant and equipment 4,113,323 2,884,325
Investments in associated companies 3.4 63,766 57,497 Investments in stocks and shares 3.5 55,318 55,268 Deferred tax assets 2.8 37,593 0 Long-term receivables 3.8 4,422 9,200 Total non-current financial assets 161,099 121,966 TOTAL NON-CURRENT ASSETS 8,670,109 3,396,036
Current assets Biological assets (biomass) 3.7 1,901,729 1,358,462 Inventory 3.6 548,508 438,847 Total inventory 2,450,237 1,797,309
Accounts receivables 3.8 625,993 269,348 Other receivables 3.8 45,520 22,936 Total receivables 671,513 292,284 Cash and cash equivalents 3.9 1,309,546 316,894 TOTAL CURRENT ASSETS 4.431.296 2,406,487
TOTAL ASSETS 13,101,405 5,802,523 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 89
DKK 1,000 Note 2019 2018 EQUITY AND LIABILITIES Equity Share capital 3.10 59,143 48,858 Other equity 8,270,112 4,028,171 Non-controlling interest 167,620 0 TOTAL EQUITY 8,496,875 4,077,029
Non-current liabilities Deferred taxes 2.8 1,123,796 534,430 Long-term interest-bearing debt 3.11 2,328,231 812,053 Long-term leasing debt 3.3 225,585 0 Derivatives 3.13 1,966 0 Total non-current liabilities 3,679,578 1,346,483
Current liabilities Derivatives 3.13 13,493 320 Trade payables 584,435 204,500 Current tax liabilities 2.8 195,484 152,655 Short-term leasing debt 3.3 107,808 0 Other current liabilities 23,732 21,536 Total current liabilities 924,952 379,011 TOTAL LIABILITIES 4,604,530 1,725,494
TOTAL EQUITY AND LIABILITIES 13,101,405 5,802,523 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 90
DKK 1,000 Note 2019 2018 Consolidated Cash Cash flow from operations Operating profit (EBIT) 1,019,217 1,184,233 Flow Statement Adjustments for write-downs and depreciation 3.1/3.2/3.3 313,844 177,898 Adjustments for value adjustments on biomass 3.7 220,567 -195,819 Adjustments for income from associates -13,812 -9,369 FOR THE YEAR ENDED 31 DECEMBER Adjustments for currency effects -65,556 11,059 Taxes paid -152,000 -201,678 Change in inventory -181,295 -198,981 ACCOUNTING POLICIES Change in receivables -261,369 103,437 The Group’s statement of cash flow shows a breakdown of Change in current debts 156,811 42,157 the Group’s overall cash flow into operating, investing and Cash flow from operations 1,036,407 912,937 financing activities. The cash flow statement is prepared ac- cording to the indirect method. The statement shows the in- Cash flow from investments dividual activity’s impact on cash and cash equivalents. The Acquisition/sale of subsidiaries and activities, etc., net -3,907,972 -12,057 cash flow deriving from the acquisition and sale of business Proceeds from sale of fixed assets 669 34,214 is presented under investing activities. Payments made for purchase of fixed assets 3.2 -702,173 -526,007 Purchase of shares and other investments 3,988 -26,896 Change in long-term receivables 4,242 0 Cash flow from investments -4,601,246 -530,746
Cash flow from financing Change in revolving credit facilities 1,217,600 146,783 Financial income 4,998 2,650 Financial expenses -20,807 -16,237 Lease payment -42,274 0 Proceeds/Acquisition of treasury shares 68,358 2,634 Proceeds from share capital increases 3,731,129 0 Dividend paid -401,513 -510,678 Cash flow from financing 4,557,491 -374,848
Net change in cash and cash equivalents in period 992,652 7,343
Cash and cash equivalents – opening balance 316,894 309,551 Cash and cash equivalents – closing balance total 1,309,546 316,894 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2019 91
Share Share- Currency Biomass Share Premium Treasury Based translation Fair value Retained Total Capital Reserve Shares Payment differences Derivatives Dividend adjustments Earnings Equity DKK 1,000 Equity 01.01.2019 48,858 306,537 -15,525 6,153 6,176 -264 403,079 382,770 2,939,245 4,077,029 Consolidated Consolidated profit 0 0 0 0 0 0 0 -220,567 1,071,230 850,663 Statement of Other comprehensive income: Fair value adjustment on financial derivatives 0 0 0 0 0 -17,789 0 0 0 -17,789 Changes in Equity Hereof tax effect 0 0 0 0 0 2,705 0 0 0 2,705 Share-based payment 0 0 0 -1,094 0 0 0 0 0 -1,094 Currency translation differences 0 0 0 0 72,674 0 0 0 0 72,674 AS AT 31 DECEMBER Total other comprehensive income 0 0 0 -1,094 72,674 -15,084 0 0 0 56,496 Total comprehensive income 0 0 0 -1,094 72,674 -15,084 0 -220,567 1,071,230 907,159
Restricted equity comprises equity in which distribution to Transaction with owners: the shareholders may only take place adhering to specific Share capital increase* 10,285 3,720,838 0 0 0 0 0 0 0 3,731,123 procedures prescribed by the Faroese Limited Companies Treasury shares 0 0 15,457 0 0 0 0 0 0 15,457 Act. Restricted equity consists of Equity Recognition Surplus Paid-out dividend 0 0 0 0 0 0 -403,079 0 1,566 -401,513 and Fair Value Adjustments of Biomass. Free equity may be Proposed dividend 0 0 0 0 0 0 491,478 0 -491,478 0 readily distributed to the shareholders, or otherwise dis- Total transaction with owners 10,285 3,720,838 15,457 0 0 0 88,399 0 -489,912 3,345,067 Total changes in equity 10,285 3,720,838 15,457 -1,094 72,674 -15,084 88,399 -220,567 581,318 4,252,226 posed of, after due approval by the AGM. The composition of Non-controlling interest 167,620 167,620 equity may be specified as follows: Total equity 31.12.2019 59,143 4,027,375 -68 5,059 78,850 -15,348 491,478 162,203 3,688,183 8,496,875
*Wherof transactions cost amounts to DKK 99.4 million.
Equity 01.01.2018 48,858 306,537 -18,159 3,874 6,271 -104,351 513,009 186,951 2,683,439 3,626,429
Consolidated profit 0 0 0 0 0 0 0 195,819 772,455 968,274
Other comprehensive income: Fair value adjustment on financial derivatives 0 0 0 0 0 126,935 0 0 -138,748 -11,813 Hereof tax effect 0 0 0 0 0 -22,848 0 0 22,848 0 Share-based payment 0 0 0 2,279 0 0 0 0 0 2,279 Currency translation differences 0 0 0 0 -95 0 0 0 0 -95 Total other comprehensive income 0 0 0 2,279 -95 104,087 0 0 -115,900 -9,629 Total comprehensive income 0 0 0 2,279 -95 104,087 0 195,819 656,555 958,645
Transaction with owners: Treasury shares 0 0 2,634 0 0 0 0 0 0 2,634 Paid-out dividend 0 0 0 0 0 0 -513,009 0 2,331 -510,678 Proposed dividend 0 0 0 0 0 0 403,079 0 -403,079 0 Total transaction with owners 0 0 2,634 0 0 0 -109,930 0 -400,748 -508,044 Total changes in equity 0 0 2,634 2,279 -95 104,087 -109,930 195,819 255,807 450,601
Total equity 31.12.2018 48,858 306,537 -15,525 6,153 6,176 -264 403,079 382,770 2,939,245 4,077,029 92
Notes to the Consolidated Financial Statements
BAKKAFROST GROUP SECTION 1 of Preparation Basis NOTES -SECTION 1 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP accounting estimates. policies ingeneral andanoverview of themanagement’s key This section gives an overview of the financial accounting iciled intheFaroe IslandsatBakkavegur 9,Glyvrar. P/F Bakkafrost (“company”) isapubliclimited company dom NOTE 1.GENERALINFORMATION combinations, andof biomass. mainly valuation of licences, whichare acquired by business basis except for where IFRSrequire recognition atfair value, The AnnualReport hasbeenprepared onahistorical cost by theBoard of Directors on10 March 2020. The Accounts for theparent company. frost andits subsidiaries (Group) andthe separate Annual Consolidated Annual Report andAccounts for P/F Bakka period 1Januaryto 31December 2019comprises both the The AnnualandConsolidated Report andAccounts for the in theFaroese FinancialReporting act. by theEuropean Community andtheadditionalrequirements the International Accounting Standards Board asapproved Reporting Standards (IFRS)andtheinterpretations issued by mally drawn upinaccordance withInternational Financial equals and note disclosures for theGroup. Theaccounting year tion, ment The Annual Report comprises the income statement, state NOTE 1.2BASIS OFPRESENTATION policies have beenconsistently appliedto allperiodspresented. these The principalaccounting policies appliedinthepreparation of ACCOUNTING POLICIES NOTE 1.1SUMMARY OFSIGNIFICANT with theticker code: BAKKA. P/F Bakkafrost was listed onOsloStock Exchange in2010 financial specification consolidated of the comprehensive calendar statements financial of year. changes income, were The statements in financial formally equity, statement are statements cash authorized set of out flow financial below. statement were for These issue posi for - - - - - will. Where the fair value of the assets acquired exceeds quisition, and liabilities are reported atfair value atthedate of ac tion method. Thismeans thattheacquired company’s assets idated Shares insubsidiaries have been eliminated in theconsol panies have beeneliminated. All material transactions andbalances between Group Com companies includedintheconsolidated accounts. uniform accounting principles for similartransactions inall solidated accounts have beenprepared inaccordance with iaries are included up until the date of divestment. The con which acontrolling interest issecured, anddivested subsid Newly acquired subsidiaries are includedfrom thedate on vestment concerned willbeconsidered anassociate. by agreement mayimpedeexercise of control, andthein nature of agreement. Similarly, limitations invoting rights of thevoting rights. Controlling interest mayalsoexist by when Acontrollingment. interest isnormallydeemedto exist controlling frost andthesubsidiaries over whichP/FBakkafrost has The NOTE 1.3CONSOLIDATION PRINCIPLES have amaterial impact ontheGroup. beginning onorafter 1January2019thatare assumed to IFRIC Apart from IFRS16,there are nonew oramendedIFRSs or the notes to theaccounts where relevant. scriptions about thevarious estimates appliedare given in mated assumptions are accounted for whenthey occur. De estimates andassumptions. Changes inestimates andesti Preparation consolidated interpretations ownership financial with influence of the any statements directly financial financial excess that either are or value statements in statements by indirectly effective accordance shareholding being ANNUAL REPORT 2019 for exceeds include involves classified the with financial or the P/F 50 the by as acquisi percent Bakka agree use good year of ------
93 SECTION 1 corded in thefunctional currency atthespot exchange rate A foreign currency transaction is,oninitialrecognition, re tions inaforeign currency. other currencies than the functional currency are transac environment inwhichtheentityoperates. Transactions in functional currency isthecurrency of theprimaryeconomic the dated accounts, a functional currency is determined in which For eachindividualentity, whichisrecognized intheconsoli OF FOREIGN CURRENCIES NOTE 1.4TRANSLATION achieve consistency withtheprinciples usedby theGroup. sociated companies have been changed where necessary to rent presented share ispresented onaseparate line, whiletheassets are portion to thecost price of theshares beinghigherthantheacquired tax, less internal gains anddepreciation onexcess value due share Group considerable ance withtheequitymethod intheconsolidated accounts. A cant Investments calculated witheachacquisition. the value of assets orliabilities, except for goodwill, whichis acquisition of assets inexisting subsidiaries will not affect assets and liabilities is the date the Group was formed. Later When shares are acquired instages, thevalue basisof the the Income Statement. the paymentmade, the difference is treated as badwill in NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP the date of thetransaction. between the functional currency and the foreign currency on entity financial influence of owns of the in book measures profits 20–50 in influence the assets. (associated companies equity. statement in percent its The such is In normally results accounting companies) companies in the of of which
the financial Income and voting deemed the financial principles is are Statement, based position Group capital. treated to exist on position. has used The as profit in the when a non-cur Group’s accord signifi by profit after The the as ------ences arisingonthesettlement of monetary items oron functional currency usingtheclosing rate. Exchange differ er monetary items inforeign currency are translated to the At eachbalance sheet date, receivables, payables andoth Cash andcash equivalents consist of cash inhand and bank biomass measured atcost andmeasured atfair value. adjustment. TheIFRSadjustment isthe difference between finishing biomass isthenadjusted to fair value, i.e. market value less Biomass atcostment. consists of allproduction costs. The cost are presented as aone-lineitem intheIncome State cial Position. Changes inbiomass andinventory measured at Biomass isrecognized atfair value intheStatement of Finan NOTE 1.5CLASSIFICATION PRINCIPLES • • • lowing procedure: lated into theGroup’s presentation currency usingthefol cies thantheGroup’s presentation currency (DKK) are trans Group’s individualentities withdifferent functional curren On expenses. nized period which they were translated on initial recognition duringthe translating monetary items, at rates different from those at the exchange rates atthedates of thetransactions isused. reasons anaverage rate for the periodthatapproximates in equityasaseparate component of equity. For practical the dates of thetransactions. the date of thebalance sheet. All resulting exchange differences are recognized directly Income andexpenses are translated atexchange rates at Assets andliabilities are translated attheclosing rate at consolidation, in or the costs, in income previous by adding the statement results financial or in and rare under statements, financial cases financial subtracting position shall revenues be an of recog IFRS and the ------mentation hasnot hadanyimpact ontheBakkafrost Group. the standards andinterpretations (IFRIC)whichare effective for The Bakkafrost Group hasimplemented allnew andamended FROM 1JANUARY 2019 NOTE STANDARDS 1.7NEW EFFECTIVE financial position date. translated at theexchange rate ineffect onthestatement of nancial position, monetary items in foreign currencies are into rency. Alltransactions inforeign currencies are translated (DKK), whichistheGroup’s functional andpresentation cur The consolidated accounts are presented inDanish Kroner NOTE CURRENCY 1.6FUNCTIONAL biomass atfair value. Financial cost on alineitem separately from biomass changes measured at Changes inthefair value of biological assets are presented current liabilities. Next been approved by theAnnualGeneral Meeting. pay thedividend,normallywhendividendproposals have parent company hasassumed anirrevocable obligation to Dividend ities. liabilities. due Liabilities, which form part of the production cycle or fall rent fall deposits. Assets, whichform partof theproduction cycle and due financial for under assets. DKK year’s payment for Report proposals at Other operating payment Other instalments the year liabilities to time within assets 2019. determine are profit/loss. within of on not 12 are transaction. Apart are long-term months, 12 classified classified both classified months, from This production are allows the In debts as as ANNUAL REPORT 2019 are as the classified below, non-current liabilities noncurrent the classified are statement efficiency reader classified
such as until current as assets. imple of liabil of cur and the the fi as - - - - - 94 SECTION 1 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP for shortterm leasecontracts andlow-value assets. Leases Bakkafrost has applied the lease recognition exemptions adjusted. tive January The Bakkafrost Group hasappliedIFRS16Leases from 1 IFRS 16Leases measurements inthe Financialstatements, alter existing dis including later, are disclosed below. The disclosures contain standards of theGroups Financial statements, but willbecome effective Standards andinterpretations, whichare issued atthedate BUT NOT YETEFFECTIVE NOTE 1.8STANDARDS ISSUED • Decrease inrental costs of DKK42.3million. million. • Increase ininterest expenses of DKK3.2 • Increase indepreciation of DKK41.4million. income statement for theyear: The application of IFRS16hasthefollowing impact inthe Note 3.3for furtherinformation oninitialimpact. recognized inthebalance sheet at1January2019.See 94 millionandleaseliabilities of DKK 94millionhave been Due to theapplication of IFRS16,right-of-use assets of DKK over theright of useperiod. prepaid oraccrued leasepayments, andare depreciated equal to the lease liability, adjusted by the amount of any rate. Right-of-use assets have beenmeasured atanamount uary 2019anddiscounted usingtheincremental borrowing the present value of theremaining leasepayments at1Jan Newly recognized lease liabilities have beenmeasured at tial application are accounted for asshort-term leases. with terms endingwithintwelve monthsof thedate of ini method. 2019 amendments, As in a accordance result, which the with may prior-year the influence
modified figures recognition retrospec were not or - - - -
effective. future date. Thestandards are implemented asthey become closures orrequire additionaldisclosures wheneffective ata Group’s FinancialStatements, are described inthenotes. mates, which the estimates are revised. The evaluations and esti sion to accounting estimates are recognized intheperiod ues and results may deviate from the initial estimates. Revi Estimates are reviewed on an on-going basis, and actual val be relevant andprobable whenthejudgements were made. tions are basedonexperience andother factors perceived to come andexpenses. Theestimates andunderlying assump principles andcarrying amounts of assets andliabilities, in and assumptions thataffect theapplication of accounting IFRS requires themanagement to make judgement estimates The NOTE 1.9ACCOUNTING ESTIMATES statements for 2019andinthecoming years. will ment it is estimated that these standards and interpretations have not beenimplemented. Based onapreliminary assess pretations, whichare effective onorafter 1January2020, Several IFRSstandards, amendedstandards andIFRICinter New standards effective after 1January2020 this narrative. or New standards, regulating issues not relevant to theGroup with preparation have deemed insignificant no material to of be financial impact of impact greatest on statements on the significance the Group, consolidated in are accordance for omitted Bakkafrost financial from with ------ANNUAL REPORT 2019 95 SECTION 2 including operating segments, taxes andemployee costs. This section gives more details ontheresults for theyear, the Year Results for NOTES -SECTION 2 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP the ordinary course of business. Revenue isrecognized net of received orreceivables for thesaleof goods andservices in Revenue ismeasured atthefair value of theconsideration NOTE 2.1REVENUES segment, comparedsegment, to nomajorcustomers in2018. VAP 8.34, In CUSTOMERSNOTE 2.2MAJOR passed to thecustomer. Thiswillnormallybeupondelivery. when the goods are delivered, and both title and risk have meal, The discounts, VAT andother sales related taxes. 2019, revenue segment. representing fish there oil of and This was the fish Group DKK one is 53% feed. major 510 is of mainly Sales million the customer total revenues for of sales revenue - the as of are revenue defined salmon, recognized, in the in in fish IFRS VAP the - ANNUAL REPORT 2019 96 SECTION 2 * Farming SCT isconsolidated from 8October 2019 Depreciation Property, plantandequipment INVESTMENTS LIABILITIES Whereof intangible assets ASSETS Operating EBITDA Net earnings Taxes Earnings before taxes Net financialitems EBIT Revenue tax - FO Income from associates Fair value adjustments onbiological assets Operating EBIT Internal operating expenses Operating expenses Depreciation andamortization Total operating revenues Internal operating revenues External operating revenues 2019 –DKK1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP NOTE 2.3OPERATING SEGMENT INFORMATION Farming FO -1,061,463 2,501,646 2,700,710 6,520,228 170,158814,673 1,310,345 1,002,918 1,028,840 1,103,001 3,152,462 -207,344 -161,566 -780,654 -207,344 666,776 389,745 650,816 841,352 -25,922 -99,127 21,847 3,119
Value Added 2248 11265 3232 1694 -2,875,892 -106,934 -362,372 -1,112,665 -650,816 -232,458 Products 964,484 964,484 -17,482 -11,375 -17,482 15,212 52,772 81,210 51,812 63,187 63,728 63,728 -541 0 0 0 0 0
oil andfeed 1,388,461 Fishmeal, 0,0 437,171 780,654 607,807 164,689 1,696,465 275,796 207,031 252,007 257,870 247,177 -28,619 -44,976 -28,619 20,185 10,693 -5,863 4,005,942 0 -242,414 0 0 0
Farming SCT* 5,640,009 -191,376 -229,262 -224,285 -106,934 437,171 -56,670 -56,670 37,886 74,799 18,129 -4,977 521 0 0 1,431,470 0 -1,431,470 0
Eliminations -1,431,470 -106,934 -106,934 -106,934 -106,934 -10,106 -43,663 0 4,395,687 0 0 0 0 0 0 0 0 4,511,107 0
13,101,405 Bakkafrost 4,604,530 1,635,216 1,019,217 1,325,100 4,511,107 -310,115 -180,031 -220,567 -310,115 702,694 801,885 981,916 -99,128 -37,303 13,812 Group 0 0
ANNUAL REPORT 2019 97 SECTION 2 * Farming SCT isconsolidated from 8October 2019 Depreciation Property, plantandequipment INVESTMENTS LIABILITIES Whereof intangible assets ASSETS Operating EBITDA Net earnings Taxes Earnings before taxes Net financialitems EBIT 195,819 Revenue tax - FO Income from associates Fair value adjustments onbiological assets Operating EBIT Internal operating expenses Operating expenses Depreciation andamortization Total operating revenues Internal operating revenues External operating revenues 2018 –DKK1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Farming FO 2,568,366 2,226,118 1,482,751 4,860,227 192,841749,455 1,120,115 1,055,916 1,065,923 -154,456 -170,527 -682,087 -766,164 -154,456 490,133 389,745 342,248 885,389 965,659 -10,007 -95,866 311
Value Added -342,248 Products 6,2 1,268,564 364,827 364,827 -15,085 -29,918 -15,085 -22,912 -22,943 -22,424 -22,424 17,400 31,075 -7,339 -519 31 0 0 0 0 0
oil andfeed -1,014,283 Fishmeal, 682,087 586,477 209,634 254,281 191,062 232,340 233,981 224,924 -29,357 -41,278 -29,357 18,474 -1,641 9,057 0 0 0 0
Farming SCT* 0 0 0 0 0 0 0 0 1,024,335 3,177,422 0 0 0 -1,024,335 -1,024,335 0 0 0 0 0 0 0 0 0 0
Eliminations -93,247 -93,247 -93,247 -93,247 -93,247 -93,247 2,034 0 0 0 0 0 0 0 0 0 3,177,422 0 0
-1,903,612 Bakkafrost 1,725,494 5,802,523 1,273,810 1,172,066 1,184,233 1,074,912 -198,898 -211,774 -198,898 389,745 195,819 526,007 960,292 -95,866 -12,167 Group 9,368 0 0
ANNUAL REPORT 2019 98 SECTION 2 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total harvested volumes Harvested FO volume soldfresh/frozen Harvested FO volume usedintheVAP production FARMING FO - Total production Fish oil Fishmeal PRODUCTION OFFISHMEALANDFISHOIL Total volumes sold Volumes soldexternally Volumes usedinternally FOF SEGMENT - Total harvested volumes Harvested volume soldfresh/frozen Harvested volume usedinVAP production FARMING - SCT DISTRIBUTION OFHARVESTED VOLUMES DISTRIBUTION OFHARVESTED VOLUMES DISTRIBUTION OFFEED
60,646 20,825 76,583 40,494 16,690 70,279 97,408 57,184 tonnes tonnes 9,633 100.0% 7,925 7,925 tgw tgw 0 2019 2018 100.0% 100.0% 100.0% 100.0% 86.3% 21.4% 78.6% 70.8% 29.2% 13.7% 0.0% % % % % 511 86.4% 65,141 90.3% 70,240 36,236 027 13.6% 10,257 75,398 77,774 44,591 tonnes % tonnes 7,534 18.7% 8,355 N/A N/A tgw tgw NA 100.0% 100.0% 100.0% 81.3% 0.0% 9.7% 0.0% 0.0% % % % ANNUAL REPORT 2019 99 SECTION 2 based on market reference prices for spot sale, and the pric ing principlebetween theVAP andFarming FO segments is same asusedfor the third party’stransactions. Thepric and the measurement used in the segment reporting, is the entered into under normal commercial terms and conditions, ment reporting. Intersegment transfers ortransactions are idated The sameaccounting principles, asdescribed for theconsol production andsales of fishmeal,fishoilandfeed (FOF). farming ness IFRS 8Operating Segments. TheGroup’s mainstrategic busi The Group hasfour reportable segments inaccordance with Total China USA Eastern Europe Europe 2018 –DKK1,000 Total China USA Eastern Europe Europe 2019 –DKK1,000 GEOGRAPHIC BREAKDOWN OFSALES REVENUESBASED ONSEGMENTS ANDCUSTOMER LOCATION NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP is basedonquarterly contracts. ing principlebetween theFOF andthefarming FO segments area financial FO, is fish aquaculture, farming statements, which SCT, have value consists been added of applied products four Farming FO Farming FO 2,226,118 2,501,646 1,0 2992 586,379 601,052 269,972 467,485 2,420,628 645,574 512,007 408,318 607,807 127,312 833,048 771,587 727,979 307,702 632,916 segments: for (VAP) the
seg and fish - - - - -
364,827 586,476 964,484 607,807 18,241 25,538 51,076 24,112 41,473 control over onthe8October 2019.Theoperation islocated The Scottish SalmonCompany Plc,whichBakkafrost gained The Farming SCT segmentcomprises thetotal operation in Farming SCT products andto foreign seafood processing companies. Thesalmonissold on thespotsegment. market for salmon farmed salmonids, including the sale of fresh salmon, as one erties of thelicences, andtheGroup therefore reports the There The Group hasproduction facilities around theFaroe Islands. on aswell astheharvesting, sales anddistribution of salmon. Fish farming involves thebreeding andon-growing of salm Farming FO includingsales of fresh fish ACCOUNTING POLICIESSEGMENT REPORTING VAP VAP
are no significant FOF FOF 97 0 0 0 0 0 differences Farming SCT Farming SCT 437,171 16,612 3,497 8,743 in N/A N/A 1,368,358 N/A N/A N/A the production 3,177,422 4,511,107 619,293 493,023 696,747 778,195 778,195 451,627 prop Total Total - - sidiary Havsbrún, located inFuglafjørður. meal, sale Fishmeal, Fishmeal, fishoiland feed (FOF) for theend-consumers intheretail market. sold to the industrial market and the value-added products ment dominantly portionsfor theretail market. Thebusiness seg the factory inGlyvrar. Theoutputs of thefactory are pre A Value addedproducts (VAP) sales andadministration. in significant Scotland of fish definition fishmeal, oil fish and share and oil is fish includes fish and based of oil feed the fish and on farmed salmon are feed fish the operated feed. involve distinction products farming, The ANNUAL REPORT 2019 by the production is Bakkafrost’s harvest, between production value added filleting of output fish sub and at - - - - 100 SECTION 2 Total Chief FinancialOfficer Managing Director Chief Executive Officer Salary andother benefits paid DKK 1,000 Total Chief FinancialOfficer* Managing Director Chief Executive Officer Salary andother benefits paid DKK 1,000 REMUNERATION TO CORPORATE MANAGEMENT Average numberof full-time employees Total payroll expenses Other benefits Pension expenses Social securitytaxes Share basedpayment Wages andsalaries DKK 1,000 NOTE 2.4SALARIES ANDOTHER PERSONNELEXPENSES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP * In2019,thecompany haspaidwages to both theresigned andthenew CFO remuneration remuneration
Salary Salary 1,281 1,344 1,683 1,755 1,493 2,164 4,308 328 204 5,412 530317
Bonus Bonus 144 145 115 115 300 39
Pension Pension
137 73 66 66 91 89
4250 -304,557 -432,550 -512,761 1,8 -9,199 -11,687 -33,214 -32,782 -2,529 1,553 Other Other 2019 176 176 8 1,883 88 8 1,579 88 2,049 2,689 88 88 1,555 0 1,697 0
-353,756 -23,996 -13,767 -2,237 5,017 6,435 2018 2018 2019 Total Total 824 ANNUAL REPORT 2019 101 SECTION 2 salary levels inthelabourmarket. to an annual evaluation and is determined based on general the desired skills andexperience. Thebasicsalary issubject that Bakkafrost attracts and retains senior executives with frost’s reputation nor be market leading but should ensure The total remuneration must neitherpose athreat to Bakka petitiveness intherelevant labourmarket. areas. Theremunerations shouldpromote theGroup’s com the needto offer competitive terms inthevarious business of Directors. Thetotal remuneration isdetermined basedon er management inagreement withtheChairman of theBoard Chief sion schemes, but varies from person to person. TheGroup’s sists The total remuneration to thecorporate management con Remuneration to corporate management **** Memberof theBoard of Directors from April2019 *** Memberof theBoard of Directors untilApril 2018 ** Memberof theauditcommittee. Salaryincludes fee to theauditcommittee * Annika Frederiksberg isalsoanemployee intheBakkafrost Group. For this,shereceived DKK641thousand(2018:628thousand). Total remuneration Virgar Dahl*** Øystein Sandvik** Teitur Samuelsen** Einar Wathne**** Annika Frederiksberg* Johannes Jensen Rúni M.Hansen** DKK 1,000 FEES PAID TO THEBOARD OFDIRECTORS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP of Executive basic salary Officer (main determines element), the benefits remunerations in-kind
and to pen oth - - - - - Member of theBoard Member of theBoard 261 Member of theBoard Deputy Chairmanof theBoard Chairman of theBoard Member of theBoard Member of theBoard in behalfof theemployees. Thepurchase willbemadefrom monthly net salaryandusedto purchase Bakkafrost shares Bakka Employees and theterms of theplan. discretion, whether theplanwillbe extended inthefuture, The Board shall,however, have theright to decide, inits sole continuing partof thecompany's employee incentive scheme. ployees. ItistheBoard's intention thattheplanshallbea Bakkafrost hasestablished ashare savingplanfor its em SHARE-BASED PAYMENT Executives covers aperiodfrom 6to 12months. The company’s periodof notice for other Group Management notice agement Executives anotice period. Thecompany’s periodof Bakkafrost mayterminate employment by givingGroup Man Notice of Termination andSeverance Payment frost shares. Thesaved amountisdeducted from the for the may
Group’s invest Chief up Executive to 265 252 461 5% of 1,609 Officer 2019 their 161 209 0 base is 24 salary months. 1,481 2018 259 248 455 258 206 55 in 0 - - ical payments. liabilities towards theemployees, apartfrom these period ment as they accrue. The Group has no additional pension scheme. Pension premiums are charged to theIncome State The PENSIONS in other equityreserves within equity. cial item intheincome statement. Theliabilityisrecognized price, plan. Thedifference between thefair value and theshare adjustment ismadefor estimated leavers of theshare saving using theshare price onthedate of theemployee signature, of shares contracted atthestart of theshare savingplan, value of these liabilities willbedetermined usingthenumber share savingplananduntiltheshares are granted. Thefair contribution periodisfrom whentheemployee signedthe been allocated over theemployees' contribution period.The The share savingplanliabilities andpayroll expense have ACCOUNTING POLICIESSHARE-BASED PAYMENTS at31.12.2019,thereAs are noloansto employees. LOANS TO EMPLOYEES to employees are acquired by thecompany onthemarket. will beawarded for eachshare purchased. Shares transferred After alock-in periodof two calendar years, oneextra share regulations. company will be reported in accordance with the applicable purchase price andthenumberof shares acquired by the employee maycancel thesubscription duringtheyear. The may not change thesavings amountduring the year, but an Bakkafrost's treasury shares oronthemarket. Anemployee Group when the has shares employed are granted, a defined will contribution be ANNUAL REPORT 2019 booked as pension a finan - - - 102 SECTION 2 nutrition andfeeding, aswell asoperating technologies, are orities, and the development and improvement of vaccines, biomass controlment, andsmoltquality remain highpri and slightly improved duringthelatest years. Lice abate The focus onBakkafrost’s R&Defforts hasbeen evaluated other operating expenses andsalaries. chain. Thisisnot seenasaR&Dbut isanintegrated partof Bakkafrost hasacontinual development of theentire value ly attributable to R&D. R&D expenditure inthisnote isonlycosts andsalaries direct NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP forms assessments of its own operating practices. equally topical. In addition, Bakkafrost continuously per Freight Health Operating expenses Maintenance DKK 1,000 NOTE 2.5OTHER OPERATING EXPENSES Programme were not included intheamountfor 2018. *) Theamountfor 2018hasbeencorrected from DKK-5,533thousandto DKK-25,769thousand,asexpenses to theNative Faroese Broodstock R&D expenditure DKK 1,000 NOTE 2.6RESEARCH ANDDEVELOPMENT EXPENSES Other operating expenses total Other costs Energy - - - - diminish this risk. Bakkafrost focuses on using non-medical and hasmade several new investments andprocedures to Bakkafrost focuses onreducing biological riskcontinuously under large-scale conditions. better and more comprehensive research into these issues in thefeed. Itis Bakkafrost’s clearlyexpressed goal to initiate mix of raw material hasresulted inbetter nutritional quality ments infarming. We are convinced thatouradaption of the be above ourexpectations interms of production improve can maintain ahealthy salmon.Thepast year hasproven to cus feed andfeeding andsees asubstantial needfor greater fo Bakkafrost aimsto expand its R&Dactivities inthearea of on
basic knowledge
of how the 3428 -249,577 -364,288 -19,261 -102,884 -150,315 -152,442 -131,118 1667 -128,527 -156,697 -978,787 -71,360 fish 2,4 -25.769*) -27,742 2019 2019 are fed and -674,907 -90,481 -36,746 how 2018 2018 we - - ing onopenseaandother minorprojects. Broodstock Programme, optimizing nutritional quality, farm Native Faroese Broodstock Programme, Native Hebridean tal through theincome statement, mainlyattributed to the In 2019,Bakkafrost hasexpensed DKK27.7million into ally appearinharvested volumes from 2021. capacity growth from thisinvestment programme willgradu hatchery isexpected to beinfulloperation from 2020.The at at seaaswell asreduced biological risk.Thenew hatchery smolts Bakkafrost new technology to follow thisstrategy. methods in treatments against sea lice and has invested in Strond, in 2023. Klaksvík, aims The at increasing is benefits an important are the a smolt shorter part ANNUAL REPORT 2019 size of production this to 500 plan. grams time The - - - 103 SECTION 2 Net financialitems Other financialitems Other financialexpenses Net currency effects Other exchange differences Exchange gain onbond Financial expenses Interest expenses onaccounts payable Interest expenses oncredit lines Interest expenses onlong-term loans Financial income Other financialincome DKK 1,000 NOTE 2.7NETFINANCIALITEMS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP
-3,760 -12,513 -12,670 -14,437 -37,301 -12,513 -12,670 -17,114 -2,085 ,9 2,651 4,996 4,996 2019 -592 -10,850 0 -12,167 -3,760 -11,139 -12,477 12,269 1,419 2,651 2018 -463 -875 liability for atleast 12monthsafter thebalance sheet date. Group hasanunconditional right to defer settlement of the Borrowings in theincome statement over theperiodof theborrowings. transaction costs) andtheredemption value isrecognized amortized cost; anydifference between theproceeds (net of action costs incurred. Borrowings are subsequently stated at Borrowings are recognized initiallyatfair value, net of trans BORROWING COSTS idend hasbeenapproved by theAnnualGeneral Meeting. is recognized, whentheshareholders’ right to receive adiv Interest income isrecognized onanaccrual basis.Dividend ACCOUNTING POLICIESFINANCIALINCOME are classified as current liabilities, ANNUAL REPORT 2019 unless the - - 104 SECTION 2 Total temporary differences Losses carried forward Derivatives (Equity posted) Receivables Biomass Financial assets Property, plantandequipment Licences Deferred tax assets DKK 1,000 Specifications of temporary differences anddeferred tax Tax payable inthestatement of financialposition Tax payable Tax expense onordinary profit Tax ontreasury shares Change indeferred tax Tax payable DKK 1,000 The tax expense for theyear breaks down asfollows: NOTE 2.8TAX NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP -337,250 -35,946 Differences Temporary 190,181
-4,406 -1,089 -8,860 -486
195,484 -10,705 -4,748 195,484 Deferred tax 195,484 180,031 -64,078 -37,593 36,134 -6,830 -1,683 2019 2019 -837 -207 -92
Differences Temporary 0 0 0 0 0 0 0
Deferred tax 151,966 151,966 151,966 211,774 59,808 2018 2018 0 0 0 0 0 0 0 0 0
ANNUAL REPORT 2019 105 SECTION 2 - - Normal tax rate for countries intheGroup: Effective tax rate excl. equityentries Calculated tax expense Permanent differences Expected tax atnominaltax rate Profit before tax DKK 1,000 Reconciliation from nominal to actual tax rate Deferred tax liabilities (+)/assets (-) Deferred tax liabilities Deferred tax assets Total temporary differences Losses carried forward Derivatives (Equity posted) Currency effects Receivables Biomass Financial assets Property, plantandequipment Licences Deferred tax liabilities DKK 1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP - - UK/Scotland 19% Faroe Islands18% USA 28% Norway 23% -633 -1,534 -1,245 1,390,953 59,067 1,358,688 3,438,453 Temporary Differences
-437
1,123,796
Deferred tax 176,745 981,916 1,086,203 1,123,796 180,031 250,371 244,564 618,922 -37,593 18.33% 10,632 3,286 2019 2019 -114 -276 -224 -79
Differences Temporary 1,358,472 1,187,172 375,678 50,556 -2,644 -444 -317 583
Deferred tax 1,172,066 210,972 244,525 213,691 534,430 211,774 534,430 534,430 18.07% 67,622 9,100 -476 2018 2018 802 105 -80 -57 0 they will beutilized inthe foreseeable future. assessed once ayear. Losses are recognized ifitislikely that Deferred tax assets, including tax loss carry forwards, are DEFERRED TAX ASSETS ASSUMPTIONSIGNIFICANT ACCOUNTING FOR cording to 12. IAS Deferred taxes are calculated usingthenominaltax rate ac the ultimate tax determination isuncertain. calculations duringtheordinary course of business for which in thefuture. Inaddition, there are manytransactions and a date laws thathave beenenacted orsubstantively enacted by the The DEFERRED TAX LIABILITIES ASSUMPTIONSIGNIFICANT ACCOUNTING FOR financial year. well asthetaxable loss carried forward attheendof the tween accounting andtax values attheirintended use, as inal amountcalculated basedontemporary differences be Deferred can benetted against eachother. financial deferred tax assets are presented net in the statement of changes innet deferred taxes. Deferred tax liabilities and tax payable (tax ontheyear’s direct taxable income) and transactions istaken to equity. Thetax expense comprises tax, as it appears in the accounts. Tax ascribable to equity The ACCOUNTING POLICIES deferred tax accounting of the expense position tax tax statement in asset the of is to deferred matched statement is the of based financial extent taxes against on of that expectations financial position. reflects tax the ANNUAL REPORT 2019 assets profit position The tax of or recognition rates and profitability loss is liabilities and a before nom tax of - - - 106 SECTION 3 Liabilities Assets and NOTES -SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ities. basis for theactivities of Bakkafrost andtherelated liabil This section gives more details ontheassets thatform the - DKK 1,000 NOTE 3.1INTANGIBLE ASSETS binations. Respectively, whenacquiring theVestlax Group, The other seven CGUs are acquired aspart of business com talized. These belongto theNorthregion. government without consideration, andhence are not capi sea farming licenses, seven out of whichare issued by the tivity In theFaroe Islands,Bakkafrost operates its seafarming ac Net bookvalue asat31.12.18 Accumulated impairments/depreciation andwrite-downs asat31.12.18 Depreciation duringtheyear Impairments 01.01.18 Acquisitions costs asat31.12.18 Additions intheyear asaresult of acquisitions Acquisitions costs asat01.01.18 DKK 1,000 Net bookvalue asat31.12.19 Accumulated impairments/depreciation andwrite-downs asat31.12.19 Depreciation duringtheyear Impairments 01.01.19 Acquisitions costs asat31.12.19 Additions intheyear asaresult of acquisitions Acquisitions costs asat01.01.19 in 14 identifiable CGUs based on single or groups of - - - in Scotland into oneCGU. In Scotland, Bakkafrost has chosen to include all the farming goodwill andintangible assets withindefinite useful lives. as CGUs. These belongto theWest region. These are considered Havsbrún Group andFaroe Farming, hence three groups of significant Goodwill Goodwill 5,0 33800 0,0 4,006,820 108,400 3,348,020 550,400 567,129 568,885 13,948 372,138 18,485 17,607 18,485 -1,756 ,3 372,138 4,537 -878 -878 -878 -878 in 0 comparison
Total 3,720,158 3,720,158 Licences Licences 372,138 372,138 to the 0 0 0 0 0 0 0 total 108,400 108,400 ANNUAL REPORT 2019 Brands Brands carrying 376,675 0 0 0 0 0 390,623 0 0 0 0 0 0 4,395,687 4,397,443 amount 389,745 390,623 13,948 -1,756 2019 2018 Total -878 -878 -878 -878 of 0 107 SECTION 3 CGUs inthefuture, thiswillbeincorporated into theimpair will bevariances between theassumptions for thedifferent period. AllCGUs are calculated withthesameWACC. Ifthere also assumed to bethesamefor allCGUs over thecalculated ity, production time, fallowing andharvest weight. is CAPEX Other operating conditions considered thesameare mortal of feed, harvest, smolt, packaging, transport and other costs. Faroe Islands.Theconsidered operating conditions are costs erating conditions are predominantly thesameallover the All CGUs have thesameoperating assumptions since theop the targets approved by theGroup management. following years. Thestrategic planshave beenreviewed and sis is basedontheassumption of continued operation. Theba the carrying amountishigherthanthecalculated value inuse, management’s best estimate atthetimeof reporting. Ifthe (CGU). ing amountof net assets heldby thecash-generating unit the the cash-generating 36andcomparing unitinlinewithIAS ent Impairment testing iscarried out by calculating thenet pres The procedure of impairmenttesting unit. or several licences orfarming sites, asonecash-generating Group testing incombination withgoodwill intheannualtest. The the form of licenses. Thelicenses are subject to impairment end. impaired. Theannualimpairmenttest isperformed atyear- more frequently ifthere are indications thattheassets are The Group tests intangible assets annually for impairment or Impairment testing NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ment test. for assets value net Bakkafrost The identifies the present of are cash estimated estimated considered has flow value each substantial used cash farming of future impaired. the in flow the cash zone, cash assets is calculations the flow The flows which with strategic estimated towards (value indefinite may represents plan contain in the cash use) lives for carry flow one the the for in ------impairment cation of impairment losses. Intangible assets were tested for The Indications of impairment • • are: The key assumptions usedindetermining thevalue inuse itability inthesixthyear andterminal period. analysis but returns to long- term historic averages for prof budgets ing on developments in the prices of salmon. Bakkafrost uses farming industry historically hasbeenvery volatile, depend more ulatory frameworks. Costs can normallybeestimated with prices, input prices, biological performance andfuture reg The assumptions used,rest onuncertainty regarding product in both macroeconomic andcompany-related conditions. future strategic plans considering the expected development In general, thevalue inusehasbeendetermined basedon nal growth. Amongst harvest volume, prices andcosts, hence EBIDTA andWACC. The key assumptions inthecalculations of value inuseare The key assumptions assets. Thetest confirmed theasset values. estimate with aninflation rate of 2%. expected to remain stable but are calculated to increase based onhistorical costs andexpectations. Thecosts are harvest weight and mortality, basedonhistorical figures. for The costs are basedonBakkafrost’s own assumptions, Harvested volume isbasedonthecurrent stocking plans impairment each accuracy and was other unit, to long-term sufficient evaluate assumptions than testing and forecasted income. to at plans if support the year-end are As cash for figures inflation, profitability the the flow did carrying first for not from CAPEX five growth, result a in amount conservative years the and in assumed identifi salmon of termi of the net - - - - - Capital • The • • • to maintenance investments. expenditure willingeneral equaldepreciation andrelate in theimpairmenttest. Beyond theforecast period,capital expenditure laws andregulations mayaffect future estimated capital of grammes hasalsobeenincludedto supporttheinclusion to rent laws andregulations hasbeenincluded.Capex related placement plans.Capital expenditure to comply withcur Capital expenditures are alignedwiththegrowth andre growth the capital expenditure necessary to meet theexpected to 0%. based onthird-parties' sources. Theterminal growth isset dustry intheEU. government, withanadjustment marginfor thefood in five-year (interest, of theWACC, third-party sources are usedwhere available tle uncertainty aspossible withregards to thecalculation the outcome of themodel,andto ensure thatthere isaslit choice is updated each year for the annual impairment test. The timating thediscount rate. Theinput data for themodel accordance 36.TheWACC withIAS modelisusedfor es sources. The long-term forward prices are basedonthird-parties’ is apartof OsloBørs ASA –atthedayof thecalculation. The WACC is7.4%(2018:8.8%)pre-tax andcalculated in The forward prices are basedontheFishPool index –which the committed inflation benefits of expenditure in inflation, average input revenue needs; is and in set data the for to approved beta). and this (CAPEX). for applied 2% ten-year is profit for the The not the model margin. In efficiency reflected discount is bonds the budget taken significantly 5-year Changes ANNUAL REPORT 2019 issued period. into rate in improvement the forecast consideration. is by in figures This based the applicable influences is period, Danish done used on pro a ------108 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ACCOUNTING POLICIES is DKK6,535million. generating units. Withtheassumptions used,theheadroom analysis sets, asensitivityanalysis hasbeencarried out. Sensitivity In connection with the impairmenttesting of intangible as Sensitivity mal welfare are met. Consequently, seafarming licences are preconditions regarding environmental protection andani and Scotland are considered perpetual, given thatcertain to aPPA analysis. Sea farming licences in theFaroe Islands capitalized atcost less accumulated write-downs according acquisition orbusiness combination according to IFRS 3,are Sea farming licences, whichare purchased eitheraspartof an mated periodof use. costs are depreciated inastraight lineover theasset’s esti accumulated depreciation and write-downs. Capitalized R&D Capitalized R&Dcosts are recognized atacquisition cost less tends they that statement expenses asthey accrue. R&Dcosts are capitalized inthe Costs relating to research and development are charged as not cover theircarrying amount. the recoverable amountiftheexpected financialbenefits do ciated systematically. Intangible assets are written down to Intangible assets withalimited economic lifespan are depre are met. acquisition cost whenthecriteria for separate recognition tion withthepurchase of abusiness entityare capitalized at ized atacquisition cost. Intangible assets acquired inconnec Intangible assets thatare purchased individuallyare capital the can to and relevant has be of is technically financial been financially R&D performed position, projects finalized, able to for carry when reap and each economic it the that can of economic the be the demonstrated benefits, defined company benefits. cash that in ------downs are entered and charged to theIncome Statement. erable licences amount, are considered impaired, andwrite- impairment test. Ifthecarrying amountexceeds therecov not depreciated systematically, but are subject to anannual intangible rights withindefinite useful lives. licenses, which are capitalized, following theprovisions for Bakkafrost hastherefore decidedto account for seafarming locations. farmers have obtained licenses from theauthorities atother licenses inorder to uselocations for other purposes, the rare cases, where theauthorities have declinedto renew where thelicenses are renewed every 12thyear. Inthevery licenses are operated ina12-year rolling lifespan system, renewals of existing licenses. Thismeansthatseafarming censes. Special emphasis is to be placed on the fact that it is vironmental specific renewal of licenses, authorities may only decline renewal if inary conditions set by theauthorities. Inconnection with reason of The seafarming licenses are issued withanominallifespan mentally sustainable. ures to regulate thefarming activity inorder to beenviron at thegiven site, but thelegislationhasimposed strict meas There are noprovisions asto themaximumallowed biomass the The Licenses withindefinite useful lives made onaprospective basis. ate. termine The 12 If right assessment sea years. not, against whether legislation farming to the Licenses utilize protection change renewal, of licenses the indefinite on a indefinite are in given area is useful based in renewed, in the planning, area life conflict life life on Faroe is of failure from continues reviewed unless fjords with animal Islands indefinite to renewal there for fulfil annually to welfare are farming be is defined the to appropri a of specific finite or the veter to fish. de en as li is ------first, andthenother assets asrequired. of If thecalculated value inuseisless thanthecarrying amount mating future cash flows. is calculated basedonvalue inuse. Thisisarrived atby esti independent grouped according to the lowest level to which separate and tify generating units to which the goodwill is assigned. To iden ment Write-downs are performed inaccordance withanassess quisition. units goodwill, Whenassessingcarrying amount. theneedto write-down often ifthere are indications thatits value islower thanthe depreciated but is tested for impairment annually or more ciates is presented under intangible assets. Goodwill is not Goodwill derivingfrom purchases of subsidiaries andasso statement of financialposition. individual assets, thedifference isentered asgoodwill inthe entity for aconsideration thatexceeds thefair value of the When thecompany assumes control over aseparate business GOODWILL the the or of cash-flow groups, Group’s the this cash recoverable is which cash-flow assigned generating flows are may to value expected generating unit, be relevant ascribed. of goodwill each to cash ANNUAL REPORT 2019 units, benefit Recoverable of is flow the the written from generating assets cash-flow the down value are ac - - - - - 109 SECTION 3 **** Other assets consist of goodwill, PP&E,inventory, receivables, etc. whichcan be allocated to CGUs orare directly attributable to CGUs. *** 1CGU inlicense numbers A-15 andA-92. Acquired in2016. ** 2CGUs inlicense numbers A-71 andA-82. Acquired in2011. * 4CGUs inlicense numbers A-03, A-05, A-06, A-25, A-57, A-80 andA-81. Acquired in2010. TOTAL Faroe Farming acquisition*** Havsbrún acquisition** Vestlax acquisition* 31.12.2018 TOTAL Faroe Farming acquisition*** Havsbrún acquisition** Vestlax acquisition* The 31.12.2019 DKK 1,000 CGUs Sensitivity analyses andbooked value perCGU: SPECIFICATION OFCGUS -BOOKEDVALUE TESTED ANDSENSITIVITY NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP
Scottish
Salmon
Company
custo 4,006,820 acquisition 4,378,958 3,600,4317,979,389 157,430 132,708 157,430 132,708 372,138 1,977,5772,349,715 Licenses 82,000 82,000
1,101,306 1,591,827 assets**** 283,311 422,603 592,960 890,295 695,706 Other
1,234,014 1,724,535 4,702,526 440,741 580,033 674,960 972,295 booked tested value Total
WACC 7.4% 8.8% 8.8% 7.4% 8.8% 7.4% 8.8% 7.4% 7.4%
of smolts Number 303 4,4 3183 -91,078 321,873 142,248 23,083 13,420 36,503 (1,000) ,5 1913 3,2 -513,356 737,328 149,143 -454,849 2,250 662,102 163,560 2,250 7,670 7,670 3,500 3,500 260,952 437,955 of +/-1% 808 3,6 -234,256 336,460 68,058 -233,449 339,820 83,946 371 1,9 -150,593 216,296 43,751 -134,045 195,123 48,201 EBITDA change 1,290,084 1,518,918 change of -1% WACC ANNUAL REPORT 2019 -898,205 -913,421 change of +1% WACC 110 SECTION 3 NOTE 3.2PROPERTY, PLANTANDEQUIPMENT NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Reclassification Acquisition costs asat01.01.19 DKK 1,000 Net book value asat31.12.18 Accumulated depreciations andwrite-downs asat31.12.18 Accumulated deprecations andwrite-downs ondisposals andscrapping Depreciations duringtheyear Accumulated depreciations andwrite-downs asat01.01.18 Acquisition costs asat31.12.18 Disposals andscrapping duringtheyear Acquisitions duringtheyear Reclassification Acquisition costs asat01.01.18 Net bookvalue asat31.12.19 Accumulated depreciations andwrite-downs asat31.12.19 Currency translation differences Accumulated deprecations andwrite-downs ondisposals andscrapping Depreciations duringtheyear Accumulated depreciations andwrite-downs asat01.01.19 Acquisition costs asat31.12.19 Disposals andscrapping duringtheyear Acquisitions duringtheyear Acquisition of subsidiary
1,248,933 1,365,469 1,248,933 1,174,427 1,491,693 -216,897 -285,078 -254,579 buildings -254,579 -317,266 189,515 191,506 994,354 -46,630 -20,974 -63,400 23,910 28,210 8,948 Land -865 and 714 -1
equipment, fixtures etc. machinery, 1,688,862 1,628,881 1,688,862 1,420,379 2,326,299 operating -110,851 -671,024 -148,815 -154,685 -762,528 -762,528 -905,920 121,847 271,092 228,844 259,463 926,335 -14,965 -20,047 19,347 11,318 Plant, Plant, -25 equipment operating 1158 -59,925 -111,598 -111,598 -132,983 7,6 416,440 271,661 9,5 402,577 193,053 160,064 271,661 210,750 343,733 -44,002 1,2 -23,696 -36,230 -17,722 -95,399 -25,835 -22,974 41,982 80,619 76,333 -2,242 -2,011 Other 1,523 1,590 -1 0
356,514 416,440 341,259 427,014 -59,925 -85,755 Vessels 13,863 3,594 7,093 -210 6 -101,851 96 -3 0 9 0 0
Assets under construction 4,5 4,072,955 447,059 2,9 465,568 120,698 433,893 6,7 702,173 167,778 447,059 447,059 633,683 633,683 316 526,007 13,166 ANNUAL REPORT 2019 0 -198,898 -1,019,550 0 0 3,589,980 0 -266,894 0 0 0 0 0 -1,188,630 0 0 0
-1,188,630 -1,441,924 2,884,325 4,072,955 3,780,499 5,222,422 -18,282 -43,033 29,819 13,631 Total -30 0 0
111 SECTION 3 are reassessed annually. the depreciation periodanddepreciation method employed scrap value of theproperty, plantandequipmentaswell as lifespan, these components are depreciated separately. The If into consideration theestimated residual value. over theexpected economic lifespan of theassets, taking economic lifespan. Depreciation isassigned inastraight line goes into normaloperation and is calculated based on its depreciation commences from the date on which the asset any loss orgain entered to theIncome Statement. Ordinary assets are sold,ordivested, thebookvalue isdeducted, and cost, less accumulated depreciation andwrite downs. When Property, plantandequipment are capitalized atacquisition ACCOUNTING POLICIES Ships Other operating equipment machinery,Plant, operating fixtures equipment, etc. Land andbuildings Description of depreciations NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP an asset comprises significant components with varying Estimated lifetime cash flows, whichtheasset willgenerate. or value inuse. Value inuseisthepresent value of thefuture value. Therecoverable value isthegreater of net sales price temporary, theassets are written down to therecoverable carrying amountandtheimpairmentisnot expected to be ue. Iftherecoverable value of theassets isless than the an assessment is made about whether to write-down its val ing amountof anasset cannot berecovered, use. Ifthesituation orcircumstances indicate thatthecarry tion ischarged to expenses, when thefacilities are ready for Facilities underconstruction are not depreciated. Deprecia 10-25 years 3-20 years 3-8years 25 years Depreciation method linear linear linear ier 0%-10% linear Scrap value 10% 10% 0% - - - ANNUAL REPORT 2019 112 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Opening Cost at 01.01.19 DKK 1,000 Right of useassets NOTE 3.3LEASING Short-term andlow value leases Due >1year Due <1year Closing Liability at31.12.2019 Currency translation differences Interest charge Paid duringtheyear Additions/remeasurements Opening Liabilityfrom merged company Opening Liabilityat01.01.2019 Lease liability Closing NBV at31.12.19 Closing Depreciation at31.12.19 Currency translation differences Charge for theyear Opening Depreciation at01.01.19 Closing cost at31.12.19 Additions Acquisition costs from merged company
Land, buildings Land, buildings & property & property 123,168 135,140 133,718 140,809 94,106 11,972 47,061 94,106 46,703 -7,319 1,292 7,090 7,092 754 0 0 2 0 0
Motor vehicles Motor vehicles 10,116 3,502 7,598 7,526 2,595 2,590 5,826 9,327 9,235 -929 880 881 63 0 0 0 1 0 -
plant &equipment plant &equipment Ships, boats and Ships, boats and 214,783 214,058 223,304 188,926 189,872 -34,027 92,335 96,591 33,391 33,433 -2,913 9,264 9,246 1,819 42 ANNUAL REPORT 2019 0 0 0 - 107,808 269,442 268,287 225,585 374,230 333,393 332,824 -42,274 94,106 11,858 94,106 11,836 41,361 41,405 -2,913 3,174 Total Total 754 45 0 113 SECTION 3 P/F Förka Bakkafrost USA LLC Bakkafrost UKLtd. Havsbrún Norge ASA Havsbrún Shetland Ltd. P/F Havsbrún P/F Bakkafrost Packaging P/F Bakkafrost Sales P/F Bakkafrost Processing P/F Bakkafrost Farming 1,000 Subsidiary Companies The consolidated accounts for 2019includethefollowing subsidiaries andassociates: NOTE 3.4COMPANIES INTHEGROUP asset consists of thetotal discounted leasepayments (the The right of use assets is recognized at cost. The cost of the underlying asset available for useby alessee. commencement date isthedate onwhichalessor makes an trol date of thecontract for allleases, conveying theright to con a right-of-use asset andaleaseliabilityatthecommencement Based ontheaccounting policy applied,Bakkafrost recognizes Accounting policies for furtherinformation ontheimplementation of IFRS16. implementation date (1January2019).PleaseseeNote 1.7 ognition of leaseassets of DKK94,106thousandasof the In 2019,we implemented IFRS16,whichresulted intherec income statement. es withlow value leasingassets andhasexpensed these inthe Bakkafrost hasappliedtherules for short-term leases andleas NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP the use of an identified
asset for a period Currency NOK DKK DKK DKK DKK DKK DKK USD GBP GBP of time.
The - - -
Production of biogas and fertilizer Sales of salmon Fuglafjørður Dormant Production andsales of fishmeal,fishoilandfeed Production of styrofoam boxes Sales of salmonandVAP products Value addingof salmon(VAP) Salmon farming Nature of Business Sales of salmon Dormant option orpaymentfor cancellation of leasewhenconsidered anteed residual values andpaymentfor exercise of purchase The nal rate cannot bereasonably defined. using thecompany's marginalborrowing rate, since theinter lease payments obtained by discounting theleasepayments, The leaseobligation isrecognized atthepresent value of the tangible fixed assets, even ifitislegally aright of useasset. the ing to thesamepractice asfor similarassets, thatisowned by Subsequent measurement of theleasingasset isdoneaccord asset after use. the agreement andtheobligation to demolishorrestore the received, plusanycosts directly related to theconclusion of agreement (e.g. upfront payments) less anyleaseincentives lease obligation), plusleasepayments paidatcontract of the company. lease payments This means consist that of the leased fixed assets lease payments, are classified Clifton, New Jersey guar as - - - Head Office
Flekkefjord Grimsby Lerwick Glyvrar Glyvrar Glyvrar Glyvrar Glyvrar each. each. represent months from thedate of thecontract, andlow value assets term leases represent leaseagreements shorter than12 16 regarding shortterm leases andlow value assets. Short Bakkafrost chose to applythetwo practical exceptions inIFRS garding theasset. upfront payments and/orthere are recovery obligations re asset corresponds to thevalue of theleaseobligation, unless count rate used.At initialrecognition, thevalue of theleased culated at a constant interest rate, corresponding to the dis portion andaninterest portion.Theleaseobligation isrecal The leasepayments are distributed between aninstalment recognized aspartof thecost of theleaseasset andliability. dex, whereas consumption-based leasingpayments are not variable leasepayments whichare adjusted, basedonanin reasonably certain thattheoptions are exercised. Inaddition,
lease agreements Ownership that 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% are
lower ANNUAL REPORT 2019 than share capital DKK Nominal 50,000 19,762 35,000 5,000 2,000 2,000 8,022 105 667 2£ 17 - - - -
114 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP West MinchSalmonLtd Lighthouse Caledonia Ltd Bradan Cuan SiarLtd Harris &Lewis Smokers Trading Ltd Salmon Finance (Scotland) Ltd The Scottish SalmonCompany Limited 1,000 Subsidiary Companies Tobson FishFarms Ltd Sea Catch PLC Scotfish Farms Ltd Pulford (Scotland) Ltd Portree SalmonFarmers Ltd Kenmore SalmonFarms Ltd Mull SalmonLtd Highland FishFarmers Ltd Fjord Seafoods Scotland Ltd Pieters UKLtd Fjord Seafood Scotland Farming Ltd Minnamurra Ltd Corrie MhorSalmonLtd Murray Seafoods Ltd Loch Fyne Smoked SalmonLtd Loch Fyne SalmonLtd Loch Fyne Salmon(Scotland) Ltd Hebridean Smoked SalmonLtd Scottish Smoked SalmonLtd Hebridean Salmon(Scotland) Ltd Sidinish SalmonLtd Atlantic West SalmonCompany Ltd
Currency GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
Dormant Dormant Dormant Dormant Group Finance Salmon Farming Nature of Business Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Holding Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Head Office Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh
Ownership 95.6% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
ANNUAL REPORT 2019 share capital 20,000,000 3,190,001 5,928,594 5,408,023 934,558 300,000 130,000 Nominal 10,000 39,750 20,000 50,000 12,505 7,000 5,000 2,200 2,500 100 100 340 100 100 100 100 100 100 2 2 1 115 SECTION 3 *Voting rights 30%.The voting rights are limited intheArticles of Association of P/FSalmonProteins. Svínoyar Rognkelsisstøð P/F SalmonProteins* P/F Pelagos Total Svínoyar Rognkelsisstøð P/F SalmonProteins* P/F Pelagos DKK 1,000 Associated Companies NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Fuglafjørður Total assets 35,892 35,190 159,394 187,385 407,882 360,039 11,128 Svínoy Office 2019 Head N/A Eiði
Total assets Ownership 16,035 2018 42% 79% 30% 994
Additions Equity 7,936 2019 N/A Net 0 0
the result Share of 11,691 Equity ,8 5,7 48,296 56,778 8,481 -277 2018 201 N/A
Carrying Carrying 63,766 Result 9,201 6,254 value 2019 2019 2018 733 255 N/A 57,497 Result value 2018 -269 164 0 ANNUAL REPORT 2019 116 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total Others Companies DKK 1,000 NOTE 3.5SHARESANDHOLDINGS INOTHER COMPANIES nificant influence are valued atcost asfair value cannot bemeasured reliably. Investments ACCOUNTING POLICIES in other companies are classified as available for sale. Shares
and holdings in
which the Group Carrying Carrying amount 538 55,268 55,318 55,318 55,268 2019 2018 does not have amount sig - ANNUAL REPORT 2019 117 SECTION 3 Raw Farming SCT ment of inventory costs. The FIFO principleisusedconcerning theperiodicassign sales costs. measured atthelesser of cost orexpected sales price less Inventories consist of feed andadditives. Inventories are Farming FO Farming VAP SCTunit, unitandthe FOF unit. Inventories consist of inventories in the Farming FO unit, ACCOUNTING POLICIES Inventories are measured atfullcost price. cessed salmonproducts. as Finished products includeallproducts ready for sale, such parts. Goods terials usedinprocessing. duction Raw materials primarilyconsist of raw material for thepro Total inventory Finished goods Raw materials andgoods in-progress DKK 1,000 NOTE 3.6INVENTORY NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP cost andnet realizable value. ished goods. Inventories of goods are stated atthelower of fish materials in-progress feed, of fishmeal, fresh include and include fish roe, frozen oil feed, semi-finished and whole fish packaging feed salmon, products and materials as packaging well and and as spare pro ma fin - - - - - Statement. sales cost, impairment isentered andcharged to theIncome In a case, where the cost price exceeds the sales price less the lesser of cost ortheexpected sales price less sales costs. Finished goods ininventory, fresh orfrozen, are measured at costs. ple isusedconcerning theperiodicassignment of inventory cost orexpected sales price less sales costs. TheFIFO princi Packaging material andadditives are valued atthelesser of ured atfair value atthetimeof harvesting. sist basically of processed salmonids.Raw material ismeas terial Inventories consist of raw material, additives, packaging ma VAP penses. Net realizable value isestimated sales price less sellingex Cost isbasedonthefirst-in first-out principle. The cost price of purchased goods istheacquisition price. in thevalue of inventory. of indirect processing costs. Interest costs are not included cludes direct material andpersonnel costs, andapercentage The cost of processed goods isafullproduction cost thatin and
finished goods.
Raw material 125,744 422,765 548,508 2019 in the 292,286 VAP 146,561 438,847 unit 2018 con ------tration costs. indirectly allocated to produce goods, less general adminis duction cost, includingproduction costs, whichcan beonly The cost price of goods produced in-houseisthe fullpro handling andstorage costs. costs thathave incurred. Processing costs consist of logistics, value. to customer, valued atthelower of cost andnet realizable Finished ance withtheFIFO principle. lower of historical cost andnet realizable value inaccord Raw materials and purchased commodities are valued at the FOF tration costs. indirectly allocated to produce goods, less general adminis duction cost, includingproduction costs, whichcan beonly The cost price of goods produced in-houseisthefullpro The goods cost are of fishmeal, finished goods oil and includes feed ANNUAL REPORT 2019 ready any for processing delivery - - - - - 118 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 2822 -186,956 -248,262 Fair value adjustment atthebeginningof theperiodreversed Reduction dueto harvesting orsale(costs of goods sold) Increase dueto acquisitions Increase dueto production orpurchases Biological assets carrying amount01.01. DKK 1,000 NOTE 3.7BIOLOGICAL ASSETS Total number of fish atsea 4 kg < 3 kg <4kg 2 kg <3kg 1 kg <2kg < 1kg Number of fish(thousand) Volume of biomass atsea 4 kg < 3 kg <4kg 2 kg <3kg 1 kg <2kg 1 kg Biomass onaverage (tonnes) Biological assets carrying amount Currency translation differences Eliminations Fair value adjustments at theendof theperiod Cost price biological assets Biological assets carrying amount31.12. Currency translation differences Eliminations Reversal of eliminationatthebeginningof theperiod Fair value adjustments at theendof theperiod 19146 -1,273,150 -1,921,456 ,5,6 1,096,665 2,021,601 1,358,462 1,931,617 1,901,729 1,901,729 667,482 5,2 -53,790 -59,121 -53,790 -59,121 281 4,951 12,801 5,189 22,980 14,146 10,334 382,775 27,695 59,758 382,775 53,790 27,695 31,334 61,319 ,3 4,359 4,633 2,113 4,148 4,271 5,481 2,959 1,958 8,649 5,210 1,538 1,538 2019
1,333,160 1,029,477 1,358,462 1,358,462 22,962 15,249 39,078 6,010 1,782 2,044 2018 0 0 0 Harvested volumes * Source FishPool Q4 (forward) Q3 (forward) Q2 (forward) Q1 (forward) At year end One year forward prices Oslo* inEURFCA Change inbiomass volume -1% Change inbiomass volume +1% Change insales price -5DKK Change insales price +5DKK Change indiscount rate -1% Change indiscount rate +1% Sensitivity analysis of biomass DKK1,000 *SSC released 6.7thousandsmolts from Q1-Q32019 Total numberof smolts released Q4 Q3 Q2 Q1 Number of smolts released (thousand) 2146 -224,143 -251,416 -93,586 -101,607 5,1 224,143 104,991 251,416 115,364 062 3,358 10,682 65,109 18,348 586 -6,551 -5,836 ,3 6,551 5,836 3,315 2,776 2,365 3,580 1,721 3,134 ANNUAL REPORT 2019 2019 2018 5.62 5.51 6.75 6.72 7.24
44,591 12,583 6.12 5.94 6.52 6.48 6.01 119 SECTION 3 and to est andbest use, theGroup considers optimal harvest weight IFRS 13.Inaccordance withtheprincipleinIFRS13for high a present value model at level 3 in the fair value hierarchy in For thesecond group, thefair value iscalculated by applying their weight isstill relatively low. that smolts are currently released to sea at astage, when mation. Thisassessment must beseeninthelight of thefact approach to fair value, asthere biological islittle transfor For released to sea. duced ing life The Group’s biological assets are salmonatallstages of the basis. fair value isentered to theIncome Statement onacontinuous for lation of theestimated fair value isbasedonmarket prices fair value net of sales costs andharvesting costs. Thecalcu 41requiresIAS biomass to beaccounted for attheestimated VALUATION OFBIOLOGICAL ASSETS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP be harvested on cycle. for the for on the Farming first Farming land The stage group, fish. fish in SCT of fresh FO is In the 4.8 historical 5.2 divided the water. life kg kg accounts, gutted gutted cycle. into The cost The weight second two weight is the first deemed main change (5.9 is, (6.3 group groups, when kg kg a in live live is reasonable the estimated fish depend weight). weight) fish pro is - - - - - pected cash flow from biological assets. The valuation model calculates the net present value of ex The valuation model month. for Future mortality isestimated to befor Farming FO 0.6%and optimal harvest weight perfish. future mortality from balance sheet date andmultiplied by fishes Estimated harvest volume isbasedontheactual numberof Volume • • • • Main components inthemodelare: per locality. practical The in theIncome Statement. sented onthelineFair value adjustments of biological assets Changes to estimated fair value of biological assets are pre Discount rate Sales price Production costs Volume Farming measurement in the reasons, sea SCT on 0.9% cash unit the of flows balance is the the and number individual sheet estimates date, of fish. incoming minus are However, carried estimated fish per out for - - quality grading. FO market to arrive atanet value back-to-farm andfor Farming The prices are reduced for harvesting costs, freight costs to contracted prices. to a price for the sale of salmon, together with any already servable forward prices must beseenas thebest approach effective. Despite this,Bakkafrost’s opinionisthattheob market ted weight. The volume on Fish Pool is, however, limited. This agreements for superiorNorwegian salmonsize 3-6kg gut Fish already contracted prices. SCT: Amixture of externally quoted prices from FishPool and FO: Externally quoted prices from FishPool Estimated sales prices are basedon: Price vest- andtransport costs. per locality. Cost comprises mainlyfeed-, production-, har Estimated future costs are basedontheGroup´s prognoses Cost also Pool revenue is is therefore a marketplace tax. initially The valuation for to be financial also insufficiently ANNUAL REPORT 2019 reflects purchase the active expected and sale and - - - 120 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Mortality account thevolatility involume, cost andprice. adjustment andtimevalue. Theriskadjustment takes into be 6% per month. The discount rate takes into account a risk monthly discount rate at31December 2019isestimated to The Discounts the cause of mortality andthesize of thefish. mortality isabnormal.These assessments take into account detailed assessment isthencarried out to evaluate, whether 4% month dication of abnormalmortality iswhenafarming site ina farming sites to assess normal and abnormal mortality. In Bakkafrost uses acommon indicator and threshold for all duction costs. inventory, Income Statement andpresented onthelinefor changes in Costs related to abnormalmortality willberecognized inthe mortality dueto anincident. ing site eitherexperiences elevated mortality over timeor Mortality above normalwillbeaccounted for, whenafarm for estimated registers Farming while future SCT mortality normal of cash the mortality exceeding incoming flow is is discounted 1.5% classified number for Farming of as monthly. fish. part A FO of more pro and The - - - substantial expertise inassessing these factors. uncertain assumptions, even thoughthecompany hasbuilt The estimate of fair value of biomass willalways bebasedon ASSUMPTIONSSIGNIFICANT SENSITIVITY parameters. ological assets isportrayed intheevent of changes inthese lated sensitivityanalysis to changes infair value of thebi and estimated biomass volume. Inthetable above asimu for valuation. These are: average price, monthlydiscount rate The Group considers three components to bekey parameters - - ANNUAL REPORT 2019 121 SECTION 3 The Group’s exposure to credit risks related to accounts receivables isdisclosed inNote 4.1. Total Overdue more than6months Overdue 0–6months Receivables not overdue DKK 1,000 AGE DISTRIBUTION OFACCOUNTS RECEIVABLES Total accounts receivables andother receivables Long-term receivables Total short-term receivables Other receivables Other VAT Net accounts receivables Accounts receivables DKK 1,000 NOTE 3.8.ACCOUNTS RECEIVABLES ANDOTHER RECEIVABLES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP
0,4 63,594 205,064 107,945 515,125 269,348 625,993 625,993 269,348 655,197 650,775 625,993 078 10,599 20,738 24,782 45,520 2,923 4,422 2019 2019 301,484 292,284 269,348 12,336 22,936 9,200 2018 2018 690 ANNUAL REPORT 2019 122 SECTION 3 less foreseeable losses. short credit period,amortized cost isequivalent to face value the debts are madeonthebasisof anindividualassessment of face value less provisions for baddebts. Provisions for bad Accounts receivables and other receivables are presented at ACCOUNTING POLICIES Total Others NOK GBP USD EUR DKK DKK 1,000 DISTRIBUTIONCURRENCY OFRECEIVABLES DKK employing thecurrency value at31.12. Below ispresented thebookvalue of receivables specifiedincurrency, translated into million). The EXPOSURE TOCURRENCY ACCOUNTS RECEIVABLE NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP receivables Group holds concerned. accounts receivables Due to insignificant in foreign currencies cost and the amounting
DKK 317millionatyear-end 2018. and were DKK 1,309 million at year-end 2019, compared to Cash andcash equivalents consist of short-term bankdeposits NOTE EQUIVALENTS ANDCASH 3.9CASH to DKK
576.0 million
at year-end 1,0 10,639 96,217 115,605 109,054 294,621 625,993 2019. 26,636 20,736 36,025 59,721 49,953 2019 (2018: DKK 269,348 72,296 3,839 209.6 2018 ANNUAL REPORT 2019 123 SECTION 3 Oddvør 5% These shareholders helddirectly orindirectly more than SHAREHOLDERS price was DKK357.45(NOK469.40)pershare. 5.1 located 14,348shares to its employees atafair value of DKK of 2% of paid out salary in 2018. In total, Bakkafrost has al frost, have received bonusshares in2019withatotal value All full-time employees from 2018,still employed inBakka Treasury shares at31.12 Outstanding shares at31.12 Issuing new shares Sale of own shares to cover theemployee bonusprogram Purchase of treasury shares Outstanding shares at01.01 Reconciliation of outstanding shares: Total share capital Ordinary shares DKK The parent company's share capital comprises: Share capital at31.12 Share capital at01.01 DKK 1,000 Share capital: NOTE 3.10SHARECAPITAL SHAREHOLDERS ANDMAJOR NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP of million. the Jacobsen, Regin Jacobsen andFolketrygdfondet. shares The grant in the date company was 6 June as at 2019, 31
December and the
2019: share -
59,143,000 No. of Shares 10,284,935 48,621,140 48,655,500 59,142,108 Face Value 201,673 913 48,858 59,143 59,143 2019 2019 9 202,565 892 0 59,143,000 1
Share Capital 48,655,500 59,143,000 34,360 48,858 2018 2018 0 0
ANNUAL REPORT 2019 124 SECTION 3 presented asanitem withinequity. been recognized asaliabilityat31December 2019but is amount al Meeting andifapproved, thetotal dividend paymentwill dividends proposed are to beapproved attheAnnualGener for The Board has proposed adividendpershare of DKK8.31 Dividend Høgni D. Jakobsen Odd Eliasen Regin Jacobsen Einar Wathne Øystein Sandvik Annika Frederiksberg Teitur Samuelsen Johannes Jensen Rúni M.Hansen Name NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Shares owned directly andindirectly by themembers of theBoard of Directors andGroup Management: 2019. to Dividends DKK 491.5 in million. 2018 were The dividend DKK 8.25 proposal per Deputy Chairmanof theBoard share. has The Chief Executive Officer not Chairman of theBoard Chief FinancialOfficer Member of theBoard Member of theBoard Member of theBoard Member of theBoard - Managing Director Position No. of shares 4,615,963 183,870 15,810 10,651 140 100 0 0 0 Shareholding 0.00% 7.80% 0.31% 0.00% 0.00% 0.03% 0.00% 0.02% 0.00% ANNUAL REPORT 2019 125 SECTION 3 facilities atanytime. currency limit isnot necessarily inthesamecurrency of debt drawn, is basedonundiscounted contractual thecredit payments. As The Net interest-bearing debt Cash andcash equivalents Total interest-bearing debt Derivatives Long-term interest-bearing debt DKK 1,000 NOTE 3.11INTEREST-BEARING DEBT NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP maturity fluctuations
structure affect of the the Group’s amount financial available commitments under the
13956 -316,894 -1,309,546 812,053 2,328,231 1,018,685 2,328,231 2019 2018 0 320 495,479 812,373 ANNUAL REPORT 2019 126 SECTION 3 et 226,036 Accounts payable andother debt Interest-bearing bankloans 31.12.2018 608,167 REMAINING Accounts payable andother debt PERIOD Interest-bearing bankloans 31.12.2019 REMAINING PERIOD Total available credit lines Cash andcash equivalents Available credit lines Credit line Gross interest-bearing debt Credit facilities DKK 1,000 The maturity planof theGroup's interest-bearing debt isasfollows NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 1–3 months 1–3 months 0 0 3–12 months 3–12 months ,2,3 23848 0,3 812,053 804,131 2,348,488 2,328,231 2,328,231 Carrying 152,655 195,484 amount 0 0 3,505,974 2019 2018 1,309,546 Contractual 1,177,742 ,4,8 8411 812,053 804,131 2,348,488 2,487,288 payments amount 2,328,231 1–5 years 1–5 years 812,053 0 0 Carrying > 5years > 5years 316,894 1,493,460 378,691 0 803,651 0 812,053 0 0 Contractual 2,328,231 payments 680,806 997,700 Total Total ANNUAL REPORT 2019 127 SECTION 3 ticurrency revolving credit facility withCoöperatieve Rabo (SSC). Also, in December 2019,The Scottish SalmonCompany Ltd The Scottish SalmonCompany Limited more, theinterest cover shallnot beless than3.00. the Regarding theNew Agreement, thecovenant stipulates that to EUR150millionsubject to agreement withlenders. facility andallows for afuture increase of thefacilities of up facility ity ASA and Nordea Bank ABP (Filial i Norge). This New Facil Agreement”) withCoöperatieve Rabobank U.A, DNBBank credit In Bakkafrost P/F sidiary TheScottish SalmonCompany Limited. – onethrough theparent company andonethrough its sub Group. financing parent company. Subsidiaries can onlyenter into external Financing of theBakkafrost Group ismainlyexecuted by the INTEREST-BEARING DEBT INMOREDETAIL based onthematurity date of thecredit facilities. above Thecontractualamount. payments illustrated inthetable facility, underwhichtheGroup maydraw andpaydown any long-term bankborrowing isdrawn from arevolving credit refinancing rangement andlegal fees incurred inconnection withthe expected payments inthetable above isdueto upfront ar The difference between thecarrying amountandthetotal NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Norge). bank U.A, DNB(UK) Limited and Nordea BankABP(Filiali December comprised equity signed facilities do The and The if not ratio Group of financial a it 2019, a EUR reflect of is the fully of of seen a entered 257 in credit the Bakkafrost EUR secured covenants rollover aggregate favourable Group million 95 facilities two million five-year must dates financing signed multicurrency of EUR for the and be multicurrency of 352 fully the agreement GBP at loans the agreements least million whole secured 100 bond drawn revolving 35%. million Bakkafrost states issue. (the term five-year Further in but 2019 “New mul loan loan that One are ------Long-term credit facilities DKK 1,000 Maturity analysis -contractual payments at 31December 2019was DKK2,470.0million. EUR The complied withits covenants attheendof 2019. Both Bakkafrost P/FandTheScottish SalmonCompany Plc shall not atanytimeexceed 6.00. up event occurs, theSSC shallensure thattheleverage ratio cover shallnot beless 3.00.Inaddition,ifamarginstep- the -367,450 665,357 378,300 146,696 Total interest-bearing debt Short term interest-bearing debt 304,832 Long term interest-bearing debt 1,211,347 Reconciliation of development ininterest-bearing debt 812,053 Total interest-bearing debt Long term interest-bearing debt Reconciliation of development ininterest-bearing debt Gross interest-bearing debt SSC Bakkafrost 352 equity million ratio Group and must GBP had 100 be total at million. least available 35%, The 524,996 812,053 2017 2018 bank undrawn and 2020 0 0 the finances interest amount Cash flows Cash flows 1,211,347 297,907 of Acquisition Acquisition 2021 304,832 0 0 0 0 0
Reclassification Reclassification 2022 0 0 0 -10,850 0 0 0 0
FX movements FX movements -10,850 ANNUAL REPORT 2019 2023 0 0 812,053 0 2,328,231 0 0 2,328,231 2,328,231 2,328,231 812,053 2018 2019 2024 0 128 SECTION 3 As partofAs theguarantees are alsoanyinsurance refunds. severely for thebalance without limitations for eachother. Group. In addition, the Group companies are liable jointly and The Carrying amountof debt secured by mortgages andpledges NOTE 3.12MORTGAGES ANDGUARANTEES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total Inventory Biological assets (biomass) Financial assets Property, plantandequipment Licences Carrying amountof assets pledged assecurityfor recognized debt Long-term debt to financialinstitutions DKK 1,000 Bakkafrost Group has a group financing covering the
11,207,632 4,386,232 ,0,2 1,358,462 57,497 1,901,728 2,162,917 1,428,628 372,138 3,051,180 4,277,587 2,328,231 4,0 435,218 548,509 2019 812,053 2018 ANNUAL REPORT 2019 129 SECTION 3 Total After five years Between oneandfive years Within oneyear The expected timingof theeffect ontheincome statement isasfollows: Total Interest andcurrency derivatives Currency derivatives DKK 1,000 The fair value of derivatives heldatthebalance sheet date can beallocated asfollows: Derivatives total Interest andcurrency swaps regarding bonds Currency swaps regarding forward contracts DKK 1,000 NOTE 3.13DERIVATIVES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP derivatives Fair Value Currency 11.483 14.452 14.452 15.459 0 1.966 -1.003 2.969 1.007 2019 0
Recognized in Interest and derivatives the Income Statement currency 2.010 1.007 0 0 14.452 0 Recognized in equity 13.493
15.459 15.459 1.007 2019 2019 Total 0
derivatives Fair Value Currency
2018 320 320 320 320 0 14,452 1,007 0 0 0
Recognized in Interest and derivatives the Income Statement currency 15,459 2019 0 0 0 0 0 0 Recognized in equity 2018 2018 2018 Total 320 320 320 320 320 320 0 0 0 0 ANNUAL REPORT 2019 130 SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Financial instruments atfair value withchanges invalue sale, andother liabilities. holduntilmaturity,ment, loansand receivables, available for value withchanges in value entered to theIncome State in In FINANCIAL INSTRUMENTS ognized inequity, istransferred to theIncome Statement. If pected to occur, thecumulative gain orloss, previously rec If theforecast transactions orcommitments are nolonger ex cial expense isrecognized. settled, action transferred to theIncome Statement, whenthehedged trans Amounts recognized as other comprehensive income are come inthecash flow hedge reserve. strument isrecognized directly inother comprehensive in The effective portionof thegain orloss onthehedgingin currencies. Thehedges are cash flow hedges. risk, interest expenses andinstalment payments inforeign tracts are usedashedges of its exposure to foreign currency Interest rate swaps andforward currency settlement con Bonds are measured atfair value. Hedge accounting ue withchanges invalue, entered to theIncome Statement. forward currency contracts, which are recognized at fair val changes invalue entered to theIncome Statement alongside egory trading purposes. These instruments are includedinthecat or Financial instruments, whichare heldprimarilyfor buying entered to theIncome Statement accordance its selling remit of affects such financial in are the as profit with when classified short instruments IFRS or the term, loss, 9, hedged into financial and are the recognized when classified financial following instruments financial at as income categories: fair being liabilities falling value or held finan with with fair are for ------ously recognized inother comprehensive income, remain in as ahedge isrevoked, anycumulative gain orloss, previ ercised without replacement orrollover, orifits designation the hedginginstrument expires orissold,terminated orex charged to theIncome Statement. tered considered onerous, and provisions are calculated and en raw materials atthepointof harvesting), thecontracts are less thanproduction cost (includingfair value adjustment of Group beingobligated to sellsalmonproducts ataprice With The contracts contain nobuilt-in derivative elements. tracts, form partof theGroup’s normalbusiness activities. physical anddeliveries settlement, associated withthecon products (VAP) onanon-going basis.Thecontracts involve The Group enters into sales contracts for value added salmon ACCOUNTING POLICIES PROVISIONS FOR ONEROUS CONTRACTS 2019. liability. The Group hasnoprovisions asper31December closing can because of thatliability, andwhentheamountinquestion likely an event whichhasoccurred, andwhenitisprobable (more ny hasavalid liability(legal orself-imposed) derivingfrom A provision isrecognized when,andonly thecompa NOTE 3.14PROVISIONS profit orloss, orsettlement payments are made. other be respect to comprehensive than reliably date, the not) statement and to quantified. that fixed-price the level a income of financial financial reflects Provisions contracts, until settlement position. the firm are best which commitment reviewed estimate The will result provision take on for affects in place each the the is - - - - - at fair value. production costs including raw materials, biomass, measured oblige Provisions are madefor estimated onerous contracts that contain aclausefor settlement incash orcash equivalents. should take place. The contracts are not tradable, nordothey sively ontheassumption thatdelivery of salmonproducts financial instruments. Thecontracts are settled, based exclu of embeddedderivatives andare therefore not treated as on products. These contracts donot contain anyelements The company holdslong-term salecontracts related to salm ASSUMPTIONSIGNIFICANT the Group to sell fish at a price ANNUAL REPORT 2019 less than calculated - - 131 SECTION 4 financing items. This section gives aninsight into thecapital structure and Financing Items Structure and Capital NOTES -SECTION 4 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP The Group’s objective, whenmanagingcapital, isto maintain CAPITAL MANAGEMENT NOTE 4.1FINANCIALRISK MANAGEMENT acquisition of TheScottish Salmon Company. and tish SalmonCompany. Bakkafrost alsoissued shares inQ3 ing tion amounting During 2019. complied withthecovenants loanagreements attheendof information 3.10 est-bearing debt amounted to DKK1,018.7million.Note financed tal and has ongoing dialogue with its lenders. The Group is The Group monitors continuously access to borrowed capi sponding to changes in the underlying economic conditions. The Group manages thecapital structure andadjusts corre of DKK491.5million. year 2019, corresponding to a distribution to shareholders proposed 30 cumstances, average dividendsover several years shouldbe According to theGroup’s dividendpolicy, undernormalcir was 65percent. 35 the consolidated equity ratio shallatnotimebelower than cope The ized by price volatility and challenging production dynamics. imize shareholder value. Thefarming business ischaracter a capital structure ableto support theoperations andmax percent. to to Q4 Group of provides with 50 GBP EUR 2019 Q4 by percent a fluctuations to 100 must 2019, dividend At 150 on bank amounting EUR an 31 million the million. be overview of December Bakkafrost loans. 352 financially debt’s the of in were million DKK to In adjusted At profits of NOK addition, financial 31 8.31 ensured 2019, the refinanced with solid 5,142 December and debt’s per net the a bank in covenants. financial share to further profit. million Group’s maturity order refinance its facilities 2019, for The bank accordion to to position, the equity finance profile Bakkafrost be Board net The financial facilities amount able inter Scot ratio and and has op the to ------ments such asaccounts receivables, cash, shares, accounts In not beableto meet its financialobligations. Financial FINANCIAL RISK activities. ularly Risk management policies andprocedures are reviewed reg 31 December 2019,theGroup’s equityratio was 65%. ure The Board of Directors believe thatthemost important meas actual coverage andtheavailability of insurance. the value of theassets and prospective liabilities andthecost, is left to own riskvaries, dependingonthenature of therisk, balance between theamountcovered by insurance andwhat terial risks, where theinsurance iseconomically viable. The Concerning insurance coverage, theGroup insures against ma circumstances. able ities of theGroup asthey fall due. Thisalsoincludes being defined ment policies isto ensure theongoing liquidityof theGroup, The these consolidated financialstatements. Further quantitative disclosures are includedthroughout and procedures for measuringandmanagingrisks. sure to each of these risks, the Group’s objectives, policies risk. Thisnote presents information about theGroup’s expo of The Group hasexposure to thefollowing risks from its use FINANCIAL RISKMANAGEMENT financial addition against main to to meet as reflect risk objective being any instruments: to financial can bank changes risk at be all is of loans, defined covenants to times Bakkafrost’s in market have market the in as a a risk, on Group the strong position conditions Group risk liquidity financial ANNUAL REPORT 2019 has financial that debt to financial and meet the risk risk under position. the Group and the manage Group’s normal instru liabil credit will At ------132 SECTION 4 Because of theinternational nature of its operations, the Foreign exchange risk cial covenants. hedging, er average expected return, the Group only uses external derivatives. hedgingactivities As normallyresult inlow price market risks are transferred to third parties viacontractual tion, suitable controls andbusiness tactics. Insomecases, Group. Market riskismonitored andactively managed by the ity prices andsalmonspot prices). risk, interest rates riskandother price risk(suchascommod prices. Market riskcomprises three types of risk:currency cial come Market MARKET RISK should bemanaged. on anon-going basisanddraws upguidelines, for how these ty riskandcredit risk.Themanagement monitors these risks exposed, are interest rate risk,foreign exchange risk,liquidi The financial derivatives, for thepurpose of arbitrage. The age thecurrency risks arisingfrom theGroup’s operations. ward contracts. The purpose of these instruments is to man The business operations. payables, etc., whichare ascribable directly to day-to-day NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP For risk management purposes, three types of currency ex Group instruments most Group Group adjustment and is Exposure risk where exposed important expenses, does uses can there not will be financial to clauses, to defined financial future employ fluctuate these fluctuations is a significant derivatives, but cash risks as financial risks, because rarely the flows is of to risk reduced risk foreign by instruments, which or mainly of that means fair of changes breach the the currency by value currency of diversifica company Group’s in including of of financial market finan finan rates. for in is ------
Translational exposure actional exposure andEconomic currency exposure: posure rency isnot includedintheanalysis. nancial statements of subsidiaries into thepresentation cur their functional currency. Theexposure ontranslating thefi on thenet monetary position of allGroup entities against The table below summarizes theforeign currency exposure counting measures. position of theGroup, thusaffecting covenants basedonac streams verse movements inforeign currency rates ontransaction segments are not perfectly offset, theresidual effect of ad sification Transactional exposure for theGroup ismitigated by diver materials intheinternational commodities markets. exposurethe FOF segment, results from thesourcing of raw exposuresegment, arises mainlyfrom export sales, whilefor rency denominated committed transactions. For thefarming to changes inthevalue received orpaidunderforeign cur Most of theoperating companies intheGroup are exposed Transactional exposure is generally not hedged, asitisnot considered material. Group. Theexposure related to equityof foreign subsidiaries tional currency differ from thepresentation currency of the risks arisingfrom thetranslation of subsidiaries whose func Shetland, USA andNorway. Thus,Bakkafrost faces currency Bakkafrost hassubsidiaries abroad inScotland, England, have could benefits. been negatively identified: Where opposite impact Translational the exposure results exposure, from and different financial Trans ------ANNUAL REPORT 2019 133 SECTION 4 Total effect onProfit of -movements Total effect onProfit of +movements Historical volatility for thelast 5 years Net exposure 2018 Total effect onProfit of -movements Total effect onProfit of +movements Historical volatility for thelast 5years Net exposure 2019 DKK Sensitivity analysis Net exposure Forward contracts Interest-bearing debt Trade payables Accounts receivables Cash andcash equivalents 2018 Net exposure Forward contracts Interest-bearing debt Trade payables Accounts receivables Cash andcash equivalents 2019 DKK Exposure to currency risk NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 1,000 1,000 -298,851 -1,329 402,845 1,329 -1,016 1,016 EUR/DKK EUR/DKK .4 86% .0 79% 9.46% 7.91% 8.50% 8.99% 8.66% 7.42% 0.34% 8.12% 8.83% 0.33%
-524,548 -46,318 77,420 46,318 -6,705 6,705 EUR/DKK GBP/DKK GBP/DKK EUR/DKK -373,365 -517,124 -373,485 -298,851 0,2 1568 0,4 3,2 10,618 36,025 109,840 115,608 304,021 402,845 7,7 8,6 3912 8,3 8,585 288,238 309,152 88,869 478,875 970 069 627 666 3,839 26,636 96,217 10,639 59,720 714 44 661 -15,237 -6,631 -414 -7,184 -12,262 -38,746 -211,901 -6,565 198 715 970 138 2,543 21,338 89,700 67,195 21,978 0 0
-30,874 178,966 380,221 30,874 -15,212 15,212 USD/DKK USD/DKK GBP/DKK GBP/DKK -524,548 77,420 0 0 0
-8,847 119,232 32,737 8,847 NOK/DKK NOK/DKK -2,589 2,589 USD/DKK USD/DKK Currency Currency 380,221 178,966 -320 2 -192,768 -25 0 0 -1,726 19,202 6,382 1,726 -604 604 NOK/DKK NOK/DKK JPY/DKK JPY/DKK 119,232 32,737 0 0 0
-3,541 3,541 -24,094 24,094 JPY/DKK JPY/DKK 19,202 Result Result 6,382 0 0 0 0 0 0
tively reduced by useof operational hedges. distress inthose cases, where theexposure cannot beeffec measures the lion). TheGroup does not hedge transaction exposure in net amounts showed inthetable above, theeffect ontheGroup’s If therelevant cross foreign exchange rates moved by the historical volatility. in most exposed to attheendof 2019.Thereasonable shifts The analysis isbasedonthecurrencies thattheGroup is exchange income financial may would rates markets be be allowed in the DKK as a table -3.5 general to prevent million above rule. are situations (2018: ANNUAL REPORT 2019 Currency based DKK of on protection 24.1 financial 5 years mil - - 134 SECTION 4 2018 2019 Significant exchange rates (average) duringthe year NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP NOK DKK DKK DKK 1,000 Bakkafrost Group buys Currency forward contracts asat31December 2019 transactions are not allowed. undertaken to cover existing exposures. Purely speculative ize to imize theriskof breach of theGroup’s debt covenants and of interest rate riskmanagement activities shouldbeto min According bility. TheGroup does not have fixed interest rate debt. cost of The Group isexposed to increase ininterest rates as aresult Interest rate risk strategic currency exposure isregularly monitored, but astheexposure iscurrently considered limited itisnot actively hedged. The Group isexposed to theriskthatmedium/long-term trend shifts inexchange rates might affect its competitive position. This Economic currency exposure NOK DKK DKK 1,000 Bakkafrost Group buys Currency forward contracts asat31December 2018 having avoid strategic of borrowing situations debt to flexibility. the with Group’s might of floating financial Trading adversely finance interest in distress interest policy, affect rate that terms. the the
rate Group’s might main derivatives An 15,700 increased objective GBP 253,423 jeopard profita 30,000 26,742
is 0 - - -
EUR/DKK 746.60 745.32 prices of salmon,whichare determined by globalsupply The Price risk based onNIBD. ment ing date would have anegative impact ontheincome state A 100basispoints increase ininterest rate atthereport changes inmarket value of outstanding debt. exposed to the riskthatchanges in interest rates might drive The NOK USD USD Bakkafrost Group sells DKK Bakkafrost Group sells farming Group amounting 850.93 842.44 GBP/DKK has segment no to fixed DKK is 667.03 631.74 10.2 USD/DKK sensitive rate million liabilities to (2018: fluctuations 75.80 77.69 NOK/DKK and DKK is therefore 5.0 6.12 5.72 in JPY/DKK 40,840 the million), 23,185 2,475 4,002 spot not 0 - - movements incash requirements. Pleasealso refer to Note headroom to cover the planned investments and unforeseen forecast The Group seeks to maintain committed facilities to cover assets with the samerelationship bank. vided funding by securingavailable committed credit lines, pro Liquidity ings are prepared regularly. monitored, capital providers. TheGroup’s liquiditysituation isclosely meet Liquidity riskarises from theGroup’s potential inabilityto Liquidity risk with theincreased cost, andprofitability would thussuffer. cumstances, itmight not bepossible to charge thecustomers previously negotiated purchase agreements. Underthese cir ume makes itnecessary to purchase raw materials outside of costs inthose cases, where anunexpected surge insales vol of certain raw materials might result inincreased sourcing ers, mainlyinsidetheGroup. Constraints in the availability commodity prices iseffectively transferred to feed custom regulations, thisway theriskassociated withincreases in production iscontracted inadvance of periodicsales price modity markets. Alarge portion of raw materials neededin The Group’s FOF segmentisactive intheinternational com Other price risk markets andwiththemarket position of theGroup. based onspot prices, althoughthiswould vary withdifferent trends inmarket prices. Salmonisto alarge extent traded production VAP partly and demand.Theimpact of changes insalmonspot prices is segment its by mitigated borrowings our financial risk and cycles, bank, and is rolling by managed financial it obligations and long-term is for forecasts difficult through the through contracts, next contracts towards to of maintaining 12 respond cash maintaining months, however, ANNUAL REPORT 2019 at flows suppliers fixed quickly sufficient and plus prices flexibility due cash and to financial to global in liquid hold debt long the in ------135 SECTION 4 financial industries andgeographic areas. Counterparty risk against significant, Concentration of credit risk is at the outset not considered regular follow upby central functions. credit management inoperating companies, supported by such riskmitigating measures, theGroup focuses ondetailed included inthebalance, alsoreduces therisk.Inaddition to to baddebts have beenlow inBakkafrost. Recoverable VAT, outstanding pledges onbiological assets, thusreducing theactual riskon tees, parent company guarantees, orother securities suchas In general, Bakkafrost uses credit insurance, bank guaran is responsible for granting credits to theGroups customers. governed by Bakkafrost’s credit committee. Thecommittee Bakkafrost has a Group-wide credit management policy, instruments. and tracted to berecognized ifother parties failed to perform ascon Credit riskrepresents theaccounting loss thatwould have Credit risk various currencies. million) (seeNote 3.10)of cash andcash equivalents heldin December 2019includedDKK1,310million(2018:317 iting funding markets aswell astrends intheavailability and cost of such kafrost monitors fundingoptions available inthecapital In additionto theabove described sources of liquidity, Bak credit lines, andmaturity of interest-bearing debt. 3.11 for information oncommitted credit facilities, available NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP these transactions, theGroup relies uponNordic relationship ited liquidassets andlow traded volumes in derivatives. For cash refinancing and with institutions equivalents, since receivables is a related view risk. the to is Bakkafrost’s Group’s to not maintain receivables significantly. financial considered customers financial instruments overall and Historically, significant, derivative flexibility represent liquidity such due losses financial as and as various to at cash lim lim due 31 - - - - - The modity exchanges. banks, other relationship banks orwidelyrecognized com ments are entered withoneof theGroup’s relationship banks. hedge tives, andinthose cases, where itisdeemedappropriate to The cash avoid shortage of cash andlimittheneedfor borrowing. The while policy with the overall objective of minimizing cash holdings, 316,894 Bakkafrost hasimplemented aGroup-wide cash management 1,309,546 Total Cash andCash equivalents Other receivables Accounts receivables Credit Risk please refer to Note 3.8. 609.2 million).For age distribution of accounts receivables, DKK 1,981.1 million as at 31 December 2019 (2018: DKK receivables andcash andcash equivalents andamounts to at thereporting date consists of accounts receivables, other imum credit exposure. Themaximumexposure to credit risk carrying Group management ensuring an existing does amount sufficient not is exposure carried make of financial liquidity extensive out on the from assets 1,981,059 609,178 to financial 2,9 269,348 625,993 use the 550 22,936 45,520 meet 2019 represents Group’s of financial business markets, head the deriva needs, agree office. 2018 max - - - - ANNUAL REPORT 2019 136 SECTION 4 OF FINANCIALINSTRUMENTS NOTE 4.2CATEGORIES ANDFAIR VALUE NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP closed, are categorized withinthefair value hierarchy, de All assets/liabilities, for whichfair value isrecognized ordis Fair value of financialinstruments measurements. There have beennotransfers into or out of Level 3fair value significant to thefair value measurement). ing categorization (basedonthelowest level input thatis have occurred between Levels inthehierarchy by reassess recurring basis,theGroup determines, whether transfers For assets/liabilities thatare recognized atfair value ona sensitivity refer to Note 3.7. period end.For more information onthese calculations and the value isestimated basedonobservable market prices per a valuation model(level 3inthevaluation hierarchy), where For biological assets, thefair value calculation isdoneusing observable). put Level 3: ly orindirectly observable). put Level 2: unadjusted) for identical assets orliabilities. Level 1: significant to thefair value measurement asawhole: scribed asfollows, basedonthelowest level input thatis that that Valuation techniques (for whichthe lowest level in is Valuation techniques (for whichthe lowest level in Quoted market prices inanactive market (thatare is significant significant to to the the fair fair value value measurement measurement
is direct is un ------DKK 1,000 atDecember As 31 Liabilities measured atfair value 31.12.18 Assets measured atfair value 31.12.18 Biological assets (biomass) Liabilities measured atfair value 31.12.19 Assets measured atfair value 31.12.19 Biological assets (biomass) Assets andliabilities measured atfair value st theGroup heldthefollowing classes of assets/liabilities measured atfair value: 975,687 1,358,462 1,901,729 1,358,462 1,901,729 Fair value 0 0
Cost amount 1,874,034 1,874,034 975,687 0 0
Level 1 0 0 0 0 0 0
Level 2 ANNUAL REPORT 2019 1,358,462 0 0 0 0 0 0 1,901,729 1,358,462 1,901,729 Level 3 0 0 137 SECTION 4 Bakkafrost Group hasnostock option programme runningatpresent. Diluted (DKK) Basic (DKK) of biomass andprovision for onerous contracts (adjusted EPS) Adjusted earnings pershare (before fair value adjustments Diluted (DKK) Basic (DKK) Earnings pershare Time-weighted average numberof shares outstanding through theyear Ordinary shares asat31.12. Ordinary shares asat01.01. Adjusted profit for the year to shareholders of P/FBakkafrost Tax onfair value adjustment Fair value adjustment of biomass 41) (IAS Profit for theyear to theshareholders of P/FBakkafrost DKK 1,000 NOTE 4.3EARNINGSPERSHARE NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP
48,858,065 59,143,000
59,143,000 51,624,366 2,6 -195,819 960,292 220,567 801,885 982,750 3,0 35,247 -39,702 19.04 19.04 19.74 19.74 15.53 15.53 2019 2018 2019 48,858,065 48,645,774 799,720 16.44 16.44 2018 underlying performance. view adjustments shown in the table above, asitisBakkafrost’s Adjusted EPS is based on thereversal of certain fair value Adjusted earnings pershare outstanding. fect of issued share options. Bakkafrost hasnoshare options Diluted earnings pershare are adjusted for thedilution ef Diluted earnings pershare treasury shares. ing ordinary shares purchased by thecompany andheldas number of ordinary shares inissue duringtheyear, exclud to equityholders of thecompany by theweighted average Basic Basic earnings pershare Earnings pershare (EPS) that EPS this is calculated figure provides by dividing a more reliable the ANNUAL REPORT 2019 profit measure attributable of the - - 138 SECTION 5 Disclosures Other NOTES -SECTION 5 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP secondary importance from theperspective of Bakkafrost. This section gives more details onthestatutory notes thathave 2019 NOTE 5.1.CAPITAL COMMITMENTS building of anew biogas plant. DKK 121 relate to new marine sites and development of an existing freshwater site in Scotland. DKK 7 million relate to the sition The Group had capital expenditure committed but not provided inthese accounts atthedate of theStatement of FinancialPo Total Total contractual other PPEinvestments Total contractual new biogas plant Total contractual new hatchery stations 2018 Total Total contractual other PPEinvestments Total contractual new biogas plant Total contractual new marinesites anddevelopment of anexisting freshwater site inScotland. Total contractual new hatchery stations intheFaroe Islands of approximately DKK 325 million. DKK 107 million relate to the building
of new hatchery
stations 109,170 121,000 180,730 271,400 14,380 57,180 89,700 53,600 53,600 7,100 ANNUAL REPORT 2019 2020 2021 2019 2020 in the Faroe Islands. 53,600 0 0 0 0 0 0 0 - 139 SECTION 5 arm’s terms. length position andvice versa. Related partytransactions are at influence legal Related parties are inthisrespect considered aspersons or NOTE 5.2RELATED-PARTY TRANSACTIONS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP entities, on the which Bakkafrost directly or Group indirectly through possess shareholding significant or DKK 1,000 Accounts payable -SalmonProteins P/F Accounts receivables -SalmonProteins P/F Revenues -SalmonProteins P/F Purchase -Pelagos P/F Accounts payable -FFSkagen A/S Purchase -FFSkagen A/S Based onassociation Accounts payable -Ro Sommernes advokatfirma DA Purchase -Ro Sommernes advokatfirma DA Accounts payable -Petronavit AS Purchase -Petronavit AS Accounts payable -Advokatskrivstovan Í/F Purchase -Advokatskrivstovan Í/F Accounts payable -TjaldurP/F Purchase -TjaldurP/F Accounts payable -Frost P/F Purchase –Frost P/F Accounts payable –Gist &Vist P/F Accounts receivable –Gist &Vist P/F Purchase -Gist &Vist P/F Revenues -Gist &Vist P/F Accounts payable -Betri Trygging P/F Purchase -Betri Trygging P/F Revenues -Betri Trygging P/F Based onkey personnel
32,239 10,647 86,118 32,490 17,189 ,5 1,937 4,350 6,246 4,794 1,425 1,017 1,332 ANNUAL REPORT 2019 2019 671 189 619 619 125 125 203 203 248 166 676 0 4 26,208 28,729 18,140 2018 421 576 772 445 583 38 26 0 0 0 0 0 0 0 0 0 0 0 140 SECTION 5 NOTE 5.3BUSINESS COMBINATIONS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 2019. Further acquisition hasbeenmadeinQ4,andat31 from NorthernLinkLtd. Theclosing date was 8October standing shares in The Scottish Salmon Company Plc (SSC) Purchase Agreement (SPA) to acquire 68.6%of theout On • • Increases • lowing: The strategic rationale for theacquisition includes thefol Strategic Rationale SSC’s mainoffice isinEdinburgh, Scotland. lander Salmon.Thecompany has651employees. Hebridean Salmon,Tartan SalmonLabel Rouge andLoch oped a focus on North America and theFar East. SSC has devel gutted weight in2019andexported to 21countries with capacity total supplychainintegrity. Thecurrent annualproduction all stages of thevalue chainensuringfulltraceability and and HebrideanIslands.Thecompany isengaged innearly clusively inScotland with60sites across theWest Coast SSC isanintegrated salmonfarming business operating ex SSC. December products priced atapremium to themarket. which isanichefarming region withScottish provenance diversifying ourfarming operation into anew geography, the Group. and brings new growth anddevelopment opportunities to Creates a combined differentiated globalleaderinpremi Provides Bakkafrost access to theScottish farming region, 25 a September range is 2019, the 50,000 of scope strong Bakkafrost 2019, tonnes. of Bakkafrost’s Bakkafrost flagship SSC held produced brands, 95.6% signed operation of including a 33,798 binding the significantly shares tonnes Native Share in ------
SG&A • • • Feed • Positive • land (through discontinuing thelisted functions of SSC). distribution strengths inglobalmarkets. sales efforts going forward, taking advantage of relative Both er price dueto provenance andproduct differentiation. mium onwards (~NOK2.6/kg of SSC harvested salmon). synergies of approximately DKK70millionfrom 2022 estimatedgy atDKK1.2perkg feed, equatingto annual company sales of higherqualityfeed to SSC. Net syner efficiency try a SG&A andOverhead savings. related to Feed andProcurement, Sales Cooperation and expects to generate synergies inthree key areas mainly tices andatargeted investment programme. Bakkafrost realization Company’s products. focused on developed markets and markets for premium attractive salmonfarming markets, whileremaining both a pure playFaroe Islands company to apresence intwo Scottish premium salmon. um salmonwithdualexposure to both Faroe Islandsand Sales Cooperation: Both SSC andBakkafrost market pre Potential for material improvement inTheScottish Salmon significantly feed. companies & & salmon Procurement: Overheads: diversification Supplying at of profitability and Bakkafrost’s identified higher plan brands feed Leaner to Bakkafrost marine drive over of synergies, to that feed Bakkafrost’s SSC head a efficiencies index, obtain five-year would facilities produces office transfer compared a result significantly structure operations horizon by through fish of coordinating in best fixed feed to through in indus inter high prac Scot from with cost ------
strengthen theScottish regulatory framework. Additionally, Bakkafrost iscommitted to ongoing work to ployment communities and authorities and hopes to stimulate em Bakkafrost iscommitted to strong cooperation withlocal replacing SSC’s existing seawater equipment. Additionally, investments are plannedto bedirected towards tion, replacing SSC’s large numberof smallsmoltfacilities. ment inanew modernrecirculation plantfor smoltproduc achieve Bakkafrost alsoplansto make targeted investments to improving price achievement andprofitability. result of biological threats through delousingexpertise. Theoverall formance, (iii)gradual consolidation of sites, (iv)mitigation tation of better farming procedures for improved cost per identification fer of best practices including(i)secondments to stimulate Bakkafrost alsobelieves thatthere isthepotential for trans of the these through efficiencies and actions transfer significant outlined is expected of best investment above. practices, to ANNUAL REPORT 2019 These result in include (ii) in the larger implemen business. invest fish, ------141 SECTION 5 as Acquisition-related mation from SSC, withinthe12-monthperiodstipulated by IFRS3. change asBakkafrost becomes ableto gain access to more infor The liabilities assumed, recognized attheacquisition date. for SSC andtheassessed fair value of theassets acquired and ments. Thetable below summarizes theconsideration paid arises from thetax calculations onthefair value adjust The names have adefinite expected life. We have not seenanyindicators thattherespective trade ent page regarding stratetic rationale. utilizing atop-down market approach. Pleaserefer to pres allocated to licenses. We have then assessed this value by brand value, andthe remaining excess value issubsequently have draw thelinebetween goodwill andlicenses. InthePPA, we tion isrelated to licenses, andthequestion willbe, where to We expect thatmost of theexcess value from thetransac come approach by calculating thenet present value (NPV). salers and directly to customers. Brand is valued by the in Scottish SalmonCompany brand, to alarge extent to whole ridean. Theremaining volumes are soldunderthegeneral namely Tartan Salmon,Lochlander SalmonandNative Heb We but madesubject to anannualimpairmentreview. are viewed asperpetual innature andare thusnot amortized Most of SSC’s intangible assets isrelated to licenses. Licenses Net assets acquired NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP million, andcosts heldby SSC are DKK57.0million. Statement of Cash Flow. Total cost for Bakkafrost isDKK10.8 incurred have figures aggregated allocated identified provided and value included goodwill costs three are to all subject were within of significant other DKK expensed to operating identified 550.4 further brand to million cash scrutiny the assets names profit flows recognized, including and in or in may SSC, loss the ------
Goodwill DKK 1,000,000 Transaction value (market value of equity) Purchase price for shares (100%) Purchase price for shares (68.6%) Purchase price allocation: Net assets acquired Total liabilities Current taxes Other current liabilities Accounts payable Current liabilities, interest-bearing Long-term liabilities, interest-bearing Other long-term liabilities Deferred taxes Total assets Cash, bankandmarketable securities Other current assets, excluding cash andbank Biological assets Inventories Accounts receivables Property, plantandequipment Brands Licenses
Book Value 8.10.2019 1,844.0 239.4 201.8 108.4 192.7 198.5 660.5 123.4 702.2 201.8 950.7 50.9 32.5 40.9 31.7 8.3 1.7 0
adjustment Fair Value 3,131.6 3,739.6 499.6 108.4 551.3 551.3 ANNUAL REPORT 2019 0 0 0 0 0 0 0 0 0 0 0 0
8/10/2019 3,333.5 5,583.6 1,502.0 4,081.5 2,800.4 4,081.5 4,081.5 550.4 552.9 108.4 239.4 201.8 108.4 192.7 198.5 660.5 123.4 702.2 32.5 40.9 31.7 8.3
142 SECTION 5 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 2019. corporated basis for comparison, as The Scottish Salmon Company is in the capital inTheScottish SalmonCompany Plc. Consequently, On 8October 2019,Bakkafrost acquired 68.6%of theshare Proforma figures an The fair value of intangible assets has been determined on Bakkafrost USA LLC. ities. Thekey employees of NorthLanding willcontinue in The sets inNorthLanding viaBakkafrost USA LLC. On 1July2018,Bakkafrost purchased thebusiness andas 2018: Groups. forma joint activity asonereporting entityfor theperiod.Thepro uary Profit lowing In order to give anadequate basisfor comparison, thefol estimated comparison purchase 2019, & figures pro Loss into is forma statement fair provided. are is figures the paid value. based financial Profit in for as Fair The on cash if & 2019 the information, value pro the Loss and actual forma merger do statement financed has not financial been financials provide took which by identified from place existing figures presents an present 8 on adequate October in 1 of facil Jan cus the the the ------Operating revenue DKK 1,000 contributed witharesult of -8.5mDKKto theGroup’s result. From 1Julyto 31December 2018,theacquired business determined baseda3 The fair value of property, plantandequipmenthasbeen measured to DKK6.2million. techniques. The market value of the customer relationship is tomer relationship employing generally accepted valuation income from associates andrevenue tax. * Operational EBITisbefore fair value of biomass, onerous contracts, Profit orloss for theperiod Taxes Earnings before taxes (EBT) Net financialitems Earnings before interest andtaxes (EBIT) Revenue tax Income from associates Fair value adjustments of biological assets Operational EBIT* Depreciation Operating costs rd partyvaluation. Proforma 2019 -3,859,827 5,779,903 1,416,602 -118,876 -670,764 -503,474 483,285 602,161 660,522 -58,361 -99,128 13,812 Total net identifiableassets Inventory Property, plantandequipment Intangible assets 1,000 DKK Identifiable assets assumed: ANNUAL REPORT 2019 13,372 13,948 28,910 1,590 2018 143 SECTION 5 Board, theGroup’s financialposition isgood. tion that Bakkafrost is a going concern. In the opinion of the the long-term With NOTE 5.6GOINGCONCERN Total auditor’s fees Other services Tax advisoryservices Statutory auditing DKK 1,000 Fees paidto auditors (ex. VAT) break down asfollows: NOTE 5.5AUDITOR’S FEES not after and hasnot beenrecognized intheannualaccounts. Events is nancial This THE STATEMENT OFFINANCIALPOSITION NOTE THEDATE 5.4EVENTS AFTER OF NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP received financial affect is the reference regarding position date forecasts the after statements of company’s to the on the new the the date for statement information Group’s statement the of for financial the years 2019 profits, of statement financial regarding of ahead, are position financial based financial it of position, is on the financial on position, confirmed the company’s strength
the statement which assump position which that and do fi - -
On 28February 2020, a severe storm hittheFaroe Islands. future financialposition, are disclosed ifmaterial. of years andacross thecompany where relevant. and usedina consistent andtransparent mannerover the These other parties. these APM’s are frequently usedby analysts, investors and ferently by other companies. Bakkafrost’s experience is that measures presented maybedetermined orcalculated dif pared inaccordance withIFRS. Thealternative performance performance, management to enhance theunderstanding of thecompany’s performance measures, whichare regularly reviewed by the dition, the management’s intention is to provide alternative with Bakkafrost’s ALTERNATIVE PERFORMANCE MEASURES NOTE 5.7 an average weight of 2.1kg. A15 farming sites intheSouth Island(Suðuroy); A23Hvalba and The four-day storm caused damage ontwo of Bakkafrost’s financial Froðba. international
APM’s position
In financial are but total, adjusted not financial date, Bakkafrost replacing information
but IFRS reporting which lost measures the is around financial will prepared standards 1,268 2019 affect 309 947 defined, 12 1 statements million the in (IFRS). accordance company’s calculated fish 1,081 In 2018 with pre 175 898 ad 8 - - -
from these to net debt isprovided below. non-current) andcash andcash equivalents. Areconciliation is theaggregate interest-bearing liabilities (both current and defined Net debt isanalternative performance measure asitisnot is available to settle theliabilities includedinthismeasure. sarily meanthatthecash includedinthenet debt calculation indebtedness. Theuseof theterm ‘net debt’ does not neces can beusedto assess both theGroup’s cash position andits overall balance sheet strength. Itisalsoasinglemeasure that Group’s net indebtedness that provides anindicator of the equivalents. Thenet interest-bearing debt isameasure of the such asdebt instruments andderivatives, andcash andcash and non-current interest-bearing liabilities, less related current Net interest-bearing debt consists of both current and NIBD information provided by thisreport. ment Apart from noevents thisincident, from thedate of thestate by 5-6,000tonnes gw. is expected to reduce theharvest in2020theFaroe Islands 2020 Bakkafrost haspreviously guided onanexpected harvest for non-current of of in financial 57,000 IFRS. The tonnes hedging position most
gw instruments, until directly in the today Faroe comparable materially financial ANNUAL REPORT 2019 Islands. IFRS influence This instruments, measure incident the - -
144 SECTION 5 Operational EBIT Revenue tax -FO Income from associates Fair value adjustments of biological assets EBIT DKK 1,000 revenue tax -FO. onerous contracts provisions, income from associates and Operational EBITisalignedfor fair value adjustments, Operational EBIT NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Net interest-bearing debt Long- andshort-term interest-bearing debt Derivatives Cash andcash equivalents DKK 1,000 Operational EBITperkg: Operational EBITFarming segment Total harvested volumes (gw) Farming segment: Total volumes produced (raw material gw) Operational EBITVAP segment VAP segment: Operational EBITisprovided below. in thesalmonfarming industry. Areconciliation from EBITto Operational EBITisamajoralternative performance measure
Operational EBITFarming andVAP segment
23821 -812,053 -2,328,231 Total harvested volumes (gw) Farming andVAP: 31.12.2019 31.12.2018 -1,018,685 ,0,4 316,894 1,309,546 1,325,100 1,019,217 1,184,233 2,6 -195,819 220,567 -13,812 918 95,867 99,128 2019 0 -320 1,074,912 -495,479 -9,369 2018 other income andother expenses dividedby total revenues. The mance inrelation to Bakkafrost’s FOF segments competitors. nonrecurring items, aswell asevaluating operating perfor expenditures and acquisitions, which occurred in the past, tions andamortization expenses related primarilyto capital bility onamore variable cost basis,asitexcludes deprecia frost’s Group overview. Thismeasure isuseful to users of Bakka fixed es FOFEBITDA segment. before other income and other expens tions Earnings before interest, tax, depreciations andamortiza EBITDA is EBITDA defined (EBITDA) assets financial and margin as is EBITDA information operations a key presented financial less gains and in evaluating is is parameter defined and reconciled losses ANNUAL REPORT 2019 as operating for on EBITDA in Bakkafrost’s disposals the profita section before of - - - - - 145 SECTION 5 biomass andprovisions for onerous contracts) (adjusted EPS) Adjusted earnings per share (before fair value adjustment of Time-weighted average numberof shares outstanding through theyear Adjusted profit for the year to shareholders of P/FBakkafrost Tax onfair value adjustment andonerous contracts provisions Fair value adjustment of biomass Profit for theyear to theshareholders of P/FBakkafrost DKK 1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP
51,624,366 2,6 -195,819 960,292 220,567 801,885 982,750 3,0 35,247 -39,702 19.04 2019 48,645,774 799,720 16.44 2018 underlying performance. view adjustments shown in the table above, asitisBakkafrost’s Adjusted EPS is based on thereversal of certain fair value Adjusted EPS that this figure provides a more reliable ANNUAL REPORT 2019 measure of the 146 147
Financial Statements
P/F BAKKAFROST P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2019 148
P/F BAKKAFROST P/F BAKKAFROST – Income Statement for the year ended 31 December 149 P/F BAKKAFROST – Statement of Financial Position as at 31 December 150 Table of Contents P/F BAKKAFROST – Cash Flow Statement for the year ended 31 December 152 P/F BAKKAFROST – Statement of Changes in Equity as at 31 December 153
Note 1 - Accounting Policies 154
Note 2 - Salaries and other Personnel Expenses 154
Note 3 - Net Financial Items 155
Note 4 - Property, Plant and Equipment 156
Note 5 - Subsidiaries and Associates 157
Note 6 - Investments in Stocks and Shares 159
Note 7 - Share Capital and Major Shareholders 159
Note 8 - Tax 160
Note 9 - Security Pledges and Contingent Liabilities 161
Note 10 - Related-Party Transactions 161 P/F BAKKAFROST - FINANCIAL STATEMENTS ANNUAL REPORT 2019 149
P/F BAKKAFROST DKK 1,000 Note 2019 2018 Operating revenue 147,843 116,855 Income Statement Salary and personnel expenses 2 -37,271 -29,793 Other operating expenses -94,188 -61,044 Depreciation 4 -30,729 -29,066 Earnings before interest and taxes (EBIT) -14,345 -3,048 FOR THE YEAR ENDED 31 DECEMBER Dividends from subsidiaries 5 841,190 1,013,205 Income from other investments in shares 6 36 9,538 Financial income 3 12,265 10,592 Net interest expenses 3 -9,985 -10,338 Net currency effects 3 -10,842 -4,838 Other financial expenses 3 -13,124 -3,339 Earnings before taxes (EBT) 805,195 1,011,772
Taxes 8 -4,365 190 Profit to shareholders of P/F Bakkafrost 800,830 1,011,962
Distribution of profit Dividends 491,478 403,079 Retained earnings 309,352 608,883 Distribution in total 800,830 1,011,962 P/F BAKKAFROST - FINANCIAL STATEMENTS ANNUAL REPORT 2019 150
P/F BAKKAFROST DKK 1,000 Note 2019 2018
ASSETS Statement of Non-current assets Financial Position Intangible assets 1,000 1,000 Total intangible assets 1,000 1,000
AS AT 31 DECEMBER Property, plant and equipment Land, buildings and other real estate 4 348,319 358,864 Plant, machinery and other operating equipment 4 15,196 32,868 Total property plant and equipment 363,515 391,732
Non-current financial assets Investments in subsidiaries 5 5,408,693 1,400,671 Investments in stocks and shares 6 1,236 1,764 Receivables from Group companies 100,599 0 Total non-current financial assets 5,510,528 1,402,435
TOTAL NON-CURRENT ASSETS 5,875,043 1,795,167
Inventory 18,448 16,087 Total inventory 18,448 16,087
Receivables from Group companies 3,688,612 2,789,791 Accounts receivables 2,461 12,257 Other receivables 236 14,276 Total receivables 3,691,309 2,816,324
Cash and cash equivalents 589,264 135,168 TOTAL CURRENT ASSETS 4,299,021 2,967,579
TOTAL ASSETS 10,174,064 4,762,746 P/F BAKKAFROST - FINANCIAL STATEMENTS ANNUAL REPORT 2019 151
DKK 1,000 Note 2019 2018
EQUITY AND LIABILITIES Equity Share capital 7 59,143 48,858 Other equity 8,093,403 3,898,368 Total equity 8,152,546 3,947,226
Non-current liabilities Long-term interest-bearing debt 9 1,710,672 765,564 Deferred taxes 8 11,372 11,347 Total non-current liabilities 1,722,044 776,911
Current liabilities Derivatives 3.13 633 320 Payables to Group companies 274,878 0 Accounts payable 13,741 14,623 Other short-term liabilities 10,222 23,666 Total current liabilities 299,474 38,609
Total liabilities 2,021,518 815,520
TOTAL EQUITY AND LIABILITIES 10,174,064 4,762,746 P/F BAKKAFROST - FINANCIAL STATEMENTS ANNUAL REPORT 2019 152
P/F BAKKAFROST DKK 1,000 Note 2019 2018 Cash flow from operations Cash Flow Operating profit (EBIT) -14,345 -3,048 Adjustments for write-downs and depreciation 4 30,729 29,066 Statement Adjustments for net currency effects -10,842 -4,838 Adjustments for share-based payment 2 503 455 Taxes paid 8 -21,970 292 FOR THE YEAR ENDED 31 DECEMBER Change in inventory -2,361 -4,697 Change in receivables 23,836 59,327 Change in current debts 2,895 25,324 Cash flow from operations 8,445 101,881
Cash flow from investments Increase of share capital in subsidiaries, etc., net 5 -4,008,022 -5,000 Proceeds from sales of purchase of fixed assets 522 0 Payments made for purchase of fixed assets 4 -3,034 3,627 Cash flow from investments -4,010,632 -1,373
Cash flow from financing Changes in interest-bearing debt (short and long) 945,421 111,760 Financial income 12,265 10,592 Financial expenses -23,109 -13,677 Financing of associates/subsidiaries -724,542 -728,173 Acquisition/sale treasury shares 75,349 1,229 Dividend from subsidiaries 5 841,190 1,013,205 Emission – increase of share capital 3,731,123 0 Dividend paid -401,512 -510,693 Cash flow from financing 4,456,185 -115,757
Net change in cash and cash equivalents 454,096 -15,249
Cash and cash equivalents – opening balance 135,168 150,417 Cash and cash equivalents – closing balance total 589,264 135,168 P/F BAKKAFROST - FINANCIAL STATEMENTS ANNUAL REPORT 2019 153
Share Share- premium Treasury based Proposed Retained DKK 1,000 Share capital account shares payment Derivatives dividends earnings Total
1 January 2019 48,858 117,368 -15,525 1,219 -265 403,079 3,392,492 3,947,226 P/F BAKKAFROST Net annual profit 0 0 0 0 0 0 860,725 860,725
Other comprehensive income: Statement of Fair value adjustment on financial derivatives 0 0 0 0 -311 0 0 -311 Income tax effect 0 0 0 0 56 0 0 56 Changes in Equity Total other comprehensive income 0 0 0 0 -255 0 0 -255 Total comprehensive income 0 0 0 0 -255 0 860,725 860,470
AS AT 31 DECEMBER Transaction with owners: Emission - increase share capital 10,285 3,720,838 0 0 0 0 0 3,731,123 Treasury shares 0 0 15,457 0 0 0 0 15,457 Share-based payment 0 0 0 -218 0 0 0 -218 Dividend treasury shares 0 0 0 0 0 0 1,567 1,567 Paid-out dividends 0 0 0 0 0 -403,079 0 -403,079 Proposed dividends 0 0 0 0 0 491,478 -491,478 0 Total transaction with owners 10,285 3,720,838 15,457 -218 0 88,399 -489,911 3,344,850
Total changes in equity 10,285 3,720,838 15,457 -218 -255 88,399 370,814 4,205,320
31 December 2019 59,143 3,838,206 -68 1,001 -520 491,478 3,763,306 8,152,546
1 January 2018 48,858 117,368 -18,159 764 -104,352 513,009 2,897,179 3,454,667
Net annual profit 0 0 0 0 0 0 1,011,962 1,011,962
Other comprehensive income: Fair value adjustment on financial derivatives 0 0 0 0 126,935 0 -138,748 -11,813 Income tax effect 0 0 0 0 -22,848 0 22,848 0 Total other comprehensive income 0 0 0 0 104,087 0 -115,900 -11,813 Total comprehensive income 0 0 0 0 104,087 0 896,062 1,000,149
Transaction with owners: Treasury shares 0 0 2,634 0 0 0 -2,634 0 Share-based payment 0 0 0 455 0 0 0 455 Dividend treasury shares 0 0 0 0 0 0 2,648 2,648 Proceeds/acquisition treasury shares 0 0 0 0 0 0 2,316 2,316 Paid-out dividends 0 0 0 0 0 -513,009 0 -513,009 Proposed dividends 0 0 0 0 0 403,079 -403,079 0
Total transaction with owners 0 0 2,634 455 0 -109,930 -400,749 -507,590
Total changes in equity 0 0 2,634 455 104,087 -109,930 495,313 492,559
31 December 2018 48,858 117,368 -15,525 1,219 -265 403,079 3,392,492 3,947,226 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 154
P/F BAKKAFROST NOTE 1. ACCOUNTING POLICIES Bakkafrost. The notes to the consolidated accounts provide The financial statements have been prepared in accordance additional information to the parent company’s accounts, with the International Financial Reporting Standards (IFRS), which is not presented here separately. The company’s fi- Notes to the endorsed by the European Union (EU), and the additional nancial statements are presented in DKK. Investments in requirements according to the Faroese Financial Reporting subsidiaries are measured at historic cost, unless there is Financial Statements Act. The accounting policies applied to the consolidated ac- any indication of impairment. In case of impairment, an in- counts have also been applied to the parent company, P/F vestment is written down to fair value.
NOTE 2. SALARIES AND OTHER PERSONNEL EXPENSES
DKK 1,000 2019 2018 Wages and salaries -28,426 -23,966 Share based payments -503 -455 Social security taxes -1,137 -891 Pension expenses -1,301 -1,133 Other benefits -5,904 -3,349 Total payroll expenses -37,271 -29,793
Average number of full-time employees 35 38
REMUNERATION TO SENIOR EXECUTIVES AND AUDITORS paid DKK 45,000 for audit service and DKK 10,000 for tax For details of remuneration paid to senior executives, see advisory. For other services, see note to the consolidated fi- notes to the consolidated financial statements. The company nancial statements. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 155
NOTE 3. NET FINANCIAL ITEMS
DKK 1,000 2019 2018 Interests received from Group companies 7,378 8,465 Other financial income 4,887 2,127 Financial income 12,265 10,592
Interest expenses on long- and short-term loans -9,985 -10,334 Interest expenses on accounts payable 0 -4 Financial expenses -9,985 -10,338
Exchange gain on bond 0 -10,850 Other exchange differences -10,842 6,012 Net currency effects -10,842 -4,838
Other financial expenses -13,124 -3,339 Other financial items -13,124 -3,339
Net financial items -21,686 -7,922 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 156
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Land and Other DKK 1,000 buildings equipment Total Acquisition cost as at 01.01.19 415,081 50,735 465,816 Disposals and scrapping during the year - reclass 0 -597 -597 Acquisitions during the year 859 2,175 3,034 Acquisition cost as at 31.12.19 415,940 52,313 468,253
Accumulated depreciation and write-down as at 01.01.19 -56,218 -17,867 -74,085 Depreciations during the year related to disposals 0 75 75 Depreciations during the year -11,404 -19,325 -30,729 Accumulated depreciation and write-down as at 31.12.19 -67,622 -37,117 -104,739
Net book value as at 31.12.19 348,319 15,196 363,515
Acquisition cost as at 01.01.18 420,460 49,522 469,982 Disposals and scrapping during the year - reclass -9,006 -998 -10,004 Acquisitions during the year 3,627 2,211 5,838 Acquisition cost as at 31.12.18 415,081 50,735 465,816
Accumulated depreciation and write-down as at 01.01.18 -33,209 -12,348 -45,557 Depreciations during the year related to disposals 0 538 538 Depreciations during the year -23,009 -6,058 -29,066 Accumulated depreciation and write-down as at 31.12.18 -56,218 -17,867 -74,085
Net book value as at 31.12.18 358,864 32,868 391,732
A significant part of Bakkafrost’s buildings is located on rented land.
Estimated lifetime Depreciation method Scrap value Land and buildings 15-25 years linear 10% Other operating equipment 3-8 years linear 0% P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 157
NOTE 5. SUBSIDIARIES AND ASSOCIATES
DKK 1,000 2019 2018 Acquisition cost as at 01.01. 1,403,437 1,398,437 Additions during the year 4,008,022 5,000 Acquisition cost as at 31.12. 5,411,459 1,403,437
Re-evaluations as at 01.01. -2,766 -2,766 Re-evaluations as at 31.12. -2,766 -2,766
Net book value as at 31.12. 5,408,693 1,400,671 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 158
Carrying Carrying Cost amount in amount in DKK 1,000 Method Head Voting P/F Bakkafrost P/F Bakkafrost Company Yes/No Office Ownership share 2019 2018 P/F Bakkafrost Processing Yes Glyvrar 100% 100% 258,591 158,591 P/F Bakkafrost Sales Yes Glyvrar 100% 100% 879 879 P/F Bakkafrost Packaging Yes Glyvrar 100% 100% 7,781 7,781 P/F Bakkafrost Farming Yes Glyvrar 100% 100% 314,887 314,887 P/F Havsbrún Yes Glyvrar 100% 100% 908,884 908,884 Bakkafrost UK Ltd Yes Grimsby 100% 100% 4,649 4,649 Bakkafrost Danmark ApS Yes Glyvrar 100% 100% 50 0 The Scottish Salmon Company Plc Yes Edinburgh 95.6% 95.6% 3,907,972 0 P/F Förka Yes Glyvrar 100% 100% 5,000 5,000 Total subsidiaries 5,408,693 1,400,671
Excess dividends Result Result DKK 1,000 Dividends* on result 2019 2018 P/F Bakkafrost Farming 486,391 130,506 616,897 486,461 P/F Bakkafrost Sales 165,586 -29,334 136,252 165,590 P/F Bakkafrost Packaging 7,167 6,011 13,178 7,175 P/F Bakkafrost Processing 0 30,723 30,723 -44,595 P/F Havsbrún 182,046 25,029 207,075 191,104 Bakkafrost UK Ltd. 0 12,059 12,059 6,842 The Scottish Salmon Company Plc** 0 -191,377 -191,377 0 P/F Förka 0 -166 -166 8 Total revenue Group contribution 841,190 -16,549 824,641 812,585
* Dividends from subsidiaries paid out in 2019 ** Since acquisition 8/10-19 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 159
NOTE 6. INVESTMENTS IN STOCKS AND SHARES
DKK 1,000 2019 2018 Acquisition cost as at 01.01. 183 183 Acquisition cost as at 31.12. 183 183
Re-evaluations as at 01.01. 1,581 1,558 Re-evaluations during the year -528 23 Re-evaluations as at 31.12. 1,053 1,581
Net book value as at 31.12. 1,236 1,764
Shares and holdings, in which the Group does not have significant influence. These are valued at cost, since fair value cannot be measured reliably.
NOTE 7. SHARE CAPITAL AND MAJOR SHAREHOLDERS
DKK 1,000 2019 2018 Share capital at 31.12. 48,858 48,858 Emission - increase of share capital 10,285 0 Share capital at 31.12. 59,143 48,858
The share capital is distributed into shares of DKK 1 and multiples thereof. For shareholders holding more than 5% in the Company as at 31 December 2019, see Group Accounts. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 160
NOTE 8. TAX
The tax expense for the year breaks down as follows: DKK 1,000 2019 2018 As Parent company in the Bakkafrost Group, Bakkafrost P/F is the administrating company in the Group Joint Taxation Tax payable -4,284 -21,970 and is liable towards the Faroese Tax Authorities for taxes Change in deferred tax -81 22,160 payable on behalf of its subsidiaries. Tax expense on ordinary profit -4,365 190
Tax in the statement of financial position Deferred tax 11,372 11,347 Tax in the statement of financial position 11,372 11,347
Specification of temporary differences Property, plant and equipment 63,811 63,360 Swaps -633 -320 Total temporary differences 63,178 63,040
Deferred tax liabilities (+) / assets (-) 11,372 11,347
Reconciliation from nominal to actual tax rate Profit before tax 805,195 1,011,772
Expected tax at nominal tax rate (18%) -144,935 -182,119 Permanent differences, including Group contribution without tax effect (18%) 151,414 182,377 Other permanent differences (18%) -10,844 -68 Calculated tax expense -4,365 190
Effective tax rate -0.54% 0.02% P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2019 161
NOTE 9. SECURITY PLEDGES AND CONTINGENT LIABILITIES NOTE 10. RELATED-PARTY TRANSACTIONS
Carrying amount of debt secured by mortgages and pledges: The company operates cash pooling arrangements in the Group. Further, the company extends loans to subsidiaries DKK 1,000 2019 2018 and associates at terms and conditions reflecting prevailing market conditions for corresponding services, allowing a Long-term debt to financial institutions 1,710,672 765,564 margin to cover administration and risk. The company allo- Total 1,710,672 765,564 cates costs for corporate staff services and shared services
to subsidiaries and renting of buildings. Carrying amount of assets pledged as security for recognized debt Property, plant and equipment 363,515 391,732 The total amounts for rent are DKK 21.2 million (2018: DKK Non-current financial assets 5,510,528 1,402,435 19.7 million), allocation of administration etc. DKK 73.6 million (2018: DKK 64.9 million), financial incomes of DKK Receivables 3,691,309 2,816,324 7.4 million (2018: DKK 8.5 million) and financial expenses Total 9,565,352 4,610,491 amounting to DKK 0.0 million (2018: DKK 0.0 million). The principle of arm’s length is used in all transactions with re- lated parties.
The company participates in a Group financing for the Bakka- As part of the guarantees are also any insurance refunds. frost Group. In connection to this, the company has together with other Group companies pledged licenses, property, plant As Parent company in the Bakkafrost Group, Bakkafrost P/F and equipment, shareholdings, inventory and receivables as is the administrating company in the Group Joint Taxation surety for the Group’s total debt to the banks. In addition, the and is liable towards the Faroese Tax Authorities for taxes Group companies have guaranteed severally and jointly for payable on behalf of its subsidiaries. the balance without limitations for each other. APPENDIX ANNUAL REPORT 2019 162
APPENDIX Quarterly financial figures 2017-2019
DKK 1,000 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Operating revenue 853,681 1,206,148 804,150 906,070 851,156 954,316 621,602 750,348 963,709 946,506 996,050 1,604,842
Purchase of goods -273,978 -240,697 -159,166 -210,030 -289,145 -254,324 -177,389 -332,721 -361,540 -366,899 -274,775 -351,707 Change in inventory and biological assets (at cost) 82,501 -137,750 -72,885 -13,272 31,393 6,770 7,117 154,416 34,013 134,296 -34,510 -163,222 Salary and personnel expenses -95,433 -112,729 -85,361 -106,744 -91,183 -87,115 -71,940 -103,518 -114,552 -117,690 -95,713 -184,806 Other operating expenses -189,700 -210,361 -184,755 -198,452 -188,224 -163,172 -158,008 -186,569 -200,153 -199,656 -218,367 -360,611 Depreciation -41,617 -45,454 -50,187 -46,332 -45,775 -48,582 -53,094 -51,447 -53,773 -57,793 -69,304 -129,245
Operational EBIT 335,454 459,157 251,796 331,240 268,222 407,893 168,288 230,509 267,704 338,764 303,381 415,251
Fair value adjustments on biological assets -234,577 54,853 -155,122 -358,694 107,131 34,777 293,459 -239,548 17,871 -65,536 -69,804 -103,098 Onerous contracts 30,132 25,087 12,157 0 0 -6,109 -10,968 17,076 0 0 0 0 Income from associates 2,252 -2,312 -1,037 18,399 2,419 -1,695 -2,459 11,104 6,947 -4,408 7,620 3,653
Revenue tax - FO -30,212 -45,468 -23,712 -20,289 -26,327 -31,411 -14,092 -24,036 -31,994 -32,031 -20,616 -14,487
Earnings before interest and taxes (EBIT) 103,049 491,317 84,082 -29,344 351,445 403,455 434,228 -4,895 260,528 236,789 220,581 301,319
Net interest revenue 190 364 456 385 1,001 621 467 562 111 638 850 3,397 Net interest expenses -7,198 -6,349 -6,814 -6,004 -4,925 -3,019 -2,271 -2,262 -1,865 -2,534 -3,011 -9,704 Net currency effects 1,841 2,277 -8,728 9,260 -13,159 12,347 1,938 293 1,425 -4,760 5,165 -14,500 Other financial expenses -1,162 -1,165 -1,035 -1,538 -1,627 -815 -799 -519 -864 -974 -935 -9,740
Earnings before taxes (EBT) 96,720 486,444 67,961 -27,241 332,735 412,589 433,563 -6,821 259,335 229,159 222,650 270,772
Taxes -17,690 -88,378 -11,746 5,332 -60,434 -73,833 -77,708 201 -46,499 -40,557 -41,715 -51,260
Profit or loss for the period 79,030 398,066 56,215 -21,909 272,301 338,756 355,855 -6,620 212,836 188,602 180,935 219,512
Earnings per share (DKK) 1.63 8.19 1.16 -0.45 5.60 6.96 7.32 -0.14 4.37 3.88 3.67 4.25
Diluted earnings per share (DKK) 1.63 8.19 1.16 -0.45 5.60 6.96 7.32 -0.14 4.37 3.88 3.67 4.25
*Operational EBIT is EBIT before fair value of biomass, onerous contracts and income from associates and revenue tax FO APPENDIX ANNUAL REPORT 2019 163
DKK 1,000 31.3 30.6 30.9 31.12 31.3 30.6 30.9 31.12 31.3 30.6 30.9 31.12 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 ASSETS Non-current assets Intangible assets 376,675 376,675 376,675 376,675 376,675 376,675 388,934 389,745 391,042 390,456 390,456 4,277,587 Property, plant and equipment 2,256,205 2,380,348 2,447,998 2,570,430 2,636,126 2,714,633 2,788,753 2,884,325 3,004,587 3,112,331 3,215,676 4,113,323 Financial assets 61,652 59,340 58,303 76,702 79,121 79,310 101,864 112,766 115,725 111,268 494,006 119,084 Long-term receivables 0 0 0 0 9,200 9,200 9,200 9,200 7,688 3,446 3,446 4,422
Total non-current assets 2,694,532 2,816,363 2,882,976 3,023,807 3,101,122 3,179,818 3,288,751 3,396,036 3,519,042 3,617,501 4,103,584 8,514,416
Current assets Biological assets (biomass) 1,645,053 1,543,687 1,416,990 1,096,664 1,114,678 1,107,275 1,562,940 1,358,462 1,290,944 1,231,495 1,268,948 1,901,729 Inventory 422,203 459,955 352,858 305,845 428,639 478,872 330,851 438,847 562,817 697,073 534,057 548,508
Total inventory 2,067,256 2,003,642 1,769,848 1,402,509 1,543,317 1,586,147 1,893,791 1,797,309 1,853,761 1,928,568 1,803,005 2,450,237
Financial derivatives 0 0 0 0 0 0 0 0 0 0 575 0 Accounts receivable 253,487 325,358 333,423 262,493 244,231 352,437 247,657 269,348 429,608 371,960 356,026 625,993 Other receivables 108,860 134,364 31,845 157,156 75,008 67,591 54,365 22,936 22,444 28,884 35,970 83,113
Total receivables 362,347 459,722 365,268 419,649 319,239 420,028 302,022 292,284 452,052 400,844 392,571 709,106
Cash and cash equivalents 499,174 353,349 347,394 309,551 668,361 284,329 306,167 316,894 341,574 322,694 2,611,554 1,309,546
Total current assets 2,928,777 2,816,713 2,482,510 2,131,709 2,530,917 2,290,504 2,501,980 2,406,487 2,647,387 2,652,106 4,807,130 4,468,889
TOTAL ASSETS 5,623,309 5,633,076 5,365,486 5,155,516 5,632,039 5,470,322 5,790,731 5,802,523 6,166,429 6,269,608 8,910,714 12,983,305 APPENDIX ANNUAL REPORT 2019 164
DKK 1,000 31.3 30.6 30.9 31.12 31.3 30.6 30.9 31.12 31.3 30.6 30.9 31.12 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019
EQUITY AND LIABILITIES Equity Share capital 48,858 48,858 48,858 48,858 48,858 48,858 48,858 48,858 48,858 48,859 53,658 59,294 Other equity 3,578,804 3,549,785 3,612,988 3,577,571 3,842,919 3,676,540 4,033,116 4,028,171 4,240,869 4,035,000 5,984,391 8,153,361 Non-controlling interests 0 0 0 0 0 0 0 0 0 0 0 167,620
Total equity 3,627,662 3,598,643 3,661,846 3,626,429 3,891,777 3,725,398 4,081,974 4,077,029 4,289,727 4,083,859 6,038,049 8,380,275
Non-current liabilities Deferred and other taxes 562,299 647,842 660,664 455,449 538,840 613,025 690,629 534,430 581,371 622,500 672,628 1,122,296 Long-term interest-bearing debt 507,096 476,566 256,475 146,696 770,383 727,474 591,956 812,053 862,944 1,066,266 1,340,073 2,328,231 Long-term leasing debt 0 0 0 0 0 0 0 0 60,816 71,445 71,109 226,479
Total non-current liabilities 1,069,395 1,124,408 917,139 602,145 1,309,223 1,340,678 1,282,585 1,346,483 1,505,131 1,760,211 2,083,810 3,677,006
Current liabilities Financial derivatives 104,899 117,858 110,798 127,255 0 0 630 320 613 0 0 633 Short-term interest-bearing debt 405,650 388,500 395,350 378,300 0 0 0 0 0 0 0 0 Short-term leasing debt 0 0 0 0 0 0 0 0 0 0 0 106,914 Accounts payable and other debt 415,703 403,667 280,353 421,387 431,039 404,246 425,542 378,691 370,958 425,538 788,855 818,477
Total current liabilities 926,252 910,025 786,501 926,942 431,039 404,246 426,172 379,011 371,571 425,538 788,855 926,024
Total liabilities 1,995,647 2,034,433 1,703,640 1,529,087 1,740,262 1,744,924 1,708,757 1,725,494 1,876,702 2,185,749 2,872,665 4,603,030
TOTAL EQUITY AND LIABILITIES 5,623,309 5,633,076 5,365,486 5,155,516 5,632,039 5,470,322 5,790,731 5,802,523 6,166,429 6,269,608 8,910,714 12,983,305 APPENDIX ANNUAL REPORT 2019 165
Q1 2019 Market 3 January 2019: Q4 2018 Trading Update 13 January 2019: CFO Resigns 15 February 2019: New CFO Appointed Announcements 19 February 2019: Q4 2018 Interim Results and Full Year 2018 19 February 2019: Key Information Regarding Cash Dividend for Bakkafrost 22 February 2019: Aut. no. FO 125 Glyvrar Open for Export to Russia Published in 2019 12 March 2019: Annual Report 2018 and Sustainability Report 2018 12 March 2019: Notice to the Annual General Meeting
Q2 2019 Exclusive Invitations, Managements', Board of Directors' and 2 April 2019: Q1 2019 Trading Update large shareholders' notification of trade and notification of 5 April 2019: Protocol from Annual General Meeting trade regarding Bakkafrost's Share Savings Plan. 8 April 2019: Ex Dividend DKK 8.25 8 April 2019: Payment of Dividend in NOK on 26 April 2019 6 May 2019: Q1 2019 Interim Results
Q3 2019 2 July 2019: Q2 2019 Trading Update 20 August 2019: Q2 2019 Interim Results 26 September 2019: Notice of an Extraordinary General Meeting 27 September 2019: Subsequent Offering of New Shares 27 September 2019: Key Information Relating to a Contemplated Subsequent Offering 27 September 2019: Flagging in The Scottish Salmon Company Plc 30 September 2019: Completion of Capital Increase
Q4 2019 2 October 2019: Q3 2019 Trading Update 8 October 2019: Closing of the Acquisition of a Majority of the Shares in The Scottish Salmon Company 10 October 2019: Financial Calendar 18 October 2019: Extraordinary General Meeting 22 October 2019: Capital Increase Completed – Primary Insider Holding Updated 4 November 2019: Update on Mandatory Offer for The Scottish Salmon Company 5 November 2019: Q3 2019 Interim Results 8 November 2019: Mandatory Bid for the Depositary Receipts and Outstanding Common Shares in The Scottish Company Plc (the “Company”) 20 November 2019: Approved Prospectus and Subsequent Offering 5 December 2019: Preliminary Results of the Subsequent Offering 6 December 2019: Final Results of the Subsequent Offering 9 December 2019: Refinancing of Bank Facilities 10 December 2019: Update on the Mandatory Offer for the Depositary Receipts and Outstanding Common Shares in The Scottish Salmon Company Plc 11 December 2019: Settlement Date for the Mandatory Offer for the Depositary Receipts and Common Shares in The Scottish Salmon Company Plc 12 December 2019: Capital Increase Completed, Update on the Number of Shares Listed 16 December 2019: Allocation of Shares from the Subsequent Offer to Primary Insiders 17 December 2019 Settlement Completed for the Mandatory Offer for the Depositary Receipts and Outstanding Common Shares in SSC All market announcements are available on www.bakkafrost.com 3 January 2020: Q4 2019 Trading Update and www.newsweb.no. 13 January 2020: Compulsory Acquisition of Remaining Shares in The Scottish Salmon Company Plc APPENDIX ANNUAL REPORT 2019 166
Financial Calendar 3 April 2020 Annual General Meeting 5 May 2020 Presentation of Q1 2020 for 2020 25 August 2020 Presentation of Q2 2020
10 November 2020 Presentation of Q3 2020
All quarterly presentations will take place at Hotel Continental, Stortingsgaten 24/26, Oslo, Norway,
Annual General Meeting will take place at Bakkavegur 9, Glyvrar, Faroe Islands. Please note that the financial calendar is subject to change.
Any changes will be announced via Oslo Børs, and the Group’s website, www.bakkafrost.com, will be updated accordingly. APPENDIX ANNUAL REPORT 2019 167
AGM: Annual General Meeting LW: Live Weight Glossary ASC: Aquaculture Stewardship Council NIBD: Net Interesting Bearing Debt CGU: Cash-generating Unit PP&E: Property, Plant and Equipment EBT: Earnings Before Tax EBIT: Earnings Before Interest and Tax R&D: Research and Development Costs EBITA: Earnings Before Interest, Amortization and Tax EBITDA: Earnings Before Interest, Tax, Depreciation and SCT: Scotland Amortization SSC: The Scottish Salmon Company Plc EPS: Earnings Per Share
FOF: Fishmeal, Oil and Feed TGW: Tonnes Gutted Weight
FO: Faroe Islands USP: Unique Selling Points
HACCP: Hazard Analyses Critical Control Point VAT: Value Added Tax VAP: Value Added Products; Value Added Production IAS: International Accounting Standards IFRS: International Financial Reporting Standards WACC: Weighted Average Cost of Capital ISO: International Organization for Standardization WFE: Whole Fish Equivalent ANNUAL REPORT 2019 168
Bakkafrost P/F • Bakkavegur 9 • PO Box 221 • FO-625 Glyvrar Tel +298 40 50 00 • Fax +298 40 50 09 • [email protected] • www.bakkafrost.com